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Service Properties Trust Announces Second Quarter 2022 Results

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Net Income of $0.07 Per Common Share

238% Increase in Normalized FFO to $0.54 Per Common Share

53% Increase in Adjusted EBITDAre to $181.9 Million

Sold 76 Properties Raising Proceeds of $523.1 Million YTD Through July 31st

Met All Financial Covenant Requirements

NEWTON, Mass., August 04, 2022--(BUSINESS WIRE)--Service Properties Trust (Nasdaq: SVC) today announced its financial results for the quarter ended June 30, 2022.

Todd Hargreaves, President and Chief Investment Officer of SVC, made the following statement:

"Hotel operating trends greatly improved throughout the second quarter, driven by increased bookings at our urban and select service hotels. Comparable RevPAR improved from 18.4% below 2019 levels in April 2022 to 13.6% below 2019 levels in June 2022, generating a 130% increase in comparable monthly hotel EBITDA over the same period last year. We expect to benefit further from a rebound in business travel in the coming quarters, particularly at our full service hotels as demand continues to increase. Our net lease portfolio continues to provide steady cash flow driven by our diverse mix of tenants and industries.

With the significant improvement in hotel fundamentals during the second quarter, we are back in compliance with all of our required debt covenants, which we expect will provide us additional financial flexibility. We have also generated significant liquidity through the continued execution of our previously announced disposition plans, with aggregate proceeds of $523.1 million from 76 properties sold through July 31 and have entered agreements to sell an additional four hotels for a total sales price of $24.3 million."

Results for the Quarter Ended June 30, 2022:

Three Months Ended June 30,

2022

2021

($ in thousands, except per share data)

Net income (loss)

$

11,350

$

(91,110

)

Net income (loss) per common share

$

0.07

$

(0.55

)

Normalized FFO (1)

$

89,158

$

25,840

Normalized FFO per common share (1)

$

0.54

$

0.16

Adjusted EBITDAre (1)

$

181,873

$

118,577

(1)

Additional information and reconciliations of net income (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 June 30, 2022 and 2021 appear later in this press release.

  • Net income (loss): Net income for the quarter ended June 30, 2022 was $11.4 million, or $0.07 per diluted common share, compared to a net loss of $91.1 million, or $0.55 per diluted common share, for the quarter ended June 30, 2021. Net income for the quarter ended June 30, 2022 includes a $38.9 million, or $0.24 per diluted common share, net gain on sale of real estate, $10.1 million, or $0.06 per diluted common share, of net unrealized losses on equity securities and a $3.0 million, or $0.02 per diluted common share, loss on asset impairment. Net loss for the quarter ended June 30, 2021 includes a $10.8 million, or $0.07 per diluted common share, gain on sale of real estate, $6.2 million, or $0.04 per diluted common share, of transaction related costs and $2.5 million, or $0.02 per diluted common share, of net unrealized gains on equity securities. The weighted average number of diluted common shares outstanding was 164.7 million and 164.5 million for the quarters ended June 30, 2022 and 2021, respectively.

  • Normalized FFO: Normalized FFO for the quarter ended June 30, 2022 were $89.2 million, or $0.54 per diluted common share, compared to Normalized FFO of $25.8 million, or $0.16 per diluted common share, for the quarter ended June 30, 2021.

  • Adjusted EBITDAre: Adjusted EBITDAre for the quarter ended June 30, 2022 compared to the same period in 2021 increased 53.4% to $181.9 million.

Hotel Portfolio:

As of June 30, 2022, SVC’s 247 hotels were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (205 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 June 30,

Six Months Ended June 30,

2022

2021

Change

2022

2021

Change

($ in thousands, except hotel statistics)

Comparable Hotels

No. of hotels

244

244

244

244

No. of rooms or suites

40,477

40,477

40,477

40,477

Occupancy

66.7

%

55.4

%

11.3 pts

60.0

%

47.1

%

12.9 pts

ADR

$

137.57

$

105.54

30.3

%

$

129.82

$

99.99

29.8

%

Hotel RevPAR

$

91.76

$

58.47

56.9

%

$

77.89

$

47.10

65.4

%

Hotel operating revenues (1)

$

395,114

$

245,738

60.8

%

$

661,372

$

390,861

69.2

%

Hotel operating expenses (1)

$

304,405

$

218,052

39.6

%

$

560,883

$

406,283

38.1

%

Hotel EBITDA (1)

$

90,709

$

27,686

227.6

%

$

100,489

$

(15,422

)

n/m

Hotel EBITDA margin

23.0

%

11.3

%

11.7 pts

15.2

%

(4.0

)%

19.2 pts

All Hotels

No. of hotels

247

304

(57

)

247

304

(57

)

No. of rooms or suites

41,166

48,439

(7,273

)

41,166

48,439

(7,273

)

Occupancy

66.6

%

56.6

%

10.0 pts

59.8

%

48.3

%

11.5 pts

ADR

$

138.43

$

100.72

37.4

%

$

130.50

$

95.54

36.6

%

Hotel RevPAR

$

92.19

$

57.01

61.7

%

$

78.04

$

46.15

69.1

%

Hotel operating revenues (1)(2)

$

418,984

$

280,135

49.6

%

$

716,390

$

449,088

59.5

%

Hotel operating expenses (1)(2)

$

328,987

$

250,245

31.5

%

$

621,173

$

457,373

35.8

%

Hotel EBITDA (1)(2)

$

89,997

$

29,890

201.1

%

$

95,217

$

(8,285

)

n/m

Hotel EBITDA margin

21.5

%

10.7

%

10.8 pts

13.3

%

(1.8

)%

15.1 pts

(1)

Reconciliations of hotel operating revenues and hotel operating expenses used to determine Hotel EBITDA from hotel operating revenues and hotel operating expenses determined in accordance with GAAP for the periods ended June 30, 2022 and 2021 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

244 Hotels, 40,477 rooms

2022 vs 2019

Occupancy

Average Daily

Rate

RevPAR

Occupancy

Average Daily

Rate

RevPAR

April

65.3 %

$133.15

$86.95

(11.1)Pts

(4.6) %

(18.4) %

May

65.5 %

$135.71

$88.89

(12.1)Pts

(3.6) %

(18.6) %

June

69.4 %

$143.52

$99.60

(12.1)Pts

1.5 %

(13.6) %

All Hotels

247 Hotels, 41,166 rooms

2022 vs 2019

Occupancy

Average Daily

Rate

RevPAR

Occupancy

Average Daily

Rate

RevPAR

April

65.1 %

$133.92

$87.18

(11.2)Pts

(4.7) %

(18.7) %

May

65.4 %

$136.43

$89.23

(12.3)Pts

(3.9) %

(19.1) %

June

69.3 %

$144.59

$100.20

(12.3)Pts

1.4 %

(13.9) %

Preliminary July 2022 occupancy, ADR and RevPAR for SVC’s 247 hotels were 67.6%, $141.96 and $95.97, respectively.

Net Lease Retail Portfolio:

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

As of June 30, 2022

Number of properties

775

Industries

20

Tenants

176

Brands

134

Square feet

13.4 million

Occupancy

98.8%

Weighted average lease term (by annual minimum rent)

10.0 years

Rent Coverage

2.80x

During the quarter ended June 30, 2022, SVC reduced its reserve for uncollectible revenues by $0.2 million for certain of its net lease tenants. During the quarter ended June 30, 2021, SVC recorded reserves for uncollectible revenues of $1.2 million for certain of its net lease tenants.

Recent Investment Activities:

During the quarter ended June 30, 2022, SVC sold 51 hotels with 6,119 keys for an aggregate sales price of $427.7 million, excluding closing costs, and 11 net lease properties with an aggregate of 108,532 rentable square feet for an aggregate sales price of $7.7 million, excluding closing costs. From July 1, 2022 through August 4, 2022, SVC sold three hotels with 383 keys for an aggregate sales price of $21.5 million, excluding closing costs, and four net lease properties with 10,216 rentable square feet for an aggregate sales price of $0.7 million, excluding closing costs.

SVC has entered into agreements to sell four Sonesta branded hotels (one extended stay hotel with 96 keys and three select service hotels with 412 keys) located in four states for an aggregate sales price of $24.3 million and two net lease properties with an aggregate of 3,840 square feet for an aggregate sales price of $0.3 million. SVC expects the majority of these sales to be completed by the end of 2022. SVC continues to market 20 additional hotels with 2,752 keys for sale.

Capital expenditures made at certain of SVC’s properties for the quarter ended June 30, 2022 were $20.7 million.

During the quarter ended June 30, 2022, SVC funded $45.5 million of capital contributions to Sonesta related to Sonesta’s acquisition of a portfolio of hotels.

Liquidity and Financing Activities:

  • As of August 3, 2022, SVC had approximately $790.0 million of cash and cash equivalents.

  • As previously announced, in April 2022, SVC and its lenders amended the agreement governing its revolving credit facility to, among other things, extend the previous covenant waiver period through December 31, 2022, modify certain covenant requirements now scheduled to resume in the third quarter of 2022, reduce the size of the facility to $800.0 million, allow for the acquisition of up to $300.0 million of real estate assets through the waiver period and increase the limit on amounts SVC can fund for certain other investments to $100.0 million through the waiver period, and require SVC to maintain minimum liquidity levels to address near term debt maturities.

  • Also in April 2022, SVC exercised its option to extend the maturity date of the credit facility to January 2023. SVC has an additional six-month extension option available, subject to meeting certain conditions.

  • In June 2022, SVC redeemed at par all of its outstanding 5.0% senior notes due in August 2022 for a redemption price equal to the principal amount of $500 million, plus accrued and unpaid interest.

  • As of June 30, 2022, SVC has met the minimum financial covenant levels under its senior notes indentures, which reinstates its ability to incur additional debt, so long as it maintains these covenant levels and subject to the provisions of its senior notes indentures and revolving credit facility.

Conference Call:

On August 5, 2022 at 10:00 a.m. Eastern Time, Todd Hargreaves, President and Chief Investment Officer and Brian Donley, Chief Financial Officer and Treasurer, will host a conference call to discuss SVC’s second quarter 2022 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, August 12, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 9431623.

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 second quarter conference call is strictly prohibited without the prior written consent of SVC.

Supplemental Data:

A copy of SVC’s Second Quarter 2022 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 over $11 billion invested in two asset categories: hotels and service-focused retail net lease properties. As of June 30, 2022, SVC owned 247 hotels with over 41,000 guest rooms throughout the United States and in Puerto Rico and Canada, the majority of which are extended stay and select service. As of June 30, 2022, SVC also owned 775 retail service-focused net lease properties totaling over 13.4 million square feet throughout United States. SVC is managed by The RMR Group (Nasdaq: RMR), an alternative asset management company with over $37 billion in assets under management as of June 30, 2022 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, 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 condensed 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. SVC believes that Hotel EBITDA provides useful information to management and investors as a key measure of the profitability of its hotel operations.

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, EBITDAre and Adjusted EBITDAre and a reconciliation of those amounts to amounts determined in accordance with GAAP.

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.

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 June 30, 2022 and were open and operating for the entire periods being compared. For the three and six months ended June 30, 2022 and 2021, SVC’s comparable results excluded three hotels that had suspended operations during part of the periods presented.

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 condensed consolidated statements of income (loss) in accordance with GAAP.

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

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.

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 2022 second 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.

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.

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

(unaudited)

As of June 30,

As of December 31,

2022

2021

ASSETS

Real estate properties:

Land

$

1,918,840

$

1,918,385

Buildings, improvements and equipment

7,771,855

8,307,248

Total real estate properties, gross

9,690,695

10,225,633

Accumulated depreciation

(2,891,054

)

(3,281,659

)

Total real estate properties, net

6,799,641

6,943,974

Acquired real estate leases and other intangibles, net

267,904

283,241

Assets held for sale

68,034

515,518

Cash and cash equivalents

635,204

944,043

Restricted cash

64,901

3,375

Equity method investments

109,682

62,687

Investment in equity securities

40,840

61,159

Due from related persons

59,204

48,168

Other assets, net

286,149

291,150

Total assets

$

8,331,559

$

9,153,315

LIABILITIES AND SHAREHOLDERS’ EQUITY

Revolving credit facility

$

800,000

$

1,000,000

Senior unsecured notes, net

5,649,650

6,143,022

Accounts payable and other liabilities

425,118

433,448

Due to related persons

11,919

21,539

Total liabilities

6,886,687

7,598,009

Commitments and contingencies

Shareholders’ equity:

Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,138,455 and 165,092,333 shares issued and outstanding, respectively

1,651

1,651

Additional paid in capital

4,553,848

4,552,558

Cumulative other comprehensive income

829

779

Cumulative net income available for common shareholders

2,527,188

2,635,660

Cumulative common distributions

(5,638,644

)

(5,635,342

)

Total shareholders’ equity

1,444,872

1,555,306

Total liabilities and shareholders’ equity

$

8,331,559

$

9,153,315

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Revenues:

Hotel operating revenues (1)

$

418,984

$

280,135

$

716,390

$

449,088

Rental income (2)

96,793

95,801

193,151

188,018

Total revenues

515,777

375,936

909,541

637,106

Expenses:

Hotel operating expenses (1)(3)

325,194

243,183

615,537

438,536

Other operating expenses

3,179

4,376

5,650

8,109

Depreciation and amortization

100,520

121,677

204,633

246,045

General and administrative

12,665

13,480

24,452

25,821

Transaction related costs (4)

743

6,151

1,920

25,785

Loss on asset impairment, net (5)

3,048

899

8,548

2,110

Total expenses

445,349

389,766

860,740

746,406

Gain on sale of real estate, net (6)

38,851

10,849

44,399

10,840

Unrealized gains (losses) on equity securities, net (7)

(10,059

)

2,500

(20,319

)

(3,981

)

Interest income

1,021

225

1,294

282

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $5,021, $4,891, $10,934 and $9,247, respectively)

(89,820

)

(91,378

)

(182,164

)

(180,769

)

Loss on early extinguishment of debt (8)

(791

)

(791

)

Income (loss) before income taxes and equity in losses of an investee

9,630

(91,634

)

(108,780

)

(282,928

)

Income tax expense

(473

)

(211

)

(1,168

)

(1,064

)

Equity in earnings (losses) of an investee (9)

2,193

735

1,476

(2,108

)

Net income (loss)

$

11,350

$

(91,110

)

$

(108,472

)

$

(286,100

)

Weighted average common shares outstanding (basic and diluted)

164,677

164,506

164,672

164,502

Net income (loss) per common share (basic and diluted)

$

0.07

$

(0.55

)

$

(0.66

)

$

(1.74

)

See Notes on page 13.

SERVICE PROPERTIES TRUST

RECONCILIATIONS OF FUNDS FROM OPERATIONS, NORMALIZED FUNDS

FROM OPERATIONS, EBITDA, EBITDAre AND ADJUSTED EBITDAre

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Calculation of FFO and Normalized FFO: (10)

Net income (loss)

$

11,350

$

(91,110

)

$

(108,472

)

$

(286,100

)

Add (Less):

Depreciation and amortization

100,520

...