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Exhibit 99.1
 |
Deloitte & Touche LLP Jersey City, NJ 07311
Tel: +1 212 937 8200 Fax: +1 212 937 8298 www.deloitte.com |
Service
Properties Trust
|
Independent Accountants’ Report
on Applying Agreed-Upon Procedures
We have performed the procedures described below, related to certain information with respect to a portfolio of mortgaged properties in connection with the proposed offering of SVC Net-Lease Mortgage Notes, Series 2023-1. Service Properties Trust (the “Company”) is responsible for the information provided to us, including the information set forth in the June 2022 Statistical Data File (as defined herein).
The Company has agreed to the procedures and acknowledged that the procedures performed are appropriate to meet the intended purpose of evaluating the accuracy of certain information set forth in the June 2022 Statistical Data File. Additionally, Morgan Stanley & Co. LLC (“Morgan Stanley”) and Goldman Sachs & Co. LLC (together with the Company and Morgan Stanley, the “Specified Parties”) have agreed to the procedures and acknowledged that the procedures performed are appropriate for their purposes. This report may not be suitable for any other purpose. The procedures performed may not address all of the items of interest to a user of the report and may not meet the needs of all users of the report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes. Consequently, we make no representations regarding the appropriateness of the procedures described below either for the purpose for which this report has been requested or for any other purpose.
Agreed-Upon Procedures
Representatives of Morgan Stanley, on behalf of the Company, provided us with (i) on September 20, 2022, a computer-generated data file and related record layout containing data, as represented to us by the Company, as of the close of business June 30, 2022, with respect to 237 mortgaged properties and the related tenant leases (the “Initial June 2022 Statistical Data File”); and (ii) on September 8, 2022, a listing (the “June 2022 Sample Listing”) containing 120 mortgaged properties included on the Initial June 2022 Statistical Data File (the “June 2022 Sample Properties”). We make no representations as to the selection criteria used in determining the June 2022 Sample Properties.
Further, on November 4, 2022, representatives of Morgan Stanley, on behalf of the Company provided us with a supplemental data file (the “Supplemental June 2022 Data File”) containing the most recent aggregate unit FCCR, industry sector and industry for each of the 237 mortgaged properties set forth on the Initial June 2022 Statistical Data File. At the Company’s instruction, we adjusted the Initial June 2022 Statistical Data File with the corresponding information set forth on the Supplemental June 2022 Data File. The Initial June 2022 Statistical Data File, as adjusted, is hereinafter referred to as the “June 2022 Statistical Data File.”
At the Company’s instruction, we performed certain comparisons and recomputations for each of the Sample Properties relating to the mortgaged property characteristics (the “Characteristics”) set forth on the June 2022 Statistical Data File and indicated below.
Characteristics
1. Property ID (for informational purposes only) 2. Property city 3. Property state 4. Building age 5. Consolidated appraised value 6. Building area (sq. ft.) 7. Land area (sq. ft.) 8. Property acquisition date 9. Property zip code 10. Tenant 11. Guarantor 12. Master lease (yes/no) 13. Lease term start date 14. Lease expiration year 15. Original lease term (years) 16. Renewal option term 17. Number of renewals remaining |
18. Date of last bump in rent 19. Date of next bump in rent 20. Rent increase type 21. Rent bump % cap 22. Tenant purchase option (yes/no) 23. Next lease renewal option date 24. Concept 25. Annualized minimum rent payment 26. Lease type 27. Most recent aggregate unit FCCR 28. Industry sector 29. Industry 30. Rating category 31. Credit rating 32. Remaining term (years) 33. Seasoning (years) 34. Unit rent/unit sales ratio |
We compared Characteristics 2. through 8. to the corresponding information set forth on or derived from the “Appraisal.”
We compared Characteristics 9. through 26. to the corresponding information set forth on or derived from the lease agreement, master lease agreement or any amendments thereto (collectively, the “Lease Agreement”).
We compared Characteristic 27. to the corresponding information set forth on a query, provided to us by the Company on September 19, 2022, from the Company’s accounting system (the “June 2022 SVC Quarterly Coverage Query”).
At the instruction of the Company, we accessed the “US Census Bureau Website” (http://www.census.gov/naics/) on a November 7, 2022. Using the NAICS industry group code and NAICS industry sector code (each as set forth on the Statistical Data File), we compared Characteristics 28. and 29. to the corresponding information set forth on the US Census Bureau Website.
We compared Characteristic 30. and 31. to the corresponding information set forth on the “Rating Spreadsheet” provided to us by Morgan Stanley, on behalf of the Company, on September 28, 2022.
We compared Characteristic 32. to the number of years from (i) June 30, 2022 through (ii) the lease expiration date (as set forth on the Lease Agreement).
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We compared Characteristic 33. to the difference between (i) the original lease term (as set forth on the Lease Agreement) and (ii) the remaining term (as determined above).
With respect to our comparison of Characteristic 34., we recomputed the unit rent/unit sales ratio by dividing (i) the annualized unit level sales (as set forth on the SVC Quarterly Coverage Query) by (ii) the annualized minimum rent payment (as set forth on the Lease Agreement.) We compared such recomputed information to the corresponding information set forth on the June 2022 Statistical Data File.
The property documents described above, including any information obtained from the indicated systems, and any other related documents used in support of the Characteristics were provided to us by representatives of the Company or by Morgan Stanley, on behalf of the Company, and are collectively referred to hereinafter as the “Property Documents.” We were not requested to perform, and we did not perform, any procedures with respect to the preparation or verification of any of the information set forth on the Property Documents and we make no representations concerning the accuracy or completeness of any of the information contained therein. In certain instances, our procedures were performed using data imaged facsimiles or photocopies of the Property Documents. In addition, we make no representations as to whether the Property Documents are comprehensive or valid instruments or reflect the current prevailing terms with respect to the corresponding Sample Properties.
Agreed-Upon Procedures’ Findings
The results of the foregoing procedures indicated that the Characteristics set forth on the June 2022 Statistical Data File were found to be in agreement with the above mentioned Property Documents, except as described in Appendix A. Supplemental information is contained on Appendix B.
******
We make no representations as to the (i) actual characteristics or existence of the underlying documents or data comprising the assets or underlying documentation underlying the June 2022 Statistical Data File or the conformity of their characteristics with those assumed for purposes of the procedures described herein, (ii) existence or ownership of the assets or (iii) reasonableness of any of the aforementioned assumptions, information or methodologies.
It should be understood that we make no representations as to questions of legal interpretation or as to the sufficiency for your purposes of the procedures enumerated in the preceding paragraphs. Also, such procedures would not necessarily reveal any material misstatement of the information referred to above. We have no responsibility to update this report for events or circumstances that occur subsequent to the date of this report.
We were engaged by the Company to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants (“AICPA”). An agreed-upon procedures engagement involves the practitioner performing specific procedures that the engaging party has agreed to and acknowledged to be appropriate for the purpose of the engagement and reporting on findings based on the procedures performed. We were not engaged to conduct, and did not conduct, an (i) audit conducted in accordance with generally accepted auditing standards or (ii) examination or a review engagement conducted in accordance with attestation standards established by the AICPA, the objective of which would be the expression of an opinion or conclusion, respectively, on the June 2022 Statistical Data File. Accordingly, we do not express such an opinion or conclusion, or any other form of assurance, including reasonable assurance. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
We are required to be independent of the Company and to meet our other ethical responsibilities, as applicable for agreed-upon procedures engagements set forth in the Preface: Applicable to All Members and Part 1 – Members in Public Practice of the Code of Professional Conduct established by the AICPA. Independence requirements for agreed-upon procedure engagements are less restrictive than independence requirements for audit and other attestation services.
None of the engagement, procedures or report was intended to address, nor did they address, the (i) conformity of the origination of the assets to stated underwriting or credit extension guidelines, standards, criteria or other requirements, (ii) value of collateral securing such assets or (iii) compliance of the originator of the assets with federal, state, and local laws and regulations.
None of the engagement, procedures or report were intended to satisfy, nor did they satisfy, any criteria for due diligence published by a nationally recognized statistical rating organization.
This report is intended solely for the information and use of the Specified Parties identified above and is not intended to be and should not be used by anyone other than these Specified Parties.
Yours truly,
/s/ Deloitte & Touche LLP
January 26, 2023
Appendix A to Independent Accountants’ Report on Applying Agreed-Upon Procedures issued by Deloitte & Touche LLP dated January 26, 2023.
In applying our agreed-upon procedures as outlined above, we observed the following:
| Exception Description Number |
Exception Description |
| 1 | Eight differences in property zip code. |
| 2 | Five differences in guarantor. |
| 3 | Eleven differences in lease term start date. |
| 4 | Eleven differences in original lease term. |
| 5 | Seven differences in number of renewals remaining. |
| 6 | Five differences in renewal option term. |
| 7 | Twelve differences in date of last bump in rent. |
| 8 | Nine differences in date of next bump in rent. |
| 9 | One difference in tenant purchase option. |
| 10 | One difference in concept. |
| 11 | One difference in lease type. |
| 12 | Eleven differences in seasoning. |
The information above reflects the procedures performed and is subject to the conditions set forth in the agreed-upon procedures report to which this appendix is attached.
Appendix B to Independent Accountants’ Report on Applying Agreed-Upon Procedures issued by Deloitte & Touche LLP dated January 26, 2023.
Supplemental Information Related to the Findings Set Forth on Appendix A
|
Exception |
June 2022 |
Characteristic |
Characteristic set forth on |
Characteristic set forth on or |
| 1 | 415665 | Property zip code | 30046 | 30045 |
| 1 | 415679 | Property zip code | 37620 | 37625 |
| 1 | 415817 | Property zip code | 55807 | 55808 |
| 1 | 415840 | Property zip code | 77474 | 75402 |
| 1 | 415849 | Property zip code | 72762 | 72770 |
| 1 | 415912 | Property zip code | 30120 | 30121 |
| 1 | 415995 | Property zip code | 75061 | 75067 |
| 1 | 416011 | Property zip code | 37813 | 37814 |
| 2 | 415658 | Guarantor | No Guarantor | AB Acquisitions LLC |
| 2 | 415689 | Guarantor | Rite Aid Corporation | Sonic Restaurants, Inc. |
| 2 | 415888 | Guarantor | No Guarantor | Jean and Mark Bernstein |
| 2 | 416130 | Guarantor | No Guarantor | Car Wash Partners, Inc. |
| 2 | 416131 | Guarantor | No Guarantor | Car Wash Partners, Inc. |
| 3 | 415678 | Lease term start date | 2/7/2020 | 3/15/2021 |
| 3 | 415679 | Lease term start date | 2/7/2020 | 3/15/2021 |
| 3 | 415680 | Lease term start date | 2/7/2020 | 3/15/2021 |
| 3 | 415683 | Lease term start date | 2/7/2020 | 3/15/2021 |
| 3 | 415684 | Lease term start date | 7/1/2005 | 12/15/2004 |
| 3 | 415689 | Lease term start date | 2/7/2020 | 3/15/2021 |
| 3 | 415784 | Lease term start date | 6/11/2012 | 8/15/2012 |
| 3 | 415895 | Lease term start date | 9/1/2019 | 12/1/2005 |
| 3 | 415896 | Lease term start date | 9/1/2019 | 12/1/2005 |
| 3 | 415966 | Lease term start date | 5/1/2019 | 9/24/2004 |
| 3 | 416065 | Lease term start date | 6/16/2014 | 3/31/2014 |
| 4 | 415678 | Original lease term | 6.10 years | 5 years |
| 4 | 415679 | Original lease term | 6.10 years | 5 years |
| 4 | 415680 | Original lease term | 6.10 years | 5 years |
| 4 | 415683 | Original lease term | 6.10 years | 5 years |
| 4 | 415684 | Original lease term | 19.50 years | 20.04 years |
| 4 | 415689 | Original lease term | 6.10 years | 5 years |
| 4 | 415784 | Original lease term | 15.80 years | 15.62 years |
| 4 | 415895 | Original lease term | 21.91 years | 35.66 years |
| 4 | 415896 | Original lease term | 21.91 years | 35.66 years |
| 4 | 415966 | Original lease term | 10.41 years | 25.02 years |
| 4 | 416065 | Original lease term | 19.79 years | 20 years |
| 5 | 415889 | Number of renewals remaining | 2 | 5 |
| 5 | 415890 | Number of renewals remaining | 2 | 5 |
| 5 | 415891 | Number of renewals remaining | 2 | 5 |
| Exception Description Number |
Sample Property number |
Characteristic |
Characteristic set forth on the Statistical Data File |
Characteristic set forth on the Property Documents |
| 5 | 415892 | Number of renewals remaining | 2 | 5 |
| 5 | 415999 | Number of renewals remaining | 1 | 2 |
| 5 | 416000 | Number of renewals remaining | 1 | 2 |
| 5 | 416011 | Number of renewals remaining | 0 | 2 |
| 6 | 415889 | Renewal option term | 4th of 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. Rent shall be an amount equal to the lesser of (1) 10% of the rent in effect immediately prior to the applicable Adjustment Date, or (2) 1.25 times the product of Consumer Price Index. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) | 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. Rent shall be an amount equal to the lesser of (1) 10% of the rent in effect immediately prior to the applicable Adjustment Date, or (2) 1.25 times the product of Consumer Price Index. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) |
| 6 | 415890 | Renewal option term | 4th of 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) | 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. Rent shall be an amount equal to the lesser of (1) 10% of the rent in effect immediately prior to the applicable Adjustment Date, or (2) 1.25 times the product of Consumer Price Index. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) |
| 6 | 415891 | Renewal option term | 4th of 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) | 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. Rent shall be an amount equal to the lesser of (1) 10% of the rent in effect immediately prior to the applicable Adjustment Date, or (2) 1.25 times the product of Consumer Price Index. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) |
|
Exception |
Sample |
Characteristic |
Characteristic set forth on |
Characteristic set forth on the |
| 6 | 415892 | Renewal option term | 4th of 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) | 5, 5year option, by giving written notice of its election to exercise any Extension at least 120 days prior to the expiration of the current term. Rent shall be an amount equal to the lesser of (1) 10% of the rent in effect immediately prior to the applicable Adjustment Date, or (2) 1.25 times the product of Consumer Price Index. (1A, Sec 1-2, Pg 1); (Orig. Lse, Sec 5, Pg 3) |
| 6 | 416011 | Renewal option term | 0 | 4, 5 year extension term options |
| 7 | 415684 | Date of last bump in rent | 7/1/2005 | 1/1/2015 |
| 7 | 415715 | Date of last bump in rent | 7/1/2019 | N/A |
| 7 | 415888 | Date of last bump in rent | 1/1/2022 | 10/1/2020 |
| 7 | 415889 | Date of last bump in rent | 11/1/2020 | 9/29/2020 |
| 7 | 415890 | Date of last bump in rent | 11/1/2020 | 9/29/2020 |
| 7 | 415891 | Date of last bump in rent | 11/1/2020 | 9/29/2020 |
| 7 | 415892 | Date of last bump in rent | 11/1/2020 | 9/29/2020 |
| 7 | 415925 | Date of last bump in rent | 6/11/2021 | 12/1/2021 |
| 7 | 415927 | Date of last bump in rent | 6/11/2021 | 12/1/2021 |
| 7 | 415928 | Date of last bump in rent | 6/11/2021 | 12/1/2021 |
| 7 | 416166 | Date of last bump in rent | 9/1/2020 | 7/1/2019 |
| 7 | 416167 | Date of last bump in rent | 9/1/2020 | 7/1/2019 |
| 8 | 415687 | Date of next bump in rent | 12/1/2025 | 1/1/2025 |
| 8 | 415775 | Date of next bump in rent | 2/12/2027 | 3/1/2027 |
| 8 | 415888 | Date of next bump in rent | 1/1/2026 | 1/1/2025 |
| 8 | 415889 | Date of next bump in rent | 11/1/2025 | 9/29/2025 |
| 8 | 415890 | Date of next bump in rent | 11/1/2025 | 9/29/2025 |
| 8 | 415891 | Date of next bump in rent | 11/1/2025 | 9/29/2025 |
| 8 | 415892 | Date of next bump in rent | 11/1/2025 | 9/29/2025 |
| 8 | 416166 | Date of next bump in rent | 9/1/2025 | 7/1/2024 |
| 8 | 416167 | Date of next bump in rent | 9/1/2025 | 7/1/2024 |
| 9 | 415810 | Tenant purchase option | No | Yes |
| 10 | 415999 | Concept | Pizza Hut | Hardee's |
| 11 | 415715 | Lease type | Retail - Managed Net | Retail - Triple Net |
| 12 | 415678 | Seasoning | 2.40 years | 1.29 years |
| 12 | 415679 | Seasoning | 2.40 years | 1.29 years |
| 12 | 415680 | Seasoning | 2.40 years | 1.29 years |
| 12 | 415683 | Seasoning | 2.40 years | 1.29 years |
| 12 | 415684 | Seasoning | 19.50 years | 20.40 years |
| 12 | 415689 | Seasoning | 2.40 years | 1.29 years |
| 12 | 415784 | Seasoning | 10.06 years | 9.88 years |
| 12 | 415895 | Seasoning | 2.83 years | 16.58 years |
| 12 | 415896 | Seasoning | 2.83 years | 16.58 years |
| 12 | 415966 | Seasoning | 3.16 years | 17.77 years |
| 12 | 416065 | Seasoning | 8.04 years | 8.25 years |
The information above reflects the procedures performed and is subject to the conditions set forth in the agreed-upon procedures report to which this appendix is attached.
