NEWTON, MA—Service Properties Trust (SVC) has reported its financial results for the quarter and six months ended June 30, 2020. Net loss for the quarter was $37.3 million, or $0.23 per diluted common share, compared to net income of $8.8 million, or $0.05 per diluted common share, for the quarter ended June 30, 2019. Net loss for the six months ended was $71.0 million, or $0.43 per diluted common share, compared to net income of $234.6 million, or $1.43 per diluted common share, for the six months ended June 30, 2019.
“While the travel industry and certain service retail businesses continue to experience unprecedented challenges due to the COVID-19 pandemic, we have continued to take proactive steps to increase our liquidity, manage our debt maturities and preserve capital,” said John Murray, president/CEO of SVC. “By completing an $800 million note offering and a tender offer for $350 million of our $400 million of 4.25% senior notes due 2021, we believe we have largely addressed our 2021 debt maturities and secured availability under our $1 billion revolving credit facility, which we amended in May 2020 to obtain waivers from compliance with certain financial covenants through March 2021. Along with reducing our quarterly dividend and deferring nonessential capital spending, we plan to further strengthen our financial position by moving forward with certain of our previously planned hotel sales by year-end.”
Murray continued, “Our earnings during the second quarter reflect the full impact of the COVID-19 pandemic in April, followed by signs of a slow and steady recovery in May and June. Almost all of our hotels are open and occupancies have steadily increased during the quarter to 26.8% in May and 35.5% in June from a low of 21.0% in April when the impact of the COVID-19 pandemic was most acute. Rent collections from our net lease tenants also are trending upward to 80.0% for the month of July from a low of 45.6% for the month of April, as businesses that were temporarily closed due to government mandates or guidelines continue to reopen. We have reached rent deferral agreements with 80 of our net lease retail tenants and, as of August 6, 2020, we had agreed to defer an aggregate of $11.3 million of rent for tenants representing approximately 6% of our annual minimum returns and rents. Our travel centers have been resilient as trucking activity has remained steady throughout the quarter.
“Although significant uncertainties remain as to the timeframe and trajectory of a recovery, we believe we are currently well positioned with a diverse portfolio of assets and ample liquidity,” he said.
- Adjusted EBITDAre for the quarter ended June 30, 2020, compared to the same period in 2019 decreased 30.5% to $152.2 million. Adjusted EBITDAre for the six months ended June 30, 2020, compared to the same period in 2019 decreased 16.3% to $347.3 million.
- Normalized FFO for the quarter ended June 30, 2020, were $78.2 million, or $0.48 per diluted common share, compared to Normalized FFO of $168.8 million, or $1.03 per diluted common share, for the quarter ended June 30, 2019. Normalized FFO for the six months ended June 30, 2020, were $201.2 million, or $1.22 per diluted common share, compared to Normalized FFO of $313.4 million, or $1.91 per diluted common share, for the six months ended June 30, 2019.
Hotel Portfolio
As of June 30, 2020, SVC had six operating agreements with six hotel operating companies for 329 hotels with 51,404 rooms, which represented 62% of SVC’s total annual minimum returns and rents.
- Hotel RevPAR (comparable hotels): For the quarter ended June 30, 2020, compared to the same period in 2019 for SVC’s 306 comparable hotels ADR decreased 31.5% to $83.47; occupancy decreased 46.0 percentage points to 31.2%; and RevPAR decreased 72.3% to $26.04. For the six months ended June 30, 2020, compared to the same period in 2019 for SVC’s 304 comparable hotels ADR decreased 14.1% to $103.85; occupancy decreased 27.8 percentage points to 44.4%; and RevPAR decreased 47.2% to $46.11.
- Hotel RevPAR (all hotels): For the quarter ended June 30, 2020, compared to the same period in 2019 for SVC’s 329 hotels that were owned as of June 30, 2020: ADR decreased 36.4% to $84.34; occupancy decreased 49.4 percentage points to 27.8%; and RevPAR decreased 77.1% to $23.45.
For the six months ended June 30, 2020 compared to the same period in 2019 for all SVC’s 329 hotels: ADR decreased 16.1% to $110.24; occupancy decreased 30.4 percentage points to 41.9%; and RevPAR decreased 51.4% to $46.19. - Hotel Coverage of Minimum Returns and Rents: For the quarter ended June 30, 2020, the aggregate coverage of SVC’s minimum returns or rents decreased to (0.33x) from 1.11x for the quarter ended June 30, 2019.
- For the six months ended June 30, 2020, the aggregate coverage ratio of SVC’s minimum returns or rents decreased to (0.06x) from 0.90x for the six months ended June 30, 2019.
- SVC’s hotel occupancies reached all-time lows during the second quarter of 2020 as a result of weak demand due to various forms of stay-at-home restrictions being enforced throughout the United States due to the COVID-19 pandemic. SVC hotel occupancy was 21.0% in April 2020, 26.8% in May 2020 and 35.5% in June 2020. Hotel performance has gradually improved since the lows seen in April 2020 as travel demand slowly recovers. For the 28 days ended July 25, 2020, occupancy for SVC’s hotels was 42.4%.
As of August 6, 2020, SVC has reopened nine of the 19 hotels that it had closed as a result of the COVID-19 pandemic. SVC’s 183 extended-stay hotels performed better than its 95 limited-service and 51 full-service hotels during the quarter ended June 30, 2020, with occupancies of 45.7%, 16.4% and 12.0% respectively. With the economy generally continuing to slowly reopen, SVC expects its diverse portfolio of suburban extended-stay and limited-service hotels to recover faster than its urban full-service hotels.
