Service Properties Trust Q1 Earnings Call Highlights

Key Points

• Service Properties Trust used roughly $1.5 billion in capital markets activity to retire $1.6 billion of debt, cutting annual cash interest expense by about $59 million and lifting normalized FFO guidance for 2026.
• Hotel performance was mixed: comparable-hotel RevPAR rose 6.7% year over year, but adjusted hotel EBITDA fell 9.2% as higher insurance and other costs pressured margins. The retained hotel portfolio performed better, while the 15 hotels being marketed for sale posted losses and weak RevPAR.
• SVC is continuing its asset-sale and portfolio repositioning strategy, advancing sales of 15 Sonesta-managed hotels and targeting a more measured pace of net lease acquisitions. Management says the company now has a stronger balance sheet, no unsecured debt maturities until 2028, and is shifting further toward net lease assets.

Service Properties Trust NASDAQ: SVC reported first-quarter 2026 results that management said reflected progress on a broader repositioning plan, including significant debt reduction, continued hotel asset sales and a more measured approach to net lease acquisitions.

President and Chief Executive Officer Chris Bilotto said the company completed roughly $1.5 billion of capital markets activity early in the year, including a $745 million asset-backed securities financing in March and a $575 million underwritten equity offering in April. The proceeds, together with cash on hand, were used to retire $1.6 billion of debt, producing annualized cash interest savings of $59 million, he said.

“We enter the remainder of 2026 with a stronger financial foundation and greater flexibility to execute our repositioning strategy and operational plans within our hotel portfolio,” Bilotto said.

Hotel RevPAR Rises, but EBITDA Declines

SVC’s hotel portfolio posted higher revenue per available room in the quarter, though earnings were weighed down by properties the company is seeking to sell and by higher costs.

Across 93 comparable hotels, RevPAR rose 6.7% year over year, driven primarily by occupancy gains across service levels and strength in the full-service segment. Adjusted hotel EBITDA declined 9.2% to $18.4 million. Brian Donley, Treasurer and Chief Financial Officer, said gross operating profit margin fell 70 basis points to 20.4%, while below-the-line costs increased $5.4 million from the prior year, driven by higher insurance expenses.

Performance was stronger in SVC’s retained hotel portfolio. Excluding 15 Sonesta-managed hotels currently being marketed for sale, RevPAR rose 7.5% year over year and hotel EBITDA increased 2.1% to $26.2 million. Bilotto said the improvement came despite revenue displacement from the redevelopment of The Nautilus in South Beach.

The 15 hotels being marketed for sale generated RevPAR of $49, down 3%, and produced losses of $7.8 million in the quarter. Bilotto said those hotels also carry “material future capital requirements,” reinforcing the company’s decision to exit them.

Asset Sales Remain Central to Repositioning

SVC continued its capital recycling effort during the quarter, selling a 133-key focused-service hotel for $7.1 million. The company also advanced the sale process for 15 Sonesta-managed hotels totaling about 3,000 keys, while removing one Sonesta Select property from the process to reassess its positioning.

Bilotto said buyer demand was strong for eight focused-service properties, which attracted nearly 30 bids from more than 12 buyers. The company has signed letters of intent with four buyers for expected total proceeds of approximately $61.2 million, which it intends to use to repay debt.

For seven full-service hotels, Bilotto said bids came in below initial targets. Six of the seven have been awarded to buyers for expected proceeds of $55.3 million, with an update on the final property expected in the coming quarter. During the question-and-answer session, Bilotto said the company still expects the sales to occur in the back half of the year, though some transactions could close during the third and fourth quarters.

Net Lease Portfolio Remains Highly Leased

Vice President Jesse Abair said SVC’s net lease portfolio contained 761 properties in 42 states at quarter-end, with annual base rents of $392 million. The portfolio was approximately 97% leased, with a weighted average lease term of 7.3 years. It includes 185 tenants operating under 140 brands across 21 industries.

Trailing 12-month rent coverage for the net lease portfolio was 2.01 times as of March 31, up slightly from the prior quarter. TravelCenters of America properties reported coverage of 1.24 times, up from 1.2 times in the fourth quarter.

During the quarter, SVC executed 20 leases totaling 219,000 square feet, with an average term of more than six years and an 8.5% cash rent roll-up. Less than 5% of annualized rents expire through the end of 2027.

Net lease NOI declined $2.2 million year over year, primarily due to credit loss reserves for certain leases and related operating expenditures. Abair said during the Q&A that about $2 million of credit losses were tied to two franchisees that filed for bankruptcy, with the company covering property taxes in the interim. He characterized the impact as a one-time item and said the underlying assets remain strong performers.

SVC has shifted to a more measured pace of net lease acquisitions in 2026, targeting about $25 million of annual volume funded through capital recycling. Since the start of the year, it invested $9 million in four properties, primarily funded by proceeds from 13 net lease dispositions.

Debt Reduction Lifts Guidance

Donley said normalized funds from operations were $7.4 million, or $0.04 per share, down $0.03 per share from the prior quarter. The decline was primarily driven by a $7.2 million decrease in hotel results, partly offset by lower interest expense from capital markets activity.

The company repaid $300 million of its February 2027 4.95% unsecured senior notes with cash raised from asset sales. It also used proceeds from the $745 million ABS offering to redeem $700 million of 8.375% senior unsecured guaranteed notes due June 2029, producing annual cash interest savings of approximately $14 million. Following the equity offering, SVC redeemed $450 million of 5.5% senior guaranteed unsecured notes due 2027 and the remaining $100 million of 4.95% senior unsecured notes due February 2027, generating another $29.7 million of annual cash savings.

After those transactions, SVC had $4.7 billion of debt outstanding at a weighted average interest rate of 5.65%. Donley said the company has no unsecured debt maturities until 2028 and that Moody’s upgraded SVC’s corporate family rating.

SVC reaffirmed its full-year outlook for hotel EBITDA, net lease NOI and consolidated Adjusted EBITDA. It raised its normalized FFO guidance to $124 million to $144 million, or $0.24 to $0.27 per share, reflecting the benefit of debt repayments. The guidance assumes midpoint interest expense of $360 million, general and administrative expense of $40 million and weighted average shares of 526 million. It does not include the impact of completing the 15 Sonesta hotel dispositions.

Management Addresses Costs, Governance and Sonesta Changes

In response to analyst questions, Donley said higher insurance premiums were a major factor pressuring hotel margins in the quarter, while labor costs rose about 3% year over year. He said RevPAR growth in April was comparable to the first quarter and that the company had not seen signs of a slowdown entering spring and early summer.

Bilotto also said SVC is working toward adding a board member with lodging experience. On Sonesta, he said a new management team began in April and is evaluating changes intended to improve hotel performance, including revenue mix, group and contract business, labor models, sales efforts and loyalty program growth.

Bilotto said the company’s broader transformation remains focused on selling noncore assets, improving hotel operations and shifting toward an increasingly net lease-oriented portfolio.

About Service Properties Trust NASDAQ: SVC

Service Properties Trust NASDAQ: SVC is a real estate investment trust (REIT) specializing in the acquisition, ownership and leasing of service-oriented properties, with a primary focus on the lodging sector. The company structures long-term, triple-net leases with established hotel operators under franchise agreements with leading global brands. By partnering with recognized hotel companies, Service Properties Trust seeks to generate a stable income stream through rent payments, while offering operators the capital and balance-sheet flexibility to grow their portfolios.

Since its formation in 2010, Service Properties Trust has grown its portfolio through strategic sale-leaseback transactions, targeted property acquisitions and selective dispositions.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.