Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Service Properties Trust reported top line growth in full-service hotels driven by increased group demand.
- The net lease portfolio remains robust, being 97.3% leased with a weighted average lease term of 8.7 years, providing stable long-term income.
- Service Properties Trust has over $700 million in liquidity and no debt maturities in 2024, positioning it well for strategic initiatives.
- Renovation programs across various hotels are expected to yield operational improvements and enhance long-term asset value.
- The merger of the Travel Pass and Red Lion loyalty programs has doubled in size, potentially boosting customer retention and revenue.
Negative Points
- Comparable RevPAR declined by 3.5% year-over-year, indicating potential challenges in certain segments of the hotel portfolio.
- Service Properties Trust experienced a hotel EBITDA margin decline of 280 basis points over the prior quarter due to increased costs.
- The select-service hotels segment saw significant disruption, with 18 out of 61 hotels under renovation impacting performance.
- Extended stay portfolio's RevPAR declined by 4.6% year-over-year, continuing a trend of declining performance in this segment.
- Normalized FFO per share decreased to $0.13 from $0.23 in the prior year, reflecting a downturn in financial performance.
Q & A Highlights
Q: Can you discuss the increase in CapEx and what the additional $50 million will be allocated to?
A: Todd Hargreaves, President and Chief Investment Officer, explained that the increase is due to the accelerated pace of projects, including major renovations and routine upgrades aimed at improving the hotel's positions. This is part of a multi-year program that started last year and will continue for several years.
Q: Regarding the Hyatt renovations, when do you expect them to be fully completed, and what is the per-key cost?
A: Brian Donley, CFO and Treasurer, noted that the Hyatt renovations should wrap up within the quarter, with the hotels coming back online fully by the third quarter. The total cost is around $90 million, translating to approximately $40,000 per key. The renovations are extensive, covering rooms, common areas, and facades.
Q: What kind of uplift in RevPAR do you expect from the renovations at Hyatt and Sonesta hotels?
A: Todd Hargreaves mentioned focusing on bottom-line EBITDA, expecting high single-digit returns on the renovation capital, particularly for projects beyond routine maintenance. The exact uplift in RevPAR wasn't specified, but significant improvements are anticipated post-renovation.
Q: Can you provide insights into the second quarter RevPAR and hotel EBITDA guidance and expectations for the back half of the year?
A: Todd Hargreaves indicated that Q2 should start strong, with Q3 expected to align before trailing off. The portfolio faces noise due to ongoing renovations, which might weigh down performance temporarily as hotels ramp up post-renovation.
Q: What have you learned from the marketing and negotiation process regarding the sale of 22 Sonesta hotels?
A: Brian Donley shared that the process involved multiple rounds of bidding, with interest from many smaller and local operators. The sales are not portfolio-wide but involve over ten buyers, which is expected to maximize proceeds. The interest level was as anticipated, with many buyers being repeat purchasers from previous sales.
Q: What are your strategies for handling the 2025 debt maturities, and what financing options are you considering?
A: Todd Hargreaves stated that the company is monitoring debt markets closely and prefers unsecured corporate debt. They plan to be proactive in managing debt maturities, with multiple financing options available.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
