- Earnings call transcript Q3 2022

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Operator

Good morning, and welcome to the Service Properties Trust Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Stephen Colbert, Director of Investor Relations. Please go ahead.

Stephen Colbert

Good morning.

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

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

that on concerning www.svcreit.com. with the our could call the SEC that, operating like Todd. in those data contained in differences factors at our file Form and information Additional supplemental financial to turn and with our is website XX-Q found on cause I'd And over to

Todd Hargreaves

Stephen, you, morning. good Thank and

the service a by hotels, to prior improvement extended XXXX Kauai, October that levels. employees quarter with of and has into highlighted RevPAR ADR strong improved travel. Francisco to Boston, preliminary ADR for of Hilton growth expectations increases above hotels of our our in solid many improvement October elevated fourth resulting in rates continued in of XXX% XXXX figures third surpassed Combined from the and through our hotels travel, XX% select continued and and continues levels, group workplace standards. XXXX stay X% have Notably, our quarter, highlighted with the year-over-year our ongoing of the The during hotel third at comparable the with urban benefited leisure of levels. for to results of the and our the demand travel increased slowly the in portfolio business quarter quarter RevPAR leisure continued shift which Head, for performance ADR hotels the trend urban performance leisure XXXX XX% $XXX, normalize of Toronto, driven San of toward be the recovery excess are for Chicago, third and and XXXX room RevPAR patterns Airport full quarter QX. ramp all service of contributed full-service Chicago, as as Our in reporting was third quarter suburban Lauderdale, Kauai, quarter Fort Miami in SVC's of hotels, XX% XXXX portfolio by compared

select by recovery select is service QX our service trailing the XX%, the RevPAR to and hotels a our primary be of service relative X.Xx. tightening. gap ours of levels, our RevPAR XXXX, it industry While to other industry outpacing to continues Compared focus improved portfolio growth for is

Specifically, Sonesta XX% the our increased for quarter. portfolio RevPAR by at year-over-year Select

returns. gap our weekday revenue increased Group occupancy, markets, Weekend points a higher also did any losses pace demand. in group due led impact including as during operators transient elevated as leisure increase we not year positive, in quarter, five as a XX% directly impacting Philadelphia. from third the and leisure received the insurance, Hurricane operating were portfolio experience levels labor, demand, third incremental shrink quarter up of guests occupancy by but XX% well was by and we of Irma in or corporate group the group into Lauderdale Inflationary to Fort not impacted EBITDA citywide approximately across next leading largely during and to SVC's was now Fiona from to the as are return hotel-level GOP was by pressures In storms. driven notable This Hurricane expenses than the expect XX%. related Boston, year is the displaced quarter, Sonesta hotels group segmentation, of offset group demand utilities margins. from and terms hotel, which is mix group corporate percentage to XXXX and previous Chicago above and by to material compressed corporate our travel

entered the we and improvement We of hotels reliance to in Sonesta labor of To on costly permanent the XX are a the we XXXX. are cost during we operators branded to to QX of down five into see only remaining what previously the agreement the still be million, Marriott-branded an excluding levels wind closed. more And with reiterate disposition Also, the contract with costs, original have relative RevPAR, increases announced process to continue hotels staffing by with we deceleration underperformers, hope said expect labor-related reduce hotels in quarters. are or have plan sold superior the and working and growth encouraged margin to which hotels our the on our sell past in we which prospects. and sell calls, will are retaining we for quarter, to closing $XXX close third XX upcoming

of basis for coverage highlight of like strong was We including believe our we square In we have up XXXX, XX based TA lease portfolio XXXX, largest of net of and quarter. net net less was X.XXx TA, minimum lease net million with lease lease basis six properties XX% rents performance travel portfolio's in leases investment, the on coverage XX, diversity under as XX, a XX% feet XXX versus net expiring, X.XXx, multiple our tenants increase XX-month on weighted tenants rents, rent to and annual our of ongoing lease last improvement our the is vacating operating leased our the owned a XX.X level from as site X.XXx Representing XXX of XX-month feet. September same of and an of properties, This quarter, trailing overall aggregate quarter in I were to an assets tenants portfolio. service-oriented strength lease X.X a than across our year. of be excluding the September our with retail less industries average distinct includes centers, from revenue. our $X known and of XXX,XXX quarter of X% by of million period trailing tenant, term would The TA. last years X.XXx brands representing continued fourth last on than end. XXX As represents an square

movie SVC are tenant, remaining six these sites. during We Cinemas, with filed bankruptcy Cineworld, the of it quarter. Chapter XX regarding that properties. with and has parent for the sale leasing, redevelopment the leases evaluating has Regal are second Regal rejected one discussions options in largest of and our the five for just the we theater Also, tenant

encouraged we across it would focused we our hotels are improvement like operators portfolio. handing Brian, we on our saw pre-pandemic while that working to I remain emphasize to this Before the levels, to our quarter that to by with return

continue sizable travel net our We to are of optimistic business into portfolio, portfolio. benefiting improve hotel with positive trends from lease operating along will reliability cash in our performance our XXXX with the that flows

our forward allowed discuss meaningful our call and to paying to dividend for improvement to the In Brian positive financial has portfolio the in more businesses across an of over view the us our to to now return important common company. the I addition, shareholders, detail. will milestone going a turn results

Brian Donley

FFO the reserves revenues performance percentage leased prior compared decreased portfolio year our $X.X with leases uncollectible million as center of the the prior current of travel prior year for the improving results as business a partially to and quarter. $X.X the XXXX, income reducing million the result EBITDAre XXXX of of good drivers consolidated over was recognized XX% of offset the revolving normalized $X.XX for million of the this primarily of quarter, the credit quarter third year $XX.X million over to quarter the Interest on G&A of the as the prior the expense to operating Todd, a impacting increase year primarily hotel Thanks, senior morning. increase positive expense prior by second outstanding decline of with increase to quarter facility portfolio Adjusted $XXX.X decreased quarter. financial XXX% approximately for was in over rent this our million. the in million quarter the repaying of third repayment from per over declined relating income $XX.X Net increasing management for Major quarter. a our XX% period, impact of $XXX,XXX in a prior prior FFO or over notes our prior an EBITDA year current by $XX.X Rental Starting share, compared in our the in balance a quarter, XX.X% million year million quarter. $XXX $XX.X or million $XXX quarter the year hotel in result year by quarter to normalized year flat fees. result a was year quarter. and was

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

strong fees XX% hotels at in percentage hotels costs. comparable recovery an result GOP operating as increase increased hotels profit percentage our profit management hotel of RevPAR increased and our year the prior by Below over to select X.X the to period. our and the $XX.XX by an year Turning margin Overall, gross driven urban million from $X.X increased at to gains points prior revenues to in $XX.X full-service prior million ongoing comparable line due XX% a from costs quarter year by for in hotels. our XXX approximately increased service and our insurance increased hotels portfolio operating higher gross increased our results suburban occupancy this RevPAR XX.X%, quarter: the

Our service million in a consolidated level, full-service the of hotels, increase year in margin portfolio XXX% XX increase of hotel quarter, an the hotel EBITDA generated during driven period. the XXX By net of XX.X%. EBITDA generated million, resulting prior by our improvement $XX.X of primarily $XX which was a over hotels

over continued of the million performance, EBITDA XXX to quarter, prior extended stay year generating $XX.X deliver solid hotels increase hotel Our a period. XX.X% the during

improved, margins the compared also due in hotels points XX% expenses. declined service prior year EBITDA quarter, of period. Sequentially, million XXX select $XX.X to third of the hotel generating to an higher XX increase basis Our net

we work million and our labor, top labor the to XX to productivity. estimates, costs second Although room and EBITDA ways results and increased continues a quarter. agreement cost The control million a of $XX.XX. line line for bottom occupied the include pressures improve basis, materials Marriott per October under to On inflationary generated our hotels. $XX labor the supplies The cost RevPAR to the rise. to contract for expensive be hotels find energy, in use continued with was hotel continue costs challenge, of which are compared the $X operators to as exceeded that internal to XX.X% weighed on sale, hotels compared non-exit XX quarter to Preliminary sold, third the expected be of

we the be million As to $XX $XX currently to is in quarter, XX% range. margins we fourth net range to XX% EBITDA RevPAR the in look projected of QX full $XX. $XX to projecting to quarter the with rest Hotel of the million are

declines do are move expect and we fourth second periods, the of the half hotel month to the activity in October strongest as through third we latter into and of quarter. typically The but seasonal quarters see SVC's

the to balance Turning sheet.

of credit million of $XXX revolving and facility. undrawn over is million amounts of our liquidity over million, $XXX including today, total our cash As $XXX on

million we $X date unencumbered on of X%, us of issuing the flexibility allows debt additional amendment greater markets. and Our an the outstanding amendment interest XXXX. have restrictions $XX our October, and which the entered The assets. secured facility notes over to weighted we with billion paying navigate unsecured rate of to into outstanding rate common debt, and removed and dividends maturity July credit just to In extended debt fixed a includes $X.X senior average revolver over billion on

notes to to levels June liquidity senior continue X.X% agree also in We is address maturing million our next maintain maturity, as we prepare minimum XXXX. which to $XXX of

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

Turning to activity. investing

hotels aggregate $X.X branded the proceed sales sold During by million sales we quarter, sell XX and agreement for are we for of million, an for third currently lease and close $XXX.X net $X which for to combined expect four a to million, $XX.X properties Sonesta hotels one five first early and a we an million. sales sold hotel Marriott hotels aggregate of of price quarter. price under We October in branded six price of

capital $XX million. on properties our our $XX.X fourth currently of third We Additionally, quarter expect expenditures approximately be during we to made million quarter million to spend improvements our capital our We'll call. the capital during at XXXX earnings provide guidance $XX fourth quarter.

our and ready continues believe portfolio Operator, remarks. open to recover. the we the lodging per we remain concludes normalized this dividend it reinstate FFO We're to dividend on share decision are of common QX's pleased for based on representing increase for well to company, outlook announcement, covered prepared The the our our a based up our $X.XX regarding payout Finally, questions. that line was to quarter, ratio XX% results. the dividend to will as

Operator

will come B. Bryan Maher first with Securities. [Operator Instructions] Riley from Our question

You may now go ahead.

Bryan Maher

Todd Brian. and Thank morning you, good and

of questions for couple a me. Just

of of under you what up the Marriott Sonesta there the Can the that of having color those think brands they have the the talk mean, to I give maybe activity considered bit us would benefits hotels, that, Sonesta you against in properties if little past those a as lot two to progressing Intercontinental those them and a the Marriott you gotten you And would moving the brands? how was versus offsetting regarding RevPAR Sonesta and Intercontinental On two ends years. of stayed brand big brand brands? and have over from in

Todd Hargreaves

Sure.

We the quarters of to right. post several now data that brand. the hotels have we Sonesta XXX of you're converted conversion So

can So we're of every performance. previous getting it what to get - to we get better depends operators' think learning. how I a the starting I'd we're quarter, on we're we say idea close think

previous brand think brand the on we the well as and it to. level the depends I service as converted

Royal expect full-service most Sonestas, same extremely extended part, the about, are performing well. at. brands widely most operators They the as well. the of Most we Sonesta for previous our get were industry. think to thing The would brands I the back stay fully of to the I where in the say recognized are

we expect get previous to operators the well. as will I they back think

back brand too history one new That there's to brands the we And think I area Sonesta. Sonesta. Sonesta where converted QX And operators XXXX. previous at was get select a may in the we that converted. are brands new for we implementing not a those with

ramped Sonesta the Sonesta ES the Sonesta back stay And it Suites to did couple extended mid-scale with industry. Suite get recognized XXXX. of the now one And the brands same upper a in thing is took up, years best ES as widely to recognized. in get of

one decision part hotels. gives long Sonesta. of where And not, conversion going we see So on really upside we'll the those a question, think had which that, acknowledge on But but with that second basis previous selects. that growing the than we and long-term offset converting those years. us ability previous Sonesta not to business, benefit related expect amendments this of that will operator it's with may To term, and fee any our quantify next agreements the over brands But but ownership those to side try to the think in of the good to - for the back interest, XX% especially to we get back think the is get the as converting our from takes hotels that show necessarily going get we a relationship lot royalty to we did one to Number a forward. ownership to having close for overall, wasn't if convert to we of specific will those I recent interest. really those of grow operators. we those occur did loss majority there's more right, do future attempting those the and the of was, move I we you're of really streams, really hotels your of XX% it our few hotels to hotels job exit Sonesta, and in and XX% And and our above franchising to,

Bryan Maher

I during recovering hotels, Okay. travel returns. COVID. as hotels But it two the over been extended performed seems those the well like hotels. full the And well very their are service with my companies and so second to centering years mean all having discussion limited service relates are lodging past really question in days much there's of how on reporting full-service these and business urban stay

you in kind How you that think time And hotels. down recovering little that those a fact enough spend the market? drill don't so are thinking have bit? I Can that about on of people this those

Todd Hargreaves

versus full-service limited peers, urban did Sure. luxury jump But resort right, like really question. especially early - We, last service a quarters, so can have and Brain I the Yes, recovered recovered but good I resort hotels. to terms full rate our yes, over on, the say, as earlier I'll stay say are concentrated this start, hotels lot relative to you're some a started areas of extend in. more and the And really And hotels of think it's service, our urban you well. recover. is in in and two would

on see the think, portfolio, So urban now side. up industry, catch starting to you're our full I the especially service

to we the events performer levels total are was XXXX service Our in hotels. And citywide XXXX, of starting of of corporate pickup really we're those relative to full terms back see at travel that to travel, our XX% RevPAR. best business

Chicago, look above well when like the major Boston, those be we reopened our is that lot at a the yet. urban those driven expect Francisco, XXXX, hotels. to conferences by San And a now early that we QX not remember, to of had that yet hotels lot markets of hadn't in in urban just just I QX QX, QX, returned you XXXX. And you Philadelphia, be hotels going at on If think have especially full-service D.C.,

Brian Donley

Yes. of full-service far the the revenue on we're to to And it's to the the bottom hotels - I'd a basis. to And creeping EBITDA of service hotel XX as too in the we're a XXs of and full the up And just standpoint, are the XXX% line, over lion's rate as XXXX. percentage XXX% share from RevPAR that, mentioned close gross add Todd XXXX.

So there's the haven't there. way all certain There's ramped still some up. to room still that fully markets run

at look Francisco and asset, actually and San under knife renovations, room back but another was like last has You Sonesta come Kauai the producer places this others, was year Kauai our very one and Royal for our biggest quarter. that strong renovations

pretty we So portfolio we as feel here. forward good move about that

Bryan Maher

the per of just what part as large bit give a Francisco dollars an get the Rico $XX,XXX key out selling don't has portfolio? just of we the keys. and of that Chicago value get people in Puerto done And value look where you your of Right. on lastly, are what back hundreds your us in value could worth basis. we lease I the for important one related you value questions San $XX,XXX that I key your ridiculous lot And with you're noncore of we you own focused somewhere to the on a TAs how little think a think the full-service mean, we've hotels for are a to hotels mean per fact are of worth, color hotels and of the argue of easily at your number the Boston a become key. and the worth. are of in increasingly can net assets value when And of of to thousands like And you to hotels studies I

Todd Hargreaves

especially And think on we've a in Sure. of hundreds service we've selling right, closer at as are Yes. valued selling the a - And our what to look really luxury $XX,XXX the resort average, you're in extended of over same mentioned, We $XX,XXX thousands thing. of think key. terms has any those we're our select terms terms location. from past But the it above banded key. quality in we've the age, been selling hotels, been well stay, per performance, way key, well portion the I of - portfolio you months, XX there's the in above of lower

you're So right.

on the public. track. haven't internal made have analysis you're But we are We on I we our what valuations think think right that

a it at If get hotel, and look we by good Hawaii, off-market coming in we do. the time the you look you're think and I all cap of key assets, on at the time our that similar off-market Cambridge sounds now. per a a But levels stabilized hotel you our well we're hotels offers basis I some like basis, to all what not we we our for that we a rate everything. interested conclusion sense - and each as on in those offers for you'll is And hotel But have we hotels of value it's get did selling - pretty above think mentioned.

Bryan Maher

very you Thank much. Okay.

Operator

question will Fargo. Next Dori from Wells Kesten [Operator Instructions] with come

You go ahead. may now

Dori Kesten

you Can advancing? sales with mid-XX on are through just table it what asset Is Morning. the secured to options more respect Thanks. the maturities? resource potentially your walk

Brian Donley

backdrop and whether interest to bank cost to not option unsecured even that's of our sure bonds capital with good remains radically. and debt going whatever $XXX be or have going would of want be sales will those cost bond markets markets best We do. the not we increase at at the different or to some We notes market today us sitting debt with The part Sure, liquidity all options. I senior unsecured Dori. sort the looking Thanks significant to we we despite and seen. But table that financing be are our question. and some look feel rates on And make for if the secured expensive the to do amount look. keep execute pretty notes. just to look to issues would We're of the for there. But of think asset still refinance pretty million

Dori Kesten

been last provide asking And if have wondering management potential issuance. investors done was about the I the just for And team. raise view. since under a your equity prior was Okay. you could

Brian Donley

interested equity a We the share. is not portfolio. don't levels. today looked certainly the - the portfolio where around last at Yes, it in has we're issuances decreased these $XX, at equity for $XX issuing value think We the to

in we're interested today. So not that

Dori Kesten

And previously, prior recovery? hotel that you back full Okay. you years. expect to you few in continue said margins EBITDA expect to the next peak get to that Do

Todd Hargreaves

we We Yes, do. do.

- to expect a it's it frame get where expect to to from time hard put we were We on back before. it, do but we margins EBITDA to

Dori Kesten

Thank Okay. you.

Todd Hargreaves

Sure. Thanks question, Dori. for the

Operator

question from Oppenheimer. with next Our come Batory will Tyler

now You may go ahead.

Tyler Batory

Good morning. you. Thank

with First I will question you comp XXXX $XX QX the on How and for other clarification with me, you words, to that for compared improve RevPAR QX in guidance. QX? are in $XX guided versus QX assuming mean, the does XXXX? that

Brian Donley

Yes.

much. in couple predict this of months, way. I the we in that vary going QX what's compared XX% to QX. the will a same tough 'XX was to range. to it a same standpoint, mind environment, I going of sort in think will that but it's week, and think happen trend declines from to don't seasonality of QX, measurement generally And never think the a to in be think XXXX's it's I relative pretty

Tyler Batory

it's you more the incrementally But not gotten kind detail more a if there? perhaps out gave topic. of environment service. bit mean talk wondering full-service expectation follow-up properties sure QX. little Okay. guidance question are select the in just what And Great. margin you're margin isolated Can a cost about with pressures sound you I'm it the on to more your for And worse. then the compared bit a seeing the like there? some does little on just I

Brian Donley

Yes.

which been contract labor that in sequentially, we on from a the standpoint, XX% challenge. to which look that a hospitality think gains labor, support occupied leisure seeing still wages today remarks biggest of cost it's double-digit area. position room as roughly secret tough and it's prepared the per I've company, about job it's continues open were but put positions be is drag. to the basis, is there workers. in I hire shrunk obviously thing. same fill metrics some that the I We're and think a saying And expense a increases to that cost came We've the no in significantly, the up

continue difference you're it structure. energy over push the line the make last for top on example, too. We XX% cost seeing cost to to Utilities, was up elsewhere for to try the up some year. of But

the rate cost again, try Just do to unique keep going. It's us. everything is of and of to that's can the And part going just is and costs mitigate we up. today continue to reality to best margin not push

Tyler Batory

in Okay. And of pricing did level of then your come getting XX what's how Marriott transaction terms hotels your by the And specifically, in terms confidence the sales, versus that asset in expectations? closed early QX.

Todd Hargreaves

$XX We pack, much much $XX dropped you pandemic if to remember, higher into if fee details, were deliver required scenario, agreement, before frankly, was we they for under the million. $XXX.X than were under it we So sales that million. or these to have million came expected. price we without XX didn't, too hotels the the of the And sell would in, getting the to asset sales title. simple And

$XXX at in million, I it's a was, time increase that with we we're guidance that significant $XXX process started now think, the around even So at million. the out this

- significant groups. qualified ended bids up we got higher highly number a we So It much expected. from of than

as mentioned, the expected the had having, highly benefit So we we groups. under quarter. are now. of I agreement in first those qualified And these close to We're

selected a was we that had well-known well So history a of buyer capitalized, of size. closing this transactions

I'm confident that close. until QX. to guarantee doesn't it structure There's us at will point There well, close. it that time, protections it in close confident are point the if But this does appropriately no as still there this we in no at will deal we've that close. time, So so in is I'm for tried guarantee. But

Tyler Batory

Okay. Great. Last question for me.

did ratio the on something paying CapEx your think In was some level bit how dividend like interested the of this a why are detail down of for about little terms capital dividend you announcement. avenues thought in other you perspective payout out debt And or a forward? that? appropriate you that there reinstating Can in more going potential terms or vis-a-vis the provide of like

Todd Hargreaves

Sure. It's very a a important dividend dividend, good REIT paying us. obviously, question, Tyler. being started, We a to is

have So as for second Board of started when quarter paying portfolio. side the to the flows part net and per almost with meaningful about end lodging quarter, have first share that at the reinstate the recovery dividend. $X.XX to of started kind level we our really the cash in conversations into reinstate we with this lease And significant above at the of coming what you we half two year, of been of stable to see portfolio. really overall things, our combine to the dividend We the the

it's What I group forward. our pace of So travel. an seeing think lodging view portfolio the we're of and in of business indication going terms

think and goal we to maintain a covered a a I forward. could dividend was going the well level dividend minimum that was set that at

will mostly thought we be analysis, analysis. And going ran the was and both settled to we a think the the of today on this coverage that level, rationale. due we again, downside what So variety We forward. and coverage

Tyler Batory

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

Todd Hargreaves

Sure. questions. Thanks Tyler, for the

Operator

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

Todd Hargreaves

in of at everyone, your month. for this NAREIT appreciate we and We call. Thanks, look joining forward to in you Francisco SVC, later interest seeing San today's many continued

Operator

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

disconnect. now may You

Service Properties Trust (SVC) 4 Nov 222022 Q3 Earnings call transcript