DiamondRock Hospitality (NYSE:DRH) versus Service Properties Trust (NASDAQ:SVC) Financial Analysis

Service Properties Trust (NASDAQ:SVC) and DiamondRock Hospitality (NYSE:DRH) are both real estate companies, but which is the superior investment? We will compare the two businesses based on the strength of their valuation, risk, analyst recommendations, dividends, earnings, profitability and institutional ownership.

Insider and Institutional Ownership

77.6% of Service Properties Trust shares are owned by institutional investors. 1.6% of Service Properties Trust shares are owned by insiders. Comparatively, 0.9% of DiamondRock Hospitality shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Volatility & Risk

Service Properties Trust has a beta of 1.72, suggesting that its stock price is 72% more volatile than the S&P 500. Comparatively, DiamondRock Hospitality has a beta of 1.01, suggesting that its stock price is 1% more volatile than the S&P 500.

Dividends

Service Properties Trust pays an annual dividend of $0.20 per share and has a dividend yield of 3.2%. DiamondRock Hospitality pays an annual dividend of $0.44 per share and has a dividend yield of 3.1%. Service Properties Trust pays out -2.6% of its earnings in the form of a dividend. DiamondRock Hospitality pays out 60.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. DiamondRock Hospitality has raised its dividend for 1 consecutive years. Service Properties Trust is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Service Properties Trust and DiamondRock Hospitality’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Service Properties Trust	-25.44%	-65.18%	-6.66%
DiamondRock Hospitality	5.69%	4.04%	2.05%

Analyst Ratings

This is a summary of current ratings and target prices for Service Properties Trust and DiamondRock Hospitality, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Service Properties Trust	1	2	3	0	2.33
DiamondRock Hospitality	0	7	4	0	2.36

Service Properties Trust currently has a consensus price target of $12.05, indicating a potential upside of 92.49%. DiamondRock Hospitality has a consensus price target of $13.03, indicating a potential downside of 8.60%. Given Service Properties Trust’s higher probable upside, analysts plainly believe Service Properties Trust is more favorable than DiamondRock Hospitality.

Earnings & Valuation

This table compares Service Properties Trust and DiamondRock Hospitality”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Service Properties Trust	$1.66 billion	0.49	-$202.32 million	($7.70)	-0.81
DiamondRock Hospitality	$1.14 billion	2.57	$48.05 million	$0.73	19.52

DiamondRock Hospitality has lower revenue, but higher earnings than Service Properties Trust. Service Properties Trust is trading at a lower price-to-earnings ratio than DiamondRock Hospitality, indicating that it is currently the more affordable of the two stocks.

Summary

DiamondRock Hospitality beats Service Properties Trust on 10 of the 17 factors compared between the two stocks.

About Service Properties Trust

Service Properties Trust (Nasdaq: SVC) is a real estate investment trust with over $11 billion invested in two asset categories: hotels and service-focused retail net lease properties. As of December 31, 2023, SVC owned 221 hotels with over 37,000 guest rooms throughout the United States and in Puerto Rico and Canada, the majority of which are extended stay and select service. As of December 31, 2023, SVC also owned 752 service-focused retail net lease properties totaling approximately 13.3 million square feet throughout the United States. SVC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with over $41 billion in assets under management as of December 31, 2023, and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. SVC is headquartered in Newton, MA.

About DiamondRock Hospitality

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in leisure destinations and top gateway markets. The Company currently owns 36 premium quality hotels with over 9,700 rooms. The Company has strategically positioned its portfolio to be operated both under leading global brand families as well as independent boutique hotels in the lifestyle segment.