Q4 2019 Earnings Call
Report a comfortable. I see portfolio was flat with the one percentage Point increase in occupancy offset by 1.3% decline rate performance was held back by renovation disruption at two hotels along with Supply growth in Chicago Seattle and Portland which negatively impacted three Kimpton Hotels.
Semester portfolio report decreased by 2.1% as a result of a 4.1% decline in rate partially offset by an occupancy increase of one point three percentage points total comparable performance was deluded by Renovations at 3. Hotels as well as non repeat demand.
It is worth noting that the Clift Hotel in San Francisco, which was closed during the fourth quarter for for a complete renovation is now open and ramping up.
All right portfolio red part declined 1.3% caused by 3% decline rate partially offset by 1.2 percentage Point increase in occupancy with weakness driven by competition from new Supply and we can market demand do to decrease the city-wide events in Chicago and Houston.
Hotel Group portfolio RAV4 increase 4.7% this quarter versus last year with material post-renovation left at multiple properties and the conversion of the Country Inn & Suites hotel to a Radisson Hotel.
Report a Wyndham Hotels was up 5.3% this quarter reflecting a six point one percentage Point increase in occupancy partially offset by a 5.1% decline and rate positive performance for the full service properties was generated by transient demand and partially offset by a decrease of sixty North on sweets.
So the first quarter of 2020 we expect that 20 hotels under renovation compared to Twenty Eight last year while we continue to see positive lifts for motels that recently completed Renovations said factors indicate that SVC rep for growth q1 2020 May Trail the industry with certain factors potentially impact in future quarters as well as following are a few of the key factors.
A 2020 group pays is down nearly 1% mostly influenced by the shift of the Super Bowl from Atlanta with 14s hotels to Miami with only five SPC hotels.
Well, the potential headwinds of the Corona virus outbreak on the SPC portfolio Arnett, not yet readily Quantified several hotels have reported group cancellations as well as concerns about soften and related to inbound Travellers from infected regions.
Citywide projections a soft in San Francisco, Seattle, Philadelphia and San Antonio with many of these markets projecting reductions year-over-year in q1 2020.
Finally Supply growth is expected to continue to impact our growth in many major markets including Nashville, Dallas and San Jose among others.
As a result rate growth expectations of muted hotels are increasingly taking a longer to fill allowing less opportunity to push higher short-term rates managers project for 2020. We will experience rep pro-growth from occupancy gains driven by post-renovation Improvement, but with little change and rate such that full-year comparable ref is likely to be flat to up 1% We expect full-year 2020 GOP margin to decline by fifty to a hundred and fifty basis points given flat revenue and continued upward pressure of wages and benefits.
Now I'll turn it over to.
To discuss our net lease portfolio and recent investment activity.
Thanks, John. As of December 31st. 2019 s c c o d I heard 16th at least service-oriented retail properties including our Travel Centers with $14,000 million square feet requiring annual minimum rents of 381.7 million dollars, which represented 38% of sbc's total annual minimum returns and rents the portfolio page ninety-eight percent. We used to buy 194 tenants with a weighted average lease term of 11.4 years operating under 131 Brands and twenty three distinct Industries.
The aggregate coverage of sbc's net lease portfolios minimum rents were 2.32 times on the trailing-twelve-month basis as of December 31st, 2019 compared with two point five times as of September 30th 2019 train coverage for our largest had a Travel Centers of America was 1.92 times for the 2019 calendar year round vs. 1.885 times for the 2018 calendar year driven by improved fuel volumes and not fuel margins during the fourth quarter SPC entered lease renewals for an aggregate of 218,000 renting a square feet that weighted average minimum rent. That was 75 basis points below prior rents for the same space. The weighted average lease term for these leases was 8.1 years at least in concessions and capital commitments in these leases were $500,000 or $0.31 per square foot per issue because 75 basis-point decrease in France was related to that lease retail tenants with either above Market rent or Thursday.
Clinic sales that were on
Touch base with the previous owner not coming quarters. We may experience additional right roll down to associated with other properties on our list of tenants. We're laundering and will continue to proactively Asset Management which may result in early renewals the disposition turning to our recent investment activities as previously announced. We acquire the 261 Room Chicago Palomar Hotel in October for purchase price of $55 or $211,000 for a key which we believe is well below replacement cost. The hotel was added to our IHG management agreement is John mackel Reese old 130 at least access required in the smt a transaction for approximately $513 during the fourth quarter since January 1st, 2020. We have sold for vacation at least properties with a full one hundred sixty thousand square feet and three states for an aggregate sales price of $5 excluding closing costs.
We are currently under agreement to sell three Net lease properties with approximately one hundred six thousand square feet and Tuesdays for an aggregate sales price of 5.3 million dollars and marketing for sale or at least thirty seven deadly thoughts for the approximately 1.1 million square feet.
in February
2020 we entered agreements require three Net lease properties with approximately 6700 square feet and Tuesdays with leases requiring an aggregate of $387,000 of annual minimum wage for the sales price of $7 excluding closing costs. We're actively pursuing an acquisition opportunities in the net lease space in our in various stages of the offering and evaluation process for several directions at work best strategy seeks properties lease to grow operators and reputable Brands and targeted Industries and we are also focused on growing our relationships with current as as well as developing relationships franchise. Are you preferably would masterpieces we continue to actively evaluate Hotel operations in specific markets as well. I will now turn the call over to Brian. Thank you. Wage starting with operating results. And a321 comparable hotels is quarter decreased 2% gross operating profit margin percentage decreased by a 206 basis points, 2:35.
gross operating profit
Or decreased by approximately 9.7 million dollars, which is primarily the result of the negative impacts of Renovations and increased operating costs all are comparable portfolios experienced declines and GOP with the exception of our Radisson portfolio below the GOP line cost that are comprable hotels were down slightly from a prior year as a result of lower real estate taxes partially offset by higher Insurance costs.
Cash flow available to pay our minimum returns and rents for our comprable hotels declined nine point four million dollars or 8.6%
Costco covers minimum returns and rents for our 321 comparable hotels decreased 2.71 times for the 2019 fourth quarter compared 2.79 times for the prior-year quarter.
as we announced yesterday our agreements was so nice that will result in our exit of 39 extended stay hotels and Sonesta will continue to manage 14 full service hotels
the 39 extended stay hotels required minimum returns of 12.3 million dollars in generated two million dollars of cash flow available to pay these minimum returns for the 2019 fourth quarter.
The 14th.
Full service hotels required minimum returns of 22.8 million dollars and generate a cash flow available to pay these minimum returns of seven point seven million dollars for the 2019 fourth quarter.
Looking ahead to the 2020 first quarter. We currently estimate our 53,000 hotels could produce cash flows available to pay our minimum returns that attended 20% less than the fourth quarter 2019 results for this portfolio.
Renovation wrap up from the full service hotels we have discussed on prior calls will be more impactful in the second and third quarters of 2020.
As a reminder, we do not have any credit support for our semester agreement in the 53 hotels currently managed by semester represent approximately 14.7% of our total annual minimum returns and friends as of year-end.
There's too early to predict the timing of when we will exit 39 send us the hotels or how much in proceeds we may generate from any sale. We estimate any sales from this portfolio May transact in the third quarter of the earliest office regarding a previously announced plans to sell twenty Wyndham Hotels. We currently expect to complete the sale of the 60 and Hawthorn Suites Hotels managed by Wyndham in early Q2 and to transact on the remaining four full-service. Wyndham Hotels not too long after cover drug rental returns for these twenty hotels was three two times with a fourth-quarter and we will only receive cash flow generated from these hotels until they are sold.
We currently expect to complete the sale of 33 Marriott hotels by the end of the second quarter.
As we sell these hotels the annual minimum returns do under are married agreement with decreased by the amount allocated to the individual hotels, which was an aggregate of forty two point five million dollars.
Cuz if you around the balance of our security deposit from guarantees available to cover shortfalls in cash flow available to pay our minimum returns and rents under certain of our hotel operator agreements was $200.
Turning to a species Consolidated Financial results normalized ffo was 151 point six million dollars in the 2019 fourth quarter compared to $100 in the prior-year quarter an increase in wage cents per share. The increase is due primarily to the point six million dollars or $0.33 per share of business management incentive. The expense recorded in the 2018 fourth-quarter wage increases in on minimum returns of rents related to 2019 Acquisitions partially offset by the disposition of twenty Travel Centers, and at least amendments with TA in January 2019 declines in real life turns under arsonist in Windham agreements and an increase in interest expense adjusted ebitda. Sorry with $227 in the 2019 fourth-quarter our adjusted ebit. Our interest coverage ratio was 3.1 times for the seasonally weak fourth-quarter and that debt to annualized adjusted ebitda re was 6.7 times a quarter end.
as we previously stated are
Target Leverage is to be around six times that we believe we will reach this goal through our disposition strategy.
G&A expense for the 2019 fourth quarter of a 17.7 million dollars
our business management fee expense increased 2.4 million dollars over the prior-year primarily as a result of our increased market cap following the smt a transaction in the third quarter as a reminder are pissed off if he gets paid based on the lesser of total Market capitalisation or assets under management and is currently being paid on total Market capitalisation. We believe this calculation is indicative of the alignment of interests chair hold is built into our management contract with the arm our group GNA for the fourth quarter also includes a two-million-dollar non-recurring contingency loss.
Toyota of our Capital Improvement activity. We funded One hundred nineteen point four million dollars of Hotel improvements and 2.3 million dollars of net lease improvements in the fourth quarter bringing the 2019 full year total Capital expenditures to 245 million dollars.
Expect to find approximately 150 million dollar Hotel improvements in five million dollars at least improvements in 2020. We expect to find these improvements from operating cash flow.
turning to our balance sheet, as of quarter in debt was 50.2% of total gross assets and we had eighty one point three million dollars of cash including fifty three point six million dollars of cash escrow primarily for future improvements to agent tells
As a year end, we had $377 outstanding on our 1 billion dollar credit facility and intend to continue to pay down the outstanding balance on our line with proceeds from asset sales. We have no term debt maturity month of February 2021.
In November, we paid a regular quarterly dividend or, Cheryl is a 54 cents per share. We had a normalized ffo payout ratio of 58.7% for the fourth quarter. And as we look ahead we offer our quarterly dividend and its current level is sustainable and continues to be well-covered operator that concludes our prepared remarks. We are ready to open up the line for questions.
Weekend the question answer session ask a question. You may press * then 1 on your touchtone phone.
For using the speaker phone, please. Pick up your handset before pressing the keys with y'all your question, please press star then to this time. It will pose pause momentarily December or roster dead.
Question comes from Brian May or FBR, please. Go ahead. Good morning guys, just a couple of questions. And I know you briefly ran over some of these numbers but on the sales of the semester properties and some of the others, you know, I think you talked about the timing of the Hawthorns and the Marriott. But but do you expect the entire process have to take the bulk of the year or will it all play out in the second and third quarter month?
We've we're in the final rounds of bidding on the the Hawthorne and the TownePlace Suites in another week or so is the call for offers on the balance of the Marriott Hotels. So I think you know, then you allow a couple of weeks to get a purchase-and-sale agreed to you know, so we'll be in the latter part of March and you know, if you figure 30 day at a minimum thirty days diligence and 30 days to close, you know, it brings you through April May. I think that you know, realistically it'll be it'll be in the second quarter that uh, most of the Merit and the Hawthorn portfolio trade. Um,
We haven't done a call.
For offers will set a call for offers date yet on the for Wyndham branded hotels or waiting on a couple of Brands to uh to complete Phipps to help buyers understand the potential renovation costs. So we're we're waiting on that this The Nest up assets to the extent. They're sold will be, you know, we've engaged a broker and and they've been assembling it data room. We expect them to to launch the their stock their marketing efforts next week. So, you know, they'll be
A window of you know, 30-45 days, you know sort of initial marketing. So they'll definitely be a third quarter event.
Okay, and and then who are these purchasers out there and has anything changed in the last week or two as it relates to, you know people pulling back or kapre chod to rhe price deals, you know with what's going on in the marketplace.
we've we've
we've so far we've gotten portfolio bids multiple portfolio bids. I should say on each of the sub-segments and bought a number of the bids have offered hard money deposits up front because of a number of bids. We're we're very close to one another, you know, we uh, we we went back for you know for
Second-round offers and and all of the bidders stuck stuck with the deals and and you know as of you know, just last night we're we're seeing bids increase and and we're we're seeing portfolio bids on everything that we've calling for offers on so long and it's a it's it's a, you know, private Equity smaller private Equity shops high-net-worth individuals wage, um some bitters from the Asian American Hotel Owners Association. Yeah, just a, you know, a mix of a mix of buyers.
Okay.
And just lastly for me, you know John when you look at it, you know, the balance is twenty-twenty, you know to the extent that you do any more Acquisitions. You know, where is the bias you know with what you're seeing in the marketplace. Is it morning. This is a hotel is a travel centers.
Well, we are actively since we're relatively new to the space. We we are probably spending a little bit more time trying to develop relationships in the home that lease space. Then we are in in the hotel space cuz we've we've obviously been players there for a long time and have a number of good relationships. Um, but we're not suggesting that many opportunities, you know that we find, you know, attractive either because of the the current branding or because we're so late in the cycle. It's more difficult to get the type of of deal structure that we we like in in in hotels and that's historically been the case. It's typically off during the week or periods and early in in the recovery stages where we tend to buy hotels at the with the most volume and labor.
In recovery Cycles, we tend to be less active.
And so I think you know that's kind of how it's playing out. We've been doing we've been selective about our investments on the hotel side and mostly investing too long to improve or or help expand existing relationships. And I I kind of expect that that's that's what you'll see for for most of this year and and more of a focus on Netflix. Okay. Thank you, John.
Our next question comes from Kasten Wells Fargo, please go ahead. Thanks. If you guys exclude the hotels you expect to sell from rent coverage. Would that have been in 2019?
Or I mean if you've cut it in a different way you can.
Yeah, I mean, I think from the from the Marriott side coverage, you know, it would would increase around, you know, twenty points on that portfolio. I didn't really run the math with within at least included. So just look up from a portfolio segment, you know, if you could remove the Wyndham altogether and that's pretty easy math and at the end of the day the semester portfolio, you know the coverage for that portfolio, you know, really you can you can take out the 30 million week. We knocked off the top and it approves, you know, another 15 to 20 points on that portfolio.
Okay.
And I'm not sure if you said there's only cold but when you when you separate the full service on the Extended Stay, what was the coverage for for each of those?
yeah, so in the quarter for the year 2019
Yeah coverage was sorry. I was going to pull that real quick.
point four times four times
Which was which the lower end is on the Extended Stay side of it?
Okay and has Marriott intercon Hyatt have any of them expressed interest in the 39 Extended Stay?
what we haven't
We have we're not really launching marketing until until Monday we didn't.
You know.
The impacted hotels at semester and and related employees in the corporate office, you know only found out about about the Strategic change last night or or this morning. And so, you know, we didn't we didn't think it was appropriate to be just discussing the 39 hotels outside of this office until until we had everybody was in the know we needed to be so dead. You know that said a number of the properties in the semester e s program are former residents ins and outs are filled sweets that are older generation with exterior entrances and uh, you know, multiple buildings. So they're they're not brand standard for for marriage.
today to for conversion to residency
And I think the same is probably the case for for Staybridge. So it would require for them to be interested in the in the authors would require them spending some some of the brand standards which is probably probably unlikely that said there are probably a dozen or so purpose-built form of purpose-built staybridges that are part of the portfolio. And so it may be that i g off either would show would have an interest in in having them rebranded and added to our IHG portfolio or you know might I might bring franchisees of there as to the table with a you know with the long longer term franchise agreement on those assets dead.
so
You almost have to see how it plays out. And how do you expect the the remaining fourteen full service to ramp over the next few years from the point seven times today?
We expect to see pretty good ramp up the
The Fort Lauderdale Hotel the St. Louis Chase Park Plaza Hotel, we're both significantly impacted by Major Renovations during 2019. The cleft in San Francisco was was totally closed for I think since you know August through December it reopened in early January and time for the JP Morgan Healthcare conference in San Francisco, but not with all of its rooms available at all of them available today and but there's still a little bit of work on on on some finishing some facade issues and some f&b space. But so, you know, we expect varies very significant pick up when you when you factor in a Major Market like San Francisco going from being closed too long.
To be enclosed and have not having been renovated since Ian Schrager renovated in 2002 to a you know, a brand new state-of-the-art facility. I think we're we're expecting significant growth their we're already seeing a very strong group bookings and the Chase Park Plaza in st. Louis down the Fort Lauderdale Hotel. So so far we don't have the end of the March but was on track to be first quarter budgeted number. So we're feeling pretty good that that we're going to see nice Improvement across the 14 hotels.
Okay. Thank you.
This concludes our question-and-answer session, and I'd like to turn the conference back over and mr. John Murray for any closing remarks, please go ahead. Thank you all for joining us on the call today and you look forward to catching up with you in the coming weeks and months. Thank you.
Conferences now concluded thank you for tending today's presentation. You may now disconnect.