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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11527
SERVICE PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland04-3262075
(State or Other Jurisdiction of
Incorporation or Organization)
(IRS Employer Identification No.)
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts, 02458-1634
(Address of Principal Executive Offices) (Zip Code)
617-964-8389
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of each Exchange on which Registered
Common Shares of Beneficial InterestSVCThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
                            
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of August 4, 2021: 164,857,754


SERVICE PROPERTIES TRUST
FORM 10-Q
June 30, 2021

INDEX
 Page
  
  
  
  
  
  
  
  
  
   
  
  
References in this Quarterly Report on Form 10-Q to the Company, SVC, we, us or our include Service Properties Trust and our consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.
2

Part I Financial Information
Item 1. Financial Statements
SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except share data)
 June 30,
2021
December 31,
2020
ASSETS  
Real estate properties:  
Land$2,036,297 $2,030,440 
Buildings, improvements and equipment9,111,774 9,131,832 
Total real estate properties, gross11,148,071 11,162,272 
Accumulated depreciation(3,429,648)(3,280,110)
Total real estate properties, net7,718,423 7,882,162 
Acquired real estate leases and other intangibles, net302,358 325,845 
Assets held for sale4,259 13,543 
Cash and cash equivalents915,330 73,332 
Restricted cash1,295 18,124 
Due from related persons49,636 55,530 
Other assets, net424,434 318,783 
Total assets$9,415,735 $8,687,319 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Revolving credit facility$1,000,000 $78,424 
Senior unsecured notes, net6,136,554 6,130,166 
Accounts payable and other liabilities441,276 345,373 
Due to related persons23,254 30,566 
Total liabilities7,601,084 6,584,529 
Commitments and contingencies
Shareholders’ equity:  
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,857,754 and 164,823,833, shares issued and outstanding, respectively
1,649 1,648 
Additional paid in capital
4,551,641 4,550,385 
Cumulative other comprehensive loss
(760)(760)
Cumulative net income available for common shareholders
2,894,163 3,180,263 
Cumulative common distributions
(5,632,042)(5,628,746)
Total shareholders’ equity1,814,651 2,102,790 
Total liabilities and shareholders’ equity
$9,415,735 $8,687,319 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
(amounts in thousands, except per share data)
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Revenues:    
Hotel operating revenues$280,135 $117,356 $449,088 $500,859 
Rental income95,801 97,584 188,018 197,857 
Total revenues375,936 214,940 637,106 698,716 
Expenses: 
Hotel operating expenses243,183 46,957 438,536 318,105 
Other operating expenses3,904 3,565 7,321 7,324 
Depreciation and amortization121,677 127,427 246,045 255,353 
General and administrative13,952 11,302 26,609 25,326 
Transaction related costs6,151  25,785  
Loss on asset impairment899 28,514 2,110 45,254 
Total expenses389,766 217,765 746,406 651,362 
Other operating income:
Gain (loss) on sale of real estate, net10,849 (2,853)10,840 (9,764)
Gain on insurance settlement 62,386  62,386 
Unrealized gain (losses) on equity securities, net2,500 3,848 (3,981)(1,197)
Interest income225 15 282 277 
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $4,891, $3,486, $9,247 and $6,774, respectively)
(91,378)(72,072)(180,769)(143,147)
Loss on early extinguishment of debt (6,970) (6,970)
Loss before income taxes and equity in earnings (losses) of an investee(91,634)(18,471)(282,928)(51,061)
Income tax expense(211)(16,660)(1,064)(17,002)
Equity in earnings (losses) of an investee735 (2,218)(2,108)(2,936)
Net loss(91,110)(37,349)(286,100)(70,999)
Weighted average common shares outstanding (basic and diluted)164,506 164,382 164,502 164,376 
Net loss per common share (basic and diluted)$(0.55)$(0.23)$(1.74)$(0.43)

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

4

SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited) (in thousands, except share data)
Common SharesAdditional
Paid in
Capital
Cumulative
Net Income
Available for
Common
Shareholders
Cumulative
Other
Comprehensive
Loss
Number of
Shares
Common
Shares
Cumulative
Common
Distributions
Total
Balance at December 31, 2020164,823,833 $1,648 $(5,628,746)$4,550,385 $3,180,263 $(760)$2,102,790 
Net loss— — — — (194,990)— (194,990)
Share grants— — — 380 — — 380 
Distributions to common shareholders— — (1,648)— — — (1,648)
Balance at March 31, 2021164,823,833 $1,648 $(5,630,394)$4,550,765 $2,985,273 $(760)$1,906,532 
Net loss— — — — (91,110)— (91,110)
Share grants49,000 1 — 1,066 — — 1,067 
Share repurchases(15,079)— — (190)— — (190)
Distributions— — (1,648)— — — (1,648)
Balance at June 30, 2021164,857,754 $1,649 $(5,632,042)$4,551,641 $2,894,163 $(760)$1,814,651 
Balance at December 31, 2019164,563,034 $1,646 $(5,534,942)$4,547,529 $3,491,645 $ $2,505,878 
Net loss— — — — (33,650)— (33,650)
Share grants6,000 — — 590 — — 590 
Share repurchases(2,637)— — (43)— — (43)
Distributions to common shareholders— — (90,509)— — — (90,509)
Balance at March 31, 2020164,566,397 $1,646 $(5,625,451)$4,548,076 $3,457,995 $ $2,382,266 
Net loss— — — — (37,349)— (37,349)
Share grants35,000 — — 831 — — 831 
Share repurchases(3,808)— — (27)— — (27)
Distributions— — — — — —  
Balance at June 30, 2020164,597,589 $1,646 $(5,625,451)$4,548,880 $3,420,646 $ $2,345,721 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
For the Six Months Ended June 30,
20212020
Cash flows from operating activities:
Net loss$(286,100)$(70,999)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Depreciation and amortization246,045 255,353 
Net amortization of debt issuance costs, discounts and premiums as interest9,247 6,774 
Straight-line rental income2,181 2,669 
Security deposits utilized (100,170)
Loss on early extinguishment of debt 6,970 
Loss on asset impairment2,110 45,254 
Unrealized losses on equity securities, net3,981 1,197 
Equity in losses of an investee2,108 2,936 
(Gain) loss on sale of real estate(10,840)9,764 
Gain on insurance settlement (62,386)
Deferred income taxes 15,650 
Other non-cash income, net(1,363)(1,919)
Changes in assets and liabilities:
Due from related persons(628)1,070 
Other assets17,588 (69,351)
Accounts payable and other liabilities(245)7,858 
Due to related persons(5,290)(1,873)
Net cash (used in) provided by operating activities(21,206)48,797 
Cash flows from investing activities:
Real estate acquisitions and deposits(7,649)(7,090)
Real estate improvements(42,295)(45,858)
Hotel managers’ purchases with restricted cash(22,959)(95,744)
Hotel manager’s deposit of insurance proceeds into restricted cash 15,000 
Net proceeds from sale of real estate33,128 63,960 
Investment in Sonesta(25,443)(5,314)
Distributions in excess of earnings from Affiliates Insurance Company 286 
Net cash used in investing activities(65,218)(74,760)
Cash flows from financing activities:
Proceeds from issuance of senior unsecured notes, after discounts and premiums 800,000 
Repurchase of senior unsecured notes (355,971)
Borrowings under revolving credit facility984,027 656,000 
Repayments of revolving credit facility(62,451)(999,873)
Deferred financing costs(6,497)(15,015)
Repurchase of common shares(190)(70)
Distributions to common shareholders(3,296)(90,509)
Net cash provided by (used in) financing activities911,593 (5,438)
Increase (decrease) in cash and cash equivalents and restricted cash825,169 (31,401)
Cash and cash equivalents and restricted cash at beginning of period91,456 81,259 
Cash and cash equivalents and restricted cash at end of period$916,625 $49,858 
Supplemental disclosure of cash and cash equivalents and restricted cash:
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents$915,330 $20,206 
Restricted cash1,295 29,652 
Total cash and cash equivalents and restricted cash$916,625 $49,858 




6




Supplemental cash flow information:
Cash paid for interest$170,903 $142,122 
Cash paid for income taxes$1,957 $403 
Non-cash investing activities:
Real estate improvements accrued, not paid$9,500 $4,479 
Investment in Sonesta$ $42,000 


















































The accompanying notes are an integral part of these condensed consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(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 net lease service oriented retail properties. At June 30, 2021, we owned, directly and through our subsidiaries, 304 hotels and 796 net lease properties.
At June 30, 2021, all 304 of our hotels were operated by subsidiaries of the following companies: Sonesta Holdco Corporation, or Sonesta (261 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (nine hotels), Marriott International, Inc., or Marriott (16 hotels), and InterContinental Hotels Group, plc, or IHG (one hotel). At June 30, 2021, we owned 796 net lease properties with 171 tenants, including 179 travel centers leased to TravelCenters of America Inc., or TA, our largest tenant. Hereinafter, these companies are sometimes referred to as managers and/or tenants, or collectively, operators.
Impact of COVID-19

Since March 2020, the lodging industry and other industries in which our managers and tenants operate have been adversely impacted by the novel coronavirus, or COVID-19, global pandemic along with the federal, state and local government mandates intended to contain and mitigate the spread of COVID-19 and market reactions to the pandemic. The effects of COVID-19 continue to have a significant negative impact on our results of operations, financial position and cash flow. Although lodging demand has improved through the second quarter of 2021 when compared to 2020 levels, we cannot predict with certainty when business levels may return to historical levels. Under the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. In applying the accounting guidance, we considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our unconditional obligations due over the next 12 months. As of June 30, 2021, we were not in compliance with one of our debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt until we meet the required covenant level. Based on our cash on hand, the cash flows we expect to receive from our operators, improving lodging trends and asset dispositions we expect to complete, we believe we will have sufficient liquidity to meet our obligations for at least the next twelve months.
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 financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, or our 2020 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period, have been included. These condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for credit losses, purchase price allocations, useful lives of fixed assets, impairment of real estate and related intangibles.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification. We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE. The assets of our TRSs were $151,773 and $118,862 as of June 30, 2021 and December 31, 2020, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers. The liabilities of our TRSs were $80,888 and $70,240 as of June 30, 2021 and December 31, 2020, 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. Revenue Recognition
We report hotel operating revenues for managed hotels in our condensed consolidated statements of 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 income (loss). We recognize rental income from operating leases on a straight line basis over the term of the lease agreements. We reduced rental income by $299 for the three months ended June 30, 2021, increased rental income by $875 for the three months ended June 30, 2020 and reduced rental income by $2,181 and $2,669 for the six months ended June 30, 2021 and 2020, respectively, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight line basis. See Notes 5 and 9 for further information regarding our TA leases. Due from related persons includes $27,379 and $33,902 and other assets, net, includes $22,594 and $16,264 of straight line rent receivables at June 30, 2021 and December 31, 2020, 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 may determine percentage rent due to us under our leases monthly, quarterly or annually, depending on the specific lease terms, and recognize it when all contingencies are met and the rent is earned. We had deferred estimated percentage rent of $1,591 and $124 for the three months ended June 30, 2021 and 2020, respectively, and $2,977 and $849 for the six months ended June 30, 2021 and 2020, respectively.
Note 3. Weighted Average Common Shares
The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share:
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
(in thousands)
Weighted average common shares for basic earnings per share164,506 164,382 164,502 164,376 
Effect of dilutive securities: Unvested share awards    
Weighted average common shares for diluted earnings per share164,506 164,382 164,502 164,376 
Note 4. Real Estate Properties
At June 30, 2021, we owned 304 hotels with an aggregate of 48,439 rooms or suites and 796 service-oriented retail properties with an aggregate of 13,440,784 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 $11,152,330, including $4,259 classified as held for sale as of June 30, 2021.
Capital expenditures made at certain of our properties were $53,431 and $78,500 during the six months ended June 30, 2021 and 2020, respectively.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Acquisitions
On March 9, 2021, we acquired a land parcel adjacent to a property we own in Nashville, TN for a purchase price of $7,709, including acquisition related costs. We accounted for this transaction as an acquisition of assets.

Dispositions

During the six months ended June 30, 2021, we sold nine properties for an aggregate sales price of $34,051, excluding closing costs, as presented in the table below. The sales of these properties do not represent significant dispositions individually or in the aggregate nor do they represent a strategic shift. 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 income (loss).

Date of SaleNumber of PropertiesLocationProperty TypeRooms/ Square FeetGross Sales PriceGain/(Loss) on Sale
3/16/20211Chattanooga, TNNet Lease2,797 $375 $(9)
4/1/20211Jacksonville, FLHotel146 9,753 49
4/6/20211Colorado Springs, CONet Lease 32,130 1,300 (10)
5/20/20215VariousHotel430 22,263 10,763
6/11/20211Emmitsburg, MDNet Lease3,114 360 47
9
576/38,041
$34,051 $10,840 

We are currently marketing for sale 69 Sonesta branded hotels (46 extended stay hotels with 5,404 keys, 19 select service hotels with 2,461 keys and four full service hotels with 1,098 keys) located in 27 states with an aggregate net carrying value of $627,302 as of June 30, 2021. We expect these sales to be completed by the end of the first quarter of 2022.

We have also entered into agreements to sell four net lease properties with an aggregate of 20,712 square feet and an aggregate carrying value of $1,678 for an aggregate sales price of $2,165, excluding closing costs. We currently expect these sales to be completed by the end of the third quarter of 2021.

As of June 30, 2021, we had eight net lease properties with an aggregate of 31,966 square feet and an aggregate carrying value of $4,259 classified as held for sale. See Note 12 for further information on these properties.
Note 5. Management Agreements and Leases
As of June 30, 2021, we owned 304 hotels which were included in six operating agreements and 796 service oriented retail properties net leased to 171 tenants. We do not operate any of our properties.
Hotel agreements
As of June 30, 2021, all 304 of our hotels were leased to our TRSs and managed by independent hotel operating companies. As of June 30, 2021, our hotel properties were managed by separate subsidiaries of Sonesta, Hyatt, Radisson, Marriott and IHG under six agreements. These hotel agreements had initial terms expiring between 2021 and 2037. Each of these agreements is for between one and 208 of our hotels. In general, the agreements contain renewal options for all, but not less than all, of the affected properties included in each agreement, and the renewal terms range between one to 60 years. Most of these agreements require the third party manager or tenant to: (1) make payments to us of minimum returns or minimum rents; (2) deposit a percentage of total hotel sales into FF&E reserves; and (3) for our managed hotels, make payments to our TRSs of additional returns to the extent of available cash flows after payment of operating expenses, payment of certain management fees, payment of our minimum returns, reimbursement of certain advances, funding of our FF&E reserves and replenishment of guarantees. Some of our managers or tenants or their affiliates provided deposits or guarantees to secure their obligations to pay us.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Sonesta agreement. As of June 30, 2021, Sonesta managed 41 of our full-service hotels, 157 extended stay hotels and 63 select service hotels pursuant to management agreements for each of the hotels. We are also party to pooling agreements that combine certain of our management agreements with Sonesta for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us. Our agreements with Sonesta for 53 hotels expire in January 2037, which we refer to as our legacy management and pooling agreements. As of June 30, 2021, 208 of our hotels were managed by Sonesta under agreements that expire on December 31, 2021 and automatically renew for successive one-year terms unless terminated earlier, which we refer to as our conversion hotel management and pooling agreements or collectively with our legacy management and pooling agreements, our Sonesta agreement.
In February and March 2021, we transitioned the branding and management of 88 hotels to Sonesta from Marriott and in June 2021 we transitioned the branding and management of five hotels to Sonesta from Hyatt. We added these hotels to our conversion hotel management and pooling agreements with Sonesta. Following this transfer and rebranding, Sonesta operates 261 of the 304 hotels we currently own, which comprised approximately 52.8% of our total historical real estate investments as of June 30, 2021.
Our Sonesta agreement provides that we are paid a fixed annual minimum return equal to 8% of our invested capital, as defined therein, 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. Our fixed annual minimum return under our Sonesta agreement was $509,621 as of June 30, 2021. Our Sonesta agreement further provides that we are paid an additional return equal to 80% of the operating profits, as defined therein, after reimbursement of owner or manager advances, FF&E reserve escrows and Sonesta’s incentive fee, if applicable. Our Sonesta hotels generated net operating cash flow of $25,198 and a net operating cash flow deficit of $17,666 during the three months ended June 30, 2021 and 2020, respectively, and net operating cash flow deficit of $12,196 and $25,814 for the six months ended June 30, 2021 and 2020, respectively. The returns we receive from our Sonesta hotels are limited to the hotels’ available cash flows, if any, after payment of operating expenses, including management and related fees.
Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing program and third-party reservation transmission fees of $22,046 and $2,147 for the three months ended June 30, 2021 and 2020, respectively, and $33,321 and $8,925 for the six months ended June 30, 2021 and 2020, respectively. These fees and costs are included in hotel operating expenses in our condensed consolidated statements of income (loss). In addition, we incurred procurement and construction supervision fees of $643 and $270 for the three months ended June 30, 2021 and 2020, respectively, and $1,387 and $902 for the six months ended June 30, 2021 and 2020, 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.
Our Sonesta agreement requires us to fund capital expenditures that we approve at our Sonesta hotels. Each of our 14 full-service hotels operated under the legacy management agreements and all the hotels operated under the conversion hotel management agreements require 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 annual minimum returns due to us. Our legacy management agreements do not require FF&E escrow deposits for 39 extended stay hotels. No FF&E escrow deposits were required during the three and six months ended June 30, 2021. We incurred capital expenditures for certain hotels included in our Sonesta agreement of $56,452 and $40,088 during the six months ended June 30, 2021 and 2020, respectively, which resulted in increases in our contractual annual minimum returns of $3,990 and $2,934, respectively. We owed Sonesta $18,433 and $7,154 for operating losses generated by our Sonesta hotels, capital expenditures, and other reimbursements at June 30, 2021 and 2020, 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.
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. We had advanced $55,977 and $41,514 of initial working capital to Sonesta as of June 30, 2021 and December 31, 2020, respectively. These amounts are included in other assets 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.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Accounting for Investment in Sonesta:
We account for our 34% non-controlling interest in Sonesta under the equity method of accounting. In March 2021, we funded a $25,443 capital contribution to Sonesta related to its acquisition of Red Lion Hotels Corporation. We continue to maintain our 34% ownership in Sonesta after giving effect to this funding. As of June 30, 2021, our investment in Sonesta had a carrying value of $59,981. This amount is included in other assets, net in our condensed consolidated balance sheets. The cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total shareholders’ equity book value on the date of acquisition of our initial equity interest in Sonesta, February 27, 2020, by an aggregate of $8,000. As 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, 2021 and 2020 and $130 and $65 for the six months ended June 30, 2021 and 2020, respectively. We recognized income of $800 and a loss of $2,218 related to our investment in Sonesta for the three months ended June 30, 2021 and 2020, respectively, and losses of $1,978 and $2,936 for the six months ended June 30, 2021 and 2020, respectively. These amounts are included in equity in earnings (losses) of an investee in our condensed consolidated statements of income (loss).
We recorded a liability for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta. This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheet and is being amortized on a straight-line basis through January 31, 2037, as a reduction to hotel operating expenses in our condensed consolidated statements of income (loss). We reduced hotel operating expenses by $621 for each of the three months ended June 30, 2021 and 2020, and $1,242 and $828 for the six months ended June 30, 2021 and 2020, respectively, for amortization of this liability. As of June 30, 2021, the unamortized balance of this liability was $38,690.
See Note 9 for further information regarding our relationship, agreements and transactions with Sonesta.
Hyatt agreement. On June 7, 2021, we and Hyatt amended our previous agreement for 22 hotels we own, or our Hyatt agreement. Under the amended agreement, Hyatt will continue to manage 17 of the hotels we own for a 10 year term effective April 1, 2021. The amended agreement sets our annual minimum return at $12,000 and Hyatt provided us with a new $30,000 limited guarantee for 75% of the aggregate annual minimum returns due to us beginning in 2023. Under the amended agreement, a management fee of 5% of gross room revenues payable to Hyatt will be an operating cost paid senior to our minimum return. Hyatt may also earn a 20% incentive management fee after payment of our annual minimum return and reimbursement of certain advances, if any. We also agreed to fund approximately $50,000 of renovations that are expected to be completed by the end of 2022. As described above, we transitioned the branding and management of the remaining five hotels to Sonesta in June 2021.
We realized returns of $2,311 and $5,509 during the three months ended June 30, 2021 and 2020, respectively, and returns of $3,867 and $11,019 during the six months ended June 30, 2021 and 2020, respectively, under our Hyatt agreement. Any returns we receive from Hyatt are currently limited to the hotels’ available cash flows, if any, after payment of operating expenses. During the three months ended June 30, 2021, we expensed $3,700 of working capital we previously funded under our Hyatt agreement because the amount is no longer expected to be recoverable. This amount is included in transaction related costs in our condensed consolidated statement of income (loss).
Radisson agreement. Our management agreement with Radisson for nine hotels, or our Radisson agreement, which expires in 2037, provides that, as of June 30, 2021, we are to be paid an annual minimum return of $20,601. We realized minimum returns of $4,906 and $5,111 during the three months ended June 30, 2021 and 2020, respectively, and $10,056 and $10,221 during the six months ended June 30, 2021 and 2020, respectively, under our Radisson agreement. Pursuant to our Radisson agreement, Radisson has provided us with a guaranty, which is limited to $47,523. During the three and six months ended June 30, 2021, the hotels under our Radisson agreement generated cash flows that were less than the minimum returns due to us for the periods and Radisson made $5,306 and $13,238, respectively, of guaranty payments to cover part of the shortfall and the Radisson guaranty was exhausted as of June 30, 2021. In addition to our minimum returns, our Radisson agreement provides for payment to us of 50% of the hotels’ available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum returns, reimbursement of our working capital advances and reimbursement to Radisson of working capital and guaranty advances, if any. We and Radisson are currently in discussions regarding possible changes to our Radisson agreement that may result in some or all of the hotels remaining Radisson managed. However, if such discussions do
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


not result in a mutually acceptable agreement for Radisson to continue to manage some or all of these hotels, we expect to transition management of those hotels to Sonesta.

Marriott agreement. As of January 1, 2021, Marriott managed 105 of our hotels under agreements we had terminated in 2020 for Marriott’s failure to pay the cumulative shortfall between the payments we had received and 80% of the cumulative priority returns due to us in accordance with the agreement. We transitioned the branding and management of 88 Marriott managed hotels to Sonesta in February and March 2021. We sold one hotel that Marriott managed in April 2021 (see Note 4 for further information regarding this sale). As of June 30, 2021, Marriott managed 16 of our hotels. We are in arbitration proceedings with Marriott regarding, among other things, the timing and characterization of certain payments made to us, including Marriott’s assertion we are required to refund $19,120 of minimum return advances made to us in 2020, and the validity of the timing of the termination of the Marriott agreements, including an exit hotel agreement which, if not terminated, would require us to sell the 16 hotels encumbered with a Marriott brand. We are also seeking repayment of certain working capital advances we made to Marriott during 2020. We have entered an agreement with Marriott regarding the 16 hotels noted above, pursuant to which we agreed to have these hotels remain Marriott branded hotels until the arbitration is resolved.
Our Marriott hotels generated net operating cash flow of $2,341 and a net operating cash flow deficit of $12,580 during the three and six months ended June 30, 2021, respectively. Any returns we receive from Marriott are limited to the hotels’ available cash flows, if any, after payment of operating expenses. Marriott managed 122 of our hotels during the three and six months ended June 30, 2020. We realized returns of $28,789 and $76,437 from our Marriott branded hotels during the three and six months ended June 30, 2020, respectively.

Other. Our management agreement with IHG for one hotel expires on January 31, 2026. Our IHG hotel generated net operating cash flow of $156 and a cash flow deficit of $1,344 during the three and six months ended June 30, 2021, respectively. Any returns we receive from IHG are limited to the hotels’ available cash flows, if any, after payment of operating expenses. IHG managed or leased 103 of our hotels during the three and six months ended June 30, 2020. We realized returns of $54,138 and $108,223 under our IHG agreement during the three and six months ended June 30, 2020, respectively.
Net lease portfolio
As of June 30, 2021, we owned 796 net lease service-oriented retail properties with 13,440,784 square feet with leases requiring annual minimum rents of $371,907 with a weighted (by annual minimum rents) average remaining lease term of 10.5 years. The portfolio was 98.5% leased by 171 tenants operating under 130 brands in 21 distinct industries.
As a result of the COVID-19 pandemic, some of our tenants requested rent assistance. During the three months ended June 30, 2021, we entered into rent deferral agreements for $1,121 of rent with two net lease tenants. As of June 30, 2021, we had $10,564 of deferred rents outstanding related to 35 tenants we granted rent relief to pursuant to these requests who represent approximately 2.9% of our annualized rental income of our net lease retail portfolio as of June 30, 2021. These deferred rents are included in other assets, net in our condensed consolidated balance sheets. These tenants are obligated to pay, in most cases, the deferred rent over a 12 months to 24 months period. We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic and account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance as the resulting cash flows from the modified lease are substantially the same as or less than the original lease. The deferred amounts did not impact our operating results for the three or six months ended June 30, 2021.
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 uncollectible amounts against rental income of $1,176 and $4,995 for the three months ended June 30, 2021 and 2020, respectively, and $5,960 and $5,905 for the six months ended June 30, 2021 and 2020, respectively. We had reserves for uncollectible rents of $23,786 and $18,230 as of June 30, 2021 and December 31, 2020, respectively, included in other assets in our condensed consolidated balance sheets.
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Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



TA is our largest tenant, leasing 26.7% of our gross carrying value or real estate properties as of June 30, 2021. We lease to TA a total of 179 travel centers under five leases that expire between 2029 and 2035, subject to TA’s right to extend those leases, and require annual minimum rents of $246,110 as of June 30, 2021. In addition, TA is required to pay us previously deferred rent obligations in quarterly installments of $4,404 through January 31, 2023. TA paid $4,404 and $8,808 of deferred rent to us for the three and six months ended June 30, 2021 and 2020, respectively. The remaining balance of previously deferred rents was $30,824 and $39,632 as of June 30, 2021 and December 31, 2020, respectively.
We recognized rental income from TA of $62,077 and $61,528 for the three months ended June 30, 2021 and 2020, respectively, and $124,154 and $123,055 for the six months ended June 30, 2021 and 2020, respectively. Rental income was reduced by $3,217 and $3,236 for the three months ended June 30, 2021 and 2020, respectively, and $6,522 and $6,584 for the six months ended June 30, 2021 and 2020, respectively, to record the deferred rent obligations under our TA leases and the estimated future payments to us by TA for the cost of removing underground storage tanks on a straight-line basis. As of June 30, 2021 and December 31, 2020, we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $49,636 and $55,530, respectively. These amounts are included in due from related persons in our condensed consolidated balance sheets.
In addition to the rental income that we recognized during the three months ended June 30, 2021 and 2020 as described above, our TA leases require TA to pay us percentage rent based upon increases in certain sales. We determine percentage rent due under our TA leases annually and recognize any resulting amount as rental income when all contingencies are met. We had aggregate deferred percentage rent under our TA leases of $1,591 and $124 for the three months ended June 30, 2021 and 2020, respectively, and $2,977 and $849 for the six months ended June 30, 2021 and 2020, respectively.
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. Under our TA leases, TA may request that we fund capital improvements in return for increases in TA’s annual minimum rent equal to 8.5% of the amounts funded. We did not fund any capital improvements to our properties that we leased to TA during each of the three and six months ended June 30, 2021 or 2020.
See Note 9 for further information regarding our relationship with TA.
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 $33,479 and $32,386 for the three months ended June 30, 2021 and 2020, respectively, which included $2,919 and $4,099, respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis and $63,163 and $69,039 for the six months ended June 30, 2021 and 2020, respectively, which included $6,523 and $5,800, respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis.
Note 6. Indebtedness
Our principal debt obligations at June 30, 2021 were: (1) $1,000,000 of outstanding borrowings under our $1,000,000 revolving credit facility; and (2) $6,200,000 aggregate outstanding principal amount of senior unsecured notes. Our revolving credit facility is governed by a credit agreement with a syndicate of institutional lenders.
The maturity date of our revolving credit facility is July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the maturity date of the facility for two additional six-month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. We are required to pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium, which was 235 basis points per annum, subject to a LIBOR floor of 0.50%, as of June 30, 2021. We also pay a facility fee, which was 30 basis points per annum at June 30, 2021, on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of June 30, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.85%. The weighted average annual interest rate for borrowings under our revolving credit facility was 2.85% and 2.00% for the three months ended June 30, 2021 and 2020, respectively, and 2.85% and 2.30% for the six months ended
14

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


June 30, 2021 and 2020, respectively. As of each of June 30, 2021 and August 4, 2021, our $1,000,000 revolving credit facility was fully drawn.
We and our lenders amended our credit agreement governing our $1,000,000 revolving credit facility in 2020. Among other things, the amendments waived all of the then existing financial covenants through the end of the agreement term, or July 15, 2022, or the Waiver Period. As a result of the amendments, among other things:
we pledged certain equity interests of subsidiaries owning properties and provided first mortgage liens on 74 properties owned by certain of the pledged subsidiaries with an undepreciated book value of $1,834,420 as of June 30, 2021 to secure our obligations under the credit agreement;

we have the ability to fund up to $250,000 of capital expenditures per year and up to $50,000 of certain other investments per year as defined in the credit agreement;

we agreed to certain covenants and restrictions on distributions to common shareholders, share repurchases, incurring indebtedness, and acquiring real property (in each case subject to various exceptions);

we agreed to maintain minimum liquidity of $125,000;

we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions and debt refinancings to repay outstanding amounts under the credit agreement, and then to other debt maturities; and

we may not, during the Waiver Period and until we demonstrate compliance with certain covenants, utilize the feature in our credit agreement pursuant to which maximum aggregate borrowings may be increased to up to $2,300,000 on a combined basis in certain circumstances.

Our credit agreement and our unsecured senior notes indentures and their supplements 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 LLC, ceasing to act as our business manager. Our credit agreement and our unsecured senior notes indentures and their supplements 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. As of June 30, 2021, we were not in compliance with one of our debt covenants necessary to incur additional debt, and as a result, we will not be able to incur additional debt until we meet the required covenant level.

Note 7. Shareholders' Equity
Distributions
During the three months ended June 30, 2021, we declared and paid regular quarterly distributions to common shareholders as follows:
Declaration DateRecord DatePaid DateDividend Per Common ShareTotal Distributions
January 14, 2021January 25, 2021February 18, 2021$0.01 $1,648 
April 15, 2021April 26, 2021May 20, 20210.01 1,648 
$0.02 $3,296 
On July 15, 2021, we declared a regular quarterly distribution to common shareholders of record as of July 26, 2021 of $0.01 per share, or $1,648. We expect to pay this amount on or about August 19, 2021.
Share Awards
On June 16, 2021, in accordance with our Trustee compensation arrangements, we awarded 7,000 of our common shares, valued at $13.94 per common share, the closing price of our common shares on The Nasdaq Stock Market, or Nasdaq, on that day, to each of our seven Trustees as part of their annual compensation.
15

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Share Purchases
During the six months ended June 30, 2021, we purchased an aggregate of 15,079 of our common shares valued at a weighted average share price of $12.60 per share, from a former officer and a former officer and employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
Note 8. Business and Property Management Agreements with RMR LLC
We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC 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, excluding properties leased to TA, the office building component of one of our hotels and to major renovation or repositioning activities at our hotels.
We recognized net business management fees payable to RMR LLC of $10,743 and $8,411 for the three months ended June 30, 2021 and 2020, respectively, and $21,042 and $18,971 for the six months ended June 30, 2021 and 2020, respectively. Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2021 and 2020, no incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2021 or 2020. The actual amount of annual incentive fees for 2021, 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, 2021, and will be payable in January 2022. We did not incur an incentive fee payable to RMR LLC for the year ended December 31, 2020. We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of income (loss).
We recognized property management and construction supervision fees payable to RMR LLC of $1,077 and $921 for the three months ended June 30, 2021 and 2020, respectively, and $1,881 and $1,941 for the six months ended June 30, 2021 and 2020, respectively. Of those amounts, for the three months ended June 30, 2021 and 2020, $875 and $913, respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of income (loss) and $202 and $8, respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets. For the six months ended June 30, 2021 and 2020, $1,678 and $1,929, respectively, of property management fees were expensed to other operating expenses in our condensed consolidated statements of income (loss) and $203 and $12, respectively, of construction and supervision fees were capitalized and included in building, improvements and equipment in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC employees assigned to work exclusively or partly at our net lease properties, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function, and as otherwise agreed. We reimbursed RMR LLC $734 and $139 for these expenses and costs for the three months ended June 30, 2021 and 2020, respectively, and $1,478 and $266 for the six months ended June 30, 2021 and 2020, respectively. We included these amounts in other operating expenses and selling, general and administrative expenses, as applicable, in our condensed consolidated statements of income (loss).

On June 22, 2021, we and RMR LLC amended our property management agreement to, among other things, provide for RMR LLC's oversight of any major capital projects and repositioning activities at our hotels, including our hotels that are managed by Sonesta, as we may request from time to time. RMR LLC will receive the same fee previously paid to Sonesta for these services, which is equal to 3% of the cost of any such major capital project or repositioning activity.

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SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Note 9. Related Person Transactions
We have relationships and historical and continuing transactions with TA, Sonesta, RMR LLC, The RMR Group, Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned operating subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. John G. Murray, our other Managing Trustee and our President and Chief Executive Officer also serves as an officer and employee of RMR LLC. In addition, each of our other officers serves as an officer of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.
TA. We lease 179 of our travel centers to TA under our TA leases. As of June 30, 2021, we owned 1,184,797 shares of TA common stock, representing approximately 8.1% of TA’s outstanding shares of common stock. RMR LLC provides management services to both us and TA, and Adam D. Portnoy, also serves as the chair of the board of directors and as a managing director of TA and, as of June 30, 2021, beneficially owned 658,506 shares of TA common stock (including through RMR LLC), representing approximately 4.5% of TA’s outstanding shares of common stock. See Note 5 for further information regarding our relationships, agreements and transactions with TA and Note 12 for further information regarding our investment in TA.

Sonesta. Sonesta is a private company. One of our Managing Trustees, Mr. Portnoy, is the controlling shareholder and a director of Sonesta. One of Sonesta’s other directors is our other Managing Trustee, President and Chief Executive Officer and Sonesta’s other director serves as RMR LLC’s and RMR Inc.’s executive vice president, general counsel and secretary, as a managing director of RMR Inc. and as our Secretary. Sonesta’s chief executive officer and chief financial officer are officers of RMR LLC. Certain other officers and employees of Sonesta are former employees of RMR LLC. RMR LLC also provides certain services to Sonesta. As of June 30, 2021, we owned approximately 34% of Sonesta which managed 261 of our hotels. See Note 5 for further information regarding our relationships, agreements and transactions with Sonesta.
Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 8 for further information regarding our management agreements with RMR LLC.

For further information about these and certain other such relationships and certain other related person transactions, refer to our 2020 Annual Report.

Note 10. 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 includes the income tax provision related to the operations of our TRSs and certain state and foreign income taxes incurred by us despite our qualification for taxation as a REIT.
During the three months ended June 30, 2021, we recognized income tax expense of $211, which includes $70 of foreign taxes and $141 of state taxes. During the three months ended June 30, 2020, we recognized income tax expense of $16,660 which includes $451 of foreign taxes and $559 of state taxes and a $15,650 deferred tax liability recorded as a result of the book value to tax basis difference related to the accounting of an insurance settlement at one of our hotels. During the six months ended June 30, 2021, we recognized income tax expense of $1,064, which includes $170 of foreign taxes and $894 of state taxes. During the six months ended June 30, 2020, we recognized income tax expense of $17,002 which includes $502 of foreign taxes, $850 of state taxes and the $15,650 deferred tax liability described above.
17

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)


Note 11. Segment Information
We aggregate our hotels and net lease portfolio into two reportable segments, hotel investments and net lease investments, based on their similar operating and economic characteristics.
For the Three Months Ended June 30, 2021
HotelsNet LeaseCorporateConsolidated
Revenues:    
Hotel operating revenues$280,135 $ $ $280,135 
Rental income245 95,556