SVC - Earnings call transcript Q4 2021 | Service Properties Trust

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. Welcome to Service Properties Trust Fourth Quarter 2021 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. Instructions]. [Operator event today's being is note recorded. Please time, like to this Investor Kristin for to opening would I Relations, introductions, and Brown. turn of remarks Director At the over call ahead. Please go

Kristin Brown

and morning. you Thank good

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

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

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

Brian Donley

seasonally of prior-year reflecting to FFO well portfolio performance due warmer night, and weekends oriented the EBITDA demand Spiking we Demand $X.XX hotel weekdays COVID an on conferences the as leisure Omicron morning. demand improving dampening of from room adjusted stronger normalized in generally late the the be reported representing Thank of to $XXX December a resulted Certain already fourth driven and net by quarter, continues most quarter on January strength month. in versus climates. impacted nights and Last a good across and business opted weak properties. what steady cases variant our retail from in transient million acutely. service go to lease per return you, virtual as Kristin, portfolio, share increase canceled XX% is

and believe resumed occupancies lodging expect the more leisure and demand rebuilds, elevated stay returning As hotel to related Francisco. Virtual move subsiding, an Conference San revenue employees example, being out to further recovery that mandates at remain decision as of in in Healthcare office travel improvement January million cases JP work, $X extended stable. the wiped remains business and the Clift COVID With we lifted February a Morgan

reflects business due cost to rather XX% nights business select seeing weakness resumed. more meetings. urban believe of lagging at We hotels service through to is business of important that have We the select were revenue urban CBD trajectory generated particularly believe expect business XXXX, properties or through demand. of return this channels buildings XX% that have office XX% accelerate we level move will approximately Sonesta Historically, weakness of And in pressure. revenues widespread full quarter, select as than markets that to work recovery service to booked SVC's travel transient we related of demand OTA in-office room from XX% hotels travel-related as margin reopen. a and their

XX% and was ahead RevPAR of between comparable XXXX XX% SVC's improvement quarter, our achieve XXXX quarter levels of third levels, of and to XX% fourth an XX% in expectation XXXX the of fourth-quarter the from For levels. RevPAR

Our to and industry, maintain stay extended to our non-extended hotels occupancy strong the hotels. compared stay premiums continue relative to

stay brands during level the above and of is XX% for XXXX the hotels XXX XX.X% quarter, quarter, service of of reported stay of extended XX levels Extended and select XX.X% each occupancies XXXX at closest Our compared hotels of with our the occupancies XXXX XX achieving hotels. extended service occupancies full our respectively, with XX% stay also levels. XX.X% service RevPAR to

retain XXXX a renewal expense XX% hotels XX-year a term negatively in expensive the retained at savings pose for and labor $XXX.X partially continues employees, This of increases we included next open challenge cost to productivity the the results. the XXX offset return and with costs annual of sold than labor, at due owner's increased attract return retained We year labor QX agreements with contract have to-date our retention sold in use priority to was Sonesta labor quarter, hotels, adaptive to sets Wage announced agreement over by for Sonesta. The wage wage bonuses to our in the side, year-over-year higher standards. positions been reduction from the brand Wage At and sale transferred occupied are other were amounts few a management were a previously increased million, amended increases and hotels we remainder On related basis, them hotels, hotels and wages have benefits impacted contract would our employees that due overtime months. master due priority On industry XX room with use approximately two portfolio. Effective quarter. open to amended for a the and of January X, operators. for fourth Sonesta owner's options. this inflation agreement from for the to sell management per be positions. X.X% X%

portfolio next over upgrade to also the renovations three agreed of expected to have the years We enhancing to $XXX million standards. brand invest approximately revenue of

owners the once the early assets, term already branding, Sale until remaining the or to agreeing rolled over out the Sonesta reduced prior return to the some owner's long-term the of these extended has priority For be XXXX XXst, will hotels December $X.X hotels, well, current return the sold. SVC's are for by sale are with pips, hotels cases, process sold. agreeing and XX% XX retaining million in was the growing. very and us, disruption XXX awareness on process our SVC hotel Sonesta to we additional strategic is the These the Sonesta's brand transitioned is quality improving more believe our to to behind franchises. five sales hotels transition Todd discuss past future important over of step and But are will to liquidity. industry conditions. the sales quarters, an detail. overall challenging in that's portfolio, improve

also to elevated realizing at benefits quarter, industry and hotels. higher including from benefiting With addition of Sonesta and from anemic usage awareness, key -pandemic our this expenses. business hotel levels, In savings brand versus products commission largest renegotiated increasing which scale, on that drove demand pre services and the still recovery contracts have pricing demand its was reduced is OTA

and new more OTA of commission on rates have the mobile reliance are channels. decreased XX% its expected these bookings roll higher of increase a cost Targeted Sonesta still a out year elevated. the reliance Although approximately OTA on promotions reduce app, should and direct result scale, past channels over increased costly the as

and expect both will the hotel deliver Sonesta solid line. results As bottom industry on improve, to top we fundamentals continue

new and at good also room They efficiency. labor negotiated with maximize scheduling Sonesta Sonesta labor has enhanced their standards hotels. rolled seeing further initiatives Select out traction several have corporate revenue adjusted to and nights tools

rates XXXX despite ahead business of XXXX group well remains XXXX generally have pace or though levels. January, our levels. to spacing Group front, slightly the XXXX recovered On in effects Macron above behind

be XX% teams participants interested shareholder a be the for in know disruption. webcast. assets growth out a day Chicago. following progress the details with chance of include institutional continued some and end to the Sonesta give of brand highlight by hosting are an Day in Investor attending. and if the reach and March will we at Relations Investor Sonesta, market Chicago for company, you presentation recent a investors period we Sonesta's The portion of evolution SVC Please managed to tour more by hotel will get also analysts As the of major To SVC Sonesta and are encouraged of its in management a to will

Turning to provide is this to a net flow. portfolio continuing lease our cash stable assets, base of

largest tenant of lease have strong net this America, week TravelCenters you and continues As earlier seen, operating transformation its to produce our plan earnings reported may as financial improvement.

we beneficiaries performance. shareholder, this X% an As significantly of improved have

outlook XXX% continued encouraged restrictions of perform to an cases, increasingly also a fourth in with normalcy. the collection for declining well we lease to remain quarter. rate related other and end positive the Overall, COVID for rent returns Our markets, by many net tenants

to improve we reduce sector to SVC net downturn. and lease will benefit activity our With the of our our net and as which liquidity, as performance the that, progress to recovers hotel the from this portfolio to recent Todd lease more as operators believe well-positioned lodging I'll and the discuss initiatives on of the With transaction over call turn in discuss dispositions hotel recent in more detail, tenants, historic detail. well Brian is leverage

Todd Hargreaves

Sonesta of continues we hotels. and progress brand on to XX hotel The a previously branded continue announced to primary and Sonesta portfolio initiative optimization sales sales management, focus Thanks, the of John. make be

during XXXX QX, million, XXXX. We hotels for one and have $XX closed on two QX, one during

on hotels quarter balance XX majority intent $XXX earnings hotels sales under the hotels $XXX We over and There for discussed not we of a letter two these some are pricing QX early are in of in close and which to expectations buyer. million. million for to third line the call, our XX sell selected we have to yet of QX. we agreement purchase with Aggregate under and additional hotels for are sale remains the expect for

sale approximately by are per proceeds $XXX of for hotels Sonesta's agreement XX XX% of Sonesta for the the hotels million, and total sale sold efforts to assisting jump under be franchising long-term or encumbered Approximately, expect Sonesta sold starting, We distribution brands. key. to expected aggregate or either maintaining the in branding, $XX,XXX

stream, the alternate As of and balance The to while timing is to additional that logic to pro agreements, the determined sales offered. use. additional will buyers franchise hotels sold the will that demand highest more relative the the we the has to rada under receive be well the converted convert as and if the to best are We royalties arrangements, could targeting given hotels expected re-branded of or use. and to sale of hotels future be being buyers franchisees. ownership favorable buyers these branding providing an XX% supply of believe excess Which multi-family SVC sale An revenue been from short-term permanent its alternatives. exploring with Sonesta, potentially these through the an

unencumbered sales, sold are being believe will most of hotels domestic offers overall brand, prices a at compared commanded Sonesta the retain branded sold hotels are long-term that strategy the will hotels. franchising premium on long-term keep Sonesta these of benefit maximum agreements While SVC. execution the We to provide the that to our received being

six of square rentable quarter, million. XX,XXX totaling other terms the feet for of sales In activity fourth net price we $X.X properties, lease aggregate transaction during sold an

XXXX, for seven For total we $XX proceeds XX of the properties sold lease and net full-year hotels million.

we the sales under discussed to second for to sell million, in expect quarter. In close previously addition to $X.X the property one which hotel we agreement are

investment, overall tenants lease XXst, the portfolio XXX As retail X.XX were times dollars, term rents XX.X on centers, $XXX portfolio annual distinct years operating aggregate basis representing requiring in travel minimum with our all oriented net square XXX we lease by average at on coverage fourth our including of as lease XX.X% The of $XX.X quarter, of with year-end. and December we all net brands of our XX during of weighted the leased, service our XXst, including million due XX.X% net due. based from a And XXXX. was XX-month million collected amounts XXX XXXX lease trailing lease rents rents net assets deferred December industries a minimum feet our owned properties, under of tenants

who tenants As XXXX, lease rents of seven portfolio, our our net outstanding deferred XXst, of million of TA. approximately from remain annualized X% represent income rental December $X.X with including

I'll million also XXXX, expiring, have representing for $XXX,XXX X% this the We of call overall for net XXX year thousand than rents leases rents. to recorded of for quarter. our square quarter, reducing the reduced our uncollectable prior compared In reserves our turn Brian. rents less to feet rental only by $X.X we uncollectable over reserves in by lease income now

Brian Donley

Interest million hotel and last of hotel million quarter normalized quarter, A expense or of this quarter. that over year-over-year Sonesta's a rents $X.X decreased $XX.X quarter, TA XXXX year $XXX,XXX over agreements XXXX. Thanks, sequential under year leases revolver in prior-year the quarter comparisons. fourth million impacting major Todd. $XX.X our in XXXX. million business declined of results year current RMR, lower rents. our EBITDA financial million the results an over with million the supported service $XX.X by uncollectable professional the method costs, results million result million a our the Guaranteed a the from increase X% under sequential offset FFO account accounting, EBITDA prior payments prior G&A the negatively generated as in $X drivers the in result for legal $X.X in increase from per our included compared share. management January quarter annual our million $X.X $XX.X of earnings. prior the other prior quarter. an increased third fourth $XX.X hotel $XX draw and as hotel issuance recognized as of with our decline EBITDA quarter, to Starting investments higher was include historical increased market of We normalized quarter, impacting of the our a senior consolidated or a quarter, primarily XX.X% equity $XX.X for $X.XX of primarily quarter $XXX of XXXX, portfolio, the to in FFO negative increase result our largely period. a our reserves The compared year for fourth over a November the the Rental share to our notes leased million properties due the Sonesta fees fourth decrease over which the returns capitalization quarter, million, in Adjusted of $XX.X income and in as our XXXX quarter prior-year million XXXX, year a and for expense our percentage the increase million for result of of over was in into and for decrease of or

Sonesta's XX share net XX% loss of or value a estimated $X.X reducing an of to from Net the million XX our $X.XX the of XXXX ownership year quarter over per hotels was normalized the Our $XXX,XXX their includes for million share increase FFO value. carrying fair result properties of interest impairment prior a recognized $XX.X fourth as quarter. charge and lease

we pricing expect compared that largely of record held are these the on the to to value the our last approximately impairment expectations $XXX XX carrying current real other of the those sale on offsetting our values charges Net Given when total proceeds to gains book XX are hotels XXXX. for of are approximate estate, million. hotels hotels we on disclosed sale, unadjusted quarter projected sold aggregate in

those advances with IHG, expected this to and are amounts working We our be also and in capital charge quarter of had longer our recoverable. a recorded agreements $XX.X funded under XXXX write-off million Marriott to we related no

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

partially Although offset the year, increased GOP decrease from insurance by hotels higher increase estate our fees in increased comparable and that costs, in line hotels $X.X the at are driven real revenues costs were management an prior by million a taxes. with

hotels hotel million. XXX generated of portfolio consolidated Our of $XX.X EBITDA

levels. an XX% generated compared quarter this lifts December expect and last to An at select increased seasonality, to we of reopening, With more are approximately 'XX, people leisure first the was coming generating RevPAR year. folks respectively. Overall similar ramp levels. quarter improvement expectations markets continued meaningfully sequentially from the of we XXXX in and seasonally will more million period, XX% the although our up QX, RevPAR to to the $XX, to and March levels. XX% of which signs to XX extended to RevPAR in due weak XXXX normal Overall, our did to XX Omicron above XXXX expect service XXX of January service February of declined we demand EBITDA. generated variant million already softer hotels rollbacks which XX% seeing relative have months. of are QX, Our see quarter although XX% $XX office, travel fourth as strongest by optimistic was be the hotels XXXX the was XXXX stay 'XX was to impacted of of QX we of was and XX% full business returning levels. performance QX RevPAR to begin of $X.XX activity mandate in hotels RevPAR for month January negatively and $XX December

Regarding XXX hotels the $XX $XX be the for for EBITDA XX to XXXX, RevPAR compared in non-exit million to of the compared $X hotels sale for XXXX, Hotel full-year was to million generated non-exit of for of XXXX, RevPAR these our the XX these hotels full-year $XX sold hotels. for hotels.

fourth Turning $XXX.X during our million the properties the million for to XXXX investing activity of have our to million, at significant we spend anticipate million $XXX capital for improvements our to capital number made as full-year and spend XXXX. quarter, $XX.X as a including Sonesta well under amended of high Radisson around to agreements we renovate be renovations, for $XX and hotels. committed We

in $XXX mentioned, invest John over our three portfolio. As Sonesta to years million we expect

with balance of senior we Turning $XXX due upcoming to to debt million which expect sheet, August, the cash-on-hand. redeem our notes maturities in include

in and group the in are lending relief. additional with date Our extending regarding $X our currently billion discussions July maturity XXXX, of we revolving credit matures covenant facility and

hotel and is our few the the $XXX to additional our sales sheet, fully effects between believe months. currently We and have support to facility will revolver in operations approximately the expectations turn in from and we liquidity, come be will extending the collateralized the of pandemic. cash expect an the $XXX optimistic enhancement credit our million terms we balance corner from the We weeks. million our on a As well-positioned are coming of next hopefully reminder, our to we on as the we

we common late Operator, rate regarding the current Finally, concludes quarterly remarks. of per to prepared our that share dividend, $X.XX through maintain expect distribution our XXXX.

open We up line to are for ready questions. the

Operator

you. Thank

the our As now question-and-answer while we Instructions] Please begin will we roster. session. mentioned, hold [Operator assemble

with Maher Bryan from comes question first B. Riley Securities. The

Bryan Maher

thanks the that of Bryan cash that Am But holding it some from like questions all expected done, stack XXX revolver, you position the XXXX, hit morning. think and is maturities said seems million my not cash here. three you've Good once comments where is care the for or to like and the paid on through that the a in four quarters now? the capital you're Where taking is be would well-positioned billion should dollars level once of we off clearly ideal. and

Brian Donley

Thank great morning. Brian, question. good you. And

Our at cash do then be hopefully currently the bond X.X expectation not of as is penalty keep get ability it's the our box past year under off expect meeting. that and year. we're covenants. cash that and intended, to revolver use the end the later debt taking to on incurrence in that out the probably point, We point by the balance sheet. through we'll times At consider incur -- the our the the late when so-called real hand That XXXX tests, will will we're catalyst of

Bryan Maher

said to year, this the $XXX years, And Okay. we offset XXXX, split but it expect over capex, to XXXX? XXX you should equally million amongst I the $XXX know other million relates million be as three

Brian Donley

good because strategizing out this estimate the renovations in issues year. hotels we issues, the other and think timing renovate Brian, yeah, Sonesta a supply of and on start might, that's for a we -- chain just some that's those we'll might order I planning and about get of We're on later which now. a properties

next year But So million spread more possibility little think and we'll it I couple. is bit this it that a the now, it's be could bit for evenly. than out a in that little best estimate lighter XXX the a

Bryan Maher

you're But documented us well the maybe, has in service color thought? full stay in how than your extended you're a might been could little of a pretty notable doing service the faster have are And give on urban there select seeing recovery in hotels and you Great. it recovery highlights any John, hotels And some your seeing and markets? portfolio. where is you

Brian Donley

seen of some business up their Wells That's St. Fargo a up. from has picked good markets. performance and couple a is We've question, Brian. good recently, picking Louis

was Conference, struggling. continues cities one disappeared did a to corporate holidays hotels Washington like businesses million has well. dollars impacts. to be Clift and The to on where during capitalizing well Aware Hotel around full the hotels other local well, are Several little San with them -- Lauderdale super JP to continues year Our Juan both San we just expected. weak. Hotels are we been business, than Those and job Morgan has -- get -- very a got been the weakness off some airline great bit revenue Healthcare better of a corporate much particularly centerpieces Francisco in of industry and start, help and that service and even resort of as seeing southern Philadelphia then as the expected Airport, but conference. doing the are San types which distress markets doing Miami Fort Francisco, leisure of doing COVID DC, -- remains overnight. generate like canceled.

on Minneapolis So that's mix, -- well. I cities, think that's as the like most balance [Indiscernible] northern

Bryan Maher

I it growth? you Hotels do -- net XXXX, across the back pursue the move you start TravelCenters, sale three and across and lease service start segments, might break down. the of to when back to hotel most you and you recover think segment, whenever and lack Once you're where normal mode, for into might growth better that results with starts be, full your word, comfortable get hotels, to a XXXX, hotels the of to

Brian Donley

question. good that's Well,

or do us properties. own any Sonesta their think been will to expect and XXXX there I that between And has growth. TA noticeable actively that may that their balance get activity looking our transactions, TA some and also and franchise we capital I calls to be don't the do interest assets I been maintain portfolio enough in account, they a has New don't on think -- some on acquiring little acquisitions. hotel growth like that at where Angeles XX% then XXXX there be of that think. have hotel and in we And and probably extent be own in for that bidding there will actively markets franchising properties Los retail ownership potential maintaining think resort markets don't penetration, Miami, we we could for York, And are look that a might bit so Sonesta. at we more interest, I benefit as exposure. And from having interest

I could But couple of think of over way revenge that. of pretty reopening that strong. markets impacts peers of has past that It how come the resorts. the we out as has of our international I think the to benefited gates more use quarters and be travel some seen in remains

Bryan Maher

Just up your TA on to follow comment.

I think them first time you that if in them putting are to fall TA before guys properties to you themselves? any look acquire. see Is you still would buying properties at they had low place? to a And on want one

Brian Donley

correct. That's

memory. an have of There excellent right is offer. You a first

distance, before can new a franchises we how might mile existing they some show radius, well between be located XX are they have very area close own and they we big which brand, there's TA them regarding you drive -- in to franchise that consents first -- TA when but a required sites, it's so so to sounds like for not to as much TravelCenters. because when our franchise there's acquires When properties, protections And required the some us. trade properties, TA

So board anyway, our we and independent trustees. leases, activity do makes have about provisions that and our reviews it, decisions in every about our yes, those just regularly, quarter

Bryan Maher

for or this think issue, last touched Can of a dissipate, the the you and I color and you how have labor you starting us to know but on bit that more little some upon next? might when hopefully me. Thanks, it. I see I point missed give and some year it,

Brian Donley

a mean, operating it. is than companies I at TA healthcare We employees. hotel it's better Yes. attracting bit and little challenging. probably see doing our

I maybe from think maybe about it's levels. -- normal XX% down its TA

normal Sonesta -- positions XX% their unfilled. is about of are

an And pay to time, so the turnover that is offer seems for to less employees active skilled compelling the there the effort of period positions, that more rates the those but stay a and fill are higher so be. positions long

we've -- -- So run a about this past in throughout Sonesta positions. run deficit year, XX% open we've of at terms has

And of the and measures, the price so had see it's -- Obviously sales the manage rooms. front desk. They've overtime. they've some -- and often on types causes staff while working at in as had and rooms, and point depends how extra beverage they've with great tried to everybody burnout and well. together, some brand some employees you housekeeping they hotels, standards, had then clean it they've of front-desk shifts helping Those hotel to pulling guest how teamwork manage expectations. dissatisfaction But employees peak food it hours and clean to job covering

is expensive. very constant contract labor So battle, it's been the a

amount but restaurant l managing at getting Hyatt Sonesta well get guests their as the all better that of getting labor, to at who -- in contract shifts least the are getting better overtime, least as Radisson, the sure and all is make -- all So Marriott, to and rooms IHG, on. cleaned of try waited the and amount they're to think they're the

grow passing -- with that little each out on that comes to effort better on the And and business trajectory of think it's management up I when operators front the that are figured the the the will out, a that variant all that, on doing continue and a this It's business day. drives think you becomes then, bit you new a I speculation So and have labor of predictable, as everything keenly both think and levels good that becomes woodwork and focused easier. a job you're labor really they're become -- more get problematic.

that abate. and see we're that will will So less increase contract confident and overtime, is us, labor, these wage the that issue behind of the worst and less

Bryan Maher

That's all me. from

Operator

concludes This session. question-and-answer you. Thank

Murray Now the John to I'll turn comments. call closing for any

John Murray

of us Thank Chicago joining seeing everyone some Thanks. and hopefully end you forward in of to you for we today the look at month. the

Operator

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

You may your disconnect now lines.

Service Properties Trust (SVC) 25 Feb 222021 Q4 Earnings call transcript