Service Properties Trust Announces Second Quarter 2022 Results

NEWTON, Mass.–(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

 

 

 

121,677

 

 

 

204,633

 

 

 

246,045

 

 

Loss on asset impairment, net (5)

 

3,048

 

 

 

899

 

 

 

8,548

 

 

 

2,110

 

 

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

 

 

Adjustments to reflect SVC’s share of FFO attributable to an investee (9)

 

905

 

 

 

1,034

 

 

 

1,571

 

 

 

1,499

 

FFO

 

87,031

 

 

 

19,151

 

 

 

82,200

 

 

 

(43,305

)

Add (Less):

Transaction related costs (4)

 

743

 

 

 

6,151

 

 

 

1,920

 

 

 

25,785

 

 

Loss on early extinguishment of debt (8)

 

791

 

 

 

 

 

 

791

 

 

 

 

 

Adjustments to reflect SVC’s share of Normalized FFO attributable to an investee (9)

 

593

 

 

 

538

 

 

 

838

 

 

 

1,363

 

Normalized FFO

$

89,158

 

 

$

25,840

 

 

$

85,749

 

 

$

(16,157

)

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

164,677

 

 

 

164,506

 

 

 

164,672

 

 

 

164,502

 

 

 

 

 

 

 

 

 

Basic and diluted per common share amounts:

 

 

 

 

 

 

 

 

Net income (loss) per share

$

0.07

 

 

$

(0.55

)

 

$

(0.66

)

 

$

(1.74

)

 

FFO

$

0.53

 

 

$

0.12

 

 

$

0.50

 

 

$

(0.26

)

 

Normalized FFO

$

0.54

 

 

$

0.16

 

 

$

0.52

 

 

$

(0.10

)

 

Distributions declared per share

$

0.01

 

 

$

0.01

 

 

$

0.02

 

 

$

0.02

 

 

 

 

 

 

 

 

Calculation of EBITDA, EBITDAre and Adjusted EBITDAre:(11)

 

 

 

 

 

 

 

Net income (loss)

$

11,350

 

 

$

(91,110

)

 

$

(108,472

)

 

$

(286,100

)

Add (Less):

Interest expense

 

89,820

 

 

 

91,378

 

 

 

182,164

 

 

 

180,769

 

 

Income tax expense

 

473

 

 

 

211

 

 

 

1,168

 

 

 

1,064

 

 

Depreciation and amortization

 

100,520

 

 

 

121,677

 

 

 

204,633

 

 

 

246,045

 

EBITDA

 

202,163

 

 

 

122,156

 

 

 

279,493

 

 

 

141,778

 

Add (Less):

Loss on asset impairment, net (5)

 

3,048

 

 

 

899

 

 

 

8,548

 

 

 

2,110

 

 

Gain loss on sale of real estate, net (6)

 

(38,851

)

 

 

(10,849

)

 

 

(44,399

)

 

 

(10,840

)

 

Adjustments to reflect SVC’s share of EBITDAre attributable to an investee (9)

 

2,074

 

 

 

1,116

 

 

 

2,754

 

 

 

1,659

 

EBITDAre

 

168,434

 

 

 

113,322

 

 

 

246,396

 

 

 

134,707

 

Add (Less):

Transaction related costs (4)

 

743

 

 

 

6,151

 

 

 

1,920

 

 

 

25,785

 

 

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

 

10,059

 

 

 

(2,500

)

 

 

20,319

 

 

 

3,981

 

 

Loss on early extinguishment of debt (8)

 

791

 

 

 

 

 

 

791

 

 

 

 

 

Adjustments to reflect SVC’s share of Adjusted EBITDAre attributable to an investee (9)

 

1,014

 

 

 

538

 

 

 

1,294

 

 

 

1,363

 

 

General and administrative expense paid in common shares (12)

 

832

 

 

 

1,066

 

 

 

1,294

 

 

 

1,445

 

Adjusted EBITDAre

$

181,873

 

 

$

118,577

 

 

$

272,014

 

 

$

167,281

 

 

 

 

 

 

See Notes on page 13.

 

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA

Comparable Hotels

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Number of hotels

 

244

 

 

 

244

 

 

 

244

 

 

 

244

 

Room revenues

$

334,569

 

 

$

215,180

 

 

$

563,378

 

 

$

344,762

 

Food and beverage revenues

 

43,363

 

 

 

18,388

 

 

 

68,424

 

 

 

26,184

 

Other revenues

 

17,182

 

 

 

12,170

 

 

 

29,570

 

 

 

19,915

 

Hotel operating revenues – comparable hotels

 

395,114

 

 

 

245,738

 

 

 

661,372

 

 

 

390,861

 

Rooms expenses

 

98,006

 

 

 

70,502

 

 

 

175,268

 

 

 

119,232

 

Food and beverage expenses

 

31,208

 

 

 

15,075

 

 

 

53,312

 

 

 

23,709

 

Other direct and indirect expenses

 

128,056

 

 

 

94,834

 

 

 

240,861

 

 

 

193,345

 

Management fees

 

14,734

 

 

 

9,156

 

 

 

24,992

 

 

 

13,454

 

Real estate taxes, insurance and other

 

29,801

 

 

 

27,368

 

 

 

62,056

 

 

 

54,696

 

FF&E reserves (13)

 

2,600

 

 

 

1,117

 

 

 

4,394

 

 

 

1,847

 

Hotel operating expenses – comparable hotels

 

304,405

 

 

 

218,052

 

 

 

560,883

 

 

 

406,283

 

Hotel EBITDA – comparable hotels

$

90,709

 

 

$

27,686

 

 

$

100,489

 

 

$

(15,422

)

Hotel EBITDA Margin

 

23.0

%

 

 

11.3

%

 

 

15.2

%

 

 

(4.0

)%

 

 

 

 

 

 

 

 

Hotel operating revenues (GAAP) (1)

$

418,984

 

 

$

280,135

 

 

$

716,390

 

 

$

449,088

 

Add (Less):

 

 

 

 

 

 

 

Hotel operating revenues from non-comparable hotels

 

(23,870

)

 

 

(34,397

)

 

 

(55,018

)

 

 

(58,227

)

Hotel operating revenues – comparable hotels

$

395,114

 

 

$

245,738

 

 

$

661,372

 

 

$

390,861

 

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

325,194

 

 

$

243,183

 

 

$

615,537

 

 

$

438,536

 

Add (Less):

 

 

 

 

 

 

 

Hotel operating expenses from non-comparable hotels

 

(24,010

)

 

 

(32,175

)

 

 

(59,669

)

 

 

(50,419

)

Reduction for security deposit and guaranty fundings, net (3)

 

 

 

 

5,306

 

 

 

 

 

 

15,698

 

FF&E reserves from managed hotel operations (13)

 

2,600

 

 

 

1,117

 

 

 

4,394

 

 

 

1,847

 

Other (14)

 

621

 

 

 

621

 

 

 

621

 

 

 

621

 

Hotel operating expenses – comparable hotels

$

304,405

 

 

$

218,052

 

 

$

560,883

 

 

$

406,283

 

 

See Notes on page 13.

 

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA

All Hotels

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

 

 

 

 

 

 

 

 

Room revenues

$

357,117

 

 

$

248,618

 

 

$

615,737

 

 

$

401,346

 

Food and beverage revenues

 

44,256

 

 

 

18,933

 

 

 

70,158

 

 

 

27,105

 

Other revenues

 

17,611

 

 

 

12,584

 

 

 

30,495

 

 

 

20,637

 

Hotel operating revenues

 

418,984

 

 

 

280,135

 

 

 

716,390

 

 

 

449,088

 

Rooms expenses

 

106,982

 

 

 

80,910

 

 

 

195,725

 

 

 

137,488

 

Food and beverage expenses

 

32,333

 

 

 

15,659

 

 

 

55,567

 

 

 

24,701

 

Other direct and indirect expenses

 

136,099

 

 

 

107,533

 

 

 

263,116

 

 

 

207,298

 

Management fees

 

15,240

 

 

 

10,661

 

 

 

26,572

 

 

 

15,899

 

Real estate taxes, insurance and other

 

35,161

 

 

 

34,347

 

 

 

75,799

 

 

 

70,088

 

FF&E reserves (13)

 

3,172

 

 

 

1,135

 

 

 

4,394

 

 

 

1,899

 

Hotel operating expenses

 

328,987

 

 

 

250,245

 

 

 

621,173

 

 

 

457,373

 

Hotel EBITDA

$

89,997

 

 

$

29,890

 

 

$

95,217

 

 

$

(8,285

)

Hotel EBITDA Margin

 

21.5

%

 

 

10.7

%

 

 

13.3

%

 

 

(1.8

)%

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

325,194

 

 

$

243,183

 

 

$

615,537

 

 

$

438,536

 

Add (Less):

 

 

 

 

 

 

 

Reduction for security deposit and guaranty fundings, net (3)

 

 

 

 

5,306

 

 

 

 

 

 

15,696

 

FF&E reserves from managed hotels operations (13)

 

3,172

 

 

 

1,135

 

 

 

4,394

 

 

 

1,899

 

Other (14)

 

621

 

 

 

621

 

 

 

1,242

 

 

 

1,242

 

Hotel operating expenses

$

328,987

 

 

$

250,245

 

 

$

621,173

 

 

$

457,373

 

 

See Notes on page 13

 

(1)

As of June 30, 2022, SVC owned 247 hotels. SVC’s condensed consolidated statements of income (loss) include hotel operating revenues and expenses of its managed hotels.

(2)

SVC reduced rental income by $1,712 and $299 for the three months ended June 30, 2022 and 2021, respectively, and reduced rental income by $3,685 and $2,181 for the six months ended June 30, 2022 and 2021, respectively, to record scheduled rent changes under certain of SVC’s leases, the deferred rent obligations under SVC’s leases with TravelCenters of America Inc., or TA, and the estimated future payments to SVC under its leases with TA for the cost of removing underground storage tanks on a straight-line basis.

(3)

When managers of SVC’s hotels are required to fund the shortfalls of owner’s priority return under the terms of SVC’s management agreements or their guarantees, SVC reflects such fundings in its condensed consolidated statements of income (loss) as a reduction of hotel operating expenses. There were no net reductions to hotel operating expenses during the three and six months ended June 30, 2022. The net reductions to hotel operating expenses were $5,306 and $15,696 for the three and six months ended June 30, 2021, respectively.

(4)

Transaction related costs for the three and six months ended June 30, 2022 of $743 and $1,920, respectively, primarily consisted of costs related to SVC’s exploration of possible financing transactions. Transaction related costs for the three months ended June 30, 2021 includes $3,700 of working capital SVC previously funded under its agreement with Hyatt that SVC expensed as a result of the amount no longer expected to be recoverable, $1,110 of legal costs related to SVC’s arbitration claim against Marriott and $1,341 of hotel manager transition costs. Transaction related costs for the three months ended March 31, 2021 includes $19,634 of hotel manager transition related costs resulting from the rebranding of 88 hotels during the period.

(5)

SVC recorded a loss on asset impairment of $3,048 to reduce the carrying value of two hotels and four net lease properties to their estimated fair value less costs to sell during the three months ended June 30, 2022. SVC recorded a loss on asset impairment of $899 to reduce the fair value of three net lease properties to their estimated fair value less costs to sell during the three months ended June 30, 2021. SVC recorded a loss on asset impairment of $8,548 to reduce the carrying value of 25 hotels and four net lease properties to their estimated fair value less costs to sell during the six months ended June 30, 2022. SVC recorded a loss on asset impairment of $2,110 during the six months ended June 30, 2021 to reduce the carrying value of five net lease properties to their estimated fair value less costs to sell.

(6)

SVC recorded a $38,851 net gain on sale of real estate during the three months ended June 30, 2022 in connection with the sale of 51 hotels and 11 net lease properties. SVC recorded a $10,849 net gain on sale of real estate during the three months ended June 30, 2021 in connection with the sale of six hotels and two net lease properties. SVC recorded a $44,399 gain on sale of real estate during the six months ended June 30, 2022 in connection with the sale of 56 hotels and 13 net lease properties. SVC recorded a $10,840 net gain on sale of real estate during the six months ended June 30, 2021 in connection with the sale of six hotels and three net lease properties.

(7)

Unrealized gain or loss on equity securities, net represents the adjustment required to adjust the carrying value of SVC’s investment in shares of TA common stock to its fair value.

(8)

SVC recorded a $791 loss on extinguishment of debt during the three months ended June 30, 2022 related to the write off of deferred financing costs and unamortized discounts relating to its amendment to its revolving credit facility and the repayment of $500,000 of unsecured senior notes.

(9)

Represents SVC’s proportionate share from its equity investment in Sonesta.

(10)

SVC calculates FFO and Normalized FFO as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or Nareit, which is net income (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 and amortization, less any unrealized gains and losses on equity securities, as well as adjustments to reflect SVC’s share of FFO attributable to an investee and certain other adjustments currently not applicable to SVC. In calculating Normalized FFO, SVC adjusts for the items shown above. FFO and Normalized FFO are among the factors considered by SVC’s Board of Trustees when determining the amount of distributions to its shareholders. Other factors include, but are not limited to, requirements to satisfy SVC’s REIT distribution requirements, limitations in its credit agreement and public debt covenants, the availability to SVC of debt and equity capital, SVC’s distribution rate as a percentage of the trading price of its common shares, or dividend yield, and to the dividend yield of other REITs, SVC’s expectation of its future capital requirements and operating performance and SVC’s expected needs for and availability of cash to pay its obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than SVC does.

(11)

SVC calculates EBITDA, EBITDAre, and Adjusted EBITDAre as shown above. EBITDAre is calculated on the basis defined by Nareit which is EBITDA, excluding gains and losses on the sale of real estate, loss on impairment of real estate assets, if any, and adjustments to reflect SVC’s share of EBITDAre attributable to an investee. In calculating Adjusted EBITDAre, SVC adjusts for the items shown above. Other real estate companies and REITs may calculate EBITDA, EBITDAre and Adjusted EBITDAre differently than SVC does.

(12)

Amounts represent the equity compensation for SVC’s Trustees, officers and certain other employees of SVC’s manager.

(13)

Various percentages of total sales at certain of SVC’s hotels are escrowed as reserves for future renovations or refurbishments, or FF&E reserve escrows. SVC owns all the FF&E reserve escrows for its hotels.

(14)

SVC is amortizing a liability it recorded for the fair value of its initial investment in Sonesta as a reduction to hotel operating expenses in its condensed consolidated statements of income (loss). SVC reduced hotel operating expenses by $621 for each of the three months ended June 30, 2022 and 2021, and $1,242 for each of the six months ended June 30, 2022 and 2021, respectively, for this liability.

Warning Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Whenever SVC uses words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” “may” and negatives or derivatives of these or similar expressions, SVC is making forward-looking statements. These forward-looking statements are based upon SVC’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by SVC’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SVC’s control. For example:

  • Mr. Hargreaves states that hotel operating trends greatly improved throughout the second quarter, noting causes for these improvements and the positive impacts they had on SVC’s operating results. Mr. Hargreaves also noted that SVC expects to benefit further from a rebound in business travel in the coming quarters. These statements may imply that hotel operating trends and business travel will continue to improve and increase and not decline and that SVC will benefit as a result; however, the hotel industry and SVC’s business are subject to various risks, including risks beyond its control, such as the continued impact of the COVID-19 pandemic and economic conditions including the current inflationary conditions and possible recession. As a result, hotel operating trends and business travel may not continue to improve and may decline in the future, and SVC’s operating results may not further improve and may decline;
  • Mr. Hargreaves states that SVC’s net lease properties continue to provide steady cash flows. However, SVC’s net lease tenants may become unable or unwilling to pay rents due to SVC, which could adversely impact SVC and the value of its net lease properties;
  • Mr. Hargreaves states that SVC is back in compliance with all of its required debt covenants and that it generated significant liquidity from hotel sales. However, SVC narrowly regained compliance with certain of those covenants, which limits its ability to incur additional debt. Further, it may fail to satisfy these covenants in future periods and it may not maintain its current liquidity due to repaying debt, funding its operations, making acquisitions or otherwise; and
  • SVC has entered or expects to enter agreements for the sale of six properties for an aggregate sales price of $24.6 million and expects to complete these sales by the end of 2022. The sales of SVC’s properties are subject to conditions; accordingly, SVC cannot provide any assurance that it will sell any of these properties and the sales may be delayed, may not occur or their terms may change. Any sales it may complete may be at prices less than SVC expects.

The information contained in SVC’s filings with the SEC, including under the caption “Risk Factors” in SVC’s periodic reports, or incorporated therein, identifies other important factors that could cause differences from SVC’s forward-looking statements. SVC’s filings with the SEC are available on the SEC’s website at www.sec.gov.

You should not place undue reliance upon forward-looking statements.

Except as required by law, SVC does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.

No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

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