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Item 1. Financial Statements

2024-05-07 compared with 2023-11-06 · 288 added, 378 removed, 281 unchanged (70% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

September 30,

2023 December 31,

(dollars in thousands, except per share data)

March 31, 2024 December 31, 2023

Real estate properties:

8 unchanged sentences

Restricted cash 16,039 17,711

Equity method investments 110,533 112,617

Investment in equity securities — 53,055

Equity method investment 111,014 113,304

Due from related persons 21,400 6,376

2 unchanged sentences

LIABILITIES AND SHAREHOLDERS’ EQUITY

Revolving credit facility $ — $ —

Senior secured notes, net 969,039 968,017

Senior unsecured notes, net 3,995,757 3,993,327

10 unchanged sentences

Cumulative other comprehensive income 1,974 2,318

Cumulative net income available for common shareholders 2,513,823 2,503,279

Cumulative net income 2,392,117 2,470,500

Cumulative common distributions ( 5,838,970 ) ( 5,805,816 )

1 unchanged sentence

Total liabilities and shareholders’ equity $ 7,231,519 $ 7,356,116

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

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

SERVICE PROPERTIES TRUST

1 unchanged sentence

(amounts in thousands, except per share data)

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

2023 2022 2023 2022

Three Months Ended March 31,

Hotel operating revenues $ 336,236 $ 334,796

2 unchanged sentences

Hotel operating expenses 305,086 299,566

Other operating expenses 4,802 3,511 13,079 9,162

Net lease operating expenses 4,723 3,905

Depreciation and amortization 93,107 100,039

1 unchanged sentence

Transaction related costs — 887

Loss on asset impairment, net 512 1,172 9,517 9,720

Loss on asset impairment 2,451 —

Total expenses 415,873 415,308

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

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

(Loss) gain on sale of real estate, net ( 2,963 ) 41,898

Gain on equity securities, net — 49,430

Interest income 1,962 2,786

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $ 6,608 , $ 4,595 , $ 18,644 and $ 15,529 , respectively)

Interest expense (including amortization of debt issuance costs, discounts and premiums of $ 7,226 and $ 5,232 , respectively)

( 91,414 ) ( 81,580 )

Loss on early extinguishment of debt — ( 44 )

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

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

(Loss) income before income tax (expense) benefit and equity in losses of an investee ( 72,038 ) 26,391

Income tax (expense) benefit ( 1,007 ) 3,780

Equity in losses of an investee ( 5,338 ) ( 4,221 )

Net (loss) income ( 78,383 ) 25,950

Other comprehensive income:

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

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

Other comprehensive loss:

Equity interest in investee’s unrealized losses ( 344 ) ( 214 )

Other comprehensive loss ( 344 ) ( 214 )

Comprehensive (loss) income $ ( 78,727 ) $ 25,736

1 unchanged sentence

Net (loss) income per common share (basic and diluted) $ ( 0.48 ) $ 0.16

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

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

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)

(dollars in thousands)

Shares Common

Shares Cumulative

Distributions

Balance at December 31, 2022 165,452,566 $ 1,655 $ ( 5,673,386 ) $ 4,554,861 $ 2,503,279 $ 2,383 $ 1,388,792

Net income — — — — 25,950 — 25,950

Equity in unrealized losses of investees — — — — — ( 214 ) ( 214 )

Common share grants — — — 514 — — 514

Common share repurchases ( 4,971 ) — — ( 46 ) — — ( 46 )

Common share forfeitures ( 1,600 ) — — ( 1 ) ( 1 )

Distributions — — ( 33,090 ) — — — ( 33,090 )

Balance at March 31, 2023 165,445,995 1,655 ( 5,706,476 ) 4,555,328 2,529,229 2,169 1,381,905

Net loss — — — — ( 11,278 ) — ( 11,278 )

Equity in unrealized gains of investees — — — — — 215 215

Common share grants 56,000 — — 1,474 — — 1,474

Common share repurchases ( 16,761 ) — — ( 150 ) — — ( 150 )

Common share forfeitures ( 1,400 ) — — ( 2 ) — — ( 2 )

Distributions — — ( 33,089 ) — — — ( 33,089 )

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

Distributions Additional

Capital Cumulative

Available for

Shareholders Cumulative

Net Income Cumulative

Comprehensive

Income (Loss)

Shares Common

Shares Cumulative

Distributions

Balance at December 31, 2023 165,769,595 $ 1,658 $ ( 5,805,816 ) $ 4,557,473 $ 2,470,500 $ 2,318 $ 1,226,133

Net loss — — — — ( 78,383 ) — ( 78,383 )

Equity in unrealized gains of investees — — — — — 4 4

Common share grants — — — 462 — — 462

Common share forfeitures ( 800 ) — — — — — —

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

Balance at March 31, 2022 165,091,533 1,651 ( 5,636,993 ) 4,553,020 2,515,838 783 1,434,299

Net income — — — — 11,350 — 11,350

Equity in unrealized gains of investees — — — — — 46 46

Equity interest in investee’s unrealized losses — — — — — ( 344 ) ( 344 )

Common share grants — — — 430 — — 430

Common share repurchases ( 1,537 ) — — ( 13 ) — — ( 13 )

Common share forfeitures ( 1,600 ) — — ( 4 ) — — ( 4 )

Distributions — — ( 33,154 ) — — — ( 33,154 )

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

Balance at March 31, 2024 165,768,058 $ 1,658 $ ( 5,838,970 ) $ 4,557,890 $ 2,392,117 $ 1,974 $ 1,114,669

Balance at December 31, 2022 165,452,566 $ 1,655 $ ( 5,673,386 ) $ 4,554,861 $ 2,503,279 $ 2,383 $ 1,388,792

Net income — — — — 25,950 — 25,950

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

Equity interest in investee’s unrealized losses — — — — — ( 214 ) ( 214 )

Common share grants — — — 514 — — 514

2 unchanged sentences

Distributions — — ( 33,090 ) — — — ( 33,090 )

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.

Balance at March 31, 2023 165,445,995 $ 1,655 $ ( 5,706,476 ) $ 4,555,328 $ 2,529,229 $ 2,169 $ 1,381,905

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

SERVICE PROPERTIES TRUST

1 unchanged sentence

(dollars in thousands)

For the Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net income (loss) $ 10,544 $ ( 100,972 )

Adjustments to reconcile net income (loss) to cash used in operating activities:

Net (loss) income $ ( 78,383 ) $ 25,950

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Depreciation and amortization 93,107 100,039

2 unchanged sentences

Loss on early extinguishment of debt — 44

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

Loss on asset impairment 2,451 —

Gains on equity securities, net — ( 49,430 )

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

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

Other non-cash income, net ( 897 ) ( 1,635 )

Equity in losses of an investee 5,338 4,221

Loss (gain) on sale of real estate, net 2,963 ( 41,898 )

Other non-cash income expense, net ( 925 ) ( 781 )

Changes in assets and liabilities:

3 unchanged sentences

Due to related persons ( 4,033 ) ( 2,325 )

Net cash provided by operating activities 401,958 147,114

Net cash (used in) provided by operating activities ( 926 ) 12,373

Cash flows from investing activities:

Acquisition of real estate properties ( 165,843 ) ( 2,765 )

Proceeds from sale of TA common shares 101,892 —

Proceeds from sale of tradenames and trademarks 89,400 —

Real estate improvements ( 76,261 ) ( 28,551 )

2 unchanged sentences

Investment in Sonesta ( 3,392 ) —

Net cash provided by investing activities 50,966 396,980

Net cash (used in) provided by investing activities ( 74,829 ) 114,252

Cash flows from financing activities:

2 unchanged sentences

Repayment of senior unsecured notes — ( 500,000 )

Borrowings under revolving credit facility — 20,000

Repayments of revolving credit facility — ( 925,000 )

Deferred financing costs ( 38,548 ) ( 2,959 )

Payment of debt issuance costs ( 1,093 ) ( 19,856 )

Repurchase of common shares ( 13 ) ( 46 )

Distributions to common shareholders ( 33,154 ) ( 33,090 )

Net cash used in financing activities ( 62,816 ) ( 1,413,375 )

Increase (decrease) in cash and cash equivalents and restricted cash 390,108 ( 869,281 )

Net cash (used in) provided by financing activities ( 34,749 ) 23,791

(Decrease) increase in cash and cash equivalents and restricted cash

( 110,504 ) 150,416

Cash and cash equivalents and restricted cash at beginning of period 197,830 45,420

1 unchanged sentence

Supplemental disclosure of cash and cash equivalents and restricted cash:

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:

Cash and cash equivalents $ 71,287 $ 180,616

2 unchanged sentences

Total cash and cash equivalents and restricted cash $ 87,326 $ 195,836

(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.

(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 as required by certain of our debt agreements.

Supplemental cash flow information:

3 unchanged sentences

Real estate improvements accrued, not paid $ 39,705 $ 10,642

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

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

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)

(dollars in thousands, except per share amounts)

Organization and Basis of Presentation

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

At March 31, 2024, we owned, directly and through our subsidiaries, 220 hotels and 749 service-focused retail net lease properties.

Basis of Presentation

3 unchanged sentences

We believe the disclosures made are adequate to make the information presented not misleading.

However, the accompanying condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or our 2022 Annual Report.

However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023, or our 2023 Annual Report.

In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included.

5 unchanged sentences

Significant estimates in our condensed consolidated financial statements include the allowance for credit losses, purchase price allocations, useful lives of fixed assets and 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 $ 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 were $ 159,964 and $ 142,789 as of March 31, 2024 and December 31, 2023, 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 $ 99,706 and $ 81,262 as of March 31, 2024 and December 31, 2023, 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.

Recent Accounting Pronouncements

On November 27, 2023, the FASB issued Accounting Standards Update, or ASU, No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , or ASU No.

2023-07, which requires public entities to:

(i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the Chief Operating Decision Maker, or the CODM, and included in each reported measure of segment profit or loss;

(ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280, Segment Reporting , or ASC 280, in interim periods;

and (iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures.

The amendments in ASU No.

2023-07 are incremental to the requirements in ASC 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

2023-07 should be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact ASU No.

2023-07 will have on our consolidated financial statements and disclosures.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

On December 14, 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , or ASU No.

2023-09, which requires public entities to enhance its annual income tax disclosures by requiring:

(i) consistent categories and greater disaggregation of information in the rate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction.

2023-09 should be applied prospectively but entities have the option to apply it retrospectively to all prior periods presented in the financial statements.

2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact ASU No.

2023-09 will have on our consolidated financial statements and disclosures.

Revenue Recognition

2 unchanged sentences

We report rental income for leased properties in our condensed consolidated statements of comprehensive income (loss).

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

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 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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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

We increased rental income by $ 5,768 and reduced rental income by $ 2,448 for the three months ended March 31, 2024 and 2023, respectively, to record scheduled rent changes under certain of our leases on a straight line basis.

Other assets, net, includes $ 64,151 and $ 56,833 of straight line rent receivables at March 31, 2024 and December 31, 2023, respectively.

Certain of our lease agreements require additional percentage rent if gross revenues of our properties exceed certain thresholds defined in our lease agreements.

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 $ 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.

We recorded percentage rent of $ 544 and $ 343 for the three months ended March 31, 2024 and 2023, respectively.

We did not have any deferred estimated percentage rent for the three months ended March 31, 2024.

We had deferred estimated percentage rent of $ 2,385 for the three months ended March 31, 2023.

See Note 6 for further information on this deferred estimated percentage rent.

Weighted Average Common Shares

We calculate basic earnings per common share under the two class method.

We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method.

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

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.

We own all the escrowed reserves established for the regular refurbishment of our hotels, or FF&E reserves.

We do not report the FF&E reserves for our managed hotels as FF&E reserve income.

Per Common Share Amounts

We calculate basic earnings per common share using the two class method.

We calculate diluted earnings per common share using the more dilutive of the two class method or the treasury stock method.

Unvested common share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share.

The calculation of basic and diluted earnings per common share is as follows (amounts in thousands, except per share data):

Three Months Ended March 31,

Net (loss) income $ ( 78,383 ) $ 25,950

Income attributable to unvested participating securities ( 122 ) ( 117 )

Net (loss) income used in calculating earnings per share $ ( 78,505 ) $ 25,833

Denominators:

Weighted average common shares outstanding - basic and diluted 165,158 164,867

Net (loss) income per common share - basic and diluted $ ( 0.48 ) $ 0.16

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Real Estate Properties

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 .

We allocated the purchase price for this acquisition based on the estimated fair value of the acquired assets as follows:

Acquisition Date Location Property Type Purchase Price Land Building and Improvements Furniture, Fixtures and Equipment

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

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.

As of March 31, 2024, we owned 220 hotels with an aggregate of 37,697 rooms or suites and 749 service-focused retail net lease properties with an aggregate of 13,384,219 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 $ 9,825,433 , including $ 10,296 related to properties classified as held for sale as of March 31, 2024.

We funded capital improvements to certain of our properties of $ 68,782 during the three months ended March 31, 2024.

During the three months ended March 31, 2024, we sold four properties for an aggregate sales price of $ 6,247 , excluding closing costs.

The sales of these properties as presented in the table below do not represent significant dispositions, individually or in the aggregate, nor do they represent a strategic shift in our business.

As a result, the results of the operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss).

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

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 )

Quarter Sold Property Type Number of Properties Rooms or Suites / Square Feet Gross Sales Price Loss on Sale of Real Estate

Q1 2024 Hotel 1 84 $ 3,315 $ ( 836 )

Q1 2024 Net Lease 3 34,849 2,932 ( 2,127 )

1 unchanged sentence

$ 6,247 $ ( 2,963 )

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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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, 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.

See Notes 5 and 13 for further information on our property sales.

As of March 31, 2024, we had 13 net lease properties with an aggregate of 142,329 square feet and an aggregate carrying value of $ 8,654 classified as held for sale.

See Note 14 for further information on these properties.

As of May 3, 2024, we have entered into an agreement to sell one net lease property with 3,381 square feet for a sale price of $ 1,250 , excluding closing costs.

This pending sale is subject to conditions;

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

We continue to market 12 net lease properties with an aggregate of 138,948 square feet for sale.

We believe it is more likely than not that the sales of these properties will be completed within one year.

Management Agreements and Leases

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.

As of March 31, 2024, we owned 220 hotels included in four operating agreements and 749 service-focused retail properties net leased to 177 tenants.

We do not operate any of our properties.

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.

As of March 31, 2024, all 220 of our hotels were managed by subsidiaries of the following companies:

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

As of March 31, 2024, we owned 749 service-focused retail net lease properties with 177 tenants, including 175 travel centers leased to TA, our largest tenant.

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

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Hotel Agreements

Sonesta Agreement.

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.

As of March 31, 2024, 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, which we collectively refer to as our Sonesta agreement.

The hotels Sonesta managed for us comprised approximately 50.0 % 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 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 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 $ 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.

Our Sonesta agreement, which expires on January 31, 2037 and includes two 15 -year renewal options, 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 paying the owner’s priority return, reimbursing owner or manager advances, funding FF&E reserves and paying Sonesta’s incentive fee, if applicable.

We do not have any security deposits or guarantees for our Sonesta hotels.

We realized returns under our Sonesta agreement of $ 27,375 and $ 30,237 during the three months ended March 31, 2024 and 2023, respectively.

Our Sonesta agreement requires us to fund capital expenditures made at our hotels.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 46,996 and $ 17,643 during the three months ended March 31, 2024 and 2023, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 2,820 and $ 1,059 , respectively.

Our annual priority return under our Sonesta agreement as of March 31, 2024 was $ 356,773 .

We owed Sonesta $ 5,215 and $ 13,300 for capital expenditures and other reimbursements at March 31, 2024 and December 31, 2023, respectively.

Sonesta owed us $ 21,400 and $ 6,376 in owner’s priority returns and other amounts as of March 31, 2024 and December 31, 2023, 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 nine months ended September 30, 2023 or 2022.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(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.

Our Sonesta agreement 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 the three months ended March 31, 2024 or 2023.

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 $ 27,015 and $ 26,136 for the three months ended March 31, 2024 and 2023, 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.

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 400 and $ 207 for the three months ended March 31, 2024 and 2023, 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 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.

As of each of March 31, 2024 and December 31, 2023, we had advanced $ 48,490 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, net in our condensed consolidated balance sheets.

Any remaining working capital would be returned to us upon termination in accordance with the terms of our Sonesta agreement.

See Notes 6 and 10 for further information regarding our relationship, agreements and transactions with Sonesta.

See Notes 7 and 11 for further information regarding our relationships, agreements and transactions with Sonesta.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Hyatt Agreement.

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 .

As of March 31, 2024, 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 March 31, 2024, we are to be paid an annual owner’s priority return of $ 16,769 .

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 $ 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.

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 in 2024.

We realized a net operating loss of $ 1,108 during the three months ended March 31, 2024 and returns of $ 2,323 during the three months ended March 31, 2023 under our Hyatt agreement.

In February 2024, we funded $ 2,300 of additional working capital to Hyatt.

We may recover this amount in the future, if cash flows are sufficient to pay our owner’s priority return and other amounts in accordance with our Hyatt agreement.

During the three months ended March 31, 2024, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 20,225 , which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 1,214 .

We did not incur capital expenditures for any of the hotels included in our Hyatt agreement during the three months ended March 31, 2023.

Radisson Agreement .

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 $ 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.

As of March 31, 2024, Radisson managed seven 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 $ 10,883 .

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 hotels, which we currently expect to be completed by the end of the second quarter of 2024.

We realized returns under our Radisson agreement of $ 1,451 and $ 1,565 during the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024 and 2023, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for these periods, and we reduced hotel operating expenses by $ 522 and $ 335 , respectively, to record the guaranteed amount of the shortfalls due from Radisson.

The available balance of the guaranty was $ 20,828 as of March 31, 2024.

During the three months ended March 31, 2024 and 2023, we incurred capital expenditures of $ 286 and $ 2,375 , respectively, for the hotels included in our Radisson agreement, which resulted in an aggregate increase in our contractual owner’s priority returns of $ 17 and $ 143 , respectively.

Marriott Agreement .

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.

As of March 31, 2023, we had sold all 16 hotels previously managed by Marriott International, Inc., or Marriott.

We realized a net operating loss of $ 2,762 during the three months ended March 31, 2023, 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 three months ended March 31, 2023.

IHG Agreement.

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

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.

We realized returns under our management agreement with IHG of $ 1,593 and $ 763 during the three months ended March 31, 2024 and 2023, respectively.

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

During the three months ended March 31, 2024 and 2023, we incurred capital expenditures of $ 149 and $ 59 , respectively, for the hotel included in our IHG agreement.

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.

As of March 31, 2024, we owned 749 service-focused retail net lease properties with an aggregate of 13,384,219 square feet with leases requiring annual minimum rents of $ 374,941 with a weighted (by annual minimum rents) average remaining lease term of 8.7 years.

Our net lease properties were 97.3 % occupied and leased by 177 tenants operating under 137 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 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.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

As of March 31, 2024, TA is our largest tenant, representing 28.6 % of our total historical real estate investments.

We lease to TA a total of 175 travel centers under five master 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 March 31, 2024.

TA receives a monthly rent credit totaling $ 25,000 per year over the 10-year initial term of the TA leases as a result of rent it prepaid.

On February 28, 2024, TA acquired the leasehold interest of one of our travel centers from a third party landlord.

The aggregate minimum rent due to us under our leases with TA for the remaining 175 travel centers was unchanged as a result of TA’s acquisition of this leasehold interest.

Our TA leases are “triple net” leases that require TA to pay all costs incurred in the operation of the leased travel centers, including personnel, utility, inventory, customer service and insurance expenses, real estate and personal property taxes, environmental related expenses, underground storage tank maintenance costs and ground lease payments at those travel centers at which we lease the property and sublease it to TA.

Our TA leases generally require TA to indemnify us for certain environmental matters and for liabilities that arise during the terms of the leases from ownership or operation of the leased travel centers.

Our TA leases do not require FF&E escrow deposits.

However, TA is required to maintain the leased travel centers, including structural and non-structural components.

BP Corporation North America Inc.

guarantees payment under each of the TA leases, limited to an aggregate cap which was $ 3,037,475 as of March 31, 2024.

We recognized rental income from our TA leases of $ 67,834 and $ 62,141 for the three months ended March 31, 2024 and 2023, respectively.

Rental income was increased by $ 4,309 and reduced by $ 3,241 for the three months ended March 31, 2024 and 2023, respectively, to record the scheduled rent changes on a straight line basis.

As of March 31, 2024 and December 31, 2023, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 25,459 and $ 19,816 , respectively, included in other assets, net 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 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.

At the effective time of the TA Merger, we entered into amended and restated lease agreements, or the A&R Leases, for 176 of our travel center properties.

Under the A&R Leases, the aggregate annual minimum rent due to our applicable subsidiaries is $ 254,000 , with annual 2 % increases throughout the initial term of 10 years and any of the five 10-year extension options that may be exercised, and there is no percentage rent requirement.

TA prepaid $ 188,000 of rent under the A&R Leases at the effective time of the TA Merger and TA will receive monthly rent credits totaling $ 25,000 per year over the 10 -year initial term of the A&R Leases.

In addition, we received $ 89,400 for certain tradenames and trademarks associated with TA’s business that we sold to TA in connection with the TA Merger, which amount equaled our net book value for those tradenames and trademarks.

TA is required to maintain the leased travel centers, including structural and non-structural components.

In addition, TA has a right of first offer with respect to certain potential sales of travel center properties included in the A&R Leases.

Pursuant to the amended and restated guaranty amendments entered into at the effective time of the TA Merger, or the A&R Guarantees, BP Corporation North America Inc.

guaranteed payment under each of the A&R Leases.

BP Corporation North America Inc.’s obligations under the A&R Guarantees are limited by an initial aggregate cap of approximately $ 3,040,000 .

Following the TA Merger, TA ceased being a related party.

For more information regarding our relationship with TA, including the TA Merger and related transactions, see Notes 6 and 10.

We did not recognize any percentage rent during the three months ended March 31, 2023 under our TA leases.

We had aggregate deferred percentage rent under our TA leases of $ 2,385 for the three months ended March 31, 2023.

For more information regarding our relationships with TA, including the TA Merger (as defined below), see Notes 7 and 11.

Our other net lease agreements generally provide for minimum rent payments and in addition may include variable payments.

1 unchanged sentence

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 $ 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

We recognized rental income from our net lease properties (excluding TA) of $ 32,180 and $ 32,272 for the three months ended March 31, 2024 and 2023, respectively, which included $ 1,459 and $ 793 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis.

We continually review receivables related to rent, straight line rent and property operating expense reimbursements and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

3 unchanged sentences

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

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.

We recorded reserves for uncollectable amounts and reduced rental income by $ 665 and $ 3,540 for the three months ended March 31, 2024 and 2023, respectively, based on our assessment of the collectability of rents.

We had reserves for uncollectable rents of $ 4,101 and $ 3,436 as of March 31, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Other Investments

Equity Method Investment

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

As of both March 31, 2024 and December 31, 2023, we owned 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 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 of March 31, 2024 and December 31, 2023, our investment in Sonesta had a carrying value of $ 111,014 and $ 113,304 , respectively.

On the date of acquisition of our initial equity interest in Sonesta (February 27, 2020), the cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total stockholders’ equity book value 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 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).

We recorded a liability for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta.

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 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.

We continue to maintain our 34 % ownership in Sonesta after giving effect to these fundings.

We recorded amortization of the basis difference of $ 65 in each of the three months ended March 31, 2024 and 2023.

We recognized losses of $ 5,338 and $ 4,221 related to our investment in Sonesta for the three months ended March 31, 2024 and 2023, respectively.

These amounts, which include amortization of the basis difference, are included in equity in losses of an investee in our condensed consolidated statements of comprehensive income (loss).

We recorded a liability of $ 42,000 for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta.

This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheets and is being amortized on a straight line basis through the initial term of the Sonesta agreement, 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 March 31, 2024 and 2023, for amortization of this liability.

As of March 31, 2024 and December 31, 2023, the unamortized balance of this liability was $ 31,858 and $ 32,479 , respectively.

During the three months ended March 31, 2024, we made a $ 3,392 pro rata capital contribution to Sonesta to support its growth initiatives, including its franchising efforts.

We continue to maintain our 34 % ownership in Sonesta after giving effect to this contribution.

See Notes 6 and 11 for further information regarding our relationships, agreements and transactions with Sonesta.

Investment in Equity Securities

The TA Merger occurred on May 15, 2023 .

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 as defined in the fair value hierarchy under GAAP).

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 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

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:

Until May 15, 2023 , we owned 1,184,797 shares, or approximately 7.8 %, of TA common stock, which were reported at fair value based on quoted market prices (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the end of the period, with changes in fair value recorded in earnings in our condensed consolidated statements of comprehensive income (loss).

As of May 15, 2023, our historical cost basis for these shares was $ 24,418 and our carrying value for these shares was $ 101,893 .

On May 15, 2023, BP Products North America Inc.

acquired TA pursuant to a merger, or the TA Merger, for $ 86.00 per share of TA common stock in cash.

During the three months ended March 31, 2023, we recorded gains of $ 49,430 to adjust the carrying value of our former investment in shares of TA common stock to its fair value.

Our principal debt obligations at March 31, 2024 were:

(1) $ 4,025,000 aggregate outstanding principal amount of senior unsecured notes;

(2) $ 1,000,000 aggregate outstanding principal amount of senior secured notes;

and (3) $ 608,079 aggregate outstanding principal amount of net lease mortgage notes.

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 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 September 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 had no amounts outstanding under our revolving credit facility as of March 31, 2024.

Our $ 650,000 secured revolving credit facility is available for general business purposes, including acquisitions.

We can borrow, repay, and reborrow funds available under our revolving credit facility until maturity and no principal repayments are due until maturity.

The maturity date of our revolving credit 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 facility by two additional six-month periods.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Interest payable on drawings under our revolving credit 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 March 31, 2024.

As collateral for all loans and other obligations under the credit facility, certain of our subsidiaries pledged all of their respective equity interests in certain of our direct and indirect property owning subsidiaries, and our pledged subsidiaries provided first mortgage liens on 69 properties, including 66 hotels and three net lease properties, with an aggregate undepreciated carrying value of $ 1,612,216 as of March 31, 2024.

In addition, in order to maintain compliance with the minimum collateral property availability covenant as defined in the credit agreement, in February 2024, we added three hotels with an aggregate undepreciated carrying value of $ 115,039 as of March 31, 2024, as collateral under the agreement.

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 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.

As of March 31, 2024 and 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.84 % and 7.36 %, respectively.

We had no borrowings outstanding under our revolving credit facility for the three months ended March 31, 2024 or 2023.

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 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.

Net proceeds from this issuance were $ 550,564 after initial purchaser discounts and offering costs.

Borrowings under our revolving credit facility are subject to meeting ongoing minimum performance and market values of the collateral properties, satisfying certain financial covenants and other credit facility conditions.

We believe we were in compliance with the terms and conditions of our debt agreements as of March 31, 2024.

Net Lease Mortgage Notes

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

The Issuer is a separate legal entity and is the sole owner of its assets and liabilities.

The assets of the Issuer are not available to pay or otherwise satisfy obligations to the creditors of any owners or affiliates of the Issuer.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

The Class A notes and the Class B notes require monthly principal repayments at an annualized rate of 0.50 % and 0.25 % of the balance outstanding, respectively, and the Class C notes require interest payments only, with balloon payments due at maturity.

The notes mature in February 2028 and may be redeemed without penalty 24 months prior to the scheduled maturity date beginning in February 2026.

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 $ 65,137 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 September 30, 2023

Coupon Rate Term (in years) Maturity

Note Class Principal Outstanding as of March 31, 2024

Coupon Rate Initial Term (in years) Maturity

Class A $ 303,348 5.15 % 5 February 2028

2 unchanged sentences

Total / weighted average $ 608,079 5.60 %

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 nine months ended September 30, 2023, which represented the unamortized issuance costs related to these notes.

The notes mature in February 2028 and may be redeemed without penalty 24 months prior to the scheduled maturity date beginning in February 2026.

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 $ 65,070 and had an aggregate undepreciated carrying value of $ 754,006 as of March 31, 2024.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

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 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.

During the three months ended March 31, 2024, we purchased an aggregate of 1,537 of our common shares, valued at a weighted average share price of $ 8.54 per common share, from certain former employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

We withheld and purchased these common shares at their fair market values based upon the trading prices of our common shares at the close of trading on The Nasdaq Stock Market LLC, or Nasdaq, on the applicable purchase dates.

Distributions

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

During the three months ended March 31, 2024, we declared and paid regular quarterly distributions to common shareholders as follows:

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

January 11, 2024 January 22, 2024 February 15, 2024 $ 0.20 $ 33,154

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 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

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

On April 11, 2024, we declared a regular quarterly distribution to common shareholders of record as of April 22, 2024 of $ 0.20 per common share, or approximately $ 33,152 .

We expect to pay this amount on or about May 16, 2024 using cash on hand.

Business and Property Management Agreements with RMR

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(1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations of our net lease portfolio, the office building component of one of our hotels and major renovation or repositioning activities at our hotels that we may request RMR to manage from time to time.

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 $ 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.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 7,757 and $ 8,385 for the three months ended March 31, 2024 and 2023, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2024 and 2023, no incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2024 or 2023.

The actual amount of annual incentive fees for 2024, 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, 2024, and will be payable in January 2025.

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 $ 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 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.

Pursuant to our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $ 3,180 and $ 1,412 for the three months ended March 31, 2024 and 2023, respectively.

Of those amounts, for the three months ended March 31, 2024 and 2023, $ 1,484 and $ 945 , respectively, of property management fees were expensed to net lease operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,696 and $ 467 , respectively, of construction and supervision fees were capitalized as building improvements in our condensed consolidated balance sheets.

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

We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR on our behalf.

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 $ 1,182 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).

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR on our behalf.

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 and the office building component of one of our hotels, 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.

Our property level operating expenses are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR.

We reimbursed RMR $ 1,094 and $ 1,003 for these expenses and costs for the three months ended March 31, 2024 and 2023, respectively.

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

Related Person Transactions

1 unchanged sentence

As of the effective time of the TA Merger on May 15, 2023, TA is no longer a related person to us.

RMR is a majority owned operating subsidiary of RMR Inc.

RMR is a majority owned subsidiary of RMR Inc.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam D.

1 unchanged sentence

and an officer and employee of RMR.

Murray, our other Managing Trustee and our former President and Chief Executive Officer, also serves as an officer and employee of RMR, and each of our other officers serves as an officer of RMR.

Murray, our other Managing Trustee and our former President and Chief Executive Officer, also serves as an officer and employee of RMR and as president and chief executive officer of Sonesta.

In addition, each of our other officers serves as an officer of RMR.

Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services.

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

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

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

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(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.

Portnoy, until the TA Merger, also served as the chair of the board of directors and as a managing director of TA and, as of immediately prior to the TA Merger, beneficially owned 661,506 shares of TA common stock (including through RMR), representing approximately 4.4 % of TA’s outstanding shares of common stock.

See Notes 5 and 6 for further information regarding our relationships, agreements, and investments with TA.

See Notes 6 and 7 for further information regarding our relationships, agreements and transactions with TA.

Sonesta is a private company.

3 unchanged sentences

and as our Secretary.

RMR also provides services to Sonesta.

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

RMR also provides certain services to Sonesta.

As of March 31, 2024, we owned 34 % of Sonesta’s outstanding shares of common stock and Sonesta managed 195 of our hotels.

See Notes 6 and 7 for further information regarding our relationships, agreements and transactions with Sonesta.

6 unchanged sentences

Further, we lease our managed hotels to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated tax return and are subject to federal, state and foreign income taxes.

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 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.

Our consolidated income tax provision (or benefit) includes the income tax provision (or benefit) 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.

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

During the three months ended March 31, 2024, we recognized income tax expense of $ 1,007 , which includes $ 621 of state tax expense and $ 386 of foreign tax expense.

During the three months ended March 31, 2023, we recognized an income tax benefit of $ 3,780 , which includes $ 2,297 of state tax benefit and $ 1,483 of foreign tax benefit.

Segment Information

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 September 30, 2023

Three Months Ended March 31, 2024

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

Hotel operating expenses 305,086 — — 305,086

Other operating expenses — 4,802 — 4,802

Net lease operating expenses — 4,723 — 4,723

Depreciation and amortization 55,086 38,021 — 93,107

General and administrative — — 10,506 10,506

Transaction related costs 115 — — 115

Loss on asset impairment, net — 512 — 512

Loss on asset impairment — 2,451 — 2,451

Total expenses 360,172 45,195 10,506 415,873

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

Loss on sale of real estate, net ( 836 ) ( 2,127 ) — ( 2,963 )

Interest income 63 105 1,794 1,962

Interest expense — ( 11,517 ) ( 79,897 ) ( 91,414 )

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

(Loss) income before income tax expense and equity in losses of an investee

( 24,709 ) 41,280 ( 88,609 ) ( 72,038 )

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 Nine Months Ended September 30, 2023

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 1,134,649 $ — $ — $ 1,134,649

Rental income — 295,164 — 295,164

Total revenues 1,134,649 295,164 — 1,429,813

Hotel operating expenses 926,418 — — 926,418

Other operating expenses — 13,079 — 13,079

Depreciation and amortization 161,236 127,872 — 289,108

General and administrative — — 34,180 34,180

Transaction related costs 588 415 930 1,933

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

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

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

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

Interest income 105 80 11,695 11,880

Interest expense — ( 29,283 ) ( 217,080 ) ( 246,363 )

Loss on early extinguishment of debt — — ( 282 ) ( 282 )

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

Income tax benefit — — 775 775

Income tax expense — — ( 1,007 ) ( 1,007 )

Equity in losses of an investee — — ( 5,338 ) ( 5,338 )

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

As of September 30, 2023

Net (loss) income $ ( 24,709 ) $ 41,280 $ ( 94,954 ) $ ( 78,383 )

As of March 31, 2024

Hotels Net Lease Corporate Consolidated

1 unchanged sentence

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

For the Three Months Ended September 30, 2022

Hotels Net Lease Corporate Consolidated

Hotel operating revenues $ 400,453 $ — $ — $ 400,453

Rental income — 97,798 — 97,798

Total revenues 400,453 97,798 — 498,251

Hotel operating expenses 318,266 — — 318,266

Other operating expenses — 3,511 — 3,511

Depreciation and amortization 55,780 45,734 — 101,514

General and administrative — — 11,293 11,293

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

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

(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 )

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

Income tax expense — — ( 390 ) ( 390 )

Equity in earnings of an investee — — 2,801 2,801

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

For the Nine Months Ended September 30, 2022

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Three Months Ended March 31, 2023

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

Hotel operating expenses 299,566 — — 299,566

Other operating expenses — 9,162 — 9,162

Net lease operating expenses — 3,905 — 3,905

Depreciation and amortization 53,385 46,654 — 100,039

1 unchanged sentence

Transaction related costs — — 887 887

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

Total expenses 352,951 50,559 11,798 415,308

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

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

Gain on sale of real estate, net 41,898 — — 41,898

Gain on equity securities, net — — 49,430 49,430

Interest income 30 2 2,754 2,786

1 unchanged sentence

Loss on early extinguishment of debt — — ( 44 ) ( 44 )

— — ( 791 ) ( 791 )

Income (loss) before income taxes and equity in earnings of an investee 50,425 142,805 ( 296,921 ) ( 103,691 )

Income tax expense — — ( 1,558 ) ( 1,558 )

Equity in earnings of an investee — — 4,277 4,277

Income (loss) before income tax benefit and equity in losses of an investee 23,773 37,534 ( 34,916 ) 26,391

Income tax benefit — — 3,780 3,780

Equity in losses of an investee — — ( 4,221 ) ( 4,221 )

Net income (loss) $ 23,773 $ 37,534 $ ( 35,357 ) $ 25,950

3 unchanged sentences

SERVICE PROPERTIES TRUST

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share data)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Fair Value of Assets and Liabilities

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.

The table below presents certain of our assets carried at fair value at March 31, 2024, 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

$ 1,863 $ — $ — $ 1,863

(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 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

(1) We recorded a loss on asset impairment of $ 2,451 during the three months ended March 31, 2024, to reduce the carrying value of five net lease properties in our condensed consolidated balance sheet to their estimated fair value less costs to sell based on brokers’ opinion of values (Level 3 inputs as defined in the fair value hierarchy under GAAP).

At March 31, 2024 and December 31, 2023, the fair values of these 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:

March 31, 2024 December 31, 2023

Carrying Value (1)

12 unchanged sentences

445,913 428,958 445,631 412,002

Senior Unsecured Notes, due 2026 at 4.75 %

448,194 385,925 447,736 354,128

Senior Unsecured Notes, due 2027 at 4.95 %

397,483 337,752 396,916 315,040

Senior Unsecured Notes, due 2027 at 5.50 %

445,349 384,584 444,505 387,522

Net Lease Mortgage Notes, due 2028 at 5.60 %

6 unchanged sentences

393,339 305,332 393,056 310,524

Senior Secured Notes, due 2031 at 8.625 %

969,039 1,066,440 968,017 1,047,430

Total financial liabilities $ 5,526,145 $ 5,352,165 $ 5,520,220 $ 5,307,547

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

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).

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

At March 31, 2024 and December 31, 2023, we estimated the fair values of our senior notes using an average of the bid and ask price of the notes (Level 2 inputs) as of the measurement dates.

At March 31, 2024 and December 31, 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 dates (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