Service Properties Trust 10-Q

Item 1. Financial Statements SERVICE PROPERTIES TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) March 31, 2024 December 31, 2023 ASSETS Real estate properties: Land $ 1,968,963 $ 1,972,145 Buildings, improvements and equipment 7,846,174 7,814,192 Total real estate properties, gross 9,815,137 9,786,337 Accumulated depreciation ( 3,237,999 ) ( 3,181,797 ) Total real estate properties, net 6,577,138 6,604,540 Acquired real estate leases and other intangibles, net 124,573 130,622 Assets held for sale 8,700 10,500 Cash and cash equivalents 71,287 180,119 Restricted cash 16,039 17,711 Equity method investment 111,014 113,304 Due from related persons 21,400 6,376 Other assets, net 301,368 292,944 Total assets $ 7,231,519 $ 7,356,116 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 Mortgage notes payable, net 561,349 558,876 Accounts payable and other liabilities 580,268 587,005 Due to related persons 10,437 22,758 Total liabilities 6,116,850 6,129,983 Commitments and contingencies Shareholders’ equity: Common shares of beneficial interest, $ .01 par value; 200,000,000 shares authorized; 165,768,058 and 165,769,595 shares issued and outstanding, respectively 1,658 1,658 Additional paid in capital 4,557,890 4,557,473 Cumulative other comprehensive income 1,974 2,318 Cumulative net income 2,392,117 2,470,500 Cumulative common distributions ( 5,838,970 ) ( 5,805,816 ) Total shareholders’ equity 1,114,669 1,226,133 Total liabilities and shareholders’ equity $ 7,231,519 $ 7,356,116 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents SERVICE PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands, except per share data) (unaudited) Three Months Ended March 31, 2024 2023 Revenues: Hotel operating revenues $ 336,236 $ 334,796 Rental income 100,014 94,413 Total revenues 436,250 429,209 Expenses: Hotel operating expenses 305,086 299,566 Net lease operating expenses 4,723 3,905 Depreciation and amortization 93,107 100,039 General and administrative 10,506 10,911 Transaction related costs — 887 Loss on asset impairment 2,451 — Total expenses 415,873 415,308 (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, 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 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 loss: Equity interest in investee’s unrealized losses ( 344 ) ( 214 ) Other comprehensive loss ( 344 ) ( 214 ) Comprehensive (loss) income $ ( 78,727 ) $ 25,736 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents SERVICE PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Number of Shares Common Shares Cumulative Common Distributions Additional Paid in Capital Cumulative Net Income Cumulative Other Comprehensive Income Total 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 interest in investee’s unrealized losses — — — — — ( 344 ) ( 344 ) Common share grants — — — 430 — — 430 Common share repurchases ( 1,537 ) — — ( 13 ) — — ( 13 ) Distributions — — ( 33,154 ) — — — ( 33,154 ) 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 interest in investee’s unrealized losses — — — — — ( 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents SERVICE PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended March 31, 2024 2023 Cash flows from 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 Net amortization of debt issuance costs, discounts and premiums as interest 7,226 5,232 Straight line rental income ( 5,768 ) 2,448 Loss on early extinguishment of debt — 44 Loss on asset impairment 2,451 — Gains on equity securities, net — ( 49,430 ) 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: Due from related persons ( 15,024 ) ( 16,889 ) Other assets ( 1,801 ) 4,254 Accounts payable and other liabilities ( 6,077 ) ( 18,492 ) Due to related persons ( 4,033 ) ( 2,325 ) Net cash (used in) provided by operating activities ( 926 ) 12,373 Cash flows from investing activities: Real estate improvements ( 76,261 ) ( 28,551 ) Hotel managers’ purchases with restricted cash ( 1,002 ) ( 1,558 ) Net proceeds from sale of real estate 5,826 144,361 Investment in Sonesta ( 3,392 ) — Net cash (used in) provided by investing activities ( 74,829 ) 114,252 Cash flows from financing activities: Proceeds from mortgage notes payable, net of discounts — 576,946 Repayment of mortgage notes payable ( 489 ) ( 163 ) Repayment of senior unsecured notes — ( 500,000 ) 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) 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 Cash and cash equivalents and restricted cash at end of period $ 87,326 $ 195,836 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 amounts shown in the condensed consolidated statements of cash flows: Cash and cash equivalents $ 71,287 $ 180,616 Restricted cash (1) 16,039 15,220 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 as required by certain of our debt agreements. Supplemental cash flow information: Cash paid for interest $ 82,664 $ 91,614 Cash paid for income taxes $ 115 $ 37 Non-cash investing activities: Real estate improvements accrued, not paid $ 39,705 $ 10,642 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (unaudited) Note 1. 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 March 31, 2024, we owned, directly and through our subsidiaries, 220 hotels and 749 service-focused retail net lease properties. Basis of Presentation The accompanying condensed consolidated financial statements of us are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. 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 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. These condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are 100 % owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for credit losses, purchase price allocations, useful lives of fixed assets 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 ™ , or ASC . 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 $ 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. Note 2. 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. ASU No. 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. 7 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) 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. ASU No. 2023-09 should be applied prospectively but entities have the option to apply it retrospectively to all prior periods presented in the financial statements. ASU No. 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. Note 3. Revenue Recognition We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income (loss). We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided. 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 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 $ 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. 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. Note 4. 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, 2024 2023 Numerators: 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 8 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) Note 5. Real Estate Properties 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. Dispositions 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 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 ) 4 84 / 34,849 $ 6,247 $ ( 2,963 ) 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. Note 6. Management Agreements and Leases 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. 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. 9 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) Hotel Agreements Sonesta Agreement. 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. 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 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 $ 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 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 7 and 11 for further information regarding our relationships, agreements and transactions with Sonesta. 10 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) Hyatt Agreement. 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 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 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 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 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. 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 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. 11 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) TA Leases. 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 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. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. 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 $ 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. The review includes an assessment of whether substantially all of the amounts due under a tenant’s lease are probable of collection. For leases that are deemed probable of collection, revenue continues to be recorded on a straight line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as cash is received. We recognize all changes in the collectability assessment for an operating lease as an adjustment to rental income. We recorded reserves for uncollectable amounts and 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. 12 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) Note 7. Other Investments Equity Method Investment 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 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 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 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. Note 8. Indebtedness 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 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. 13 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) 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 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. 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. Our net lease mortgage notes are summarized below: 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 Class B 172,531 5.55 % 5 February 2028 Class C 132,200 6.70 % 5 February 2028 Total / weighted average $ 608,079 5.60 % 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 $ 65,070 and had an aggregate undepreciated carrying value of $ 754,006 as of March 31, 2024. 14 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) Note 9. Shareholders’ Equity Share Purchases 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 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 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. Note 10. Business and Property Management Agreements with RMR We have no employees. The personnel and various services we require to operate our business are provided to us by RMR. We have two agreements with RMR to provide management services to us: (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. 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. We did not incur an incentive fee payable to RMR for the year ended December 31, 2023. We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). 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. 15 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) 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). Note 11. Related Person Transactions We have relationships and historical and continuing transactions with TA, Sonesta, RMR, The RMR Group, Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. 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 subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR. John G. 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. Mr. 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. 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 6 and 7 for further information regarding our relationships, agreements and transactions with TA. Sonesta. Sonesta is a private company. Mr. Portnoy is the largest owner and controlling shareholder and a director of Sonesta. Mr. Murray is a director of Sonesta and is its president and chief executive officer, and he is an officer and employee of RMR. Sonesta’s other director serves as RMR’s and RMR Inc.’s executive vice president, general counsel and secretary, as a managing director of RMR Inc. and as our Secretary. 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. Our Manager, RMR. We have two agreements with RMR to provide management services to us. See Note 10 for further information regarding our management agreements with RMR. For further information about these and certain other such relationships and certain other related person transactions, refer to our 2023 Annual Report. Note 12. Income Taxes We have elected to be taxed as a REIT under the United States Internal Revenue Code of 1986, as amended, or the IRC, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We are subject to income tax in Canada, Puerto Rico and certain states despite our qualification for taxation as a REIT. 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 (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. 16 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) 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. Note 13. 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. Three Months Ended March 31, 2024 Hotels Net Lease Corporate Consolidated Revenues: Hotel operating revenues $ 336,236 $ — $ — $ 336,236 Rental income — 100,014 — 100,014 Total revenues 336,236 100,014 — 436,250 Expenses: Hotel operating expenses 305,086 — — 305,086 Net lease operating expenses — 4,723 — 4,723 Depreciation and amortization 55,086 38,021 — 93,107 General and administrative — — 10,506 10,506 Loss on asset impairment — 2,451 — 2,451 Total expenses 360,172 45,195 10,506 415,873 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 ) (Loss) income before income tax expense and equity in losses of an investee ( 24,709 ) 41,280 ( 88,609 ) ( 72,038 ) Income tax expense — — ( 1,007 ) ( 1,007 ) Equity in losses of an investee — — ( 5,338 ) ( 5,338 ) Net (loss) income $ ( 24,709 ) $ 41,280 $ ( 94,954 ) $ ( 78,383 ) As of March 31, 2024 Hotels Net Lease Corporate Consolidated Total assets $ 3,971,296 $ 3,046,807 $ 213,416 $ 7,231,519 17 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) Three Months Ended March 31, 2023 Hotels Net Lease Corporate Consolidated Revenues: Hotel operating revenues $ 334,796 $ — $ — $ 334,796 Rental income — 94,413 — 94,413 Total revenues 334,796 94,413 — 429,209 Expenses: Hotel operating expenses 299,566 — — 299,566 Net lease operating expenses — 3,905 — 3,905 Depreciation and amortization 53,385 46,654 — 100,039 General and administrative — — 10,911 10,911 Transaction related costs — — 887 887 Total expenses 352,951 50,559 11,798 415,308 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 Interest expense — ( 6,322 ) ( 75,258 ) ( 81,580 ) Loss on early extinguishment of debt — — ( 44 ) ( 44 ) 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 As of December 31, 2023 Hotels Net Lease Corporate Consolidated Total assets $ 3,943,213 $ 3,084,686 $ 328,217 $ 7,356,116 18 Table of Contents SERVICE PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share amounts) (unaudited) Note 14. Fair Value of Assets and Liabilities 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 Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Non-recurring Fair Value Measurement Assets: Assets of properties held for sale (1) $ 1,863 $ — $ — $ 1,863 (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). 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, senior notes and security deposits. 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) Fair Value Carrying Value (1) Fair Value Senior Unsecured Notes, due 2025 at 4.50 % $ 349,353 $ 341,950 $ 349,181 $ 341,688 Senior Unsecured Notes, due 2025 at 7.50 % 796,591 810,784 796,007 808,888 Senior Unsecured Notes, due 2026 at 5.25 % 347,883 338,587 347,601 339,780 Senior Unsecured Notes, due 2026 at 4.75 % 448,499 419,436 448,347 419,909 Senior Unsecured Notes, due 2027 at 4.95 % 397,861 369,984 397,672 362,108 Senior Unsecured Notes, due 2027 at 5.50 % 445,913 428,958 445,631 412,002 Net Lease Mortgage Notes, due 2028 at 5.60 % 561,349 580,423 558,876 585,784 Senior Unsecured Notes, due 2028 at 3.95 % 395,643 342,336 395,355 327,708 Senior Unsecured Notes, due 2029 at 4.95 % 420,675 347,935 420,477 351,726 Senior Unsecured Notes, due 2030 at 4.375 % 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, 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. 19 Table of Contents