Hospitality Properties Trust (HPT)

Q2 2011 Earnings Call

August 09, 2011 1:00 pm ET


Carlynn Finn - Manager Investor Relations

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

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


Smedes Rose - Keefe, Bruyette, & Woods, Inc.

Jeffrey Donnelly - Wells Fargo Securities, LLC

Bryan Maher - Citadel Securities, LLC

Michael Salinsky - RBC Capital Markets, LLC

Ryan Meliker - Morgan Stanley

David Loeb - Robert W. Baird & Co. Incorporated



Good day, and welcome to Hospitality Properties Trust Second Quarter 2011 Financial 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 Manager of Investor Relations, Carlynn Finn. Please go ahead.

Carlynn Finn

Thank you, and 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 the 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 other securities laws.

These forward-looking statements are based on HPT's present beliefs and expectations as of today, August 9, 2011. 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 financial measures, including normalized funds from operations or normalized FFO. A reconciliation of normalized FFO and EBITDA to net income, as well as components to calculate AFFO, CAD or FAD, are available in our supplemental package found in our Investor Relations section of the company's website.

Actual results may differ materially from those projected in these 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 Q2 supplemental operating and financial data found on our website at Investors are cautioned not to place undue reliance upon any forward-looking statements.

Now I would like to turn the call over to John Murray.

John Murray

Thank you, Karla. Good afternoon, and welcome to our second quarter 2011 earnings call. Today, HPT reported second quarter normalized FFO per share of $0.89, a 9.9% increase over 2010 second quarter normalized FFO per share of $0.81.

Focusing first on our TravelCenters investments. This morning, TA reported its strongest quarterly result as a public company with second quarter 2011 net income of almost $22 million. This compares to net income of $1.2 million in the 2010 second quarter. TA's second quarter performance included a modest increase in fuel volume and significant increases in per gallon fuel margins and nonfuel sales and gross margin. Property level rent coverage for HPT's TravelCenters was almost 2x for the quarter. In addition to its strong operating results, TA's financial position remains sound with approximately $137 million of cash on hand at quarter end.

Turning to HPT's hotel investments. Second quarter RevPAR increased 8.2% across our 289 hotels driven a by 3.3 percentage point increase in average occupancy to 76.2% and a 3.5% increase in average daily rate to $93.64. Compared with the 2010 second quarter RevPAR increased in all regions with double-digit gains in the New England, Pacific and North Central regions, but only modest improvement in Canada and the South Atlantic region. Our Continental Suites, Marriott Hotels and Resorts and TownePlace Suites all generated RevPAR growth in excess of 10% this quarter versus last year. There was no material renovation impact in second quarter results.

HPT's hotels are concentrated within the upscale and mid-scale industry segments in suburban locations. The average RevPAR increase of our mid-scale hotels was 10.1%, 7.4 percentage points above the industry average for that segment. RevPAR upscale hotels increased 7.3% compared to the industry segment average of 7.8% this quarter. HPT's upscale hotels performance versus the segment as a whole has improved significantly, particularly due to completion of Courtyard and Residence Inn renovations over the past 18 months.

Average daily rate growth was 3.5% in the second quarter of 2011 and has increased in each hotel portfolio this quarter compared to last year as our operators continue to manage guest mix to reduce discounted business. It is encouraging that despite the macroeconomic environment, we have seen consistent occupancy rate and RevPAR improvement each month in 2011 compared to 2010 and paid great attention to the us to be focused on managing rate. Our RevPAR growth this quarter was impacted by various factors including our record number of tornadoes and flooding in the Midwest and Southern states, reduced government per diems and certain government cutbacks including to NASA and army based closure.

Our manager's forecast RevPAR growth across all of our hotel portfolio's in the range of 6% to 7% for 2011, and they've indicated they remain comfortable with their full year RevPAR projections for our hotels. There is continued optimism about this ongoing lodging recovery as a result of continued steady increases in demand, average daily rate and GOP margin improvement. Although the recent slowing of U.S. economic growth and fallout and the aftermath of the S&P downgrades has intensified uncertainty about the pace of lodging recovery going forward, we have yet to see anything that would indicate a decline in hotel room demand.

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