Service Properties Trust(US:SVC)2019-05-10 17:41Financial Data and Key Metrics Changes - The company reported first quarter normalized FFO of $0.88 per share, a decrease of 6.4% compared to $0.94 in the first quarter of 2018, primarily due to the sale of 20 travel centers and lease amendments with TravelCenters of America [9][41] - Normalized FFO was $144.6 million in Q1 2019 compared to $154.9 million in Q1 2018, reflecting a decrease of $0.06 per share [41] - Adjusted EBITDAre was $195.9 million in Q1 2019, a 3.5% decrease from the previous year [42] Business Line Data and Key Metrics Changes - Comparable RevPAR for HPT's hotels decreased by 3.2% in Q1 2019, driven by a 2.9 percentage point decline in occupancy, partially offset by a 1% increase in rate [11][29] - The comparable Radisson and Wyndham portfolios had the weakest RevPAR performance with declines of 12.6% and 9.9% respectively [30] - RevPAR for hotels not impacted by renovation increased by 1.6%, while RevPAR for 16 hotels that completed renovations in Q1 2018 increased by 9.2% [14] Market Data and Key Metrics Changes - The company experienced negative weather-related impacts, including the loss of FEMA and hurricane recovery demand from 2018 and disruptions from winter storms in 2019 [13] - Comparable IHG portfolio RevPAR was down 4.9%, primarily due to a decrease in rate and occupancy [20] - Non-fuel travel center revenue increased by 3.1% versus the prior year, driven by growth in store and repair shop revenue [39] Company Strategy and Development Direction - The company plans to continue renovations, with only 15 hotels under renovation in Q2 2019 compared to 22 last year, expecting positive lift from 49 hotels that completed renovations in 2018 [26] - The management is cautious about the acquisition market, focusing on maintaining leverage levels and being mindful of renovation costs [64] - The company aims for RevPAR growth between 2% and 3% for 2019, despite current headwinds [27] Management Comments on Operating Environment and Future Outlook - Management noted that the first quarter is traditionally the weakest, and renovation activities contributed to the decline in performance [36] - There are concerns about margin pressures from wages and benefits, as well as increased operating costs [63] - The company remains optimistic about meeting projections due to active asset management and strong brand presence [27] Other Important Information - The company sold 20 travel centers for $308.2 million and recorded a gain of $159.5 million in Q1 2019 [44] - The company funded $44.7 million of hotel improvements in Q1 2019 and expects to fund approximately $204 million for the rest of the year [43] - The company has $72 million in cash, including $48.2 million escrowed for future improvements [44] Q&A Session Summary Question: Why was there no security deposit added for the Milwaukee acquisition? - The company negotiated for IHG to share 50% of the renovation costs, opting for co-investment instead of a security deposit [51] Question: What is the estimated cap rate of return expectation for the Milwaukee property? - The going-in cap rate was in the mid-7s, with an expected 8% return on investment from IHG [52] Question: What is the status of discussions with Wyndham regarding restructuring? - Discussions are ongoing, with both sides considering the possibility of disposing of weaker-performing properties and potentially adding new ones [55] Question: How does the company view its acquisition appetite for 2019? - The company is cautious about acquisitions due to the late cycle and economic uncertainty but expects to invest a couple of hundred million dollars in hotels [64] Question: Who are the more aggressive buyers in the marketplace? - The company has seen institutional investors, private equity, family offices, and high net worth individuals being more aggressive in the acquisition market [65]