SVC - Earnings call transcript Q3 2017 | Service Properties Trust

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Operator

Good day, everyone and welcome to the Hospitality Properties Trust Third Quarter 2017 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] And please note that today’s event is being recorded. I would now like to turn the conference over to Katie Strohacker, Senior Director of Investor Relations. Please go ahead.

Katie Strohacker

you. Thank everyone. morning, Good John make and will a question-and-answer by call, Financial be Kleifges, Officer a analysts. with will short session Murray, today’s Mark President Chief followed On presentation, which without and that note today’s is consent the HPT. retransmission the Please transcription written prior recording, conference of call of prohibited I and the call Litigation Private forward-looking would Reform out other within statements Act conference to today’s point XXXX securities Securities laws. the like of that contains meaning of expectations based These today, HPT’s on as forward-looking and of X, beliefs are XXXX. statements November present The the company Exchange and today’s filings to statements no publicly undertakes through obligation to Securities in results the Commission or revise or made conference release than the revision call SEC. other of any with forward-looking

normalized normalized operations reconciliation in may in found well are In from Investor FFO. these A our and normalized FFO as results funds AFFO package materially from company’s website. net addition, may components measures, this call income statements. projected of or available those Actual supplemental differ EBITDA contain Relations the adjusted to non-GAAP calculate as forward-looking section of the to including in financial

with place filed information reliance and today found Additional that to you those be cause is I with undue forward-looking in website at turn and that, our And factors John. on will cautioned our our to to XX-Q upon the are could contained SEC supplemental in not once Form data the again differences call operating concerning later financial statements. Investors over www.hptreit.com. any

John Murray

of at increase or share increased travel volumes fuel of X.X%. X.XX centers, site-level reported morning margin performance per expenses quarter to of Earlier X.X% sold earnings million share by a gross third X.X% Good On the a to increase third normalized reduced to XXXX FFO XXXX decreased diesel fuel X.X% a coverage reflecting compared quarter, call. strong million, an the you, fuel our third HPT’s X.X% morning, third million margins Starting and decreased in gallon will our quarter. margin welcome X.X% cents and and moment. $XXX.X compared the Katie. rent in to we quarter $X.X lower times of basis, per XXXX. with $X.X or $X.XX quarter compared a this gross Thank million $X.X HPT’s for explain Non-fuel Property to rent FFO per despite by quarter normalized increased operating the changes XXXX due was increasing or level compared investments. to Mark these represents XXXX.

hotels, third the increased and the XX.X% annual our declined declined Turning basis quarter and XXXX performance and wages, travel at XX of points commissions. comparable and benefits, X.X% RevPAR Aggregate XXXX hotels, quarter coverage by comparable agent wildfires. versus reflecting returns holiday rents lower to our hotels market margins HPT’s Francisco quarter to XXXX renovations were X.XX at versus There minimum this renovation and quarter many down by shifts, growth, factors GOP revenues due center was supply third occupancy times and quarter, in XXXX. impacted political of in reduced including hurricanes all room times in convention results, Miami, San from that conventions, to Western non-recurring weakness X.XX

work many markets in top concentrations or are sometimes and are diversified, hotels our near temporarily While geographically XX us. against

Detroit. XX.X% Dallas. Chicago outperforming representing Minneapolis, of returns Nashville hotels and the and in About this minimum hotels XX of Houston, Specifically, our in returns quarter-to-quarter. Orleans, underperforming markets X.X% our Tampa, had top underperforming New quarter, markets changed These XX and Orlando, we of of markets quarter’s the representing Philadelphia, performing

with indices portfolio. premiums Smith across remained rate our stable, our our as So, have market we Travel note quarter-over-quarter and share set that occupancy revenue by and RevPAR measured competitive

in hotels leaders their markets. Our remained

by led growth this revenue by rate X.X% Our X.X points growth industry of percentage portfolio reported of highest X.X%. with increasing occupancy above increases quarter and RevPAR

XXXX available coverage For by flow portfolio, minimum to return the versus X.X% highest increased cash improved our the to quarter, pay the X.XX times.

Wyndham This Park third decline the improvement as to renovated was portfolio’s improved X.X increase in Jersey. in by percentage in rate RevPAR point growth X.X% quarter our offset of recently portfolio’s X.X% Our in performance the performance the New improved occupancy. reflects Hotel Hamilton

Austin, IHG’s Additionally, essentially work to Hotels RevPAR available and returns comparable our our due high-rated Harvey. flat service flat at and this to year. was White last increased Wyndham at Miami Puerto Hotels strong our demand reduced Full activity factors to performance relief minimum the Intercontinental this and by hotel demand cash Hurricane results Houston quarter post-hurricane hotel Texas related performance was mixed at Rico our flow benefited that at from pay following San versus Wyndham’s year. crew were with business Service weaker Secret our Hotel Juan, driven from included of Hotel. Plains in Plaza our Crowne lots hotel

weakest driven XXX points. RevPAR the at X.X%, quarter hotels. performance by declined renovations points X X.X% with rate basis revenue of No. declines XX Marriott and by associated Our certain room included GOP increased and and this decreasing growth portfolio percentage margin had occupancy Headwinds percentage Courtyard respectively. supply

portfolio’s Efforts No. X to revenue that the revenue this times improve X.XX this management helping to coverage among XX for to and hotel improve ship portfolios. was last the hotels is performance. the secured trends X most for renovation negotiated portfolios the the in only our of months, were Excluding This portfolio quarter, business under strategies to are sales gradually Marriott decline during RevPAR corporate X.X%. and

in and weak our basis offset Our Residence and Inn San Marriott XXX in with suite X.X% Antonio point demand respectively. group and hotels a Place by was this in Towne quarter, XXX citywide Chicago RevPAR Atlanta, down rate events decrease Fewer negatively impacted occupancy. increase X.X%

Sonesta during this and a Gwinnett the to offset of by half Our Philadelphia under tough quarter comparable the attributable point declined of were comparisons weak group year-over-year occupancy. was Sonesta quarter due from in a which year. decline increase renovation More Sonesta hotel X.X% convention rate RevPAR the in partially last XXX X.X% Democratic to to declines results basis due than the

many Fort demand demands Lauderdale our cancellations. quarter Additionally, experienced hotel this soft storm-related with

acquired we X,XXX Columbus, August, Crowne Crowne acquired Plaza and outlets. The is will outlet $XX insurance the Carolina attached X Crowne Park of and Indigo to in our nationwide two space convention Lofts rooms million, to in Charlotte portion activity, square Executive and Hotels last square beverage food XXX IHG’s food transaction both be acquired management Plaza for to center function XXX-room $XX feet and million them The in of headquarters. of feet the to has & North beverage IHG. and Charlotte, Columbus for companies’ brand. Turning space, XX,XXX hotel Hotel add with Plaza, has agreement Ohio The function converted and X

$XXX XX, Sonesta. We hotels September hotels, the million. had September, Sonesta XX $XXX of re-branded reached and agreement extended stay to to ES cap our In XX its added deposit security X,XXX As of we these Suites them with for suites brand million. located acquired the IHG with states in management

Chandler, on to Park $X.X we a Inn transactions for Illinois in XXX-room Radisson, XXX-room resulted XXX-room Turning September, gain sale for These and million. sold Bloomington, Country $X.X Arizona August, three a a & dispositions, we In Plaza, million sold Minnesota $X.X Naperville, to million. million. of $X.X in Suites,

renovations be sales proceeds from portfolio. hotel the these fund As previously net to used will remaining through from announced, Carlson the

reduced if provide will million million extent for takes these sales, connection be increase to $XX will requested. HPT’s to the place. new $XX agreed an have to In up the renovation returns funding minimum not addition, renovations with in but we of additional

operators Looking optimistic. hotel ahead, we cautiously remain and our

demand we will of are XXXX ramp projecting rest versus for and improves growth portfolios occupancy up. and experience XXXX renovated the as that continue managers in recently Our growth rate increased to earlier

now year, for our XXXX with the rate, their maintaining GOP to maybe part Mark. RevPAR in flat turn the over points I call growth range. down the for managers most hotel XX X.X% the to For occupancy comparable margins the are for basis to such forecast X% will

Mark Kleifges

the Starting in our fuel quarter. John. performance travel a in from results modest XXXX gross with margin Thanks, a in and resulting lower offset operating center margin decline site-level gross operating investments, the improvement in slight non-fuel a expenses increase of

by our fuel The margin volume or a versus of X.X% decreased gross result of fuel cents $X.X by in centers which primarily decrease partially quarter, the prior prior the sites the the revenues travel sales versus as quarter. For gallon store a and several were decline the sales in XXXX for third in federal decrease year in X.X% shop quarter, increased and X.X% a impacted million X.X% the year was due margin a for biodiesel margin still to tax gains. resulted primarily and versus conversions growth brand strong in per from decrease efficiency offset the decline fuel gallon was service volume to quarter per continued in program The full increasing restaurant restaurants. dropped revenues, fuel $X.XXX in negatively margin. due of fuel fuel trends credit Non-fuel the HPT in primarily Fuel gallon quarter. cost XXXX third fuel the gross per the absence in prior year

versus which in Our TA centers TA transaction and year card quarters the quarter XX% travel year prior of operating third increased the X.X% that previously our versus for favorable in and the subject due to in that of the gross a in million, of XXXX dollars expensed TA due first grew the million centers accounted margin X.X% were these $X.X reversed ruling. fuel level $XXX.X fees total non-fuel quarter. reversal September fees the between to of litigation approximately declined margin the second prior provider. expenses the gross and of part incurred Site travel to of court a

X.X% still certain due Excluding declined initiatives expenses by cost site control versus operating year implemented. has approximately TA this reversal, the level prior to

down for decrease The covered generally for these returns prior available and compared margin results from this year increased X.X% a our were ended property of respectively XX. Hotels, X.X% XXXX. this decrease versus in travel HPT’s our by quarter, a in leases centers Annual quarter quarter point in RevPAR the of ADR a cash X.XXx months rents growth well under million GOP our comparable basis occupancy. pay EBITDAR were The X.X% XX highest minimum quarter level the $X.X travel or third the point and hotels the Operating rents minimum decline quarter X.X and at X.X% of result a in resulted X.X% As in X.X%. remains and highest XX third RevPAR with with flow of center percentage the quarter. X.X%, and increases of this to X.XXx RevPAR soft in a our with to percentage at September quarter changes, portfolios increase Wyndham decline third

XXXX quarter, hotels percentage comparable and X Both quarter. margin the renovations. had portfolios for the basis year XXX XX the up with points, portfolios with The or line X.X% in largest of and coverage quarter portfolios Cash returns this comparable flow two last X% were points X.X% profit X.X% the XXXX XXX million X.XXx decline down decreases our million of two rents, largest and X points the increase cash for our margin quarter rents to combined X weakest respectively. to GOP flow months. comparable portfolios increases prior gross or percentage a impacted basis the in the X.X% available the pay minimum comparable percentage Of for profit hotels X had and GOP and decline No. in Marriott X.XXx prior the a margin with and our XXXX percentage quarter. the and the approximately X $X our the decrease and coverage XX agreements quarter decreased quarter the versus in profit flow in portfolio comparable Marriott our of and performance quarter minimum were XX.X%. quarter. IHG had declined from and the our Gross Marriott Carlson GOP respectively in hotel and Carlson while The Marriott operating operating No. our cash for third gross negatively portfolio-wide below in RevPAR declined portfolios, portfolios decreased with weakest returns by in the declines with operating performance, XXX deductions of in margin portfolios, for X.X% quarter XXX Our XXXX this comparable versus basis X.X% with the from for declines respectively our the respectively. with versus largest $X.X increases and X.X% Sonesta X.X% from Hyatt our of resulted percentage flow year cash

million balances increase coverage our for totaled with At million, be $XX.X $XXX.X security above portfolios, the guarantee However the of year. quarter, our security from a guarantee deposit the and Xx continued several replenished. and end of balances third of the deposit to start

up XXXX third X.X% from excess third weighted X.X% EBITDA versus XXXX The of increase $XX.X consolidated from our the a August was XXXX third normalized a quarter. was in increase primarily the On per minimum a XXXX HPT’s normalized HPT’s the our million HPT’s was returns, million of flow in minimum from was X.X% in quarter XXXX in $X.XX, was operating the the quarter $X.X FFO the for prior and share million increase share increase in cash year million due rents the in XXXX quarter, the count returns. to quarter quarter, quarter. quarter. XXXX Turning Adjusted to results or share third the $X.X million share or X% a versus returns which a hotel normalized additional and increase represent $XXX.X due average increase basis, FFO FFO to $XXX.X offering. common portfolio X.X% XXXX

fixed EBITDA X.Xx adjusted adjusted quarter was debt the end. to for total was charges coverage EBITDA X.Xx quarter ratio to and Our at annualized

FFO in the was ratio normalized Our XXXX payout quarter. XX.X% third

travel under Turning to improvements the XX in fundings to in our $XX.X renovation expect of and million third quarter. improvements currently be $XX.X capital quarter. all and million improvements fund commitments, fourth or million and will of part for of of improvements hotel hotel funded travel $XX.X $XX the of million hotels and the we center quarter We improvement center

to with we XXXX, Looking have $XXX majority hotel million hotel the $XXX this properties to we and center million travel improvements ahead of related year. expect improvements, to acquired of and between fund currently the

was HPT million had Turning liquidity, October, and par debt balance of we as total XX.X% under to gross notes XXXX. issued in Also outstanding in sheet and our quarter end, The our revolving of due million assets facility. our million. senior at $XXX in from of million X.X% X.XX% notes $XXX all HPT In or credit redeemed XXXX. October, this $XXX approximately net proceeds $XXX were senior due offering

we’re million $XXX our revolving have facility And credit operator, April we today to up until and open for ready debt XXXX. of As term no outstanding call questions. that on maturities the with

Operator

go will session. Thank Instructions] question-and-answer Baird. now We’ll the you. question the first Please ahead. Bellisario from with And be Michael [Operator begin today

Michael Bellisario

Good morning, everyone.

John Murray

Good morning.

Michael Bellisario

deals focused comfortable kind on in about flattish give kind looking and of new with underwriting mostly portfolio Just big picture RevPAR flat side growth more to the capital at current you of process and how seeing hotel your investments us getting question thought your can thinking when deteriorating you’re new you’re margins? deploying today

John Murray

comments. I Sure. guess that addressed a lot of

we margins see RevPAR declining expect those to First, weak don’t continue. and to that

trend So, that we of negative past we get changing start that will we RevPAR this are and a quarter. in believe expecting after quarter the thing do the will the become fourth through

so but we complicated come lot at how and the from we XXXX, looking supply we are makes we last built that invest or of were the invest careful about growth, there not is are we year underwriting headwinds that supply seeing who portfolio markets now year a more remains right just that about being to So, we still and a so little many in with. are are markets, and XXXX conservative and or hotels absorbing being this more on

be attractive looking And after so fee and prices our we going we conservative. at going they we’re are on couple the of terms pipeline, this dialing year are even currently the next investing are we’re we’re renovations in lot not We have a but back working transactions, to renovations we going that course that the we of are seeing sure activity level potential to at of Mark of we they our healthy yields think lot of and a in year. of are that during be said related necessary pretty in think per the on and go acquisitions, that completed made as to but a acquisition acquisitions only basis potential forward, a we

more where is of take on to the little industry we’re the a latency hotel going. – So that I going bit where think a

Michael Bellisario

for helpful April of just do balance answer left Got is anything the question before on then my you proactively that – is mark the maybe for one there maturity you ‘XX there kind there on really And other guys to and mentioned? it. That’s follow-up sheet you pipeline. maybe

John Murray

redeemed cost this Not February we in back preferred a really, year.

year kicked notes part as redeem took next care As soon we due at we X.X% of the that.

year. that So loan is ’XX we be debt and that surprised maturity April actually early bank our next I term maturity wouldn’t if address

Michael Bellisario

Thank you. helpful. That’s

Operator

B. be Maher [Operator FBR. Instructions] will And with Please ahead. question go Bryan the next Riley

Bryan Maher

Hi, guys.

So just of? real speak your to damage of to to was clear any property be there no

John Murray

but a were so here well. they business dodged the so of hotels our fair a island but out courtyard have on damage days of two That’s Lauderdale, despite we our despite few in We damage of we from news the more gains, was pretty closed the workers in relief amount Fort a because not running excess had a that there Intercontinental all, service and places the had Hobby their San following in that’s about Juan the leased a rooms of damage, couple the were storm even less that and was power Hilton – had a of and was very There Airport. the We to generator couple for results Bryan. in XX one on there a of for hotels water the good. of deductible had amount the or had Houston though following storms hurricane one Maria have Head had in correct, significant at Sonestas of of the the the All damaged at hotel insurance.

Bryan Maher

service small having you going XX. early the of select front are anything MSAs at kind then of market? on RevPAR kind but a by after select the tough kind that thoughts on of twosie a through your to what upscale it’s for spend grow way now is ones some Is time service, in hard that strategy XX otherwise needle your that an guys one I some move really success of one as in newer know the hotels And Okay. onesie, to albeit competitors you incrementally on

John Murray

you preference small especially with growth. a in we hotel you hotel of needle more assets over For smaller we start lot to And XXX A the select XXX I it’s little well move more more assets, XXX service the hotels now XXX with we to service – when of for strong what the XX,XXX over consider hotels into be to have think couple rooms, get really the XX in have want us of bit bigger. properties like that that to that a be franchisee to you of tend a said room market, as rooms. see small would a select sized the on hard lot acquisitions. to sort and We portfolio

So, We going the don’t specifically – we them those referenced, see markets. but to I we we we to markets them don’t of are in targeted don’t being portfolios object you in – in in near-term. haven’t and there of some some the the

Bryan Maher

to when down it gets at level XX on And the And guys those? reconsidered back or portfolio of their that in then travel of that XXX stabilized stock TA mid in consideration is have I you since haven’t if been or and centers? TA has closed and a those taking you just any or their ‘XX of X light acquisitions announced to you you done that a on really lastly all maybe have taking given trading, front, the properties, attractive where XX further but subsequently XXX down C-store know lot

John Murray

are in we the said evaluating additional that, calls like to any but think travel currently No, last we not couple I questions requisitions. response center on have of

the for they exact benefits that C-stores own that currently we And anticipate capacity for here that am HPT. properties. this I investment use best they getting the content and is their C-store I business. right not of – think don’t – think the sure are, like own to the what to portfolio are things and own, into word some we to don’t the are with them borrowing is I type they not

Bryan Maher

Thanks, Okay. John.

Operator

there conference And looked over I this turn so no to the Instructions] any would be [Operator to further to questions, back closing like remarks. question-and-answer for conclude session John will Murray the

John Murray

for hopefully to NAREIT week much and joining you Thank forward next look us you. with of in Thank very seeing today we many Dallas. you

Operator

now for has you conference today’s all the Thank attending And presentation. concluded.

disconnect now may your You lines.

Service Properties Trust (SVC) 8 Nov 172017 Q3 Earnings call transcript