Service Properties Trust Q4 FY2024 earnings call

• Hotel Portfolio: Strongest hotel revenue growth in almost two years, renovation activity impacted profitability. Full-service hotels had RevPAR growth, select service had exceptional growth, extended stay had RevPAR growth with occupancy offsetting ADR decline. Process of selling 114 Sonesta hotels ongoing.
• Net Lease Portfolio: Continues to generate stable cash flows, diverse tenant base, lease maturities well-laddered. Sold three net lease properties during the quarter, evolving strategy to focus on growth through acquisitions.
• Financial Results: Normalized FFO was $28.6 million or $0.17 per share vs $0.30 prior year. Adjusted EBITDAre declined 7.4%. Hotel performance by service level: full-service EBITDA down, select service up, extended stay down. 14 hotels under renovation had adjusted EBITDA decline $8M.

Hotel Portfolio: Comparable hotel RevPAR grew 4.2% year over year, outpacing the industry by 60 basis points. Excluding 14 hotels under renovation, comparable RevPAR increased 6.8%. GOP was flat year over year and adjusted hotel EBITDA declined 2.4%. Full-service hotels had RevPAR up 4.3%, select service portfolio had RevPAR up 9.6% YOY, extended stay portfolio RevPAR grew 1.2%. Net Lease Portfolio: Owns 742 service-oriented retail net lease properties with annual minimum rents of $381 million, 97.6% leased, weighted average lease term 8 years. 2.2% of minimum rent expires in 2025, aggregate coverage of minimum rents was 2.1 times on a trailing twelve-month basis as of Dec 31, 2024.

• Q1 2025 full quarter RevPAR expected $82 to $84, adjusted hotel EBITDA in $20 million to $24 million range.
• 2025 plans: Sell 123 hotels with 16,426 keys, full-year capital expenditures approximately $250 million, with $110 million to $130 million for maintenance capital.

• Renovation activity impacting hotel performance and profitability.
• Fluctuations in interest expense and income affecting financial results.
• Potential covenant compliance issues and collateral package changes impacting credit facility covenants.

Q: Now that you will not be spending CapEx for the 115 assets to be sold, how would your return expectations change for the remaining assets?

A: Generally expectations same, but projects like James conversion for Nautilus property in South Beach expect higher ROI in 20-30% range.

Q: Talk a little bit more about how the process of selling assets is going versus your expectations, and price dynamics of selling assets encumbered versus unencumbered.

A: Process gone very well, interest higher than expected. Compare unencumbered offers vs incumbent offers by looking at royalty fee stream and expense load.

Q: Was wondering if you could speak a little bit more about the net lease portfolio, are there portfolio assets that you would also sort of prune as you add more such that the net amount stays stable, and about the mix between hotel and net lease.

A: Prune assets by identifying sectors, historically shopped for 40-60 split, net lease seen as strength, hotel portfolio optimized by keeping better-performing, upside potential hotels.