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☒ 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

(Exact Name of Registrant as Specified in Its Charter)

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

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.

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 April 30, 2025: 166,636,134.

Part I. Financial Information

(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.

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 March 31, 2025, we owned, directly and through our subsidiaries, 202 hotels and 739 service-focused retail net lease properties.

The accompanying condensed consolidated financial statements of us are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2024, or our 2024 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. These condensed consolidated financial statements include our accounts and the accounts of our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year. Certain prior period balances have been reclassified to conform to the current period presentation.

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

We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™, or ASC. We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE. The assets of our TRSs were $157,084 and $144,079 as of March 31, 2025 and December 31, 2024, respectively, and consist primarily of our TRSs’ investment in Sonesta International Hotels Corporation’s, or, collectively with its parent and subsidiaries, Sonesta’s, common stock and amounts due from and working capital advances to certain of our hotel managers. The liabilities of our TRSs were $94,169 and $78,749 as of March 31, 2025 and December 31, 2024, respectively, and consist primarily of amounts payable to certain of our hotel managers. The assets of our TRSs are available to satisfy our TRSs’ obligations and we have guaranteed certain obligations of our TRSs.

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

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, or ASU 2024-03, which requires public entities to disclose specific expense categories such as employee compensation, depreciation and intangible asset amortization. These details must be presented in a tabular format in the notes to financial statements for both interim and annual reporting periods. ASU 2024-03 is required to be applied prospectively but can be applied retrospectively, and is effective for the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact ASU 2024-03 will have on our condensed consolidated financial statements.

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 $3,878 and $5,768 for the three months ended March 31, 2025 and 2024, respectively, to record scheduled rent changes under certain of our leases on a straight line basis. Other assets, net, includes $87,001 and $81,574 of straight line rent receivables at March 31, 2025 and December 31, 2024, respectively.

Certain of our lease agreements require additional percentage rent if gross revenues of our properties exceed certain thresholds defined in our lease agreements. We determine percentage rent due to us under our leases monthly, quarterly or annually, as applicable, depending on the specific lease terms, and recognize it when all contingencies are met and the rent is earned. We recorded percentage rent of $846 and $544 for the three months ended March 31, 2025 and 2024, respectively.

We calculate basic earnings per common share using the two class method. We calculate diluted earnings per common share using the more dilutive of the two class method or the treasury stock method. Unvested common share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per common share. The calculation of basic and diluted earnings per common share is as follows (amounts in thousands, except per share data):

As of March 31, 2025, we owned 202 hotels with an aggregate of 35,359 rooms or suites and 739 service-focused retail net lease properties with an aggregate of 13,189,476 square feet that are primarily subject to “triple net” leases, or net leases where the tenant is generally responsible for payment of operating expenses and capital expenditures of the property during the lease term. Our properties had an aggregate undepreciated book value of $9,589,528, including $1,722,906 related to properties classified as held for sale as of March 31, 2025.

We funded capital improvements to certain of our properties of $45,869 and $68,782 during the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we sold seven properties for a combined sales price of $22,700, 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).

(1)Gross sales price is the gross contract price, excluding closing costs.

As of March 31, 2025, we had 118 hotels with a total of 15,417 keys and seven net lease properties with a total of 82,302 square feet classified as held for sale. See Note 14 for further information on certain of these properties. The following table summarizes the major class of assets and liabilities by our hotel investments and net lease investments segments as of March 31, 2025:

(1) Other assets, net includes working capital of $15,556 for our hotel investments segment as described in Note 6.

From April 1, 2025 through May 2, 2025, we sold one net lease property with 2,053 square feet for a sales price of $365, excluding closing costs. We have also entered into agreements to sell four hotels with a total of 492 keys for a combined sales price of $26,500, excluding closing costs, and one net lease property with 1,122 square feet for a sales price of $395, excluding closing costs. These pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales, that these sales will not be delayed or that the terms will not change. We are at various stages of selling 114 hotels with a total of 14,925 keys and six net lease properties with a total of 80,249 square feet for sale. We believe it is probable that the sales of these properties will be completed within one year.

As of March 31, 2025, we owned 202 hotels included in four operating agreements and 739 service-focused retail properties net leased to 175 tenants. We do not operate any of our properties.

As of March 31, 2025, all 202 of our hotels were managed by subsidiaries of the following companies: Sonesta (177 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 March 31, 2025, our 739 service-focused retail net lease properties were leased by 175 tenants, including 175 travel centers leased to TravelCenters of America Inc., or TA, our largest tenant. Hereinafter, these companies are sometimes referred to as our managers and/or tenants, or collectively, operators.

Hotel Agreements

As of March 31, 2025, Sonesta managed 39 of our full service hotels, 99 of our extended stay hotels and 39 of our select service hotels pursuant to management agreements for all of the hotels, which we collectively refer to as our Sonesta agreement. As of March 31, 2025, the hotels Sonesta managed for us comprised approximately 49.8% of our total historical real estate investments.

Our Sonesta agreement, which expires on January 31, 2037 and includes two 15-year renewal options, provides that we are paid an annual owner’s priority return if gross revenues of the hotels, after payment of hotel operating expenses and management and related fees (other than Sonesta’s incentive fee, if applicable), are sufficient to do so. The Sonesta agreement further provides that we are paid an additional return equal to 80% of the operating profits, as defined therein, after paying the owner’s priority return, reimbursing owner or manager advances, funding FF&E reserves and paying Sonesta’s incentive fee, if applicable. We do not have any security deposits or guarantees for our Sonesta hotels. We realized returns under our Sonesta agreement of $18,169 and $27,375 during the three months ended March 31, 2025 and 2024, respectively.

Our Sonesta agreement requires us to fund capital expenditures made at our hotels. We incurred capital expenditures for hotels included in our Sonesta agreement in an aggregate amount of $41,561 and $46,996 during the three months ended March 31, 2025 and 2024, respectively, which resulted in increases in our contractual annual owner’s priority returns of $2,494 and $2,820, respectively. Our annual priority return under our Sonesta agreement as of March 31, 2025 was $354,924. We owed Sonesta $7,517 and $18,199 for capital expenditures and other reimbursements at March 31, 2025 and December 31, 2024, respectively. Sonesta owed us $19,908 and $3,911 in owner’s priority returns and other amounts as of March 31, 2025 and December 31, 2024, respectively. Amounts due from Sonesta are included in due from related persons and amounts owed to Sonesta are included in due to related persons in our condensed consolidated balance sheets. Our Sonesta agreement requires that 5% of the hotel gross revenues be escrowed for future capital expenditures as FF&E reserves, subject to available cash flows after payment of the owner’s priority returns due to us. No FF&E escrow deposits were required during either of the three months ended March 31, 2025 or 2024.

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 $26,276 and $27,015 for the three months ended March 31, 2025 and 2024, respectively. These fees and costs are included in hotel operating expenses in our condensed consolidated statements of comprehensive income (loss). In addition, we incurred procurement and construction supervision fees payable to Sonesta of $621 and $400 for the three months ended March 31, 2025 and 2024, respectively, which amounts have been capitalized in our condensed consolidated balance sheets and are depreciated over the estimated useful lives of the related capital assets.

We are required to maintain working capital for each of our hotels managed by Sonesta and have advanced a fixed amount based on the number of rooms in each hotel to meet the cash needs for hotel operations. As of March 31, 2025 and December 31, 2024, we had advanced $45,952 and $46,466, respectively, of initial working capital to Sonesta net of any working capital returned to us on termination of the applicable management agreements in connection with hotels we have sold. These amounts are included in other assets, net and assets of properties held for sale, as applicable, in our condensed consolidated balance sheets. Any remaining working capital would be returned to us upon termination in accordance with the terms of our Sonesta agreement.

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

As of March 31, 2025, Hyatt managed 17 of our select service hotels pursuant to a portfolio management agreement that expires on March 31, 2031, or our Hyatt agreement, and provides that, as of March 31, 2025, we are to be paid an annual owner’s priority return of $17,400. Any returns we receive from Hyatt are currently limited to the hotels’ available cash flows, if any, after payment of operating expenses. Hyatt has provided us with a $30,000 limited guarantee for 75% of the aggregate annual owner’s priority returns due to us that became effective upon substantial completion of planned renovations of the hotels, which occurred in January 2025. We realized returns under our Hyatt agreement of $3,127 during the three months ended March 31, 2025 and a net operating loss of $1,108 during the three months ended March 31, 2024. During the three months ended March 31, 2025, the hotels under this agreement generated cash flows that were less than the guaranteed owner’s priority level due to us for this period, and we reduced hotel operating expenses by $1,367, to record the guaranteed amount of the shortfall due from Hyatt. The available balance of the guaranty was $28,633 as of March 31, 2025. During the three months ended March 31, 2025, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $1,619; however, the contractual annual owner’s priority returns did not increase as the cost of the renovations had reached the maximum stated in our management agreement with Hyatt. During the three months ended March 31, 2024, we incurred capital expenditures for certain hotels included in our Hyatt agreement of $20,225, which resulted in an increase in our contractual annual owner’s priority returns of $1,214.

As of March 31, 2025, Radisson managed seven of our full service hotels pursuant to a portfolio management agreement that expires on July 31, 2031, or our Radisson agreement, and provides that we are to be paid an annual owner’s priority return of $10,906. 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 occurred in December 2024. We realized returns under our Radisson agreement of $1,403 and $1,451 during the three months ended March 31, 2025 and 2024, respectively. During the three months ended March 31, 2025 and 2024, 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 $2,045 and $522, respectively, to record the guaranteed amount of the shortfalls due from Radisson. The available balance of the guaranty was $19,305 as of March 31, 2025. We did not incur any capital expenditures during the three months ended March 31, 2025 for the hotels included in our Radisson agreement. During the three months ended March 31, 2024, we incurred capital expenditures of $286 for the hotels included in our Radisson agreement, which resulted in an increase in our contractual owner’s priority returns of $17.

Our management agreement with IHG for one hotel expires on January 31, 2026. We realized returns under our management agreement with IHG of $2,243 and $1,593 during the three months ended March 31, 2025 and 2024, respectively. Any returns we receive from IHG are limited to the hotel’s available cash flows, if any, after payment of operating expenses. During the three months ended March 31, 2025 and 2024, we incurred capital expenditures of $975 and $149, respectively, for the hotel included in our IHG agreement.

Net Lease Portfolio

As of March 31, 2025, we owned 739 service-focused retail net lease properties with an aggregate of 13,189,476 square feet with leases requiring annual minimum rents of $380,568 with a weighted (by annual minimum rents) average remaining lease term of 7.8 years. Our net lease properties were 97.8% occupied and leased by 175 tenants operating under 136 brands in 21 distinct industries.

As of March 31, 2025, TA is our largest tenant, representing 28.8% 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 March 31, 2025. TA receives a monthly rent credit totaling $25,000 per year over the 10-year initial term of the TA leases as a result of rent it prepaid.

Our TA leases are “triple net” leases that require TA to pay all costs incurred in the operation of the leased travel centers, including personnel, utility, inventory, customer service and insurance expenses, real estate and personal property taxes, environmental related expenses, underground storage tank maintenance costs and ground lease payments at those travel centers at which we lease the property and sublease it to TA. Our TA leases generally require TA to indemnify us for certain environmental matters and for liabilities that arise during the terms of the leases from ownership or operation of the leased travel centers. Our TA leases do not require FF&E escrow deposits. However, TA is required to maintain the leased travel centers, including structural and non-structural components. BP Corporation North America Inc., a subsidiary of BP p.l.c., guarantees payment under each of the TA leases, limited to an aggregate cap which was $3,037,475 as of March 31, 2025.

We recognized rental income from our TA leases of $67,834 for each of the three months ended March 31, 2025 and 2024. Rental income was increased by $3,039 and $4,309 for the three months ended March 31, 2025 and 2024, respectively, to record the scheduled rent changes on a straight line basis. As of March 31, 2025 and December 31, 2024, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $44,811 and $40,097, respectively, included in other assets, net in our condensed consolidated balance sheets.

Our other net lease agreements generally provide for minimum rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We recognized rental income from our net lease properties (excluding TA) of $32,382 and $32,180 for the three months ended March 31, 2025 and 2024, respectively, which included $839 and $1,459, 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 $235 and $665 for the three months ended March 31, 2025 and 2024, respectively, based on our assessment of the collectability of rents. We had reserves for uncollectable rents of $4,959 and $5,058 as of March 31, 2025 and December 31, 2024, respectively, included in other assets, net in our condensed consolidated balance sheets.

As of both March 31, 2025 and December 31, 2024, we owned 34% of Sonesta’s outstanding common stock. We account for our 34% non-controlling interest in Sonesta under the equity method of accounting.

As of March 31, 2025 and December 31, 2024, our investment in Sonesta had a carrying value of $112,024 and $115,818, respectively. On the date of acquisition of our initial equity interest in Sonesta (February 27, 2020), the cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total stockholders’ equity book value by an aggregate of $8,000. As required under GAAP, we are amortizing this difference to equity in earnings of an investee over 31 years, the weighted average remaining useful life of the real estate assets and intangible assets and liabilities owned by Sonesta as of the date of our acquisition. We recorded amortization of the basis difference of $65 in each of the three months ended March 31, 2025 and 2024. We recognized losses of $3,947 and $5,338 related to our investment in Sonesta for the three months ended March 31, 2025 and 2024, respectively. These amounts, which include amortization of the basis difference, are included in equity in losses of an investee in our condensed consolidated statements of comprehensive income (loss).

We recorded a liability of $42,000 for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta. This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheets and is being amortized on a straight line basis through the initial term of the Sonesta agreement, January 31, 2037, as a reduction to hotel operating expenses in our condensed consolidated statements of comprehensive income (loss). We reduced hotel operating expenses by $621 for each of the three months ended March 31, 2025 and 2024 for amortization of this liability. As of March 31, 2025 and December 31, 2024, the unamortized balance of this liability was $29,374 and $29,995, respectively.

During the three months ended March 31, 2024, we funded a capital contribution to Sonesta of $3,392 to support its growth initiatives, including its franchising efforts. We continue to maintain our 34% ownership in Sonesta after giving effect to this contribution.

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

Our principal debt obligations at March 31, 2025 were: (1) $50,000 of outstanding borrowings under our $650,000 revolving credit facility; (2) $4,075,000 aggregate outstanding principal amount of senior unsecured notes; (3) $1,000,000 aggregate outstanding principal amount of senior secured notes; (4) $606,122 aggregate outstanding principal amount of net lease mortgage notes; and (5) $45,000 of outstanding borrowings under our $45,000 variable funding note.

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

Interest payable on drawings under our revolving credit facility is based on the secured overnight financing rate, or SOFR, plus a margin ranging from 1.50% to 3.00% based on our leverage ratio, as defined in our credit agreement, which was 2.50% as of March 31, 2025. We also pay unused commitment fees of 20 to 30 basis points per annum on the total amount of lending commitments under our revolving credit facility based on amounts outstanding. As of March 31, 2025 and 2024, the annual interest rate payable on borrowings under our revolving credit facility was 6.91% and 7.84%, respectively. The weighted average interest rate for borrowings under our revolving credit facility was 6.94% for the three months ended March 31, 2025. We had no borrowings outstanding under our revolving credit facility for the three months ended March 31, 2024. As of both March 31, 2025 and May 2, 2025, we had $50,000 outstanding under our revolving credit facility and $600,000 available for borrowings.

As collateral for all loans and other obligations under our revolving credit facility, certain of our subsidiaries pledged all of their respective equity interests in certain of our direct and indirect property owning subsidiaries, and our pledged subsidiaries provided first mortgage liens on 67 properties, including 64 hotels and three net lease properties, with an aggregate undepreciated book value of $1,691,230 as of March 31, 2025. During the three months ended March 31, 2025, we sold two hotels that previously served as collateral under our revolving credit facility. In connection with the sales of these hotels, the hotels were released from the collateral pool in accordance with the terms of our revolving credit facility.

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 March 31, 2025.

Our $610,200 in aggregate principal amount of net lease mortgage notes were issued on February 10, 2023 by our wholly owned, special purpose bankruptcy remote, indirect subsidiary, SVC ABS LLC, or the Issuer. The Issuer is a separate legal entity and is the sole owner of its assets and liabilities. The assets of the Issuer are not available to pay or otherwise satisfy obligations to the creditors of any owners or affiliates of the Issuer.

Our net lease mortgage notes are summarized below:

The Class A notes and the Class B notes require monthly principal repayments at an annualized rate of 0.50% and 0.25% of the balance outstanding, respectively, and the Class C notes require interest payments only, with balloon payments due at maturity. The notes mature in February 2028 and may be redeemed without penalty 24 months prior to the scheduled maturity date beginning in February 2026. The notes are non-recourse and, as of March 31, 2025, were secured by 315 net lease retail properties owned by the Issuer. As of March 31, 2025, the current leases relating to those properties required annual minimum rents of $67,001 and had an aggregate undepreciated book value of $760,165.

On January 27, 2025, the Issuer issued a variable funding note, or the VFN, secured by the 315 net lease properties that secure our existing $606,122 of net lease mortgage notes. The VFN permits borrowings on a revolving basis up to $45,000 and the Issuer can borrow, repay and reborrow funds available until maturity. The maturity date of the VFN is January 27, 2027, and, subject to the payment of an extension fee and meeting certain other conditions, can be extended by one year at the Issuer’s option. The VFN requires interest payments only on drawings under the VFN based on SOFR plus a margin of 1.75%, and an unused commitment fee of 50 basis points per annum paid on undrawn amounts. As of March 31, 2025, the annual interest rate payable on borrowings under the VFN was 6.16%. The weighted average interest rate for borrowings under the VFN was 6.19% for the three months ended March 31, 2025. As of March 31, 2025, $45,000 was outstanding under the VFN.

On March 26, 2025, in accordance with our Trustee compensation arrangements, we awarded 32,490 of our common shares, valued at $2.77 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day, in connection with the appointment of one of our Managing Trustees as part of his annual compensation.

During the three months ended March 31, 2025, we purchased 1,539 of our common shares, valued at $2.77 per common share, from a former employee 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 value based upon the trading price of our common shares at the close of trading on Nasdaq, on the applicable purchase date.

During the three months ended March 31, 2025, we declared and paid a regular quarterly distribution to common shareholders as follows:

On April 10, 2025, we declared a regular quarterly distribution to common shareholders of record as of April 22, 2025 of $0.01 per common share, or approximately $1,666. We expect to pay this distribution on or about May 15, 2025.

Cumulative other comprehensive income (loss) represents our share of the comprehensive income (loss) of Sonesta. See Notes 6, 7 and 11 for further information regarding this investment.

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.

We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our net lease properties and the office building component of one of our hotels, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR.

For the three months ended March 31, 2025 and 2024, the business management fees, property management fees and construction supervision fees and expense reimbursements recognized in our condensed consolidated financial statements were as follows:

						Financial Statement						Three Months Ended March 31,
						Line Item						2025						2024
Pursuant to business management agreement:
Net business management fees (1)						General and administrative						$	6,930					$	7,757
Pursuant to property management agreement:
Property management fees						Net lease operating expenses						$	2,087					$	1,484
Construction supervision fees						Buildings, improvements and equipment (2)						657						1,696
												$	2,744					$	3,180
Expense reimbursement:
Property level expenses						Net lease operating expenses, general and administrative and buildings, improvements and equipment (2)						$	1,195					$	1,094

(1)The net business management fees we recognized for each of the three months ended March 31, 2025 and 2024 reflect a reduction of $896 for the amortization of the liability we recorded in connection with our former investment in The RMR Group Inc., or RMR Inc.

(2)Amounts capitalized as buildings, improvements and equipment are depreciated over the estimated useful lives of the related assets.

Based on our common share total return, as defined in our business management agreement, as of March 31, 2025, no incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2025. The actual amount of annual incentive fees for 2025, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2025, and will be payable in January 2026. We did not incur an incentive fee payable to RMR for the year ended December 31, 2024.

In January 2025, in connection with a $100,000 credit agreement and related security agreement entered into by RMR and certain of its subsidiaries with Citibank, N.A., or Citibank, and the other lenders party thereto, we consented to the pledge and assignment of RMR’s interest in our management agreements under the security agreement. Pursuant to the consent, we agreed, among other things, that upon notice that an event of default under the RMR credit agreement has occurred and is continuing, we will continue to make all payments under our management agreements in accordance with the instructions of Citibank, and that if there is an event of default by RMR under our management agreements that would allow us to terminate or suspend our obligations, we will not terminate or suspend without notice to Citibank and provide Citibank 30 days to cure the default on RMR’s behalf. The consent was approved by our Independent Trustees.

We have relationships and historical and continuing transactions with Sonesta, RMR, RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR. Christopher Bilotto, our other Managing Trustee and our President and Chief Executive Officer since March 2025, also serves as an officer and employee of RMR. John Murray, our former Managing Trustee and President and Chief Executive Officer, also serves as an officer and employee of RMR and as president and chief executive officer of Sonesta. In addition, each of our other officers serves as an officer of RMR. Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. Mr. Portnoy serves as chair of the boards and as a managing trustee of these public companies. Other officers of RMR, including certain of our officers, serve as managing trustees or officers of certain of these companies.

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

Sonesta is a private company of which Adam Portnoy, one of our Managing Trustees, is a director and the controlling shareholder. One of Sonesta’s other directors and president and chief executive officer was our other Managing Trustee until March 2025, and Sonesta’s other director serves as one of RMR Inc.’s managing directors, as RMR’s and RMR Inc.’s executive vice president, general counsel and secretary and as our Secretary. Certain other officers and employees of Sonesta are former officers and employees of RMR. RMR also provides certain services to Sonesta. As of March 31, 2025, we owned 34% of Sonesta’s outstanding shares of common stock and Sonesta managed 177 of our hotels. See Notes 6 and 7 for further information regarding our relationships, agreements and transactions with Sonesta.

For further information about these and certain other such relationships and certain other related person transactions, refer to our 2024 Annual Report.

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 March 31, 2025, we recognized income tax expense of $843, which includes $353 of state tax expense and $490 of foreign tax expense. During the three months ended March 31, 2024, we recognized income tax expense of $1,007, which includes $621 of state tax expense and $386 of foreign tax expense.

Our operating segments are based on our internal reporting structure and property type and are aligned with how our Chief Operating Decision Maker, or CODM, reviews the operating results to allocate resources and assess segment performance. The CODM is our President and Chief Executive Officer. Our two reportable segments are hotel investments and net lease investments. Our hotel investments segment consists of hotels managed by subsidiaries of Sonesta, Hyatt, Radisson and IHG. Our net lease investments segment consists of service-focused retail net lease properties, including travel centers leased to TA, our largest tenant.

The significant expense categories and amounts presented below align with the segment-level information that is regularly provided to our CODM. Our CODM reviews operating and financial results, including net income (loss) and its components, to allocate resources and assess segment performance. The accounting policies of our reportable segments are the same as those described in Note 2 to our consolidated financial statements included in our 2024 Annual Report. The tables below present information about our segments.

(1)    Labor and benefits for our net lease investments segment include property level expense reimbursements as discussed in Note 10.

(2)    Other operating expenses for each reportable segment include expenses such as repairs and maintenance, utilities and other costs incurred in connection with the operation of our properties.

(3)    Other segment items for each reportable segment include transaction related costs, gains and losses on asset impairment and sale of real estate and interest income, as applicable.

(1)    Labor and benefits for our net lease investments segment include property level expense reimbursements as discussed in Note 10.

(2)    Other operating expenses for each reportable segment include expenses such as repairs and maintenance, utilities and other costs incurred in connection with the operation of our properties.

(3)    Other segment items for each reportable segment include gains and losses on asset impairment and sale of real estate and interest income, as applicable.

The table below presents certain of our assets carried at fair value at March 31, 2025, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

(1)We recorded impairment charges totaling $37,067 during the three months ended March 31, 2025, to reduce the carrying value of 16 hotels in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $2,633, based on negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP).

In addition to the assets included in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, revolving credit facility, VFN, net lease mortgage notes, senior notes and security deposits. At March 31, 2025 and December 31, 2024, the fair values of these financial instruments approximated their carrying values in our condensed consolidated balance sheets due to their short-term nature or floating interest rates, except as follows:

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

At March 31, 2025 and December 31, 2024, we estimated the fair values of our senior notes using an average of the bid and ask price of our then outstanding issuances of senior notes (Level 2 inputs). At March 31, 2025 and December 31, 2024, we estimated the fair value of our net lease mortgage notes using discounted cash flow analyses and current prevailing market rates as of the measurement dates (Level 3 inputs). As Level 3 inputs are unobservable, our estimated value may differ materially from the actual fair value.

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2024 Annual Report.

We are a REIT organized under the laws of the State of Maryland. As of March 31, 2025, we owned 941 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

Consumer confidence, corporate travel and lodging demand will continue to be affected by economic and market conditions, inflationary pressures, uncertainties surrounding interest rates, unemployment levels, work from home policies, use of technologies and broader economic trends. Increased labor costs and other price inflation may continue to negatively impact our hotel operations and the operations of our tenants. Further, recent announcements regarding tariffs on a wide variety of imports could impact the cost of products our operators use, such as furniture, equipment, materials and supplies sourced from outside the United States. An economic recession or continued or intensified disruptions in the financial markets could adversely affect our financial condition, operations at our hotels, our tenants and their ability or willingness to renew our leases or pay rent to us, may restrict our ability to obtain new or replacement financing, would likely increase our cost of capital, and may cause the values of our properties to decline.

We are at various stages of selling 119 hotels with a total of 15,912 keys and a combined net carrying value of $945,100. We expect to sell these hotels in 2025 and use the net proceeds to repay debt.

Management Agreements and Leases. At March 31, 2025, we owned 202 hotels operated under four agreements. We leased all of these hotels to our wholly owned TRSs that are managed by hotel operating companies as of that date. At March 31, 2025, we also owned 739 service-focused retail properties leased to 175 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures. Our condensed consolidated statements of comprehensive income (loss) include hotel operating revenues and hotel operating expenses of our managed hotels and rental income and net lease operating expenses from our net lease properties.

Hotel Portfolio. As of March 31, 2025, we owned 202 hotels. During the three months ended March 31, 2025, the U.S. hotel industry generally realized increases in average daily rate, or ADR, and revenue per available room, or RevPAR, compared to the corresponding 2024 periods. Our hotels produced increases in ADR and outpaced the industry increases in RevPAR, which we believe is partially a result of renovation disruption in the 2024 period.

Comparable Hotels Data. We present occupancy, ADR and RevPAR for the periods presented on a comparable basis to facilitate comparisons between periods. We define comparable hotels as those that were owned by us and were open and operating for the entirety of the periods being compared. For each of the three months ended March 31, 2025 and 2024, our comparable results exclude one hotel that suspended operations during the periods presented. The following table provides a summary of these revenue metrics for the periods presented.

The following table provides a summary for all of our hotels with these revenue metrics for the periods presented, which we believe are key indicators of performance at our hotels.

Net Lease Portfolio. As of March 31, 2025, we owned 739 service-focused retail net lease properties with an aggregate of 13,189,476 square feet leased to 175 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $380,568. Our net lease properties were 97.8% occupied as of March 31, 2025 with a weighted (by annual minimum rent) average lease term of 7.8 years, operating under 136 brands in 21 distinct industries. TA is our largest tenant and as of March 31, 2025, leased 175 of our travel centers under five master leases that expire in 2033 and require annual minimum rents of $259,080. In addition, TA receives an annual credit of $25,000 as a result of prepaid rent. BP Corporation North America Inc. guarantees payment under the TA leases, subject to a cap.

Additional details of our hotel operating agreements and our net lease agreements are set forth in Note 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Three Months Ended March 31, 2025, Compared to Three Months Ended March 31, 2024