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Service Properties Trust Announces Fourth Quarter 2020 Results - Business Wire

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NEWTON, Mass.--()--Service Properties Trust (Nasdaq: SVC) today announced its financial results for the quarter ended December 31, 2020.

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

“Our fourth quarter operating results reflect the continuing impact of the COVID-19 pandemic on the overall lodging industry, as well as changes specific to the SVC hotel portfolio. We successfully transitioned 112 hotels to Sonesta brands and management during the quarter, as well as 78 additional hotels so far in 2021. Although this transition is accompanied by short-term disruption reflected in our fourth quarter results, we believe that the rebranding will benefit SVC in the long term by creating more flexibility with respect to capital investments, possibly repurposing hotels to other uses, or sales. SVC also benefits from its 34% ownership of Sonesta.

“Rent collections from our retail net lease tenants were stable at 95.3% for the fourth quarter, up from a low of 80.5% for April 2020, and anchored by our largest tenant, TravelCenters of America, which continues to benefit from healthy trucking activity and its importance to the nation’s supply chain.

“We also continue to take proactive steps to fortify our liquidity until lodging trends start to improve, which we currently expect to occur in the latter half of 2021. To that end, we have repaid all our 2021 debt maturities and have fully drawn down on our revolving credit facility as a precautionary measure to preserve financial flexibility. We also continue to execute on asset sales, closing on the sale of 24 properties for $104.3 million during the fourth quarter, with the proceeds used to repay debt.”

Results for the Quarter Ended December 31, 2020:

 

Three Months Ended December 31,

 

2020

 

2019

 

($ in thousands, except per share data)

Net loss

$

(137,740)

 

 

$

(14,893)

 

Net loss per common share

$

(0.84)

 

 

$

(0.09)

 

Normalized FFO (1)

$

(22,474)

 

 

$

151,622

 

Normalized FFO per common share (1)

$

(0.14)

 

 

$

0.92

 

Adjusted EBITDAre (1)

$

64,953

 

 

$

227,013

 

  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, 2020 and 2019 appear later in this press release.
  • Net loss: Net loss for the quarter ended December 31, 2020 was $137.7 million, or $0.84 per diluted common share, compared to a net loss of $14.9 million, or $0.09 per diluted common share, for the quarter ended December 31, 2019. 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. Net loss for the quarter ended December 31, 2019 includes a $39.3 million, or $0.24 per diluted common share, loss on asset impairment and $3.3 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 164.5 million and 164.4 million for the quarters ended December 31, 2020 and 2019, respectively.
  • Normalized FFO: Normalized FFO for the quarter ended December 31, 2020 was negative $22.5 million, or $(0.14) per diluted common share, compared to Normalized FFO of $151.6 million, or $0.92 per diluted common share, for the quarter ended December 31, 2019.
  • Adjusted EBITDAre: Adjusted EBITDAre for the quarter ended December 31, 2020 compared to the same period in 2019 decreased 71.4% to $65.0 million.

Hotel Portfolio:

As of December 31, 2020, SVC owned 310 hotels that were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (168 hotels), Marriott International, Inc., or Marriott (105 hotels), Hyatt Hotels Corporation, or Hyatt (22 hotels), Radisson Hospitality, Inc. (nine hotels), and InterContinental Hotels Group, plc, or IHG (one hotel). Five hotels were leased to a third party.

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2020

 

2019

 

Change

 

2020

 

2019

 

Change

 

 

($ in thousands, except ADR and Hotel RevPAR data)

Comparable Hotels

 

 

 

 

 

 

 

 

 

 

 

 

No. of hotels

 

302

 

 

302

 

 

 

 

285

 

 

285

 

 

 

No. of rooms or suites

 

46,779

 

 

46,779

 

 

 

 

42,075

 

 

42,075

 

 

 

Occupancy

 

40.4

%

 

69.9

%

 

(29.5)

pts

 

44.8

%

 

73.5

%

 

(28.7)

pts

ADR

 

$

86.84

 

 

$

122.93

 

 

(29.4)

%

 

$

96.18

 

 

$

121.09

 

 

(20.6)

%

Hotel RevPAR

 

$

35.08

 

 

$

85.93

 

 

(59.2)

%

 

$

43.09

 

 

$

89.00

 

 

(51.6)

%

Hotel operating revenues (1)

 

$

166,988

 

 

$

443,658

 

 

(62.4)

%

 

$

730,337

 

 

$

1,550,348

 

 

(52.9)

%

Hotel operating expenses (1)

 

$

203,284

 

 

$

344,794

 

 

(41.0)

%

 

$

734,421

 

 

$

1,150,202

 

 

(36.1)

%

Hotel EBITDA (1)

 

$

(36,296)

 

 

$

98,864

 

 

n/m

 

 

$

(4,084)

 

 

$

400,146

 

 

n/m

 

Adjusted Hotel EBITDA (1)

 

$

(18,122)

 

 

$

98,864

 

 

n/m

 

 

$

12,621

 

 

$

400,146

 

 

n/m

 

Adjusted Hotel EBITDA margin

 

(10.9)

%

 

22.3

%

 

n/m

 

 

1.7

%

 

25.8

%

 

n/m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Hotels

 

 

 

 

 

 

 

 

 

 

 

 

No. of hotels

 

310

 

 

310

 

 

 

 

310

 

 

310

 

 

 

No. of rooms or suites

 

49,014

 

 

49,014

 

 

 

 

49,014

 

 

49,014

 

 

 

Occupancy

 

39.8

%

 

68.8

%

 

(29.0)

pts

 

42.0

%

 

73.0

%

 

(31.0)

pts

ADR

 

$

87.53

 

 

$

125.61

 

 

(30.3)

%

 

$

100.77

 

 

$

130.82

 

 

(23.0)

%

Hotel RevPAR

 

$

34.84

 

 

$

86.42

 

 

(59.7)

%

 

$

42.32

 

 

$

95.50

 

 

(55.7)

%

Hotel operating revenues (1)

 

$

176,418

 

 

$

492,560

 

 

(64.2)

%

 

$

888,741

 

 

$

2,072,995

 

 

(57.1)

%

Hotel operating expenses (1)

 

$

221,621

 

 

$

386,556

 

 

(42.7)

%

 

$

958,164

 

 

$

1,564,911

 

 

(38.8)

%

Hotel EBITDA (1)

 

$

(45,203)

 

 

$

106,004

 

 

n/m

 

 

$

(69,423)

 

 

$

508,084

 

 

n/m

 

Adjusted Hotel EBITDA (1)

 

$

(26,141)

 

 

$

106,004

 

 

n/m

 

 

$

(50,361)

 

 

$

508,084

 

 

n/m

 

Adjusted Hotel EBITDA margin

 

(14.8)

%

 

21.5

%

 

n/m

 

 

(5.7)

%

 

24.5

%

 

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 and years ended December 31, 2020 and 2019 appear later in this press release.

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

 

 

Comparable Hotels

 

All Hotels

 

 

October 2020

 

November 2020

 

December 2020

 

October 2020

 

November 2020

 

December 2020

Occupancy

 

47.1

%

 

40.6

%

 

33.5

%

 

46.4

%

 

40.2

%

 

33.1

%

ADR

 

$

89.50

 

 

$

85.51

 

 

$

84.32

 

 

$

89.97

 

 

$

86.81

 

 

$

84.95

 

RevPAR

 

$

42.15

 

 

$

34.84

 

 

$

28.25

 

 

$

41.66

 

 

$

34.81

 

 

$

28.12

 

For SVC’s 310 hotels, occupancy, ADR and RevPAR was 35.9%, $85.91 and $30.84, respectively, for the month of January 2021.

Hotel Agreements and Brand Conversions:

During the quarter ended December 31, 2020, SVC completed the transition of branding and management of 112 hotels to Sonesta, including 102 hotels from IHG, nine hotels from Marriott and one hotel from Wyndham Hotels & Resorts, Inc., or Wyndham. SVC entered management agreements with Sonesta to manage these 112 hotels on terms substantially consistent with SVC’s legacy management agreements, except that the management agreements for these rebranded hotels expire on December 31, 2021 and automatically renew for successive one year-terms unless terminated earlier.

In January 2021, SVC received a notice of termination from Hyatt with respect to the Hyatt agreement as a result of Hyatt’s guaranty being exhausted. SVC and Hyatt are currently in discussions regarding possible changes to the management agreement that may result in some or all of the hotels remaining Hyatt managed. However, if such discussions do not result in a mutually acceptable agreement, SVC expects to transition management of the 22 hotels to Sonesta on or about April 8, 2021.

SVC transitioned the branding and management of 78 additional Marriott hotels to Sonesta in February 2021. SVC expects to transition the branding and management of another 10 Marriott hotels to Sonesta in March 2021.

Net Lease Portfolio:

 

 

As of December 31, 2020

Number of properties

 

799

Industries

 

22

Tenants

 

170

Brands

 

127

Square feet

 

13.5 million

Occupancy

 

98.7%

Weighted average lease term (by annual minimum rent)

 

10.9 years

Coverage

 

2.14x

During the quarter ended December 31, 2020, SVC collected 95.3% of rents from 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. In January 2021, SVC collected 89.3% of rents from its net lease tenants. As of February 26, 2021, SVC has entered into rent deferral agreements with 46 net lease retail tenants with leases requiring an aggregate of $46.4 million of annual minimum rents. In aggregate, SVC has deferred $12.1 million of rents from certain of its net lease tenants.

Recent Investment Activities:

During the quarter ended December 31, 2020, SVC sold 18 hotels with 2,046 rooms located in 10 states for an aggregate sales price of $85.8 million, excluding closing costs. During the quarter ended December 31, 2020, SVC also sold six net lease properties with an aggregate of 227,072 square feet in six states for an aggregate sales price of $18.6 million, excluding closing costs.

SVC terminated the previously announced agreement it had entered to sell 16 Marriott branded hotels with 2,155 rooms for a sales price of $107.8 million.

SVC has entered an agreement to sell five hotels with 430 rooms in four states for an aggregate sales price of $22.3 million, excluding closing costs. SVC expects this sale to be completed in the first quarter of 2021. SVC has also entered agreements to sell three net lease properties with an aggregate 38,942 square feet for an aggregate sales price of $2.1 million, excluding closing costs. SVC expects these sales to be completed by the end of the second quarter of 2021. The sales of these properties are subject to conditions and may be delayed, may not occur or the terms may change. SVC expects to use the net sales proceeds from these asset sales to repay outstanding indebtedness.

During the quarter ended December 31, 2020, SVC funded $32.4 million of capital improvements to certain of its properties.

Financing Activities:

As previously announced, on November 5, 2020, SVC and its lenders amended the credit agreement governing its $1.0 billion revolving credit facility and $400.0 million term loan. The key terms of the amended credit agreement include:

  • All existing financial covenants have been waived through the end of the agreement term, or July 15, 2022, or the Waiver Period;
  • SVC repaid its $400.0 million term loan on November 5, 2020, using undrawn amounts under its revolving credit facility;
  • SVC has pledged certain additional equity interests of subsidiaries owning properties. SVC will provide first mortgage liens on 74 properties owned by the pledging subsidiaries with an undepreciated book value of $1.8 billion as of December 31, 2020 to secure its obligations under the credit agreement;
  • SVC has the ability to fund up to $250.0 million of capital expenditures per year and up to $50.0 million of certain other investments per year as defined in the credit agreement;
  • The interest rate premium over LIBOR under SVC’s revolving credit facility increased by 30 basis points;
  • Certain covenants and restrictions on distributions to common shareholders, share repurchases, incurring indebtedness and acquiring real property (in each case subject to various exceptions), and the minimum liquidity requirement of $125.0 million will remain in place during the Waiver Period; and
  • SVC is generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions and debt refinancings to the repayment of outstanding loans under the credit agreement, and then to other debt maturities.

On December 18, 2020, SVC redeemed at par plus accrued interest the remaining $50.0 million of its 4.25% Senior Notes due February 2021.

On January 14, 2021, SVC announced a $0.01 per common share dividend to be paid to its shareholders of record on January 25, 2021 and distributed on or about February 18, 2021.

On January 19, 2021, SVC borrowed $972.8 million under its revolving credit facility as a precautionary measure to preserve financial flexibility. As of February 26, 2021, SVC is fully drawn under its $1.0 billion revolving credit facility.

Conference Call:

On March 1, 2021 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 2020 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 Monday, March 8, 2021. To access the replay, dial (412) 317-0088. The replay pass code is 10150718.

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 2020 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 is a real estate investment trust, or REIT, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties across the United States and in Puerto Rico and Canada. SVC is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), or RMR Inc., an alternative asset management company that is headquartered in Newton, Massachusetts.

Non-GAAP Financial Measures and Certain Definitions:

SVC presents certain “non-GAAP financial measures” within the meaning of applicable Securities and Exchange Commission, or SEC, rules, including earnings before interest, taxes, depreciation and amortization, or EBITDA, Hotel EBITDA, Adjusted Hotel EBITDA, EBITDA for real estate, or EBITDAre, Adjusted EBITDAre, funds from operations, or 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 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.

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 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 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. SVC calculates Adjusted Hotel EBITDA as presented in the pages hereto. Adjusted Hotel EBITDA excludes certain items SVC believes do not reflect the ongoing operating performance of its hotels. SVC believes Hotel EBITDA and Adjusted Hotel EBITDA provide useful information to management and investors as key measures of the profitability of its hotel operations.

Adjusted Hotel EBITDA Margin is the percentage of Adjusted Hotel EBITDA of hotel operating revenues.

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 and were open and operating for the entire periods being compared. For the three months ended December 31, 2020 and 2019, SVC excluded eight hotels from its comparable results. One of these hotels was not owned for the entire periods, three were closed for major renovations and four suspended operations during part of the periods presented. For the years ended December 31, 2020 and 2019, SVC excluded 25 hotels from its comparable results. Three of these hotels were not owned for the entire periods, three were closed for major renovations and 19 suspended operations during part of the periods presented.

Rent Coverage: SVC defines net lease 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 coverage calculations. Coverage amounts include data for certain properties for periods prior to when SVC acquired them. 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 fourth quarter using industry benchmark data to more accurately reflect the impact of COVID-19 on its tenants’ operations. SVC believes using only financial information from the earlier periods could be misleading as it would not reflect the negative impact those tenants experienced as a result of the COVID-19 pandemic. As a result, SVC believes using this industry benchmark data provides a more accurate estimated representation of recent operating results and coverage for those tenants.

SERVICE PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)

 

 

As of December 31, 

 

 

2020 

 

 2019

ASSETS

 

 

 

 

Real estate properties:

 

 

 

 

Land

 

$

2,030,440

 

 

$

2,066,602

 

Buildings, improvements and equipment

 

9,131,832

 

 

9,318,434

 

Total real estate properties, gross

 

11,162,272

 

 

11,385,036

 

Accumulated depreciation

 

(3,280,110)

 

 

(3,120,761)

 

Total real estate properties, net

 

7,882,162

 

 

8,264,275

 

Acquired real estate leases and other intangibles, net

 

325,845

 

 

378,218

 

Assets held for sale

 

13,543

 

 

87,493

 

Cash and cash equivalents

 

73,332

 

 

27,633

 

Restricted cash

 

18,124

 

 

53,626

 

Due from related persons

 

55,530

 

 

68,653

 

Other assets, net

 

318,783

 

 

154,069

 

Total assets

 

$

8,687,319

 

 

$

9,033,967

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Revolving credit facility

 

$

78,424

 

 

$

377,000

 

Term loan, net

 

 

 

397,889

 

Senior unsecured notes, net

 

6,130,166

 

 

5,287,658

 

Security deposits

 

294

 

 

109,403

 

Accounts payable and other liabilities

 

345,079

 

 

335,696

 

Due to related persons

 

30,566

 

 

20,443

 

Total liabilities

 

6,584,529

 

 

6,528,089

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,823,833 and 164,563,034 shares issued and outstanding, respectively

 

1,648

 

 

1,646

 

Additional paid in capital

 

4,550,385

 

 

4,547,529

 

Cumulative other comprehensive loss

 

(760)

 

 

 

Cumulative net income available for common shareholders

 

3,180,263

 

 

3,491,645

 

Cumulative common distributions

 

(5,628,746)

 

 

(5,534,942)

 

Total shareholders’ equity

 

2,102,790

 

 

2,505,878

 

Total liabilities and shareholders’ equity

 

$

8,687,319

 

 

$

9,033,967

 

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,

 

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

 

Hotel operating revenues (1)

 

$

174,520

 

 

$

467,805

 

 

$

875,098

 

 

$

1,989,173

 

Rental income (3)

 

95,523

 

 

111,727

 

 

389,955

 

 

322,236

 

FF&E reserve income (4)

 

 

 

1,374

 

 

201

 

 

4,739

 

Total revenues

 

270,043

 

 

580,906

 

 

1,265,254

 

 

2,316,148

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expenses (1)(2)(13)(14)(17)

 

204,998

 

 

334,916

 

 

697,904

 

 

1,410,927

 

Other operating expenses

 

4,179

 

 

3,938

 

 

15,208

 

 

8,357

 

Depreciation and amortization

 

121,351

 

 

126,727

 

 

498,908

 

 

428,448

 

General and administrative

 

13,046

 

 

17,733

 

 

50,668

 

 

54,639

 

Transaction related costs (5)

 

 

 

1,795

 

 

 

 

1,795

 

Loss on asset impairment (6)

 

254

 

 

39,296

 

 

55,756

 

 

39,296

 

Total expenses

 

343,828

 

 

524,405

 

 

1,318,444

 

 

1,943,462

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate, net (7)

 

11,916

 

 

 

 

2,261

 

 

159,535

 

Dividend income

 

 

 

 

 

 

 

1,752

 

Unrealized gains (losses) on equity securities, net (8)

 

15,473

 

 

3,300

 

 

19,882

 

 

(40,461)

 

Gain on insurance settlement (9)

 

 

 

 

 

62,386

 

 

 

Interest income

 

1

 

 

441

 

 

284

 

 

2,215

 

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $4,220, $3,288, $14,870 and $11,117, respectively)

 

(82,811)

 

 

(73,384)

 

 

(306,490)

 

 

(225,126)

 

Loss on early extinguishment of debt (10)

 

(2,424)

 

 

 

 

(9,394)

 

 

(8,451)

 

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

 

(131,630)

 

 

(13,142)

 

 

(284,261)

 

 

262,150

 

Income tax expense (9)

 

(505)

 

 

(1,527)

 

 

(17,211)

 

 

(2,793)

 

Equity in earnings (losses) of an investee (11)

 

(5,605)

 

 

(224)

 

 

(9,910)

 

 

393

 

Net income (loss)

 

$

(137,740)

 

 

$

(14,893)

 

 

$

(311,382)

 

 

$

259,750

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

164,498

 

 

164,364

 

 

164,422

 

 

164,312

 

Weighted average common shares outstanding (diluted)

 

164,498

 

 

164,364

 

 

164,422

 

 

164,340

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.84)

 

 

$

(0.09)

 

 

$

(1.89)

 

 

$

1.58

 

See Notes.

SERVICE PROPERTIES TRUST
RECONCILIATIONS OF FUNDS FROM OPERATIONS AND
NORMALIZED FUNDS FROM OPERATIONS
(amounts in thousands, except per share data)
(unaudited)

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2020

 

2019

 

2020

 

2019

Calculation of FFO and Normalized FFO: (12)

 

 

 

 

 

 

 

Net income (loss)

$

(137,740)

 

 

$

(14,893)

 

 

$

(311,382)

 

 

$

259,750

 

Add (Less): Depreciation and amortization

121,351

 

 

126,727

 

 

498,908

 

 

428,448

 

(Gain) on sale of real estate, net (7)

(11,916)

 

 

 

 

(2,261)

 

 

(159,535)

 

Loss on asset impairment (6)

254

 

 

39,296

 

 

55,756

 

 

39,296

 

Unrealized (gains) losses on equity securities, net (8)

(15,473)

 

 

(3,300)

 

 

(19,882)

 

 

40,461

 

Adjustments to reflect SVC’s share of FFO attributable to an investee (11)

400

 

 

 

 

(61)

 

 

 

FFO

(43,124)

 

 

147,830

 

 

221,078

 

 

608,420

 

Add (Less): Transaction related costs (5)

 

 

1,795

 

 

 

 

1,795

 

Loss on early extinguishment of debt (10)

2,424

 

 

 

 

9,394

 

 

8,451

 

Loss contingency (13)

3,962

 

 

1,997

 

 

3,962

 

 

1,997

 

Gain on insurance settlement, net of tax (9)

(1,800)

 

 

 

 

(48,536)

 

 

 

Hotel manager transition related costs (14)

15,100

 

 

 

 

15,100

 

 

 

Adjustments to reflect SVC's share of Normalized FFO attributable to an investee (11)

964

 

 

 

 

964

 

 

 

Normalized FFO

$

(22,474)

 

 

$

151,622

 

 

$

201,962

 

 

$

620,663

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

164,498

 

 

164,364

 

 

164,422

 

 

164,312

 

Weighted average common shares outstanding (diluted)

164,498

 

 

164,364

 

 

164,422

 

 

164,340

 

 

 

 

 

 

 

 

 

Basic and diluted per common share amounts:

 

 

 

 

 

 

 

Net income (loss) per share

$

(0.84)

 

 

$

(0.09)

 

 

$

(1.89)

 

 

$

1.58

 

FFO

$

(0.26)

 

 

$

0.90

 

 

$

1.34

 

 

$

3.70

 

Normalized FFO

$

(0.14)

 

 

$

0.92

 

 

$

1.23

 

 

$

3.78

 

Distributions declared per share

$

0.01

 

 

$

0.54

 

 

$

0.57

 

 

$

2.15

 

See Notes.

SERVICE PROPERTIES TRUST
RECONCILIATIONS OF EBITDA, EBITDAre AND ADJUSTED EBITDAre
(amounts in thousands)
(unaudited)

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2020

 

2019

 

2020

 

2019

Calculation of EBITDA, EBITDAre and Adjusted EBITDAre:(15)

 

 

 

 

 

 

 

Net income (loss)

$

(137,740)

 

 

$

(14,893)

 

 

$

(311,382)

 

 

$

259,750

 

Add (Less): Interest expense

82,811

 

 

73,384

 

 

306,490

 

 

225,126

 

Income tax expense (9)

505

 

 

1,527

 

 

17,211

 

 

2,793

 

Depreciation and amortization

121,351

 

 

126,727

 

 

498,908

 

 

428,448

 

EBITDA

66,927

 

 

186,745

 

 

511,227

 

 

916,117

 

Add (Less): Gain on sale of real estate, net (7)

(11,916)

 

 

 

 

(2,261)

 

 

(159,535)

 

Loss on asset impairment (6)

254

 

 

39,296

 

 

55,756

 

 

39,296

 

EBITDAre

55,265

 

 

226,041

 

 

564,722

 

 

795,878

 

Add (Less): General and administrative expense paid in common shares (16)

920

 

 

480

 

 

3,206

 

 

2,849

 

Transaction related costs (5)

 

 

1,795

 

 

 

 

1,795

 

Adjustments to reflect SVC’s share of EBITDA attributable to an investee (11)

2,755

 

 

 

 

1,751

 

 

 

Loss on early extinguishment of debt (10)

2,424

 

 

 

 

9,394

 

 

8,451

 

Gain on insurance settlement (9)

 

 

 

 

(62,386)

 

 

 

Unrealized (gains) losses on equity securities, net (8)

(15,473)

 

 

(3,300)

 

 

(19,882)

 

 

40,461

 

Loss contingency (13)

3,962

 

 

1,997

 

 

3,962

 

 

1,997

 

Hotel manager transition related costs (14)

15,100

 

 

 

 

15,100

 

 

 

Adjusted EBITDAre

$

64,953

 

 

$

227,013

 

 

$

515,867

 

 

$

851,431

 

See Notes.

SERVICE PROPERTIES TRUST
CALCULATION AND RECONCILIATION OF HOTEL EBITDA and ADJUSTED HOTEL EBITDA

Comparable Hotels
(amounts in thousands)
(unaudited)

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2020

 

2019

 

2020

 

2019

Number of hotels

302

 

 

302

 

 

285

 

 

285

 

Room revenues

$

150,857

 

 

$

369,818

 

 

$

662,714

 

 

$

1,365,349

 

Food and beverage revenues

7,484

 

 

59,329

 

 

40,188

 

 

143,181

 

Other revenues

8,647

 

 

14,511

 

 

27,435

 

 

41,818

 

Hotel operating revenues - comparable hotels

166,988

 

 

443,658

 

 

730,337

 

 

1,550,348

 

Rooms expenses

56,529

 

 

106,120

 

 

222,959

 

 

370,426

 

Food and beverage expenses

9,241

 

 

44,618

 

 

41,313

 

 

108,269

 

Other direct and indirect expenses

107,844

 

 

148,369

 

 

363,801

 

 

507,672

 

Management fees

2,214

 

 

3,390

 

 

5,759

 

 

8,359

 

Real estate taxes, insurance and other

27,066

 

 

26,263

 

 

90,319

 

 

89,204

 

FF&E reserves (4)

390

 

 

16,034

 

 

10,270

 

 

66,272

 

Hotel operating expenses - comparable hotels

203,284

 

 

344,794

 

 

734,421

 

 

1,150,202

 

 

 

 

 

 

 

 

 

Hotel EBITDA - comparable hotels

$

(36,296)

 

 

$

98,864

 

 

$

(4,084)

 

 

$

400,146

 

Loss contingency (13)

3,962

 

 

 

 

3,962

 

 

 

Hotel manager transition related costs (14)

14,212

 

 

 

 

12,743

 

 

 

Adjusted Hotel EBITDA

$

(18,122)

 

 

$

98,864

 

 

$

12,621

 

 

$

400,146

 

Adjusted Hotel EBITDA Margin

(10.9)

%

 

22.3

%

 

1.7

%

 

25.8

%

 

 

 

 

 

 

 

 

Hotel operating revenues (GAAP) (1)

$

174,520

 

 

$

467,805

 

 

$

875,098

 

 

$

1,989,173

 

Hotel operating revenues from non-comparable hotels

(7,532)

 

 

(24,147)

 

 

(144,761)

 

 

(438,825)

 

Hotel operating revenues - comparable hotels

$

166,988

 

 

$

443,658

 

 

$

730,337

 

 

$

1,550,348

 

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

204,998

 

 

$

334,916

 

 

$

697,904

 

 

$

1,410,927

 

Add (Less):

 

 

 

 

 

 

 

Hotel operating expenses from non-comparable hotels

(16,112)

 

 

(25,169)

 

 

(211,345)

 

 

(345,157)

 

Reduction for security deposit and guaranty fundings, net (2)

13,387

 

 

15,907

 

 

235,522

 

 

29,162

 

Management and incentive management fees paid from cash flows in excess from minimum returns and rents

 

 

3,106

 

 

 

 

(11,002)

 

FF&E reserves from managed hotel operations (4)

390

 

 

16,034

 

 

10,270

 

 

66,272

 

Other (17)

621

 

 

 

 

2,070

 

 

 

Hotel operating expenses - comparable hotels

$

203,284

 

 

$

344,794

 

 

$

734,421

 

 

$

1,150,202

 

See Notes.

SERVICE PROPERTIES TRUST
CALCULATION AND RECONCILIATION OF HOTEL EBITDA and ADJUSTED HOTEL EBITDA
All Hotels
(amounts in thousands)
(unaudited)

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

2020

 

2019

 

2020

 

2019

Room revenues

$

159,022

 

 

$

397,995

 

 

$

773,572

 

 

$

1,732,994

 

Food and beverage revenues

7,911

 

 

67,080

 

 

66,830

 

 

258,336

 

Other revenues

9,485

 

 

27,485

 

 

48,339

 

 

81,665

 

Hotel operating revenues

176,418

 

 

492,560

 

 

888,741

 

 

2,072,995

 

Rooms expenses

59,784

 

 

116,048

 

 

270,828

 

 

479,681

 

Food and beverage expenses

9,928

 

 

52,117

 

 

75,718

 

 

204,477

 

Other direct and indirect expenses

112,428

 

 

152,714

 

 

437,919

 

 

629,304

 

Management fees

2,436

 

 

3,465

 

 

8,050

 

 

15,233

 

Real estate taxes, insurance and other

36,655

 

 

44,869

 

 

154,375

 

 

162,201

 

FF&E reserves (4)

390

 

 

17,343

 

 

11,274

 

 

74,015

 

Hotel operating expenses

221,621

 

 

386,556

 

 

958,164

 

 

1,564,911

 

 

 

 

 

 

 

 

 

Hotel EBITDA

$

(45,203)

 

 

$

106,004

 

 

$

(69,423)

 

 

$

508,084

 

Loss contingency (13)

3,962

 

 

 

 

3,962

 

 

 

Hotel manager transition related costs (14)

15,100

 

 

 

 

15,100

 

 

 

Adjusted Hotel EBITDA

$

(26,141)

 

 

$

106,004

 

 

$

(50,361)

 

 

$

508,084

 

Adjusted Hotel EBITDA Margin

(14.8)

%

 

21.5

%

 

(5.7)

%

 

24.5

%

 

 

 

 

 

 

 

 

Hotel operating revenues (GAAP) (1)

$

174,520

 

 

$

467,805

 

 

$

875,098

 

 

$

1,989,173

 

Add: hotel revenues of leased hotels (1)

1,898

 

 

24,755

 

 

13,643

 

 

83,822

 

Hotel operating revenues

$

176,418

 

 

$

492,560

 

 

$

888,741

 

 

$

2,072,995

 

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

204,998

 

 

$

334,916

 

 

$

697,904

 

 

$

1,410,927

 

Add (Less):

 

 

 

 

 

 

 

Reduction for security deposit and guaranty fundings, net (2)

13,387

 

 

15,907

 

 

235,522

 

 

29,162

 

Hotel operating expenses of leased hotels

2,225

 

 

16,297

 

 

11,074

 

 

66,187

 

Management and incentive management fees paid from cash flows in excess from minimum returns and rents

 

 

3,106

 

 

 

 

(11,002)

 

FF&E reserves from managed hotels operations (4)

390

 

 

16,330

 

 

11,594

 

 

69,637

 

Other (17)

621

 

 

 

 

2,070

 

 

 

Hotel operating expenses

$

221,621

 

 

$

386,556

 

 

$

958,164

 

 

$

1,564,911

 

See Notes.

  1. As of December 31, 2020, SVC owned 310 hotels; 305 of these hotels were managed by hotel operating companies. SVC has entered into an agreement to sell five hotels and has entered into a short term lease with the buyer in anticipation of the sale. SVC’s consolidated statements of income (loss) include hotel operating revenues and expenses of managed hotels and rental income from its leased hotels.
  2. When managers of SVC’s hotels are required to fund the shortfalls of minimum returns under the terms of SVC’s management agreements or their guarantees, SVC reflects such fundings (including security deposit applications) in its consolidated statements of income (loss) as a reduction of hotel operating expenses. The net reduction to hotel operating expenses was $13,387 and $15,907 for the three months ended December 31, 2020 and 2019, respectively, and $235,522 and $29,162 for the year ended December 31, 2020 and 2019, respectively.
  3. SVC reduced rental income by $416 and $3,351 for the three months ended December 31, 2020 and 2019, respectively, and reduced rental income by $714 and $10,719 for the years ended December 31, 2020 and 2019, respectively, to record scheduled rent changes under certain of SVC’s leases, the deferred rent obligations under SVC’s leases with 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.
  4. 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. SVC reports deposits by its tenants into the escrow accounts under its hotel leases as FF&E reserve income. SVC does not report the amounts which are escrowed as FF&E reserves for its managed hotels as FF&E reserve income.
  5. Transaction related costs represents costs related to SVC’s exploration of possible financing transactions.
  6. SVC recorded a $254 loss on asset impairment during the three months ended December 31, 2020 to reduce the carrying value of five net lease properties to their estimated fair value. SVC recorded a $55,756 loss on asset impairment during the year ended December 31, 2020 to reduce the carrying value of 18 hotels and 13 net lease properties to their estimated fair value. SVC recorded a $39,296 loss on asset impairment during the three months and year 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.
  7. SVC recorded a $11,916 net gain on sale of real estate during the three months ended December 31, 2020 in connection with the sales of 18 hotels and six net lease properties. SVC recorded a $2,261 net gain on sale of real estate during the year ended December 31, 2020 in connection with the sales of 18 hotels and 21 net lease properties. SVC recorded a $159,535 gain on sale of real estate during the year ended December 31, 2019 in connection with the sale of 20 travel centers.
  8. Unrealized gains (losses) on equity securities, net represents the adjustment required to adjust the carrying value of SVC’s former investment in RMR Inc. common stock and its investment in TA common shares to their fair value. SVC sold its RMR Inc. shares on July 1, 2019.
  9. SVC recorded a $62,386 gain on insurance settlement during the year ended December 31, 2020 for insurance proceeds received for its leased hotel in San Juan, PR related to Hurricane Maria. Under GAAP, SVC was required to increase the building basis of its San Juan hotel for the amount of the insurance proceeds. SVC also recorded a $13,850 deferred tax liability as a result of the book value to tax basis difference related to this accounting in the year ended December 31, 2020.
  10. SVC recorded a loss of $2,424 and $6,970 during the quarters ended December 31, 2020 and June 30, 2020, respectively, on extinguishment of debt relating to its repayment of its $400 million term loan and certain unsecured senior notes. SVC recorded a $8,451 loss on early extinguishment of debt in the year ended December 31, 2019 related to the termination of a term loan commitment SVC arranged in connection with the acquisition of a net lease portfolio.
  11. Represents SVC’s proportionate share of its equity investment in Sonesta during the three months and year ended December 31, 2020 and Affiliates Insurance Company during the three months and year ended December 31, 2019.
  12. 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) available for common shareholders, 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 and includes business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of SVC’s 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. 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.
  13. Hotel operating expenses for the three months and year ended December 31, 2020 includes a $3,962 loss contingency related to a litigation matter at certain hotels. SVC 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 it rebranded.
  14. Hotel operating expenses for the three months and year ended December 31, 2020 includes $15,100 of hotel manager transition related costs resulting from the rebranding of 112 hotels during the periods.
  15. 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, as well as certain other adjustments currently not applicable to SVC. In calculating Adjusted EBITDAre, SVC adjusts for the items shown above and includes business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of SVC’s 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 SVC does.
  16. Amounts represent the equity compensation for SVC’s Trustees, its officers and certain other employees of SVC’s manager.
  17. 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 consolidated statements of income (loss). SVC reduced hotel operating expenses by $621 and $2,070 for the three months and year ended December 31, 2020, 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. Murray indicates SVC’s belief that the rebranding of hotels to Sonesta will benefit SVC as an owner of Sonesta and create more flexibility with respect to capital investments, possibly repurposing hotels to other uses, or sales. Sonesta may not operate these hotels profitably and SVC may not receive the benefits it expects to receive;
  • SVC expects Sonesta to operate 256 of its 310 hotels, which constituted approximately 49% of SVC’s total historical real estate investments as of December 31, 2020, after SVC rebrands certain additional Marriott hotels to Sonesta in the first quarter of 2021. SVC is also currently in discussions with Hyatt regarding 22 hotels. If such discussions do not result in a mutually acceptable agreement, SVC expects to transition management of these 22 hotels to Sonesta. Sonesta is a small privately held company with less resources and scale compared to Wyndham, IHG, Marriott and Hyatt. If Sonesta were to fail to provide quality services and amenities or to maintain a quality brand, SVC’s income from these properties may be adversely affected. There can be no assurance that Sonesta can operate the hotels rebranded from Wyndham, IHG, Marriott and Hyatt as effectively or for returns at levels that could otherwise be achieved by Wyndham, IHG, Marriott, or Hyatt. Further, if SVC were required to replace Sonesta, SVC could experience significant disruptions in operations at the applicable properties, which could reduce its income and cash flows from, and the value of, those properties. SVC has no guarantee or security deposit under its Sonesta agreements. Accordingly, SVC may receive amounts from Sonesta that are less than the contractual minimum returns stated in its agreements with Sonesta or SVC may be requested to fund losses for its Sonesta hotels;
  • Mr. Murray states that TA continues to benefit from healthy trucking activity and its importance to the nation’s supply chain. However, if trucking activity slows down or decreases in importance, TA may encounter difficulties meeting its rent obligations to SVC;
  • Mr. Murray indicates that SVC has taken proactive steps to fortify its liquidity and preserve financial flexibility, noting certain actions SVC has taken in these regards. Further, Mr. Murray states that SVC expects lodging trends to improve in the latter half of 2021. However, lodging trends may not improve as expected and if the COVID-19 pandemic or the current economic conditions continue for an extended period or worsen, SVC’s actions may not be adequate to ensure that SVC maintains sufficient liquidity and preserves capital;
  • SVC expects to complete $22.3 million of hotel sales and $2.1 million of net lease property sales by the end of the second quarter of 2021. 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; further Mr. Murray states that SVC continues to execute on asset sales which may imply that it will execute its pending sales and future sales; however, it may not be able to complete these sales on acceptable terms or otherwise; and
  • Although SVC obtained a waiver of existing financial covenants through July 15, 2022, it may fail to comply with the terms of the waiver and other requirements under its credit agreement. In addition, SVC may fail to satisfy its public debt covenants. SVC’s ability to borrow under its revolving credit facility is subject to SVC satisfying those covenants and other conditions. Further, SVC may experience liquidity constraints in the future as it is currently fully drawn on its $1.0 billion revolving credit facility, and would not have any immediately available borrowing capacity to meet any funding needs beyond its cash on hand. If SVC’s operating results and financial condition are significantly and adversely impacted by current economic conditions or otherwise, SVC may fail to satisfy those covenants and conditions. Further, if SVC fails to satisfy its debt covenants, it may be prohibited from incurring additional indebtedness and may need to repay outstanding debts.

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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February 27, 2021 at 04:10AM
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Service Properties Trust Announces Fourth Quarter 2020 Results - Business Wire
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