Service Properties Trust(US:SVC)2024-08-06 20:34Part I. Financial Information Item 1. Financial Statements Presents Service Properties Trust's unaudited condensed consolidated financial statements for Q2 and H1 2024 Condensed Consolidated Balance Sheets Total assets decreased to $7.12 billion, liabilities remained stable, and equity declined to $1.01 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $7,121,661 | $7,356,116 | | Total real estate properties, net | $6,412,830 | $6,604,540 | | Cash and cash equivalents | $14,626 | $180,119 | | Total Liabilities | $6,112,855 | $6,129,983 | | Senior unsecured notes, net | $4,014,023 | $3,993,327 | | Total Shareholders' Equity | $1,008,806 | $1,226,133 | Condensed Consolidated Statements of Comprehensive Income (Loss) Q2 2024 net loss increased to $73.9 million, and H1 2024 net loss was $152.2 million Q2 Financial Performance (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Total Revenues | $512,948 | $503,779 | | Total Expenses | $474,447 | $430,399 | | Net (Loss) Income | $(73,850) | $(11,278) | | Net (Loss) Income per Share | $(0.45) | $(0.07) | Six-Month Financial Performance (in thousands, except per share data) | Metric | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Total Revenues | $949,198 | $932,988 | | Total Expenses | $890,320 | $845,707 | | Net (Loss) Income | $(152,233) | $14,672 | | Net (Loss) Income per Share | $(0.92) | $0.09 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $42.9 million, with increased cash usage in investing and financing Six-Month Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,893 | $328,503 | | Net cash (used in) provided by investing activities | $(142,799) | $103,960 | | Net cash used in financing activities | $(68,468) | $(27,258) | | (Decrease) increase in cash | $(168,374) | $405,205 | Notes to Condensed Consolidated Financial Statements Notes detail organization, accounting policies, property portfolio, debt, related party transactions, and segment performance - As of June 30, 2024, the company owned 220 hotels (37,697 rooms) and 749 service-focused retail net lease properties (13.4 million sq. ft.)1524 - In June 2024, the company issued $1.2 billion in new senior unsecured notes, resulting in a net loss on early extinguishment of debt of $16.0 million545556 - The company has significant related-party relationships with its manager, RMR, and Sonesta, in which it holds a 34% equity stake and which manages 195 of its hotels636769 Segment Net (Loss) Income - Six Months Ended June 30, 2024 (in thousands) | Segment | Net (Loss) Income | | :--- | :--- | | Hotels | $(28,929) | | Net Lease | $83,309 | | Corporate | $(206,613) | | Consolidated | $(152,233) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses macroeconomic impacts, portfolio performance, operational results, liquidity, and non-GAAP measures Overview and Portfolio Performance Hotel RevPAR declined due to renovations, while the net lease portfolio maintained strong 97.3% occupancy Comparable Hotels Performance vs. Prior Year | Metric | Q2 2024 vs Q2 2023 | H1 2024 vs H1 2023 | | :--- | :--- | :--- | | Occupancy | +0.6 pts | -0.5 pts | | ADR | -1.1% | -1.0% | | RevPAR | -0.2% | -1.8% | - The net lease portfolio consisted of 749 properties, was 97.3% occupied, and had a weighted average lease term of 8.4 years90 Results of Operations Q2 2024 net loss was $73.9 million due to higher expenses and impairment, and H1 2024 net loss was $152.2 million - Q2 2024 net loss increased to $73.9 million from $11.3 million in Q2 2023, primarily due to a $25.9 million increase in loss on asset impairment and a $15.8 million increase in loss on early extinguishment of debt939799 - H1 2024 showed a net loss of $152.2 million compared to a net income of $14.7 million in H1 2023, impacted by a $44.8 million negative swing in real estate sales and a non-recurring $48.8 million gain on equity securities in 2023101105106 Liquidity and Capital Resources Cash from operations decreased to $42.9 million in H1 2024, with $195 million planned for hotel improvements, and debt covenants remain compliant - Net cash from operating activities decreased significantly to $42.9 million in H1 2024 from $328.5 million in H1 2023, primarily due to $188 million of prepaid rent received from TA in 2023113115 - The company plans to fund $195 million for capital improvements to hotels during the last six months of 2024117 - As of June 30, 2024, the company was in compliance with its senior notes indenture covenants, with a Total Debt / Adjusted Total Assets ratio of 53.5% (max 60%) and a Debt Service Coverage Ratio of 1.60x (min 1.50x)133 Non-GAAP Financial Measures Normalized FFO decreased to $0.45 per share in Q2 2024 and $0.57 per share in H1 2024 FFO and Normalized FFO per Share | Metric per Share | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net (Loss) Income | $(0.45) | $(0.07) | $(0.92) | $0.09 | | FFO | $0.35 | $0.57 | $0.48 | $0.79 | | Normalized FFO | $0.45 | $0.58 | $0.57 | $0.80 | | Distributions Declared | $0.20 | $0.20 | $0.40 | $0.40 | Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate changes, with a 1% rate increase impacting fixed-rate debt fair value by $206 million - A hypothetical one percentage point change in interest rates would change the fair value of fixed-rate debt obligations by approximately $206.0 million167 - If the $650 million floating-rate revolving credit facility were fully drawn, a one percentage point increase in interest rates would increase annual interest expense by approximately $6.5 million169172 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The company's management concluded that its disclosure controls and procedures are effective as of the end of the quarter175 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2024175 Part II. Other Information Item 1A. Risk Factors No material changes to risk factors were reported from those previously disclosed in the 2023 Annual Report - There have been no material changes to risk factors from those previously disclosed in the 2023 Annual Report182 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company purchased 10,261 common shares at $6.38 per share in Q2 2024 for tax withholding obligations Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 8,159 | $6.53 | | May 2024 | 2,102 | $5.80 | | Total | 10,261 | $6.38 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, such as corporate governance documents, debt indentures, and certifications - The exhibits section provides a comprehensive list of documents filed, including supplemental indentures for debt offerings and required certifications185187