Omicron

TOKYO — Last December, after two years of stop-and-go growth, Japan’s economic engine seemed like it might finally be revving up. Covid cases were practically nonexistent. Consumers were back on the town, shopping, eating out, traveling. The year 2021 ended on a high note, with the country’s economy expanding on an annual basis for the first time in three years.

But the Omicron variant of the coronavirus, geopolitical turmoil and supply chain snarls have once again set back Japan’s fragile economic recovery. In the first three months of the year, the country’s economy, the world’s third largest after the United States and China, shrank at an annualized rate of 1 percent, government data showed on Wednesday.

A combination of factors contributed to the decline in growth. In January, Japan had put into place new emergency measures as coronavirus case numbers, driven up by Omicron, moved toward the highest levels of the pandemic. In February, Russia invaded Ukraine, spiking energy prices. And that was before China, Japan’s largest export market and a key supplier of parts and labor to its manufacturers, imposed new lockdowns in Shanghai, throwing supply chains into chaos.

The contraction has not been as “extreme” as previous economic setbacks thanks to high levels of vaccine uptake and less wide-ranging emergency measures than during previous waves of the coronavirus, according to Shinichiro Kobayashi, principal economist at the Mitsubishi UFJ Research Institute.

traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:

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.

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.”

Net income for the quarter: For the three months ended March 31, 2022, the Trust generated net income of $52.3 million. Included in net income for the three months ended March 31, 2022 are net rental income totalling $25.9 million, share of net income from investment in Dream Industrial REIT totalling $42.9 million and positive fair value adjustments to investment properties totalling $19.4 million primarily due to fair value gains at four properties valued by qualified external valuation professionals. Partially offsetting these items were negative fair value adjustments to financial instruments for the three months ended March 31, 2022 totalling $20.3 million primarily due to the revaluation of the subsidiary redeemable units as a result of appreciation in the Trust’s unit price.

Diluted FFO per unit⁽⁵⁾for the quarter: For the three months ended March 31, 2022, diluted FFO per unit increased to $0.39 per unit relative to $0.38 per unit in Q1 2021 as NOI from our completed development at 1900 Sherwood Place in Regina (+$0.02), higher FFO from our investment in Dream Industrial REIT (+$0.02) and the effect of accretive unit repurchases under our Normal Course Issuer Bid (“NCIB”) program (+$0.01) were partially offset by lower comparative properties NOI (-$0.03) and other items (-$0.01).

Net rental income for the quarter: Net rental income for the three months ended March 31, 2022 decreased by $0.4 million relative to the prior year comparative quarter primarily due to lower weighted average occupancy in Toronto downtown and lower rents on renewals and new leases in the regions that we collectively refer to as Other markets, comprising our properties located in Calgary, Saskatchewan, Mississauga, Scarborough and the United States. Partially offsetting the year-over-year decrease were net rental income from our completed property under development at 1900 Sherwood Place in Regina, higher net rents on renewals and new leasing in Toronto downtown and higher parking revenues.

Comparative properties NOI⁽⁴⁾for the quarter: For the three months ended March 31, 2022, comparative properties NOI decreased by 4.8%, or $1.4 million, over the prior year comparative quarter, primarily driven by declines in weighted average occupancy in Toronto downtown and lower in-place rents in the Other markets region. Partially offsetting the declines were higher rates on renewals and new leases in Toronto downtown, higher weighted average occupancy in the Other markets region and favourable parking revenues of $0.2 million across the portfolio.

Over the course of the COVID-19 pandemic, we saw significant reductions in leasing activity and building traffic relative to historical norms, leading to declines in occupancy and parking income as a result of repeated states of emergency in Toronto. Despite the public health measures enacted in response to the Omicron variant in December 2021 and January 2022, we continue to anticipate that many companies will return their employees to the office during 2022 and, with that, leasing activity and traffic flow to our properties will improve and our comparative properties NOI and parking revenues will begin to normalize.

We are actively managing our assets in the Toronto downtown region, which represent 82% of our active portfolio investment property fair values, to improve the quality of the buildings and to continue to improve rental rates in this market. For our assets in the Other markets region, which make up the remaining 18% of our total portfolio investment properties fair value, we are repositioning these assets to improve occupancy and liquidity in the private market.

In-place occupancy: Total portfolio in-place occupancy on a quarter-over-quarter basis decreased by 1.2% relative to Q4 2021 to 81.7%. In Toronto downtown, 95,000 square feet of early terminations and 42,000 square feet of expiries were partially offset by 19,000 square feet of new leasing activity and 10,000 square feet of renewals. Within the 95,000 square feet of early terminations, 80,000 square feet relates to a negotiated tenant downsize on renewal for a lease expiring in Q4 2022. The Trust has leased 54,000 square feet of the returned space for a ten-year term commencing in the first half of 2023 with a leading provider of flexible workspace for enterprise clients for its first Canadian location and is in advanced negotiations for a further 13,000 square feet of the remaining space. Under the terms of the lease, the Trust is entitled to a share of the tenant’s net revenues plus additional rents. The Trust expects to achieve revenues from the space equal to or higher than the equivalent market rental rate on a stabilized basis. The renewing tenant retained 82,000 of its 139,000 square feet for a period of ten years with initial rents on the retained space 36% higher than expiring rates with progressive rent steps to a 68% increase over expiring rates by the end of the term. The remaining 57,000 square feet of space is currently sublet and the Trust is in advanced negotiations with those subtenants for 45,000 square feet of the subleased space. The Trust is actively marketing the remaining 25,000 square feet to prospective tenants.

In the Other markets region, 53,000 square feet of new leasing activity and 13,000 square feet of renewals were partially offset by 23,000 square feet of expiries.

Total portfolio in-place occupancy on a year-over-year basis decreased from 85.8% at Q1 2021 to 81.7% this quarter due to net negative absorption in Toronto downtown partially offset by the reclassification of 1900 Sherwood Place to active properties in Q3 2021 and net positive absorption in Other markets during Q4 2021 and Q1 2022.

Lease commencements for the quarter: For the three months ended March 31, 2022, 71,000 square feet of leases commenced, not including temporary leases. In Toronto downtown, 22,000 square feet of leases commenced at $35.13 per square foot, or 28.3% higher than the previous rent in the same space. In the Other markets region, 49,000 square feet of leases commenced at $11.43 per square foot or 35.5% lower than the previous rents in the same space as rental rates on new and renewed leasing rolled down to market rates. The renewal and relocation rate to expiring rate spread for the three months ended March 31, 2022 was 4.7% above expiring rates on 23,000 square feet of renewals.

Tenant profile: As illustrated in the chart below, the Trust has a diversified and stable tenant mix.

See Figure 1, Estimated Annualized Gross Rental Revenue by Tenant Industry

Our top ten tenants make up approximately 38% of gross rental revenue, and 50% of our top tenants have credit ratings of A- or higher.

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.

Canada Infrastructure Bank Commercial Building Retrofit Initiative: On March 31, 2022, the Trust entered into an unsecured non-revolving credit facility and term credit facility with the Canada Infrastructure Bank under its Commercial Building Retrofit Initiative. Under the facility, the Canada Infrastructure Bank will lend the trust up to $112.9 million, representing 80% of the cost of commercial property retrofits in order to achieve certain energy efficiency savings and greenhouse gas (“GHG”) emission reductions. The non-revolving credit facility is available until the earlier of March 31, 2027 or the completion of all funded projects, at which point the aggregate drawings are converted to a 20-year amortizing term credit facility. During the five-year non-revolving credit facility period, the accumulated drawings bear interest at an annual fixed rate of 2.147%. Subsequent to conversion, the 20-year amortizing term credit facility will bear interest at an annual fixed rate between 1.0% and 3.0% determined at the time of conversion based on the assessed GHG emission reductions achieved in aggregate with the financed projects.

Normal Course Issuer Bid (“NCIB”): For the three months ended March 31, 2022, the Trust purchased for cancellation 1,036,163 REIT A Units under the NCIB at a cost of $26.5 million. The Trust’s current NCIB program is now complete.

NAV per unit⁽¹³⁾: As at March 31, 2022, our NAV per unit increased to $32.63 when compared to $31.49 at December 31, 2021. The increase in NAV per unit relative to December 31, 2021 was primarily due to cash flow retention (diluted FFO net of distributions), fair value gains on investment properties in Toronto downtown for four properties valued by qualified external valuation professionals, incremental income from our investment in Dream Industrial REIT and the effect of accretive unit repurchases under our NCIB program. As at March 31, 2021, equity per the condensed consolidated financial statements was $1.6 billion.

“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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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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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.

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

Our Standards: The Thomson Reuters Trust Principles.

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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.

Net loss: Net loss for the quarter ended December 31, 2021 was $198.8 million, or $1.21 per diluted common share, compared to a net loss of $137.7 million, or $0.84 per diluted common share, for the quarter ended December 31, 2020. Net loss for the quarter ended December 31, 2021 includes a $76.5 million, or $0.46 per diluted common share, loss on asset impairment, $35.8 million, or $0.22 per diluted common share, of hotel manager transition related costs and $2.2 million, or $0.01 per diluted common share, of net unrealized gains on equity securities. Net loss for the quarter ended December 31, 2020 includes $15.5 million, or $0.09 per diluted common share, of net unrealized gains on equity securities, $15.1 million, or $0.09 per diluted common share, of hotel manager transition related costs, an $11.9 million, or $0.07 per diluted common share, net gain on sale of real estate, a $4.0 million, or $0.02 per diluted common share, loss contingency, and a $2.4 million, or $0.01 per diluted common share, loss on early extinguishment of debt. The weighted average number of diluted common shares outstanding was 164.7 million and 164.5 million for the quarters ended December 31, 2021 and 2020, respectively.

Normalized FFO: Normalized FFO for the quarter ended December 31, 2021 were $27.9 million, or $0.17 per diluted common share, compared to negative Normalized FFO of $22.5 million, or $(0.14) per diluted common share, for the quarter ended December 31, 2020.

Adjusted EBITDAre:Adjusted EBITDAre for the quarter ended December 31, 2021 compared to the same period in 2020 increased 83.2% to $119.0 million.

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:

The term for the retained hotels expires on January 31, 2037 and includes two 15-year renewal options.

All retained hotels are subject to a pooling agreement that combines the management agreements for the retained hotels for purposes of calculating gross revenues, hotel operating expenses, fees and distributions and the owner’s priority return due to SVC.

The owner’s priority return for the retained hotels is initially set at $325.2 million annually. SVC has the right to terminate Sonesta’s management of specific hotels that SVC owns if minimum performance thresholds are not met starting in 2023.

SVC will renovate the retained hotels to comply with agreed upon brand standards. As SVC advances such funding or funds other capital expenditures, the aggregate annual owner’s priority return due to SVC will increase by 6% of the amounts funded.

Trade area restrictions by hotel brand were added to define boundaries to protect SVC owned hotels in response to Sonesta increasing its franchising and third-party management activities.

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

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.
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.
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.
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.
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.
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.
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.
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.
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.
Represents SVC’s proportionate share from its equity investment in Sonesta.
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.
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.
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.
Amounts represent the equity compensation for SVC’s Trustees, officers and certain other employees of SVC’s manager.
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.
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:

Mr. Murray indicates that SVC’s hotel portfolio recovery has been stable and comparable RevPAR for the 2021 fourth quarter came in ahead of SVC’s expectations and that SVC expects to benefit from a rebound in business travel in the coming quarters, particularly at SVC’s full service hotels as urban centers re-open. This may imply that metrics will remain positive or continue to improve; however, SVC’s business is subject to various risks, including risks beyond its control, such as the continued impact of the COVID-19 pandemic. As a result, Hotel EBITDA, RevPAR and hotel performance may not improve at SVC’s hotels and may decline in the future;

Mr. Murray states SVC’s net lease properties continue to provide steady cash flows. SVC’s net lease tenants may become unable or unwilling to pay rents due to SVC, which could adversely impact SVC and the value of its net lease properties;

Mr. Murray states that SVC believes it has sufficient liquidity and financial flexibility to address SVC’s upcoming debt maturities, as well as an improved hotel portfolio that is well positioned to benefit SVC as lodging trends continue to rebound; however, if lodging and other economic trends relating to SVC and its operators and tenants do not continue to improve or decline, SVC’s current liquidity position may not be sufficient to meet its upcoming debt maturities or its other future obligations;

SVC has entered or expects to enter agreements for the sale of 64 hotels with a net book value as of December 31, 2021 of $478.2 million for an aggregate sales price of $534.3 million and expects to complete these sales by the end of the second quarter of 2022. The sales of SVC’s properties are subject to conditions; accordingly, SVC cannot provide any assurance that it will sell any of these properties and the sales may be delayed, may not occur or their terms may change. Any sales it may complete may be at prices less than SVC expects and less than its net book value;

SVC believes it will benefit from Sonesta’s franchising activities. Sonesta may be unsuccessful with its franchising endeavors and SVC may not realize any benefits; and

This press release indicates that SVC is 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 will be granted such additional covenant relief or if SVC will have enough cash to repay its debt maturities as they become due.

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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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.

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.

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