Service Properties Trust (NASDAQ:SVC) executives used the company’s fourth-quarter 2025 earnings call to outline ongoing efforts to reshape its portfolio, reduce leverage, and improve its debt maturity profile, while also introducing 2026 financial guidance. Management emphasized that recent hotel dispositions and refinancing actions were intended to strengthen cash flows and lower borrowing costs, even as operating conditions in lodging remained uneven.
Portfolio repositioning and hotel sales
President and CEO Chris Bilotto said the company made “continued progress” optimizing its portfolio during the quarter, including completing previously announced hotel sales and taking steps to reduce leverage. In the fourth quarter, Service Properties Trust sold 66 hotels totaling nearly 8,300 keys for $534 million. For the full year, the company sold 112 hotels totaling about 14,600 keys for nearly $860 million.
As part of that plan, the company sold the Simply Suites in January for $7.1 million (133 keys) and relaunched the marketing of nine focused-service hotels initially brought to market in 2025. Management said these nine hotels have stable occupancy and positive cash flow, which it believes broadens the buyer pool.
In January, SVC also began marketing seven full-service Sonesta-managed hotels totaling 2,010 keys across the Southeast, Midwest, and Pacific Northwest. Bilotto described these as “cash drag” assets and said selling them is expected to increase annual EBITDA by about $13 million and improve leverage metrics. The company is targeting total proceeds of $175 million to $200 million, with buyer selection expected over the next several months and staggered closings during the back half of 2026. Proceeds are expected to be used for debt reduction.
During Q&A, management confirmed that the 16 hotels being marketed in 2026 (the nine focused-service hotels plus the seven full-service hotels) reflect the properties previously communicated. Executives said the nine remarketed hotels generated about $3 million of positive EBITDA for full-year 2025, and that the net benefit from removing the negative drag of the full group would have been about $10 million based on 2025 results.
Refinancing and balance sheet actions
Management also highlighted a new financing transaction aimed at lowering interest expense. Bilotto said SVC priced $745 million of new five-year mortgage financing secured by its existing net lease master trust. To support the financing, SVC contributed an additional 158 retail properties to the trust, including renewed or re-tenanted legacy assets, one travel center master lease, and properties acquired over the past year. The contributed properties had an appraised value of approximately $1.1 billion.
The proceeds are being used to redeem all $700 million of the company’s 8.375% notes due 2029. The new financing carries a weighted average coupon of 5.96%, and management expects annual cash savings of about $14 million, or $0.08 per share.
CFO Brian Donley said the company ended the period with $5.2 billion of debt outstanding and a weighted average interest rate of 5.95%. He also noted that using January asset sale proceeds, SVC partially repaid $300 million of its $400 million senior notes due February 2027, leaving $100 million outstanding.
Donley said the next maturities are the remaining $100 million due February 2027 and $580 million of zero-coupon notes due September 2027, which are secured by one of the TravelCenters of America (TA) leases and include a one-year extension option. He said the company expects to address the February 2027 maturity with proceeds from asset sales and expressed confidence it can refinance or extend the zero-coupon notes.
Hotel operations: RevPAR outperformance amid soft industry trends
Bilotto said the broader U.S. lodging industry remained soft in the quarter, with RevPAR down 1.1% year-over-year, and described performance as “bifurcated,” with luxury and upper upscale segments posting growth while lower-tier segments faced pressure from value-conscious consumers. He also cited muted business transient demand and referenced the impact of a prolonged government shutdown on certain segments.
SVC reported its portfolio RevPAR rose 70 basis points year-over-year, outperforming the broader industry by 180 basis points and marking a fifth consecutive quarter of outperformance, according to Bilotto. He attributed momentum in part to renovations completed in recent years, noting that nearly half of the retained portfolio has been upgraded. Excluding the hotels being exited, the remaining 77 hotels posted RevPAR growth of 170 basis points year-over-year, driven by occupancy gains of 140 basis points. Management said airline-related contract business was a key growth driver, partially offset by declines in government bookings and softer transient revenues.
However, both Bilotto and Donley said EBITDA declined due to elevated labor costs and broader operating expense pressures. They also said the scale and timing of hotel dispositions caused operational disruption during the quarter, which management characterized as transitional and expected to taper as dispositions conclude.
Donley reported that for the quarter, adjusted hotel EBITDA was $21.3 million, down 35% year-over-year, reflecting labor costs, higher overhead, and the absence of business interruption insurance recognized in the prior year. For the 94 comparable hotels, RevPAR increased 70 basis points and gross operating profit margin fell 370 basis points to 20.5%.
Management also noted leadership changes at Sonesta, which manages most of SVC’s hotels and is 34% owned by SVC. Bilotto said Sonesta appointed Keith Pierce and Jeff Leer as co-CEOs effective April 1, and he expressed confidence their experience could improve market share and operational discipline. In response to an analyst question, management said SVC’s 2026 guidance does not include specific benefits from the new leadership and assumes limited growth in SVC’s share of Sonesta earnings.
Net lease platform: acquisitions, leasing, and tenant coverage
Vice President Jesse Abair said SVC’s net lease acquisitions over the past year, including three closings after year-end, totaled $101 million and were funded with cash and net lease disposition proceeds. The acquisitions spanned quick service and casual dining, automotive services, fitness, and value retail. Abair said the acquired properties carried a weighted average lease term of 14.3 years, average rent coverage of 2.7x, an average going-in cash cap rate of 7.5%, and an average GAAP cap rate of 8.3%.
Looking ahead, Abair said acquisitions will be mostly limited to capital recycling, with 2026 net lease deal volume projected at about $25 million. He said the company remains focused on service-based brands viewed as resilient and less exposed to e-commerce disruption.
At year-end, SVC’s net lease portfolio consisted of 760 properties in 42 states, with annual base rent of $390 million. The portfolio was about 97% leased with a weighted average lease term of 7.4 years, and Abair said annualized base rent increased 2.4% largely due to acquisitions. During the quarter, the asset management team executed leases totaling 536,000 square feet, averaging more than nine years of term and a cash rent roll-up of 15%.
Abair added that about two-thirds of annual base rents are generated by TravelCenters of America, backed by BP’s investment-grade credit profile, and noted that 34 TA assets were collateral in the company’s recent ABS financing.
During Q&A, management addressed a decline in rent coverage, saying it was largely due to a 7 basis point quarter-over-quarter drop in TA coverage. Abair said coverage excluding TA remained “well north of 3.5 to 3.6 times,” and noted BP’s efforts to improve TA free cash flow through 2027, including leadership changes and investments such as EV charging. He said SVC remains comfortable with the TA sub-portfolio given BP credit support and what he described as inherent value in the network and long-term trucking fundamentals.
Fourth-quarter results and 2026 guidance
Donley said fourth-quarter normalized funds from operations (FFO) were $27.5 million, or $0.17 per share, flat year-over-year. Adjusted EBITDAre declined $5 million to $125.6 million. He attributed the year-over-year comparison primarily to an $11.8 million ($0.07 per share) decline in hotel EBITDA, partially offset by a $6 million ($0.04 per share) one-time tax benefit tied to the company’s hotel in San Juan and $5 million ($0.03 per share) related to SVC’s 34% share of Sonesta’s results.
For 2026, SVC introduced guidance that includes:
- 94 hotels owned as of year-end: RevPAR of $108 to $113 and hotel EBITDA of $124 million to $144 million
- Net lease portfolio: NOI of $380 million to $386 million
- Consolidated: adjusted EBITDA of $500 million to $520 million and normalized FFO per share of $0.65 to $0.77
- Total CapEx: $120 million to $140 million
Donley said guidance assumes midpoint interest expense of $378 million (including $300 million of cash interest and $78 million of non-cash amortization), G&A of $40 million, and a weighted average share count of 169 million. He also noted the guidance does not reflect the impact of completing 17 Sonesta hotel dispositions and assumes $25 million of net lease capital recycling.
On capital spending, Donley said fourth-quarter 2025 CapEx was $106 million, bringing full-year spending to $238 million. He said 2026 CapEx will step down as major renovations wind down, with the Nautilus redevelopment in Miami representing the largest project. He said SVC spent about $12 million on the Nautilus in the fourth quarter (mostly exterior work) and expects roughly $30 million to $35 million in the first half of 2026 for the rooms renovation.
Management said its 2026 outlook implies the company expects to generate free cash flow after CapEx, which Donley called an important milestone after three years of elevated hotel investment.
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.
