Service Properties Trust (SVC) Nareit REIT Week: 2024 Investor Conference summary

Net lease portfolio overview

• Net lease assets comprise about 45% of the portfolio, with $5.5 billion invested across 749 properties.

• TravelCenters of America assets generate $250 million in annual rent, with leases now guaranteed by BP and 2% annual escalators through 2033.

• Non-Travel Center net lease assets provide $110 million in annual rent, with strong 3.5x rent coverage and high occupancy rates.

• Recent asset sales focused on vacant or non-core properties, with plans to recycle capital into higher-yielding assets.

• Portfolio strategy includes maintaining strong restaurant exposure and selectively shifting within industries for better returns.

Hotel portfolio performance and strategy

• Hotel assets represent 55% of the portfolio, with 220 hotels diversified by service level and geography.

• Royal Sonesta upper upscale hotels have outperformed, while select service hotels lag due to slow business travel recovery.

• Conversion of 200 hotels to Sonesta brand post-2020 brought mixed results; upper upscale and extended stay hotels performed well, but select service hotels face loyalty program challenges.

• Operational efficiencies achieved post-pandemic, but labor and insurance costs have permanently increased, impacting margins.

• CapEx program of $300 million in 2024 targets both maintenance and ROI projects, with a high single-digit return expectation.

Sonesta brand and franchising growth

• Owns 34% of Sonesta, which now manages about 90% of the hotels and is focused on franchising for future growth.

• Red Lion acquisition expanded franchising infrastructure; Sonesta aims to grow franchise count significantly in the U.S. and internationally.

• Franchise fees are competitive with major brands, and most sold hotels remain Sonesta-branded under new franchise agreements.