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Service Properties Trust (SVC) 7 Aug 24 2024 Q2 Earnings call transcript

AInvestThursday, Aug 8, 2024 1:53 pm ET
1min read

Service Properties Trust (SVC) recently held its second quarter 2024 earnings call, providing insights into the company's performance and future prospects. While the quarter saw some revenue growth, especially in full-service and select service portfolios, there were also challenges, particularly in extended stay hotels due to reduced occupancy related to longer-term stays.

Key Themes and Trends

SVC reported a 4.1% increase in RevPAR for its urban hotels, outpacing the market. However, the company's extended stay hotels experienced a 1.6% decline in RevPAR, primarily due to lower occupancy rates in Salt Lake City, Portland, Oregon, and Dallas. The company's full-service portfolio saw a 2.9% increase in RevPAR, driven by strong group demand and increased F&B revenues. The net lease portfolio remained stable, with 749 service-oriented retail properties leased at 97.3% occupancy.

Management's Confidence and Strategic Direction

CEO Todd Hargreaves highlighted the company's progress in renovating hotels and the positive impact on performance. However, he acknowledged that these renovations also bring challenges, including revenue displacement during the renovation process. The company is focusing on selling underperforming hotels to improve market share and offer a higher quality portfolio.

Investor Engagement

During the Q&A session, analysts focused on topics such as the company's return on capital from CapEx spending, the timing of renovations, and the performance of extended stay hotels. Management provided detailed insights into these topics, offering a transparent view of the company's financials and strategic direction.

Financial Performance

SVC's financial results for the quarter showed a decline in normalized FFO and adjusted EBITDAre, primarily due to higher interest expense and lower hotel EBITDA. However, the company's net lease portfolio remained consistent, contributing significantly to its financial performance.

Looking Ahead

SVC expects its hotel portfolio to benefit from the needed renovations, despite mixed results due to revenue displacement. The company is also focusing on selling underperforming hotels to improve market share and portfolio quality. Looking ahead, SVC is well-positioned with a strong balance sheet and a well-leased net lease portfolio.

Conclusion

Service Properties Trust's second quarter earnings call provided a comprehensive update on the company's financial performance and strategic direction. While there were challenges, particularly in the extended stay hotels and renovation processes, management's confidence in the company's future prospects is evident. The company's focus on portfolio optimization, strategic renovations, and improving market share positions it well for future growth.

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