Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Service Properties Trust First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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. ahead. go Please

Stephen Colbert

Good morning.

by are Brian Officer; Financial SVC. Please Donley, call without a written call Hargreaves, and Officer. prior note today's a the conference includes President by call retransmission Todd Treasurer presentation of that Investment the on with of and and Chief me Today's question-and-answer recording Joining session followed transcription analysts. today's management, consent and prohibited Chief is

the meaning like other contains Actual within as projected I'd XXXX. statements results X, point these forward-looking Reform SVC's Litigation expectations today's statements. out securities on today, beliefs present those forward-looking and in forward-looking the call conference of may Act to that These are XXXX differ Securities based May from of and Private statements of laws. materially

that in SVC today's publicly Additional can which revision forward-looking svcreit.com obligation any revise company in accessed differences statements cause could to with the to filings information the or those concerning The at our of website SEC, the conference is results factors no made the from our be undertakes call. website. release contained or

digest investors efficiently believe website. in presentation our to and addition, non-GAAP available results. EBITDAre. to may enhanced this about will analysts earnings financial FFO non-GAAP can including and Reconciliations be funds are well AFFO In this calculate from financial combined We and net normalized or helpful of released contain normalized the on income, to our financial operations, components measures measures, our as which call found adjusted presentation, be as company for information

effective questions terms of that of for taking tomorrow, be that of will we BP the scheduled And America. will upon on XX. is our be on special transaction TravelCenters TA's meeting of the we with agreement acquisition shareholder to completion the call, announced May previously be their will not today's on vote merger. Finally, discussing

to that, the call I'll turn over with Todd. And

Todd Hargreaves

morning. good and Stephen you, Thank

improvement Omicron by the versus reflect Northern compared ADR results, Lauderdale, year reported recovery period impacted our Hilton Phoenix lagging Last the XX% X.X year previous and night a in quarter urban in quarter, the to Head, portfolio the variant, our significantly period, SVC hotels, which first by comparable U.S. performance New and and in prior percentage hotel was RevPAR hotel occupancy increased increasing with led by Orleans upXX.X% points. by Fort strong that

This translated EBITDA comparable strong a over XXX% increase the to period last performance in hotel year. same

an successful our to to by were Sonesta continuing increased and operators industry as performance RevPAR and market SVC's X.X Our percentage the indication the points portfolio the the success close are that brand initiatives awareness. gap growth greater exceeded leading of operators to primary

JPMorgan business service full and XX.X% Our the Conference Francisco, the travel, grew specifically and demand events Boston Healthcare group such transient and as by through Salt San increased in Tournament NCAA portfolio Utah. in RevPAR City, and Toronto, Miami, Lake

in are increase XX%. the markets our RevPAR XX.X% resort was at at located hotels while - Our urban growth at the moderate hotels more greatest year-over-year

by occupancy were driven and Our demand business our industry. February OTA line show X.X at Super increased properties. that XX.X% both with than led transient XX.X% gains up well, increasing top service travel as select and Revenues RevPAR up to in year-over-year, Bowl Phoenix were by XX.X%, continued business greater times largely grew from improvement portfolio driven by

as guest. brand our extended X% the a for - increased launched Suites In the over which by option outpaced previous established reported by X.X%. Simply year chain a the midscale preferred record relatively quarter, has Sonesta led Simply ADR new quickly during our quarter stay mid-scale during Suites portfolio extended stay the portfolio pandemic RevPAR and industry growth itself

decreased by contract by contract continue of inflationary labor moderation was labor QX on QX, occupied specifically headcount its and from signs labor front. seeing While are XX%. X.X% the room XXXX employee factors reduce margins, we impact able expense to Sonesta negatively to per

periods the of in year-over-year enter in higher and comparison QX we uptick as labor the should However, to QX, year improve. contract although demand see we an expect

our the focus operator two generated conversion largest as revenues both to program during Together, led internal of remains initiatives million and and improvement save substantial quarter. portfolio Sonesta Sonesta more programs winter improvements, quantifiable the stay lead as seeing $XX.X have is primary Our leads promotion rates. referral more including these in

on of on sonesta.com decline hotels total year-over-year our channels, percentage more Further, as a a benefited OTA revenue. from reliance percentage room OTA to leading and have bookings point in direct less three revenues

net SVC's XXXX XX, TravelCenters our service gross assets our leased lease including oriented with XX.X properties, XXX of as Turning feet. square represents portfolio, net portfolio we owned March by million XX% which to of retail

Our assets with were by under a as XX weighted lease quarter and term XX% average distinct X.X net leased tenants, of XXX and industries end. XXX leased operating brands years of

of result and Our Theatres bankruptcy. surrendered part lease quarter vacating their the declined site in Cinema Regal three aggregate of previously net announced rents one as as AMC a slightly

For eight the AMC, lease are currently remaining working on have we through still theatres. locations five we and Regal for negotiations open

The rents X.XX versus aggregate as same year. last an trailing coverage basis XXXX, was of period March of on our the the XX-month increase net lease times XX, portfolios minimum

basis coverage up tenant prior the XX-month times largest X.XX site a For in X.XX from TA, level was on times period. year our trailing

the leases represent of And X.X% of rents. the of known releasing disposition. and the expiring net our will vacates, tenant annual these square which various potential or These of remainder feet $XXX,XXX where just we're evaluating XXXX XXX,XXX lease renew. for have include not options revenue, We expirations repurposing in

tomorrow, of for on the scheduled vote TA by Finally, the XX. May BP is acquisition pending shareholder

$XXX.X core reported completion, grade the to investment rents previously TA and in leases, our receive enhanced upon upfront compared current million quality SVC will funds, credit for we As increased tenant.

to which managers' Group's turn recent the overview a report, ESG it Before sustainability long-term of goals. the publication commitment I comprehensive RMR I of acknowledge over to annual want provides Brian, our to

thrive sustainability will corporate enhancing over and long-term. continue practices the that initiatives advance to committed SVC's the deeply We company to to are position

the discuss now more to Brian to results in turn detail. I call financial over our will

Brian Donley

Todd you, and Thank good morning.

FFO with per in over the EBITDAre results Adjusted increase of quarter. prior $XX.X Starting XXXX year. or $XXX.X a financial share, the year share of was FFO million, normalized million versus quarter per $X.XX was prior the negative quarter, for XX% consolidated $X.XX our for this first

The credit in quarter. impacting of amounts of decrease increase EBITDA a notes major prior drivers in XXX% the interest additional in prior normalized improving hotel hotel generated which performance million on of XXXX the our as which repayment an of drawn and FFO included March quarter, XXXX quarter was the or of the over of year The $XX.X over portfolio, million expense. $XX resulted million of our drawn $XXX repayment senior revolving fully the facility XX, second year

compared of prior theatres, one year, AMC quarter in unfavorable result the four to our Rental three income $X.X declined as changes as reserves and for Regal uncollectable movie of well million vacancy the a rents, this Cinema. as

a at the from by million our increased to increased $XX.X base performance profit operating points from fees driven growth. result GOP year XX%, as our of portfolio the prior by $X.X XXX the line increased our line hotels to XXX margin gross comfortable higher Turning top our the XX.X% for year, period. this profit of basis by million management quarter increased and operating costs prior percentage Below hotel RevPAR comparable hotels gross

by service prior generated in the level, generated EBITDA in $XX million. full-service year XXX increase quarter. of losses to the primarily our portfolio By EBITDA hotels, quarter of of million during consolidated of hotel improvement $X driven hotel hotels the $XX.X was Our XX which compared million

million $XX.X hotel increase hotels generated of quarter, stay Our XXX extended XX% a during prior the the year. EBITDA over

EBITDA hotel the generating period. in improved first a hotels during small of service prior select year loss $X.X compared XX to quarter Our million the

in the we our These fourth quarter during earnings first call. communicated quarter line results XXXX hotels of our estimates with were

XXXX million EBITDA quarter Looking RevPAR April RevPAR $XXX $XX.XX ahead and currently the we to hotel million projecting preliminary million to are range. $XX $XX $XXX QX of in was full in

Turning to $XXX coupon to $XXX.X June. and with originally our executed in we successfully secured were five that X.X% financing in senior a million mature sheet, redeem of a million the X.X% on years scheduled balance new notes February,

transaction with we going pleased it and flexibility believe are the to forward highlights debt this maturities. We address future have that

weighted rate with X.XX%. $X.X have of a of rate billion interest currently We fixed average debt outstanding

maturity maturing in senior March debt notes $XXX XXXX. of next Our million is

facility As XXXX, no outstanding our credit amounts revolving July. on had in matures of which we March XX,

complete We are well process by line quarter. to end and the the underway of the second to expect currently recast the

in several hotels first as our expenditures our We Turning properties investing hotels. expect with $XXX spend $XXX.X half XX XXXX improvements $XXX to the to activity, we Hyatt be continue of million full during first we will the for as forward year The to back quarter of sold million. of renovations during weighted a price we as capital of portfolio of to year made currently well move capital and the quarter, $XX the total million million. Sonesta

comp share, payout and of quarterly dividend In FFO $X.XX is a believe a April, annualized we common our announced XX XX, per normalized XXXX. which trailing covered, ended ratio well XX% representing March months we regular

as million the SVC upon $XXX over $XXX.X will and today of closing. position BP cash transaction is dollars Our expect million we of provide liquidity additional

open That for up questions. the ready We're line prepared concludes remarks. to our

Operator

first go Please the with [Operator ahead. today Bryan Instructions] question from Riley. B. comes And Maher

Bryan Maher

Is cost have I you and me, any spend those Good minus that from related or maturities, you. guys and mean, thoughts for to XXXX this think lower and are CapEx which taking some when via debt up maybe year, TA the are how questions the it's cash BP the the securitizing $XXX million XXXX to about you're XXXX Thank so cash to get of maturities? the between there morning. get we today? assets credit you to probably leftover. enhanced Couple meaningful, about thinking

Brian Donley

and you. it's next and to maturities great that's It's Good the start our a Bryan, radar year. thinking morning, address about short-term question for on thank something

due another million to BP in of the and due put proceeds, cash the remarks, have we we on fall million plus pretty look in footing XXXX. today, in have As $XXX with I deal the March as us position we in will And mentioned those the course. think good we $XXX maturities

question, is provide the whether answer significant some going a remains offering coupon, going the here, as or look be flexibility options, think secured we seen. that believe bond that I something mentioned. to think 'XX. pretty And and to give to yes, as through to that good we But And TA is transaction to with transaction of financing, sort financing your - specific down time work as do passes us you be credit but, we'll to

Bryan Maher

as or Do what got any Is give thoughts before have you might maybe savings XX might you initial that credit? enhanced be take? it have with that to bps what over

Brian Donley

because the But we go to, could we exactly, leases, market and would on say to more what will would those cost I backing really tough to it's tenant be. be credit today. trading A- an it think, believe be and the than having what something terms will that depend are Yes, compared versus - where today, effective definitely be significant, bonds our actual

Todd Hargreaves

it gives Yes, gives similar - us, option for I ABS us to address to just I year. we the to when think maturities just think add, facility we how want did this another even those - for it

reasons, to the was, a of our point XXX is basis went typical close it we One that doing route, because senior versus unsecured. savings

just gives would another it hard us say savings option. exactly it's it those what other another versus options, be So to but the option, is

Bryan Maher

some service I gears are Sonesta exposure half thoughts gateway hotels, variety full discussion business. the to owners those market. the could end gateway What of Royal higher assets of markets all shifting a where and side the it XXXX maybe enhancing? then back to And clearly about, of growth to refinance is coming can't mean, use of to the current see going about your Okay.

transactions fully SVC of the and to question and of some last Is, portfolio? maybe year, any acquired there bringing then part the properties to there SVC that there thoughts thoughts two four pursue the kind is Sonesta into

Todd Hargreaves

the growth wait Sure, I'll market it's the I you our think first. of closely of Angeles certainly we We're evaluating it's to one in. first are and got hotels. on an higher Los are Yes, right that we number about either. year end the for that interesting to in don't for markets end something markets, we Miami exposed think previous talk now, we're that under notably, take calls, necessarily think a opportunities strategic two

want on it's secure necessarily say to it. And the where even or even if I opportunities capital not to And the don't a a today, sunsetting transactions a level to of debt property do but transactions happening. sell, fund certainly to have there's putting the it's there's, wouldn't maybe buyer, is if to in take something of it's sellers more there. you're And lot out good put renovation, be without especially a able but down time they

conservative. high well, take us type a rates leverage opportunities to for for interesting ability are low, right levels extremely group that now so any for are putting has property Interest without creates it. are hotels, being that Lenders, something on extremely secured down like the that financing as

couple a evaluating continue to do the we're again, opportunities of year. and So now, that throughout we'll

But we're back XXXX, see opportunistic, not months months I today see in think, opportunities XX XX being that seeing didn't now. we from we didn't we see we're ago, may

discussion our we So, opportunities into there's question, part then answer advantage York under take potential exposed. we're X the think markets of current portfolio. is you into short think And like grow bringing about the and, - hotels that SVC to there's, we of that those New second say, no your no,

Bryan Maher

Royal on will Sonesta Mass that Ave. And the then hotel XX quickly just on opening Okay. be lastly

sometime CapEx, you're And rent open any on is a start fixed is to you rent that to on I the When number the of think for paying think to of be? I and couple need rent quarters. that get meaningful do what And next period might property? a there it actually some that you get going spend in months, doors property? free

Todd Hargreaves

the clarify, that's just Bryan, Trust owns don't that. to I property, Hi, office exact OPI Income on know at not And terms. SVC properties

reread I a have. that think of relationship OPI. Sonesta between and there's sort But some that's period they

Bryan Maher

Okay.

real own Sonesta? at guys So there's than that, financial of no you all you other XX% impact

Todd Hargreaves

That's right.

Bryan Maher

Okay. Thank you.

Todd Hargreaves

Bryan. Thanks

Operator

go Please from Tyler with Instructions] Oppenheimer. The Batory comes ahead. question next [Operator

Unidentified Analyst

This on questions. guys. taking for my morning, for Thanks is good Hi, Jonathan Tyler.

there? past urban worth color First some seen anything one weakness more BP right, extended of recent the an and from months, we've or are any pockets slowing that properties me, you demand calling worth the provide can Whether calling volatility given that trends, stay some or over out? out just of few that's

Todd Hargreaves

much Yes, we're the year-over-year growth of strong Sure, just business. I in overall all mean, I hi mean, we're trends pretty Jonathan. see to seeing continuing areas

which shifted think you're to business, growth see resort RevPAR, the more but still or markets. a have under of saw starting year-over-year leisure XX% increase relative has we stronger a and hotels, towards, a travel the year-over-year type I lot more softening on exposure to, we destination group

of portfolio, in We're seeing group certainly revenues example, total represented to an XX%. revenues. couple that's in occupancy, for business A of of XX% uptick, as points, QX well transient group as year in data terms up Sonesta of segmentation last about

certainly transient kind over change a a significant there the to seeing. few wouldn't there in of So to see continued business the the continue trends expect past seeing We business the group. I in side say a shift significant on leisure months, of is we're and uptick any softening

Unidentified Analyst

with March? issues you've had markets perspective And Okay given since changes that. the I'm excellent, thank you conversations your on financial similar caused regional Has that for then, in on in your curious the a noticeable lenders? vein, on the right color now, any been bank going the have

Todd Hargreaves

the affected for of don't are the of We That's no. recently. regional of We for relationships revolver, are them in the is banks The we institutions really typically some SVC on cash none use with a financial banks. don't footings. the answer any them good pretty example short deal good And investing. banks with question those that we have and larger news - think and

Unidentified Analyst

dispositions, us? if a front me, how allocation last I on you reminder capital then priority you've the quick color planned some could, And worked one you're from a excellent. can year? that through just the there's thinking Okay, for maybe on And asset that throughout about now provide

Brian Donley

plans the you we towards view kind else, hotels, it pretty XX we the volatility the immediate that hotels, the that and sell think we've, success, are I branded of sales markets, I there. transaction of Sure, there's XX, the through especially mix like a long-term. right view and mean, end branded and as no fully out, now towards was, Marriott Sonesta more that anything the size a There's yes. pointed we as to think portfolio I shifted - given good

market in continue just we immediate reiterate, a road portfolio or transaction, value the potential no sell the mean and Doesn't something to our again, transaction plans to we that the anything targeted. down and evaluate won't there's there's

I that of in be capital it would we geographies but think capital, immediate. something, kind areas we nothing again, more want into shift terms if of recycling sell did or strategically other to to, portfolio the

Unidentified Analyst

Okay, great, understood. Thank That's you color. for me. all, all for the

Brian Donley

Great, for the thanks question.

Operator

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

Todd Hargreaves

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

Operator

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

disconnect. now may You

Service Properties Trust (SVC) 9 May 232023 Q1 Earnings call transcript