Service Properties Trust had a productive quarter completing previously announced hotel sales and taking action to reduce leverage and strengthen its balance sheet. In the quarter, the company sold 66 hotels, totaling nearly 8,300 keys for $534 million. This increased their total dispositions for the year to 112 hotels totaling approximately 14,600 keys for nearly $860 million. The proceeds from these sales were used to proactively redeem all $800 million of their 2026 debt maturities and $300 million of their 2027 notes. Moving forward into 2026, the company remains focused on selling additional hotels and executing further strategies to improve cash flows, debt maturity profile, and overall cost of capital.
In January, the company sold an ESA Suites for $7.1 million with 133 keys and launched the remarketing of nine focused service hotels that were initially brought to market in 2025. Additionally, in January, they initiated the marketing of seven full-service Sonesta-managed hotels with 2,010 keys in locations across the Southeast, Midwest, and Pacific Northwest. The sale of these seven properties is expected to increase annual EBITDA by approximately $13 million and improve leverage metrics. These assets offer an attractive opportunity for investors seeking value-add lodging real estate with repositioning potential through targeted capital investment.
The company plans to formalize offers and select buyers over the next several months, targeting staggered closings during 2026. They estimate total proceeds of $175 million to $200 million will be used for debt reduction. In addition to these efforts, the company announced further actions to strengthen their debt maturity profile by pricing $745 million of new five-year mortgage financing secured by existing net lease master trust.
To support this financing, Service Properties Trust contributed an additional 158 retail properties to the trust, which had an appraised value of approximately $1.1 billion. The transaction proceeds will be used to redeem all $700 million of the 8 3/8% notes due in 2029 at a significantly lower interest rate, resulting in annual cash savings of approximately $14 million or $0.08 per share.
In 2026, the company will continue to focus on improving performance within their hotel portfolio and capital preservation, including reduced net lease acquisition activity to roughly $25 million funded through sales of select net lease assets. They also plan to reduce their overall capital spend across their hotel portfolio.
The U.S. lodging industry remained soft in the fourth quarter, with RevPAR declining by 1.1% year over year. However, Service Properties Trust’s portfolio continued to deliver steady top-line growth, with RevPAR increasing by 70 basis points year over year, outpacing the broader industry by 180 basis points and representing the fifth consecutive quarter of outperformance.
Excluding the hotels being exited, the remaining 77 hotels in the portfolio delivered relatively stronger fourth-quarter performance with RevPAR up 170 basis points year over year, driven by occupancy gains of 140 basis points. Contract business, particularly airline-related demand, remained a key growth driver, partially offset by a decline in government bookings and softer transient revenues. Hotel EBITDA declined year over year due to elevated labor costs and broader operating expense pressures.
Service Properties Trust’s net lease portfolio consists of 760 properties across 42 states, with annual base rents of $390 million. The portfolio is approximately 97% leased with a weighted average lease term of 7.4 years. The company has over 180 tenants operating under 140 brands across 21 distinct industries. Annualized base rent increased by 2.4%, largely driven by recent acquisition activity. The asset management team executed leases totaling 536,000 square feet during the quarter, averaging over nine years of term and a cash rent roll-up of 15%. Portfolio lease expirations remain well-laddered, with just over 5% of annualized rents expiring through 2027.
Moving forward, the company projects total net lease deal volume of approximately $25 million for 2026, focusing on service-based brands that demonstrate resilience in uncertain macro environments. They plan to leverage new and established brand relationships for additional growth opportunities in the form of sale-leasebacks and off-market deals.
Overall, Service Properties Trust is optimistic about improving lodging market conditions and stabilizing demand as the year progresses. They are focused on growing EBITDA and optimizing their portfolio to drive sustained value for their shareholders in the coming year.
