HPT sees Sonesta, IHG portfolios grow with acquisitions
 
HPT sees Sonesta, IHG portfolios grow with acquisitions
10 AUGUST 2017 8:01 AM

Officials with Hospitality Properties Trust discussed the planned or completed acquisitions of 18 hotel properties during their second-quarter earnings call. Those new properties will be added to HPT’s Sonesta and InterContinental Hotels Group portfolios.

NEWTON, Massachusetts—During a recent earnings calls with investors, Hospitality Properties Trust officials said they had plans to return to being an active buyer after a period on the sidelines.

The company fulfilled that promise during the second quarter, President and COO John Murray said, with the acquisitions, either in progress or recently closed, of 18 hotels properties and one travel center property.

• For more coverage of Q2 2017 earnings, click here.

HPT’s recent acquisitions include:

  • The $87.6 million purchase of the 389-room Chase Park Plaza Hotel in St. Louis, Missouri, which Murray said was converted to a Royal Sonesta, in June;
  • Also in June, the $88.6 million buy of the 495-room Crowne Plaza Ravinia in Atlanta from Ashford Hospitality Trust;
  • A July agreement to acquire 14 extended stay properties, encompassing 1,653 rooms across 12 states, for $138 million, with plans to convert them to the Sonesta ES Suites brand;
  • Another agreement announced in July to buy a 300-room Crowne Plaza in Charlotte, North Carolina, for $44 million; and
  • The completed purchase of the 419-room Crown Plaza & Lofts in Columbus, Ohio, for $49 million in early August.

Of those purchases, Murray said he was particularly hopeful for the prospects for the Crowne Plaza Ravinia because of his company’s plans to significantly renovate the property and the potential for InterContinental Hotels Group to drive a large increase in business to the hotel.

The property is “right across the driveway from IHG’s headquarters in Atlanta,” he said. “The hotel was most conservatively described as poorly maintained by its prior owner, and we’ll be putting a substantial amount of capital into its renovation. If we expected to generate the same cash flow (as under previous ownership), it’d be a very aggressive acquisition, but we’re expecting to fix it up and make it one of the flagship Crowne Plazas around the U.S. if not around the world. And that’s in large part because of the business that IHG currently sends to other hotels out of embarrassment. So we don’t think it’s aggressive, at all. We think it’s a sensible, good, long-term investment.”

Murray noted that acquisition and the others discussed during the call were largely driven by relationships with partners like IHG. He said IHG approached Ashford about a sale in hopes of taking over management and transforming it into a keystone property for the brand.

The other Crowne Plaza properties will also be added to HPT’s management agreement with IHG.

Murray said the portfolio of extended-stay hotels will largely be converted Residence Inn properties that Marriott International no longer has an interest in maintaining under that flag due to their age. He said his company and Sonesta have had success in the past converting older Residence Inn properties to the Sonesta ES Suites brand.

CFO Mark Kleifges said the company expects to be able to maintain its target leverage level of 35% to 40% despite the spat of acquisitions. And the company might have some wiggle room for more buys, he said.

“We should be around that 40% number at the end of the year,” he said. “When you consider the cash we had on hand at the end of the quarter and the free cash flow generated from operations in the second half, I’d say we won’t be outside of that 35% to 40% range, but we’ll be right up against 40%. But we’ve shown a willingness to operate above 40% for a period of time, if necessary.”

The company also announced two asset sales. The first was an agreement in July to sell the 143-room Country Inn & Suites in Naperville, Illinois, for $6.6 million, which should close during the third quarter. The second was the recently closed sale of the 159-room Radisson in Chandler, Arizona, for $9.5 million.

Analysts questioned whether market conditions would push HPT to look into more large-scale sales of multiple assets. Murray said that’s not likely but noted the company “continues to look at our portfolios to identify weaker looking properties we can prune out.”

“But don’t look for wholesale portfolio sales,” he said.

The company also purchased a travel center location in Columbia, South Carolina, through its relationship with TravelCenters of America for $27.6 million.

Q2 performance
Performance-wise, HPT saw a relatively weak second quarter, with revenue per available room down 0.2% year over year to $103.38 for the quarter. The drop was largely due to a 0.8% drop in occupancy to 79.8%, but somewhat offset by a 0.8% increase in average daily rate to $129.55.

Murray attributed the weak performance to supply growth and market-based problems in places like San Francisco and Houston.

Adjusted earnings before interest, taxes, depreciation and amortization was up 2.2% for the quarter to $220.3 million, while net income was $60.7 million.

As of press time, HPT’s shares were trading at $27.33, down 7.5% year to date. The Baird/STR Hotel Stock Index was up 24.2% for the same period.

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