NEWTON, Mass.--(BUSINESS WIRE)--Service Properties Trust (Nasdaq: SVC) today announced that due to the uncertainty from the rapidly evolving COVID-19 (coronavirus) pandemic on the U.S. economy generally and the lodging industry in particular, SVC is undertaking significant efforts to address the operating and financial impact of the current crisis. The decline in hotel occupancy caused by this pandemic has been dramatic and the duration and severity of its impact on the U.S. economy is unknown. COVID-19 protocols implemented by state and local governments have also impacted certain industries where some of SVC’s net lease tenants operate, such as casual dining establishments and movie theaters.
As a result of these conditions, in order to preserve cash and liquidity, SVC’s Board of Trustees has decided to reduce the Company’s regular quarterly cash distributions on its common shares for the first quarter to $0.01 per share. This distribution will be paid to SVC’s common shareholders of record as of the close of business on April 21, 2020 and distributed on or about May 21, 2020. SVC’s Board of Trustees will continue to monitor SVC’s financial performance and economic outlook as the year progresses to determine a prudent level for any subsequent regular quarterly distributions for 2020 or declare and pay any dividend required to be made for 2020 in accordance with tax law requirements for real estate investment trusts.
Depending upon the ultimate distribution requirement in 2020, if any, the reduction of the dividend could preserve up to $262 million of capital this year. SVC had also previously expected to fund approximately $150 million of capital expenditures in 2020. SVC now expects to defer approximately $100 million in capital projects to conserve cash and liquidity. In addition, SVC and its hotel operators have been implementing cost savings plans, including the closure of certain hotels, reduction of staffing levels and other measures. Nevertheless, SVC currently expects that it may experience fewer hotel closures relative to some of its peers because it owns 278 primarily suburban extended stay and select service hotels, which appear to be less negatively impacted by the COVID-19 crisis, and only 25 primarily urban luxury or upper upscale hotels, which appear to be the more negatively impacted.
As of December 31, 2019, SVC had aggregate security deposits and corporate guarantees in excess of $200 million and over $600 million of availability under its $1 billion credit facility, and it has no scheduled debt maturities until February 2021. SVC has significant liquidity and funds to meet its ongoing operating needs; however, if these unprecedented conditions continue for an extended period, the credit support that SVC has from its hotel operators and net lease tenants may be depleted and its liquidity reduced.
As previously announced, SVC has been marketing 20 Wyndham branded hotels and 33 Marriott branded hotels and was in the process of launching a marketing effort related to its 39 Sonesta ES Suites hotels. SVC had selected buyers for 16 of the Wyndham hotels and all of the Marriott hotels before COVID-19 began to materially negatively affect hotel operations. As a result of these circumstances, lending for hotel transactions has effectively ceased and accordingly we expect that these transactions will be delayed until later in 2020 or 2021 and these transactions may not occur. As a result, SVC’s planned reductions to its financial leverage resulting from hotel assets sales will also be delayed.
John Murray, President and Chief Executive Officer of Service Properties Trust, made the following statement:
"While the U.S. economy and the travel industry are facing great uncertainty, we believe SVC has the ability to withstand the current downturn because of its strong balance sheet, liquidity position and unique agreements with our hotel operators and net lease tenants. We believe we are taking all appropriate steps to preserve capital until we have visibility on the depth and duration of the crisis and economic activity starts to improve. In addition to the many cost saving steps we are pro-actively taking, we anticipate that our G&A expenses will be materially reduced because of the lower fees we will pay to our manager, The RMR Group LLC, as a result of the decline in our stock price since this crisis began.
We are also working closely with our operators to protect the health and safety of hotel employees and guests, as well as to identify all available alternatives to reduce operating costs and non-essential capital spending. It is our hope that if our nation takes the difficult steps necessary to slow the spread of COVID-19, the slowdown in travel may be comparatively short lived. SVC has navigated the challenges of the post 9/11 recession, the great recession of 2009/2010 and a myriad of natural disasters. In only one case did we suspend our dividend, and then only for three quarters. We are a large, diverse, well-capitalized REIT and we are confident that we will survive this crisis as well."
Service Properties Trust is a real estate investment trust, or REIT, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties across the United States and in Puerto Rico and Canada with 151 distinct brands across 24 industries. SVC’s properties are operated under long term management or lease agreements. SVC is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.
WARNING REGARDING FORWARD-LOOKING STATEMENTS
This press release contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon SVC’s present beliefs and expectations, but these statements and the implications of these statements are not guaranteed to occur and may not occur for various reasons, some of which are beyond SVC’s control. For example,
- SVC announces several actions it has taken and plans to take in response to the current economic challenges caused by the COVID-19 impact, including reducing its regular quarterly dividend on its common shares to $0.01 per share per quarter, deferring capital projects and implementing cost savings measures. However, if the severity of the COVID-19 impact continues for an extended period or if business activity and the economy fail to sufficiently improve if and when the negative impacts of the COVID-19 abate, these actions may not be sufficient in preventing SVC from potentially realizing sustained losses and liquidity challenges.
- This press release states that SVC has reduced its regular quarterly distribution on its common shares for the first quarter and that the Board will continue to monitor SVC’s financial performance and economic outlook as the year progresses to determine a prudent level for any subsequent regular quarterly distributions for 2020 or required to be made for 2020 in accordance with tax law requirements for real estate investment trusts. An implication of these statements may be that SVC will increase its regular quarterly distributions in a future period. Further, based on Mr. Murray’s reference in this press release that SVC has only once had to suspend its regular quarterly distribution in the past, and then only for three quarters, SVC may resume paying quarterly distributions at or near historic levels in the near future. SVC may not resume paying regular quarterly distributions at or near historic levels in the near future, or otherwise increase or maintain the current level of distributions, and the reduced rate announced today may extend for an indefinite period. Moreover, capital market conditions may not improve or SVC's own financial circumstances may change so that it becomes unable or unwilling to increase its regular quarterly distributions. Also, SVC's historical rate of distributions on its common shares may be changed because of changes in SVC's earnings, liquidity, financial leverage or other circumstances.
- SVC’s current expectation that it may experience fewer hotel closures relative to some of its peers because of the larger mix of suburban extended stay and select service hotels that comprise SVC’s hotel portfolio and SVC’s perception that those types of hotels appear to be less negatively impacted by the COVID-19 crises may not be realized. Competition for business at SVC’s suburban extended stay and select service hotels will likely be intense as hotel operators compete for business among a limited group of customers. Also, if the COVID-19 crisis worsens or extends for an indefinite period, suburban extended stay and select service hotels may be similarly negatively impacted as other categories of hotels.
- The statements in this press release regarding SVC’s amount of security deposits, guarantees and availability under its credit facility and lack of scheduled debt maturities until February 2021, may imply that SVC has sufficient liquidity to withstand the current economic challenges. However, if the current economic conditions worsen or continue for an extended period, SVC may experience significant liquidity challenges, including if its tenants become unable or unwilling to pay rent owed to SVC or SVC’s hotel operators are unable to profitably operate SVC’s hotels. SVC’s ability to borrow under its credit facility is subject to it satisfying financial and other covenants, and if it defaults under its credit facility or other debt obligations, it may be required to repay its outstanding borrowings and other debt. In addition, the guarantees and security deposits may not be adequate to cover future shortfalls in the minimum returns or rents due to SVC which they guarantee or secure. Moreover, the security deposits SVC holds are not segregated from SVC's other assets and, although the application of security deposits to cover payments shortfalls will result in SVC recording income, it will not result in SVC receiving additional cash. In addition, although SVC has taken steps to enhance its ability to maintain sufficient liquidity, unanticipated events, such as emergencies in addition to, or as an expansion of, the current COVID-19 impact may require SVC to expend amounts not currently planned.
- SVC indicates that it expects that the sales of its hotels that it had previously identified for sale will be delayed until later in 2020 or 2021 as a result of current market conditions and that its planned reductions to its financial leverage from hotel asset sales will also be delayed. However, any sales of these hotels may be delayed beyond 2021, they may not occur or, if they do occur, they may be sold at prices less than previously expected and SVC may realize losses from those hotels and any reduction in its financial leverage resulting from any such sales may be less than previously planned.
- Mr. Murray references past challenges that SVC has faced and successfully navigated and expresses his belief that SVC will similarly survive the current crises. However, those past successes are no guarantee of future success and the challenges posed by the current crises may differ from those earlier challenges and more drastically negatively impact SVC and its tenants and managers than did those past events, including that the current crises may last longer and be more detrimental, resulting in a longer period of recovery and return to more normal business.
The information contained in SVC’s filings with the Securities and Exchange Commission, or SEC, including under the caption “Risk Factors” in SVC’s periodic reports or incorporated therein, identifies important factors that could cause SVC’s actual results to differ materially from those stated or implied by SVC’s forward-looking statements. SVC’s filings with the SEC are available at 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.
