Service Properties Trust(SVC) - 2021 Q1 - Quarterly Report

PART I: Financial Information This section presents the unaudited financial statements and related disclosures for the company Item 1. Financial Statements Unaudited Q1 2021 financial statements show significant net loss and revenue decline due to the pandemic, impacting assets and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $9,514,515 | $8,687,319 | | Cash and cash equivalents | $874,455 | $73,332 | | Total real estate properties, net | $7,812,780 | $7,882,162 | | Total Liabilities | $7,607,983 | $6,584,529 | | Revolving credit facility | $1,000,000 | $78,424 | | Senior unsecured notes, net | $6,133,376 | $6,130,166 | | Total Shareholders' Equity | $1,906,532 | $2,102,790 | Condensed Consolidated Statements of Income (Loss) (in thousands, except per share data) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total revenues | $261,170 | $483,776 | | Hotel operating revenues | $168,953 | $383,503 | | Rental income | $92,217 | $100,273 | | Total expenses | $356,640 | $433,597 | | Net loss | $(194,990) | $(33,650) | | Net loss per common share (basic and diluted) | $(1.19) | $(0.20) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(62,724) | $97,016 | | Net cash used in investing activities | $(68,806) | $(69,614) | | Net cash provided by (used in) financing activities | $919,625 | $(8,906) | Notes to Condensed Consolidated Financial Statements Notes detail pandemic impact, hotel management transitions, rent deferrals, credit facility drawdown, and debt covenant non-compliance - The COVID-19 pandemic significantly impacted the company's results, financial position, and cash flow, with a full recovery potentially taking several years[20] - The company transferred 88 hotels from Marriott to Sonesta management in Q1 2021, with Sonesta managing 256 of SVC's 310 hotels by March 31, 2021[40] - Hyatt issued a termination notice for 22 hotel management agreements, effective May 22, 2021, with SVC expecting to transition them to Sonesta[41][50] - The net lease portfolio collected 93.1% of Q1 2021 rents, with $10.6 million in deferred rents outstanding from 45 tenants as of March 31, 2021[59][60] - The company fully drew its $1 billion revolving credit facility in January 2021 but was not in compliance with a debt covenant for incurring additional debt[20][72] - The company holds a 34% equity interest in Sonesta, recognizing a $2.8 million loss for Q1 2021, with significant related-party transactions[47][83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2021's poor performance to the pandemic, with significant RevPAR decline and negative FFO Hotel Portfolio Performance (All Hotels, Q1 2021 vs Q1 2020) | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | ADR | $88.02 | $125.06 | -29.6% | | Occupancy | 40.1% | 56.6% | -16.5 p.p. | | RevPAR | $35.30 | $70.78 | -50.1% | - Hotel operating revenues decreased primarily due to $202.9 million lower occupancies from the COVID-19 pandemic, leading to a significant net loss[114][117] - The company is in arbitration with Marriott concerning the termination of management agreements and a $19.1 million dispute over minimum return advances[128] - The consolidated income available for debt service to debt service ratio was 1.12x as of March 31, 2021, below the 1.50x minimum, restricting additional debt incurrence[153] FFO and Normalized FFO Reconciliation (in thousands, except per share) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net loss | $(194,990) | $(33,650) | | FFO | $(62,456) | $123,084 | | Normalized FFO | $(41,996) | $123,084 | | FFO per share | $(0.38) | $0.75 | | Normalized FFO per share | $(0.26) | $0.75 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on fixed and floating-rate debt, monitoring LIBOR phase-out - As of March 31, 2021, the company held $6.2 billion in fixed-rate senior notes, with a 1% interest rate change impacting fair value by approximately $240.2 million[194] - A 1% increase in interest rates on the $1.0 billion floating-rate revolving credit facility would raise annual interest expense by $10.0 million, or $0.01 per share[196][197] - The company is monitoring the LIBOR phase-out, expected by June 30, 2023, anticipating an amendment to its credit agreement for an alternative benchmark rate[200] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2021, with no material changes to internal controls - The President and CEO and the CFO and Treasurer concluded that the company's disclosure controls and procedures were effective as of Q1 2021[202] - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2021[203] PART II: Other Information This section provides additional disclosures, including risk factor updates and a list of filed exhibits Item 1A. Risk Factors No material changes to risk factors were reported from those disclosed in the 2020 Annual Report - No material changes to risk factors were reported from those previously disclosed in the company's 2020 Annual Report[218] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including debt indentures and CEO/CFO certifications - Exhibits include supplemental indentures for senior notes, CEO and CFO certifications, and XBRL data files[220][221]