HST 2Q 2015 CONFERENCE CALL NOTES

Takeaway: HST continues the trend of lodging companies reporting weaker Q2 RevPAR

  • Strong ADR and group demand
  • Domestic REVPAR (constant-currency): +5.3%
  • Except Houston and NY, portfolio performed in-line or better 
  • Group demand: +2.7%, rate: +4.7%, Overall group rev: +7%
  • Transient demand: >2%, rate: +4.9%, transient revs: >+4%
  • June was strongest month; April was a renovation month
  • Calgary Marriott Downtown Hotel renovations
  • YTD, REVPAR: +4.4%
  • Overseas travel (excluding Mexico and Canada): +3%
  • Weakness in travel from EU offset by strong travel from West Coast (Asian customers)
  • F&B: +5% (+2% on adjusted basis), excellent flowthrough
  • Euro JV:  Sold Crown Amsterdam for $106 euros.  Expect to close another asset transaction for $10m
  • Transactions impact on 2016: +12m
  • $100-200m  in international sales by end of 2015.  $100-250 in domestic sales in 2015.
  • YTD, invested $101m in ROI projects, $220 renewal projects
  • Outlook for 2015: 
    • Group bookings in 2Q for 3Q/4Q grew 20%.  Booked revs are flat in 3Q (calendar challenges) and up 6% in 4Q
    • Pleased with shift to higher-rated business
    • Overall, expect 2H REVPAR to trend higher than 1Q 2015
    • Net M&A will reduce FY 2015 EBITDA by $5mm
    • Houston and NY will underperform previous expectations
    • Seeing strength in group rates for 2016
  • 2Q:  San Diego, Seattle, San Francisco, Hawaii all achieved double digit REVPAR
    • San Diego:  Group +19%, Transient +12%
    • Seattle:  Group: +15%, Transient: +14%, F&B: +17% (banquet/catering lead)
    • San Francisco:  strong association business,  transient: +9%, group: +8%; expected to only slightly outperform portfolio for 2H 2015
    • Hawaii:  F&B: +27% (banquet/catering/outland sales), group & transient: +20%, Hawaii expected to underperform in 2H 2015 due to decrease in citywide events and and visits from Japanese customers.
    • Atlanta:  F&B+ +15%, expect Atlanta to outperform portfolio in 2H 2015
    • Washington DC:  group nights: +12%, transient nights: -11%;  group rev: +19%, transient rev: -3%. 
    • NY/Houston/Calgary:  combination of increased supply, renovation and oil issues
      • Originally expected NYC to be slightly positive REVPAR, did not happen.  High supply and lower international travel to US impacted US.  Expect better group bookings pace in 2H vs 1H.
      • Houston: flooding in May.  Some renovation disruption in December 2015.
      • Calgary:  declining energy business 
    • 8 of our 18 Euro JV hotels achieved +9% REVPAR.  Outlook on Euro hotels remain encouraging.  Spain/Netherlands is improving. YTD, US travel to Europe up 5% with 3Q looking stronger.
    • 3Q REVPAR should be slower than 1H REVPAR 
    • 4Q REVPAR (strongest quarter of year) should exceed 3Q REVPAR 

Q & A

  • M&A markets:  expect to put a lot of domestic properties in the market in the fall.  Looking to acquire in LA and Seattle.
  • Best pricing is for one off transactions
  • Group demand in the quarter for the quarter:  modestly down
  • NYC: Flat bookings pace in 2016 (down in 2015)
  • 2015 NYC EBITDA will be 12% of total
  • Lowered FY 2015 EBITDA
    •  -~$5m EBITDA:  Phoenician addition offset by EBITDA loss properties sold for a net of $5m
    • The rest of EBITDA decline is spread out among the factors they raised (e.g. NY/Houston, renovations)
  • Secondary markets had better occupancy gains in last 12 months
  • NYC:  least pricing power right now
  • Hard to push rate for transient business
  • 2016 Group bookings up 6% YoY in revs
  • Continue to sell weaker assets in portfolio
  • NYC:  1st few wks in July - roughly in-line with June (slightly positive REVPAR)
  • Houston:  a little of both cancellations and delays, 
    • Group bookings pace quite weak in 3Q but quite strong in 4Q
  • Will be net seller in Europe