Service Properties Trust · agreements with Marriott through 2035, received additional credit...

Service Properties Trust

Q4 2019 Investor Presentation

2 SERVICE PROPERTIES TRUST (Nasdaq: SVC) | Investor Presentation Q4 2019

This presentation contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of1995 and other securities laws. Also, whenever we use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” “may” andnegatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are basedupon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-lookingstatements in this presentation relate to various aspects of our business, including the performance of our operator or tenants and their ability to paythe contractual amounts of returns or rents due to us, our sales and acquisitions of properties, our ability to compete for acquisitions effectively, ourpolicies and plans regarding investments, financings and dispositions, our ability to pay distributions to our shareholders and to sustain the amountof such distributions, our ability to raise debt or equity capital, our ability to appropriately balance our use of debt and equity capital, our intent tomake improvements to certain of our properties and the success of our renovations, our ability to engage and retain qualified managers and tenantsfor our hotels and net lease properties on satisfactory terms, the future availability of borrowings under our revolving credit facility, our ability to payinterest on and principal of our debt, our credit ratings, our expectation that we benefit from our relationships with The RMR Group, Inc., or RMR, ourqualification for taxation as a REIT, changes in federal or state tax laws, and other matters.

Our actual results may differ materially from those contained in or implied by our forward-looking statements as a result of various factors, such asthe impact of conditions in the economy and the capital markets on us and our managers and tenants, competition within the real estate, hotel,transportation, travel center and other industries in which our tenants operate, particularly in those markets in which our properties are located,compliance with, and changes to applicable laws, regulations, rules and similar matters, limitations imposed on our business and our ability to satisfycomplex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes, acts of terrorism, outbreaks ofso called pandemics or other manmade or natural disasters beyond our control and actual and potential conflicts of interest with our related parties.Our annual report on form 10-K for the year ended December 31, 2019 and our other filings with the Securities and Exchange Commission (SEC)identify other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC’swebsite at www.SEC.gov. You should not place undue reliance upon our forward-looking statements. Except as required by law, we do not intend toupdate or change any forward-looking statements as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

This presentation contains Non-GAAP financial measures including, among others, “EBITDA” and “Adjusted EBITDA” in the exhibits section.Reconciliation for those metrics to the most directly comparable financial measure calculated in accordance with U.S generally accepted accountingprinciples (GAAP) are included herein.

Unless otherwise noted, all data presented is as of and for the twelve months ended December 31, 2019.

Please refer to page 21 for certain definitions of terms used throughout this presentation.

Warning Concerning Forward-Looking Statements


SVC at a Glance: Portfolio Overview.

Key Metrics Recent Developments

Total Properties 1,145

• Hotels 329

• Net Lease Service Retail 816

Investment Value $12.3bn

Normalized FFO Payout Ratio 58.7%

• Closed on the sale of 130 net lease properties for total proceeds of approximately $500mn.

• Combined and extended SVC's three existing agreements with Marriott through 2035, received additional credit support.

• Restructured business agreement with Sonesta to exit 39 underperforming extended stay hotels.

• SVC is in the process of selling 20 hotels managed by Wyndham and 33 hotels managed by Marriott to complete its targeted disposition and deleveraging plan.


Secure and Stable Income from Net

Lease Assets

Reasons to Own Service Properties Trust.

4

NationalScale

• $12.3 billion invested in a diversified portfolio that provides many avenues for growth.• 1,145 properties.• 51,349 hotel keys / 15 million square feet of net lease service retail properties.

Diversification

• SVC invests in two asset categories, hotels and retail-focused net lease properties, to provide diversification to SVC’s cash flows.

• Properties operated in 24 industries with over 150 brands.• Geographically diverse portfolio located across 47 states, Washington, DC, Puerto Rico and Canada.

• Dividend of $0.54 per share per quarter ($2.16 per share per year).• Dividend is well covered with a normalized FFO payout ratio of 58.7% in 2019.• Very attractive dividend yield.

Strong Dividend Position

• Portfolio unencumbered by secured debt.• Well-laddered debt maturities for senior unsecured notes.• Ample liquidity, with billion dollar revolver to fund growth.

Investment Grade Balance Sheet

Differentiated Hotel Management Agreements

• Unique structure designed to withstand renovation disruption and economic downturns.• 73% of SVC’s minimum hotel returns secured by security deposits or corporate guarantees.• As a strong capital partner for major hotel brands, SVC receives attractive returns for capex

contributions (typically 8% of amounts funded).

• Necessity-based retail assets provide reliable income, with coverage of 2.32x in 2019. • Low capex requirements under the triple net lease structure.• Weighted average remaining lease term of 11.4 years.


Large, DiversePortfolio

Hotel management agreements with alignment

of interests

Triple net lease structure provides steady income

stream

Investment grade balance sheet

Billion dollar revolving credit facility

Historically strong access to capital

markets

STRONG MANAGEMENT PLATFORM

AND AFFILIATE ADVANTAGESSECURITY OF CASH FLOW

OPPORTUNITIES FOR

GROWTH

CAPACITY TO SUPPORT GROWTH

«

Strategy for Achieving Results.

Acquisitions

Asset Recycling

Reinvesting through renovations & capital

improvements

Asset management drives operational

improvement

DownsideCashflow Protection

The RMR Group…TA…

Sonesta…

Focus on corporate governance


(1) Based on annualized minimum base returns and rents.

Portfolio Highlights.

($ in millions) Hotels Net Lease Assets Total

Properties 329 816 1,145

Keys / Square Feet 51,349 15 msf 51,349/ 15msf

States 40 44 47

Investments $7.0bn $5.3bn $12.3bn

Annual Minimum Return / Rent $617mn $382mn $999mn

Annual Minimum Returns and Rents Coverage Ratio

0.86x 2.32x 1.42x

Portfolio by Property Type (1)

Tenants by Industry (1)

Hotels62%

Net Lease38%

Hotels62%

Travel Centers25%

Restaurants-Quick Service, 2%

Movie Theaters, 2%

Restaurants-Casual Dining, 1%

Health and Fitness, 1%

Medical/Dental Office, 1%

Miscellaneous Retail, 1%

Grocery, 1%

Other, 4%


SVC’s assets are located in 47 states, Washington DC, Puerto Rico, and Canada.

Portfolio Highlights: Geographically Diverse.

Annual Minimum Returns and Rents

Total Property Count

Hotel Count

Net Lease Count

Total ($000s) % of Total

Hotel ($000s)

Hotel % of Total

Net Lease ($000s)

Net Lease % of Total

1 California 58 36 22 $ 116,844 11.7 % $ 93,614 15.2 % $ 23,230 6.1 %2 Texas 94 36 58 82,444 8.3 % 51,406 8.3 % 31,038 8.1 %3 Illinois 78 17 61 66,689 6.7 % 40,617 6.6 % 26,072 6.8 %4 Georgia 97 23 74 63,144 6.3 % 43,320 7.0 % 19,824 5.2 %

5 Florida 62 14 48 40,749 4.1 % 25,066 4.1 % 15,683 4.1 %6 Ohio 52 11 41 38,645 3.9 % 14,719 2.4 % 23,926 6.3 %7 Arizona 41 15 26 36,964 3.7 % 20,009 3.2 % 16,955 4.4 %8 Massachusetts 15 14 1 33,810 3.4 % 28,589 4.6 % 5,221 1.4 %9 Pennsylvania 42 10 32 33,341 3.3 % 17,900 2.9 % 15,441 4.0 %

10 New Jersey 18 15 3 32,045 3.2 % 26,399 4.3 % 5,646 1.5 %Top 10 557 191 366 $ 544,675 54.6 % $ 361,639 58.6 % $ 183,036 47.9 %Other 588 138 450 454,162 45.4 % 255,519 41.4 % 198,643 52.1 %

Total 1,145 329 816 $ 998,837 100.0 % $ 617,158 100.0 % $ 381,679 100.0 %

• SVC has invested $12.3 billion in its real estate portfolio.

• SVC’s investments are located in various markets near demand generators.

• We believe geographic diversity mitigates market risk.


Hotel Portfolio: Operated under a Diverse Group of Nationally Recognized Brands.

• SVC’s 329 hotels are operated under six long-term agreements directly with brand owners.

• 20 different hotel brands, predominantly upper upscale and upscale.

• Primarily extended stay and select service hotels typically in near-urban locations.

• Diversified hotel portfolio located in 40 states, Washington, D.C., Puerto Rico and Canada.

• 73% of minimum hotel returns and rents secured by security deposits or corporate guarantees.


Hotel Portfolio: SVC’s Agreements are Unique within the Hotel Industry.

SVC Agreement Structure (1)

1. Property combination agreements with brand owners that provide diversification within each contract.

2. SVC’S agreements provide for payment of minimum returns (“owner’s priority”) to SVC regardless of hotel cash flow and before base management fees are paid.

3. SVC’s agreements contain security features to protect SVC's income and cash flows, including some or all of: cross default provisions, fee subordination, all or none renewal options, cash security deposits and full or limited guarantees.

4. SVC’s returns set to cover SVC's capital costs, including debt service, equity cost and capex reserves.

5. SVC’s management agreements include “all or none” property renewal options to improve likelihood of renewal.

6. Greater operator incentives above SVC’s annual returns.

Other Hospitality REITs

1. Individual agreements are negotiated for each hotel property. Management is often by franchisees.

2. Owner’s returns are generally subordinated to all property level operating expenses, including management and franchise fees.

3. Limited or no security features.

4. Investment underwriting often done based upon projected results assuming capital investments by the owner without any assured rent/return coverage. Capex funding is often deferred during periods of stress.

5. Property by property renewal options virtually assure some future losses.

These agreements are designed to provide stable cash flows to shareholders and incentives to the operators to outperform.

(1) Terms vary amongst each of SVC’s agreements.


Chain ScaleAcquisitions Since 2015 % Mix

Luxury 1 2 %Upper Upscale 8 19 %Upscale 32 77 %Upper Midscale 1 2 %Midscale — — %Total 42 100 %

Service LevelAcquisitions Since 2015 % Mix

Full Service 16 38 %Extended Stay 26 62 %Select Service — — %Total 42 100 %

Location SegmentAcquisitions Since 2015 % Mix

Suburban 27 65 %Urban 13 31 %Airport 1 2 %Resort 1 2 %Interstate — — %Small Metro — — %Total 42 100 %

Hotel Chain Scale(by # of units)

Hotel Service Level(by # of units)

Hotel Location Segment(by # of units)

Hotel Managers(by investment $ in millions)

• SVC’s targets are select service hotels in near-urban locations, as well as full service hotels in urban markets to expand our brand owner relationships.

Hyatt, $302

Hotel Portfolio: Our Strategy Provides Flexibility in Regard to Asset Mix.

Extended Stay56%

Select Service29%

Full Service15%

Upscale 64%Midscale 23%

UpperMidscale 5%

Upper Upscale 5%

Luxury 3%

InterContinental2,378

Marriott1,860

Sonesta1,963

Wyndham246

Hyatt, 302

Radisson, 289

Suburban 59.2%

Urban 18.4%

Airport 15.5%

Resort 5.1%

Other 1.8%


Net Lease Portfolio: High-Quality Service & Necessity Based Assets.

Net Lease Portfolio Statistics816 $382mn

Properties Annual Contractual Rent

14.9mm 11.4 YearsRentable Square Feet Weighted Average Lease Term

98% 2.32xOccupancy W.A. FCCR

Diverse Geographical Footprint (1)

(1) By annual minimum rent.

8.5%

23 Industries | 131 Brands

% of Annual Minimum Rent<1% >8.5%



66%

14%

13%

7% Percentage RentCPIFixed/ScheduledFlat

Net Lease Portfolio: Reliable Income Stream and Low Capex Requirements.

Well-Laddered Lease Expirations (1)

93%of Leases Have Contractual

Increases or Percentage Rent

Lease Structures

$382mm

1.5% 2.0% 2.8% 0.7% 2.5% 3.2% 3.8% 3.4% 1.9%

78.2%

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029+


Net Lease Portfolio: Tenants & Industries that Benefit from Strong Demand Drivers.


Tenants by Brand (1)Tenants by Industry (1)

Brand

% of Annualized

Minimum Rent Coverage

Travel Centers of America 44.0% 2.02x

Petro Stopping Centers 20.5% 1.70x

AMC Theaters 2.8% 1.33x

The Great Escape 1.9% 4.13x

Life Time Fitness 1.4% 3.56x

Casual Male 1.4% 1.22x

Buehler's Fresh Foods 1.3% 2.09x

Heartland Dental 1.2% 3.72x

Pizza Hut 1.1% 1.35x

Regal Cinemas 1.0% 1.84x

Other 23.4% 3.47x

100% 2.32x

Travel Centers, 65.7%Restaurants-Quick Service, 5.5%

Movie Theaters, 4.7%

Restaurants-Casual Dining, 3.6%

Health and Fitness, 2.9%

Medical/Dental Office, 2.3%

Miscellaneous Retail, 2.3%

Grocery, 2.3%

Automotive Parts and Service, 1.7%

Apparel, 1.5%

Other, 7.5%


Balance Sheet Overview as of December 31, 2019.

Well Laddered Debt Maturities

Book Capitalization

Leverage/Coverage Ratios

Net Debt / Total Gross Assets 50.2%

Net Debt / Gross Book Value of Real Estate Assets 52.0%

Adjusted EBITDAre / Interest Expense 3.1x

Net Debt / Annualized Adjusted EBITDAre (1) 6.7x

Investment Grade Balance Sheet

Unsecured Floating Rate Debt 9%

Unsecured Fixed Rate Debt 62%

Shareholder’s Equity 29%

• No secured debt.• Unsecured senior notes: $5.4 billion.• Unsecured term loan: $400 million, July 2023 maturity.• Revolving credit facility:

◦ $1 billion ($377 million outstanding).◦ July 2022 maturity plus two six-month extensions.

• No derivatives, off-balance sheet liabilities, or material adverse change clauses or ratings triggers.

(1) Represents the three months ended December 31, 2019 annualized.

62%

29%

9%

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030$—

$200$400$600$800

$1,000$1,200$1,400


Dividend Paid Per Share and Normalized FFO Dividend Payout Ratio

$1.80 $1.80 $1.82

$1.89$1.95

$1.99$2.03

$2.07$2.11

$2.15

Dividends Paid Per Share Normalized FFO Dividend Payout Ratio

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

$2.10

$2.20

20%

30%

40%

50%

60%

70%

80%

90%

100%

(1) 2015 period excludes a $0.20 per share non-cash distribution of The RMR Group, or, RMR common stock to SVC shareholders.

Proven track record of returns to shareholders even during market downturns.

Our Cash Flow Payout Strategy Allows for a Secure, Well-Covered Dividend.

15

(1)


Financial Services:

Real Estate Services:

Business Services:

Accounting Acquisitions/ Dispositions Administration

Capital Markets Asset Management

Human Resources

Compliance/ Audit

Construction/Development

Information Technology (IT)

Finance/ Planning Engineering Investor Relations

Treasury Leasing Marketing

Tax Property Management

Legal/Risk Management

~$32 Billion in AUM

Approximately 600 CRE Professionals

More than 30 Offices Throughout the U.S. More than

50,000 Employees

Over 2,100 Properties

$12 Billion in Annual Revenues

Combined RMR Managed Companies:

Travel Centers

SVC IS MANAGED BY THE RMR GROUP, AN ALTERNATIVE ASSET MANAGER

Strong Management Platform and Affiliate Advantages.

16

National Multi-Sector Investment PlatformOffice Industrial Government Medical Office Life Science Senior Housing Hotels Retail


RMR base management fee tied to SVC share price performance.

RMR incentive fees contingent on total shareholder return(1) outperformance.

• Equal to 12% of value generated by SVC in excess of the benchmark index total returns (SNL US Hotel REIT Index) per share over a three year period, subject to a cap (1.5% of equity market cap).

• Absolute dollar outperformance must be positive to receive an incentive fee: it can’t be negative but better than the index.

• Shareholders keep 100% of benchmark returns and 88% of returns in excess of the benchmark.

Alignment of Interests

If SVC’s stock price goes up and its total market cap exceeds its historical cost of real estate, RMR base management fee is capped at 50 bps of historical cost of real estate.

If total market cap is less than historical cost of real estate, base fee fluctuates with share price.

Incentive fee structure keeps RMR focused on increasing total shareholder return.

Members of RMR senior management and RMR are holders of SVC stock, RMR is subject to long term lock up agreements.

SVC shareholders have visibility into RMR, a publicly traded company.

SVC benefits from RMR’s national footprint and economies of scale of $32 billion platform.

(1) To determine final share price in SVC’s Total Return calculation, the business management agreement requires that the highest ten day share price average within the last 30 trading days of the measurement period be used. In the past, this and other less significant factors have resulted in differences between SNL’s calculation of SVC’s total return percentage and the total return percentage computed under the agreement.

The RMR Group LLC and Shareholder Alignment.

17

Other fees.• Property management fee consists of an annual fee based on

3.0% of rents collected at SVC’s managed retail net lease properties (excluding TA).

• Consists of an annual fee equal to generally 50 bps multiplied by the lower of: (1) SVC's historical cost of real estate, or (2) SVC's total market capitalization.

• There is no incentive fee for RMR to complete any transaction that could reduce share price.

SERVICE PROPERTIES TRUST (Nasdaq: SVC) | Investor Presentation Q4 2019

Appendix


Calculation of EBITDA, EBITDAre and Adjusted EBITDAre.

(in thousands)

For the Three Months Ended For the Year Ended December 31,

12/31/2019 9/30/2019 12/31/2019 3/31/2019 12/31/2018 2019 2018

Net income (loss) $ (14,893) $ 40,074 $ 8,782 $ 225,787 $ (108,860) $ 259,750 $ 185,734

Add (Less): Interest expense 73,384 52,375 49,601 49,766 49,624 225,126 195,213

Income tax expense (benefit) 1,527 467 (260) 1,059 -754 2,793 1,195

Depreciation and amortization 126,727 103,160 99,196 99,365 102,769 428,448 403,077

EBITDA 186,745 196,076 157,319 375,977 42,779 916,117 785,219

Add (Less): Gain on sale of real estate (1) — — — (159,535) — (159,535) —

Loss on asset impairment (2) 39,296 — — — — 39,296 —

EBITDAre 226,041 196,076 157,319 216,442 42,779 795,878 785,219Add (Less): General and administrative expense paid in common shares (3) 480 1,068 865 436 909 2,849 3,187

Estimated business management incentive fee (4) — — — — — — —

Acquisition and transaction related costs (5) 1,795 — — — — 1,795 —

Loss on early extinguishment of debt (6) — 8,451 — — — 8,451 160

Unrealized gains and losses on equity securities, net (7) (3,300) 3,950 60,788 (20,977) 106,085 40,461 16,737

Loss contingency (8) 1,997 — — — — 1,997 —

Adjusted EBITDAre $ 227,013 $ 209,545 $ 218,972 $ 195,901 $ 149,773 $ 851,431 $ 805,303

(1) We recorded a $159,535 gain on sale of real estate in the three months ended March 31, 2019, in connection with the sales of 20 travel centers.

(2) We recorded a $39,296 loss on asset impairment during the three months ended December 31, 2019 to reduce the carrying value of 19 net lease properties to their estimated fair value less costs to sell andtwo hotels to their estimated fair value

(3) Amounts represent the equity compensation awarded to our trustees, our officers and certain other employees of RMR LLC.

(4) Incentive fees under our business management agreement with RMR LLC are payable after the end of each calendar year, are calculated based on common share total return, as defined, and are included in general and administrative expense in our condensed consolidated statements of income. In calculating net income (loss) in accordance with GAAP, we recognize estimated business management incentive fee expense, if any, in the first, second and third quarters. Although we recognize this expense, if any, in the first, second and third quarters for purposes of calculating net income (loss), we do not include these amounts in the calculation of Adjusted EBITDAre until the fourth quarter, which is when the business management incentive fee expense amount for the year, if any, is determined. Adjusted EBITDAre includes business management incentive fee expense of $53,635 for the three months ended December 31, 2018. Business management incentive fees for 2018 were paid in cash in January 2019.

(5) Acquisition and transaction related costs represents costs related to our exploration of possible financing transactions.

(6) We recorded a loss of $8,451 on early extinguishment of debt in the three months ended September 30, 2019 related to the termination of a term loan commitment we arranged in connection with the SMTA transaction. We also recorded a $160 loss on early extinguishment of debt in the three months ended June 30, 2018 in connection with the amendment of our revolving credit facility and term loan.

(7) Unrealized gains and losses on equity securities, net represent the adjustment required to adjust the carrying value of our investments in RMR Inc. and TA common shares to their fair value as of the end of the period. We sold our shares of RMR Inc. in July 2019.

(8) We recorded a $1,997 loss contingency during the three months ended December 31, 2019 for an expected settlement of a historical pension withdrawal liability for a hotel we rebranded.


Calculation of Funds From Operations (FFO) and Normalized FFO.

(amounts in thousands, except share data)For the Three Months Ended For the Year Ended December 31,

12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018 2019 2018

Net income (loss) $ (14,893) $ 40,074 $ 8,782 $ 225,787 $ (108,860) $ 259,750 $ 185,734

Add (Less): Depreciation and amortization 126,727 103,160 99,196 99,365 102,769 428,448 403,077

Gain on sale of real estate (1) — — — (159,535) — (159,535) —

Loss on asset impairment (2) 39,296 — — — — 39,296 —Unrealized gains and losses on equity securities, net (3) (3,300) 3,950 60,788 (20,977) 106,085 40,461 16,737

FFO 147,830 147,184 168,766 144,640 99,994 608,420 605,548

Add (Less): Acquisition and transaction related costs (4) 1,795 — — — — 1,795 —

Loss on early extinguishment of debt (5) — 8,451 — — — 8,451 160

Loss contingency (6) 1,997 — — — — 1,997 —

Normalized FFO $ 151,622 $ 155,635 $ 168,766 $ 144,640 $ 99,994 $ 620,663 $ 605,708

Weighted average shares outstanding (basic) 164,364 164,321 164,284 164,278 164,278 164,312 164,229

Weighted average shares outstanding (diluted) 164,364 164,348 164,326 164,322 164,278 164,340 164,258

Basic and diluted per share common share amounts:

Net income (loss) $ (0.09) $ 0.24 $ 0.05 $ 1.37 $ (0.66) $ 1.58 $ 1.13

FFO $ 0.90 $ 0.90 $ 1.03 $ 0.88 $ 0.61 $ 3.70 $ 3.69

Normalized FFO $ 0.92 $ 0.95 $ 1.03 $ 0.88 $ 0.61 $ 3.78 $ 3.69

(1) We recorded a $159,535 gain on sale of real estate in the three months ended March 31, 2019, in connection with the sales of 20 travel centers.

(2) We recorded a $39,296 loss on asset impairment during the three months ended December 31, 2019 to reduce the carrying value of 19 net lease properties to their estimated fair value less costs to sell and two hotels to their estimated fair value.

(3) Unrealized gains and (losses) on equity securities, net represent the adjustment required to adjust the carrying value of our investments in RMR Inc., which we sold in July 2019, and TA common shares to their fair value.

(4) Acquisition and transaction related costs represents costs related to our exploration of possible financing transactions.

(5) We recorded a loss of $8,451 on early extinguishment of debt in the three months ended September 30, 2019 related to the termination of a term loan commitment we arranged in connection with the SMTA transaction. We also recorded a $160 loss on early extinguishment of debt in the three months ended June 30, 2018 in connection with the amendment of our revolving credit facility and term loan.

(6) We recorded a $1,997 loss contingency during the three months ended December 31, 2019 for an expected settlement of a historical pension withdrawal liability for a hotel we rebranded.


Non-GAAP Financial Measures Definitions.

21

Non-GAAP Financial Measures: We present certain “non-GAAP financial measures” within the meaning of applicable Securities and Exchange Commission, or SEC, rules, including EBITDA, EBITDAre, Adjusted EBITDAre, 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 condensed consolidated statements of income. 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.

EBITDA, EBITDAre and Adjusted EBITDAre: We calculate earnings before interest, taxes, depreciation and amortization, or EBITDA, EBITDA for real estate, or EBITDAre, and Adjusted EBITDAre as shown on page 19. EBITDAre is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or Nareit, which is EBITDA, excluding gains and losses on the sale of real estate, loss on impairment of real estate assets, if any, as well as certain other adjustments currently not applicable to us. In calculating Adjusted EBITDAre, we adjust for the items shown on page 19 and include business management incentive fees only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. Other real estate companies and REITs may calculate EBITDA, EBITDAre and Adjusted EBITDAre differently than we do.

FFO and Normalized FFO: We calculate funds from operations, or FFO, and Normalized FFO as shown on page 20. FFO is calculated on the basis defined by Nareit, which is netincome (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation andamortization, less any unrealized gains and losses on equity securities, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for theitem shown on page 20 and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance withGAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive feeswill be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO and Normalized FFO are among the factors considered by our Board ofTrustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT,limitations in our credit agreement and public debt covenants, 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 to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cashto pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

Coverage: We define hotel coverage as total hotel revenues minus all hotel expenses and FF&E reserve escrows which are not subordinated to minimum returns due to SVC divided by the minimum returns or rents due to SVC.

We define net lease coverage as annual property level adjusted earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent dueto us weighted by the minimum rent of the property to total minimum rents of the net lease portfolio. The annual property level adjusted EBITDAR is determined based on the most recentoperating statements, if any, furnished by the tenant. Operating statements furnished by the tenant often are unaudited and, in certain cases, may not have been prepared in accordancewith GAAP and are not independently verified by us. Properties that do not report operating information are excluded from the coverage calculations

Investment: Represents historical cost of properties plus capital improvements funded by SVC less impairment writedowns, if any, and excludes capital improvements made from FF&Ereserves funded from hotel operations which do not result in increases in minimum returns or rents.

Net Debt: Represents total debt less cash and cash equivalents as of the date reported.

Service Properties Trust

Q4 2019 Investor Presentation

Service Properties Trust · agreements with Marriott through 2035, received additional credit...

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