SVC - Earnings call transcript Q2 2020 | Service Properties Trust

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Operator

Good morning. And welcome to Service Properties Trust’s Second Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. to of conference Investor like Kristin to now Director Brown, Relations. would turn over the the I Please go ahead.

Kristin Brown

Good morning.

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

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

website not and that, turn be contained the www.svcreit.com. could statement. Form Investors cautioned discussions reliance cause Additional and his remarks, filed to the to our to to financial on operating taking on commentary over our will ongoing not forward-looking are information in And call and SEC supplemental but IHG later questions John our between that undue found I'll XX-Q today data concerning Please those with place prepared the differences at any be that default is during with we related in upon note John. SVC will provide IHG. factors

John Murray

Good most United and had on COVID-XX and pandemic our retail Kristin. of dramatically you, and hotels, other morning. particularly the negative of a businesses States restaurants theaters lockdown service related Thank hard. economy like has that hit fitness centers, and The impact

as April, and we Although pandemic timeframe the impact trajectory most significant confident improvement we our acute. have portfolio, across since as us recovery, gradual are uncertainties remain to severe most that of the a seen are was the behind of the effects when

to necessary times. to continue steps during our liquidity preserve take We these and solidify the challenging capital

debt new XXXX capital largely debt and raised have maturities. addressed We our

access with of revolving amended a reducing this environment. non-essential taken amounts waivers to certain spending and obtained which Todd our covenants of in quarterly continued to our Other will would our we few moment. in to forward reinforce steps and previously dividend, Brian, also deferring we sales, further $X these ensure certain includes moving financial discuss moments. facility We hotel capital details transactions a planned our meet in knew in have discuss position operating financing more we'll we credit billion undrawn not

IHG applying rents late August and returns the million in of balance announced we us. $X.X minimum of not for July As $X from $XX security million million the July, the due or remaining deposit, did receive after payment we to IHG of returns, minimum

default of IHG notice a sent the in a IHG of result, we and July. agreement late As termination

these to see Absent settlement transition reached, there a if currently if of of We mutually from we no with XXX have IHG begun is management its resolution. be discussions to beneficial branding Sonesta. or these hotels regarding agreement IHG cure plan to a with defaults management may and us

As a Sonesta. SPC owns reminder, XX% of

The percentage results. XX.X% rate comparable down occupancy $XX, RevPAR year. hotel industry and from from $XX, last historical low our quarter Average of last both, down year. was quarter. the points a our from was XXXX XX.X%, for last And hotels marked XX down in daily Average for XX.X% second quarter the second year's was

have improvement seen April. Importantly, we week in continued most middle each markets the of gradual since

hotels, temporary spared our While from stay crews, housing. workers, extended stay airline service none outperformed impact and of urban select reflecting hotels our was the of dramatic projects suburban healthcare our special hotel hotel portfolios the or guests as extended the immediate full-service hotels pandemic, demand using

of for our leisure, occupancies hotels. hotels with accommodate extended and and portfolio stays first reported limited XX as service compared occupancies competitively quarter, Our government portfolios by offerings group Results of extended result varied XX.X% and XXX outweighed travel. favorite and project, could non-suburban demand also business is priced XX XX.X% the during responder, social as The groups, the locations respectively in with that stay XX% needed. full-service

Marriott gradually, and are the of for from our saw but in nominal and RevPAR in weakest experienced XX% quarter-end the RevPAR comparable our and nominal low For April. XXX hotel last percentage decline few in XX XX.X% resurgence industry-wide terms to Sonesta year's year All both weeks August have plateaus to our open percentage Radisson and versus portfolios X hotels, steadily overall of with the continues greatest a Conversely, to and a quarter. and travel portfolio degrees restrictions. Wyndham RevPAR four from moderate best buyer of various occupancy our ended terms increased performed now has performance hotels of and improve, rollbacks results. markets of last albeit that Subsequent declines

the continued are recovery the start of fourth stabilization the seeing quarter. ahead, operators in third our quarter, in Looking and

hotels throughout portfolio XXXX. our our diverse extended stay expect We hotels outperform to of and select service suburban urban full-service will continue

behind with in provide markets health As still flexibility Also, lifted, will less communities kitchens until hotels us. is access. group for stay-at-home orders stay least guests depopulated restricted guests expect crisis suburban hotels urban with are to smaller at maximum and densely prefer restaurant we extended large hotels, the full

to continued its the portfolio. to has TravelCenters of returns Turning designation due throughout service as and to lease net our rents essential by an about which represents operate XX.X% authorities. minimum retail America public many of pandemic

also impacted primary negatively quick gasoline, the the closure sale navigate to XX% X.XX the the in of temporarily or us. of most restaurant offerings, our retail on collections the restaurants reopen. trucking truck businesses service service continue tenants. services were better sales, services TAs that XX% a low Among in current in enabled quarter. the by including decline July fuel pandemic upward their is and full-service to than Property rent April and times mandates TA guidelines level net at trended of of obligations to due this to repair from government our resiliency tenants, our rent significant was Although to have industry, TA location to and coverage have shown closed as lease diesel

assets to theaters, deferral the Our usage restrictions a service net requests Requests a Todd changed. lifting movie fitness that allow We're asset team and restaurants, slowed theaters, management lease mask on like recovery and moment. gradual for have take our hopeful our service social hardest hygiene case will detail retail across reopening deferrals to distancing, in centers, this discuss and certain case good retail work have will basis. our to of other evaluate hit continues with hold portfolio. in by significantly, whose rent tenants common sense in prospects industries, for retail in hotels, the tenants except

With of assets. discuss crisis I'll Although detail, we diverse further recent the we turn our ample lease Todd with recovery, of over significant this investment have portfolio as endured the the to to the believe and trajectory portfolio call timeframe that, our as worst well-positioned well remain are we activities. net with in and and to uncertainties as well-capitalized of the that liquidity

Todd Hargreaves

Thanks, John.

XX-month of for times and year for million X.XX our prior As coverage term prices. of service-oriented represented XX, with under XXXX, a total fuel for America lower net gross of TravelCenters Rent of XX, annual returns to minimum years, X.XX of X.XX due its margins XX.X% XXXX. square with Representing annual retail of rents a all XX our result and as lease tenant XXX XXXX of coverage was centers trailing rents period which portfolio’s minimum and the our in basis including distinct pandemic June trailing is times XX due obligations times to versus as lease minimum properties net XX, on of $XXX.X XXX average a feet of brands leased the minimum current months lease million, industries. we lower by our returns, was weighted largest requiring on tenants TA June was rents. lease of SVC. ended the The aggregate The XX% our XX.X travel portfolio June operating XXX rents XX.X owned XX%

agreements is in we repaid with To-date, XX.X% $XX.X tenants pandemic realized. returns, million tenants from will represent tenants rents other from rents aggregate as deferral our in XX% in For returns. XX% April and we lease over an which to from months these May. X.X% of the increasing into with and have of net decline the retail second leases these various continue requiring rents to of tenants Generally, for total rent periods, XX total of rent We tenants the July during of of or XX% beginning deferrals collected net rents entered tenants. minimum full and expect XX one XXXX. September of rents effect metrics minimum June We lease coverage are XX-month the annual collected to be these XX.X% the XX% four quarter, will in and retail by

million an deferred aggregate have We rent of of to-date. $XX.X

weighted, XX.X for leasing that or feet, and entered commitments feet capital prior million, rents rentable Turning space. higher foot. per quarter. aggregate renewals were $X.X rentable square was years at leasing square than We concessions X% of rents second $XX.XX for activity during same the and by The an lease to term average weighted-average were square XXX,XXX the lease

were new into and The entered was prior square rents for leases the and per leases for lease feet or X also below space. XX,XXX square an average weighted rentable same million aggregate XX.X% commitments $X.XX concessions rents term these average were capital years that foot. We for and $X.X weighted of

recent our activity. to Turning investment

$X.X We've During also with XXX,XXX of of four $XX ended net feet we entered lease into price XXXX, the an sales million. aggregate aggregate four XX, properties an for agreements states quarter square sold properties, in June with net sell costs. approximately an sales X square of an rents states, feet of price for leases average annual XX,XXX closing to minimum aggregate of requiring XXX,XXX lease excluding X million, in totaling

expect by At of hotel sales the pandemic, were to onset XXXX. sales. million these targeting $XXX the to quarter of we third from raise the be We completed

rooms X,XXX until to hotels with $XX.X have with we and million. Marriott While XXXX, carrying million in some of to of Wyndham a states XXXX agreements $XX.X of these an X branded entered sales value net price X aggregate will later branded one be delayed for sell hotel sales

XXXX the expect We these of proceeds be debt outstanding to in repay fourth sales the to and use amounts. completed quarter

Our XXXX. of June annual allocated amount hotels due Marriott minimum be million sold, returns $X.X which as will reduced the was branded Marriott by from the to XXth,

For market this to their sell, offers small hotels X sale, portfolio stay pricing. hotels Generally, continue and under interest extended pre-pandemic we previously contract the that have received branded maintained with significant in and line the in for were receive values buyers. Wyndham cap to we of Marriott in

the maybe QX our the these timing of hotels earnings at believe of for call. we result, our a expectations many disposition of than time earlier As

also terminated and to Sonesta with over we Our September and management of are to with any transition Brian. turn time, sold. hotels XXXX to to the unless that that expires management hotels I'll agreement respect now sooner expect call Wyndham brands at on these XX,

Brian Donley

Below the was costs April. a to during GOP other reserve comparable gross by this agreements the Thanks, sales Todd. comparable million, the XXX second suspended $XX.X line, driven for flow compared year operating quarter, Cash hotels sharp contributions, XX.X%; quarter our returns pay XXX X.XX%; of hotel percentage result margin available the of loss as comparable times decreased fees our for flow for declined of decreased operating a to are down at system our the gross and profit million, or of occupancy our quarter. by hotels declines XXXX to Cash times X.X million prior brands. returns $XXX.X RevPAR for hotels year decreased lower which to approximately rents the operating Starting particularly were prior by with X.XX for million certain and and at decreased the quarter, profit our paid to and from for to XXX% results $XXX.X XX.X% FF&E in our coverage $XX.X and quarter. comparable the lower rents negative minimum minimum

implement scale-back hotel measures saving to amidst of operations. operators All our quick cost were

guest changes to approximately operations. the support made also changes expenses say spent will the incremental have COVID-XX. employees and safety permanent to It’s impact we've mitigate necessary million be However, to been early the too estimate and operational across to of whole investments $XX We portfolio. operational year-to-date hotel what our of

was quarter. million minimum second to our FF&E was the closed of partially million contributions expense, financial the second in transaction Turning a in $XXX.X million to the offset $X.XX Normalized was by per quarter in primarily due to interest reserve EBITDAre the portfolio FFO XXXX share. of across quarter, we in quarter $XXX.X Marriott the Wyndham losses XXXX. our and at compared of decrease returns, XXXX consolidated results. and of $XX.X an SMTA Decrease the prior suspension in operating our third hotels, the Adjusted impact Sonesta unguaranteed portion of the the increase

to net second million Our quarter. for of management adjusted times was to was paid was times annualized to RMR to second decreased $XX.X adjusted at quarter compared equity our for ratio second X.X XX.X capitalization. based million, the fees expense EBITDAre EBITDAre coverage market the as XXXX interest for the quarter quarter-end. XXXX on $XX.X debt G&A And

Turning and balance to sheet our liquidity.

was As primarily $XX.X $XX.X of for And we hotels. gross million cash debt our improvements of to had including XX.X% cash, quarter-end million future of assets. of escrowed total

the cash form shortfall operators minimum deposit the flows million applications During in and payments. hotel of $XXX.X security returns quarter, rents our guarantee of second of our to funded hotel and the

remaining more certain than June Marriott our security Hyatt of cash as security have fourth deeply our deposits to and as balance our of our shortfalls acquired agreements guarantee IHG both, hotel XX, guarantees July, under on in XXXX. deposit exhausted deposit estimates, under under $X As and agreements of We security in pay our and to $XX in XXXX, project cover during we current before. second soon our minimum of the pressured available could the of and seen and we've our The hotel the quarter available was credit flow our been returns we agreement ever exhausted million. support guarantee quickly quarter, Based the be agreement. million rents

of XX% agreement As the cash only IHG, a receive going minimum XXX branded agreement the properties. IHG IHG its for on we hotels, the due John for forward, noted, the Under obligations payment our from defaults deposit or Absent or amended minimum will operating for defaulted received ended flows in Marriott utilized July. have six security with cure we payments agreement June available of an aggregate the months XXth. returns of

each are minimum XX% deposit hotel required threshold are of security period. annual cash settlement a shortfall amounts basis Marriott to of Marriott generated after from flow guarantee monthly the of finalized depleted, the cash the calculated is any results XX% Given fund is The hotels and and by on return us. due to and

in will any to due amounts August receive We determine July’s from results Marriott. later

second aggregate advanced $XX.X operating of cover our capital of an quarter, projected working to to million the hotel we of certain operators losses. During XXXX

applicable advances hotel any. $XX and cash We of us working due fees of the are if management to operations share the of terms are remainder excess minimum working advances year. flow the the of million currently projecting Generally, our could under a from hotel future to funded returns reimbursable be additional capital agreements, of the from an certain us in capital over

we've As million rent for tenants. certain to-date discussed, $XX.X of retail Todd, deferred

to related quarter. amended retail governing AMC sold certain we revenues and reserves loan. of $XXX credit under recorded we for to million least revolving a $X.X at theater quarter, Notably, we this for leases a of May, certain million property term our $XXX,XXX million tenant net during second reserve In $X agreement tenants. the the related uncollectable the for During facility credit

As March XXXX. a the us and waiver through access continued to reminder, amendment covenants amounts the financial gives undrawn certain of includes

amounts Also our SVC facility, that ongoing In of and unsecured we for the of for revolving new notes including tender tender XXXX, net XXXX million currently a million fund $XXX $XXX,XXX capital of expect offering. to to of quarter amount of During February for offer. we notes million remainder XXXX, this the in funded by drawn offer. senior in capital outstanding underwritten subsidiaries due principal X.X% the in senior in June primarily capital June, of of and $XXX aggregate our the public $XX are issued on million second renovations. repurchased the $XX amounts maintenance due certain used approximately we of XXXX, guaranteed we XXXX proceeds of an repay improvements, credit We offering

As full revolver, remaining February. our concludes minimum billion senior ready $X up our $XX on million to for of of the notes million maturity line $XXX availability amended our liquidity outstanding today, subject credit open and questions. agreement, debt we for our the have that in remarks. almost prepared XXXX to under next requirement We're due Operator,

Operator

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

Bryan Maher

how Good morning, When hotel everyone. were - quick they for how the were a were bit for you low it agreement InterCon the or the low questions what A impact we were and how with couple so little there quarter? to the little and bit of not surprised quick. comes expenses, others those quarter. Can expenses maybe talk might actions a at Marriott, about taken

Brian Donley

on all guarantees of received I support Good well. income a the I'll operating as on and hope deposits to in reduction -- credit costs. in security for statement the the statement morning, we the income form start presented the is Bryan. SVC, are

during the of show correct a amount to on the consolidation higher period, P&L. profit order in expense than due were hotel will, you expenses concrete what's the GAAP have sort to if SVC to we underlying the in So, show the

period, the that. make we're exceeded the to portfolio million $XX comparable I lost, a revenues expenses in clear sure The So, for actually on it hotel think quarter. on basis was

the gives to you just the hopefully the based income and I were side obviously, measures But, down cost on you're initiatives the a and COVID. enacted. across operational presentation statement. reductions clear labor and expense right on of want how clarity little cost the level portfolio wise, So, that Savings on sure an the mean, make down line I other was on works. XX% impact

Bryan Maher

wanted think, that Right. why have reason That's I Marriott to in I just John, particular mentioned underperformed. the might I thought hotels reading what that clarify. Any it but the was been? footnote, you

John Murray

excelled they Marriott their up. And program and business been that prepared as reflection to maybe, think good think I that hit. like how people not I it's and drivers furloughed transient events and their some reflection had the But didn't has that dried other really they're when have so really sell historically the has other of it of really this it's sales group a of to strength in in pandemic of else negotiated just or well rewards that corporate business portfolios. like the businesses business rates and drive types they've historically many

Bryan Maher

and which IHG Sonesta on And on estimated moving catch regarding I'm was to thoughts given the those sense come be being But sell What hotel recovery? a really Sonesta -- hold pricing. on to Sonestas, they're because said other the not of brand would might year you up traction to think assume hotels off gain done going I the call at that pleased hear have IHG all are some as your the reasonable sales, ramp agreement the there? at had are I point, at I Sonestas, branded was hotels, it with in to starting kind make asset meaningful And you this Okay. then, could again. to of. didn't an instance which to that earlier those that that what selling SVC to

John Murray

I think, it, nailed you much Bryan. pretty

any sell pandemic saw we better assets. We launch hit, other marketing stay have impact about the hotels those type. than settled hotel evaluating portfolio. the to were of as performing been effort the right obviously, But, extended Sonesta When in, a much were that pandemic the to ES the we

we so, stopped efforts. And any marketing

evaluating some amount been multifamily. something right, you're And whether still hotels might the absolutely we be that work converted an we're that IHG. significantly in to use, hotels would to considering, increase those We like IHG of out the if that's of situation, also Sonesta are extended had of with alternative light operates, stay not something but able

we're we've and as recovery respect not forward with or our for move what And moving changed so, the reevaluate ES transpires. through to portfolio plans we're and the now, to see currently Sonesta going we

Bryan Maher

quarter. much. Thank luck you third very the Good for

John Murray

Thank you.

Operator

Next from Fargo. of Kesten ahead. comes go Wells Dori Please question

Dori Kesten

payments guys. Can you morning, paid of good percentage tell lease the than all in and July? what returns? InterCon us managers Thanks net rent the And July hotel if received their other were

Brian Donley

the hotel in the of we've release script, our and of for little the So, of security done that differently. we more deposit the XX% bit not standpoint, rest in in-depth rest a It's a all and about from the in July receive IHG, than did collected utilized which works arrears. talked To-date, returns. we've Marriott payment.

flows each which have and Radisson at So, much and cash Hyatt the are months. on of and figure owes the guarantees, recent have continue to-date, their to portfolio. we just we've and hotel then in Wyndham in losses hotels what properties, who the to for how based and out currently period, what honor Sonesta received generated relook running

collections in obligations lease up gone ramp to side on of it, and up, all has that. in continued their top the current XX% to April of in So, XX% in TA’s of net have July,

to So, as early lease about results on seem trending side me, -- the little bit than July of we a the July’s excuse early good be August’s feel pretty trend well. net better things. collection

to as good continue that we a So, see sign.

Dori Kesten

marketing go Sonesta. in But, stay you was release to And in million. Sonestas, portfolio. that unsold said of including I all assume mentioned, just says this you the which $XXX said the any ES may also Wyndhams you're Sonesta initially previously and think XX you think would I I sales, asset for it And had then, that sale for Suite of

be currently original million trying planned on the with guess, being I'm sold. I what's $XXX to market or just the So, reconcile is to

John Murray

pandemic the the Since Yes. process dicey. sale has hit, been

a So, I million ES little apologize, portfolio. The it’s the did $XXX confusing. Sonesta if gotten not include

-- based we and currently very the have for Residence suites had of portfolio hotels, Courtyards, our agreement, XX two branded most can agreements under groups Marriott branded in XX of the portfolio per XX assets, sale remain that's And, of mentioned hotels. on So, agreements Marriott it probably on XX we XX Todd purchase within will the the hotels And other X transactions was that and close I we're Wyndham and Hawthorn brands. the Inns there. branded sale Marriott think -- we’ll likely agreement sign purchase remain the coming week, and the

pricing those that but the possible fourth range two. on is quarter, XXXish close the in will those So, together, dollar million late

Dori Kesten

Okay.

was XX the $XXX the XX Wyndhams. and So, million Marriotts to

John Murray

Correct.

Dori Kesten

should And Sonestas if Got guess, I hotels follows be the those of we assume could you. IHG, also? Marriott Okay. that path rebranded as

John Murray

differently reason isn’t it Yes. happen, treating there's we’re would we to IHG. come agreements there try protect I any Marriott that if no to any mean, to and our our returns. -- pass. we're But doesn't were why than treat hopeful We’d

Operator

Ms. follow-up, there Was a Kesten?

Dori Kesten

good. No. I'm Thanks.

John Murray

you. Thank

Operator

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

John Murray

much us joining well. today. very Thank Stay for you

Operator

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

may You now disconnect.

Service Properties Trust (SVC) 7 Aug 202020 Q2 Earnings call transcript