Net Income of $0.05 Per Common Share
100.0% Increase in Normalized FFO to $0.54 Per Common Share
26.3% Increase in Adjusted EBITDAre to $173.5 Million
NEWTON, Mass.–(BUSINESS WIRE)–Service Properties Trust (Nasdaq: SVC) today announced its financial results for the quarter ended September 30, 2022.
Todd Hargreaves, President and Chief Investment Officer of SVC, made the following statement:
“Hotel operating trends continued to recover in the third quarter, driven by increased bookings at our urban and suburban select service hotels. Comparable RevPAR increased by 29.6% over the prior year quarter. The solid performance of our operators generated a 77.1% increase in comparable hotel EBITDA over the same period last year.
Business activity at our hotels in September and October increased, led by mid-week booking improvement. We expect to benefit further in the coming quarters from the continued business travel recovery, particularly at our full service and select service hotels. With ongoing hotel fundamentals improving, over $750 million of available liquidity and steady cash flows from our net lease portfolio, we increased our quarterly dividend to $0.20 per common share, which reflects our confidence in the business going forward.”
Results for the Quarter Ended September 30, 2022:
Three Months Ended September 30,
2022
2021
($ in thousands, except per share data)
Net income (loss)
$
7,500
$
(59,714
)
Net income (loss) per common share
$
0.05
$
(0.36
)
Normalized FFO (1)
$
88,458
$
43,781
Normalized FFO per common share (1)
$
0.54
$
0.27
Adjusted EBITDAre (1)
$
173,455
$
137,324
(1)
Additional information and reconciliations of net income (loss) determined in accordance with U.S. generally accepted accounting principles, or GAAP, to certain non-GAAP measures, including FFO, Normalized FFO, EBITDA, EBITDAre and Adjusted EBITDAre for the quarters ended September 30, 2022 and 2021 appear later in this press release.
Net income (loss): Net income for the quarter ended September 30, 2022 was $7.5 million, or $0.05 per diluted common share, compared to a net loss of $59.7 million, or $0.36 per diluted common share, for the quarter ended September 30, 2021. Net income for the quarter ended September 30, 2022 includes $23.1 million, or $0.14 per diluted common share, of net unrealized gains on equity securities and a $1.2 million, or $0.01 per diluted common share, loss on asset impairment. Net loss for the quarter ended September 30, 2021 includes $24.3 million, or $0.15 per diluted common share, of net unrealized gains on equity securities and $3.1 million, or $0.02 per diluted common share, of transaction related costs. The weighted average number of diluted common shares outstanding was 164.7 million and 164.6 million for the quarters ended September 30, 2022 and 2021, respectively.
Normalized FFO: Normalized FFO for the quarter ended September 30, 2022 were $88.5 million, or $0.54 per diluted common share, compared to Normalized FFO of $43.8 million, or $0.27 per diluted common share, for the quarter ended September 30, 2021.
Adjusted EBITDAre: Adjusted EBITDAre for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 increased 26.3% to $173.5 million.
Hotel Portfolio:
As of September 30, 2022, SVC’s 242 hotels were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (200 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (eight hotels), Marriott International, Inc., or Marriott (16 hotels), and InterContinental Hotels Group, plc, or IHG (one hotel).
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
Change
2022
2021
Change
($ in thousands, except hotel statistics)
Comparable Hotels
No. of hotels
240
240
—
239
239
—
No. of rooms or suites
40,246
40,246
—
39,874
39,874
—
Occupancy
65.9
%
59.3
%
6.6
pts
62.0
%
51.2
%
10.8
pts
ADR
$
140.05
$
120.08
16.6
%
$
133.41
$
107.79
23.8
%
Hotel RevPAR
$
92.29
$
71.21
29.6
%
$
82.71
$
55.19
49.9
%
Hotel operating revenues (1)
$
398,399
$
296,521
34.4
%
$
1,046,980
$
680,787
53.8
%
Hotel operating expenses (1)
$
317,247
$
250,698
26.5
%
$
864,702
$
647,694
33.5
%
Hotel EBITDA (1)
$
81,152
$
45,823
77.1
%
$
182,278
$
33,093
n/m
Hotel EBITDA margin
20.4
%
15.5
%
4.9
pts
17.4
%
4.9
%
12.5
pts
All Hotels
No. of hotels
242
304
(62
)
242
304
(62
)
No. of rooms or suites
40,563
48,439
(7,876
)
40,563
48,439
(7,876
)
Occupancy
65.8
%
60.1
%
5.7
pts
61.9
%
52.2
%
9.7
pts
ADR
$
140.05
$
114.55
22.3
%
$
134.19
$
102.84
30.5
%
Hotel RevPAR
$
92.15
$
68.84
33.9
%
$
83.06
$
53.68
54.7
%
Hotel operating revenues (1)(2)
$
400,453
$
338,375
18.3
%
$
1,116,843
$
787,463
41.8
%
Hotel operating expenses (1)(2)
$
321,509
$
287,265
11.9
%
$
942,678
$
744,638
26.6
%
Hotel EBITDA (1)(2)
$
78,944
$
51,110
54.5
%
$
174,165
$
42,825
n/m
Hotel EBITDA margin
19.7
%
15.1
%
4.6
pts
15.6
%
5.4
%
10.2
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 September 30, 2022 and 2021 appear later in this press release.
(2)
Results of all hotels as owned during the periods presented, including the results of hotels sold by SVC for the period owned by SVC.
Recent operating statistics for SVC’s hotels are as follows:
Comparable Hotels
240 Hotels, 40,246 rooms
2022 vs 2019
Occupancy
Average Daily
Rate
RevPAR
Occupancy
Average Daily
Rate
RevPAR
July
68.1%
$144.61
$98.48
(11.5)Pts
4.1
%
(10.9)%
August
63.2%
$134.44
$84.97
(15.2)Pts
(0.8
)%
(20.0)%
September
66.3%
$140.74
$93.31
(9.3)Pts
2.0
%
(10.5)%
All Hotels
242 Hotels, 40,563 rooms
2022 vs 2019
Occupancy
Average Daily
Rate
RevPAR
Occupancy
Average Daily
Rate
RevPAR
July
68.0%
$144.61
$98.33
(11.6)Pts
4.2
%
(11.0)%
August
63.1%
$134.44
$84.83
(15.3)Pts
(0.8
)%
(20.2)%
September
66.2%
$140.74
$93.17
(9.5)Pts
2.1
%
(10.7)%
Preliminary October 2022 occupancy, ADR and RevPAR for SVC’s 241 hotels as of November 3, 2022 were 66.5%, $143.42 and $95.37, respectively.
Net Lease Retail Portfolio:
SVC’s net lease retail portfolio is summarized as follows:
As of September 30, 2022
Number of properties
769
Industries
21
Tenants
178
Brands
136
Square feet
13.4 million
Occupancy
98.1%
Weighted average lease term (by annual minimum rent)
9.8 years
Rent Coverage
2.88x
During the quarter ended September 30, 2022, SVC recorded reserves for uncollectible revenues of $0.4 million for certain of its net lease tenants. During the quarter ended September 30, 2021, SVC reduced reserves for uncollectible revenues of $5.4 million for certain of its net lease tenants.
Recent Investment Activities:
During the quarter ended September 30, 2022, SVC sold five hotels with 603 keys for an aggregate sales price of $29.7 million, excluding closing costs, and six net lease properties with an aggregate of 14,056 rentable square feet for an aggregate sales price of $1.1 million, excluding closing costs. From October 1, 2022 through November 3, 2022, SVC sold one hotel with 120 keys for an aggregate sales price of $6.0 million, excluding closing costs.
During the quarter ended September 30, 2022, SVC entered into agreements to sell 16 Marriott branded hotels with 2,155 keys located in nine states for an aggregate sales price of $137.3 million and four Sonesta branded hotels with 546 keys located in four states for an aggregate sales price of $25.2 million. 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 one additional hotel with 219 keys for sale and three net lease properties with an aggregate of 8,575 rentable square feet.
Capital expenditures made at certain of SVC’s properties for the quarter ended September 30, 2022 were $24.4 million.
Liquidity and Financing Activities:
As of November 1, 2022, SVC had approximately $114.0 million of cash and cash equivalents and $705.0 million undrawn under its revolving credit facility.
As previously announced, in October 2022, SVC and its lenders amended the agreement governing its revolving credit facility to, among other things, remove restrictions on paying common dividends and issuing secured debt previously agreed to during the existing waiver period, subject to certain conditions, and requires SVC to maintain minimum liquidity levels to address near term debt maturities. SVC also exercised its option to extend the maturity date of its revolving credit facility by six months to July 15, 2023.
Common Dividend:
On October 13, 2022, SVC announced a regular quarterly common dividend of $0.20 per share ($0.80 per share per year) payable to shareholders of record on October 24, 2022; this dividend will be paid on or about November 17, 2022.
Conference Call:
On November 4, 2022 at 10:00 a.m. Eastern Time, Todd Hargreaves, President and Chief Investment Officer and Brian Donley, Chief Financial Officer and Treasurer, will host a conference call to discuss SVC’s third quarter 2022 financial results. The conference call telephone number is (877) 329-3720. Participants calling from outside the United States and Canada should dial (412) 317-5434. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through Friday, November 11, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 9258276.
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 third quarter conference call is strictly prohibited without the prior written consent of SVC.
Supplemental Data:
A copy of SVC’s Third 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 September 30, 2022, SVC owned 242 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 September 30, 2022, SVC also owned 769 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 September 30, 2022 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. SVC is headquartered in Newton, MA. For more information, visit www.svcreit.com.
Non-GAAP Financial Measures and Certain Definitions:
SVC presents certain “non-GAAP financial measures” within the meaning of the applicable Securities and Exchange Commission, or SEC, rules, including funds from operations, or FFO, Normalized FFO, earnings before interest, taxes, depreciation and amortization, or EBITDA, Hotel EBITDA, EBITDA for real estate, or EBITDAre, and Adjusted EBITDAre. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of SVC’s operating performance or as measures of SVC’s liquidity. These measures should be considered in conjunction with net income (loss) as presented in SVC’s condensed consolidated statements of income (loss). SVC considers these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). SVC believes these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of SVC’s operating performance between periods and with other REITs and, in the case of Hotel EBITDA, reflecting only those income and expense items that are generated and incurred at the hotel level may help both investors and management to understand the operations of SVC’s hotels. SVC believes that Hotel EBITDA provides useful information to management and investors as a key measure of the profitability of its hotel operations.
Please see the pages attached hereto for a more detailed statement of SVC’s operating results and financial condition and for an explanation of SVC’s calculation of FFO and Normalized FFO, EBITDA, Hotel EBITDA, EBITDAre and Adjusted EBITDAre and a reconciliation of those amounts to amounts determined in accordance with GAAP.
Average Daily Rate, or ADR, represents rooms revenue divided by the total number of room nights sold in a given period. ADR provides useful insight on pricing at SVC’s hotels and is a measure widely used in the hotel industry.
Comparable Hotels Data: SVC presents RevPAR, ADR, and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. SVC generally defines comparable hotels as those that were owned by it on September 30, 2022 and were open and operating for the entire periods being compared. For the three and nine months ended September 30, 2022 and 2021, SVC’s comparable results excluded three hotels that had suspended operations during part of the periods presented.
Hotel EBITDA: Hotel EBITDA is calculated as hotel operating revenues less hotel operating expenses of all managed and leased hotels, prior to any adjustments required for presentation in SVC’s condensed consolidated statements of income (loss) in accordance with GAAP.
Hotel EBITDA Margin: Hotel EBITDA Margin is Hotel EBITDA as a percentage of hotel operating revenues.
Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy is an important measure of the utilization rate and demand of SVC’s hotels.
Rent Coverage: SVC defines Rent Coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to SVC weighted by the minimum rent of the property to total minimum rents of the net lease portfolio. EBITDAR amounts used to determine rent coverage are generally for the latest twelve-month period reported based on the most recent operating information, if any, furnished by the tenant. Operating statements furnished by the tenant often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by SVC. Tenants that do not report operating information are excluded from the rent coverage calculations. In instances where SVC does not have financial information for the most recent quarter from its tenants, it has calculated an implied EBITDAR for the 2022 third quarter using industry benchmark data to reflect current operating trends. SVC believes using this industry benchmark data provides a reasonable estimate of recent operating results and rent coverage for those tenants.
Revenue per Available Room, or RevPAR, represents rooms revenue divided by the total number of room nights available to guests for a given period. RevPAR is an industry metric correlated to occupancy and ADR and helps measure revenue performance over comparable periods.
SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(unaudited)
As of September 30,
As of December 31,
2022
2021
ASSETS
Real estate properties:
Land
$
1,903,619
$
1,918,385
Buildings, improvements and equipment
7,669,058
8,307,248
Total real estate properties, gross
9,572,677
10,225,633
Accumulated depreciation
(2,929,193
)
(3,281,659
)
Total real estate properties, net
6,643,484
6,943,974
Acquired real estate leases and other intangibles, net
259,503
283,241
Assets held for sale
142,972
515,518
Cash and cash equivalents
67,246
944,043
Restricted cash
10,891
3,375
Equity method investments
113,168
62,687
Investment in equity securities
63,896
61,159
Due from related persons
58,292
48,168
Other assets, net
273,261
291,150
Total assets
$
7,632,713
$
9,153,315
LIABILITIES AND SHAREHOLDERS’ EQUITY
Revolving credit facility
$
95,000
$
1,000,000
Senior unsecured notes, net
5,652,590
6,143,022
Accounts payable and other liabilities
414,870
433,448
Due to related persons
18,335
21,539
Total liabilities
6,180,795
7,598,009
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,453,584 and 165,092,333 shares issued and outstanding, respectively
1,654
1,651
Additional paid in capital
4,554,358
4,552,558
Cumulative other comprehensive income
1,513
779
Cumulative net income available for common shareholders
2,534,688
2,635,660
Cumulative common distributions
(5,640,295
)
(5,635,342
)
Total shareholders’ equity
1,451,918
1,555,306
Total liabilities and shareholders’ equity
$
7,632,713
$
9,153,315
SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenues:
Hotel operating revenues (1)
$
400,453
$
338,375
$
1,116,843
$
787,463
Rental income (2)
97,798
98,724
290,949
286,742
Total revenues
498,251
437,099
1,407,792
1,074,205
Expenses:
Hotel operating expenses (1)(3)
318,266
285,233
933,803
723,769
Other operating expenses
3,511
4,437
9,162
11,758
Depreciation and amortization
101,514
124,163
306,147
370,208
General and administrative
11,293
14,231
35,743
40,840
Transaction related costs (4)
—
3,149
1,920
28,934
Loss on asset impairment, net (5)
1,172
—
9,720
2,110
Total expenses
435,756
431,213
1,296,495
1,177,619
(Loss) gain on sale of real estate, net (6)
(164
)
94
44,235
10,934
Unrealized gains on equity securities, net (7)
23,056
24,348
2,737
20,367
Interest income
1,442
203
2,735
485
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $4,595, $5,877, $15,529 and $15,123, respectively)
(81,740
)
(92,458
)
(263,904
)
(273,227
)
Loss on early extinguishment of debt (8)
—
—
(791
)
—
Income (loss) before income taxes and equity in earnings of an investee
5,089
(61,927
)
(103,691
)
(344,855
)
Income tax (expense) benefit
(390
)
55
(1,558
)
(1,009
)
Equity in earnings of an investee (9)
2,801
2,158
4,277
50
Net income (loss)
$
7,500
$
(59,714
)
$
(100,972
)
$
(345,814
)
Weighted average common shares outstanding (basic and diluted)
164,745
164,590
164,697
164,532
Net income (loss) per common share (basic and diluted)
$
0.05
$
(0.36
)
$
(0.61
)
$
(2.10
)
See Notes on page 12.
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
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Calculation of FFO and Normalized FFO: (10)
Net income (loss)
$
7,500
$
(59,714
)
$
(100,972
)
$
(345,814
)
Add (Less):
Depreciation and amortization
101,514
124,163
306,147
370,208
Loss on asset impairment, net (5)
1,172
—
9,720
2,110
Loss (gain) on sale of real estate, net (6)
164
(94
)
(44,235
)
(10,934
)
Unrealized gains on equity securities, net (7)
(23,056
)
(24,348
)
(2,737
)
(20,367
)
Adjustments to reflect SVC’s share of FFO attributable to an investee (9)
1,103
369
2,674
1,868
FFO
88,397
40,376
170,597
(2,929
)
Add (Less):
Transaction related costs (4)
—
3,149
1,920
28,934
Loss on early extinguishment of debt (8)
—
—
791
—
Adjustments to reflect SVC’s share of Normalized FFO attributable to an investee (9)
61
256
899
1,619
Normalized FFO
$
88,458
$
43,781
$
174,207
$
27,624
Weighted average common shares outstanding (basic and diluted)
164,745
164,590
164,697
164,532
Basic and diluted per common share amounts:
Net income (loss) per share
$
0.05
$
(0.36
)
$
(0.61
)
$
(2.10
)
FFO
$
0.54
$
0.25
$
1.04
$
(0.02
)
Normalized FFO
$
0.54
$
0.27
$
1.06
$
0.17
Distributions declared per share
$
0.01
$
0.01
$
0.02
$
0.03
Calculation of EBITDA, EBITDAre and Adjusted EBITDAre: (11)
Net income (loss)
$
7,500
$
(59,714
)
$
(100,972
)
$
(345,814
)
Add (Less):
Interest expense
81,740
92,458
263,904
273,227
Income tax expense (benefit)
390
(55
)
1,558
1,009
Depreciation and amortization
101,514
124,163
306,147
370,208
EBITDA
191,144
156,852
470,637
298,630
Add (Less):
Loss on asset impairment, net (5)
1,172
—
9,720
2,110
Loss (gain) on sale of real estate, net (6)
164
(94
)
(44,235
)
(10,934
)
Adjustments to reflect SVC’s share of EBITDAre attributable to an investee (9)
2,787
464
5,541
2,123
EBITDAre
195,267
157,222
441,663
291,929
Add (Less):
Transaction related costs (4)
—
3,149
1,920
28,934
Unrealized gains on equity securities, net (7)
(23,056
)
(24,348
)
(2,737
)
(20,367
)
Loss on early extinguishment of debt (8)
—
—
791
—
Adjustments to reflect SVC’s share of Adjusted EBITDAre attributable to an investee (9)
272
256
1,566
1,619
General and administrative expense paid in common shares (12)
972
1,045
2,266
2,490
Adjusted EBITDAre
$
173,455
$
137,324
$
445,469
$
304,605
See Notes on page 12.
SERVICE PROPERTIES TRUST
CALCULATION AND RECONCILIATION OF HOTEL EBITDA
Comparable Hotels
(amounts in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months
Ended September 30,
2022
2021
2022
2021
Number of hotels
240
240
239
239
Room revenues
$
339,106
$
257,885
$
891,053
$
596,479
Food and beverage revenues
42,624
25,151
110,115
51,062
Other revenues
16,669
13,485
45,812
33,246
Hotel operating revenues – comparable hotels
398,399
296,521
1,046,980
680,787
Rooms expenses
103,580
80,589
273,928
196,795
Food and beverage expenses
34,497
20,851
86,475
43,897
Other direct and indirect expenses
131,456
110,795
367,242
300,147
Management fees
14,847
10,826
39,341
24,042
Real estate taxes, insurance and other
30,246
26,226
90,700
79,589
FF&E reserves (13)
2,621
1,411
7,016
3,224
Hotel operating expenses – comparable hotels
317,247
250,698
864,702
647,694
Hotel EBITDA – comparable hotels
$
81,152
$
45,823
$
182,278
$
33,093
Hotel EBITDA Margin
20.4
%
15.5
%
17.4
%
4.9
%
Hotel operating revenues (GAAP) (1)
$
400,453
$
338,375
$
1,116,843
$
787,463
Add (Less):
Hotel operating revenues from non-comparable hotels
(2,054
)
(41,854
)
(69,863
)
(106,676
)
Hotel operating revenues – comparable hotels
$
398,399
$
296,521
$
1,046,980
$
680,787
Hotel operating expenses (GAAP) (1)
$
318,266
$
285,233
$
933,803
$
723,769
Add (Less):
Hotel operating expenses from non-comparable hotels
(4,261
)
(36,567
)
(76,738
)
(95,618
)
Reduction for security deposit and guaranty fundings, net (3)
—
—
—
15,698
FF&E reserves from managed hotel operations (13)
2,621
1,411
7,016
3,224
Other (14)
621
621
621
621
Hotel operating expenses – comparable hotels
$
317,247
$
250,698
$
864,702
$
647,694
See Notes on page 12.
Contacts
Stephen Colbert, Director, Investor Relations
(617) 231-3223
