NEWTON, MA—Locally-based Service Properties Trust reports that the dramatic decline in hotel occupancy due to the Novel Coronavirus pandemic is causing it to dramatically reduce its quarterly dividend and defer approximately $100 million in planned capital projects.
In addition, the REIT states that several planned portfolio sales will likely be delayed until later this year or next year due to the lack of financing available for hotel transactions.
In terms of its quarterly dividend, 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. In January 2020, the company announced a regular quarterly cash distribution on its common shares of $0.54 per common share ($2.16 per share per year).
The company states the reduction of the quarterly 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.
SVC and its hotel operators have been implementing cost savings plans, including the closure of certain hotels, reduction of staffing levels and other measures. The company does expect 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.
John Murray, president and CEO of Service Properties Trust, states, “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.”
As of Dec. 31, 2019, SVC had aggregate security deposits and corporate guarantees in excess of $200 million and more than $600 million of availability under its $1-billion credit facility, and it has no scheduled debt maturities until February 2021. The company states it 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,” SVC adds.
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 states it 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.
The company states that as a result of the COVID-19 pandemic, lending for hotel transactions has effectively ceased and it expects that these transactions will be delayed until later in 2020 or 2021 or may not occur.