Service Properties Trust quarterly report, Q3 FY2015

完整文档

Service Properties Trust (then Hospitality Properties Trust) — Q3 2015 Form 10-Q

Filing identity: The supplied filing is for Hospitality Properties Trust (HPT), the company’s name in 2015; it is not filed under the name Service Properties Trust. Reporting period ended September 30, 2015. Financial statements are unaudited. Unless otherwise stated, amounts below are in millions of dollars.

Business context and reporting period

HPT was a REIT owning and operating hotel and travel-center real estate. At quarter-end it owned 302 hotels and 193 travel centers; hotels generated operating revenue and travel centers were leased to TravelCenters of America (TA). The filing compares Q3 and the first nine months of 2015 with the corresponding 2014 periods.

Financial results and key metrics

  • Q3 revenue: $511.9, up 11.4% year over year. Hotel operating revenue was $437.2, rental income $73.7 and FF&E reserve income $1.0.
  • Q3 earnings: Operating income was $98.3, up 17.6%; net income was $61.2, up 24.4%; net income available to common shareholders was $56.0, or $0.37 per share, versus $44.0, or $0.29 per share. Operating margin was approximately 19.2%, compared with 18.2%.
  • Nine-month results: Revenue was $1,454.5, up 11.4%; operating income was $284.2, up 15.3%; net income was $185.9, up 32.2%; and common-shareholder income was $170.4, or $1.13 per share, versus $125.2, or $0.84. Results included an $11.0 gain on sale of five travel centers.
  • FFO: Q3 FFO available to common shareholders was $140.3, or $0.93 per diluted share; normalized FFO was $149.7, or $0.99 per diluted share. For nine months, FFO was $403.2, or $2.67 diluted per share, and normalized FFO was $422.6, or $2.80. These are non-GAAP measures, not cash flow.
  • Cash flow: Nine-month cash from operations was $374.9, versus $326.6. Investing used $575.3, primarily for acquisitions, property improvements and the RMR investment. Financing provided $195.9, mainly reflecting net revolver borrowings; cash declined $4.5 to $7.4.
  • Liquidity and debt: At September 30, cash was $7.4 and restricted FF&E cash was $44.3. Revolver borrowings were $454.0 of a $750.0 facility, leaving $296.0 available; the term loan was $400.0. Public senior notes had $2,425.0 principal outstanding and convertible notes $8.5. Total principal debt was approximately $3,287.5. Revolver and term-loan rates were 1.29% and 1.40%, respectively. HPT reported covenant compliance.
  • Distributions: Common distributions were $0.50 per share for Q3; $0.99 per share was declared for the first nine months. A further $0.50 common distribution was declared in October. Series D preferred distributions were $5.2 per quarter.

Material changes versus the prior comparable periods

  • Comparable hotel performance improved: Q3 ADR rose 6.2%, occupancy increased 0.6 percentage points to 79.5%, and RevPAR rose 7.0%. For nine months, ADR rose 7.2%, occupancy increased 1.3 points to 77.1%, and RevPAR rose 9.1%. Renovations depressed results at some hotels.
  • Revenue growth reflected stronger hotel trading and acquisitions, as well as increased TA rent. Expenses also increased, including hotel operating expenses, management fees, security-deposit and guarantee replenishments, and general and administrative costs.
  • HPT acquired 11 hotels, a land parcel and 14 travel centers, and purchased specified assets at 11 TA-leased sites, for aggregate disclosed purchase prices totaling about $477.9. It sold five TA-branded travel centers for $45.0 and recognized an $11.0 gain.
  • HPT’s revolving-credit balance rose from $18.0 at December 31, 2014 to $454.0 at September 30, 2015, principally supporting acquisitions and investment spending.

Outlook, commentary and risks

  • Management said it expected operating cash flow to cover operating costs, interest and distributions over the next 12 months, while warning that tenant or manager payment shortfalls could reduce cash flow and distributions. No formal earnings guidance was provided.
  • Management expected renovation activity to continue through the remainder of 2015 and into 2016, with approximately $94.5 of hotel renovation and improvement spending expected during that period. Returns may not rise enough to offset costs or disruption.
  • In June, HPT and TA reorganized 144 properties into four amended leases and completed purchases and sale-leasebacks. Annual minimum rent increased by $24.0 from the completed TA purchase-leaseback transactions; five additional TA development properties were contemplated, with estimated acquisition cost up to approximately $118.0, subject to development and other conditions.
  • HPT acquired a 16.2% indirect economic interest in its manager, RMR LLC, through the RMR Inc. transaction. It intended to distribute about half of the RMR Inc. shares received to shareholders after SEC registration and exchange-listing steps; timing and market value were uncertain. The amended management agreements run to 2035 and can entail substantial termination fees in specified circumstances.
  • Hotel minimum-return coverage was below 1.0x for three of nine hotel agreements, representing 16% of annual minimum returns and rents. Sonesta and Marriott No. 1 returns had no guarantee or security deposit and depended on property cash flow. Other deposits and guarantees were limited and could be depleted or expire. TA’s rent-paying ability and substantial related-party relationships were also identified as risks.
  • Floating-rate borrowings exposed HPT to LIBOR increases; a 100-basis-point increase was estimated to add about $8.5 annually to interest expense on then-current floating debt. Debt maturities, refinancing access, covenant compliance and the ability to fund acquisitions, improvements and distributions remain relevant risks.

Important facts for investors to verify

  • Confirm the issuer identity and continuity between the 2015 Hospitality Properties Trust filing and the requested Service Properties Trust entity.
  • Review the quality and cash realization of rental income, including straight-line and deferred TA rent, and distinguish reported earnings from cash receipts.
  • Track hotel coverage, renovation spending and performance, especially the unguaranteed Sonesta and Marriott No. 1 portfolios and the remaining balances of other guarantees and deposits.
  • Assess debt maturities, revolver usage, interest-rate exposure, capital commitments, and whether operating cash flow can support distributions without continued borrowing.
  • Verify the completion and value of the proposed RMR Inc. shareholder distribution, the planned TA development acquisitions, and the effects of related-party management arrangements.