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svc:extension svc:unit svc:quarterly_installment svc:employee svc:segment

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11527
SERVICE PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland
 
04-3262075
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer Identification No.)
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts, 02458-1634
(Address of Principal Executive Offices) (Zip Code)
617-964-8389
(Registrant’s Telephone Number, Including Area Code)
Hospitality Properties Trust
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of each Exchange on which Registered
Common Shares of Beneficial Interest
 
SVC
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer

 
Smaller reporting company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of November 7, 2019: 164,564,523
 
 
 
 
 



SERVICE PROPERTIES TRUST
FORM 10-Q
September 30, 2019
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
References in this Quarterly Report on Form 10-Q to the Company, SVC, we, us or our include Service Properties Trust (formerly known as Hospitality Properties Trust) and our consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

2


Part I Financial Information
Item 1. Financial Statements
SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except share data)
 
 
September 30,
 
December 31,
 
 
2019
 
2018
ASSETS
 
 
 
 
Real estate properties:
 
 
 
 
Land
 
$
2,062,776

 
$
1,626,239

Buildings, improvements and equipment
 
9,237,760

 
7,896,734

Total real estate properties, gross
 
11,300,536

 
9,522,973

Accumulated depreciation
 
(3,086,684
)
 
(2,973,384
)
Total real estate properties, net
 
8,213,852

 
6,549,589

Acquired real estate leases and other intangibles
 
392,673

 
105,749

Assets held for sale
 
604,989

 
144,008

Cash and cash equivalents
 
16,990

 
25,966

Restricted cash
 
53,519

 
50,037

Due from related persons
 
72,587

 
91,212

Other assets, net
 
160,893

 
210,518

Total assets
 
$
9,515,503

 
$
7,177,079

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Unsecured revolving credit facility
 
$
790,000

 
$
177,000

Unsecured term loan, net
 
397,740

 
397,292

Senior unsecured notes, net
 
5,284,933

 
3,598,295

Security deposits
 
122,763

 
132,816

Accounts payable and other liabilities
 
292,161

 
211,332

Due to related persons
 
18,920

 
62,913

Total liabilities
 
6,906,517

 
4,579,648

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Shareholders’ equity:
 
 
 
 
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,565,303 and 164,441,709 shares issued and outstanding, respectively
 
1,646

 
1,644

Additional paid in capital
 
4,547,055

 
4,545,481

Cumulative other comprehensive loss
 
(175
)
 
(266
)
Cumulative net income available for common shareholders
 
3,506,538

 
3,231,895

Cumulative common distributions
 
(5,446,078
)
 
(5,181,323
)
Total shareholders’ equity
 
2,608,986

 
2,597,431

Total liabilities and shareholders’ equity
 
$
9,515,503

 
$
7,177,079

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands, except share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Hotel operating revenues
 
$
525,290

 
$
520,618

 
$
1,521,368

 
$
1,494,283

Rental income
 
73,619

 
81,322

 
210,509

 
245,543

FF&E reserve income
 
863

 
1,213

 
3,365

 
3,911

Total revenues
 
599,772

 
603,153

 
1,735,242

 
1,743,737

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Hotel operating expenses
 
377,895

 
365,526

 
1,076,011

 
1,052,121

Other operating expenses
 
1,707

 
1,468

 
4,419

 
3,936

Depreciation and amortization
 
103,160

 
101,007

 
301,721

 
300,308

General and administrative
 
12,464

 
13,425

 
36,906

 
38,280

Total expenses
 
495,226

 
481,426

 
1,419,057

 
1,394,645

 
 
 
 
 
 
 
 
 
Gain on sale of real estate
 

 

 
159,535

 

Dividend income
 

 
626

 
1,752

 
1,878

Unrealized gains (losses) on equity securities, net
 
(3,950
)
 
43,453

 
(43,761
)
 
89,348

Interest income
 
688

 
478

 
1,774

 
1,093

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $2,689, $2,570, $7,829 and $7,607, respectively)
 
(52,375
)
 
(49,308
)
 
(151,742
)
 
(145,589
)
Loss on early extinguishment of debt
 
(8,451
)
 

 
(8,451
)
 
(160
)
Income before income taxes and equity in earnings of an investee
 
40,458

 
116,976

 
275,292

 
295,662

Income tax expense
 
(467
)
 
(707
)
 
(1,266
)
 
(1,949
)
Equity in earnings of an investee
 
83

 
830

 
617

 
881

Net income
 
40,074

 
117,099

 
274,643

 
294,594

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Equity interest in investee’s unrealized gains (losses)
 
(46
)
 
173

 
91

 
90

Other comprehensive income (loss)
 
(46
)
 
173

 
91

 
90

Comprehensive income
 
$
40,028

 
$
117,272

 
$
274,734

 
$
294,684

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding (basic)
 
164,321

 
164,232

 
164,294

 
164,212

Weighted average common shares outstanding (diluted)
 
164,348

 
164,274

 
164,332

 
164,242

 
 
 
 
 
 
 
 
 
Net income per common share (basic and diluted)
 
$
0.24

 
$
0.71

 
$
1.67

 
$
1.79

The accompanying notes are an integral part of these condensed consolidated financial statements.


4


SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
(in thousands, except share data)
 
Common Shares
 
Additional
Paid in
Capital
 
Cumulative
Net Income
Available for
Common
Shareholders
 
Cumulative
Other
Comprehensive
Income (Loss)
 
 
 
Number of
Shares
 
Common
Shares
 
Cumulative
Common
Distributions
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
164,441,709

 
$
1,644

 
$
(5,181,323
)
 
$
4,545,481

 
$
3,231,895

 
$
(266
)
 
$
2,597,431

Net income

 

 

 

 
225,787

 

 
225,787

Equity interest in investee’s unrealized gains

 

 

 

 

 
66

 
66

Common share grants

 

 

 
436

 

 

 
436

Distributions

 

 
(87,154
)
 

 

 

 
(87,154
)
Balance at March 31, 2019
164,441,709

 
$
1,644

 
$
(5,268,477
)
 
$
4,545,917

 
$
3,457,682

 
$
(200
)
 
$
2,736,566

Net income

 

 

 

 
8,782

 

 
8,782

Equity interest in investee’s unrealized gains

 

 

 

 

 
71

 
71

Common share grants
15,000

 
1

 

 
868

 

 

 
869

Common share repurchases and forfeitures
(2,172
)
 

 

 
(48
)
 

 

 
(48
)
Distributions

 

 
(88,798
)
 

 

 

 
(88,798
)
Balance at June 30, 2019
164,454,537

 
$
1,645

 
$
(5,357,275
)
 
$
4,546,737

 
$
3,466,464

 
$
(129
)
 
$
2,657,442

Net income

 

 

 

 
40,074

 

 
40,074

Equity interest in investee’s unrealized losses

 

 

 

 

 
(46
)
 
(46
)
Common share grants
140,100

 
1

 

 
1,067

 

 

 
1,068

Common share repurchases
(29,334
)
 

 

 
(749
)
 

 

 
(749
)
Distributions

 

 
(88,803
)
 

 

 

 
(88,803
)
Balance at September 30, 2019
164,565,303

 
$
1,646

 
$
(5,446,078
)
 
$
4,547,055

 
$
3,506,538

 
$
(175
)
 
$
2,608,986

 
 
 
 
 
 
 
 
 
 
 
 
 
 

5


 
Common Shares
 
Additional
Paid in
Capital
 
Cumulative
Net Income
Available for
Common
Shareholders
 
Cumulative
Other
Comprehensive
Income (Loss)
 
 
 
Number of
Shares
 
Common
Shares
 
Cumulative
Common
Distributions
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
164,349,141

 
$
1,643

 
$
(4,834,491
)
 
$
4,542,307

 
$
2,966,605

 
$
79,358

 
$
2,755,422

Cumulative effect of accounting change

 

 

 

 
79,556

 
(79,556
)
 

Net income

 

 

 

 
80,206

 

 
80,206

Equity interest in investee’s unrealized losses

 

 

 

 

 
(93
)
 
(93
)
Common share repurchases
(3,394
)
 

 

 
(101
)
 

 

 
(101
)
Distributions

 

 
(85,460
)
 

 

 

 
(85,460
)
Balance at March 31, 2018
164,345,747

 
$
1,643

 
$
(4,919,951
)
 
$
4,542,206

 
$
3,126,367

 
$
(291
)
 
$
2,749,974

Net income

 

 

 

 
97,289

 

 
97,289

Equity interest in investee’s unrealized gains

 

 

 

 

 
10

 
10

Common share grants
18,000

 
1

 

 
500

 

 

 
501

Distributions

 

 
(87,105
)
 

 

 

 
(87,105
)
Balance at June 30, 2018
164,363,747

 
$
1,644

 
$
(5,007,056
)
 
$
4,542,706

 
$
3,223,656

 
$
(281
)
 
$
2,760,669

Net income

 

 

 

 
117,099

 

 
117,099

Equity interest in investee’s unrealized gains

 

 

 

 

 
173

 
173

Common share grants
97,000

 
1

 

 
2,242

 

 

 
2,243

Common share repurchases
(18,368
)
 
(1
)
 

 
(499
)
 

 

 
(500
)
Distributions

 

 
(87,113
)
 

 

 

 
(87,113
)
Balance at September 30, 2018
164,442,379

 
$
1,644

 
$
(5,094,169
)
 
$
4,544,449

 
$
3,340,755

 
$
(108
)
 
$
2,792,571

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


SERVICE PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
274,643

 
$
294,594

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
301,721

 
300,308

Amortization of debt issuance costs and debt discounts and premiums as interest
 
7,829

 
7,607

Straight line rental income
 
7,368

 
(9,359
)
Security deposits replenished (utilized)
 
(10,052
)
 
7,687

Loss on early extinguishment of debt
 
8,451

 
160

Unrealized (gains) and losses on equity securities, net
 
43,761

 
(89,348
)
Equity in earnings of an investee
 
(617
)
 
(881
)
Gain on sale of real estate
 
(159,535
)
 

Other non-cash (income) expense, net
 
109

 
(2,226
)
Changes in assets and liabilities:
 
 
 
 
Due from related persons
 
3,609

 
(585
)
Other assets
 
(6,352
)
 
(8,627
)
Accounts payable and other liabilities
 
12,743

 
(21,259
)
Due to related persons
 
(51,148
)
 
(74,667
)
Net cash provided by operating activities
 
432,530

 
403,404

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Real estate acquisitions and deposits
 
(2,659,186
)
 
(95,208
)
Real estate improvements
 
(71,024
)
 
(111,248
)
Hotel managers’ purchases with restricted cash
 
(143,692
)
 
(89,401
)
Hotel manager’s deposit of insurance proceeds into restricted cash
 
14,325

 
18,000

Net proceeds from sale of real estate
 
308,200

 

Net proceeds from sale of equity securities
 
93,892

 

Net cash used in investing activities
 
(2,457,485
)
 
(277,857
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of senior unsecured notes, after discounts and premiums
 
1,693,879

 
389,976

Borrowings under unsecured revolving credit facility
 
997,000

 
395,000

Repayments of unsecured revolving credit facility
 
(384,000
)
 
(650,000
)
Deferred financing costs
 
(21,869
)
 
(12,242
)
Repurchase of common shares
 
(794
)
 
(606
)
Distributions to common shareholders
 
(264,755
)
 
(259,678
)
Net cash provided by (used in) financing activities
 
2,019,461

 
(137,550
)
Decrease in cash and cash equivalents and restricted cash
 
(5,494
)
 
(12,003
)
Cash and cash equivalents and restricted cash at beginning of period
 
76,003

 
97,496

Cash and cash equivalents and restricted cash at end of period
 
$
70,509

 
$
85,493

 
 
 
 
 
Supplemental disclosure of cash and cash equivalents and restricted cash:
 
 
 
 
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents
 
$
16,990

 
$
19,849

Restricted cash
 
53,519

 
65,644

Total cash and cash equivalents and restricted cash
 
$
70,509

 
$
85,493

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
171,418

 
$
158,056

Cash paid for income taxes
 
2,614

 
2,804

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)




Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Service Properties Trust (formerly known as Hospitality Properties Trust) and its subsidiaries, or SVC, we, our or us, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2018, or our 2018 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period, have been included. These condensed consolidated financial statements include the accounts of SVC and our subsidiaries, all of which are 100% owned directly or indirectly by SVC. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment of real estate and the valuation of intangible assets.
We have determined that each of our wholly owned taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification™. We have concluded that we must consolidate each of our wholly owned TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE and are, therefore, the primary beneficiary of each VIE. The assets of our TRSs were $33,794 and $31,917 as of September 30, 2019 and December 31, 2018, respectively, and consist primarily of amounts due from and working capital advances to certain of our hotel managers. The liabilities of our TRSs were $148,017 and $148,459 as of September 30, 2019 and December 31, 2018, respectively, and consist primarily of security deposits they hold and amounts payable to certain of our hotel managers. The assets of our TRSs are available to satisfy our TRSs’ obligations and we have guaranteed certain obligations of our TRSs.
Note 2. New Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02, Leases. Additional guidance and targeted improvements to ASU No. 2016-02 were made through the issuance of supplemental ASUs in July 2018, December 2018 and March 2019, or collectively with ASU No. 2016-02, the Lease Standard. We adopted the Lease Standard on January 1, 2019. The Lease Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The Lease Standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. Upon adoption, we applied the package of practical expedients that allowed us not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, (iii) initial direct costs for any expired or existing leases and (iv) the option to initially apply the Lease Standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, although we did not have such an adjustment. Additionally, our leases met the criteria not to separate non-lease components from the related lease component.
As a lessor. We are required to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. Adoption of the Lease Standard did not have a material impact in our condensed consolidated financial statements for our leases where we are the lessor.
As a lessee. We are required to record right of use assets and lease liabilities in our condensed consolidated balance sheets for leases with terms greater than 12 months, where we are the lessee. We recorded right of use assets and related lease liabilities of $77,010 upon implementation of the Lease Standard. Adoption of the Lease Standard did not have a material effect

8

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



in our condensed consolidated statements of comprehensive income or condensed consolidated statements of cash flows for our leases where we are the lessee.
See Note 8 for further information regarding our leases and the adoption of the Lease Standard.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements. Lease related receivables are governed by the Lease Standards referred to above and are not subject to ASU No. 2016-13. We currently expect to adopt the standard using the modified retrospective approach.
Note 3. Revenue Recognition
We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income. We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided.
We report rental income for leased properties in our condensed consolidated statements of comprehensive income. We recognize rental income from operating leases on a straight line basis over the term of the lease agreements. We reduced rental income by $3,046 and $7,368 for the three and nine months ended September 30, 2019, respectively, and increased rental income by $3,136 and $9,359 for the three and nine months ended September 30, 2018, respectively, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TravelCenters of America Inc., or TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight line basis. See Notes 8 and 10 for further information regarding our TA leases. Due from related persons includes $51,071 and $66,347 and other assets, net, includes $3,135 and $3,073 of straight line rent receivables at September 30, 2019 and December 31, 2018, respectively.
Certain of our lease agreements require additional percentage rent if gross revenues of our properties exceed certain thresholds defined in our lease agreements. We may determine percentage rent due to us under our leases monthly, quarterly or annually, depending on the specific lease terms, and recognize it when all contingencies are met and the rent is earned. We had deferred estimated percentage rent of $1,020 and $3,047 for the three and nine months ended September 30, 2019, respectively, and $978 and $2,762 for the three and nine months ended September 30, 2018, respectively.
We own all the FF&E reserve escrows for our hotels. We report deposits by our third-party tenants into the escrow accounts as FF&E reserve income. We do not report the amounts which are escrowed as reserves established for the regular refurbishment of our hotels, or FF&E reserves, for our managed hotels as FF&E reserve income.
Note 4. Weighted Average Common Shares
The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share:
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Weighted average common shares for basic earnings per share
 
164,321

 
164,232

 
164,294

 
164,212

Effect of dilutive securities: Unvested share awards
 
27

 
42

 
38

 
30

Weighted average common shares for diluted earnings per share
 
164,348

 
164,274

 
164,332

 
164,242



9

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



Note 5. Shareholders' Equity
Share Awards
On June 13, 2019, in accordance with our Trustee compensation arrangements, we granted 3,000 of our common shares, valued at $24.67 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day to each of our five Trustees as part of their annual compensation.
On September 18, 2019, we granted an aggregate of 140,100 of our common shares, valued at $25.03 per common share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of The RMR Group LLC, or RMR LLC, under our equity compensation plan.
Share Purchases
On April 5, 2019, we purchased an aggregate of 1,642 of our common shares for $26.64 per common share, the closing price of our common shares on Nasdaq on that day, from a former officer of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
On July 3, 2019, we purchased an aggregate of 5,041 of our common shares for $25.20 per common share, the closing price of our common shares on Nasdaq on that day, from our former officer and former employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
On September 25, 2019, we purchased an aggregate of 24,293 of our common shares for $25.64 per common share, the closing price of our common shares on that day, from our officers and certain employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
Distributions
On February 21, 2019, we paid a regular quarterly distribution to our common shareholders of record on January 28, 2019 of $0.53 per share, or $87,154. On May 16, 2019, we paid a regular quarterly distribution to our common shareholders of record on April 29, 2019 of $0.54 per share, or $88,798. On August 15, 2019, we paid a regular quarterly distribution to our common shareholders of record on July 29, 2019 of $0.54 per share, or $88,803. On October 17, 2019, we declared a regular quarterly distribution to our common shareholders of record on October 28, 2019 of $0.54 per share, or $88,865. We expect to pay this amount on or about November 14, 2019.
Cumulative Other Comprehensive Loss
Cumulative other comprehensive loss, as of September 30, 2019, represents our share of the comprehensive loss of Affiliates Insurance Company, or AIC. See Note 10 for further information regarding this investment.
Note 6. Indebtedness
Our principal debt obligations at September 30, 2019 were: (1) $790,000 of outstanding borrowings under our $1,000,000 unsecured revolving credit facility; (2) our $400,000 unsecured term loan; and (3) $5,350,000 aggregate outstanding principal amount of senior unsecured notes. Our revolving credit facility and our term loan are governed by a credit agreement with a syndicate of institutional lenders.
Our $1,000,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is July 15, 2022, and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the maturity date of the facility for two additional six-month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. We are required to pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium, which was 100 basis points per annum as of September 30, 2019. We also pay a facility fee, which was 20 basis points per annum at September 30, 2019, on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. On October 1, 2019, the interest rate premium and the facility fee increased to 1.20% and 0.25%, respectively, as the result of our credit rating being lowered by a rating agency. As of September 30, 2019, the annual interest rate payable on borrowings under our revolving credit facility was 2.92%. The weighted average annual interest rate for borrowings under our revolving credit facility was

10

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



3.10% and 3.34% for the three and nine months ended September 30, 2019, respectively, and 2.97% and 3.00% for the three and nine months ended September 30, 2018, respectively. As of September 30, 2019, we had $790,000 outstanding and $210,000 available under our revolving credit facility. As of November 7, 2019, we had $700,000 outstanding and $300,000 available to borrow under our revolving credit facility.
Our $400,000 term loan, which matures on July 15, 2023, is prepayable without penalty at any time. We are required to pay interest on the amount outstanding under our term loan at the rate of LIBOR plus a premium, which was 110 basis points per annum as of September 30, 2019. The interest rate premium is subject to adjustment based on changes to our credit ratings. On October 1, 2019 the interest rate premium increased to 1.35% as a result of our credit rating being lowered by a rating agency. As of September 30, 2019, the annual interest rate for the amount outstanding under our term loan was 3.20%. The weighted average annual interest rate for borrowings under our term loan was 3.35% and 3.51% for the three and nine months ended September 30, 2019, respectively, and 3.19% and 3.02% for the three and nine months ended September 30, 2018, respectively.
Our credit agreement also includes a feature under which maximum aggregate borrowings may be increased to up to $2,300,000 on a combined basis in certain circumstances. Our credit agreement and our unsecured senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR LLC ceasing to act as our business manager. Our credit agreement and our unsecured senior notes indentures and their supplements also contain covenants, including those that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of our credit agreement and our unsecured senior notes indentures and their supplements at September 30, 2019.
On September 18, 2019, we issued $825,000 principal amount of our 4.35% unsecured senior notes due 2024, $450,000 principal amount of our 4.75% unsecured senior notes due 2026 and $425,000 principal amount of our 4.95% unsecured senior notes due 2029. The aggregate net proceeds from these offerings were $1,680,461, after underwriting discounts and other offering expenses.
In connection with our acquisition of a 767-property net lease portfolio from Spirit MTA REIT, a Maryland real estate investment trust, or REIT, (NYSE: SMTA), or SMTA, located in 45 states, or the SMTA Transaction, a syndicate of lenders committed to provide us with a one year unsecured term loan facility, under which we would be able to borrow up to $2,000,000. We terminated these commitments in September 2019 and recorded a loss on early extinguishment of debt of $8,451 during the three months ended September 30, 2019 to write off unamortized issuance costs. See Note 7 for further information about the SMTA Transaction.
Note 7. Real Estate Properties
At September 30, 2019, we owned 328 hotels with 51,086 rooms or suites and 946 service-oriented retail properties with approximately 17.6 million square feet that are primarily subject to “triple net” leases, or net leases where the tenant is generally responsible for payment of operating expenses and capital expenditures of the property during the lease term. Our properties had an aggregate undepreciated carrying value of $11,905,525, including $604,989 classified as held for sale as of September 30, 2019.
During the nine months ended September 30, 2019, we funded $123,190 for improvements to certain of our properties which, pursuant to the terms of our management and lease agreements with our managers and tenants, resulted in increases in our contractual annual minimum returns and rents of $9,097. See Note 8 for further information about our management and lease agreements and our fundings of improvements to certain of our properties.

11

SERVICE PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(Unaudited)



Acquisitions
We completed the SMTA Transaction and acquired two hotels and a land parcel during the nine months ended September 30, 2019. We accounted for these transactions as acquisitions of assets. Our allocation of the purchase price of each of these acquisitions based on the estimated fair value of the acquired assets is presented in the table below.
Acquisition Date
 
Location
 
Purchase Price
 
Land
 
Land Improvements
 
Building and Improvements
 
Furniture, Fixtures and Equipment
 
Held for Sale
 
Intangible Assets / Liabilities, net
2/22/2019
 
Washington, D.C. (1)
 
$
143,742

 
$
44,972

 
$
151

 
$
93,412

 
$
5,207

 
$

 
$

5/7/2019
 
Milwaukee, WI (2)
 
30,235

 
3,442

 
1,053

 
25,132

 
608

 

 

8/1/2019
 
Southington, CT (3)
 
66

 
66

 

 

 

 

 

9/20/2019
 
Various (4)
 
2,482,382

 
388,057

 

 
1,201,922

 

 
604,989

 
287,414

 
 
 
 
$
2,656,425

 
$
436,537

 
$
1,204

 
$
1,320,466

 
$
5,815

 
$
604,989

 
$
287,414

(1)
On February 22, 2019, we acquired the 335 room Hotel Palomar located in Washington, D.C. for a purchase price of $143,742, including capitalized acquisition costs of $2,292. We added this Kimpton® branded hotel to our management agreement with InterContinental Hotels Group, plc, or IHG. See Note 8 for further information regarding our management agreement with IHG for 102 hotels, or our IHG agreement.
(2)
On May 7, 2019, we acquired the 198 room Crowne Plaza Milwaukee West hotel in Milwaukee, WI for a purchase price of $30,235, including capitalized acquisition costs of $235. We added this Crowne Plaza® branded hotel to our management agreement with IHG. See Note 8 for further information regarding our IHG agreement.
(3)
On August 1, 2019, we acquired a land parcel adjacent to our travel center located in Southington, CT for a purchase price of $66, including capitalized acquisition costs of $