Item 1. Financial Statements
Item 1. Financial Statements
SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
June 30, 2025 December 31, 2024
ASSETS
Real estate properties:
Land $ 1,735,709 $ 1,930,459
Buildings, improvements and equipment 6,115,921 7,682,885
Total real estate properties, gross 7,851,630 9,613,344
Accumulated depreciation ( 2,400,670 ) ( 3,238,636 )
Total real estate properties, net 5,450,960 6,374,708
Acquired real estate leases and other intangibles, net 100,481 107,956
Assets of properties held for sale
849,100 43,101
Cash and cash equivalents 63,176 143,482
Restricted cash 22,855 13,904
Equity method investment 111,653 115,818
Due from related persons 29,219 3,911
Other assets, net 305,068 316,678
Total assets $ 6,932,512 $ 7,119,558
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured debt, net $ 4,026,768 $ 4,020,347
Secured debt, net 1,692,494 1,690,356
Accounts payable and other liabilities 496,822 532,522
Due to related persons 13,941 24,118
Liabilities of properties held for sale
6,543 342
Total liabilities 6,236,568 6,267,685
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial interest, $ .01 par value; 200,000,000 shares authorized; 166,860,830 and 166,636,537 shares issued and outstanding, respectively
1,669 1,666
Additional paid in capital 4,562,021 4,560,334
Cumulative other comprehensive income 2,173 1,865
Cumulative net income 2,040,380 2,194,974
Cumulative common distributions ( 5,910,299 ) ( 5,906,966 )
Total shareholders’ equity 695,944 851,873
Total liabilities and shareholders’ equity $ 6,932,512 $ 7,119,558
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
Revenues:
Hotel operating revenues $ 404,405 $ 412,486 $ 739,368 $ 748,722
Rental income 99,031 100,462 199,247 200,476
Total revenues 503,436 512,948 938,615 949,198
Expenses:
Hotel operating expenses 328,913 328,247 634,753 633,333
Net lease operating expenses 5,439 4,958 11,067 9,681
Depreciation and amortization 75,030 95,674 164,130 188,781
General and administrative 10,218 10,681 19,774 21,187
Transaction related costs 1,345 — 1,456 —
Loss on asset impairment 17,654 34,887 54,721 37,338
Total expenses 438,599 474,447 885,901 890,320
(Loss) gain on sale of real estate, net ( 156 ) ( 32 ) 590 ( 2,995 )
Interest income 822 819 2,071 2,781
Interest expense (including amortization of debt issuance costs, discounts and premiums of $ 9,900 , $ 7,466 , $ 18,580 and $ 14,692 , respectively)
( 102,679 ) ( 93,850 ) ( 204,196 ) ( 185,264 )
Loss on early extinguishment of debt, net — ( 16,048 ) — ( 16,048 )
Loss before income tax expense and equity in losses of an investee ( 37,176 ) ( 70,610 ) ( 148,821 ) ( 142,648 )
Income tax expense ( 457 ) ( 524 ) ( 1,300 ) ( 1,531 )
Equity in losses of an investee ( 526 ) ( 2,716 ) ( 4,473 ) ( 8,054 )
Net loss ( 38,159 ) ( 73,850 ) ( 154,594 ) ( 152,233 )
Other comprehensive income (loss):
Equity interest in investee’s unrealized gains (losses) 155 ( 192 ) 308 ( 536 )
Other comprehensive income (loss) 155 ( 192 ) 308 ( 536 )
Comprehensive loss $ ( 38,004 ) $ ( 74,042 ) $ ( 154,286 ) $ ( 152,769 )
Weighted average common shares outstanding (basic and diluted) 165,743 165,198 165,679 165,178
Net loss per common share (basic and diluted) $ ( 0.23 ) $ ( 0.45 ) $ ( 0.93 ) $ ( 0.92 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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, 2024 166,636,537 $ 1,666 $ ( 5,906,966 ) $ 4,560,334 $ 2,194,974 $ 1,865 $ 851,873
Net loss — — — — ( 116,435 ) — ( 116,435 )
Equity interest in investee’s unrealized gains — — — — — 153 153
Common share grants 32,490 — — 664 — — 664
Common share repurchases ( 1,539 ) — — ( 4 ) — — ( 4 )
Common share forfeitures ( 20,767 ) — — ( 12 ) — — ( 12 )
Distributions — — ( 1,666 ) — — — ( 1,666 )
Balance at March 31, 2025 166,646,721 1,666 ( 5,908,632 ) 4,560,982 2,078,539 2,018 734,573
Net loss — — — — ( 38,159 ) — ( 38,159 )
Equity interest in investee’s unrealized gains — — — — — 155 155
Common share grants 282,975 3 — 1,136 — — 1,139
Common share repurchases ( 28,417 ) — — ( 59 ) — — ( 59 )
Common share forfeitures ( 40,449 ) — — ( 38 ) — — ( 38 )
Distributions — — ( 1,667 ) — — — ( 1,667 )
Balance at June 30, 2025 166,860,830 $ 1,669 $ ( 5,910,299 ) $ 4,562,021 $ 2,040,380 $ 2,173 $ 695,944
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
Net loss — — — — ( 73,850 ) — ( 73,850 )
Equity interest in investee’s unrealized losses — — — — — ( 192 ) ( 192 )
Common share grants 146,040 1 — 1,395 — — 1,396
Common share repurchases ( 10,261 ) — — ( 65 ) — — ( 65 )
Distributions — — ( 33,152 ) — — — ( 33,152 )
Balance at June 30, 2024 165,903,837 $ 1,659 $ ( 5,872,122 ) $ 4,559,220 $ 2,318,267 $ 1,782 $ 1,008,806
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Six Months Ended June 30,
2025 2024
Cash flows from operating activities:
Net loss $ ( 154,594 ) $ ( 152,233 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 164,130 188,781
Net amortization of debt issuance costs, discounts and premiums as interest 18,580 14,692
Straight line rental income ( 6,561 ) ( 10,546 )
Loss on early extinguishment of debt, net — 16,048
Loss on asset impairment 54,721 37,338
Equity in losses of an investee 4,473 8,054
(Gain) loss on sale of real estate, net ( 590 ) 2,995
Other non-cash income, net ( 990 ) ( 881 )
Changes in assets and liabilities:
Due from related persons ( 25,308 ) ( 22,583 )
Other assets 587 ( 4,214 )
Accounts payable and other liabilities ( 17,456 ) ( 29,829 )
Due to related persons 1,201 ( 4,729 )
Net cash provided by operating activities 38,193 42,893
Cash flows from investing activities:
Real estate improvements ( 107,991 ) ( 142,382 )
Hotel managers’ purchases with restricted cash ( 2,064 ) ( 2,869 )
Real estate acquisitions and deposits ( 31,353 ) —
Net proceeds from sale of real estate 47,101 5,844
Investment in Sonesta — ( 3,392 )
Net cash used in investing activities ( 94,307 ) ( 142,799 )
Cash flows from financing activities:
Repayment of mortgage notes payable ( 979 ) ( 979 )
Proceeds from senior unsecured notes, net of discounts — 1,165,007
Repayments of senior unsecured notes — ( 1,162,520 )
Borrowings under variable funding note 45,000 —
Borrowings under revolving credit facility 50,000 —
Repayments of revolving credit facility ( 100,000 ) —
Payment of debt issuance costs ( 5,866 ) ( 3,592 )
Repurchase of common shares ( 63 ) ( 78 )
Distributions to common shareholders ( 3,333 ) ( 66,306 )
Net cash used in financing activities ( 15,241 ) ( 68,468 )
Decrease in cash and cash equivalents and restricted cash ( 71,355 ) ( 168,374 )
Cash and cash equivalents and restricted cash at beginning of period 157,386 197,830
Cash and cash equivalents and restricted cash at end of period $ 86,031 $ 29,456
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(unaudited)
Six Months Ended June 30,
2025 2024
Supplemental cash flow information:
Cash paid for interest $ 185,533 $ 184,737
Cash paid for income taxes $ 1,897 $ 2,886
Non-cash investing activities:
Real estate improvements accrued, not paid $ 15,668 $ 37,499
Non-cash financing activities:
Extinguishment of senior unsecured notes $ — $ ( 2,569 )
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:
As of June 30,
2025 2024
Cash and cash equivalents $ 63,176 $ 14,626
Restricted cash (1)
22,855 14,830
Total cash and cash equivalents and restricted cash $ 86,031 $ 29,456
(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.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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 June 30, 2025, we owned, directly and through our subsidiaries, 200 hotels and 742 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, 2024, or our 2024 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. Certain prior period balances have been reclassified to conform to the current period presentation.
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 $ 164,817 and $ 144,079 as of June 30, 2025 and December 31, 2024, 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 $ 101,712 and $ 78,749 as of June 30, 2025 and December 31, 2024, 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
In December 2023, the FASB issued Accounting Standards Update, or 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 condensed consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, or ASU 2024-03, which requires public entities to disclose specific expense categories such as employee compensation, depreciation and intangible asset amortization. These details must be presented in a tabular format in the notes to financial statements for both interim and annual reporting periods. ASU 2024-03 is required to be applied prospectively but can be applied retrospectively, and is effective for the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact ASU 2024-03 will have on our condensed consolidated financial statements.
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SERVICE PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
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 $ 2,683 and $ 4,778 for the three months ended June 30, 2025 and 2024, respectively, and increased rental income by $ 6,561 and $ 10,546 for the six months ended June 30, 2025 and 2024, respectively, to record scheduled rent changes under certain of our leases on a straight line basis. Other assets, net, includes $ 90,969 and $ 81,574 of straight line rent receivables at June 30, 2025 and December 31, 2024, 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 $ 501 and $ 471 for the three months ended June 30, 2025 and 2024, respectively, and $ 1,347 and $ 1,015 for the six months ended June 30, 2025 and 2024, respectively.
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 common share. For the three and six months ended June 30, 2025 and 2024, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per common share because to do so would have been antidilutive.
Note 5. Real Estate Properties
As of June 30, 2025, we owned 200 hotels with an aggregate of 35,101 rooms or suites and 742 service-focused retail net lease properties with an aggregate of 13,162,020 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 book value of $ 9,541,028 , including $ 1,689,398 related to properties classified as held for sale as of June 30, 2025.
We funded capital improvements to certain of our properties of $ 84,944 and $ 135,124 during the six months ended June 30, 2025 and 2024, respectively.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Acquisitions
During the six months ended June 30, 2025, we acquired seven net lease properties with a total of 83,436 square feet for a combined purchase price of $ 29,923 , excluding closing costs. We accounted for these transactions as acquisitions of assets and allocated the purchase price based on the estimated fair value of the acquired assets as follows:
Quarter Acquired Property Type Number of Properties Square Feet Purchase Price (1)
Land Buildings, Improvements and Equipment Acquired Real Estate Leases
Q2 2025 Net Lease 7 83,436 $ 30,149 $ 6,036 $ 19,621 $ 4,492
(1) Purchase price is the gross contract price, plus closing costs of $ 226 .
From July 1, 2025 through August 1, 2025, we acquired seven net lease properties with a total of 54,141 square feet for a combined purchase price of $ 14,524 , excluding closing costs. We have also entered into agreements to acquire six net lease properties with a total of 13,250 square feet for a combined purchase price of $ 10,254 , excluding closing costs. These pending acquisitions are subject to conditions; accordingly, we cannot be sure that we will complete these acquisitions, that these acquisitions will not be delayed or that the terms will not change.
Dispositions
During the six months ended June 30, 2025, we sold 13 properties for a combined sales price of $ 49,296 , 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 (1)
Gain (Loss) on Sale of Real Estate, net
Q1 2025 Hotel 4 514 $ 19,600 $ 403
Q1 2025 Net Lease 3 103,043 3,100 343
Q2 2025 Hotel 2 258 12,900 1,883
Q2 2025 Net Lease 4 140,512 13,696 ( 2,039 )
13 772 / 243,555
$ 49,296 $ 590
(1) Gross sales price is the gross contract price, excluding closing costs.
As of June 30, 2025, we had 116 hotels with a total of 15,159 keys and nine net lease properties with a total of 123,656 square feet classified as held for sale. See Note 14 for further information on certain of these properties. The following table summarizes the major class of assets and liabilities by our hotel investments and net lease investments segments as of June 30, 2025:
As of June 30, 2025
Hotels Net Lease Total
Assets of properties held for sale:
Real estate properties, net $ 821,730 $ 2,629 $ 824,359
Other assets, net (1)
24,718 23 24,741
Total assets of properties held for sale $ 846,448 $ 2,652 $ 849,100
Liabilities of properties held for sale:
Accounts payable and other liabilities $ 6,435 $ 108 $ 6,543
Total liabilities of properties held for sale $ 6,435 $ 108 $ 6,543
(1) Other assets, net includes working capital of $ 15,298 for our hotel investments segment as described in Note 6.
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SERVICE PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
From July 1, 2025 through August 1, 2025, we sold two hotels with a total of 234 keys for a combined sales price of $ 13,100 , excluding closing costs, and one net lease property with 33,106 square feet for a sales price of $ 850 , excluding closing costs. We have also entered into agreements to sell 114 hotels with a total of 14,925 keys for a combined sales price of $ 919,952 , excluding closing costs, and two net lease properties with 10,301 square feet for a combined sales price of $ 1,395 , excluding closing costs. These pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales, that these sales will not be delayed or that the terms will not change. We are at various stages of selling six net lease properties with a total of 80,249 square feet. We believe it is probable that the sales of the 114 hotel properties will be completed in the second half of 2025 and the sales of the remainder of these properties will be completed within one year.
Note 6. Management Agreements and Leases
As of June 30, 2025, we owned 200 hotels included in four operating agreements and 742 service-focused retail net lease properties leased to 174 tenants. We do not operate any of our properties.
As of June 30, 2025, all 200 of our hotels were managed by subsidiaries of the following companies: Sonesta ( 175 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, 2025, our 742 service-focused retail net lease properties were leased by 174 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.
Hotel Agreements
Sonesta Agreement
As of June 30, 2025, Sonesta managed 39 of our full service hotels, 98 of our extended stay hotels and 38 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 June 30, 2025, the hotels Sonesta managed for us comprised approximately 49.8 % 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 $ 65,518 and $ 75,130 during the three months ended June 30, 2025 and 2024, respectively, and $ 83,687 and $ 102,505 during the six months ended June 30, 2025 and 2024, 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 $ 78,807 and $ 106,366 during the six months ended June 30, 2025 and 2024, respectively, which resulted in increases in our contractual annual owner’s priority returns of $ 4,728 and $ 6,382 , respectively. Our annual priority return under our Sonesta agreement as of June 30, 2025 was $ 355,093 . We owed Sonesta $ 6,864 and $ 18,199 for capital expenditures and other reimbursements at June 30, 2025 and December 31, 2024, respectively. Sonesta owed us $ 29,219 and $ 3,911 in owner’s priority returns and other amounts as of June 30, 2025 and December 31, 2024, 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, 2025 or 2024.
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SERVICE PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
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 $ 31,883 and $ 32,969 for the three months ended June 30, 2025 and 2024, respectively, and $ 58,159 and $ 59,984 for the six months ended June 30, 2025 and 2024, 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 $ 625 and $ 587 for the three months ended June 30, 2025 and 2024, respectively, and $ 1,246 and $ 987 for the six months ended June 30, 2025 and 2024, respectively, which amounts have been capitalized in our condensed consolidated balance sheets and are depreciated over the estimated useful lives of the related capital assets.
We are required to maintain working capital for each of our hotels managed by Sonesta and have advanced a fixed amount based on the number of rooms in each hotel to meet the cash needs for hotel operations. As of June 30, 2025 and December 31, 2024, we had advanced $ 45,694 and $ 46,466 , 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 and assets of properties held for sale, as applicable, 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.
Of the 175 hotels managed by Sonesta pursuant to our Sonesta agreement, we have identified 122 hotels to sell in 2025 with a total of 15,931 keys. As of August 1, 2025, we sold eight of these hotels with a total of 1,006 keys for a combined sales price of $ 45,600 , excluding closing costs, and entered into agreements to sell the remaining 114 hotels with a total of 14,925 keys for a combined sales price of $ 919,952 , excluding closing costs. We and Sonesta have agreed to amend and restate our existing management agreements for the 59 retained hotels managed by Sonesta and waive any termination fees under the existing Sonesta agreements associated with the sale of the 122 hotels. Among other things, the changes to the agreements between us and Sonesta are as follows:
• Each retained hotel will have its own individual management agreement, performance under which shall not be subject to pooling, cross-default, or similar contractual ties across more than one hotel,
• The initial term of each management agreement will be for a period of 15 years and may be renewed for two additional terms of ten years each,
• Fees payable by us will be modified to provide better alignment with market terms, which modifications are not expected to result in any material cost impact to us, and
• Performance provisions will be aligned with individual hotel measurement for both termination rights and incentive fees, both based on current estimated value rather than historical cost.
See Notes 7 and 11 for further information regarding our relationships, agreements and transactions with Sonesta.
Hyatt Agreement
As of June 30, 2025, 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, 2025, we are to be paid an annual owner’s priority return of $ 17,400 . 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 became effective upon substantial completion of planned renovations of the hotels, which occurred in January 2025. We realized returns under our Hyatt agreement of $ 3,263 and $ 3,314 during the three months ended June 30, 2025 and 2024, respectively, and $ 6,390 and $ 2,206 during the six months ended June 30, 2025 and 2024, respectively. During the six months ended June 30, 2025, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for this period, and we reduced hotel operating expenses by $ 654 , to record the guaranteed amount of the shortfall due from Hyatt. The available balance of the guaranty was $ 29,346 as of June 30, 2025. During the six months ended June 30, 2025 and 2024, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $ 1,968 and $ 23,377 , respectively.
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SERVICE PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Radisson Agreement
As of June 30, 2025, 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 $ 10,911 . Radisson has provided us with a $ 22,000 limited guarantee for 75 % of the aggregate annual owner’s priority returns due to us. We realized returns under our Radisson agreement of $ 2,038 and $ 1,789 during the three months ended June 30, 2025 and 2024, respectively, and $ 3,441 and $ 3,240 during the six months ended June 30, 2025 and 2024, respectively. During the six months ended June 30, 2025, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for the period, and we reduced hotel operating expenses by $ 2,820 , to record the guaranteed amount of the shortfalls due from Radisson. The available balance of the guaranty was $ 18,530 as of June 30, 2025. We did not incur any capital expenditures during the six months ended June 30, 2025 for the hotels included in our Radisson agreement. During the six months ended June 30, 2024, we incurred capital expenditures of $ 544 for the hotels included in our Radisson agreement, which resulted in an increase in our contractual owner’s priority returns of $ 32 .
IHG Agreement
Our management agreement with IHG for one hotel expires on January 31, 2026 and we have an option to extend the term for one year . We realized returns under our management agreement with IHG of $ 776 and $ 1,536 during the three months ended June 30, 2025 and 2024, respectively, and $ 3,019 and $ 3,129 during the six months ended June 30, 2025 and 2024, 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, 2025 and 2024, we incurred capital expenditures of $ 1,023 and $ 221 , respectively, for the hotel included in our IHG agreement.
Net Lease Portfolio
As of June 30, 2025, we owned 742 service-focused retail net lease properties with an aggregate of 13,162,020 square feet with leases requiring annual minimum rents of $ 386,521 with a weighted (by annual minimum rents) average remaining lease term of 7.6 years. Our net lease properties were 97.3 % occupied and leased by 174 tenants operating under 136 brands in 21 distinct industries.
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(dollars in thousands, except per share amounts)
(unaudited)
TA Leases
As of June 30, 2025, TA is our largest tenant, representing 28.7 % 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 $ 264,262 as of June 30, 2025. 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.
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., a subsidiary of BP p.l.c., guarantees payment under each of the TA leases, limited to an aggregate cap which was $ 3,037,475 as of June 30, 2025.
We recognized rental income from our TA leases of $ 67,834 for each of the three months ended June 30, 2025 and 2024, and $ 135,668 for each of the six months ended June 30, 2025 and 2024. Rental income was increased by $ 2,607 and $ 3,885 for the three months ended June 30, 2025 and 2024, respectively, and increased by $ 5,646 and $ 8,194 for the six months ended June 30, 2025 and 2024, respectively, to record the scheduled rent changes on a straight line basis. As of June 30, 2025 and December 31, 2024, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $ 49,702 and $ 40,097 , respectively, included in other assets, net in our condensed consolidated balance sheets.
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 $ 31,197 and $ 32,628 for the three months ended June 30, 2025 and 2024, respectively, which included $ 76 and $ 893 , respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis, and $ 63,579 and $ 64,808 for the six months ended June 30, 2025 and 2024, respectively, which included $ 915 and $ 2,352 , 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 $ 1,142 and $ 1,377 for the three and six months ended June 30, 2025, respectively, based on our assessment of the collectability of rents. 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 had reserves for uncollectable rents of $ 6,016 and $ 5,058 as of June 30, 2025 and December 31, 2024, respectively, included in other assets, net in our condensed consolidated balance sheets.
Note 7. Equity Method Investment
As of both June 30, 2025 and December 31, 2024, 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, 2025 and December 31, 2024, our investment in Sonesta had a carrying value of $ 111,653 and $ 115,818 , 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,
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(dollars in thousands, except per share amounts)
(unaudited)
2025 and 2024, and $ 130 in each of the six months ended June 30, 2025 and 2024. We recognized losses of $ 526 and $ 2,716 related to our investment in Sonesta for the three months ended June 30, 2025 and 2024, respectively, and losses of $ 4,473 and $ 8,054 for the six months ended June 30, 2025 and 2024, 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 June 30, 2025 and 2024 and $ 1,242 for each of the six months ended June 30, 2025 and 2024 for amortization of this liability. As of June 30, 2025 and December 31, 2024, the unamortized balance of this liability was $ 28,753 and $ 29,995 , respectively.
During the three months ended March 31, 2024, we funded a capital contribution to Sonesta of $ 3,392 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.
Note 8. Indebtedness
Our principal debt obligations at June 30, 2025 were: (1) $ 100,000 of outstanding borrowings under our $ 650,000 revolving credit facility; (2) $ 4,075,000 aggregate outstanding principal amount of senior unsecured notes; (3) $ 1,000,000 aggregate outstanding principal amount of senior secured notes; (4) $ 605,632 aggregate outstanding principal amount of net lease mortgage notes; and (5) $ 45,000 of outstanding borrowings under our $ 45,000 variable funding note.
Revolving Credit Facility
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. Availability of borrowings under our credit agreement is subject to ongoing minimum performance and market values of the collateral properties, satisfying certain financial covenants and other credit facility conditions. 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 extend the stated maturity date of the facility by two additional six-month periods.
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, 2025. 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, 2025 and 2024, the annual interest rate payable on borrowings under our revolving credit facility was 6.89 % and 7.83 %, respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was 6.91 % and 6.93 % f or the three and six months ended June 30, 2025, respectively. We had no borrowings outstanding under our revolving credit facility for the three or six months ended June 30, 2024. As of June 30, 2025, we had $ 100,000 outstanding under our revolving credit facility and $ 550,000 available for borrowings. On July 1, 2025, we borrowed $ 550,000 under our revolving credit facility as a precautionary measure to preserve financial flexibility. As of August 1, 2025, our $ 650,000 revolving credit facility was fully drawn.
As collateral for all loans and other obligations under our revolving 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 certain properties, as discussed below.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
In February 2025, we and our lenders amended the agreement governing our revolving credit facility to reduce the minimum fixed charge coverage ratio covenant from 1.50 x to 1.30 x effective with respect to the fourth quarter of 2024 and continuing through the end of the loan term. In order to exercise the first extension option, we are required to maintain a 1.50 x minimum fixed charge coverage ratio level as of and for the duration of the extension period. We also agreed to change the required collateral property debt yield to 10 % effective with respect to the first quarter of 2025 and continuing through the end of the loan term and to swap collateral properties as follows: 47 hotels with an aggregate of 7,981 keys were released from the collateral pool and 35 travel centers leased to TA, which we refer to as TA Lease No. 5, were added as collateral to our revolving credit facility. Our disposition plan includes 36 hotels with an aggregate of 4,862 keys and an aggregate undepreciated book value of $ 650,093 that were released from the collateral pool. The collateral swap was completed in May 2025. As of June 30, 2025, our revolving credit facility was secured by 55 properties, including 17 hotels and 38 net lease properties, with an aggregate undepreciated book value of $ 900,148 .
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. As of June 30, 2025, we did not meet the applicable threshold in one of our senior note debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt while the ratio is below the required covenant level.
Redemption of Senior Unsecured Notes
On August 5, 2025, we announced the early redemption of our $ 350,000 5.25 % senior unsecured notes due 2026 at par, plus accrued and unpaid interest to, but excluding the date of redemption. The redemption is expected to occur on or about September 4, 2025.
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 June 30, 2025
Coupon Rate Initial Term (in years) Maturity
Class A $ 301,441 5.15 % 5 February 2028
Class B 171,991 5.55 % 5 February 2028
Class C 132,200 6.70 % 5 February 2028
Total / weighted average $ 605,632 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, as of June 30, 2025, were secured by 314 retail net lease properties owned by the Issuer. During the six months ended June 30, 2025, the Issuer sold one retail net lease property that served as collateral under the notes. In connection with its sale, the property was released from the collateral pool in accordance with the terms of the agreement. As of June 30, 2025, the current leases relating to the 314 properties required annual minimum rents of $ 66,464 and had an aggregate undepreciated book value of $ 751,298 .
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
On January 27, 2025, the Issuer issued a variable funding note, or the VFN, secured by the 314 net lease properties that secure our existing $ 605,632 of net lease mortgage notes. The VFN permits borrowings on a revolving basis up to $ 45,000 and the Issuer can borrow, repay and reborrow funds available until maturity. The maturity date of the VFN is January 27, 2027, and, subject to the payment of an extension fee and meeting certain other conditions, can be extended by one year at the Issuer’s option. The VFN requires interest payments only on drawings under the VFN based on SOFR plus a margin of 1.75 %, and an unused commitment fee of 50 basis points per annum paid on undrawn amounts. As of June 30, 2025, the annual interest rate payable on borrowings under the VFN was 6.04 %. The weighted average annual interest rate for borrowings under the VFN was 6.05 % for the three and six months ended June 30, 2025, respectively. As of both June 30, 2025 and August 1, 2025, we had $ 45,000 outstanding under the VFN.
Note 9. Shareholders’ Equity
Share Awards
On March 26, 2025, in accordance with our Trustee compensation arrangements, we awarded 32,490 of our common shares, valued at $ 2.77 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day, in connection with the appointment of one of our Managing Trustees as part of his annual compensation.
On June 13, 2025, in accordance with our Trustee compensation arrangements, we awarded 40,425 of our common shares, valued at $ 2.35 per common share, the closing price of our common shares on Nasdaq on that day to each of our seven Trustees as part of their annual compensation.
Share Purchases
During the six months ended June 30, 2025, we purchased 29,956 of our common shares, valued at $ 2.12 per common share, from former officers of ours and certain other former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of prior 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.
Distributions
During the six months ended June 30, 2025, we declared and paid a regular quarterly distribution to common shareholders as follows:
Declaration Date Record Date Paid Date Dividend Per Common Share Total Distributions
January 16, 2025 January 27, 2025 February 20, 2025 $ 0.01 $ 1,666
April 10, 2025 April 22, 2025 May 15, 2025 0.01 1,667
$ 0.02 $ 3,333
On July 10, 2025, we declared a regular quarterly distribution to common shareholders of record as of July 21, 2025 of $ 0.01 per common share, or approximately $ 1,669 . We expect to pay this distribution on or about August 14, 2025.
Cumulative Other Comprehensive Income (Loss)
Cumulative other comprehensive income (loss) represents our share of the comprehensive income (loss) of Sonesta. See Notes 6, 7 and 11 for further information regarding this investment.
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.
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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’s 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.
For the three and six months ended June 30, 2025 and 2024, the business management fees, property management fees and construction supervision fees and expense reimbursements recognized in our condensed consolidated financial statements were as follows:
Financial Statement Three Months Ended June 30,
Six Months Ended June 30,
Line Item 2025 2024 2025 2024
Pursuant to business management agreement:
Net business management fees (1)
General and administrative $ 6,900 $ 7,440 $ 13,830 $ 15,197
Pursuant to property management agreement:
Property management fees Net lease operating expenses $ 2,110 $ 1,505 $ 4,197 $ 2,989
Construction supervision fees Buildings, improvements and equipment (2)
465 1,334 1,122 3,030
$ 2,575 $ 2,839 $ 5,319 $ 6,019
Expense reimbursement Net lease operating expenses, general and administrative and buildings, improvements and equipment (2)
$ 1,105 $ 1,032 $ 2,300 $ 2,126
(1) The net business management fees we recognized for each of the three and six months ended June 30, 2025 and 2024, reflect a reduction of $ 897 and $ 1,793 , respectively, for the amortization of the liability we recorded in connection with our former investment in The RMR Group Inc., or RMR Inc.
(2) Amounts capitalized as buildings, improvements and equipment are depreciated over the estimated useful lives of the related assets.
Based on our common share total return, as defined in our business management agreement, as of June 30, 2025, no incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2025. The actual amount of annual incentive fees for 2025, 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, 2025, and will be payable in January 2026. We did not incur an incentive fee payable to RMR for the year ended December 31, 2024.
In January 2025, in connection with a $ 100,000 credit agreement and related security agreement entered into by RMR and certain of its subsidiaries with Citibank, N.A., or Citibank, and the other lenders party thereto, we consented to the pledge and assignment of RMR’s interest in our management agreements under the security agreement. Pursuant to the consent, we agreed, among other things, that upon notice that an event of default under the RMR credit agreement has occurred and is continuing, we will continue to make all payments under our management agreements in accordance with the instructions of Citibank, and that if there is an event of default by RMR under our management agreements that would allow us to terminate or suspend our obligations, we will not terminate or suspend without notice to Citibank and provide Citibank 30 days to cure the default on RMR’s behalf. The consent was approved by our Independent Trustees.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Note 11. Related Person Transactions
We have relationships and historical and continuing transactions with Sonesta, RMR, 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. RMR is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam 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. Christopher Bilotto, our other Managing Trustee and our President and Chief Executive Officer since March 2025, also serves as an officer and employee of RMR. John Murray, our former Managing Trustee and 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.
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.
Sonesta
Sonesta is a private company of which Adam Portnoy, one of our Managing Trustees, is a director and the controlling shareholder. One of Sonesta’s other directors and president and chief executive officer was our other Managing Trustee until March 2025, and Sonesta’s other director serves as one of RMR Inc.’s managing directors, as RMR’s and RMR Inc.’s executive vice president, general counsel and secretary and as our Secretary. Certain other officers and employees of Sonesta are former officers and employees of RMR. RMR also provides certain services to Sonesta. As of June 30, 2025, we owned 34 % of Sonesta’s outstanding shares of common stock and Sonesta managed 175 of our hotels. See Notes 6 and 7 for further information regarding our relationships, agreements and transactions with Sonesta.
For further information about these and certain other such relationships and certain other related person transactions, refer to our 2024 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.
During the three months ended June 30, 2025, we recognized income tax expense of $ 457 , which includes $ 147 of state tax expense and $ 310 of foreign tax expense. 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 six months ended June 30, 2025, we recognized income tax expense of $ 1,300 , which includes $ 500 of state tax expense and $ 800 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.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Note 13. Segment Information
Our operating segments are based on our internal reporting structure and property type and are aligned with how our Chief Operating Decision Maker, or CODM, reviews the operating results to allocate resources and assess segment performance. The CODM is our President and Chief Executive Officer. Our two reportable segments are hotel investments and net lease investments. Our hotel investments segment consists of hotels managed by subsidiaries of Sonesta, Hyatt, Radisson and IHG. Our net lease investments segment consists of service-focused retail net lease properties, including travel centers leased to TA, our largest tenant.
The significant expense categories and amounts presented below align with the segment-level information that is regularly provided to our CODM. Our CODM reviews operating and financial results, including net income (loss) and its components, to allocate resources and assess segment performance. The accounting policies of our reportable segments are the same as those described in Note 2 to our consolidated financial statements included in our 2024 Annual Report. The tables below present information about our segments.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30, 2025
Hotels Net Lease Total
Revenues:
Hotel operating revenues $ 404,405 $ — $ 404,405
Rental income — 99,031 99,031
Total revenues 404,405 99,031 503,436
Less (plus):
Labor and benefits (1)
146,186 837 147,023
Management fees 15,113 2,110 17,223
Real estate taxes and insurance 29,174 671 29,845
Other operating expenses (2)
138,440 1,821 140,261
Depreciation and amortization 38,454 36,576 75,030
Interest expense — 12,547 12,547
Other segment items (3)
15,273 3,812 19,085
Segment profit 21,765 40,657 62,422
Reconciliation of segment profit:
General and administrative ( 10,218 )
Interest income 752
Interest expense ( 90,132 )
Income tax expense ( 457 )
Equity in losses of an investee ( 526 )
Net loss $ ( 38,159 )
Six Months Ended June 30, 2025
Hotels Net Lease Total
Revenues:
Hotel operating revenues $ 739,368 $ — $ 739,368
Rental income — 199,247 199,247
Total revenues 739,368 199,247 938,615
Less (plus):
Labor and benefits (1)
284,875 1,678 286,553
Management fees 27,598 4,197 31,795
Real estate taxes and insurance 58,787 1,459 60,246
Other operating expenses (2)
263,493 3,733 267,226
Depreciation and amortization 92,197 71,933 164,130
Interest expense — 24,673 24,673
Other segment items (3)
51,971 3,322 55,293
Segment (loss) profit ( 39,553 ) 88,252 48,699
Reconciliation of segment profit or loss:
General and administrative ( 19,774 )
Transaction costs ( 29 )
Interest income 1,806
Interest expense ( 179,523 )
Income tax expense ( 1,300 )
Equity in losses of an investee ( 4,473 )
Net loss $ ( 154,594 )
(1) Labor and benefits for our net lease investments segment include expense reimbursements as discussed in Note 10.
(2) Other operating expenses for each reportable segment include expenses such as repairs and maintenance, utilities and other costs incurred in connection with the operation of our properties.
(3) Other segment items for each reportable segment include transaction related costs, gains and losses on asset impairment and sale of real estate and interest income, as applicable.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30, 2024
Hotels Net Lease Total
Revenues:
Hotel operating revenues $ 412,486 $ — $ 412,486
Rental income — 100,462 100,462
Total revenues 412,486 100,462 512,948
Less (plus):
Labor and benefits (1)
142,506 938 143,444
Management fees
15,060 1,505 16,565
Real estate taxes and insurance
31,296 986 32,282
Other operating expenses (2)
139,385 1,529 140,914
Depreciation and amortization
55,389 40,285 95,674
Interest expense
— 11,441 11,441
Other segment items (3)
33,070 1,749 34,819
Segment (loss) profit ( 4,220 ) 42,029 37,809
Reconciliation of segment profit or loss:
General and administrative ( 10,681 )
Interest income 719
Interest expense ( 82,409 )
Loss on early extinguishment of debt, net ( 16,048 )
Income tax expense ( 524 )
Equity in losses of an investee ( 2,716 )
Net loss $ ( 73,850 )
Six Months Ended June 30, 2024
Hotels Net Lease Total
Revenues:
Hotel operating revenues $ 748,722 $ — $ 748,722
Rental income — 200,476 200,476
Total revenues 748,722 200,476 949,198
Less (plus):
Labor and benefits (1)
278,504 1,949 280,453
Management fees 27,355 2,989 30,344
Real estate taxes and insurance 64,807 1,676 66,483
Other operating expenses (2)
262,667 3,067 265,734
Depreciation and amortization 110,475 78,306 188,781
Interest expense — 22,958 22,958
Other segment items (3)
33,843 6,222 40,065
Segment (loss) profit ( 28,929 ) 83,309 54,380
Reconciliation of segment profit or loss:
General and administrative ( 21,187 )
Interest income 2,513
Interest expense ( 162,306 )
Loss on early extinguishment of debt, net ( 16,048 )
Income tax expense ( 1,531 )
Equity in losses of an investee ( 8,054 )
Net loss $ ( 152,233 )
(1) Labor and benefits for our net lease investments segment include expense reimbursements as discussed in Note 10.
(2) Other operating expenses for each reportable segment include expenses such as repairs and maintenance, utilities and other costs incurred in connection with the operation of our properties.
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SERVICE PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)
(unaudited)
(3) Other segment items for each reportable segment include transaction related costs, gains and losses on asset impairment and sale of real estate and interest income, as applicable.
As of June 30, 2025
As of December 31, 2024
Assets:
Hotels $ 3,833,268 $ 3,897,132
Net Lease 2,899,726 2,942,585
Corporate 199,518 279,841
Total assets $ 6,932,512 $ 7,119,558
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
Capital expenditures:
Hotels $ 38,841 $ 65,290 $ 83,962 $ 133,630
Net Lease 234 1,052 982 1,494
Total capital expenditures $ 39,075 $ 66,342 $ 84,944 $ 135,124
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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 June 30, 2025, 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) (2)
$ 127,800 $ — $ 126,450 $ 1,350
(1) We recorded impairment charges totaling $ 52,861 during the six months ended June 30, 2025, to reduce the carrying value of 17 hotels in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 2,906 , 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 $ 1,795 during the six months ended June 30, 2025, to reduce the carrying value of two net lease properties in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 90 , based on brokers’ opinions 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, VFN, net lease mortgage notes, senior notes and security deposits. At June 30, 2025 and December 31, 2024, 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, 2025 December 31, 2024
Carrying Value (1)
Fair Value Carrying Value (1)
Fair Value
Senior Unsecured Notes, due 2026 at 5.25 %
$ 349,294 $ 348,327 $ 348,730 $ 339,889
Senior Unsecured Notes, due 2026 at 4.75 %
449,262 443,781 448,957 425,237
Senior Unsecured Notes, due 2027 at 4.95 %
398,806 394,820 398,428 373,796
Senior Guaranteed Unsecured Notes, due 2027 at 5.50 %
447,322 445,860 446,758 420,809
Net Lease Mortgage Notes, due 2028 at 5.60 %
573,391 594,320 568,283 585,236
Senior Unsecured Notes, due 2028 at 3.95 %
397,079 369,468 396,505 335,056
Senior Guaranteed Unsecured Notes, due 2029 at 8.375 %
684,843 728,063 682,934 676,725
Senior Unsecured Notes, due 2029 at 4.95 %
421,664 370,851 421,269 338,071
Senior Unsecured Notes, due 2030 at 4.375 %
394,756 336,360 394,189 301,752
Senior Secured Notes, due 2031 at 8.625 %
974,103 1,073,570 972,073 1,040,590
Senior Guaranteed Unsecured Notes, due 2032 at 8.875 %
483,742 514,130 482,577 462,755
Total financial liabilities $ 5,574,262 $ 5,619,550 $ 5,560,703 $ 5,299,916
(1) Carrying value includes unamortized discounts, premiums and certain debt issuance costs.
At June 30, 2025 and December 31, 2024, we estimated the fair values of our senior notes using an average of the bid and ask price of our then outstanding issuances of senior notes (Level 2 inputs). At June 30, 2025 and December 31, 2024, 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.
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