Thank you, Todd. Our net lease portfolio continues to generate stable and reliable cash flows for SVC. As of December 31, we own 742 service-oriented retail net lease properties with annual minimum rents of $381 million. Our net lease assets, which represent 44.2% of our overall portfolio based on investment, were 97.6% leased with a weighted average lease term of eight years.
Our diverse tenant base consists of 177 tenants. Operating under 136 brands, spanning 21 distinct industries, thereby mitigating our exposure to any one retail sector and offering opportunities to grow our existing relationships with a variety of different operators.
Our lease maturities remain well lathered, with only 2.2% of our net lease minimum rent scheduled to expire in 2025 and approximately 3% in each of the following years through 2029. The aggregate coverage of our net lease portfolio's minimum rents was 2.1 times on a trailing 12-month basis as of December 31, 2024, which was down less than 0.1 of a point on a sequential quarter basis.
Excluding our TA travel center properties, which are backed by BP's investment grade credit, minimum rent coverage held steady at 3.7 times, essentially unchanged compared to the prior quarter.
In light of the strong credit of our TA leases and healthy coverage for the balance of the portfolio combined with our diversified tenant base and staggered expiration schedule, we expect our net lease portfolio will continue to serve as a dependable income stream for SEC.
On the transaction side, we sold three net lease properties during the quarter containing a combined 10,000 square feet, resulting in $2 million in aggregate proceeds. Since the end of the quarter, we have sold or entered into agreements to sell an additional four net lease properties for an aggregate price of $7.1 million.
Given the consistent performance of our net leased assets, we are evolving our strategy to focus on growing this portfolio through well vetted and strategically located acquisitions.
Our investment criteria for externally sourced growth will prioritize properties leased to operators expanding their networks with established brands and that are in retail quarters that exhibit durable land values with appealing demographics.
Properly curated, these acquisitions can enhance our tenant in geographic diversity, increased portfolio weighted average lease term and offer flexibility in terms of future reuse.
To this end, SVC is under agreement to acquire a net lease retail property with an 18-year remaining lease term for $5.3 million and we are actively evaluating additional targets as we build out our acquisition pipeline.
We are also seeing meaningful growth opportunities within our existing portfolio and are expanding our outreach efforts to identify tenants with whom we can partner for organic growth.
With proactive asset management efforts and opportunistic acquisitions in the coming year, we believe we can drive wall upward, optimize the makeup of the net lease portfolio, and ultimately increase the portfolio's economic contributions to the SVC platform.
I will now turn the call over to Brian to discuss our financial results.
Brian Donley
Thanks, Jesse, and good morning. Starting with our consolidated financial results for the fourth quarter of 2024, Normalized FFO is $28.6 million or $0.17 per share, versus $0.30 per share in the prior year quarter.
Adjusted EBITDAre declined 7.4% year over year to $130.6 million. Financial results this quarter as compared to the prior year quarter were impacted most by a $9.4 million increase in interest expense and an $8.4 million decline in interest income.
For 205 comparable hotels this quarter, RevPAR increased by 4.2%. Gross operating profit margin percentage declined by 160 basis points to 25.3%, and GOP was flat compared to the prior year period.
Below the GOP line costs at our comparable hotels increased $759,000 or 1.7% from the prior year driven primarily by increased real estate taxes. Our 206 hotels generated adjusted hotel EBITDA to $43.1 million a decline of 2.4% from the prior year but exceeding our guidance range.
By service level, adjusted hotel need a year over year decreased $900,000 for our 47 full service hotels, increased $1.6 million at our 59 select service hotels, and decreased $1.8 million for our 100 extended stay hotels.
For the 14 hotels that were under renovation during the quarter, adjusted to Hotel EBITDA declined $8 million. In 2025 we planned to sell 123 hotels with 16,426 keys. In the fourth quarter, these 123 hotels generated a RevPAR of $64 and adjusted hotel even to $12.4 million representing a decline of 23% year over year.
Assuming we sell the 114 Sonesta hotel portfolio for at least $1 billion that pricing would imply a 16.5 times multiple on 2024 hotel EBITDA $60.5 million. This valuation is well above SVC's multiple of approximately 10 times full year 2024 just to RE.
As it relates to the retained portfolio, the 83 hotels SVC plans to keep generated RevPAR of $101 and adjusted hotel to $31 million during the quarter or an increase of 9.7% year over year.
Turning to our expectations for Q1, we're currently projecting full quarter Q1 RevPAR of $82 to $84. The adjusted Hotel EBITDA in the $20 million to $24 million range.
We will continue to see softer seasonal results through the remainder of the winter months before activity picks up in the spring. Our portfolio will also see continued disruption in 2025 at hotels we have under renovation, and the timing of our dispositions may impact our results.
Turning to the balance sheet at quarter end, we had $5.8 billion of debt outstanding with a weighted average interest rate of 6.4%. Our next debt maturity is $350 million of senior unsecured notes maturing in February 2026. We currently have $61 million of cash on hand and $50 million outstanding on our $650 million revolving credit facility.
Our investing activity, we made $85 million of total capital improvements at our properties during the fourth quarter, bringing our full year spend at $303 million which is in line with our previous guidance.
We completed renovations at 28 hotels in 2024 with the largest spend for our high place portfolio, full service Sonesta hotels at LAX, White Plains, New York, and Miami Airport. We currently expect full year 2025 capital expenditures to be approximately $250 million.
Notable initiatives will include the kickoff of multi-year projects to convert our Royal Sonesta in Washington DC and DuPont Circle and the Nautilus and South Beats to the James brands, as well as projects at Royal Sonesta in New Orleans and Cambridge.
Of the 2025 capitalist spend, we expect $110 million to $130 million of maintenance capital with the rest going towards renovation initiatives. Beyond this year, we expect our total capital spending to continue to turn lower in 2026 and 2027 as the pace of our hotel renovation program slows.
That concludes our prepared remarks. We're ready to open the line to questions.
Operator
Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions)
The first question we have will come from Dori Kesten of Wells Fargo, please go ahead.
Thanks. Good morning. Now that you won't be spending CapEx for the 115 assets to be sold, how have your return expectations changed for the remaining assets?
Brian Donley
Good morning, Dori. Thank you for the question. This is Brian. I'll take that one. I think generally speaking our expectations are the same. We have that high sort of single digit return versus prior positioning of the property before the renovations that can fluctuate depending on the property in the market and depending on the scope of the projects.
For example, the James, the conversion to the James, the Nautilus property in South Beach and our upscale lifestyle brand initiative there in Washington, we expect much higher returns, as we reposition the property that these projects, we're expecting ROI and, 20% to 30% range. So, it'll differ across the portfolio, but on average it's still sort of a high single digit target.
Okay, and then you mentioned a new focus on, acquiring net lease assets. Can you put some context around what that acquisition volume may be on an annual basis?
Yeah, I think for particularly the first half, this is Jesse, for the first half of the year, I think the intent here is just to get out, get a feel for what's out in the market, build on our pipeline.
I think initially this will be, relatively small volume, small dollars, individual asset acquisitions, and then I think as we get towards the middle and the end of the year, we can kind of re-evaluate the strategy at that point once we have a better sense of kind of where we're where we're transacting.
Okay, and then just a few balance sheet questions, how much of the 150 that you borrowed on the line in Q4, has now been paid back I guess to date in Q1?
Brian Donley
There's 50 outstanding today, we made that draw at the end of the year for liquidity management purposes, our hotel results are pretty soft in December, January and February, and just from a working capital standpoint we made that draw, but again, 50 is not standard for that.
Okay, and then, the, I think it was maybe it was this month you amended the credit facility to reduce the minimum debt service coverage, down to I think it was 13 from 15, what do you modeling for that ratio I guess throughout this year?
Brian Donley
Yeah. There's a couple of reasons we did that, Dori. The hotel Portfolio that secures the credit facility includes a lot of the hotels we are selling. It includes properties that we've been renovating so that the results have been declining, and we were getting up against it in some of the covenants within the credit agreement, which are different than how the calculations are done for the public debt.
Yeah, so we wanted to make sure we weren't in breach of anything, so we were able to reach an agreement to amend. We are swapping out hotel collateral to release all the Sonesta hotels that are in that collateral package as we are selling a good portion of them. We're swapping that out with with one of the travel center pools.
Okay, so I mean through throughout this year, would you, would, are you expecting to get close to that 13 or you think it'll stay around where it ended the year around 15 and change?
Brian Donley
Yeah, I don't think we'll get, we're not going to dip really below that 15. It was more precautionary, but also making sure, there's adequate cushion and we'll have much more stability with, the way the collateral package works for the revolver covenants.
Okay, great. Thanks so much.
Operator
Again, if you would like to ask a question, please press star, then one on a touchstone phone. Again, on a star, then one. Next, we have Tyler Batory of Oppenheimer.
Hey, good morning. Thank you. So, I want to start on the hotel portfolio, specifically the guidance for Q1. You got a lot of moving pieces.
The 20 to 24 hotel number applies a margin, that's down a little bit year over year. Is there a way to isolate or or think about the performance of the 83 retained hotels in Q1 and, additionally, when you think about those 83 hotels, and I'm not sure if you gave this number. What was the EBITDA contribution or the EBITDA margin for those properties, for the full year 2024?
Hi Tyler, for the 83 retained hotels, we were about 15% margin and for the Sonesta hotels we were [$16 million] of EBITDA right you have the EBITDA for the other two portfolios.
Brian Donley
Yeah, it was, yeah, the high place portfolio, yeah, that pro those portfolios, those properties were under renovation still and just coming out of renovation, so it was, call it 10% on average.
Yeah, as we look to Q1. Remember the retained hotels is heavily concentrated with full-service hotels, so we do expect that he will be a decline. We'll continue to see softness in Q1 from, our concentrations in Chicago and some other areas where margins are definitely weaker in Q1.
So we will see that degradation, as you said, the decline year over year. In margins, but again, the typical seasonal patterns plus throw in the weight of some of the renovations of the boxes, LAX for example, that won't be done till the end of Q1, and Hilland we're also doing the public space there, so some other hotels will continue to have meaningful impact to our results early in Q1.
Right. And then if you look at the fourth quarter of the adjusted even for those 83 retained hotels actually increased 10% relative to the overall portfolio, which declined a couple percent.
Okay, thank you. Follow up on the asset sales and you get some good commentary on the process, which I appreciate, but I know a lot of investors are really focused on what's going on here. So just talk a little bit more about, how the process is going versus your expectations, maybe the interest is perhaps a little bit higher than you might have thought.
I'm not sure and then the comments in terms of selling all those hotels with the Sonesta brands. Is that a little bit of a change from what you were thinking before and kind of walk through the price dynamics of selling those assets in cumbered versus uncovered, please.
Sure, yeah, the process has gone very well so far, probably a little better than expected, but we've been in the market with a lot of hotels over the past few years, so I think we have a pretty good sense of who the buyers are, what the interest level is, and these hotels in particular.
A the select service and extended stay in hotels, there's just not a lot of portfolio sales of this scale and this magnitude that have been in the market that are in the market that are are coming to market, and there's a lot of groups that want to grow these service levels in their portfolio. So I'm not surprised of the level of interest that we've gotten from a lot of larger institutional hotel owners.
In terms of In terms of Price, we we're already close to what our initial guidance was. If you take the top bids from each of the sub portfolios, again, not a surprise, but certainly a positive and I think an indication of how strong and deep and competitive the process and buyer pool have been so far.
So again, we're very pleased with where things are so far and ideally groups will come up even more in the second round. In terms of the conferences, most, if not all these hotels, we do expect to be sold with long term semester franchise agreements.
I wouldn't say that's unexpected. In the past, the hotels that we have sold that were Sonesta branded and managed. I'd say on average about 80% of the hotels were sold encumbered, and the ones that were sold unencumbered were from groups that came in and either wanted to redevelop the properties and convert the use to multi-family and were willing to pay a significant premium above the incumbent offers to do that.
Or they were hotels that were in markets that other brands, other competing brands might not have had a presence in, so they were a lot more aggressive in terms of Key money or trying to get to get their flag on the hotels.
I think these hotels are a little different for the most part. They're strong performing hotels. They're in better markets than what we've sold in the past, so a lot of the competing brands are already there.
And if we do receive unencumbered offers, the way we look at that relative to encumbered offers is we put a value on the royalty fee stream, look at SVC's 34% share of as a 34% owner of Sonesta.
Apply an appropriate multiple to that, apply an expense load to that, and then compare the two offers and that's how we would look at any unencumbered offers or encumbered offers to the extent we receive those on this portfolio.
Okay very good detail, thank you. To follow up on the on the cap, the $250 million number, is any of that spend on hotels that are going to be sold this year and then the 110 to 130 maintenance portions, is that a good run rate to be thinking about for the for the 83 retained hotels going forward?
Brian Donley
Hey Tyler. There will be some spillage for properties we're exiting for projects that are underway or just some maintenance items that we need to do regardless as we get ready for sale. It's not a large percentage, call it $20 million to $25 million for the for the hotels that are exiting.
As far as the maintenance capital, it is oversized, the 110 range, the 130 that I mentioned, yeah, we do expect a more normalized range for the what's going to be left in this hotel portfolio to be closer to $65 million to $75 million going forward.
So, we are doing some deferred maintenance catch up and, some of the stuff that we're doing, won't be repeated ongoing.
Okay, and then my last one, I'm more open ended perhaps, as we sit here. At the start of the year, just help us think about your capital priorities as we go through 2025.
You got a lot going on with asset sales. I'm sure focused on leverage, it sounds like they'd be going on the offensive side with the net lease, although that's probably going to be pretty small, just kind of walk-through kind of rank order if you will, just what you're prioritizing as 2025 goes on.
Brian Donley
Sure, Tyler, I'll start, and you know others can jump in, but the priority once we start recognizing the sales proceeds will be to address our 2026 debt maturities, that that is first and foremost. We've got the $350 million do in Q1 and then another large bullet in the fall of '26. We're looking to address all that with the hotel sales.
And then you know as far as you know the capax investment is next in ranking as far as our priorities to continue to enhance our hotel portfolio and position these properties to succeed longer term and then you know from there it's, starting to recycle that lease and grow that lease, I think are the priorities. Yeah.
I'll add on to that. I think that I think we see as Jesse mentioned earlier, we see an opportunity in the net lease space, and I think you've seen what we've done through the asset sales and the planned asset sales as well as the.
The limited acquisitions we've done over the past few years in terms of what we want this portfolio overall to look like long term and you've seen us continue to sell some of the select service and extended stay hotels focus more on the full service assets, shift more of our mix on the hotel side from business to leisure oriented where we've been under concentrated historically and on the net lease side.
You look at that portfolio, and that portfolio has been an excellent performer for us over the past several years, backed by the travel center assets with an investment grade entity behind that and then a very strong performing other Net least portfolio that's throwing off a 3.7%. to rent coverage.
So, we think there's opportunity to add assets to that side of the portfolio, we're really going to be focused on strong operators and good sectors with lease term and we think we can get decent yield on those assets. So, that is again, that's priority number one is paying down debt. Priority number two is CapEx into our hotels, and then the third priority is potentially acquiring some more net lease assets throughout the year.
Okay, that's all from me, thank you.
Operator
Next, we have Meredith Jensen of HSBC.
Yes, good morning. Thanks. I was wondering if you could speak a little bit more about the net lease portfolio. Are there, portfolio assets that you would also sort of prune as you add more such as the net amount stays stable? And I guess what I'm getting at is sort of the long-term mix in investments, that sort of pie of SVC investments between hotels and net lease.
I think in terms of pruning the net lease portfolio, I think we're pretty consistently going through those assets and identifying sectors we see growth in versus sectors we don't and making disposition decisions along those lines as well as, I think at this point we're really quick to identify when those assets go dark, whether we think there's a re-lease or a redevelopment scenario, and if not, those will tend to go to dis disposition as well.
I'll let Todd speak to kind of the overall mix between the hotel and that lease assets within the portfolio, but I think historically we've always shot for some version of a 40, 60 split, 50/50 somewhere in that going in either direction but.
Sure, I think you covered it well, Jesse, and the And the only thing I'll add to that is, as we look to kind of buy assets in that portfolio, you may see us be a little more opportunistic in terms of selling leased assets, whether that's, as Jesse pointed out, to kind of reduce our exposure to certain industries or brands or tenants that we have.
We have concerns about or not as optimistic on but you'll also see us execute a lease renewal and then and then sell a property as an example as well so you could see us doing some more of that and then look to.
Recycle that capital back into back into the net lease space and then overall, similar to the answer I gave I gave Tyler is, we see the net lease portfolio as a strength of our portfolio and that doesn't mean we don't see the lodging as a strength as well, and I think we're optimizing that portfolio now and. If the performance of those hotels this last quarter where you saw a just to row 10% is any indication, we're keeping the better performing hotels.
We're keeping the hotels that have the most upside. We're keeping the hotels that are going to benefit most from the renovations. So again, we're before these sales, I think we're 54% hotels after the sale will be 47% and like Jesse said, I don't envision us going below 40% of the hotels, but. Anywhere from kind of that 40% to 60% range long term.
Okay, great. That's super helpful. And I know there's a lot of matrix and a lot of information in the deck about geography and sort of location urban versus suburban, but if you could just narrow the scope to the hotels that you'll be keeping sort of some guidance in terms of seasonality and sort of geography and how to think about.
Basically, through the year in 2026 as we start [cra] what that portfolio RevPAR and, quarterly sort of cadence will be.
Sure, I can start. So, and I'll focus more on this nested portfolio because that's where we're transacting for the most part and that all those are all good points and we're all factors as we selected what we wanted to sell and what we wanted to keep, but for the most part on the extended state select service we're.
Keeping the better performers there on average for 24, those hotels did over 30% margin, so they're good performers. We're selling most of the hotels that are in suburban business parks that really rely on that midweek business traveler that's just really. It's really been challenged for that to come back over the past few years.
A lot of the select service and extended that we have are in good, strong, more urban infill markets. And then our full-service portfolio will have, 39 of those hotels in the Sonesta portfolio, Royal Sonesta and full service Sonesta. We also have a couple of hotels that we're converting over to the James brand this year as well.
Those right now are more focused urban than they are kind of true destination resort hotels, but over the next few years, I think as we Continue to build out the hotel portfolio. I think you'll see us acquire more assets like the Nautilus acquisition that we bought a couple of years ago.
So that's really what we're more focused on right now. Our portfolio is more urban, our full service at least is more urban and more concentrated in the in the northern part of the US.
Brian Donley
Yeah, and for modeling purposes, Meredith, I think from a from a seasonality standpoint, Q1 '25, Q4 '25, that's the goalpost for the bell curve, where our portfolio will be strongest in Q2 and Q3, so my guidance of $20 million to $24 million of cash flow, hotel EBITDA, represents, a high single digit margin.
We expect that margin in Q2 to exceed, 20%, so you can see the ramp up. Into our strong summer, spring and summer periods, will affect how the seasonality trends, play out for the year and beyond that, when we sell the hotels, they'll, there'll be some a more normalization of the of the seasonality trends as we exit so many hotels, but generally Q1, Q4 will continue to be the weaker quarters for SVC's hotel portfolio.
Thanks. That's super helpful last question. Is it fair, it does seem, just hearing that the process is going. Pretty quickly, but in terms of closing and all of that, you think that the sort of debt pay down and full exit could happen all in in 2025. Just trying to see when we have a clean slate for the hotel, if it's going to be 27 over 26 or it'll bleed further further out.
I think it's I think it's safe to assume that the hotels will all be closed by during 2025 and where we should be selecting buyers here in the next few weeks and moving to close. We have a goal, maybe an aggressive goal to close these by June 30. Some may go past that, but you know we should have all these closed by the third quarter. And Brian, you want to talk about the debt repayment.
Brian Donley
Yeah, I mean, once we have, certainty and have the cash in hand and have the proceeds at mass, we'll look to use that to address leverages we've talked about with the proceeds.
Great, thanks so much. That's super helpful.
Thank you. Sure, thanks for the questions.
Operator
Well, this concludes our question-and-answer session. I would now like to turn the conference call back over to Mr. Todd Hargreaves for any closing remarks, sir.
Todd Hargreaves
Thank you everyone for joining today's call and for your continued interest in SVC.
Operator
And in today's conference call, the conference call is now concluded. At this time, you may disconnect your lines. Thank you. Take care. Have a great day, everyone.
