Financial Performance Overview

The company owns and manages a diverse portfolio of 202 hotels and 739 service-focused retail net lease properties across the United States, Puerto Rico, and Canada. For the three months ended March 31, 2025, the company reported a net loss of $116.4 million, compared to a net loss of $78.4 million in the same period in 2024. This increase in net loss was primarily due to a $34.6 million loss on asset impairment and a $10.1 million increase in interest expense.

Revenue and Profit Trends

Hotel operating revenues decreased 0.4% to $334.9 million, primarily due to the sale of certain hotels since January 1, 2024, partially offset by increases in occupancy and average daily rates (ADR) at certain hotels. Rental income from the net lease portfolio increased 0.2% to $100.2 million, driven by higher rents at certain properties, partially offset by property sales.

Hotel operating expenses increased 0.2% to $305.8 million, mainly due to higher wages, benefits, and other operating costs, partially offset by the sale of certain hotels. Net lease operating expenses increased 19.2% to $5.6 million, primarily from higher property management fees and other costs.

Depreciation and amortization expense decreased 4.3% to $89.1 million, as certain assets became fully depreciated and the company sold some properties. General and administrative costs decreased 9.0% to $9.6 million, driven by lower business management and professional fees.

The company recorded a $37.1 million loss on asset impairment during the 2025 period to reduce the carrying value of 16 hotels to their estimated fair value. This compares to a $2.5 million impairment loss in the 2024 period for five net lease properties.

Strengths and Weaknesses

A key strength of the company is the diversification of its portfolio, with properties across 22 distinct industries and 145 different brands. The net lease portfolio is 97.8% occupied, with a weighted average lease term of 7.8 years, providing stable rental income. The company’s largest tenant, TravelCenters of America Inc., leases 175 travel centers and has a rent coverage ratio of 1.34x.

However, the company’s financial performance has been negatively impacted by the $37.1 million impairment loss, as well as higher interest expense. The net loss per common share increased 45.8% to $0.70 in the 2025 period. Additionally, the company’s cash and cash equivalents and restricted cash decreased from $157.4 million at the beginning of the period to $94.1 million at the end, primarily due to net cash used in investing and financing activities.

Outlook and Future Prospects

The company plans to continue its strategy of selling certain hotels and net lease properties, with 115 hotels and 6 net lease properties currently under sales agreements. The company expects to use the net proceeds from these sales for general business purposes, including debt repayment.

To fund its operations, capital expenditures, and other obligations, the company maintains a $650 million secured revolving credit facility, of which $50 million was outstanding as of March 31, 2025. The company also has $45 million outstanding under a variable funding note secured by its net lease properties. The company believes these sources of funds, along with cash flows from operations, will be sufficient to meet its needs for the next 12 months and the foreseeable future.

However, the company’s ability to access debt and equity capital markets in the future may be impacted by economic conditions, including the potential for a recession. Additionally, the company’s managers and tenants may become unable or unwilling to pay owner’s priority returns and rents, which could negatively affect the company’s cash flows and net income.

Overall, the company’s financial performance in the first quarter of 2025 was mixed, with decreases in revenue and increases in net loss. The company’s diversified portfolio and stable net lease business provide some strengths, but the impairment loss, higher interest expense, and potential economic headwinds present challenges. The company’s ability to successfully execute its asset sale and acquisition plans, as well as manage its debt and liquidity, will be crucial in determining its future performance.