Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RevPAR growth at full-service and select-service portfolios, led by gains in group and contract segments.
- Urban hotels outpaced the market with a 4.1% RevPAR increase.
- Group room nights at Royal Sonesta hotels increased by 13.8%.
- Net lease portfolio was 97.3% leased with a weighted average lease term of 8.4 years.
- No debt maturities until 2026, providing financial stability.
Negative Points
- Extended-stay hotels experienced a 1.6% decline in RevPAR year over year.
- Hotel operating expenses impacted margins due to cost increases in insurance premiums and labor.
- Normalized FFO decreased to $0.45 per share from $0.58 per share in the prior year.
- Adjusted EBITDA declined 7.4% year over year to $171.5 million.
- Renovation disruptions negatively impacted revenue and EBITDA.
Q & A Highlights
Q: Can you talk a little bit about the actual and expected return on capital of the CapEx spending and how you think about that relative to just selling a particular hotel and avoiding that CapEx altogether?
A: When we deploy CapEx, we target around an 8% return on average for repositionings and redevelopments. We look at a period prior to renovation and then measure the return post-renovation. For sales, we consider if the expected return on capital justifies the investment. If not, it may lead to a decision to sell the hotel. (Brian Donley, CFO & Todd Hargreaves, President & CIO)
Q: How deep is the buyer pool for the hotels you are selling, and what is the optimal mix of full-service versus select-service hotels you aim for?
A: Most buyers are local operators looking at price per key and stabilized return on cost. We are shifting towards leisure-oriented hotels and away from business-oriented ones. We are currently selling 22 hotels, mostly select-service and extended-stay, and may consider more sales based on market conditions and performance data. (Todd Hargreaves, President & CIO)
Q: Can you provide insights on the dividend, given the cash payout ratio is above 100%?
A: The cash payout ratio is over 100% on a trailing four-quarter basis due to high CapEx spending. Our Board will continue to evaluate the dividend level considering portfolio performance, leverage, and liquidity needs. (Brian Donley, CFO)
Q: Has the recovery in business transient been in line with your expectations?
A: The recovery has been relatively in line, though we have seen some softening in corporate negotiated revenues. This is partly due to displacement in some business-oriented hotels. (Todd Hargreaves, President & CIO)
Q: Is there anything different about the timing or extent of your renovation program that could allow you to outperform earlier?
A: There is no major difference this time around. We are focusing on full-service hotels, and we expect similar RevPAR gains and market share improvements as in prior cycles. (Todd Hargreaves, President & CIO)
Q: The results implied at the net for this quarter seem much lower than expected. Was there anything one-time flowing through this quarter?
A: The lower results are due to renovations and increased spending on sales and marketing. Some properties in New York are under extensive work, which should be completed soon, reducing the noise in future quarters. (Brian Donley, CFO & Todd Hargreaves, President & CIO)
Q: Can you discuss the occupancy decline in your extended stay hotels?
A: The decline is due to non-repeat longer-term extended-stay business. We are relying more on OTAs to fill transient rooms, impacting ADR. This trend is concentrated in a handful of project-related business hotels. (Todd Hargreaves, President & CIO)
Q: Your guidance suggests RevPAR up 1% year over year but hotel EBITDA down close to 10%. Can you explain this?
A: The decline in hotel EBITDA is primarily due to the impact of renovations. We expect 21 hotels under renovation in Q3, similar to Q2, which significantly affects year-over-year comparisons. (Brian Donley, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
