Service Properties Trust (SVC) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01Unfavorable market and industry conditions have had, and may continue to have, a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders
2. 02Our and our managers’ and other operators’ and tenants’ businesses may not improve, and they may be unable to satisfy their obligations to us
3. 03If our hotel managers fail to operate our hotels profitably, we may need to fund operating losses for those hotels or make capital contributions to Sonesta
4. 04As of December 31, 2024, our consolidated debt was $5.8 billion
5. 05We may fail to comply with the terms of our debt agreements, which could adversely affect our business and prohibit us from paying distributions to our shareholders
6. 06Secured debt exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other assets that secure that debt
7. 07We face challenges from uncertainties regarding interest rates and high interest rates have significantly increased our interest expense and may otherwise materially and negatively affect us
8. 08We may not succeed in selling properties we identify for sale and any proceeds we may receive from sales we do complete may be less than expected, and we may incur losses with respect to any such sales
9. 09We have a high concentration of properties that are operated by Sonesta or TA
10. 10We have no guarantee or security deposit under our agreements with Sonesta and our results from properties operated by Sonesta are subject to the performance of Sonesta, seasonal trends and the general conditions of the lodging industry
11. 11Inherent risks in the hotel industry could impact Sonesta and our other managers and affect our business
12. 12We may be unable to fund capital improvements at our properties and our investments may cost more and take longer to complete than expected
13. 13We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties
14. 14We are limited in our ability to operate our properties and are thus dependent on our operators
15. 15REIT distribution requirements and limitations on our ability to access capital at reasonable costs or at all may adversely impact our ability to carry out our business plan
16. 16We face significant competition
17. 17Substantially all of our net lease properties are leased to single tenants, which may subject us to greater risks of loss than if each of those properties had multiple tenants
18. 18Many of our tenants do not have credit ratings
19. 19We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all
20. 20Vacancies in a property could result in significant capital expenditures and illiquidity and reduce the value of the property
21. 21Some of our net lease tenants operate the properties they lease from us under franchise or license agreements, which, if terminated or not renewed prior to the expiration of their leases with us, would likely impair their ability to pay us rent
22. 22Ownership of real estate is subject to environmental risks and liabilities
23. 23We are subject to risks associated with our hotel managers’ employment of personnel
24. 24Bankruptcy law may adversely impact us
25. 25Insurance may not adequately cover our losses, and insurance costs may increase
26. 26We are subject to risks from adverse weather, natural disasters and adverse impacts from global climate change, and we incur significant costs and invest significant amounts with respect to these matters
27. 27RMR and our hotel managers rely on information technology and systems in providing services to us, and any material failure, inadequacy, interruption or security breach of that technology or those systems could materially harm us
28. 28RMR is incorporating AI into some of its business workflows and processes, and challenges with properly managing its use could result in reputational harm, competitive harm, legal liability, and increased regulatory costs and could adversely affect our results of operations
29. 29Sustainability initiatives, requirements and market expectations may impose additional costs and expose us to new risks
30. 30Market and government actions in response to concerns about global climate change and supply chain challenges may negatively impact our business

Risks Related to Our Relationships with RMR and Sonesta

1. 31We are dependent upon RMR to manage our business and implement our growth strategy
2. 32RMR has broad discretion in operating our day to day business
3. 33Our management structure and agreements and relationships with RMR and RMR’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities
4. 34Our management agreements with RMR were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR, which may increase the risk of an investment in our common shares
5. 35The termination of our management agreements with RMR may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with RMR
6. 36Our management arrangements with RMR may discourage a change of control of us
7. 37Our business dealings with Sonesta comprise a significant part of our lodging portfolio and they may create conflicts of interest or the perception of such conflicts of interest
8. 38We may not realize the benefits we expect from our investment in Sonesta
9. 39We are party to transactions with related parties that may increase the risk of allegations of conflicts of interest
10. 40We may be at an increased risk for dissident shareholder activities due to perceived conflicts of interest arising from our management structure and relationships

Risks Related to Our Organization and Structure

1. 41We may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations
2. 42Ownership limitations and certain provisions in our declaration of trust, bylaws and agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals
3. 43Certain aspects of our business may prevent shareholders from accumulating a large stake in us, from nominating or serving as our Trustees, or from taking actions to otherwise control our business
4. 44Our rights and the rights of our shareholders to take action against our Trustees and officers are limited
5. 45Disputes with RMR may be referred to mandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to those asserting claims than in-court litigation

Risks Related to Our Taxation

1. 46Our failure to remain qualified for taxation as a REIT under the IRC or the loss of our other special tax statuses could have significant adverse consequences
2. 47Distributions to shareholders generally will not qualify for reduced tax rates applicable to “qualified dividends.”
3. 48REIT distribution requirements could adversely affect us and our shareholders
4. 49IRC. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our shareholders in a calendar year is less than a minimum amount specified under federal tax laws
5. 50Even if we remain qualified for taxation as a REIT under the IRC, we may face other tax liabilities that reduce our cash flow
6. 51If arrangements involving our TRSs fail to comply as intended with the REIT qualification and taxation rules, we may fail to qualify for taxation as a REIT under the IRC or be subject to significant penalty taxes
7. 52Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders

Risks Related to Our Securities

1. 53Our quarterly cash distribution rate on our common shares is currently $0.01 per common share and future distributions may remain at this level for an indefinite period or be eliminated and the form of payment could change
2. 54The Notes and the Guarantees are structurally subordinated to the payment of all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2027 Notes, the 2029 Notes, the 2031 Notes and the 2032 Notes
3. 55The Notes and the Guarantees, other than the 2031 Notes and the related Guarantee, are unsecured and effectively subordinated to all of our and the subsidiary guarantors’ existing and future secured debt to the extent of the value of the assets securing such indebtedness
4. 56Federal and state statutes allow courts, under specific circumstances, to void guarantees and require holders of notes to return payments received from guarantors
5. 57In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of our creditors or the creditors of the guarantor
6. 58There is no public market for the Notes, and one may not develop, be maintained or be liquid
7. 59A downgrade in our credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital
8. 60Some or all of the Guarantees may be released automatically