Service Properties Trust Announces First Quarter 2021 Results

Service Properties Trust Announces First Quarter 2021 Results



Net loss for the quarter ended March 31, 2021 was $195.0 million, or $1.19 per diluted common share, compared to a net loss of $33.7 million, or $0.20 per diluted common share, for the quarter ended March 31, 2020.



Service Properties Trust;

Service Properties Trust (Nasdaq: SVC) last week announced its financial results for the quarter ended March 31, 2021.

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

“The first quarter marked a continued period of transition for SVC’s hotel portfolio. We converted an additional 88 hotels to Sonesta brands and management during the first quarter, following the conversion of 112 hotels during the fourth quarter of 2020. We expect disruption to our operating results from these transitions to be short-term in nature and believe that the rebranding will benefit SVC by creating more flexibility with respect to capital investments, possibly repurposing hotels to other uses, or sales. SVC also benefits from its 34% ownership of Sonesta.

We are also encouraged by improving hotel demand trends. As more of the population is vaccinated and government-mandated restrictions continue to be lifted, we expect that occupancy and hotel EBITDA should continue to recover and may accelerate meaningfully in the second half of this year.

Rent collections from our net lease retail tenants were stable at 93.1% for the first quarter, up from a low of 80.5% for April 2020, and anchored by our largest tenant, TravelCenters of America, which continues to benefit from healthy trucking activity and its importance to the nation’s supply chain.

We also continue to take steps to fortify our liquidity until lodging trends meaningfully improve. To that end, we have fully drawn down on our revolving credit facility as a precautionary measure to preserve financial flexibility.”

Results for the Quarter Ended March 31, 2021:

Three Months Ended March 31,

2021

2020

($ in thousands, except per share data)

Net loss

$

(194,990)

$

(33,650)

Net loss per common share

$

(1.19)

$

(0.20)

Normalized FFO (1)

$

(41,996)

$

123,084

Normalized FFO per common share (1)

$

(0.26)

$

0.75

Adjusted EBITDAre (1)

$

48,705

$

195,137

(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 March 31, 2021 and 2020 appear later in this press release.
  • Net loss: Net loss for the quarter ended March 31, 2021 was $195.0 million, or $1.19 per diluted common share, compared to a net loss of $33.7 million, or $0.20 per diluted common share, for the quarter ended March 31, 2020. Net loss for the quarter ended March 31, 2021 includes $19.6 million, or $0.12 per diluted common share, of hotel manager transition related costs, $6.5 million, or $0.04 per diluted common share, of net unrealized losses on equity securities and a $1.2 million, or $0.01 per diluted common share, of loss on asset impairment. Net loss for the quarter ended March 31, 2020 includes a $16.7 million, or $0.10 per diluted common share, loss on asset impairment, a $6.9 million, or $0.04 per diluted common share, loss on sale of real estate and $5.0 million, or $0.03 per diluted common share, of net unrealized losses on equity securities. The weighted average number of diluted common shares outstanding was 164.5 million and 164.4 million for the quarters ended March 31, 2021 and 2020, respectively.
  • Normalized FFO: Normalized FFO for the quarter ended March 31, 2021 were negative $42.0 million, or $(0.26) per diluted common share, compared to Normalized FFO of $123.1 million, or $0.75 per diluted common share, for the quarter ended March 31, 2020.
  • Adjusted EBITDAre: Adjusted EBITDAre for the quarter ended March 31, 2021 compared to the same period in 2020 decreased 75.0% to $48.7 million.

Hotel Portfolio:

As of March 31, 2021, 305 of SVC’s 310 hotels were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (256 hotels), Hyatt Hotels Corporation, or Hyatt (22 hotels), Radisson Hospitality, Inc., or Radisson (nine hotels), Marriott International, Inc., or Marriott (17 hotels), and InterContinental Hotels Group, plc, or IHG (one hotel). Five of SVC’s 310 hotels were leased to another third party.

Three Months Ended March 31,

2021

2020

Change

($ in thousands, except hotel statistics)

Comparable Hotels

No. of hotels

304

304

No. of rooms or suites

47,612

47,612

Occupancy

40.1

%

57.4

%

(17.3)

pts

ADR

$

87.19

$

123.22

(29.2)

%

Hotel RevPAR

$

34.96

$

70.73

(50.6)

%

Hotel operating revenues (1)

$

164,657

$

366,595

(55.1)

%

Hotel operating expenses (1)

$

219,144

$

331,576

(33.9)

%

Hotel EBITDA (1)

$

(54,487)

$

35,019

n/m

Adjusted Hotel EBITDA (1)

$

(35,143)

$

35,019

n/m

Adjusted Hotel EBITDA margin

(21.3)

%

9.6

%

n/m

All Hotels

No. of hotels

310

310

No. of rooms or suites

49,015

49,015

Occupancy

40.1

%

56.6

%

(16.5)

pts

ADR

$

88.02

$

125.06

(29.6)

%

Hotel RevPAR

$

35.30

$

70.78

(50.1)

%

Hotel operating revenues (1)

$

168,953

$

388,682

(56.5)

%

Hotel operating expenses (1)

$

226,764

$

358,071

(36.7)

%

Hotel EBITDA (1)

$

(57,811)

$

30,611

n/m

Adjusted Hotel EBITDA (1)

$

(38,176)

$

30,611

n/m

Adjusted Hotel EBITDA margin

(22.6)

%

7.9

%

n/m

(1)

  Reconciliations of hotel operating revenues and hotel operating expenses used to determine Hotel EBITDA and Adjusted Hotel EBITDA from hotel operating revenues and hotel operating expenses determined in accordance with GAAP for the quarters ended March 31, 2021 and 2020 appear later in this press release.

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

Comparable Hotels

All Hotels

January

2021

February

2021

March

2021

January

2021

February

2021

March

2021

Occupancy

36.0

%

37.6

%

46.6

%

35.9

%

37.7

%

46.5

%

ADR

$

85.68

$

86.01

$

89.22

$

85.91

$

86.84

$

90.49

RevPAR

$

30.84

$

32.34

$

41.58

$

30.84

$

32.74

$

42.08

For SVC’s 310 hotels, occupancy, ADR and RevPAR was 51.0%, $94.82 and $48.38, respectively, for the month of April 2021.

Hotel Agreements and Brand Conversions:

During the quarter ended March 31, 2021, SVC completed the transition of branding and management of 88 hotels to Sonesta from Marriott. SVC entered management agreements with Sonesta to manage these 88 hotels on terms substantially consistent with SVC’s Sonesta management agreements for the 112 hotels it transitioned the branding of and management to Sonesta in the fourth quarter of 2020.

As previously announced, in January 2021, SVC received a notice of termination from Hyatt that terminated SVC’s existing management agreement with Hyatt for 22 hotels, effective as of April 8, 2021, as a result of Hyatt’s guaranty being exhausted. On April 7, 2021, SVC and Hyatt agreed to a short term extension of the termination date to May 22, 2021. SVC and Hyatt are currently in discussions regarding possible changes to the management agreement that may result in some or all of the hotels remaining Hyatt managed. However, if such discussions do not result in a mutually acceptable agreement for Hyatt to continue to manage some or all of these hotels, SVC expects to transition management of those hotels to Sonesta on or about June 1, 2021.

Net Lease Retail Portfolio:

As of March 31, 2021

Number of properties

798

Industries

21

Tenants

168

Brands

130

Square feet

13.5 million

Occupancy

98.5%

Weighted average lease term (by annual minimum rent)

10.7 years

Coverage

2.19x

During the quarter ended March 31, 2021, SVC collected 93.1% of rents from its net lease tenants. In April 2021, SVC collected 97.7% of rents due from its net lease tenants. SVC recorded reserves for uncollectible revenues of $4.8 million for certain of its net lease tenants during the quarter ended March 31, 2021.

SVC has granted temporary rent assistance to date totaling $12.1 million to 45 tenants, pursuant to deferred payment plans. During the quarter ended March 31, 2021, SVC entered into rent deferral agreements for $1.2 million of rent with five net lease tenants. Generally, these tenants are required to pay deferred rents over a 12-24 month period. The $12.1 million of granted temporary rent assistance is detailed as follows:

Granted Rent

Deferrals

Percentage of

Total Granted

Rent Deferrals

As of December 31, 2020

$

10,902

90.0

%

New deferrals during the quarter ended March 31, 2021

1,228

10.0

%

Total granted deferrals

12,130

100.0

%

Amounts repaid (1)

(1,525)

12.6

%

Outstanding rent deferral balance as of March 31, 2021

$

10,605

87.4

%

(1)

  Collections of rent deferrals represents approximately 75% of the deferrals that have become due as of March 31, 2021.

Recent Investment Activities:

On March 9, 2021, SVC acquired a land parcel adjacent to a property it owns in Nashville, TN for a purchase price of $7.7 million, including acquisition related costs.

During the quarter ended March 31, 2021, SVC sold one net lease property with 2,797 rentable square feet for $0.4 million, excluding closing costs. In April 2021, SVC sold one hotel with 146 rooms that was subject to a ground lease pursuant to a purchase option exercised by the third party lessor for $9.8 million, excluding closing costs, and one net lease property with 32,130 rentable square feet for $1.2 million, excluding closing costs.

As previously announced, SVC has entered an agreement to sell five hotels with an aggregate of 430 rooms in four states for an aggregate sales price of $22.3 million, excluding closing costs. SVC has also entered agreements to sell two net lease properties with an aggregate of 35,330 square feet in two states for an aggregate sales price of $1.6 million, excluding closing costs. SVC expects these sales to be completed by the end of the second quarter of 2021. However, these sales are subject to conditions; accordingly, SVC cannot be sure that it will complete these sales or that these sales will not be delayed, or the terms will not change.

During the quarter ended March 31, 2021, SVC funded a $25.4 million capital contribution to Sonesta related to Sonesta’s acquisition of Red Lion Hotels Corporation. SVC continues to maintain its 34% ownership of Sonesta after giving effect to this funding.

During the quarter ended March 31, 2021, SVC funded $29.0 million of capital improvements to certain of its properties.

Financing Activities:

SVC borrowed the $972.8 million of remaining capacity under its revolving credit facility in the first quarter of 2021 as a precautionary measure to preserve financial flexibility.

On April 15, 2021, SVC announced a $0.01 per common share dividend to be paid to its shareholders of record on April 26, 2021 and distributed on or about May 20, 2021.

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

(unaudited)

         

March 31, 2021

December 31, 2020

ASSETS

Real estate properties:

Land

$

2,037,534

$

2,030,440

Buildings, improvements and equipment

9,152,881

9,131,832

Total real estate properties, gross

11,190,415

11,162,272

Accumulated depreciation

(3,377,635)

(3,280,110)

Total real estate properties, net

7,812,780

7,882,162

Acquired real estate leases and other intangibles, net

312,765

325,845

Assets held for sale

13,805

13,543

Cash and cash equivalents

874,455

73,332

Restricted cash

5,096

18,124

Due from related persons

52,620

55,530

Other assets, net

442,994

318,783

Total assets

$

9,514,515

$

8,687,319

LIABILITIES AND SHAREHOLDERS’ EQUITY

Revolving credit facility

$

1,000,000

$

78,424

Senior unsecured notes, net

6,133,376

6,130,166

Accounts payable and other liabilities

428,626

345,373

Due to related persons

45,981

30,566

Total liabilities

7,607,983

6,584,529

Commitments and contingencies

Shareholders’ equity:

Common shares of beneficial interest, $.01 par value; 200,000,000 shares

authorized; 164,823,833 shares issued and outstanding

1,648

1,648

Additional paid in capital

4,550,765

4,550,385

Cumulative other comprehensive loss

(760)

(760)

Cumulative net income available for common shareholders

2,985,273

3,180,263

Cumulative common distributions

(5,630,394)

(5,628,746)

Total shareholders’ equity

1,906,532

2,102,790

Total liabilities and shareholders’ equity

$

9,514,515

$

8,687,319

SERVICE PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)

 

Three Months Ended

March 31,

2021

2020

Revenues:

Hotel operating revenues (1)

$

168,953

$

383,503

Rental income (2)

92,217

100,273

Total revenues

261,170

483,776

Expenses:

Hotel operating expenses (1)(3)(9)(13)

214,987

271,148

Other operating expenses

3,417

3,759

Depreciation and amortization

124,368

127,926

General and administrative

12,657

14,024

Loss on asset impairment (4)

1,211

16,740

Total expenses

356,640

433,597

Loss on sale of real estate, net (5)

(9)

(6,911)

Unrealized losses on equity securities, net (6)

(6,481)

(5,045)

Interest income

57

262

Interest expense (including amortization of debt issuance costs and debt discounts and

premiums of $4,355 and $3,288, respectively)

(89,391)

(71,075)

Loss before income taxes and equity in losses of an investee

(191,294)

(32,590)

Income tax expense

(853)

(342)

Equity in losses of an investee (7)

(2,843)

(718)

Net loss

$

(194,990)

$

(33,650)

Weighted average common shares outstanding (basic)

164,498

164,370

Weighted average common shares outstanding (diluted)

164,498

164,370

Net loss per common share (basic and diluted)

$

(1.19)

$

(0.20)

See Notes.

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

March 31,

 

2021

2020

Calculation of FFO and Normalized FFO: (8)

Net loss

$

(194,990)

$

(33,650)

Add (Less):

Depreciation and amortization

124,368

127,926

 

Loss on asset impairment (4)

1,211

16,740

 

Loss on sale of real estate, net (5)

9

6,911

 

Unrealized losses on equity securities, net (6)

6,481

5,045

 

Adjustments to reflect SVC’s share of FFO attributable to an investee (7)

465

112

FFO

(62,456)

123,084

Add (Less):

Adjustments to reflect SVC’s share of Normalized FFO attributable to an investee (7)

825

 

Hotel manager transition related costs (9)

19,635

Normalized FFO

$

(41,996)

$

123,084

 
Weighted average common shares outstanding (basic)

164,498

164,370

Weighted average common shares outstanding (diluted)

164,498

164,370

 
Basic and diluted per common share amounts:
 

Net loss per share

$

(1.19)

$

(0.20)

 

FFO

$

(0.38)

$

0.75

 

Normalized FFO

$

(0.26)

$

0.75

 

Distributions declared per share

$

0.01

$

0.54

 

Three Months Ended

March 31,

 

2021

2020

Calculation of EBITDA, EBITDAre and Adjusted EBITDAre:(10)
Net loss

$

(194,990)

$

(33,650)

Add (Less):

Interest expense

89,391

71,075

 

Income tax expense

853

342

 

Depreciation and amortization

124,368

127,926

EBITDA

19,622

165,693

Add (Less):

Loss on asset impairment (4)

1,211

16,740

 

Loss on sale of real estate, net (5)

9

6,911

 

Adjustments to reflect SVC’s share of EBITDAre attributable to an investee (7)

543

EBITDAre

21,385

189,344

Add (Less):

Unrealized losses on equity securities, net (6)

6,481

5,045

 

Adjustments to reflect SVC’s share of Adjusted EBITDAre attributable to an investee (7)

825

158

 

Hotel manager transition related costs (9)

19,635

 

General and administrative expense paid in common shares (11)

379

590

Adjusted EBITDAre

$

48,705

$

195,137

 

See Notes.

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA and ADJUSTED HOTEL EBITDA

Comparable Hotels

(amounts in thousands)

(unaudited)

Three Months Ended

March 31,

2021

2020

Number of hotels

304

304

Room revenues

$

149,850

$

305,920

Food and beverage revenues

7,383

45,250

Other revenues

7,424

15,425

Hotel operating revenues – comparable hotels

164,657

366,595

Rooms expenses

56,401

99,837

Food and beverage expenses

8,454

41,392

Other direct and indirect expenses

118,451

147,261

Management fees

5,065

2,691

Real estate taxes, insurance and other

30,021

29,825

FF&E reserves (12)

752

10,570

Hotel operating expenses – comparable hotels

219,144

331,576

Hotel EBITDA – comparable hotels

$

(54,487)

$

35,019

Hotel manager transition related costs (9)

19,344

Adjusted Hotel EBITDA

$

(35,143)

$

35,019

Adjusted Hotel EBITDA Margin

(21.3)

%

9.6

%

Hotel operating revenues (GAAP) (1)

$

168,953

$

383,503

Hotel operating revenues from non-comparable hotels

(4,296)

(16,908)

Hotel operating revenues – comparable hotels

$

164,657

$

366,595

Hotel operating expenses (GAAP) (1)

$

214,987

$

271,148

Add (Less):

Hotel operating expenses from non-comparable hotels

(7,620)

(21,227)

Reduction for security deposit and guaranty fundings, net (3)

10,392

70,506

Management and incentive management fees paid from cash flows in excess from

minimum returns and rents

FF&E reserves from managed hotel operations (12)

764

10,942

Other (13)

621

207

Hotel operating expenses – comparable hotels

$

219,144

$

331,576

See Notes.

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA and ADJUSTED HOTEL EBITDA

All Hotels

(amounts in thousands)

(unaudited)

Three Months Ended

March 31,

2021

2020

Number of hotels

310

329

Room revenues

$

152,728

$

322,668

Food and beverage revenues

8,172

49,722

Other revenues

8,053

16,292

Hotel operating revenues

168,953

388,682

Rooms expenses

56,578

107,066

Food and beverage expenses

9,042

46,045

Other direct and indirect expenses

119,401

146,671

Management fees

5,238

2,864

Real estate taxes, insurance and other

35,741

44,288

FF&E reserves (12)

764

11,137

Hotel operating expenses

226,764

358,071

Hotel EBITDA

$

(57,811)

$

30,611

Hotel manager transition related costs (9)

19,635

Adjusted Hotel EBITDA

$

(38,176)

$

30,611

Adjusted Hotel EBITDA Margin

(22.6)

%

7.9

%

Hotel operating revenues (GAAP) (1)

$

168,953

$

383,503

Add: hotel revenues of leased hotels (1)

5,179

Hotel operating revenues

$

168,953

$

388,682

Hotel operating expenses (GAAP) (1)

$

214,987

$

271,148

Add (Less):

Reduction for security deposit and guaranty fundings, net (3)

10,392

70,506

Hotel operating expenses of leased hotels

5,268

Management and incentive management fees paid from cash flows in excess from

minimum returns and rents

FF&E reserves from managed hotels operations (12)

764

10,942

Other (13)

621

207

Hotel operating expenses

$

226,764

$

358,071

See Notes.

(1)

  As of March 31, 2021, SVC owned 310 hotels; 305 of these hotels were managed by hotel operating companies. SVC has entered into an agreement to sell five of its 310 hotels and it has entered into a short term lease of these properties with the buyer in anticipation of the sale. SVC’s condensed consolidated statements of income (loss) include hotel operating revenues and expenses of managed hotels and rental income from its leased hotels.

(2)

  SVC reduced rental income by $1,883 and $3,543 for the three months ended March 31, 2021 and 2020, respectively, to record scheduled rent changes under certain of SVC’s leases, the deferred rent obligations under SVC’s leases with TA and the estimated future payments to SVC under its leases with TA for the cost of removing underground storage tanks on a straight-line basis.

(3)

  When managers of SVC’s hotels are required to fund the shortfalls of minimum returns under the terms of SVC’s management agreements or their guarantees, SVC reflects such fundings (including security deposit applications) in its condensed consolidated statements of income (loss) as a reduction of hotel operating expenses. The net reduction to hotel operating expenses was $10,392 and $70,506 for the three months ended March 31, 2021 and 2020, respectively.

(4)

  SVC recorded a $1,211 loss on asset impairment during the three months ended March 31, 2021 to reduce the carrying value of two net lease properties to their estimated fair value. SVC recorded a $16,740 loss on asset impairment during the three months ended March 31, 2020 to reduce the carrying value of two net lease properties to their estimated fair value less costs to sell and two hotels to their estimated fair values.

(5)

  SVC recorded a $9 loss on sale of real estate during the three months ended March 31, 2021 in connection with the sale of one net lease property. SVC recorded a $6,911 loss on sale of real estate during the three months ended March 31, 2020 in connection with the sale of six net lease properties.

(6)

  Unrealized losses on equity securities, net represents the adjustment required to adjust the carrying value of SVC’s investment in TA common shares to their fair value.

(7)

  Represents SVC’s proportionate share from its equity investment in Sonesta.

(8)

  SVC calculates FFO and Normalized FFO as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or Nareit, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any unrealized gains and losses on equity securities, as well as adjustments to reflect SVC’s share of FFO attributable to an investee and certain other adjustments currently not applicable to SVC. In calculating Normalized FFO, SVC adjusts for the items shown above. FFO and Normalized FFO are among the factors considered by SVC’s Board of Trustees when determining the amount of distributions to its shareholders. Other factors include, but are not limited to, requirements to satisfy SVC’s REIT distribution requirements, limitations in its credit agreement and public debt covenants, the availability to SVC of debt and equity capital, SVC’s distribution rate as a percentage of the trading price of its common shares, or dividend yield, and to the dividend yield of other REITs, SVC’s expectation of its future capital requirements and operating performance, and SVC’s expected needs for and availability of cash to pay its obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than SVC does.

(9)

  Hotel operating expenses for the three months ended March 31, 2021 includes $19,635 of hotel manager transition related costs resulting from the rebranding of 88 hotels during the periods.

(10)

  SVC calculates EBITDA, EBITDAre, and Adjusted EBITDAre as shown above. EBITDAre is calculated on the basis defined by Nareit which is EBITDA, excluding gains and losses on the sale of real estate, loss on impairment of real estate assets, if any, and adjustments to reflect SVC’s share of EBITDAre attributable to an investee. In calculating Adjusted EBITDAre, SVC adjusts for the items shown above. Other real estate companies and REITs may calculate EBITDA, EBITDAre and Adjusted EBITDAre differently than SVC does.

(11)

  Amounts represent the equity compensation for SVC’s Trustees, its officers and certain other employees of SVC’s manager.

(12)

  Various percentages of total sales at certain of SVC’s hotels are escrowed as reserves for future renovations or refurbishments, or FF&E reserve escrows. SVC owns all the FF&E reserve escrows for its hotels.

(13)

  SVC is amortizing a liability it recorded for the fair value of its initial investment in Sonesta as a reduction to hotel operating expenses in its condensed consolidated statements of income (loss). SVC reduced hotel operating expenses by $621 and $207 for the three months ended March 31, 2021 and March 31, 2020, respectively, for this liability.

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 that SVC expects the disruption to its operating results from the transitions to Sonesta will be short-term in nature, however these disruptions may continue longer than currently expected;
  • Mr. Murray indicates SVC’s belief that the rebranding of hotels to Sonesta will benefit SVC as an owner of Sonesta and create more flexibility with respect to capital investments, possibly repurposing hotels to other uses, or sales. Sonesta may not operate these hotels profitably and SVC may not receive the benefits it expects to receive;
  • Sonesta operates 256 of SVC’s 310 hotels, which constituted approximately 52% of SVC’s total historical real estate investments as of March 31, 2021. SVC is also currently in discussions with Hyatt regarding 22 hotels. If such discussions do not result in a mutually acceptable agreement, SVC expects to transition management of some or all of these hotels to Sonesta. Sonesta is a privately held company with less resources and scale than other larger well known hotel companies. If Sonesta were to fail to provide quality services and amenities or to maintain a quality brand, SVC’s income from these properties may be adversely affected. Further, if SVC were required to replace Sonesta, SVC could experience significant disruptions in operations at the applicable properties, which could reduce its income and cash flows from, and the value of, those properties. SVC has no guarantee or security deposit under its Sonesta agreements. Accordingly, SVC may receive amounts from Sonesta that are less than the contractual minimum returns stated in its agreements with Sonesta or SVC may be requested to fund losses for its Sonesta hotels;
  • Mr. Murray states that TA continues to benefit from healthy trucking activity and its importance to the nation’s supply chain. 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 indicates that the rent collections from SVC’s net lease tenants are stable which may imply that SVC may be able to maintain or increase its rent collections in the future; however, if any of SVC’s tenants businesses are negatively affected further by the ongoing COVID-19 pandemic or a decline in economic activity, rent collections may decline;
  • Mr. Murray indicates that SVC has taken steps to fortify its liquidity and preserve financial flexibility, noting certain actions SVC has taken in these regards. Further, Mr. Murray states that SVC expects hotel demand trends to improve in the latter half of 2021 and that occupancy and EBITDA should continue to recover and may accelerate meaningfully in the second half of 2021. However, such trends may not improve as expected and if the COVID-19 pandemic or the current economic conditions continue for an extended period or worsen, SVC’s actions may not be adequate to ensure that SVC maintains sufficient liquidity and preserves capital and occupancy and EBITDA may not recover or accelerate; further, SVC is currently fully drawn on its $1.0 billion revolving credit facility and it would not have any additional borrowing capacity to meet any funding needs beyond its cash on hand. If SVC’s operating results and financial condition are significantly and adversely impacted by current economic conditions or otherwise it may experience liquidity challenges; and
  • SVC expects to complete $22.3 million of hotel sales and $1.6 million of net lease property sales by the end of the second 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.

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.

Logos, product and company names mentioned are the property of their respective owners.

© 2021 Hotel News Resource



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