# Service Properties Trust (SVC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Service Properties Trust's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/945394/000094539425000014/svc-20241231.htm
Accession: 0000945394-25-000014
Filing date: 2025-02-26
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SVC/
All MD&A years: /company/SVC/mda/
Previous year: /company/SVC/mda/fy2023/ (FY 2023)
Next year: /company/SVC/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in Part IV, Item 15 of this Annual Report on Form 10-K.

Overview (dollars in thousands, except per share amounts and per room hotel data)

We are a REIT organized under the laws of the State of Maryland. As of December 31, 2024, we owned 948 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. 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.

In October 2024, we announced our plan to sell 114 extended stay and select service hotels managed by Sonesta with an aggregate of 14,925 keys and an aggregate net carrying value of $850,000. We expect to sell these hotels in 2025 and use the net sales proceeds from these sales to repay debt. To further improve our liquidity beginning with the fourth quarter of 2024, we reduced our regular quarterly cash distribution rate on our common shares from $0.20 per common share to $0.01 per common share, which we expect to result in $127,000 of annual savings.

Management Agreements and Leases. At December 31, 2024, we owned 206 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 December 31, 2024, we also owned 742 service-focused retail properties leased to 177 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures. Our 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 December 31, 2024, we owned 206 hotels. In 2024, 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 2023 periods. Our comparable hotels produced year over year declines in ADR and RevPAR, which we believe is partially a result of disruption and displacement at certain of our hotels undergoing renovation and decreased business activity in areas where some of our hotels are located.

Comparable Hotels Data. We present RevPAR, ADR and occupancy 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 the years ended December 31, 2024 and 2023, our comparable results exclude one hotel that was not owned for the entirety of the periods presented and one other hotel that suspended operations during the periods presented. The following table provides a summary of these revenue metrics for the periods presented.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","2023","","Change"],["Comparable Hotels"],["No. of hotels","","204","","","204","","","\u2014"],["No. of rooms or suites","","35,523","","","35,523","","","\u2014"],["Occupancy","","63.4","%","","62.9","%","","0.5","pts"],["ADR","","$","140.96","","","$","142.14","","","(0.8)","%"],["RevPAR","","$","89.32","","","$","89.44","","","(0.1)","%"]]
[[/GREPCENT_TABLE]]

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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.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","2023","","Change"],["All Hotels"],["No. of hotels","","206","","","221","","","(15)"],["No. of rooms or suites","","35,871","","","37,777","","","(1,906)"],["Occupancy","","63.3","%","","62.5","%","","0.8","pts"],["ADR","","$","142.12","","","$","140.94","","","0.8","%"],["RevPAR","","$","90.01","","","$","88.09","","","2.2","%"]]
[[/GREPCENT_TABLE]]

Net Lease Portfolio. As of December 31, 2024, we owned 742 service-focused retail net lease properties with an aggregate of 13,292,519 square feet leased to 177 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $380,863. Our net lease properties were 97.6% occupied as of December 31, 2024 with a weighted (by annual minimum rent) average lease term of 8.0 years, operating under 136 brands in 21 distinct industries. TA is our largest tenant and as of December 31, 2024, 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 4 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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Results of Operations (amounts in thousands, except per share data)

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023","","$ Change","","% Change"],["Revenues:"],["Hotel operating revenues","$","1,496,705","","","$","1,478,034","","","$","18,671","","","1.3","%"],["Rental income","400,223","","","395,829","","","4,394","","","1.1","%"],["Total revenues","1,896,928","","","1,873,863","","","23,065","","","1.2","%"],["Expenses:"],["Hotel operating expenses","1,274,153","","","1,223,906","","","50,247","","","4.1","%"],["Net lease operating expenses","19,817","","","17,663","","","2,154","","","12.2","%"],["Depreciation and amortization - hotels","221,299","","","216,235","","","5,064","","","2.3","%"],["Depreciation and amortization - net lease properties","150,487","","","167,825","","","(17,338)","","","(10.3)","%"],["Total depreciation and amortization","371,786","","","384,060","","","(12,274)","","","(3.2)","%"],["General and administrative","40,239","","","45,397","","","(5,158)","","","(11.4)","%"],["Transaction related costs","6,894","","","(1,623)","","","8,517","","","n/m"],["Loss on asset impairment, net","56,212","","","9,544","","","46,668","","","n/m"],["Total expenses","1,769,101","","","1,678,947","","","90,154","","","5.4","%"],["Gain on sale of real estate, net","6,269","","","43,239","","","(36,970)","","","(85.5)","%"],["Gain on equity securities, net","\u2014","","","48,837","","","(48,837)","","","n/m"],["Interest income","4,052","","","20,979","","","(16,927)","","","(80.7)","%"],["Interest expense","(383,792)","","","(336,342)","","","(47,450)","","","14.1","%"],["Loss on early extinguishment of debt, net","(16,181)","","","(1,524)","","","(14,657)","","","n/m"],["Loss before income tax (expense) benefit and equity in losses of an investee","(261,825)","","","(29,895)","","","(231,930)","","","n/m"],["Income tax (expense) benefit","(1,402)","","","1,498","","","(2,900)","","","(193.6)","%"],["Equity in losses of an investee","(12,299)","","","(4,382)","","","(7,917)","","","180.7","%"],["Net loss","$","(275,526)","","","$","(32,779)","","","$","(242,747)","","","n/m"],["Weighted average shares outstanding (basic and diluted)","165,338","","","164,988","","","350","","","0.2","%"],["Net loss per common share (basic and diluted)","$","(1.67)","","","$","(0.20)","","","$","(1.47)","","","n/m"]]
[[/GREPCENT_TABLE]]

References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a comparison of consolidated results for the year ended December 31, 2023 compared to the year ended December 31, 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2023.

Hotel operating revenues. The increase in hotel operating revenues is primarily a result of higher occupancies and average rates at certain of our hotels in 2024 ($21,096) and a hotel acquisition in June 2023 ($16,396), partially offset by the sale of certain hotels since January 1, 2023 ($18,821). Additional operating statistics of our hotels are included in the tables beginning on page 66.

Rental income. The increase in rental income is primarily a result of the TA leases that were amended in May 2023 ($5,071) and higher rental income recognized at certain net lease properties in 2024 ($302), partially offset by the sale of certain net lease properties since January 1, 2023 ($979).

Hotel operating expenses. The increase in hotel operating expenses is primarily a result of a hotel acquisition in June 2023 ($10,971) and increases in labor and benefits ($27,782), real estate taxes and insurance ($12,904) and other operating expenses ($18,012) in 2024, partially offset by our sale of certain hotels since January 1, 2023 ($19,422).

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Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees ($2,335) and other operating expenses ($2,019) in 2024, partially offset by our sale of certain net lease properties since January 1, 2023 ($2,200).

Depreciation and amortization - hotels. The increase in depreciation and amortization - hotels is primarily a result of depreciation and amortization related to capital expenditures made since January 1, 2023 and our acquisition of a hotel in June 2023 ($14,207), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($5,283) and the sale of certain hotels since January 1, 2023 ($3,860).

Depreciation and amortization - net lease properties. The decrease in depreciation and amortization - net lease properties is primarily a result of our sale of certain net lease properties since January 1, 2023 ($7,727) and certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($9,611).

General and administrative. The decrease in general and administrative costs in 2024 is primarily due to decreases in business management fees ($3,699) and other professional fees ($1,459).

Transaction related costs. Transaction related costs in 2024 primarily consist of costs related to various labor litigation matters, re-opening costs and other professional fees related to major renovation projects at certain of our hotels. Transaction related costs in 2023 primarily consisted of the partial recovery of a working capital reserve related to the IHG portfolio previously deemed uncollectable and expensed during 2021 ($5,797), partially offset by costs related to hotel rebranding activity, demolition of certain vacant properties and potential acquisitions ($4,174).

Loss on asset impairment, net. We recorded a $56,212 loss on asset impairment, net in 2024 to reduce the carrying value of ten hotels and ten net lease properties to their estimated fair value or estimated fair value less costs to sell. We recorded a $9,544 loss on asset impairment, net in 2023 to reduce the carrying value of one hotel and 16 net lease properties to their estimated fair value less costs to sell.

Gain on sale of real estate, net. We recorded a $6,269 net gain on sale of real estate in 2024 in connection with the sales of 15 hotels and ten net lease properties, and a $43,239 net gain on sale of real estate in 2023 in connection with the sales of 18 hotels and 13 net lease properties.

Gain on equity securities, net. Gain on equity securities, net represents the adjustment to the carrying value of our former investment in shares of TA common stock to its fair value.

Interest income. The decrease in interest income is due to lower average cash balances invested during 2024 compared to 2023.

Interest expense. The increase in interest expense is primarily due to higher weighted average interest rates during 2024 compared to 2023.

Loss on early extinguishment of debt, net. We recorded a $16,181 loss on early extinguishment of debt, net in 2024 as a result of the redemption and purchase of certain senior notes. We recorded a $1,524 loss on early extinguishment of debt in 2023 related to the write-off of deferred financing costs and unamortized discounts in connection with the repayment of certain senior unsecured notes and the write-off of certain deferred financing costs relating to the amendment of our revolving credit facility.

Income tax (expense) benefit. The change in income tax (expense) benefit is primarily a result of increases in our foreign tax expense ($1,863) and state tax expense ($1,037) in 2024. See Note 10 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for further information.

Equity in losses of an investee. Equity in losses of an investee represents our proportionate share of the losses of Sonesta.

Net loss. Our net loss and our net loss per common share (basic and diluted) each increased in 2024 compared to 2023 primarily due to the revenue and expense changes discussed above.

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Liquidity and Capital Resources (dollars in thousands, except per share amounts)

Our Managers and Tenants

As of December 31, 2024, all 206 of our hotels were managed and operated by four hotel operating companies and our 742 service-focused retail net lease properties were leased to 177 tenants. The costs of operating and maintaining our properties are generally paid by the hotel managers as agents for us or by our tenants for their own account. Our hotel managers and tenants derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and, to the extent these parties themselves fund our owner’s priority returns and rents, from their separate resources. As of December 31, 2024, our hotel managers included Sonesta (181 hotels), Hyatt (17 hotels), Radisson (seven hotels) and IHG (one hotel). TA is our largest tenant (175 travel centers).

We recorded reserves for uncollectable amounts and reduced rental income by $2,158 and $4,927 during the years ended December 31, 2024 and 2023, respectively, based on our assessment of the collectability of rents. We had reserves for uncollectable rents of $5,058 and $3,436 as of December 31, 2024 and 2023, respectively, included in other assets, net in our consolidated balance sheets.

We define net lease rent coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to us weighted by the minimum rent of the property to total minimum rents of the net lease portfolio. Tenants with no minimum rent required under the lease are excluded. EBITDAR amounts used to determine rent coverage are generally for the latest twelve-month period, based on the most recent operating information, if any, furnished by our tenants. Operating statements furnished by our tenants often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by us. In instances where we do not have tenant financial information, we calculate an implied coverage ratio for the period based on other tenants with available financial statements operating the same brand or within the same industry. As a result, we believe using this implied coverage metric provides a more reasonable estimated representation of recent operating results and the financial condition for those tenants. Our net lease properties generated rent coverage of 2.10x and 2.46x as of December 31, 2024 and 2023, respectively.

Our Operating Liquidity and Capital Resources

Our principal sources of funds to meet operating and capital expenses, debt service obligations and distributions to our shareholders are owner’s priority returns from our hotels, rents from our net lease portfolio and borrowings under our revolving credit facility. We receive owner’s priority returns and rents from our managers and tenants monthly. We may receive additional returns, percentage rents and our share of the operating profits of our managed hotels after payment of management fees and other deductions, if any, either monthly or quarterly, and these amounts are usually subject to annual reconciliations. We believe these sources of funds will be sufficient to meet our operating expenses and capital expenditures, pay debt service obligations and make distributions to our shareholders for the next twelve months and for the foreseeable future thereafter. However, as a result of economic conditions, including if the U.S. enters an economic recession, or otherwise, our managers and tenants may become unable or unwilling to pay owner’s priority returns and rents to us when due, and, as a result, our cash flows and net income would decline.

The following is a summary of our sources and uses of cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","2023"],["Cash and cash equivalents and restricted cash at the beginning of the period","","$","197,830","","","$","45,420"],["Net cash provided by (used in):"],["Operating activities","","139,391","","","485,549"],["Investing activities","","(222,859)","","","(29,577)"],["Financing activities","","43,024","","","(303,562)"],["Cash and cash equivalents and restricted cash at the end of the period","","$","157,386","","","$","197,830"]]
[[/GREPCENT_TABLE]]

The decrease in cash flow provided by operating activities in the 2024 period is primarily due to $188,000 of prepaid rent received from TA in the 2023 period, higher interest expense and lower hotel returns in the 2024 period. The increase in cash flow used in investing activities in the 2024 period is primarily due to proceeds from the sale of TA common shares and higher proceeds from the sale of real estate in the 2023 period and increased real estate improvements during the 2024 period, partially offset by acquisitions in the 2023 period. The change from cash flow used in financing activities in the 2023 period to cash flow provided by financing activities in the 2024 period is primarily due to higher net borrowings in the 2024 period.

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We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements. We lease 206 hotels to our wholly owned TRSs that are managed by hotel operating companies. As a REIT, we do not expect to pay federal income taxes on the majority of our income; however, the income realized by our TRSs in excess of the rent they pay to us is subject to U.S. federal income tax at corporate income tax rates. In addition, the income we receive from our hotels in Canada and Puerto Rico is subject to taxes in those jurisdictions and we are subject to taxes in certain states where we have properties despite our qualification for taxation as a REIT.

Our Investment and Financing Liquidity and Capital Resources

Our hotel operating agreements generally provide that, if necessary, we may provide our managers with funding for capital improvements to our hotels in excess of amounts otherwise available in escrowed FF&E reserves or when no FF&E reserves are available. During the year ended December 31, 2024, we funded $291,192 for capital improvements in excess of FF&E reserves available to our hotels. We currently expect to fund $250,000 during 2025 for capital improvements to certain hotels using cash on hand and borrowings under our revolving credit facility.

Various percentages of total sales at some of our hotels are escrowed as FF&E reserves to fund future capital improvements. We own all the FF&E escrows for our hotels. During the year ended December 31, 2024, certain of our hotel managers deposited $6,135 to these accounts and spent $6,375 from the FF&E reserve escrow accounts to renovate and refurbish our hotels. As of December 31, 2024, there was $5,443 on deposit in these escrow accounts, which was held directly by us and is reflected in our consolidated balance sheets as restricted cash.

Our net lease portfolio leases do not require FF&E escrow deposits and tenants under these leases are generally required to maintain the leased properties, including structural and non-structural components. We may provide tenant improvement allowances to tenants in certain cases or may develop sites with the intent to lease them. During the year ended December 31, 2024, we funded $5,494 for capital improvements to our net lease properties. As of December 31, 2024, we had $1,534 of unspent leasing-related obligations related to certain of our net lease tenants.

During the year ended December 31, 2024, we sold 15 hotels with an aggregate of 1,910 rooms for an aggregate sales price of $97,315, excluding closing costs, and ten net lease properties with an aggregate of 96,929 square feet for an aggregate sales price of $8,547, excluding closing costs. From January 1, 2025 through February 24, 2025, we sold one hotel with 149 keys for a sales price of $4,000, excluding closing costs, and two net lease properties with an aggregate of 49,081 square feet for an aggregate sales price of $1,300, excluding closing costs. We have also entered into agreements to sell five hotels with an aggregate of 623 keys for an aggregate sales price of $28,500, excluding closing costs, and two net lease properties with an aggregate of 155,559 square feet for an aggregate sales price of $5,800, excluding closing costs. These pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales, that these sales will not be delayed or that the terms will not change. We continue to market two hotels with an aggregate of 234 keys and six net lease properties with an aggregate of 80,249 square feet for sale. We believe it is probable that the sales of these properties will be completed within one year. We expect to use the net sales proceeds from these sales for general business purposes.

In February 2025, we entered into an agreement to acquire one net lease property with 5,120 square feet for a purchase price of $5,297, excluding closing costs. We expect to complete this acquisition in the first quarter of 2025 using cash on hand.

In October 2024, we announced our plan to sell 114 extended stay and select service hotels managed by Sonesta with an aggregate of 14,925 keys and an aggregate net carrying value of $850,000. We expect to sell these hotels in 2025 and use the net sales proceeds from these sales to repay debt.

During the year ended December 31, 2024, we funded $15,266 of capital contributions to Sonesta to support its growth initiatives, including its franchising efforts, using cash on hand.

During the year ended December 31, 2024, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows:

[[GREPCENT_TABLE]]
[["Declaration Date","","Record Date","","Paid Date","","Distribution Per Common Share","","Total Distributions"],["January 11, 2024","","January 22, 2024","","February 15, 2024","","$","0.20","","","$","33,154"],["April 11, 2024","","April 22, 2024","","May 16, 2024","","0.20","","","33,152"],["July 11, 2024","","July 22, 2024","","August 15, 2024","","0.20","","","33,178"],["October 16, 2024","","October 28, 2024","","November 14, 2024","","0.01","","","1,666"],["","","","","","","$","0.61","","","$","101,150"]]
[[/GREPCENT_TABLE]]

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On January 16, 2025, we declared a regular quarterly distribution to common shareholders of record on January 27, 2025 of $0.01 per share, or $1,666. We paid this distribution on February 20, 2025 using cash on hand.

In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $650,000 secured revolving credit facility which is governed by a credit agreement. This 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 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 December 31, 2024. As collateral for all loans and other obligations under the 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 69 properties, including 66 hotels and three net lease properties, with an aggregate undepreciated carrying value of $1,717,254 as of December 31, 2024. During the year ended December 31, 2024, we sold three hotels that 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. 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 December 31, 2024 and 2023, the annual interest rate payable on borrowings under our revolving credit facility was 6.99% and 7.88%, respectively. As of December 31, 2024 and February 24, 2025, we had $150,000 and $50,000, respectively, outstanding under our revolving credit facility and $500,000 and $600,000, respectively, available for borrowing.

Availability under our revolving credit facility is partially based on the performance of the properties serving as collateral under the facility. Based on expectations of performance of certain of the collateral properties, we and our lenders amended the credit facility in October 2024 to temporarily reduce the required collateral property debt yield from 12% to 8.5% from September 30, 2024 through December 31, 2024, and increase the required collateral property debt yield to 9.5% for the quarter ending March 31, 2025; 10% for the quarter ending June 30, 2025; 11% for the quarter ending September 30, 2025; and 12% for the quarter ending December 31, 2025 and thereafter. Subject to meeting these revised collateral property debt yield levels and meeting other conditions, we will continue to have full access to undrawn amounts under our revolving credit facility.

In February 2025, we and our lenders further amended our revolving credit facility to reduce the required debt service coverage ratio covenant from 1.50 times to 1.30 times effective with respect to the fourth quarter of 2024 and continuing through the end of the loan term. In order to exercise the first extension option, we would be required to maintain the 1.50 times debt service coverage level as of and for the duration of the extension period. We also agreed to change the required collateral property debt yield to 10% effective with respect to the first quarter of 2025 and continuing through the end of the loan term and to swap collateral properties as follows: 49 hotels with an aggregate of 8,197 keys and an aggregate undepreciated carrying value of $1,402,307 will be released from the collateral pool and 35 travel centers leased to TA, which travel centers we refer to as our TA No. 5 lease, with an aggregate undepreciated carrying value of $601,684, will be added as collateral to our revolving credit facility. Of the hotels being released from the collateral pool, 38 hotels with an aggregate of 5,078 keys and an aggregate undepreciated carrying value of $689,592 are part of our hotel disposition plan. The corresponding equity pledges will be swapped as well. We expect to complete this collateral swap by the end of the second quarter of 2025.

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Senior Guaranteed Unsecured Notes Issuance and Repayment of 2025 Maturities

In June 2024, we issued $700,000 aggregate principal amount of the 2029 Notes and $500,000 aggregate principal amount of the 2032 Notes in underwritten public offerings. The aggregate net proceeds from these offerings were $1,162,077, after underwriting discounts and other offering expenses. These notes are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for our foreign subsidiaries and certain other excluded subsidiaries. Such other excluded subsidiaries include, but are not limited to, subsidiaries whose equity has been pledged to secure borrowings under our credit agreement and our 2031 Notes and subsidiaries whose assets secure our net lease mortgage notes. We used the net proceeds from the issuance of these notes and cash on hand to redeem all of our outstanding 7.50% senior unsecured notes due 2025 and purchase and satisfy and discharge all of our outstanding 4.50% senior unsecured notes due 2025.

Net Lease Mortgage Notes

On January 27, 2025, our wholly owned, special purpose bankruptcy remote, indirect subsidiary, SVC ABS LLC, or the Issuer, issued a variable funding note, or VFN, secured by the 315 net lease properties that also secure our existing $606,611 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. We borrowed $45,000 for general business purposes under the VFN upon closing.

Our debt maturities (other than our revolving credit facility) as of December 31, 2024 were as follows:

[[GREPCENT_TABLE]]
[["","Year","","Debt Maturities"],["","2025","","$","1,958"],["","2026","","801,958"],["","2027","","851,958"],["","2028","","1,000,737"],["","2029","","1,125,000"],["","Thereafter","","1,900,000"],["","","","$","5,681,611"]]
[[/GREPCENT_TABLE]]

None of our senior note debt obligations require principal or sinking fund payments prior to their maturity dates. Our mortgage notes require monthly principal payments as described in Part II, Item 7A of this Annual Report on Form 10-K.

We currently expect to use cash on hand, the cash flows from our operations, borrowings under our revolving credit facility or VFN, net proceeds from any asset sales and net proceeds of offerings of equity or the incurrence of debt to fund our operations, capital expenditures, investments, future debt maturities, distributions to our shareholders and other general business purposes.

When significant amounts are outstanding for an extended period of time under our revolving credit facility, or the maturities of our indebtedness approach, we currently expect to explore refinancing alternatives. Such alternatives may include incurring additional debt, issuing new equity securities and the sale of properties. We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities. We may also seek to participate in joint ventures or other arrangements that may provide us additional sources of financing. We may also assume mortgage debt on properties we may acquire or obtain mortgage financing on our existing properties.

While we believe we will generally have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase.

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Our ability to complete, and the costs associated with, future debt transactions depend primarily upon credit market conditions and our then perceived creditworthiness. We have no control over market conditions. Our credit ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities. However, as discussed elsewhere in this Annual Report on Form 10-K, the impacts of the current, and possibly future, inflationary conditions, uncertainties surrounding interest rates and a possible economic recession are uncertain and may have various negative consequences on us and our operations, including a decline in financing availability and increased costs for financing. Further, such conditions could also disrupt the capital markets generally and limit our access to financing from public sources or on favorable terms, particularly if the global financial markets experience significant disruptions.

Debt Covenants

Our debt obligations at December 31, 2024 consisted of $150,000 of borrowings outstanding under our $650,000 revolving credit facility, $5,075,000 aggregate principal amounts of senior notes and $606,611 aggregate principal amounts of mortgage notes secured by 315 net lease retail properties. For further information regarding our indebtedness, see Note 6 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our publicly and privately issued senior notes are governed by our indentures and related supplements. These indentures and related supplements and our credit agreement contain covenants that generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, and require us to maintain various financial ratios. Our credit agreement, net lease mortgage notes, secured senior notes and unsecured senior notes, indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR ceasing to act as our business manager. As of December 31, 2024, we believe we were in compliance with all of the covenants under our indentures and their supplements, net lease mortgage notes and our credit agreement.

Senior Notes Indenture Covenants

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior secured and unsecured notes as of December 31, 2024:

[[GREPCENT_TABLE]]
[["","","Actual Results","","Covenant Requirement"],["Total debt / adjusted total assets","","54.9%","","Maximum of 60%"],["Secured debt / adjusted total assets","","16.5%","","Maximum of 40%"],["Consolidated income available for debt service / debt service","","1.52x","","Minimum of 1.50x"],["Total unencumbered assets / unsecured debt","","175.3%","","Minimum 150%"],["Total unencumbered assets in guarantor subsidiaries / senior guaranteed unsecured debt","","4.14x","","Minimum of 2.20x"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, adjusted total assets for covenant purposes as defined in our senior notes indentures were $10,625,259 and assets encumbered under our revolving credit facility, serving as collateral for our net lease mortgage notes or secured senior notes represented $3,482,758 of adjusted total assets, as defined in our senior notes indentures. Our unencumbered hotels, travel centers, other net lease properties and other corporate assets represent $4,438,943, $1,589,727, $837,667 and $276,164 of adjusted total assets, respectively.

The following table presents the calculation of adjusted total assets to total assets in accordance with GAAP:

[[GREPCENT_TABLE]]
[["Total assets","$","7,119,558"],["Plus: accumulated depreciation","3,238,636"],["Plus: impairment and other adjustments to reflect original cost of real estate assets","476,664"],["Less: accounts receivable and intangibles","(209,599)"],["Adjusted total assets","$","10,625,259"]]
[[/GREPCENT_TABLE]]

Our ability to incur additional debt is subject to meeting the required covenant levels and subject to the provisions of our credit agreement and senior notes indentures.

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Acceleration and Cross-Default

Our indentures and their supplements contain cross default provisions to any other debt of $50,000 or more. Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $75,000 or more. Neither our indentures and their supplements nor our credit agreement contain provisions for acceleration which could be triggered by a change in our debt ratings.

Supplemental Guarantor Information

Our 2027 Notes, 2029 Notes and 2032 Notes are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement and our net lease mortgage notes. The notes and the guarantees will be effectively subordinated to all of our and the subsidiary guarantors’ secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $2,425,000 of senior unsecured notes do not have the benefit of any guarantees.

A subsidiary guarantor’s guarantee of the 2027 Notes, the 2029 Notes and the 2032 Notes and all other obligations of such subsidiary guarantor under the indentures governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and such indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investor Services, or Moody’s, and BBB (or the equivalent) by Standard & Poor’s Ratings Services, or S&P, or if Moody’s or S&P ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any amounts due on these notes or the guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of these notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries’ creditors and any preferred equity holders. As a result, these notes and the related guarantees will be effectively subordinated to all of our and the subsidiary guarantors’ secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee these notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

The following table presents summarized financial information for us and the subsidiary guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among us and the subsidiary guarantors and (ii) equity in earnings from, and any investments in, any of our non-guarantor subsidiaries:

[[GREPCENT_TABLE]]
[["","","As of December 31, 2024"],["Real estate properties, net(1)","","$","4,167,260"],["Other assets, net","","507,507"],["Indebtedness, net","","$","5,142,420"],["Intercompany balances(2)","","751,637"],["Other liabilities","","358,778"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2024"],["Revenues","","$","1,643,822"],["Expenses","","1,859,977"],["Net loss","","$","(216,155)"]]
[[/GREPCENT_TABLE]]

(1)Real estate properties, net as of December 31, 2024 includes $150,271 of properties owned directly by us and not included in the assets of the subsidiary guarantors.

(2)Intercompany balances represent payables to non-guarantor subsidiaries.

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Related Person Transactions

We have relationships and historical and continuing transactions with RMR, RMR Inc. and Sonesta and others affiliated with them. For further information about these and other such relationships and related person transactions, see Notes 4, 5, 8 and 9 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC, including our definitive Proxy Statement for our 2025 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2024. For further information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” “Business” in Part I, Item 1 and “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.

Critical Accounting Estimates

Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in real property. These policies affect our:

•variable interest entities, or VIEs;

•allocation of purchase prices between various asset categories and the related impact on the recognition of depreciation and amortization expenses;

•assessment of the carrying values and impairments of real estate, intangible assets and equity investments;

•classification of leases and the related impact to our financial statements; and

•income taxes.

We have determined that each of our wholly owned TRSs is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board 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 VIE’s performance and we have the obligation to absorb the majority of the potential variability in gains and losses of each VIE, with the primary focus on losses, and are therefore the primary beneficiary of each VIE.

We allocate the acquisition cost of each property investment to various property components such as land, buildings and equipment and intangibles based on their relative fair values and each component generally has a different useful life. For acquired real estate, we record building, land, furniture, fixtures and equipment, and, if applicable, the value of acquired in-place leases, the fair market value of above or below market leases and customer relationships at fair value. For transactions that qualify as business combinations we allocate the excess, if any, of the consideration over the fair value of the net assets acquired to goodwill. We base purchase price allocations and the determination of useful lives on our estimates and, under some circumstances, studies from independent real estate appraisers to provide market information and evaluations that are relevant to our purchase price allocations and determinations of useful lives; however, our management is ultimately responsible for the purchase price allocations and determination of useful lives.

We compute depreciation expense using the straight line method over estimated useful lives of up to 40 years for buildings and improvements, and up to 12 years for personal property. We amortize the value of intangible assets over the shorter of their estimated useful lives, or the term of the respective lease or the affected contract. We do not depreciate the allocated cost of land. Purchase price allocations and estimates of useful lives require us to make certain assumptions and estimates. Incorrect assumptions and estimates may result in inaccurate depreciation and amortization charges over future periods.

We periodically evaluate our real estate and other assets for possible impairment indicators. These indicators may include weak or declining operating profitability, cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life or market or industry changes that could permanently reduce the value of our investments. If indicators of impairment are present, we evaluate the carrying value of the related investment by comparing it to the expected future undiscounted cash flows to be generated from that investment. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.

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We periodically evaluate our equity method investment for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These indicators may include the length of time and degree to which the market value of our investment is below our cost basis, the financial condition of the issuer, our intent and ability to be a long term holder of the investment and other considerations. If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value.

We determine the fair value for our long lived assets by evaluating recent financial performance and projecting discounted cash flows using standard industry valuation techniques. These analyses require us to judge whether indicators of impairment exist and to estimate likely future cash flows. If we misjudge or estimate incorrectly or if future operating profitability, market or industry factors differ from our expectations, we may record an impairment charge which is inappropriate, fail to record a charge when we should have done so or the amount of such charges may be inaccurate.

Certain of our properties are leased on a triple net basis, pursuant to non-cancelable, fixed term, operating leases. Each time we enter a new lease or materially modify an existing lease we evaluate its classification as either a finance or operating lease. The classification of a lease as finance, sales-type, direct financing or operating affects the carrying value of a property, as well as our recognition of rental payments as revenue. These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a leased property, appropriate present value discount rates and future cash flows. Incorrect assumptions or estimates may result in misclassification of our leases.

We account for income taxes in accordance with the Income Taxes Topic of the ASC. Under this Topic, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We establish valuation allowances to reduce deferred tax assets to the amounts that are expected to be realized when necessary. We have elected to be taxed as a REIT under the IRC and are generally not subject to federal and state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. Despite our qualification for taxation as a REIT, we are subject to income tax in Canada, Puerto Rico and in certain states. 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 tax. Our consolidated income tax provision (or benefit) includes the income tax provision (or benefit) related to the operations of the TRSs and state and foreign income taxes incurred by us despite our qualification for taxation as a REIT. The Income Taxes Topic also prescribes how we should recognize, measure and present in our financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return. Tax benefits are recognized only to the extent that it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized upon settlement. Tax returns filed for the 2021 through 2024 tax years are subject to examination by taxing authorities. We classify interest and penalties related to uncertain tax positions, if any, in our financial statements as a component of general and administrative expense.

These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants and operators to perform their obligations to us, and the current and likely future operating and competitive environments in which our properties operate. In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets.

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Property and Operating Statistics (dollars in thousands, except hotel statistics)

As of December 31, 2024, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 145 distinct brands across 22 industries.

Hotel Portfolio

The following tables summarize the operating statistics, including occupancy, ADR and RevPAR reported to us by our hotel managers by hotel brand for the periods indicated. All operating data presented are based upon the operating results provided by our hotel managers for the indicated periods. We have not independently verified our managers’ operating data.

[[GREPCENT_TABLE]]
[["Comparable Hotels*","","No. of Hotels","","No. of Rooms or Suites","","Occupancy","","ADR","","RevPAR"],["","","","","","","Year Ended December 31,","","Year Ended December 31,","","Year Ended December 31,"],["Brand","","Service Level","","","","2024","2023","Change","","2024","2023","Change","","2024","2023","Change"],["Sonesta Hotels & Resorts\u00ae","","Full Service","","21","","","6,955","","","58.6","%","63.2","%","(4.6) pts","","$","154.95","","$","153.25","","1.1","%","","$","90.81","","$","96.84","","(6.2)","%"],["Royal Sonesta Hotels\u00ae","","Full Service","","17","","","5,663","","","61.3","%","56.5","%","4.8 pts","","233.24","","237.63","","(1.8)","%","","143.02","","134.35","","6.5","%"],["Radisson\u00ae Hotels & Resorts","","Full Service","","5","","","1,149","","","65.4","%","62.2","%","3.2 pts","","147.07","","147.06","","\u2014","%","","96.14","","91.50","","5.1","%"],["Crowne Plaza\u00ae","","Full Service","","1","","","495","","","63.3","%","60.6","%","2.7 pts","","142.09","","141.30","","0.6","%","","90.01","","85.65","","5.1","%"],["Country Inn & Suites\u00ae by Radisson","","Full Service","","2","","","346","","","70.2","%","67.2","%","3.0 pts","","148.28","","145.96","","1.6","%","","104.14","","98.08","","6.2","%"],["Full Service Total/Average","","46","","","14,608","","","60.6","%","60.5","%","0.1 pts","","184.33","","182.89","","0.8","%","","111.75","","110.69","","1.0","%"],["Sonesta Select\u00ae","","Select Service","","42","","","6,131","","","57.9","%","55.8","%","2.1 pts","","115.31","","119.14","","(3.2)","%","","66.80","","66.48","","0.5","%"],["Hyatt Place\u00ae","","Select Service","","17","","","2,107","","","63.4","%","65.3","%","(1.9) pts","","120.48","","122.23","","(1.4)","%","","76.35","","79.87","","(4.4)","%"],["Select Service Total/Average","","59","","","8,238","","","59.3","%","58.2","%","1.1 pts","","116.73","","120.02","","(2.7)","%","","69.24","","69.91","","(1.0)","%"],["Sonesta ES Suites\u00ae","","Extended Stay","","52","","","6,689","","","69.3","%","68.9","%","0.4 pts","","127.17","","131.81","","(3.5)","%","","88.08","","90.79","","(3.0)","%"],["Sonesta Simply Suites\u00ae","","Extended Stay","","47","","","5,988","","","69.0","%","68.6","%","0.4 pts","","92.17","","92.06","","0.1","%","","63.62","","63.14","","0.8","%"],["Extended Stay Total/Average","","99","","","12,677","","","69.1","%","68.7","%","0.4 pts","","110.67","","113.15","","(2.2)","%","","76.52","","77.78","","(1.6)","%"],["Comparable Hotels Total/Average","","204","","","35,523","","","63.4","%","62.9","%","0.5 pts","","$","140.96","","$","142.14","","(0.8)","%","","$","89.32","","$","89.44","","(0.1)","%"]]
[[/GREPCENT_TABLE]]

*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 the years ended December 31, 2024 and 2023, our comparable results exclude two hotels; one of the hotels was not owned for the entirety of the periods presented and the other hotel suspended operations during the periods presented.

[[GREPCENT_TABLE]]
[["All Hotels*","","No. of Hotels","","No. of Rooms or Suites","","Occupancy","","ADR","","RevPAR"],["","","","","","","Year Ended December 31,","","Year Ended December 31,","","Year Ended December 31,"],["Brand","","Service Level","","","","2024","2023","Change","","2024","2023","Change","","2024","2023","Change"],["Sonesta Hotels & Resorts\u00ae","","Full Service","","22","","","7,205","","","59.2","%","63.2","%","(4.0) pts","","$","160.51","","$","158.43","","1.3","%","","$","94.96","","$","100.21","","(5.2)","%"],["Royal Sonesta Hotels\u00ae","","Full Service","","17","","","5,663","","","61.3","%","56.5","%","4.8 pts","","233.24","","237.63","","(1.8)","%","","143.02","","134.35","","6.5","%"],["Radisson\u00ae Hotels & Resorts","","Full Service","","5","","","1,149","","","65.4","%","62.2","%","3.2 pts","","147.07","","147.06","","\u2014","%","","96.14","","91.50","","5.1","%"],["Crowne Plaza\u00ae","","Full Service","","1","","","495","","","63.3","%","60.6","%","2.7 pts","","142.09","","141.30","","0.6","%","","90.01","","85.65","","5.1","%"],["Country Inn & Suites\u00ae by Radisson","","Full Service","","2","","","346","","","70.2","%","67.2","%","3.0 pts","","148.28","","145.96","","1.6","%","","104.14","","98.08","","6.2","%"],["Full Service Total/Average","","47","","","14,858","","","60.9","%","60.6","%","0.3 pts","","186.34","","184.95","","0.8","%","","113.41","","112.08","","1.2","%"],["Sonesta Select\u00ae","","Select Service","","42","","","6,131","","","57.9","%","55.8","%","2.1 pts","","115.31","","119.14","","(3.2)","%","","66.80","","66.48","","0.5","%"],["Hyatt Place\u00ae","","Select Service","","17","","","2,107","","","63.4","%","65.3","%","(1.9) pts","","120.48","","122.23","","(1.4)","%","","76.35","","79.87","","(4.4)","%"],["Select Service Total/Average","","59","","","8,238","","","59.3","%","58.2","%","1.1 pts","","116.73","","120.02","","(2.7)","%","","69.24","","69.91","","(1.0)","%"],["Sonesta ES Suites\u00ae","","Extended Stay","","52","","","6,689","","","69.3","%","68.9","%","0.4 pts","","127.17","","131.81","","(3.5)","%","","88.08","","90.79","","(3.0)","%"],["Sonesta Simply Suites\u00ae","","Extended Stay","","48","","","6,086","","","68.3","%","67.9","%","0.4 pts","","92.17","","92.06","","0.1","%","","62.97","","62.49","","0.8","%"],["Extended Stay Total/Average","","100","","","12,775","","","68.8","%","68.4","%","0.4 pts","","110.67","","113.15","","(2.2)","%","","76.15","","77.40","","(1.6)","%"],["All Hotels Total/Average","","206","","","35,871","","","63.3","%","62.8","%","0.5 pts","","$","142.12","","$","143.26","","(0.8)","%","","$","90.01","","$","90.01","","\u2014","%"]]
[[/GREPCENT_TABLE]]

* Includes results of all hotels owned as of December 31, 2024. Excludes the results of hotels sold during the periods presented and includes data for one hotel for periods prior to when we acquired it.

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Net Lease Portfolio

As of December 31, 2024, our net lease properties were 97.6% occupied and we had 18 properties available for lease. During the year ended December 31, 2024, we entered into lease renewals for 613,543 rentable square feet (56 properties) at weighted (by rentable square feet) average rents that were 3.8% below the prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 5.3 years. We also entered into new leases for 109,591 rentable square feet (four properties) at weighted (by rentable square feet) average rents that were 13.5% below the prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 18.4 years.

Generally, lease agreements with our net lease tenants require payment of minimum rent to us. Certain of these minimum rent payment amounts are secured by full or limited guarantees. Annualized minimum rent represents cash amounts and excludes adjustments, if any, necessary to record scheduled rent changes on a straight line basis or any expense reimbursement. Annualized minimum rent excludes the impact of rents prepaid by TA.

As of December 31, 2024, our net lease tenants operated across 136 brands. The following table identifies the top ten brands based on annualized minimum rent.

[[GREPCENT_TABLE]]
[["","Brand","","No. of Properties","","","","Investment (1)","","Percent of Total Investment","","Annualized Minimum Rent","","Percent of Total Annualized Minimum Rent","","Rent Coverage (2)"],["1.","TravelCenters of America Inc.","","131","","","","$","2,254,950","","","44.8","%","","$","176,793","","","46.4","%","","1.38x","(3)"],["2.","Petro Stopping Centers","","44","","","","1,015,156","","","20.2","%","","82,287","","","21.6","%","","1.38x","(3)"],["3.","The Great Escape","","14","","","","98,242","","","2.0","%","","7,711","","","2.0","%","","4.75x"],["4.","Life Time Fitness","","3","","","","92,617","","","1.8","%","","5,770","","","1.5","%","","2.55x"],["5.","Buehler's Fresh Foods","","5","","","","76,469","","","1.5","%","","5,657","","","1.5","%","","2.54x"],["6.","Heartland Dental","","59","","","","61,120","","","1.2","%","","4,769","","","1.3","%","","4.90x"],["7.","Norms","","10","","","","53,673","","","1.1","%","","3,759","","","1.0","%","","3.42x"],["8.","Express Oil Change","","23","","","","49,724","","","1.0","%","","3,717","","","1.0","%","","5.88x"],["9.","AMC Theatres","","5","","","","57,339","","","1.1","%","","3,558","","","0.9","%","","1.76x"],["10.","Pizza Hut","","40","","","","45,285","","","0.9","%","","3,463","","","0.9","%","","2.33x"],["","Other (4)","","408","","","","1,232,838","","","24.4","%","","83,379","","","21.9","%","","3.63x"],["","Total","","742","","","","$","5,037,413","","","100.0","%","","$","380,863","","","100.0","%","","2.10x"]]
[[/GREPCENT_TABLE]]

(1)Represents the historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any.

(2)See page 58 for our definition of rent coverage.

(3)Rent coverage information provided by tenant is for all 175 sites on a consolidated basis and is as of December 31, 2024.

(4)Consists of 126 distinct brands with an average investment of $3,022 and average annual minimum rent of $204 per property.

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As of December 31, 2024, our top ten net lease tenants based on our annualized minimum rent are listed below.

[[GREPCENT_TABLE]]
[["","Tenant","","Brand Affiliation","","No. of Properties","","Investment (1)","","Percent of Total Investment","","Annualized Minimum Rent","","Percent of Total Annualized Minimum Rent","","Rent Coverage (2)"],["1.","TravelCenters of America Inc. (3)","","TravelCenters of America / Petro Stopping Centers","","175","","$","3,270,106","","","64.9","%","","$","259,080","","","68.0","%","","1.38","x"],["2.","Universal Pool Co., Inc.","","The Great Escape","","14","","98,242","","","2.0","%","","7,711","","","2.0","%","","4.75","x"],["3.","Healthy Way of Life II, LLC","","Life Time Fitness","","3","","92,617","","","1.8","%","","5,770","","","1.5","%","","2.55","x"],["4.","Styx Acquisition, LLC","","Buehler's Fresh Foods","","5","","76,469","","","1.5","%","","5,657","","","1.5","%","","2.54","x"],["5.","Professional Resource Development, Inc.","","Heartland Dental","","59","","61,120","","","1.2","%","","4,769","","","1.3","%","","4.90","x"],["6.","Norms Restaurants, LLC","","Norms","","10","","53,673","","","1.1","%","","3,759","","","1.0","%","","3.42","x"],["7.","Express Oil Change, L.L.C.","","Express Oil Change","","23","","49,724","","","1.0","%","","3,717","","","1.0","%","","5.88","x"],["8.","Pilot Travel Centers LLC","","Flying J Travel Plaza","","3","","41,681","","","0.8","%","","3,279","","","0.9","%","","4.24","x"],["9.","Automotive Remarketing Group, Inc.","","America's Auto Auction","","6","","38,314","","","0.8","%","","3,216","","","0.8","%","","8.03","x"],["10.","American Multi-Cinema, Inc.","","AMC Theatres","","3","","46,993","","","0.9","%","","2,552","","","0.7","%","","1.02","x"],["","Subtotal, Top 10","","","","301","","3,828,939","","","76.0","%","","299,510","","","78.7","%","","1.75","x"],["","Other (4)","","Various","","441","","1,208,474","","","24.0","%","","81,353","","","21.3","%","","3.37","x"],["","Total","","","","742","","$","5,037,413","","","100.0","%","","$","380,863","","","100.0","%","","2.10","x"]]
[[/GREPCENT_TABLE]]

(1)Represents the historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any.

(2)See page 58 for our definition of rent coverage.

(3)TA is our largest tenant. We lease 175 travel centers (131 under the TravelCenters of America brand and 44 under the Petro Stopping Centers brand) to a subsidiary of TA under five master leases that expire in 2033. TA has five renewal options for ten years each for all of the travel centers under each lease. BP Corporation North America Inc. guarantees payments under each of the five master leases. The aggregate guaranty as of December 31, 2024 was approximately $3,037,475. Annualized minimum rent excludes the impact of rents prepaid by TA. Rent coverage was 1.44x, 1.43x, 1.43x, 1.51x and 1.18x, for our TA leases no. 1, no. 2, no. 3, no. 4 and no. 5, respectively. Rent coverage is as of December 31, 2024.

(4)Consists of 167 tenants with an average investment of $2,740 and an average annual minimum rent of $184 per property.

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As of December 31, 2024, our net lease tenants operated across 21 distinct industries within the service-focused retail sector of the U.S. economy.

[[GREPCENT_TABLE]]
[["","Industry","","No. of Properties","","Investment (1)","","Percent of Total Investment","","Annualized Minimum Rent","","Percent of Total Annualized Minimum Rent","","Rent Coverage (2)"],["1.","Travel Centers","","178","","$","3,311,787","","","65.7","%","","$","262,359","","","68.9","%","","1.42x","(3)"],["2.","Restaurants - Quick Service","","206","","281,260","","","5.5","%","","19,266","","","5.1","%","","3.12x"],["3.","Restaurants - Casual Dining","","55","","194,448","","","3.9","%","","12,136","","","3.2","%","","2.89x"],["5.","Health and Fitness","","13","","187,579","","","3.7","%","","11,246","","","3.0","%","","2.26x"],["4.","Home Goods and Leisure","","20","","134,539","","","2.7","%","","10,699","","","2.8","%","","4.14x"],["6.","Grocery Stores","","19","","129,152","","","2.6","%","","9,305","","","2.4","%","","3.18x"],["7.","Movie Theaters","","15","","139,661","","","2.8","%","","8,410","","","2.2","%","","1.82x"],["8.","Medical, Dental Office","","70","","104,042","","","2.1","%","","8,215","","","2.2","%","","3.70x"],["9.","Automotive Equipment and Services","","64","","107,054","","","2.1","%","","7,799","","","2.0","%","","5.11x"],["10.","Automotive Dealers","","8","","62,656","","","1.2","%","","4,973","","","1.3","%","","6.59x"],["11.","Entertainment","","4","","61,436","","","1.2","%","","4,590","","","1.2","%","","2.27x"],["12.","General Merchandise Stores","","4","","55,457","","","1.1","%","","3,983","","","1.0","%","","2.97x"],["13.","Educational Services","","7","","44,820","","","0.9","%","","3,563","","","0.9","%","","1.76x"],["14.","Building Materials","","29","","34,006","","","0.7","%","","2,944","","","0.8","%","","7.90x"],["15.","Car Washes","","6","","30,798","","","0.6","%","","2,411","","","0.6","%","","2.94x"],["16.","Miscellaneous Manufacturing","","5","","24,355","","","0.5","%","","1,726","","","0.5","%","","13.38x"],["17.","Drug Stores and Pharmacies","","6","","17,111","","","0.3","%","","1,710","","","0.4","%","","1.03x"],["18.","Sporting Goods","","3","","18,448","","","0.4","%","","1,104","","","0.3","%","","4.26x"],["19.","Legal Services","","5","","11,362","","","0.2","%","","1,097","","","0.3","%","","4.19x"],["20.","Dollar Stores","","3","","2,971","","","0.1","%","","190","","","\u2014","%","","1.95x"],["21.","Other (4)","","4","","25,695","","","0.5","%","","3,137","","","0.9","%","","6.54x"],["","Vacant","","18","","58,776","","","1.2","%","","\u2014","","","\u2014","%","","\u2014x"],["","Total","","742","","$","5,037,413","","","100.0","%","","$","380,863","","","100.0","%","","2.10x"]]
[[/GREPCENT_TABLE]]

(1)Represents the historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any.

(2)See page 58 for our definition of rent coverage.

(3)Rent coverage for TA is as of December 31, 2024.

(4)Consists of miscellaneous businesses with an average investment of $6,424 per property.

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As of December 31, 2024, lease expirations at our net lease properties by year are as follows.

[[GREPCENT_TABLE]]
[["Year(1)","","Number of Properties","","Square Feet","","Annualized Minimum Rent Expiring","","Percent of Total Annualized Minimum Rent Expiring","","Cumulative Percent of Total Minimum Rent Expiring"],["2025","","26","","","470,584","","","$","8,475","","","2.2%","","2.2%"],["2026","","102","","","1,000,067","","","11,240","","","3.0%","","5.2%"],["2027","","36","","","962,760","","","12,696","","","3.3%","","8.5%"],["2028","","23","","","645,082","","","10,346","","","2.7%","","11.2%"],["2029","","76","","","628,549","","","11,071","","","2.9%","","14.1%"],["2030","","36","","","211,356","","","5,508","","","1.4%","","15.5%"],["2031","","27","","","390,854","","","5,049","","","1.3%","","16.8%"],["2032","","35","","","145,509","","","2,873","","","0.8%","","17.6%"],["2033","","214","","","5,369,470","","","265,391","","","69.7%","","87.3%"],["2034","","23","","","325,625","","","6,264","","","1.8%","","89.1%"],["2035","","45","","","1,155,578","","","19,197","","","5.0%","","94.1%"],["2036","","15","","","304,540","","","5,617","","","1.5%","","95.6%"],["2037","","11","","","318,609","","","3,146","","","0.8%","","96.4%"],["2038","","7","","","66,700","","","1,263","","","0.3%","","96.7%"],["2039","","10","","","141,443","","","3,703","","","1.0%","","97.7%"],["2040","","18","","","115,142","","","2,406","","","0.6%","","98.3%"],["2041","","6","","","216,040","","","2,262","","","0.6%","","98.9%"],["2042","","\u2014","","","\u2014","","","\u2014","","","\u2014%","","98.9%"],["2043","","1","","","57,543","","","155","","","\u2014%","","98.9%"],["2044","","2","","","93,010","","","278","","","0.1%","","99.0%"],["2045","","11","","","154,966","","","3,923","","","1.0%","","100.0%"],["Total","","724","","","12,773,427","","","$","380,863","","","100.0%"]]
[[/GREPCENT_TABLE]]

(1)The year of lease expiration is pursuant to contract terms.

As of December 31, 2024, shown below is the list of our top ten states where our net lease properties are located. No other state represents more than 3% of our net lease annualized minimum rents.

[[GREPCENT_TABLE]]
[["State","","Number of Properties","","Square Feet","","Annualized Minimum Rent","","Percent of Total Annualized Minimum Rent"],["Texas","","55","","","1,168,354","","$","33,680","","","8.8%"],["Illinois","","53","","","972,329","","27,346","","","7.2%"],["Ohio","","38","","","1,335,923","","26,691","","","7.0%"],["California","","22","","","399,045","","25,885","","","6.8%"],["Georgia","","71","","","583,634","","20,642","","","5.4%"],["Arizona","","25","","","476,651","","17,083","","","4.5%"],["Florida","","46","","","529,040","","16,967","","","4.5%"],["Pennsylvania","","28","","","544,003","","16,287","","","4.3%"],["Indiana","","40","","","620,950","","15,982","","","4.2%"],["New Mexico","","16","","","246,478","","11,871","","","3.1%"],["Other","","348","","","6,416,112","","168,429","","","44.2%"],["Total","","742","","","13,292,519","","$","380,863","","","100.0%"]]
[[/GREPCENT_TABLE]]

Seasonality

Our hotels and travel centers have historically experienced seasonal differences typical of their industries with higher revenues in the second and third quarters of calendar years compared with the first and fourth quarters. Most of our leases require our tenants to make the substantial portion of our rent payments to us in equal amounts throughout the year. The return payments to us under certain of our management agreements depend exclusively upon earnings at these properties and, accordingly, our income and cash flows from these properties reflect the seasonality of the hotel industry.

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Impact of Climate Change

Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at our properties to increase. We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants or managers directly or in the longer term, passed through and paid by customers of our properties. Although we do not believe it is likely in the foreseeable future, laws that have been enacted or may be enacted in the future to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us.

We are environmentally conscious and aware of the impact our properties have on the environment. We and our tenants and managers have implemented numerous initiatives to encourage recycling of plastics, paper and metal or glass containers; we have programs to encourage reduced water and energy use at a hotel guest’s option by not laundering towels and linens every day and monitoring lights and thermostats when rooms are not in use. When we renovate our hotels we generally use energy efficient products including but not limited to lighting, windows and HVAC equipment and many of the appliances in our extended stay hotels are Energy Star rated. We or our tenants or managers have also installed car battery charging stations at some of the properties to accommodate environmentally aware customers.

In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties. Our property manager, RMR, is a member of the Energy Star program, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy that is focused on promoting energy efficiency at commercial properties through its “Energy Star” partner program, and a member of the U.S. Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its Leadership in Energy and Environmental Design, or LEED®, green building program. In addition, Sonesta supports the American Hotel & Lodging Association’s Responsible Stay initiative focused on energy efficiency, waste reduction, water conservation and responsible sourcing practices.

Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, which may have an adverse effect on individual properties we own. We mitigate these risks by procuring, or requiring our managers or tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change. However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results.

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including FFO and Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs.

Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of real estate and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any gains and losses on equity securities, as well as adjustments to reflect our share of FFO attributable to an investee and certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the items shown below. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, the availability to us of debt and equity capital, our dividend yield, and our dividend yield compared to the dividend yields of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

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Our calculations of FFO and Normalized FFO for the years ended December 31, 2024 and 2023 and reconciliations of net loss, the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","2023"],["Net loss","$","(275,526)","","","$","(32,779)"],["Add (Less):","Depreciation and amortization expense","371,786","","","384,060"],["","Loss on asset impairment, net","56,212","","","9,544"],["","Gain on sale of real estate, net","(6,269)","","","(43,239)"],["","Gain on equity securities, net","\u2014","","","(48,837)"],["","Adjustments to reflect our share of FFO attributable to an investee","4,347","","","3,943"],["FFO","150,550","","","272,692"],["Add (Less):","Loss on early extinguishment of debt, net","16,181","","","1,524"],["","Adjustments to reflect our share of Normalized FFO attributable to an investee","2,777","","","1,825"],["","Transaction related costs","6,894","","","(1,623)"],["Normalized FFO","$","176,402","","","$","274,418"],["Weighted average shares outstanding (basic and diluted)","165,338","","","164,988"],["Basic and diluted per common share amounts:"],["Net loss","$","(1.67)","","","$","(0.20)"],["FFO","$","0.91","","","$","1.65"],["Normalized FFO","$","1.07","","","$","1.66"],["","Distributions declared per share","$","0.61","","","$","0.80"]]
[[/GREPCENT_TABLE]]

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