SVC - Earnings call transcript Q1 2024 | Service Properties Trust

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Operator

Good morning, and welcome to the Service Properties Trust First Quarter 2024 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.

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

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

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

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

all. With required over at reconciliation such or reconciliation this We are to of available information non-GAAP unreasonable Todd. because providing efforts not for certain turn our of is I'll a measure as the guidance part without that, not call

Todd Hargreaves

Thank you, and morning. good Stephen,

the lease in well typical indicative results lodging our portfolio portfolio. stability are our as quarter of first patterns net of Our as seasonality

select hotels softening impacted and by activity. transient growth while Our full-service through group were increased demand, hotels service renovation travel our line top experienced

for Sonesta performance year-over-year. declined hotels capital position Our on the When The decline Place in success. Beginning of 'XX portfolio, the decline portfolio active improving comparable RevPAR for Sonesta to in disposition portfolio by revenues in was Beach Sonesta in San led led Kauai. St. Redondo led the across segment full-service of insurance our our Full-service quarter, XXX on the comparable in contract contract and hotels and the XXX RevPAR X.X% to our and we improved the with year quarter by hotels occupancy to hotels our X.X% XX quarter. X.X%. renovations, increases was basis Francisco non-core quarter, group ADR performance Juan, declined hotels, gained the through during the hotels for X.X%, hotel margin our approximately projects while during points include put best offset and operators basis performing $X.X long-term the revenue group contract declined and increase and which hotel where as Royal quality points in our operators' wages, as focus increases Kauai, our than Sonesta by displacement of labor. Full-service experienced excluding previous sales. Louis reliance Denver. and a by a pressures led of EBITDA our and taxes, property F&B Cost renovation of over and the Royal Hilton quarter others, top led Head million year our occurred San more of the well, leading Hyatt over was our gains remains prior RevPAR

our year-over-year our which hotels, XX Bowl. during by income service due from Overall, the renovation, these continued X well in quarter select area including the Phoenix to Super benefited as service as RevPAR XX Our disruption Place Hyatt began hotels from portfolio declined the hotels decreased located XX.X% select that disruptions renovations XXXX XXXX. in see most under hotels XX of select were service the our as to of

has been extended-stay Our with year-over-year. the non-repeat quarters, longer-term X-plus to from loss trend due our occupancy Consistent RevPAR in declining previous nights decline the nights. experienced [indiscernible] portfolio project-based stays a of X.X% room of

accounts select commissions. room dependency in occupancy, in our of Hyatt on corporate to portfolios. The Convention and last from increased Sonesta were holiday service to last as at quarter year ] Democratic travel fill the is in channels our Sonesta hotels to at these Suites the August. up total efforts continue shift revenues corporate March nights in our the portfolio both Sonesta over third-party business Sonesta our from year, increases operators increased to to and driving the stage during same in and Chicago due [ XX.X% business where or hotels. OTA Royal pivoted nights travel revenues Simply due hotels pace declined the to Group charge XX.X% the this the shorter-term National key $XX not for declined XX.X% in Sonesta were from to gains Combined at slightly room held portfolio be to million our ongoing year, reduced enough percentage Easter time ] rates. ADR will April to a year-over-year operators concentrate our related notable renovations the while websites bookings of and through and the most [ to While revenue their the lessen the our year-over-year Radisson on group to offset from Cambridge

doubling the its merged Loyalty program with brand building its legacy on Lion size. overall initiatives through recently focused numerous Travel Pass and Program its Red Rewards remains Sonesta

investing During organization a Sonesta ongoing X.X program from revenues up the hotel Other the at points were the in quarter, XXXX. loyalty on driving include building members, technology. full-service initiatives percentage our XX.X% ancillary hotel, Sonesta focus of sales from and revenues out

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

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

by The rents XXXX. our XX, are maturities XX-month was of of X net trailing net X largely to $X.X coverage limited and quarter minimum prior reported lease dispositions Suburban lease million. Minneapolis our Our portfolio's disposition, of QX during X.X% [ laddered, an and aggregate [indiscernible] driven rents of sales X.XXx lease XXXX. The well is on the as for sequentially for to price the aggregate softer end Transaction hotel TA was of by only net lease expire basis ] activity a EBITDA decline March XXXX. minimum

as market we hotels underway, will much as Sonesta coming to process is working value optimistic well benefit with over portfolio our needed potential improvements result we with are program, quarters. that of and sale refreshes $XXX XX to book operational terms. In The a continue are from the our the renovation of million. hotel We conclusion, see hotels meaningful buyers negotiate

$XXX over and in no With is remains implement turn Additionally, strategic our are XXXX, discuss the well our debt in of and steady anchored positioned to tenant detail. plan. I more investment-grade an financial million we Brian performance liquidity maturities the than net more to portfolio rated our lease by now results in call of to will BP.

Brian Donley

for of Thanks, year share Todd, $X.XX XXXX. million. Financial $XX.X was this Normalized first the year-over-year to $X.XX results results quarter. declined and to versus per quarter X% compared Adjusted quarter good financial FFO a million BP rental as EBITDA. increased million leases the to per TA Starting in impacted year consolidated the the last with prior EBITDAre to hotel $XXX.X the quarter income our of by morning. prior or in $X.X higher this year quarter higher interest share due prior decline compared a result by Rental under income transaction expense recognized May. as were our and

the performance increased XXX our period. points gross at hotels to the of profit hotels for basis and XX.X%, comparable operating profit decreased million by prior by quarter, this comparable GOP expense. gross insurance RevPAR declined $X.X our portfolio Turning hotel margin line the costs operating percentage prior primarily X.X%, year decreased our by by XXX Below from from the $X.X driven million to increased year,

declined but the line provided decline with level, Our last our million, our increased guidance service By $XXX,XXX XXX XXX hotel year, hotels for $X.X XX EBITDA full-service hotels select EBITDA $XX.X in stay our prior million million extended hotels. $X.X generated hotel our quarter. and of for for year-over-year service a from hotels, range

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

have We with of weighted $X.X fixed balance debt sheet. the rate interest to average Turning X.X%. billion a rate of currently outstanding

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

hotel capital of of currently this $XXX of range to from expect expect the expenditures $XXX $XXX Turning We currently improvements quarter. year. $XXX our spend made previous full to up million. We net to X our properties sold an the for properties and the million. investing capital first sales aggregate during quarter, first X million, year we be $XXX of activity during million capital total We at guidance million our million $X.X total lease maintenance-type of $XX price million to

share. experiences, standards, Our hotels improve at program post-renovation hotels, completed date, best and and positioning ensuring X capital we're the respective renovations on brand returns the focused far. with guest market seeing we Sonesta to To the have pleased is we're to upgrades thus their

XX renovation during across service under hotels major We second hotels including expect service XX expect be quarter completed XX hotels, and have levels XX renovations in full the service stay select to and hotels all year X to the at extended hotels. calendar

We're trailing XXXX. quarterly concludes in representing regular dividend normalized That XX March to ended open is FFO remarks. per a our we of well believe which share, XX% we for ready XX, line covered, for Finally, our ratio common announced questions. prepared April, $X.XX payout the months

Operator

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

Bryan Maher

a with the minute. Maybe for just CapEx sticking

to think to? about what $XX did right. Your going Can you I is and why allocated million increase, that be math talk that million $XX I

Brian Donley

think for plan of is projects. thanks pace we we as the year, quarter, sense from timing projects a Bryan, each the the which of lot which should make standpoint decide ones we of rest move And we disruption. A question. Yes. with, limit to the forward it

the as renovations We that hotels to continue get in also improve combination year we hotel. want the stuff more of major at certain to this a position to of as have routine well

a it it's just it's things, a a has of but pace projects. has past in than so little of It moved So quarters. of combination more the couple quicker

planning more is of it's we've a program of continue than thing end at and anything. it will -- for multiyear the couple a started years. a last This that we're now of So year,

Bryan Maher

spent or from consider pull $XX that what Would all of you a million have XXXX? some you would in forward

Brian Donley

yes. Yes. it, of Some

Bryan Maher

Hyatt as the talk about spending we Okay. you're you on to disruption, maybe give think deep that when those they us some of renovation how wound kind fully down? And is And can that, per about and are? key think when much how renovations you idea

Todd Hargreaves

one, Bryan. take Sure. can I that

online back we be would I shortly. getting expect would say this have majority of up the late those fully. to we the Hyatt, or of of through most started those quarter year. wrap and those through majority those we're So last should I the that

see which second think to I that around quarter, starting for really fully now. those The quarter. but cost -- we is cost hopefully So Brian in right should $XX third start million, the benefit the renovations is per total the key the calculating is of in

Brian Donley

Per Yes. around key, it's $XX,XXX.

Todd Hargreaves

renovation. pretty intensive And renovated not areas, Yes. it's rooms, Those common facades. a pretty hotels -- while. had it's a It's in been

to significant once we pretty So are see pickup renovations complete. expect a those

Bryan Maher

more maybe dialogue the per same kind kind on spending what you're And key. of Okay. much Sonesta, of how

to you CapEx I had [ sales of for? does that your future planning been selling value, due XX you comments that mentioned spend ]. hotels, your I think million mean $XXX in you're what book prepared that kind

Brian Donley

to the depends be some Yes. hotels hotels. lower some But we're the and the We've as at it of the standpoint, got for small including different are of for a per on scale key doing. our chain year, $XX,XXX this very and the refresh chain that From Head the in and Hilton $XX,XXX could happens. different $XX,XXX we upwards when Suites needs, key airport of at last a look that brand, [indiscernible] and property the end is plan Sonesta service Simply scales

Todd Hargreaves

we that total should million take otherwise And spend at have of hotels. Yes. probably another to would instead $XXX off these that had

Bryan Maher

Sonesta us the best can more are out I thinking you for roughly me. clearly, it in if way what just What break your uplift for break thought the you're RevPAR about of be. what to RevPAR Hyatt from renovations but X uplift with the you've speaking, what renovations, looking don't know there? share would Can and you out. is, them kind And you

Brian Donley

on mean we're for on We're Yes. high the line into built deploying over capital, putting a we I will mean, a bottom we'll EBITDA, returns lift of I maintenance-type not periods. post significant ROI from high metric. longer index just is money X EBITDA term going of there projects expect I is RevPAR very single-digit and on returns lift routine are the we're we -- focused think renovation various work program get and that to same we're that that money capital. renovation our more amount but single-digit stuff in, expect the lot

look Sonestas only renovation, a for period anecdotal renovations but started X not -- evidence finished afterwards, a have the close as periods couple those at ones are to these, lot ramp finished yet they quarter, months the before some a if year, we We up you to had this other we're post some of returns of that we forecasted. when to that of seeing prior been

Operator

The Dori next Fargo. from is Kesten question Wells with

Dori Kesten

I second if a the would I -- limited half and the sure hotel of participate much group and feel guide. the EBITDA back versus SVC just know first, thinking have strong I but as highlighted what the appreciate RevPAR exposure you QX not wondering year? now headwinds. I was given the renovation half for I'm you're peers portfolio

Brian Donley

Yes, question, it's you. a Thank great Dori.

trends think had we've our mirror patterns I in will years. that previous

we've We a it [ starts a expect QX the is in noise trailing portfolio There of to ] be renovation lot period, We stronger activity think will QX our than QX in QX. with line given obviously, before off. be highlighted.

when be business renovation. of that different weighed certain see market ramp-up could up and and into that some the we're share, So hotels hotels by moving we other down do picking from

Dori Kesten

so to these asset from far? did Okay. marketing would based of the XX XX? round And on would there and consider the year expect process interest, up after a you the negotiations X you you Or just on negotiation be wrap learn done of I'm And Sonestas, wondering for process as level what you the sales? yourself

Todd Hargreaves

We're marketing The hotels. bidding have for those rounds to Dori. hotels. just identified buyers multiple the -- of on gone process the through we've Sure, -- of clarify, so majority where we

a point to XX are, that way. And out, sale. going X portfolio buyers for so proceeds we're not XX buyers, we X likely as maximize these be contracts. It's more likely not It's to be going negotiating and to there's you or to going to be than hotels,

of of process think lot in lot level from gone of a has somewhat smaller expected interest operators. types for a terms I of the hotels, operators as local these

If need you losing today most CapEx. they're EBITDA part. recall, They -- hotels negative these are for the

get kind hotels. of some even the and on lot think -- really interest. these are hotels in The turning And are good local can the hotels types are where operators in lower So at coming types a come basis. focusing of I around with down, of that price of these did we point of a buyers hotels trading transaction activity

well. of similar of time So as we the a we the expected. again, sold years ago it was hotels was lot from buyers what There a couple to XX repeat

So I'm not sure anything learned we necessarily further.

positive groups through think be with was answer I to in your a more we see to interest but I there franchise question these think which and in interest these be these hotels well. To continues on continues want there agreements hotels, to hotels the into get entering first, to system. could other be in Sonesta, or buying hotels as

it's to continuing think evaluation of performance just hotels. a the going of I the be

And so but we could yet. be there haven't any other identified hotels,

Dori Kesten

Okay. And last is then on my tucking just one trends.

consider like rent just of rent what about trends context, what there. of I therefore, for you're in the to post wondering clear, don't talked level more it a And [indiscernible]. trends you and like normalization makes your pandemic, your but the make normalization coming coverage is think be and sense, coverage less I'm worrisome. would You line that, of

Todd Hargreaves

get that the really we And picked pandemic came back is ] it's you in Right. assets significantly, trucking The those [ -- commentary agreed with importantly e-commerce for drove up the ] that picked 'XX, out once more volumes good of XXXX, XX closer before. to coverage we the It then coverage seen once up. diesel [ margins 'XX. a -- was up that activity And seen. -- levels and or -- hadn't to to activity be remains probably and commentary saw we hit, It's XXx. or significantly,

past have sites. back we [ of to you've given that think ] more over lease several these quarters, or to down X normalized past what levels. We But nearly as much we're the I seen does what get really don't now the insight -- BP as X the amendment what performance publicly. following view says

necessarily We we're have real be number the would given the start that But leases these to little underlying have value the I and number. but concern I investment-grade don't backing just concerned, far say, would of very credit properties where, away and a from estate. I

Operator

with Batory The next is from Tyler Oppenheimer. question

Tyler Batory

numbers? the A of million RevPAR way for at follow-up hotel some little what disruption midpoint, to to needed to those looks second and a $XX maybe renovation or guidance happen the question like even flat margin you improvement to what the $XX see on margins really year-over-year. your needs there bit EBITDA, that's for happen Is disruption. to about still I year-over-year think in a outside And growth? quarter. margin mean It renovation then including talk more the down million about

Brian Donley

for same. disruption it's to as I'll more the and thanks want in of if add Tyler, But the going you question. to far Todd, QX, as be goes start, anything.

Hyatt be hotels are lift little it coming of more a a quarter. All of will out the portfolio the think bit throughout out of thing side going XX have from coming renovation. I of to the those

some lift from So we're that. going see to start to

the we're We're going stronger our are to of try some are rooms sort that where going periods. seeing these it's limit on server. to of So our disruption seasonal negate to of some

get initiatives, moves, vary. and But overall we it, drive project you demand our an you and program. take We're into it's believe bigger tough it it's various occupancy So to doing need how the many more rooms issue. margin, that fast We a can question, the to drive CapEx how to hotels. in quantify including fully out once start how through

our driving operators our and promotions -- demand working other and business. marketing that's So drive on projects they're focused other also on operators through different very are initiatives to

Todd Hargreaves

citywide in I also to over driven mean that. hotels the very increased demand. add were that really really the just well, driven we business, I'll we portfolio Royal Yes. group year-over-year, especially full-service -- but saw X% urban how Sonesta grew did, our just are with by pleased as by increased RevPAR

a having in seasonally with to what but a you side especially I optimistic the it's things comments, the the we're So really touched nights. -- things. of than especially come tough in nights couple hotels, seeing prepared getting In stay think We on we're more of full-service of on but weak operators those get on back to online. on good extended business quarter. quarters, that we so XX rely out of were of on you of But in our of some during X the longer-term disrupted get comp portfolio think occupancy and really XX our more because select terms cases, on business service extended project-based get stay, I for nights the really the types back the Tier ideally, focus true -- many really XX, X can some that see is XX to -- that were

Sonesta especially I our very think that's focused operators, on. something is

Tyler Batory

Okay.

Great. Okay.

program some little the the in you obviously, loyalty of that brands bit this terms new. stays are were I in still other is pretty XX% out the think Sonesta of of than members, quarter a So lower loyalty cited brand, there,

is an how talk a kind for in resonating travelers. the program. of more of loyalty just broadly, bit the adoption little just about marketplace And Sonesta more of on update the So kind

Todd Hargreaves

the about for hotels. on It's there. hotels. increases the The seeing Right. full-service But and lower are -- little was we the I focused-service a believe, number bit XX%,

year-over-year. a full-service, I XXX basis increase we think the point saw

of we Sonesta it you seeing really business-oriented as is the much see adoption, Sonesta select on members. brands So know, you especially really so driven especially and the the hotels, the other side, on with Royal it's are by loyalty But hotels. some service of

in to service to where it of on loyalty program. continue certainly So the of it's bookings that's increase that full side, the seeing terms need we an positive pickup. through see you're a really much that But

a So is at Sonesta newer, this still company. size relatively younger

So in in seeing we move brand we're that things of seeing right numbers. some are adoption the the direction, and

Tyler Batory

most point debt sit sort then terms of of more the me. And And those? table the last you might Great. what rank attractive maturities? options handling today, order Okay. of in think about start question for Obviously, year. this for you to as kind on do what maturity be can no to looks XXXX? those you you At And what

Brian Donley

Tyler, it's a great question.

-- the to debt markets, to we proactive be maturities. are continue and to monitor going We continue on be our debt

corporate As we've preference demonstrated, we've real using SVC's multiple got options our debt. but unsecured is portfolio,

maturity but that's the look So take we're going wall, there. hard a options have out do stay near to of something to at multiple we in term ahead our

Operator

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

Todd Hargreaves

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

Operator

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

may You disconnect. now

Service Properties Trust (SVC) 8 May 242024 Q1 Earnings call transcript