SVC - Earnings call transcript Q4 2019 | Service Properties Trust

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Operator

Good day, and welcome to Service Properties Fourth Quarter 2019 Financial Results. [Operator Instructions] Please note the event is being recorded.

Now I’d like to turn the conference over to Ms. Kristin Brown, Director of Investor Relations. Please go ahead.

Kristin Brown

morning. Good

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

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

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

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

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

John Murray

morning. you, Thank and good Kristin,

improve major growth want by of call, and recapping SVC’s improve year-end is to achieved in the this fourth the both prospects. we start security and off of As cash and milestones XXXX predictability effort I flow in to an some investor the strategic quarter

recorded leases. were year start and sale a payment $XXX.X previously to TravelCenters First, to we rent TravelCenters coverage result. improved weaker a to for million reduced TA These sale. rent accelerated our XX January, locations the amend and as performing this of in $XXX and sell We million of gain rent has reflect sold XX agreed to deferred on

late XXXX, transaction and SMTA in leverage brought for on cash September providing billion, this business service brand, draws properties, closed purchase new added up. while we and diversity XXX increasing rent on retail Second, level of by which necessity-based the property type senior flow which $X.X considerable and notes revolver, coverage We predictability. with financed our location,

articulated approximately also including reduce However, net million sale of $XXX plan a we the of hotels. of lease leverage properties to $XXX retail million and

net toward shares on deleveraging Group with $XXX We generated of for This for we million. of quarter during July sale the investment in fourth $XX the proceeds price per first began The next share X to million. executed held $XX.X net assets RMR approximately lease total the a sale XXX%. return a of of at XXX step of us the

to term an the three additional agreements support. with million credit Marriott XXXX, reached our also combine and with agreement to existing We $XX extend of

agreement, planned for years. part XX renovation several fund sell over and next we As the Marriott between $XXX $XXX of properties plan million million non-core the and to

Coverage Sonesta were at branded Grand the portfolios. Wyndham XX and Sonesta Wyndham our two amended Wyndham management for In the our sale. and the the been has addition, and hotels, Royal Wyndham are of Hotels currently Chicago rebranded we agreement being November, lowest to our in portfolio XXXX, October Irvine of with full-service marketed in hotels Wyndham any remaining

overall in our result So these sales improving. should coverage

$XX.X require Sonesta. restructure stay to currently all returns aggregate have hotels managed Sonesta, agreement XX business agreement SVC of our Sonesta with by an extended exit which into and agreed million. annual entered we minimum Yesterday, to

exit on As sold, our the by hotels effectively. the we stay annual manage XX they behalf, applicable After or where rebranded allocated continue amount SVC’s full-service we believe more can Sonesta to the returns to extended are the compete hotels. agreement under hotels decrease will these minimum repurposed, hotels, Sonesta will

agreement, a XX part the As this of equity of reach will in exceed can XX% Marriott and the at confident our steps a will we rents. Sonesta shareholders million coverage of be The we and first $XXX growth XXXX. taken XX targeted the returns restructuring portfolio from goal hotel future that proceeds believe our of of stronger sale with and Between during SVC used interest the primarily half of so have further share agreement, the we of leverage. SVC received Together in sales its in are which hotels, create Sonesta, benefit with Sonesta. we or to our the hotel reduce will Wyndham higher

hotel yesterday real trustees. our Robert independent diversity. on Board markets. that two the Board’s Finally, appointed extensive bylaws. we focus have of Rob key increasing last capital continuous leader estate as adoption new Laurie a governance, experience Board, and and Laurie in service Cramer SVC’s proxy to while access step in the which announced brings brings year’s We Burns industries, and a expertise substantial size as the and in both included

be to SVC them and pleased to forward. Board the are assets believe going will We tremendous to welcome they

$X.XX quarter later. for per fourth $X.XX results the normalized FFO Turning Brian compared further in reported XXXX. detail quarter. the of of discuss reported share will share to the results to per in our the We financial fourth

non-renovation of below consolidated comparable portfolio this hotels increase slightly with SVC’s terms industry performance In the was average, results, quarter. X.X% RevPAR a hotel in

from first the in in this XXXX XXXX. double-digit and growth growth renovated were recognized these that of Hotels we quarter, and hotels healthy RevPAR expect three quarters XXXX

impact the on projects. this positive Many growth a RevPAR fourth renovation, under And citywide XX offset hotels improvement business, versus in in several we markets completed renovation to and in full-service In renovations, this historically had supply under under QX disaster and non-repeat properties declines hotels However, these margin comparable growth XXXX. XX we recovery renovation the hotels tailwind well-performing have have XXXX. quarter, expect of year. their

Turning to performance our portfolios. the of hotel

Renovation of No. supply. and was remained hotels Our XX historical for increased lift X.XXx increased transit offset Coverage X these new gains. solid calendar a by XXXX non-repeat year. X.X% for Marriott portfolio and demand by at as RevPAR business occupancy the partially result

X.XXx well in as by year. from properties roommates. a under new in No. QX Our RevPAR of and driven X% an portfolio specific where XXX historical for XX eight had was XX XX.X% hotels This renovation the in Marriott and experienced decline declined occupancy decline XXXX Coverage reduced in portfolio decrease by point basis a as RevPAR calendar hotels point supply several these for XX impacts basis rate. citywide aggregate

disruption flat Kimpton RevPAR increase two was with X.X% rate. at IHG by percentage hotels. a back in portfolio point decline held in comparable growth supply X Chicago, along by impacted offset and renovation with in was three Portland, Seattle negatively hotels at Performance which occupancy

RevPAR Our in of occupancy X.X% a as X.X X.X% comparable result percentage partially decreased portfolio rate, points. by offset Sonesta a by decline increase of

was a during performance full-service quarter by noting as Hotel the at is up. well is comparable as renovations was It Francisco, and worth non-repeat three for ramping fourth hotels now complete open that which renovation closed demand. Total diluted Clift in San the

by and citywide X.X events weaker point Our to Houston. a high by end a decline in demand Chicago decreased percentage X% increase with partially offset new market due declined occupancy caused driven in competition by RevPAR X.X% supply in and rate, weakness portfolio from

Wyndham a RevPAR X.X% of by at decline point the Group X.X% Radisson XX RevPAR Hotel this post suites. increased a Radisson at material a decrease multiple by full-service performance Inn in transit versus hotels to properties increase properties offset up this partially year renovation Our and Hotel percentage offset and of was RevPAR the Hotel. X.X% demand Positive rate. with quarter Suites quarter Country reflecting occupancy, portfolio partially left last for conversion & generated the a by X.X in was

XX expect hotels quarter last of to renovation the under XX we For year. XXXX, compared first have to

continue see certain positive future factors renovations, the with potentially hotels XXXX to may several completed recently indicate we well. trail RevPAR for industry lift as factors from SVC quarters While QX growth that impacted that

with Portfolio pace SVC only SVC XXXX down to group of The following the nearly is a Atlanta hotels. X% key Miami shift the with are influenced mostly five from XX few the by Bowl of Super hotels factors.

year-over-year outbreak the portfolio several While related Seattle, well readily are to reductions travelers inbound group the impacted on XXXX. Philadelphia cancellations hotels projecting projections the Francisco, soft markets softening headwinds SVC in many quantified, have as are these potential from not Antonio Citywide and with yet reported coronavirus of regions. QX as demand of concerns San San in about

growth is in to including Nashville, supply expected among Dallas Jose Finally, impact and markets many others. San growth major RevPAR to continue

XXXX, renovation opportunity short-term we to comparable to occupancy change have rate likely Hotels be muted. rates. with gains improvement up flat are manager’s As experience projected little SVC’s by such for our full allowing post a growth is result, fill, RevPAR expectations but higher to RevPAR that driven to push less from increasingly X%. taking will longer in rate year growth

year full XXXX XXX to flat benefits. by XX decline and points, continued and GOP on upward pressure margin revenue basis expect to given We wages

over Now to discuss our to lease recent and I’ll portfolio investment Todd turn it net activity.

Todd Hargreaves

Thanks, John.

retail of $XXX.X XX in December lease industries. XX.X as a was lease leased total including term XX XX.X aggregate compared distinct net XXX average basis SVC’s rents. minimum month with XXX XX% minimum our minimum coverage XXXX, under XX, December lease requiring SVC’s of annual September of brands rents trailing tenants service The XXX with XX% The were oriented X.XXx XX, portfolios TravelCenters XXXX million, with returns represented years XX, weighted a million as rents net XXXX. of X.XXx on properties, SVC in square-feet of As operating owed of annual of which portfolio by

X.XXx of fuel calendar calendar our for XXXX for and largest improved TravelCenters non-fuel volumes year margins. coverage versus for tenant by the X.XXx was XXXX the America driven year Rent

feet entered square weighted rents During per square these the basis leasing commitments weighted for rentable years XX foot SVC renewals points prior and leases of and X.X average below an the $X.XX capital leases same rents average fourth these The were lease concessions space. or was $XXX,XXX quarter, at that XXX,XXX for lease aggregate for year. were for term minimum per

with basis monitoring manage was the above with properties and tenants proactively rents of that rent continue are upcoming of additional rent roll XX watch quarters, disposition. In properties, will market decrease renewals to associated owner. on in sales we result asset list related in early The list other net experience which these we down on lease previous may the or were our either tenants to with may point a to retail declining

our recent to Turning investment activity.

As we was for in our to replacement price $XXX,XXX Palomar IHG XXX the per added acquired costs. million well October which is or we key, management previously of purchase agreement. hotel below Hotel believe room announced, Chicago $XX The

the during fourth As John mentioned, the in assets we sold XXX transaction quarter. leased million acquired approximately net for SMTA $XXX

four square X, sold January properties feet with costs. three states of price in million, closing XXXX for Since approximately we sales have XXX,XXX net vacant excluding $X aggregate lease an

acquire an annual aggregate of In in sell X,XXX entered square lease agreements properties approximately million, are February net of an or costs. price feet. currently with of three feet XXXX, properties with for with closing net $X.X million two lease net in to We for price two feet states $XXX,XXX aggregate excluding lease properties approximately marketing of approximately rents square agreement requiring XX sales three XXX,XXX for to and square states an minimum sale aggregate we million with X.X sales $X lease leases under

several offering the We’re and are the in opportunities net and transactions. space actively lease for of pursuing various in evaluation process acquisition stages

investment we well seeks preferably are with with industries, and new strategy also our franchisees operators with leased Our growing and relationships developing on properties and current as growing focused as relationships leases. targeted brands reputable master tenants to

offerings hotel specific well. as in evaluate actively to continue markets We

now will the Brian. turn over I call to

Brian Donley

of gross Thank XX%, Starting points approximately operating X.X%, hotels negative RevPAR operating decreased which basis decreased our with quarter. impacts margin you, percentage operating the operating of a gross by by profit profit costs. result and comparable this increased $X.X Todd. million, XXX renovations results decreased the XXX primarily was to of

quarter. from hotels result lower comparable GOP with line a insurance Cash taxes, real the of of portfolio. our down partially GOP in Below prior slightly Radisson comparable the as higher year a cost experienced costs. at portfolios estate our offset were comparable XXX for and by declines our for our quarter flow exception hotels All flow available the million compared to or X.X%. for our X.XXx XXXX for minimum of our the Cash declined pay rents returns $X.X to year our minimum returns decreased comparable X.XXx rents and to fourth coverage prior hotels

of extended agreements yesterday $XX.X minimum stay million with As stay we full-service in Sonesta announced Sonesta continue required returns hotels our XX The $X to will XX exit hotels million result flow our hotels. extended manage required and pay and million The XX will of quarter. returns XX pay for hotels and of XXXX minimum of to fourth of cash quarter. for to returns four generated full-service flow cash million $X.X available these returns minimum XXXX minimum $XX.X the these generated available

we the XX% hotels could quarter ahead to first for our Renovation pay Sonesta calls results to than portfolio. on Hotels returns currently XXXX Looking XXXX estimate second full-service from XX quarters the available minimum quarter, produce discussed that less flows XX% the our the we more be fourth prior are for will ramp this impactful up XXXX. of have and third in cash

how too we will generate any this minimum managed support portfolio any the currently represent total early the proceeds third and by when Sonesta of as may in XX hotels credit at timing is quarter but Sonesta XX.X% for much or annual transact any returns reminder, the not year-end. agreement have a and from predict our As do from rents of in we It approximately sale, of our Hotels exit estimate XX may Sonesta we sales to earliest. we the

will XX the to after. Hawthorn XX until full-service transact generated our currently Wyndham Coverage for they Wyndham Suites Regarding on by hotels for announced and X.XXx the rental expect sell in Wyndham plan quarter, too hotels long QX only are previously four was from we hotels not we sale the early these to the hotels remaining XX flow these hotels, fourth and complete cash of sold. managed receive returns to drove

Marriott end the the of hotels to expect the by XX complete second quarter. sale of currently We

these to we minimum million. amount agreement our will allocated annual decrease the which under by hotels, Marriott As sell due was an hotels, individual the of returns the $XX.X aggregate

million. certain balance guarantees our and to agreements the year-end, cover under of deposits operating hotel in was pay of and to rents returns of our available available minimum $XXX security our cash shortfalls As flow

prior Sonesta increases and consolidated million or $XXX.X increase recorded $XXX million per by fourth and to in offset the in XXXX, per rents TravelCenters an to lease declined Wyndham share. realized Turning XXXX incentive the expense normalized of was XXXX $X.XX in quarter in amendments of and expense. acquisitions, of with our primarily under fee FFO returns year and results, financial $XX.X increase to the in related business due January XXXX was our the in SVC’s compared quarter to million fourth increase in and disposition The $X.XX management TA partially agreements quarter, an minimum XX our returns interest share

Adjusted EBITDAre was $XXX million in the XXXX fourth quarter.

quarter interest Our fourth was seasonally end. X.Xx coverage adjusted EBITDAre ratio to to for the annualized net debt was quarter and EBITDAre adjusted at weak X.Xx

previously we we we around through our goal reach is to Xx be leverage target stated, believe strategy. this our will and As disposition

fourth the quarter was $XX.X G&A XXXX million. expense for

quarter. the a the business prior third increased increased Our million the expense management over as our fee primarily cap year, result market following $X.X transaction of in SMTA

under of believe being management paid on or total reminder, business market a We the As based interest is into this million is fourth our management with for and a capitalization. built of assets of total contingency our the loss. fee $X capitalization the lesser the alignment on management market G&A with paid currently contract RMR calculation is non-recurring Group. also quarter shareholders indicative includes

for Turning and to improvements bringing the $X.X full capital hotel improvement we million $XXX million. year the our total lease to in improvements net XXXX $XXX.X of capital million funded quarter, fourth activity, of expenditures

of hotel improvements and We improvements expect fund of approximately net to $XXX million XXXX. in lease million $X

improvements to expect We operating cash these fund from flow.

credit for and on our down to outstanding total million $X million continue billion balance pay $XX.X had $XX.X XX.X% hotels. the future escrow our of primarily cash of we of the cash with to proceeds $XXX our and of end, improvements quarter asset had line as sheet, debt intend gross to balance assets, million our to we outstanding Turning was year-end, facility on At from sales. including

share. normalized We sustainable XX.X% until $X.XX of as In believe its a quarter. is current common And we quarterly have XXXX. our continues level maturities dividend the to FFO quarterly at had well payout covered. of term shareholders February for regular no our be per ahead, look dividend and we ratio fourth debt a to we November, paid We

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

Operator

from Maher, question Instructions] Riley go [Operator comes ahead. FBR. First B. Bryan Please

Bryan Maher

guys. morning, Good

expect of the Or the the And entire to and take the couple and you timing of of numbers. of sales on know do But third others, bulk I you Marriotts. the the Sonesta questions. Just the ran the some a and of the properties But out out it will these talked I all year? quarter? briefly Hawthorns in you play second think of the some process about of

John Murray

in the and in Hawthorns call the the or week TownePlace We’ve we’re Marriott of on of offers the for the hotels. – the on bidding another is rounds balance final suites so

you think I to. then purchase agreed to get and a weeks So that couple allow of sale

So we’ll be, April minimum of XX and May. days you if you it days through and diligence figure in and the to brings latter at part close, XX of a March,

think be quarter trade. that the that realistically, the portfolio most Hawthorn I it the and will So second in Marriott of

offers, complete We a waiting on date a couple set branded brands to call Wyndham for of done on we pips haven’t renovation help the a for – hotels, potential call costs. understand buyers offers for to yet we’re

engaged on sold the The the assets waiting will be Sonesta to extent and room. that. a broker, been assembling we’re – So they’re they’ve we’ve data

their them We to marketing – next launch effort start week. expect the

sort there will of be window a marketing. XX So initial of days XX,

quarter event. So that will a be definitely third

Bryan Maher

what’s marketplace? with out then reprice pulling week or cap there? to people it going the on your rates as in two, or who changed last And relates are the back to purchasers And trying deals these in Okay. anything has

John Murray

of should went on. as one bids the a with of the have because of multiple seeing number bids a portfolio deposits to bids money calling deals. we’ve bids on say, upfront very second We’ve subsegments. of And we far, offers offered number back were each – that everything another. portfolio close the for just we’re bids, bidders We hard offers increase of and so bids, all portfolio for where I gotten we’re stuck of night, seeing on we’re and round the last And

equity – from net a some buyers. it’s Hotel worth Asian-American a Owners just Association, the equity shops, mix of private and smaller bidders individuals, private So high

Bryan Maher

extent the of balance it it it, seeing Okay. TravelCenters? you And then more me, net marketplace? you’re acquisitions, what with it bias look lastly is any for in the the when Is where John, just you the to XXXX do at lease? more that hotels? Is Is

John Murray

Well, actively, relatively we to are new we’re space. since the

type in the attractive We are historically lease net for and the probably the Because we been volume. weaker number cycle, But of be in tend And relationships. structure to of trying the a good most obviously time recovery we’re seeing spending in that’s so there relationships buy the because are hotels. or to little difficult a been current branding It’s periods, space long develop that in deal the late opportunities more And and early we to we the the players time stages, during find in typically cycles, recovery we it’s than get like active. more in space. case. with hotel to the less either of later intend the hotels that where many we’re that because have we bit we’ve not a

about on the this a playing focus think improve it’s I our net on you’ll see hotel help And kind And how we’ve most mostly been that’s of investments expand more of year. what kind And lease. side. that’s relationships. that, of I so investing – been to for And We’ve selective out. or expect existing of doing

Bryan Maher

John. Okay. Thank you,

Operator

from go comes Dori Please Wells Fargo. question ahead. next Kesten, Our

Dori Kesten

Thanks.

been hotels different a if you exclude XXXX? you If have to expect would can… coverage, what it rent sell you Or mean, cut you’ve I from the guys in that in way,

Brian Donley

run Yes. net it math, included, would that I a I side, points what the looking the so segment. at from just I mean, on lease coverage didn’t think XX the from portfolio. around really portfolio Marriott increase

end coverage you of And and could on approves take for to the XX math. $XX the not that at portfolio the knocked it the we remove you off the Wyndham pretty day, that’s another the portfolio. really that XX out The portfolio. can top points altogether, million, If that’s and easy

Dori Kesten

sure but Okay. if Not the And for quarter in on on each I’m the call, extended when was said the this the you full-service year? you the those? for coverage stay, of not the separate what

Brian Donley

was coverage – yes, to pull real quick. it was sorry, XXXX, For I going

versus X.Xx X.Xx. course, Of

Dori Kesten

Which was which?

Brian Donley

side stay The lower end is on of the extended it.

Dori Kesten

them extended And Hyatt, Intercon Marriott in interest of any has Okay. stay? XX the have expressed

John Murray

impacted out related the not are launching until the We at – last Well, ES morning. residences found corporate employees Sonesta Monday. program or this we the and hotels that marketing only strategic formers really – and in office haven’t suites we’re Sonesta didn’t change night about

know be we think outside it it hotels office until appropriate so everybody had in to And didn’t need of – we was the this we was discussing XX the to be.

that program of multiple So are number in Sonesta older and exterior are generation Summerfield and the with entrances Inns Residence buildings. the formers ES Suites a said, that properties

So Residence today they’re conversion standard for not to for brand Inn. Marriott

the case the think probably same I Staybridge. for is

So dozen them interested require part former are some so probably ES that portfolio. their to said the of brand That would Staybridges a which – of or are in purpose-built pending require them would standards, probably for XX unlikely. purpose-built it all be there the

interest may term might them franchise it have portfolio that the agreement longer rebrand and our table be those in an to or franchisees IHG would with bring a so having added to IHG assets. And on either theirs of

still we’ll have So plays out. how it to see

Dori Kesten

do X.Xx Okay. full-service few you over to today? And the remaining ramp XX how from expect years the next the

John Murray

its Conference some August significantly both rooms going some a think I a early San work in reopened F&Bs pretty during to today. since by ramp Chase facade there’s in It closed Clift Morgan expect J in We Healthcare issues with and Louis, XXXX. Plaza finishing, up St. little available, in The rooms the The bit hotel And space. Francisco January some through was good Park December. Fort renovations impacted still all of available totally major Lauderdale the all the see time were on hotel. .P. San Francisco. but for of are But of not for

expect pickup, being and renovated I closed to we state-of-the-art having factor a a not new San Francisco like think facility, in growth we’re there. closed gone when But XXXX very Ian so expecting being Schrager you – major from brand to significant since been in market significant renovated

We’re Plaza bookings, already seeing Chase Louis, very strong Park the Lauderdale a and hotel. St. group Fort

far, So to the the March, end but have and we quarter on budget don’t first track beat was of numbers.

So hotels. we’re feeling pretty good that improvement XX we’re going across to see the nice

Dori Kesten

Okay, thank you.

Operator

This concludes our conference Murray to like remarks. over to any question-and-answer turn Please the I’ll closing ahead. Mr. John for session. And back go

John Murray

thank in for the you coming look up and month. and to Thank Well, call on forward you all you. catching weeks with we joining today the us

Operator

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

now disconnect. You may

Service Properties Trust (SVC) 28 Feb 202019 Q4 Earnings call transcript