HPT: Supply, renovations present headwinds
HPT: Supply, renovations present headwinds
02 MARCH 2017 8:54 AM

Officials with Hospitality Properties Trust said performance of the real estate investment trust’s portfolio was affected by market-specific supply growth, ongoing renovation work and other obstacles during the fourth quarter and full-year 2016.

NEWTON, Massachusetts—Hospitality Properties Trust President and COO John Murray pointed to a number of issues, including growing supply, as obstacles the company faced in 2016.

“Certain (number) of our hotel markets were impacted by renovations and accelerating room supply growth,” he said during a conference call with investors to discuss his company’s fourth-quarter and full-year performance. “Citywide events and continued weakness in the energy sector also negatively impacted (revenue per available room) growth.”

Those pressures kept RevPAR largely flat for the quarter, growing just 0.6% to $84.76 for comparable hotels, according to an earnings news release. But the real estate investment trust was able to exceed the industry average for the full year, growing RevPAR 3.6% to $95.20.

Those numbers are subdued compared to the more robust growth seen in recent years across the industry, and Murray said he expects more of the same in the near future based on discussions with the brands his company works with.

“Our managers are projecting that … we will continue to experience steady occupancy and a more modest level of rate increases such that RevPAR growth may be 1.5% to 2.5%,” he said.

The REIT’s extended-stay portfolio represented a bright spot in 2016, which saw 3.6% improvement in RevPAR for the quarter and a 119-basis-point improvement in gross operating profit.

As of press time, HPT’s stock was trading at $32 per share, up 0.8% year to date. For the same period, the Baird/STR Hotel Stock Index was up 19.4%.

Litigation with SBE/Morgans
HPT officials announced they could be seeking an exit from the agreement made with Morgans Hotel Group for the Clift Hotel in San Francisco. Murray said in December “HPT advised Morgans that the closing of its merger with SBE Entertainment Group was in violation” of the agreement between the two companies and HPT has since filed a lawsuit in California on those grounds.

“We are currently in discussions with Morgans and SBE regarding this matter and are currently pursuing remedies, which may include terminating the Morgans agreement,” he said.

When pressed further by analysts, Murray wouldn’t say what he hopes the ultimate endgame of the litigation will be.

Recent acquisitions
HPT officials discussed three recent acquisitions during the call. They were:

  • The $46-million purchase of a 236-room independent, full-service hotel in Milpitas, California. That property will be converted to a Sonesta brand following a $15-million renovation that should be completed in 2018. The deal closed in early December.
  • The $85.5-million acquisition of the 483-room Hotel Allegro, a Kimpton Hotel in Chicago, which closed in February.
  • A 121-room luxury, boutique hotel in Seattle for $71.6 million. No closing has been announced but the agreement was reached in November. Like the Hotel Allegro, the hotel will be added to HPT’s agreement with InterContinental Hotels Group.

Murray pledged that his company will continue to be an active buyer going forward.

When an analyst pointed out that recent acquisitions seem to favor deals with IHG and Sonesta, Murray said HPT will favor working with those companies but will continue to sign deals with others.

“Those have been the easiest to grow, but I think over the course of this year, you will see transactions taking place with other operators in our portfolio,” Murray said. “I don’t think you should expect to only see growth with IHG and Sonesta, but you will probably see more growth there than with others.”

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