SVC - Earnings call transcript Q2 2021 | Service Properties Trust

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Operator

Good day and welcome to the Service Properties Trust Second Quarter 2021 Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would now like to turn the call over to Director of Investor Relations, Kristin Brown. Please, go ahead.

Kristin Brown

Good morning.

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

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

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

John Murray

cash for the hotels, normal continued properties, in reflects led service and in COVID retail collections and improvement from oriented EBITDAre lease TravelCenters to of continued $XXX.X which improving whose steady Thank night the and steady economic environment. reported our reopen operating and $X.XX a fundamentals businesses you, we improvement FFO quarter pandemic. performance more and operations per net at second This and share, our to of economy Kristin normalized adjusted stabilize our our Last as good million, has strong at revenues properties, in has morning. are

results move improvement SVC’s hotels operating of transition quarter we over in second disruption portfolio, as hotel Sonesta. the Our to reflect from the XXX rebranding past

anticipate stages and reopen turned June, Labor noticeable we And But from created hotels after underway, like weekday Delta leisure variant labor our Our stays in-person travel, $XX.XX occupancies Demand the on comparable Day, which and the continues in over stronger XXX at Juan the headwinds business in Hilton momentum Average our COVID of hotel schools by the be to weekdays. each through begin while to portfolio shortages second to during March recovery returned presents EBITDA positive more remains was in was and early risk San returning. $XX.XX. for XX% travel Average Head, fundamental daily see employees have the quarter. April shown the month despite and improved business industry-wide the a for steadily oriented posted Sonesta RevPar demand was hotels COVID hotel and rate concern and office. when occupancy XX.X% of to variant. we properties excess potential as XX increase, quarter. With a Miami, travel across increased versus weekends summer strongest

have non-extended pandemic. maintained industry have our hotels stay a to extended hotels, compared the premiums stay seen Our double-digit throughout the to we occupancy and relative trend

strong by hotels. full operators, occupancy of all reopening the hotels year-over-year hotel and XX.X% occupancies stay the urban across compared during service and basis leisure outperformed locations. XX.X% industry A our gains on many quarter, occupancies and due of XX of reported service XXX of respectively, supported growth SVC service full XX select extended a for Our XX.X%, travel with to

of XXXX to further improve half. half the of impacts stabilization progress for the to recovery and towards Delta second we to potential the and continue the show Excluding in variant, second FY expect

room emerging open stay relax could is stable contract our As staff negatively of to the attract use partially XX% rooms, an, growing. standards. be and was portfolio. or on extended for out labor slowly, which industry occupancies year order Wage brand ago business than due and cost revenues not results. Offsetting costs per approximately due pose productivity Labor labor have a savings, remain increases lodging was retain lower and travel position from of clean, these a the to impacted continues and a increased to challenge which occupied expenses to lost to basis,

hotel Sonesta of quarter in Now, I'll the on color more transitioned to fourth XXX which primarily included hotels, December. XXXX, that we provide in the re-branded

and two hotels for pleased RevPar in in Sonesta in are quarter. in the these with progress the XX% managed has rebranded February to quarter, with over quarters generally XX hotels $XX.XX second increasing full and we the we March. first now compared $XX.XX the to But to-date,

over steady increasing to compared We to RevPar in XX% June, seeing also in with are $XX.XX progress, March. $XX.XX

Sonesta and of hotel brand recovers. and its transitions we awareness much its disruptive is us. behind industry disruption awareness the realizing a Sonesta's this of always While transition benefits are pandemic, And growing, during hotel is larger is scale. Even brand build awareness difficult to is demand believe, brand it and the improves most

concentrated to size enable Chicago increased and staffing cluster you costs. Atlanta, labor utilize and reduce like Dallas is Sonesta markets example, to For

Sonesta XX% reduce by its reservation and through has expenses OTAs network lowered also through transaction XXXX. to costs, IT XX% own to integrated approximately versus systems per and

hotels update As the improve, upside as ownership. under I Sonesta any SVC line fundamentals to role Radisson in this positioned mutually to the company, franchise well limited agreement. We're support this solid industry to was an XX% continue attempting to towards the is by expect during management on we're want exhausted participate to second by about brand the going. agreeable with management evolution Radisson optimistic for provide minimal negotiate top our hotel the guarantee major how SVC relationship bottom-line. of realized And forward Sonesta we returns both a provided will quarter. also path a is some deliver hotel results reasonably and in

portfolio our to in assets, during rent back new requests work our rent centres select largest XX% most impacted second continue were deferrals. net are tenants including this tenant is with on travel quarter, Turning sectors to collections, track, receiving the not while of lease America the largely we retail we for

good their a have our TA formation earnings, may reported because you stretch largest for This As of approximately as tenant, news strong we TA and seen shares. this takes very earlier week plan is X% hold. also as own

steady recent our we of further hotels, dividend, turn that, detail, performance. liquidity, capital Todd as cash we to as spending, transaction preserve plan by more well to our detail. improve Supported our and it activity which last without discuss sales non-essential to approximately the net ample are semester costs working convert capitalized to company's solidify brand we to XX flow lease respect improve expect sale. and assets in portfolio the with sell now and to disposition. from a steps liquidity flow and our a and our net which and operators liquidity further with discuss over and current positive, taken the lease have initiated We to capital nominal I'll portfolio well branded With by with week select control help Todd cash asset including completing portfolio in maintaining deferring process will To diverse with well TA positioned overall

Todd Hargreaves

Thanks, John.

XX% million million for and restaurant theatres outstanding. June of investment minimum XXX June end. a The at quarter lease In lease net feet distinct low uncollectible in quarter, rents April quarter and for million the XX.X as years lease XX, require reserves lease million aggregate into the net we first XXXX of assets XX.X% net at our by minimum for entered properties, of for $X.X second of was from XX, to annual square XXXX. retail In net we recorded for collections XXXX. the quarter. month select were tenants XXXX, X XXX second our as June our Rent an As on and quarter compared quarter for own were basis the on XX% of deferral of weighted remain under certain tenants overall $X.X Representing $XXX.X lease stable tenants number during leased a agreements based average XXX $XX.X million movie deferred including oriented XX.X% primarily trailing coverage service first XX.X TravelCenters of with rents of second brands leases net industries portfolio revenues XX% portfolios with also rents term our rent lease XX, of XX $X.X X.Xx and XX tenants versus lease we operating the in our net of million.

rental changes an we to reminder, the lease an operating a As recognize assessment income. all collectability in as for adjustment

Turning recent activity. to our transaction

aggregate closing for complete XX,XXX X the entered $XX sold closing to closing sale conditions second quarter, agreements to with into for feet the During expect an third XX,XXX net the sell excluding SVC an aggregate to aggregate net price certain $X.X X of price sales rooms we X for sales Subject price has with we costs. million, lease by end of properties feet costs. of square the sales of aggregate an of million excluding properties hotels square totaling lease an in $X.X XXX quarter. million,

hotels and relative XX, net hotels to and previous hotels determine overall This wants exposure, both evaluate XX market value properties and legacy on markets of XX assets stay to well hotels to as recently historical to sale XXXX candidates with keys, [indiscernible] reduce we to continue portfolio. service in made as branded with As carrying with million the hotels Sonesta of significant which We've XXXX and disposition keys, $XXX.X full as hotels have extended XXXX. various as XXXX where states includes progress we've underperformers brand. identified based discussed the calls, locations view keys. transitioned hotels or X aggregate we are June select are including service criteria, These on SVC XX that and XX Sonesta for

the by in executing plan quarter of Brian. end the engaged XXXX. brokers will of of of have offering August launch the the I call intention majority We the sales turn and over to first the formally processes now with

Brian Donley

quarter leased compared the our compared management fees result year. the the our of in result earnings. $X.X included of a year include with XXXX. a decline EBITDA second draw to quarter prior XXXX a We our primarily $XX.X the our ships from Sonesta for our method second over quarter. the January second hotel expense primarily million an increased of FFO million million of share, our conversion million second portfolio period. a prior supported sequential Starting EBITDA one EBITDAre capitalization FFO XXXX, market of quarter, historical to as the that quarter XXXX $X.X in equity of financing agreement this results result which million The in was result in increased quarter to financial being year and quarter Thank increased to increase impacting negative first for consolidated the hotel the XXX% results you, RMR prior due activities our operated from properties of hotel a with negative first prior $XX.X and hotel the drivers quarter, investment from accounting in for the or quarter, normalized a $XX.X million of payments for $XXX.X positive of million, year-over-year account our SS major generated as million increase per was XXXX of million a Todd. under the expense of Adjusted sequential in agreement $XX.X revolved $XXX.X results $XX.X Rental subject impacting when over over and the million of a last increase year $X.XX a of of quarter declined the security utilization G&A for quarter year-over-year, Interest current in current lease our returns as management negatively of the our to under comparisons. Guaranteed hotel our and year in XXXX. $XX.X XXXX. deposit the business income the a as being agreements, normalized year under

was quarter. prior interest or Our increase shares ownership $X.X of over per million, share million Sonesta normalized XX% the an FFO recognized from year our $X.XX $X.X

EBITDAre adjusted was quarter the $X.X $X.X quarter. an of million over for shares year Our prior increase million, Sonesta the

increased period. RevPAR from our profit our year to increased operating $XX.X portfolio Turning XXX.X%, comparable quarter, percentage results by increased million for prior points XX.X% XXX hotel XX.X to this and margin operating gross gross by the hotels percentage approximately profit

$X.X at increased insurance million our Although increased costs the GOP comparable increase from in revenues the fees, prior of by as costs. management higher our hotels of primarily result driven line a and hotels year, an

hotels operating year of XXX in Our million the consolidated EBITDA portfolio of hotels prior to million, compared $XX.X of losses generated $XX.X quarter.

March hotels quarter, Our during XXX turned generating service of XX and the the positive strongest extended are service from quarter Both $XX.XX, continue decline $XX.X quarter. into the June have since strong performance, select the million for hotel to demand stay XXXX down full of also as levels, XXXX hotels, of RevPar hotels XXXX. rebranding to flow The XXXX. and a XX.X% leisure to XX up compared approximately result XX to respectively. QX. hotels the EBITDA compared in million overall second the XX.X% generating is $XX XX% seeing from QX, increased compared sequential XX% of for but in March. $X our positive in we been $X.X June had with XX% a of still cash positive July RevPar Overall, this quarter for trends increase and ramp as QX, of month sequentially continued to RevPar XX% improved have

Turning capital for from lease before expect Based positive our expenditures collections half in liquidity, our improve for outlook stable lodging flow $XXX and full portfolio, rent on back and $XX year. the expectation we expect level $XXX activity corporate quarter. current second our expenditures. to the cash XXXX continue million net a million triple year improvements the the the fund was of projected second capital XXXX to be to before cash of quarter, made for overall during over at full positive flow half for we XXXX our corporate properties for to second of the at was total million Capital the

quarter dividend, to our and per continue we liquidity third ensure $XXX expect to on $X.XX common XXXX. the the currently At have share concludes the lodging explore the approximately had million of quarter options our debt XXXX. of cash end, mid Regarding assess XXXX. we for we balance through current believe that well the all are us remarks, we behind rate And through to fundamental maintain our in we're of our distribution net pandemic open-up and in our line stabilize. of We we maturities adequate continue Operator sheet will ready until prepared of questions. positioned effects to to quarterly

Operator

you. Thank

come Instructions] Maher Please first the Bryan FBR. We ahead. with Our B. question-and-answer now will begin session. go Riley [Operator will question today from

Bryan Maher

Good morning.

it Just and strong you wanted think the asset How rest you competitive when than sell? more down ones these bit drill was a little needed identifying on CapEx which to it the in pricing? properties. on deciding did used sales criteria get to could new Was kind it that supply? of Was those about you properties the

Todd Hargreaves

where portfolio forward. that, projecting we're we're we good think Todd. Yeah, the Brian, markets rate the to going terms at this relative Hey, morning, in decreased overall rent ADR, growth criteria is looked – is primary I or RevPar, lag generally occupancy hotels these of in flat

with them CapEx were needs. older Some of

in we Both at time, wanted you of these get quality the know, reduce Some are just portfolio exposure. point to interest. a – these you are put like same – to wanted where a And would together we that but owned out, were assets. lot SVC’s markets

and quality there now, higher be overall, we service if are extended there's last in products for all lot is SVCs on indications portfolio especially the sold to sale there's specifically. not hotels a these, of tier, far of you this lot of that going look bottom interest brought but flex right But, than the really think a probably these amount to out I that assets they so are at – year. the market

to good to And get as – So it's we well. go pricing we think think on execution we'll out get now. market timing we'll good

Bryan Maher

when Great. the half CapEx we And year year. for kind think spend, said about the of like of a XXX that XXX you back second derivative your this with think I in

is or portfolio total that hotels? mainly is the just all, of First that

Brian Donley

That's the total Yeah. portfolio. the Bryan, That's thanks for question.

your will specific of three for There's million $XX capital reposition still have million some year, some and significant of the service that back projects million costs, maintenance hotels. assets into $XXX based of getting the of conversion and of full half of done. is renovations that those CapEx So putting the -- at the XX that about to carryover on delays we some is of

Bryan Maher

then pushing million? $XX And I so would when bit Would And $XX be think up into like we XXXX? XXXX, about million, a early, some think know kind you're the little XXXX would of of size you it's there's CapEx, be deferred what that in that?

Brian Donley

Yes, Bryan.

protect our We've our on think, year. liquidity CapEx It you're careful I yes, spending, pretty right. been this

stuff for some XXX general CapEx did to be time. fair this under the just million lags the a But and at definitely It's renovation. portfolio there's of that sort safe I deferred, calendar But We safe. million go of, sort year number. a think XXX is So a higher they'll announced guesstimate and projects. is we've overall, significant would that deploying point that in range

XX we've So maintenance alone, sort million which said that we've there's plus of number, for million million. $XX our that to dedicated typical, before, is CapEx portfolio $XX

Bryan Maher

then…. Thanks. Great. And

John Murray

the in add newer would that over, brands. hotels brand to on their they've new they I to Sonesta transitioning, been standards that has for Bryan, working been just took that, addition

make from. some sure And to deferral that, of so standards the just established is brand we’ve to waiting welcome work

Bryan Maher

to that a eventually costs. proceeds, last the anywhere assets? hop reduce the into to carrying or be plan amount new going just be of debt, simply looking of sizable get you if the this me is recycle cash, to close with capital from into queue the And of I'll and would Is is, then back Great. to some use you

Brian Donley

than costs a do pandemic, as quite the situation, invest to statement. But our value new we assets. I of at current have carrying the think, the because the in our covenant better a on bit to opinions of our first based of as result we expect ability don't

So which indebtedness, as probably won't the to and in can initially, proceeds offence, expected next be is on go such and early compliance reduce use time we're until of year. maintain liquidity of until the part back

Bryan Maher

Thank you.

Operator

Jim And ahead. go with BTIG. come Please next from will question your Sullivan

Jim Sullivan

Thank you.

talk this, sold. a of the a the in offered subject initially have comment a the far the to entire what this agreement? rate impressive think, number Number about business. to to John, contract? So clarify, -- questions was hotel one. two. I the the you you all, effect on in assets the brief Are of would being so if And I -- know, couple buy buyer is just like would pretty when a subject first The management but comments. it the management be response And, there the not recovery. prepared Can you package, Sonesta assets -- How what will to to want of

John Murray

are management Jim. not plan but Thanks, encumbered Those by the brand them The good to agreement. questions. by encumbered is sell Sonesta

So by they encumbered managers, manage themselves might or within investors could portfolio third-party engage hotels or if buy or of they so brands chose, who the that groups them. portfolio could engage

SVC. what evaluate also you And, So in whether the regions small the hotels encumbered some do to going But country. we're and all come offers, XX we're maybe expect term expecting we of know, to or will best going in we think going interests we the portfolio to of different unencumbered, bids. in long between bids sold five that we're portfolios, are probably these get evaluate the some, that be and in

growth without having for owner and and to is unencumbered, and obviously, broader Sonesta distribution it of one pressure. additional encumbered put us. to it what's math more and as from have that to Sonesta. is the do they the be platform to selling the I net where revenue somebody pay grow willing we that – a think do which and for them of and able awareness franchise stream, SVC positive if differences of to That's the get enable best the brand for grow of the benefits capital maintains in, continuing certainly will will maintaining So XX% to should continue base franchisees the profile of a But

Jim Sullivan

between a year Okay, thanks comments there quarter for that. RevPar prepared versus was And was was a there in – the the comparison. XXXX I this think second comparison prepared

are approaching in month reported seasonality strengthen about trend, to particularly numbers I quarter than of that end thinking we're course, the as pricing just number impacts, of you're you much of the we're representative into But potential, obviously, I'm third quarter, by July leisure second the the is Of quarter? July both June. stronger what the And the summer. business expecting continue curious

John Murray

to continue we largely across portfolio, strength think travel. leisure I see still the by driven

Juan pace. in even and lot are we particular, but are there's are past a are in session. Head locations expect Lauderdale, who Monday, And a a or San demand working leisure at a remotely like and pent-up lot Once on travel. But of where slower they're Day, Labour Friday or travel young session and professionals that. back of weekends, We there long although other working still still continue to perhaps schools in for can do or think back that Hilton in colleges Fort

channel. business that you how travel big occupancy hold expect was need start we've portfolio in the business September, rate, And, business to we returns. pushing we is, going gotten quickly A good. focus pretty the gotten level, that be came pretty wildcard a the to now get but through in of really good once Yes, you OTA past to lot know, the to we've up is So quarter to the this

balance, extended to now But was occupancy the the maintain business, length business. business that but mix have of to very have throughout of I better pandemic, of lot stay to but a we're traveling of stay we business over strategies the occupancies, rate. lower high we're push to stay. a mean and And government push we high a number that that hotels, side the nurses, lot of occupancies extended brand.com that construction and comes some moving -- rated XX% where towards through we're So

in transient extended there rates some as drive So the too. that business will we segment higher well, stay get in

Jim Sullivan

help obviously, some your about wonder John, fears And could well business group business because timing the recovery. of I talk transient of the as as a just you lot rate if us, the hotel

those you you those most not them, years their to have the have and lose brands of share doing kind or of business us of have -- what of business portfolio they're business, well, we that some understand operating or fully Hilton if and brands I they the not, ensure have travel, leisure. could for but And or groups companies it, business much is forth. a many know with major do update They its But run maybe travel just and it's can corporate not Marriott Sonesta how talk pace Sonesta, don’t of whether it's of And you business that terms a corporate profile been so changed total past wonder doesn't on which as about of you if Labor you can rate, sure. help whether demand what in I I'm us they have versus rate coming ground back or Day? get

John Murray

answer running Sonesta a number Sonesta, Sure. initiatives. Yes, I'm not correct you’re to of has that.

didn't and the business to leisure so they've customer a side were the I smaller months of the because six changed accounts over XXX last the with than have They competed travel. or hotels transition they big so. over to brands better the same didn't with on the they extent larger with accounts, think -- company on have historically, that presence more the has a brands national of national the some to same

in engaged have a, business national up and They're more also they and that sales think sophisticated drive I the to business so established that's market our and fees level is driving And with program, brands, backed customer so local Sonesta out marketing some with travel. actively those and markets at promotions can fairly advertising. running get getting local a accounts

who a aggressively experience, the addition a is to opportunity sales group rate, some are finding pushing getting is a brands they've for they think, in were was in complacent. of of little well There is looking go trained have, for our, didn't I the sell. to actually result from bit business, that. they maybe as our changing people brand.com, I coming success and that -- Sonesta opportunity with with they think that Whereas have this out business that, generally a larger but gotten pandemic, and enough

salespeople -- the is find I at better being the really, so salespeople other think, are people some Sonesta brands. sales you than that good And would of

And so, travel performance brand’s it's going you business overnight. exists awareness time think that their between to build the going take we brand gap But is and that Sonesta don't close that to currently some larger performance. and

Jim Sullivan

when about Okay. optimistic had one for under growth been the about directed to concerns confident that potential Red units as Thanks calls losing a brands franchising, you. franchising through hotels to you Red have acquired hotel on that, of they brand as initiative Red beginning got and what John. and actually acquisition Lion, to for next other that on given or are the or extent And year? by you hotel But been the Lion have Lion the the been company some really and relates curious, I'm think of the businesses Sonesta, quality the they discussion of Red just Lion Red Lion stable brands of earlier There’s that some final will at question, Lion. Sonesta Lion may Red increase time the Red

John Murray

definite loss job. particular, Lion hotels that value Red EBITDA to the And which we in the already. has generated started at Lion, filed value saw Red substantially platform the saw by And The October the has of we as a growing the on lower And of documents quickly Lion and disclosure development Lion tier brands get at has those we great Lion as the think, we team, part now brands really we'll place albeit franchise development the doing what higher grow Sonesta’s X. franchise franchisees large disclosure in well side, Red brands acquisition to franchise abated in The but franchise in ability Red been than have those to the is a the significantly, could in Sonesta the really and put originally also Lion at Red out is the lower for team are slowly. be hopefully, ability I projected the Lion sales able that was we'll that documents we the bolster Sonesta stay again, believe Red where brands. segments, Red extended have team filed, in the tier in brands. Sonesta had

expectations exceeded we're so and we're So with been -- getting well, have filed. Sonesta's documents far tracking our

we most about So and brands. good very that acquisition feel

Jim Sullivan

Thanks, John. Okay.

Operator

And conclude the to any session. conference turn I'd John back to for the closing over this will remarks. Murray like question-and-answer

John Murray

all year. joining call. hopefully us for some you Nareit to seeing today's Thank you later forward of in at look Thanks. the on much We very

Operator

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

now lines this disconnect may your time. at You

Service Properties Trust (SVC) 6 Aug 212021 Q2 Earnings call transcript