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Tuesday, B.Riley analysts resumed coverage on Service Properties Trust (NASDAQ:SVC) with a Neutral rating and set a price target of $2.00, as the stock trades near $1.83. According to InvestingPro data, the company appears undervalued, trading at just 0.36 times book value. The firm’s analysts highlighted the steady performance of the company’s retail net lease assets, which is expected to continue despite a shaky macroeconomic landscape. However, they expressed caution regarding Service Properties Trust’s operating hotel portfolio, which faces potential challenges due to a decrease in foreign travel to the U.S. and the threat of recessionary forces.
The analysts noted the real estate investment trust’s (REIT) strategy to manage its $800 million unsecured debt maturing in 2026. With a current debt-to-equity ratio of 6.88 and total debt of $5.86 billion, this initiative is crucial. Service Properties Trust plans to sell 123 hotels, a move that management anticipates could bring in proceeds of approximately $1.1 billion. The bidding process for these assets was already in motion as reported in the fourth quarter of 2024 earnings, with the company generating $555.83 million in EBITDA over the last twelve months.
Yet, B.Riley analysts pointed out that if the current concerns about travel spending become a reality, the REIT’s plan to sell off hotel assets might face delays and potentially yield less capital than initially projected. They emphasized the importance of observing how these factors will influence the company’s net operating income (NOI) and its ability to execute its capital recycling plans effectively.
Service Properties Trust’s approach to addressing its significant debt through asset sales is a critical component of the company’s financial strategy. The analysts’ outlook suggests that the success of this plan is contingent on market conditions, particularly those affecting the hospitality sector. They underscored the uncertainty in this segment of Service Properties Trust’s portfolio as a reason for their neutral stance on the stock.
In other recent news, Service Properties Trust reported its fourth-quarter 2024 earnings, revealing a significant miss in earnings per share (EPS) but a slight beat in revenue. The company posted an EPS of -$0.46, falling short of the forecasted -$0.32, while revenue exceeded expectations at $456.53 million against a forecast of $441.3 million. Meanwhile, the company announced the appointment of Christopher J. Bilotto as the new President and CEO, following the resignations of John G. Murray and Todd W. Hargreaves (LON:HRGV). Bilotto, who brings extensive experience in property development and asset management, is expected to continue the company’s focus on growth and value creation. Additionally, Service Properties Trust is actively marketing the sale of 114 Sonesta hotels, with initial bids suggesting the potential for significant proceeds. These proceeds are intended to address upcoming debt maturities and further strengthen the company’s financial position. Analyst discussions highlighted ongoing strategic initiatives, including hotel renovations and asset sales, as key focuses for 2025. The company aims to leverage Bilotto’s expertise to guide its strategic direction amid these developments.
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