Service Properties Trust(US:SVC)2025-11-06 16:00Financial Data and Key Metrics Changes - Normalized FFO for Q3 2025 was $33.9 million or $0.20 per share, down from $0.32 per share in the prior year quarter [15] - Adjusted EBITDA RE decreased by $10 million year over year to $145 million, primarily impacted by a $13.1 million decline in adjusted hotel EBITDA and an $8.7 million increase in interest expense [15][16] - Gross operating profit margin percentage declined by 330 basis points to 24.4% [15] Business Line Data and Key Metrics Changes - Hotel portfolio generated adjusted hotel EBITDA of $44.3 million, an 18.9% decline from the prior year due to softer demand and expense pressures [16] - REVPAR for the retained portfolio increased by 60 basis points year over year to $114, while the 76 domestic exit hotels not yet sold generated REVPAR of $72, a decline of 1% [16][17] - The triple net lease segment reported annualized base rent growth of 2.3% and NOI increased by 50 basis points year over year [12] Market Data and Key Metrics Changes - The U.S. travel market is facing headwinds, with domestic leisure travel declining to its lowest point in several years, reflecting heightened price sensitivity and shorter booking windows [7] - The triple net lease market continues to show resilience and growth, driven by consumer preferences for convenience and affordability [10] Company Strategy and Development Direction - The company is focused on capital recycling initiatives, strengthening its balance sheet, and transitioning towards a net lease company [5][6] - Significant capital investments have been made to elevate hotel quality, with renovations completed at nearly 45% of the retained hotel portfolio [9] - The company plans to continue with hotel dispositions in 2026, focusing on negative EBITDA hotels [48] Management's Comments on Operating Environment and Future Outlook - Management noted that the travel industry is experiencing softness, with cost pressures and a cautious consumer mindset impacting performance [7][36] - The company expects to see stability and margin improvement as the disposition pipeline normalizes and renovated hotels capture additional market share [9][20] - Fourth-quarter guidance projects REVPAR of $86-$89 and adjusted hotel EBITDA in the $20-$25 million range, considering seasonality and recent headwinds [17] Other Important Information - The company raised over $850 million in proceeds, including $295 million from asset sales during the quarter [5] - The company has $5.5 billion of debt outstanding with a weighted average interest rate of 5.9% [18] - Full-year CapEx guidance has been lowered from $250 million to approximately $200 million due to a shift in the pace of deployment [20] Q&A Session Summary Question: How realistic is it that all remaining hotel sales will close by year-end? - Management indicated that they are tracking to close 40-50% of the remaining balance in November, with the rest in December [23] Question: Can you discuss the $27 million impairment taken in the quarter? - Management clarified that it was related to shifting purchase price allocations and does not indicate further impairments [25] Question: What is the expectation for the declining rent coverage in the travel center portfolio? - Management noted that while there has been a decline, they are not particularly concerned due to the investment-grade backing from BP [27] Question: Can you elaborate on the hotel portfolio's Q3 performance? - Management explained that the timing of asset sales and some insurable events contributed to the performance being below expectations [32] Question: What is the rationale behind issuing zero-coupon bonds? - The primary goal was to provide headroom with covenants and improve liquidity, allowing for better management of debt maturities [40] Question: What is the outlook for potential further dispositions in 2026? - Management confirmed plans to continue with hotel dispositions in 2026, focusing on negative EBITDA hotels [48]