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Service Properties Trust Announces Fourth Quarter 2021 Results

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Fourth Quarter Net Loss of $(1.21) Per Common Share

Fourth Quarter Normalized FFO of $0.17 Per Common Share

Fourth Quarter Adjusted EBITDAre of $119.0 million

Progress on Hotel Disposition Plan Continues

NEWTON, Mass., February 24, 2022--(BUSINESS WIRE)--Service Properties Trust (Nasdaq: SVC) today announced its financial results for the quarter ended December 31, 2021.

John Murray, President and Chief Executive Officer of SVC, made the following statement:

"The fourth quarter marked a period of stability in the overall recovery for SVC’s hotel portfolio, as normal seasonality and the impact of the Omicron variant late in the quarter were offset by solid extended stay occupancy and continued leisure demand. SVC’s comparable RevPAR for the 2021 fourth quarter came in ahead of our expectations at 72.1% of the pre-COVID-19 comparable RevPAR for the 2019 fourth quarter. With weekly COVID-19 cases again on the decline, we expect to benefit from a rebound in business travel in the coming quarters, particularly at our full service hotels as urban centers re-open. Our net lease portfolio continues to provide steady cash flows driven by our diverse mix of tenants and industries.

We have either closed or are under contract for $430 million of our previously announced hotel sales at pricing that has been in line with our expectations. We expect these and the balance of the announced sales to close over the next few months. Approximately 72.1% of the sale hotels will be sold encumbered by Sonesta branding, maintaining Sonesta’s distribution and jump starting franchising of the Sonesta brands, which we believe will benefit SVC. With expected proceeds from our hotel sales of over $560 million, over $940 million of cash on our balance sheet and positive cash flow from our hotel portfolio before capital expenditures, we believe we have sufficient liquidity and financial flexibility to address our upcoming debt maturities, as well as an improved hotel portfolio that is well positioned to benefit SVC as lodging trends continue to rebound."

Results for the Quarter Ended December 31, 2021:

Three Months Ended December 31,

2021

2020

($ in thousands, except per share data)

Net loss

$

(198,793

)

$

(137,740

)

Net loss per common share

$

(1.21

)

$

(0.84

)

Normalized FFO (1)

$

27,936

$

(22,474

)

Normalized FFO per common share (1)

$

0.17

$

(0.14

)

Adjusted EBITDAre (1)

$

118,997

$

64,953

(1) Additional information and reconciliations of net loss determined in accordance with U.S. generally accepted accounting principles, or GAAP, to certain non-GAAP measures, including FFO, Normalized FFO, EBITDA, EBITDAre and Adjusted EBITDAre for the quarters ended December 31, 2021 and 2020 appear later in this press release.

  • Net loss: Net loss for the quarter ended December 31, 2021 was $198.8 million, or $1.21 per diluted common share, compared to a net loss of $137.7 million, or $0.84 per diluted common share, for the quarter ended December 31, 2020. Net loss for the quarter ended December 31, 2021 includes a $76.5 million, or $0.46 per diluted common share, loss on asset impairment, $35.8 million, or $0.22 per diluted common share, of hotel manager transition related costs and $2.2 million, or $0.01 per diluted common share, of net unrealized gains on equity securities. Net loss for the quarter ended December 31, 2020 includes $15.5 million, or $0.09 per diluted common share, of net unrealized gains on equity securities, $15.1 million, or $0.09 per diluted common share, of hotel manager transition related costs, an $11.9 million, or $0.07 per diluted common share, net gain on sale of real estate, a $4.0 million, or $0.02 per diluted common share, loss contingency, and a $2.4 million, or $0.01 per diluted common share, loss on early extinguishment of debt. The weighted average number of diluted common shares outstanding was 164.7 million and 164.5 million for the quarters ended December 31, 2021 and 2020, respectively.

  • Normalized FFO: Normalized FFO for the quarter ended December 31, 2021 were $27.9 million, or $0.17 per diluted common share, compared to negative Normalized FFO of $22.5 million, or $(0.14) per diluted common share, for the quarter ended December 31, 2020.

  • Adjusted EBITDAre:Adjusted EBITDAre for the quarter ended December 31, 2021 compared to the same period in 2020 increased 83.2% to $119.0 million.

Hotel Portfolio:

As of December 31, 2021, SVC’s 303 hotels were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (261 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (eight hotels), Marriott International, Inc., or Marriott (16 hotels), and InterContinental Hotels Group, plc, or IHG (one hotel).

Three Months Ended December 31,

Year Ended December 31,

2021

2020

Change

2021

2020

Change

($ in thousands, except hotel statistics)

Comparable Hotels

No. of hotels

298

298

280

280

No. of rooms or suites

46,920

46,920

42,101

42,101

Occupancy

55.9

%

39.9

%

16.0 pts

54.2

%

44.1

%

10.1 pts

ADR

$

110.26

$

87.30

26.3

%

$

98.07

$

96.84

1.3

%

Hotel RevPAR

$

61.64

$

34.83

77.0

%

$

53.15

$

42.71

24.4

%

Hotel operating revenues (1)

$

303,507

$

166,843

81.9

%

$

884,460

$

726,757

21.7

%

Hotel operating expenses (1)

$

267,182

$

193,329

38.2

%

$

822,470

$

727,724

13.0

%

Hotel EBITDA (1)

$

36,325

$

(26,486

)

n/m

$

61,990

$

(967

)

n/m

Adjusted Hotel EBITDA (1)

$

36,325

$

(26,817

)

n/m

$

61,990

$

(1,298

)

n/m

Hotel EBITDA margin

12.0

%

(16.1

) %

n/m

7.0

%

(0.2

) %

n/m

All Hotels (2)

No. of hotels

303

310

(7

)

303

310

(7

)

No. of rooms or suites

48,346

49,014

(668

)

48,346

49,014

(668

)

Occupancy

55.2

%

39.8

%

15.4 pts

53.0

%

42.0

%

11.0 pts

ADR

$

112.30

$

87.53

28.3

%

$

105.36

$

100.77

4.6

%

Hotel RevPAR

$

61.99

$

34.84

77.9

%

$

55.84

$

42.32

31.9

%

Hotel operating revenues (1)

$

317,215

$

176,418

79.8

%

$

1,104,678

$

888,741

24.3

%

Hotel operating expenses (1)

$

288,825

$

206,521

39.9

%

$

1,033,463

$

943,064

9.6

%

Hotel EBITDA (1)

$

28,390

$

(30,103

)

n/m

$

71,215

$

(54,323

)

n/m

Adjusted Hotel EBITDA (1)

$

28,390

$

(26,141

)

n/m

$

71,215

$

(50,361

)

n/m

Hotel EBITDA margin

8.9

%

(3.1

) %

n/m

6.4

%

(5.7

) %

n/m

(1) Reconciliations of hotel operating revenues and hotel operating expenses used to determine Hotel EBITDA and Adjusted Hotel EBITDA from hotel operating revenues and hotel operating expenses determined in accordance with GAAP for the quarters ended December 31, 2021 and 2020 appear later in this press release.

(2) Results of all hotels as owned during the periods presented, including the results of hotels sold by SVC for the period owned by SVC.

Recent operating statistics for SVC’s hotels are as follows:

Comparable Hotels

298 Hotels, 46,919 rooms

2021 vs 2019

Occupancy

Average Daily Rate

RevPAR

Occupancy

Average Daily Rate

RevPAR

October

61.3 %

$114.35

$70.10

(16.6) pts

(13.3) %

(31.7) %

November

56.1 %

$107.95

$60.56

(13.4) pts

(12.2) %

(29.1) %

December

50.6 %

$107.95

$54.62

(9.1) pts

(6.0) %

(20.3) %

All Hotels

303 Hotels, 48,346 rooms

2021 vs 2019

Occupancy

Average Daily Rate

RevPAR

Occupancy

Average Daily Rate

RevPAR

October

60.5 %

$116.18

$70.29

(17.0) pts

(13.2) %

(32.3) %

November

55.4 %

$109.59

$60.71

(13.7) pts

(12.0) %

(29.5) %

December

50.1 %

$110.64

$55.43

(9.4) pts

(5.8) %

(20.7) %

For SVC’s 302 hotels owned as of February 24, 2022, January 2022 occupancy, ADR and RevPAR were 45.6%, $105.11 and $47.93, respectively.

Hotel Agreements:

As previously announced, on January 7, 2022, SVC and Sonesta amended and restated their management agreements effective January 1, 2022. The amendments to the agreements are substantially the same as those made earlier in 2021 to the agreements for SVC’s Hyatt and Radisson portfolios and the amendments made to SVC’s agreements with Sonesta in 2020 for certain Sonesta hotels. As of January 1, 2022, SVC owned 261 hotels managed by Sonesta and 67 of these hotels are expected to be sold, or the sale hotels. Among other things, the amendments to the agreements between SVC and Sonesta for 194 hotels, or the retained hotels, are as follows:

  • The term for the retained hotels expires on January 31, 2037 and includes two 15-year renewal options.

  • All retained hotels are subject to a pooling agreement that combines the management agreements for the retained hotels for purposes of calculating gross revenues, hotel operating expenses, fees and distributions and the owner’s priority return due to SVC.

  • The owner’s priority return for the retained hotels is initially set at $325.2 million annually. SVC has the right to terminate Sonesta’s management of specific hotels that SVC owns if minimum performance thresholds are not met starting in 2023.

  • SVC will renovate the retained hotels to comply with agreed upon brand standards. As SVC advances such funding or funds other capital expenditures, the aggregate annual owner’s priority return due to SVC will increase by 6% of the amounts funded.

  • Trade area restrictions by hotel brand were added to define boundaries to protect SVC owned hotels in response to Sonesta increasing its franchising and third-party management activities.

For the sale hotels, the term was extended to the earlier of December 31, 2022 or until the hotels are sold and the FF&E reserve funding requirement was removed. SVC’s owner’s priority return will be reduced by the current owner’s priority return for a sale hotel once sold. The total owner’s priority for all the sale hotels is $84.7 million.

Net Lease Retail Portfolio:

SVC’s net lease retail portfolio is summarized as follows:

As of December 31, 2021

Number of properties

788

Industries

21

Tenants

174

Brands

134

Square feet

13.5 million

Occupancy

98.1%

Weighted average lease term (by annual minimum rent)

10.2 years

Rent Coverage

2.58x

During the quarter ended December 31, 2021, SVC reduced its reserve for uncollectible revenues by $0.6 million for certain of its net lease tenants. During the quarter ended December 31, 2020, SVC recorded reserves for uncollectible revenues of $4.5 million for certain of its net lease tenants.

Recent Investment Activities:

During the quarter ended December 31, 2021, SVC sold one hotel with 93 keys for a sales price of $8.5 million, excluding closing costs, and six net lease properties with an aggregate of 52,596 rentable square feet for an aggregate sales price of $9.1 million, excluding closing costs. In January 2022, SVC sold 1 hotel with 295 keys for a sales price of $19.0 million, excluding closing costs.

SVC has entered into agreements to sell 45 Sonesta branded hotels (35 extended stay hotels with 4,185 keys, 9 select service hotels with 1,114 keys and one full service hotels with 381 keys) located in 21 states with an aggregate net carrying value of $352.5 million as of December 31, 2021 for an aggregate sales price of $402.4 million. SVC expects to enter agreements to sell 19 additional Sonesta branded hotels with 2,420 keys with an aggregate carrying value of $125.6 million as of December 31, 2021 for an aggregate sales price of $131.9 million. SVC expects these sales to be completed by the end of the second quarter of 2022. SVC continues to market two additional hotels with 272 keys for sale. SVC currently expects that approximately 72.1% of the sale hotels will be sold encumbered by Sonesta branding, maintaining Sonesta’s distribution and jump-starting franchising of the Sonesta brands, which SVC believes it will benefit from through its 34% ownership of Sonesta.

Capital expenditures made at certain of SVC’s properties for the quarter ended December 31, 2021 were $30.4 million.

Liquidity and Financing Activities:

As of December 31, 2021, SVC had $944.0 million of cash and cash equivalents.

SVC’s $1 billion revolving credit facility matures on July 15, 2022 and SVC is currently in discussions with its lenders regarding an extension of the maturity date of the facility and additional covenant waivers. There is no assurance SVC will come to terms with its lenders or that it will be granted such additional covenant relief.

Conference Call:

On February 25, 2022 at 10:00 a.m. Eastern Time, John Murray, Chief Executive Officer, Brian Donley, Chief Financial Officer, and Todd Hargreaves, Chief Investment Officer, will host a conference call to discuss SVC’s fourth quarter 2021 financial results. The conference call telephone number is (877) 329-3720. Participants calling from outside the United States and Canada should dial (412) 317-5434. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through Friday, March 4, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 8820658.

A live audio webcast of the conference call will also be available in a listen-only mode on SVC’s website, www.svcreit.com. Participants wanting to access the webcast should visit SVC’s website about five minutes before the call. The archived webcast will be available for replay on SVC’s website for about one week after the call. The transcription, recording and retransmission in any way of SVC’s fourth quarter conference call is strictly prohibited without the prior written consent of SVC.

Supplemental Data:

A copy of SVC’s Fourth Quarter 2021 Supplemental Operating and Financial Data is available for download at SVC’s website, www.svcreit.com. SVC’s website is not incorporated as part of this press release.

Service Properties Trust (Nasdaq: SVC) is a real estate investment trust, or REIT, with more than $12 billion invested in two asset categories: hotels and service-focused retail net lease properties. As of December 31, 2021, SVC owned 303 hotels with over 48,000 guest rooms throughout the United States and in Puerto Rico and Canada, the majority of which are extended stay and select service. As of December 31, 2021, SVC also owned 788 retail service-focused net lease properties totaling over 13 million square feet throughout United States. SVC is managed by The RMR Group (Nasdaq: RMR), an alternative asset management company with more than $33 billion in assets under management as of December 31, 2021 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. SVC is headquartered in Newton, MA. For more information, visit www.svcreit.com.

Non-GAAP Financial Measures and Certain Definitions:

SVC presents certain "non-GAAP financial measures" within the meaning of the applicable Securities and Exchange Commission, or SEC, rules, including funds from operations, or FFO, Normalized FFO, earnings before interest, taxes, depreciation and amortization, or EBITDA, Hotel EBITDA, Adjusted Hotel EBITDA, EBITDA for real estate, or EBITDAre, and Adjusted EBITDAre. 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 SVC’s operating performance or as measures of SVC’s liquidity. These measures should be considered in conjunction with net income (loss) as presented in SVC’s consolidated statements of income (loss). SVC considers these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). SVC believes 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 SVC’s operating performance between periods and with other REITs and, in the case of Hotel EBITDA, reflecting only those income and expense items that are generated and incurred at the hotel level may help both investors and management to understand the operations of SVC’s hotels.

Please see the pages attached hereto for a more detailed statement of SVC’s operating results and financial condition and for an explanation of SVC’s calculation of FFO and Normalized FFO, EBITDA, Hotel EBITDA, Adjusted Hotel EBITDA, EBITDAre and Adjusted EBITDAre and a reconciliation of those amounts to amounts determined in accordance with GAAP.

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy is an important measure of the utilization rate and demand of SVC’s hotels.

Average Daily Rate, or ADR, represents rooms revenue divided by the total number of room nights sold in a given period. ADR provides useful insight on pricing at SVC’s hotels and is a measure widely used in the hotel industry.

Revenue per Available Room, or RevPAR, represents rooms revenue divided by the total number of room nights available to guests for a given period. RevPAR is an industry metric correlated to occupancy and ADR and helps measure revenue performance over comparable periods.

Hotel EBITDA and Adjusted Hotel EBITDA: Hotel EBITDA is calculated as hotel operating revenues less hotel operating expenses of all managed and leased hotels, prior to any adjustments required for presentation in SVC’s consolidated statements of income (loss) in accordance with GAAP. In calculating Adjusted EBITDAre, SVC adjusts for the items shown on page 12.

Hotel EBITDA Margin and Adjusted Hotel EBITDA Margin: Hotel EBITDA Margin is Hotel EBITDA as a percentage of hotel operating revenues. Adjusted Hotel EBITDA Margin is Adjusted Hotel EBITDA as a percentage of hotel operating expenses.

Comparable Hotels Data: SVC presents RevPAR, ADR, and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. SVC generally defines comparable hotels as those that were owned by it on December 31, 2021 and were open and operating for the entire periods being compared. For the three months ended December 31, 2021 and 2020, SVC’s comparable results excluded five hotels that had suspended operations during part of the periods presented. For the year ended December 31, 2021 and 2020, SVC’s comparable results excluded 23 hotels that had suspended operations during part of the periods presented.

Rent Coverage: SVC defines Rent Coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to SVC weighted by the minimum rent of the property to total minimum rents of the net lease portfolio. EBITDAR amounts used to determine rent coverage are generally for the latest twelve-month period reported based on the most recent operating information, 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 accordance with GAAP and are not independently verified by SVC. Tenants that do not report operating information are excluded from the rent coverage calculations. In instances where SVC does not have financial information for the most recent quarter from its tenants, it has calculated an implied EBITDAR for the 2021 fourth quarter using industry benchmark data to reflect current operating trends. SVC believes using this industry benchmark data provides a reasonable estimate of recent operating results and rent coverage for those tenants.

SERVICE PROPERTIES TRUST

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

(unaudited)

As of December 31,

2021

2020

ASSETS

Real estate properties:

Land

$

1,918,385

$

2,030,440

Buildings, improvements and equipment

8,307,248

9,131,832

Total real estate properties, gross

10,225,633

11,162,272

Accumulated depreciation

(3,281,659

)

(3,280,110

)

Total real estate properties, net

6,943,974

7,882,162

Acquired real estate leases and other intangibles, net

283,241

325,845

Assets held for sale

515,518

13,543

Cash and cash equivalents

944,043

73,332

Restricted cash

3,375

18,124

Due from related persons

48,168

55,530

Other assets, net

414,996

318,783

Total assets

$

9,153,315

$

8,687,319

LIABILITIES AND SHAREHOLDERS’ EQUITY

Revolving credit facility

$

1,000,000

$

78,424

Senior unsecured notes, net

6,143,022

6,130,166

Accounts payable and other liabilities

433,448

345,373

Due to related persons

21,539

30,566

Total liabilities

7,598,009

6,584,529

Commitments and contingencies

Shareholders’ equity:

Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,092,333 and 164,823,833 shares issued and outstanding, respectively

1,651

1,648

Additional paid in capital

4,552,558

4,550,385

Cumulative other comprehensive income (loss)

779

(760

)

Cumulative net income available for common shareholders

2,635,660

3,180,263

Cumulative common distributions

(5,635,342

)

(5,628,746

)

Total shareholders’ equity

1,555,306

2,102,790

Total liabilities and shareholders’ equity

$

9,153,315

$

8,687,319

SERVICE PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2021

2020

2021

2020

Revenues:

Hotel operating revenues (1)

$

317,215

$

174,520

$

1,104,678

$

875,098

Rental income (2)

104,160

95,523

390,902

390,156

Total revenues

421,375

270,043

1,495,580

1,265,254

Expenses:

Hotel operating expenses (1)(3)

286,968

189,898

1,010,737

682,804

Other operating expenses

3,900

4,179

15,658

15,208

Depreciation and amortization

115,757

121,351

485,965

498,908

General and administrative

12,601

13,046

53,439

50,668

Transaction related costs (4)

35,830

15,100

64,764

15,100

Loss on asset impairment (5)

76,510

254

78,620

55,756

Total expenses

531,566

343,828

1,709,183

1,318,444

Gain on sale of real estate, net (6)

588

11,916

11,522

2,261

Unrealized gain on equity securities, net (7)

2,168

15,473

22,535

19,882

Gain on insurance settlement (8)

62,386

Interest income

177

1

664

284

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $5,913, $4,220, $21,036 and $14,870, respectively)

(92,494

)

(82,811

)

(365,721

)

(306,490

)

Loss on early extinguishment of debt (9)

(2,424

)

(9,394

)

Loss before income taxes and equity in losses of an investee

(199,752

)

(131,630

)

(544,603

)

(284,261

)

Income tax benefit (expense) (8)

1,950

(505

)

941

(17,211

)

Equity in losses of an investee (10)

(991

)

(5,605

)

(941

)

(9,910

)

Net loss

$

(198,793

)

$

(137,740

)

$

(544,603

)

$

(311,382

)

Weighted average common shares outstanding (basic and diluted)

164,667

164,498

164,566

164,422

Net loss per common share (basic and diluted)

$

(1.21

)

$

(0.84

)

$

(3.31

)

$

(1.89

)

See Notes

SERVICE PROPERTIES TRUST

RECONCILIATIONS OF FUNDS FROM OPERATIONS, NORMALIZED FUNDS

FROM OPERATIONS

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended
December 31,

Year Ended

December 31,

2021

2020

2021

2020

Calculation of FFO and Normalized FFO: (11)

Net loss

$

(198,793

)

$

(137,740

)

$

(544,603

)

$

(311,382

)

Add (Less): Depreciation and amortization

115,757

121,351

485,965

498,908

Loss on asset impairment (5)

76,510

254

78,620

55,756

Gain on sale of real estate, net (6)

(588

)

(11,916

)

(11,522

)

(2,261

)

Unrealized gain on equity securities, net (7)

(2,168

)

(15,473

)

(22,535

)

(19,882

)

Adjustments to reflect SVC’s share of FFO attributable to an investee (10)

737