What changed in this filing

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Item 1. Financial Statements

2024-11-06 compared with 2024-08-06 · 183 added, 143 removed, 500 unchanged (39% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Real estate properties:

35 unchanged sentences

(amounts in thousands, except per share data)

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

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

2024 2023 2024 2023

9 unchanged sentences

Total expenses 446,495 428,528 1,336,815 1,274,235

(Loss) gain on sale of real estate, net ( 32 ) ( 62 ) ( 2,995 ) 41,836

(Loss) gain on equity securities, net — ( 593 ) — 48,837

Gain on sale of real estate, net 4,105 123 1,110 41,959

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

Interest income 537 5,626 3,318 11,880

2 unchanged sentences

Loss on early extinguishment of debt, net ( 133 ) — ( 16,181 ) ( 282 )

(Loss) income before income tax expense and equity in (losses) earnings of an investee ( 70,610 ) ( 6,548 ) ( 142,648 ) 19,843

Income tax expense ( 524 ) ( 5,247 ) ( 1,531 ) ( 1,467 )

Equity in (losses) earnings of an investee ( 2,716 ) 517 ( 8,054 ) ( 3,704 )

(Loss) income before income tax benefit (expense) and equity in earnings (losses) of an investee ( 49,941 ) ( 8,234 ) ( 192,589 ) 11,609

Income tax benefit (expense) 77 2,242 ( 1,454 ) 775

Equity in earnings (losses) of an investee 2,963 1,864 ( 5,091 ) ( 1,840 )

Net (loss) income ( 46,901 ) ( 4,128 ) ( 199,134 ) 10,544

Other comprehensive (loss) income:

Equity interest in investee’s unrealized (losses) gains ( 192 ) 215 ( 536 ) 1

Other comprehensive (loss) income ( 192 ) 215 ( 536 ) 1

Other comprehensive loss:

Equity interest in investee’s unrealized losses ( 286 ) ( 245 ) ( 822 ) ( 244 )

Other comprehensive loss ( 286 ) ( 245 ) ( 822 ) ( 244 )

Comprehensive (loss) income $ ( 47,187 ) $ ( 4,373 ) $ ( 199,956 ) $ 10,300

20 unchanged sentences

Balance at June 30, 2024 165,903,837 1,659 ( 5,872,122 ) 4,559,220 2,318,267 1,782 1,008,806

Net loss — — — — ( 46,901 ) — ( 46,901 )

Equity interest in investee’s unrealized losses — — — — — ( 286 ) ( 286 )

Common share grants 885,289 8 — 1,213 — — 1,221

Common share repurchases ( 137,674 ) ( 1 ) — ( 641 ) — — ( 642 )

Common share forfeitures ( 3,000 ) — — ( 1 ) — — ( 1 )

Distributions — — ( 33,178 ) — — — ( 33,178 )

Balance at September 30, 2024 166,648,452 $ 1,666 $ ( 5,905,300 ) $ 4,559,791 $ 2,271,366 $ 1,496 $ 929,019

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)

Number of Shares Common Shares Cumulative Common Distributions Additional Paid in Capital Cumulative

Net Income Cumulative Other Comprehensive Income Total

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

13 unchanged sentences

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

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

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

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

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

8 unchanged sentences

Equity in losses of an investee 5,091 1,840

Loss (gain) on sale of real estate, net 2,995 ( 41,836 )

Gain on sale of real estate, net ( 1,110 ) ( 41,959 )

Other non-cash income, net ( 1,035 ) ( 897 )

27 unchanged sentences

Cash and cash equivalents and restricted cash at end of period $ 62,846 $ 435,528

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

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)

Nine Months Ended September 30,

Supplemental disclosure of cash and cash equivalents and restricted cash:

12 unchanged sentences

Extinguishment of senior unsecured notes $ ( 2,569 ) $ —

$ ( 2,569 ) $ —

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

4 unchanged sentences

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

At June 30, 2024, we owned, directly and through our subsidiaries, 220 hotels and 749 service-focused retail net lease properties.

At September 30, 2024, we owned, directly and through our subsidiaries, 214 hotels and 745 service-focused retail net lease properties.

Basis of Presentation

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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 $ 165,766 and $ 142,789 as of June 30, 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 $ 107,250 and $ 81,262 as of June 30, 2024 and December 31, 2023, respectively, and consist primarily of amounts payable to certain of our hotel managers.

The assets of our TRSs were $ 156,875 and $ 142,789 as of September 30, 2024 and December 31, 2023, respectively, and consist primarily of our TRSs’ investment in Sonesta International Hotels Corporation’s, or, collectively with its parent and subsidiaries, Sonesta’s, common stock and amounts due from and working capital advances to certain of our hotel managers.

The liabilities of our TRSs were $ 95,849 and $ 81,262 as of September 30, 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.

10 unchanged sentences

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.

We expect to include additional disclosures in the notes to our condensed consolidated financial statements as a result of the implementation of ASU No.

however, these changes are not expected to have a material effect on our condensed consolidated financial statements.

SERVICE PROPERTIES TRUST

15 unchanged sentences

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

We increased rental income by $ 4,778 and $ 2,767 for the three months ended June 30, 2024 and 2023, respectively, and increased rental income by $ 10,546 and $ 319 for the six months ended June 30, 2024 and 2023, respectively, to record scheduled rent changes under certain of our leases on a straight line basis.

Other assets, net, includes $ 70,479 and $ 56,833 of straight line rent receivables at June 30, 2024 and December 31, 2023, respectively.

We increased rental income by $ 4,030 and $ 6,548 for the three months ended September 30, 2024 and 2023, respectively, and increased rental income by $ 14,576 and $ 6,867 for the nine months ended September 30, 2024 and 2023, respectively, to record scheduled rent changes under certain of our leases on a straight line basis.

Other assets, net, includes $ 76,059 and $ 56,833 of straight line rent receivables at September 30, 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 $ 471 and $ 4,449 for the three months ended June 30, 2024 and 2023, respectively, and $ 1,015 and $ 4,792 for the six months ended June 30, 2024 and 2023, respectively.

We recorded percentage rent of $ 1,055 and $ 591 for the three months ended September 30, 2024 and 2023, respectively, and $ 2,070 and $ 5,383 for the nine months ended September 30, 2024 and 2023, respectively.

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

4 unchanged sentences

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.

For the three and six months ended June 30, 2024 and 2023, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

For the three and nine months ended September 30, 2024 and 2023, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

Real Estate Properties

As of June 30, 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 $ 9,807,697 , including $ 229,982 related to properties classified as held for sale as of June 30, 2024.

We funded capital improvements to certain of our properties of $ 135,124 during the six months ended June 30, 2024.

During the six months ended June 30, 2024, we sold four properties for an aggregate sales price of $ 6,247 , excluding closing costs.

As of September 30, 2024, we owned 214 hotels with an aggregate of 36,875 rooms or suites and 745 service-focused retail net lease properties with an aggregate of 13,332,131 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 $ 9,757,372 , including $ 181,070 related to properties classified as held for sale as of September 30, 2024.

We funded capital improvements to certain of our properties of $ 217,108 during the nine months ended September 30, 2024.

During the nine months ended September 30, 2024, we sold 14 properties for an aggregate sales price of $ 54,747 , 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.

3 unchanged sentences

(dollars in thousands, except per share amounts)

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

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

Q1 2024 Hotel 1 84 $ 3,315 $ ( 863 )

Q1 2024 Net Lease 3 34,849 2,932 ( 2,132 )

Q3 2024 Hotel 6 822 44,900 5,283

Q3 2024 Net Lease 4 52,088 3,600 ( 1,178 )

14 906 / 86,937

$ 54,747 $ 1,110

As of June 30, 2024, we had 20 hotels with an aggregate of 2,541 keys and an aggregate carrying value of $ 107,044 and 13 net lease properties with an aggregate of 142,329 square feet and an aggregate carrying value of $ 7,169 classified as held for sale.

As of September 30, 2024, we had 16 hotels with an aggregate of 2,010 keys and an aggregate carrying value of $ 81,935 and 10 net lease properties with an aggregate of 136,241 square feet and an aggregate carrying value of $ 3,148 classified as held for sale.

See Note 14 for further information on these properties.

From July 1, 2024 through August 2, 2024, we sold two hotels with an aggregate of 346 keys for an aggregate sales price of $ 10,800 , excluding closing costs, and three vacant net lease properties with an aggregate of 9,388 square feet for an aggregate sales price of $ 1,800 , excluding closing costs.

As of August 2, 2024, we have entered into agreements to sell 16 hotels with an aggregate of 1,930 keys for an aggregate sales price of $ 113,200 , excluding closing costs, and one net lease property with 3,381 square feet for a sales price of $ 1,250 , excluding closing costs.

From October 1, 2024 through November 4, 2024, we sold five hotels with an aggregate of 642 keys for an aggregate sales price of $ 32,200 , excluding closing costs.

As of November 4, 2024, we have entered into agreements to sell eight hotels with an aggregate of 985 keys for an aggregate sales price of $ 44,150 , excluding closing costs, and one net lease property with 3,381 square feet for a sales price of $ 1,000 , excluding closing costs.

These pending sales are subject to conditions;

3 unchanged sentences

Management Agreements and Leases

As of June 30, 2024, we owned 220 hotels included in four operating agreements and 749 service-focused retail properties net leased to 178 tenants.

As of September 30, 2024, we owned 214 hotels included in four operating agreements and 745 service-focused retail properties net leased to 176 tenants.

We do not operate any of our properties.

As of June 30, 2024, all 220 of our hotels were managed by subsidiaries of the following companies:

As of September 30, 2024, all 214 of our hotels were managed by subsidiaries of the following companies:

Sonesta ( 189 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 June 30, 2024, we owned 749 service-focused retail net lease properties with 178 tenants, including 175 travel centers leased to TA, our largest tenant.

As of September 30, 2024, we owned 745 service-focused retail net lease properties with 176 tenants, including 175 travel centers leased to TravelCenters of America Inc., or TA, our largest tenant.

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

4 unchanged sentences

Sonesta Agreement.

As of June 30, 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 50.1 % of our total historical real estate investments.

As of September 30, 2024, Sonesta managed 39 of our full-service hotels, 107 of our extended stay hotels and 43 of our select service hotels pursuant to management agreements for all of the hotels, which we collectively refer to as our Sonesta agreement.

As of September 30, 2024, the hotels Sonesta managed for us comprised approximately 50.1 % 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.

1 unchanged sentence

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

We realized returns under our Sonesta agreement of $ 75,130 and $ 84,899 during the three months ended June 30, 2024 and 2023, respectively, and $ 102,505 and $ 115,136 during the six months ended June 30, 2024 and 2023, respectively.

We realized returns under our Sonesta agreement of $ 54,554 and $ 67,868 during the three months ended September 30, 2024 and 2023, respectively, and $ 157,059 and $ 183,004 during the nine months ended September 30, 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 $ 106,366 and $ 54,209 during the six months ended June 30, 2024 and 2023, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 6,382 and $ 3,253 , respectively.

Our annual priority return under our Sonesta agreement as of June 30, 2024 was $ 360,353 .

We owed Sonesta $ 7,883 and $ 13,300 for capital expenditures and other reimbursements at June 30, 2024 and December 31, 2023, respectively.

Sonesta owed us $ 28,959 and $ 6,376 in owner’s priority returns and other amounts as of June 30, 2024 and December 31, 2023, respectively.

We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $ 182,493 and $ 97,745 during the nine months ended September 30, 2024 and 2023, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 10,950 and $ 5,864 , respectively.

Our annual priority return under our Sonesta agreement as of September 30, 2024 was $ 357,295 .

We owed Sonesta $ 12,978 and $ 13,300 for capital expenditures and other reimbursements at September 30, 2024 and December 31, 2023, respectively.

Sonesta owed us $ 20,139 and $ 6,376 in owner’s priority returns and other amounts as of September 30, 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 of the three or six months ended June 30, 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 $ 32,969 and $ 32,121 for the three months ended June 30, 2024 and 2023, respectively, and $ 59,984 and $ 58,257 for the six months ended June 30, 2024 and 2023, respectively.

No FF&E escrow deposits were required during either of the three or nine months ended September 30, 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 $ 31,500 and $ 32,055 for the three months ended September 30, 2024 and 2023, respectively, and $ 91,484 and $ 90,312 for the nine months ended September 30, 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 $ 587 and $ 341 for the three months ended June 30, 2024 and 2023, respectively, and $ 987 and $ 548 for the six months ended June 30, 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.

In addition, we incurred procurement and construction supervision fees payable to Sonesta of $ 805 and $ 459 for the three months ended September 30, 2024 and 2023, respectively, and $ 1,792 and $ 1,007 for the nine months ended September 30, 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 June 30, 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.

As of September 30, 2024 and December 31, 2023, we had advanced $ 47,470 and $ 48,490 , 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, net in our condensed consolidated balance sheets.

5 unchanged sentences

Hyatt Agreement.

As of June 30, 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 June 30, 2024, we are to be paid an annual owner’s priority return of $ 16,958 .

As of September 30, 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 September 30, 2024, we are to be paid an annual owner’s priority return of $ 17,062 .

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 returns of $ 3,314 and $ 4,388 during the three months ended June 30, 2024 and 2023, respectively, and $ 2,206 and $ 6,711 during the six months ended June 30, 2024 and 2023, respectively, under our Hyatt agreement.

We realized returns of $ 2,037 and $ 2,974 during the three months ended September 30, 2024 and 2023, respectively, and $ 4,243 and $ 9,685 during the nine months ended September 30, 2024 and 2023, respectively, 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 six months ended June 30, 2024 and 2023, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 23,377 and $ 454 , respectively, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 1,403 and $ 27 , respectively.

During the nine months ended September 30, 2024 and 2023, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 25,113 and $ 17,652 , respectively, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $ 1,507 and $ 1,059 , respectively.

Radisson Agreement .

As of June 30, 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 $ 10,898 .

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 third quarter of 2024.

We realized returns under our Radisson agreement of $ 1,789 and $ 1,799 during the three months ended June 30, 2024 and 2023, respectively, and $ 3,240 and $ 3,364 during the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2023, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for these periods, and we reduced hotel operating expenses by $ 140 to record the guaranteed amounts of the shortfalls due from Radisson.

The available balance of the guaranty was $ 21,350 as of June 30, 2024.

During the six months ended June 30, 2024 and 2023, we incurred capital expenditures of $ 544 and $ 4,749 , respectively, for the hotels included in our Radisson agreement, which resulted in an aggregate increase in our contractual owner’s priority returns of $ 32 and $ 285 , respectively.

Marriott Agreement .

As of June 30, 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 six months ended June 30, 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 six months ended June 30, 2023.

As of September 30, 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 $ 10,908 .

We realized returns under our Radisson agreement of $ 2,160 and $ 2,364 during the three months ended September 30, 2024 and 2023, respectively, and $ 5,400 and $ 5,728 during the nine months ended September 30, 2024 and 2023, respectively.

During the nine months ended September 30, 2024 and 2023, the hotels under this agreement generated cash flows that exceeded the guaranteed owner’s priority level due to us for these periods.

The available balance of the guaranty was $ 21,350 as of September 30, 2024.

During the nine months ended September 30, 2024 and 2023, we incurred capital expenditures of $ 714 and $ 6,898 , respectively, for the hotels included in our Radisson agreement, which resulted in an aggregate increase in our contractual owner’s priority returns of $ 42 and $ 414 , respectively.

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 $ 1,536 and $ 1,517 during the three months ended June 30, 2024 and 2023, respectively, and $ 3,129 and $ 2,280 during the six months ended June 30, 2024 and 2023, respectively.

We realized returns under our management agreement with IHG of $ 1,189 and $ 1,482 during the three months ended September 30, 2024 and 2023, respectively, and $ 4,318 and $ 3,762 during the nine months ended September 30, 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 six months ended June 30, 2024 and 2023, we incurred capital expenditures of $ 221 and $ 328 , respectively, for the hotel included in our IHG agreement.

During the nine months ended September 30, 2024 and 2023, we incurred capital expenditures of $ 700 and $ 373 , respectively, for the hotel included in our IHG agreement.

Net Lease Portfolio

As of June 30, 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 $ 380,457 with a weighted (by annual minimum rents) average remaining lease term of 8.4 years.

As of September 30, 2024, we owned 745 service-focused retail net lease properties with an aggregate of 13,332,131 square feet with leases requiring annual minimum rents of $ 380,034 with a weighted (by annual minimum rents) average remaining lease term of 8.3 years.

Our net lease properties were 97.6 % occupied and leased by 176 tenants operating under 137 brands in 21 distinct industries.

2 unchanged sentences

(dollars in thousands, except per share amounts)

As of June 30, 2024, TA is our largest tenant, representing 28.5 % 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 $ 259,080 as of June 30, 2024.

As of September 30, 2024, TA is our largest tenant, representing 28.6 % of our total historical real estate investments.

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.

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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 June 30, 2024.

We recognized rental income from our TA leases of $ 67,834 and $ 65,260 for the three months ended June 30, 2024 and 2023, respectively, and $ 135,668 and $ 127,401 for the six months ended June 30, 2024 and 2023, respectively.

Rental income was increased by $ 3,885 and $ 2,555 for the three months ended June 30, 2024 and 2023, respectively, and increased by $ 8,194 and reduced by $ 686 for the six months ended June 30, 2024 and 2023, respectively, to record the scheduled rent changes on a straight line basis.

As of June 30, 2024 and December 31, 2023, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 30,872 and $ 19,816 , respectively, included in other assets, net in our condensed consolidated balance sheets.

guarantees payment under each of the TA leases, limited to an aggregate cap which was $ 3,037,475 as of September 30, 2024.

We recognized rental income from our TA leases of $ 67,834 and $ 67,809 for the three months ended September 30, 2024 and 2023, respectively, and $ 203,502 and $ 195,210 for the nine months ended September 30, 2024 and 2023, respectively.

Rental income was increased by $ 3,039 and $ 4,309 for the three months ended September 30, 2024 and 2023, respectively, and increased by $ 11,233 and $ 3,623 for the nine months ended September 30, 2024 and 2023, respectively, to record the scheduled rent changes on a straight line basis.

As of September 30, 2024 and December 31, 2023, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 35,374 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 three and six months ended June 30, 2023 under our TA leases.

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

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

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

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

2 unchanged sentences

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

We recognized rental income from our net lease properties (excluding TA) of $ 32,628 and $ 34,192 for the three months ended June 30, 2024 and 2023, respectively, which included $ 893 and $ 212 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis, and $ 64,808 and $ 66,464 for the six months ended June 30, 2024 and 2023, respectively, which included $ 2,352 and $ 1,005 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis.

We recognized rental income from our net lease properties (excluding TA) of $ 32,402 and $ 33,490 for the three months ended September 30, 2024 and 2023, respectively, which included $ 991 and $ 2,239 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis, and $ 97,210 and $ 99,954 for the nine months ended September 30, 2024 and 2023, respectively, which included $ 3,343 and $ 3,244 , 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.

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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 $ 377 and $ 1,042 for the three and six months ended June 30, 2024, respectively, based on our assessment of the collectability of rents.

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

We had reserves for uncollectable rents of $ 4,366 and $ 3,436 as of June 30, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.

We recorded reserves for uncollectable amounts and reduced rental income by $ 515 and $ 1,557 for the three and nine months ended September 30, 2024, respectively, based on our assessment of the collectability of rents.

We reduced reserves for uncollectable amounts and increased rental income by $ 1,041 for the three months ended September 30, 2023 and recorded reserves for uncollectible amounts 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 had reserves for uncollectable rents of $ 4,872 and $ 3,436 as of September 30, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.

SERVICE PROPERTIES TRUST

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Equity Method Investment

As of both June 30, 2024 and December 31, 2023, we owned 34 % of Sonesta’s outstanding common stock.

As of both September 30, 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 June 30, 2024 and December 31, 2023, our investment in Sonesta had a carrying value of $ 108,106 and $ 113,304 , respectively.

As of September 30, 2024 and December 31, 2023, our investment in Sonesta had a carrying value of $ 110,783 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 June 30, 2024 and 2023 and $ 130 in each of the six months ended June 30, 2024 and 2023.

We recognized losses related to our investment in Sonesta of $ 2,716 and earnings of $ 517 for the three months ended June 30, 2024 and 2023, respectively, and losses of $ 8,054 and $ 3,704 for the six months ended June 30, 2024 and 2023, respectively.

We recorded amortization of the basis difference of $ 65 in each of the three months ended September 30, 2024 and 2023 and $ 195 in each of the nine months ended September 30, 2024 and 2023.

We recognized earnings related to our investment in Sonesta of $ 2,963 and $ 1,864 for the three months ended September 30, 2024 and 2023, respectively, and losses of $ 5,091 and $ 1,840 for the nine months ended September 30, 2024 and 2023, respectively.

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

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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 June 30, 2024 and 2023 and $ 1,242 for each of the six months ended June 30, 2024 and 2023 for amortization of this liability.

As of June 30, 2024 and December 31, 2023, the unamortized balance of this liability was $ 31,237 and $ 32,479 , respectively.

We reduced hotel operating expenses by $ 621 for each of the three months ended September 30, 2024 and 2023 and $ 1,863 for each of the nine months ended September 30, 2024 and 2023 for amortization of this liability.

As of September 30, 2024 and December 31, 2023, the unamortized balance of this liability was $ 30,616 and $ 32,479 , respectively.

In March 2024, we made a $ 3,392 pro rata capital contribution to Sonesta to support its growth initiatives, including its franchising efforts.

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

We recorded a loss of $ 593 during the three months ended June 30, 2023, and a gain of $ 48,837 during the six months ended June 30, 2023 to adjust the carrying value of our former investment in shares of TA common stock to its fair value.

Our principal debt obligations at June 30, 2024 were:

We recorded a gain of $ 48,837 during the nine months ended September 30, 2023 to adjust the carrying value of our former investment in shares of TA common stock to its fair value.

Our principal debt obligations at September 30, 2024 were:

(1) $ 4,075,000 aggregate outstanding principal amount of senior unsecured notes;

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and (3) $ 607,101 aggregate outstanding principal amount of net lease mortgage notes.

We had no amounts outstanding under our revolving credit facility as of June 30, 2024.

We had no amounts outstanding under our revolving credit facility as of September 30, 2024.

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

4 unchanged sentences

(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 June 30, 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 72 properties, including 69 hotels and three net lease properties, with an aggregate undepreciated carrying value of $ 1,738,959 as of June 30, 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 70 properties, including 67 hotels and three net lease properties, with an aggregate undepreciated carrying value of $ 1,720,032 as of September 30, 2024.

During the three months ended September 30, 2024, we sold two hotels that served as collateral under our revolving credit facility.

In connection with the sales of these hotels, the hotels were released from the collateral pool in accordance with the terms of our revolving credit facility.

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

As of June 30, 2024 and 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.83 % and 7.64 %, respectively.

We had no borrowings outstanding under our revolving credit facility for either the three or six months ended June 30, 2024 or 2023.

As of September 30, 2024 and 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.46 % and 7.93 %, respectively.

We had no borrowings outstanding under our revolving credit facility for either the three or nine months ended September 30, 2024 or 2023.

Availability under our revolving credit facility is partially based on the performance of the properties serving as collateral under the facility.

Based on recent and near term expectations of performance of certain of the collateral properties, we and our lenders amended the credit facility in October 2024 to temporarily reduce the required collateral property debt yield from 12 % to 8.5 % from September 30, 2024 through December 31, 2024, and increase the required collateral property debt yield to 9.5 % for the quarter ending March 31, 2025;

10 % for the quarter ending June 30, 2025;

11 % for the quarter ending September 30, 2025;

and 12 % for the quarter ending December 31, 2025 and thereafter.

Subject to meeting these revised collateral property debt yield levels and meeting other conditions, we currently have full access to undrawn amounts under our revolving credit facility.

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.

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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 June 30, 2024.

We believe we were in compliance with the terms and conditions of our debt agreements as of September 30, 2024.

Senior Guaranteed Unsecured Notes Issuance

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In June 2024, we redeemed all of our outstanding 7.50 % senior unsecured notes due 2025 for a redemption price equal to the principal amount of $ 800,000 , plus accrued and unpaid interest and a premium equal to a make whole amount.

As a result of the redemption, we recorded a loss on early extinguishment of debt of $ 17,681 during the three and six months ended June 30, 2024, which represented the make whole premium and the write-off of unamortized discounts and issuance costs related to these notes.

As a result of the redemption, we recorded a loss on early extinguishment of debt of $ 17,681 during the nine months ended September 30, 2024, which represented the make whole premium and the write-off of unamortized discounts and issuance costs related to these notes.

In June 2024, we repurchased $ 272,803 principal amount of our $ 350,000 4.50 % senior unsecured notes due 2025 at a total cost of $ 270,396 , excluding accrued interest, pursuant to a cash tender offer.

Also in June 2024, we effected the satisfaction and discharge of the remaining $ 77,197 principal amount of our $ 350,000 4.50 % senior unsecured notes due 2025 that were not purchased as part of the tender offer in accordance with its terms.

As a result of these transactions, we recorded a gain on early extinguishment of debt of $ 1,633 during the three and six months ended June 30, 2024, which represented the discount to par paid to repurchase the notes, net of the write-off of unamortized discounts and issuance costs related to these notes .

As a result of these transactions, we recorded a gain on early extinguishment of debt of $ 1,500 during the nine months ended September 30, 2024, which represented the discount to par paid to repurchase the notes, net of the write-off of unamortized discounts and issuance costs related to these notes .

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Net Lease Mortgage Notes

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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 (Continued)

(dollars in thousands, except per share amounts)

Our net lease mortgage notes are summarized below:

Note Class Principal Outstanding as of June 30, 2024

Note Class Principal Outstanding as of September 30, 2024

Coupon Rate Initial Term (in years) Maturity

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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 $ 65,173 and had an aggregate undepreciated carrying value of $ 753,474 as of June 30, 2024.

The notes are non-recourse and, as of September 30, 2024, were secured by 308 net lease retail properties owned by the Issuer.

As of September 30, 2024, the current leases relating to those properties required annual minimum rents of $ 64,822 and had an aggregate undepreciated carrying value of $ 754,290 .

In October 2024, the Issuer substituted six net lease retail properties with an aggregate undepreciated carrying value of $ 13,645 as of September 30, 2024 for 13 unencumbered net lease retail properties with an aggregate undepreciated carrying value of $ 19,232 as of September 30, 2024.

Following the substitution, the net lease mortgage notes are secured by 315 net lease retail properties owned by the Issuer and require annual minimum rents of $ 66,173 and had an aggregate undepreciated carrying value of $ 759,877 as of September 30, 2024.

Shareholders’ Equity

On June 14, 2024, in accordance with our Trustee compensation arrangements, we awarded 18,255 of our common shares, valued at $ 4.93 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 11, 2024, we awarded under our equity compensation plan an aggregate of 885,289 of our common shares, valued at $ 4.43 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR and certain employees of Sonesta.

Share Purchases

During the six months ended June 30, 2024, we purchased an aggregate of 11,798 of our common shares, valued at a weighted average share price of $ 6.66 per common share, from certain former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

During the nine months ended September 30, 2024, we purchased an aggregate of 149,472 of our common shares, valued at a weighted average share price of $ 4.82 per common share, from our officers and certain other current and former officers and employees of RMR and certain employees of Sonesta 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 Nasdaq on the applicable purchase dates.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Distributions

During the six months ended June 30, 2024, we declared and paid regular quarterly distributions to common shareholders as follows:

During the nine months ended September 30, 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

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April 11, 2024 April 22, 2024 May 16, 2024 0.20 33,152

July 11, 2024 July 22, 2024 August 15, 2024 0.20 33,178

$ 0.60 $ 99,484

On July 11, 2024, we declared a regular quarterly distribution to common shareholders of record as of July 22, 2024 of $ 0.20 per common share, or approximately $ 33,178 .

We expect to pay this distribution on or about August 15, 2024.

On October 16, 2024, we declared a regular quarterly distribution to common shareholders of record as of October 28, 2024 of $ 0.01 per common share, or approximately $ 1,666 .

We expect to pay this distribution on or about November 14, 2024.

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.

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 7,440 and $ 8,287 for the three months ended June 30, 2024 and 2023, respectively, and $ 15,197 and $ 16,672 for the six months ended June 30, 2024 and 2023, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2024 and 2023, no incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2024 or 2023.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 7,411 and $ 8,287 for the three months ended September 30, 2024 and 2023, respectively, and $ 22,608 and $ 24,959 for the nine months ended September 30, 2024 and 2023, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of September 30, 2024 and 2023, no incentive fees are included in the net business management fees we recognized for the three and nine months ended September 30, 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.

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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 $ 2,839 and $ 1,846 for the three months ended June 30, 2024 and 2023, respectively, and $ 6,019 and $ 3,258 for the six months ended June 30, 2024 and 2023, respectively.

Of those amounts, for the three months ended June 30, 2024 and 2023, $ 1,505 and $ 937 , respectively, of property management fees were expensed to net lease operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,334 and $ 909 , respectively, of construction supervision fees were capitalized as building improvements in our condensed consolidated balance sheets.

For the six months ended June 30, 2024 and 2023, $ 2,989 and $ 1,882 , respectively, of property management fees were expensed to net lease operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 3,030 and $ 1,376 , respectively, of construction supervision fees were capitalized as building improvements in our condensed consolidated balance sheets.

Pursuant to our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $ 3,054 and $ 2,031 for the three months ended September 30, 2024 and 2023, respectively, and $ 9,073 and $ 5,289 for the nine months ended September 30, 2024 and 2023, respectively.

Of those amounts, for the three months ended September 30, 2024 and 2023, $ 1,514 and $ 923 , respectively, were expensed to net lease operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,540 and $ 1,108 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

Of the amounts for the nine months ended September 30, 2024 and 2023, $ 4,503 and $ 2,805 , respectively, were expensed to net lease operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 4,570 and $ 2,484 , respectively, 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.

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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 $ 1,032 and $ 1,116 for these expenses and costs for the three months ended June 30, 2024 and 2023, respectively, and $ 2,126 and $ 2,119 for these expenses and costs for the six months ended June 30, 2024 and 2023, respectively.

We reimbursed RMR $ 1,080 and $ 1,182 for these expenses and costs for the three months ended September 30, 2024 and 2023, respectively, and $ 3,206 and $ 3,301 for these expenses and costs for the nine months ended September 30, 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).

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Related Person Transactions

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

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

Sonesta is a private company.

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RMR also provides certain services to Sonesta.

As of June 30, 2024, we owned 34 % of Sonesta’s outstanding shares of common stock and Sonesta managed 195 of our hotels.

As of September 30, 2024, we owned 34 % of Sonesta’s outstanding shares of common stock and Sonesta managed 189 of our hotels.

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

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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.

During the three months ended June 30, 2024, we recognized income tax expense of $ 524 , which includes $ 88 of state tax expense and $ 436 of foreign tax expense.

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

During the six months ended June 30, 2024, we recognized income tax expense of $ 1,531 , which includes $ 709 of state tax expense and $ 822 of foreign tax expense.

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

During the three months ended September 30, 2024, we recognized income tax benefit of $ 77 , which includes $ 50 of state tax benefit and $ 27 of foreign tax benefit.

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

During the nine months ended September 30, 2024, we recognized income tax expense of $ 1,454 , which includes $ 659 of state tax expense and $ 795 of foreign tax expense.

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 tax expense.

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.

SERVICE PROPERTIES TRUST

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(dollars in thousands, except per share amounts)

Three Months Ended June 30, 2024

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 September 30, 2024

Hotels Net Lease Corporate Consolidated

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Total expenses 387,340 48,683 10,472 446,495

Loss on sale of real estate, net ( 27 ) ( 5 ) — ( 32 )

Gain (loss) on sale of real estate, net 5,283 ( 1,178 ) — 4,105

Interest income 63 — 474 537

1 unchanged sentence

Loss on early extinguishment of debt, net — — ( 133 ) ( 133 )

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

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

8,941 38,792 ( 97,674 ) ( 49,941 )

Income tax expense — — ( 524 ) ( 524 )

Equity in losses of an investee — — ( 2,716 ) ( 2,716 )

Net (loss) income $ ( 4,220 ) $ 42,029 $ ( 111,659 ) $ ( 73,850 )

Six Months Ended June 30, 2024

Income tax benefit — — 77 77

Equity in earnings of an investee — — 2,963 2,963

Net income (loss) $ 8,941 $ 38,792 $ ( 94,634 ) $ ( 46,901 )

Nine Months Ended September 30, 2024

Hotels Net Lease Corporate Consolidated

8 unchanged sentences

Total expenses 1,164,255 140,901 31,659 1,336,815

Loss on sale of real estate, net ( 863 ) ( 2,132 ) — ( 2,995 )

Gain (loss) on sale of real estate, net 4,420 ( 3,310 ) — 1,110

Interest income 190 138 2,990 3,318

5 unchanged sentences

Net (loss) income $ ( 19,988 ) $ 122,099 $ ( 301,245 ) $ ( 199,134 )

As of June 30, 2024

As of September 30, 2024

Hotels Net Lease Corporate Consolidated

3 unchanged sentences

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Hotels Net Lease Corporate Consolidated

9 unchanged sentences

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

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

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

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

Interest income 54 55 5,517 5,626

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

Loss on early extinguishment of debt — — ( 238 ) ( 238 )

Income (loss) before income tax expense and equity in earnings of an investee 41,346 32,214 ( 80,108 ) ( 6,548 )

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

Income (loss) before income tax benefit and equity in earnings of an investee 23,311 44,541 ( 76,086 ) ( 8,234 )

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 )

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Hotels Net Lease Corporate Consolidated

9 unchanged sentences

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

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

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

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

2 unchanged sentences

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

Income (loss) before income tax expense and equity in losses of an investee 65,119 70,578 ( 115,854 ) 19,843

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

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

Income tax benefit — — 775 775

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

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Fair Value of Assets and Liabilities

The table below presents certain of our assets carried at fair value at June 30, 2024, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

The table below presents certain of our assets carried at fair value at September 30, 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

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$ 35,394 $ — $ 33,993 $ 1,401

(1) We recorded impairment charges totaling $ 33,449 during the six months ended June 30, 2024, to reduce the carrying value of eight hotels and two net lease properties in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 1,497 , based on negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP).

(2) We recorded impairment charges totaling $ 3,889 during the six months ended June 30, 2024, to reduce the carrying value of three net lease properties in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 270 , based on brokers’ opinion of values (Level 3 inputs as defined in the fair value hierarchy under GAAP).

Assets of properties held and used (3)

$ 7,500 $ — $ — $ 7,500

(1) We recorded impairment charges totaling $ 14,583 during the nine months ended September 30, 2024, to reduce the carrying value of seven hotels in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 936 , based on negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP).

(2) We recorded impairment charges totaling $ 5,202 during the nine months ended September 30, 2024, to reduce the carrying value of three net lease properties in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 102 , based on brokers’ opinion of values (Level 3 inputs as defined in the fair value hierarchy under GAAP).

(3) We recorded impairment charges totaling $ 4,285 during the nine months ended September 30, 2024, to reduce the carrying value of one net lease property in our condensed consolidated balance sheet to its estimated fair value.

We determined the estimated fair value of this property by discounting expected future cash flows based on prevailing market rents and including an exit capitalization rate to determine the final year of cash flows.

Our assessment to determine the estimated fair value of this property used significant unobservable inputs (Level 3 inputs as defined in the fair value hierarchy under GAAP) including a discount rate of 7.0 % and an exit capitalization rate of 6.3 %.

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 June 30, 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:

June 30, 2024 December 31, 2023

At September 30, 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:

September 30, 2024 December 31, 2023

Carrying Value (1)

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

At June 30, 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 June 30, 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).

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

At September 30, 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 September 30, 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