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SP

Service Properties Trust (SVC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered top- and bottom-line hotel results at the high end of guidance, with comparable hotel RevPAR up 4.2% YoY and adjusted hotel EBITDA above prior guidance, despite renovation-related revenue displacement .
  • Normalized FFO was $28.6M ($0.17/share) and adjusted EBITDAre was $130.6M; net loss was $(76.4)M (EPS $(0.46)), pressured by higher interest expense and lower interest income YoY .
  • Management reiterated expectations to net at least $1.0B from selling 114 Sonesta focused-service hotels, targeting buyer selections in March and initial closings in Q2 2025; proceeds prioritized for 2026 debt maturities .
  • 2025 guidance introduced: Q1 RevPAR $82–$84 and adjusted hotel EBITDA $20–$24M; full-year CapEx ≈$250M, with maintenance CapEx normalizing to $65–$75M beyond 2025 versus $110–$130M in 2025 .
  • Potential stock catalysts: execution on >$1B hotel sales (valued at ~16.5x 2024 hotel EBITDA), accelerated deleveraging, and completion of marquee renovations (LAX, Hilton Head) in H1 2025 .

What Went Well and What Went Wrong

What Went Well

  • Comparable hotel RevPAR rose 4.2% YoY, outpacing industry by ~60 bps; excluding 14 hotels under renovation, RevPAR increased 6.8% on stronger transient and group occupancy .
  • Select service strength: RevPAR up 9.6% YoY, led by Hyatt Place (+26% YoY post-renovations) and Sonesta Select (~+4% YoY) .
  • Net lease portfolio remained a stabilizing anchor: 97.6% leased, 8-year WALT, trailing rent coverage 2.1x (ex-TA 3.7x), laddered maturities, with an under-contract acquisition (18-year lease) to seed growth .
    “We expect our net lease portfolio will continue to serve as a dependable income stream for SVC.” — Jesse Abair .

What Went Wrong

  • Hotel profitability: GOP flat YoY; adjusted hotel EBITDA down 2.4% YoY, with 14 hotels under renovation reducing adjusted hotel EBITDA by ~$8M .
  • Interest headwinds: interest expense up ~$9.4M YoY and interest income down ~$8.4M YoY, compressing consolidated results .
  • Transaction-related costs of $6.9M (labor litigation, re-opening costs, renovation-related professional fees) weighed on reported GAAP results .

Financial Results

MetricQ4 2023Q1 2024Q2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$444.050 $436.250 $512.948 $491.171 $456.559
Net Loss ($USD Millions)$(43.323) $(78.383) $(73.850) $(46.901) $(76.392)
Net Loss per Share (EPS, $)$(0.26) $(0.48) $(0.45) $(0.28) $(0.46)
Normalized FFO ($USD Millions)$50.036 $21.206 $73.810 $52.869 $28.617
Normalized FFO per Share ($)$0.30 $0.13 $0.45 $0.32 $0.17
Adjusted EBITDAre ($USD Millions)$141.154 $115.548 $171.524 $154.992 $130.649
Adjusted Hotel EBITDA ($USD Millions)$44.125 $28.915 $82.417 $60.065 $43.086
Adjusted Hotel EBITDA Margin (%)12.7% 8.6% 20.0% 15.4% 12.0%
Consensus EPS (S&P Global)————N/A (consensus unavailable)
Consensus Revenue (S&P Global)————N/A (consensus unavailable)

Segment breakdown (Revenue and Expenses):

Item ($USD Millions)Q4 2023Q4 2024
Hotel Operating Revenues$343.385 $357.048
Rental Income (Net Lease)$100.665 $99.511
Total Revenues$444.050 $456.559
Hotel Operating Expenses (GAAP)$297.488 $312.285
Net Lease Operating Expenses$4.584 $5.345

Key KPIs:

KPIQ4 2023Q4 2024
Comparable Hotels Occupancy (%)58.0% 60.9%
Comparable Hotels ADR ($)$139.42 $138.38
Comparable Hotels RevPAR ($)$80.87 $84.27
All Hotels RevPAR ($)$80.73 $84.13
Net Lease Occupancy (%)97.1% 97.6%
Net Lease Rent Coverage (x)—2.10x
Debt Outstanding ($USD Billions)—$5.8
Weighted Avg Interest Rate (%)—6.4%

Note: S&P Global Wall Street consensus for Q4 2024 was unavailable at time of request due to a daily limit; therefore, estimate comparison cells are marked N/A.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Hotel EBITDA ($USD Millions)Q4 2024$34–$39 Actual: $43.1 Beat vs guide
RevPAR ($)Q1 2025N/A$82–$84 New
Adjusted Hotel EBITDA ($USD Millions)Q1 2025N/A$20–$24 New
Total CapEx ($USD Millions)FY 2025N/A≈$250 New
Maintenance CapEx Run-Rate ($USD Millions)Post-20252025 maintenance $110–$130 $65–$75 going forward Lower beyond 2025
Dividend per Common Share ($)Quarterly$0.20 (pre-10/16/24) $0.01 (Q1 2025 payable) Lowered
Hotel Sales Proceeds ($USD Billions)2025~$1.0 At least $1.0 Reaffirmed/raised language

Management noted no reconciliation for non-GAAP guidance due to unavailable information .

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
Portfolio Optimization (hotel sales)Planned 22 noncore hotel sales; backlog of held-for-sale assets Announced plan to sell 114 Sonesta focused-service hotels; ~$1B target First-round bids >50 sub-portfolios; expect ≥$1B, buyers selected in March; closings start Q2 Accelerating execution
Renovations impact21 hotels under renovation; EBITDA decline $5.7M; RevPAR ex-renovations +1.6% 17 hotels under renovation; EBITDA decline $7.1M 14 hotels under renovation; adjusted hotel EBITDA down $8M ; marquee completions in H1 2025 Nearing key completions
Net Lease Stability97.3% leased; rent coverage 2.25x; strong BP-backed TA leases 97.6% leased; coverage 2.2x; ex-TA 3.7x 97.6% leased; coverage 2.1x; ex-TA 3.7x; begin selective acquisitions Stable; pivot to growth
Debt & LiquidityNo maturities until 2026; executed $1.2B notes at 8.375%/8.875% ~$5.7B fixed-rate debt; 2026 maturities; liquidity intact $5.8B debt; 6.4% rate; priority to address 2026 maturities with sale proceeds Focused deleveraging
Dividend PolicyCAD payout >100%; board evaluating Cut to $0.01 (10/16/24) to save $127M/year Declared $0.01 for Q1 record date 1/27/25 Lowered & sustained
Seasonality & RevPARUrban outperformed; group mix rising Guide: Q4 RevPAR $82–$85; hotel EBITDA $34–$39M Guide: Q1 RevPAR $82–$84; margins weakest in Q1/Q4, stronger in Q2/Q3 Typical bell curve
Brand/Franchise StrategySonesta Travel Pass growth; brand building Expect majority of sale hotels to remain Sonesta-encumbered Most sale hotels likely Sonesta franchised; SVC owns 34% of Sonesta Monetize royalty stream
Legal/Costs——Transaction-related costs $6.9M (labor litigation, reopening, professional fees) One-time headwinds

Management Commentary

  • “During the fourth quarter both top line and bottom line hotel results came in at the high end of our guidance range... comparable hotel RevPar grew 4.2% year over year... We are confident that the optimization of our hotel portfolio, stable cash flows from our triple net lease assets and effective capital management will be significant drivers of long-term value creation.” — Todd Hargreaves, President & CIO .
  • “Assuming we sell the 114 Sonesta hotel portfolio for at least $1 billion, that pricing would imply a 16.5x multiple on 2024 hotel EBITDA of $60.5 million... well above SVC's multiple of approximately 10x full year 2024 adjusted EBITDAre.” — Brian Donley, CFO .
  • “The aggregate coverage of our net lease portfolio's minimum rents was 2.1x... Excluding our TA TravelCenter properties... coverage held steady at 3.7x.” — Jesse Abair, VP .
  • “Priority... will be to address our 2026 debt maturities... then CapEx investment... then recycle and grow net lease.” — Brian Donley .

Q&A Highlights

  • Credit facility covenants amended (min debt service coverage reduced to ~1.3x from 1.5x) as a precaution; collateral being swapped to TA pool; management does not expect dipping below ~1.5x .
  • Net lease acquisition strategy begins with small, individual assets; under agreement for a $5.3M retail property with 18-year remaining term; pipeline being built .
  • Hotel sale process stronger-than-expected interest with >50 sub-portfolio bids; majority expected to remain Sonesta-franchise encumbered; valuation framework considers SVC’s 34% Sonesta royalty stream stake for unencumbered bids .
  • CapEx: 2025 ≈$250M; maintenance CapEx normalization to $65–$75M beyond 2025 (vs $110–$130M in 2025); ~$20–$25M of 2025 CapEx tied to exit hotels .
  • Margin cadence: retained 83 hotels at ~15% margin in 2024; margins expected weaker in Q1 (seasonality, renovation completions), ramping to >20% in Q2 .

Estimates Context

  • Wall Street consensus from S&P Global (EPS, revenue, EBITDA) for Q4 2024 was unavailable at time of request due to daily limit constraints; as a result, beat/miss vs consensus cannot be assessed here. Management noted Q4 adjusted hotel EBITDA exceeded their guidance range .

Key Takeaways for Investors

  • Deleveraging path is visible: ≥$1B sale proceeds targeted by mid-2025 to address 2026 maturities; expect buyer selections in March and initial closings in Q2—track announcements and closing cadence as the primary near-term catalyst .
  • Operational resilience: Net lease asset base (97.6% occupied; 2.1x coverage; ex-TA 3.7x) provides stable cash flows while hotel portfolio transitions—supports balance sheet and strategic flexibility .
  • Renovation inflection: With LAX and Hilton Head completing in H1 2025, watch for margin recovery into Q2/Q3 seasonally strongest quarters; Q1 guide implies near-term softness .
  • Valuation uplift potential: Implied ~16.5x sale multiple for the 114 hotels vs ~10x SVC’s consolidated adjusted EBITDAre suggests potential NAV realization as the portfolio reshapes .
  • Dividend reset: Quarterly dividend reduced to $0.01 to preserve ~$127M annually—expect capital allocation focused on debt paydown and high-ROI projects; dividend policy likely remains conservative near term .
  • Monitoring points: credit facility covenant headroom post-collateral swap; pace of asset sales; maintenance CapEx normalization; net lease acquisition ROI and volume .
  • Narrative shift: From stabilization to optimization—fewer, higher-performing hotels with more leisure exposure and a growing, diversified net lease platform can improve mix and margin profile over the medium term .