Service Properties Trust(SVC) - 2025 Q2 - Quarterly Report

PART I. Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (unaudited) This section presents Service Properties Trust's unaudited condensed consolidated financial statements and accompanying notes for Q2 2025 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Total assets | $6,932,512 | $7,119,558 | | Total liabilities | $6,236,568 | $6,267,685 | | Total shareholders' equity | $695,944 | $851,873 | - Total assets decreased by $187,046 (2.6%) from December 31, 2024, to June 30, 2025, primarily due to a decrease in real estate properties, net, and cash and cash equivalents, partially offset by an increase in assets of properties held for sale[8] - Shareholders' equity decreased by $155,929 (18.3%) from December 31, 2024, to June 30, 2025, mainly due to net losses and common distributions[9] Condensed Consolidated Statements of Comprehensive Income (Loss) This section details the company's financial performance for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income (Loss) (dollars in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $503,436 | $512,948 | $938,615 | $949,198 | | Total expenses | $438,599 | $474,447 | $885,901 | $890,320 | | Net loss | $(38,159) | $(73,850) | $(154,594) | $(152,233) | | Net loss per common share (basic and diluted) | $(0.23) | $(0.45) | $(0.93) | $(0.92) | - Net loss decreased by $35,691 (48.3%) for the three months ended June 30, 2025, compared to the same period in 2024, primarily due to lower loss on asset impairment and absence of loss on early extinguishment of debt[10] - Net loss increased by $2,361 (1.6%) for the six months ended June 30, 2025, compared to the same period in 2024, mainly due to higher loss on asset impairment and increased interest expense[10] Condensed Consolidated Statements of Shareholders' Equity This section outlines changes in shareholders' equity for the periods ended June 30, 2025 and 2024 Condensed Consolidated Statements of Shareholders' Equity (dollars in thousands) | Metric | Balance at December 31, 2024 | Net Loss (6 months) | Distributions (6 months) | Balance at June 30, 2025 | | :--------------------------------- | :--------------------------- | :------------------ | :----------------------- | :----------------------- | | Total shareholders' equity | $851,873 | $(154,594) | $(3,333) | $695,944 | - Total shareholders' equity decreased from $851,873 thousand at December 31, 2024, to $695,944 thousand at June 30, 2025, primarily due to net losses and common distributions[11] - Common shares outstanding increased to 166,860,830 at June 30, 2025, from 166,636,537 at December 31, 2024, due to common share grants, partially offset by repurchases and forfeitures[11] Condensed Consolidated Statements of Cash Flows This section presents the company's cash flow activities for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (dollars in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $38,193 | $42,893 | | Net cash used in investing activities | $(94,307) | $(142,799) | | Net cash used in financing activities | $(15,241) | $(68,468) | | Decrease in cash and cash equivalents and restricted cash | $(71,355) | $(168,374) | | Cash and cash equivalents and restricted cash at end of period | $86,031 | $29,456 | - Net cash provided by operating activities decreased by $4,700 (10.9%) in the first six months of 2025 compared to 2024, primarily due to lower returns from the hotel portfolio[14][150] - Net cash used in investing activities decreased by $48,492 (33.9%) in the first six months of 2025, driven by higher proceeds from real estate sales and decreased real estate improvements, partially offset by acquisitions[14][150] - Net cash used in financing activities decreased by $53,227 (77.7%) in the first six months of 2025, mainly due to lower distributions to common shareholders[14][150] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, significant transactions, and segment information Note 1. Organization and Basis of Presentation This note describes Service Properties Trust's structure as a REIT and its investment portfolio - Service Properties Trust is a REIT that invests in 200 hotels and 742 service-focused retail net lease properties as of June 30, 2025[21] - The company consolidates its wholly-owned taxable REIT subsidiaries (TRSs) as variable interest entities (VIEs), with TRS assets totaling $164,817 thousand and liabilities totaling $101,712 thousand as of June 30, 2025[24] Note 2. Recent Accounting Pronouncements This note discusses the company's evaluation of new accounting standards, including income tax and expense disaggregation disclosures - The company is evaluating the impact of ASU No. 2023-09 (Income Taxes) effective for annual periods beginning after December 15, 2024, which requires enhanced income tax disclosures[25] - The company is evaluating the impact of ASU 2024-03 (Income Statement - Expense Disaggregation Disclosures) effective for annual periods beginning after December 15, 2026, which requires disaggregation of specific expense categories[26] Note 3. Revenue Recognition This note explains the company's policies for recognizing hotel operating revenues and rental income from operating leases - Hotel operating revenues are recognized when goods and services are provided, while rental income from operating leases is recognized on a straight-line basis over the lease term[27][28] Rental Income Adjustments (dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Straight-line rent adjustment | $2,683 | $4,778 | $6,561 | $10,546 | | Percentage rent | $501 | $471 | $1,347 | $1,015 | Note 4. Per Common Share Amounts This note details the calculation methods for basic and diluted earnings per common share - Basic earnings per common share are calculated using the two-class method, and diluted earnings per common share use the more dilutive of the two-class method or treasury stock method[30] - No dilutive common shares were included in the calculation for the three and six months ended June 30, 2025 and 2024, as they would have been antidilutive[30] Note 5. Real Estate Properties This note provides details on the company's real estate portfolio, including acquisitions, dispositions, and capital improvements - As of June 30, 2025, the company owned 200 hotels (35,101 rooms) and 742 service-focused retail net lease properties (13,162,020 sq ft), with an aggregate undepreciated book value of $9,541,028 thousand[31] Capital Improvements (dollars in thousands) | Period | Capital Improvements | | :--------------------------------- | :------------------- | | Six months ended June 30, 2025 | $84,944 | | Six months ended June 30, 2024 | $135,124 | - During the six months ended June 30, 2025, the company acquired seven net lease properties for $29,923 thousand and sold 13 properties for $49,296 thousand[33][35] - As of June 30, 2025, 116 hotels and nine net lease properties were classified as held for sale, with total assets of properties held for sale at $849,100 thousand[37] Note 6. Management Agreements and Leases This note describes the company's hotel management agreements and its net lease portfolio details - As of June 30, 2025, 200 hotels were managed by Sonesta (175 hotels), Hyatt (17 hotels), Radisson (7 hotels), and IHG (1 hotel)[39][40] - The Sonesta agreement, expiring January 31, 2037, provides for an annual owner's priority return and an additional 80% of operating profits after certain deductions[42] Returns from Hotel Agreements (dollars in thousands) | Agreement | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sonesta | $65,518 | $75,130 | $83,687 | $102,505 | | Hyatt | $3,263 | $3,314 | $6,390 | $2,206 | | Radisson | $2,038 | $1,789 | $3,441 | $3,240 | | IHG | $776 | $1,536 | $3,019 | $3,129 | - The company plans to sell 122 Sonesta-managed hotels, with agreements to amend and restate management agreements for the 59 retained hotels, modifying fees and performance provisions[46][49] - As of June 30, 2025, the net lease portfolio comprised 742 properties with $386,521 thousand in annual minimum rents and a weighted average remaining lease term of 7.6 years, with 97.3% occupancy[52] - TA is the largest tenant, leasing 175 travel centers with annual minimum rents of $264,262 thousand, guaranteed by BP Corporation North America Inc[53][54] Reserves for Uncollectable Rents (dollars in thousands) | Period | Reserve Recorded (Reduction to Rental Income) | | :--------------------------------- | :-------------------------------------------- | | Three months ended June 30, 2025 | $1,142 | | Six months ended June 30, 2025 | $1,377 | | Three months ended June 30, 2024 | $377 | | Six months ended June 30, 2024 | $1,042 | Note 7. Equity Method Investment This note outlines the company's equity investment in Sonesta and related accounting treatment - The company owns 34% of Sonesta's common stock, accounted for under the equity method, with a carrying value of $111,653 thousand at June 30, 2025[58][59] Equity in Losses of an Investee (Sonesta) (dollars in thousands) | Period | Equity in Losses | | :--------------------------------- | :--------------- | | Three months ended June 30, 2025 | $526 | | Three months ended June 30, 2024 | $2,716 | | Six months ended June 30, 2025 | $4,473 | | Six months ended June 30, 2024 | $8,054 | - A liability of $42,000 thousand for the initial investment in Sonesta is being amortized as a reduction to hotel operating expenses, with an unamortized balance of $28,753 thousand at June 30, 2025[61] Note 8. Indebtedness This note details the company's principal debt obligations, including revolving credit, senior notes, and mortgage notes - Principal debt obligations at June 30, 2025, include $100,000 thousand under a $650,000 thousand revolving credit facility, $4,075,000 thousand in senior unsecured notes, $1,000,000 thousand in senior secured notes, $605,632 thousand in net lease mortgage notes, and $45,000 thousand under a variable funding note (VFN)[64] - The revolving credit facility matures on June 29, 2027, with interest based on SOFR plus a margin (2.50% as of June 30, 2025); as of August 1, 2025, the facility was fully drawn[65][66] - The company announced the early redemption of $350,000 thousand 5.25% senior unsecured notes due 2026, expected around September 4, 2025[70] Net Lease Mortgage Notes Summary (dollars in thousands) | Note Class | Principal Outstanding as of June 30, 2025 | Coupon Rate | Maturity | | :--------------------------------- | :---------------------------------------- | :---------- | :------------- | | Class A | $301,441 | 5.15% | February 2028 | | Class B | $171,991 | 5.55% | February 2028 | | Class C | $132,200 | 6.70% | February 2028 | | Total / weighted average | $605,632 | 5.60% | | - The VFN, issued January 27, 2025, permits borrowings up to $45,000 thousand, maturing January 27, 2027, with interest based on SOFR plus a margin of 1.75%[73] Note 9. Shareholders' Equity This note describes changes in shareholders' equity, including common share awards and distributions - During the six months ended June 30, 2025, the company awarded 32,490 common shares on March 26, 2025, and 40,425 common shares on June 13, 2025, as part of Trustee compensation[74][75] - The company purchased 29,956 common shares during the six months ended June 30, 2025, to satisfy tax withholding obligations from former officers and employees[76] Common Share Distributions (dollars in thousands, except per share amounts) | Declaration Date | Record Date | Paid Date | Dividend Per Common Share | Total Distributions | | :--------------------------------- | :---------------- | :---------------- | :------------------------ | :------------------ | | January 16, 2025 | January 27, 2025 | February 20, 2025 | $0.01 | $1,666 | | April 10, 2025 | April 22, 2025 | May 15, 2025 | $0.01 | $1,667 | | Total (6 months) | | | $0.02 | $3,333 | Note 10. Business and Property Management Agreements with RMR This note explains the company's reliance on RMR for management services and associated fees - The company has no employees and relies on RMR for personnel and management services through a business management agreement and a property management agreement[79] Management Fees and Expense Reimbursements (dollars in thousands) | Financial Statement Line Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net business management fees | $6,900 | $7,440 | $13,830 | $15,197 | | Net lease operating expenses (property management) | $2,110 | $1,505 | $4,197 | $2,989 | | Construction supervision fees (capitalized) | $465 | $1,334 | $1,122 | $3,030 | | Expense reimbursement | $1,105 | $1,032 | $2,300 | $2,126 | - No incentive fees were included in net business management fees for the three and six months ended June 30, 2025, as they are based on common share total return for the three-year period ending December 31, 2025[83] Note 11. Related Person Transactions This note discloses relationships and transactions with affiliated companies and key personnel - The company has relationships and transactions with Sonesta, RMR, RMR Inc., and other affiliated companies, with shared Trustees and officers[85] - Adam Portnoy, Chair of the Board, is the controlling shareholder of RMR Inc. and Sonesta, highlighting significant related party influence[85][87] Note 12. Income Taxes This note explains the company's income tax status as a REIT and its taxable REIT subsidiaries - As a REIT, the company is generally not subject to federal and most state income taxation, but its wholly-owned TRSs are subject to federal, state, and foreign income taxes[89] Income Tax Expense (dollars in thousands) | Period | Income Tax Expense | | :--------------------------------- | :----------------- | | Three months ended June 30, 2025 | $457 | | Three months ended June 30, 2024 | $524 | | Six months ended June 30, 2025 | $1,300 | | Six months ended June 30, 2024 | $1,531 | Note 13. Segment Information This note provides financial data for the company's hotel and net lease investment segments - The company operates in two reportable segments: hotel investments (managed by Sonesta, Hyatt, Radisson, IHG) and net lease investments (service-focused retail properties, including TA travel centers)[92] Segment Revenues and Profit (Loss) (dollars in thousands) | Metric | Hotels (3 months) | Net Lease (3 months) | Total (3 months) | Hotels (6 months) | Net Lease (6 months) | Total (6 months) | | :--------------------------------- | :---------------- | :------------------- | :--------------- | :---------------- | :------------------- | :--------------- | | Total revenues | $404,405 | $99,031 | $503,436 | $739,368 | $199,247 | $938,615 | | Segment profit (loss) | $21,765 | $40,657 | $62,422 | $(39,553) | $88,252 | $48,699 | Segment Assets and Capital Expenditures (dollars in thousands) | Metric | Hotels (Assets) | Net Lease (Assets) | Corporate (Assets) | Total Assets | Hotels (CapEx) | Net Lease (CapEx) | Total CapEx | | :--------------------------------- | :-------------- | :----------------- | :----------------- | :----------- | :------------- | :---------------- | :---------- | | As of June 30, 2025 | $3,833,268 | $2,899,726 | $199,518 | $6,932,512 | $83,962 (6 months) | $982 (6 months) | $84,944 (6 months) | Note 14. Fair Value of Assets and Liabilities This note details the fair value measurements of the company's assets and liabilities, including impairment charges Non-recurring Fair Value Measurement Assets (dollars in thousands) | Description | Total Fair Value | Level 2 Inputs | Level 3 Inputs | | :--------------------------------- | :--------------- | :------------- | :------------- | | Assets of properties held for sale | $127,800 | $126,450 | $1,350 | - The company recorded impairment charges of $52,861 thousand for 17 hotels (Level 2 inputs) and $1,795 thousand for two net lease properties (Level 3 inputs) during the six months ended June 30, 2025[105] - Fair values of senior notes are estimated using bid and ask prices (Level 2), while net lease mortgage notes use discounted cash flow analyses and market rates (Level 3)[106] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity, highlighting key trends, strategic initiatives, and the performance of its hotel and net lease portfolios Overview This section outlines the company's strategic focus on debt reduction, net lease growth, and hotel portfolio optimization - The company's strategy focuses on reducing debt, growing its net lease portfolio, and improving the performance of retained hotels after planned dispositions[111] - As of August 1, 2025, the company sold eight Sonesta-managed hotels for $45,600 thousand and has agreements to sell 114 more for $919,952 thousand[110] - The U.S. hotel industry saw increases in ADR and decreases in RevPAR for the three and six months ended June 30, 2025, compared to 2024, while the company's hotels experienced increases in both[113] All Hotels Operating Statistics (Comparable Basis) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (pts/%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (pts/%) | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Occupancy | 69.2 % | 69.1 % | 0.1 pts | 63.6 % | 63.1 % | 0.5 pts | | ADR | $146.32 | $146.02 | 0.2 % | $145.67 | $144.64 | 0.7 % | | RevPAR | $101.27 | $100.85 | 0.4 % | $92.63 | $91.28 | 1.5 % | Results of Operations (Three Months Ended June 30, 2025, Compared to Three Months Ended June 30, 2024) This section analyzes the company's financial performance for the three months ended June 30, 2025, versus 2024 Key Financial Changes (Three Months Ended June 30, 2025 vs. 2024) (dollars in thousands) | Metric | 2025 | 2024 | $ Change | % Change | | :--------------------------------- | :----- | :----- | :------- | :------- | | Hotel operating revenues | $404,405 | $412,486 | $(8,081) | (2.0)% | | Rental income | $99,031 | $100,462 | $(1,431) | (1.4)% | | Total revenues | $503,436 | $512,948 | $(9,512) | (1.9)% | | Hotel operating expenses | $328,913 | $328,247 | $666 | 0.2 % | | Total depreciation and amortization | $75,030 | $95,674 | $(20,644) | (21.6)% | | Loss on asset impairment | $17,654 | $34,887 | $(17,233) | (49.4)% | | Interest expense | $(102,679) | $(93,850) | $(8,829) | 9.4 % | | Net loss | $(38,159) | $(73,850) | $35,691 | (48.3)% | | Net loss per common share | $(0.23) | $(0.45) | $0.22 | (48.9)% | - Hotel operating revenues decreased due to hotel sales, partially offset by increased occupancy and rates at certain hotels[121] - Depreciation and amortization decreased significantly due to hotels classified as held for sale and fully depreciated net lease assets[124] - Interest expense increased due to higher weighted average interest rates[128] Results of Operations (Six Months Ended June 30, 2025, Compared to the Six Months Ended June 30, 2024) This section analyzes the company's financial performance for the six months ended June 30, 2025, versus 2024 Key Financial Changes (Six Months Ended June 30, 2025 vs. 2024) (dollars in thousands) | Metric | 2025 | 2024 | $ Change | % Change | | :--------------------------------- | :----- | :----- | :------- | :------- | | Hotel operating revenues | $739,368 | $748,722 | $(9,354) | (1.2)% | | Rental income | $199,247 | $200,476 | $(1,229) | (0.6)% | | Total revenues | $938,615 | $949,198 | $(10,583) | (1.1)% | | Hotel operating expenses | $634,753 | $633,333 | $1,420 | 0.2 % | | Total depreciation and amortization | $164,130 | $188,781 | $(24,651) | (13.1)% | | Loss on asset impairment | $54,721 | $37,338 | $17,383 | 46.6 % | | Gain (loss) on sale of real estate, net | $590 | $(2,995) | $3,585 | (119.7)% | | Interest expense | $(204,196) | $(185,264) | $(18,932) | 10.2 % | | Net loss | $(154,594) | $(152,233) | $(2,361) | 1.6 % | | Net loss per common share | $(0.93) | $(0.92) | $(0.01) | 1.1 % | - Hotel operating revenues decreased due to hotel sales, partially offset by increases in occupancy and average rates[133] - Loss on asset impairment increased significantly, reflecting a higher number of properties written down to fair value less costs to sell[139] - The company recorded a net gain on sale of real estate in 2025, compared to a loss in 2024, due to the sale of six hotels and seven net lease properties[140] Liquidity and Capital Resources This section discusses the company's liquidity, capital resources, debt management, and future funding requirements - Net lease rent coverage was 2.04x as of June 30, 2025, down from 2.25x as of June 30, 2024[147] - The company's consolidated income available for debt service to debt service ratio was 1.49x as of June 30, 2025, which is below the 1.50x covenant requirement for incurring additional debt[148][173] - The company expects to fund $170,000 thousand for hotel capital improvements in the last six months of 2025 and $150,000 thousand in 2026 using cash on hand[152] - As of August 1, 2025, the $650,000 thousand revolving credit facility was fully drawn as a precautionary measure to preserve financial flexibility[160] Debt Maturities as of June 30, 2025 (dollars in thousands) | Year | Debt Maturities | | :--------------------------------- | :-------------- | | 2025 | $979 | | 2026 | $801,958 | | 2027 | $851,958 | | 2028 | $1,000,737 | | 2029 | $1,125,000 | | Thereafter | $1,900,000 | | Total | $5,680,632 | Property and Operating Statistics This section provides detailed operating statistics for the company's hotel and net lease property portfolios - As of June 30, 2025, the company's portfolio included 200 hotels and 742 net lease properties across 46 states, DC, Canada, and Puerto Rico, with 145 distinct brands[186] Hotel Operating Statistics by Brand (Three Months Ended June 30, 2025) | Brand Level | No. of Hotels | Occupancy | ADR | RevPAR | | :--------------------------------- | :------------ | :-------- | :-------- | :------- | | Full Service Total/Average | 47 | 67.0 % | $191.77 | $128.48 | | Focused Service Total/Average | 37 | 74.7 % | $134.25 | $100.31 | | Retained Hotels Total/Average | 84 | 69.0 % | $175.89 | $121.30 | | Exit Hotels Total/Average | 116 | 69.5 % | $107.75 | $74.94 | | All Hotels Total/Average | 200 | 69.2 % | $146.32 | $101.27 | - During the six months ended June 30, 2025, net lease renewals for 383,743 sq ft (14 properties) achieved weighted average rents 10.8% above prior rents[190] Top 10 Net Lease Brands by Annualized Minimum Rent (as of June 30, 2025) | Brand | No. of Properties | Annualized Minimum Rent | Percent of Total Annualized Minimum Rent | Rent Coverage | | :--------------------------------- | :---------------- | :---------------------- | :--------------------------------------- | :------------ | | TravelCenters of America Inc. | 131 | $180,329 | 46.7 % | 1.31 x | | Petro Stopping Centers | 44 | $83,933 | 21.7 % | 1.31 x | | The Great Escape | 14 | $7,711 | 2.0 % | 4.75 x | | Life Time Fitness | 3 | $5,770 | 1.5 % | 2.84 x | | Buehler's Fresh Foods | 5 | $5,657 | 1.5 % | 2.72 x | | Heartland Dental | 59 | $4,841 | 1.3 % | 4.71 x | | Norms | 10 | $3,826 | 1.0 % | 3.36 x | | Express Oil Change | 23 | $3,717 | 1.0 % | 5.77 x | | AMC Theatres | 5 | $3,564 | 0.9 % | 1.68 x | | Pizza Hut | 40 | $3,552 | 0.9 % | 2.14 x | Net Lease Expirations by Year (as of June 30, 2025) | Year | Number of Properties | Annualized Minimum Rent Expiring | Percent of Total Annualized Minimum Rent Expiring | | :--------------------------------- | :------------------- | :------------------------------- | :------------------------------------------------ | | 2025 | 20 | $6,379 | 1.7% | | 2026 | 103 | $11,584 | 3.0% | | 2027 | 35 | $12,768 | 3.3% | | 2028 | 22 | $9,613 | 2.5% | | 2029 | 76 | $10,512 | 2.7% | | 2030 | 34 | $6,343 | 1.6% | | 2031 | 28 | $5,195 | 1.3% | | 2032 | 35 | $2,902 | 0.8% | | 2033 | 213 | $270,515 | 69.9% | | 2034 | 22 | $5,726 | 1.6% | | 2035 | 46 | $19,393 | 5.0% | | 2036 | 15 | $6,050 | 1.6% | | 2037 | 11 | $3,244 | 0.8% | | 2038 | 6 | $1,201 | 0.3% | | 2039 | 10 | $3,686 | 1.0% | | 2040 | 18 | $2,419 | 0.6% | | 2041 | 8 | $2,626 | 0.7% | | 2042 | — | — | —% | | 2043 | 7 | $2,096 | 0.5% | | 2044 | 2 | $278 | 0.1% | | 2045 | 11 | $3,991 | 1.0% | | Total | 722 | $386,521 | 100.0% | Non-GAAP Financial Measures This section presents non-GAAP financial measures like FFO and Normalized FFO for supplemental performance analysis - The company presents non-GAAP financial measures, including Funds From Operations (FFO) and Normalized FFO, to provide supplemental information on operating performance for a REIT[202][203] FFO and Normalized FFO (dollars in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(38,159) | $(73,850) | $(154,594) | $(152,233) | | FFO | $55,863 | $57,764 | $66,049 | $78,868 | | Normalized FFO | $57,603 | $73,810 | $68,439 | $94,916 | | FFO per common share | $0.34 | $0.35 | $0.40 | $0.48 | | Normalized FFO per common share | $0.35 | $0.45 | $0.41 | $0.57 | | Distributions declared per share | $0.01 | $0.20 | $0.02 | $0.40 | Critical Accounting Estimates This section outlines the significant accounting estimates and judgments used in preparing the financial statements - Significant estimates include consolidation of VIEs, purchase price allocations, useful lives of fixed assets, lease classification, and impairment assessment of real estate and equity investments[184] - No significant changes in critical accounting estimates have occurred since December 31, 2024[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily interest rate fluctuations, and its strategies for managing these risks, including an analysis of fixed and floating rate debt and the potential impact of interest rate changes on financial performance - The company is exposed to interest rate risks and manages this by monitoring financing alternatives; no material changes in strategy since December 31, 2024[205] Fixed Rate Debt Summary (as of June 30, 2025) (dollars in thousands) | Debt Type | Principal Balance | Annual Interest Rate | Annual Interest Expense | Maturity | | :--------------------------------- | :---------------- | :------------------- | :---------------------- | :------- | | Senior unsecured notes (various) | $3,025,000 | 3.950%-5.250% | $130,588 | 2026-2030 | | Net lease mortgage notes | $605,632 | 5.600% | $33,915 | 2028 | | Senior guaranteed unsecured notes (various) | $1,650,000 | 5.500%-8.875% | $127,750 | 2027-2032 | | Senior secured notes | $1,000,000 | 8.625% | $86,250 | 2031 | | Total | $5,680,632 | | $361,803 | | - A hypothetical immediate one percentage point increase in interest rates would increase annual interest cost by approximately $56,806 thousand for fixed rate debt if refinanced[206] - Floating rate debt includes $100,000 thousand outstanding under the revolving credit facility and $45,000 thousand under the VFN as of June 30, 2025; the revolving credit facility was fully drawn as of August 1, 2025[208] Impact of One Percentage Point Increase in Floating Interest Rates (dollars in thousands, except per share amounts) | Scenario | Interest Rate Per Year | Outstanding Debt | Total Interest Expense Per Year | Annual Per Share Impact | | :--------------------------------- | :--------------------- | :--------------- | :------------------------------ | :---------------------- | | At June 30, 2025 | 6.63 % | $145,000 | $9,614 | $0.06 | | One percentage point increase | 7.63 % | $145,000 | $11,064 | $0.07 | | Fully drawn (June 30, 2025) | 6.63 % | $695,000 | $46,079 | $0.28 | | Fully drawn (one percentage point increase) | 7.63 % | $695,000 | $53,029 | $0.32 | Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and includes a warning about forward-looking statements, outlining various risks and uncertainties that could impact future results - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[215] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[216] Warning Concerning Forward-Looking Statements This section cautions readers about forward-looking statements and outlines risks that could impact future results - The report contains forward-looking statements regarding economic conditions, liquidity, capital expenditures, asset sales, debt reduction, and hotel portfolio rebalancing[218] - Key risks include the ability of Sonesta to operate hotels, unfavorable market conditions, ability to sell properties at target prices, and limitations on incurring additional debt due to covenant breaches[219] - The company does not intend to update or change forward-looking statements unless required by law[222] Statement Concerning Limited Liability This section clarifies the limited personal liability of the company's trustees, officers, and shareholders - The Declaration of Trust limits personal liability for trustees, officers, shareholders, employees, or agents, directing all claims solely to the assets of Service Properties Trust[224] PART II. Other Information This section provides additional information, including risk factors, equity security sales, and required exhibits Item 1A. Risk Factors This section outlines specific risks related to the company's business, including potential non-compliance with debt agreements, restrictions on incurring additional debt, and increased concentration in service-focused retail net lease properties after planned hotel sales - The company may fail to comply with debt agreement covenants, such as the consolidated income available for debt service to debt service ratio (1.49x vs. 1.50x required), restricting its ability to incur additional debt[226][227] - Upon completion of pending hotel sales, the company's investments will be more heavily concentrated in service-focused retail net lease properties, increasing exposure to cyclical economic conditions in that sector[229] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's purchases of its own equity securities during the quarter ended June 30, 2025, primarily to satisfy tax withholding obligations related to common share awards Issuer Purchases of Equity Securities (Quarter Ended June 30, 2025) | Calendar Month | Number of Common Shares Purchased | Average Price Paid per Share | | :--------------------------------- | :------------------------------ | :--------------------------- | | April 1, 2025 - April 30, 2025 | 3,073 | $2.61 | | May 1, 2025 - May 31, 2025 | 19,397 | $1.92 | | June 1, 2025 - June 30, 2025 | 5,947 | $2.35 | | Total | 28,417 | $2.08 | - These purchases were made to satisfy tax withholding and payment obligations for former officers and employees in connection with the vesting of prior common share awards[230] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, indentures for various debt instruments, management agreements, and certifications - The exhibits include the Amended and Restated Declaration of Trust, Third Amended and Restated Bylaws, and various supplemental indentures for senior unsecured and secured notes[231][232] - Key agreements such as the Amended, Restated and Consolidated Pooling Agreement with Sonesta and the Fourth Amendment to the Third Amended and Restated Credit Agreement are also filed[233] Signatures This section contains the signatures of the company's President and Chief Executive Officer, Christopher J. Bilotto, and Chief Financial Officer and Treasurer, Brian E. Donley, certifying the filing of the report - The report is signed by Christopher J. Bilotto, President and Chief Executive Officer, and Brian E. Donley, Chief Financial Officer and Treasurer, on August 5, 2025[236]