Service Properties Trust Announces Amendment to Credit Facility and Extends Maturity Date to January 2023

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Advancement of its previously announced sales initiative, with nine hotels sold and 56 hotels under purchase and sale agreements

Increase in hotel occupancy, average daily rate and RevPAR for 295 comparable hotels from January 2022 to March 2022

Approving service properties SVC announced today that it has amended the agreement governing its revolving credit facility and exercised its option to extend its maturity date to January 2023. Key terms of the amendment include:

  • Commitments under the revolving credit facility were reduced from $1 billion to $800 million;

  • SVC can acquire up to a total of $300 million in real estate assets;

  • SVC may fund up to an aggregate of $100 million in capital contributions required by Sonesta Holdco Corporation for business operations and to acquire additional common stock of TravelCenters of America Inc., or TA, to retain its ownership in 8.2% RT pro-rata, an increase from the previous aggregate cap of $50 million;

  • SVC will maintain minimum liquidity of $650 million until it repays its $500 million of 5.0% senior notes due August 2022 and will maintain at least $150 million of liquidity thereafter ;

  • The interest premium has increased by 15 basis points and is subject to an additional increase of 25 basis points if SVC fails to meet certain financial covenants;

  • SVC has an option to extend an additional six months beyond January 2023, subject to certain conditions being met, including a minimum liquidity requirement of $650 million until it repays or refinances its 500 million of 4.5% senior bonds due June 2023. The minimum liquidity requirement for the second expansion option is reduced to $150 million if SVC meets certain financial covenants, including the 1.5x ratio of consolidated income available for debt service to debt service ratio required to incur additional debt under its bond commitments;

  • The existing waiver period has been extended to December 31, 2022, although the financial covenants will be tested and fully effective beginning with the quarter ending September 30, 2022 and have been amended as follows:

    • The required fixed charge coverage ratio of 1.5x was lowered to 1.0x until December 31, 2022 and increased to 1.5x thereafter;

    • Minimum required liquidity increased from $125 million to $150 million; and

    • The required leverage ratio limit has been increased from 60% to 70%; and

  • SVC’s revolving credit facility will continue to be secured by 73 properties.

Brian Donley, Treasurer and Chief Financial Officer of SVC, issued the following statement:

“This amendment enhances our financial flexibility to help our hotel operators recover from the effects of the pandemic. We believe the expiry date and waiver extension, along with the increased ability to fund investment activities, positions best SVC to execute its long-term strategy.”

Wells Fargo Securities, LLC, BofA Securities, Inc., PNC Capital Markets, LLC and RBC Capital Markets acted as Co-Lead Arrangers and Co-Lead Arrangers for the amendment of the SVC Revolving Credit Facility Agreement . Wells Fargo Bank, National Association is the administrative agent for the institution. Bank of America, NA, PNC Bank, National Association and Royal Bank of Canada are the syndication agents.

Sonesta Hotel Asset Sales Update

SVC continues to make progress on its previously announced plan to sell 68 Sonesta-branded hotels. Nine hotels totaling 1,535 keys were sold for total proceeds of $81.2 million. An additional 54 hotels totaling 6,504 keys are subject to purchase and sale contracts for an aggregate sale price of $452.5 million. SVC currently expects the majority of these hotels to be sold in the second quarter of 2022.

Recent Hotel Operating Performance

295 comparable hotels, 46,596 rooms

2022 vs. 2019

Occupation

Medium

Daily tax

RevPAR

Occupation

Switch

Medium

Daily tax

% Switch

RevPAR

% Switch

Fourth quarter 2021

55.7%

$112.56

$62.70

(13.6)points

(11.4)%

(28.8)%

January 2022

45.9%

$105.24

$48.31

(14.9)points

(17.0)%

(37.3)%

February 2022

53.4%

$115.32

$61.58

(15.3)points

(12.7)%

(32.1)%

March 2022 (preliminary)

61.6%

$121.74

$74.99

(13.1)points

(9.9)%

(25.7)%

While the Omicron variant negatively impacted the first six weeks of 2022, operational trends improved significantly in mid-February as COVID-19 cases declined and demand accelerated. After mid-February, bookings increased at city hotels and some SVC service hotels, while leisure demand remained high and extended-stay occupancies remained flat.

SVC’s February comparable occupancy rate of 53.4% ​​reflects a significant increase in demand in the second half of the month. Hotel demand accelerated in March, with comparable hotel occupancy improving to over 61% as transient business travel continued to rebound.

About approving service properties

Approving service properties SVC is a real estate investment trust, or REIT, with more than $12 billion invested in two asset classes: hotels and service-oriented net rental commercial properties. As of December 31, 2021, SVC had 303 hotels with over 48,000 rooms in the United States, Puerto Rico and Canada, the majority of which are extended stay and select service. As of December 31, 2021, SVC also owned 788 retail-focused net rental properties totaling over 13 million square feet in the United States. SVC is managed by the RMR group CMA, an alternative asset management firm with approximately $37 billion in assets under management as of December 31, 2021 and over 35 years of institutional experience buying, selling, financing and operating real estate commercial. SVC is headquartered in Newton, MA. For more information, visit www.svcreit.com.

Caution Regarding Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Whenever SVC uses words such as ‘believe’, ‘expect’, ‘anticipate’, ‘intend’, ‘plan’, ‘estimate’, ‘will’, ‘may’ and negatives or derivatives of these or similar expressions, SVC makes forward-looking statements. These forward-looking statements are based on SVC’s current intention, beliefs or expectations, but the realization of the forward-looking statements is not guaranteed and may not occur. Actual results may differ materially from those contained or implied by SVC’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SVC’s control. For example:

  • Mr. Donley said SVC’s credit facility enhances its financial flexibility to help SVC’s hotel operators recover from the effects of the pandemic, and that the increased ability to finance investment activities and the extension of the Maturity and waivers will better position SVC to execute its long-term strategy. These statements may imply that SVC’s results of operations and financial condition will improve as a result of the amendment to SVC’s credit agreement. However, SVC’s business is subject to various risks, including risks beyond its control. Consequently, SVC may not realize the benefits it expects from the modification of its credit agreement. In addition, if the duration and severity of the COVID-19 pandemic and its impact on SVC, its managers and tenants worsen significantly for an extended period, SVC may be required to use all or part significant amount of its cash and cash equivalents to fund its business and operations, which may reduce or eliminate the financial flexibility that SVC believes it has achieved.

  • Although SVC has modified certain covenants of its credit agreement through December 31, 2022, if SVC’s results of operations and financial condition are still affected by the COVID-19 pandemic or do not improve sufficiently, it may fail to meet the terms of the waiver and other requirements under its credit agreement, and SVC may also fail to meet certain financial requirements under the agreements governing its public debt. For example, SVC’s consolidated revenue available for debt service to debt service ratio was below the 1.5x commitment requirement under its revolving credit facility and debt covenants. public debt as of December 31, 2021, and SVC cannot be certain of the duration of this ratio. below 1.5x. SVC is currently unable to incur additional debt as this ratio is less than 1.5x on a pro forma basis, but is not required to repay outstanding debt due to non-compliance with this requirement. SVC is currently fully utilized under its revolving credit facility and may also be required to repay its outstanding debt due to non-compliance with certain other requirements of its credit agreement or agreements governing its public debt. SVC may therefore experience liquidity constraints in the future, as it is currently unable to incur additional debt under its credit agreement or otherwise due to non-compliance with the requirements of its credit agreement or agreements governing its public debt, and SVC will be limited to its available cash or be required to raise additional sources of capital or take other action to repay its debt or maintain adequate liquidity.

  • SVC has entered into agreements for the sale of 54 hotels for an aggregate sale price of $452 million and expects to complete the majority of these sales in the second quarter of 2022. Sales of SVC’s properties are subject to conditions ; therefore, SVC cannot guarantee that it will sell any of these properties and sales may be delayed, not occur or their terms may change. Any sales it may make may be at prices below SVC’s expectations and below its net book value.

Information contained in or incorporated into SVC’s filings with the SEC, including under the heading “Risk Factors” in SVC’s periodic reports, identifies other important factors that could cause regarding SVC’s forward-looking statements. SVC’s filings with the SEC are available on the SEC’s website at www.sec.gov.

You should not place undue reliance on forward-looking statements.

Except as required by law, SVC does not intend to update or modify any forward-looking statements as a result of new information, future events or otherwise.

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