What changed in this filing

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Item 1. Financial Statements

2023-11-06 compared with 2023-08-07 · 166 added, 138 removed, 493 unchanged (38% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

September 30,

2023 December 31,

35 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

9 unchanged sentences

Total expenses 428,528 435,756 1,274,235 1,296,495

Other operating income:

(Loss) gain on sale of real estate, net ( 62 ) 38,851 41,836 44,399

(Loss) gain on equity securities, net ( 593 ) ( 10,059 ) 48,837 ( 20,319 )

Gain (loss) on sale of real estate 123 ( 164 ) 41,959 44,235

Gains on equity securities, net — 23,056 48,837 2,737

Interest income 5,626 1,442 11,880 2,735

3 unchanged sentences

(Loss) income before income taxes and equity in earnings of an investee ( 8,234 ) 5,089 11,609 ( 103,691 )

Income tax expense ( 5,247 ) ( 473 ) ( 1,467 ) ( 1,168 )

Income tax benefit (expense) 2,242 ( 390 ) 775 ( 1,558 )

Equity in earnings (losses) of an investee 1,864 2,801 ( 1,840 ) 4,277

1 unchanged sentence

Other comprehensive income:

Equity interest in investee’s unrealized gains 215 46 1 50

Other comprehensive income 215 46 1 50

Equity interest in investee's unrealized (losses) gains ( 245 ) 684 ( 244 ) 734

Other comprehensive (loss) income ( 245 ) 684 ( 244 ) 734

Comprehensive (loss) income $ ( 4,373 ) $ 8,184 $ 10,300 $ ( 100,238 )

29 unchanged sentences

Balance at June 30, 2023 165,483,834 1,655 ( 5,739,565 ) 4,556,650 2,517,951 2,384 1,339,075

Net loss — — — — ( 4,128 ) — ( 4,128 )

Equity in unrealized gains of investees — — — — — ( 245 ) ( 245 )

Common share grants 382,000 4 — 999 — — 1,003

Common share repurchases ( 76,194 ) ( 1 ) — ( 600 ) — — ( 601 )

Common share forfeitures ( 17,600 ) — — ( 58 ) — — ( 58 )

Distributions — — ( 33,096 ) — — — ( 33,096 )

Balance at September 30, 2023 165,772,040 $ 1,658 $ ( 5,772,661 ) $ 4,556,991 $ 2,513,823 $ 2,139 $ 1,301,950

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands, except share data)

Common Shares Additional

Capital Cumulative

Available for

Shareholders Cumulative

Comprehensive

Income (Loss)

Shares Common

Shares Cumulative

Distributions

Balance at December 31, 2021 165,092,333 $ 1,651 $ ( 5,635,342 ) $ 4,552,558 $ 2,635,660 $ 779 $ 1,555,306

12 unchanged sentences

Balance at June 30, 2022 165,138,455 1,651 ( 5,638,644 ) 4,553,848 2,527,188 829 1,444,872

Net income — — — — 7,500 — 7,500

Equity in unrealized gains of investees — — — — — 684 684

Common share grants 384,500 4 — 972 — — 976

Common share repurchases ( 68,371 ) ( 1 ) — ( 458 ) — — ( 459 )

Common share forfeitures ( 1,000 ) — — ( 4 ) — — ( 4 )

Distributions — — ( 1,651 ) — — — ( 1,651 )

Balance at September 30, 2022 165,453,584 $ 1,654 $ ( 5,640,295 ) $ 4,554,358 $ 2,534,688 $ 1,513 $ 1,451,918

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

6 unchanged sentences

Loss on asset impairment, net 9,517 9,720

(Gain) loss on equity securities, net ( 48,837 ) 20,319

Gains on equity securities, net ( 48,837 ) ( 2,737 )

Equity in losses (earnings) of an investee 1,840 ( 4,277 )

20 unchanged sentences

Repayment of senior unsecured notes ( 500,000 ) ( 500,000 )

Borrowings under revolving credit facility — 20,000

Repayments of revolving credit facility — ( 925,000 )

10 unchanged sentences

Restricted cash (1)

17,366 10,891

Total cash and cash equivalents and restricted cash $ 435,528 $ 78,137

(1) Restricted cash consists of amounts escrowed pursuant to the terms of our hotel management agreements to fund capital improvements at our hotels and amounts escrowed at certain of our mortgaged net lease properties.

Supplemental cash flow information:

9 unchanged sentences

Service Properties Trust, or we, us or our, is a real estate investment trust, or REIT, organized on February 7, 1995 under the laws of the State of Maryland, which invests in hotels and service-focused retail net lease properties.

At June 30, 2023, we owned, directly and through our subsidiaries, 221 hotels and 763 net lease properties.

At September 30, 2023, we owned, directly and through our subsidiaries, 221 hotels and 761 net lease properties.

Basis of Presentation

10 unchanged sentences

Actual results could differ from those estimates.

Significant estimates in our condensed consolidated financial statements include the allowance for credit losses, purchase price allocations, useful lives of fixed assets, impairment of real estate and related intangibles.

We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification ™ .

We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE.

The assets of our TRSs were $ 164,718 and $ 142,542 as of June 30, 2023 and December 31, 2022, respectively, and consist primarily of our TRSs’ investment in Sonesta Holdco Corporation’s common stock and amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were $ 107,478 and $ 82,454 as of June 30, 2023 and December 31, 2022, respectively, and consist primarily of amounts payable to certain of our hotel managers.

The assets of our TRSs were $ 163,889 and $ 142,542 as of September 30, 2023 and December 31, 2022, respectively, and consist primarily of our TRSs’ investment in Sonesta Holdco Corporation’s, or Sonesta’s, common stock and amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were $ 104,943 and $ 82,454 as of September 30, 2023 and December 31, 2022, respectively, and consist primarily of amounts payable to certain of our hotel managers.

The assets of our TRSs are available to satisfy our TRSs’ obligations and we have guaranteed certain obligations of our TRSs.

4 unchanged sentences

We recognize rental income from operating leases on a straight line basis over the term of the lease agreements.

We increased rental income by $ 2,767 and reduced rental income by $ 1,712 for the three months ended June 30, 2023 and 2022, respectively, and increased rental income by $ 319 and reduced rental income by $ 3,685 for the six months ended June 30, 2023 and 2022, respectively, to record scheduled rent changes under certain of our leases on a straight line basis.

We increased rental income by $ 6,548 and reduced rental income by $ 1,845 for the three months ended September 30, 2023 and 2022, respectively, and increased rental income by $ 6,867 and reduced rental income by $ 5,530 for the nine months ended September 30, 2023 and 2022, respectively, to record scheduled rent changes under certain of our leases on a straight line basis.

Due from related persons included $ 7,522 of straight line rent receivables related to our TravelCenters of America Inc., or TA, leases at December 31, 2022.

TA was no longer a related party as of June 30, 2023.

Other assets, net, includes $ 40,887 and $ 32,247 of straight line rent receivables at June 30, 2023 and December 31, 2022, respectively.

TA was no longer a related person as of September 30, 2023.

Other assets, net, includes $ 48,986 and $ 32,247 of straight line rent receivables at September 30, 2023 and December 31, 2022, respectively.

See Notes 5 and 10 for further information regarding our TA leases.

4 unchanged sentences

We determine percentage rent due to us under our leases monthly, quarterly or annually, as applicable, depending on the specific lease terms, and recognize it when all contingencies are met and the rent is earned.

We recorded percentage rent of $ 4,449 and $ 385 for the three months ended June 30, 2023 and 2022, respectively, and $ 4,792 and $ 1,141 for the six months ended June 30, 2023 and 2022, respectively.

We had no deferred estimated percentage rent for either the three or six months ended June 30, 2023.

We had deferred estimated percentage rent of $ 2,839 and $ 5,338 for the three and six months ended June 30, 2022, respectively.

We recorded percentage rent of $ 591 and $ 2,279 for the three months ended September 30, 2023 and 2022, respectively, and $ 5,383 and $ 3,421 for the nine months ended September 30, 2023 and 2022, respectively.

We had no deferred estimated percentage rent for either the three or nine months ended September 30, 2023.

We had deferred estimated percentage rent of $ 830 and $ 6,168 for the three and nine months ended September 30, 2022, respectively.

See Note 5 for further information on this deferred estimated percentage rent.

3 unchanged sentences

Unvested share awards, and the related impact on earnings, are considered when calculating diluted earnings per share.

For the three and six months ended June 30, 2023 and 2022, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

For the three and nine months ended September 30, 2023 and 2022, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

Real Estate Properties

At June 30, 2023, we owned 221 hotels with an aggregate of 37,777 rooms or suites and 763 service oriented retail properties with an aggregate of 13,469,478 square feet that are primarily subject to “triple net” leases, or net leases where the tenant is generally responsible for payment of operating expenses and capital expenditures of the property during the lease term.

Our properties had an aggregate undepreciated carrying value of $ 9,694,893 , including $ 13,897 related to properties classified as held for sale as of June 30, 2023.

We made capital expenditures at certain of our properties of $ 65,025 during the six months ended June 30, 2023.

At September 30, 2023, we owned 221 hotels with an aggregate of 37,777 rooms or suites and 761 service oriented retail properties with an aggregate of 13,430,345 square feet that are primarily subject to “triple net” leases, or net leases where the tenant is generally responsible for payment of operating expenses and capital expenditures of the property during the lease term.

Our properties had an aggregate undepreciated carrying value of $ 9,733,131 , including $ 14,328 related to properties classified as held for sale as of September 30, 2023.

We made capital expenditures at certain of our properties of $ 129,742 during the nine months ended September 30, 2023.

On June 1, 2023, we acquired a 250 -room hotel located in Miami Beach, Florida for $ 165,400 , excluding closing costs of $ 466 .

2 unchanged sentences

June 1, 2023 Miami Beach, FL Hotel $ 165,866 $ 83,200 $ 77,987 $ 4,679

During the six months ended June 30, 2023, we sold 20 properties for an aggregate sales price of $ 157,850 , excluding closing costs, as presented in the table below.

During the nine months ended September 30, 2023, we sold 22 properties for an aggregate sales price of $ 161,575 , excluding closing costs, as presented in the table below.

The sales of these properties do not represent significant dispositions, nor do they represent a strategic shift.

1 unchanged sentence

Quarter Sold Property Type Number of Properties Rooms or Suites / Square Footage Gross Sales Price Gain / (Loss) on Sale

Properties sold during the six months ended June 30, 2023

Properties sold during the nine months ended September 30, 2023

Q1 2023 Hotels 18 2,526 $ 157,230 $ 41,898

Q2 2023 Net Lease 2 2,384 620 ( 62 )

Q3 2023 Net Lease 2 39,133 3,725 123

22 2,526 / 41,517

$ 161,575 $ 41,959

As of June 30, 2023, we had 18 net lease properties with 342,499 square feet and an aggregate carrying value of $ 13,897 classified as held for sale.

As of September 30, 2023, we had 18 net lease properties with 246,952 square feet and an aggregate carrying value of $ 13,408 classified as held for sale.

From October 1, 2023 through November 3, 2023, we sold two net lease properties with an aggregate 9,537 square feet and carrying value of $ 1,594 for an aggregate sales price of $ 1,190 .

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

As of August 4, 2023, we have entered into agreements to sell two net lease properties with 39,133 square feet for an aggregate sales price of $ 3,725 .

As of November 3, 2023, we have entered into agreements to sell six net lease properties with an aggregate 82,159 square feet for an aggregate sales price of $ 6,093 .

These pending sales are subject to conditions;

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

We continue to market 20 net lease properties with 358,419 square feet for sale.

accordingly, we cannot be sure that we will complete these sales, that these sales will not be delayed or that the terms will not change.

We continue to market 11 net lease properties with an aggregate 162,676 square feet for sale.

We expect the sales of these net lease properties to be completed by the end of the first quarter of 2024.

1 unchanged sentence

Management Agreements and Leases

As of June 30, 2023, we owned 221 hotels which were included in four operating agreements and 763 service oriented retail properties net leased to 173 tenants.

As of September 30, 2023, we owned 221 hotels which were included in four operating agreements and 761 service oriented retail properties net leased to 174 tenants.

We do not operate any of our properties.

At June 30, 2023, all 221 of our hotels were operated by subsidiaries of the following companies:

Sonesta Holdco Corporation, or Sonesta ( 195 hotels), Hyatt Hotels Corporation, or Hyatt ( 17 hotels), Radisson Hospitality, Inc., or Radisson ( eight hotels), and InterContinental Hotels Group, plc, or IHG ( one hotel).

At June 30, 2023, we owned 763 net lease properties with 173 tenants, including 176 travel centers leased to TA, our largest tenant.

At September 30, 2023, all 221 of our hotels were operated by subsidiaries of the following companies:

Sonesta ( 195 hotels), Hyatt Hotels Corporation, or Hyatt ( 17 hotels), Radisson Hospitality, Inc., or Radisson ( eight hotels), and InterContinental Hotels Group, plc, or IHG ( one hotel).

At September 30, 2023, we owned 761 net lease properties with 174 tenants, including 176 travel centers leased to TA, our largest tenant.

Hereinafter, these companies are sometimes referred to as our managers and/or tenants, or collectively, operators.

1 unchanged sentence

Sonesta agreement.

As of June 30, 2023, Sonesta managed 40 of our full-service hotels, 111 of our extended stay hotels and 44 of our select service hotels pursuant to management agreements for all of the hotels.

As of September 30, 2023, Sonesta managed 40 of our full-service hotels, 111 of our extended stay hotels, and 44 of our select service hotels pursuant to management agreements for all of the hotels, or our Sonesta agreements.

The hotels Sonesta managed for us comprised approximately 49.6 % of our total historical real estate investments.

We acquired one hotel in June 2023, and we and Sonesta added this hotel to our Sonesta agreement.

We sold 65 Sonesta branded hotels during the calendar year ended December 31, 2022, and we sold two Sonesta branded hotels during the six months ended June 30, 2023.

We sold 65 Sonesta branded hotels during the calendar year ended December 31, 2022, and we sold two Sonesta branded hotels during the nine months ended September 30, 2023.

See Note 4 for further information regarding our 2023 acquisition and disposition activities.

Our Sonesta agreement provides that we are paid an annual owner’s priority return if gross revenues of the hotels, after payment of hotel operating expenses and management and related fees (other than Sonesta’s incentive fee, if applicable), are sufficient to do so.

The Sonesta agreement further provides that we are paid an additional return equal to 80 % of the operating profits, as defined therein, after reimbursing owner or manager advances, funding the reserve established for the regular refurbishment of our hotels, or FF&E reserves, and paying Sonesta’s incentive fee, if applicable.

We realized returns of $ 84,899 and $ 77,424 during the three months ended June 30, 2023 and 2022, respectively, and $ 115,136 and $ 80,452 during the six months ended June 30, 2023 and 2022, respectively, under our Sonesta agreement.

The Sonesta agreement further provides that we are paid an additional return equal to 80 % of the operating profits, as defined therein, after paying the owner’s priority return, reimbursing owner or manager advances, funding the reserve established for the regular refurbishment of our hotels, or FF&E reserves, and paying Sonesta’s incentive fee, if applicable.

We realized returns of $ 67,868 and $ 67,765 during the three months ended September 30, 2023 and 2022, respectively, and $ 183,004 and $ 148,217 during the nine months ended September 30, 2023 and 2022, respectively, under our Sonesta agreement.

Our Sonesta agreement requires us to fund capital expenditures that we approve at the hotels.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 54,209 and $ 33,226 during the six months ended June 30, 2023 and 2022, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 3,253 and $ 1,994 , respectively.

Our annual priority return under our Sonesta agreement as of June 30, 2023 was $ 346,894 .

We owed Sonesta $ 4,972 and $ 8,889 for capital expenditures and other reimbursements at June 30, 2023 and December 31, 2022, respectively.

Sonesta owed us $ 30,017 and $ 2,975 in owner’s priority returns and other amounts as of June 30, 2023 and December 31, 2022, respectively.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 97,745 and $ 56,297 during the nine months ended September 30, 2023 and 2022, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 5,864 and $ 3,378 , respectively.

Our annual priority return under our Sonesta agreement as of September 30, 2023 was $ 349,521 .

We owed Sonesta $ 7,710 and $ 8,889 for capital expenditures and other reimbursements at September 30, 2023 and December 31, 2022, respectively.

Sonesta owed us $ 28,384 and $ 2,975 in owner’s priority returns and other amounts as of September 30, 2023 and December 31, 2022, respectively.

Amounts due from Sonesta are included in due from related persons and amounts owed to Sonesta are included in due to related persons in our condensed consolidated balance sheets.

Our agreement with Sonesta requires that 5 % of the hotel gross revenues be escrowed for future capital expenditures as FF&E reserves, subject to available cash flows after payment of the owner’s priority returns due to us.

No FF&E escrow deposits were required during either of the three or six months ended June 30, 2023 or 2022.

Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing programs and third-party reservation transmission fees of $ 32,121 and $ 32,682 for the three months ended June 30, 2023 and 2022, respectively, and $ 58,257 and $ 56,479 for the six months ended June 30, 2023 and 2022, respectively.

These fees and costs are included in hotel operating expenses in our condensed consolidated statements of comprehensive income (loss).

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 341 and $ 269 for the three months ended June 30, 2023 and 2022, respectively, and $ 548 and $ 556 for the six months ended June 30, 2023 and 2022, respectively, which amounts have been capitalized in our condensed consolidated balance sheets and are depreciated over the estimated useful lives of the related capital assets.

No FF&E escrow deposits were required during either of the three or nine months ended September 30, 2023 or 2022.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing programs and third-party reservation transmission fees of $ 32,055 and $ 31,136 for the three months ended September 30, 2023 and 2022, respectively, and $ 90,312 and $ 87,615 for the nine months ended September 30, 2023 and 2022, respectively.

These fees and costs are included in hotel operating expenses in our condensed consolidated statements of comprehensive income (loss).

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 459 and $ 284 for the three months ended September 30, 2023 and 2022, respectively, and $ 1,007 and $ 840 for the nine months ended September 30, 2023 and 2022, respectively, which amounts have been capitalized in our condensed consolidated balance sheets and are depreciated over the estimated useful lives of the related capital assets.

We are required to maintain working capital for each of our hotels managed by Sonesta and have advanced a fixed amount based on the number of rooms in each hotel to meet the cash needs for hotel operations.

As of June 30, 2023 and December 31, 2022, we had advanced $ 48,490 and $ 48,580 , respectively, of initial working capital to Sonesta net of any working capital returned to us on termination of the applicable management agreements in connection with hotels we have sold.

As of September 30, 2023 and December 31, 2022, we had advanced $ 48,490 and $ 48,580 , respectively, of initial working capital to Sonesta net of any working capital returned to us on termination of the applicable management agreements in connection with hotels we have sold.

These amounts are included in other assets in our condensed consolidated balance sheets.

2 unchanged sentences

Hyatt agreement.

As of June 30, 2023, Hyatt managed 17 of our select service hotels pursuant to a portfolio management agreement that expires on March 31, 2031, or our Hyatt agreement, and provides that, as of June 30, 2023, we are to be paid an annual owner’s priority return of $ 12,781 .

As of September 30, 2023, Hyatt managed 17 of our select service hotels pursuant to a portfolio management agreement that expires on March 31, 2031, or our Hyatt agreement, and provides that, as of September 30, 2023, we are to be paid an annual owner’s priority return of $ 13,813 .

Any returns we receive from Hyatt are currently limited to the hotels’ available cash flows, if any, after payment of operating expenses.

Hyatt has provided us with a $ 30,000 limited guarantee for 75 % of the aggregate annual owner's priority returns due to us that will become effective upon substantial completion of planned renovations of the hotels which we currently expect to occur by the end of the first quarter of 2024.

We realized returns of $ 4,388 and $ 4,525 during the three months ended June 30, 2023 and 2022, respectively, and $ 6,711 and $ 6,388 for the six months ended June 30, 2023 and 2022, respectively, under our Hyatt agreement.

During the six months ended June 30, 2023 and 2022, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 454 and $ 11,936 , respectively, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 27 and $ 716 , respectively.

We realized returns of $ 2,974 and $ 3,116 during the three months ended September 30, 2023 and 2022, respectively, and $ 9,685 and $ 9,504 for the nine months ended September 30, 2023 and 2022, respectively, under our Hyatt agreement.

During the nine months ended September 30, 2023 and 2022, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 17,652 and $ 12,611 , respectively, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 1,059 and $ 757 , respectively.

Radisson agreement .

As of June 30, 2023, Radisson managed eight of our full service hotels pursuant to a portfolio management agreement that expires on July 31, 2031, or our Radisson agreement, and provides that we are to be paid an annual owner’s priority return of $ 10,691 .

As of September 30, 2023, Radisson managed eight of our full service hotels pursuant to a portfolio management agreement that expires on July 31, 2031, or our Radisson agreement, and provides that we are to be paid an annual owner’s priority return of $ 10,820 .

Radisson has provided us with a $ 22,000 limited guarantee for 75 % of the aggregate annual owner's priority returns due to us that became effective on January 1, 2023, subject to adjustment for planned renovations of certain of the hotels we currently expect to occur by the end of 2023.

We realized returns of $ 1,799 and $ 3,020 during the three months ended June 30, 2023 and 2022, respectively, and $ 3,364 and $ 3,474 for the six months ended June 30, 2023 and 2022, respectively, under our Radisson agreement.

During the six months ended June 30, 2023, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for the period, and Radisson made $ 140 of quarterly guaranty payments to cover the shortfall.

The available balance of the guaranty was $ 21,860 as of June 30, 2023.

During the six months ended June 30, 2023 and 2022, we incurred capital expenditures of $ 4,749 and $ 298 , respectively, for the hotels included in our Radisson agreement which resulted in an aggregate increase in our contractual owner’s priority returns of $ 285 and $ 18 , respectively.

We realized returns of $ 2,364 and $ 2,873 during the three months ended September 30, 2023 and 2022, respectively, and $ 5,728 and $ 6,347 for the nine months ended September 30, 2023 and 2022, respectively, under our Radisson agreement.

During the nine months ended September 30, 2023, the hotels under this agreement generated cash flows that exceeded the guaranteed owner’s priority level due to us for the period.

The available balance of the guaranty was $ 22,000 as of September 30, 2023.

During the nine months ended September 30, 2023 and 2022, we incurred capital expenditures of $ 6,898 and $ 2,433 , respectively, for the hotels included in our Radisson agreement which resulted in an aggregate increase in our contractual owner’s priority returns of $ 414 and $ 146 , respectively.

Marriott agreement .

As of June 30, 2023, we sold all 16 hotels previously managed by Marriott International, Inc., or Marriott.

We realized net operating losses of $ 2,762 during the six months ended June 30, 2023 and realized returns of $ 3,842 and $ 3,593 during the three and six months ended June 30, 2022, respectively, under our management agreement with Marriott.

We did not incur capital expenditures for any of the hotels included in our management agreement with Marriott during the six months ended June 30, 2023 or 2022.

As of September 30, 2023, we sold all 16 hotels previously managed by Marriott International, Inc., or Marriott.

We realized net operating losses of $ 2,762 during the nine months ended September 30, 2023 and realized returns of $ 3,818 and $ 7,411 during the three and nine months ended September 30, 2022, respectively, under our management agreement with Marriott.

We did not incur capital expenditures for any of the hotels included in our management agreement with Marriott during the nine months ended September 30, 2023 or 2022.

IHG agreement.

Our management agreement with IHG for one hotel expires on January 31, 2026.

We realized returns of $ 1,517 and $ 1,208 during the three months ended June 30, 2023 and 2022, respectively, and $ 2,280 and $ 1,337 for the six months ended June 30, 2023 and 2022, respectively, under our management agreement with IHG.

We realized returns of $ 1,482 and $ 1,273 during the three months ended September 30, 2023 and 2022, respectively, and $ 3,762 and $ 2,610 for the nine months ended September 30, 2023 and 2022, respectively, under our management agreement with IHG.

Any returns we receive from IHG are limited to the hotel’s available cash flows, if any, after payment of operating expenses.

Net lease portfolio

As of June 30, 2023, we owned 763 service oriented retail net lease properties with 13,469,478 square feet with leases requiring annual minimum rents of $ 375,781 with a weighted (by annual minimum rents) average remaining lease term of 9.3 years.

Our net lease properties were 96.1 % occupied and leased by 173 tenants operating under 134 brands in 21 distinct industries.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

TA is our largest tenant, representing 29.2 % of our total historical real estate investments as of June 30, 2023.

We lease to TA a total of 176 travel centers under five leases that expire in 2033, subject to TA’s right to extend those leases, and require annual minimum rents of $ 254,000 as of June 30, 2023.

We recognized rental income from our TA leases of $ 65,260 and $ 62,186 for the three months ended June 30, 2023 and 2022, respectively, and $ 127,401 and $ 124,269 for the six months ended June 30, 2023 and 2022, respectively.

Rental income was increased by $ 2,555 and reduced by $ 3,241 for the three months ended June 30, 2023 and 2022, respectively, and reduced by $ 686 and $ 6,585 for the six months ended June 30, 2023 and 2022, respectively, to record the scheduled rent changes on a straight line basis.

Net lease portfolio

As of September 30, 2023, we owned 761 service oriented retail net lease properties with 13,430,345 square feet with leases requiring annual minimum rents of $ 374,445 with a weighted (by annual minimum rents) average remaining lease term of 9.1 years.

Our net lease properties were 95.8 % occupied and leased by 174 tenants operating under 135 brands in 21 distinct industries.

TA is our largest tenant, representing 29.0 % of our total historical real estate investments as of September 30, 2023.

We lease to TA a total of 176 travel centers under five leases that expire in 2033, or our TA leases, subject to TA’s right to extend those leases, and require annual minimum rents of $ 254,000 as of September 30, 2023.

We recognized rental income from our TA leases of $ 67,809 and $ 64,011 for the three months ended September 30, 2023 and 2022, respectively, and $ 195,210 and $ 188,280 for the nine months ended September 30, 2023 and 2022, respectively.

Rental income was increased by $ 4,309 and reduced by $ 3,240 for the three months ended September 30, 2023 and 2022, respectively, and reduced by $ 3,623 and $ 9,825 for the nine months ended September 30, 2023 and 2022, respectively, to record the scheduled rent changes on a straight line basis.

TA was required to pay us previously deferred rent obligations in quarterly installments of $ 4,404 through January 31, 2023.

TA paid us the final quarterly installment owed to us in January 2023.

As of June 30, 2023 and December 31, 2022, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 9,076 and $ 30,764 , respectively, included in other assets, net and due from related persons, respectively, in our condensed consolidated balance sheets.

As of September 30, 2023 and December 31, 2022, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 13,891 and $ 30,764 , respectively, included in other assets, net and due from related persons, respectively, in our condensed consolidated balance sheets.

Until May 15, 2023, our TA leases required TA to pay us percentage rent based upon increases in certain sales.

We recognized percentage rent due under our TA leases as rental income when all contingencies were met.

We recognized percentage rent of $ 3,507 during the three and six months ended June 30, 2023 under our TA leases.

We did not recognize any percentage rent for the three or six months ended June 30, 2022.

We had no deferred percentage rent for either the three or six months ended June 30, 2023.

We had aggregate deferred percentage rent of $ 2,839 and $ 5,338 during the three and six months ended June 30, 2022, respectively, under our TA leases.

We recognized percentage rent of $ 3,507 during the nine months ended September 30, 2023 and $ 1,861 during the three and nine months ended September 30, 2022 under our TA leases.

We had no deferred percentage rent for either the three or nine months ended September 30, 2023.

We had aggregate deferred percentage rent of $ 831 and $ 6,168 during the three and nine months ended September 30, 2022, respectively, under our TA leases.

On May 15, 2023, BP Products North America Inc., or BP, acquired TA pursuant to a merger, or the TA Merger, for $ 86.00 per share in cash.

13 unchanged sentences

Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term.

We recognized rental income from our net lease properties (excluding TA) of $ 34,192 and $ 34,607 for the three months ended June 30, 2023 and 2022, respectively, which included $ 212 and $ 1,530 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis, and $ 66,464 and $ 68,927 for the six months ended June 30, 2023 and 2022, respectively, which included $ 1,005 and $ 2,901 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis.

We recognized rental income from our net lease properties (excluding TA) of $ 33,490 and $ 33,787 for the three months ended September 30, 2023 and 2022, respectively, which included $ 2,239 and $ 1,395 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis, and $ 99,954 and $ 102,669 for the nine months ended September 30, 2023 and 2022, respectively, which included $ 3,244 and $ 4,296 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis.

SERVICE PROPERTIES TRUST

6 unchanged sentences

We recognize all changes in the collectability assessment for an operating lease as an adjustment to rental income.

We recorded reserves for uncollectable amounts and decreased rental income by $ 1,813 and $ 5,353 for the three and six months ended June 30, 2023, respectively, based on our assessment of the collectability of rents.

We reduced our reserves for uncollectable amounts and increased rental income by $ 160 and $ 667 for the three and six months ended June 30, 2022, respectively, based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $ 11,187 and $ 7,697 as of June 30, 2023 and December 31, 2022, respectively, included in other assets in our condensed consolidated balance sheets.

We reduced reserves for uncollectable amounts and increased rental income by $ 1,041 for the three months ended September 30, 2023 and increased reserves and reduced rental income by $ 4,312 for the nine months ended September 30, 2023, based on our assessment of the collectability of rents.

We increased our reserves for uncollectable amounts and reduced rental income by $ 352 for the three months ended September 30, 2022 and reduced our reserves and increased rental income by $ 315 for the nine months ended September 30, 2022, based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $ 2,825 and $ 7,697 as of September 30, 2023 and December 31, 2022, respectively, included in other assets in our condensed consolidated balance sheets.

Other Investments

Equity method investment

As of both June 30, 2023 and December 31, 2022, we owned approximately 34 % of Sonesta’s outstanding common stock.

As of both September 30, 2023 and December 31, 2022, we owned approximately 34 % of Sonesta’s outstanding common stock.

We account for our 34 % non-controlling interest in Sonesta under the equity method of accounting.

As of June 30, 2023 and December 31, 2022, our investment in Sonesta had a carrying value of $ 108,913 and $ 112,617 , respectively.

As of September 30, 2023 and December 31, 2022, our investment in Sonesta had a carrying value of $ 110,533 and $ 112,617 , respectively.

The cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total stockholders’ equity book value on the date of acquisition of our initial equity interest in Sonesta, February 27, 2020, by an aggregate of $ 8,000 .

As required under GAAP, we are amortizing this difference to equity in earnings of an investee over 31 years, the weighted average remaining useful life of the real estate assets and intangible assets and liabilities owned by Sonesta as of the date of our acquisition.

We recorded amortization of the basis difference of $ 65 in each of the three months ended June 30, 2023 and 2022 and $ 130 in each of the six months ended June 30, 2023 and 2022.

We recognized income of $ 582 and $ 2,258 related to our investment in Sonesta for the three months ended June 30, 2023 and 2022, respectively, and losses of $ 3,574 and income of $ 1,606 for the six months ended June 30, 2023 and 2022, respectively.

We recorded amortization of the basis difference of $ 65 in each of the three months ended September 30, 2023 and 2022 and $ 195 in each of the nine months ended September 30, 2023 and 2022.

We recognized income of $ 1,864 and $ 2,866 related to our investment in Sonesta for the three months ended September 30, 2023 and 2022, respectively, and losses of $ 1,840 and income of $ 4,472 for the nine months ended September 30, 2023 and 2022, respectively.

These amounts are included in equity in earnings (losses) of an investee in our condensed consolidated statements of comprehensive income (loss).

1 unchanged sentence

This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheet and is being amortized on a straight line basis through January 31, 2037, as a reduction to hotel operating expenses in our condensed consolidated statements of comprehensive income (loss).

We reduced hotel operating expenses by $ 621 for each of the three months ended June 30, 2023 and 2022, respectively, and $ 1,242 for each of the six months ended June 30, 2023 and 2022, respectively, for amortization of this liability.

As of June 30, 2023 and December 31, 2022, the unamortized balance of this liability was $ 33,721 and $ 34,963 , respectively.

We reduced hotel operating expenses by $ 621 for each of the three months ended September 30, 2023 and 2022, respectively, and $ 1,863 for each of the nine months ended September 30, 2023 and 2022, respectively, for amortization of this liability.

As of September 30, 2023 and December 31, 2022, the unamortized balance of this liability was $ 33,100 and $ 34,963 , respectively.

In 2022, we funded an aggregate of $ 45,470 of capital contributions to Sonesta related to Sonesta’s acquisition of a portfolio of four hotels located in New York, New York.

3 unchanged sentences

We received $ 86.00 in cash for each TA common share that we owned, or a total of $ 101,892 , as a result of the TA Merger.

As of May 15, 2023 and December 31, 2022 , we owned 1,184,797 shares of TA common stock, representing approximately 7.8 % of TA’s outstanding shares of common stock, and reported them at fair value based on quoted market prices (Level 1 inputs).

Our TA shares had a carrying value of $ 101,893 and $ 53,055 as of May 15, 2023 and December 31, 2022, respectively.

Our historical cost basis for these shares was $ 24,418 as of both May 15, 2023 and December 31, 2022.

We recorded losses of $ 593 and $ 10,059 for the three months ended June 30, 2023 and 2022, respectively, and a gain of $ 48,837 and a loss of $ 20,319 for the six months ended June 30, 2023 and 2022, respectively, to adjust the carrying value of our investment in shares of TA common stock to its fair value.

See Notes 5 and 10 for further information regarding our relationships, agreements and transactions with TA, and Note 13 for further information regarding our investment in TA.

We recorded gains of $ 23,056 for the three months ended September 30, 2022, and gains of $ 48,837 and $ 2,737 for the nine months ended September 30, 2023 and 2022, respectively, to adjust the carrying value of our investment in shares of TA common stock to its fair value.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

Our principal debt obligations at June 30, 2023 were:

See Notes 5 and 10 for further information regarding our relationships, agreements and transactions with TA.

Our principal debt obligations at September 30, 2023 were:

(1) $ 5,200,000 aggregate outstanding principal amount of senior unsecured notes;

and (2) $ 609,058 aggregate outstanding principal amount of net lease mortgage notes.

We had no amounts outstanding under our revolving credit facility as of June 30, 2023.

We had no amounts outstanding under our revolving credit facility as of September 30, 2023.

On June 29, 2023, we entered into an amended and restated credit agreement, or our credit agreement, governing our $ 650,000 secured revolving credit facility.

This new facility replaces our prior $ 800,000 secured revolving credit facility, which had a maturity date of July 15, 2023, and is available for general business purposes, including acquisitions.

This new facility replaced our prior $ 800,000 secured revolving credit facility, which had a maturity date of July 15, 2023, and is available for general business purposes, including acquisitions.

We can borrow, repay, and reborrow funds available under the new facility until maturity and no principal repayments are due until maturity.

The maturity date of the new facility is June 29, 2027, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to further extend the stated maturity date of the new facility by two additional six-month periods.

Interest payable on drawings under the new facility is based on the secured overnight financing rate, or SOFR, plus a margin ranging from 1.50 % to 3.00 % based on our leverage ratio, as defined in our credit agreement, which was 2.50 % as of June 30, 2023.

Our obligations under the new facility are secured by 69 properties, including 66 hotels and three net lease properties, with an undepreciated book value of $ 1,520,935 as of June 30, 2023.

Our obligations under the new facility are secured by 69 properties, including 66 hotels and three net lease properties, with an undepreciated book value of $ 1,544,227 as of September 30, 2023.

We also pay unused commitment fees of 20 to 30 basis points per annum on the total amount of lending commitments under our revolving credit facility based on amounts outstanding.

As of June 30, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.64 %.

We had no borrowings outstanding under either the new or prior facility for either the three or six months ended June 30, 2023.

The weighted average annual interest rate for borrowings under the new and prior facility was 3.25 % and 3.05 %, respectively, for the three and six months ended June 30, 2022.

As a result of the amendment and restatement, we recorded a loss on early extinguishment of debt of $ 238 during the three and six months ended June 30, 2023, which represented the write-off of certain unamortized issuance costs.

As of September 30, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.93 %.

We had no borrowings outstanding under either the new or prior facility for either the three or nine months ended September 30, 2023.

The weighted average annual interest rate for borrowings under the prior facility was 4.37 % and 3.36 %, respectively, for the three and nine months ended September 30, 2022.

As a result of the amendment and restatement, we recorded a loss on early extinguishment of debt of $ 238 during the nine months ended September 30, 2023, which represented the write-off of certain unamortized issuance costs.

Our debt agreements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR, ceasing to act as our business manager.

Our debt agreements also contain covenants, including those that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios.

We believe we were in compliance with the terms and conditions of our debt agreements as of June 30, 2023.

We believe we were in compliance with the terms and conditions of our debt agreements as of September 30, 2023.

On February 10, 2023, our wholly owned, special purpose bankruptcy remote, indirect subsidiary, SVC ABS LLC, or the Issuer, issued $ 610,200 in aggregate principal amount of net lease mortgage notes.

8 unchanged sentences

The notes are non-recourse and are secured by 308 net lease retail properties owned by the Issuer.

The current leases relating to those properties require annual minimum rents of $ 65,490 , and had a gross book value of $ 754,916 as of June 30, 2023.

The current leases relating to those properties require annual minimum rents of $ 65,137 and had a gross book value of $ 754,966 as of September 30, 2023.

Our net lease mortgage notes are summarized below:

Note Class Principal Outstanding as of June 30, 2023

Note Class Principal Outstanding as of September 30, 2023

Coupon Rate Term (in years) Maturity

4 unchanged sentences

On March 8, 2023, we redeemed at par all of our outstanding 4.50 % senior notes due in 2023 for a redemption price equal to the principal amount of $ 500,000 , plus accrued and unpaid interest.

As a result of the redemption, we recorded a loss on early extinguishment of debt of $ 44 in the six months ended June 30, 2023, which represented the unamortized issuance costs related to these notes.

As a result of the redemption, we recorded a loss on early extinguishment of debt of $ 44 in the nine months ended September 30, 2023, which represented the unamortized issuance costs related to these notes.

Shareholders' Equity

On June 13, 2023, in accordance with our Trustee compensation arrangements, we awarded 7,000 of our common shares, valued at $ 8.96 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day to each of our eight Trustees as part of their annual compensation.

On September 13, 2023, we awarded under our equity compensation plan an aggregate of 382,000 of our common shares, valued at $ 7.72 per common share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other officers and employees of RMR.

Share Purchases

During the six months ended June 30, 2023, we purchased an aggregate of 21,732 of our common shares, valued at a weighted average share price of $ 9.03 per share, from certain former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

During the nine months ended September 30, 2023, we purchased an aggregate of 97,926 of our common shares, valued at a weighted average share price of $ 8.14 per share, from our officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions

During the six months ended June 30, 2023, we declared and paid regular quarterly distributions to common shareholders as follows:

During the nine months ended September 30, 2023, we declared and paid regular quarterly distributions to common shareholders as follows:

Declaration Date Record Date Paid Date Dividend Per Common Share Total Distributions

1 unchanged sentence

April 13, 2023 April 24, 2023 May 18, 2023 0.20 33,089

July 13, 2023 July 24, 2023 August 17, 2023 0.20 33,096

$ 0.60 $ 99,275

On July 13, 2023, we declared a regular quarterly distribution to common shareholders of record as of July 24, 2023 of $ 0.20 per share, or approximately $ 33,089 .

We expect to pay this amount on or about August 17, 2023.

On October 12, 2023, we declared a regular quarterly distribution to common shareholders of record as of October 23, 2023 of $ 0.20 per share, or approximately $ 33,154 .

We expect to pay this amount on or about November 16, 2023.

SERVICE PROPERTIES TRUST

7 unchanged sentences

Effective as of the completion of the TA Merger, we and RMR amended our property management agreement to include properties that we lease to TA.

We recognized net business management fees payable to RMR of $ 8,287 and $ 9,305 for the three months ended June 30, 2023 and 2022, respectively, and $ 16,672 and $ 19,183 for the six months ended June 30, 2023 and 2022, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2023 and 2022, no incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2023 or 2022.

We recognized net business management fees payable to RMR of $ 8,287 and $ 8,272 for the three months ended September 30, 2023 and 2022, respectively, and $ 24,959 and $ 27,455 for the nine months ended September 30, 2023 and 2022, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of September 30, 2023 and 2022, no incentive fees are included in the net business management fees we recognized for the three and nine months ended September 30, 2023 or 2022.

The actual amount of annual incentive fees for 2023, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2023, and will be payable in January 2024.

1 unchanged sentence

We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

We recognized property management and construction supervision fees payable to RMR of $ 1,846 and $ 1,235 for the three months ended June 30, 2023 and 2022, respectively, and $ 3,258 and $ 2,898 for the six months ended June 30, 2023 and 2022, respectively.

Of those amounts, for the three months ended June 30, 2023 and 2022, $ 937 and $ 1,014 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 909 and $ 221 , respectively, of construction and supervision fees were capitalized for the three months ended June 30, 2023 and 2022.

We recognized property management and construction supervision fees payable to RMR of $ 2,031 and $ 1,628 for the three months ended September 30, 2023 and 2022, respectively, and $ 5,289 and $ 4,527 for the nine months ended September 30, 2023 and 2022, respectively.

Of those amounts, for the three months ended September 30, 2023 and 2022, $ 923 and $ 975 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,108 and $ 653 , respectively, of construction and supervision fees were capitalized for the three months ended September 30, 2023 and 2022.

The amounts capitalized are included in building, improvements and equipment in our condensed consolidated balance sheets.

For the six months ended June 30, 2023 and 2022, $ 1,882 and $ 2,032 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,376 and $ 867 , respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets.

For the nine months ended September 30, 2023 and 2022, $ 2,805 and $ 3,007 , respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,484 and $ 1,520 , respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

1 unchanged sentence

We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR employees assigned to work exclusively or partly at our net lease properties, our share of the wages, benefits and other related costs of RMR's centralized accounting personnel, our share of RMR’s costs for providing our internal audit function, and as otherwise agreed.

We reimbursed RMR $ 1,116 and $ 685 for these expenses and costs for the three months ended June 30, 2023 and 2022, respectively, and $ 2,119 and $ 1,439 for the six months ended June 30, 2023 and 2022, respectively.

We reimbursed RMR $ 1,182 and $ 892 for these expenses and costs for the three months ended September 30, 2023 and 2022, respectively, and $ 3,301 and $ 2,331 for the nine months ended September 30, 2023 and 2022, respectively.

We included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss).

9 unchanged sentences

Portnoy serves as chair of the boards and as a managing trustee of those companies.

Other officers of RMR, including Mr.

Murray and certain of our other officers, serve as managing trustees or officers of certain of these companies.

Other officers of RMR, including certain of our officers, serve as managing trustees or officers of certain of these companies.

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands, except share data)

See Note 8 for information relating to the annual share awards we made in September 2023 to our officers and certain other officers and employees of RMR and common shares we purchased from our officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them.

We include amounts recognized as expense for share awards to RMR employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

RMR provides management services to us and, until the TA Merger, provided services to TA, and Mr.

3 unchanged sentences

Portnoy is the largest owner and controlling shareholder and a director of Sonesta.

One of Sonesta’s other directors is our other Managing Trustee and former President and Chief Executive Officer, is Sonesta’s president and chief executive officer, and is an officer and employee of RMR.

Murray is a director of Sonesta and is its president and chief executive officer, and he is an officer and employee of RMR.

Sonesta’s other director serves as RMR’s and RMR Inc.’s executive vice president, general counsel and secretary, as a managing director of RMR Inc.

1 unchanged sentence

RMR also provides services to Sonesta.

As of June 30, 2023, we owned approximately 34 % of Sonesta and Sonesta managed 195 of our hotels.

As of September 30, 2023, we owned approximately 34 % of Sonesta and Sonesta managed 195 of our hotels.

See Notes 4, 5 and 6 for further information regarding our relationships, agreements and transactions with Sonesta.

7 unchanged sentences

Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state and foreign income taxes incurred by us despite our qualification for taxation as a REIT.

During the three months ended June 30, 2023, we recognized income tax expense of $ 5,247 , which includes $ 2,884 of state taxes and $ 2,363 of foreign taxes.

During the three months ended June 30, 2022, we recognized income tax expense of $ 473 , which includes $ 255 of state taxes and $ 218 of foreign taxes.

During the six months ended June 30, 2023, we recognized income tax expense of $ 1,467 , which includes $ 587 of state taxes and $ 880 of foreign taxes.

During the six months ended June 30, 2022, we recognized income tax expense of $ 1,168 , which includes $ 835 of state taxes and $ 333 of foreign taxes.

During the three months ended September 30, 2023, we recognized an income tax benefit of $ 2,242 , which includes $ 1,773 of state tax benefit and $ 469 of foreign tax benefit.

During the three months ended September 30, 2022, we recognized income tax expense of $ 390 , which includes $ 318 of state taxes and $ 72 of foreign taxes.

During the nine months ended September 30, 2023, we recognized income tax benefit of $ 775 , which includes $ 1,186 of state tax benefit and $ 411 of foreign taxes.

During the nine months ended September 30, 2022, we recognized income tax expense of $ 1,558 , which includes $ 1,153 of state taxes and $ 405 of foreign taxes.

SERVICE PROPERTIES TRUST

3 unchanged sentences

We aggregate our hotels and net lease portfolio into two reportable segments, hotel investments and net lease investments, based on their similar operating and economic characteristics.

For the Three Months Ended June 30, 2023

For the Three Months Ended September 30, 2023

Hotels Net Lease Corporate Consolidated

9 unchanged sentences

Total expenses 372,269 45,410 10,849 428,528

Gain (loss) on sale of real estate, net 20 ( 82 ) — ( 62 )

Loss on equity securities, net — — ( 593 ) ( 593 )

Gain on sale of real estate, net — 123 — 123

Interest income 54 55 5,517 5,626

Interest expense — ( 11,526 ) ( 70,754 ) ( 82,280 )

Loss on early extinguishment of debt

— — ( 238 ) ( 238 )

Income (loss) before income taxes and equity in earnings of an investee

23,311 44,541 ( 76,086 ) ( 8,234 )

Income tax expense — — ( 5,247 ) ( 5,247 )

Income tax benefit — — 2,242 2,242

Equity in earnings of an investee — — 1,864 1,864

Net income (loss) $ 23,311 $ 44,541 $ ( 71,980 ) $ ( 4,128 )

For the Six Months Ended June 30, 2023

For the Nine Months Ended September 30, 2023

Hotels Net Lease Corporate Consolidated

9 unchanged sentences

Total expenses 1,088,242 150,883 35,110 1,274,235

Gain (loss) on sale of real estate, net 41,918 ( 82 ) — 41,836

Gain on sale of real estate, net 41,918 41 — 41,959

Gain on equity securities, net — — 48,837 48,837

3 unchanged sentences

Income (loss) before income taxes and equity in earnings of an investee 88,430 115,119 ( 191,940 ) 11,609

Income tax expense — — ( 1,467 ) ( 1,467 )

Income tax benefit — — 775 775

Equity in losses of an investee — — ( 1,840 ) ( 1,840 )

Net income (loss) $ 88,430 $ 115,119 $ ( 193,005 ) $ 10,544

As of June 30, 2023

As of September 30, 2023

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

(dollars in thousands, except share data)

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Hotels Net Lease Corporate Consolidated

6 unchanged sentences

General and administrative — — 11,293 11,293

Transaction related costs — — 743 743

Loss on asset impairment, net 867 305 — 1,172

Total expenses 374,913 49,550 11,293 435,756

Gain (loss) on sale of real estate, net 39,878 ( 1,027 ) — 38,851

Loss on equity securities, net — — ( 10,059 ) ( 10,059 )

(Loss) gain on sale of real estate, net ( 188 ) 24 — ( 164 )

Gain on equity securities, net — — 23,056 23,056

Interest income 6 28 1,408 1,442

Interest expense — — ( 81,740 ) ( 81,740 )

Loss on early extinguishment of debt — — ( 791 ) ( 791 )

Income (loss) before income taxes and equity in earnings of an investee 25,358 48,300 ( 68,569 ) 5,089

2 unchanged sentences

Net income (loss) $ 25,358 $ 48,300 $ ( 66,158 ) $ 7,500

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Hotels Net Lease Corporate Consolidated

7 unchanged sentences

Transaction related costs — — 1,920 1,920

Loss (gain) on asset impairment, net 8,615 ( 67 ) — 8,548

Loss on asset impairment, net 9,483 237 — 9,720

Total expenses 1,111,107 147,725 37,663 1,296,495

Gain (loss) on sale of real estate, net 44,682 ( 447 ) — 44,235

Loss on equity securities, net — — ( 20,319 ) ( 20,319 )

Gain on equity securities — — 2,737 2,737

Interest income 7 28 2,700 2,735

13 unchanged sentences

Fair Value of Assets and Liabilities

The table below presents certain of our assets carried at fair value at June 30, 2023, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

The table below presents certain of our assets carried at fair value at September 30, 2023, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

Fair Value at Reporting Date Using

3 unchanged sentences

$ 13,252 $ — $ 2,165 $ 11,087

(1) We recorded a loss on asset impairment, net of $ 9,005 during the three months ended June 30, 2023, to reduce the carrying value of 16 properties in our condensed consolidated balance sheet to their estimated fair value less costs to sell (Level 3 inputs as defined in the fair value hierarchy under GAAP).

(1) We recorded a loss on asset impairment, net of $ 9,517 during the nine months ended September 30, 2023, to reduce the carrying value of 16 properties in our condensed consolidated balance sheet to their estimated fair value less costs to sell based on purchase agreements with third parties (Level 2 inputs as defined in the fair value hierarchy under GAAP) or brokers’ opinion of values (Level 3 inputs as defined in the fair value hierarchy under GAAP).

In addition to the assets included in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, revolving credit facility, net lease mortgage notes payable and senior notes.

At June 30, 2023 and December 31, 2022, the fair values of these additional financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short-term nature or floating interest rates, except as follows:

June 30, 2023 December 31, 2022

At September 30, 2023 and December 31, 2022, the fair values of these additional financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short-term nature or floating interest rates, except as follows:

September 30, 2023 December 31, 2022

Carrying Value (1)

28 unchanged sentences

(1) Carrying value includes unamortized discounts and premiums and issuance costs.

At June 30, 2023 and December 31, 2022, we estimated the fair values of our senior notes using an average of the bid and ask price of our then outstanding issuances of senior notes (Level 2 inputs).

At June 30, 2023, we estimated the fair value of our net lease mortgage notes using discounted cash flow analyses and current prevailing market rates as of the measurement date (Level 3 inputs).

At September 30, 2023 and December 31, 2022, we estimated the fair values of our senior notes using an average of the bid and ask price of our then outstanding issuances of senior notes (Level 2 inputs).

At September 30, 2023, we estimated the fair value of our net lease mortgage notes using discounted cash flow analyses and current prevailing market rates as of the measurement date (Level 3 inputs).

As Level 3 inputs are unobservable, our estimated value may differ materially from the actual fair value.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements