Service Properties (SVC) Ups Flexibility With New Credit Facility
Service Properties Trust SVC recently enhanced its financial flexibility by replacing its prior $800 million revolving credit facility with a new secured revolving credit facility of $650 million. This older facility was slated to mature on Jul 15, 2023.
SVC’s new facility matures on Jun 29, 2027, and can be extended by a year by exercising two six-month extensions at the borrower’s discretion.
The borrowings under the newly stated facility will bear an interest based on a secured overnight financing rate (SOFR) plus a margin ranging from 1.5-3.0% per SVC’s leverage ratio defined in the agreement. At the initial point, the rate will be 2.5%.
In addition, the $650 million facility is secured by 69 properties comprising 66 hotels and three net lease properties.
Per Brian Donley, chief financial officer of SVC, “We believe this new credit facility reflects our improving operating results and demonstrated ability to refinance debt in the current challenging financing market. With nothing currently drawn, the new credit facility also provides us with greater balance sheet flexibility and capacity in the future.”
Service Properties owns a geographically diverse portfolio of hotels and service-focused retail net lease properties across the United States, Puerto Rico and Canada. With the lodging industry witnessing a rebound in post-pandemic traffic, SVC seems well-positioned to benefit.
Moreover, over the years, to enhance its portfolio quality, Service Properties has made concerted efforts to dispose of assets with lower earnings potential and expand its footprint in markets with better prospects.
The company also focuses on acquiring upscale limited-service, extended stay and full-service hotel properties, full-service travel centers and necessity-based retail properties to drive external growth.
In June 2023, the company acquired Nautilus Hotel, a high-end destination resort hotel, for $165.4 million or about $661,600 per key. The move was part of SVC’s strategic expansion efforts in key markets and marked a significant entry into Miami’s South Beach market.
The hotel, to be initially branded as the Nautilus Sonesta Miami Beach, is set to undergo a $25 million repositioning beginning in the summer of 2024. It is expected to reopen in early 2025 under Sonesta’s lifestyle brand — The James.
With added balance-sheet strength, SVC remains well-poised to capitalize on long-term growth endeavors.
Shares of this Zacks Rank #3 (Hold) company have gained 18.9% in the year-to-date period against the industry’s fall of 0.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Nonetheless, macroeconomic uncertainty and a high interest rate environment remain key concerns for the company.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are Ventas VTR, W.P. Carey WPC and EastGroup Properties EGP, each carrying a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Ventas’ ongoing year’s funds from operations (FFO) per share has been raised marginally over the past two months to $2.98.
The Zacks Consensus Estimate for W.P. Carey’s current-year FFO per share has moved marginally northward over the past month to $5.36.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past two months to $7.56.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Ventas, Inc. (VTR) : Free Stock Analysis Report
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Service Properties Trust (SVC) : Free Stock Analysis Report
