SVC - Earnings call 4 2023 | Service Properties Trust

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Operator

Good morning, and welcome to the Service Properties Trust Fourth Quarter 2023 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 written transcription of Today's followed conference call note presentation a without today's SVC. the session the prohibited a prior that and call Please of with retransmission by recording, is analysts. consent includes by management,

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

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

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

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

Todd Hargreaves

are themes profits. moderated you, across SVC's and Thank reflect impacting costs quarter lodging we operating are witnessing morning. industry Stephen, and demand high good the results as has fourth

macroeconomic and half improve are international inbound continue XXXX, of improved optimistic back business during the expect the factors to and to first we While should we the due year of market that softness travel. half

attractive we capital on time into return performance this expect investment. an and to which using are lead to We improved will hotels, our invest

Now our on results. to

renovations decline of During leading our reduced was X.X% growth portfolio RevPAR quarter, reduced to to largely year-over-year during offset active due occupancy, by the moderate in top decline disruption hotel hotel quarter. EBITDA experienced line comparable a we a XX the as ADR and from

Excluding the quarter, increased while experiencing by decreasing by XX sales. the RevPAR revenues impacts, flat, $X.X renovation hotels basis million F&B previous from points led year total was

elevated pace of renovations expect to remain the during XXXX. We

full-service the gained year our XX.X% Strong and quarter, Cambridge, Las portfolio XX basis our which RevPAR X.X% respectively. in driven points properties. Redondo Sonesta our up demand increases Royal at our and Our and Vegas by banquet and San at business well increased of gains and ADR hotels contract group Juan in revenues corporate by San of previous was over led group Beach, mostly were year-over-year, the The hotels $X.X F&B segments, expanded Chicago as our and as catering notable in X earlier hotels sizable contract revenues downtown fueled from Kauai. Sonesta-branded in result of Francisco at mentioned was outlets hours million

of hotels renovation. experienced disruption portfolio our were of of service X.X% decline as quarter, hotels XX XX select leading during to Our RevPAR the under a year-over-year the most

contract markets. revenues X.X%, Select the Phoenix which was Angeles in RevPAR Los portfolio much by airline Our Sonesta of Atlanta, by grew and driven

experienced Our a X X.X% extended in RevPAR portfolio under hotels stay year-over-year renovation. when excluding decline

Dallas Diego, with at this shorter-term to extended reduced positive our offset increased. has hotels stays for long-term in Reno, and XXXX seen stay segment non-repeat accounts were project-based higher Francisco extended Atlanta. San Sunnyvale, segment stay largely in results by business from San in The relative Boston, medical-related This occupancy RevPAR and have declines while and ADRs with market-dependent

mix same continued the Segmentation increased year up is demand basis mix growth revenues XX across shifted due full XX.X% XX.X% in XXXX transient, increased while represented $XX points year to pace X.X%. QX over group which with from operators. all our revenues last contract time million year-over-year a leisure strong to and or softening group our XX.X% X.X% away of portfolio total in of in to

total revenue lessen bookings operators their of third-party efforts commissions. a OTA to as the year-over-year on during from quarter. continued to the to revenues percentage focus dependency websites that decreased XX.X% driving XX.X% on channels And charge our to

and Sonesta on mix in by focused spend consumer on advertising, building year-over-year. by brand through Sonesta remains its room continues XX.X% increased adoption, increasing initiatives. evidenced nights hotels to Travel Pass full-service marketing the IT see of

and reliance by XXXX line $X.X well increased, their million from operating have below margins. $X.X paid filling of deductibles on up while positions, costs million Heightened taxes QX claims. operators increased impacting higher expenses labor expenses open our the number up from are And notably on as as GOP insurance lessened contract estate a real premiums

near-term We our quarters. completed renovations during upcoming as in the are expect disruption portfolio

we we improvements. see And increases. However, of the benefits much-needed these from some renovation at hotels expecting to of are with starting renovations are renovated benefit recently hotels to our also these substantial RevPAR already upcoming

portfolio net XX% investment. SVC's our to portfolio, by which represents lease of Turning

December XXX years. of of net properties our As retail lease XX, a were with service-oriented leased term average XX.X% XXXX, lease X.X weighted

well prior December XXXX. of only aggregate The coverage XXXX. XX-month of the minimum our of our to X.XXx on a XX, are trailing X.X% basis minimum as lease lease was lease end Our laddered maturities rents net net and of rents portfolio's expire

retail most tenants our pandemic. X.Xx. as immediately our at net And coverage are levels from normalized trucking of reported is in by more properties by stable margins XXXX. payments investments of Notably, the these rent TA sequentially fuel with remain to some due by has pandemic the increase levels, activity driven benefited guaranteed TA was consistent for that EBITDAre subsidiary preceding to returned lease decline Rent for post largely investment-grade-rated The softer stable QX other increased BP.

the X Transaction net price activity sales consisted lease no and $X.X quarter acquisitions for aggregate of an dispositions during million. of

opportunities lower-performing to our have trimming been of that optimize we portfolio continually previously, As overall to have portfolio, a our discussed evaluate lodging we hotels specifically headwind EBITDA.

Sonesta X,XXX full-service X hotels during These EBITDA Sonesta of $X.X value keys an and XX book of for Simply Suites, disposition, careful X begun Sonesta Suites, we negative and totaling to hotel. have a including ES million net hotels aggregate Sonesta After million analysis, reported Selects X have XXXX. $XXX market X

hotels addition, of spend. In years, were should which CapEx future reduce slated for each in our renovation overall these

aggregate EBITDA these portfolio removal and margins the of improve hotels. We subset hotel with hotel that the expect RevPAR will for of remaining

also We under have sell part for $X.X X other hotel our is agreement. contract that million Radisson to of

the up my renovation after I performance see To and that the turning capital portfolio Brian, discussed. of to expected as XX will that is financial we invested confident wrap the operational dispositions comments it over hotels before are improved hotel and

assets, of lease an investment-grade-rated large from million flows in rents XX% liquidity balance with is our In highly coming valuable, a positioned debt and addition, BP. net annual cash minimum portfolio consistent, of provides no well over sheet tenant $XXX With dependable maturities total our unencumbered until pool with of XXXX.

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

Brian Donley

Starting morning. to our per good share results for and was year the XXXX, Todd, in million of $XXX.X $X.XX Thanks, the or decreased with share financial prior per $X.XX fourth million. quarter FFO versus quarter. consolidated year-over-year X.X% EBITDAre $XX normalized Adjusted

lease Rental expense, largely to EBITDA prior to and of as by lower as income income income $X.X Our year, rental by compared the recognized. year decreased rents interest the quarter terms last transaction increased TA, with a percentage higher historical results recognized impacted this our leases result this minimum decline the May. hotel terms by TA under with BP offset recognized million a prior were revised the our in partially of under last compared rental year following quarter our

hotel portfolio. to performance the our of Turning

expense. to RevPAR at XX.X% prior quarter, profit this declined hotels comparable gross million real hotels profit $X.X Below the decreased from XXX by prior estate driven gross our costs and year period. increased operating comparable operating million percentage margin For basis by line our and insurance XXX increased decreased GOP primarily property points $X.X by the year, X.X%, the from by tax

for a XXX level, the hotels expenses decline service $XX.X from $X.X hotels generated guidance million our extended our of disruption. $XX hotel Our $X.X XX $X.X declined for and by renovation to By million hotel driven million million, million, and and higher our below select stay year EBITDA range XX EBITDA full-service service $XX year-over-year for hotels, of million hotels. our prior XX.X% XXX

RevPAR for We're EBITDA Turning range. the $XX to to $XX $XX in million QX. our quarter to of hotel million and currently $XX QX full projecting expectations

winter We will continue before to activity the the up through months picks in see the spring. of softer remainder seasonal results

will see portfolio Our XXXX under hotels we have also continued at disruption renovation. in

Turning to the balance sheet.

following at to $XX.X mature During a successfully that quarter million $X.X of in the executed to secured billion unsecured and X-year projected for is quarter, offering X.XXX% XXXX. notes all repaid billion $X XXXX financings. Interest notes scheduled fourth expense be first were these on of senior the new we

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

currently of and Our facility We next liquidity million. for March of $XXX have is of notes credit total our cash revolving million is maturing in maturity $XXX debt senior $XXX undrawn million $XXX million XXXX.

to activity. investing Turning

During total X a in in to and hotel $XXX continue $XXX quarter to capital renovation total improvements $XXX properties ramp during million. quarter, of the the for to portfolio. our we program we as XXXX net at million within price sold make fourth million we million lease fourth We of made our $X.X expect capital up properties the expenditures

towards capital $XXX rest renovation expect with million going spend, to this we maintenance-type capital million of $XX Of the capital.

XXXX. January, service across announced FFO for to levels is under hotels covered, regular year we dividend throughout payout $X.XX ratio quarterly our the We In our well of ended which XX% expect per XX be all a common XXXX. representing of believe we share, normalized renovation

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

Operator

from question [Operator B. comes Riley first Instructions] Bryan Our with Maher FBR.

Bryan Maher

for few me. a Just

that, type year? you little does last On of down what hotel then maybe XX to margins Nautilus non-maintenance those on us going RevPAR think at the bit for spend, the quantify that bought hotels? to activity and/or you what to throughout in hotel can of South And a include go Beach? is do that of that's year level CapEx drill the on going the to try renovations, And you any

Brian Donley

you start. the for I'll Thank question.

the saw had portfolio QX, range hotel XX disruption significant for much in a EBITDA to in it's for and And choppy. that activity, potential the hotels set. quantifying pretty little as far eroded a RevPAR hotels going and reduction the we As renovation. XX% In under be we

improvement and get forward, and of expected forth. look lifts coming to so have of you out and position going the we renovation, the RevPAR of As hotel nice hotels index where the we're

projecting be going as and RevPAR XX% we're downs. won't have to XX subset. the for it the some decline as Net-net, ups So we're drastic RevPAR,

a we're overall, disruptive in about projecting So X% year. full RevPAR displacement for the X% to

we're back. stuff There on. be going have offsetting going will going to again, stuff some So down, coming

view material as be won't the today it in our for So year.

rooms QX. early XX what the from those in And were And guest couple spending, expected hotels. And exterior and for Sonesta got the space got full everything full-service going portfolio. public Hyatts capital in same in And we're we've be work. that's wrap as far to is the renovation QX. some to in a that done and swing the as are We've of up

is the have doing we're service we're We're to slate a do select the that through in months Hilton example, property, extended when over. the Our doing of year the full public forth. of and summer the And and some so Head the rooms going facade here end the season the going for same winter public we We're the at work areas, thing. rooms, offseason now. stay all space hotels

a it's program. pretty comprehensive So

Bryan Maher

Nautilus? And

Todd Hargreaves

going of a the we majority the in So Nautilus. XXXX. be capital Nautilus Nautilus, to include the does mentioned not the lot maintenance likely The that is from completed

does it include related any maintenance that. So or to renovation not

Bryan Maher

to given you lease as with what none right? that of rent-wise. from some margins more. guest the get two just I impacts maybe like BP you get that cares, it, credit, it's mean, getting But have couple relevant back is year-over-year elevated you really what the just comments I It to coverage with we you Okay, though want of a levels saw structure clarify BP, talked the of you I to And about over But stuff. last who the that is. TA. pre-pandemic and the about kind made the years.

Brian Donley

at do Bryan. weighting that high we a those And right, night lease right. portfolio. report the we knowing such us that for -- we coverage it's illustrating just have And have We're But you're our Exactly well we whole credit in sleep XXX% payments. calculation. behind in

Bryan Maher

to press back lease queue, lot of and regarding on net how are your lastly, give been I'll we kind what of the talk go in that of be just demand you And of for I when then little hop bit of those Can to to much TA. don't and you more properties, rent sales a few kind the there's strong you're retail about assets, are assets seems many But do kind a you've outside And real non-core And go, us been properties. smallest color you estate. seeing? retail re-lease a selling? selling in know what Okay. there roll-ups

Todd Hargreaves

Sure.

we really really So properties of good over been side. we retail there. more the yes, on sales seen mostly and few seeing just properties specifically vacant they the of haven't good a us to -- there's sell you've and been sense the a points see thing those. demand, have we The especially years, same lot past in buying portfolio, We're as anything, We're the investment become our starting selling really don't think we've market. as leasing vacant

out -- into stable assets. us sell going activity might they're volatile What that is going a you're capital see us getting bit markets -- sell more still but back some now stable buyer you do see there, potentially more likely and to little forward we're

I we think There's coming. when a bought most stuff were think have SMTA properties more about -- we've we probably vacant we of have the are XX handful cycled But knew vacant we I through that in that left. XXXX. issues back

occupancy I terms of of in up to think properties. number XX% we're

roll-ups, in So situations, rents. see up a rents at maintaining the lot size of are and properties. rents those, TI rolling on There a in as amortization then with some if rent very -- terms square of those re-lease you rents we've for basis foot a the well. generally, been high or we theaters, per those movie lot lot of least it was a were those There the of

some why So rent see might you that's roll-downs.

Some previous those longer-term market leasebacks of that owner a rents to times, be of well. sale the the had above done, tend as lot

So per for last if we're But there. growth to you that averaging see you look portfolio about think rental -- back years, some I we're probably rent generally, X% year. few roll-downs

Operator

next comes Our from Wells Fargo. question Dori Kesten with

Dori Kesten

XXXX Sonestas and pro what sold, would margins your hotel XX are the be? Assuming EBITDA forma RevPAR

Todd Hargreaves

can out I that pull Sure. you. for

for So prepared negative our remarks, It as I those in mentioned $X.X XX actually negative about hotels. the was million. EBITDA was

Sonestas. and you if the for for hotels would year, take be So out the $XX.XX would just margin RevPAR be EBITDA those XX.X%

Brian Donley

$XX Yes, million sale EBITDA. the hotels in of about hotel 'XX of generated

Dori Kesten

In said? XXXX, generated the XX you in million EBITDA, is that Sonestas $XX what

Brian Donley

that EBITDA. Yes, was some them full of year pre hotel were the And under flags. pandemic, different

Dori Kesten

the margins, prior Okay. about confidence going previously Sonesta -- anything you've EBITDA internally complete. renovation Is And you peak you dispositions? to upside is from is program exceed talked at on prior there there now to returning gives the side peak will margins the holding once the that that perhaps those

Todd Hargreaves

Sure. that they fees get They're those program. the I paid by That's of these franchisees. we They're would very these be to not their focused hotels franchise some to are a putting good don't of they expanding return business. the one continues their question. think it's out from Dori, everything the But mean, identified on awareness, reasons ones fees as We've selling that, we other margin loyalty money us, they're Sonesta of from levels. get any taking Yes, that putting expanding brand -- hotels. management

flow All back hotels, getting they're all they business. New which the from are into the their doing in specifically all cash hotels going York, very own that's well, the owned

percentage of They of of a their things customer go money in revenues app, the members have, management there. They room booked loyalty they through So the continue right are revamped we to terms system. have number put of program. loyalty are relationship website, the the seeing lot still mobile into that to

our will all it Again, see of I hotels we are I think renovations once seen performance terms complete. in we and haven't a it think couple the of yet. of for --

sales that driven is only group other But are booked we is starting national of And lot really transient and OTA. -- of the the they thing rather also in their through business but the seeing, the job segmentation, through channels website a about pick with are up. than when do of good to the too, the they've distribution a talked we sales out seeing that you're by not done A that started increase platform. lot building to

to we'll lot fully outperforming hotels. those the renovation, to specifically of full-service number at they to some So I well we a those and Sonesta expect that performing are the get cases. of in question, see the think renovations And market still a your answer are The impact immediate back There's competing hotels, levels. from Royal and Sonesta margin hotels, they with.

it's I it's and again, to talked -- previous sales. the on think again So about we've something back it calls,

we terms the at money in if cash the we they entire the look don't these list. to out the why at the we expect portfolio. we going terms in several but will of return be. like. the just on we We're into the any we're to what compete to looking is that margins back And that going that's the incremental think get flows renovation, maintenance not layer any then time of think on hotels to going capital put And operating on up we're We're return what CapEx, and/or a sale looking with renovation CapEx CapEx. ended market, And years

Dori Kesten

assuming What Okay. including will the you X-year I capital And the out? think spend program. Sonestas are total may the did What it's have this. -- a say ROI I missed and be maintenance,

Brian Donley

or I going We didn't we're number, give to levels. the these years, next think multiyear see X the for Dori. X elevated But

to we continue And it mentioned, and Todd million the prepared sense. we the $XXX sure in evaluate to year. we're remarks, believe make investment mentioned will as $XXX I million -- to this As be going makes

the along projects go here forward. and and we to So provide on as move to moving we'll start continue list updates hotels

Operator

comes with Tyler Batory [Operator Oppenheimer. from Instructions] next question Our

Jonathan Jenkins

for on Tyler. Jonathan is This

think of the spillover you much I the from how on any a First is the I last mean, on one XXXX half-weighted. us for maybe that -- help largely assume And it's me, over about color from this Can CapEx. follow-up year? cadence potentially year? front

Brian Donley

a it's great question. Yes,

see is I would early And by say plan as activity XXXX. you're little runs for as $XX think try spring allocation million predict. generally through from QX quarter is $XX to around as early I renovations bookending right, deferred the will it's seasons peak million in far probably these But year the us, how which, the starts we'll and where think to we speaking, November. the it's probably to I a QX hard go, and most

Jonathan Jenkins

Okay, pockets good. gears to trends portfolio. switching maybe some softness in more you Todd, I any or you then any first of pause are out? gives mean, additional very color look the that Anything the hotel that slowing that noted And calling maybe you half there demand out? and potentially recent I for of year. market believe on weakness out the worth as

Todd Hargreaves

slowdown It's And business business travel, we out. in to of we're Sure. leisure travel that related XXXX. in tick least also We to mostly continued probably really was the have still see a in down In our that's previous flattened portfolio XX% it travel. up. seeing is to to but at XX% quarters, -- where around slowed

business-oriented hotels, A we mostly the another hotels. RevPAR, wanted factor to yes, is for hotels and in to those in lot seen we 'XX sell, year-over-year declines again, lot surprising, how the large isn't that and And specifically. exposure business. given leisure saw hotels we our we identified most But are softness have the in of more in those increases back business. of resort And a we've which 'XX

Jonathan Jenkins

additional inflation has per as you for where provide late labor Okay, excellent. your expectations maybe year? this me. expense and and on occupied for last expenses one some room Can general expense trended of Then color maybe

Todd Hargreaves

Sure.

operators. rooms been there and it -- insurance in most is have terms our expense taxes. overall we of In of But just positions is terms talked seeing is about the Labor labor. What the across portfolio largest far. by of expense, all in we're our open filled

employer, labor, positive. a lot and salaries. is wages more So in of gives an negotiation on reliance less there's which us, contract as And a terms it

noncontract to desk, see labor, is What it of hourly increases you're F&B for to attendants, significant is front impacting wage that labor types housekeeping, continuing those year-over-year even specifically increase positions. for

historical it really that but it's So slowed slowed hasn't still Maybe well down. a down little norms. above bit,

to large a this outside the taxes we're largest that saw we the of So margins was past -- probably -- that increase impacting insurance, quarter. was and

Operator

Bryan Our with Maher next question B. is Riley FBR. a follow-up from

Bryan Maher

kind sales, they the Are on little us And of quick a you relative thoughts thinking how these more you're value? are the pricing little locals? to timing be who book play a of a of buyers your asset can bit they helpful. on through out Just would follow-up those, year, give Just on assets? color what of the

Todd Hargreaves

Sure.

to one only portfolio. with the one -- EBITDA. was That XX sell as are are owner's the our out it taking wanted negative It the talked in close same. we Radisson are for the agreement contract agreement. and that one under the so we the XX-or-so guarantee agreement. sell that We're hotel touched was is me briefly was to well, call on start That is was So management $X.X first -- Radisson outlier priority let -- getting to expected next the of about million. part of days. that But the selling the remains Radisson That we the in the not it. Both and one us an that producing

of to market Both the larger in which all -- those the part the back the now. XX, portfolio. XX of are But is

five four, of one not We It's buyer. anywhere to do eight March, to end is portfolio of portfolios buyers going my likely hotels. one-offs beginning it's had for or buying going be to those five of be yet. probably from My guess, sense to towards if are I probably called sense haven't three, that first the -- round is it's offers likely We'll April. --

we is those the the some a in that buyers of start my timing, back had probably for majority the hotels, are the The lot close XXXX A and of second so them -- quarter, terms 'XX. you'll same in third see buyers in guess lot the buyers of to in quarter.

marketing are these brands. encumbered We

just them, majority we expecting Sonesta, agreements encumbered. where enter those of brand selling like ago, a couple franchise of with buyers we're into the done to had years long-term sold So were

of existing So the have understand Sonesta the franchisees good same success it's lot that had and a brand.

or we've of are isn't buyers. But because lot so high-end a we group far that it's hotel, kind price surprising the hotels the different point, the interest, it's of also hotel seen what select lot has that more either -- occurring, there, and the again at not stay transactions was than a we of interest service previous very, So extended what so which lower have too preliminary. at been least of very

it's versus few a In one of environment. market pricing a is is variables terms it book there's value, -- there. Number volatile still

EBITDA You the for year. had last negative

in-place on cap So an basis of play. more you're not really throwing a it, it's rate

the CapEx hit variable to would put overall terms buyer of into that [ per what there So is ] their basis how other much overall underwriting in is be. cost a going their and

that far that. way don't and haven't But value. I expectations -- not where going volatile received it's we'd get caveat we is not it's valuations a we somewhat But below we book say to are, So environment. but slightly somewhat the our all be far. probably yet would offers given my with are too be that I'll and I our below think Again, too may to sense -- haven't

Operator

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

Todd Hargreaves

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

Operator

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

disconnect. now may You

Service Properties Trust (SVC) 29 Feb 242023 Q4 Earnings call transcript