(Commission File Number) | (IRS Employer Identification No.) |
Title of Each Class | Trading Symbol | Name of each Exchange on which Registered | ||
• | Report of independent auditors |
• | Combined statement of revenues and certain expenses for the year ended December 31, 2018 and six months ended June 30, 2019 |
• | Notes to the combined statement of revenues and certain expenses |
• | Introduction to unaudited pro forma combined financial statements |
• | Unaudited pro forma combined balance sheet as of June 30, 2019 |
• | Unaudited pro forma combined statement of income for the year ended December 31, 2018 and six months ended June 30, 2019 |
• | Notes to unaudited pro forma combined financial statements |
Exhibit No. | Description | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Service Properties Trust | ||||
By: | /s/ Brian E. Donley | |||
Name: | Brian E. Donley | |||
Title: | Chief Financial Officer and Treasurer | |||
Dated: | November 6, 2019 |
Six Months Ended June 30, 2019 (Unaudited) | Year Ended December 31, 2018 | ||||||
Revenues: | |||||||
Rental income | $ | 89,492 | $ | 184,453 | |||
Tenant reimbursements and other income | 1,342 | 1,851 | |||||
Total revenues | 90,834 | 186,304 | |||||
Certain Expenses: | |||||||
Real estate taxes | 1,461 | 1,355 | |||||
Other operating expenses | 728 | 1,402 | |||||
Total certain expenses | 2,189 | 2,757 | |||||
Revenues in excess of certain expenses | $ | 88,645 | $ | 183,547 |
Year | Future Minimum Rents | |||
2019 | $ | 89,110 | ||
2020 | 175,211 | |||
2021 | 168,958 | |||
2022 | 158,366 | |||
2023 | 151,933 | |||
Thereafter | 910,548 | |||
$ | 1,654,126 |
Historical | Unsecured Debt Financing (A) | Acquisition of SMTA Properties (B) | Disposal of SMTA Assets Held for Sale (C) | Pro Forma | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Real estate properties: | ||||||||||||||||||||
Land | $ | 1,674,653 | $ | — | $ | 388,057 | $ | — | $ | 2,062,710 | ||||||||||
Buildings, improvements and equipment | 8,002,833 | — | 1,201,922 | — | 9,204,755 | |||||||||||||||
Total real estate properties, gross | 9,677,486 | — | 1,589,979 | — | 11,267,465 | |||||||||||||||
Accumulated depreciation | (3,026,473 | ) | — | — | — | (3,026,473 | ) | |||||||||||||
Total real estate properties, net | 6,651,013 | — | 1,589,979 | — | 8,240,992 | |||||||||||||||
Cash and cash equivalents | 15,688 | 2,482,382 | (2,482,382 | ) | — | 15,688 | ||||||||||||||
Assets held for sale | — | — | 604,989 | (604,989 | ) | — | ||||||||||||||
Restricted cash | 37,792 | — | — | — | 37,792 | |||||||||||||||
Due from related persons | 75,939 | — | — | — | 75,939 | |||||||||||||||
Other assets, net | 397,314 | — | 291,434 | — | 688,748 | |||||||||||||||
Total assets | $ | 7,177,746 | $ | 2,482,382 | $ | 4,020 | $ | (604,989 | ) | $ | 9,059,159 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Unsecured revolving credit facility | $ | 90,000 | $ | 810,372 | $ | — | (604,989 | ) | $ | 295,383 | ||||||||||
Unsecured term loan, net | 397,591 | — | — | — | 397,591 | |||||||||||||||
Senior unsecured notes, net | 3,602,333 | 1,680,461 | — | — | 5,282,794 | |||||||||||||||
Security deposits | 123,637 | — | — | — | 123,637 | |||||||||||||||
Accounts payable and other liabilities | 298,625 | — | 4,020 | — | 302,645 | |||||||||||||||
Due to related persons | 8,118 | — | — | — | 8,118 | |||||||||||||||
Total liabilities | 4,520,304 | 2,490,833 | 4,020 | (604,989 | ) | 6,410,168 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,454,537 shares issued and outstanding | 1,645 | — | — | — | 1,645 | |||||||||||||||
Additional paid in capital | 4,546,737 | — | — | — | 4,546,737 | |||||||||||||||
Cumulative other comprehensive loss | (129 | ) | — | — | — | (129 | ) | |||||||||||||
Cumulative net income available for common shareholders | 3,466,464 | (8,451 | ) | — | — | 3,458,013 | ||||||||||||||
Cumulative common distributions | (5,357,275 | ) | — | — | — | (5,357,275 | ) | |||||||||||||
Total shareholders’ equity | 2,657,442 | (8,451 | ) | — | — | 2,648,991 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 7,177,746 | $ | 2,482,382 | $ | 4,020 | $ | (604,989 | ) | $ | 9,059,159 |
Historical | Acquisition of SMTA Properties (D) | Disposal of SMTA Assets Held for Sale (E) | Pro Forma Adjustments | Pro Forma | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Hotel operating revenues | $ | 1,960,958 | $ | — | $ | — | $ | — | $ | 1,960,958 | ||||||||||||
Rental income | 328,446 | 186,304 | (48,417 | ) | (4,429 | ) | (H) | 461,904 | ||||||||||||||
FF&E reserve income | 5,132 | — | — | — | 5,132 | |||||||||||||||||
Total revenues | 2,294,536 | 186,304 | (48,417 | ) | (4,429 | ) | 2,427,994 | |||||||||||||||
Expenses: | ||||||||||||||||||||||
Hotel operating expenses | 1,392,355 | — | — | — | 1,392,355 | |||||||||||||||||
Other operating expenses | — | 2,757 | (1,075 | ) | 6,026 | (I) | 7,708 | |||||||||||||||
Depreciation and amortization | 403,077 | — | — | 109,693 | (J) | 512,770 | ||||||||||||||||
General and administrative | 104,862 | — | — | 9,527 | (K) | 114,389 | ||||||||||||||||
Total expenses | 1,900,294 | 2,757 | (1,075 | ) | 125,246 | 2,027,222 | ||||||||||||||||
Dividend income | 2,754 | — | — | — | 2,754 | |||||||||||||||||
Unrealized losses on equity securities | (16,737 | ) | — | — | — | (16,737 | ) | |||||||||||||||
Interest income | 1,528 | — | — | — | 1,528 | |||||||||||||||||
Interest expense | (195,213 | ) | — | — | (87,076 | ) | (L) | (282,289 | ) | |||||||||||||
Loss on early extinguishment of debt | (160 | ) | — | — | — | (160 | ) | |||||||||||||||
Income before income taxes and equity in earnings of an investee | 186,414 | 183,547 | (47,342 | ) | (216,751 | ) | 105,868 | |||||||||||||||
Income tax expense | (1,195 | ) | — | — | — | (1,195 | ) | |||||||||||||||
Equity in earnings of an investee | 515 | — | — | — | 515 | |||||||||||||||||
Net income | $ | 185,734 | $ | 183,547 | $ | (47,342 | ) | $ | (216,751 | ) | $ | 105,188 | ||||||||||
Weighted average common shares outstanding (basic) | 164,229 | 164,229 | ||||||||||||||||||||
Weighted average common shares outstanding (diluted) | 164,258 | 164,258 | ||||||||||||||||||||
Net income per common share (basic and diluted) | $ | 1.13 | $ | 0.64 |
Historical | Acquisition of SMTA Properties (F) | Disposal of SMTA Assets Held for Sale (G) | Pro Forma Adjustments | Pro Forma | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Hotel operating revenues | $ | 997,053 | $ | — | $ | — | $ | — | $ | 997,053 | ||||||||||||
Rental income | 135,915 | 90,834 | (23,246 | ) | (2,215 | ) | (H) | 201,288 | ||||||||||||||
FF&E reserve income | 2,502 | — | — | — | 2,502 | |||||||||||||||||
Total revenues | 1,135,470 | 90,834 | (23,246 | ) | (2,215 | ) | 1,200,843 | |||||||||||||||
Expenses: | ||||||||||||||||||||||
Hotel operating expenses | 700,828 | — | — | — | 700,828 | |||||||||||||||||
Other operating expenses | — | 2,189 | (1,002 | ) | 2,972 | (I) | 4,159 | |||||||||||||||
Depreciation and amortization | 198,561 | — | — | 54,846 | (J) | 253,407 | ||||||||||||||||
General and administrative | 24,442 | — | — | 4,764 | (K) | 29,206 | ||||||||||||||||
Total expenses | 923,831 | 2,189 | (1,002 | ) | 62,582 | 987,600 | ||||||||||||||||
Gain on sale of real estate | 159,535 | — | — | — | 159,535 | |||||||||||||||||
Dividend income | 1,752 | — | — | — | 1,752 | |||||||||||||||||
Unrealized losses on equity securities | (39,811 | ) | — | — | — | (39,811 | ) | |||||||||||||||
Interest income | 1,086 | — | — | — | 1,086 | |||||||||||||||||
Interest expense | (99,367 | ) | — | — | (43,538 | ) | (L) | (142,905 | ) | |||||||||||||
Income before income taxes and equity in earnings of an investee | 234,834 | 88,645 | (22,244 | ) | (108,335 | ) | 192,900 | |||||||||||||||
Income tax expense | (799 | ) | — | — | — | (799 | ) | |||||||||||||||
Equity in earnings of an investee | 534 | — | — | — | 534 | |||||||||||||||||
Net income | $ | 234,569 | $ | 88,645 | $ | (22,244 | ) | $ | (108,335 | ) | $ | 192,635 | ||||||||||
Weighted average common shares outstanding (basic) | 164,281 | 164,281 | ||||||||||||||||||||
Weighted average common shares outstanding (diluted) | 164,324 | 164,324 | ||||||||||||||||||||
Net income per common share (basic and diluted) | $ | 1.43 | $ | 1.17 |
(A) | On September 18, 2019, we issued $1,700,000 aggregate principal amount of senior notes in public offerings, or the Offerings, which included $825,000 aggregate principal amount of 4.35% senior notes due 2024, $450,000 aggregate principal amount of 4.75% senior notes due 2026 and $425,000 aggregate principal amount of 4.95% senior notes due 2029. Net proceeds from these Offerings were $1,680,461 after discounts and expenses and were used to fund a portion of the acquisition of the SMTA Properties described below in Note B. We financed the remaining portion of the SMTA purchase price with borrowings under our revolving credit facility. |
(B) | The adjustments represent the effects of the acquisition of the SMTA Properties on September 20, 2019 for total consideration of $2,482,382, including $2,384,577 in cash consideration, $82,069 of prepayment penalties in order to extinguish the existing mortgage debt on the portfolio and $15,736 of other capitalized acquisition costs. We funded this acquisition with cash on hand primarily from the proceeds from the Offerings described above in Note A and borrowings under our revolving credit facility. This acquisition will be accounted as an asset acquisition. The allocation of the purchase price is based on estimates of the fair values of the assets acquired and liabilities assumed and could change significantly from those reflected in the unaudited pro forma combined financial statements. |
Land | $ | 388,057 | ||
Buildings, improvements and equipment | 1,201,922 | |||
Acquired real estate leases (1) | 291,434 | |||
Real estate, cost | 1,881,413 | |||
Assets held for sale | 604,989 | |||
Below market leases | (4,020 | ) | ||
Total purchase price, net | $ | 2,482,382 |
(C) | Upon closing of the SMTA Transaction, we classified 148 of the SMTA Properties we plan to sell with 3.3 million square feet as held for sale. We expect to complete the SMTA Dispositions in less than one year, and have recorded these properties at their estimated fair value less costs to sell. The net proceeds from the sale of these properties are expected to be used to repay amounts outstanding under our revolving credit facility. The estimates of fair value of the assets to be sold less costs to sell of $2,648 to sell could change significantly from those reflected in the unaudited pro forma combined financial statements. |
(D) | The adjustments represent the historical revenues and certain expenses of the SMTA Properties for the year ended December 31, 2018. |
(E) | The adjustments represent the historical revenues and certain expenses of the SMTA Dispositions for the year ended December 31, 2018. |
(F) | The adjustments represent the historical revenues and certain expenses of the SMTA Properties for the six months ended June 30, 2019. |
(G) | The adjustments represent the historical revenues and certain expenses of the SMTA Dispositions for the six months ended June 30, 2019. |
(H) | The adjustments represent estimated non-cash adjustments recorded as a reduction to revenue related to the leases acquired in the acquisition of the SMTA Properties. The reduction to rental income is as follows: |
Year Ended December 31, 2018 | Six Months Ended June 30, 2019 | ||||||
Non-cash adjustments to lease revenue | $ | (4,429 | ) | $ | (2,215 | ) |
(I) | The adjustments represent the effect on other operating expenses for the Transactions of $6,026 and $2,972 for the periods ended December 31, 2018 and June 30, 2019, respectively, based on our contractual obligation to pay property management fees and other reimbursable expenses under our property management agreement with our manager, The RMR Group LLC, or RMR LLC. |
(J) | The adjustments represent estimated depreciation and amortization expenses of $109,693 and $54,846 for the SMTA Properties (excluding the SMTA Dispositions) based on the estimated fair values of the acquired assets for the periods ended December 31, 2018 and June 30, 2019, respectively. Real estate investments are depreciated on a straight line basis over estimated useful lives ranging up to 40 years. Capitalized acquired in place leases, exclusive of the value of acquired above market and below market lease values, are amortized on a straight line basis over a weighted average remaining lease term of 9.2 years. |
(K) | The adjustments represent the effect on general and administrative expenses related to the Transactions. General and administrative expenses adjustments of $9,527 and $4,764 for the periods ended December 31, 2018 and June 30, 2019, respectively, are based on our contractual obligation to pay business management fees under our business management agreement with RMR LLC. |
(L) | The adjustments to interest expense represent (i) interest expense related to the Offerings described above in Note A and (ii) borrowings under our unsecured revolving credit facility aggregating $810,372 to complete the acquisition of the SMTA Properties less the estimated proceeds from the SMTA Dispositions of $604,989 as if all of these transactions occurred as of January 1, 2018 and January 1, 2019, respectively. The components of the interest expense adjustments are as follows: |
Year Ended December 31, 2018 | Six Months Ended June 30, 2019 | ||||||
$825,000 Senior Notes due 2024 | |||||||
Borrowings for SMTA Properties acquisition | $ | 825,000 | $ | 825,000 | |||
Interest rate | 4.35 | % | 4.35 | % | |||
Cash interest | 35,888 | 17,944 | |||||
Amortization of debt issuance costs and debt discounts | 1,352 | 676 | |||||
37,240 | 18,620 | ||||||
$450,000 Senior Notes due 2026 | |||||||
Borrowings for SMTA Properties acquisition | 450,000 | 450,000 | |||||
Interest rate | 4.75 | % | 4.75 | % | |||
Cash interest | 21,375 | 10,688 | |||||
Amortization of debt issuance costs and debt discounts | 621 | 310 | |||||
21,996 | 10,998 | ||||||
$425,000 Senior Notes due 2029 | |||||||
Borrowings for SMTA Properties acquisition | 425,000 | 425,000 | |||||
Interest rate | 4.95 | % | 4.95 | % | |||
Cash interest | 21,038 | 10,519 | |||||
Amortization of debt issuance costs and debt discounts | 805 | 402 | |||||
21,843 | 10,921 | ||||||
Net Acquisition Borrowings under Revolving Credit Facility: | |||||||
Estimated net borrowings for SMTA Properties acquisition | 205,383 | 205,383 | |||||
Interest rate (1) | 2.92 | % | 2.92 | % | |||
5,997 | 2,999 | ||||||
Total interest expense adjustments | $ | 87,076 | $ | 43,538 |
(1) | As of September 30, 2019, the annual interest rate payable on borrowings under our revolving credit facility was 2.92%. A change in the interest rate by plus or minus one-eighth of one percentage point would increase or decrease, respectively, pro forma annual interest expense by approximately $257 and $128 for the periods ended December 31, 2018 and June 30, 2019, respectively. |
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