Service Properties Trust (SVC)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2025 Annual Report.

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 March 31, 2026, we owned 854 properties in 46 states, the District of Columbia, Canada and Puerto Rico. Our strategy continues to focus on reducing debt, transitioning to a company with the majority of our 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.

Leases and Management Agreements. At March 31, 2026, we owned 761 service-focused retail properties with an aggregate of 13,605,978 square feet leased to 185 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures. At March 31, 2026, we also owned 93 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. Our condensed consolidated statements of comprehensive income (loss) include rental income and net lease operating expenses from our net lease properties and hotel operating revenues and hotel operating expenses of our managed hotels.

Market Outlook. Consumer confidence, corporate travel and lodging demand will continue to be affected by economic and market conditions, inflationary pressures and potential impacts from tariffs, uncertainties surrounding interest rates, unemployment levels, work from home policies, use of technologies, geopolitical events 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.

Net Lease Portfolio. Our net lease properties were 96.6% occupied as of March 31, 2026 with a weighted (by annual minimum rent) average lease term of 7.3 years, operating under 140 brands in 21 distinct industries. TA is our largest tenant and as of March 31, 2026, 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. We use a variety of operating and other information to evaluate the financial condition and operating performance of our net lease portfolio, including the lease structure, credit evaluations, tenants’ payment history and net lease rent coverage metrics as defined below. Our net lease portfolio is diverse geographically in service-focused and necessity-based industries, by brand concepts and tenants. We believe this diversification may help mitigate the impact of macroeconomic factors.

Hotel Portfolio. During the three months ended March 31, 2026, 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 2025 period. Our comparable hotels produced increases in ADR and RevPAR, which we believe is partially a result of renovation disruption in the 2025 period. In addition to the macroeconomic factors noted above, ADR, occupancy, and RevPAR performance are dependent on the continued success of our hotels' brands and our hotel operators. While we do not operate our hotel properties, our asset management team and our executive management team monitor and work with our hotel managers by conducting regular revenue, sales, and financial performance reviews and also perform in-depth on-site reviews focused on ongoing operating margin improvement initiatives.

Significant Events

We sold 112 hotels with a total of 14,631 keys for a combined sales price of $858,752, excluding closing costs, during 2025. During the three months ended March 31, 2026, we sold one hotel with 133 keys for a sales price of $7,100, excluding closing costs, and we are at various stages of selling 15 additional hotels with 3,022 keys.

In January 2026, we redeemed $300,000 of our $400,000 of 4.95% senior unsecured notes due 2027 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 $1,569, using cash on hand.

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In March 2026, we redeemed all $700,000 of our outstanding 8.375% senior guaranteed unsecured notes due 2029 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 $37,128, using net proceeds from the issuance of $745,000 of net lease mortgage notes and cash on hand.

In April 2026, we issued and sold 479,166,667 common shares, including 62,500,000 common shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at $1.20 per share in an underwritten public offering. Our net proceeds from this offering were approximately $542,300, after deducting the underwriters’ discount and other offering expenses. In April 2026, we used the net proceeds from this offering to redeem all $450,000 of our outstanding 5.50% senior guaranteed unsecured notes due 2027 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 $7,191. Additionally, in May 2026, we used the remaining net proceeds from this offering and cash on hand to redeem the remaining $100,000 of our outstanding 4.95% senior unsecured notes due 2027 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 $216.

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.

(1) Exit Hotels represents 15 hotels managed by Sonesta that are currently being marketed for sale.

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Comparable Hotels Data. We present occupancy, ADR and RevPAR for the periods presented on a comparable basis to facilitate comparisons between periods. We define comparable hotels as those that were owned by us and were open and operating for the entirety of the periods being compared. The following table provides a summary of these revenue metrics for the periods presented.

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

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

Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025

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[Excerpt truncated for page length; source filing is linked above.]

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, 2025, we owned 854 properties in 46 states, the District of Columbia, Canada and Puerto Rico.

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

We previously identified 122 hotels with a total of 15,931 keys managed by Sonesta as of December 31, 2024 for disposition in 2025. As of December 31, 2025, we have sold 112 of these hotels with a total of 14,631 keys for a combined sales price of $858,752, excluding closing costs. From January 1, 2026 through February 23, 2026, we sold one hotel with 133 keys for a sales price of $7,100, excluding closing costs. We are at various stages of selling the remaining nine hotels with a total of 1,167 keys. Additionally, in January 2026 we began the marketing for sale of seven full service Sonesta hotels with a total of 2,010 keys. Following completion of the hotel sales, we expect to retain 52 hotels managed by Sonesta, or the Retained Hotels. In August 2025, we and Sonesta amended and restated our management agreements for the Retained Hotels and certain other hotels managed by Sonesta and waived any termination fees under the existing Sonesta management agreement associated with the sale of the 122 hotels.

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.

Leases and Management Agreements. At December 31, 2025, we owned 760 service-focused retail properties leased to 181 tenants subject to “triple net” leases, where the tenants are generally responsible for the payment of operating expenses and capital expenditures. At December 31, 2025, we also owned 94 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. Our consolidated statements of comprehensive income (loss) include rental income and net lease operating expenses from our net lease properties and hotel operating revenues and hotel operating expenses of our managed hotels.

Net Lease Portfolio. As of December 31, 2025, we owned 760 service-focused retail net lease properties with an aggregate of 13,601,902 square feet leased to 181 tenants subject to “triple net” leases (where the tenants are responsible for payments of operating expenses and capital expenditures) requiring annual minimum rents of $390,051. Our net lease properties were 96.6% occupied as of December 31, 2025 with a weighted (by annual minimum rent) average lease term of 7.4 years, operating under 140 brands in 21 distinct industries. TA is our largest tenant and as of December 31, 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.

Hotel Portfolio. As of December 31, 2025, we owned 94 hotels. During the year ended December 31, 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 2024. Our hotels produced increases in ADR and RevPAR, which we believe is partially a result of renovation disruption in 2024.

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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.

(1)    Exit Hotels represents 17 hotels managed by Sonesta that we plan to sell.

Comparable Hotels Data. We present occupancy, ADR and RevPAR for the periods presented on a comparable basis to facilitate comparisons between periods. We define comparable hotels as those that were owned by us and were open and operating for the entirety of the periods being compared. The following table provides a summary of these revenue metrics for the periods presented.

Additional details of our net lease agreements and our hotel operating 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, 2025, Compared to Year Ended December 31, 2024

References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2025, compared to the year ended December 31, 2024. For a comparison of consolidated results for the year ended December 31, 2024, compared to the year ended December 31, 2023, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024.

Hotel operating revenues. The decrease in hotel operating revenues is primarily a result of our sales of certain hotels since January 1, 2024 ($99,857), partially offset by increases in occupancy and average rates at certain hotels in 2025 ($16,555). 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 our acquisitions of certain net lease properties in 2025 ($2,775), partially offset by decreases in rental income resulting from our sales of certain net lease properties since January 1, 2024 ($1,154) and lower rental income recognized at certain of our net lease properties in 2025 ($409).

Hotel operating expenses. The decrease in hotel operating expenses is primarily a result of our sales of certain hotels since January 1, 2024 ($92,047), partially offset by increases in room expenses ($16,381), food and beverage expenses ($7,216) and other operating expenses ($20,839) in 2025.

Net lease operating expenses. The increase in net lease operating expenses is primarily the result of increased property management fees ($2,496) and increases at certain net lease properties in 2025 ($758), partially offset by decreases resulting from our sales of certain net lease properties since January 1, 2024 ($1,474).

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Depreciation and amortization - hotels. The decrease in depreciation and amortization—hotels is primarily a result of our sale of certain hotels since January 1, 2024 ($56,698) and certain of our depreciable assets becoming fully depreciated since January 1, 2024 ($12,665), partially offset by depreciation and amortization related to capital expenditures made since January 1, 2024 ($22,327).

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 ($10,520) and our sale of certain net lease properties since January 1, 2024 ($1,890), partially offset by increases from our acquisition of certain net lease properties since January 1, 2024 ($1,549) and depreciation and amortization related to capital expenditures made since January 1, 2024 ($1,074).

General and administrative. The increase in general and administrative costs in 2025 is primarily due to increases in other professional fees ($1,325) and franchise taxes ($634), partially offset by decreases in business management fees ($1,531).

Transaction related costs. Transaction related costs in 2025 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. Transaction related costs in 2024 primarily consisted 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.

Loss on asset impairment. We recorded an $81,889 loss on asset impairment in 2025 to reduce the carrying value of 28 hotels and four net lease properties to their estimated fair value less costs to sell. We recorded a $56,212 loss on asset impairment 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.

Gain on sale of real estate, net. We recorded an $84,218 net gain on sale of real estate in 2025 in connection with the sales of 112 hotels and 11 net lease properties, and 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.

Interest income. The increase in interest income is due to higher average cash balances invested during 2025 compared to 2024.

Interest expense. The increase in interest expense is primarily due to higher outstanding borrowings and weighted average interest rates during 2025 compared to 2024.

Loss on early extinguishment of debt, net. We recorded a $2,897 loss on early extinguishment of debt, net in 2025 as a result of the redemption of certain senior notes. We recorded a $16,181 loss on early extinguishment of debt in 2024 as a result of the redemption and purchase of certain senior notes.

Income tax benefit (expense). The change from income tax expense in 2024 to income tax benefit in 2025 is primarily due to increases in our foreign tax benefit ($11,808) and decreases in our state income tax expense ($311). 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 decreased in 2025 compared to 2024 primarily due to the revenue and expense changes discussed above.

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

Our Managers and Tenants

As of December 31, 2025, our 760 service-focused retail net lease properties were leased to 181 tenants and our 94 hotels were managed and operated by four hotel operating companies. The costs of operating and maintaining our properties are generally paid by our tenants for their own account or by the hotel managers as agents for us. Our tenants and hotel managers derive their funding for property operating expenses and for rents and returns due to us generally from property operating revenues and, to the extent these parties themselves fund rents and our owner’s priority returns, from their separate resources. As of December 31, 2025, TA is our largest tenant (175 travel centers) and Sonesta (69 hotels) is our largest hotel manager.

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We recorded reserves for uncollectable amounts and reduced rental income by $1,858 and $2,158 during the years ended December 31, 2025 and 2024, respectively, based on our assessment of the collectability of rents. We had reserves for uncollectable rents of $3,115 and $5,058 as of December 31, 2025 and 2024, 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 1.98x and 2.10x as of December 31, 2025 and 2024, 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 rents from our net lease portfolio, returns generated from our hotels and borrowings under our revolving credit facility and VFN. We receive rents and hotel returns from our tenants and managers 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 12 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 tenants and managers 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.

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

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 2024 to cash flow provided by investing activities in 2025 is primarily due to higher proceeds from the sale of real estate and decreased real estate improvements during 2025, partially offset by real estate acquisitions and deposits during 2025. The change from cash flow provided by financing activities in 2024 to cash flow used in financing activities during 2025 is primarily due to higher net repayments, partially offset by lower distributions to common shareholders during 2025.

We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements. We lease 94 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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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, 2025, we funded $229,389 for capital improvements in excess of FF&E reserves available to our hotels. We currently expect to fund between approximately $120,000 to $140,000 during 2026 for capital improvements to certain hotels using cash on hand.

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, 2025, certain of our hotel managers deposited $6,138 to these accounts and spent $4,818 from the FF&E reserve escrow accounts to renovate and refurbish our hotels. As of December 31, 2025, there was $6,763 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, 2025, we funded $2,451 for capital improvements to our net lease properties. As of December 31, 2025, we had $6,790 of unspent leasing-related obligations related to certain of our net lease tenants.

During the year ended December 31, 2025, we sold 112 hotels for a combined sales price of $858,752, excluding closing costs, and 11 net lease properties for a combined sales price of $19,591, excluding closing costs. From January 1, 2026 through February 23, 2026, we sold one hotel with 133 keys for a sales price of $7,100, excluding closing costs, and one net lease property with 2,510 square feet for a sales price of $610, excluding closing costs. We are at various stages of selling nine hotels with a total of 1,167 keys and have initiated marketing for seven full service Sonesta hotels with a total of 2,010 keys. We believe it is probable that the sales will be completed within one year. We expect to use the net sales proceeds from these sales for general business purposes, including to repay debt.

During the year ended December 31, 2025, we acquired 29 net lease properties with a total of 283,759 square feet for a combined purchase price of $93,743, excluding closing costs, using cash on hand. From January 1, 2026 through February 23, 2026, we acquired three net lease properties with a total of 8,788 square feet for a combined purchase price of $7,398, excluding closing costs, using cash on hand.

During the year ended December 31, 2025, we declared and paid regular quarterly distributions to our common shareholders using cash on hand as follows:

On January 15, 2026, we declared a regular quarterly distribution to common shareholders of record on January 26, 2026 of $0.01 per share, or $1,681. We paid this distribution on February 19, 2026, 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. We can borrow, subject to meeting certain financial covenants, 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.

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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 2.75% as of December 31, 2025. We also pay unused commitment fees of 20 to 30 basis points per annum on the total amount of lending commitments under our revolving credit facility based on amounts outstanding. As of December 31, 2025 and 2024, the annual interest rate payable on borrowings under our revolving credit facility was 6.37% and 6.99%, respectively. As of December 31, 2025 and February 23, 2026, we had no borrowings outstanding under our revolving credit facility and $650,000 available for borrowing.

As collateral for all loans and other obligations under our revolving credit facility, certain of our subsidiaries pledged all of their respective equity interests in certain of our direct and indirect property owning subsidiaries, and our pledged subsidiaries provided first mortgage liens on certain properties, as discussed below.

In February 2025, we and our lenders amended the agreement governing our revolving credit facility to reduce the minimum fixed charge coverage ratio covenant from 1.50x to 1.30x 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 are required to maintain a 1.50x minimum fixed charge coverage ratio 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: 47 hotels with an aggregate of 7,981 keys were released from the collateral pool and 35 travel centers leased to TA, which we refer to as TA Lease No. 5, were added as collateral to our revolving credit facility. Of the 47 hotels released from the collateral pool, 36 hotels with an aggregate of 4,862 keys and an aggregate undepreciated book value of $650,093 at the time of the amendment were part of our disposition plan. The collateral swap was completed in May 2025. As of December 31, 2025, our revolving credit facility was secured by 55 properties, including 38 net lease properties and 17 hotels, with an aggregate undepreciated book value of $890,424.

Senior Secured Notes Issuance

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) newly formed wholly owned subsidiaries, or 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 $413,904 as of December 31, 2025. These notes require no cash interest payments to accrue prior to maturity. The accreted value of these 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.

Redemption of Senior Unsecured Notes

In September 2025, we redeemed at par all of our outstanding 5.25% senior unsecured notes due 2026 for a redemption price equal to the principal amount of $350,000, plus accrued and unpaid interest to but excluding the date of redemption. The redemption was funded using cash on hand.

In October 2025, we redeemed all of our outstanding 4.75% senior unsecured notes due 2026 for a redemption price equal to the principal amount of $450,000, 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.

In January 2026, we redeemed $300,000 of our $400,000 4.95% senior unsecured notes due 2027 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 $1,569. The redemption was funded using cash on hand.

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Net Lease Mortgage Notes

On January 27, 2025, our wholly owned, special purpose bankruptcy remote, indirect subsidiary, SVC ABS LLC, or the Initial Issuer, issued the VFN secured by the 314 net lease properties that secure our existing $604,654 of net lease mortgage notes. The VFN permits borrowings on a revolving basis up to $45,000 and the Initial 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 Initial Issuer’s option. The VFN requires interest payments only on drawings under the VFN based on SOFR plus a margin of 1.75%, and an unused commitment fee of 50 basis points per annum paid on undrawn amounts. As of December 31, 2025, the annual interest rate payable on borrowings under the VFN was 5.62%. The weighted average annual interest rate for borrowings under the VFN was 5.93% for the year ended December 31, 2025. As of both December 31, 2025 and February 23, 2026, we had $45,000 outstanding under the VFN.

On February 20, 2026, the Initial Issuer, SVC 2026 ABS LLC and SVC 2026 TA ABS LLC priced $745,000 in aggregate principal amount of net lease mortgage notes in three classes. This transaction is expected to close on or about March 6, 2026. The weighted average coupon rate of the three classes is 5.96%. The Class A and Class B notes will require monthly principal repayments at an annualized rate of 0.50% and 0.25% of the balances outstanding, respectively, and the Class M notes will require interest payments only until the maturity date. The notes are expected to mature in March 2031 and may be redeemed without penalty 24 months prior to the scheduled maturity date beginning in March 2029. The notes are non-recourse and are secured by the same 314 properties that secure our existing net lease mortgage notes, plus an additional 158 retail net lease properties that had an aggregate undepreciated book value of $761,508 and leases requiring annual minimum rents of $83,837. We expect to use the net proceeds from this transaction to redeem our 2029 Notes.

On February 20, 2026, we announced the early redemption of our outstanding 2029 Notes for a redemption price equal to the principal amount of $700,000, plus accrued and unpaid interest to but excluding the date of redemption and a make whole premium. This redemption is expected to occur on or about March 7, 2026. We expect to fund this redemption with the proceeds from the net lease mortgage notes transaction described above.

Our debt maturities (other than our revolving credit facility) as of December 31, 2025 were as follows:

(1) In January 2026, we redeemed $300,000 of our $400,000 4.95% senior unsecured notes due 2027.

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 available under our revolving credit facility, if any, 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, 2025 consisted of $4,855,155 aggregate principal amounts of senior notes, $604,654 aggregate principal amounts of net lease mortgage notes and $45,000 of borrowings outstanding under the VFN. 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 debt, including debt 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, 2025, 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, 2025:

(1) As adjusted for the redemption of $300,000 of 4.95% senior unsecured notes due 2027 redeemed in January 2026, and the issuance of $745,000 of net lease mortgage notes and the redemption of $700,000 of 2029 Notes both expected to occur in March 2026.

As of December 31, 2025, as adjusted for the redemption of $300,000 of 4.95% senior unsecured notes due 2027 redeemed in January 2026, and the issuance of $745,000 of net lease mortgage notes and the redemption of $700,000 of 2029 Notes both expected to occur in March 2026, adjusted total assets for covenant purposes as defined in our senior notes indentures were $8,937,868 and assets encumbered under our revolving credit facility, serving as collateral for our net lease mortgage notes or secured senior notes represented $3,961,366 of adjusted total assets, as defined in our senior notes indentures. Our unencumbered hotels, other net lease properties and other corporate assets represent $4,284,731, $474,510 and $217,261 of adjusted total assets, respectively.

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

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(1)Includes $66,559 of accumulated depreciation on assets of properties held for sale.

Our ability to incur additional debt is subject to meeting the required covenant levels and subject to the provisions of our debt agreements.

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 Unsecured Notes, our 2029 Notes and our 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 $1,325,000 of senior unsecured notes do not have the benefit of any guarantees.

A subsidiary guarantor’s guarantee of the 2027 Unsecured 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, and BBB (or the equivalent) 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:

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(1)Real estate properties, net as of December 31, 2025 includes $17,440 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.

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 2026 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, 2025. 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 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.

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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.

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 2022 through 2025 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, 2025, we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 149 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.

* Includes results of all hotels owned as of December 31, 2025. Excludes the results of hotels sold during the periods presented. Retained Hotels represents 52 hotels managed by Sonesta, 17 hotels managed by Hyatt, seven hotels managed by Radisson, and one hotel managed by IHG that we will continue to own after the Exit Hotels are sold. Exit Hotels represents 17 hotels managed by Sonesta that we plan to sell.

Net Lease Portfolio

As of December 31, 2025, our net lease properties were 96.6% occupied and we had 26 properties available for lease. During the year ended December 31, 2025, we entered into lease renewals for 977,089 rentable square feet (32 properties) at weighted (by rentable square feet) average rents that were 4.6% above the prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 10.5 years. We also entered into new leases for 137,774 rentable square feet (40 properties) at weighted (by rentable square feet) average rents that were 19.9% above the prior rent for the same space. The weighted (by rentable square feet) average lease term for these leases was 7.7 years.

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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, 2025, our net lease tenants operated across 140 brands. The following table identifies the top ten brands based on annualized minimum rent.

(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 information provided by tenant is for all 175 sites on a consolidated basis and is as of December 31, 2025. Annualized minimum rent amounts and the rent used to calculate rent coverage is based on the stated rent amounts in the lease and excludes the impact of rents prepaid by TA.

(4)Consists of 130 distinct brands with an average investment of $3,062 per property and average annual minimum rent of $202 per property.

As of December 31, 2025, our top ten net lease tenants based on our annualized minimum rent are listed below.

(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, 2025 was approximately $3,022,867. Annualized minimum rent amounts and the rent used to calculate rent coverage is based on the stated rent amounts in the lease and excludes the impact of rents prepaid by TA. Rent coverage was 1.21x, 1.23x, 1.35x, 1.24x and 1.05x, for our TA leases no. 1, no. 2, no. 3, no. 4 and no. 5, respectively. Rent coverage is as of December 31, 2025.

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(4)Consists of 171 tenants with an average investment of $2,688 per property and an average annual minimum rent of $178 per property.

As of December 31, 2025, our net lease tenants operated across 21 distinct industries within the service-focused retail sector of the U.S. economy.

(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, 2025. Annualized minimum rent amounts and the rent used to calculate rent coverage is based on the stated rent amounts in the lease and excludes the impact of rents prepaid by TA.

(4)Consists of miscellaneous businesses with an average investment of $6,006 per property.

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As of December 31, 2025, lease expirations at our net lease properties by year are as follows.

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

As of December 31, 2025, 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.

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, 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 REIT distribution requirements, limitations in our debt agreements, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or 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, 2025 and 2024 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).

(1) We recorded a $12,270 income tax benefit during the three months ended December 31, 2025 related to a tax exemption received from tax authorities in Puerto Rico related to our hotel in San Juan. We deducted $6,235 of this benefit from our calculation of Normalized FFO as it relates to a deferred tax liability recorded in 2020 as a result of a book to tax difference previously adjusted from Normalized FFO.

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