Service Properties Trust(SVC) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported normalized funds from operations (FFO) of $28.6 million or $0.17 per share, down from $0.30 per share in the prior year quarter [28] - Adjusted EBITDAre declined 7.4% year over year to $130.6 million [28] - Gross operating profit (GOP) margin percentage declined by 160 basis points to 25.3%, with GOP flat compared to the prior year period [29] Business Line Data and Key Metrics Changes - Comparable hotel RevPAR grew 4.2% year over year, with a 6.8% increase when excluding 14 hotels under renovation [9] - Full-service hotels reported a RevPAR increase of 4.3%, while select service portfolio RevPAR increased by 9.6% year over year [10][12] - The extended stay portfolio saw a RevPAR growth of 1.2%, with increased occupancy offsetting a decline in average daily rate (ADR) [13] Market Data and Key Metrics Changes - The company is marketing the sale of 114 Sonesta hotels, expecting to net sales proceeds of at least $1 billion [15][16] - The retained portfolio of 83 hotels experienced a RevPAR increase of 6.3% to approximately $101, with adjusted hotel EBITDA increasing by 10% year over year to $30.6 million [18] Company Strategy and Development Direction - The company aims to strengthen its balance sheet through asset sales and reinvest in hotels with the highest potential for upside [19] - The focus is on acquiring net leased assets and evolving the strategy to grow this portfolio through well-vetted acquisitions [25][80] - The company plans to address 2026 debt maturities with proceeds from hotel sales, followed by capital expenditures to enhance the hotel portfolio [75][80] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the current renovation program and portfolio rationalization efforts will lead to meaningful occupancy and rate gains in the upcoming year [20] - The company anticipates continued disruption in 2025 at hotels under renovation and expects softer seasonal results through the winter months [33] Other Important Information - The company completed renovations at 28 hotels in 2024, with a total capital expenditure of $303 million for the year [34] - Full-year 2025 capital expenditures are expected to be approximately $250 million, with a focus on maintenance capital and renovation initiatives [35] Q&A Session Summary Question: How would return expectations change for the remaining assets after not spending CapEx for the 115 assets to be sold? - Management indicated that return expectations remain the same, with high single-digit returns expected, but specific projects may yield higher returns [40][41] Question: Can you provide context around the acquisition volume for net leased assets? - Management stated that initial acquisition volumes would be small, with a focus on building out the pipeline in the first half of the year [44] Question: How much of the $150 million borrowed on the line in Q4 has been paid back in Q1? - Management confirmed that $50 million is currently outstanding from the draw made for liquidity management purposes [46] Question: What are the expectations for the debt service coverage ratio throughout this year? - Management expects to maintain a ratio close to 1.5%, indicating a precautionary measure to ensure stability [51] Question: Can you elaborate on the performance of the retained hotels in Q1? - Management noted that the retained hotels are expected to see a year-over-year decline in margins due to seasonal patterns and ongoing renovations [57][58] Question: How is the asset sale process going compared to expectations? - Management reported that the process has gone well, with strong interest from buyers and competitive bidding [64][65] Question: Will any of the $250 million capital expenditures be spent on hotels that are going to be sold this year? - Management indicated that a small percentage, approximately $20 to $25 million, may be spent on exiting properties for necessary maintenance [71] Question: What are the capital priorities for 2025? - Management outlined priorities as addressing 2026 debt maturities, capital expenditures for hotel enhancements, and potentially acquiring more net lease assets [75][80]