Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the Service Properties Trust Second Quarter 2023 Earnings Conference Call. [Operator Instructions].

I would now like to turn the call over to Stephen Colbert, Director of Investor Relations. Please go ahead, sir.

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 .

securities question-and-answer written transcription of Today's followed conference call note presentation a without today's the session the Private call statements within prohibited other the a prior that consent of to and like call Please XXXX forward-looking would laws. Reform point out of with of contains retransmission the by recording, Securities SEC. is I analysts. that Litigation includes Act today's conference meaning by management, and

SVC's These beliefs differ forward-looking statements forward-looking statements. are based X, these results in expectations on August of may XXXX. projected Actual present today, as those from materially and

in accessed the which website. Additional could factors our information from concerning that or filings contained can SEC, our the be cause at is website secreit.com differences SEC's with those

obligation company of the revision to results undertakes or call. The the made conference no publicly release any today's statements to forward-looking revise in

call package In measures to measures, and as of found and in financial non-GAAP may our or are including these AFFO our adjusted income be data EBITDAre. supplemental addition, as FFO calculate operations from contain financial components net well normalized this which available funds can Reconciliations normalized financial to on operating non-GAAP website.

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

Todd Hargreaves

X.X% sixth XXX by our increasing with the Stephen, RevPAR for you, for Portfolio as portfolio hotel increased year-over-year both comparable and in quarter reflect points. XX and occupancy the basis ADR hotels X.X% comparable increases improvement industry in Thank good gains occupancy. continued morning. results SVC driven quarter our increasing ADR the and RevPAR outpaced by second consecutive

Hilton Coast service urban reliance Fort portfolio portfolios improving and in and specifically on Miami, and service X.X%, group business Scottsdale, Head, business and travel. East due exposure reported of transient, contract recovery of the markets our to markets, has resulting markets trends to and from on gains in in demand the our RevPAR Lauderdale softened leisure X.X% Midwest, relative higher select full SVC's We year-over-year While urban benefited like and business. respectively, and

hotels business ADR Revenues impacts million full-service demand travel were Angeles, a for in and Beach largest was hotels [indiscernible] business group previous driven increased by hotels, was increase leisure by and comparable Washington, in XX%, Los posting our year at in contract year-over-year and record driven Hilton and by from our experienced and related reduced The in with mostly negotiated quarter in the in for respectively. Kauai, quarter Sonesta corporate negative Florida. XX%, D.C. of increases XX The from Lauderdale. Boston full-service New increases and the XX% $XX.X Redondo our hotels contract largely Fort Orleans Head, in sizable

that the XX group million. was business, were revenues $X.X hotels of year were The portfolio gains revenue reported previous which million up or service than greater select quarter. Our $X.X driven by XX%

Sonesta in Excluding properties X% Hyatt increased under of portfolio RevPAR increased to of year-over-year and Place renovation, X.X%. hotels XX select XX our X hotels portfolio RevPAR

occupancy $X.X between and balance of by demand recent increased year XXXX. in business Sonesta but conversions over now weekday specifically of with converge lagged gap increases. brand million figure as occupancy, revenues Lastly, at leisure hotels our ADR Select travel highest has group previous are most weekday in the revenues both softens seeing as and portfolio our the the the extended-stay we since Weekday our weekend portfolio, and hotels quarter and the came

from as QX in total weekday of XX.X% a new reached XX.X% loyalty XXXX. revenue a of as XXXX portfolio is in program XX.X%. The its post-pandemic Sonesta's increased June, occupancy seeing improvement In revenue also Sonesta high in TravelPass percent to

margins. insurance like to side, we to expense see and inflation headwinds costs the and waiver continue pressure On continue

was program our $X.X half expects insurance largest XXXX. million annual the see operator or increases recently second our to of of for example, Sonesta renewed XX% premium and For

contract the room a labor occupied On front, expense declined quarter. per labor for third consecutive

However, elevated in challenges of as full-time attendants we such F&B and positions engineers. labor expect given housekeepers, contract hiring will the remain use

net lease portfolio, represents our portfolio lease investment term service-oriented SVC's occupied XXX XXXX, June of by XX, X.X of to weighted retail average Turning which lease XX.X% of net were XX.X% properties our years. a as with

XXXX, of coverage XX, portfolio, as largest minimum rents BP. our the is our the net rents versus of trailing on represents increase lease XX-month minimum June rated X.XXx investment-grade The basis backed an period same tenant was which of now our by in of aggregate an XX% Importantly, portfolio's TA year. subsidiary a last

manageable are feet XXXX, the we rent, XXX,XXX aggregate and of of which expect remainder expirations we representing X% only of leases lease near-term in XXXX renew. minimum have will of square Our annualized as expiring most

properties Regal's our on and structure rent by Regarding declined and converting million by percentage year portfolio movie a minimum with $X.X lease from bankruptcy. to AMC rents X $X.X vacating to in exposure, the X quarter restructures AMC million the theater our theater movie related to annualized connection due others from previous recent

lifestyle completed we of of important market the target hotel The type resort into renovation in This placebo and an be the James. to may nearer which Hotel, adding a destination approach entry heart Beach In offerings, SVC provides Beach, location brand, is acquisition Nautilus the a hotel the the our as will to take representative portfolio. disciplined the June, Miami hotel upon of in of South we upscale rebranded under an South upper Sonesta's expands

markets. refinancings, address our several recent access alternatives the completion fluctuated over can turn to best which Brian, selective to quarters execution a the before $X XXXX XXXX. we and over actions position has valuable travel the upcoming we cost liquidity us $XXX to a capital After debt all facility in billion and leverage a our revolving on these SVC of TA through transaction, Finally, pool it from securing have the provides of I financing hotel want including million to the relative unencumbered and and of our I be to large in now both performance have emphasize in over maturities improved range and closing assets, of TA centers, of the standpoint credit asset where sales last company taken ever

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

Brian Donley

Thank The in driven quarter, you, X.X% quarter over share versus and prior Todd, per million good morning. the X%. XXXX. results, credit partially share was FFO second our for of and Adjusted increase hotel $XX.X per offset with taxes. repaying Starting EBITDAre interest financial the $X.XX increase maturing this $XXX.X FFO expense million. year-over-year lower of quarter for in year an outstanding results to our The Normalized increased or that $X.XX provision by consolidated senior by income normalized the was increased and in notes largely last on income interest . revolving facility were expense of decline year. our amounts result rental improved is

our tax we recorded income Regarding quarter tax benefit provision, XXXX. million $X.X of a first in of the

our tax state This year million. $X.X we a tax per operations. seasonal $X.XX sequentially recorded full provision quarter, or portfolio. certain income $X.X of swing our projecting expense is share. of million our a to as result a foreign We're hotel tax The expense of as the ramp-up well Most taxes of relates of

the by the the billion We TA of TA compared under during recognized increased year, transaction this of lease million income $X.X $X.X result quarter prior closing rent percentage quarter largely terms. to a mid-quarter. the legacy Rental as

we a and is also term, annual will million calls fixed rent, increases XX-year credits $XXX of receive percentage lease rent it the TA new million As with rent reminder, structure prepaid a $XX of return. a in no X% annually component.

of year first less million TA the of for million our is $XXX credit. rents cash the fixed $XX Annual rent, leases prepayment

basis lease reflects the the recognition rent the the our $XXX We earnings of principles. which fixed X% recognize in million our accepted and term rental accounting escalators will prepaid effect grants in accordance income rents, generally a annualized on with the of of over straight-line XX-year

increase this Todd movie in theater rents that rental quarter The from for an uncollectible and reserve was closures offset outlined. TA the partially increase in by income

performance portfolio. Turning of to hotel the our

basis percentage declined prior RevPAR to operating by XXX by operating and For XX.X%, our hotels X.X%, period. gross increased profit quarter, the XXX from million profit this comparable points $X.X year margin increased gross

the decreased costs the by prior by claims. from our insurance year and driven in successful tax various period related abatements line hotels lower year, Below million comparable the expensed costs driven deductibles GLP insurance at $X prior to

million EBITDA generated $XX.X was of prior driven hotels generated a during portfolio stay over increase year. hotel By in of which the hotel extended increase prior year the $XX million, over level, EBITDA the a XX.X% hotel Our our improvement XXX the primarily quarter. X.X% increase service quarter, by

year Our in increase the XX hotels EBITDA over million also hotel of select second quarter, XX.X% a generating prior improved, period. service the $XX.X

the over hotel Our of XX hotels prior period. generated a decline EBITDA million, year $XX.X X.X% full-service

projecting to and full in XXXX, our $XX million RevPAR QX. of expectations the million for EBITDA to was currently hotel quarter RevPAR July QX to range. $XX $XXX.XX, Turning $XX Preliminary $XX and we're

the and interest hotels We billion lease plus million average outstanding to points. on X In $X.X and June, net rate fixed facility. by X-year of XX debt revolving we sheet. with a basis at rate Turning $XXX our secured executed X.XX%. weighted new is successfully Facility balance currently secured properties of bears credit XXX interest have

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

billion. a centers We of gross estate our that value segments, TA including unencumbered over our leased $X all both real have travel XXX assets across have of of book over to

vast the We provide quarters. believe look debt pool address coming to in asset will we this XXXX as flexibility us maturities our

activity. investing to Turning

a the to sold X for properties Nautilus the $XXX,XXX. quarter, total we net and million acquired lease of price During $XXX second Beach Miami

transaction, the we to the shares TA As trading with received BP. we sold $XX the value part million and for $XXX million TA the we of common held TA of

the over $X.X improvements ratio We our of $XXX we $XX.X XX annualized of we In $XXX currently million have remainder months ended July, $X.XX and FFO a properties which today. to cash XX% quarterly million billion expenditures we total in the of believe liquidity, June of dividend common total second announced over our well on normalized regular of trailing XX, made including the share, million million representing during covered, We quarter, expect payout is of capital capital per XXXX. $XXX XXXX.

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

Operator

[Operator Instructions].

Our will first from Securities. Bryan Riley with here B. question come Maher

Bryan Maher

think that. on been yours first post-COVID? think of or belt exhaustion related and that do a not softening how the company industry travels pushback with has you travel, picture big rates starting question leisure you some is maybe maybe revenge of the might much is that of versus it to Maybe much who've be to And related heard consumer pushing? How the tightening do

Todd Hargreaves

Yes. seeing We're portfolio. travel in our certainly leisure softening the of

in good are more full that on service, think relative more it leisure. been hotels business we especially our for portfolio with focused if I But more year-over-year . think is hotels exposure wasn't that hotels have focused the do and higher I would urban have RevPAR news on the even our overall to growth, travel. was

a I think it's combination.

a you lot component of and saw travel that is I XXXX. It revenge think out. pointed the in reasons it's that XXXX the we

now, are spending I Interest right spend think on discretionary more people things. and on less rates People just other money travel. up. payments have are to car

from you're more also seeing I hotels most think it seeing our also least travel. but we're -- are a at lot and international of think what domestic, outbound we're seeing I

think the as of is that well. leading strength the I kind of to dollar

I think most have been travel restrictions lifted.

going Orleans to or Europe Head for, for seeing Asia cases, our New Hilton in rather So hotels travel or example. Lauderdale in than Scottsdale, people for you're some or more to

belt a tightening more it's mix well revenge of think international the outbound travel, I as travel. So as

Bryan Maher

the capital and shifting and when addressed Okay. a liquidity your think situation. for then type But you in then this know the air your couple to of the $XXX have there's maybe maturities. want about some your And Nautilus you and gateway leisure billion liquidity recent that might we markets your I think comments. purchase availability pockets prepared or over a $X and I million, And of to where in Nautilus

want about year, is to How of or X X next order not assets, where deploying position we in type or of X your that maybe about head stretch should but front of to your we some that? in those liquidity think X another of think on not capital should

Todd Hargreaves

looking a that market And Yes, XXXX. in. I the very for CapEx thought and was other debt we a think in our critical company unique question have Nautilus that or are Sure. but gateway something are we cash, obviously here into potential these have a coming up every maturities we whether at we XXXX, it's market hotel of acquisitions, underexposed in size good that opportunity in certainly we're uses discussing hotels kind day a a it's of to -- with that of something were

and cost of at Beach, hotels in and hard find there but our worked an challenging areas yield hurdles. for South looked there, think XX -- in Miami, to Nautilus Grove. in -- very XX that get given of good could at Gables yield, in something of And to -- SVC, also different an we renovation, that capital, Beach given of Brickell The very But kind reposition we that we hotel for and think we our most basis. looked got get it's is South area do at was Coral we outsized specific a Coconut a opportunity especially

the other like looking, distressed not destination not recovery, we're that. of -- like lot lot like other a Frankly, seeing And hotel lot a Beach. talked before especially a of type with in We We're opportunities we've about But think lot sales. California, see in also opportunities of a we're didn't seeing markets. Southern I that South

a are worst the think portfolio don't to and owners of financing we've markets lot sell dollar, tough. or through at their want it. are $X.XX of it looking made I I $X.XX on something saying, for the

in make sense. Again, lot very things needs for to finding aggressive we're And at not But not of a going capital. that it's we're opportunities. looking it. other -- So that force have being we we're

be be your SVC -- to that going very X acquisition only it's not in to the property Nautilus well initial is X, either makes back it's So the it certainly XXXX. question, or could

X or likely. it's think I most So X X either or

Bryan Maher

these as of lease investment, this TAs. big fairly is you that in you the Do portfolio or last press theaters, at just movie so, have XX specifically, relates $XXX types given assets pruning any continued those doing I me, ex net for the a selective million days way, are bid movies plan And there in time? on on on to the it And think the there? Okay.

Todd Hargreaves

Sure. Yes.

that necessarily haven't portfolio. really We been pruning

we I assets. A vacant through be we're or of developer. think which become these assets to is less disposition don't more may going the we're going success releasing, have granular to best have to that selling or for common of assets that is think lot exit a type times

For example, yes.

levels. we've for getting done coming revenues AMCs, done I movie then back on to side, So theater theater. X we've X and movies the back. are Yes. mean X are to B&B Regals Marcus office and XXXX Box

number our So a that and are doing I well, think the have theaters in we of portfolio. those

those right it's to and location, to starting think sell. think may the haven't of those any see you you're don't I a holds But dispose really don't to. theater it could. taken be of in years, for to anything couple plan I on I back But strong be of we and you're us. Maybe come long-term going an better market, than in excellent it's assets. don't get will to a we any the time to right time today. movie those maybe think some

Operator

with Kesten Fargo. from will . come question Dori next Wells Our

Dori Kesten

this On expectation the And walk will you the 'XX? be is through that? your if reduced pushed can year, to your expectations reason for for cost CapEx

Brian Donley

that one. take I'll

We year. Some to up of it's had just originally $XXX the timing. million projected for

projects kick to of Some this are started, will [indiscernible], with Hyatt the We're year. in get of thing, the portfolio slower planning particularly portfolio. our the -- in sort renovations Hyatt phase, still Place that but later ordering the

at a of plan it's capital as plan be to It's our deploy number -- matter spillover just haven't this not point. really timing the we we changed to of some into. just it hotels far is to So going XXXX, a of but as

Dori Kesten

expect 'XX would I then dividend? versus for on you your income taxable to quarterly internal need to And increase XX%, guess, based Okay. expectations

Brian Donley

would the improvement dividend NOLs get rules of the as have don't we far about lodging to other answer short could something a see sure we last that lot we few and no. believe some is all that's portfolio, SVC, or move be covered. sort seen hotel is the -- in if the what distribution well so REIT any force dividend. the I we've REITs continue time. built under have That's not a talk taxable required And as and very conversation good we my we we I'm on But at income It's today question. a whether from to in offset years of up

Dori Kesten

today? are Where Okay. your NOLs

Brian Donley

as NOLs level hotel/taxable We well $XXX corporate level, at around have various the as the subsidiary call REIT it, today. million

Dori Kesten

in of Okay. And investing And over then these takeaways assets how they'll first be partnering key from any months have a capital few sense your years? BP? you . the do next few with much

Brian Donley

related really sort tenant. we with the and this had longer of periods mean I share no point, party of connection Yes. affiliate any prior having an other like -- just a you're RMR. think a PA being BP is as in It's at I of

deal, deployed Beyond much they announced don't year various of going did the statements really were purposes and what $XXX to portfolio initiatives. public it to into they ESG this but in visibility as have They're for do of when million have per upwards their invest they've we be what to they say others. looking they're date, whether

Operator

Instructions]. [Operator

next will come from question Tyler Oppenheimer. Batory Our with

Tyler Batory

First question for me.

in In of talk well. a brand, in you're Sonesta uptick about and with seeing loyalty little any consumers, it's program terms can index of terms it's bit marketplace, how usage the as RevPAR in resonating the what the how competing you

Todd Hargreaves

Yes, Sure. level. depending different think service make brand Sonesta the the to improvement on continues is I it

Simply that talked We've pandemic. If lagging about the area most. with to brand, a Royal high to which Sonesta this those the is select on you brands. are during with their peers competition those the The -- they're the branded calls, . Select. be Total, previous end continues the at extended-stay hotels at where service competing mid-scale the Both you Hotel, of Sonesta which our Suites if hotels, at our look look is launched that's

are Those that that those any to service are hotels. points the out, reliant point other hotels level business midweek dependent rewards and like more very on points traveler. those of travel that hotels very to But than on also rewards terms Tyler, are guests you using in

some business, right the are from went as seeing we're close year-over-year. of some So of Pass through are increase. to leaders the in is right revenues them space, program you trend are it continues the But Travel to if XX%. loyalty but as up XX% the in to at It signs that gradual close the that they brands look XX.X% --

a -- we But go and there's see to advertising of to continue there. from campaigns. Sonesta So awareness lot room continues brand to still results their

We continue Sonesta. think to new brand.com. that just hotels there they hotel New that purchased brand York, recognition see kind We only through lead for more traffic we coming in Miami will in more of the to own the in

a still So but go, room they're direction. in lot heading the right to of

Tyler Batory

about for guidance EBITDA on mean think How implies the hotel QX. low XXs Okay. margin I portfolio? for the I

of some out the called that. impacting items You

Just QX on of was and kind some based for mean, then of us based roughly a this QX? versus to I comparable those EBITDA in on portfolio is pre-COVID. margin on And of items, to expect reasonable where also timing margin decelerate seasonality the remind it basis

Brian Donley

and is fourth starts Sure, quarter the Tyler. we drop as soften will one. season. decline. into October It take get then mid-November quarter The seasonal strong the off pretty I'll will margins to expect holiday that the fourth you off see through reasonable and

in will EBITDA put us which teens, this QX, for the teens low high expect XX point the call at year, that we high the margins, bottom for for line hotel So range. it, do average

sort As that the XX% high we -- as in pre-COVID, were mid-XXs range. far portfolio of

Tyler Batory

and transactions? seeing side to you you're that the that grow capital there Is of makes terms Todd, sense. on hotel couple could out that Is are you maybe net topic things. talking of allocation something lease a in perspective A lease anything net Okay. on of your might the interesting portfolio acquisitions from there about follow-ups what exposure? look

Todd Hargreaves

Sure. Yes.

But I net hard looking hotels use from know We as well. on just as we're the the question -- previous acquisitions continue yes, to and as Brian. focused we

work, challenge assets, terms seeing I there mean in that I there's our yield cost think out sense some some capital. SVC. given similar a portfolios makes finding of of for really we're could that a

they're and real both that we're not frankly, just quality But a from the for. quality, estate tenant looking

We continue to are cap out slowly. starting to move rates see

that out like to a And want force back be hotel look just could going on going term. don't there. we're portfolio acquisitive, eventually, we and But in there some it. the at side, opportunities to continue where to be But properties. we period feel So to need net long we grow we're be the more lease to

right do know we now So right to just time is it. the don't if

Tyler Batory

for Okay. And me. last then question

market this of unsecured options versus you you the sort table right year? travel what did pricing the the center could now the secured assets, And are or terms rates improvement debt? of where for on if XXXX, you transaction get In utilize earlier see

Brian Donley

for Sure. It's to It's look those maturities of question. quarters. the a great take coming in as out top us we mind

yield probably are ABS be debt. want If range, utilize an money in a be to we path. and ballpark. at those assets, very choose that the raise the if prove we in QX leases, debt We X%. going value net did you to bonds -- lot which down on is be obviously that flexibility that at we utilizing effective assets We XX% today, able look TA look credit to where If our to to us those right trading public that expensive of it's lease to X% to of at chose BP's give in transaction go would

bonds XXX-plus do points we and public secured really difference So package going markets we down what together what there's to if easily we put for think comes we're exactly the between just the do the secured and in to financing. a basis could

Operator

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

Todd Hargreaves

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

Operator

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

lines. your disconnect now may You

Service Properties Trust (SVC) 8 Aug 232023 Q2 Earnings call transcript