Service Properties Trust ((SVC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Service Properties Trust’s recent earnings call presented a balanced sentiment, highlighting strategic achievements in capital market activities and debt management, while acknowledging challenges in the hotel segment due to market headwinds and increased expenses. The company celebrated significant asset sales and net lease performance, yet faced a decline in hotel EBITDA and other disruptions.
Successful Capital Market Activities
Service Properties Trust reported a successful quarter in capital market activities, raising over $850 million in proceeds. This includes $295 million from asset sales during the quarter, $67 million from asset sales in October and November, and approximately $490 million from the issuance of new zero-coupon bonds. These efforts reflect the company’s strategic focus on strengthening its financial position.
Debt Management and Financial Flexibility
The company has made significant strides in debt management by fully repaying its revolving credit facility and retiring all 2026 senior notes. These actions have improved Service Properties Trust’s debt maturity profile and enhanced its covenant position, providing greater financial flexibility.
Hotel Sales Progress
Service Properties Trust is on track to complete the sale of 121 hotels for gross proceeds of $959 million. In October, six hotels were sold for $66.5 million, and 69 more are expected to close in November and December for $567.5 million. This progress underscores the company’s commitment to optimizing its portfolio.
Net Lease Segment Performance
The net lease portfolio delivered a steady performance, with rent growth exceeding 2%, stable rent coverage, and occupancy rates over 97%. This segment continues to be a strong performer for the company, contributing positively to its overall results.
RevPAR Growth
Service Properties Trust experienced a 20 basis point increase in RevPAR year-over-year, outpacing the broader industry by 160 basis points. This growth was driven by occupancy gains, highlighting the company’s competitive positioning in the market.
Decline in Hotel EBITDA
Despite positive trends in other areas, hotel EBITDA declined by 18.9% from the previous year. This decline was attributed to softer demand and expense pressures, including elevated labor costs and insurance expenses, reflecting ongoing challenges in the hotel sector.
Interest Expense Increase
The company reported an $8.7 million increase in interest expenses year-over-year, which impacts its overall financial performance and highlights the need for continued financial management.
Travel Market Headwinds
The U.S. travel market is facing headwinds with uneven demand trends amid economic uncertainty, affecting hotel performance. This environment poses challenges for Service Properties Trust as it navigates these market conditions.
Insurance and Fire-Related Disruptions
Significant disruptions were reported due to fire-related events at two full-service hotels, impacting overall performance. These events underscore the unpredictable nature of the hospitality industry.
Impairment Charges
A $27 million impairment charge was recorded due to shifting purchase price allocations among hotel portfolios. This reflects the company’s ongoing efforts to adjust its asset valuations in response to market conditions.
Forward-Looking Guidance
Service Properties Trust provided forward-looking guidance during the earnings call, projecting a sequential decline in fourth-quarter RevPAR to be between $86 and $89. Adjusted hotel EBITDA is anticipated to range from $20 million to $25 million, reflecting seasonal declines and industry headwinds. The company plans to use proceeds from remaining hotel sales, projected to bring in $567.5 million, to repay February 2027 senior unsecured notes, further improving its financial standing.
In summary, Service Properties Trust’s earnings call reflected a balanced sentiment, with significant achievements in capital market activities and debt management juxtaposed against challenges in the hotel segment. The company’s strategic initiatives in asset sales and net lease performance were notable highlights, while the decline in hotel EBITDA and disruptions posed ongoing challenges. Looking ahead, the company remains focused on leveraging proceeds from asset sales to strengthen its financial position amid industry headwinds.