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Service Properties Trust Announces Third Quarter 2019 Results

November 8, 2019

NEWTON, Mass.--(BUSINESS WIRE)--Nov 8, 2019--

Service Properties Trust (Nasdaq: SVC) (formerly known as Hospitality Properties Trust) today announced its financial results for the quarter and nine months ended September 30, 2019:

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

 

($ in thousands, except per share and RevPAR data)

Net income

$

40,074

 

 

$

117,099

 

 

$

274,643

 

 

$

294,594

 

Net income per common share

$

0.24

 

 

$

0.71

 

 

$

1.67

 

 

$

1.79

 

Adjusted EBITDA re(1)

$

209,545

 

 

$

225,676

 

 

$

624,418

 

 

$

655,530

 

Normalized FFO (1)

$

155,635

 

 

$

174,653

 

 

$

469,041

 

 

$

505,714

 

Normalized FFO per common share (1)

$

0.95

 

 

$

1.06

 

 

$

2.85

 

 

$

3.08

 

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

“As previously announced, during the third quarter we completed our acquisition of a high-quality net lease portfolio of 767 service-oriented retail properties for $2.4 billion in cash consideration plus $82.1 million of prepayment penalties to extinguish mortgage debt on the portfolio. We believe this transaction provides us with increased scale, a more secure financial profile and greater diversity in tenant base, property type and geography. We have also made significant progress on our previously announced disposition plan. We sold two net lease properties for $63 million and entered an agreement to sell 126 additional net lease properties for $438 million.

“In the third quarter, comparable hotel RevPAR declined 0.3% compared to the prior year period due in part to occupancy decreases from 13 hotels under renovation, six of which were relatively higher revenue contributing full service hotels that impacted our IHG, Sonesta and Radisson Hotel Group portfolios. For hotels not impacted by renovations, comparable RevPAR increased by 0.9%.”

Results for the Three and Nine Months Ended September 30, 2019 and Recent Activities:

Recent Acquisition, Disposition and Investment Activities: As previously announced, in July 2019, SVC sold all 2,503,777 of its class A common shares of The RMR Group Inc., or RMR Inc., in an underwritten public offering at a price to the public of $40.00 per common share. SVC received net proceeds of $93.6 million from this sale, after deducting underwriting discounts, commissions and other costs, that it used to repay debt.

As previously announced, in September 2019, SVC completed its acquisition of a net lease portfolio of service-oriented retail properties from Spirit MTA REIT (NYSE: SMTA) for $2.4 billion in cash, excluding transaction costs, or the SMTA Transaction. In addition to the $2.4 billion purchase price, SVC paid $82.1 million of prepayment penalties related to SMTA’s extinguishment of mortgage debt on the portfolio. SVC funded the SMTA Transaction with net proceeds from its recently completed $1.7 billion principal amount of unsecured senior notes offerings described below and by drawing on its revolving credit facility.

In October 2019, SVC acquired the 261 room Kimpton Palomar Hotel in Chicago, IL for a purchase price of $55.0 million, excluding acquisition related costs. SVC added this Kimpton ® branded hotel to its management agreement with InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs)), or IHG.

Also, in October 2019, SVC sold two net lease properties it acquired in the SMTA Transaction with an aggregate of 242,189 square feet with leases requiring annual minimum rents of $4.5 million, for aggregate net proceeds of $63.3 million, excluding closing costs.

In addition, in October 2019, SVC entered into an agreement to sell 126 net lease properties it acquired in the SMTA Transaction with approximately 2.4 million square feet in 26 states with leases requiring an aggregate of $34.3 million of annual minimum rents for an aggregate sales price of $438.0 million, excluding closing costs. SVC expects this sale to be completed prior to December 31, 2019.

Financing Activities: As previously announced, in September 2019, SVC issued $825.0 million principal amount of 4.35% unsecured senior notes due 2024, $450.0 million principal amount of 4.75% unsecured senior notes due 2026 and $425.0 million principal amount of 4.95% unsecured senior notes due 2029 in underwritten public offerings. The aggregate net proceeds from these offerings of $1.68 billion after underwriting discounts and other offering expenses were used to finance, in part, the SMTA Transaction.

In connection with the completion of these offerings, SVC terminated the unused commitments previously announced available to SVC under its previously announced $2.0 billion senior unsecured term loan facility and record an $8.5 million loss on extinguishment of debt during the three months ended September 30, 2019.

Hotel Portfolio:

As of September 30, 2019, SVC had eight operating agreements with six hotel operating companies for 328 hotels with 51,086 rooms, which represented 59% of SVC’s total annual minimum returns and rents.

Hotel Managers and Tenants:

Net Lease Portfolio:

As of September 30, 2019, SVC owned 946 net lease service-oriented retail properties with 17.6 million square feet requiring annual minimum rent of $418.6 million which represented 41% of SVC’s total annual minimum returns and rents. The portfolio was 98% leased by 279 tenants with a weighted (by annual minimum rent) average lease term of 11.3 years operating under 163 brands in 23 distinct industries. As of the quarter ended September 30, 2019, the aggregate coverage of SVC’s net lease portfolio’s minimum rent was 2.27x. TravelCenters of America Inc. (Nasdaq: TA), or TA, is SVC’s largest tenant. As of September 30, 2019, SVC leased to TA a total of 179 travel centers under five leases that expire between 2029 and 2035 and require annual minimum rents of $246.1 million.

Conference Call:

At 10:00 a.m. Eastern Time this morning, John Murray, Chief Executive Officer, Brian Donley, Chief Financial Officer, and Todd Hargreaves, Vice President, will host a conference call to discuss SVC’s third quarter 2019 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 15, 2019. To access the replay, dial (412) 317-0088. The replay pass code is 10134938.

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 2019 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 (formerly known as Hospitality Properties Trust) is a real estate investment trust, or REIT, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties across the United States and in Puerto Rico and Canada with 185 distinct brands across 24 industries. SVC’s properties are primarily operated under long term management or lease agreements. SVC is managed by the operating subsidiary of RMR Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.

Non-GAAP Financial Measures and Certain Definitions:

SVC presents certain “non-GAAP financial measures” within the meaning of applicable Securities and Exchange Commission, or SEC, rules, including EBITDA, EBITDA re, Adjusted EBITDA re, FFO and Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income as indicators of SVC’s operating performance or as measures of SVC’s liquidity. These measures should be considered in conjunction with net income as presented in SVC’s condensed consolidated statements of income. SVC considers these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income. 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.

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, EBITDA re and Adjusted EBITDA re and a reconciliation of those amounts to amounts determined in accordance with GAAP.

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 and were open and operating for the entire periods being compared. For the three months ended September 30, 2019 and 2018, SVC excluded six hotels from its comparable results. Three of these hotels were not owned for the entire periods and three were closed for major renovations during part of the periods presented. For the nine months ended September 30, 2019 and 2018, SVC excluded eight hotels from its comparable results. Five of these hotels were not owned for the entire periods and three were closed for major renovations during part of the periods presented.

For the nine months ended September 30, 2019 and 2018, SVC excluded eight hotels from its comparable results. Five of these hotels were not owned for the entire period and three were closed for a major renovation during part of the periods presented.

Minimum Rent and Return Coverage:

Hotel coverage is calculated as total hotel revenues minus all hotel expenses and FF&E reserve escrows which are not subordinated to minimum returns due to SVC divided by the minimum returns or rents due to SVC.

SVC defines net lease coverage as annual property level adjusted 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. The annual property level adjusted EBITDAR is determined based on the most recent operating statements, if any, furnished by the tenant. Properties that do not report operating information are excluded from the coverage calculations.

SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Hotel operating revenues (1)

 

$

525,290

 

 

$

520,618

 

 

$

1,521,368

 

 

$

1,494,283

 

Rental income (2)

 

73,619

 

 

81,322

 

 

210,509

 

 

245,543

 

FF&E reserve income (3)

 

863

 

 

1,213

 

 

3,365

 

 

3,911

 

Total revenues

 

599,772

 

 

603,153

 

 

1,735,242

 

 

1,743,737

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expenses (1)

 

377,895

 

 

365,526

 

 

1,076,011

 

 

1,052,121

 

Other operating expenses

 

1,707

 

 

1,468

 

 

4,419

 

 

3,936

 

Depreciation and amortization

 

103,160

 

 

101,007

 

 

301,721

 

 

300,308

 

General and administrative (4)

 

12,464

 

 

13,425

 

 

36,906

 

 

38,280

 

Total expenses

 

495,226

 

 

481,426

 

 

1,419,057

 

 

1,394,645

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate (5)

 

 

 

 

 

159,535

 

 

 

Dividend income

 

 

 

626

 

 

1,752

 

 

1,878

 

Unrealized gains and (losses) on equity securities, net (6)

 

(3,950

)

 

43,453

 

 

(43,761

)

 

89,348

 

Interest income

 

688

 

 

478

 

 

1,774

 

 

1,093

 

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $2,689, $2,570, $7,829 and $7,607, respectively)

 

(52,375

)

 

(49,308

)

 

(151,742

)

 

(145,589

)

Loss on early extinguishment of debt (7)

 

(8,451

)

 

 

 

(8,451

)

 

(160

)

Income before income taxes and equity in earnings of an investee

 

40,458

 

 

116,976

 

 

275,292

 

 

295,662

 

Income tax expense

 

(467

)

 

(707

)

 

(1,266

)

 

(1,949

)

Equity in earnings of an investee

 

83

 

 

830

 

 

617

 

 

881

 

Net income

 

$

40,074

 

 

$

117,099

 

 

$

274,643

 

 

$

294,594

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

164,321

 

 

164,232

 

 

164,294

 

 

164,212

 

Weighted average common shares outstanding (diluted)

 

164,348

 

 

164,274

 

 

164,332

 

 

164,242

 

 

 

 

 

 

 

 

 

 

Net income per common share (basic and diluted)

 

$

0.24

 

 

$

0.71

 

 

$

1.67

 

 

$

1.79

 

See Notes on pages 9 and 10

SERVICE PROPERTIES TRUST
RECONCILIATIONS OF FUNDS FROM OPERATIONS,
NORMALIZED FUNDS FROM OPERATIONS, EBITDA, EBITDA re AND ADJUSTED EBITDA re
(amounts in thousands, except share data)
(Unaudited)

  

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Calculation of FFO and Normalized FFO: (8)

 

 

 

 

 

 

 

Net income

$

40,074

 

 

$

117,099

 

 

$

274,643

 

 

$

294,594

 

Add (Less):

Depreciation and amortization

103,160

 

 

101,007

 

 

301,721

 

 

300,308

 

 

Gain on sale of real estate (5)

 

 

 

 

(159,535

)

 

 

 

Unrealized (gains) and losses on equity securities, net (6)

3,950

 

 

(43,453

)

 

43,761

 

 

(89,348

)

FFO

 

147,184

 

 

174,653

 

 

460,590

 

 

505,554

 

Add:

Loss on early extinguishment of debt (7)

8,451

 

 

 

 

8,451

 

 

160

 

Normalized FFO

 

$

155,635

 

 

$

174,653

 

 

$

469,041

 

 

$

505,714

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

164,321

 

 

164,232

 

 

164,294

 

 

164,212

 

Weighted average common shares outstanding (diluted)

164,348

 

 

164,274

 

 

164,332

 

 

164,242

 

 

 

 

 

 

 

 

 

 

Basic and diluted per common share amounts:

 

 

 

 

 

 

 

 

FFO

$

0.90

 

 

$

1.06

 

 

$

2.80

 

 

$

3.08

 

 

Normalized FFO

$

0.95

 

 

$

1.06

 

 

$

2.85

 

 

$

3.08

 

 

Distributions declared per share

$

0.54

 

 

$

0.53

 

 

$

1.61

 

 

$

1.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Calculation of EBITDA, EBITDA re and Adjusted EBITDA re:(9)

 

 

 

 

 

 

 

Net income

$

40,074

 

 

$

117,099

 

 

$

274,643

 

 

$

294,594

 

Add (Less):

Interest expense

52,375

 

 

49,308

 

 

151,742

 

 

145,589

 

 

Income tax expense

467

 

 

707

 

 

1,266

 

 

1,949

 

 

Depreciation and amortization

103,160

 

 

101,007

 

 

301,721

 

 

300,308

 

EBITDA

196,076

 

 

268,121

 

 

729,372

 

 

742,440

 

Less:

Gain on sale of real estate (5)

 

 

 

 

(159,535

)

 

 

EBITDA re

 

196,076

 

 

268,121

 

 

569,837

 

 

742,440

 

Add (Less):

General and administrative expense paid in common shares (10)

1,068

 

 

1,008

 

 

2,369

 

 

2,278

 

 

Loss on early extinguishment of debt (7)

8,451

 

 

 

 

8,451

 

 

160

 

 

Unrealized (gains) and losses on equity securities, net (6)

3,950

 

 

(43,453

)

 

43,761

 

 

(89,348

)

Adjusted EBITDA re

$

209,545

 

 

$

225,676

 

 

$

624,418

 

 

$

655,530

 

See Notes on pages 9 and 10

SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(Unaudited)

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2019

 

2018

ASSETS

 

 

 

 

Real estate properties:

 

 

 

 

Land

 

$

2,062,776

 

 

$

1,626,239

 

Buildings, improvements and equipment

 

9,237,760

 

 

7,896,734

 

Total real estate properties, gross

 

11,300,536

 

 

9,522,973

 

Accumulated depreciation

 

(3,086,684

)

 

(2,973,384

)

Total real estate properties, net

 

8,213,852

 

 

6,549,589

 

Acquired real estate leases and other intangibles

 

392,673

 

 

105,749

 

Assets held for sale

 

604,989

 

 

144,008

 

Cash and cash equivalents

 

16,990

 

 

25,966

 

Restricted cash

 

53,519

 

 

50,037

 

Due from related persons

 

72,587

 

 

91,212

 

Other assets, net

 

160,893

 

 

210,518

 

Total assets

 

$

9,515,503

 

 

$

7,177,079

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Unsecured revolving credit facility

 

$

790,000

 

 

$

177,000

 

Unsecured term loan, net

 

397,740

 

 

397,292

 

Senior unsecured notes, net

 

5,284,933

 

 

3,598,295

 

Security deposits

 

122,763

 

 

132,816

 

Accounts payable and other liabilities

 

292,161

 

 

211,332

 

Due to related persons

 

18,920

 

 

62,913

 

Total liabilities

 

6,906,517

 

 

4,579,648

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,565,303 and 164,441,709 shares issued and outstanding, respectively

 

1,646

 

 

1,644

 

Additional paid in capital

 

4,547,055

 

 

4,545,481

 

Cumulative other comprehensive loss

 

(175

)

 

(266

)

Cumulative net income available for common shareholders

 

3,506,538

 

 

3,231,895

 

Cumulative common distributions

 

(5,446,078

)

 

(5,181,323

)

Total shareholders’ equity

 

2,608,986

 

 

2,597,431

 

Total liabilities and shareholders’ equity

 

$

9,515,503

 

 

$

7,177,079

 

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. Also, 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:

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.

View source version on businesswire.com:https://www.businesswire.com/news/home/20191108005087/en/

CONTACT: Kristin Brown, Director, Investor Relations

(617) 796-8232

KEYWORD: MASSACHUSETTS UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: REIT FINANCE PROFESSIONAL SERVICES COMMERCIAL BUILDING & REAL ESTATE CONSTRUCTION & PROPERTY

SOURCE: Service Properties Trust

Copyright Business Wire 2019.

PUB: 11/08/2019 07:00 AM/DISC: 11/08/2019 07:01 AM

http://www.businesswire.com/news/home/20191108005087/en