Supply growth and a wave of renovations across the real estate investment trust’s portfolio have pushed down performance for Hospitality Properties Trust, according to executives on the company’s third-quarter call with analysts.
NEWTON, Massachusetts—Hospitality Properties Trust officials pointed to a combination of “headwinds,” lead by supply growth, depressing growth while discussing the real estate investment trust’s performance during the third quarter.
While President and CEO John Murray said “it’s tough to quantify accurately the impact of supply growth,” he believes it has been more impactful than other drags on performance like tough hurricane-related comparisons and a wave of renovations across HPT’s portfolio.
“Supply growth has been the highest in upscale this year (where much of the company’s portfolio is focused), and while demand growth has been high as well, we think supply growth has had at least as much impact as renovations on the quarter,” he said.
Comparable hotel revenue per available room fell 0.5% year over year for the quarter to $101.75, according to an earnings release.
While the company didn’t provide guidance for 2019, executives cautioned they believe similar headwinds will persist into at least a portion of next year. Murray did note that supply growth will moderate into the next year, though.
The company expects to spend $90.3 million in hotel improvements during the fourth quarter.
HPT purchased one property during the third quarter, a 164-suite hotel located in Scottsdale, Arizona. Murray said the company plans to rebrand it as a Sonesta Suites, which will require only a small investment because the property was recently renovated, and put it in the REIT’s current management agreement with Sonesta International Hotels Corporation.
Sonesta is operated by The RMR Group, which externally manages HPT.
HPT spent $35.9 million on the Scottsdale property, which Murray said translates to an 8% cap rate.
“We think that (cap rate) compares favorably (to pricing in the market),” he said. “It’s been a strong performer and was recently renovated. … It’s well-located, and so we think that’s a competitive cap rate for a full-service hotel in that market.”
HPT and RMR Group recently announced plans for Mark Kleifges, CFO and treasurer for HPT, to retire at the end of 2018.
The company has announced he will be replaced in-house by Brian Donley effective on 1 January2019. Donley has served as HPT’s controller since 2007 and “has served in various finance and accounting leadership roles at The RMR Group since 1997.”
During the Q3 call, Murray praised Kleifges’ contributions to HPT since joining the company in 2002.
The 0.5% drop in RevPAR for HPT’s 307 comparable hotels was caused by a 1.8 percentage point drop in occupancy to 77.8%, even amid a 1.8% increase in average daily rate to $130.79. Year to date, HPT’s hotels have seen a 1% increase in RevPAR to $99.08, a 2% increase in ADR to $129.52 and a 0.7 percentage-point drop in occupancy to 76.5%, the release states.
Adjusted earnings before interest, taxes, depreciation and amortization for the quarter was $225.7 million.
HPT’s stock closed Tuesday trading at $25.81 a share, down 14% year to date. The Baird/STR Hotel Stock Index is down 11.7% for the same period.