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, 2024

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)

Maryland	04-3262075
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. 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 Class	Trading Symbol	Name of each Exchange on which Registered
Common Shares of Beneficial Interest	SVC	The 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 (§232.405 of this chapter) 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, a 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 filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller 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 2, 2024: 165,889,356.

SERVICE PROPERTIES TRUST

FORM 10-Q

June 30, 2024

INDEX

		Page
PART I.	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — June 30, 2024 and December 31, 2023	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Six Months Ended June 30, 2024 and 2023	4
	Condensed Consolidated Statements of Shareholders’ Equity — Three and Six Months Ended June 30, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2024 and 2023	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	41
	Warning Concerning Forward-Looking Statements	41
	Statement Concerning Limited Liability	42
PART II.	Other Information
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 6.	Exhibits	44
	Signatures	47

References in this Quarterly Report on Form 10-Q to the Company, SVC, we, us or our include Service Properties Trust and its 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

(dollars in thousands, except per share data)

(unaudited)

	June 30, 2024		December 31, 2023
ASSETS
Real estate properties:
Land	$	1,941,008	$	1,972,145
Buildings, improvements and equipment	7,636,707		7,814,192
Total real estate properties, gross	9,577,715		9,786,337
Accumulated depreciation	(3,164,885)		(3,181,797)
Total real estate properties, net	6,412,830		6,604,540
Acquired real estate leases and other intangibles, net	118,753		130,622
Assets held for sale	116,984		10,500
Cash and cash equivalents	14,626		180,119
Restricted cash	14,830		17,711
Equity method investment	108,106		113,304
Due from related persons	28,959		6,376
Other assets, net	306,573		292,944
Total assets	$	7,121,661	$	7,356,116
LIABILITIES AND SHAREHOLDERS’ EQUITY
Revolving credit facility	$	—	$	—
Senior secured notes, net	970,051		968,017
Senior unsecured notes, net	4,014,023		3,993,327
Mortgage notes payable, net	563,727		558,876
Accounts payable and other liabilities	552,649		587,005
Due to related persons	12,405		22,758
Total liabilities	6,112,855		6,129,983
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,903,837 and 165,769,595 shares issued and outstanding, respectively	1,659		1,658
Additional paid in capital	4,559,220		4,557,473
Cumulative other comprehensive income	1,782		2,318
Cumulative net income	2,318,267		2,470,500
Cumulative common distributions	(5,872,122)		(5,805,816)
Total shareholders’ equity	1,008,806		1,226,133
Total liabilities and shareholders’ equity	$	7,121,661	$	7,356,116

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

3

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,
	2024		2023		2024		2023
Revenues:
Hotel operating revenues	$	412,486	$	404,327	$	748,722	$	739,123
Rental income	100,462		99,452		200,476		193,865
Total revenues	512,948		503,779		949,198		932,988
Expenses:
Hotel operating expenses	328,247		309,100		633,333		608,666
Net lease operating expenses	4,958		4,372		9,681		8,277
Depreciation and amortization	95,674		94,571		188,781		194,610
General and administrative	10,681		12,420		21,187		23,331
Transaction related costs	—		931		—		1,818
Loss on asset impairment, net	34,887		9,005		37,338		9,005
Total expenses	474,447		430,399		890,320		845,707
(Loss) gain on sale of real estate, net	(32)		(62)		(2,995)		41,836
(Loss) gain on equity securities, net	—		(593)		—		48,837
Interest income	819		3,468		2,781		6,254
Interest expense (including amortization of debt issuance costs, discounts and premiums of $7,466, $6,804, $14,692 and $12,036, respectively)	(93,850)		(82,503)		(185,264)		(164,083)
Loss on early extinguishment of debt, net	(16,048)		(238)		(16,048)		(282)
(Loss) income before income tax expense and equity in (losses) earnings of an investee	(70,610)		(6,548)		(142,648)		19,843
Income tax expense	(524)		(5,247)		(1,531)		(1,467)
Equity in (losses) earnings of an investee	(2,716)		517		(8,054)		(3,704)
Net (loss) income	(73,850)		(11,278)		(152,233)		14,672
Other comprehensive (loss) income:
Equity interest in investee’s unrealized (losses) gains	(192)		215		(536)		1
Other comprehensive (loss) income	(192)		215		(536)		1
Comprehensive (loss) income	$	(74,042)	$	(11,063)	$	(152,769)	$	14,673
Weighted average common shares outstanding (basic and diluted)	165,198		164,902		165,178		164,884
Net (loss) income per common share (basic and diluted)	$	(0.45)	$	(0.07)	$	(0.92)	$	0.09

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

4

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)

	Number of Shares	Common Shares		Cumulative Common Distributions		Additional Paid in Capital		Cumulative Net Income		Cumulative Other Comprehensive Income		Total
Balance at December 31, 2023	165,769,595	$	1,658	$	(5,805,816)	$	4,557,473	$	2,470,500	$	2,318	$	1,226,133
Net loss	—	—		—		—		(78,383)		—		(78,383)
Equity interest in investee’s unrealized losses	—	—		—		—		—		(344)		(344)
Common share grants	—	—		—		430		—		—		430
Common share repurchases	(1,537)	—		—		(13)		—		—		(13)
Distributions	—	—		(33,154)		—		—		—		(33,154)
Balance at March 31, 2024	165,768,058	1,658		(5,838,970)		4,557,890		2,392,117		1,974		1,114,669
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
Balance at December 31, 2022	165,452,566	$	1,655	$	(5,673,386)	$	4,554,861	$	2,503,279	$	2,383	$	1,388,792
Net income	—	—		—		—		25,950		—		25,950
Equity interest in investee’s unrealized losses	—	—		—		—		—		(214)		(214)
Common share grants	—	—		—		514		—		—		514
Common share repurchases	(4,971)	—		—		(46)		—		—		(46)
Common share forfeitures	(1,600)	—		—		(1)		—		—		(1)
Distributions	—	—		(33,090)		—		—		—		(33,090)
Balance at March 31, 2023	165,445,995	1,655		(5,706,476)		4,555,328		2,529,229		2,169		1,381,905
Net loss	—	—		—		—		(11,278)		—		(11,278)
Equity interest in investee’s unrealized gains	—	—		—		—		—		215		215
Common share grants	56,000	—		—		1,474		—		—		1,474
Common share repurchases	(16,761)	—		—		(150)		—		—		(150)
Common share forfeitures	(1,400)	—		—		(2)		—		—		(2)
Distributions	—	—		(33,089)		—		—		—		(33,089)
Balance at June 30, 2023	165,483,834	$	1,655	$	(5,739,565)	$	4,556,650	$	2,517,951	$	2,384	$	1,339,075

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

5

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net (loss) income	$	(152,233)	$	14,672
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	188,781		194,610
Net amortization of debt issuance costs, discounts and premiums as interest	14,692		12,036
Straight line rental income	(10,546)		(319)
Loss on early extinguishment of debt, net	16,048		282
Loss on asset impairment, net	37,338		9,005
Gains on equity securities, net	—		(48,837)
Equity in losses of an investee	8,054		3,704
Loss (gain) on sale of real estate, net	2,995		(41,836)
Other non-cash income, net	(881)		(546)
Changes in assets and liabilities:
Due from related persons	(22,583)		(3,667)
Other assets	(4,214)		10,006
Accounts payable and other liabilities	(29,829)		182,792
Due to related persons	(4,729)		(3,399)
Net cash provided by operating activities	42,893		328,503
Cash flows from investing activities:
Acquisition of real estate properties	—		(165,688)
Proceeds from sale of TravelCenters of America Inc. common shares	—		101,892
Proceeds from sale of tradenames and trademarks	—		89,400
Real estate improvements	(142,382)		(63,562)
Hotel managers’ purchases with restricted cash	(2,869)		(3,041)
Net proceeds from sale of real estate	5,844		144,959
Investment in Sonesta	(3,392)		—
Net cash (used in) provided by investing activities	(142,799)		103,960
Cash flows from financing activities:
Proceeds from mortgage notes payable, net of discounts	—		576,946
Repayment of mortgage notes payable	(979)		(653)
Proceeds from senior unsecured notes, net of discounts	1,165,007		—
Repayment of senior unsecured notes	(1,162,520)		(500,000)
Payment of debt issuance costs	(3,592)		(37,176)
Repurchase of common shares	(78)		(196)
Distributions to common shareholders	(66,306)		(66,179)
Net cash used in financing activities	(68,468)		(27,258)
(Decrease) increase in cash and cash equivalents and restricted cash	(168,374)		405,205
Cash and cash equivalents and restricted cash at beginning of period	197,830		45,420
Cash and cash equivalents and restricted cash at end of period	$	29,456	$	450,625
Supplemental disclosure of cash and cash equivalents and restricted cash:
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents	$	14,626	$	434,867
Restricted cash(1)	14,830		15,758
Total cash and cash equivalents and restricted cash	$	29,456	$	450,625
(1) Restricted cash consists of amounts escrowed pursuant to the terms of our hotel management agreements to fund capital improvements at our hotels and amounts escrowed as required by certain of our debt agreements.
Supplemental cash flow information:
Cash paid for interest	$	184,737	$	152,294
Cash paid for income taxes	$	2,886	$	1,398
Non-cash investing activities:
Real estate improvements accrued, not paid	$	37,499	$	17,081
Non-cash financing activities:
Extinguishment of senior unsecured notes	$	(2,569)	$	—

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

6

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

Basis of Presentation

The accompanying condensed consolidated financial statements of us are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023, or our 2023 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. These condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for credit losses, purchase price allocations, useful lives of fixed assets and impairment of real estate and related intangibles.

We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™, or ASC. We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE. The assets of our TRSs were $165,766 and $142,789 as of June 30, 2024 and December 31, 2023, respectively, and consist primarily of our TRSs’ investment in Sonesta Holdco Corporation’s, or Sonesta’s, common stock and amounts due from and working capital advances to certain of our hotel managers. The liabilities of our TRSs were $107,250 and $81,262 as of June 30, 2024 and December 31, 2023, respectively, and consist primarily of amounts payable to certain of our hotel managers. The assets of our TRSs are available to satisfy our TRSs’ obligations and we have guaranteed certain obligations of our TRSs.

Note 2. Recent Accounting Pronouncements

On November 27, 2023, the FASB issued Accounting Standards Update, or ASU, No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, or ASU No. 2023-07, which requires public entities to: (i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the Chief Operating Decision Maker, or the CODM, and included in each reported measure of segment profit or loss; (ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280, Segment Reporting, or ASC 280, in interim periods; and (iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures. The amendments in ASU No. 2023-07 are incremental to the requirements in ASC 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. ASU No. 2023-07 should be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ASU No. 2023-07 will have on our consolidated financial statements and disclosures.

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SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

On December 14, 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, or ASU No. 2023-09, which requires public entities to enhance its annual income tax disclosures by requiring: (i) consistent categories and greater disaggregation of information in the rate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction. ASU No. 2023-09 should be applied prospectively but entities have the option to apply it retrospectively to all prior periods presented in the financial statements. ASU No. 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ASU No. 2023-09 will have on our consolidated financial statements and disclosures.

Note 3. Revenue Recognition

We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income (loss). We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided.

We report rental income for leased properties in our condensed consolidated statements of comprehensive income (loss). We recognize rental income from operating leases on a straight line basis over the terms of the lease agreements. We increased rental income by $4,778 and $2,767 for the three months ended June 30, 2024 and 2023, respectively, and increased rental income by $10,546 and $319 for the six months ended June 30, 2024 and 2023, respectively, to record scheduled rent changes under certain of our leases on a straight line basis. Other assets, net, includes $70,479 and $56,833 of straight line rent receivables at June 30, 2024 and December 31, 2023, respectively.

Certain of our lease agreements require additional percentage rent if gross revenues of our properties exceed certain thresholds defined in our lease agreements. We determine percentage rent due to us under our leases monthly, quarterly or annually, as applicable, depending on the specific lease terms, and recognize it when all contingencies are met and the rent is earned. We recorded percentage rent of $471 and $4,449 for the three months ended June 30, 2024 and 2023, respectively, and $1,015 and $4,792 for the six months ended June 30, 2024 and 2023, respectively.

We own all the escrowed reserves established for the regular refurbishment of our hotels, or FF&E reserves. We do not report the FF&E reserves for our managed hotels as FF&E reserve income.

Note 4. Per Common Share Amounts

We calculate basic earnings per common share using the two class method. We calculate diluted earnings per common share using the more dilutive of the two class method or the treasury stock method. Unvested common share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share. For the three and six months ended June 30, 2024 and 2023, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

Note 5. Real Estate Properties

As of June 30, 2024, we owned 220 hotels with an aggregate of 37,697 rooms or suites and 749 service-focused retail net lease properties with an aggregate of 13,384,219 square feet that are primarily subject to “triple net” leases, or net leases where the tenant is generally responsible for payment of operating expenses and capital expenditures of the property during the lease term. Our properties had an aggregate undepreciated carrying value of $9,807,697, including $229,982 related to properties classified as held for sale as of June 30, 2024.

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

Dispositions

During the six months ended June 30, 2024, we sold four properties for an aggregate sales price of $6,247, excluding closing costs. The sales of these properties as presented in the table below do not represent significant dispositions, individually or in the aggregate, nor do they represent a strategic shift in our business. As a result, the results of the operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss).

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SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Quarter Sold	Property Type	Number of Properties	Rooms or Suites / Square Feet	Gross Sales Price		Loss on Sale of Real Estate
Q1 2024	Hotel	1	84	$	3,315	$	(863)
Q1 2024	Net Lease	3	34,849	2,932		(2,132)
		4	84 / 34,849	$	6,247	$	(2,995)

As of June 30, 2024, we had 20 hotels with an aggregate of 2,541 keys and an aggregate carrying value of $107,044 and 13 net lease properties with an aggregate of 142,329 square feet and an aggregate carrying value of $7,169 classified as held for sale. See Note 14 for further information on these properties.

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

As of August 2, 2024, we have entered into agreements to sell 16 hotels with an aggregate of 1,930 keys for an aggregate sales price of $113,200, excluding closing costs, and one net lease property with 3,381 square feet for a sales price of $1,250, excluding closing costs. These pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales, that these sales will not be delayed or that the terms will not change. We continue to market three hotels with an aggregate of 407 keys and nine net lease properties with an aggregate of 129,560 square feet for sale. We believe it is probable that the sales of these properties will be completed within one year.

Note 6. Management Agreements and Leases

As of June 30, 2024, we owned 220 hotels included in four operating agreements and 749 service-focused retail properties net leased to 178 tenants. We do not operate any of our properties.

As of June 30, 2024, all 220 of our hotels were managed by subsidiaries of the following companies: Sonesta (195 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (seven hotels), and InterContinental Hotels Group, plc, or IHG (one hotel). As of June 30, 2024, we owned 749 service-focused retail net lease properties with 178 tenants, including 175 travel centers leased to TA, our largest tenant. Hereinafter, these companies are sometimes referred to as our managers and/or tenants, or collectively, operators.

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SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Hotel Agreements

Sonesta Agreement. As of June 30, 2024, Sonesta managed 40 of our full-service hotels, 111 of our extended stay hotels and 44 of our select service hotels pursuant to management agreements for all of the hotels, which we collectively refer to as our Sonesta agreement. The hotels Sonesta managed for us comprised approximately 50.1% of our total historical real estate investments.

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 $75,130 and $84,899 during the three months ended June 30, 2024 and 2023, respectively, and $102,505 and $115,136 during the six months ended June 30, 2024 and 2023, respectively.

Our Sonesta agreement requires us to fund capital expenditures made at our hotels. We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $106,366 and $54,209 during the six months ended June 30, 2024 and 2023, respectively, which resulted in increases in our contractual annual owner’s priority returns of $6,382 and $3,253, respectively. Our annual priority return under our Sonesta agreement as of June 30, 2024 was $360,353. We owed Sonesta $7,883 and $13,300 for capital expenditures and other reimbursements at June 30, 2024 and December 31, 2023, respectively. Sonesta owed us $28,959 and $6,376 in owner’s priority returns and other amounts as of June 30, 2024 and December 31, 2023, respectively. Amounts due from Sonesta are included in due from related persons and amounts owed to Sonesta are included in due to related persons in our condensed consolidated balance sheets. Our Sonesta agreement requires that 5% of the hotel gross revenues be escrowed for future capital expenditures as FF&E reserves, subject to available cash flows after payment of the owner’s priority returns due to us. No FF&E escrow deposits were required during either of the three or six months ended June 30, 2024 or 2023.

Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing programs and third-party reservation transmission fees of $32,969 and $32,121 for the three months ended June 30, 2024 and 2023, respectively, and $59,984 and $58,257 for the six months ended June 30, 2024 and 2023, respectively. These fees and costs are included in hotel operating expenses in our condensed consolidated statements of comprehensive income (loss). In addition, we incurred procurement and construction supervision fees payable to Sonesta of $587 and $341 for the three months ended June 30, 2024 and 2023, respectively, and $987 and $548 for the six months ended June 30, 2024 and 2023, respectively, which amounts have been capitalized in our condensed consolidated balance sheets and are depreciated over the estimated useful lives of the related capital assets.

We are required to maintain working capital for each of our hotels managed by Sonesta and have advanced a fixed amount based on the number of rooms in each hotel to meet the cash needs for hotel operations. As of each of June 30, 2024 and December 31, 2023, we had advanced $48,490 of initial working capital to Sonesta net of any working capital returned to us on termination of the applicable management agreements in connection with hotels we have sold. These amounts are included in other assets, net in our condensed consolidated balance sheets. Any remaining working capital would be returned to us upon termination in accordance with the terms of our Sonesta agreement.

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

10

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Hyatt Agreement. As of June 30, 2024, Hyatt managed 17 of our select service hotels pursuant to a portfolio management agreement that expires on March 31, 2031, or our Hyatt agreement, and provides that, as of June 30, 2024, we are to be paid an annual owner’s priority return of $16,958. Any returns we receive from Hyatt are currently limited to the hotels’ available cash flows, if any, after payment of operating expenses. Hyatt has provided us with a $30,000 limited guarantee for 75% of the aggregate annual owner’s priority returns due to us that will become effective upon substantial completion of planned renovations of the hotels, which we currently expect to occur in 2024. We realized returns of $3,314 and $4,388 during the three months ended June 30, 2024 and 2023, respectively, and $2,206 and $6,711 during the six months ended June 30, 2024 and 2023, respectively, under our Hyatt agreement. In February 2024, we funded $2,300 of additional working capital to Hyatt. We may recover this amount in the future, if cash flows are sufficient to pay our owner’s priority return and other amounts in accordance with our Hyatt agreement. During the six months ended June 30, 2024 and 2023, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $23,377 and $454, respectively, which resulted in an aggregate increase in our contractual annual owner’s priority returns of $1,403 and $27, respectively.

Radisson Agreement. As of June 30, 2024, Radisson managed seven of our full-service hotels pursuant to a portfolio management agreement that expires on July 31, 2031, or our Radisson agreement, and provides that we are to be paid an annual owner’s priority return of $10,898. Radisson has provided us with a $22,000 limited guarantee for 75% of the aggregate annual owner’s priority returns due to us that became effective on January 1, 2023, subject to adjustment for planned renovations of certain hotels, which we currently expect to be completed by the end of the third quarter of 2024. We realized returns under our Radisson agreement of $1,789 and $1,799 during the three months ended June 30, 2024 and 2023, respectively, and $3,240 and $3,364 during the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2023, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for these periods, and we reduced hotel operating expenses by $140 to record the guaranteed amounts of the shortfalls due from Radisson. The available balance of the guaranty was $21,350 as of June 30, 2024. During the six months ended June 30, 2024 and 2023, we incurred capital expenditures of $544 and $4,749, respectively, for the hotels included in our Radisson agreement, which resulted in an aggregate increase in our contractual owner’s priority returns of $32 and $285, respectively.

Marriott Agreement. As of June 30, 2023, we had sold all 16 hotels previously managed by Marriott International, Inc., or Marriott. We realized a net operating loss of $2,762 during the six months ended June 30, 2023, under our management agreement with Marriott. We did not incur capital expenditures for any of the hotels included in our management agreement with Marriott during the six months ended June 30, 2023.

IHG Agreement. Our management agreement with IHG for one hotel expires on January 31, 2026. We realized returns under our management agreement with IHG of $1,536 and $1,517 during the three months ended June 30, 2024 and 2023, respectively, and $3,129 and $2,280 during the six months ended June 30, 2024 and 2023, respectively. Any returns we receive from IHG are limited to the hotel’s available cash flows, if any, after payment of operating expenses. During the six months ended June 30, 2024 and 2023, we incurred capital expenditures of $221 and $328, respectively, for the hotel included in our IHG agreement.

Net Lease Portfolio

As of June 30, 2024, we owned 749 service-focused retail net lease properties with an aggregate of 13,384,219 square feet with leases requiring annual minimum rents of $380,457 with a weighted (by annual minimum rents) average remaining lease term of 8.4 years. Our net lease properties were 97.3% occupied and leased by 178 tenants operating under 139 brands in 21 distinct industries.

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SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

TA Leases. As of June 30, 2024, TA is our largest tenant, representing 28.5% of our total historical real estate investments. We lease to TA a total of 175 travel centers under five master leases that expire in 2033, or our TA leases, subject to TA’s right to extend those leases, and require annual minimum rents of $259,080 as of June 30, 2024. TA receives a monthly rent credit totaling $25,000 per year over the 10-year initial term of the TA leases as a result of rent it prepaid. On February 28, 2024, TA acquired the leasehold interest of one of our travel centers from a third party landlord. The aggregate minimum rent due to us under our leases with TA for the remaining 175 travel centers was unchanged as a result of TA’s acquisition of this leasehold interest.

Our TA leases are “triple net” leases that require TA to pay all costs incurred in the operation of the leased travel centers, including personnel, utility, inventory, customer service and insurance expenses, real estate and personal property taxes, environmental related expenses, underground storage tank maintenance costs and ground lease payments at those travel centers at which we lease the property and sublease it to TA. Our TA leases generally require TA to indemnify us for certain environmental matters and for liabilities that arise during the terms of the leases from ownership or operation of the leased travel centers. Our TA leases do not require FF&E escrow deposits. However, TA is required to maintain the leased travel centers, including structural and non-structural components. BP Corporation North America Inc. guarantees payment under each of the TA leases, limited to an aggregate cap which was $3,037,475 as of June 30, 2024.

We recognized rental income from our TA leases of $67,834 and $65,260 for the three months ended June 30, 2024 and 2023, respectively, and $135,668 and $127,401 for the six months ended June 30, 2024 and 2023, respectively. Rental income was increased by $3,885 and $2,555 for the three months ended June 30, 2024 and 2023, respectively, and increased by $8,194 and reduced by $686 for the six months ended June 30, 2024 and 2023, respectively, to record the scheduled rent changes on a straight line basis. As of June 30, 2024 and December 31, 2023, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $30,872 and $19,816, respectively, included in other assets, net in our condensed consolidated balance sheets.

Until May 15, 2023, our TA leases required TA to pay us percentage rent based upon increases in certain sales. We recognized percentage rent due under our TA leases as rental income when all contingencies were met. We recognized percentage rent of $3,507 during the three and six months ended June 30, 2023 under our TA leases. We had no deferred percentage rent for either the three or six months ended June 30, 2023.

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

Our other net lease agreements generally provide for minimum rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We recognized rental income from our net lease properties (excluding TA) of $32,628 and $34,192 for the three months ended June 30, 2024 and 2023, respectively, which included $893 and $212, respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis, and $64,808 and $66,464 for the six months ended June 30, 2024 and 2023, respectively, which included $2,352 and $1,005, respectively, of adjustments to record scheduled rent changes under certain of our leases on a straight line basis.

We 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 $377 and $1,042 for the three and six months ended June 30, 2024, respectively, based on our assessment of the collectability of rents. We recorded reserves for uncollectable amounts and reduced rental income by $1,813 and $5,353 for the three and six months ended June 30, 2023, respectively, based on our assessment of the collectability of rents. We had reserves for uncollectable rents of $4,366 and $3,436 as of June 30, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.

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SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Note 7. Other Investments

Equity Method Investment

As of both June 30, 2024 and December 31, 2023, we owned 34% of Sonesta’s outstanding common stock. We account for our 34% non-controlling interest in Sonesta under the equity method of accounting.

As of June 30, 2024 and December 31, 2023, our investment in Sonesta had a carrying value of $108,106 and $113,304, respectively. On the date of acquisition of our initial equity interest in Sonesta (February 27, 2020), the cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total stockholders’ equity book value by an aggregate of $8,000. As required under GAAP, we are amortizing this difference to equity in earnings of an investee over 31 years, the weighted average remaining useful life of the real estate assets and intangible assets and liabilities owned by Sonesta as of the date of our acquisition. We recorded amortization of the basis difference of $65 in each of the three months ended June 30, 2024 and 2023 and $130 in each of the six months ended June 30, 2024 and 2023. We recognized losses related to our investment in Sonesta of $2,716 and earnings of $517 for the three months ended June 30, 2024 and 2023, respectively, and losses of $8,054 and $3,704 for the six months ended June 30, 2024 and 2023, respectively. These amounts, which include amortization of the basis difference, are included in equity in earnings (losses) of an investee in our condensed consolidated statements of comprehensive income (loss).

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, 2024 and 2023 and $1,242 for each of the six months ended June 30, 2024 and 2023 for amortization of this liability. As of June 30, 2024 and December 31, 2023, the unamortized balance of this liability was $31,237 and $32,479, respectively.

In March 2024, we made a $3,392 pro rata capital contribution to Sonesta to support its growth initiatives, including its franchising efforts. We continue to maintain our 34% ownership in Sonesta after giving effect to this contribution.

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

Investment in Equity Securities

Until May 15, 2023, we owned 1,184,797 shares, or approximately 7.8%, of TA common stock, which were reported at fair value based on quoted market prices (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the end of the period, with changes in fair value recorded in earnings in our condensed consolidated statements of comprehensive income (loss). As of May 15, 2023, our historical cost basis for these shares was $24,418 and our carrying value for these shares was $101,893. On May 15, 2023, BP Products North America Inc. acquired TA pursuant to a merger, or the TA Merger, for $86.00 per share of TA common stock in cash. We recorded a loss of $593 during the three months ended June 30, 2023, and a gain of $48,837 during the six months ended June 30, 2023 to adjust the carrying value of our former investment in shares of TA common stock to its fair value.

Note 8. Indebtedness

Our principal debt obligations at June 30, 2024 were: (1) $4,075,000 aggregate outstanding principal amount of senior unsecured notes; (2) $1,000,000 aggregate outstanding principal amount of senior secured notes; and (3) $607,590 aggregate outstanding principal amount of net lease mortgage notes. We had no amounts outstanding under our revolving credit facility as of June 30, 2024.

Our $650,000 secured revolving credit facility is available for general business purposes, including acquisitions. We can borrow, repay, and reborrow funds available under our revolving credit facility until maturity and no principal repayments are due until maturity. The maturity date of our revolving credit facility is June 29, 2027, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to further extend the stated maturity date of the facility by two additional six-month periods.

13

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Interest payable on drawings under our revolving credit facility is based on the secured overnight financing rate, or SOFR, plus a margin ranging from 1.50% to 3.00% based on our leverage ratio, as defined in our credit agreement, which was 2.50% as of June 30, 2024. As collateral for all loans and other obligations under the credit facility, certain of our subsidiaries pledged all of their respective equity interests in certain of our direct and indirect property owning subsidiaries, and our pledged subsidiaries provided first mortgage liens on 72 properties, including 69 hotels and three net lease properties, with an aggregate undepreciated carrying value of $1,738,959 as of June 30, 2024. We also pay unused commitment fees of 20 to 30 basis points per annum on the total amount of lending commitments under our revolving credit facility based on amounts outstanding. As of June 30, 2024 and 2023, the annual interest rate payable on borrowings under our revolving credit facility was 7.83% and 7.64%, respectively. We had no borrowings outstanding under our revolving credit facility for either the three or six months ended June 30, 2024 or 2023.

Our debt agreements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR, ceasing to act as our business manager. Our debt agreements also contain covenants, including those that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios. Borrowings under our revolving credit facility are subject to meeting ongoing minimum performance and market values of the collateral properties, satisfying certain financial covenants and other credit facility conditions. We believe we were in compliance with the terms and conditions of our debt agreements as of June 30, 2024.

Senior Guaranteed Unsecured Notes Issuance

In June 2024, we issued $700,000 aggregate principal amount of 8.375% senior guaranteed unsecured notes due 2029, or the 2029 Notes, and $500,000 aggregate principal amount of 8.875% senior guaranteed unsecured notes due 2032, or the 2032 Notes, in underwritten public offerings. The aggregate net proceeds from these notes were $1,162,284, after underwriting discounts and other offering expenses. These notes are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for our foreign subsidiaries and certain other excluded subsidiaries. Such other excluded subsidiaries include, but are not limited to, subsidiaries whose equity has been pledged to secure borrowings under our credit agreement and our 8.625% senior secured notes due 2031, and subsidiaries whose assets secure our net lease mortgage notes.

Repayment of 2025 Maturities

In June 2024, we redeemed all of our outstanding 7.50% senior unsecured notes due 2025 for a redemption price equal to the principal amount of $800,000, plus accrued and unpaid interest and a premium equal to a make whole amount. As a result of the redemption, we recorded a loss on early extinguishment of debt of $17,681 during the three and six months ended June 30, 2024, which represented the make whole premium and the write-off of unamortized discounts and issuance costs related to these notes.

In June 2024, we repurchased $272,803 principal amount of our $350,000 4.50% senior unsecured notes due 2025 at a total cost of $270,396, excluding accrued interest, pursuant to a cash tender offer. Also in June 2024, we effected the satisfaction and discharge of the remaining $77,197 principal amount of our $350,000 4.50% senior unsecured notes due 2025 that were not purchased as part of the tender offer in accordance with its terms. As a result of these transactions, we recorded a gain on early extinguishment of debt of $1,633 during the three and six months ended June 30, 2024, which represented the discount to par paid to repurchase the notes, net of the write-off of unamortized discounts and issuance costs related to these notes.

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.

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SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Our net lease mortgage notes are summarized below:

Note Class	Principal Outstanding as of June 30, 2024		Coupon Rate	Initial Term (in years)	Maturity
Class A	$	302,967	5.15%	5	February 2028
Class B	172,423		5.55%	5	February 2028
Class C	132,200		6.70%	5	February 2028
Total / weighted average	$	607,590	5.60%

The Class A notes and the Class B notes require monthly principal repayments at an annualized rate of 0.50% and 0.25% of the balance outstanding, respectively, and the Class C notes require interest payments only, with balloon payments due at maturity. The notes mature in February 2028 and may be redeemed without penalty 24 months prior to the scheduled maturity date beginning in February 2026. The notes are non-recourse and are secured by 308 net lease retail properties owned by the Issuer. The current leases relating to those properties require annual minimum rents of $65,173 and had an aggregate undepreciated carrying value of $753,474 as of June 30, 2024.

Note 9. Shareholders’ Equity

Share Awards

On June 14, 2024, in accordance with our Trustee compensation arrangements, we awarded 18,255 of our common shares, valued at $4.93 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day to each of our eight Trustees as part of their annual compensation.

Share Purchases

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

Declaration Date	Record Date	Paid Date	Dividend Per Common Share		Total Distributions
January 11, 2024	January 22, 2024	February 15, 2024	$	0.20	$	33,154
April 11, 2024	April 22, 2024	May 16, 2024	0.20		33,152
			$	0.40	$	66,306

On July 11, 2024, we declared a regular quarterly distribution to common shareholders of record as of July 22, 2024 of $0.20 per common share, or approximately $33,178. We expect to pay this distribution on or about August 15, 2024.

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.

15

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Pursuant to our business management agreement with RMR, we recognized net business management fees of $7,440 and $8,287 for the three months ended June 30, 2024 and 2023, respectively, and $15,197 and $16,672 for the six months ended June 30, 2024 and 2023, respectively. Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2024 and 2023, no incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2024 or 2023. The actual amount of annual incentive fees for 2024, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2024, and will be payable in January 2025. We did not incur an incentive fee payable to RMR for the year ended December 31, 2023. We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

Pursuant to our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $2,839 and $1,846 for the three months ended June 30, 2024 and 2023, respectively, and $6,019 and $3,258 for the six months ended June 30, 2024 and 2023, respectively. Of those amounts, for the three months ended June 30, 2024 and 2023, $1,505 and $937, respectively, of property management fees were expensed to net lease operating expenses in our condensed consolidated statements of comprehensive income (loss) and $1,334 and $909, respectively, of construction supervision fees were capitalized as building improvements in our condensed consolidated balance sheets. For the six months ended June 30, 2024 and 2023, $2,989 and $1,882, respectively, of property management fees were expensed to net lease operating expenses in our condensed consolidated statements of comprehensive income (loss) and $3,030 and $1,376, respectively, of construction supervision fees were capitalized as building improvements in our condensed consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR employees assigned to work exclusively or partly at our net lease properties and the office building component of one of our hotels, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function, and as otherwise agreed. Our property level operating expenses are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR. We reimbursed RMR $1,032 and $1,116 for these expenses and costs for the three months ended June 30, 2024 and 2023, respectively, and $2,126 and $2,119 for these expenses and costs for the six months ended June 30, 2024 and 2023, respectively. We included these amounts in net lease operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss).

Note 11. Related Person Transactions

We have relationships and historical and continuing transactions with TA, Sonesta, RMR, The RMR Group, Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. As of the effective time of the TA Merger on May 15, 2023, TA is no longer a related person to us. RMR is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR. John G. Murray, our other Managing Trustee and our former President and Chief Executive Officer, also serves as an officer and employee of RMR and as president and chief executive officer of Sonesta. In addition, each of our other officers serves as an officer of RMR. Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. Mr. Portnoy serves as chair of the boards and as a managing trustee of these public companies. Other officers of RMR, including certain of our officers, serve as managing trustees or officers of certain of these companies.

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

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

16

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

Sonesta. Sonesta is a private company. Mr. Portnoy is the largest owner and controlling shareholder and a director of Sonesta. Mr. Murray is a director of Sonesta and is its president and chief executive officer, and he is an officer and employee of RMR. Sonesta’s other director serves as RMR’s and RMR Inc.’s executive vice president, general counsel and secretary, as a managing director of RMR Inc. and as our Secretary. RMR also provides certain services to Sonesta. As of June 30, 2024, we owned 34% of Sonesta’s outstanding shares of common stock and Sonesta managed 195 of our hotels. See Notes 6 and 7 for further information regarding our relationships, agreements and transactions with Sonesta.

Our Manager, RMR. We have two agreements with RMR to provide management services to us. See Note 10 for further information regarding our management agreements with RMR.

For further information about these and certain other such relationships and certain other related person transactions, refer to our 2023 Annual Report.

Note 12. Income Taxes

We have elected to be taxed as a REIT under the United States Internal Revenue Code of 1986, as amended, or the IRC, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We are subject to income tax in Canada, Puerto Rico and certain states despite our qualification for taxation as a REIT. Further, we lease our managed hotels to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated tax return and are subject to federal, state and foreign income taxes. Our consolidated income tax provision (or benefit) includes the income tax provision (or benefit) related to the operations of our TRSs and certain state and foreign income taxes incurred by us despite our qualification for taxation as a REIT.

During the three months ended June 30, 2024, we recognized income tax expense of $524, which includes $88 of state tax expense and $436 of foreign tax expense. During the three months ended June 30, 2023, we recognized income tax expense of $5,247, which includes $2,884 of state tax expense and $2,363 of foreign tax expense.

During the six months ended June 30, 2024, we recognized income tax expense of $1,531, which includes $709 of state tax expense and $822 of foreign tax expense. During the six months ended June 30, 2023, we recognized income tax expense of $1,467, which includes $587 of state tax expense and $880 of foreign tax expense.

Note 13. Segment Information

We aggregate our hotels and net lease portfolio into two reportable segments, hotel investments and net lease investments, based on their similar operating and economic characteristics.

17

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30, 2024
	Hotels		Net Lease		Corporate		Consolidated
Revenues:
Hotel operating revenues	$	412,486	$	—	$	—	$	412,486
Rental income	—		100,462		—		100,462
Total revenues	412,486		100,462		—		512,948
Expenses:
Hotel operating expenses	328,247		—		—		328,247
Net lease operating expenses	—		4,958		—		4,958
Depreciation and amortization	55,389		40,285		—		95,674
General and administrative	—		—		10,681		10,681
Loss on asset impairment, net	33,107		1,780		—		34,887
Total expenses	416,743		47,023		10,681		474,447
Loss on sale of real estate, net	(27)		(5)		—		(32)
Interest income	64		36		719		819
Interest expense	—		(11,441)		(82,409)		(93,850)
Loss on early extinguishment of debt, net	—		—		(16,048)		(16,048)
(Loss) income before income tax expense and equity in losses of an investee	(4,220)		42,029		(108,419)		(70,610)
Income tax expense	—		—		(524)		(524)
Equity in losses of an investee	—		—		(2,716)		(2,716)
Net (loss) income	$	(4,220)	$	42,029	$	(111,659)	$	(73,850)
	Six Months Ended June 30, 2024
	Hotels		Net Lease		Corporate		Consolidated
Revenues:
Hotel operating revenues	$	748,722	$	—	$	—	$	748,722
Rental income	—		200,476		—		200,476
Total revenues	748,722		200,476		—		949,198
Expenses:
Hotel operating expenses	633,333		—		—		633,333
Net lease operating expenses	—		9,681		—		9,681
Depreciation and amortization	110,475		78,306		—		188,781
General and administrative	—		—		21,187		21,187
Loss on asset impairment, net	33,107		4,231		—		37,338
Total expenses	776,915		92,218		21,187		890,320
Loss on sale of real estate, net	(863)		(2,132)		—		(2,995)
Interest income	127		141		2,513		2,781
Interest expense	—		(22,958)		(162,306)		(185,264)
Loss on early extinguishment of debt, net	—		—		(16,048)		(16,048)
(Loss) income before income tax expense and equity in losses of an investee	(28,929)		83,309		(197,028)		(142,648)
Income tax expense	—		—		(1,531)		(1,531)
Equity in losses of an investee	—		—		(8,054)		(8,054)
Net (loss) income	$	(28,929)	$	83,309	$	(206,613)	$	(152,233)
	As of June 30, 2024
	Hotels		Net Lease		Corporate		Consolidated
Total assets	$	3,955,348	$	3,010,215	$	156,098	$	7,121,661

18

SERVICE PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30, 2023
	Hotels		Net Lease		Corporate		Consolidated
Revenues:
Hotel operating revenues	$	404,327	$	—	$	—	$	404,327
Rental income	—		99,452		—		99,452
Total revenues	404,327		99,452		—		503,779
Expenses:
Hotel operating expenses	309,100		—		—		309,100
Net lease operating expenses	—		5,202		(830)		4,372
Depreciation and amortization	53,449		41,122		—		94,571
General and administrative	—		—		12,420		12,420
Transaction related costs	473		415		43		931
Loss on asset impairment, net	—		9,005		—		9,005
Total expenses	363,022		55,744		11,633		430,399
Gain (loss) on sale of real estate, net	20		(82)		—		(62)
Loss on equity securities, net	—		—		(593)		(593)
Interest income	21		23		3,424		3,468
Interest expense	—		(11,435)		(71,068)		(82,503)
Loss on early extinguishment of debt	—		—		(238)		(238)
Income (loss) before income tax expense and equity in earnings of an investee	41,346		32,214		(80,108)		(6,548)
Income tax expense	—		—		(5,247)		(5,247)
Equity in earnings of an investee	—		—		517		517
Net income (loss)	$	41,346	$	32,214	$	(84,838)	$	(11,278)
	Six Months Ended June 30, 2023
	Hotels		Net Lease		Corporate		Consolidated
Revenues:
Hotel operating revenues	$	739,123	$	—	$	—	$	739,123
Rental income	—		193,865		—		193,865
Total revenues	739,123		193,865		—		932,988
Expenses:
Hotel operating expenses	608,666		—		—		608,666
Net lease operating expenses	—		8,277		—		8,277
Depreciation and amortization	106,834		87,776		—		194,610
General and administrative	—		—		23,331		23,331
Transaction related costs	473		415		930		1,818
Loss on asset impairment, net	—		9,005		—		9,005
Total expenses	715,973		105,473		24,261		845,707
Gain (loss) on sale of real estate, net	41,918		(82)		—		41,836
Gain on equity securities, net	—		—		48,837		48,837
Interest income	51		25		6,178		6,254
Interest expense	—		(17,757)		(146,326)		(164,083)
Loss on early extinguishment of debt	—		—		(282)		(282)
Income (loss) before income tax expense and equity in losses of an investee	65,119		70,578		(115,854)		19,843
Income tax expense	—		—		(1,467)		(1,467)
Equity in losses of an investee	—		—		(3,704)		(3,704)
Net income (loss)	$	65,119	$	70,578	$	(121,025)	$	14,672
	As of December 31, 2023
	Hotels		Net Lease		Corporate		Consolidated
Total assets	$	3,943,213	$	3,084,686	$	328,217	$	7,356,116

19

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, 2024, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

			Fair Value at Reporting Date Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Non-recurring Fair Value Measurement Assets:
Assets of properties held for sale (1)(2)	$	44,025	$	—	$	40,211	$	3,814

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

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

In addition to the assets included in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, revolving credit facility, net lease mortgage notes, senior notes and security deposits. At June 30, 2024 and December 31, 2023, the fair values of these financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short-term nature or floating interest rates, except as follows:

	June 30, 2024				December 31, 2023
	Carrying Value (1)		Fair Value		Carrying Value (1)		Fair Value
Senior Unsecured Notes, due 2025 at 4.50%	$	—	$	—	$	349,181	$	341,688
Senior Unsecured Notes, due 2025 at 7.50%	—		—		796,007		808,888
Senior Unsecured Notes, due 2026 at 5.25%	348,165		338,891		347,601		339,780
Senior Unsecured Notes, due 2026 at 4.75%	448,652		421,650		448,347		419,909
Senior Unsecured Notes, due 2027 at 4.95%	398,050		363,492		397,672		362,108
Senior Guaranteed Unsecured Notes, due 2027 at 5.50%	446,195		418,023		445,631		412,002
Net Lease Mortgage Notes, due 2028 at 5.60%	563,727		581,308		558,876		585,784
Senior Unsecured Notes, due 2028 at 3.95%	395,930		334,992		395,355		327,708
Senior Guaranteed Unsecured Notes, due 2029 at 8.375%	681,075		688,107		—		—
Senior Unsecured Notes, due 2029 at 4.95%	420,873		322,443		420,477		351,726
Senior Unsecured Notes, due 2030 at 4.375%	393,623		282,532		393,056		310,524
Senior Secured Notes, due 2031 at 8.625%	970,051		1,042,310		968,017		1,047,430
Senior Guaranteed Unsecured Notes, due 2032 at 8.875%	481,460		466,370		—		—
Total financial liabilities	$	5,547,801	$	5,260,118	$	5,520,220	$	5,307,547

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

At June 30, 2024 and December 31, 2023, we estimated the fair values of our senior notes using an average of the bid and ask price of the notes (Level 2 inputs) as of the measurement dates. At June 30, 2024 and December 31, 2023, we estimated the fair value of our net lease mortgage notes using discounted cash flow analyses and current prevailing market rates as of the measurement dates (Level 3 inputs). As Level 3 inputs are unobservable, our estimated value may differ materially from the actual fair value.

20