HPT actively seeks transactions despite slow Q1 growth
HPT actively seeks transactions despite slow Q1 growth
11 MAY 2017 8:25 AM

Officials with Hospitality Properties Trust said they weren’t caught off guard by slow growth during the first quarter of 2017, and they remain hopeful that things will improve for the balance of the year.

NEWTON, Massachusetts—Hospitality Properties Trust officials believe U.S. gross domestic product growth is a reliable indicator of the company’s revenue per available room performance.

So while speaking during the company’s first-quarter earnings call with investors, President and COO John Murray said the company was prepared for a relatively weak Q1.

“This is the seasonally weakest quarter for HPT’s hotel portfolio,” he said. “Despite expectations for better growth later in the year, GDP growth was 0.7% in the first quarter, so first-quarter RevPAR growth of only 1% was not surprising.”

Both Murray and CFO Mark Kleifges indicated they have higher expectations for the remainder of the year, and expect to see a bounce back in the third quarter in particular.

“Industry experts continue to forecast RevPAR growth in the 2.5%-range for 2017, just under historical long-run average growth rates,” Murray said. “Our managers continue to project that for 2017 we will experience steady occupancy and a modest level of rate increases, such that RevPAR growth may be in the 1.5% to 2.5% range.”

Despite the slow growth of performance metrics to start the year, Murray noted HPT remains active in the transactions market. Spending more than $200 million on three properties in the quarter.

The first-quarter transactions included two Kimpton Hotels that were added to HPT’s management agreement with InterContinental Hotels Group. In February, the company acquired the 483-room Hotel Allegro in Chicago for $85.5 million, and in March the company spend $71.6 million for the 121-room Hotel Alexis in Seattle.

Murray told analysts the higher per-key price for the Seattle property was justified by the strength of that market’s economy and the potential of the property.

“We think Seattle is a great market,” he said. “It’s one of the largest ports on the West Coast. It’s home to companies like Amazon, Nordstrom and Microsoft. It’s a great city. The hotel is very well located, and I’ll add the purchase price for that hotel on a per-key basis was less than a couple other acquisitions that were taking place in the same time frame. So it’s just a reflection of how successful and vibrant the economy is in Seattle as opposed to crazy pricing.”

In March, the company also signed an agreement to buy the 389-room Chase Park Plaza hotel in St. Louis, Missouri, for $87.8 million, and officials plan to convert it to the Royal Sonesta brand.

When asked by analysts if the recent purchases mark a shift in strategy for the real estate investment trust to invest in more high-end properties or whether they were opportunistic buys, Murray said it’s a mixture of those two factors.

“When there are opportunities, we’ll take advantage of them,” he said. “But I think you’ll continue to see us invest in select-service, extended-stay hotels at the same pace. But that will be, generally speaking, in portfolios, not one-offs like the full service.”

Q1 performance
Slow growth for HPT’s overall RevPAR can be largely attributed to virtually flat occupancy, which increased just 0.1% in the quarter to 71.5%. Average daily rate was up just 0.9% to $125.03.

The company saw a 3.7% increase in adjusted earnings before interest, taxes, depreciation and amortization $194.6 million and net income for the quarter of $25.8 million.

HPT’s stock was trading at $29.84 per share as of press time, a year-to-date drop of 6%. The Baird/STR Hotel Stock Index was up 24.9% for the same period.

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