Service Properties Trust 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk (dollar amounts in thousands, except per share amounts) We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates has not materially changed since December 31, 2022. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future. Fixed Rate Debt At September 30, 2023, our outstanding publicly tradable debt consisted of 11 issues of unsecured fixed rate senior notes and secured fixed rate net lease mortgage notes: Debt Principal Balance Annual Interest Rate Annual Interest Expense Maturity Interest Payments Due Unsecured Senior Notes $ 350,000 4.650 % $ 16,275 2024 Semi-Annually Unsecured Senior Notes 825,000 4.350 % 35,888 2024 Semi-Annually Unsecured Senior Notes 350,000 4.500 % 15,750 2025 Semi-Annually Unsecured Senior Notes 800,000 7.500 % 60,000 2025 Semi-Annually Unsecured Senior Notes 350,000 5.250 % 18,375 2026 Semi-Annually Unsecured Senior Notes 450,000 4.750 % 21,375 2026 Semi-Annually Unsecured Senior Notes 400,000 4.950 % 19,800 2027 Semi-Annually Unsecured Senior Notes 450,000 5.500 % 24,750 2027 Semi-Annually Unsecured Senior Notes 400,000 3.950 % 15,800 2028 Semi-Annually Net Lease Mortgage Notes 609,058 5.600 % 34,627 2028 Monthly Unsecured Senior Notes 425,000 4.950 % 21,038 2029 Semi-Annually Unsecured Senior Notes 400,000 4.375 % 17,500 2030 Semi-Annually $ 5,809,058 $ 301,178 No principal repayments are due under our unsecured senior notes until maturity. Our net lease mortgage notes require principal and interest payments through maturity pursuant to amortization schedules. Because these notes require interest at fixed rates, changes in market interest rates during the term of these debts will not affect our interest obligations. If these notes were refinanced at interest rates which are one percentage point higher than the rates shown above, our per annum interest cost would increase by approximately $58,091. Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt while decreases in market interest rates increase the fair value of our fixed rate debt. The U.S. Federal Reserve has raised the federal funds rate multiple times since the beginning of 2022 and further increases may occur. Based on the balances outstanding at September 30, 2023 and discounted cash flows analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point change in interest rates would change the fair value of those debt obligations by approximately $134,285. Each of these fixed rate debt arrangements allows us to make repayments earlier than the stated maturity date. We are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the noteholder. Also, we have in the past repurchased and retired some of our outstanding debts and we may do so again in the future. These prepayment rights and our ability to repurchase and retire outstanding debt may afford us opportunities to mitigate the risks of refinancing our debts at their maturities at higher rates by refinancing prior to maturity. Floating Rate Debt At September 30, 2023, we had no amounts outstanding under our revolving credit facility. The maturity date of our revolving credit facility is June 29, 2027, and, subject to our meeting certain conditions, including our payment of an extension fee, we have an option to extend the stated maturity date of the facility by two six-month periods. No principal repayments are required under our revolving credit facility prior to maturity and repayments may be made and redrawn subject to conditions at any time without penalty. 41 Table of Contents Borrowings under our revolving credit facility are in U.S. dollars and require interest to be paid at a rate of SOFR plus premiums. Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates, specifically SOFR. In addition, upon renewal or refinancing of our revolving credit facility, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics. Generally, a change in interest rates would not affect the value of this floating rate debt but would affect our operating results. The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at September 30, 2023 if we were fully drawn on our revolving credit facility. Impact of Increase in Interest Rates Interest Rate Per Year (1) Outstanding Debt Total Interest Expense Per Year Annual Per Share Impact (2) At September 30, 2023 7.93 % $ 650,000 $ 51,545 $ 0.31 One percentage point increase 8.93 % $ 650,000 $ 58,045 $ 0.35 (1) Based on SOFR plus a premium, which was 250 basis points per annum, as of September 30, 2023. (2) Based on diluted weighted average common shares outstanding for the nine months ended September 30, 2023. The foregoing table shows the impact of an immediate change in floating interest rates as of September 30, 2023. If interest rates were to change gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts under our revolving credit facility or other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates. 42 Table of Contents