With more than than $1 billion in debt set to mature in 2024 and a windfall of nearly $400 million soon to hit, hotel and net-lease, retail-focused real estate investment trust Service Properties Trust is plotting the best path forward for cash on hand for the rest of the year.
The issue is top of mind for Service Properties not just because of the debt maturities timetable but because the company has a pending deal — which was slated for a shareholder vote Wednesday — to sell its stock in Travel Centers of America Inc., along with its Travel Centers-related trademarks, to BP for roughly $379.3 million, which includes some rent prepayments.
On the company's first-quarter 2023 earnings call Tuesday, President and Chief Investment Officer Todd Hargreaves said dealing with the company's debts is a priority.
"We have $350 million due in March [2024] and another $800 million in the fall of 2024," he said. "The cash position we have today plus the BP proceeds, we think will put us on pretty good footing as we look to deal with those maturities in due course."
Hargreaves told analysts he believes the BP deal will "provide significant flexibility with financing options."
"Whether that's secured financing or some kind of bond offering remains to be seen, and we'll think that through as time passes," he said. "We believe that transaction is going to give us pretty good credit to work down the coupon."
Treasurer and Chief Financial Officer Brian Donley said the company is considering some acquisitions of "higher-end hotels" as it looks to redeploy capital for strategic growth, particularly for its hotel portfolio in gateway markets.
"We're closely evaluating a number of opportunities in markets that we think are strategic to our growth," he said. "Notably, Miami and Los Angeles are two markets where we think we're under exposed in."
While there are a lot of hotels trading in general, Donley said the company is looking to key in on situations like "maybe the fund is sunsetting or [owners] don't want to put in the capital to do a renovation."
Buying hotels — particularly larger, more expensive properties — would be a shift for Service Properties, which has been more focused on selling down a portfolio of non-core assets, particularly smaller, extended-stay hotels. But company executives said that activity has ended for now, and they seemed to signal a shift from being a seller to a buyer in the current market.
"It's a good time to be a buyer, especially if you're able to take something down without putting secured, property-level debt on it," he said. "Lenders for hotels, or for any property type right now, are being extremely conservative. Interest rates are extremely high, as well. Leverage levels are low, so that creates interesting opportunities for a group like us."
First-Quarter Performance
Service Properties finished the first quarter with net income of $26 million, with adjusted earnings before interest, taxes, interest, depreciation and amortization for real estate of $116.8 million — $32.3 million of which came from hotels.
The REIT closed out its recent push to sell off non-core hotels in the first quarter, selling 18 hotels with 2,526 keys for a combined $157.2 million.
As of press time, Service Properties' stock was trading at $8.15 a share, up 13.9% year to date. The Nasdaq Composite was up 17.3% for the same period.