Service Properties Trust Announces Third Quarter 2021 Results

Third Quarter Net Loss of $(0.36) Per Common Share

Third Quarter Normalized FFO of $0.27 Per Common Share

Third Quarter Adjusted EBITDAre of $137.3 million

Service Properties Trust (Nasdaq: SVC) today announced its financial results for the quarter ended September 30, 2021.

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

“The third quarter marked a period of continued recovery for SVC’s hotel portfolio. SVC’s monthly hotel EBITDA has been positive since April and increased 71.0% versus the second quarter. Over the same period, portfolio-wide occupancy increased to 60.1% from 56.6% and RevPAR for comparable hotels increased by 18.2%, supported by stable extended stay occupancy and continued leisure demand. Comparable RevPAR for the 2021 third quarter was 70.1% of the pre-COVID-19 comparable RevPAR for the 2019 third quarter. With weekly COVID-19 cases on the decline, we expect to benefit from a rebound in business travel in the coming quarters, particularly at our full service hotels as urban centers re-open. We collected all of the rents due from our net lease tenants during the third quarter and our largest net lease tenant, TravelCenters of America, continues to benefit from healthy trucking activity and improved operating efficiencies.

With our previously announced hotel sales in process and expected to close in the first quarter of 2022, over $900 million of cash on our balance sheet, no debt maturities until the third quarter of 2022, and positive cash flow from our hotel portfolio before capital expenditures, we believe we have ample liquidity and financial flexibility as lodging trends continue to rebound.”

Results for the Quarter Ended September 30, 2021:

• Net loss: Net loss for the quarter ended September 30, 2021 was $59.7 million, or $0.36 per diluted common share, compared to a net loss of $102.6 million, or $0.62 per diluted common share, for the quarter ended September 30, 2020. 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. Net loss for the quarter ended September 30, 2020 includes a $10.2 million, or $0.06 per diluted common share, loss on asset impairment, and $5.6 million, or $0.03 per diluted common share, of net unrealized gains on equity securities. The weighted average number of diluted common shares outstanding was 164.6 million and 164.4 million for the quarters ended September 30, 2021 and 2020, respectively.
• Normalized FFO: Normalized FFO for the quarter ended September 30, 2021 were $43.8 million, or $0.27 per diluted common share, compared to Normalized FFO of $23.2 million, or $0.14 per diluted common share, for the quarter ended September 30, 2020.
• Adjusted EBITDAre: Adjusted EBITDAre for the quarter ended September 30, 2021 compared to the same period in 2020 increased 32.5% to $137.3 million.

Hotel Portfolio:

As of September 30, 2021, SVC’s 304 hotels were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (261 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (nine hotels), Marriott International, Inc., or Marriott (16 hotels), and InterContinental Hotels Group, plc (one hotel).

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

For SVC’s 304 hotels, preliminary October 2021 occupancy, ADR and RevPAR are projected to be 59.2%, $116.07 and $68.73, respectively.

Hotel Agreements:

As previously announced, on November 1, 2021, SVC and Radisson amended their previous management agreement for nine hotels owned by SVC. As a result of the amendment, Radisson continues to manage eight of the nine hotels for a 10-year term effective August 1, 2021. The amended agreement sets the annual minimum return due to SVC at $10.2 million and Radisson has provided SVC with a new $22.0 million limited guarantee for 75% of the aggregate annual minimum returns beginning in 2023. Under the amended agreement, a management fee of 5% of gross room revenues for each hotel operated under the Country Inn & Suites brand and a management fee of 3% of gross room revenues for each hotel managed under the Radisson Hotel brand payable to Radisson will be an operating cost paid senior to SVC’s annual minimum return. Radisson may also earn a 20% incentive management fee after payment of SVC’s annual minimum return and reimbursement of certain advances, if any. SVC has also agreed to fund approximately $12.0 million of renovations that are expected to be completed by the end of 2022. The management and branding of the ninth hotel previously managed by Radisson was transitioned to Sonesta on November 1, 2021 on terms substantially consistent with SVC’s Sonesta management agreements for the hotels it transitioned the branding of and management to Sonesta in the fourth quarter of 2020 and first and second quarters of 2021.

Net Lease Retail Portfolio:

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

During the three months ended September 30, 2021, SVC reduced its reserve for uncollectible revenues by $5,373 for certain of its net lease tenants and recorded reserves for uncollectible revenues of $2,369 for certain of its net lease tenants.

Recent Investment Activities:

During the quarter ended September 30, 2021, SVC sold two net lease properties with an aggregate of 6,639 rentable square feet for an aggregate sales price of $0.7 million, excluding closing costs. In October 2021, SVC sold one net lease property with 7,070 rentable square feet for a sales price of $0.9 million, excluding closing costs.

SVC is currently marketing for sale 68 Sonesta branded hotels (46 extended stay hotels with 5,404 keys, 19 select service hotels with 2,461 keys and three full service hotels with 895 keys) located in 27 states with an aggregate net carrying value of $579.0 million as of September 30, 2021. SVC expects these sales to be completed by the end of the first quarter of 2022.

SVC has also entered agreements to sell four net lease properties with an aggregate of 14,630 square feet located in three states for an aggregate sales price of $2.3 million, excluding closing costs. SVC expects these sales to be completed by the end of the fourth quarter of 2021.

Capital expenditures made at certain of SVC’s properties for the quarter ended September 30, 2021 were $19.8 million.

Liquidity and Financing Activities:

As of September 30, 2021, SVC had $912.5 million of cash and cash equivalents.

Conference Call:

On November 5, 2021 at 10:00 a.m. Eastern Time, John Murray, Chief Executive Officer, Brian Donley, Chief Financial Officer, and Todd Hargreaves, Chief Investment Officer, will host a conference call to discuss SVC’s third quarter 2021 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 12, 2021. To access the replay, dial (412) 317-0088. The replay pass code is 10160343.

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 2021 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 more than $12 billion invested in two asset categories: hotels and service-focused retail net lease properties. SVC owns more than 300 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. SVC owns nearly 800 retail service-focused net lease properties totaling over 13 million square feet throughout United States. SVC is managed by an operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company with more than $32 billion in assets under management 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 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.

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.

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy is an important measure of the utilization rate and demand of SVC’s hotels.

Average Daily Rate, or ADR, represents rooms revenue divided by 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.

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.

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.

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, 2021 and were open and operating for the entire periods being compared. For the three months ended September 30, 2021 and 2020, SVC’s comparable results excluded 12 hotels that had suspended operations during part of the periods presented. For the nine months ended September 30, 2021 and 2020, SVC’s comparable results excluded 22 hotels that had suspended operations during part of the periods presented.

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 2021 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.

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Warning Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Whenever SVC uses words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” “may” and negatives or derivatives of these or similar expressions, SVC is making forward-looking statements. These forward-looking statements are based upon SVC’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by SVC’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SVC’s control. For example:

• Mr. Murray indicates SVC’s monthly hotel EBITDA has been positive since April and increased versus the second quarter; further Mr. Murray states that SVC’s portfolio-wide occupancy for the 2021 third quarter has increased and RevPAR for SVC’s comparable properties has increased for the third quarter of 2021. He also stated that comparable RevPAR for the third quarter of 2021 increased over the third quarter of 2019. This may imply that metrics will continue to improve; however, SVC’s business is subject to various risks, including risks beyond its control, such as the impact of COVID-19 pandemic. As a result, hotel EBITDA, hotel occupancy and hotel performance may not improve at SVC’s hotels and may decline in the future;
• Mr. Murray states that SVC collected all of the rents when due from its net lease tenants during the third quarter, which may imply that SVC will continue to maintain its rent collections in the future; however, if any of SVC’s tenants’ businesses are negatively affected, including by the ongoing COVID-19 pandemic or a decline in economic activity, rent collections may decline;
• Mr. Murray indicates that TA continues to benefit from healthy trucking activity; however, if trucking activity slows or decreases in importance, TA’s business may be negatively impacted, which could adversely impact SVC and the value of its travel center properties;
• Mr. Murray states that SVC believes that it has ample liquidity and financial flexibility; however, if lodging and other economic trends relating to SVC and its operators and tenants do not continue to improve or decline, SVC’s current liquidity position may not be sufficient to meet its future obligations;
• Mr. Murray indicates that SVC expects to benefit from a rebound in business travel in the coming quarters. However, that rebound may not occur or may not be as strong as SVC expects. Further, the hotel industry is highly competitive and the hotel industry is experiencing labor supply challenges and other cost pressures. As a result, SVC may not be able to attain the benefits it expects from any such rebound in business travel;
• Mr. Murray indicates SVC has ample liquidity and financial flexibility as lodging trends continue to rebound. However SVC’s waiver for compliance with all financial covenants on its revolving credit facility expires on July 15, 2022 when the revolving credit facility becomes due. SVC may be unable to repay its debt obligations and may not be able to meet the conditions required to exercise the extension option available to it under the agreement or be able to refinance the balance with new debt. SVC may need to seek additional waivers or amendments with its lenders and there is no assurance it will be granted such relief;
• This press release provides projected operating metrics for October 2021. These estimates may differ from actual results;
• SVC is marketing for sale 68 hotels with a net book value as of September 30, 2021 of $579.0 million and expects to complete these sales by the end of the first quarter of 2022. SVC also expects to complete $2.5 million of net lease property sales by the end of the fourth quarter of 2021. The sales of SVC’s properties are subject to conditions; accordingly, SVC cannot provide any assurance that it will sell any of these properties and the sales may be delayed, may not occur or their terms may change. Any sales it may complete may be at prices less than SVC expects and less than its net book value; and
• SVC has entered agreements to sell four net lease properties for an aggregate sales price of $2.3 million, excluding closing costs and expects to complete these sales by the end of the fourth quarter of 2021. The sales of these 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.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.

No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

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