Consumer spending “will recover from the downward pressure, but because there are these negative factors, the question is how broad will that recovery be?” said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute.

Japan’s prime minister, Fumio Kishida, has tried to offset the effects of price increases with large government subsidies for fuel and cash handouts for families with children. But Japanese consumers, wary of the pandemic’s economic effects, have largely been putting rounds of stimulus money into savings.

Japan’s growth is facing diverse challenges, but ultimately its recovery will depend on Covid, analysts said, a common refrain over the last two years.

While Japan has high vaccination rates and has performed better than most other wealthy countries at keeping the pandemic in check, the virus’s protean nature has made it difficult to predict its path. And that has made experts hesitant to commit to any forecasts about its future impact on global economies.

“The big risk is that corona starts to spread again,” said Naoyuki Shiraishi, an economist at the Japan Research Institute. “If a new variant appears, there will be new restrictions on activity, and that will suppress consumption.”

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The World Tries to Move Beyond Covid. China May Stand in the Way.

As the rest of the world learns to live with Covid-19, China’s top leader, Xi Jinping, wants his country to keep striving to live without it — no matter the cost.

China won a battle against its first outbreak in Wuhan, Mr. Xi said last week, and “we will certainly be able to win the battle to defend Shanghai,” he added, referring to the epicenter of the current outbreak in China.

summarized it as “zero movement, zero G.D.P.” Multinational companies have grown wary of further investments in the country.

For more than two years, China kept its Covid numbers enviably low by doggedly reacting to signs of an outbreak with testing and snap lockdowns. The success allowed the Communist Party to boast that it had prioritized life over death in the pandemic, unlike Western democracies where deaths from the virus soared.

More transmissible variants like Omicron threaten to dent that success, posing a dilemma for Mr. Xi and the Chinese Communist Party. Harsher lockdowns have been imposed to keep infections from spreading, stifling economic activity and threatening millions of jobs. Chinese citizens have grown restless, pushing back against being forced to stay home or to move into grim, government-run isolation facilities.

politically important year for Mr. Xi, China’s censors have moved quickly to muffle calls for a change in course on Covid-19. The head of the World Health Organization, whose recommendations China once held up as a model, was silenced this week when he called on the country to rethink its strategy.

Photographs and references to Tedros Adhanom Ghebreyesus, the director general of the W.H.O., were promptly scrubbed from the Chinese internet after the statement. The foreign ministry responded by calling Mr. Tedros’s remarks “irresponsible,” and accusing the W.H.O. of not having a “proper understanding of the facts.”

China’s state-controlled media has also glossed over the draconian measures officials have deployed to deal with outbreaks. This week, as some authorities in Shanghai erected new fences around quarantine zones, boarded up more homes and asked residents not to leave their apartments, state media painted a picture of a city slowly returning to normal.

One article described the “hustle and bustle of city life” returning, while another focused on statistics for how many stores had reopened.

has not happened. Several Chinese companies are in the testing phase of a homegrown mRNA option, and China also recently approved for emergency use a Covid-19 antiviral pill made by Pfizer called Paxlovid.

Administering three vaccine shots, using antiviral therapies and offering more effective vaccines could help China find a path out of zero Covid, Mr. Ajelli said.

disappointing winter wheat harvest in June could drive food prices — already high because of the war in Ukraine and bad weather in Asia and the United States — further up, compounding hunger in the world’s poorest countries.

By one estimate, nearly 400 million people in 45 cities have been under some form of lockdown in China in the past month, accounting for $7.2 trillion in annual gross domestic product. Economists are concerned that the lockdowns will have a major impact on growth; one economist has warned that if lockdown measures remain in place for another month, China could enter into a recession.

European and American multinational companies have said they are discussing ways to shift some of their operations out of China. Big companies that increasingly depend on China’s consumer market for growth are also sounding the alarm. Apple said it could see a $4 billion to $8 billion hit to its sales because of the lockdowns.

struggle to find and keep jobs during lockdowns.

Even as daily virus cases in Shanghai are steadily dropping, authorities have tightened measures in recent days following Mr. Xi’s call last week to double down. Officials also began to force entire residential buildings into government isolation if just one resident tested positive.

The new measures are harsher than those early on in the pandemic and have been met with pockets of unrest, previously rare in China where citizens have mostly supported the country’s pandemic policies.

In one video widely circulated online before it was taken down by censors, an exasperated woman shouts as officials in white hazmat suits smash her door down to take her away to an isolation facility. She protests and asks them to give her evidence that she has tested positive. Eventually she takes her phone to call the police.

“If you called the police,” one of the men replies, “I’d still be the one coming.”

Isabelle Qian contributed reporting, and Claire Fu contributed research.

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Dream Office REIT Reports Q1 2022 Results

TORONTO–(BUSINESS WIRE)–DREAM OFFICE REAL ESTATE INVESTMENT TRUST (D.UN-TSX) or (“Dream Office REIT”, the “Trust” or “we”) today announced its financial results for the three months ended March 31, 2022 and provided a business update related to the COVID-19 pandemic.

OPERATIONAL HIGHLIGHTS

(unaudited)

As at

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2021

Total properties(1)

 

 

 

 

 

 

 

 

Number of active properties

 

29

 

 

29

 

 

28

Number of properties under development

 

1

 

 

1

 

 

2

Gross leaseable area (“GLA”) (in millions of sq. ft.)

 

5.5

 

 

5.5

 

 

5.5

Investment properties value

$

2,596,240

 

$

2,569,002

 

$

2,473,123

Total portfolio(2)

 

 

 

 

 

 

 

 

Occupancy rate – including committed (period-end)

 

85.0%

 

 

85.5%

 

 

87.2%

Occupancy rate – in-place (period-end)

 

81.7%

 

 

82.9%

 

 

85.8%

Average in-place and committed net rent per square foot (period-end)

$

23.25

 

$

23.25

 

$

23.26

Weighted average lease term (“WALT”) (years)

 

5.4

 

 

5.2

 

 

5.0

See footnotes at end.

 

 

Three months ended

 

 

March 31,

 

 

March 31,

 

 

2022

 

 

2021

Operating results

 

 

 

 

 

Net income

$

52,282

 

 

10,146

Funds from operations (“FFO”)(3)

 

21,043

 

 

21,309

Net rental income

 

25,863

 

 

26,271

Comparative properties net operating income (“NOI”)(4)

 

27,320

 

 

28,710

Per unit amounts

 

 

 

 

 

FFO (diluted)(5)

$

0.39

 

 

0.38

Distribution rate

 

0.25

 

 

0.25

See footnotes at end.

“Our business has continued to navigate through uncertainties in the economy and recovery from the pandemic with resilience,” said Michael Cooper, Chief Executive Officer of Dream Office REIT. “We think our strategy of focusing on our best assets to improve their quality, reducing carbon emissions, animating the retail and common areas and making our office communities more inclusive will be very well received by our tenants as they return to work and will add value to the portfolio.”

BUSINESS UPDATE

As at March 31, 2022, the Trust had approximately $280 million of available liquidity(6), $170 million of unencumbered assets(7) and a level of debt (net total debt-to-net total assets)(8) of 41.9%. As at March 31, 2022, the Trust had $2.6 billion of investment properties, $8.3 million of cash and cash equivalents, $271.3 million of undrawn credit facilities, $3.1 billion of total assets and $1.3 billion of total debt.

The novel coronavirus (“COVID-19”) pandemic continues to disrupt the Canadian economy. Repeated states of emergency and lockdowns as a result of emerging variants, most recently public health measures due to the Omicron variant in December 2021 and January 2022, have made it difficult for businesses to plan for the future. The full impact that these disruptions will have on the market for office space in the near term and the wider economy in general is unclear and difficult to predict. However, we believe that there will continue to be demand for high-quality and well-located office space in urban markets in Canada, especially in Toronto, when the economy normalizes. The Trust has ample financial resources to absorb near-term operational challenges and a program to drive value in the business through capital improvements and redevelopments to deliver best-in-class boutique office space to our tenants.

The COVID-19 pandemic delayed the construction timelines for the planned Bay Street corridor revitalization, but we are near completion of the interior renovation work, and façade improvements are scheduled to be finished this year. Since 2020, our successful redevelopment program has completed two projects on time and on budget that have significantly increased the value of the redeveloped properties and delivered significant incremental income to the Trust. 357 Bay Street in Toronto downtown was completed in Q4 2020 and in Q1 2022 contributed $3.0 million of annualized comparative properties NOI. Q3 2021 marked the completion of 1900 Sherwood Place in Regina, Saskatchewan, and the commencement of the 25-year Co-operators lease at the property. 1900 Sherwood Place generated $5.2 million of annualized NOI over Q1 2022. We are currently in the process of revitalizing 366 Bay Street in Toronto by fully modernizing the building’s systems, improving the building’s floorplates and upgrading the quality of the common areas. We are targeting a LEED Gold certification, among other certifications, as part of this development project. In addition, we have received zoning approval for 250 Dundas Street West in Toronto, have a zoning application underway for our property at Eglinton Avenue East and Birchmount Road in Scarborough, and are working on a development plan for 212 and 220 King Street West in Toronto.

We hold a stake in Dream Industrial REIT which continues to provide a meaningful contribution to our FFO as a result of the REIT’s successful European expansion and value-add strategy and the monthly distributions provide steady, predictable cash flow to the Trust at a time of uncertainty.

The effect of public health measures put in place as a response to the Omicron variant resulted in fewer property tours, lower building traffic and reduced parking lot utilization relative to Q4 2021. However, we believe that these effects are transitory and that the improvements in the latter half of 2021 will re-emerge during 2022.

During Q1 2022, the Trust executed leases totalling approximately 159,000 square feet across our portfolio. In Toronto downtown, the Trust executed 131,000 square feet of leases including the 54,000 square foot flexible workspace lease discussed previously. The remaining 78,000 square feet of leases were executed at a weighted average net rent of $32.07 per square foot, or 26.0% higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 5.2 years.

In the Other markets region we executed leases totalling 28,000 square feet at a weighted average net rent of $19.42 per square foot, an increase of 0.7% from the weighted average prior net rent on the same space, with a weighted average lease term of 7.2 years. To date, the Trust has secured commitments for approximately 659,000 square feet, or 82%, of 2022 full-year natural lease expiries, consistent with pre-COVID leasing trends. In Toronto downtown, 63,000 square feet, or approximately 1.8% of the region’s gross leaseable area, was being held intentionally vacant for retail repositioning and property improvement purposes as at March 31, 2022 of which the Trust has deals that were subsequently completed, are conditional or are in an advanced state of negotiation totalling 19,000 square feet.

Approximately 2% of the Trust’s total portfolio is currently sublet, with a weighted average in-place net rent of just over $25 per square foot.

The following table summarizes selected operational statistics with respect to the trailing four quarters and the month of April 2022 as at May 5, 2022, all presented as a percentage of recurring contractual gross rent:

 

Cash

Deferral

 

 

collected

arrangements*

Outstanding

Q2 2021

98.4%

0.3%

1.3%

Q3 2021

98.5%

0.2%

1.3%

Q4 2021

98.4%

—%

1.6%

Q1 2022

97.8%

—%

2.2%

April 2022

98.0%

0.1%

1.9%

* Deferral arrangements are presented net of subsequently received cash receipts.

Over the course of the COVID-19 pandemic, we have worked collaboratively with our tenants to help them manage the challenges within their businesses and be set up for long-term success when the pandemic has passed. The Canadian Emergency Rent Subsidy program ended during Q4 2021 and the Hardest-Hit Business Recovery Program was introduced. While the new program is harder for tenants to qualify for, we have not seen any significant change in rent collection patterns since its introduction. In certain instances, the Trust has granted deferrals and rent repayment arrangements to select tenants on a case-by-case basis.

For the three months ended March 31, 2022, the Trust recorded COVID-related provisions totalling approximately $0.6 million which are included in the line item “COVID-related provisions and adjustments” within net rental income. These provision balances represent an estimate of potential credit losses on our trade receivables for all uncollected rent during the three months ended March 31, 2022.

CAPITAL HIGHLIGHTS

KEY FINANCIAL PERFORMANCE METRICS

 

 

 

As at

(unaudited)

 

March 31,

 

December 31,

 

 

2022

 

2021

Financing

 

 

 

 

Weighted average face rate of interest on debt (period-end)(9)

 

3.37%

 

3.28%

Interest coverage ratio (times)(10)

 

2.9

 

3.0

Net total debt-to-normalized adjusted EBITDAFV ratio (years)(11)

 

10.4

 

9.8

Level of debt (net total debt-to-net total assets)(8)

 

41.9%

 

41.8%

Average term to maturity on debt (years)

 

3.4

 

3.6

Undrawn credit facilities, available liquidityand unencumbered assets

 

 

 

 

Undrawn credit facilities

$

271.3

$

192.4

Available liquidity (in millions)(6)

 

279.6

 

201.1

Unencumbered assets (in millions)(7)

 

169.6

 

178.3

Capital (period-end)

 

 

 

 

Total number of REIT A and LP B units (in millions)(12)

 

52.3

 

53.3

Net asset value (“NAV”) per unit(13)

$

32.63

$

31.49

See footnotes at end.

“Our partnership with the Canada Infrastructure Bank provides the Trust with a great source of capital to continue to improve our assets to a higher standard while doing our part to reduce greenhouse gas emissions in our portfolio,” said Jay Jiang, Chief Financial Officer of Dream Office REIT. “The facility will also enhance our liquidity and flexibility of our balance sheet so that we are able to reduce risk while remaining opportunistic.”

CONFERENCE CALL

Dream Office REIT holds semi-annual conference calls following the release of second and fourth quarter results.

OTHER INFORMATION

Information appearing in this press release is a selected summary of results. The condensed consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) of the Trust are available at www.dreamofficereit.ca and on www.sedar.com.

Dream Office REIT is an unincorporated, open-ended real estate investment trust. Dream Office REIT is a premier office landlord in downtown Toronto with over 3.5 million square feet owned and managed. We have carefully curated an investment portfolio of high-quality assets in irreplaceable locations in one of the finest office markets in the world. We intend to enhance these properties to elevate their desirability to tenants and investors and improve the overall community experience. For more information, please visit our website at www.dreamofficereit.ca.

FOOTNOTES

(1)

Excludes joint ventures that are equity accounted at the end of each period.

(2)

Excludes properties under development and joint ventures that are equity accounted at the end of each period.

(3)

FFO is a non-GAAP financial measure. The most directly comparable financial measure to FFO is net income. The tables included in the Appendices section of this press release reconcile FFO for the three months ended March 31, 2022 and March 31, 2021 to net income. For further information on this non-GAAP measure please refer to the statements under the heading “Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures” in this press release.

(4)

Comparative properties NOI is a non-GAAP financial measure. The most directly comparable financial measure to comparative properties NOI is net rental income. The tables included in the Appendices section of this press release reconcile comparative properties NOI for the three months ended March 31, 2022 and March 31, 2021 to net rental income. For further information on this non-GAAP measure please refer to the statements under the heading “Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures” in this press release.

(5)

Diluted FFO per unit is a non-GAAP ratio. Diluted FFO per unit is calculated as FFO (a non-GAAP financial measure) divided by weighted average number of units. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures” in this press release. A description of the determination of the weighted average number of units can be found in the Trust’s Management’s Discussion and Analysis for the three months ended March 31, 2022 in the section “Supplementary Financial Measures and Other Disclosures” under the heading “Weighted average number of units”.

(6)

Available liquidity is a non-GAAP financial measure. The most directly comparable financial measure to available liquidity is undrawn credit facilities. The tables included in the Appendices section of this press release reconcile available liquidity to undrawn credit facilities as at March 31, 2022 and December 31, 2021. For further information on this non-GAAP financial measure please refer to the statements under the heading “Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures” in this press release.

(7)

Unencumbered assets is a supplementary financial measure. For further information on this supplementary financial measure, please refer to the statements under the heading “Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures” in this press release.

(8)

Level of debt (net total debt-to-net total assets) is a non-GAAP ratio. Net total debt-to-net total assets comprises net total debt (a non-GAAP financial measure) divided by net total assets (a non-GAAP financial measure). The tables in the appendices section reconcile net total debt and net total assets to total debt and total assets, respectively, as at March 31, 2022 and December 31, 2021. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures” in this press release.

(9)

Weighted average face rate of interest on debt is calculated as the weighted average face rate of all interest-bearing debt balances excluding debt in joint ventures that are equity accounted.

(10)

Interest coverage ratio (times) is a non-GAAP ratio. Interest coverage ratio comprises trailing 12-month adjusted EBITDAFV divided by trailing 12-month interest expense on debt. Adjusted EBITDAFV, trailing 12-month Adjusted EBITDAFV and trailing 12-month interest expense on debt are non-GAAP measures. The tables in the Appendices section reconcile adjusted EBITDAFV to net income for the three months ended March 31, 2022 and March 31, 2021 and for the year ended December 31, 2021 and trailing 12-month adjusted EBITDAFV and trailing 12-month interest expense to adjusted EBITDAFV and interest expense, respectively, for the trailing 12-month period ended March 31, 2022. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP Financial Measures and Ratios and Supplementary Financial Measures” in this press release.

(11)

Net total debt-to-normalized adjusted EBITDAFV ratio (years) is a non-GAAP ratio. Net total debt-to-normalized adjusted EBITDAFV comprises net total debt (a non-GAAP financial measure) divided by normalized adjusted EBITDAFV (a non-GAAP financial measure). Normalized adjusted EBITDAFV comprises adjusted EBITDAFV (a non-GAAP measure) adjusted for NOI from sold properties in the quarter. For further information on this non-GAAP ratio, please refer to the statements under the heading “Non-GAAP Financial Measures and Ratios and Supplementary Financial Measures” in this press release.

(12)

Total number of REIT A and LP B units includes 5.2 million LP B Units which are classified as a liability under IFRS.

(13)

NAV per unit is a non-GAAP ratio. NAV per unit is calculated as Total equity (including LP B Units) divided by the total number of REIT A and LP B units outstanding as at the end of the period. Total equity (including LP B Units) is a non-GAAP measure. The most directly comparable financial measure to total equity (including LP B Units) is equity. The tables included in the appendices section of this press release reconcile total equity (including LP B Units) to equity as at March 31, 2022 and December 31, 2021. For further information on this non-GAAP measure please refer to the statements under the heading “Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures” in this press release.

NON-GAAP FINANCIAL MEASURES, RATIOS AND SUPPLEMENTARY FINANCIAL MEASURES

The Trust’s condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP financial measures, including FFO, comparative properties NOI and available liquidity, and non-GAAP ratios, including diluted FFO per unit, level of debt (net total debt-to-net total assets), interest coverage ratio, net total debt-to-normalized adjusted EBITDAFV and NAV per unit, as well as other measures discussed elsewhere in this release. These measures and ratios are not standardized financial measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. The Trust has presented such non-GAAP measures and non-GAAP ratios as Management believes they are relevant measures of the Trust’s underlying operating and financial performance. Certain additional disclosures such as the composition, usefulness and changes, as applicable, of the non-GAAP financial measures and ratios included in this press release have been incorporated by reference from the management’s discussion and analysis of the financial condition and results from operations of the Trust for the three months ended March 31, 2022, dated May 5, 2022 (the “MD&A for the first quarter of 2022”) and can be found under the section “Non-GAAP Financial Measures and Ratios” and respective sub-headings labelled “Funds from operations and diluted FFO per unit”, “Comparative properties NOI”, “Level of debt (net total debt-to-net total assets)”, “Net total debt-to-normalized adjusted EBITDAFV ratio (years)”, “Interest coverage ratio”, “Available liquidity” and “Net asset value (“NAV”) per Unit”. The composition of supplementary financial measures included in this press release have been incorporated by reference from the MD&A for the first quarter of 2022 and can be found under the section “Supplementary financial measures and ratios and other disclosures”. The MD&A for the first quarter of 2022 is available on SEDAR at www.sedar.com under the Trust’s profile and on the Trust’s website at www.dreamofficereit.ca under the Investors section. Non-GAAP measures should not be considered as alternatives to net income, net rental income, cash flows generated from (utilized in) operating activities, cash and cash equivalents, total assets, non-current debt, total equity, or comparable metrics determined in accordance with IFRS as indicators of the Trust’s performance, liquidity, leverage, cash flow, and profitability. Reconciliations to the nearest comparable financial measure are contained at the end of this press release.

FORWARD-LOOKING INFORMATION

This press release may contain forward-looking information within the meaning of applicable securities legislation, including, but not limited to, statements regarding our objectives and strategies to achieve those objectives, our ability to increase the desirability, occupancy and liquidity of our buildings; the effect of building improvements on tenant experience and building quality and performance; our expectations regarding the COVID-19 pandemic and the timing of current and prospective tenants return to the office and its effect on our business and financial metrics, including in respect of leasing, building traffic and our revenues; our expectations regarding future demand for office space in urban markets in Canada; our ability to achieve building certifications; anticipated financial performance of tenants with percentage rent arrangements; our development, redevelopment and intensification plans and timelines, and the effect of these plans on the value and quality of our portfolio; our future capital requirements and ability to meet those requirements; our asset management strategies and prospective leasing activity and our overall financial performance, profitability and liquidity for future periods and years. Forward-looking statements generally can be identified by words such as “outlook”, “objective”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “could”, “likely”, “plan”, “project”, “budget”, or “continue” or similar expressions suggesting future outcomes or events. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Office REIT’s control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions; the impact of the COVID-19 pandemic on the Trust; the effect of government restrictions on leasing and building traffic; employment levels; mortgage and interest rates and regulations; the uncertainties around the timing and amount of future financings; leasing risks, including those associated with the ability to lease vacant space; rental rates on future leasing; and interest and currency rate fluctuations. Our objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable, interest rates remain stable, conditions within the real estate market remain consistent, that government restrictions due to COVID-19 on the ability of us and our tenants to operate their businesses at our properties will continue to ease and will not be re-imposed in any material respects, competition for acquisitions remains consistent with the current climate, and that the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. Dream Office REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise except as required by law. Additional information about these assumptions and risks and uncertainties is contained in Dream Office REIT’s filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at Dream Office REIT’s website at www.dreamofficereit.ca.

APPENDICES

Funds from operations and diluted FFO per unit

 

 

Three months ended March 31,

 

 

 

2022

 

 

2021

Net income for the period

 

$

52,282

 

$

10,146

Add (deduct):

 

 

 

 

 

 

Share of net income from investment in Dream Industrial REIT

 

 

(42,899)

 

 

(13,950)

Share of FFO from investment in Dream Industrial REIT

 

 

5,847

 

 

5,034

Depreciation and amortization

 

 

2,986

 

 

3,079

Costs (recovery) attributable to sale of investment properties(1)

 

 

(12)

 

 

1,074

Interest expense on subsidiary redeemable units

 

 

1,308

 

 

1,308

Fair value adjustments to investment properties

 

 

(19,379)

 

 

6,139

Fair value adjustments to investment properties held in joint ventures

 

 

(23)

 

 

(13)

Fair value adjustments to financial instruments and DUIP included in G&A expenses

 

 

20,340

 

 

8,026

Internal leasing costs

 

 

517

 

 

390

Principal repayments on finance lease liabilities

 

 

(13)

 

 

(12)

Deferred income taxes expense (recovery)

 

 

89

 

 

88

FFO for the period

$

21,043

 

$

21,309

Diluted weighted average number of units(2)

 

 

53,688

 

 

56,768

FFO per unit – diluted

 

$

0.39

 

$

0.38

(1)

Includes both continuing and discontinued operations.

(2)

Diluted weighted average number of units includes the weighted average of all REIT A Units, LP B Units, vested but unissued and unvested deferred trust units and associated income deferred trust units.

Comparative properties NOI

 

Three months ended

Change

in

weighted

average

occupancy %

Change

in

in-place

net rents

%

 

March 31,

 

March 31,

 

 

Change

 

2022

 

2021

 

 

Amount

 

%

Toronto downtown

$

21,630

 

$

23,511

 

$

(1,881)

 

(8.0)

 

(8.2)

 

3.4

Other markets

 

5,690

 

 

5,199

 

 

491

 

9.4

 

4.3

 

(4.0)

Comparative properties NOI

 

27,320

 

 

28,710

 

 

(1,390)

 

(4.8)

 

(3.9)

 

0.5

1900 Sherwood Place

 

1,289

 

 

10

 

 

1,279

 

 

 

 

 

 

Property under development

 

(55)

 

 

(43)

 

 

(12)

 

 

 

 

 

 

Property management and other service fees

 

431

 

 

326

 

 

105

 

 

 

 

 

 

COVID-related provisions and adjustments

 

(602)

 

 

169

 

 

(771)

 

 

 

 

 

 

Straight-line rent

 

129

 

 

27

 

 

102

 

 

 

 

 

 

Amortization of lease incentives

 

(2,902)

 

 

(2,930)

 

 

28

 

 

 

 

 

 

Lease termination fees and other

 

253

 

 

(28)

 

 

281

 

 

 

 

 

 

Sold properties

 

 

 

30

 

 

(30)

 

 

 

 

 

 

Net rental income from continuing operations

$

25,863

 

$

26,271

 

$

(408)

 

 

 

 

 

 

Available liquidity

 

 

As at

 

 

March 31,

 

December 31,

 

 

2022

 

2021

Undrawn credit facilities

$

271,337

$

192,355

Cash and cash equivalents

 

8,302

 

8,763

Available liquidity

$

279,639

$

201,118

Level of debt (net total debt-to-net total assets)

 

Amounts included in condensed consolidated financial statements

 

March 31,

 

December 31,

 

 

2022

 

 

2021

Non-current debt

$

1,236,423

 

$

1,206,734

Current debt

 

79,203

 

 

76,539

Total debt

 

1,315,626

 

 

1,283,273

Less: Cash on hand

 

(6,627)

 

 

(5,556)

Net total debt

$

1,308,999

 

$

1,277,717

Total assets

 

3,127,608

 

 

3,065,560

Less: Cash on hand

 

(6,627)

 

 

(5,556)

Net total assets

$

3,120,981

 

$

3,060,004

Net total debt-to-net total assets

 

41.9%

 

 

41.8%

Adjusted EBITDAFV

 

Three months ended

 

Year ended

 

March 31,

 

March 31,

 

December 31,

 

 

2022

 

 

2021

 

 

2021

Net income for the period

$

52,282

 

$

10,146

 

$

154,207

Add (deduct):

 

 

 

 

 

 

 

 

Interest – debt

 

11,259

 

 

10,884

 

 

43,372

Interest – subsidiary redeemable units

 

1,308

 

 

1,308

 

 

5,234

Current and deferred income taxes expense (recovery), net

 

124

 

 

88

 

 

(203)

Depreciation on property and equipment

 

130

 

 

242

 

 

897

Fair value adjustments to investment properties

 

(19,379)

 

 

6,139

 

 

(47,926)

Fair value adjustments to financial instruments

 

20,282

 

 

8,152

 

 

29,922

Share of net income from investment in Dream Industrial REIT

 

(42,899)

 

 

(13,950)

 

 

(90,645)

Distributions received from Dream Industrial REIT

 

4,655

 

 

4,655

 

 

18,622

Share of net loss from investment in joint ventures

 

72

 

 

16

 

 

340

Non-cash items included in investment properties revenue(1)

 

2,773

 

 

2,903

 

 

11,217

Government assistance and COVID-related provisions

 

602

 

 

(169)

 

 

482

Lease termination fees and other

 

(253)

 

 

28

 

 

(836)

Net losses (gains) on transactions and other items(2)

 

505

 

 

1,464

 

 

3,732

Adjusted EBITDAFV for the period

$

31,461

 

$

31,906

 

$

128,415

(1)

Includes adjustments for straight-line rent and amortization of lease incentives.

(2)

Includes both continuing and discontinued operations.

Trailing 12-month Adjusted EBITDAFV and trailing 12-month interest expense on debt

 

Trailing 12-month period

 

ended March 31, 2022

Adjusted EBITDAFV for the three months ended March 31, 2022

 

$

31,461

Add: Adjusted EBITDAFV for the year ended December 31, 2021

 

 

128,415

Less: Adjusted EBITDAFV for the three months ended March 31, 2021

 

 

(31,906)

Trailing 12-month Adjusted EBITDAFV

 

$

127,970

 

Trailing 12-month period

 

ended March 31, 2022

Interest expense on debt for the three months ended March 31, 2022

 

$

11,259

Add: Interest expense on debt for the year ended December 31, 2021

 

 

43,372

Less: Interest expense on debt for the three months ended March 31, 2021

 

 

(10,884)

Trailing 12-month interest expense on debt

 

$

43,747

Interest coverage ratio (times)

 

For the trailing 12-month period ended

 

March 31,

 

 

December 31,

 

2022

 

 

2021

Trailing 12-month Adjusted EBITDAFV

$

127,970

 

$

128,415

Interest expense on debt

$

43,747

 

$

43,372

Interest coverage ratio (times)

 

2.9

 

 

3.0

Net total debt-to-normalized adjusted EBITDAFV ratio (years)

 

March 31,

December 31,

 

 

2022

 

2021

Non-current debt

 

$

1,236,423

$

1,206,734

Current debt

 

 

79,203

 

76,539

Total debt

 

 

1,315,626

 

1,283,273

Less: Cash on hand(1)

 

 

(6,627)

 

(5,556)

Net total debt

 

$

1,308,999

$

1,277,717

Adjusted EBITDAFV – quarterly

 

 

31,461

 

32,534

Less: NOI of disposed properties for the quarter

 

 

 

(4)

Normalized adjusted EBITDAFV – quarterly

 

$

31,461

$

32,530

Normalized adjusted EBITDAFV – annualized

 

$

125,844

$

130,120

Net total debt-to-normalized adjusted EBITDAFV ratio (years)

 

 

10.4

 

9.8

(1)

Cash on hand represents cash on hand at period-end, excluding cash held in co-owned properties and joint ventures that are equity accounted.

NAV per unit

 

 

 

Unitholders’ equity

 

 

 

March 31, 2022

 

December 31, 2021

 

 

 

Number of Units

 

 

Amount

 

Number of Units

 

 

Amount

Unitholders’ equity

 

 

47,029,715

 

$

1,857,974

 

48,034,754

 

$

1,883,653

Deficit

 

 

 

 

(298,149)

 

 

 

(338,593)

Accumulated other comprehensive income (loss)

 

 

 

 

(347)

 

 

 

3,268

Equity per condensed consolidated financial statements

47,029,715

 

 

1,559,478

 

48,034,754

 

 

1,548,328

Add: LP B Units

 

 

5,233,823

 

 

145,867

 

5,233,823

 

 

128,909

Total equity (including LP B Units)

 

 

52,263,538

 

$

1,705,345

 

53,268,577

 

$

1,677,237

NAV per unit

 

 

 

 

$

32.63

 

 

 

$

31.49

 

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COVID expected to hit China economic activity in March data, article with image

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Workers watch as a crane lifts a structure at a construction site in Shanghai, China January 14, 2022. REUTERS/Aly Song

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  • China Q1 GDP growth seen at 4.4%, vs Q4’s 4.0%
  • March data likely deteriorated sharply on COVID lockdowns, April expected to be worse
  • Q1 GDP, March activity data due Monday at 0200 GMT
  • C.bank expected to ease policy to cushion slowdown

BEIJING, April 17 (Reuters) – China is expected to report a sharp deterioration in economic activity in March as COVID-19 outbreaks and lockdowns hit consumers and factories, although first-quarter growth may have perked up due to a strong start early in the year.

Data on Monday is expected to show gross domestic product (GDP) grew 4.4 in January-March from a year earlier, a Reuters poll showed, outpacing the fourth-quarter’s 4.0% pace due to a surprisingly solid start in the first two months.

But on a quarterly basis, GDP growth is forecast to fall to 0.6% in the first quarter from 1.6% in October-December, the poll showed, pointing to cooling momentum.

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Separate data on March activity, especially retail sales, is likely to show an even sharper slowdown, analysts say, hit hard by China’s strict efforts to contain its biggest COVID outbreak since the coronavirus was first discovered in the city of Wuhan in late 2019.

Analysts say April readings will likely be worse, with lockdowns in commercial centre Shanghai and elsewhere dragging on. Some economists say the risks of a recession are rising.

The government is due to release the Q1 and March figures on Monday at 0200 GMT, with investor speculation mounting over whether there will be more moves to stimulate the economy.

Late on Friday, China’s central bank said it would cut the amount of cash that banks must hold as reserves for the first time this year, releasing about 530 billion yuan ($83.25 billion) in long-term liquidity. read more

The move was largely expected after the State Council, or cabinet, said on Wednesday that monetary policy tools – including cuts in banks’ reserve requirement ratios (RRRs) – should be used in a timely way.

Policymakers need to ensure nothing goes wrong before a twice-a-decade meeting of the ruling Communist Party in autumn, when President Xi Jinping is almost certain to secure a precedent-breaking third term as leader, policy insiders said.

But Beijing’s strict zero tolerance policy on COVID-19 is taking an increasing toll on the world’s second-largest economy, and is starting to disrupt supply chains globally ranging from cars to iPhones. read more

“In the run-up to the Party Congress, we think the central bank will prioritise growth, especially as the COVID battle drags on and housing markets fail to rebound,” analysts at Barclays said in a note.

Retail sales, a gauge of consumption which has been lagging since COVID-19 first hit, likely shrank 1.6% in March from a year earlier. That would be the worst showing since June 2020, reversing a 6.7% rise in the first two months, the poll showed.

Industrial output likely grew 4.5% in March from a year earlier, slowing from 7.5% in the first two months, while fixed-asset investment may have expanded 8.5% in the January-March, slowing from 12.2% in the first two months.

The Reuters poll forecast China’s growth to slow to 5.0% in 2022, suggesting the government faces an uphill battle in hitting this year’s target of around 5.5%. read more

Barclays estimates that the second-quarter GDP growth could dip to 3%, dragging 2022 growth to 4.2%, if Shanghai’s extended lockdown were to last for one month and partial lockdowns in the rest of the country remained in place for two months.

Reflecting weakening domestic demand and COVID-related logistical snarls, China’s imports contracted in March, while exports — the last major growth driver — are showing signs of fatigue. read more

The government has unveiled more fiscal stimulus this year, including stepping up local bond issuance to fund infrastructure projects, and cutting taxes for businesses.

But analysts are not sure if rate cuts would do much to arrest the economic slump in the near term, as factories and businesses struggle and consumers remain cautious about spending. More aggressive easing could also trigger capital outflows, putting more pressure on Chinese financial markets.

“I don’t think this RRR cut (on Friday) matters that much for the economy at this stage,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, noting it was less than markets had expected.

“The main challenge the economy faces is the Omicron outbreaks and the lockdown policies that restrict mobility. More liquidity may help on the margin, but it doesn’t address the root of the problem. Manufacturers face the daunting risk of supply chain disruptions.

“Unless we see effective policies to address the mobility problem, the economy will slow. I expect GDP growth in Q2 to turn negative.”

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Reporting by Kevin Yao; Editing by Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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How Tech Companies Are Trying to Woo Employees Returning to Work

When Google employees returned to their mostly empty offices this month, they were told to relax. Office time should be “not only productive but also fun.” Explore the place a little. Don’t book back-to-back meetings.

Also, don’t forget to attend the private show by Lizzo, one of the hottest pop stars in the country. If that’s not enough, the company is also planning “pop-up events” that will feature “every Googler’s favorite duo: food and swag.”

But Google employees in Boulder, Colo., were still reminded of what they were giving up when the company gave them mouse pads with the image of a sad-eyed cat. Underneath the pet was a plea: “You’re not going to RTO, right?”

R.T.O., for return to office, is an abbreviation born of the pandemic. It is a recognition of how Covid-19 forced many companies to abandon office buildings and empty cubicles. The pandemic proved that being in the office does not necessarily equal greater productivity, and some firms continued to thrive without meeting in person.

a happy hour with its chief executive, Cristiano Amon, at its San Diego offices for several thousand employees with free food, drink and T-shirts. The company also started offering weekly events such as pop-up snack stands on “Take a Break Tuesday” and group fitness classes for “Wellness Wednesday.”

the surveys, is that employees want to see colleagues in person.

After a number of postponements, Google kicked off its hybrid work schedule on April 4, requiring most employees to show up at U.S. offices a few days a week. Apple started easing staff back to the office on Monday, with workers expected to check in at the office once a week at first.

reimburse $49 monthly leases for an electric scooter as part of its transportation options for staff. Google also plans to also start experimenting with different office designs to adapt to changing work styles.

When Microsoft employees returned to their offices in February as part of a hybrid work schedule, they were greeted with “appreciation events” and lawn games such as cornhole and life-size chess. There were classes for spring basket making and canvas painting. The campus pub transformed into a beer, wine and “mocktail” garden.

And, of course, there was free food and drink: pizzas, sandwiches and specialty coffees. Microsoft paid for food trucks with offerings including fried chicken, tacos, gyros, Korean food and barbecue.

Unlike other technology companies, Microsoft expects employees to pay for their own food at the office. One employee marveled at how big a draw the free food was.

signed a letter urging management to be more open to flexible work arrangements. It was a rare show of dissent from the company’s rank-and-file, who historically have been less willing to openly challenge executives on workplace matters.

But as tech companies grapple with offering employees greater work flexibility, the firms are also scaling back some office perks.

cutting back or eliminating free services like laundry and dry cleaning. Google, like some other companies, has said it approved requests from thousands of employees to work remotely or transfer to a different office. But if employees move to a less expensive location, Google is cutting pay, arguing that it has always factored in where a person was hired in setting compensation.

Clio, a legal software company in Burnaby, British Columbia, won’t force its employees back to the office. But last week, it gave a party at its offices.

There was upbeat music. There was an asymmetrical balloon sculpture in Clio’s signature bright blue, dark blue, coral and white — perfect for selfies. One of Clio’s best-known workers donned a safari costume to give tours of the facility. At 2 p.m., the company held a cupcake social.

To make its work spaces feel more like home, the company moved desks to the perimeter, allowing Clions — what the company calls its employees — to gaze out at the office complex’s cherry blossoms while banging out emails. A foosball table was upgraded to a workstation with chairs on either end, “so you could have a meeting while playing foosball with your laptop on it,” said Natalie Archibald, Clio’s vice president of people.

Clio’s Burnaby office, which employs 350, is open at only half capacity. Spaced-out desks must be reserved, and employees got red, yellow and green lanyards to convey their comfort levels with handshakes.

Only around 60 people came in that Monday. “To be able to have an IRL laugh rather than an emoji response,” Ms. Archibald said. “People are just excited for that.”

Karen Weise contributed reporting.

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As Fed Prepares to Raise Rates, Global Economy Sinks Deeper Into Turmoil 

Jason Furman, an economist at Harvard University, said many forecasters had been doing what investors sometimes refer to as “pricing to perfection”: assuming that everything is going to go well, even if that is not the most likely outcome.

“You can look at the individual items: There’s been a lot of: What if inflation in X, Y, Z goes down?” he said. “And not: What if inflation in A, B, C goes up?”

Many of the factors prompting economists to mark up their inflation forecasts now are not even tied to supply chains.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, recently revised up his inflation projections because rent costs are rising so rapidly in the Consumer Price Index. Between that and wage growth, he thinks, high inflation will last unless the Fed intervenes.

“For a while, inflation forecasters had been anticipating that the goods side of things would return to more normal dynamics” just as service prices, like rent, began to increase, he said. Services prices have indeed picked up, but normalization in good prices keeps getting “pushed out.”

Consumers continue to spend a bigger share of their budgets on goods instead of services — purchases like travel and manicures — compared with before the pandemic. That has meant global producers are still struggling to keep up with demand. Even potentially short-lived disruptions, like the ones taking place in China, can add to a snowball of delays and shortages.

Data released this month showed that the U.S. trade deficit hit a record in January, the height of the Omicron wave, in part because of surging imports of cars and energy. The average time to ship a container from a Chinese factory to a U.S. warehouse had stretched to 82 days in February, according to Freightos, a logistics platform, up from 45 days two years before.

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WASHINGTON, Feb 25 (Reuters) – The Federal Reserve’s preferred measure of inflation rose again in January and a new report from the central bank warned that price pressures could persist unless a shortage of available workers begins to ease.

The new inflation data, alongside the developing sense at the central bank that inflation may prove harder than anticipated to dislodge, will likely firm the central bank’s intent to raise interest rates through the year, beginning with an initial hike in March from the current near zero level.

Policymakers will have to weigh one fresh and unanticipated set of risks in their discussion: The Russian military invasion of Ukraine could roil the economic outlook in unpredictable ways, and potentially undermine global growth and financial markets.

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But Fed officials say that’s unlikely to shift their immediate plans to begin tightening monetary policy in response to inflation that is not only high but continues moving higher.

The personal consumption expenditures price index rose at a 6.1% annual rate through January, its highest since 1982 and more than triple the 2% inflation rate the Fed has set as its target for the U.S. economy. read more

That measure of annual inflation, reported monthly by the government, has been as higher or higher than in the prior month for 14 straight months – a run not seen since the 1970s and a blow to arguments commonly heard at the Fed last year that rising prices would prove “transitory” and disappear as the economy reopened.

The month-to-month change in the same index, watched by some officials as a signal of moderation, showed no sign of easing.

Reuters Graphics

“EXCEEDINGLY HOT?”

The Fed is set to raise interest rates when it meets on March 15-16. Officials have been debating whether the initial “liftoff” should be a standard quarter point increase, or a larger half point hike to demonstrate the Fed’s seriousness in controlling prices.

On Thursday, Fed Governor Christopher Waller flagged Friday’s PCE inflation report as one to watch, saying if it shows “the economy is still running exceedingly hot, a strong case can be made for a 50-basis-point hike in March.” read more

For now at least the data are not only hot but getting hotter: Since September the PCE index has jumped in steady increments from 4.4% to 6.1%, and has either risen or held level with the prior month in each report since November 2020.

An eagle tops the U.S. Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

In the Fed’s latest monetary policy report to Congress, issued twice a year, central bank officials acknowledged that inflation had not eased as they expected, but in fact had broadened through the economy.

The “extraordinary circumstances” which the Fed had said last July were driving higher prices had given way to other dynamics, the report said, particularly a workforce falling far short of the numbers demanded by businesses to fill open positions.

“In the period ahead, the large price changes in goods may ease once supply chain disruptions finally resolve,” the Fed report stated. “But, if labor shortages continue and wages rise faster than productivity in a broad-based way, inflation pressures may persist and continue to broaden.”

Fed officials have largely downplayed the risk of a durable “wage price spiral.”

But they’ve also been surprised by much of what’s happened during the reopening from the pandemic.

The rapid spread of the Omicron coronavirus variant was expected to slow hiring and spending through the winter. It didn’t happen. Job growth continued, and new spending data released on Friday showed consumer spending exceeded expectations.

Now the virus is fading and Fed officials anticipate a renewed sense of reopening in society and the economy will keep growth strong.

Trading in futures contracts based on expectations of Fed policy show investors downplaying the chance now of a half-point increase.

But the PCE report is still moving in the wrong direction for Fed officials hoping to avoid the most aggressive measures to control inflation.

“Though diminished, the chance of a 50bp move is still intact,” wrote III Capital Chief Economist Karim Basta. Inflation at 6% “would definitely qualify as hot.”

The main factor tempering arguments for a faster move by the Fed is the economic fallout from Russia’s invasion of Ukraine. That could for a variety of reasons drive prices higher; it could also pose risks to global economic growth, or rattle financial markets in a way that could make the Fed less inclined to raise rates as fast as it would otherwise.

With the incursions less than 48 hours old that analysis was just beginning.

“In theory, the war has two contrasting effects on Fed policy: It could stoke inflation…and it could slow economic growth,” wrote Piper Sandler macro analysts Roberto Perli and Benson Durham. “The Fed is likely to be more concerned about the latter than the former…The war will not delay liftoff…But it could well result in fewer rate hikes this year than the market is currently pricing.”

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Reporting by Howard Schneider;
Editing by Dan Burns and Andrea Ricci

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Service Properties Trust Announces Fourth Quarter 2021 Results

NEWTON, Mass.–(BUSINESS WIRE)–Service Properties Trust (Nasdaq: SVC) today announced its financial results for the quarter ended December 31, 2021.

John Murray, President and Chief Executive Officer of SVC, made the following statement:

The fourth quarter marked a period of stability in the overall recovery for SVC’s hotel portfolio, as normal seasonality and the impact of the Omicron variant late in the quarter were offset by solid extended stay occupancy and continued leisure demand. SVC’s comparable RevPAR for the 2021 fourth quarter came in ahead of our expectations at 72.1% of the pre-COVID-19 comparable RevPAR for the 2019 fourth quarter. With weekly COVID-19 cases again on the decline, we expect to benefit from a rebound in business travel in the coming quarters, particularly at our full service hotels as urban centers re-open. Our net lease portfolio continues to provide steady cash flows driven by our diverse mix of tenants and industries.

We have either closed or are under contract for $430 million of our previously announced hotel sales at pricing that has been in line with our expectations. We expect these and the balance of the announced sales to close over the next few months. Approximately 72.1% of the sale hotels will be sold encumbered by Sonesta branding, maintaining Sonesta’s distribution and jump starting franchising of the Sonesta brands, which we believe will benefit SVC. With expected proceeds from our hotel sales of over $560 million, over $940 million of cash on our balance sheet and positive cash flow from our hotel portfolio before capital expenditures, we believe we have sufficient liquidity and financial flexibility to address our upcoming debt maturities, as well as an improved hotel portfolio that is well positioned to benefit SVC as lodging trends continue to rebound.”

 

Results for the Quarter Ended December 31, 2021:

 

 

Three Months Ended December 31,

 

 

2021

 

 

 

2020

 

 

($ in thousands, except per share data)

Net loss

$

(198,793

)

 

$

(137,740

)

Net loss per common share

$

(1.21

)

 

$

(0.84

)

Normalized FFO (1)

$

27,936

 

 

$

(22,474

)

Normalized FFO per common share (1)

$

0.17

 

 

$

(0.14

)

Adjusted EBITDAre (1)

$

118,997

 

 

$

64,953

 

(1) Additional information and reconciliations of net loss determined in accordance with U.S. generally accepted accounting principles, or GAAP, to certain non-GAAP measures, including FFO, Normalized FFO, EBITDA, EBITDAre and Adjusted EBITDAre for the quarters ended December 31, 2021 and 2020 appear later in this press release.

 

Hotel Portfolio:

As of December 31, 2021, SVC’s 303 hotels were operated by subsidiaries of Sonesta Holdco Corporation, or Sonesta (261 hotels), Hyatt Hotels Corporation, or Hyatt (17 hotels), Radisson Hospitality, Inc., or Radisson (eight hotels), Marriott International, Inc., or Marriott (16 hotels), and InterContinental Hotels Group, plc, or IHG (one hotel).

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

 

2021

 

 

 

2020

 

 

Change

 

 

2021

 

 

 

2020

 

 

Change

 

 

($ in thousands, except hotel statistics)

Comparable Hotels

 

 

 

 

 

 

 

 

 

 

 

 

No. of hotels

 

 

298

 

 

 

298

 

 

 

 

 

280

 

 

 

280

 

 

 

No. of rooms or suites

 

 

46,920

 

 

 

46,920

 

 

 

 

 

42,101

 

 

 

42,101

 

 

 

Occupancy

 

 

55.9

%

 

 

39.9

%

 

16.0 pts

 

 

54.2

%

 

 

44.1

%

 

10.1 pts

ADR

 

$

110.26

 

 

$

87.30

 

 

26.3

%

 

$

98.07

 

 

$

96.84

 

 

1.3

%

Hotel RevPAR

 

$

61.64

 

 

$

34.83

 

 

77.0

%

 

$

53.15

 

 

$

42.71

 

 

24.4

%

Hotel operating revenues (1)

 

$

303,507

 

 

$

166,843

 

 

81.9

%

 

$

884,460

 

 

$

726,757

 

 

21.7

%

Hotel operating expenses (1)

 

$

267,182

 

 

$

193,329

 

 

38.2

%

 

$

822,470

 

 

$

727,724

 

 

13.0

%

Hotel EBITDA (1)

 

$

36,325

 

 

$

(26,486

)

 

n/m

 

 

$

61,990

 

 

$

(967

)

 

n/m

 

Adjusted Hotel EBITDA (1)

 

$

36,325

 

 

$

(26,817

)

 

n/m

 

 

$

61,990

 

 

$

(1,298

)

 

n/m

 

Hotel EBITDA margin

 

 

12.0

%

 

 

(16.1

) %

 

n/m

 

 

 

7.0

%

 

 

(0.2

) %

 

n/m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Hotels (2)

 

 

 

 

 

 

 

 

 

 

 

 

No. of hotels

 

 

303

 

 

 

310

 

 

(7

)

 

 

303

 

 

 

310

 

 

(7

)

No. of rooms or suites

 

 

48,346

 

 

 

49,014

 

 

(668

)

 

 

48,346

 

 

 

49,014

 

 

(668

)

Occupancy

 

 

55.2

%

 

 

39.8

%

 

15.4 pts

 

 

53.0

%

 

 

42.0

%

 

11.0 pts

ADR

 

$

112.30

 

 

$

87.53

 

 

28.3

%

 

$

105.36

 

 

$

100.77

 

 

4.6

%

Hotel RevPAR

 

$

61.99

 

 

$

34.84

 

 

77.9

%

 

$

55.84

 

 

$

42.32

 

 

31.9

%

Hotel operating revenues (1)

 

$

317,215

 

 

$

176,418

 

 

79.8

%

 

$

1,104,678

 

 

$

888,741

 

 

24.3

%

Hotel operating expenses (1)

 

$

288,825

 

 

$

206,521

 

 

39.9

%

 

$

1,033,463

 

 

$

943,064

 

 

9.6

%

Hotel EBITDA (1)

 

$

28,390

 

 

$

(30,103

)

 

n/m

 

 

$

71,215

 

 

$

(54,323

)

 

n/m

 

Adjusted Hotel EBITDA (1)

 

$

28,390

 

 

$

(26,141

)

 

n/m

 

 

$

71,215

 

 

$

(50,361

)

 

n/m

 

Hotel EBITDA margin

 

 

8.9

%

 

 

(3.1

) %

 

n/m

 

 

 

6.4

%

 

 

(5.7

) %

 

n/m

 

(1) Reconciliations of hotel operating revenues and hotel operating expenses used to determine Hotel EBITDA and Adjusted Hotel EBITDA from hotel operating revenues and hotel operating expenses determined in accordance with GAAP for the quarters ended December 31, 2021 and 2020 appear later in this press release.

(2) Results of all hotels as owned during the periods presented, including the results of hotels sold by SVC for the period owned by SVC.

 

Recent operating statistics for SVC’s hotels are as follows:

 

Comparable Hotels

 

 

 

298 Hotels, 46,919 rooms

 

2021 vs 2019

 

 

Occupancy

 

Average Daily Rate

 

RevPAR

 

Occupancy

 

Average Daily Rate

 

RevPAR

October

 

61.3 %

 

$114.35

 

$70.10

 

(16.6) pts

 

(13.3) %

 

(31.7) %

November

 

56.1 %

 

$107.95

 

$60.56

 

(13.4) pts

 

(12.2) %

 

(29.1) %

December

 

50.6 %

 

$107.95

 

$54.62

 

(9.1) pts

 

(6.0) %

 

(20.3) %

 
 

All Hotels

 

 

 

303 Hotels, 48,346 rooms

 

2021 vs 2019

 

 

Occupancy

 

Average Daily Rate

 

RevPAR

 

Occupancy

 

Average Daily Rate

 

RevPAR

October

 

60.5 %

 

$116.18

 

$70.29

 

(17.0) pts

 

(13.2) %

 

(32.3) %

November

 

55.4 %

 

$109.59

 

$60.71

 

(13.7) pts

 

(12.0) %

 

(29.5) %

December

 

50.1 %

 

$110.64

 

$55.43

 

(9.4) pts

 

(5.8) %

 

(20.7) %

 

For SVC’s 302 hotels owned as of February 24, 2022, January 2022 occupancy, ADR and RevPAR were 45.6%, $105.11 and $47.93, respectively.

Hotel Agreements:

As previously announced, on January 7, 2022, SVC and Sonesta amended and restated their management agreements effective January 1, 2022. The amendments to the agreements are substantially the same as those made earlier in 2021 to the agreements for SVC’s Hyatt and Radisson portfolios and the amendments made to SVC’s agreements with Sonesta in 2020 for certain Sonesta hotels. As of January 1, 2022, SVC owned 261 hotels managed by Sonesta and 67 of these hotels are expected to be sold, or the sale hotels. Among other things, the amendments to the agreements between SVC and Sonesta for 194 hotels, or the retained hotels, are as follows:

For the sale hotels, the term was extended to the earlier of December 31, 2022 or until the hotels are sold and the FF&E reserve funding requirement was removed. SVC’s owner’s priority return will be reduced by the current owner’s priority return for a sale hotel once sold. The total owner’s priority for all the sale hotels is $84.7 million.

Net Lease Retail Portfolio:

SVC’s net lease retail portfolio is summarized as follows:

 

 

 

As of December 31, 2021

Number of properties

 

788

Industries

 

21

Tenants

 

174

Brands

 

134

Square feet

 

13.5 million

Occupancy

 

98.1%

Weighted average lease term (by annual minimum rent)

 

10.2 years

Rent Coverage

 

2.58x

 

During the quarter ended December 31, 2021, SVC reduced its reserve for uncollectible revenues by $0.6 million for certain of its net lease tenants. During the quarter ended December 31, 2020, SVC recorded reserves for uncollectible revenues of $4.5 million for certain of its net lease tenants.

Recent Investment Activities:

During the quarter ended December 31, 2021, SVC sold one hotel with 93 keys for a sales price of $8.5 million, excluding closing costs, and six net lease properties with an aggregate of 52,596 rentable square feet for an aggregate sales price of $9.1 million, excluding closing costs. In January 2022, SVC sold 1 hotel with 295 keys for a sales price of $19.0 million, excluding closing costs.

SVC has entered into agreements to sell 45 Sonesta branded hotels (35 extended stay hotels with 4,185 keys, 9 select service hotels with 1,114 keys and one full service hotels with 381 keys) located in 21 states with an aggregate net carrying value of $352.5 million as of December 31, 2021 for an aggregate sales price of $402.4 million. SVC expects to enter agreements to sell 19 additional Sonesta branded hotels with 2,420 keys with an aggregate carrying value of $125.6 million as of December 31, 2021 for an aggregate sales price of $131.9 million. SVC expects these sales to be completed by the end of the second quarter of 2022. SVC continues to market two additional hotels with 272 keys for sale. SVC currently expects that approximately 72.1% of the sale hotels will be sold encumbered by Sonesta branding, maintaining Sonesta’s distribution and jump-starting franchising of the Sonesta brands, which SVC believes it will benefit from through its 34% ownership of Sonesta.

Capital expenditures made at certain of SVC’s properties for the quarter ended December 31, 2021 were $30.4 million.

Liquidity and Financing Activities:

As of December 31, 2021, SVC had $944.0 million of cash and cash equivalents.

SVC’s $1 billion revolving credit facility matures on July 15, 2022 and SVC is currently in discussions with its lenders regarding an extension of the maturity date of the facility and additional covenant waivers. There is no assurance SVC will come to terms with its lenders or that it will be granted such additional covenant relief.

Conference Call:

On February 25, 2022 at 10:00 a.m. Eastern Time, John Murray, Chief Executive Officer, Brian Donley, Chief Financial Officer, and Todd Hargreaves, Chief Investment Officer, will host a conference call to discuss SVC’s fourth quarter 2021 financial results. The conference call telephone number is (877) 329-3720. Participants calling from outside the United States and Canada should dial (412) 317-5434. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through Friday, March 4, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 8820658.

A live audio webcast of the conference call will also be available in a listen-only mode on SVC’s website, www.svcreit.com. Participants wanting to access the webcast should visit SVC’s website about five minutes before the call. The archived webcast will be available for replay on SVC’s website for about one week after the call. The transcription, recording and retransmission in any way of SVC’s fourth quarter conference call is strictly prohibited without the prior written consent of SVC.

Supplemental Data:

A copy of SVC’s Fourth Quarter 2021 Supplemental Operating and Financial Data is available for download at SVC’s website, www.svcreit.com. SVC’s website is not incorporated as part of this press release.

Service Properties Trust (Nasdaq: SVC) is a real estate investment trust, or REIT, with more than $12 billion invested in two asset categories: hotels and service-focused retail net lease properties. As of December 31, 2021, SVC owned 303 hotels with over 48,000 guest rooms throughout the United States and in Puerto Rico and Canada, the majority of which are extended stay and select service. As of December 31, 2021, SVC also owned 788 retail service-focused net lease properties totaling over 13 million square feet throughout United States. SVC is managed by The RMR Group (Nasdaq: RMR), an alternative asset management company with more than $33 billion in assets under management as of December 31, 2021 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. SVC is headquartered in Newton, MA. For more information, visit www.svcreit.com.

Non-GAAP Financial Measures and Certain Definitions:

SVC presents certain “non-GAAP financial measures” within the meaning of the applicable Securities and Exchange Commission, or SEC, rules, including funds from operations, or FFO, Normalized FFO, earnings before interest, taxes, depreciation and amortization, or EBITDA, Hotel EBITDA, Adjusted Hotel EBITDA, EBITDA for real estate, or EBITDAre, and Adjusted EBITDAre. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of SVC’s operating performance or as measures of SVC’s liquidity. These measures should be considered in conjunction with net income (loss) as presented in SVC’s consolidated statements of income (loss). SVC considers these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). SVC believes these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of SVC’s operating performance between periods and with other REITs and, in the case of Hotel EBITDA, reflecting only those income and expense items that are generated and incurred at the hotel level may help both investors and management to understand the operations of SVC’s hotels.

Please see the pages attached hereto for a more detailed statement of SVC’s operating results and financial condition and for an explanation of SVC’s calculation of FFO and Normalized FFO, EBITDA, Hotel EBITDA, Adjusted Hotel EBITDA, EBITDAre and Adjusted EBITDAre and a reconciliation of those amounts to amounts determined in accordance with GAAP.

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy is an important measure of the utilization rate and demand of SVC’s hotels.

Average Daily Rate, or ADR, represents rooms revenue divided by the total number of room nights sold in a given period. ADR provides useful insight on pricing at SVC’s hotels and is a measure widely used in the hotel industry.

Revenue per Available Room, or RevPAR, represents rooms revenue divided by the total number of room nights available to guests for a given period. RevPAR is an industry metric correlated to occupancy and ADR and helps measure revenue performance over comparable periods.

Hotel EBITDA and Adjusted Hotel EBITDA: Hotel EBITDA is calculated as hotel operating revenues less hotel operating expenses of all managed and leased hotels, prior to any adjustments required for presentation in SVC’s consolidated statements of income (loss) in accordance with GAAP. In calculating Adjusted EBITDAre, SVC adjusts for the items shown on page 12.

Hotel EBITDA Margin and Adjusted Hotel EBITDA Margin: Hotel EBITDA Margin is Hotel EBITDA as a percentage of hotel operating revenues. Adjusted Hotel EBITDA Margin is Adjusted Hotel EBITDA as a percentage of hotel operating expenses.

Comparable Hotels Data: SVC presents RevPAR, ADR, and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. SVC generally defines comparable hotels as those that were owned by it on December 31, 2021 and were open and operating for the entire periods being compared. For the three months ended December 31, 2021 and 2020, SVC’s comparable results excluded five hotels that had suspended operations during part of the periods presented. For the year ended December 31, 2021 and 2020, SVC’s comparable results excluded 23 hotels that had suspended operations during part of the periods presented.

Rent Coverage: SVC defines Rent Coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to SVC weighted by the minimum rent of the property to total minimum rents of the net lease portfolio. EBITDAR amounts used to determine rent coverage are generally for the latest twelve-month period reported based on the most recent operating information, if any, furnished by the tenant. Operating statements furnished by the tenant often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by SVC. Tenants that do not report operating information are excluded from the rent coverage calculations. In instances where SVC does not have financial information for the most recent quarter from its tenants, it has calculated an implied EBITDAR for the 2021 fourth quarter using industry benchmark data to reflect current operating trends. SVC believes using this industry benchmark data provides a reasonable estimate of recent operating results and rent coverage for those tenants.

 

SERVICE PROPERTIES TRUST

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

(unaudited)

 

 

 

As of December 31,

 

 

 

2021

 

 

 

2020

 

ASSETS

 

 

 

 

Real estate properties:

 

 

 

 

Land

 

$

1,918,385

 

 

$

2,030,440

 

Buildings, improvements and equipment

 

 

8,307,248

 

 

 

9,131,832

 

Total real estate properties, gross

 

 

10,225,633

 

 

 

11,162,272

 

Accumulated depreciation

 

 

(3,281,659

)

 

 

(3,280,110

)

Total real estate properties, net

 

 

6,943,974

 

 

 

7,882,162

 

Acquired real estate leases and other intangibles, net

 

 

283,241

 

 

 

325,845

 

Assets held for sale

 

 

515,518

 

 

 

13,543

 

Cash and cash equivalents

 

 

944,043

 

 

 

73,332

 

Restricted cash

 

 

3,375

 

 

 

18,124

 

Due from related persons

 

 

48,168

 

 

 

55,530

 

Other assets, net

 

 

414,996

 

 

 

318,783

 

Total assets

 

$

9,153,315

 

 

$

8,687,319

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Revolving credit facility

 

$

1,000,000

 

 

$

78,424

 

Senior unsecured notes, net

 

 

6,143,022

 

 

 

6,130,166

 

Accounts payable and other liabilities

 

 

433,448

 

 

 

345,373

 

Due to related persons

 

 

21,539

 

 

 

30,566

 

Total liabilities

 

 

7,598,009

 

 

 

6,584,529

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 165,092,333 and 164,823,833 shares issued and outstanding, respectively

 

 

1,651

 

 

 

1,648

 

Additional paid in capital

 

 

4,552,558

 

 

 

4,550,385

 

Cumulative other comprehensive income (loss)

 

 

779

 

 

 

(760

)

Cumulative net income available for common shareholders

 

 

2,635,660

 

 

 

3,180,263

 

Cumulative common distributions

 

 

(5,635,342

)

 

 

(5,628,746

)

Total shareholders’ equity

 

 

1,555,306

 

 

 

2,102,790

 

Total liabilities and shareholders’ equity

 

$

9,153,315

 

 

$

8,687,319

 

 
 

SERVICE PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

 

Year Ended

December 31,

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Hotel operating revenues (1)

 

$

317,215

 

 

$

174,520

 

 

$

1,104,678

 

 

$

875,098

 

Rental income (2)

 

 

104,160

 

 

 

95,523

 

 

 

390,902

 

 

 

390,156

 

Total revenues

 

 

421,375

 

 

 

270,043

 

 

 

1,495,580

 

 

 

1,265,254

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expenses (1)(3)

 

 

286,968

 

 

 

189,898

 

 

 

1,010,737

 

 

 

682,804

 

Other operating expenses

 

 

3,900

 

 

 

4,179

 

 

 

15,658

 

 

 

15,208

 

Depreciation and amortization

 

 

115,757

 

 

 

121,351

 

 

 

485,965

 

 

 

498,908

 

General and administrative

 

 

12,601

 

 

 

13,046

 

 

 

53,439

 

 

 

50,668

 

Transaction related costs (4)

 

 

35,830

 

 

 

15,100

 

 

 

64,764

 

 

 

15,100

 

Loss on asset impairment (5)

 

 

76,510

 

 

 

254

 

 

 

78,620

 

 

 

55,756

 

Total expenses

 

 

531,566

 

 

 

343,828

 

 

 

1,709,183

 

 

 

1,318,444

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate, net (6)

 

 

588

 

 

 

11,916

 

 

 

11,522

 

 

 

2,261

 

Unrealized gain on equity securities, net (7)

 

 

2,168

 

 

 

15,473

 

 

 

22,535

 

 

 

19,882

 

Gain on insurance settlement (8)

 

 

 

 

 

 

 

 

 

 

 

62,386

 

Interest income

 

 

177

 

 

 

1

 

 

 

664

 

 

 

284

 

Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $5,913, $4,220, $21,036 and $14,870, respectively)

 

 

(92,494

)

 

 

(82,811

)

 

 

(365,721

)

 

 

(306,490

)

Loss on early extinguishment of debt (9)

 

 

 

 

 

(2,424

)

 

 

 

 

 

(9,394

)

Loss before income taxes and equity in losses of an investee

 

 

(199,752

)

 

 

(131,630

)

 

 

(544,603

)

 

 

(284,261

)

Income tax benefit (expense) (8)

 

 

1,950

 

 

 

(505

)

 

 

941

 

 

 

(17,211

)

Equity in losses of an investee (10)

 

 

(991

)

 

 

(5,605

)

 

 

(941

)

 

 

(9,910

)

Net loss

 

$

(198,793

)

 

$

(137,740

)

 

$

(544,603

)

 

$

(311,382

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

 

164,667

 

 

 

164,498

 

 

 

164,566

 

 

 

164,422

 

 

 

 

 

 

 

 

 

 

Net loss per common share (basic and diluted)

 

$

(1.21

)

 

$

(0.84

)

 

$

(3.31

)

 

$

(1.89

)

 
See Notes  
 

SERVICE PROPERTIES TRUST

RECONCILIATIONS OF FUNDS FROM OPERATIONS, NORMALIZED FUNDS

FROM OPERATIONS

(amounts in thousands, except per share data)

(unaudited)

 

 

Three Months Ended
December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Calculation of FFO and Normalized FFO: (11)

 

 

 

 

 

 

 

Net loss

$

(198,793

)

 

$

(137,740

)

 

$

(544,603

)

 

$

(311,382

)

Add (Less): Depreciation and amortization

 

115,757

 

 

 

121,351

 

 

 

485,965

 

 

 

498,908

 

Loss on asset impairment (5)

 

76,510

 

 

 

254

 

 

 

78,620

 

 

 

55,756

 

Gain on sale of real estate, net (6)

 

(588

)

 

 

(11,916

)

 

 

(11,522

)

 

 

(2,261

)

Unrealized gain on equity securities, net (7)

 

(2,168

)

 

 

(15,473

)

 

 

(22,535

)

 

 

(19,882

)

Adjustments to reflect SVC’s share of FFO attributable to an investee (10)

 

737

 

 

 

400

 

 

 

2,605

 

 

 

(61

)

FFO

 

(8,545

)

 

 

(43,124

)

 

 

(11,470

)

 

 

221,078

 

 

 

 

 

 

 

 

 

Add (Less): Transaction related costs (4)

 

35,830

 

 

 

15,100

 

 

 

64,764

 

 

 

15,100

 

Loss contingency (13)

 

 

 

 

3,962

 

 

 

 

 

 

3,962

 

Gain on insurance settlement, net of tax (8)

 

 

 

 

(1,800

)

 

 

 

 

 

(48,536

)

Loss on early extinguishment of debt (9)

 

 

 

 

2,424

 

 

 

 

 

 

9,394

 

Adjustments to reflect SVC’s share of Normalized FFO attributable to an investee (10)

 

651

 

 

 

964

 

 

 

2,270

 

 

 

964

 

Normalized FFO

$

27,936

 

 

$

(22,474

)

 

$

55,564

 

 

$

201,962

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

164,667

 

 

 

164,498

 

 

 

164,566

 

 

 

164,422

 

 

 

 

 

 

 

 

 

Basic and diluted per common share amounts:

 

 

 

 

 

 

 

Net loss per share

$

(1.21

)

 

$

(0.84

)

 

$

(3.31

)

 

$

(1.89

)

FFO

$

(0.05

)

 

$

(0.26

)

 

$

(0.07

)

 

$

1.34

 

Normalized FFO

$

0.17

 

 

$

(0.14

)

 

$

0.34

 

 

$

1.23

 

Distributions declared per share

$

0.01

 

 

$

0.01

 

 

$

0.04

 

 

$

0.57

 

 
See Notes  
 

SERVICE PROPERTIES TRUST

RECONCILIATIONS OF EBITDA, EBITDAre AND ADJUSTED EBITDAre

(amounts in thousands, except per share data)

(unaudited)

 

 

Three Months Ended
December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Calculation of EBITDA, EBITDAre and Adjusted EBITDAre:(12)

 

 

 

 

 

 

 

Net loss

$

(198,793

)

 

$

(137,740

)

 

$

(544,603

)

 

$

(311,382

)

Add (Less): Interest expense

 

92,494

 

 

 

82,811

 

 

 

365,721

 

 

 

306,490

 

Income tax (benefit) expense (8)

 

(1,950

)

 

 

505

 

 

 

(941

)

 

 

17,211

 

Depreciation and amortization

 

115,757

 

 

 

121,351

 

 

 

485,965

 

 

 

498,908

 

EBITDA

 

7,508

 

 

 

66,927

 

 

 

306,142

 

 

 

511,227

 

Add (Less): Loss on asset impairment (5)

 

76,510

 

 

 

254

 

 

 

78,620

 

 

 

55,756

 

Gain on sale of real estate, net (6)

 

(588

)

 

 

(11,916

)

 

 

(11,522

)

 

 

(2,261

)

Adjustments to reflect SVC’s share of EBITDAre attributable to an investee (10)

 

781

 

 

 

 

 

 

2,904

 

 

 

 

EBITDAre

 

84,211

 

 

 

55,265

 

 

 

376,144

 

 

 

564,722

 

Add (Less): Transaction related costs (4)

 

35,830

 

 

 

15,100

 

 

 

64,764

 

 

 

15,100

 

Unrealized gain on equity securities, net (7)

 

(2,168

)

 

 

(15,473

)

 

 

(22,535

)

 

 

(19,882

)

Gain on insurance settlement (8)

 

 

 

 

 

 

 

 

 

 

(62,386

)

Loss on early extinguishment of debt (9)

 

 

 

 

2,424

 

 

 

 

 

 

9,394

 

Adjustments to reflect SVC’s share of Adjusted EBITDAre attributable to an investee (10)

 

651

 

 

 

2,755

 

 

 

2,270

 

 

 

1,751

 

General and administrative expense paid in common shares (14)

 

473

 

 

 

920

 

 

 

2,963

 

 

 

3,206

 

Loss contingency (13)

 

 

 

 

3,962

 

 

 

 

 

 

3,962

 

Adjusted EBITDAre

$

118,997

 

 

$

64,953

 

 

$

423,606

 

 

$

515,867

 

 

 

 

 

 

 

 

 

See Notes  
 

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA AND ADJUSTED HOTEL EBITDA

Comparable Hotels

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

 

Year Ended

December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Number of hotels

 

298

 

 

 

298

 

 

 

280

 

 

 

280

 

Room revenues

$

263,312

 

 

$

150,226

 

 

$

812,506

 

 

$

656,990

 

Food and beverage revenues

 

28,700

 

 

 

7,707

 

 

 

44,517

 

 

 

41,787

 

Other revenues

 

11,495

 

 

 

8,910

 

 

 

27,437

 

 

 

27,980

 

Hotel operating revenues – comparable hotels

 

303,507

 

 

 

166,843

 

 

 

884,460

 

 

 

726,757

 

Rooms expenses

 

85,800

 

 

 

56,857

 

 

 

267,010

 

 

 

223,641

 

Food and beverage expenses

 

23,458

 

 

 

9,598

 

 

 

38,393

 

 

 

43,535

 

Other direct and indirect expenses

 

119,706

 

 

 

96,576

 

 

 

385,088

 

 

 

350,702

 

Management fees

 

12,139

 

 

 

2,131

 

 

 

34,590

 

 

 

5,580

 

Real estate taxes, insurance and other

 

24,843

 

 

 

27,777

 

 

 

93,343

 

 

 

94,088

 

FF&E reserves (15)

 

1,236

 

 

 

390

 

 

 

4,046

 

 

 

10,178

 

Hotel operating expenses – comparable hotels

 

267,182

 

 

 

193,329

 

 

 

822,470

 

 

 

727,724

 

 

 

 

 

 

 

 

 

Hotel EBITDA – comparable hotels

$

36,325

 

 

$

(26,486

)

 

$

61,990

 

 

$

(967

)

Loss contingency (13)

 

 

 

 

(331

)

 

 

 

 

 

(331

)

Adjusted Hotel EBITDA

$

36,325

 

 

$

(26,817

)

 

$

61,990

 

 

$

(1,298

)

Adjusted Hotel EBITDA Margin

 

12.0

%

 

 

(16.1

) %

 

 

7.0

%

 

 

(0.2

) %

 

 

 

 

 

 

 

 

Hotel operating revenues (GAAP) (1)

$

317,215

 

 

$

174,520

 

 

$

1,104,678

 

 

$

875,098

 

Add (Less):

 

 

 

 

 

 

 

Hotel operating revenues from leased hotels

 

 

 

 

1,898

 

 

 

 

 

 

13,643

 

Hotel operating revenues from non-comparable hotels

 

(13,708

)

 

 

(9,575

)

 

 

(220,218

)

 

 

(161,984

)

Hotel operating revenues – comparable hotels

$

303,507

 

 

$

166,843

 

 

$

884,460

 

 

$

726,757

 

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

286,968

 

 

$

189,898

 

 

$

1,010,737

 

 

$

682,804

 

Add (Less):

 

 

 

 

 

 

 

Hotel operating expenses from non-comparable hotels

 

(21,643

)

 

 

(13,192

)

 

 

(210,993

)

 

 

(215,340

)

Reduction for security deposit and guaranty fundings, net (3)

 

 

 

 

13,387

 

 

 

15,696

 

 

 

235,522

 

Hotel operating expenses of leased hotels

 

 

 

 

2,225

 

 

 

 

 

 

11,074

 

FF&E reserves from managed hotel operations (15)

 

1,236

 

 

 

390

 

 

 

4,546

 

 

 

11,594

 

Other (16)

 

621

 

 

 

621

 

 

 

2,484

 

 

 

2,070

 

Hotel operating expenses – comparable hotels

$

267,182

 

 

$

193,329

 

 

$

822,470

 

 

$

727,724

 

 
See Notes  
 

SERVICE PROPERTIES TRUST

CALCULATION AND RECONCILIATION OF HOTEL EBITDA AND ADJUSTED HOTEL EBITDA

All Hotels

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

 

Year Ended
December 31,

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

 

 

 

 

 

 

 

 

Room revenues

$

272,458

 

 

$

159,022

 

 

$

972,411

 

 

$

773,572

 

Food and beverage revenues

 

31,503

 

 

 

7,911

 

 

 

84,430

 

 

 

66,830

 

Other revenues

 

13,254

 

 

 

9,485

 

 

 

47,837

 

 

 

48,339

 

Hotel operating revenues

 

317,215

 

 

 

176,418

 

 

 

1,104,678

 

 

 

888,741

 

Rooms expenses

 

90,705

 

 

 

59,784

 

 

 

321,228

 

 

 

270,828

 

Food and beverage expenses

 

26,768

 

 

 

9,928

 

 

 

72,884

 

 

 

75,718

 

Other direct and indirect expenses

 

126,208

 

 

 

97,328

 

 

 

458,586

 

 

 

422,819

 

Management fees

 

11,869

 

 

 

2,436

 

 

 

40,478

 

 

 

8,050

 

Real estate taxes, insurance and other

 

32,039

 

 

 

36,655

 

 

 

135,741

 

 

 

154,375

 

FF&E reserves (15)

 

1,236

 

 

 

390

 

 

 

4,546

 

 

 

11,274

 

Hotel operating expenses

 

288,825

 

 

 

206,521

 

 

 

1,033,463

 

 

 

943,064

 

 

 

 

 

 

 

 

 

Hotel EBITDA

$

28,390

 

 

$

(30,103

)

 

$

71,215

 

 

$

(54,323

)

Loss contingency (13)

 

 

 

 

3,962

 

 

 

 

 

 

3,962

 

Adjusted Hotel EBITDA

$

28,390

 

 

$

(26,141

)

 

$

71,215

 

 

$

(50,361

)

Adjusted Hotel EBITDA Margin

 

8.9

%

 

 

(14.8

) %

 

 

6.4

%

 

 

(5.7

) %

 

 

 

 

 

 

 

 

Hotel operating revenues (GAAP) (1)

$

317,215

 

 

$

174,520

 

 

$

1,104,678

 

 

$

875,098

 

Add: hotel revenues of leased hotels (1)

 

 

 

 

1,898

 

 

 

 

 

 

13,643

 

Hotel operating revenues

$

317,215

 

 

$

176,418

 

 

$

1,104,678

 

 

$

888,741

 

 

 

 

 

 

 

 

 

Hotel operating expenses (GAAP) (1)

$

286,968

 

 

$

189,898

 

 

$

1,010,737

 

 

$

682,804

 

Add (Less):

 

 

 

 

 

 

 

Reduction for security deposit and guaranty fundings, net (3)

 

 

 

 

13,387

 

 

 

15,696

 

 

 

235,522

 

Hotel operating expenses of leased hotels

 

 

 

 

2,225

 

 

 

 

 

 

11,074

 

FF&E reserves from managed hotels operations (15)

 

1,236

 

 

 

390

 

 

 

4,546

 

 

 

11,594

 

Other (16)

 

621

 

 

 

621

 

 

 

2,484

 

 

 

2,070

 

Hotel operating expenses

$

288,825

 

 

$

206,521

 

 

$

1,033,463

 

 

$

943,064

 

 
See Notes  
  1. As of December 31, 2021, SVC owned 303 hotels. SVC’s consolidated statements of income (loss) include hotel operating revenues and expenses of managed hotels and rental income from leased hotels.
  2. SVC increased  rental income by $466 and reduced rental income by $416 for the three months ended December 31, 2021 and 2020, respectively, and reduced rental income by $2,621 and $714 for the years ended December 31, 2021 and 2020, respectively, to record scheduled rent changes under certain of SVC’s leases, the deferred rent obligations under SVC’s leases with TA and the estimated future payments to SVC under its leases with TA for the cost of removing underground storage tanks on a straight-line basis.
  3. When managers of SVC’s hotels are required to fund the shortfalls of minimum returns under the terms of SVC’s management agreements or their guarantees, SVC reflects such fundings (including security deposit applications) in its consolidated statements of income (loss) as a reduction of hotel operating expenses. The net reduction to hotel operating expenses was $13,387 for the three months ended December 31, 2020 and $15,697 and $235,522 for the years ended December 31, 2021 and 2020, respectively. There was no net reduction to hotel operating expenses during the three months ended December 31, 2021.
  4. Transaction related costs for the three months ended December 31, 2021 of $35,830 primarily consists of working capital advances SVC previously funded under its agreements with Marriott and IHG as a result of the amounts no longer expected to be recoverable. Transaction related costs for the year ended December 31, 2021 include $38,446 of working capital advances SVC previously funded under its agreements with Marriott, IHG and Hyatt as a result of the amounts no longer expected to be recoverable, $19,920 of hotel manager transition related costs resulting from the rebranding of 94 hotels during the period, and $6,398 of legal costs related to SVC’s arbitration proceeding with Marriott. Transaction costs for the three months and year ended December 31, 2020 primarily consisted of transition related costs resulting from the rebranding of 115 hotels previously managed by IHG, Marriott and Wyndham Hotels & Resorts, Inc. to Sonesta.
  5. SVC recorded a $76,510 loss on asset impairment during the three months ended December 31, 2021 to reduce the carrying value of 35 hotel properties and 21 net lease properties to their estimated fair value less costs to sell and a $254 loss on asset impairment during the three months ended December 31, 2020, to reduce the carrying value of five net lease properties to their estimated fair value less costs to sell. SVC recorded a $78,620 loss on asset impairment during the year ended December 31, 2021 to reduce the carrying value of 35 hotels and 26 net lease properties to their estimated fair value less costs to sell and a $55,756 loss on asset impairment during the year ended December 31, 2020 to reduce the carrying value of 18 hotel properties and 13 net lease properties to their estimated fair value less costs to sell.
  6. SVC recorded a $588 net gain on sale of real estate during the three months ended December 31, 2021 in connection with the sale of one hotel and six net lease properties and recorded a $11,916 net gain on sale of real estate during the three months ended December 31, 2020 in connection with the sale of 18 hotels and six net lease properties. SVC recorded a $11,522 net gain on sale of real estate during the year ended December 31, 2021 in connection with the sale of seven hotels and eleven net lease properties and recorded a net gain on sale of real estate of $2,261 during the year ended December 31, 2020 in connection with the sale of 18 hotels and 21 net lease properties.
  7. Unrealized gain on equity securities, net represents the adjustment required to adjust the carrying value of SVC’s investment in shares of TA common stock to its fair value.
  8. SVC recorded a $62,386 gain on insurance settlement during the year ended December 31, 2020 for insurance proceeds received for its then leased hotel in San Juan, PR related to Hurricane Maria. Under GAAP, SVC was required to increase the building basis of this hotel for the amount of the insurance proceeds. SVC also recorded a $13,850 deferred tax liability as a result of the book value to tax basis difference related to this accounting during the year ended December 31, 2020.
  9. SVC recorded a loss on extinguishment of debt of $2,424 and $9,394 during the three months and year ended December 31, 2020, respectively, relating to its repayment of its $400 million term loan and certain unsecured senior notes.
  10. Represents SVC’s proportionate share from its equity investment in Sonesta.
  11. SVC calculates FFO and Normalized FFO as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or Nareit, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, less any unrealized gains and losses on equity securities, as well as adjustments to reflect SVC’s share of FFO attributable to an investee and certain other adjustments currently not applicable to SVC. In calculating Normalized FFO, SVC adjusts for the items shown above. FFO and Normalized FFO are among the factors considered by SVC’s Board of Trustees when determining the amount of distributions to its shareholders. Other factors include, but are not limited to, requirements to satisfy SVC’s REIT distribution requirements, limitations in its credit agreement and public debt covenants, the availability to SVC of debt and equity capital, SVC’s distribution rate as a percentage of the trading price of its common shares, or dividend yield, and to the dividend yield of other REITs, SVC’s expectation of its future capital requirements and operating performance and SVC’s expected needs for and availability of cash to pay its obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than SVC does.
  12. SVC calculates EBITDA, EBITDAre, and Adjusted EBITDAre as shown above. EBITDAre is calculated on the basis defined by Nareit which is EBITDA, excluding gains and losses on the sale of real estate, loss on impairment of real estate assets, if any, and adjustments to reflect SVC’s share of EBITDAre attributable to an investee. In calculating Adjusted EBITDAre, SVC adjusts for the items shown above. Other real estate companies and REITs may calculate EBITDA, EBITDAre and Adjusted EBITDAre differently than SVC does.
  13. Hotel operating expenses for the three months ended December 31, 2020 includes a $3,962 loss contingency related to a litigation matter relating to certain of SVC’s hotels.
  14. Amounts represent the equity compensation for SVC’s Trustees, officers and certain other employees of SVC’s manager.
  15. Various percentages of total sales at certain of SVC’s hotels are escrowed as reserves for future renovations or refurbishments, or FF&E reserve escrows. SVC owns all the FF&E reserve escrows for its hotels.
  16. SVC is amortizing a liability it recorded for the fair value of its initial investment in Sonesta as a reduction to hotel operating expenses in its consolidated statements of income (loss). SVC reduced hotel operating expenses by $621 for each of the three months ended December 31, 2021 and 2020, and $2,483 and $2,070 for the years ended December 31, 2021 and 2020, respectively, for this liability.

Warning Concerning 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 is making forward-looking statements. These forward-looking statements are based upon SVC’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in 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:

The information contained in SVC’s filings with the SEC, including under the caption “Risk Factors” in SVC’s periodic reports, or incorporated therein, identifies other important factors that could cause differences from 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 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.

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Pandemic’s Economic Impact Is Easing, but Aftershocks May Linger

The pandemic’s grip on the economy appears to be loosening. Job growth and retail spending were strong in January, even as coronavirus cases hit a record. New York, Massachusetts and other states have begun to lift indoor mask mandates. California on Thursday unveiled a public health approach that will treat the coronavirus as a manageable long-term risk.

Yet the economy remains far from normal. Patterns of work, socializing and spending, disrupted by the pandemic, have been slow to readjust. Prices are rising at their fastest pace in four decades, and there are signs that inflation is creeping into a broader range of products and services. In surveys, Americans report feeling gloomier about the economy now than at the height of the lockdowns and job losses in the first weeks of the crisis.

In other words, it may no longer be that “the virus is the boss” — as Austan Goolsbee, a University of Chicago economist, has put it. But the changes that it set in motion have proved both more persistent and more pervasive than economists once expected.

“I — totally naïvely — thought that once a vaccine was available, that we were six months away from a complete re-evaluation of the economy, and instead we’re just grinding it out,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution. “A switch didn’t get flipped, and I thought it was going to.”

computer chips, lumber and even garage doors have held up production of items from cars to houses, while a lack of shipping containers has led to delays in almost anything transported from overseas. Some bottlenecks have let up in recent months, but logistics experts expect it to take months if not years for supply chains to run smoothly again.

disproportionate share of them women — have not.

Diahann Thomas was at work at a Brooklyn call center in January when she got a call from her son’s school: Her 11-year-old had been exposed to a classmate who had tested positive for Covid-19, and she needed to pick him up.

“There are all these moving parts now with Covid — one moment, they’re at school, the next moment they’re at home,” she said.

Ms. Thomas, 50, said her employer declined to provide flexibility while her son was in quarantine. So she quit — a decision she said was made easier by the knowledge that employers are eager to hire.

“It did boost my confidence to know that at the end of this, it’s not going to be difficult for me to pick up the pieces, and I have more bargaining power now,” she said. “There is this whole entire shift in terms of employee-employer relationship.”

Ms. Thomas expects to return to work once school schedules become more reliable. But the pandemic has shown her the value of being at home with her three children, she said, and she wants a job where she can work from home.

Whether and how people like Ms. Thomas return to work will be crucial to the economy’s path in coming months. If workers flood back to the job market as school and child care becomes more dependable and health risks recede, it will be easier for manufacturers and shipping companies to ramp up production and deliveries, giving supply a chance to catch up to demand. That in turn could allow inflation to cool without losing the economy’s progress over the past year.

care for children may not go back to work right away, or may choose to work part time. And other changes may be similarly slow to reverse: Companies that were burned by shortages may maintain larger inventories or rely on shorter supply chains, driving up costs. Workers who enjoyed flexibility from employers during the pandemic may demand it in the future. Rates of entrepreneurship, automation and, of course, remote work all increased during the pandemic, perhaps permanently.

Some of those changes could lead to higher inflation or slower growth. Others could make the economy more dynamic and productive. All make it harder for forecasters and policymakers to get a clear picture of the postpandemic economy.

“In almost every respect, economic ripple effects that we might have expected to be temporary or short-lived are proving to be more long-lasting,” said Luke Pardue, an economist for Gusto, a payroll platform for small businesses. “The new normal is looking a lot different.”

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Afghanistan’s Health Care System Is Collapsing Under Stress

KABUL, Afghanistan — Amena, 7 months old, lay silently in her hospital crib amid the mewling of desperately ill infants in the malnutrition ward.

Her mother, Balqisa, had brought the child to Indira Gandhi Children’s Hospital in Kabul, Afghanistan’s capital, the night before. “Her body was so hot,” she said, stroking her daughter’s emaciated leg.

The baby had a high fever, convulsions and sepsis, said Dr. Mohammad Iqbal Sadiq, a pediatrician, glancing at her chart.

“Her chances are not good,” the doctor said. “We got her too late.”

At the Indira Gandhi hospital, and in faltering hospitals across Afghanistan, famished children arrive by car and taxi and ambulance every day and night. Acute malnutrition is just one of a cascade of maladies that threaten to topple the country’s fragile health system.

acute poverty, with 4.7 million Afghans likely to suffer severe malnutrition this year, according to the United Nations. Last month, the organization made its biggest appeal ever for a single country, asking international donors to give more than $5 billion to fend off a humanitarian disaster.

doubled since August, with 40 children dying in December on their way to receive medical care.

Jonas Gahr Store, the prime minister of Norway, whose country hosted meetings between Taliban representatives and Afghan civil society groups last week, spoke to the Security Council about the urgency to expedite aid.

“We need new agreements and commitments in place to be able to assist and help an extremely vulnerable civil population, and most vulnerable among them, the children who face hunger and suffering,” he said.

Before the U.S.-backed Afghan government disintegrated in August as the Taliban overran the country, the health system relied on international aid to survive. But much of that funding has been frozen to comply with sanctions imposed on the Taliban.

As a result, the International Rescue Committee recently predicted that 90 percent of Afghanistan’s health clinics were likely to shut down in the coming months. The World Health Organization has said that outbreaks of diarrhea, measles, dengue fever, malaria and Covid-19 threaten to overwhelm overburdened hospitals.

including $308 million in relief authorized by the United States, they have not been enough to cover 1,200 health facilities and 11,000 health workers.

Though the drastic decline in war-related casualties has relieved the burden of such patients on many hospitals, the suspension of operations by private facilities and the ability to safely travel Afghanistan’s roads has left other hospitals overrun with people.

On a recent morning, the corridors of Indira Gandhi hospital were crammed with beds as patients’ family members squatted on floors amid parcels of food bought at the local bazaar.

Patients’ meals consist of an egg, two apples, a milk packet, rice and juice, so many families supplement them with outside food. Some buy medicine at local pharmacies because the hospital can provide only about 70 percent of required medication, Dr. Sadiq said.

has now claimed more than 900,000 lives across the country, and the Covid death rates remain alarmingly high. The number of new infections, however, has fallen by more than half since mid-January, and hospitalizations are also declining.

Few Afghans wear masks — even at the Ministry of Public Health in Kabul. There, officials clustered in groups on a recent weekday, greeting visitors with hugs and kisses, and ignoring faded signs saying masks were required throughout the building.

At the Afghan-Japan Communicable Disease Hospital in Kabul, the only remaining Covid-19 facility in the capital, few staff members or patients complied with worn stickers on the floors that proclaimed: “Let’s Beat Coronavirus — Please keep at least 2 meters from people around you.”

“When I try to talk to people about Covid-19, they say we have no food, no water, no electricity — why should we care about this virus?” said Dr. Tariq Ahmad Akbari, the hospital’s medical director.

Dr. Akbari suspected that the Omicron variant had entered the country, but the hospital lacked the medical equipment to test for variants. He and his staff had not been paid for five months, he said, and the hospital was critically low on oxygen supplies and health care workers.

Seven of the hospital’s eight female doctors fled after the Taliban takeover in August, part of a hollowing out that reduced the staff from 350 to 190 the past five months. Four of the five staff microbiologists quit. And only five of the country’s 34 Covid-19 centers were still operating, Dr. Akbari said.

Several staff members lived in the hospital in Kabul because, without salaries, they cannot afford rent, he said.

The hospital was recently buoyed by a two-month stopgap grant of $800,000 from an affiliate of Johns Hopkins Hospital, Dr. Akbari said. And Afghanistan’s relative isolation following the Taliban takeover had likely helped contain the spread of Covid-19, he said.

Up to 20 patients died per day during the previous wave, but just one or two a day now. And the hospital tests about 150 patients a day now, down from 600 to 700 daily tests during the second wave, Dr. Akbari said.

He speculated that Afghans are so overwhelmed by other survival issues that they are less likely to seek treatment for Covid-19.

Before the Taliban takeover, the Ministry of Public Health published detailed daily charts showing the number of coronavirus cases, hospitalizations and deaths — and the positivity rate for testing. But now the poorly funded ministry struggles to keep tabs on the pandemic.

Of the more than 856,000 tests conducted since the first wave of Covid-19 in early 2020 — of an estimated population of nearly 40 million — roughly 163,000 were positive, a health ministry spokesman said. More than 7,400 Covid-19 deaths had been confirmed since 2020, he said.

But because testing is extremely limited and the cause of death is not recorded in many instances, particularly in rural areas of Afghanistan, no one knows the pandemic’s true scale.

Dr. Akbari shook his head in frustration as he described how little was known about the virus in Afghanistan.

Looking defeated, he said, “If we have a surge like we had during the second and third wave, we would not be equipped to handle it.”

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