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.
NEWTON, Mass.–(BUSINESS WIRE)–Conference Call section, first paragraph, first sentence of release should read: On March 1, 2023 at 10:00 a.m. Eastern Time (instead of 1:00 p.m. Eastern Time).
The updated release reads:
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 10:00 a.m. Eastern Time, Todd Hargreaves, President and Chief Investment Officer and Brian Donley, Chief Financial Officer and Treasurer, will host a conference call to discuss SVC’s 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.
Contacts
Stephen Colbert, Director, Investor Relations
(617) 231-3223