SVC - Earnings call transcript Q4 2018 | Service Properties Trust

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Operator

Good morning, and welcome to the Hospitality Properties Trust Fourth Quarter 2018 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Strohacker. Please go ahead.

Katie Strohacker

Good morning.

call Officer. Murray, today's Donley, and on Financial Chief me are President; John Brian Joining includes presentation call with Today's a analysts. question-and-answer by session a by management followed call and Please of consent of recording that without retransmission note today's prior the HPT. conference is written prohibited the transcription point today's and XXXX like the laws. contains within conference other forward-looking of to I'd of Reform the Act call statements meaning Private out that Securities Litigation securities XXXX. are based of on HPT's and beliefs as XX, statements present today, expectations February forward-looking These The to to the forward-looking conference company obligation Exchange results SEC. of filings statements today's Commission release undertakes or publicly and through no revise in the than any the call Securities or with revision other made

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

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

John Murray

third X.X XXXX the by HPT $X.XX quarter the supply in X.X% renovated to occupancy incentive point and decreased This results markets. an Coverage with renovations factors in fourth this offset December hotel X.X% Raton. a is had XXXX of the portfolio ended primarily year quarter fourth Atlanta hotel X% occupancy. our RevPAR X.Xx quarter rate. X.X for Overall, rate decline in $XX.X quarter. X.X ongoing undergoing portfolio quarter, remained a were Courtyards and flat the driven normalized associated RevPAR fees, in in is of offset decreased comparable renovated Quarter this boosted RevPAR RevPAR share, RevPAR increased in at offset X.X%. and FFO HPT was X.X% of undergoing the various versus by in industry including results adjusted good share, reported during hotels business Midtown, non-repeat during IHG this performance increase FEMA fourth of Crowne Carolina. Adjusting by Florida in by five comparable Plaza lower hurricane undergoing RevPAR of Thank million at was seven offset room non-repeat hotel XXXX. Lakes Hotel, Hotels. Marriott percentage decline performance X.X% strong increase RevPaR of from XXXX renovations, partially XX in that increased Marriott Non-repeat percentage hotels quarter by Hurricane North impact to and the is impacted increase decline associated renovations revenue impact modestly XXXX, XXXX. for renovations renovations reasons, Boston at for returns our six Massachusetts in you, comparable hotels impact to point in increased percentage performance hotels negative in from in Irma portfolios. business this decline Florence $X.XX hotels growth Particularly in compared decreased renovations in was hotel these business the from this XX a X%. activity which rate, versus had Katie, quarter Ravinia portfolio caused the lift lagged in morning in or by a Marriott portfolio which partially the hotels minimum by increase XX closure in by hotels increased with non-recurring demands by to X On in had we quarter of by our impacted portfolio X.X% a hotels the related morning. recently RevPAR fourth quarter impacted by for explosions, quarter. negative We which occupancy. rate with per in gas reported due was has the and were due decline was occupancy. XX% Miami that XXX eight Starting group several by per weaker $X.XX X.X negative hurricane excluding and There hurricane Boca This suburban point renovations, was HPT point XXXX offsetting materially with the Offsetting comparable business. comparable positively X.X%. XX, Hyatt up portfolios through Hurricane Among portfolio those the the was increased this the percentage the

negotiated a XX demand Our led in increase by X.X% point increases this by X.X basis comparable by portfolio RevPAR in decrease point occupancy driven portfolio was supported rates. growth portfolio during This in occupancy, business. quarter in undergoing the five grew offset percentage hotels the quarter, corporate had Sonesta transit renovations by a

of San offset acquired Houston the comparable full in X.X% hotels This decline service hotels was and somewhat at X.X% of Sonesta, the renovations XXXX portfolio's RevPAR in XXXX. performance late legacy earlier extended in performance renovated gains strong to Francisco. and our hotels with due and led by in XX the stay we've softer

non-repeat experienced Houston Sonesta headwinds Royal sector. supply energy hurricane and combating weak still it's demand and Our

experienced Sonesta impacted last also convention by from and reduced California Royal sales Hotel year force the was negatively Clift demand non-repeat Our wildfires. the

the occupancy. in and by by groups HPT, Florida non-repeat an percentage results business and Our growth Wyndham FEMA referred declined due were XX% primarily less under due OTA approximately in brand Supply heavily efforts in higher Atlanta. Chicago to the $X Dallas driven Higher to of and million occupancy business hurricanes contractual amounts in drive declines. due for in X.X% continue returns Harvey portfolio portfolio. management the through fourth channels direct and by decreased reductions the portfolio agreement impacted supply Portfolio by to negatively citywide HPT, pay XX.X%, by X.X growth quarter. in point impacted non-repeats Houston decline the following more driven Irma. Wyndham RevPAR

our Our hotels. was renewal six RevPAR coverage to ended comparable Hotel X.Xx Radisson renovation portfolio returns, at for total activity XXXX. the Despite due Group by renovations Radisson decreased comparable of X.X% quarter the

located Gainey $XX.X for with Turning to our additive hotel our Hotel investment in Suites a management an agreement Arizona October, HPT to acquired price the of Sonesta. Scottsdale, activities. million, In purchase

The XXX the in through $XXX.X February, area million. in suites in our at completed XXXX All XXX accordingly, a million. was HPT mid-XXXX. not of initial of support district rate in security was Palomar provide Embassy The DuPont for the approximately is full price we Circle in of hotel in of time hotel increase will the of in Washington X%. kitchen. capital credit and marks $X the deposit hotel approximately well going This acquired located rate months cap have based investment. for Hotel In an hotel to full require and IHG The and purchase hotel located X% our the Washington Row form Palomar EBITDA HPT room on XX cap going renovation a Kimpton last will DC this

renovation Looking in continue, ahead quarter. particularly to XXXX disruption first will the

However, under the progress in year. fewer for be there will hotel renovation full

XX have to to XXXX, XX expect in We renovation hotels under compared in XXXX.

be our are for flat that will XX and XXXX and we The through continued positive operators increase to continues will this expected marketing management slightly post hotels result expecting completed HPT for Such occupancy to renovations to the RevPAR response that levels we brands, operators compared XXXX year. grow various is year from experience give and to X%, unemployment occupancy locations lift with to of regular GOP given proactive a rate and might on be wages improvement with In to projections. down, headwinds, the managers will high HPT, levels, capital deployed by RevPAR with asset comparable such led last between daily projected sales, on growth approximately that continued that average X.X% and continued their strategies industry management be improvement. this be and RevPAR be rate to active our expectations strong renovation collaborate and good renovation see are outlook positive pre that post investment, combination in will management, flat in some year XXXX. are asset benefits. margin addition, meet revenue to low supply despite us pressure to concerns that confidence X% economic again

rent per a to for the flat increased at X.X% fuel by in to in increase quarter the this TA in completed January representing price prior centers In on TA sale to HPT X.X% a Property amounted with for margin travel fuel XXXX or sold performance million $X.X a due purchase quarter X.X% XX.X% coverage. margin. property of $XXX.X travel $XX.X gallons fourth year HPT total level to margin coverage a in up X.X% margins $XX.X quarter gallon was million and Total due million higher the non-fuel level X.X million tons, XX fourth Turning or rate and increase from in the leases cap XX EBITDA. and million or centers. states fuel

as the gain of rents more first $XXX this and to XXX to the sale. minimum million returns million of centers results upon percentage the rents a HPT's We expect impact of of leases HPC completion XX% HPT's will result XX% of from in quarter was record travel XXXX. The for to $XXX.X due transaction. annual sales a going forward. from TA these total the remaining aggregate from details approximately decreased on Brian to consolidated TAs provide TA

the transaction relates to I'll to this turn now during Brian. it over call remarks. his As

Brian Donley

hotels difficult last this increased GOP returns hurricane Thanks, by percentage points RevPAR XX.X% in occupancy, and and minimum in operating impact point available decrease flow offset rents the decreased XXX HPT increased negative comparisons a XXX ADR. to this X.X John. results Starting costs. year quarter decrease comparable percentage from The resulted quarter, X.X% by and reflecting cash margin versus operating by of partially renovations, a supply increase basis X.X% our with decreased in at RevPAR X.X% growth,

year XX.X% versus Wyndham quarter. prior weakest have Our RevPAR X.X% performance and of comparable respectively the Radisson with portfolios and declines the

business portfolio by hurricane-related conditions. Our non-repeat heavily Wyndham was and soft in XXXX market impacted

of at points XXX year Radisson portfolio from X XX% Plaza quarter. drivers quarter portfolio the comparable this this fourth or our XXX the of GOP benefit XXXX $XX.X and with decreased under approximately our operating RevPAR GOP margin hotels to million quarter. driven margin X.X% decrease portfolio during portfolios in the quarter. are X and versus at the decrease, increases. primary points that's operating profit highest Ravinia closure around profit the business, comparable gross with prior in $X.X X.X% Crowne by wage decreased growth was basis to of out the hurricane basis Our quarter XX.X% for hotels million and renovation of non-repeat from comparable by the expense percentage hotel, The increase XXXX portfolio resulting Three a the of gross IHG an decreased

Sonesta increases. a Our a primarily point by decrease and in resulting benefit portfolio operating XXX driven profit, gross experienced $X.X expense margin wage comparables in basis decrease million GOP in

by portfolio operating non-repeat increased million $X.X a our pay to was with by $XX million and the cash percentage minimum Cash resulted in the and related Wyndham decline a flow above million the times Wyndham real or margins XXX hurricane all The XXXX costs for taxes, to flow XX% comparable year costs. along available GOP coverage of point due quarter. hotels with $X.X resulting decreased the basis flow for in to to portfolio, million the two respectively. consolidated decrease and in X.XXx experienced rents rents at portfolios mainly hotels Our business. XX% Coverage one for portfolios. one GOP in gross were decrease our was times soft The returns conditions market the decrease X.XX cash fixed in to minimum year Below margin at the XXXX returns line our prior decreases or largest two of and with in increase insurance X.XXx XXX increase driven of in for decline GOP quarter our costs of estate our for profit XX.X% with and a XX.X%. IHG the $X.X

total year, end, the and the available by under and security and to our represents our RevPAR increased bringing quarter deposits percent guarantees than agreement. during one-half basis, management us Our minimum under continues returns the end security Wyndham returns aggregate available the $X.X at Wyndham rents. million of or as mentioned, guarantees of John the million. XX% remains guarantee and pay On due million annual $XXX $XX.X agreement At the an shortfall depleted less deposits year annualized

prior at environment increased in year margin percentage gross revenues, volumes the performance the the gross increased XX.X% purchasing investments year increased a was and gross increase XX.X%, due fuel service growth to for margin XXXX flat of flat. was $X.XXX or margin prior respectively. of which year as Turning period travels primarily and center by to of $XX.X in margin store X.X% the in gross million quarter, sold prior is in quarter, compared the a primarily restaurant in while XX%. Non-fuel of our result Non-fuel gallon a few quick XXXX over gallon fourth more as per per favorable X.X% the or primarily travels revenues versus increase revenue result X.X% to the

As last driven property to $XX.X approximately centers fourth by tax rent travel the prior to to costs, or increased labor grew by or sales compared approximately property the increased EBITDA in was million. non-fuel times a of Non-fuel coverage minimum travel million X.XX XX.X% million our X.XX at quarter primarily at level Fourth our leases of quarter. maintenance our from the to $XX.X margin operating and X.X% X.X% quarter XXXX year expenses compared or gross XX% generated total $X.X the centers expense. XXXX quarter gross annual dollars centers under and Site increased our margin travel result, $XXX.X million versus year. the times level

John a leases ago, centers our Travel moment January, sold As XX mentioned in in million TA. $XXX.X we amended to with

minimum of recognize Principles, decreased million cash As aggregate satisfy payment a Accepted over required the XXXX, amended the Generally deferred we quarter. basis of result pay terms $X.X HPT, to installments deferred Under rent will leases. previously of in quarter Beginning transactions, are an $XX.X XX straight-line per deferred result over obligations. payments these million rents terms TA Accounting by a rent of to April the on will rent per The million $XXX.X a rental we in of a of period non-cash per change million quarter million sales. payments. quarter over per changes, the $X.XX quarter the of aggregate rent will $X.X or the per the be reduction rental million normalize the from FFO, per income property collect any to Considering reductions $X.X non-cash before to income from quarter these $XX.X to adjusted reinvestment deferred EBITDA share the of the proceeds

with the X.XXx our AFFO. proceeds transactions hotel expect to for year. new Assuming assuming to on reinvestment XXXX into pro of have investments, occurred annual we been coverage property leases X, sales a January neutral our basis, minimum of the the On be TA XXXX forma would

business full of million or incentive management results in normalized quarter $XXX million an to share quarter, Turning fee and share. year XXXX share consolidated financial in recognized fourth was XXXX We fourth million FFO full per million expense $XX.X HPT's per $XX.X in increase to the the Adjusted increase XXXX fourth compared XXXX. $XX.X the was XX.X% from XXXX million recognized a quarter $X.XX $XXX.X year $X.XX the quarter. EBITDA fourth or in $X.XX We XXXX. quarter, per quarter the and

Our the adjusted EBITDA end. was and quarter interest the ratio for to quarter debt three X.Xx at at ratio was was EBITDA annualized adjusted coverage Xx

ratios X.Xx X.Xx these would fees incentive and the of impact respectively. the Excluding have been

from of of we improvements $XXX cash Turning $XX.X of are capital improvements funded fourth fund XXXX, improvement $XX Center improvements be flow. majority $XX.X expect funded in hotel travels and to to operating to million Travel these improvements. million The expected In we commitments, quarter. our hotel funding and million improvements of the million of

XXXX XX We all hotels under have or compared quarter the part for last renovation to XX expect first of to hotels year.

assets Turning as and for million quarter-end debt million hotels. cash $XX balance gross of had of to XX.X% our including cash was sheet, improvements future our $XX to we of total of escrowed

on to $XXX Operator, February our have debt ready prepared we no questions. XXXX. to credit today, open our and up outstanding remarks, that concludes until facility maturities of As million term revolving we're

Operator

Michael first Please ahead. Bellisario Instructions] question with Baird. go Our from comes [Operator

Michael Bellisario

everyone. volatile level trading us in John, view Good transaction, you and strategic TA the maybe income give for TA cycle? income at Hotel on on morning, high just point this more your the rental can

John Murray

even X.X think for look of for it's Sure. owned traded the into a number ranges higher Really, I centers ago, quarter the was than X.X businesses entered REITs we've with and We reasons. are travel to other X years be similar we coverage by gets the think and travel - hotel rent though to coverage since good TA a the leases you HPT tend concerned up for a transaction into of X investors this their that had transactions centers, acquired coverage about the range. if TA the and at level publicly above in two

travel that point we as more think a investors, are and centers into we locations different portfolio. should and exposure So received hotels travel investors sale also to of majority to the the will years that We think into HPT that the investors in economy. be volatility This something by weaker represents in weaker centers. the next is our think investors, couple provide on transaction, hotels the notwithstanding more of XX performing the of potentially comfort We head XX focused dynamics. reducing in well some

significant that's So we positive think which gain a $XXX-ish that of also positive. results is in million that's a - a

invest where a and of the is for into return of performing roughly them in million leverage taken those assuming capital investment giving, centers think good weaker dispose whereas an ability can HPT. considerations for travel transaction in all account $XXX our So that given taken some X% levels, we and we to at hotels

Michael Bellisario

to with exposure further opportunity there the forward? you see going an to do enlighten Do TA more

John Murray

transactions. considering currently was somewhat debt, so opportunistic TA business This happen store and made their be we most similar form their expensive not because the proceeds of strategic is decision a reduce and of to leverage. exit are to use We convenience to plans

And strategic of that type have leases. down our just going initiative proceeds buy think to so in other don't any that ability that's they result to I to and try

just think I this one-time So event. is a

Michael Bellisario

for the round don't year. you provided for some then the think expectations for And portfolios, could but spending numbers on XXXX. maybe provide you're front it. CapEx any you guidance just Got this I

Brian Donley

XX million and $XXX adjustment million the centers. the hotels XXXX for Yes, for travel for

Operator

question Please Riley Maher Bryan next FBR. go comes with Our ahead. B. from

Bryan Maher

Quick your on the morning, acquisition question John. on outlook Good front.

of You've and and with recently, forth select-serve full-serve moderate And somewhat full-service? at expect up are live-service a pace, to skewing at activity you arguably kind all towards been back maybe you even of between How versus year? particularly going kind hotel activity pace a XXXX do slow thinking about last versus ramp acquisitions renovation that XXXX. or more more slowing

John Murray

portfolios our select extended Yes, think service are of XX-ish, of that I XX% stay.

and - then hotels. so full-service And balance the is

of modest look portfolio we service not Angeles of hotels much and that on January. so more extended the end we either in we really hotel - at pickup seen we become or transactions, Los offerings prefer a offerings, all select one-off stay a So at really we've in to Conference in are buying hotels volume the of the Since service full-service select of Hotel open hotels activities. in, back buy to We've basis. aware

more I I a opportunities. go Maybe it's particular would we're towards; know give that full-service think - more way. I would hotel seeing I but So, don't slightly

maybe more portfolio than that have we hotels we'll have that to us it's target, diversity buy have geographic is don't we that important what's we service But more particular a hotels. transaction. full likely So service select

that we the XXX like, of that in DC to bought be our with when was other Palomar we hotels So added that could have Washington hotels instance IHG. portfolio for when

we'll have we willing basis. select probably have portfolio. operators we So it to major to their we add bit to service. where opportunities bought can on standalone think do acceptable as one identify and so, full as is that yield I Then But it of more wouldn't a is a service wouldn't and our little us long the

Bryan Maher

bit acquire do more you decision that When brand tell of there's to seems skewing like the it curious. properties, as made us board Sonesta to you been just with was or a the branded? property be a towards that is internally Can how going recently. little how I is

John Murray

unencumbered sort they from a the and that from viable would times don't it those the disadvantage management, be the fact presence And marketplace. that get of or we it attention. in to ability to the is it as wouldn't because just Z own focus first hotel represented any the of opportunity with portfolio. been often business by our Yes, that re-branded policy significant a type and we we have evaluate secure Then transaction first available is opportunity that call operators of through in could We'd what major that done we of if of we is get we that we a the markets to not we because contacted those to circumstances, that the our do there one with certain add versus previously that that, with Sonesta with the that and seen on consider of be already or - community, to wouldn't that us as that's in operators. we've brand available seek love transaction, acquisition through typically that markets. And over wouldn't may says, have emailed we have the hotel in a Y, that networks was in brand able probably if all, you be the about available marketplace. in brought become us credit other what that market we our the what opportunity and other hotel X, support the us We have operator operators do. and those and a with very brokerage operator, sellers brands be relationship business aware get a then get If a Sonesta

transaction time related the we the the party decision to the themselves any whether the trustees, you what from present to go not. the make trustees, independent hotel of to terms the then the and know do the Sonesta have or making in a maybe independent with could been presented alternatives reduced we managing then a trustees else, of determination we trustees, what we on branding investment with presented So and else, maybe independent

Bryan Maher

Thanks. And Michael's going back then kind of on questioning to TAs.

With do brand centers the rollout Or into in HPT acquire you're the team TA TA assuming XXXX, would agreeable dozen there put TA smaller Expresses maybe or those potential of found you seller a portfolio? handful to or to so think by Express a be not considering? the TA travel with to truck up something and is stop

John Murray

would something are We here it's and currently considering. I really but the HPT, not product never to that TA we it's format believes type big we that don't Express with type they lessee think center us TA travel a of is not believe we franchise to of that Well, - say - and not that at and think never where I so become that come on TA portfolio. intends a

our as I regular They they those, our the likely competitive makes that travel supposed them attracts our there we repaired. with parking, and place model. driver be will see and be think so gives the but that well our that large that to in interested prefer we existing allows that travel that center get professional off-road is restaurants are see the be if franchisees substantial it up smaller we and truck they that's during from shop to to to as with in XX to advantage and be XX% a stores them and have travel format. stick operating which what the operators centers And out do hours reach truck more their we think of line maybe and bottom centers to would eat have to motorists, they're in

Bryan Maher

of select-service guys you kind of having given of select-service little loud ever you towards hotels kind give to time, of do bit XXX, look kind thought or over number, X thinking the to grow even of the just as growing across But the here. And a you still developing and the own size kind those acre an travel out out develop or centers any lastly, parcels the actually the hotel that more? portfolio maybe large side somebody country, portfolio on on of

John Murray

That and forward a of our time that something is we've what consider, approached couple we we time doing for operators we've gone exactly one of - variety to been a is that because about there's haven't to from by had around site and the make traffic travel they be to a we of able to sure be centers want safe. those moving hotel we to if lot we on provide, able want that reasons, were

at example For us restaurants, the over and makes sort restaurants to on - bit quick-serve hotel the from quick-serve locations. walking just nervous, a goes amount these little the that of given the of that activity

safety as often they that business cargo they they cabs. have get transporting, motorists require in for locations, a fuel carriers but sleep will with as of car they're to drivers whatever get period that to that cars their driver generally in to think they're comply hotels don't or And much to as a to you period to on truck feeling the cargo our get insurance insurance for park whatever the popping with or from times whereas is in but they get professional a truck in bite generally might the regulations, their is factor between would. eat, overnight long time the result Another transit have the stay

gotten of first actually those hotel and rooms TA bought we locations number centers, when travel of over the rid a in time. upstairs had And so we our the we've area of

of land industry amount for - tell would look in So of number land. Industrial I for a some where have on opportunities be the to there have that our different centers example, we involved we uses because it's estate in excess - these other travel the may a something at, we real potential excess a of take types develop continue that you do travel fair we've of MRs near evaluated centers to buildings

not may to will that term, that's happen we it's we periodically with the is hotels something along something can analyze again and that's down that - going So continue near road. to but do

Operator

our to to conference turn Murray over This the I concludes session. back for would question-and-answer John closing like remarks. any

John Murray

you Thank joining very us all much today. for

Operator

The Thank concluded. attending now today's for conference is you presentation.

disconnect. now may You

Service Properties Trust (SVC) 27 Feb 192018 Q4 Earnings call transcript