What happened
Real estate investment trust (REIT) Service Properties Trust (SVC +7.93%) 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.
So what
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. Â
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On Monday, TravelCenters of America (TA +0.00%), 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. Â
Now what
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.
