SVC - Earnings call transcript Q2 2019 | Service Properties Trust

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Operator

Good day, and welcome to Hospitality Properties Trust Second Quarter 2019 Financial Results Conference Call. [Operator Instructions]

At this time, for opening remarks and introductions, I would like to turn the call over to Senior Director, Investor Relations, Katie Strohacker. Please go ahead.

Katie Strohacker

Good morning.

call and Murray, Todd today's Chief Brian on Officer; Financial Hargreaves, me are President; John Donley, Joining Vice President. a analysts. includes question-and-answer call presentation followed management Today's by session with by a transcription Please the prohibited the written note prior conference of recording, and without HPT. that consent call of retransmission is today's

on Commission or undertakes in contains today, revision results statements release other Private present XXXX. like Reform Securities HPT's Securities other to I'd call or Act The August point filings Exchange are any securities conference today's the as within X, no SEC. of company obligation of that out through statements made to to and revise laws. Litigation forward-looking These the than meaning publicly the based conference XXXX call statements expectations and today's forward-looking forward-looking of with the beliefs the of and

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

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

John. you, over I’ll with turn that, And call to the

John Murray

of a shortly. Service-Oriented this $X.XX of Retail of travel Net significant we reported the centers our of The reported of with SMTA the per $X.XX second primarily our REIT. Todd $X.X X.X%, Lease quarter This Properties acquisition an compared Thank you, per of quarter second morning billion disposition the to completed update amendments Katie, normalized event related and TA in share XXXX, quarter the and most that XX Portfolio will in lease to morning. FFO provide of decrease share, transaction was we January. from good announcement on

second a portfolios. quarter, in with quarter industry a as For were HPT's XXX, Hotels declined our renovated decline Marriott trailed which double-digit decline XXXX non-renovation in XXXX decreased rate stories X, Sonesta the from in X.X healthy resulting hotels, quarter comparable comparable performance, recognized quarter hotel by comparable RevPAR XXXX X.X% percentage versus and X.X% results that the multiple HPT's HPT's point RevPAR Marriott occupancy. this in RevPAR growth X.X%. success and Radisson, this performance

hotels We expect of the year. lift from these remainder the throughout

XX Radisson than the hotels factors in were XX the disruption same and renovation Of Renovations more under renovations quarter, the divided in hotels comparable XXX, across second full-service Marriott comparable last versus IHG, quarter, this offset period QX evenly renovation the and However, nine were XXXX. we renovation portfolios. Sonesta tailwind. In year. other XX versus assets had this three

and hotels portfolio renovation ability disruption in business replace years. an XX events to easily non-repeat Chicago. and remains In fewer in was addition on Supply non-recurring negatively burden by that demand business and reduced renovation ramp FEMA past the as impacted impacted up the impeded hotels from post to hasn't to Citywide ongoing as

at and the in on Scottsdale Marriott remains in X.XX at X.X%, seven like a and portfolio Hotels offset hotels performance, for strategies was months. due Marriott at X point Williamsburg a markets local leashed Coverage non-repeat in hotel had RevPAR hotels, quarter. portfolio impacted business agreement two yielding this rate materially partially that times in drove this better rate. our to strong by capitalized a portfolio by through demand Marriott performance trailing renovation. and occupancy, X X under X.X% by decrease Turning X-percentage RevPAR increase to declined XX

A portfolio QX, percentage of where points by of X.X%. X.X%, RevPAR declines declined portfolio and occupancy in X.X due Chicago revenue flat declines hotels declines Citywide significant fewer to experienced had RevPAR three at at Coverage downtown solid renovation Marriott under XXX rates. resulted months. agreement X.XX XX for Marriott in Market weakness XXX the our in trailing times in This the remains from Chicago. residents at

outcomes the the possible Marriott. we XX, Marriott hotel portfolios, Kauai X or On have we and outcomes, Marriott sale Kauai expires Kauai the Marriott on Marriott Other include the the told Hotel December have of with rebranding you, when regarding XXXX. previous which and discussions with been include possible in XXX Kauai calls, combining lease the

point connection the X.X% are Discussions our decline of how discussions are more Marriott, soon too hotels. selling approximately finally with clarity considering discussions we ongoing conclude. declined caused XX on possibility these also occupancy. X.X at provide In portfolio and percentage comparable with it's in will in X.X% to rate RevPAR decline IHG and the by

portfolios, and Plaza, Citywide. in non-repeat comparable Allegro X.X%. experienced stay RevPAR experienced Chicago, non-renovation both and Houston at Of Alexis full-service negative Crowne the was InterContinental occupancy Seattle comparable extended of in hotels. in to FEMA our declines Miami in disruption and Hotel Our and due business Toronto, Hotel fewer Columbus Renovation that decreases included factors

growth strong rate. Sonesta X.X by with ramp-up recently outpaced by XX Comparable performance, portfolio RevPAR points, in the Sonesta of driven in RevPAR Suites X.X occupancy Clift solid points, XX-basis offset results increases and point a hotels. decline at Hotel percentage comparable associated ES increased driven Royal trends by renovated by industry portfolio percentage A partially X.X%, by

St. points. Valley, at down increase non-repeat rate, Houston X.X% Full-service Hotels in Fort decline was in Wyndham offset by RevPAR and X.X compression declines driven hotel our RevPAR negatively in occupancy. this in point Citywide by caused percentage quarter a partially performance Louis, impacted reduced percentage by X.X renovations Sonestas at the and Chicago. business Silicon X.X% and by RevPAR were FEMA Lauderdale

Approximately, management to $X continued million second the less of has XX% due the quarter. amounts agreement. contractual under Wyndham than returns pay the for the HPT due

mutually that telling find having Wyndham possible were unable we have we agreement. are of amendment quarters, regarding with of discussions we portfolio, the work cooperatively management a hotels Both several restructuring XX work begun to and contract concluded short-term next sell amend sides the the to this forward in agreement agreeable the to or the you, XX an months. instead have to sides where For re-brand have both been way

and RevPAR X.X% X% occupancy. caused declined portfolio Hyatt in by rate decline in a point X.X decline percentage a

exceeded supply approximately versus this industry Radisson last growth of portfolio Hotel During quarter market in supply essentially Groups the growth. average the A flat quarter, demand was year. Hyatt and growth RevPAR markets, one-third comparable

under renovation performance gains during Country The years hotels recently five and renovation post a last experienced ramping quarter disruption, second two offset ago. hotels the that the Hotel. pre-renovation and compared RevPAR Radisson including Suite the three quarter, of Strong in hotels comparable the a nicely that year, Inn was Sunnyvale by lift to as renovation were of five were repositioned X.X%,

Turning activity. to investment

SMTA headquarters. campus, feet that from Center, for addition to The million hotel Crowne purchase added announcement, This room largest In a Milwaukee, price of and Medical global as meeting medical to as Milwaukee well Plaza the hotel in generated the Healthcare's include of X,XXX space. flexible in second the $XX Wisconsin's GE portfolio features agreement. Regional Wisconsin IHG demand hotel quarter, located acquired we XXX hospital benefits and our this over square

XXXX, Looking disruption will continue. renovation ahead in

XX year, six under in of full-service a year. will renovation However, third last the compared XX be quarter, hotels eight only which last there to versus

coupled While expecting stagnant room we many in or continued XX the see positive this with renovations lift with are contending that from growth supply XXXX. to are demand completed year in declining growth hotels Operators markets.

the of that in declined, driven in X.X% to experience in have to hotels now growth prior longer X range. a reduction for and RevPAR the to we rate, Full-year down fill, given is minus will to results growth be post-renovation margin such continued short-term push which are wages comparable that benefits. As from expected is X% full-year flat HPT's on rate managers to and higher to increasingly likely occupancy less expectations X% to a XXXX, change gains, opportunity with revenue be improvement, little allowing plus result, but RevPAR taking by rates. project remainder pressure X% GOP forecast,

will moment, Todd with center will in Brian transaction discuss SMTA. first results a our portfolio travel our discuss but

Todd Hargreaves

Thanks, John.

mentioned, net brands lease XXX to Properties Lease REIT Net acquire of HPT's SMTA Service-Oriented we will Portfolio to transaction across June, in from Retail in agreement add John spanning The properties United announced XX XXX our States. for As industries portfolio $X.X billion. different the

net portfolio to require acquisition hospitality leased properties evolves retail The of income expenditures. a by HPT and should with reliable focus complements providing and minimal strategy this and capital stream service a HPT

organization the this transaction September we SMTA's ongoing HPT. we shareholder X of scheduled September. will to Integration are across efforts transition of assuming occur to well-positioned transaction and we outcome, believe favorable a the on vote in later close is are portfolio and

will previously SMTA. from sell we million approximately acquire to we $XXX announced, As expect the of properties

and have across certain the be We for industries sales assets of will portfolio. sale generally efforts the fourth these XXXX. commenced in quarter fit are a various we majority strategically be in of a of we position assets marketing selecting the to believe not will The cross-section assets execute that and do

may we have time earnings, we buyer. quarter third the by announce selected that hopeful a are We

Brian. I will call now turn to over the

Brian Donley

which returns flow was Starting this HPT's RevPAR percentage Thanks, available XXX and basis with increased impacts margin hotels X.X%, comparable of results operating by decreased the result Todd. decreased pay cash of by negative at renovations and rents costs. decreased operating GOP minimum and X.X%, XXX quarter, points the to

had performance with respectively, versus quarter. year X.X% Our and IHG the weakest the portfolios Hyatt prior comparable X.X%, RevPAR of and declines

of quarter X.X%, by percentage and respectively, comparable approximately portfolios Hotel million. hotels XXXX increases $XX.X prior Radisson our and basis to from points XXX the GOP performances Sonesta comparable quarter. and strongest decreased versus X.X% XX.X%, for operating the gross decreased with RevPAR Our the had profit margin year

with Houston Miami made majority the comparable activity. Citywide our markets events GOP, certain our declines results were the in supply area portfolios XXX, in from Hyatt hotels. FEMA Revenue losses portfolios our IHG, Fewer up decrease. All Sonesta, experienced growth, business non-repeat renovation and associated and in Marriott of

the and by available our returns lower comparable declined minimum X.X% pay comparable Below million real and this or year, the additional prior flow for declined $X.X hotels efforts portfolio, Labor-related at increased costs across rents GOP increased to expenses. while insurance tax the contributed million marketing driven by our our to approximately from cost estate $XX.X X.X%. expenses line also quarter. hotels Cash

our comparable to quarter, Cash minimum year X.XX of the XXX times for flow quarter. for hotels prior and rents times for X.XX returns decreased to coverage XXXX compared our

under $X and million. the guarantees in security of minimum at balance the security flows our by our our operating deposits returns of total, available replenished cash features agreements In $XXX.X quarter Our was and rents. from excess were hotel quarter-end million during

versus increased center margin our performance travel X.X% gross shop was pricing of fuel of X.X%, by in X.X% centers sales profitability. by Non-fuel in the X.X%, the as X.X% flat million managing restaurant is and to increased result for the or quick-serve volumes respectively. $X.X increase margin by year. to and balance PA repair prior gross and travel revenue fuel revenues primarily volume year store gasoline Turning prior the comparable the a revenues quarter, This of over increased and X.X% and declines restaurant was offset respectively. Fuel

to Non-fuel compared prior points, gross margin percentage XX.X%. was year down basis XX the

XX% As margin a travel generated versus total the Non-fuel million margin centers in gross declined X.X% our our result, quarter of dollars non-fuel centers to of XXXX $XXX.X approximately the travel gross million. or quarter. $X.X sales the

costs. from maintenance expenses prior to or $XXX,XXX the X.X% operating decreased year, Site-level lower due

by EBITDAR adjusted X.X%, X.XX rent of quarter increased our million XXXX, was and times to approximately of property-level quarter times, X.X coverage to our second compared leases $X.X last travel centers year. the under Second or compared

second results, decrease quarter, consolidated centers our was the $XXX.X agreements. to primarily amendments normalized in X to due HPT's million quarter, GAAP travel decrease in financial our the IHG in lease million $X.XX excess XXXX related compared rental to a XXXX a with to Marriott of PA recognized cash minimum declines XX and from $XXX.X returns and share. January reduction income million disposition The FFO of and additional under flow returns $XX.X our of in Turning to per the was in

the rents acquisition hotel in in our our the at So, minimum quarter, properties. X.X% increases funding our XXXX XXXX this from partially improvements returns offset million from a and second EBITDAre by Adjusted quarter. in was of decrease activity, capital $XXX

at X.X and the interest coverage X.X was debt-to-annualized adjusted for EBITDAre times adjusted times was Our quarter, EBITDAre quarter-end. ratio

Turning we funded hotel in to million quarter. the of $XX.X activity, our improvement second capital improvements

fund are travel to flow. of expect no we XXXX, center of rest the For operating The $XXX.X hotel million approximately improvements. expected be of majority fund these and to from improvements cash improvements

we the share, transaction. debt to plan On held gross all Group public $XX.X including quarter-end a the was of sold investment had $XX first our assets our XX.X% sheet at proceeds a $XX.X This overall escrowed, of to sale price was RMR hotels. primarily executing million. and future shares of net Turning to per with of as $XX.X of for our to July – Inc. X, of our step improvements in million us total million balance at resulting the total we of SMTA cash, of cash XXX%, generated leverage in return the manage to the connection in we

fund To senior an unsecured asset When our acquisition. proceeds term loan SMTA facility, of borrowings proceeds up commitments use transaction, this other loan secured credit sources finance or from the to unsecured we sales, term under for we facility, the facility. from new have notes billion from to proceeds from issuance $X existing the lenders this

on As XXXX. of term maturities until and facility revolving no no our balance today, credit outstanding February we debt have

we $X.XX dividend quarterly XX. to quarterly to to our July, of In per declared or or $X.XX common payable be per about per shareholders August a our dividend of paid year May, $X.XX share regular on a share. we common regular In shareholders

covered well and second the normalized for a ratio FFO payout is dividend quarter. had XX.X% of Our we

up Operator, we the our that are for open questions. prepared concludes remarks, to ready line

Operator

thank Yes, Riley B. Instructions] question the comes with from And Bryan [Operator FBR. first Maher you.

Bryan Maher

just A comments Is be to portfolio. couple one And fourth in from SMTA morning. you correct? would Good going thought questions I Yes. that buyer. you on I your the to noted it of heard that the quarter. I that guess, close expect

John Murray

Well, on fourth on SMTA the to and transaction we of close we hope the end September, and quarter. of to expect the the million $XXX sale close expect assets at the in of

of as have We portfolio have broken that portfolio we give sub but then on individually. the Todd that but large you we several he we're want in and portfolios. Todd, – being could more selling up identified portfolio, properties fit as single call that initially, just couple that a are And can a mentioned you be offered detail, the that's a don't to? into

Todd Hargreaves

Todd. Sure. is Brian, this

So, we engaged have have we a terms in of – broker. timing,

in We're potential We the with buyers. are market. talking

type. we as out one $XXX really but are from are investors more properties by marketing XXX approximately well showing as tranches different million We million, to ranging $XXX portfolio, broken also three it as it's to property and

furnishings, car and So, dollar dealers, is QSRs X casual movie dining, apparel X and pool health pool X day is automotive restaurants retail is washes, stores. home care fitness pool theaters, specialty in

gets we I think we probably it's that put it about XX% that it it three again, goes we more to think it than one more between like we're buyers. up. put out But buyer, split not likely just

Bryan Maher

Okay.

you to answer, the the So, some well three at assets And I single that the said is XXX XXX, there the addition think in properties. beginning of the tranches, as is correct?

John Murray

those a is brokers just marketing properties Vegas. two property is there building different With office those Las in Yes, we Class industrial an in outside A Boston And Massachusetts. in South have there individually.

Todd Hargreaves

process market office the in the building in selection industrial the the Right. building. broker for and We're on

Bryan Maher

hold. on what That's switching to don't in probably want great. outcome. – thing deal. there in guys guessing they the kind What a that upset was terribly big was not of from particular, you the I And there. was But helpful. the know Okay, happened get what by weeds big you're getting Wyndham. much too to kept with And some then I'm you

Todd Hargreaves

in respects operators. it's worked on really Wyndham some I diverse of positive hard for HPT would that a be group have And portfolio. think, it a – to Well, – hotel

we one one had in they out, those just brand another great high New basis we we wish of or during of have that and Wyndham Chicago after they major portfolio our hotels, the Jersey, but other was rebranded and the could office their that, in over acquired recession. hotels couple away took a market near after a something So, and took the to hit. hurdle I And from softened properties worked fairly so high,

Chicago as lot result supply came that on. new The of can a market we a of dramatically

we that forward lot tried a a as it there to that out just portfolio figure a So, going positive going and dice couldn't they – was portfolio are obvious challenges. without slice faced things, alternative so an we to be headwinds we negotiate of way and to long-term

day, to we And agreed trying the sides of way so, better a bring the the to that at conclusion. off to both end cooperative a are find relationship

to are, It's possible majority that some remains branded with some so national the lot may there possible opinions currently, a of expect working Evaluating but of be on remain forward of us of the seen, hotels fairly the or and a maybe the buyers the know several on we in even who be are moving the hotels re-brandings for have Wyndham potential market. depending to we strong. of assets, you value others, we brokers of sales there's

Bryan Maher

John, look to you the XX, many to or you maybe this do something How as versus keep your been you and a so, do portfolio, And how be think doing you've at and would think many or rebrand while. want sell goal you of Ultimately else? the

John Murray

Well, would to early too I it's think, say – maybe it's I say.

that to battle growth. in Irvine, hotels the for major in constant are they'll be rebranded. a a brands are and interested unit – The definitely in rebranding, couple property think I of Chicago likely be probably California, for

And Hawthorns, keep there's if another. want in bunch would to existing a look a And I some in brand. them, of guess we portfolio, of the – are a remain so now, might will would bunch I existing might the may one our the say that properties to properties particular, right portfolio think at good probably the chance these portfolio. XX But to between be suspect of partners from to they and I that there may XX shift some our that somewhere that add maybe that see – if so, sold probably to Wyndham I may assets be had

Bryan Maher

Thanks, That's helpful. really Okay. John.

Operator

question Michael Baird. Thank comes you. [Operator with Bellisario next Instructions] And the from

Michael Bellisario

everyone. morning, Good

John Murray

morning. Good

Todd Hargreaves

Good morning.

Brian Donley

morning. Good

Michael Bellisario

the selling about kind all up after you're of for stepping few Just balancing it's and same that simply the little them level, Wyndham just Spirit rebrand might bit keep given your on you the topic, thinking that how the to a quicker capex of high needs reduce leverage versus transaction.

John Murray

Yes.

investing been the portfolio. have in We

think I are okay the hotels So, shape. in that

if ends whoever those. they with like there couple There rebranded. imagine a how larger the big early – get be capital it's – with in I a some will So, too hotels will don't of HPT to But that do won't those leverage. think of that full-service number be will I Irvine, – impact still its a tell up associated Chicago on on be but with material have

So, capital, Wyndham Hawthorn. years six or been there it's since is seven the rebranded

that be give want be it goes capital anybody don't don't that expect I – But pep. I I on Hawthorn. their will the Well, capital there own let So, required properties. those them to I'll will figure there out. into

Michael Bellisario

it. in mean clarify buyer Got just property? you of the Chicago a you Irvine, say on And rebrand potential to then when you by rebrand, or

John Murray

that keep somebody I be operators. be I what properties a said when in them other rebrand is change by to Sonesta else. It that I probably on and could we two – one would could it of think – our those then meant, the portfolio

Michael Bellisario

Got it.

then that I at exposure? view take mentioned transaction. XX Spirit what sale where XX% would XX% changed was our just just early like at what look That's know Kauai, all? it's on Hotel does XX% I And I all about, thinking and your XX% in after to your changed to kind potential if know Has that you hotel of lastly June this XX you thinking a but range properties, sell thought. do there, on Okay. target the

John Murray

once where back out XXX Marriott Wyndham portfolio. in on valuations little I us sell. Marriott: opinions to do value where we'll doing Well levels business make from come and two XX operators, that X the how, of for on we about in properties other in come have all much brokers we that stepping And we of data, over of those the both currently XX portfolios guess the depending how – on Marriott the the and decisions a where just portfolios, with properties that's have in what and interest

have sold. we RMR Todd already that portfolio, now, been shares Right the have about between SMTA that and talked the earlier,

so wrong, targets we only that amount of these we million I think and hotels, the worth meet a meet sell will of we to flexibility. have that I need but fair to if me of correct had had, get this think targets I in $XXX that we to about in the have portfolio, previously we excess Brian discussed, two

So, we than leverage we we more little initially and if further our a and sell come down could less told will people. rebrand –

Michael Bellisario

That's helpful. it. Thank Got you.

Operator

you. from Dori Thank And next Wells Fargo. the question with comes Kesten

Dori Kesten

good morning, everyone. Hi,

was was the across that was in then Your agreements it year-end? year would rent considerably And for operators just by concentrated I RevPAR for distributed this came imply quarter-over-quarter. what expectations down wondering coverage some or and evenly the

John Murray

to fill operators coverage I'll renovations But part. had off all expectations. grow properties take our that of will come They that and largely Brian the first say the be part, renovation. expecting all I'll as of we've in because let occupancy think to have fair reduced it I see are their

they modest. to growth to regain any of but rates expected that So, are expected – if the there's it's be – be disruption, will some are

a lot continued benefits pressure. And wage and of so, there's

that where weakness, impacting Board, suppliers everybody, the some across it's think everybody experiencing is growth. I So, supply

it's there's So, – one yes, there spread. one no evenly no is cooperate,

Brian Donley

goes, from Hyatt other far as and be above Dori, track portfolios portfolio one times, over Wyndham two IHG Marriott around but and Radisson will prior and portfolios then will our prior time, to our years. we portfolios, the years, coverage expect to prior one hover to as similar decreased Sonesta

around be the whole coverage time hotel major overall So, the of portfolio but times, that consolidated components be greater. one or under will for will one

Dori Kesten

you. Thank Okay.

John Murray

Thank you.

Operator

as for comments. any I to more questions, to floor no the And would Murray are return like closing you. there Thank John

John Murray

everyone for call. on joining today's you Thank us

Operator

concluded. you. The today’s for Thank attending now conference presentation. has you Thank

lines. your disconnect now may You

Service Properties Trust (SVC) 11 Aug 192019 Q2 Earnings call transcript