SVC - Earnings call transcript Q2 2022 | Service Properties Trust

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Operator

Good morning and welcome to Service Properties Trust Second Quarter 2022 Financial Results Conference Call. This call is being recorded. [Operator Instructions] At this time for opening remarks and introduction, I'd like to turn the call over to the Director of Investor Relations, Kristin Brown. Please go ahead.

Kristin Brown

Good morning.

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

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

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

Todd Hargreaves

Thank you, and Kristin, good morning.

levels to of sequential XXXX resulting RevPAR from portfolio the RevPAR June, comparable throughout was quarter April in hotels of increased QX. results to quarter hotel and XX% to reflect office. XXXX SVC the contributed employees of that reopened compared recovery service returned the period, service Our and with improvement monthly in XX% of second suburban as QX our XXXX workplaces improvement XXXX select in more XX% urban in full the second XXXX The XX% as of in

some As This now stay our with solid have April XXXX increasing trailed the of Midwest hotels. are of June. a July levels has highlighted XX% service combined above specifically XXXX our lodging in by RevPAR full has in a to in third levels XXXX increases segment Notably hotels service XXX% center recovery, of performance and This QX. and levels. XX% our XXXX in RevPAR as Northeast in preliminary and with quarter surpassed of Sonesta ADR Cambridge, leisure but ADR the significant in the of result XX% considerable full hotels $XXX, of city rates levels QX XX% occupancy June with our experienced we occupancy -- XX% portfolio, XXX% our trend the QX quantifiable in where Examples to to extended XX% room figures QX continued when improvement. increased portfolios, the where of from from in our and to into portfolio XXXX the in Chicago now increased include Royal three occupancy increased from

$X.X negative by hotel EBITDA was at improvement with hotels. QX Our $XX.X to in urban compared half million driven that of full our service in increases QX, million over occupancy

hotels levels. rate Sonesta Hilton We in and ADRs achieved Kauai Airport of our XXXX extremely of located XXXX resort than Juan, many Miami in levels. ADR Two as respectively, XXXX market XXX%, our have and San reported Sonesta ADR of markets and XXX% above of leisure hotels of of XXX% such performers, successful our Orleans, QX each well New been with top QX and more XXXX rates XXXX Head maximizing QX of

XX outpacing percentage relative service RevPAR to QX the tightening. for select XX%, hotels portfolio GAAP trailing service other RevPAR levels, was While service XXXX, points. our growth Relative improved the recovery of is our by industry select our to industry

Select our year-over-year. RevPAR increased XX% portfolio Specifically Sonesta by

In is up quarter, line quarter, back previous from terms largely X% year corporate and with were during citywide in Orleans largest Group to Nashville, segmentation, the second mix increase in reported increase leisure grew was now the in of post-pandemic XXXX XX% Chicago, of levels. New in group by demand, Philadelphia. The events. ramp the an elevated driven Boston, This gains group and

XX% With from significant percentage from its during to the in its is previous these year quarter. the Group dropped in continue demand, This a more the revenues a in bookings trend third quarter. SVC's witnessed costly increase room into expect QX as corporate portfolio negotiated of channels decline OTA from we to XX%

of back maturities, to has important EBITDA which has quarter of in back will detail further business upcoming an our improvement covenants, us milestone in Brian flexibility debt put in addressing in portfolio our While a during giving recovery, XXXX the with hotel forward in going terms debt levels, not our us our hotel and the operating now the moment. second discuss compliance

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

expectations volatile for The are on two track We last transaction achieve of markets these other the remained buyers. potential sale, set under we year. effectively believe intent with we pricing have and navigated to and four letter and hotels of the remain

hotels, ownership its we as can growth, that benefit have unit of percentage have past, brand of Sonesta's facilitate hoped, highlighted franchising Sonesta. as in we in encumber exposure a successfully franchise views sold will SVC had these platform and scale, XX% a share directly future Sonesta large through the long-term is and we agreements, SVC As

for remaining on disclosed and interest. level Marriott pleased sale our unencumbered basis are of hotels we with a marketing strong are branded an XX As previously

SVC on reiterate profitable, allow and hotels will portfolio. from received our we quality and more has believe also of versus superior have are would to We operators retaining higher I lodging investors. wide its range those focus are growth a exiting. RevPAR initiative relative prospects margin the of we like the disposition We and to a

net lease. to Turning

diversified cash our and net estate reported of earlier asset, largest net a tenant exceptional provide lease net lease week. lease assets real America stream to our retail flow another continues Our TravelCenters steady, this quarter of SVC with portfolio secure

Our holdings SVC, equity TA's of perform. to to provides additional value TA as common X% of continues

is approximately operating of annual million net to high-level, tenants half are net Our rent periods. we reporting of tenants other across excluding representing revenues. have second expiring, of at coverage lease XXXX, multiple increased TA. also the feet properties of a lease $X.X of be represents and four from X% XXX,XXX prior square In vacating, rents, known This comprised our leases

these We are evaluating both leasing for and sale options properties.

for sales across of $X.X sold we we portfolio. saw sales extremely vacant quarter-end, are two price of Subsequent this Overall, we we properties our to the net demand in lease sold properties an During vacant aggregate for net encouraged XX by $XXX,XXX. aggregate price additional quarter, an quarter lodging lease million. the have recovery

Brian and turn added covenants. that flexibility I'll now that portfolio, in optimistic results compliance of our performance business in detail. to in our our performance steady net are our travel second over the managing benefiting We operating more call in financial lease our improve balance now with half discuss our to to with back we positive the hotel through portfolio continue will from trends the sheet debt year are

Brian Donley

per facility XXXX, a and million the quarter million for improving quarter. over the the prior with performance was of $XX in year-over-year historical over our million, results normalized returns the portfolio, or second impacting year due XXXX second a primarily $XXX.X of quarter Net the in the leased year normalized income declined you, agreements hotel million XXXX year prior increase notes quarter. of over over million increased August $X.XX our a was Thank million Adjusted was hotel good $XX that of prior as mid-June. year FFO the in increase Interest $XX.X share, quarter. balance supported redemption payments certain second from prior Starting of $X.X million morning. EBITDA revolving senior outstanding our financial FFO the a early credit reserves consolidated quarter, compared the the April, EBITDAre the rents million million as impacting tenants. properties result the result prior under for quarter, Todd quarter, $XX.X The of prior which of on a uncollectible for year hotel for in for quarter in of our repaying operating of over decreased the generated comparisons. expense major second X% Guaranteed decrease quarter of $XXX $X.X year $XX.X $XXX drivers for our our million $X.X negatively to and million

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

of result RMR by the X% costs and to or due Lastly, professional year G&A as fees expense the $XX.X legal business decreased quarter, partially current primarily a in quarter. million during to management offset increased service $XXX,XXX lower

portfolio Turning results. to hotel our

management recovery hotels an increased $XX year XXX million prior $XX.XX driven increased comparable hotels hotels our period. For in comparable to Overall, occupancy in increased decrease urban at the this service approximately RevPAR RevPAR hotels. percentage gains in the our gross suburban this operating profit year increased at a service costs, XX% due $XX.X by full prior percentage Below line sequentially in increased estate from by quarter operating and the to a points and our profit XX%, offset our with revenues XX.X GOP margin costs real gradual more hotels XX%, to increase by million quarter, higher by increased insurance gross taxes. and fees strong from partially select our

driven by $XX Our compared quarter of XX.X%. consolidated of the million year quarter was a XX during million, in first million quarter. hotel net losses positive with increase the portfolio year $XX.X EBITDA generated $X.X primarily million EBITDA million hotel quarter of $XX.X service our of in of quarter. full first of the in in prior the million with The prior compared hotels $X.X improvement hotels, EBITDA resulting the and and generated XXX $X.X margin This in in which

exceeded of from the industry citywide events demand, Our and business travel. ramp-up elevated driven leisure trends increased full service portfolio continued

also second XX million EBITDA compared quarter in quarter. first the with million prior the in Our hotel select of $X.X EBITDA the generating in hotel improved, of million quarter losses $XX year $X.X hotels of service and

increased in the to the $XX.X expected $X.X Revenue the summer in be generated for that hotels the the demand, to discount million XX are hotel for offerings. The XX second marketed and for sold, Marriott guests quarter long-term quarter. hotels non-exit the stay $XX.X management continued solid with million rates extended hotels. compared of were sales RevPAR first of sale, $XX.X the quarter currently successful being $XX.X increased million various capitalizing compared which reducing to million includes XXX during EBITDA to million performance, EBITDA year hotels strategies prior hotel quarter and by during and Our increase in on quarter deliver generating

ahead in was projected projecting expect demand are we July $XX late $XX to net the August EBITDA in $XX. third $XX.XX million RevPAR to of in margins range. September. seasonal RevPAR XX% do with $XX we to QX the and to million the be range, to Looking slowdown quarter, currently full and a XX% is Preliminary quarter in early Hotel

Turning lease portfolio. our to net next

properties quarter-end. properties, June million. XX last X.X based lease XX.X% of XXth, an distinct our a with of net overall basis as XXX years under rents a of net lease owned in times X.XX produce aggregate coverage basis last quarter brands XX-month by It's stable TA's noting leased XX-month to times net XXXX, lease industries X.XX to centers coverage on site TA, margins. a our same an feet, performance on TA movie net minimum high of on $XXX The average up year, and up, were versus had ramp X.XX contributes minimum of SVC. another worth rents lease center by portfolios Representing properties and assets retail underlying XXXX, with our increase trailing term weighted with XX, level including of was of to in other portfolio significant led As centers, times, from we our and travel theaters portfolio be times value and that our from the We a rent quarter continue along last XXX XX oriented retail industries our trailing tenants million for the requiring strong and continues improvement for investment believe square June investment, and annual continue tenants travel service XX% centers. XX.X quarter. period our was fitness including travel tenant, as operating to lease and of XXX largest

extended April, the one remaining. credit we facility our In and the to date sheet. and extension have XXXX, maturity successfully we balance revolving Turning to amended six-month option January

were and year-end. June, of of we covenant the we reduced amendment, million in through that redeemed $XXX of million August size the relief extended $XXX facility to senior maturing part the As In notes XXXX.

of operating Our our this This over $XXX with sheet. million ahead rates of are cash $XXX covenants schedule of rising cash. in significant amounts us debt will in results our of We to our as manage improving the agreements us currently the put outstanding repaying compliance to financial revolving in give to have million the our today, required balances. And hotel greater on XXth, flexibility on estimates. interest credit facility order balance exposure previous versus quarter June sitting managing under we

hand. refinance to $XXX is on redeem million X.X% debt in senior cash of either next expect XXXX, Our notes with due June we which or maturity

our market may and available execute to remain cost efficient maturities, to on most We will monitor the to strategies and we'll but that options reevaluate look us. also continue on debt conditions patient be

to Turning their of to made the We of improvements year million to million months have million to to our four the the acquisition and $XX disruption. as carryover supply inflationary our spend second the currently announced spend of in during of been contribution to the we to we guidance anticipated, weaker of investing expect strategically Capital previously range our quarter, New of challenges projected seasonally XXXX, an be capital rest million million some to to during we're $XXX timing year for operational capital decrease mindful our $XX.X the minimize activity. of the $XXX as chain could quarter, million City. fund portfolio than in and moving project slower for a hotels properties planned at to deployment $XX.X and expected million. projects range, pressures being Also capital year-to-date. and due million, scoping bringing made previous $XX.X second We partially Sonesta during a total $XXX to $XXX York

Finally, regarding our common dividend.

credit our end quarter of ready that our Operator, prepared We're As common part per concludes as limited up agreement a line through currently our per questions. $X.XX the were open reminder, of amendments, to for remarks. XXXX. share to the distributions

Operator

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

Bryan Maher

those for up. put that was morning a quarter terrific guys comments Good and and thanks you

you bit So, Is good we news comments, there. improvement? levels? margin and XXXX performance in XX-plus margin elevated X% more for the of Can that's XQ, like you that talk guided about your these prepared it should us the a think I in kind behind little stay XQ. safe to say at

Brian Donley

Bryan, good thank question. a and That's great morning. you

in a anything do get could what XX% good the was of just anomaly albeit to believe pretty think I the and QX, surge of for all of higher fall through year. XXs an shutdown the mentioned as We guidance than holiday reduction expect. we the QX do visibility RevPAR from I the normalized, demand any in expect but higher and the QX, -- season. we XX% late I have to I range more is where stuff, XXXX XXXX. certainly expect the see into weaker low end seasonally repeat as we But I barring QX trail-off, that go demand, Omicron through we

Todd Hargreaves

I'll as Bryan. morning, just good well. I'll just And Yeah. -- jump in

we that's the certainly, Francisco but fully five really mentioned, also reopened improvement it markets weeks where by we Chicago is urban hadn't Brian in by the or performance service QX probably and San underperformance yet. hotels some QX, specifically impacted As was full saw really just QX, our in impacted of weeks, saw was those and of the and Omicron where six

again, likely So, we -- QX that's Brian don't said is outlier. like an

So, that short see that performance, of any don't impacts to COVID strains returning we that -- level. of it

Bryan Maher

portfolio assets? you're just any And is of what kind net is Okay. pruning theme of sales, dollar-wise, the moving they've it selling? pretty it that? And the what's lease common I non-strategic been there but Is onto driving among know small, non-core, then and asset

Todd Hargreaves

Yeah.

you'll there's more the they're a is when leaseback a of is with if And assets this you You're our assets. assets TA assets It kind long-term of don't -- outside lot think that, long-term of right. -- they're lease they're when granular net renew ending I of a see more or purchased a these of end -- them, they're of trend done, lot end the life. sale of useful nearing their these

and either the So, them sometimes to the building -- them is sell demo best for exit value. land send

So, I continue future. into that think the you'll see

renew same But in years. early we properties hit we'll of XXXX. obviously, space, -- COVID into the them. peers this the the weren't you'll try at really the lot think, lease And bought our back I net get think of end We I again, past back didn't a portfolio to acquiring first we in thing. XXXX. of see over couple

through properties may lot these properties as these kind tertiary and identified -- were of as markets. of a properties sit vacating. than a Pizza of rather XXXX types of -- non-core of mobile lot in those lot orders that or we're I exit larger knew towards with on of concept leases and be more takeout Huts So, focused them moved back you'll tenants see of Pizza most with and the acquisitions think, parties. longer were from some current a of ones But lot that those into footprints of those properties just the some leasebacks types our that sale -- selling, were recycle the through smaller we Huts footprints, down, it with third -- that tenants back with us term of tenants portfolio, A the have we more former

last auction these, take a and So, through brokers. what auction through and of couple rather quarter lot sold sell that's we quarters. lot this to we've them And the of over a third-party of

Bryan Maher

just the investment related or of for kind acquired this what And year the in between that me, that, earlier of might next I'm year. Okay. thoughts or Sonesta going City York that assets last to capital Sonesta, the owned contributions. dialogue the and scope on were two? SVC was be any New four there guessing Is on Sonesta's over

Todd Hargreaves

and That's Sonesta's New those way keys -- those Royal select. hotels. majority really service City stay the York over XXX There's certain the The was and that deal for then, question. by the across lender extended the price. the of funded funded full structured, the percentage a financed, XXX% a improvements owned purchase the And so was all four lender are it good that Sure. structured and loan the funding. was It's through and additional of additional are

at SVC's hotels for So, share, that lender. XX% the through going the require funded outlay that's XXX% be and Sonesta by those major additional the any to owned contribution of hotels capital really would ownership

renovation So contribution York really, will is by they're, Benjamin, hotels, at the the at will either from four is any contribution equity additional XXX% major the or the be they're former Sonesta doing Sonesta funded lender. major SVC. on XXth, and project require a which the Royal that That -- New not

your I that So, long answer it's question way, very limited.

Bryan Maher

million Okay. thoughts for in $XXX Maybe some issues. million. probably more there? year How to we seems Is It $XXX chain or the stuff code million the Any XXXX? initial is just about this one should be $XXX ZIP minus CapEx. or thinking plus like on the number, supply of

Todd Hargreaves

one. I'll take that Bryan, Sure.

sort costs control of the product, delays make and the also only given back we some to contain seen to not going sure deliver drawing think good board we've of but costs. I to

behind to to your plan we the gate a portfolio. into planning which or goes next answer quarter ground and range big Some and But as the in the but and we're as the agreed first first get I that million to out in into fourth the portfolio, is quarter, all could year, dozen question, elevated repositioning Sonesta to quarter. trying we off expected we our renovations XX of expect it Hyatt which will be think renovating. had if the million renovate, far to do the $XXX Sonesta's so get we start we to or in pushed get the The one still that of $XXX

Bryan Maher

Okay. Thank you.

Todd Hargreaves

you. Thank

Operator

with from The comes next question Please Tyler go & Batory Company. Oppenheimer ahead.

Tyler Batory

Hey, good morning.

the you Just past, to we $XXX still of spending what you of CapEx $XXX well? in million And the to CapEx to the three assume that talked then, $XXX million that I question of number? million terms that as cited. maintenance maintenance portfolio spending in in ballpark at there? in are over a follow-up about line on And just assuming four what of terms you total to that of $XXX I'm includes CapEx, last thinking the terms years Is should think Sonesta years. in million,

Todd Hargreaves

Yes. for thank that. Tyler, you

number. of standpoint, million historically that $XX maintenance think from the all And CapEx. in included is a $XX quote I in capital maintenance we million around to

as -- quickly the horizon. over term maybe year per $XXX how on yeah, is that depending years we three far stuff, even probably that four I As longer for sort the or five of to next think, and million a spend capital good number years can deploy

Tyler Batory

of the for I interest little then Okay. bit And there. about terms more out difficult environment in talk a bit sale, little a a of XX Marriott pricing, Great. mean, hotels

assets So, timing thinking about how are these as well? for you the

Brian Donley

Sure. Good question. Tyler. the for morning, Thanks

would right been those extremely say. volatile, you're have So, of the markets I in terms XX that hotels,

bit I better priced. have of think And get in I little think going a to XX-year down are benchmark the now with considerably. they've deals a settled where treasury idea lenders coming

But or point come seeing I five standstill and back. settled into most for again, we weeks you're who the we're things lenders come transactions, part So, to is leverage And back ago pulling was have couldn't from market. four anyone get anything any time saw There in probably think type a relying deals on of done. where the market. the a

We've our offers a from the received these July And portions specifically, hotel to but the We we maybe most for call exceeded couple multi-family on net groups so on of XXth, to entire our from weeks had the we've operators, for buy stay took developers of extended also the of value $XXX from under interest with in several that round that market first transact want given terms groups We've market expect received market. we're exceed very right have received these interest -- with amount. interest interest that hotels, I portfolio. debt from is volatile is In our three that fully at expectations, ago. to of we hotel portfolio. carrying buy just -- the environment want interest. would groups caveat I a the think And those we strong million interest last hotels. volatile again, now received is, where call, to I owner/operators, But for And hotels. yeah, the said say, least

hotel I a well-capitalized, financing. were of important, time those success buyers lot of who's think critical had success a same now to -- who really to to, can going buyers. with we've is because even who the had sale around deliver, strongly who this require considering fully the of those of we've XX A it's with lot which benefit portfolio, as selling you're be is well, right more to understand able lot

buyers, can't. close in we who think going these process, I So, so vet to understand it's critical to very can be and this who

Tyler Batory

improve, these Okay. starting some brand to broadly, really when contributing and performance Appreciate can I look for metrics? me, at hotel really starting an is properties, perhaps to at question performance, that's that take When better your to the you And you awareness you're strong. last of there's that. look and some market indication share Sonesta see Sonesta Sonesta really for

Todd Hargreaves

Sure. Yeah.

the we a of it varies kind level. is quarter working is the which of of really opportunity of focus. team as lot by where see back and and share close hotels. answer our hotel the January specific really are line XX%, at asset of market improvement the to looking XX%. get analytics but our share our market really That's to these back came get we growth Sonesta's different really and yes, at and Brian with was Sonesta both the for hotel think hotels. June, to Select for gap hotels setting and taking initiatives and line. most A was and and the the And improvement to the Sonesta also at looking the the from hotels, the I operator saw management performance previous Royal for Sonesta top this operations in at example, improving where time area there closely each spending Select, in significant goals service look to most performance it on And well, primary of our really and I lot was team, operating drive bottom we're those

So, improvement. SVC. here for the a And priority -- high-level very it's of significant we are team seeing we're at management

Tyler Batory

Okay. That's all for you me. detail. Thank for the

Todd Hargreaves

Of course. Thank you

Operator

This concludes over the back to like conference remarks. I for our closing question-and-answer would to session. Hargreaves turn Todd any

Todd Hargreaves

and SVC. we everyone you joining your interest today's Thank continued call, appreciate for in Thank you.

Operator

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

disconnect. now may You

Service Properties Trust (SVC) 5 Aug 222022 Q2 Earnings call transcript