Real estate investment trust (REIT) Service Properties Trust (NASDAQ:SVC) rose an impressive 12.5% at one point on Monday. At 3:25 p.m. EDT, however, they had given back some of that advance and were sitting with a 9.6% gain. There wasn't any specific news from Service Properties, but one of its largest tenants did provide an interesting update.
Service Properties operates using a net lease model, meaning its lessees are responsible for most of the costs of the properties they occupy. That said, the company has been severely impacted by the COVID-19 health crisis, since it is heavily invested in hotels and highway travel centers (effectively, truck stops). When economic activity and travel slowed to a crawl because people were staying home and most non-essential businesses had closed their doors, both classes of its clients got hit hard. In April, for example, the REIT only collected 45% or so of its contracted rents.
On Monday, TravelCenters of America (NASDAQ:TA), the primary tenant of Service Properties' truck stops, announced that it was selling $75 million worth of shares. That should help to shore up its finances, a situation that's good for its landlord. Only Service Properties is buying a material amount of the stock being sold -- basically, throwing a lifeline to its tenant. While it's good that TravelCenters is getting a financial boost when it needs one, it's unclear how positive that is given that Service Properties is dipping into its own pockets to get the stock sale done.
Service Properties' business model is under a great deal of stress because of the property types on which it focuses. Even after Monday's big gain, the company's stock price is down some 70% year to date, and it's way too soon to tell if its bailout of TravelCenters is actually good or bad news for it. Monday's risk-on attitude could easily turn into a risk-off mood in the not-too-distant future.