Service Properties Trust(SVC) - 2024 Q2 - Quarterly Results

Quarterly Results Service Properties Trust Announces Second Quarter 2024 Financial Results SVC reported Q2 2024 financial results, declaring a $0.20 dividend, with mixed hotel performance and stable net lease cash flows supported by no debt maturities until 2026 - Declared a quarterly distribution of $0.20 per common share for Q2 2024[3] - As of June 30, 2024, SVC's portfolio includes 220 hotels and 749 service-focused retail net lease properties, with a total investment of over $11 billion[3] - Management highlights stable cash flows from the net lease portfolio, anchored by TravelCenters of America (TA), and notes the company has no debt maturities until 2026, supporting ongoing strategic capital investment in the hotel portfolio[2] Second Quarter 2024 Highlights Q2 2024 highlights include a net loss of $73.9 million, Normalized FFO of $73.8 million, $1.2 billion in debt refinancing, and $66.5 million in capital expenditures Q2 2024 Key Performance Indicators | Metric | Value | | :--- | :--- | | Net Loss | $73.9 million ($0.45/share) | | Normalized FFO | $73.8 million ($0.45/share) | | Adjusted EBITDAre | $171.5 million | | Hotel RevPAR | $97.50 | | Hotel EBITDA | $82.4 million | | Net Lease Occupancy | 97.3% | | Net Lease Rent Coverage | 2.25x | - Issued $1.2 billion of senior guaranteed unsecured notes and used the proceeds to repay $1.2 billion of debt maturing in 2025, effectively extending its debt maturity profile[5] - Investment activity included selling two hotels and three vacant net lease properties post-quarter end, and entering agreements to sell an additional 16 hotels for $113.2 million[4] - Invested $66.5 million in capital expenditures during the quarter[6] Financials Key Financial Data SVC reported Q2 2024 total revenues of $512.9 million, a net loss of $73.9 million, and Normalized FFO of $73.8 million, with total assets at $7.12 billion Selected Financial Data (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Total Revenues | $512.9M | $503.8M | | Net Loss | ($73.9M) | ($11.3M) | | Normalized FFO | $73.8M | $93.8M | | Adjusted EBITDAre | $171.5M | $185.3M | | Net Loss per Share | ($0.45) | ($0.07) | | Normalized FFO per Share | $0.45 | $0.58 | Condensed Consolidated Statements of Income (Loss) SVC's Q2 2024 income statement shows total revenues of $512.9 million, but increased expenses, asset impairment, and debt extinguishment losses led to a net loss of $73.9 million Income Statement Summary (Three Months Ended June 30) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenues | $512,948 | $503,779 | | Total Expenses | $474,447 | $430,399 | | Loss on asset impairment, net | $34,887 | $9,005 | | Loss on early extinguishment of debt, net | $16,048 | $238 | | Net Loss | ($73,850) | ($11,278) | Condensed Consolidated Balance Sheets As of June 30, 2024, SVC's balance sheet shows total assets of $7.12 billion, stable liabilities at $6.11 billion, and a decrease in shareholders' equity to $1.01 billion Balance Sheet Summary | (in thousands) | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $7,121,661 | $7,356,116 | | Total Liabilities | $6,112,855 | $6,129,983 | | Total Shareholders' Equity | $1,008,806 | $1,226,133 | Debt Summary and Maturity As of June 30, 2024, SVC's total debt was $5.68 billion with a 6.37% weighted average interest rate and no significant maturities until 2026 Debt Composition as of June 30, 2024 | Debt Type | Principal Balance | W.A. Interest Rate | W.A. Years to Maturity | | :--- | :--- | :--- | :--- | | Secured Fixed Rate Debt | $1,607.6M | 7.482% | 6.0 | | Unsecured Fixed Rate Debt | $4,075.0M | 5.930% | 4.3 | | Total / Weighted Average | $5,682.6M | 6.369% | 4.8 | - The debt maturity schedule shows no principal payments due in 2025, with the next significant maturities occurring in 2026[16] Leverage, Coverage, and Covenants As of Q2 2024, SVC maintained compliance with debt covenants, reporting a Net Debt to Total Gross Assets of 55.1% and an interest coverage ratio of 1.7x Key Ratios as of June 30, 2024 | Ratio | Value | Covenant Requirement (if applicable) | | :--- | :--- | :--- | | Net debt / total gross assets | 55.1% | N/A | | Net debt / rolling four-quarter Adjusted EBITDAre | 9.4x | N/A | | Rolling four-quarter Adjusted EBITDAre / interest expense | 1.7x | N/A | | Total unencumbered assets / unsecured debt | 173.6% | Min 150% | | Total debt / adjusted total assets | 53.5% | Max 60.0% | Capital Expenditures Summary SVC invested $66.5 million in Q2 2024 capital expenditures, allocated between recurring improvements and non-recurring hotel renovations and redevelopment activities Capital Expenditures for Q2 2024 (in thousands) | Category | Amount | | :--- | :--- | | Recurring capital expenditures | $22,000 | | Hotel renovations, redevelopment and other | $44,475 | | Total Capital Expenditures | $66,475 | Property Acquisitions and Dispositions Since January 1, 2024, SVC has not acquired properties but disposed of nine properties for a total of $18.8 million - No properties have been acquired since the beginning of 2024[63] - A total of nine properties were sold since January 1, 2024, for an aggregate sales price of $18.8 million[63] Portfolio Information Portfolio Summary As of June 30, 2024, SVC's diversified portfolio comprised 969 properties with $11.5 billion total investment, split between hotels and net lease properties Portfolio Overview as of June 30, 2024 | Metric | Hotels | Net Lease | Total | | :--- | :--- | :--- | :--- | | Number of Properties | 220 | 749 | 969 | | Investment (in billions) | $6.4 | $5.1 | $11.5 | | Number of Rooms / Sq. Ft. | 37,697 rooms | 13.4M sq. ft. | N/A | Consolidated Portfolio Diversification SVC's portfolio is primarily concentrated in Hotels (55.8%) and Travel Centers (29.0%), with California, Texas, Florida, Illinois, and Georgia as top states - Top 3 industries by investment are Hotels (55.8%), Travel Centers (29.0%), and Quick Service Restaurants (2.6%)[67] - The top 5 states by investment are California (12.6%), Texas (7.8%), Florida (6.2%), Illinois (6.2%), and Georgia (6.0%), collectively accounting for 38.8% of the total portfolio investment[68] Hotel Portfolio SVC's hotel portfolio, primarily Sonesta-branded, saw Q2 2024 comparable occupancy increase to 68.3% but ADR decline, resulting in a total RevPAR of $97.50 - The hotel portfolio is heavily concentrated in Sonesta brands, including Royal Sonesta, Sonesta Hotels & Resorts, Sonesta ES Suites, Sonesta Select, and Sonesta Simply Suites, which collectively represent a significant majority of the 220 hotels[69] Comparable Hotels Operating Statistics (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Occupancy | 68.3% | 67.7% | +0.6 pts | | ADR | $141.96 | $143.52 | -1.1% | | RevPAR | $97.06 | $97.17 | -0.1% | All Hotels Operating Statistics (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Occupancy | 68.2% | 67.5% | +0.7 pts | | ADR | $142.99 | $144.46 | -1.0% | | RevPAR | $97.50 | $97.51 | 0.0% | Net Lease Portfolio SVC's net lease portfolio, comprising 749 properties, is highly concentrated with TA (64.7% of investment), boasts 2.25x rent coverage, 97.3% occupancy, and long-term lease expirations - The portfolio is heavily concentrated with TravelCenters of America Inc. (TA), which leases 175 properties and represents 64.7% of the total net lease investment[82] - The overall net lease portfolio has a rent coverage of 2.25x and an occupancy rate of 97.3% as of June 30, 2024[81][84] - The lease expiration schedule is long-term, with a major tranche of leases representing 69.5% of annualized minimum rent expiring in 2033[83] Appendix Company Profile and Governance SVC is a REIT owning hotels and net lease properties across North America, externally managed by The RMR Group, with its Board of Trustees and Executive Officers listed - SVC is a REIT specializing in hotels and service-oriented retail net lease properties[88] - The company is externally managed by The RMR Group, which had over $41 billion of real estate assets under management as of June 30, 2024[89] Reconciliation of Non-GAAP Financial Measures This section reconciles GAAP net loss to non-GAAP metrics for Q2 2024, including FFO of $57.8 million, Normalized FFO of $73.8 million, and Adjusted EBITDAre of $171.5 million Q2 2024 Non-GAAP Reconciliation Summary (in millions) | Metric | Value | | :--- | :--- | | Net Loss (GAAP) | ($73.9) | | FFO | $57.8 | | Normalized FFO | $73.8 | | CAD | $47.7 | | Adjusted EBITDAre | $171.5 | - Hotel EBITDA for Q2 2024 was $81.3 million for comparable hotels and $82.4 million for all hotels[97][99] Notes and Definitions This section provides accounting notes and defines non-GAAP financial measures (FFO, CAD, EBITDAre) and key industry terms (ADR, RevPAR, Occupancy, Rent Coverage) for report interpretation - Provides definitions for non-GAAP measures such as FFO, Normalized FFO, CAD, EBITDA, EBITDAre, and Adjusted EBITDAre, explaining their calculation and utility for investors[101] - Defines key operational and industry-specific terms like Average Daily Rate (ADR), Revenue per Available Room (RevPAR), Occupancy, and Rent Coverage[102][103] Warning Concerning Forward-Looking Statements This section warns that forward-looking statements are subject to risks and uncertainties, including market conditions, tenant performance, and geopolitical instability, which may cause actual results to differ materially - The presentation contains forward-looking statements that are not guarantees of future performance and are subject to risks and uncertainties[104] - Key risks include the performance of hotel managers and tenants, interest rate changes, economic downturns, and the ability to refinance debt[105]