Executives at Service Properties Trust said they expect elevated renovation costs across the company's hotel portfolio for the next "two or three years," but the investments and disruption ultimately will pay dividends.
On the hotel- and net-lease, retail-focused real estate investment trust's fourth-quarter and full-year 2023 earnings call, President and Chief Investment Officer Todd Hargreaves said renovation activity will "remain elevated during 2024."
"We expect near-term disruption in our portfolio as renovations are completed during the upcoming quarters. However, we are already starting to see the benefits of these renovations at some of our recently renovated hotels," he said.
One of the more high-profile renovation projects for the company is the Nautilus Sonesta in Miami Beach, Florida, which will be converted to a James property after $25 million in improvements, is expected to continue through 2025.
In all, Service Properties Trust is investing $250 million to $275 million in renovations in 2024, said Chief Financial Officer Brian Donley, along with continuing to sell off hotels that require significant capital expenditures but don't have a clear path to return on investment.
He said the performance across the portfolio is going to have "some ups and downs" in 2024, as new renovation work begins at some hotels while others complete and realize a performance uptick.
The company's capital expenditures increased during each quarter of 2023, growing from $22.3 million in the first quarter to $106 million in the fourth.
Earnings Performance
Service Properties Trust executives said rate growth drove a year-over-year increase in revenue per available room for the portfolio of 221 hotels — up 4.5% for for the full year to $88.09. RevPAR dropped in the final quarter of the year, though, by 2.4% as occupancy fell 1.6 percentage points.
Total company performance, which also accounts for their 752 net lease properties, included $1.87 billion in total revenues for the full year — which was roughly flat compared to the $1.86 billion recorded in 2022 — and a $32.8 million net loss.
The company reported adjusted earnings before interest, taxes, depreciation and amortization for real estate of $141.2 million in the fourth quarter.
As of publication time, Service Properties stock was trading at $6.80 a share, down 20.4% year to date. The Nasdaq Composite was up 8.6% for the same period.