• Comparable Hotel RevPAR Growth: 4.2% year over year.
• Excluding Renovations RevPAR Growth: 6.8% year over year.
• Full-Service Hotels RevPAR Growth: 4.3% year over year.
• Select Service Portfolio RevPAR Growth: 9.6% year over year.
• Extended Stay Portfolio RevPAR Growth: 1.2% year over year.
• Normalized FFO: $28.6 million or $0.17 per share.
• Adjusted EBITDAre: $130.6 million, a decline of 7.4% year over year.
• Interest Expense Increase: $9.4 million.
• Interest Income Decline: $8.4 million.
• Gross Operating Profit Margin: Declined by 160 basis points to 25.3%.
• Adjusted Hotel EBITDA: $43.1 million, a decline of 2.4% year over year.
• Debt Outstanding: $5.8 billion with a weighted average interest rate of 6.4%.
• Cash on Hand: $61 million.
• Capital Improvements: $85 million in Q4, $303 million for the full year 2024.
• Projected Q1 RevPAR: $82 to $84.
• Projected Q1 Adjusted Hotel EBITDA: $20 million to $24 million.

• Warning! GuruFocus has detected 7 Warning Signs with SVC.

Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Service Properties Trust (NASDAQ:SVC) reported its strongest hotel revenue growth in almost two years, with comparable hotel RevPAR growing 4.2% year over year.
• The company is successfully executing its strategy to sell 114 Sonesta hotels, expecting to net sales proceeds of at least $1 billion.
• SVC's net lease portfolio remains stable, with a 97.6% lease rate and a weighted average lease term of eight years, providing reliable cash flows.
• The select service portfolio showed exceptional growth, with RevPAR up 9.6% year over year, driven by occupancy growth.
• SVC is focusing on strengthening its balance sheet through asset sales and reinvesting in hotels with the highest opportunity for upside.

Negative Points

• Adjusted hotel EBITDA declined 2.4% year over year, impacted by renovation activities and pressures on expenses such as labor and real estate taxes.
• Normalized FFO decreased to $0.17 per share from $0.30 per share in the prior year quarter.
• Interest expense increased by $9.4 million, and interest income declined by $8.4 million, impacting financial results.
• The extended stay portfolio experienced a decline in ADR, with RevPAR growth of only 1.2%.
• The company faces continued disruption from hotel renovations, with 14 hotels expected to be under renovation in 2025.

Q & A Highlights

Q: Now that you won't be spending CapEx for the 115 assets to be sold, how have your return expectations changed for the remaining assets? A: Brian Donley, CFO, explained that the return expectations remain high single digits, with some projects like the James brand conversions expected to yield 20% to 30% returns. The overall target remains high single digits, varying by property and market.

Q: You mentioned a new focus on acquiring net lease assets. Can you provide context on the expected acquisition volume annually? A: Jesse Abair, Vice President, stated that initially, the acquisition volume will be small, focusing on individual assets. The strategy will be re-evaluated mid-year as they build their pipeline and assess market conditions.

Q: How much of the $150 million borrowed on the line in Q4 has been paid back in Q1? A: Brian Donley, CFO, noted that $50 million remains outstanding. The draw was made for liquidity management due to softer hotel results in December, January, and February.

Q: Regarding the amended credit facility, what are you modeling for the debt service coverage ratio this year? A: Brian Donley, CFO, explained that the amendment was precautionary to avoid breaching covenants due to declining results from renovations and sales. They do not expect to dip below the 15 ratio, maintaining adequate cushion.

Q: Can you discuss the process and interest level in the asset sales, particularly regarding the Sonesta brand? A: Kevin Barry, Senior Director of Investor Relations, mentioned that the process is going well, with strong interest from institutional buyers. Most hotels are expected to be sold with long-term Sonesta franchise agreements, with competitive offers received.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.