Hospitality Properties Trust Q1 2010 Earnings Call Transcript

Hospitality Properties Trust Q1 2010 Earnings Call Transcript
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Hospitality Properties Trust (HPT)

Q1 2010 Earnings Call

May 10, 2010 1:00 pm ET

Executives

John Murray – President

Mark Kleifges – CFO

Timothy Bonang – VP IR

Analysts

David Loeb – Robert W. Baird

Michael Salinsky – RBC Capital Markets

Michael Aroian – Sun Life Financial

Ryan Meliker – Morgan Stanley

Presentation

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Good day and welcome to the Hospitality Properties Trust first quarter 2010 financial results conference call. At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Timothy Bonang.

Tim

othy

Bonang

Good afternoon. Joining me 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 a 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, May 10, 2010. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC.

In addition, this call may contain non-GAAP numbers 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. 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 SEC 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.

And now I would like to turn the call over to John Murray.

John Murray

Thank you Timothy, good afternoon and welcome to our first quarter 2010 earnings call. Today HPT reported first quarter FFO per share of $0.76. Focusing on HPT’s hotel investments, first quarter RevPAR declined 4.1% across our 289 hotels, driven by a 4.3 percentage point increase in average occupancy to 64.2% and a decline in average daily rate of 10.5% to $91.67.

RevPAR increased in Canada and New England, but declined in all other regions compared with the 2009 first quarter. Our Hyatt Place portfolio RevPAR gained 3.2% this quarter and has now overcome the historical RevPAR dominance of our Courtyard among upscale hotels.

RevPAR declined in our TownPlace Suites and Candlewood Suites brands with each down 8.5%. The mid price to extended stay hotel segment continues to suffer from cannibalization by upscale extended stay hotels.

Maintaining rate integrity remains a challenge especially for our select service brands, as suburban full service hotels continue to aggressively package room rates and other amenities to drive occupancy resulting in a trade up effect in some markets, particularly those lacking group demands.

Although RevPAR at our hotels declined in the first quarter of 2010 for the seventh consecutive quarter we are encouraged that room demand seems to be picking up and with increasing occupancy comparable year over year rate trends are also gradually improving.

Looking at the trend in occupancy during the past five quarters, occupancy was down over eight percentage points in the first two quarters of 2009, down 6.6 percentage points in Q3, down only 1.7 percentage points in Q4 and positive 4.3 percentage points this quarter.

Looking at ADR over this same period, the quarterly comps were generally negative in the teens for each quarter of 2009 and down a less negative 10.5% in the first quarter of 2010. In the month of March, occupancy was up 6.6 percentage points and rate was down 7.8% resulting in a RevPAR increase of 1.6%.

This is the first year over year monthly increase in RevPAR for our hotel portfolio since July of 2008. Too early to celebrate the recovery, but revenue trends are headed in the right direction. While the economy appears to be slowly recovering, and year over year comparisons are improving faster than we had previously projected, we don’t expect positive quarter over quarter RevPAR for our hotels until the second half of this year.

Update projections by our managers for 2010 now generally indicate flattish RevPAR but there is a high level of uncertainty. Because booking windows remain short, it has been very difficult for our operators to accurately project monthly revenue until the month is nearly over.

Nonetheless there is a renewed sense of optimism as a result of the significant jump in demand during March. The outlook for [inaudible] of projected increases in revenue to hotel level cash flow is less encouraging.

Incremental cost savings are difficult for our operators to achieve especially when demand is so hard to predict accurately. In fact there is growing cost pressure in areas such as wages and benefits. Also as occupancy is improving largely without average daily rate increases this too has and will continue to cause margin pressure.

Accordingly 2010 hotel net operating income is still expected to decline versus 2009 even if the latest forecasts prove accurate. Despite this our hotels are participating in the recovery and will gradually return to past levels of cash flow because of their attractive locations, high quality, and recognized brands.

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