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Hospitality Properties Trust Q2 2010 Earnings Call Transcript

Hospitality Properties Trust Q2 2010 Earnings Call Transcript

Hospitality Properties Trust (HPT)

Q2 2010 Earnings Call Transcript

August 9, 2010 1:00 pm ET


Tim Bonang – VP, IR

John Murray – President and COO

Mark Kleifges – CFO and Treasurer


Andrew Wittmann – R.W. Baird

Jeffrey Donnelly – Wells Fargo

Michael Salinsky – RBC Capital Markets

Fred Taylor – MJX Asset Management

Smedes Rose – KBW



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Previous Statements by HPT
» Hospitality Properties Trust Q1 2010 Earnings Call Transcript
» Hospitality Properties Trust Q4 2009 Earnings Call Transcript
» Hospitality Properties Trust Q3 2009 Earnings Call Transcript

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Good day and welcome to the Hospitality Properties Trust second quarter 2010 earnings results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead.

Tim Bonang

Thank you and good afternoon. Joining me on today's call are John Murray, President and Mark Kleifges, CFO. 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, August 9th, 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, 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 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 now I would like to turn the call over to John Murray.

John Murray

Thank you, Tim. Good afternoon and welcome to our second quarter 2010 earnings call. Today, HPT reported second quarter FFO per share of $0.81. FFO this quarter excludes two non-cash charges totaling $0.18 per share, related to early extinguishment of debt and asset impairment at three of four hotels HPT has decided to sell.

Focusing first on HPT's hotel investments, second quarter RevPAR increased 4.1% across our 289 hotels, driven by a 6.8 percentage point increase in average occupancy to 72.9%, but partially offset by a 5.6% decline in average daily rate to $90.50.

RevPAR increased in all regions, except the west central regions, compared with the 2009 second quarter. RevPAR at our Spring Hill Suites, Country Inn and Suites and Hyatt Place Hotels gained 11.4%, 10.1% and 9.5% respectively this quarter, demonstrating the appeal of all-suite select service hotels.

HPT's hotels are primarily in suburban locations and are diversified across all segments except economy with a concentration in the upscale and mid-priced without F&B segments of the industry. The average RevPAR increase of our mid-scale without F&B hotels was 4.3%, slightly above that segment's average. However, in the upscale segment, our hotels didn't perform as well as the industry this quarter.

Among HPT's upscale branded hotels, only Hyatt Place and Spring Hill Suites exceeded the industry average RevPAR growth this quarter. HPT's upscale RevPAR growth versus the segment as a whole reflects that our upscale hotels are primarily select service suburban assets. In the early part of this recovery, urban and full service upscale hotels have achieved stronger improvement.

Nonetheless, we are optimistic that occupancy, rate and RevPAR trends for our hotels are moving in the right direction and indications of our, that these positive trends will continue.

Growing and maintaining rate remains a challenge. Although occupancy was up, in fact it was at or above 80% in four of our portfolios this quarter, ADR declined in every portfolio versus the second quarter of last year. Our managers continued to struggle with balancing guest mix, competitive pressures and the legacy impact of previously negotiated rates. This latter point may take until 2011 to overcome.

We have seen consistent RevPAR improvement each month, but more needs to be done to manage rates. Our asset management team continues to emphasize this in our meetings and conversations at the hotel level, as well as with our managers, regional and national revenue management teams.

The economy appears to be slowly recovering and year-over-year RevPAR comparisons continue to improve faster than we had projected at the start of the year. Indeed, we didn't expect positive quarter-over-quarter RevPAR for our hotels until the second half of this year but achieved that in the second quarter.

Updated projections by our managers generally indicate slightly positive RevPAR for 2010, but there is uncertainty. Although the situation is improving, booking windows remain short and it is difficult for our operators to accurately project monthly revenue until that month. Importantly, there is a renewed sense of optimism, as a result of the significant jump in demand that started in March and continues today.

The outlook for flow-through 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. There is growing cost pressure in the area of wages and benefits and as occupancy is improving largely without average daily rate increases, this too has and will continue to cause margin pressure.

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