Service Properties Trust Announces Amendment to Credit Facility and Extends Maturity Date to January 2023

Progressing on Its Previously Announced Sales Initiative, with Nine Hotels Sold and 56 Hotels Under Purchase and Sale Agreements

Hotel Occupancy, Average Daily Rate and RevPAR for 295 Comparable Hotels Increase from January 2022 to March 2022

NEWTON, Mass.–(BUSINESS WIRE)–Service Properties Trust (Nasdaq: SVC) today announced it has amended the agreement governing its revolving credit facility and exercised its option to extend its maturity date to January 2023. The key terms of the amendment include:

The revolving credit facility commitments have been reduced from $1 billion to $800 million;

SVC can acquire up to an aggregate of $300 million of real property assets;

SVC can fund up to an aggregate of $100 million of capital contributions required by Sonesta Holdco Corporation for business activities and to acquire additional shares of common stock of TravelCenters of America Inc., or TA, to retain its pro rata ownership of 8.2% of TA, an increase from the previous aggregate limit of $50 million;

SVC will maintain minimum liquidity of $650 million until it repays its $500 million of 5.0% senior notes due in August 2022 and maintain at least $150 million of liquidity thereafter;

The interest rate premium increased by 15 basis points and is subject to an additional 25 basis point increase if SVC does not satisfy certain financial covenants;

SVC has one additional six-month extension option available beyond January 2023, subject to meeting certain conditions, including a $650 million minimum liquidity requirement until it repays or refinances its $500 million of 4.5% senior notes due June 2023. The minimum liquidity requirement for the second extension option is reduced to $150 million if SVC is in compliance with certain financial covenants, including the 1.5x ratio of consolidated income available for debt service to debt service ratio required to incur additional debt under its bond covenants;

The existing waiver period has been extended to December 31, 2022, though the financial covenants will be tested and in full force and effect beginning with the quarter ending September 30, 2022 and have been modified as follows:

The required 1.5x fixed charge coverage ratio has been lowered to 1.0x through December 31, 2022 and increases back to 1.5x thereafter;

The required minimum liquidity has been increased from $125 million to $150 million; and

The required leverage ratio limit has been increased from 60% to 70%; and

SVC’s revolving credit facility will continue to be secured by 73 properties.

Brian Donley, Treasurer and Chief Financial Officer of SVC, made the following statement:

“This amendment enhances our financial flexibility to assist our hotel operators as they recover from the effects of the pandemic. We believe both the maturity date and waiver extension, as well as the enhanced capacity to fund investment activities, best position SVC to execute on its long-term strategy.”

Wells Fargo Securities, LLC, BofA Securities, Inc., PNC Capital Markets, LLC and RBC Capital Markets acted as Joint Lead Arrangers and Joint Lead Bookrunners for the amendment to SVC’s revolving credit facility agreement. Wells Fargo Bank, National Association is the Administrative Agent for the facility. Bank of America, N.A., PNC Bank, National Association and Royal Bank of Canada are the Syndication Agents.

Update on Sonesta Hotel Asset Sales

SVC continues to make progress on its previously announced plan to sell 68 Sonesta branded hotels. Nine hotels totaling 1,535 keys have been sold for aggregate proceeds of $81.2 million. An additional 54 hotels totaling 6,504 keys are under purchase and sale agreements for an aggregate sales price of $452.5 million. SVC currently expects the majority of these hotels to be sold during the second quarter of 2022.

Recent Hotel Operating Performance

 

 

295 Comparable Hotels, 46,596 rooms

 

2022 versus 2019

 

Occupancy

Average

Daily Rate

RevPAR

 

Occupancy

Change

Average

Daily Rate

% Change

RevPAR

% Change

Fourth Quarter 2021

55.7%

$112.56

$62.70

(13.6)pts

(11.4)%

(28.8)%

January 2022

45.9%

$105.24

$48.31

(14.9)pts

(17.0)%

(37.3)%

February 2022

53.4%

$115.32

$61.58

(15.3)pts

(12.7)%

(32.1)%

March 2022 (preliminary)

 

61.6%

$121.74

$74.99

 

(13.1)pts

(9.9)%

(25.7)%

While the Omicron variant negatively impacted the first six weeks of 2022, operating trends dramatically improved in mid-February as COVID-19 cases decreased and demand accelerated. After mid-February, bookings increased at SVC’s urban and select service hotels, while leisure demand remained elevated and extended stay occupancies remained stable.

SVC’s February comparable hotel occupancy of 53.4% reflected a significant increase in demand during the second half of the month. Hotel demand accelerated into March, with comparable hotel occupancy improving to over 61% as business transient travel continued to rebound.

About Service Properties Trust

Service Properties Trust (Nasdaq: SVC) is a real estate investment trust, or REIT, with more than $12 billion invested in two asset categories: hotels and service-focused retail net lease properties. As of December 31, 2021, SVC owned 303 hotels with over 48,000 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, 2021, SVC also owned 788 retail service-focused net lease properties totaling over 13 million square feet throughout United States. SVC is managed by The RMR Group (Nasdaq: RMR), an alternative asset management company with approximately $37 billion in assets under management as of December 31, 2021 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.

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. Donley states that SVC’s credit facility enhances its financial flexibility to assist SVC’s hotel operators as they recover from the effects of the pandemic, and that the enhanced capacity to fund investment activities and the extension of the maturity date and waivers will best position SVC to execute on its long term strategy. These statements may imply that SVC’s operating results and financial position will improve as a result of the amendment to SVC’s credit agreement. However, SVC’s business is subject to various risks, including risks outside its control. As a result, SVC may not realize the benefits it expects from the amendment to its credit agreement. Further, if the duration and severity of the COVID-19 pandemic and its impacts on SVC and its managers and tenants significantly worsen for a sustained period, SVC may be required to utilize all or a significant portion of its cash and cash equivalents to fund its business and operations, which may reduce or eliminate the financial flexibility SVC believes it has achieved.

Although SVC has modified certain covenants under its credit agreement through December 31, 2022, if SVC’s operating results and financial condition are further adversely impacted by the COVID-19 pandemic or fail to sufficiently improve, it may fail to comply with the terms of the waiver and other requirements under its credit agreement, and SVC may also fail to satisfy certain financial requirements under the agreements governing its public debt. For example, SVC’s ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under its revolving credit facility and its public debt covenants as of December 31, 2021, and SVC cannot be certain how long this ratio will remain below 1.5x. SVC is currently unable to incur additional debt because this ratio is below 1.5x on a pro forma basis, but is not required to repay outstanding debt as a result of failure to comply with this requirement. SVC is currently fully drawn under its revolving credit facility and could also be required to repay its outstanding debt as a result of non-compliance with certain other requirements of its credit agreement or the agreements governing its public debt. SVC may therefore experience future liquidity constraints, as it is currently unable to incur additional debt under its credit agreement or otherwise for failure to comply with the requirements of its credit agreement or the agreements governing its public debt, and SVC will be limited to its cash on hand or be forced to raise additional sources of capital or take other measures to repay its debt or maintain adequate liquidity.

SVC has entered agreements for the sale of 54 hotels for an aggregate sales price of $452 million and expects to complete a majority of these sales during the second quarter of 2022. The sales of SVC’s properties are subject to conditions; accordingly, SVC cannot provide any assurance that it will sell any of these properties and the sales may be delayed, may not occur or their terms may change. Any sales it may complete may be at prices less than SVC expects and less than its net book value.

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.

Contacts

Kristin Brown, Director, Investor Relations

(617) 796-8232