Service Properties Trust (SVC) 2025 Conference June 04, 2025 11:00 AM ET Speaker0 Alright, perfect. Alright, good morning everyone. We're gonna get started with our next session. This is Tyler Batory with Oppenheimer. Really happy to be with the management team from Service Properties Trust, SVC. Chris and Brian are with us today. Got some questions prepared for them, but certainly want to encourage audience participation. So, you do have questions at any point, just let me know and we'll get answered. So, ...

Group 1 - Hotel REITs experienced significant declines during the Q1 earnings season, with 7 out of 15 U.S. hotel REITs lowering their FFO guidance, indicating a challenging environment for the sector [1] - Forward bookings have softened due to increased uncertainty, particularly affecting group bookings, which have shown notable weakness [1] - The overall performance of hotel REITs suggests a cautious outlook as the market navigates these challenges [1]

Financial Data and Key Metrics Changes - For Q1 2025, normalized FFO was $10.8 million or $0.07 per share, down from $0.13 per share in the prior year quarter [24] - Adjusted EBITDAre increased slightly year over year to $115.8 million [24] - Comparable hotel RevPAR grew by 2.6% year over year, with gross operating profit margin percentage declining by 330 basis points to 21.4% [24] Business Line Data and Key Metrics Changes - Comparable hotel RevPAR growth was supported by occupancy and ADR gains, with a 10.6% increase in RevPAR for the select service portfolio, primarily driven by occupancy growth in Hyatt Place and Sonesta Select hotels [11][10] - Full service hotels reported a 1.9% increase in RevPAR, while extended stay portfolio RevPAR was essentially flat due to renovation impacts [10][11] - Adjusted hotel EBITDA for the hotel portfolio was $23 million, a decline of 20.5% year over year, primarily due to renovations and increased costs [24] Market Data and Key Metrics Changes - The lodging portfolio experienced a softening in RevPAR as the quarter progressed, influenced by reduced government and international travel [8] - Group revenue pace increased by 6.5% year over year, indicating a positive trend despite overall market challenges [35] Company Strategy and Development Direction - The company plans to sell 123 hotels in 2025 with estimated proceeds of $1.1 billion to strengthen the balance sheet and reinvest in growth opportunities [9][14] - A strategic shift towards increasing net lease exposure is anticipated, with a target to adjust the investment composition from 56% lodging assets to 54% net lease properties [16] - The company aims to optimize its portfolio through asset sales and reinvestment in high-potential hotels, while gradually expanding net lease acquisitions [12][16] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing macroeconomic uncertainties but expressed confidence in the resilience of the net lease portfolio and the potential for long-term value creation through portfolio optimization initiatives [16] - The company expects challenges in the travel and lodging industries to impact key segments, but anticipates a seasonal benefit in Q2 [27] Other Important Information - The company is monitoring potential impacts from tariffs on capital improvement costs and supply chain uncertainties [29] - The net lease portfolio was nearly 98% leased with a weighted average lease term of eight years, providing steady cash flow [18] Q&A Session Summary Question: Can you walk us through the RevPAR trends in the quarter? - Management indicated that RevPAR started strong in January but showed deceleration by March, with preliminary April numbers indicating a 1% year-over-year decrease [32][33] Question: What is the impact of international and government business on demand? - Approximately 30% of the portfolio is in top markets affected by international travel, with a modest decrease in government business noted [34][35] Question: How confident is the company in completing hotel sales at the expected price? - Management expressed confidence due to a robust selection process and strong buyer interest, with transactions expected to occur in phases [36][38] Question: Will the company continue to have hotel exposure in the future? - Management confirmed that while there will be a shift towards net lease properties, the company will maintain hotel exposure to drive EBITDA [41][43] Question: What is the outlook for the Sonesta stake? - The company believes the value of its 34% stake in Sonesta will grow as Sonesta transitions to a franchise model, enhancing margins [50][51]

Service Properties Trust (SVC) Q1 2025 Earnings Call May 07, 2025 10:00 AM ET Company Participants Kevin Barry - Senior Director - IRChristopher Bilotto - President, CEO & Managing TrusteeJesse Abair - Vice PresidentBrian Donley - CFO & TreasurerJonathan Jenkins - Equity Research Associate DirectorMeredith Jensen - US Consumer Equity ResearchJack Armstrong - Equity Research Associate Conference Call Participants John Massocca - Senior Research Analyst Operator Good morning, and welcome to the Service Proper ...

Financial Data and Key Metrics Changes - The company reported normalized FFO of $10.8 million or $0.07 per share, down from $0.13 per share in the prior year quarter [21] - Adjusted EBITDAre increased slightly year over year to $115.8 million [21] - Interest expense increased by $10.1 million compared to the prior year [21] Business Line Data and Key Metrics Changes - Comparable hotel RevPAR grew by 2.6% year over year, with GOP and adjusted hotel EBITDA declining due to renovations and increased costs [5][9] - Full service hotels reported a 1.9% increase in RevPAR, while select service portfolio saw a 10.6% increase [9][10] - Extended stay portfolio's RevPAR was flat, impacted by renovations [10] Market Data and Key Metrics Changes - The lodging portfolio experienced a slowdown in RevPAR growth as the quarter progressed, influenced by reduced government and international travel [6][30] - Group revenue pace increased by 6.5% year over year, indicating strong demand despite overall market challenges [33] Company Strategy and Development Direction - The company plans to sell 123 hotels in 2025, with estimated proceeds of $1.1 billion to strengthen the balance sheet and reinvest in growth opportunities [7][13] - A strategic shift towards increasing net lease exposure is anticipated, with a target of 54% net lease and 46% lodging assets post-disposition [14] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing macroeconomic uncertainties but expressed confidence in portfolio optimization initiatives and durable cash flows from net lease assets [14] - The company expects RevPAR for Q2 to be between $99 and $102, with adjusted hotel EBITDA projected at $69 million to $74 million [25] Other Important Information - The company is focused on capital expenditures of approximately $250 million for the year, with $120 million to $140 million allocated for maintenance capital [27] - The company has recognized an impairment on 16 hotels, with expectations of a gain on sale for the remaining hotels in the portfolio [68][70] Q&A Session Summary Question: Can you walk us through the RevPAR trends in the quarter? - Management indicated that RevPAR started strong in January but showed deceleration by March, with preliminary April numbers showing a decrease of 1% year over year [30][31] Question: What is the impact of international and government business on demand? - Approximately 30% of the portfolio is in top markets, with a modest decrease in government contracts noted [32][33] Question: How confident is the company in completing hotel sales at the expected price? - Management expressed confidence due to a robust selection process and active diligence with buyers [34][36] Question: Will the company continue to have hotel exposure in the future? - The company plans to maintain hotel exposure while increasing net lease properties, expecting performance progress on both sides [40][41] Question: What caused the shift in timing for hotel dispositions? - The shift was attributed to the diligence process associated with larger portfolios rather than broader market concerns [59][60] Question: How is the CapEx program being managed in light of potential tariff impacts? - The company is monitoring tariffs and has locked in pricing for many projects, with contingencies in place to manage costs [62][63] Question: What types of properties were acquired in the net lease segment? - The company acquired a car wash and a casual dining concept, with plans for further acquisitions in QSR and casual dining [76][78] Question: What is the outlook for the Sonesta brand in relation to the hotel portfolio? - The plan is for the hotels being sold to retain the Sonesta franchise agreements [84]

Core Insights - Service Properties (SVC) reported revenue of $435.18 million for Q1 2025, a slight year-over-year decline of 0.3% [1] - The company's EPS for the same period was $0.07, a significant improvement from -$0.48 a year ago [1] - The reported revenue exceeded the Zacks Consensus Estimate of $428.9 million, resulting in a surprise of +1.46% [1] - The EPS also surpassed the consensus estimate of $0.05, delivering a surprise of +40.00% [1] Revenue Breakdown - Hotel operating revenues were reported at $334.96 million, slightly above the estimated $329.65 million, reflecting a year-over-year decline of 0.4% [4] - Rental income reached $100.22 million, exceeding the average estimate of $99.29 million, with a year-over-year increase of 0.2% [4] Stock Performance - Over the past month, shares of Service Properties have returned +6.6%, compared to the Zacks S&P 500 composite's +11.5% change [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

分组1 - Service Properties (SVC) reported quarterly funds from operations (FFO) of $0.07 per share, exceeding the Zacks Consensus Estimate of $0.05 per share, but down from $0.13 per share a year ago, representing a 40% surprise [1] - The company posted revenues of $435.18 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 1.46%, although this is a slight decrease from $436.25 million in the same quarter last year [2] - Over the last four quarters, Service Properties has surpassed consensus FFO estimates two times and topped consensus revenue estimates three times [2] 分组2 - The stock has underperformed, losing about 24% since the beginning of the year compared to the S&P 500's decline of 3.9% [3] - The current consensus FFO estimate for the coming quarter is $0.41 on revenues of $501.72 million, and for the current fiscal year, it is $0.90 on revenues of $1.86 billion [7] - The Zacks Industry Rank for REIT and Equity Trust - Other is currently in the bottom 34% of over 250 Zacks industries, indicating potential challenges for the sector [8]

Company Overview - As of March 31, 2025, the company owned 941 properties across 46 states, the District of Columbia, Canada, and Puerto Rico[101]. - The company owned 739 service-focused retail properties leased to 175 tenants, with TA being the largest tenant, leasing 175 travel centers[109]. - The hotel portfolio includes 145 distinct brands across 22 industries, with a total of 201 comparable hotels[161]. - As of March 31, 2025, the company operates net lease tenants across 21 distinct industries within the U.S. service-focused retail sector[171]. Financial Performance - For the three months ended March 31, 2025, hotel operating revenues decreased by 0.4% to $334,963,000 compared to $336,236,000 in 2024[112]. - The company's net loss for the three months ended March 31, 2025, was $116,435,000, an increase of 48.5% from a net loss of $78,383,000 in 2024[122]. - Revenues for the three months ended March 31, 2025, were $369,833, while expenses were $451,361, resulting in a net loss of $81,528[156]. - Funds From Operations (FFO) for the three months ended March 31, 2025, is $10,186,000, down from $21,104,000 in 2024[180]. - Normalized FFO for the same period is $10,836,000, compared to $21,106,000 in 2024[180]. Occupancy and Revenue Metrics - The average daily rate (ADR) for comparable hotels increased by 1.3% to $144.61 in Q1 2025, while revenue per available room (RevPAR) increased by 2.6% to $83.67[107]. - The average occupancy rate for comparable hotels is 57.9%, an increase of 0.8 percentage points from the previous year[163]. - The overall occupancy rate for all hotels was 57.8%, reflecting a 0.8 percentage point increase from the previous year[164]. - The retained hotels segment had an average occupancy of 56.4%, with a RevPAR of $98.59, representing a 3.9% increase[164]. Asset Management - The net lease portfolio was 97.8% occupied as of March 31, 2025, with annual minimum rents totaling $380,568,000[109]. - The company is in the process of selling 119 hotels with a total of 15,912 keys and a combined net carrying value of $945,100,000, expected to be completed in 2025[103]. - The company sold seven properties for a total sales price of $22,700 in Q1 2025, with additional pending sales of four hotels for $26,500[132]. - Lease renewals for 31,607 rentable square feet were completed at an average rent increase of 18.0% compared to prior rents[165]. - New leases for 1,685 rentable square feet were signed at a rent increase of 15.7% over prior rents[165]. Debt and Financing - As of March 31, 2025, the total outstanding fixed rate debt is $5,681,122, with an annual interest expense of $361,831[182]. - The company had $50,000 outstanding under its $650,000 revolving credit facility, with $600,000 available for borrowings[136]. - The annual interest rate on borrowings under the revolving credit facility was 6.91% as of March 31, 2025, down from 7.84% in 2024[136]. - Debt maturities as of March 31, 2025, totaled $5,681,122, with significant maturities in 2026 ($801,958) and 2027 ($851,958)[140]. - The company amended its revolving credit facility to reduce the required debt service coverage ratio from 1.50 times to 1.30 times, effective for Q4 2024[138]. Market Risks and Interest Rates - The company is exposed to market risks associated with interest rate changes, managing this exposure by monitoring financing alternatives[181]. - A one percentage point increase in interest rates would raise the annual floating rate interest expense from $6,232 to $7,182 based on current outstanding amounts[186]. - Changes in market interest rates will affect the fair value of fixed rate debt obligations, with a hypothetical one percentage point change potentially altering fair value by approximately $180,112[182]. - The company may consider hedge arrangements in the future to mitigate exposure to interest rate fluctuations[189]. Distributions and Shareholder Returns - The company declared a quarterly distribution of $0.01 per common share, totaling approximately $1,666, to be paid on May 15, 2025[134]. - The company declared distributions of $0.01 per share for the three months ended March 31, 2025, down from $0.20 per share in 2024[180].

Financial Performance - Service Properties Trust reported a net loss of $116.4 million, or $0.70 per common share, for the first quarter of 2025[14]. - The total revenues for the quarter were $435.2 million, down from $456.6 million in the previous quarter[17]. - Total revenues for Q1 2025 were $435,179, a slight decrease of 0.25% from $436,250 in Q1 2024[18]. - Net loss for Q1 2025 was $116,435, compared to a net loss of $78,383 in Q1 2024, representing a 48.6% increase in losses year-over-year[18]. - Total expenses increased to $447,302 in Q1 2025, up from $415,873 in Q1 2024, marking a 7.5% rise[18]. - Cash and cash equivalents decreased to $80,147 as of March 31, 2025, down from $143,482 at the end of 2024, a decline of 44.6%[22]. - Total assets decreased to $6,976,079 as of March 31, 2025, compared to $7,119,558 at the end of 2024, a reduction of 2.0%[22]. - Total shareholders' equity decreased to $734,573 as of March 31, 2025, down from $851,873 at the end of 2024, a decline of 13.8%[22]. - Funds from Operations (FFO) for the three months ended March 31, 2025, was $10,186,000, down from $18,946,000 in the previous quarter[87]. - Normalized FFO for the same period was $10,836,000, compared to $28,617,000 in the previous quarter[87]. - EBITDA for the three months ended March 31, 2025, was $75,025,000, a decrease from $116,958,000 in the previous quarter[89]. Hotel Operations - The company achieved a 2.6% increase in comparable hotel RevPAR, reaching $83.52, despite revenue displacement from hotel renovations[8]. - Hotel operating revenues decreased to $334,963 in Q1 2025 from $336,236 in Q1 2024, a decline of 0.38%[18]. - The average occupancy rate for all hotels increased to 57.9% in Q1 2025, up from 57.1% in Q1 2024, representing a 0.8 percentage point increase[60]. - The average daily rate (ADR) for all hotels rose to $144.61 in Q1 2025, a 1.3% increase from $142.74 in Q1 2024[60]. - The full-service segment's average occupancy was 53.5% in Q1 2025, down from 54.5% in Q1 2024, a decrease of 1.0 percentage point[60]. - The extended stay and select service segment achieved an average occupancy of 64.6% in Q1 2025, up from 56.6% in Q1 2024, an increase of 8.0 percentage points[60]. - The adjusted hotel EBITDA for retained hotels decreased by 20.2% to $17.696 million in Q1 2025 from $22.164 million in Q1 2024[60]. - Room revenues for Q1 2025 were $266,439, a decrease of 4.5% from $278,614 in Q4 2024[91]. - Total hotel operating expenses for Q1 2025 were $313,309, slightly down from $321,127 in Q4 2024[91]. Asset Management - The net lease occupancy rate was 97.8% as of March 31, 2025, with a net lease rent coverage of 2.07x[14]. - The company sold four hotels and three net lease properties for net proceeds exceeding $20 million, ending the quarter with over $680 million in liquidity[8]. - Service Properties Trust plans to sell 123 hotels for a total of $1.1 billion this year, with four hotels under agreements to be sold for $26.5 million[9]. - Capital expenditures for the quarter amounted to $45.8 million[14]. - The company owns 202 hotels and 739 service-focused retail net lease properties as of March 31, 2025[13]. - The company has 739 net lease properties, with a total investment of $5,031,881, accounting for 44.3% of total investments[42]. - The average lease term for acquired properties is 18.5 years, with a weighted average lease coverage of 2.14x[38]. - The company disposed of 3 hotel properties in Q1 2025 for a total sales price of $15,100, averaging $35,952 per room[38]. - The company reported a net gain on the sale of real estate of $746 in Q1 2025, in connection with the sale of four hotels and three net lease properties[94]. Investment and Portfolio - As of March 31, 2025, the total investment in the net lease portfolio is $5,031,881,000, with an annualized minimum rent of $380,568,000, resulting in a rent coverage ratio of 2.07x[65]. - TravelCenters of America Inc. is the largest tenant, accounting for 65.0% of total investment at $3,270,106,000 and generating an annualized minimum rent of $259,080,000[69]. - The travel center industry represents 65.8% of the total investment in the portfolio, with 178 properties and an annualized minimum rent of $262,392,000[65]. - The average investment per property across 111 distinct brands is $2,651, with an average annual minimum rent of $176 per property[64]. - The top 10 tenants account for 76.0% of total investment, with a combined annualized minimum rent of $299,895,000[69]. - The portfolio includes 739 properties with a total square footage of 13,189,476, indicating a diverse range of tenants and industries[65]. - The weighted average lease term for the portfolio is 7.4 years[72]. Management and Strategy - The company is managed by The RMR Group, which has approximately $40 billion of real estate assets under management[80]. - Forward-looking statements indicate SVC's plans for hotel sales to enhance liquidity and optimize its portfolio, though these are subject to various risks and uncertainties[123]. - SVC's ability to maintain sufficient liquidity and manage debt is critical for its operational stability and growth[123]. - The company faces risks from market conditions, including interest rate fluctuations and economic downturns, which could impact its performance[123]. - SVC's management agreements include provisions for minimum returns, with certain payments secured by guarantees, enhancing revenue predictability[117].

Group 1 - The theme of the article is centered around value creation in investing, emphasizing that investors are all seeking alpha through various mechanisms [1] - Value creation is often associated with taking on different risk factors, which can manifest in various forms [1] Group 2 - The article does not provide specific company or industry insights, focusing instead on general investment principles and the nature of risk [2]