Service Properties Trust (SVC) 2025 Conference Transcript

Summary of Service Properties Trust (SVC) Conference Call Company Overview - Service Properties Trust (SVC) primarily operates in the lodging and net lease sectors, with a portfolio of over 200 hotels and more than 700 net lease properties, focusing on travel centers and necessity-based retail [3][4] Key Points Portfolio Strategy - SVC is undergoing a repositioning strategy, divesting certain hotel assets to focus more on a net lease strategy, particularly full-service hotel operations [4] - The company is actively marketing 123 hotels, with 114 focused service hotels being a significant part of the divestment strategy [11][12] - The divestment process has seen considerable interest, with 50 groups initially offering on the portfolio, narrowed down to four potential buyers [12] Financial Performance - RevPAR (Revenue per Available Room) grew modestly by over 2.5%, impacted by renovations and labor cost increases [6][7] - The hotel industry is facing challenges, including a pullback in RevPAR and softness in international travel, particularly affecting government contract revenues [8][9] Use of Proceeds - Proceeds from hotel sales, estimated at $800 million, will primarily be used to repay maturing senior notes and potentially reduce other debts [15][16] - The company aims to improve its balance sheet and leverage, targeting a reduction of leverage by one full turn post-divestment [43] Travel Center Assets - The travel center assets are considered the "crown jewels" of SVC's portfolio, with leases guaranteed by British Petroleum (BP) [22][24] - Despite recent challenges in fuel margins and freight demand, SVC remains confident in the long-term value of these assets [27] Net Lease Strategy - SVC's net lease portfolio includes over 700 properties, primarily consisting of quick-service restaurants (QSRs) and grocery stores [28][29] - The company is looking to expand its net lease acquisitions, with a pipeline of $40 million to $50 million under contract [29][30] Future Outlook - SVC anticipates that the remaining hotel portfolio will consist of 83 hotels, predominantly full-service, which are expected to yield better performance post-renovation [18][20] - The company is focused on maintaining a diversified REIT structure while emphasizing growth in the net lease sector [50][51] Capital Expenditures - Significant capital expenditures are planned, with $300 million spent in 2024 and $250 million projected for the current year, primarily on renovations [47][48] - The company expects capital expenditures to normalize after mid-2026 [49] Dividend Policy - Currently, SVC pays a minimal dividend of one cent per quarter, with future increases contingent on improved EBITDA and successful completion of asset sales [44][45] Transition Narrative - SVC is viewed as a transition story, focusing on deleveraging and enhancing the value of its portfolio, with a goal to narrow the discount to NAV (Net Asset Value) [52][53] Additional Insights - The company is strategically positioned to benefit from a strong buyer pool for its hotel assets, which may lead to favorable pricing [35] - Future growth will be supported by a flexible financing structure through a master trust, enhancing capital deployment opportunities [31][39]