SPT executives confident in liquidity and positioning
 
SPT executives confident in liquidity and positioning
11 MAY 2020 3:28 PM

While Service Properties Trust leaders say the company is well-positioned to weather the pandemic storm, they are anticipating planned portfolio divestments may not happen this year or at all.

NEWTON, Massachusetts—Real estate investment trust Service Properties Trust has closed 19 hotels in its portfolio since the coronavirus (COVID-19) pandemic hit the United States, but President and CEO John Murray maintains the company is in “a solid financial position” thanks to its balance sheet, liquidity and operator agreements.

Murray said on the company’s first-quarter earnings call with analysts Monday that earnings for the first two and a half months of the quarter “met expectations,” but by mid-March the company started feeling the impact of closed hotels and halted travel.

Still, Murray said SPT was well-positioned heading into the pandemic and “expects gradual improvement” as states reopen and travel resumes, given the company’s financial structure and portfolio positioning, with a good concentration in extended-stay hotels and high-density suburbs.

“We have taken multiple necessary and difficult actions to preserve capital and our liquidity position,” he said.”

That includes its announcement earlier today to amend the credit agreement governing its $1-billion unsecured revolving credit facility and $400-million unsecured term loan. It allows for a waiver of some financial covenants through 31 March 2021.

In March, the company also announced it would reduce regular quarterly cash distributions, which Murray said “will preserve up to approximately $262 million of capital for 2020.”

Q1 performance
In terms of hotel performance, HPT’s hotel portfolio of comparable hotels had 56.9% occupancy in the first quarter, down 10.5 percentage points from last year. Average daily rate was $121.02, down 4.6% from the same quarter last year, and revenue per available room was $68.86, down 19.5% from the previous year.

For the 28 days ending 2 May, occupancy was 23.3%.

The 19 hotels SPT closed since the pandemic hit represents about 6% of the company’s portfolio, according to Murray. Sixteen of those are full-service hotels, and Murray estimates the company is saving $1.9 million per month with those hotels closed for now.

“Despite overall weak demand, our suburban extended-stay hotel and select-service hotels so far perform better than our urban full-service (hotels),” he said.

Extended-stay hotels in particular are forecasted to continue to build continued business from long-term residences, medical, construction and government business.

Sales in the works
Over the last few quarters the company detailed plans to reshape or sell 33 Marriott International-branded hotels, 20 Wyndham-branded hotels and 39 Sonesta-branded hotels.

That process is on hold for now as a result of the pandemic, and VP Todd Hargreaves said he expects no transactions to take place until at least later 2020, if not later.

“These transactions may be delayed beyond 2021 or may not occur,” he said.

Despite these setbacks, Murray said the company has a positive long-term outlook for its future.

“The secure structure of our agreements and our liquidity management should enable us to navigate these difficult times until the recovery kicks off,” Murray said.

At press time, SPT’s stock was trading at $5.91, down 75.7% year to date. The Baird/STR Hotel Stock Index was down 41.1% for the same time period.

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