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Service Properties Trust Announces Fourth Quarter 2022 Results

Net Loss of $(0.19) Per Common Share

159% Increase in Normalized FFO to $0.44 Per Common Share

27% Increase in Adjusted EBITDAre to $150.5 Million

Completes $610.2 Million Secured Financing

Agrees to Amend Lease Terms upon Completion of BP’s Acquisition of TravelCenters of America Inc.

Service Properties Trust (Nasdaq: SVC) today announced its financial results for the quarter ended December 31, 2022.

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

“We are encouraged by the improved hotel fundamentals that we experienced throughout 2022 and expect that further progress will occur in 2023. Comparable hotel RevPAR for the fourth quarter increased by 21.4% over the same period last year, with occupancy increasing 3.3 percentage points, leading to a 98.3% increase in comparable hotel EBITDA over the same period last year.

Our portfolio of net lease assets continued to deliver steady and reliable cash flows during the quarter. We are excited to have reached agreement with BP on amended lease terms that will take effect upon completion of BP’s acquisition of TA and the enhanced value we believe the amended leases with BP will provide SVC shareholders. We are also pleased with the recent execution of our ABS facility, which demonstrates one of the several options available to us to address upcoming debt maturities at attractive relative interest rates.”

Results for the Quarter Ended December 31, 2022:

 

Three Months Ended December 31,

 

2022

 

2021

 

Change

 

($ in thousands, except per share data)

 

 

Net loss

$

(31,409

)

 

$

(198,793

)

 

n/m

 

Net loss per common share

$

(0.19

)

 

$

(1.21

)

 

n/m

 

Normalized FFO (1)

$

73,266

 

 

$

27,936

 

 

162.3

%

Normalized FFO per common share (1)

$

0.44

 

 

$

0.17

 

 

158.8

%

Adjusted EBITDAre (1)

$

150,534

 

 

$

118,997

 

 

26.5

%

(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, 2022 and 2021 appear later in this press release.

(2)  

n/m - not meaningful

Hotel Portfolio:

As of December 31, 2022, SVC’s 238 hotels were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (196 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (eight hotels), Marriott International, Inc., or Marriott (16 hotels), and InterContinental Hotels Group, plc, or IHG (one hotel).

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2022

 

2021

 

Change

 

2022

 

2021

 

Change

 

 

($ in thousands, except hotel statistics)

Comparable Hotels

 

 

 

 

 

 

 

 

 

 

 

 

No. of hotels

 

 

236

 

 

 

236

 

 

 

 

 

235

 

 

 

235

 

 

 

No. of rooms or suites

 

 

39,736

 

 

 

39,736

 

 

 

 

 

39,364

 

 

 

39,364

 

 

 

Occupancy

 

 

58.7

%

 

 

55.4

%

 

3.3 pts

 

 

61.4

%

 

 

52.5

%

 

8.9 pts

ADR

 

$

134.64

 

 

$

117.54

 

 

14.5

%

 

$

133.72

 

 

$

110.39

 

 

21.1

%

Hotel RevPAR

 

$

79.03

 

 

$

65.12

 

 

21.4

%

 

$

82.10

 

 

$

57.95

 

 

41.7

%

Hotel operating revenues (1)

 

$

349,599

 

 

$

278,342

 

 

25.6

%

 

$

1,385,508

 

 

$

951,479

 

 

45.6

%

Hotel operating expenses (1)

 

$

294,602

 

 

$

250,610

 

 

17.6

%

 

$

1,145,447

 

 

$

887,592

 

 

29.1

%

Hotel EBITDA (1)

 

$

54,997

 

 

$

27,732

 

 

98.3

%

 

$

240,061

 

 

$

63,887

 

 

n/m

 

Hotel EBITDA margin

 

 

15.7

%

 

 

10.0

%

 

5.7 pts

 

 

17.3

%

 

 

6.7

%

 

10.6 pts

 

 

 

 

 

 

 

 

 

 

 

 

 

All Hotels

 

 

 

 

 

 

 

 

 

 

 

 

No. of hotels

 

 

238

 

 

 

238

 

 

 

 

 

238

 

 

 

238

 

 

 

No. of rooms or suites

 

 

40,053

 

 

 

40,053

 

 

 

 

 

40,053

 

 

 

40,053

 

 

 

Occupancy

 

 

58.6

%

 

 

55.3

%

 

3.3 pts

 

 

61.3

%

 

 

52.3

%

 

9.0 pts

ADR

 

$

134.64

 

 

$

117.54

 

 

14.5

%

 

$

134.47

 

 

$

110.47

 

 

21.7

%

Hotel RevPAR

 

$

78.90

 

 

$

65.00

 

 

21.4

%

 

$

82.43

 

 

$

57.78

 

 

42.7

%

Hotel operating revenues (1)(2)

 

$

350,501

 

 

$

317,215

 

 

10.5

%

 

$

1,467,344

 

 

$

1,104,678

 

 

32.8

%

Hotel operating expenses (1)(2)

 

$

296,427

 

 

$

288,825

 

 

2.6

%

 

$

1,239,109

 

 

$

1,033,463

 

 

19.9

%

Hotel EBITDA (1)(2)

 

$

54,074

 

 

$

28,390

 

 

90.5

%

 

$

228,235

 

 

$

71,215

 

 

n/m

 

Hotel EBITDA margin

 

 

15.4

%

 

 

8.9

%

 

6.5 pts

 

 

15.6

%

 

 

6.4

%

 

9.2 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 December 31, 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

 

 

236 Hotels, 39,736 rooms

 

2022 vs 2019

 

 

Occupancy

 

Average Daily

Rate

 

RevPAR

 

Occupancy

 

Average Daily

Rate

 

RevPAR

October

 

67.3 %

 

$143.32

 

$96.45

 

(11.3) pts

 

1.6 %

 

(13.3) %

November

 

58.4 %

 

$130.59

 

$76.26

 

(11.8) pts

 

(0.3) %

 

(17.0) %

December

 

50.5 %

 

$127.61

 

$64.44

 

(10.5) pts

 

3.8 %

 

(14.1) %

All Hotels

 

 

238 Hotels, 40,563 rooms

 

2022 vs 2019

 

 

Occupancy

 

Average Daily

Rate

 

RevPAR

 

Occupancy

 

Average Daily

Rate

 

RevPAR

October

 

67.2 %

 

$143.32

 

$96.31

 

(11.5) pts

 

1.6 %

 

(13.3) %

November

 

58.3 %

 

$130.59

 

$76.13

 

(11.9) pts

 

(0.2) %

 

(17.1) %

December

 

50.4 %

 

$127.61

 

$64.32

 

(10.6) pts

 

3.8 %

 

(14.2) %

For SVC’s 237 hotels owned as of January 31, 2023, January 2023 occupancy, ADR and RevPAR were 49.5%, $132.38 and $65.53, respectively.

Net Lease Retail Portfolio:

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

 

 

As of December 31, 2022

Number of properties

 

765

Industries

 

21

Tenants

 

180

Brands

 

138

Square feet

 

13.4 million

Occupancy

 

97.6%

Weighted average lease term (by annual minimum rent)

 

9.6 years

Rent Coverage

 

3.00x

BP Acquisition:

As previously announced, SVC has agreed to amend its existing leases and guarantees with TravelCenters of America Inc. (Nasdaq: TA) effective upon the completion of the pending acquisition of TA by BP p.l.c. (NYSE: BP) for cash consideration of $86.00 per share of TA common stock outstanding (the “BP Acquisition”). Under the amended leases for 176 of SVC’s travel center properties, aggregate annual minimum rent will be $254.0 million, with annual 2% increases throughout the initial 10-year terms and any renewal terms, and there will be no percentage rent requirement. At closing, TA Operating LLC will prepay $188.0 million of rent under the amended leases and will receive monthly rent credits totaling $25.0 million per year over the 10-year initial term of the leases. TA Operating LLC will have five, 10-year extension options for each of the five leases. BP Corporation North America Inc. will guarantee each of the leases. BP Corporation North America Inc. owns the vast majority of BP’s assets in the United States across virtually all segments, and it is rated A3 by Moody’s and A- by S&P. SVC also currently owns certain tradenames and trademarks associated with TA’s business and has agreed to sell those tradenames and trademarks to TA as part of the BP Acquisition at their current book value of $89.4 million.

The BP Acquisition is subject to the approval of TA stockholders owning a majority of TA’s outstanding common shares. SVC currently owns 7.8% of TA’s outstanding common shares, valued at $101.9 million based on the cash merger consideration, and has agreed to vote its TA shares in favor of the BP Acquisition. Subject to stockholder and regulatory approvals and various customary conditions to closing, the parties expect that the BP Acquisition will be completed by mid-year 2023. SVC expects to receive approximately $379.3 million in total cash for the value of its TA common shares, the TA tradenames and trademarks and the prepaid rent under the amended and restated lease agreements upon completion of the BP Acquisition.

Recent Investment Activities:

During the quarter ended December 31, 2022, SVC sold four hotels with 514 keys for an aggregate sales price of $25.8 million, excluding closing costs, and two net lease properties with an aggregate of 9,090 rentable square feet for an aggregate sales price of $2.3 million, excluding closing costs. From January 1, 2023 through February 28, 2023, SVC sold eight hotels with 1,097 keys for a sale price of $53.3 million, excluding closing costs, including seven of its Marriott branded hotels.

SVC is under agreement to sell its remaining nine Marriott branded hotels with 1,210 keys located in four states for an aggregate sales price of $88.5 million, excluding closing costs. SVC has entered agreements to sell one additional hotel with 219 keys for $14.6 million and two net lease properties with an aggregate of 2,384 rentable square feet for an aggregate sales price of $0.7 million, excluding closing costs. These pending sales are subject to conditions; as a result, these sales may not occur, may be delayed or their terms may change. SVC expects the majority of these sales to be completed by the end of the first quarter of 2023. SVC continues to market for sale two net lease properties with an aggregate of 7,283 rentable square feet.

Capital expenditures made at certain of SVC’s properties for the quarter ended December 31, 2022 were $36.8 million.

Financing Activities:

As previously announced, on February 10, 2023, a subsidiary of SVC, issued $610.2 million in aggregate principal amount of net lease mortgage notes, or the Notes. The Notes were issued in three classes, as summarized below:

Note Class

 

S&P Rating

 

Amount

 

Coupon Rate

 

Term

 

Maturity

Class A

 

AAA

 

$305.0

 

5.15%

 

5 years

 

February 2028

Class B

 

AA

 

173.0

 

5.55%

 

5 years

 

February 2028

Class C

 

A

 

132.2

 

6.70%

 

5 years

 

February 2028

Total / weighted average

 

$610.2

 

5.60%

 

 

 

 

The net proceeds from this issuance were approximately $555.0 million after initial purchaser discounts and offering costs.

SVC also announced the early redemption of its outstanding 4.50% Senior Notes due 2023 at a redemption price equal to the principal amount of $500.0 million, plus accrued and unpaid interest to, but excluding, the date of redemption. This redemption is expected to occur on or about March 8, 2023. SVC currently expects to fund this redemption with the proceeds from the issuance of net lease mortgage notes described above.

Conference Call:

On March 1, 2023 at 1:00 p.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 fourth 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 Wednesday, March 8, 2023. To access the replay, dial (412) 317-0088. The replay pass code is 5200808.

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 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 December 31, 2022, SVC owned 238 hotels with over 40,000 guest rooms throughout the United States and in Puerto Rico and Canada, the majority of which are extended stay and select service. As of December 31, 2022, SVC also owned 765 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 December 31, 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 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, 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 December 31, 2022 and were open and operating for the entire periods being compared. For the three and twelve months ended December 31, 2022 and 2021, SVC’s comparable results excluded two and three hotels, respectively, 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 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, 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. In instances where SVC does not have tenant financial information, it calculates an implied coverage ratio for the period based on other tenants with available financial statements operating the same brand or within the same industry. As a result, SVC believes using this implied coverage metric provides a more reasonable estimated representation of recent operating results and the financial condition 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

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

(unaudited)

 

 

 

As of December 31,

 

 

2022

 

2021

ASSETS

 

 

 

 

Real estate properties:

 

 

 

 

Land

 

$

1,902,587

 

 

$

1,918,385

 

Buildings, improvements and equipment

 

 

7,658,282

 

 

 

8,307,248

 

Total real estate properties, gross

 

 

9,560,869

 

 

 

10,225,633

 

Accumulated depreciation

 

 

(2,970,133

)

 

 

(3,281,659

)

Total real estate properties, net

 

 

6,590,736

 

 

 

6,943,974

 

Acquired real estate leases and other intangibles, net

 

 

252,357

 

 

 

283,241

 

Assets held for sale

 

 

121,905

 

 

 

515,518

 

Cash and cash equivalents

 

 

38,369

 

 

 

944,043

 

Restricted cash

 

 

7,051

 

 

 

3,375

 

Equity method investments

 

 

112,617

 

 

 

62,687

 

Investment in equity securities

 

 

53,055

 

 

 

61,159

 

Due from related persons

 

 

35,033

 

 

 

48,168

 

Other assets, net

 

 

277,068

 

 

 

291,150

 

Total assets

 

$

7,488,191

 

 

$

9,153,315

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Revolving credit facility

 

$

 

 

$

1,000,000

 

Senior unsecured notes, net

 

 

5,655,530

 

 

 

6,143,022

 

Accounts payable and other liabilities

 

 

425,960

 

 

 

433,448

 

Due to related persons

 

 

17,909

 

 

 

21,539

 

Total liabilities

 

 

6,099,399

 

 

 

7,598,009

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,452,566 and 165,092,333 shares issued and outstanding, respectively

 

 

1,655

 

 

 

1,651

 

Additional paid in capital

 

 

4,554,861

 

 

 

4,552,558

 

Cumulative other comprehensive income

 

 

2,383

 

 

 

779

 

Cumulative net income available for common shareholders

 

 

2,503,279

 

 

 

2,635,660

 

Cumulative common distributions

 

 

(5,673,386

)

 

 

(5,635,342

)

Total shareholders’ equity

 

 

1,388,792

 

 

 

1,555,306

 

Total liabilities and shareholders’ equity

 

$

7,488,191

 

 

$

9,153,315

 

 

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,

 

 

2022

 

2021

 

2022

 

2021

Revenues:

 

 

 

 

 

 

 

 

Hotel operating revenues (1)

 

$

350,501

 

 

$

317,215

 

 

$

1,467,344

 

 

$

1,104,678

 

Rental income (2)

 

 

104,718

 

 

 

104,160

 

 

 

395,667

 

 

 

390,902

 

Total revenues

 

 

455,219

 

 

 

421,375

 

 

 

1,863,011

 

 

 

1,495,580

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expenses (1)(3)

 

 

293,554

 

 

 

286,968

 

 

 

1,227,357

 

 

 

1,010,737

 

Other operating expenses

 

 

4,015

 

 

 

3,900

 

 

 

13,176

 

 

 

15,658

 

Depreciation and amortization

 

 

94,961

 

 

 

115,757

 

 

 

401,108

 

 

 

485,965

 

General and administrative

 

 

8,660

 

 

 

12,601

 

 

 

44,404

 

 

 

53,439

 

Transaction related costs (4)

 

 

 

 

 

35,830

 

 

 

1,920

 

 

 

64,764

 

Loss on asset impairment, net (5)

 

 

1,269

 

 

 

76,510

 

 

 

10,989

 

 

 

78,620

 

Total expenses

 

 

402,459

 

 

 

531,566

 

 

 

1,698,954

 

 

 

1,709,183

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate, net (6)

 

 

3,583

 

 

 

588

 

 

 

47,818

 

 

 

11,522

 

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

 

 

(10,841

)

 

 

2,168

 

 

 

(8,104

)

 

 

22,535

 

Interest income

 

 

644

 

 

 

177

 

 

 

3,379

 

 

 

664

 

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $3,846, $5,913, $19,375 and $21,036, respectively)

 

 

(77,891

)

 

 

(92,494

)

 

 

(341,795

)

 

 

(365,721

)

Loss on early extinguishment of debt (8)

 

 

 

 

 

 

 

 

(791

)

 

 

 

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

 

 

(31,745

)

 

 

(199,752

)

 

 

(135,436

)

 

 

(544,603

)

Income tax benefit (expense)

 

 

1,757

 

 

 

1,950

 

 

 

199

 

 

 

941

 

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

 

 

(1,421

)

 

 

(991

)

 

 

2,856

 

 

 

(941

)

Net loss

 

$

(31,409

)

 

$

(198,793

)

 

$

(132,381

)

 

$

(544,603

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

 

164,862

 

 

 

164,667

 

 

 

164,738

 

 

 

164,566

 

 

 

 

 

 

 

 

 

 

Net loss per common share (basic and diluted)

 

$

(0.19

)

 

$

(1.21

)

 

$

(0.80

)

 

$

(3.31

)

 

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

December 31,

 

Year Ended

December 31,

 

2022

 

2021

 

2022

 

2021

Calculation of FFO and Normalized FFO: (10)

 

 

 

 

 

 

 

Net loss

$

(31,409

)

 

$

(198,793

)

 

$

(132,381

)

 

$

(544,603

)

Add (Less): Depreciation and amortization

 

94,961

 

 

 

115,757

 

 

 

401,108

 

 

 

485,965

 

Loss on asset impairment, net (5)

 

1,269

 

 

 

76,510

 

 

 

10,989

 

 

 

78,620

 

Gain on sale of real estate, net (6)

 

(3,583

)

 

 

(588

)

 

 

(47,818

)

 

 

(11,522

)

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

 

10,841

 

 

 

(2,168

)

 

 

8,104

 

 

 

(22,535

)

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

 

1,049

 

 

 

737

 

 

 

3,723

 

 

 

2,605

 

FFO

 

73,128

 

 

 

(8,545

)

 

 

243,725

 

 

 

(11,470

)

Add (Less): Transaction related costs (4)

 

 

 

 

35,830

 

 

 

1,920

 

 

 

64,764

 

Loss on early extinguishment of debt (8)

 

 

 

 

 

 

 

791

 

 

 

 

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

 

138

 

 

 

651

 

 

 

1,037

 

 

 

2,270

 

Normalized FFO

$

73,266

 

 

$

27,936

 

 

$

247,473

 

 

$

55,564

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

164,862

 

 

 

164,667

 

 

 

164,738

 

 

 

164,566

 

 

 

 

 

 

 

 

 

Basic and diluted per common share amounts:

 

 

 

 

 

 

 

Net loss per share

$

(0.19

)

 

$

(1.21

)

 

$

(0.80

)

 

$

(3.31

)

FFO

$

0.44

 

 

$

(0.05

)

 

$

1.48

 

 

$

(0.07

)

Normalized FFO

$

0.44

 

 

$

0.17

 

 

$

1.50

 

 

$

0.34

 

Distributions declared per share

$

0.20

 

 

$

0.01

 

 

$

0.23

 

 

$

0.04

 

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

 

 

 

 

 

 

 

Net loss

$

(31,409

)

 

$

(198,793

)

 

$

(132,381

)

 

$

(544,603

)

Add (Less): Interest expense

 

77,891

 

 

 

92,494

 

 

 

341,795

 

 

 

365,721

 

Income tax (benefit) expense

 

(1,757

)

 

 

(1,950

)

 

 

(199

)

 

 

(941

)

Depreciation and amortization

 

94,961

 

 

 

115,757

 

 

 

401,108

 

 

 

485,965

 

EBITDA

 

139,686

 

 

 

7,508

 

 

 

610,323

 

 

 

306,142

 

Add (Less): Loss on asset impairment, net (5)

 

1,269

 

 

 

76,510

 

 

 

10,989

 

 

 

78,620

 

Gain on sale of real estate, net (6)

 

(3,583

)

 

 

(588

)

 

 

(47,818

)

 

 

(11,522

)

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

 

2,340

 

 

 

781

 

 

 

7,881

 

 

 

2,904

 

EBITDAre

 

139,712

 

 

 

84,211

 

 

 

581,375

 

 

 

376,144

 

Add (Less): Transaction related costs (4)

 

 

 

 

35,830

 

 

 

1,920

 

 

 

64,764

 

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

 

10,841

 

 

 

(2,168

)

 

 

8,104

 

 

 

(22,535

)

Loss on early extinguishment of debt (8)

 

 

 

 

 

 

 

791

 

 

 

 

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

 

(529

)

 

 

651

 

 

 

1,037

 

 

 

2,270

 

General and administrative expense paid in common shares (12)

 

510

 

 

 

473

 

 

 

2,776

 

 

 

2,963

 

Adjusted EBITDAre

$

150,534

 

 

$

118,997

 

 

$

596,003

 

 

$

423,606

 

 

 

 

 

 

 

 

 

See Notes on page 13.

 
 

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA

Comparable Hotels

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

2022

 

2021

 

2022

 

2021

Number of hotels

 

236

 

 

 

236

 

 

 

235

 

 

 

235

 

Room revenues

$

287,337

 

 

$

234,829

 

 

$

1,168,811

 

 

$

824,395

 

Food and beverage revenues

 

45,952

 

 

 

30,697

 

 

 

154,960

 

 

 

81,246

 

Other revenues

 

16,310

 

 

 

12,816

 

 

 

61,737

 

 

 

45,838

 

Hotel operating revenues - comparable hotels

 

349,599

 

 

 

278,342

 

 

 

1,385,508

 

 

 

951,479

 

Rooms expenses

 

94,005

 

 

 

78,181

 

 

 

363,399

 

 

 

271,401

 

Food and beverage expenses

 

35,226

 

 

 

25,824

 

 

 

120,140

 

 

 

68,799

 

Other direct and indirect expenses

 

125,255

 

 

 

109,131

 

 

 

487,356

 

 

 

404,555

 

Management fees

 

12,898

 

 

 

10,848

 

 

 

51,779

 

 

 

34,644

 

Real estate taxes, insurance and other

 

24,966

 

 

 

25,390

 

 

 

113,506

 

 

 

103,790

 

FF&E reserves (13)

 

2,252

 

 

 

1,236

 

 

 

9,267

 

 

 

4,403

 

Hotel operating expenses - comparable hotels

 

294,602

 

 

 

250,610

 

 

 

1,145,447

 

 

 

887,592

 

Hotel EBITDA - comparable hotels

$

54,997

 

 

$

27,732

 

 

$

240,061

 

 

$

63,887

 

Hotel EBITDA Margin

 

15.7

%

 

 

10.0

%

 

 

17.3

%

 

 

6.7

%

 

 

 

 

 

 

 

 

Hotel operating revenues (GAAP) (1)

$

350,501

 

 

$

317,215

 

 

$

1,467,344

 

 

$

1,104,678

 

Add (Less):

 

 

 

 

 

 

 

Hotel operating revenues from non-comparable hotels

 

(902

)

 

 

(38,873

)

 

 

(81,836

)

 

 

(153,199

)

Hotel operating revenues - comparable hotels

$

349,599

 

 

$

278,342

 

 

$

1,385,508

 

 

$

951,479

 

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

293,554

 

 

$

286,968

 

 

$

1,227,357

 

 

$

1,010,737

 

Add (Less):

 

 

 

 

 

 

 

Hotel operating expenses from non-comparable hotels

 

(1,825

)

 

 

(38,215

)

 

 

(91,798

)

 

 

(143,867

)

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

 

 

 

 

 

 

 

 

 

 

15,698

 

FF&E reserves from managed hotel operations (13)

 

2,252

 

 

 

1,236

 

 

 

9,267

 

 

 

4,403

 

Other (14)

 

621

 

 

 

621

 

 

 

621

 

 

 

621

 

Hotel operating expenses - comparable hotels

$

294,602

 

 

$

250,610

 

 

$

1,145,447

 

 

$

887,592

 

 

See Notes on page 13.

 
 

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA

All Hotels

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

2022

 

2021

 

2022

 

2021

 

 

 

 

 

 

 

 

Room revenues

$

288,082

 

 

$

272,458

 

 

$

1,244,925

 

 

$

972,411

 

Food and beverage revenues

 

45,968

 

 

 

31,503

 

 

 

158,762

 

 

 

84,430

 

Other revenues

 

16,451

 

 

 

13,254

 

 

 

63,657

 

 

 

47,837

 

Hotel operating revenues

 

350,501

 

 

 

317,215

 

 

 

1,467,344

 

 

 

1,104,678

 

Rooms expenses

 

93,067

 

 

 

90,705

 

 

 

393,553

 

 

 

321,228

 

Food and beverage expenses

 

35,248

 

 

 

26,768

 

 

 

125,312

 

 

 

72,884

 

Other direct and indirect expenses

 

124,396

 

 

 

126,208

 

 

 

517,982

 

 

 

458,586

 

Management fees

 

12,450

 

 

 

11,869

 

 

 

53,384

 

 

 

40,478

 

Real estate taxes, insurance and other

 

29,014

 

 

 

32,039

 

 

 

139,610

 

 

 

135,741

 

FF&E reserves (13)

 

2,252

 

 

 

1,236

 

 

 

9,268

 

 

 

4,546

 

Hotel operating expenses

 

296,427

 

 

 

288,825

 

 

 

1,239,109

 

 

 

1,033,463

 

Hotel EBITDA

$

54,074

 

 

$

28,390

 

 

$

228,235

 

 

$

71,215

 

Hotel EBITDA Margin

 

15.4

%

 

 

8.9

%

 

 

15.6

%

 

 

6.4

%

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

293,554

 

 

$

286,968

 

 

$

1,227,357

 

 

$

1,010,737

 

Add (Less):

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

15,696

 

FF&E reserves from managed hotels operations (13)

 

2,252

 

 

 

1,236

 

 

 

9,268

 

 

 

4,546

 

Other (14)

 

621

 

 

 

621

 

 

 

2,484

 

 

 

2,484

 

Hotel operating expenses

$

296,427

 

 

$

288,825

 

 

$

1,239,109

 

 

$

1,033,463

 

 

See Notes on page 13

 

(1)

 

As of December 31, 2022, SVC owned 238 hotels. SVC’s consolidated statements of income (loss) include hotel operating revenues and expenses of its managed hotels.

 

(2)

 

In calculating net income, SVC recognizes percentage rental income when all contingencies are met and the income is earned. SVC recognized percentage rental income of $9,353 and $7,471 in the three months ended December 31, 2022 and 2021, respectively, and $12,773 and $8,415 in the years ended December 31, 2022 and 2021, respectively.

 
   

SVC reduced rental income by $2,247 and increased rental income by $466 for the three months ended December 31, 2022 and 2021, respectively, and reduced rental income by $7,767 and $2,621 for the years ended December 31, 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 consolidated statements of income (loss) as a reduction of hotel operating expenses. There were no net reductions to hotel operating expenses during the year ended December 31, 2022. The net reductions to hotel operating expenses were $15,696 for the year ended December 31, 2021.

 

(4)

 

Transaction related costs for the year ended December 31, 2022 of $1,920 primarily consisted of costs related to SVC’s exploration of possible financing transactions. Transaction related costs for the three months ended December 31, 2021 of $35,830 primarily consisted of working capital advances SVC previously funded under its agreements with Marriott and IHG that SVC expensed as a result of the amounts no longer expected to be recoverable. Transaction related costs for the year ended December 31, 2021 included $38,446 of working capital advances SVC previously funded under its agreements with Marriott, IHG and Hyatt that SVC expensed as a result of the amounts no longer expected to be recoverable, $19,920 of hotel manager transition related costs resulting from the rebranding of 94 hotels during the period, and $6,398 of legal costs related to SVC’s arbitration proceeding with Marriott.

 

(5)

 

SVC recorded a loss on asset impairment during the three months ended December 31, 2022 of $1,269 to reduce the carrying value of one hotel and one net lease property to their estimated fair value less costs to sell and a $76,510 loss on asset impairment during the three months ended December 31, 2021 to reduce the carrying value of 35 hotels and 21 net lease properties to their estimated fair value less costs. SVC recorded a loss on asset impairment during the year ended December 31, 2022 of $10,989 to reduce the carrying value of 26 hotels and five net lease properties to their estimated fair value less costs to sell and a $78,620 loss on asset impairment during the year ended December 31, 2021 to reduce the carrying value of 35 hotels and 26 net lease properties to their estimated fair value less costs to sell.

 

(6)

 

SVC recorded a $3,583 net gain on sale of real estate during the three months ended December 31, 2022 in connection with the sale of four hotels and two net lease properties and a $588 net gain on sale of real estate during the three months ended December 31, 2021 in connection with the sale of one hotel and six net lease properties. SVC recorded a $47,818 net gain on sale of real estate during the year ended December 31, 2022 in connection with the sale of 65 hotels and 21 net lease properties and a $11,522 net gain on sale of real estate during the year ended December 31, 2021 in connection with the sale of seven hotels and eleven net lease properties.

 

(7)

 

Unrealized gain 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 year ended December 31, 2022 related to the write off of deferred financing costs and unamortized discounts relating to its amendment to its credit agreement 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, 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, and 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 consolidated statements of income (loss). SVC reduced hotel operating expenses by $621 for each of the three months ended December 31, 2022 and 2021, and $2,484 for each of the years ended December 31, 2022 and 2021 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 SVC has experienced improving hotel fundamentals throughout 2022 and expects that further progress will occur in 2023. Mr. Hargreaves also noted that comparable hotel RevPAR, occupancy and Hotel EBITDA increased over the same period last year. These statements may imply that these trends will continue to improve; however, the hotel industry and SVC’s business are subject to various risks, including risks beyond its control, such as the impact of the market practices that arose or increased in response to the COVID-19 pandemic, and economic and market conditions, including the current inflationary conditions, rising or sustained high interest rates, geopolitical risks and possible recession. As a result, hotel operating trends may not continue to improve and may decline and SVC’s operating results could decline;
  • Mr. Hargreaves states that SVC’s net lease properties continue to deliver steady and reliable 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 the recent execution of SVC’s ABS facility demonstrates one of the several options available to the company to address upcoming maturities at attractive relative interest rates. This may imply that SVC will successfully obtain additional financing at attractive relative rates and that it will repay or refinance its upcoming maturities with those financings. However, these options may not be available if markets conditions change, if interest rates continue to increase or otherwise, and SVC may need to address upcoming maturities with cash on hand or with other resources;
  • This press release states that the parties currently expect that the BP Acquisition will be completed by mid-year 2023, and that SVC expects to receive approximately $379.3 million in total cash upon completion of the BP Acquisition. This press release also states that SVC is excited for the enhanced value that it believes the amended leases with BP will provide SVC’s shareholders. The BP Acquisition is subject to various customary conditions and contingencies to closing as are customary in merger agreements in the United States, including the approval of TA stockholders and regulatory approvals. If these conditions are not satisfied or the specified contingencies do not occur, the BP Acquisition may not be completed, in which case SVC’s lease and guaranty arrangements with TA would not be amended and SVC would not receive the expected proceeds, or the BP Acquisition could be delayed or the terms could change. In addition, even if the BP Acquisition is completed, the amended leases may not provide enhanced value for SVC’s shareholders as SVC currently expects; and
  • SVC is under agreement to sell ten hotels and two net lease properties and expects the majority of these sales to be completed by the end of the first quarter of 2023. The pending 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.

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.

Contacts

Stephen Colbert, Director, Investor Relations

(617) 231-3223

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