Service Properties Trust
For the period ended Sep 30, 2024. Filed Nov 6, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 6, 2024
SVC$5.20-5.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0000945394-24-000042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-06.
0000945394-24-000054
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 126 previous paragraphs and 129 current paragraphs.
68 unchanged; 56 reworded; 5 added; 1 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 19 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (5)
Current report
On October 16, 2024, we announced our plan to sell 114 focused service hotels managed by Sonesta with an aggregate of 14,925 keys and a 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. We expect that the sales of these hotels will result in savings of approximately $725,000 in capital expenditures, which was projected to be spent over a six year period. To further improve our liquidity beginning with the fourth quarter of 2024, we reduced our regular quarterly cash distribution 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.
Current report
Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Current report
2023 ($10,201), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($7,076) and the sale of certain hotels since January 1, 2023 ($1,124).
Current report
In October 2024, we announced our plan to sell 114 focused 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. We expect that the sales of these hotels will result in savings of approximately $725,000 in capital expenditures, which was projected to be spent over a six year period. To further improve our liquidity beginning with the fourth quarter of 2024, we reduced our regular quarterly cash distribution 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.
Current report
Availability under our revolving credit facility is partially based on the performance of the properties serving as collateral under the facility. Based on recent and near term 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 currently have full access to undrawn amounts under our revolving credit facility.
Removed paragraphs (1)
Previous report
Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Reworded paragraphs (56)
Previous wording
We are a REIT organized under the laws of the State of Maryland. As of June 30, 2024, we owned 969 properties in 46 states, the District of Columbia, Canada and Puerto Rico.
Current wording
We are a REIT organized under the laws of the State of Maryland. As of September 30, 2024, we owned 959 properties in 46 states, the District of Columbia, Canada and Puerto Rico.
Previous wording
In response to significant and prolonged increases in inflation, the U.S. Federal Reserve raised interest rates multiple times since the beginning of 2022. Although the U.S. Federal Reserve has indicated that it may lower rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or increase. These inflationary pressures in the United States, as well as global geopolitical instability and tensions, have given rise to uncertainty regarding economic downturns or a possible recession and potential disruptions in the financial markets. Consumer confidence, corporate travel and lodging demand will continue to be affected by economic and market conditions, 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.
Current wording
Consumer confidence, corporate travel and lodging demand will continue to be affected by economic and market conditions, inflationary pressures, including high 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. We have also been implementing a significant renovation plan that has caused disruption at certain of our hotels.
Previous wording
Management Agreements and Leases. At June 30, 2024, we owned 220 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 June 30, 2024, we also owned 749 service-focused retail properties leased to 178 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.
Current wording
Management Agreements and Leases. At September 30, 2024, we owned 214 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 September 30, 2024, we also owned 745 service-focused retail properties leased to 176 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.
Previous wording
Hotel Portfolio. As of June 30, 2024, we owned 220 hotels. During the three and six months ended June 30, 2024, the U.S. hotel industry generally realized increases in revenue per available room, or RevPAR, compared to the same periods in 2023. Our hotels produced year over year declines in 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. 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.
Current wording
Hotel Portfolio. As of September 30, 2024, we owned 214 hotels. During the three and nine months ended September 30, 2024, the U.S. hotel industry generally realized increases in revenue per available room, or RevPAR, and average daily rate, or ADR, compared to the same periods in 2023. Our comparable hotels produced year over year declines in 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. 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.
Previous wording
Comparable Hotels Data. We present RevPAR, average daily rate, or 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 three and six months ended June 30, 2024 and 2023, our comparable results exclude two hotels. One of the hotels was not owned for the entirety of the periods and the other hotel suspended operations during part of the periods presented. The following table provides a summary of these revenue metrics for the periods presented.
Current wording
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 each of the three months ended September 30, 2024 and 2023, our comparable results exclude one hotel that suspended operations during the periods presented. For each of the nine months ended September 30, 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 suspended operations during the periods presented. The following table provides a summary of these revenue metrics for the periods presented.
Previous wording
Net Lease Portfolio. As of June 30, 2024, we owned 749 service-focused retail net lease properties with an aggregate of 13,384,219 square feet leased to 178 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $380,457. Our net lease properties were 97.3% occupied as of June 30, 2024 with a weighted (by annual minimum rent) average lease term of 8.4 years, operating under 139 brands in 21 distinct industries. TA is our largest tenant and as of June 30, 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.
Current wording
Net Lease Portfolio. As of September 30, 2024, we owned 745 service-focused retail net lease properties with an aggregate of 13,332,131 square feet leased to 176 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $380,034. Our net lease properties were 97.6% occupied as of September 30, 2024 with a weighted (by annual minimum rent) average lease term of 8.3 years, operating under 137 brands in 21 distinct industries. TA is our largest tenant and as of September 30, 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.
Previous wording
Hotel operating revenues. The increase in hotel operating revenues is primarily a result of a hotel acquisition in the 2023 period ($15,785) and increases in food and beverage and other ancillary revenue in the 2024 period ($2,184), partially offset by our sale of certain hotels since January 1, 2023 ($8,370). Additional operating statistics of our hotels are included in the tables beginning on page 33.
Current wording
Hotel operating revenues. The decrease in hotel operating revenues is primarily a result of our sale of certain hotels since July 1, 2023 ($2,982) and lower RevPAR at certain hotels during the 2024 period ($1,609). Additional operating statistics of our hotels are included in the tables beginning on page 36.
Previous wording
Rental income. The increase in rental income is primarily a result of the amended TA leases that were effective starting in May 2023 ($8,267), partially offset by decreases in our other net lease portfolio as a result of lower rental income recognized and the sale of certain net lease properties since January 1, 2023 ($1,656).
Current wording
Rental income. The decrease in rental income is primarily a result of lower rental income recognized at certain of our net lease properties ($737) and the sale of certain net lease properties since July 1, 2023 ($326).
Previous wording
Hotel operating expenses. The increase in hotel operating expenses is primarily a result of a hotel acquisition ($4,361) in the 2023 period, increases in wages and benefits ($6,903), property insurance ($4,097) and other operating expenses ($4,437) in the 2024 period, partially offset by our sale of certain hotels since April 1, 2023 ($651).
Current wording
Hotel operating expenses. The increase in hotel operating expenses is primarily a result of increases in wages and benefits ($8,995) and other operating expenses in the 2024 period ($5,727), partially offset by our sales of certain hotels since July 1, 2023 ($3,939).
Previous wording
Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees in the 2024 period ($1,114) and increases in other operating expenses at certain net lease properties ($1,301), partially offset by our sale of certain net lease properties since January 1, 2023 ($1,011).
Current wording
Net lease operating expenses. The decrease in net lease operating expenses is primarily the result of our sale of certain net lease properties since July 1, 2023 ($439), partially offset by increased operating expenses at certain net lease properties in the 2024 period ($428).
Previous wording
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 April 1, 2023 and our acquisition of a hotel in June 2023 ($4,300), partially offset by certain of our depreciable assets becoming fully depreciated since April 1, 2023 ($2,360).
Current wording
Depreciation and amortization - hotels. The decrease in depreciation and amortization - hotels is primarily a result of certain of our depreciable assets becoming fully depreciated since July 1, 2023 ($2,503) and our sale of certain hotels since July 1, 2023 ($1,102), partially offset by depreciation and amortization related to capital expenditures made since July 1, 2023 ($1,965).
Previous wording
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 ($6,718) and certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($2,752).
Current wording
Depreciation and amortization - net lease properties. The decrease in depreciation and amortization - net lease properties is primarily a result of certain of our depreciable assets becoming fully depreciated since July 1, 2023 ($3,611) and our sale of certain net lease properties since July 1, 2023 ($242).
Previous wording
General and administrative. The decrease in general and administrative costs in the 2024 period is primarily due to decreases in business management fees ($1,476) and other professional fees ($668).
Current wording
General and administrative. The decrease in general and administrative costs is primarily due to a decrease in business management fees in the 2024 period ($876), partially offset by an increase in other professional fees ($499).
Previous wording
Transaction related costs. Transaction related costs for the 2023 period primarily consisted of costs related to hotel rebranding activity and the demolition of certain vacant properties.
Current wording
Transaction related costs. Transaction related costs for the 2023 period primarily consisted of costs related to hotel rebranding activity.
Previous wording
Loss on asset impairment, net. We recorded a $37,338 net loss on asset impairment during the 2024 period to reduce the carrying value of eight hotels and six net lease properties to their estimated fair value less costs to sell. We recorded a $9,005 net loss on asset impairment during the 2023 period to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell.
Current wording
Loss on asset impairment, net. We recorded a $13,692 net loss on asset impairment during the 2024 period to reduce the carrying value of four hotels and two net lease properties to their estimated fair value or estimated fair value less costs to sell. We recorded a $512 net loss on asset impairment during the 2023 period to reduce the carrying value of three net lease properties to their estimated fair value less costs to sell.
Previous wording
(Loss) gain on sale of real estate, net. We recorded a $2,995 net loss on sale of real estate during the 2024 period in connection with the sale of one hotel and three net lease properties. We recorded a $41,836 net gain on sale of real estate during the 2023 period in connection with the sale of 18 hotels and two net lease properties.
Current wording
Gain on sale of real estate, net. We recorded a $4,105 net gain on sale of real estate during the 2024 period in connection with the sale of six hotels and four net lease properties. We recorded a $123 net gain on sale of real estate during the 2023 period in connection with the sale of two net lease properties.
Previous wording
Loss on early extinguishment of debt, net. We recorded a $16,048 loss on early extinguishment of debt, net in the 2024 period as a result of the redemption and purchase of certain senior notes in the 2024 period. We recorded a $238 loss on early extinguishment of debt, net due to the write off of certain deferred financing costs relating to the amendment of our revolving credit facility in the 2023 period.
Current wording
Loss on early extinguishment of debt, net. We recorded a $133 loss on early extinguishment of debt, net in the 2024 period as a result of the redemption and purchase of certain senior notes in the 2024 period.
Previous wording
Income tax expense. The decrease in income tax expense is primarily due to decreases in state tax expense ($2,796) and foreign tax expense ($1,927) during the 2024 period compared to the 2023 period.
Current wording
Income tax benefit. The decrease in income tax benefit is primarily due to decreases in state tax benefit ($1,723) and foreign tax benefit ($442) during the 2024 period due to changes in our annual tax provision.
Previous wording
Equity in (losses) earnings of an investee. Equity in (losses) earnings of an investee represents our proportionate share of the losses and earnings of Sonesta.
Current wording
Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of the earnings of Sonesta.
Previous wording
References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Current wording
References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Previous wording
Hotel operating revenues. The increase in hotel operating revenues is primarily a result of a hotel acquisition ($5,899) in the 2023 period and increased occupancy at certain hotels during the 2024 period ($2,801), partially offset by the sale of certain of our hotels since April 1, 2023 ($541). Additional operating statistics of our hotels are included in the tables beginning on page 33.
Current wording
Hotel operating revenues. The increase in hotel operating revenues is primarily a result of a hotel acquisition in the 2023 period ($16,531), partially offset by lower RevPAR at certain of our hotels ($8,643) and our sale of certain hotels since January 1, 2023 ($2,880). Additional operating statistics of our hotels are included in the tables beginning on page 36.
Previous wording
Rental income. The increase in rental income is primarily a result of the amended TA leases that were effective starting in May 2023 ($2,574), partially offset by decreases in our other net lease portfolio as a result of lower rental income recognized and the sale of certain net lease properties since April 1, 2023 ($1,564).
Current wording
Rental income. The increase in rental income is primarily a result of the amended TA leases that were effective starting in May 2023 ($8,107), partially offset by lower rental income recognized at certain net lease properties in the 2024 period ($1,825) and the sale of certain net lease properties since January 1, 2023 ($734).
Previous wording
Hotel operating expenses. The increase in hotel operating expenses is primarily a result of a hotel acquisition ($10,936) in the 2023 period and increases in wages and benefits ($12,373), property insurance ($8,460) and other operating expenses ($4,360) in the 2024 period, partially offset by our sale of certain hotels since January 1, 2023 ($11,462).
Current wording
Hotel operating expenses. The increase in hotel operating expenses is primarily a result of a hotel acquisition ($11,384) in the 2023 period and increases in wages and benefits ($15,441), property insurance ($4,706) and other operating expenses in the 2024 period ($4,274), partially offset by our sale of certain hotels since January 1, 2023 ($355).
Previous wording
Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees in the 2024 period ($565) and increases in other operating expenses at certain net lease properties ($727), partially offset by our sale of certain net lease properties since April 1, 2023 ($706).
Current wording
Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees in the 2024 period ($1,737), partially offset by decreases in other operating expenses at certain net lease properties ($235) and our sale of certain net lease properties since January 1, 2023 ($109).
Previous wording
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 ($8,353), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($4,712).
Current wording
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
Previous wording
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 April 1, 2023 ($837).
Current wording
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 ($7,090) and certain of our depreciable assets becoming fully depreciated since January 1, 2023 ($6,233).
Previous wording
General and administrative. The decrease in general and administrative costs is primarily due to decreases in other professional fees ($891) and business management fees ($848) in the 2024 period.
Current wording
General and administrative. The decrease in general and administrative costs in the 2024 period is primarily due to decreases in business management fees ($2,351) and other professional fees ($170).
Previous wording
Loss on asset impairment, net. We recorded a $34,887 net loss on asset impairment during the 2024 period to reduce the carrying value of eight hotels and three net lease properties to their estimated fair value less costs to sell. We recorded a $9,005 net loss on asset impairment during the 2023 period to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell.
Current wording
Loss on asset impairment, net. We recorded a $51,030 net loss on asset impairment during the 2024 period to reduce the carrying value of ten hotels and eight net lease properties to their estimated fair value or estimated fair value less costs to sell. We recorded a $9,517 net loss on asset impairment during the 2023 period to reduce the carrying value of 16 net lease properties to their estimated fair value less costs to sell.
Previous wording
Loss on sale of real estate, net. We recorded a $32 net loss on sale of real estate during the 2024 period in connection with the sale of one hotel. We recorded a $62 net loss on sale of real estate during the 2023 period in connection with the sale of two net lease properties.
Current wording
Gain on sale of real estate, net. We recorded a $1,110 net gain on sale of real estate during the 2024 period in connection with the sale of seven hotels and seven net lease properties. We recorded a $41,959 net gain on sale of real estate during the 2023 period in connection with the sale of 18 hotels and four net lease properties.
Previous wording
Loss on early extinguishment of debt, net. We recorded a $16,048 loss on early extinguishment of debt, net in the 2024 period as a result of the redemption and purchase of certain senior notes in the 2024 period. We recorded a $282 loss on early extinguishment of debt, net in connection with our redemption of certain senior unsecured notes and the write off of certain deferred financing costs relating to the amendment of our revolving credit facility in the 2023 period.
Current wording
Loss on early extinguishment of debt, net. We recorded a $16,181 loss on early extinguishment of debt, net in the 2024 period as a result of the redemption and purchase of certain senior notes in the 2024 period. We recorded a $282 loss on early extinguishment of debt, net in connection with our redemption of certain senior unsecured notes and the write off of certain deferred financing costs relating to the amendment of our revolving credit facility in the 2023 period.
Previous wording
Income tax expense. The increase in income tax expense is primarily due to an increase in our state income tax expense ($122) during the 2024 period, partially offset by a decrease in our foreign sourced income tax expense ($58) during the 2024 period.
Current wording
Income tax (expense) benefit. The increase in income tax expense is primarily due to increases in our state income tax expense ($1,845) and foreign sourced income tax expense ($384) during the 2024 period.
Previous wording
As of June 30, 2024, all 220 of our hotels were managed by four hotel operating companies. Our 749 service-focused retail net lease properties were leased to 178 tenants as of June 30, 2024. 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 June 30, 2024, our hotel managers included Sonesta (195 hotels), Hyatt (17 hotels), Radisson (seven hotels) and IHG (one hotel). TA is our largest tenant (175 travel centers).
Current wording
As of September 30, 2024, all 214 of our hotels were managed by four hotel operating companies. Our 745 service-focused retail net lease properties were leased to 176 tenants as of September 30, 2024. 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 September 30, 2024, our hotel managers included Sonesta (189 hotels), Hyatt (17 hotels), Radisson (seven hotels) and IHG (one hotel). TA is our largest tenant (175 travel centers).
Previous wording
We recorded reserves for uncollectable amounts and reduced rental income by $377 and $1,042 for the three and six months ended June 30, 2024, respectively, based on our assessment of the collectability of rents. We recorded reserves for uncollectible amounts and reduced rental income by $1,813 and $5,353 for the three and six months ended June 30, 2023, respectively, based on our assessment of the collectability of rents. We had reserves for uncollectable rents of $4,366 and $3,436 as of June 30, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.
Current wording
We recorded reserves for uncollectable amounts and reduced rental income by $515 and $1,557 for the three and nine months ended September 30, 2024, respectively, based on our assessment of the collectability of rents. We reduced reserves for uncollectible amounts and increased rental income by $1,041 for the three months ended September 30, 2023 and recorded reserves for uncollectable amounts and reduced rental income by $4,312 for the nine months ended September 30, 2023, based on our assessment of the collectability of rents. We had reserves for uncollectable rents of $4,872 and $3,436 as of September 30, 2024 and December 31, 2023, respectively, included in other assets, net in our condensed consolidated balance sheets.
Previous wording
We define net lease 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 coverage of 2.25x and 2.94x as of June 30, 2024 and 2023, respectively.
Current wording
We define net lease 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 coverage of 2.16x and 2.72x as of September 30, 2024 and 2023, respectively.
Previous wording
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 and we may need to reduce the amount of, or even eliminate, our distributions to common shareholders.
Current wording
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 and 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.
Previous wording
We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements. We lease 220 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.
Current wording
We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements. We lease 214 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.
Previous wording
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 six months ended June 30, 2024, we funded $130,519 for capital improvements in excess of FF&E reserves available to our hotels. We currently expect to fund $195,000 for capital improvements to certain hotels during the last six months of 2024 using cash on hand and borrowings under our revolving credit facility.
Current wording
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 nine months ended September 30, 2024, we funded $208,820 for capital improvements in excess of FF&E reserves available to our hotels using cash on hand. We currently expect to fund $85,000 for capital improvements to certain hotels during the last three months of 2024 using cash on hand and borrowings under our revolving credit facility.
Previous wording
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 six months ended June 30, 2024, certain of our hotel managers deposited $2,597 to these accounts and spent $2,869 from the FF&E reserve escrow accounts to renovate and refurbish our hotels. As of June 30, 2024, there was $5,411 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.
Current wording
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 nine months ended September 30, 2024, certain of our hotel managers deposited $4,402 to these accounts and spent $4,609 from the FF&E reserve escrow accounts to renovate and refurbish our hotels. As of September 30, 2024, there was $5,475 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.
Previous wording
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 six months ended June 30, 2024, we funded $1,696 for capital improvements to our net lease properties. As of June 30, 2024, we had $2,192 of unspent leasing-related obligations related to certain of our net lease tenants.
Current wording
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 nine months ended September 30, 2024, we funded $3,931 for capital improvements to our net lease properties. As of September 30, 2024, we had $1,889 of unspent leasing-related obligations related to certain of our net lease tenants.
Previous wording
During the six months ended June 30, 2024, we sold one hotel with 84 rooms for a sale price of $3,315, excluding closing costs, and three net lease properties with an aggregate of 34,849 square feet for an aggregate sales price of $2,932, excluding closing costs. From July 1, 2024 through August 2, 2024, we sold two hotels with an aggregate of 346 keys for an aggregate sales price of $10,800, excluding closing costs, and three vacant net lease properties with an aggregate of 9,388 square feet for an aggregate sales price of $1,800, excluding closing costs. As of August 2, 2024, we have entered into agreements to sell 16 hotels with an aggregate of 1,930 keys for an aggregate sales price of $113,200, excluding closing costs, and one net lease property with 3,381 square feet for a sales price of $1,250, excluding closing costs. These pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales, that these sales will not be delayed or that the terms will not change. We continue to market three hotels with an aggregate of 407 keys and nine net lease properties with an aggregate of 129,560 square feet for sale. We believe it is probable that the sales of these properties will be completed within one year.
Current wording
During the nine months ended September 30, 2024, we sold seven hotels with an aggregate of 906 keys for an aggregate sales price of $48,215, excluding closing costs, and seven net lease properties with an aggregate of 86,937 square feet for an aggregate sales price of $6,532, excluding closing costs. From October 1, 2024 through November 4, 2024, we sold five hotels with an aggregate of 642 keys for an aggregate sales price of $32,200, excluding closing costs. As of November 4, 2024, we have entered into agreements to sell eight hotels with an aggregate of 985 keys for an aggregate sales price of $44,150, excluding closing costs, and one net lease property with 3,381 square feet for a sales price of $1,000, excluding closing costs. These pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales, that these sales will not be delayed or that the terms will not change. We continue to market three hotels with an aggregate of 383 keys and nine net lease properties with an aggregate of 132,860 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.
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Previous report — wording carried elsewhere
Loss on equity securities, net. Loss 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.