Service Properties Trust(US:SVC)2024-02-29 18:22Financial Data and Key Metrics Changes - For Q4 2023, normalized FFO was $50 million or $0.30 per share, down from $0.44 per share in the prior year quarter [22] - Adjusted EBITDAre decreased by 6.2% year-over-year to $141.2 million [22] - Hotel EBITDA for 221 hotels was $43.6 million, a 19.3% decline from the prior year [24] - Gross operating profit margin percentage declined by 210 basis points to 26.3% [40] Business Line Data and Key Metrics Changes - The hotel portfolio experienced a RevPAR decline of 2.2% year-over-year, with a significant impact from renovations [17] - Full-service hotels gained 40 basis points in RevPAR, driven by group and contract segments, which increased by 6.2% and 10.2% year-over-year, respectively [18] - The select service hotels saw a RevPAR decline of 5.8% due to renovations affecting 18 of 61 hotels [8] Market Data and Key Metrics Changes - OTA revenue as a percentage of total revenues decreased from 27.6% to 25.9% year-over-year [35] - The net lease portfolio was 97.1% leased with a weighted average lease term of 8.8 years [19] Company Strategy and Development Direction - The company is focused on optimizing its portfolio by selling lower-performing hotels and investing in renovations to improve performance [20][38] - A total of 36 hotels are expected to be under renovation throughout 2024, with capital expenditures projected between $250 million to $275 million [27][33] - The company aims to enhance brand awareness and loyalty programs to drive revenue growth [66] Management's Comments on Operating Environment and Future Outlook - Management expects market softness to continue in the first half of 2024 but is optimistic about improvements in the latter half due to macroeconomic factors [33] - The company anticipates continued disruption from renovations but expects to see benefits from completed renovations in terms of RevPAR increases [36] - Labor costs are expected to remain elevated due to significant year-over-year hourly wage increases [86] Other Important Information - The company has $5.6 billion of fixed-rate debt outstanding with a weighted average interest rate of 5.94% [26] - A regular quarterly common dividend of $0.20 per share was announced, representing a 48% normalized FFO payout ratio for 2023 [42] Q&A Session Summary Question: Can you quantify the impact of hotel renovations on margins and RevPAR? - Management indicated that the disruption from renovations would result in a projected 1% to 2% decline in RevPAR for the full year, with some hotels expected to see improvements post-renovation [44][45] Question: What is the expected capital expenditure for renovations? - The company expects to spend $250 million to $275 million in 2024 on capital improvements, with a portion deferred from 2023 [27][83] Question: How is the company addressing labor costs? - Management noted that most open positions have been filled, reducing reliance on contract labor, which allows for better negotiation on wages [76][86] Question: What is the outlook for the net lease portfolio? - The net lease portfolio remains stable, with 68% of annual minimum rents coming from an investment-grade rated tenant [38] Question: What is the expected timing for the sale of the 22 Sonesta hotels? - The company plans to market the hotels and expects to receive offers towards the end of March or early April, with sales likely to close in the second and third quarters [89]