Service Properties Trust
For the period ended Sep 30, 2025. Filed Nov 5, 2025.
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, 2025 · Filed Nov 5, 2025
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 2025-06-30; filed 2025-08-05.
0000945394-25-000057
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-09-30; filed 2025-11-05.
0000945394-25-000108
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 138 previous paragraphs and 137 current paragraphs.
62 unchanged; 68 reworded; 6 added; 8 removed; 0 previous and 1 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 (6)
Current report
Income tax (expense) benefit. The change from income tax benefit in the 2024 period to income tax expense in the 2025 period is due to increases in foreign tax expense ($279) and state tax expense ($51) during the 2025 period.
Current report
Nine Months Ended September 30, 2025, Compared to the Nine Months Ended September 30, 2024
Current report
Senior Secured Notes Issuance
Current report
In September 2025, we issued $580,155 in aggregate principal amount at maturity of zero coupon senior secured notes due 2027 in a private offering, raising net proceeds of approximately $490,000, after giving effect to original issue discount and deducting the initial purchasers’ discount and estimated transaction fees and expenses. These notes are fully and unconditionally guaranteed on a joint and several basis by (i) the TA Landlord Subsidiaries that are the landlords with respect to a portfolio of our properties leased to TA, which we refer to as TA Lease No. 2, and (ii) all of our subsidiaries that guarantee our existing senior unsecured notes. These notes are secured by first-priority liens on the equity interests of subsidiaries that own and lease 36 of our travel center properties with an undepreciated carrying value of $416,952 as of September 30, 2025. These notes require no cash interest payments to accrue prior to maturity. The accreted value of these secured notes will increase at a rate of 7.50% per annum compounded semiannually on March 30 and September 30 of each year. We have a one-time option to extend the maturity date of these notes by one year, subject to the satisfaction of certain conditions and the payment of an extension fee. The net proceeds from this offering were used repay amounts outstanding under our revolving credit facility.
Current report
In October 2025, we redeemed all $450,000 of our outstanding $450,000 4.75% senior unsecured notes due 2026 for a redemption price equal to the principal amount plus accrued and unpaid interest to but excluding the date of redemption and a make whole premium of $1,796. The redemption was funded using cash on hand and borrowings under our revolving credit facility.
Current report
(1) As adjusted for the redemption of $450,000 of 4.75% senior unsecured notes redeemed in October 2025.
Removed paragraphs (8)
Previous report
•Each retained hotel will have its own individual management agreement, performance under which shall not be subject to pooling, cross-default, or similar contractual ties across more than one hotel,
Previous report
•The initial term of each management agreement will be for a period of 15 years and may be renewed for two additional terms of ten years each,
Previous report
•Fees payable by us will be modified to provide better alignment with market terms, which modifications are not expected to result in any material cost impact to us, and
Previous report
•Performance provisions will be aligned with individual hotel measurement for both termination rights and incentive fees, both based on current estimated value rather than historical cost.
Previous report
Interest income. Interest income was relatively unchanged during the 2025 period compared to the 2024 period.
Previous report
Six Months Ended June 30, 2025, Compared to the Six Months Ended June 30, 2024
Previous report
Income tax expense. The decrease in income tax expense is primarily due to decreases in our state income taxexpense ($209) and foreign taxexpense ($22) during the 2025 period.
Previous report
The above consolidated income available for debt service to debt service ratio was 1.49x on a pro forma basis as of June 30, 2025, which was below the required level that would permit us to incur additional debt. We are not permitted under our debt agreements to incur additional debt while we remain below the required covenant level.
Reworded paragraphs (68)
Previous wording
We are a REIT organized under the laws of the State of Maryland. As of June 30, 2025, we owned 942 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, 2025, we owned 912 properties in 46 states, the District of Columbia, Canada and Puerto Rico.
Previous wording
We previously identified 122 hotels managed by Sonesta with a total of 15,931 keys for disposition. As of August 1, 2025, we sold eight of these hotels with a total of 1,006 keys for a combined sales price of $45,600, excluding closing costs, and entered into agreements to sell the remaining 114 hotels with a total of 14,925 keys for a combined sales price of $919,952, excluding closing costs. We and Sonesta have agreed to amend and restate our existing management agreements for the 59 retained hotels managed by Sonesta and waive any termination fees under the existing Sonesta agreements associated with the sale of the 122 hotels. Among other things, the changes to the agreements between us and Sonesta are as follows:
Current wording
We previously identified 122 hotels managed by Sonesta with a total of 15,931 keys for disposition in 2025. As of November 4, 2025, we sold 52 of these hotels with a total of 7,114 keys for a combined sales price of $391,352, excluding closing costs, entered into agreements to sell 69 hotels with a total of 8,695 keys for a combined sales price of $567,500, excluding closing costs, and are marketing for sale one hotel with 122 keys. Upon completion of the hotel sales, we expect to retain 59 hotels managed by Sonesta. As discussed in Note 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, in August 2025, we and Sonesta amended and restated our management agreements for the 59 retained hotels managed by Sonesta and waived any termination fees under the legacy Sonesta agreement associated with the sale of the 122 hotels.
Previous wording
Our current strategy is focused on reducing debt, growing our net lease portfolio and improving the performance of the hotels we expect to retain after completing the sale of our previously announced dispositions.
Current wording
Our current strategy is focused on reducing debt, transitioning to a company with the majority of its properties being service-focused retail net lease properties through the growth of our net lease portfolio and improving the performance of the hotels we expect to retain after completing the sale of our previously announced dispositions.
Previous wording
Management Agreements and Leases. At June 30, 2025, we owned 200 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, 2025, we also owned 742 service-focused retail properties leased to 174 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, 2025, we owned 160 hotels managed by four operators. 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, 2025, we also owned 752 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.
Previous wording
Hotel Portfolio. As of June 30, 2025, we owned 200 hotels. During the three and six months ended June 30, 2025, the U.S. hotel industry generally realized increases in average daily rate, or ADR, and decreases in revenue per available room, or RevPAR, compared to the corresponding 2024 periods. Our hotels produced increases in ADR and RevPAR, which we believe is partially a result of renovation disruption in the 2024 period.
Current wording
Hotel Portfolio. As of September 30, 2025, we owned 160 hotels. During the three and nine months ended September 30, 2025, the U.S. hotel industry generally realized increases in average daily rate, or ADR, and decreases in revenue per available room, or RevPAR, compared to the corresponding 2024 periods. Our hotels produced decreases in ADR and increases in RevPAR, which we believe is partially a result of renovation disruption in the 2024 period.
Previous wording
Net Lease Portfolio. As of June 30, 2025, we owned 742 service-focused retail net lease properties with an aggregate of 13,162,020 square feet leased to 174 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $386,521. Our net lease properties were 97.3% occupied as of June 30, 2025 with a weighted (by annual minimum rent) average lease term of 7.6 years, operating under 136 brands in 21 distinct industries. TA is our largest tenant and as of June 30, 2025, leased 175 of our travel centers under five master leases that expire in 2033 and require annual minimum rents of $264,262. 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, 2025, we owned 752 service-focused retail net lease properties with an aggregate of 13,185,953 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 $388,745. Our net lease properties were 97.3% occupied as of September 30, 2025 with a weighted (by annual minimum rent) average lease term of 7.5 years, operating under 139 brands in 21 distinct industries. TA is our largest tenant and as of September 30, 2025, leased 175 of our travel centers under five master leases that expire in 2033 and require annual minimum rents of $264,262. 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 decrease in hotel operating revenues is primarily a result of our sales of certain hotels since April 1, 2024 ($11,654), partially offset by increases in occupancy and average rates at certain hotels during the 2025 period ($3,573). Additional operating statistics of our hotels are included in the tables beginning on page 38.
Current wording
Hotel operating revenues. The decrease in hotel operating revenues is primarily a result of our sales of certain hotels since July 1, 2024 ($17,030), partially offset by increases in occupancy and average rates at certain hotels during the 2025 period ($3,671). Additional operating statistics of our hotels are included in the tables beginning on page 41.
Previous wording
Rental income. The decrease in rental income is primarily a result of lower rental income recognized in the 2025 period ($1,423) and the sale of certain net lease properties since April 1, 2024 ($271), partially offset by our acquisitions of certain net lease properties since April 1, 2024 ($263).
Current wording
Rental income. The increase in rental income is primarily a result of the acquisitions of certain net lease properties since July 1, 2024 ($937) and higher rental income recognized in the 2025 period ($137), partially offset by our sale of certain net lease properties since July 1, 2024 ($116).
Previous wording
Hotel operating expenses. The increase in hotel operating expenses is primarily a result of increases in wages and benefits ($15,387) and other operating expenses ($6,843) in the 2025 period, partially offset by our sales of certain hotels since January 1, 2024 ($20,810).
Current wording
Hotel operating expenses. The decrease in hotel operating expenses is primarily a result of our sales of certain hotels since July 1, 2024 ($14,373), partially offset by increases in wages and benefits ($7,510) and other operating expenses ($6,686) in the 2025 period.
Previous wording
Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees ($609), partially offset by decreases in other operating expenses ($128) in the 2025 period.
Current wording
Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees ($648) and other operating expenses ($529) in the 2025 period, partially offset by decreases resulting from the sale of certain net lease properties since July 1, 2024 ($732).
Previous wording
Depreciation and amortization - hotels. The decrease in depreciation and amortization - hotels is primarily a result of certain of our hotels classified as held for sale ($16,935) in the 2025 period.
Current wording
Depreciation and amortization - hotels. The decrease in depreciation and amortization - hotels is primarily a result of certain of our hotels classified as held for sale ($12,464) in the 2025 period.
Previous 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 April 1, 2024 ($3,308) and our sale of certain net lease properties since April 1, 2024 ($401).
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, 2024 ($2,203) and our sale of certain net lease properties since July 1, 2024 ($492), partially offset by increases from our acquisition of certain net lease properties since July 1, 2024 ($607).
Previous wording
General and administrative. The decrease in general and administrative costs is primarily due to decreases in business management fees ($1,367) and other professional fees ($46) in the 2025 period.
Current wording
General and administrative. The increase in general and administrative costs is primarily due to increases in other professional fees ($420) and business management fees ($165) in the 2025 period.
Previous wording
Transaction related costs. Transaction related costs for the 2025 period primarily consisted of costs related to the renovation of certain hotels.
Current wording
Transaction related costs. Transaction related costs for the 2025 period primarily consisted of costs related to the sale and renovation of certain hotels.
Previous wording
Loss on asset impairment. We recorded a $54,721 loss on asset impairment during the 2025 period to reduce the carrying value of 17 hotels and two net lease properties to their estimated fair value less costs to sell. 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.
Current wording
Loss on asset impairment. We recorded a $27,067 loss on asset impairment during the 2025 period to reduce the carrying value of 25 hotels and one net lease property to their estimated fair value less costs to sell. We recorded a $13,692 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.
Previous wording
Gain (loss) on sale of real estate, net. We recorded a $590 net gain on sale of real estate during the 2025 period in connection with the sale of six hotels and seven net lease properties. We recorded a $2,995 loss on sale of real estate during the 2024 period in connection with the sale of one hotel and three net lease properties.
Current wording
Gain on sale of real estate, net. We recorded a $25,256 net gain on sale of real estate during the 2025 period in connection with the sales of 40 hotels and three net lease properties. We recorded a $4,105 net gain on sale of real estate during the 2024 period in connection with the sales of six hotels and four net lease properties.
Previous wording
Interest income. The decrease in interest income is due to lower average cash balances invested and lower interest rates during the 2025 period compared to the 2024 period.
Current wording
Interest income. The increase in interest income is due to higher average cash balances invested and higher interest rates during the 2025 period compared to the 2024 period.
Previous wording
Interest expense. The increase in interest expense is primarily due to higher weighted average interest rates during the 2025 period compared to the 2024 period.
Current wording
Interest expense. The increase in interest expense is primarily due to higher debt outstanding and weighted average interest rates during the 2025 period compared to the 2024 period.
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.
Current wording
Loss on early extinguishment of debt, net. We recorded a $529 loss on early extinguishment of debt, net in the 2025 period as a result of the redemption and write off of unamortized deferred financing costs and discounts of certain unsecured senior notes in the 2025 period. 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
Equity in losses of an investee. Equity in losses of an investee represents our proportionate share of the losses 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
Net loss. Our net loss and net loss per common share (basic and diluted) each decreased in the 2025 period compared to the 2024 period primarily due to the revenue and expense changes discussed above.
Current wording
Net loss. Our net loss increased and our net loss per common share (basic and diluted) did not change in the 2025 period compared to the 2024 period primarily due to the revenue and expense changes discussed above.
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, 2025, compared to the six months ended June 30, 2024.
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, 2025, compared to the nine months ended September 30, 2024.
Previous wording
Hotel operating revenues. The decrease in hotel operating revenues is primarily a result of our sales of certain hotels since January 1, 2024 ($19,524), partially offset by increases in occupancy and average rates at certain hotels during the 2025 period ($10,170). Additional operating statistics of our hotels are included in the tables beginning on page 38.
Current wording
Hotel operating revenues. The decrease in hotel operating revenues is primarily a result of our sales of certain hotels since January 1, 2024 ($37,769), partially offset by increases in occupancy and average rates at certain hotels during the 2025 period ($15,056). Additional operating statistics of our hotels are included in the tables beginning on page 41.
Previous wording
Rental income. The decrease in rental income is primarily a result of our sales of certain net lease properties since January 1, 2024 ($726) and lower rental income recognized during the 2025 period ($503).
Current wording
Rental income. The decrease in rental income is primarily a result of our sales of certain net lease properties since January 1, 2024 ($934) and lower rental income recognized in the 2025 period ($538), partially offset by our acquisition of certain net lease properties during the 2025 period ($1,201).
Previous wording
Hotel operating expenses. The increase in hotel operating expenses is primarily a result of increases in wages and benefits ($8,496) and other operating expenses ($3,954) in the 2025 period, partially offset by our sales of certain hotels since April 1, 2024 ($11,784).
Current wording
Hotel operating expenses. The increase in hotel operating expenses is primarily a result of increases in wages and benefits ($21,830) and other operating expenses ($12,590) in the 2025 period, partially offset by our sales of certain hotels since January 1, 2024 ($33,177).
Previous wording
Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees ($1,208) and other operating expenses at certain net lease properties ($178) in the 2025 period.
Current wording
Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees ($1,847), partially offset by a decrease in other operating expenses at certain net lease properties ($16) in the 2025 period.
Previous wording
Depreciation and amortization - hotels. The decrease in depreciation and amortization - hotels is primarily a result of certain of our hotels classified as held for sale ($18,278) in the 2025 period.
Current wording
Depreciation and amortization - hotels. The decrease in depreciation and amortization - hotels is primarily a result of certain of our hotels classified as held for sale ($30,742) in the 2025 period.
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, 2024 ($5,437) and certain of our depreciable assets becoming fully depreciated since January 1, 2024 ($936).
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 January 1, 2024 ($7,855) and our sale of certain net lease properties since January 1, 2024 ($1,428), partially offset by increases from our acquisition of certain net lease properties since January 1, 2024 ($822).
Previous wording
General and administrative. The decrease in general and administrative costs is primarily due to decreases in business management fees ($540), partially offset by an increase in other professional fees ($77) in the 2025 period.
Current wording
General and administrative. The decrease in general and administrative costs is primarily due to decreases in business management fees ($1,202), partially offset by increase in other professional fees ($374) in the 2025 period.
Previous wording
Transaction related costs. Transaction related costs for the 2025 period primarily consisted of costs related to the renovation of certain hotels, partially offset by the recovery of a working capital reserve related to our former agreement with Marriott International, Inc. previously deemed uncollectable and expensed in 2021.
Current wording
Transaction related costs. Transaction related costs for the 2025 period primarily consisted of costs related to the sale and renovation of certain hotels, partially offset by the recovery of a working capital reserve related to our former agreement with Marriott International, Inc. previously deemed uncollectable and expensed in 2021.
Previous wording
Loss on asset impairment. We recorded a $17,654 loss on asset impairment during the 2025 period to reduce the carrying value of 17 hotels and two net lease properties to their estimated fair value less costs to sell. We recorded a $34,887 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.
Current wording
Loss on asset impairment. We recorded a $81,788 loss on asset impairment during the 2025 period to reduce the carrying value of 28 hotels and three net lease properties to their estimated fair value less costs to sell. 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.
Previous wording
Loss on sale of real estate, net. We recorded a $156 loss on sale of real estate during the 2025 period in connection with the sales of two hotels and four net lease properties. We recorded a $32 net loss on sale of real estate during the 2024 period in connection with the sale of one hotel.
Current wording
Gain on sale of real estate, net. We recorded a $25,846 net gain on sale of real estate during the 2025 period in connection with the sales of 46 hotels and ten net lease properties. 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.
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.
Current wording
Loss on early extinguishment of debt, net. We recorded a $529 loss on early extinguishment of debt, net in the 2025 period as a result of the redemption and write off of unamortized deferred financing costs and discounts of certain unsecured senior notes in the 2025 period. 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.
Previous wording
Income tax expense. The decrease in income tax expense is primarily due to a decrease in foreign tax expense ($126), partially offset by an increase in state tax expense ($59) during the 2025 period.
Current wording
Income tax expense. The increase in income tax expense is primarily due to an increase in our foreign tax expense ($257), partially offset by a decrease in state income tax expense ($158) during the 2025 period.
Previous wording
As of June 30, 2025, all 200 of our hotels were managed by four hotel operating companies. Our 742 service-focused retail net lease properties were leased to 174 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 June 30, 2025, Sonesta is our largest hotel manager (175 hotels) and TA is our largest tenant (175 travel centers).
Current wording
As of September 30, 2025, all 160 of our hotels were managed by four hotel operating companies. Our 752 service-focused retail net lease properties were leased to 178 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 September 30, 2025, Sonesta is our largest hotel manager (135 hotels) and TA is our largest tenant (175 travel centers).
Previous wording
We recorded reserves for uncollectable amounts and reduced rental income by $1,142 and $1,377 for the three and six months ended June 30, 2025, respectively, based on our assessment of the collectability of rents. 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 had reserves for uncollectable rents of $6,016 and $5,058 as of June 30, 2025 and December 31, 2024, 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 $479 and $1,856 for the three and nine months ended September 30, 2025, respectively, based on our assessment of the collectability of rents. 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 had reserves for uncollectable rents of $6,235 and $5,058 as of September 30, 2025 and December 31, 2024, respectively, included in other assets, net in our condensed consolidated balance sheets.
Previous wording
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 2.04x and 2.25x as of June 30, 2025 and 2024, respectively.
Current wording
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 2.04x and 2.16x as of September 30, 2025 and 2024, respectively.
Previous wording
Our principal sources of funds to meet operating and capital expenses, debt service obligations and distributions to our shareholders are returns generated from our hotels, rents from our net lease portfolio and borrowings under our revolving credit facility and VFN. We receive hotel 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 returns and rents to us when due, and, as a result, our cash flows and net income would decline. As of June 30, 2025, we did not meet the 1.50x consolidated income available for debt service to debt service ratio level necessary under our senior notes indentures to incur additional debt, and as a result, we will not be able to incur additional debt while the ratio is below this requirement. We may sell additional properties, access equity markets, refinance our debt with unsecured and/or secured debt, or seek other sources of capital if favorable conditions exist for us in order to enhance our liquidity, reduce debt and fund cash needs.
Current wording
Our principal sources of funds to meet operating and capital expenses, debt service obligations and distributions to our shareholders are returns generated from our hotels, rents from our net lease portfolio and borrowings under our revolving credit facility and VFN. We receive hotel 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 returns and rents to us when due, and, as a result, our cash flows and net income would decline.
Previous wording
The decrease in cash flow provided by operating activities in the 2025 period is primarily due to lower returns from our hotel portfolio in the 2025 period. The decrease in cash flow used in investing activities in the 2025 period is primarily due to higher proceeds from the sale of real estate in the 2025 period and decreased real estate improvements, partially offset by real estate acquisitions during the 2025 period. The decrease in cash flow used in financing activities in the 2025 period is primarily due to lower distributions to common shareholders during the 2025 period.
Current wording
The decrease in cash flow provided by operating activities in the 2025 period is primarily due to the sale of certain hotels and lower returns from our hotel portfolio in the 2025 period. The change from cash flow used in investing activities in the 2024 period to cash flow provided by investing activities in the 2025 period is primarily due to higher proceeds from the sale of real estate and decreased real estate improvements during the 2025 period, partially offset by real estate acquisitions during the 2025 period. The change from cash flow used in financing activities in the 2024 period to cash flow provided by financing activities during the 2025 period is primarily due to higher net borrowings, partially offset by lower distributions to common shareholders during the 2025 period.
Previous wording
We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements. We lease 200 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 160 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.
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Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Interest income. The increase in interest income is due to higher average cash balances invested during the 2025 period compared to the 2024 period.