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Hospitality Properties Trust (HPT)

Q4 2010 Earnings Call

February 18, 2011 1:00 pm ET


Timothy Bonang - Director of Investor Relations

Mark Kleifges - Chief Financial Officer, Principal Accounting Officer, Treasurer and Executive Vice President of Reit Management & Research LLC

John Murray - President, Chief Operating Officer, Secretary Assistant Secretary and Executive Vice President of Reit Management & Research LLC


Daniel Donlan - Janney Montgomery Scott LLC

Jeffrey Donnelly - Wells Fargo Securities, LLC

Bryan Maher - Citadel Securities, LLC

Michael Salinsky - RBC Capital Markets, LLC

Ryan Meliker - Morgan Stanley



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Welcome to the Hospitality Properties Trust Fourth Quarter Conference call. [Operator Instructions] I would now like to turn the conference over to your host, Tim Bonang. Please go ahead.

Timothy Bonang

Thank you, and good afternoon. Joining us on today’s call are John Murray, President; and Mark Kleifges, Chief Financial Officer. John and Mark will make a short presentation which will be followed by the question-and-answer session. I would also note that the recording and retransmission of today’s conference call is strictly prohibited without prior written consent of HPT.

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, February 18, 2011. The company undertakes no obligation to revise or publicly release the results of any revisions to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC regarding this reporting period.

In addition, this call may contain non-GAAP financial measures, including funds from operations or FFO. A reconciliation of FFO to net income, as well as components to calculate AFFO, CAD or FAD, are available in our supplemental package found in the Investor Relations section of the company's website.

I would like to note that this morning, we had a technical issue posting the supplemental to the website and we apologize for any inconvenience this caused.

Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Forms 10-Q and 10-K filed with the Securities and Exchange Commission and in our Q4 supplemental operating and financial data package found on our website at Investors are cautioned not to place undue reliance upon any forward-looking statements.

And with that, I would like to turn the call over to John Murray.

John Murray

Thank you, Tim. Good afternoon, and welcome to our fourth quarter 2010 earnings call. Today, HPT reported fourth quarter FFO per share of $0.85. Reported FFO excludes a non-cash net loss on impairment of $147.3 million or $1.19 per share, which Mark will discuss in more detail later.

Focusing first on HPT's hotel investments. Fourth quarter RevPAR increased 5.3% across our 289 hotels, driven by a four percentage point increase in average occupancy to 66% that was partially offset by a 1.1% decline in average daily rate to $90.03. Compared with the 2009 fourth quarter, RevPAR increased in all regions but was weakest in the Mountain, mid-Atlantic and West Central regions. Our Springhill Suites, Marriott full service, Country Inn & Suites, Candlewood Suites and TownePlace Suites Hotels all generated RevPAR growth in excess of 10% this quarter versus last year.

HPT's hotels are concentrated within the upscale and midscale of our food and beverage industry segments in suburban locations. The average RevPAR increase of our midscale without F&B hotels was 12.2%, approximately 3% above industry average for that segment. However, RevPAR at our upscale hotels increased only 3.4% compared to the industry segment average of 9.3% this quarter. HPT's upscale hotels’ underperformance versus the segment as a whole reflects that our hotels are primarily select service suburban assets and also that 32 of our hotels or 17% of our upscale assets were being renovated this quarter. During initial stages of the lodging recovery, we expected urban full service upscale hotels to achieve stronger initial improvement because they tended to be more severely impacted by the recent recession.

Growing average daily rate remained challenging in the fourth quarter. Despite strong occupancy growth, ADR increased in only five of our 11 hotel portfolios this quarter compared to last year. Our operators continue to manage guest mix to reduce discounted business, but previously negotiated rates set in 2009 remained an issue in the fourth quarter. Approximately 45% of our hotels are extended-stay hotels and demand growth in 2010 has been strongest in the over 30-day category. As our extended-stay hotels increased average length of stay, rates for longer stays are generally lower, also negatively impacting RevPAR growth.

Finally as I just mentioned, 32 of our hotels including 21 Courtyards, 10 Residence Inns and our LAX Crowne Plaza were being renovated during the quarter, negatively impacting performance. Despite these factors, we have seen consistent RevPAR growth each month compared to last year and great efforts are being made to better manage rate.

As the economic and lodging industry recoveries continue, forecast by our managers indicate positive RevPAR for 2011. The forecast average across all of our hotel portfolios is in the range of 6% to 7%. There is growing optimism about this recovery as a result of the steady increases in demand, which we saw throughout 2010 and the expectation we will see rate and GOP margin improvement during 2011, especially in the second half of the year.

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