SVC - Earnings call transcript Q1 2022 | Service Properties Trust

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Operator

Good morning. Welcome to Service Properties Trust First Quarter 2022 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 today's event is being recorded. to Investor conference Relations. like Brown, to would of Director now turn over the Kristin I Please ahead. go

Kristin Brown

Good morning.

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

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

Form-XX-Q over you, on upon And contained with could differences website. the is reliance call on I'll found Investors SEC with operating cautioned Todd. data in and any to concerning cause and our place forward-looking factors to undue that, in that Additional turn supplemental our file are not information financial the those our statements.

Todd Hargreaves

Thank you, morning. Kristin, and good

XXXX also XXXX of same in quarter XX% comparable to ADR to reflect April. XXXX XX% to The second XX% Omicron of improvement in performers, levels in highlighted Miami that XX% XXXX XX% Sonesta month by Sonesta XXXX in our two our RevPAR improving preliminary impacted of levels. returned throughout monthly period of January QX of XX% QX in April XXXX ADR portfolio Notably, XXXX from sequential the results Head, from to Airport, first $XX levels, has improvement the of full-service and an of Hilton New as respectively, with hotels urban and quarter along resulting continued in of achieving has ADR into each March, and QX of rates Lauderdale, January in with Our XXXX XX% of San RevPAR increased XXX% Orleans; Fort RevPAR was the Juan, of other XXXX approximately QX beginning Scottsdale, approach markets XXX%. in XXX%, outperform ADR, are more Room by XXXX. with leisure figures quarter than as equal April such to rates XXXX of and best

Toronto business to close occupancy approximately gap workplaces suburban And from Royal SVC Sonesta in but to continue that should or XX% reserve Austin revenues which of Royal from considerable our travel The our airport urban meetings, that continues hotels, the select-service in office. generated gap to related -- increases seen and employees more to to from reopen XX% at also occupancy of urban in hotels. full-service April. their returning location should lag the have The of in have XX% increased We Sonesta some XX% improved full-service January recovery April. January in XX% occupancy XX% historically

of XX revenues, While above is XXX room and in comparable pace levels hotels. XX considerably specifically nights operators is hotel to both increases full-service [Indiscernible] pace group XXXX, Sonesta, of SVC with

Sonesta footprint national corporate to is the for business. compete beginning its realize more increased of and benefits scale larger to

need markets, to to hotels presence key markets acquisition the recently top the Sonesta its XXX in maximize are They totaling they a further one While international in and reach penetrate of established hotel major will Manhattan. Los of through notably Angeles. four keys Miami

capture agreements part of the across Sonesta it also And the to brands that's its Sonesta and purchased its new recognition. contribution to utilizing James industry-wide strategies scale extensive a As across business renegotiate OTA non-room revenue to Hotels, Deployment portfolio, and improve intends of increased just scale well-known support multiple portfolio. the website initiatives mobile acquisition income for implemented brand, leveraging the the portfolio-wide lifestyle property of intellectual brand.com partners. with performance, incremental to including to a which national app

As it -branded sale we to million, sell aggregate hotels to for and XX have and hotels, for XX on closed relates ongoing million. $XXX under-purchase plan agreements of XX an our hotels $XXX Sonesta for price our

the of for most is which line quarter. remains earnings We intent. second expectations these sales fourth-quarter letter continue we close and discussed for our one to the Pricing the expect sale, with over the of under hotels of to in hotels call, we of in market for balance

of our Sonesta The has While There's sales workforce SVC smaller as the our also XX% alternate portfolios. be be [Indiscernible] closing we by we on the is to noting move will to sale to we material an Sonesta's has SVC, the diligence accomplish had well value role the of through in or converted buyer of not believe impact suddenly this otherwise Over the Sonesta. process as to our long-term expected the that impact encumbered or re-branded distribution, to sales prices balance to such XX% a ownership in sale negotiation, use, back so debt are maintaining of timelines we as mix in expect benefiting volatility through in as branding, hotels housing. coordination which of with worth will achieve. sold markets initial XX hotels different maximize these over our work buyers, dispositions

core exit selling the sale branding $XX an extended of portfolio. be hotels that quality retained to the over is optimizing market. hotels investor what and can year our relative stay versus hotels, for previously, portfolio We're to and opportune a SVC's select strategic of so to the as quarter and performance in for have non-exit premium highlighting forward by our time premium focus many stated the demand of during ADR hotels. exits, we looking a the RevPAR XX% given view relative $XX the RevPAR underperformers Sonesta we of quarter on service the the grew the we've previous XX% As this

sector the stability of counterbalanced in assets. net As by has our has been been consistent diversified throughout weakness lodging the pandemic, the the lease

net another TravelCenters earlier this strong largest week. of tenant, Our lease America, reported quarter

TA SVC to Our holdings of TA's of provides continues additional excel. to equity X% benefits as

of Our be leases square rents, to perform X.X% lease multiple expiring, also representing collections vacating. three feet net XXXX, excluding overall This tenants with across net and have strong XXX,XXX coverage. lease of other TA. properties increased known continued rent to we our In tenants includes

we've price of lease first We sale sales options properties these to both assets. aggregate for are leasing sales four of the expect price net aggregate we properties million evaluating remain increasingly $X.X accelerated properties an for many We additional for In in and in normalcy. to vacant by $X.X five an sold we Subsequent to are a under encouraged positive sold for of million the quarter-end, restrictions, quarter. sell which million, COVID and an wind-down closing, $X.X and two an for return close to the agreement related outlook quarter. second

The 's to net of travel trends in liquidity, Brian and the Today business by for the Day a we've in this optimized rescheduled brand our managed Relations a forward sector from tour SVC teams. the leverage reduce to to brand, sales the hospitality portfolio. of progress in discuss as the in-person. attending to which Investor the as benefit interested to performance our Sonesta We be Brian evolution to recent presentation our more SVC include Please one results in asset the market is the in financial and management and over with to With a are participants, details is initiatives and turn leadership believe lease introducing higher-quality, will looking We're of call rebounds on the more SVC hotel solid discuss highlights out will management well-positioned reach and At through team for the companies Sonesta as portion now Sonesta, as well improving lodging detail. presentation as and portfolio, I'll also moment. largest Chicago. improve hotels will made you SVC country. Investor Sonesta well if later webcast. month in the

Brian Donley

$XX.X for FFO million million quarter was Adjusted $XX.X our morning. financial consolidated or quarter EBITDAre the results per Thanks, over share, and $X.XX $XX.X over a good prior-year XXXX, million Todd prior-year and of the with first $X.X the was negative normalized quarter. for the increase first million increase quarter. Starting

for our primarily quarter increased over million projecting first accelerated Primarily FFO compared results reserves typically the over supported exceeded our the historical February. the normalized operating prior-year impacting result through of $XX.X result quarter include for by and expense from the and our our in for Net quarter pandemic seasonally XXXX. properties decreased a the the $X.X prior-year for that $X quarter leased hotel Guaranteed Although G&A lower is to rents the prior-year first agreements was management these the hotel current from uncollectable in due start $XX to million $X.X increased a has Interest weak declined major results in $XX.X quarter decrease in expense XXXX of we draw January or payments a of income of The today. million year-over-year the at fees the hotel of losses costs quarter. hotel tenants. a the effect of in million which compounded million result other prior-year certain year continued expectations under returns for the XXXX business portfolio in to generated over first impacting comparisons. negatively and as from year, our and drivers of the as professional as our X% where a EBITDA were service our quarter, million lower $XXX,XXX quarter legal in late Demand portfolio, RMR. of revolver February quarter.

stock grants to G&A expect our quarter, We the to to trustees. annual second by non-cash $XX largely approximately million driven increase in

recognized prior-year share of $X.X million from quarter. Sonesta per or XX% share over increased interest ownership $X.XX our FFO our normalized in Lastly, the

Turning hotel results. our to portfolio

profit gross GOP, XXX by period. by a this $XX hotels at the increase Below XX%, taxes. decrease operating from in increased profit driven by and our fees quarter, increased increased management percentage comparable points with gross to hotels comparable margin prior-year approximately increased revenues in from the line For percentage RevPAR and XX%, our operating million by $XX.X at an partially million insurance higher costs, increased hotels prior estate year real costs offset the XX.X our

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

hotels strongest stay during continued EBITDA the million extended $XX.X hotel XXX generating performance of have Our the to quarter.

or $XX.XX full relative of strong occupancy but XX.X% and during with XXXX stay service and Omicron from XX XX% XX% to $XX levels. projecting of to hotels. January normal X.X% the and full $XX the and of quarter QX million seasonality April in to $X.X performance levels. of to service first with decreased RevPAR of respectively benefited RevPAR respectively. to has Our full-quarter XXXX from due occupancies or service the non-extended impact this are April, $X.X and service stay hotels generated basis a compared improved occupancy We our XX% on our select and $XX the continue losses of of for XX million monthly sequentially around XX.X% compared Extended and to premiums select expect $XX trend Overall to January, industry currently during hotels in this quarter,

quarter. quarter-end, Regarding non-exit the the for hotels quarter the certain the XX negative for closed $X.X and remaining for compared to and XX positive hotels. hotels sold climates, hotels. quarter to-date. to first May Despite $X.X XX EBITDA urban to our These be hotels which have this strong the leisure generated in to the in non-exit markets RevPAR in RevPAR was XXX markets performance million in Hotel wait April compared on of hotels [Indiscernible] sale our of remaining as million in first warmer hotels XX results $XX.XX $XX.XX of in of

doubled than $XX asset. Chicago Clift assets operating example, million RevPAR RevPAR in the of Francisco, RevPAR summer $XX. in another to in the up generated Chicago in we $XX $XXX lost expect quarter our more losses million hotels on full-service of for of significant For $X.X The three RevPAR ramp in months. and April, for on strategic Hotel this to $X These three San quarter. improved the April asset us, in in

California renovation assets lost Our and Irvine, one combine $X they in million Kauai as disruption. by negatively full-service to impacted were in

second first quarter our Looking the seasonally be XX% the the EBITDA accelerate. to continues to ahead and just under in portfolio's to versus expect in the range quarter, XX% we hotel as periods currently stronger we enter demand X% margins to

Turning next to net portfolio. our lease

operating our industries assets XXX years XX XXXX, owned term March retail with our of of square by a we leased tenants XX.X% in properties, XX, including lease net distinct $XXX travel rents of of as million our service-oriented Representing lease annual As net XX.X feet, of XXX weighted XXX XX.X% XX requiring based average were on minimum million. investment, and overall quarter-end. with lease portfolio under centers, brands

have times portfolio's rents mitigate of rent quarter, minimum XX% X.XX to that in was coverage properties COVID, led minimum March our are aggregate we're site TravelCenter of fixed times by some impacted on from inflation. an over adjustments theaters movie and X.XX basis assets last fitness on form to Three by industries revenues. to as addition increases, lease deeply trailing against and XX, tenants fixed The percentage centers. of our rents rent of including XX-month based leased a escalator net In XXXX, improvement our rents CPI-based help net

to Last Turning revolving successfully and XXXX. the our maturity the extended credit amended to facility sheet. balance we month date January

the million, a $XXX relief year-end, mouse million equity of covenant through of the liquidity allows of increases also to maturities. part levels debt the to near-term we the to SVC facility address and to agreed The fund extended As can limits investments. up minimum amendment size reduced amendment, for acquisition for on $XXX and certain

could six-month We to extend that maturity to have option date certain subject remaining July conditions further one the meeting XXXX.

to for million during XXXX quarter, in renovations routes being activity approximately is of full-service capital Salt full-service $XXX Sonesta Sonesta hotel we anticipate the be to investing our made Hyatt hotels, our dozen complete to renovate first and the portfolio, a phase City, capital and at to our at Turning spend hotels. properties $XX.X improvements in deployed limited-service of our Capex two million. Place Lake full-year

contribution made Sonesta capital acquisition total be in maintenance hotels of City XXXX, Todd around $XX New million $XX mentioned earlier. Our expense. million of partially portfolio expected our to April a is of we their capital capital York to In to fund the

revolver our We additional fund $XXX million million expect and of another our sales $XXX June. have quarter-end end another million cash year part we pay over by the to $XX after later of sales this proceeds expect as of this receipt of of $XXX balance the on of sheet transaction. proceeds down million and today, After

debt debt a redeem is additional debt service senior to debt August, million of Under forma next to X.X which hand. on ratio due is on Our maturity -- pro be our at available debt. times expect basis $XXX notes least to we in incur to for agreements, service income cash with consolidated the required

remain level as at As XX, exceed we minimum the XXXX. of quarter the XXXX, third end below We minimum X.XX of of currently times. expect March of the the ratio to

that open Finally, regarding prepared of our of our XXXX, to agreement up quarterly agreed ready per line amendments. expect maintain as Operator, dividend, we the concludes distribution for questions. credit to year-end $X.XX We're common remarks. share as part current through rate to our the

Operator

Yes. Thank you.

time, before Bryan And As you're Maher will keys Riley. question with to [Operator pick your session Instructions]. the a Instructions] phone, the comes pressing At using assemble the begin B. first up roster. pause we momentarily question-and-answer from now mentioned, [Operator this we'll speaker the please handset If

Bryan Maher

And congratulations Todd about there, promotion are Good you but concerned? bit equation suspect the and from? Where How think through pressure those from the quarter. XX% second quarter, chain Todd, Can strong And seasonally these I on XX% be we I recently. X% were stay get after issues? most the are to talk taxes, you you the can of on side sustainable a quarters. Brian. third little expected concern also high up the that supply Brian, second, in in there you we -- is, is morning, about is the increases I the Where mentioned to guess in back talk expense most utility, coming first margins labor maybe hotels? there the

give can you on us you. So some Thank that? color

Brian Donley

We're $X you're certainly side. relative been Sure. the that right Thanks on out looking to Labor our in well. positions, operators increasing more wage year-over-year, saw Bryan, mean, in. but as start a is retain There's for hospitality about offering But we're -- referral rooms an weigh servers. expense shortages. certainly across front increases expensive I'll They increase order the a unemployment more bonuses, lot the there are to I is of their a We Bryan on contract well, are overall one higher at due recruitment other and employees, efforts. things there's to office, tracking been has we're down. seeing retail increases reliance closely hourly all as and housekeeping has labor housekeeping, there can the impact. rate question. while industry

Amazon overall. So out of seeing see continuing or going or the utility hotel other workforce money our were expense we're -- leave going They're Uber well back going Real insurance side, you some and and on some -- we're taxes actually the as challenging back as valuation. like on are side. the as workers operations participation seeing for also we're industries. is increases estate point other out to the saving -- working just to But we're -- work rate industry for going

decreases inflationary pressures a on estate some there's of certainly But real -- seeing overall, taxes. the lot expenses. we're in So certain

was improvement what QX of QX. we question range mentioned, QX, QX go Bryan, in through like I pullback but on some curve seasons. nothing of margins, XX% modest I incremental And think the your be would as there'd some I far there. pullback As seasonally more the think in in I to XX%. expect a the a there's saw we as

Bryan Maher

Okay. And at and going or New purchase those million capex did of -- then notice City hotels that was you is million the to purchase it commitment. the type mentioned on later that properties? I -- Sonesta, of capital $XX four year is The needed Sonesta those $XX York this the hotels we think contribution to some further of that

Brian Donley

That that proceeds shareholder thing take their a other Sonesta one. at more SVC was defer I'll liquidity Bryan, liquidity SVC. based get sale to behind us. in of more constraints the of SVC, for and until on we contribution our agreed,

So would in, contribution XX% the SVC's amounts. all combined be

Todd Hargreaves

price Yeah. I'll at taking the that of there renovations just equity will and the is as well one add some but That the -- as the cover in, is purchase -- capex. additional deal XX% [Indiscernible] place too. any portion of hotels, that

So contribution. that after additional be the it should

Bryan Maher

have Do that? that going they clear suspect XX% you're with would I with that to along shareholder as you being first? a

Brian Donley

Yes. to We consent. had provide

Bryan Maher

then of RevPAR. Okay. shifting And gears to kind just

properties fees, that could flexibility, thought push comparable Sonesta, service of that ability I that ago, Marriott bigger up that converted two IHG the don't you've Sonesta, lower kind select slightly worthwhile, a these you your Sonesta those the what and made takes know you've the to think they some but and Sonesta Marriott for thoughts closer that before? think realistic, speak if get mainly RevPAR etc, a that to or of it extended RevPAR buy-side stuff quarters, thought are optimism was now the level. I the and being puts to, back three that that to quarter more and InterCon there were the had to Now most on don't brands were and flag, I was several it I or but stay of

Brian Donley

closely Yeah monitoring. Bryan, as question, good looking very that's and a something at we're well

specifically, leisure certainly noted others, but Earnings up market on Sonesta. brand is it more the a and some for more success and lot of room Select I it brands with the to think a we're which -- side. of new depends hotels. were make hotels, newer in at you relatively service seeing airport the There to the occupancy is rate some share on select the

on and asset start and closely Sonesta I close to working that's create management So really Brian our we goals to those. with are that, them are the measurable something for seeing in gap

to out XX%. in take Sonesta They example, XX% we December, quarter, you exit, end goal the did. to occupancy the and at got they them [Indiscernible], an were the and and set for try to if Select, XX% As get a of by the to

to So there's that's do, going to on to we're Sonesta monitor. especially We Select. gap going realized think continue a we're to something to and close I market,

I hotels. a is where heavily area have gap for the we on think comparison -- close the compe weighted of that other more a hotels. -- to is -- Royal Sonesta to of is The has lot Sonesta the more leisure urban But

Todd Hargreaves

far at have, more more, service least side, hotels. hotels urban have our full-service on the [Indiscernible]

close think business performing to you'll your that for But levels. now selects, focus the Brian? the is specifically. lot question, us on us other office the as and I we service of return But right I more leisure, That a answer are to travel gap. cogniable back So see comes on think relative

Bryan Maher

Yeah.

in for going having XX for there the fair and covered I am maybe almost this question, second. company Sorry, you for to out is the guys years. Last it but anyways, me had ask

give well the very same, relative hotels, prioritization we enters from Can were only the ever you of the are lease billion unfair can maybe within of again prioritize travel you net the lot raise importance evolved company I You've the you net the all you hotels in to was with versus but get to $X.X easily then to probably to think now Maybe which a part net you Ts love children your it's answers, of -- how would and worth versus TravelCenters TravelCenters hotels pandemic formed. need hotels firm. capital. calls, and performed how your if of of lease our and thoughts during but kind because us lease on

Todd Hargreaves

take crack at I'll Bryan. that. Sure, a

the you us TA net really recently. TA, cyclicality the given As especially at miss industry, both the pandemic during pandemic, not especially lodging a of the all. beat out, that didn't lease, during and point TA our has helped

Our and but recovered answer to theaters net challenges some not as had I'm those prioritization. fitness the lease -- movie with how quickly we centers well. our sure

us It's maybe but I And they're of middle of our to calls the from and think, value position you previous now, being can of managing depend. see that our -- think the you've through mix we we'll ideally, asset where of do acquisitive assets depend going on -- lot asked today. and and in long XX% see the anywhere allocation think XX% forward we'll acquisitions. in I getting to right term I going hotels relative where which the but portfolio, is be that's on to Right focus going again. sales of on we a the be liquidity, a the

be going to to that's favor favor sometimes in hotels, sometimes to it's the net is the going in of think lease. to more of be having one diversification buy benefits more it's I buy

it us remainder the there of term still well, So centers. side the the or some then not, be flexibility on think know -- above answers if your be kind on will in I gives XX% don't that net I but lease the long travel term, level we'll I but long prioritization as question and lodging that

Bryan Maher

for you helpful. comments. it but your that's we more Again, Maybe can NaREIT, around thank at kick

Todd Hargreaves

Sure. No problem.

Operator

from the comes And question Wells you. Fargo. Dory with next Heston Thank

Dory Heston

we few of over your next in think first about years morning. million and good third? of to annually tailwinds second operating capex headwinds you spend the expect the the by When neutral $XXX in the kind should year, Thanks,

Todd Hargreaves

these we projects Yeah. mitigate that measured planning in through try they're any peak a disruptions. during and to go disruption renovation limit lot phases and of floor on say the by to seasons I would projects phase

of question and it'll timing as factors longer early rising I of these we capex market on obviously to just supply and chain projects good weak Dory. might if issues get is rise. our It's predict back costs to taking the change weighted the based given scope, But and QX are because So continue exact is our out seasonally be to spread difficult towards the year, a lot ground off end prices and the periods, think more typically, a QX.

Dory Heston

plan And any owns that brand? within hotels Sonesta of your city Okay. center the that there James now is any to that brand rebrand with

Todd Hargreaves

Yes.

Sonesta see evaluation of that you Chicago DC Dory. be is the I some portfolio and good could some hotels I happening the our of in fit for I for but a Kimptons, evaluating -- that think former but now, now, think is Washington would think that, example,

Dory Heston

you then you down in onto And and your would [Indiscernible] downs, their pay million balance you the longer? would should that -- notes mature expect mid-August you $XXX after Is think said when covenant. I pay QX to or exceed expect minimum time cash the to hold the for some

Todd Hargreaves

'XX the amendment. June. things some out one structured last come as play still in And we the notes far of that tied how neck of there's and and sort that the due things as and with revolver question great a to That's neck that's

adequate have end the senior of with our the and year, liquidity We to -- normal to of activities we'll revolver to out notes. But be the year the 'XX is end make both the by revolver the have June refinancing calendar notes. we and take able expectation -- and the take commence by either sure out the

to as guess cash. late early is timing. on being or to best and get able want 'XX 'XX the sit I think it's revolver use the So to in yes, But we back not intended to

Dory Heston

back about It's kind to is margins. of question the last My Brian. Okay.

lower what attribute to the to the what peaks full-service, and that to asset whether I'm possible? -- It guess, your up. you hotels, do to low sense just do get be XX% the compare most location, prior XXs, levels sales at were think What lower, trying management. and mid-XXs those in materially peers, should slightly XXs is you coming they're maybe if margins. higher. I get range, a what When -- these you trying of I And age understand I I'm it's you can collector of of be, higher

Todd Hargreaves

[Indiscernible] things relative well, we to the in margin. especially terms they the Dory. of especially on as something [Indiscernible] are We're market, That's where improving of side GOP --

at operators to renegotiating scale, just do Sonesta with They're Our they've are again, successful looking of help side, at monitoring. costs have the different that food their and looking to One looking reduce not reduction of options it's the point some management thing rising we're expense been initiatives menu but through drive and increased on place the has to fair something commissions. strategies. a franchise and been managed their way. -- at maximize commodities side, really able cost those to costs but in in OTA they try on are up, They margins the ways

Dory Heston

Okay.

Brian Donley

closer any of sort as the can we noticed I we brand, the a an really anomaly and travel again, XX% and margins little Sonesta want to Select form think launched was it year we conclusions to able you forward. back get see before since and going that it's a it's to but QX, us If for more will expect that roll do business that be under through range we

Dory Heston

thank Good, you,

Operator

session. you. And any Todd Hargreaves for turn like the comments. Thank question-and-answer to I'd the to this concludes call closing over

Todd Hargreaves

at and joining for month. our later of Chicago many you Investor forward in look Thank Great. you this to Day seeing we everyone

Operator

presentation, you. Thank Thank attending disconnect your now concluded. today's is you for conference The now may lines.

Service Properties Trust (SVC) 5 May 222022 Q1 Earnings call transcript