Table of Contents 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, 2023 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) (State or Other Jurisdiction of Incorporation or Organization) Maryland ...

Financial Data and Key Metrics Changes - For Q1 2023, normalized FFO was $37.1 million, or $0.23 per share, compared to negative FFO of $0.02 per share in the prior year quarter [26] - Adjusted EBITDAre increased by 30% to $116.8 million compared to the prior year [26] - Comparable hotel EBITDA saw a 251% increase year-over-year, driven by improved hotel performance [15][27] Business Line Data and Key Metrics Changes - Comparable hotel RevPAR increased by 22% year-over-year, with ADR up 13.9% and occupancy increasing by 3.8 percentage points [10] - Full-service portfolio RevPAR grew by 30.6%, with significant contributions from group demand and business transient travel [11] - Select service portfolio RevPAR increased by 27.2%, driven by a 21.7% increase in transient business [16] - Extended stay portfolio RevPAR increased by 9%, led by Sonesta Simply Suites, which outperformed industry growth [17] Market Data and Key Metrics Changes - Urban market hotels experienced the highest RevPAR increase at 38.9%, while resort hotels saw a more moderate growth of 20% [11] - The net lease portfolio was 97% leased with a weighted average lease term of 9.4 years [13] - Aggregate coverage of net lease portfolios minimum rents was 2.98 times on a trailing 12-month basis, an increase from the prior year [21] Company Strategy and Development Direction - The company is focused on enhancing its corporate sustainability practices and advancing ESG goals [24] - There is an interest in pursuing strategic acquisitions in underexposed markets like Miami and Los Angeles [46] - The company plans to evaluate opportunities for capital recycling into other areas or geographies in the future [62] Management's Comments on Operating Environment and Future Outlook - Management noted signs of moderation in inflationary factors, particularly in labor costs, with a decrease in contract labor expense per occupied room [12] - The company expects an uptick in contract labor costs as demand increases in Q2 and Q3 [12] - Preliminary April 2023 RevPAR was projected at $96.21, with Q2 hotel EBITDA expected in the range of $93 million to $103 million [32] Other Important Information - The company sold 18 hotels for a total price of $157.8 million during the first quarter [35] - A regular quarterly common dividend of $0.20 per share was announced, representing a 46% normalized FFO annualized payout ratio [36] - The company expects to receive $379.3 million in additional liquidity from the BP transaction upon closing [37] Q&A Session Summary Question: Thoughts on 2024 and 2025 maturities and potential financing options - Management is considering the impact of the TA transaction on financing options for upcoming maturities, with a focus on maintaining flexibility [41][42] Question: Potential savings from enhanced credit via BP transaction - Management indicated that the enhanced credit could provide significant savings, although exact figures are uncertain [43][44] Question: Current thoughts on growth and potential acquisitions - Management is evaluating opportunities in strategic markets and sees potential for acquisitions without secured financing [46][48] Question: Recent demand trends and any areas of weakness - Overall strong year-over-year growth is noted, with a softening in leisure resort hotels but an uptick in group and business travel [56][57] Question: Impact of regional bank issues on lender conversations - Management reported no noticeable changes in lender conversations due to regional bank issues, as they primarily deal with larger financial institutions [58]

[PART I Financial Information](index=3&type=section&id=PART%20I%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Q1 2023, covering balance sheets, income, equity, and cash flows [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets were **$7.48 billion** as of March 31, 2023, with debt refinancing impacting senior unsecured and mortgage notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total real estate properties, net | $6,516,378 | $6,590,736 | | Cash and cash equivalents | $180,616 | $38,369 | | **Total assets** | **$7,482,166** | **$7,488,191** | | Senior unsecured notes, net | $5,158,504 | $5,655,530 | | Mortgage notes payable, net | $551,789 | $— | | **Total liabilities** | **$6,100,261** | **$6,099,399** | | **Total shareholders' equity** | **$1,381,905** | **$1,388,792** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported a **$26.0 million net income** in Q1 2023, a significant turnaround from a **$119.8 million net loss** in Q1 2022 Statement of Comprehensive Income (Loss) Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $429,209 | $393,764 | | Hotel operating revenues | $334,796 | $297,406 | | Rental income | $94,413 | $96,358 | | Total expenses | $415,308 | $415,391 | | Gain on sale of real estate, net | $41,898 | $5,548 | | Unrealized gains (losses) on equity securities, net | $49,430 | $(10,260) | | **Net income (loss)** | **$25,950** | **$(119,822)** | | **Net loss per common share (basic and diluted)** | **$0.16** | **$(0.73)** | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow turned positive at **$12.4 million** in Q1 2023, with investing and financing activities providing significant cash Cash Flow Summary (in thousands) | Activity | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $12,373 | $(11,983) | | Net cash provided by investing activities | $114,252 | $38,870 | | Net cash provided by (used in) financing activities | $23,791 | $(1,733) | | **Increase in cash and cash equivalents and restricted cash** | **$150,416** | **$25,154** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover portfolio, property dispositions, management agreements, TA-BP merger, and **$610.2 million** debt refinancing - As of March 31, 2023, the company owned **220 hotels** and **765 net lease properties**[15](index=15&type=chunk) - During Q1 2023, the company sold **18 hotel properties** for an aggregate sales price of **$157.2 million**, resulting in a gain of **$41.9 million**[26](index=26&type=chunk)[27](index=27&type=chunk) - In relation to the pending acquisition of its largest tenant, TA, by BP, the company has agreed to amend its lease agreements, which will result in aggregate annual minimum rent of **$254 million** with **2% annual increases**. TA will also prepay **$188 million** of rent at the merger's closing[50](index=50&type=chunk)[51](index=51&type=chunk) - In February 2023, a subsidiary issued **$610.2 million** in net lease mortgage notes. In March 2023, the company used proceeds to redeem all of its **$500 million** 4.50% senior notes due in 2023[68](index=68&type=chunk)[70](index=70&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial improvements, driven by hotel recovery and asset sales, with **RevPAR up 22.0%**, covering operations and liquidity [Overview](index=20&type=section&id=Overview) Overview of the portfolio (220 hotels, 765 net lease properties) highlights strong Q1 2023 hotel performance and macroeconomic headwinds Comparable Hotel Performance (Q1 2023 vs. Q1 2022) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Occupancy | 57.7% | 53.9% | 3.8 pts | | ADR | $138.73 | $121.77 | +13.9% | | RevPAR | $80.05 | $65.63 | +22.0% | - The net lease portfolio was **97.4% occupied** as of March 31, 2023, with a weighted average lease term of **9.4 years**[105](index=105&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Detailed comparison of Q1 2023 operating results shows net income driven by **$37.4 million** higher hotel revenues and asset sale gains - Hotel operating revenues increased by **$37.4 million (12.6%)** year-over-year, primarily due to higher occupancies and average rates[109](index=109&type=chunk)[110](index=110&type=chunk) - The company recorded a **$41.9 million net gain** on the sale of **18 hotels** in Q1 2023, compared to a **$5.5 million gain** in Q1 2022[118](index=118&type=chunk) - Unrealized gains on equity securities (TA common stock) were **$49.4 million** in Q1 2023, a significant reversal from a **$10.3 million loss** in Q1 2022[119](index=119&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity details include **$610.2 million** mortgage note issuance, **$500 million** senior note redemption, and **$200 million** planned capital improvements - Net cash from operating activities improved to **$12.4 million** in Q1 2023 from a use of **$12.0 million** in Q1 2022, driven by higher hotel returns and lower interest expense[127](index=127&type=chunk) - The company expects to fund **$200 million** for capital improvements to certain hotels during the last nine months of 2023 using cash on hand[129](index=129&type=chunk) - As of March 31, 2023, the company had no borrowings outstanding under its **$800 million revolving credit facility**, which matures on July 15, 2023[134](index=134&type=chunk)[135](index=135&type=chunk) - The company was in compliance with all debt covenants as of March 31, 2023, with key ratios such as Total Debt / Adjusted Total Assets at **54.8%** (vs. **60% maximum**)[145](index=145&type=chunk)[146](index=146&type=chunk) [Non-GAAP Financial Measures](index=34&type=section&id=Non-GAAP%20Financial%20Measures) Reconciliation of GAAP net income to non-GAAP FFO and Normalized FFO, showing **$37.1 million** Normalized FFO for Q1 2023 Reconciliation of Net Income to FFO and Normalized FFO (in thousands, except per share) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income (loss) | $25,950 | $(119,822) | | FFO | $35,894 | $(4,831) | | **Normalized FFO** | **$37,146** | **$(3,409)** | | Net income (loss) per share | $0.16 | $(0.73) | | FFO per share | $0.22 | $(0.03) | | **Normalized FFO per share** | **$0.23** | **$(0.02)** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses market risk, primarily interest rate risk, with **$5.8 billion** fixed-rate debt and upcoming LIBOR transition to SOFR - At March 31, 2023, the company had **$5.81 billion of fixed-rate debt**. A hypothetical **1% increase** in interest rates would decrease the fair value of this debt by approximately **$157.2 million**[186](index=186&type=chunk) - The company had no outstanding balance on its floating-rate revolving credit facility, which matures on July 15, 2023[188](index=188&type=chunk) - The company is preparing for the phase-out of LIBOR by June 30, 2023, and anticipates its replacement with an alternative index such as SOFR for future financing[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes - Based on an evaluation as of March 31, 2023, the company's management concluded that its disclosure controls and procedures are effective[194](index=194&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[195](index=195&type=chunk) [PART II Other Information](index=40&type=section&id=PART%20II%20Other%20Information) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from those previously disclosed in the 2022 Annual Report - There have been no material changes to risk factors from those previously disclosed in the 2022 Annual Report[205](index=205&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company purchased **4,971 common shares** at a **$9.28** weighted average price for tax withholding obligations Issuer Purchases of Equity Securities (Q1 2023) | Calendar Month | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2023 | 1,199 | $7.15 | | March 2023 | 3,772 | $9.96 | | **Total** | **4,971** | **$9.28** | [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, and officer certifications - The filing includes a list of exhibits, such as the Amended and Restated Declaration of Trust, various debt indentures, and officer certifications (Rule 13a-14(a) and Section 1350)[208](index=208&type=chunk)[209](index=209&type=chunk)

Service Properties Trust (NASDAQ:SVC) Q4 2022 Earnings Conference Call March 1, 2023 10:00 AM ET Company Participants Stephen Colbert - Director of Investor Relations Todd Hargreaves - President and Chief Investment Officer Brian Donley - Treasurer and Chief Financial Officer Conference Call Participants Bryan Maher - B. Riley Securities Tyler Batory - Oppenheimer Dori Kesten - Wells Fargo Operator Good morning, and welcome to the Service Properties Trust Fourth Quarter 2022 Earnings Conference Call. All pa ...

Financial Structure and Debt Management - The company has a $800 million revolving credit facility, which includes financial covenants that restrict additional indebtedness and require maintenance of certain financial ratios [66]. - As of December 31, 2022, the company's consolidated debt was $5.7 billion [197]. - The company may incur additional debt without limits in its organizational documents, increasing its vulnerability to adverse market conditions [198]. - The company is subject to risks related to its debt, including the ability to refinance maturing debt and the potential for increased interest expenses [198]. - Rising interest rates may significantly increase the company's interest expenses and negatively impact cash flows and the ability to pay distributions to shareholders [216]. - The company may need to seek waivers or amendments to existing debt agreements if covenants are not satisfied, which could lead to more restrictive conditions [201]. - Secured debt increases the risk of foreclosure, potentially resulting in the loss of properties and adversely affecting the overall portfolio value [202]. REIT Qualification and Taxation - The company has been organized and operated as a REIT since its 1995 taxable year, and it believes it will continue to qualify for REIT taxation [91]. - The company is not subject to federal income tax on net income distributed as dividends to shareholders, provided it meets certain qualification tests [92]. - The company must qualify as a REIT to avoid federal income tax as a C corporation, which would lead to non-deductible distributions and potential taxation on ordinary dividends [98]. - The company is subject to various qualification tests under the IRC to maintain its REIT status, which it believes it has satisfied [94]. - The company must distribute all inherited C corporation earnings and profits from acquisitions to maintain REIT qualification, or face penalties [98]. - The company expects to qualify for taxation as a REIT by satisfying the outlined asset tests on a continuing basis [124]. - The company must ensure that at least 95% of its gross income consists of qualifying income for the 75% gross income test [109]. - The company believes that all or substantially all of its rents and related service charges qualify as "rents from real property" under Section 856 of the IRC [112]. - If the company fails to distribute at least 85% of its REIT ordinary income or 95% of its REIT capital gain net income, it will incur a 4% nondeductible excise tax on the excess [98]. - The company may be subject to a 100% tax on net income from prohibited transactions, which includes dispositions at a gain of inventory or property held primarily for sale [98]. Operational and Market Risks - The company faces significant competition in the hotel and retail sectors, with competitors having greater economies of scale and access to capital [221]. - The company may face significant competition in the market, which could affect its ability to renew leases or lease properties to new tenants [191]. - The company expects the recovery of the U.S. hospitality industry to be a multi-year process, with ongoing uncertainty regarding business travel demand [194]. - The company may need to fund operating losses for its hotels if they do not perform profitably, which could impact its financial results [196]. - The company faces risks related to environmental liabilities and adverse weather conditions affecting its real estate holdings [191]. - The company is dependent on operators for property management, which limits its ability to directly control operations and may affect income [215]. - Tenant defaults may occur due to adverse economic conditions, impacting the company's rental income and overall financial condition [224]. - Bankruptcy filings by tenants could limit the company's ability to enforce lease agreements and recover unpaid rent [236]. Employee and Management Structure - The company has approximately 600 full-time employees through its manager, RMR, as of December 31, 2022 [71]. - The company’s board comprises 29% women and 14% members of underrepresented communities, reflecting its commitment to diversity and inclusion [84]. - The company is dependent on RMR for management and growth strategy, and any loss of RMR's services could decline business prospects [245]. - RMR has broad discretion in operating the business, which may lead to investment returns below expectations [246]. - The management agreements with RMR were not negotiated on an arm's length basis, which may create risks regarding management fees and incentives [251]. Environmental and Sustainability Initiatives - The company focuses on sustainable operating approaches, including energy and water consumption management and greenhouse gas emissions reduction [77]. - The company evaluates properties for climate change resilience and implements measures to prepare for adverse physical climate activity [78]. - ESG initiatives may impose additional costs and expose the company to new risks, with a commitment to reduce scope 1 and 2 emissions to net zero by 2050 and a 50% reduction by 2030 from a 2019 baseline [243]. - Market and government actions in response to climate change may reduce transient travel and demand for fossil fuels, negatively impacting hotel stays and travel center services [244]. Shareholder and Investment Considerations - The company may change its operational and investment policies without shareholder approval, potentially impacting distributions to shareholders [191]. - The company may not realize the expected benefits from its investment in Sonesta due to the risks associated with the hotel industry [259]. - The company is subject to potential conflicts of interest due to its relationships with RMR and Sonesta, which may affect its reputation and market price [258]. - Ownership limitations in the company's declaration of trust may deter or prevent unsolicited acquisition proposals [264]. - The company may face increased risks of litigation and shareholder activism due to perceived conflicts of interest [262].

Service Properties Trust (NASDAQ:SVC) Q3 2022 Earnings Conference Call November 4, 2022 10:00 AM ET Company Participants Stephen Colbert - Director of IR Todd Hargreaves - President and CIO Brian Donley - Treasurer and CFO Conference Call Participants Bryan Maher - B. Riley Securities Dori Kesten - Wells Fargo Tyler Batory - Oppenheimer Operator Good morning, and welcome to the Service Properties Trust Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recor ...

Table of Contents 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 ☐ 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) (State or Other Jurisdiction of Incorporation or Organization) Maryland 04-3262075 (IRS Employer Identification No.) Two ...

Service Properties Trust (NASDAQ:SVC) Q2 2022 Earnings Conference Call August 5, 2022 10:00 AM ET Company Participants Kristin Brown - Director of Investor Relations Todd Hargreaves - President and Chief Investment Officer Brian Donley - Treasurer and Chief Financial Officer Conference Call Participants Bryan Maher - B. Riley FBR Tyler Batory - Oppenheimer & Company Operator Good morning and welcome to Service Properties Trust Second Quarter 2022 Financial Results Conference Call. This call is being recorde ...

```markdown [PART I Financial Information](index=3&type=section&id=PART%20I%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Q2 2022, showing a decrease in total assets and a shift from net loss to net income driven by improved hotel operations [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2022, reflects a decrease in total assets and liabilities, primarily due to property sales and debt repayments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total real estate properties, net** | $6,799,641 | $6,943,974 | | **Assets held for sale** | $68,034 | $515,518 | | **Cash and cash equivalents** | $635,204 | $944,043 | | **Total assets** | **$8,331,559** | **$9,153,315** | | **Revolving credit facility** | $800,000 | $1,000,000 | | **Senior unsecured notes, net** | $5,649,650 | $6,143,022 | | **Total liabilities** | **$6,886,687** | **$7,598,009** | | **Total shareholders' equity** | **$1,444,872** | **$1,555,306** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported net income of $11.4 million for Q2 2022, a significant improvement from a net loss in the prior year, driven by increased hotel operating revenues Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Total revenues** | $515,777 | $375,936 | | Hotel operating revenues | $418,984 | $280,135 | | **Total expenses** | $445,349 | $389,766 | | **Net income (loss)** | **$11,350** | **($91,110)** | | **Net income (loss) per share** | **$0.07** | **($0.55)** | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations turned positive, investing activities provided significant cash from property sales, while financing activities primarily used cash for debt repayment Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $59,297 | ($21,206) | | Net cash provided by (used in) investing activities | $399,338 | ($65,218) | | Net cash (used in) provided by financing activities | ($705,948) | $911,593 | | **(Decrease) increase in cash** | **($247,313)** | **$825,169** | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's organization, accounting policies, and financial activities, including COVID-19 impacts, property dispositions, and credit facility amendments - As of June 30, 2022, the company owned **247 hotels** and **775 net lease properties**. All hotels are operated by third-party managers, including Sonesta (**205 hotels**) and Hyatt (**17 hotels**)[18](index=18&type=chunk)[19](index=19&type=chunk) - During the first six months of 2022, the company sold **69 properties** (**56 hotels** and **13 net lease properties**) for an aggregate sales price of **$500.9 million**, resulting in a net gain of **$44.4 million**[31](index=31&type=chunk)[32](index=32&type=chunk) - On January 7, 2022, management agreements with Sonesta were amended and restated, establishing terms for **194 'Retained Hotels'** through 2037 and separate terms for **67 'Sale Hotels'** through the end of 2022 or until sold[38](index=38&type=chunk)[39](index=39&type=chunk) - In April 2022, the company amended its credit agreement, repaying **$200 million**, reducing the facility size to **$800 million**, and extending the maturity to January 15, 2023. In June 2022, the company redeemed **$500 million** of its **5.00%** senior notes due 2022[72](index=72&type=chunk)[74](index=74&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the hotel portfolio's recovery, key financing activities, property disposition strategy, and outlook on liquidity and debt covenants [Overview and Outlook](index=24&type=section&id=Overview%20and%20Outlook) The hotel portfolio shows significant recovery, but macroeconomic risks persist, with strategic actions including credit facility amendments and property dispositions - While hotel occupancy has recovered significantly since March 2020, management expects the recovery for business transient and group travel to be gradual and inconsistent, with the overall industry recovery being a multi-year process[113](index=113&type=chunk) - During the first half of 2022, the company sold **56 hotels** for **$487.9 million** and **13 net lease properties** for **$13.1 million**. An additional **20 hotels** are being marketed for sale[123](index=123&type=chunk) Comparable Hotel Performance (244 Hotels) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Occupancy | 66.7% | 55.4% | 11.3 pts | | ADR | $137.57 | $105.54 | +30.3% | | RevPAR | $91.76 | $58.47 | +56.9% | [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Total revenues increased significantly in Q2 2022, driven by hotel operating revenue growth, leading to net income compared to a prior-year net loss - The increase in Q2 2022 hotel operating revenues was primarily due to higher occupancies and average rates (**$153.4M**), partially offset by the impact of hotel sales since April 1, 2021 (**$14.5M**)[125](index=125&type=chunk) - Q2 2022 hotel operating expenses increased by **$82.0 million**, mainly from higher controllable costs due to increased occupancy (**$44.3M**) and increased wages and benefits (**$38.4M**)[127](index=127&type=chunk) - A net gain on sale of real estate of **$38.9 million** was recorded in Q2 2022 from the sale of **51 hotels** and **11 net lease properties**, compared to a **$10.8 million** gain in Q2 2021[134](index=134&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity for the next twelve months, supported by operating cash flows, with cash primarily used for capital improvements and debt repayment - Principal sources of funds are owner's priority returns from hotels, rents from the net lease portfolio, and borrowings. The company believes it has sufficient liquidity for the next twelve months[161](index=161&type=chunk) - During the six months ended June 30, 2022, the company funded **$45.7 million** for capital improvements to its hotels and expects to fund an additional **$100 million** in the second half of 2022[164](index=164&type=chunk) - The company declared and paid two quarterly distributions of **$0.01 per share**, totaling **$3.3 million**, during the first six months of 2022[168](index=168&type=chunk) [Debt Covenants](index=35&type=section&id=Debt%20Covenants) As of June 30, 2022, the company was in compliance with all debt covenants, reinstating its ability to incur additional debt, albeit with limited margin Senior Notes Indenture Covenant Compliance (as of June 30, 2022) | Covenant | Actual Results | Requirement | | :--- | :--- | :--- | | Total debt / adjusted total assets | 57.9% | Maximum of 60% | | Secured debt / adjusted total assets | 7.1% | Maximum of 40% | | Consolidated income available for debt service / debt service | 1.59x | Minimum of 1.50x | | Total unencumbered assets / unsecured debt | 169.2% | Minimum 150% | [Portfolio Operating Statistics](index=36&type=section&id=Portfolio%20Operating%20Statistics) The hotel portfolio showed strong Q2 2022 growth in RevPAR, while the net lease portfolio remained stable with high occupancy and a long weighted average lease term Comparable Hotel Performance by Service Level (Q2 2022 vs Q2 2021) | Service Level | RevPAR Change | | :--- | :--- | | Full Service | +83.5% | | Select Service | +53.8% | | Extended Stay | +31.9% | | **Total/Average** | **+56.9%** | - The net lease portfolio was **98.8%** occupied as of June 30, 2022, with a weighted average lease term of **10.0 years**. The portfolio generated rent coverage of **2.80x**[194](index=194&type=chunk)[196](index=196&type=chunk) - TravelCenters of America is the largest tenant, representing **64.9%** of investment and **66.1%** of annualized minimum rent from the net lease portfolio[199](index=199&type=chunk) [Non-GAAP Financial Measures](index=42&type=section&id=Non-GAAP%20Financial%20Measures) The company provides reconciliations for non-GAAP measures FFO and Normalized FFO, both showing significant increases in Q2 2022 compared to the prior year FFO and Normalized FFO Reconciliation (in thousands, except per share) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income (loss) | $11,350 | ($91,110) | | FFO | $87,031 | $19,151 | | Normalized FFO | $89,158 | $25,840 | | FFO per share | $0.53 | $0.12 | | Normalized FFO per share | $0.54 | $0.16 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate changes, affecting its fixed-rate debt fair value and floating-rate debt interest expense, with LIBOR phase-out being monitored - As of June 30, 2022, the company had **$5.7 billion** in fixed-rate senior notes. A hypothetical **1%** change in interest rates would change the fair value of this debt by approximately **$161.7 million**[221](index=221&type=chunk) - The company had **$800 million** in floating-rate debt outstanding. A **1%** increase in interest rates would increase annual interest expense by **$8.0 million**, or **$0.05 per share**[223](index=223&type=chunk)[224](index=224&type=chunk) - The company is monitoring the phase-out of LIBOR, which is expected to be completed for pre-existing contracts by June 30, 2023, and anticipates its credit agreement will be amended to provide for a replacement interest rate[226](index=226&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the company's management concluded that its disclosure controls and procedures are effective[228](index=228&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[229](index=229&type=chunk) [PART II Other Information](index=49&type=section&id=PART%20II%20Other%20Information) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from those previously disclosed in the 2021 Annual Report - There have been no material changes to risk factors from those previously disclosed in the company's 2021 Annual Report[246](index=246&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company purchased 478 common shares during Q2 2022 to satisfy tax withholding obligations for a former employee's vested share awards Issuer Purchases of Equity Securities | Calendar Month | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 478 | $7.94 | [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, senior notes indentures, and SEC-required certifications - The exhibits include certifications by the President and CFO under Rule 13a-14(a) and Section 1350, as well as XBRL data files[249](index=249&type=chunk) ```

Service Properties Trust (NASDAQ:SVC) Q1 2022 Earnings Conference Call May 5, 2022 10:00 AM ET Company Participants Todd Hargreaves – Vice President and Chief Investment Officer Brian Donley – Treasurer and Chief Financial Officer Kristin Brown – Director of Investor Relations Conference Call Participants Bryan Maher – B. Riley Securities Dory Heston – Wells Fargo Operator Good morning. Welcome to Service Properties Trust First Quarter 2022 Financial Results Conference Call. All participants will be in list ...