Service Properties Trust (SVC) 2006 Q1 法說會逐字稿

Good day and welcome to the Hospitality Properties Trust first quarter 2006 earnings results conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Manager of Investor Relations, Mr. Tim Bonang, please go ahead, sir.

Thank you and good afternoon, everyone.

Joining me on today's call are John Murray, President and Chief Operating Officer and Mark Kleifges, Chief Financial Officer.

The agenda for today's call includes a presentation by management followed by a question and answer session.

Before we begin today's call I would like to read our Safe Harbor Statement. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws. These forward-looking statements are based on HPT's present beliefs and expectations as of today May 3, 2006.

The Company undertakes no obligation to revise or publicly release the results to any--of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission regarding this reporting period.

Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Form 10K filed with the Securities and Exchange Commission and in our Q1 supplemental operating and financial data found on our website at www.HPTREIT.com. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Now I would like to turn the call over to John Murray.

Thank you , Tim. Good afternoon and welcome to our first quarter 2006 investor conference call.

This morning's earnings announcement was another positive one as HPT reported FFO per share for the quarter of $1.01. This represents quarter-over-quarter FFO per share growth of 11%.

First quarter performance was driven by RevPAR increases, which averaged 13.1% across the portfolio. This quarter's RevPAR growth at HPT's hotels exceeded industry average growth by 340 basis points.

As you would expect from a portfolio with average occupancy of over 71%, approximately 84% of HPT's RevPAR growth this quarter was driven by rate increases. The strong top-line growth coupled with healthy flow-through resulted in a 20% increase in cash available to pay HPT's returns and rents compared with first quarter of 2005.

RevPAR increased in all regions this quarter and across all of our portfolios and across all brands, except our full service Marriott hotels, where weakness in St. Louis and business interruption from flooding due to unusually heavy rains in Kauai during February and March hampered results.

Our RevPAR performance this quarter was led again by the West, South Central region, reflecting in part the continuing after effects of Hurricane Katrina, but also increased activity in oil and gas related industries in Texas. Of course, the overall industry has seen steady growth and our hotels have consistently exceeded industry average performance.

In five of the nine Smith travel regions and in Canada, our hotels turned in double digit RevPAR growth this quarter. As our RevPAR has continued to grow, our managers have done an effective job managing profit margins which are up 260 basis point this quarter to 44% versus 41% last year.

As a result of this improving performance, HPT's minimum return and rent coverage ratios have generally continued to improve this quarter. We believe the best way to look at coverage is on an annual or rolling 12-month basis.

As you can see from the chart on page 25 of our supplemental information package, each of our portfolios has shown a steadily improving 12-month coverage trend in each quarter since the fourth quarter of 2004. The only exception to this was the Carlson portfolio, where the improvement has been reflected since the third quarter of 2005 as a result of the rebranding of the Prime Hotels to the Carlson family of brands.

Carlson has done an admirable job of completing the renovations associated with these rebrandings in a timely fashion and bringing the hotels back online with strong performance. This quarter, RevPAR at our Carlson branded hotels was up over 30% and coverage for the quarter was 1.4 times.

With respect to the Hyatt conversion of AmeriSuites to Hyatt Place, the timing is currently expected to begin in May. We expect seven of our hotels to be completed during the third quarter, five during the fourth quarter, and the balance during the first two quarters of 2007.

The total cost of this conversion is currently expected to be approximately $60 million. Keep in mind that to the extent HPT provides funding for this rebranding, our minimum return will increase.

If Hyatt Place successfully makes up the RevPAR gap that currently exists between it and Courtyard and Hilton Garden, this will be a significant financial success for Hyatt and HPT.

In past quarterly calls, we have discussed the highly competitive acquisition environment and told you that while we continue to adhere to our investment strategy of acquiring hotel portfolios, we would also acquire single assets when we could add them to existing portfolios.

To date in 2006, we have agreed to acquire 13 hotels with over 3,800 hotel rooms for $358.2 million. In January, we agreed to acquire a total of 10 hotels with 2,907 guest rooms for $274.2 million.

We closed on nine of these in January and plan on acquiring the 10th hotel which is located in Jamaica for $30 million later this year. These hotels will be managed or leased by InterContinental Hotels.

During the first quarter, RevPAR for the nine hotels acquired in January increased by approximately 23%. As we complete certain renovations, we expect to see continued improvement in performance.

On April 6th, we acquired two additional Crowne Plaza Hotels in Miami and Philadelphia for $63 million. These two hotels have 749 guest rooms and over 23,000 square feet of meeting space.

On April 13th, we acquired a 150 room Staybridge Suites Hotel in Parsippany, New Jersey for $21 million. This hotel is a newly-developed hotel in a Morris Corporate Center, a major corporate office park along Interstate 80 in New Jersey, only minutes from both New York City and Newark airport. These three hotels were added to existing management agreements with IHG.

Early indications are that RevPAR growth has continued at a healthy pace in April and lodging industry analysts, including PWC and Smith travel are forecasting that these trends are likely to continue through 2008. Given the good start to 2006, which we announced earlier today, HPT is optimistic about a lasting recovery, especially since new supply growth remains at historically low levels.

I will now turn the presentation over to Mark Kleifges, our CFO.

Thanks, John.

Revenues at our 109 leased hotels were up 12.3% during the first quarter and cash flow available to pay rent increased 20.7% from the comparable 2005 period. Rent coverage at our four leased hotel portfolios ranged from 1.1 times to 1.5 times for the 12 months ended March 31, 2006.

Revenues at our 189 managed hotels increased 12.2% during the first quarter, and cash flow available to pay HPT's minimum returns increased 19.5%. Return coverage at our seven managed hotel portfolios range from 0.95 times to 1.47 times for the 12 months ended March 31, 2006.

Net income available for common shareholders was $33.3 million or, $0.46 per share for the first quarter compared to $26.8 million or $0.40 per share for the same quarter of last year.

The weighted average number of common shares outstanding totalled 71.9 million in the 2006 first quarter compared with 67.2 million for the first quarter of 2005, a 7% increase. Funds from operations for the first quarter were $72.8 million compared to $60.9 million for the first quarter of 2005.

On a per share basis, FFO increased 11% from $0.91 per share to $1.01 in the 2006 first quarter. The increase in FFO was driven by our 2005 and 2006 acquisition activity and the improved operating performance of our hotel portfolio.

Minimum returns in rents were $83.4 million in the 2006 first quarter, a 15.4% increase over the first quarter of 2005. FFO for the 2006 first quarter also included $4 million, or approximately $0.06 per share of percentage rent and hotel operating income above our guaranteed minimum returns in rents. This compares to $2.8 million or $0.04 per share in the 2005 first quarter.

The greatest contribution to this growth was the percentage rendered at our three Marriott branded lease portfolios and the additional returns at our recently acquired Crowne Plazas.

In early April, we declared a common dividend of $0.73 per share, which represents 72.1% of our FFO for the quarter. This compares favorably to an FFO payout ratio of 79.5% in the 2005 first quarter.

Turning to the asset side of the balance sheet, cash and cash equivalents totalled $39.7 million at March 31, 2006, which includes $26.5 million of cash escrowed for future improvements to our hotels. During the quarter we acquired nine hotels for $244.2 million and made $29.9 million of capital improvements to our hotels.

On the liability side, HPT has $921.7 million of unsecured senior notes and only $13.7 million mortgage and our first term debt maturity is in 2008. Our unsecured notes are rated BAA by Moody's and Triple B Flat by Standard & Poor's. We've been investment grade rated since 1998 and we continue to be the only investment grade rated lodging (inaudible).

As of March 31, 2006, we had $282 million outstanding on our revolving credit facility. As John mentioned, subsequent to the quarter end, we announced the acquisition of three hotels for a combined purchase price of $84 million, which we funded with borrowings under our credit facility.

As of today, we have $331 million outstanding on our revolver, and we have committed to acquire one additional hotel for $30 million, which we expect to close on later this year.

On a book basis, debt to total capital was approximately 39.7% on a market--and on a market basis, debt to total capital was approximately 27.2% at March 31, 2006. EBITDA in the first quarter of 2006 was $93.2 million, which is a 19.9% increase over 2005.

Our EBITDA to total fixed charges coverage ratio was 4.5 times and we are currently comfortably within the requirements of our public debt and revolver covenants. We expect to use cash balances, borrowings under our revolving bank credit facility and net proceeds from offerings of equity or debt securities to fund future property acquisitions.

In summary, the first quarter of 2006 was highlighted by continuing positive RevPAR increases, improving coverage ratio trends in our portfolio, and solid FFO per share growth. Looking ahead in 2006, we are off to an active start with both significant acquisitions and strong same-store performance, and are optimistic about the outlook for the lodging industry and HPT.

That concludes our prepared remarks, operator, we are now ready to take questions.

[OPERATOR INSTRUCTIONS]

Our first question comes from Michelle Ko at UBS, go ahead, please.

Hi, good quarter. Just had one question, actually. Thanks for adding the additional disclosures for the additional rent returns. I was wondering if you could tell me how much you made in additional income in Q1 by portfolio?

Sure. If you're looking at additional returns, which are the amounts we earn under our management agreements in excess of the minimums, the majority of that came from our--what we call InterContinental 4, which is our new management agreement with InterContinental, that was about $1.2 million, and the largest piece after that was Candlewood at about $900,000. And then we had some smaller amounts under our InterContinental 3 and Hyatt contracts.

Great, thanks very much.

We have no further questions at this time, I'll turn the conference back over to Mr. Murray for any additional or closing comments.

I'd just like to again thank you all for joining us on our first quarter conference call. We will be presenting at the Bear Stearns Global Credit Conference in May in a couple of weeks and at the NAREIT Institutional Investor Conference in June and I look forward to seeing, hopefully, most of you there. Thanks again.

That does conclude today's conference call. Again, we do appreciate your participation. You may disconnect at this time.