Q4 2020 Service Properties Trust Earnings Call
Good morning, welcome to service properties Trust's fourth quarter 2020 financial results Conference call all participants will be in listen only mode.
Should you need assistance. Please see the law of conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
At this time for opening remarks, and introductions I would like to turn the call over to the director of Investor Relations Kristin Brown. Please go ahead.
Good morning.
Joining me on today's call are John Murray, President and Brian John Murray, Chief Financial Officer, and Todd Hargreaves, Chief Investment Officer.
Today's call includes the price of the presentation by management, followed by a question and answer session with analysts.
Please note that the recording retransmission and transcription of today's conference call and for.
Pivoted and without the prior written consent of SBC.
I would like to point out for today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 90, 95, and the other security losses.
These forward looking statements are based on SEC's pregnant beliefs and expectations as of today March one 2021.
The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's conference call other than through filings with the Securities and Exchange Commission of our SBC.
In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized <unk>.
And adjusted EBITDA for Ari.
Reconciliation of the normalized <unk> and adjusted.
Adjusted EBITDA to net income and while the components to calculate and <unk> are available in our supplemental package found and the Investor Relations section of the company's website and actual results may differ materially from those projected in the forward looking statements.
Additional information concerning factors that could cause those differences is contained on our form 10-K to be filed later today with the SEC.
And in our supplemental operating and financial data and on our website at Www Dot FCC, where your dot com investors are cautioned not to place undue reliance upon any forward looking statements and.
With that I'll turn the call over to John.
Thank you Kristen and good morning.
The fourth quarter operating results reflect the continued continuing negative impact of the COVID-19 pandemic on the economy, and especially on margin and certain service retail businesses as well as challenges specific to our SBC hotel portfolio.
As previously disclosed we successfully transitioned the brand and the management of over 100 hotels to sonesta and during the quarter.
The disruption driven by these transitions coupled with the holiday seasonality constricted government Lockdowns and had a sharp and negative impact of the hotel results in December the weighed on the overall results for the quarter.
We also transitioned the branding and management of 78, Marriott hotels to Sonesta and February and expect to transition and the branding and management of the 10 additional hotels to sonesta this month.
And January highest provided notice of its intent to terminate the management agreement effective April eight 2021.
We are currently negotiating with Hyatt. However, if we are unable to negotiate and mutually agreeable path forward and we anticipate these 22 hotels will also transition to the Smiths at that time.
For all of our recently transitioned hotels, we have entered short term management agreements with Sonesta through December 31, 2021 to allow for a thorough review of the highest and best use of each hotel.
As a reminder, SBC almost 34% of sonesta and will benefit from Semester's growth of greater flexibility with the semester relationship to manage capital spending more closely and consider selling assets of repurposing. Some hotels to other uses.
And also FCC will retain more of the upside from the recovery of these hotels.
And with vaccinations ramping up weekly Covid case numbers, decreasing and locked down and starting to ease and many states. We believe the worst of the pandemic is behind us.
While we expect additional disruption to our results from hotels and transition to sonesta. During the first half of 2021, we are encouraged by recent booking activities.
Group booking trends during the last week of January was the highest since last March with most strength coming from smaller group meetings of 11% to 50 people.
We expect the leisure travel and drive to locations will see recovery begin the summer business transient demand increases are likely to be more gradual not making a material contribution until 2022 and the right.
We also believe some of the new normal as we emerge from the pandemic will be a greater focus on safety service and the travel experience.
Likely the video conferencing technologies people and businesses have utilized during the pandemic will have a longer lasting negative impact on businesses business travelers.
Which we believe will translate the less impact and value from the major brands guest rewards programs, which we believe may of benefits sonesta on a relative basis.
The suburban extended stay hotels continue to outperform and urban full service hotels and a trend we have seen throughout the pandemic.
SDC extended stay hotels continued to have of roughly 30 percentage points of occupancy premium to non extended stay hotels with the 165 extended stay hotels reporting occupancies of 56% during the quarter compared with occupancy and the 33, 4% and 23, 5% respectively for a ninth.
The five select service and 50 full service hotels.
We expect our diverse portfolio of suburban extended stay hotels will continue to outperform the urban full service hotels until business travel begins to recover and.
Importantly, our approximately 41% weighting of rooms, and and extended stay hotels has positioned us well and has helped us mitigate cash burn wounds.
And the seasonally weak fourth quarter average occupancy for our comparable hotels was 44% compared with 44, 3% from third quarter average daily rate was $86 84.
Compared to $90 70 for the third quarter, and Revpar was $35 eight compared to $40 and 'twenty from the first day.
Turning to our net lease assets travel centers of America, which represents about 27% of our total portfolio based on the investment has continued to operate throughout the pandemic to support the U S supply chain.
Although negatively impacted by the closure of its full service restaurants, and the decline and the sale of gasoline the passenger vehicles Ta's primary service to the trucking industry, including diesel fuel sales and quick service restaurant and offering offerings and truck repair services have shown the resiliency and enable them to navigate the pandemic better than most of.
Of our tenants.
The current on the rent obligations to us property level coverage of that for you.
Ta locations was one eight and three times this quarter.
Rent collections for our net lease portfolio, including Ta and were 95, 3% during the fourth quarter and of service retail asset management team continues to work with our net lease tenants affected by opening and occupancy restrictions.
Quest for deferrals have slowed significantly except for certain tenants and the hardest hit industries like movie theaters reopening prospects of change Todd will discuss this in more detail.
While continued weakness and our hotel portfolio of away on our financial results, especially in the first half of 2021, and we believe we are worse, we are past the worst of the Covid crisis.
We have taken many important steps over the past year to preserve capital and solidify our liquidity, including drawing down and the remainder of our revolving credit facility in January.
Dressing at 'twenty, and 'twenty, one debt maturities and reducing our quarterly dividend deferring non essential capital spending and completing select hotel sales.
Supported by steady cash flow from Ta and our retail net lease portfolio, we are well capitalized with ample liquidity and well positioned with a diverse portfolio of assets to successfully navigate the gradual recovery from the hotel portfolio.
2020 brought us great challenges, but we believe we are proactively seize the opportunities to set the stage for improved future performance.
While we are not out of the pandemic woods, yet we are confident about our future growth prospects with that I'll turn it over to Todd to discuss our net lease portfolio and further detail as well as the recent transaction activity.
Thanks, John as of December 31, 2020.
We opened 799 net lease service oriented retail properties, including our travel centers with $13 5 million square feet require and annual minimum rents of $369 $6 million.
Representing 42, 6% of our overall portfolio based on investment and our net lease assets were 98, 7% leased by 177 tenants with a weighted average lease term of 10 nine years and operating under 127 branches and 22 distinct industries at quarter end.
The aggregate coverage of our net lease portfolios of the minimum rents was 214 times on a trailing 12 month basis as of December 31, 2020.
Alright collections from our retail net lease tenants were stable at 95, 3% for the fourth quarter up from a low of 85% for April 2020, and anchored by our largest tenant travel centers of America, which represents 27, 3% of our portfolio of based on our best investment.
We collected 89, 3% of January range from our tenants of declines from previous months due to COVID-19 related temporary closures and capacity restriction to some of the more geographically and industry specific impact of tenants.
And a casual dining operator, and southern California, and fitness center, operator, and the Pacific Northwest and some of our movie theaters and the industry, which represents 46% of uncollected January rent.
We continue to work with our tenants to lease modification and deferral arrangements and preliminary rent collections and February improved to 93% more in line with Q4 2020 figures.
To date, we have entered into rent deferral agreements with 46 net lease retail tenants with leases required an aggregate of $46 4 million.
We have deferred and aggregate of $12 $1 million of that from our net lease tenants net of previous deferrals granted and reclassified due to lease modifications and extensions.
Monthly collections of previously deferred rents of edge of averaged 82% and September.
Yeah.
During the fourth quarter.
Reported reserves for uncollectible revenues of $4 5 million.
For certain of our net lease patents and $2 2 million of these reserves related to moving through their leases.
As a reminder, we recognize all changes and the Collectability assessment for an operating lease as an adjustment to rental income.
Turning to leasing activity during the fourth quarter, we entered lease renewals for an aggregate of three of 49000 rentable square feet at average revenue weighted by rentable square feet that were $39, 9% below prior revenue for the same space.
The renewal activity, primarily reflects the restructuring of bond movie theater leases totaling 280000 square feet and which the fixed rents will eventually convert dress based on a percentage of revenues generated and exchange for a longer lease term the.
The weighted average lease term for renewables for six one years and leasing concessions and capital commitments for approximately $200000 per <unk> per square foot per lease year.
We also entered into the new leases for an aggregate of 50000 rentable square feet at a weighted average rents that were 55, 7% below prior rents and were previously above market for the same space the <unk>.
Weighted average lease term for these leases was 10, three years and leasing concessions and capital commitments for approximately $1 million of $1 86 per square foot per lease year.
Turning to our recent transaction activity.
During the quarter ended December 31, 2020, we sold 18 hotels, including eight Marriott branded hotels and 10 Wyndham branded hotels from 2046 rooms for an aggregate sales price of $85 $8 million. The proceeds of which were used to repay outstanding debt of us.
We are also under agreement to sell five hotels for 430 rooms for an aggregate sales price of $22 $3 million.
SPC is currently leased and these hotels to the potential buyer at an 8% annual return of the purchase price and we expect the sales to be completed and the second quarter of 2021.
The management of <unk> 91 of our area of hotels that were previously targeted for sale was transitioned to sonesta and mid December.
During the quarter, we terminated and agreement to sell 16, Marriott branded hotels with $2 155 rooms for sales price of $107 8 million due.
Due to the buyers' inability to secure financing.
We had previously agreed with Marriott to Zalviso hotels encumbered by the Marriott brand and the properties and will remain Marriott brand and at least until which time the termination of the SPG and Marriott agreement is fine.
As we've stated previously the hotels, we have sold or under contract to sell our of prices close to pre pandemic values. We continue.
And to evaluate our hotel portfolio and specifically the hotels recently transitioned or scheduled to the transition to sonesta due to determine when and you should be considered for and alternate use of our disposition.
For the industry overall, we expect to see hospitality investment sales activity pick up starting in the second half of 2021.
Driven by improving hotel fundamentals as well as the increasing availability of capital both debt and equity and are optimistic that similar to our recent sales any hotels, we bring to market, we'll transact at or near pre pandemic pricing.
I will now turn the call of your products.
Thanks, Todd and starting with our consolidated financial results for the fourth quarter of 2020 normalized <unk> was negative $22 5 billion.
For a loss of <unk> 14 per share and adjusted the EBITDA was $64 9 million.
Our hotel portfolio generated a negative $26 1 million of adjusted hotel EBITDA for the fourth quarter of 2020 compared to $106 million and hotel EBITDA and the prior year quarter and compared to be close to breakeven and the third quarter of 2020.
For the month of October 2020 of our hotel portfolio was cash flow positive, albeit just slightly breakeven.
And while breakeven for the months of November December produced steady declines in occupancy, which we believe of due to the resurgence of Covid cases, and normal seasonality and specific for the month of December our rebranding of over 100 hotels.
Rental income from our leased properties declined $16 $2 million year over year.
$8 $3 million of this decline relates to our net lease disposition activity.
For $5 million relates to reserve for uncollectible rents primarily related to a movie theater leases and $2 million relates to ICU. The bulk of our previously leased hotel and San Juan.
The $17 $7 million decline in net <unk> reserve of income and a $9 $4 million increase and interest expense were partially offset by a $4 7 million the decline in G&A expense due to lower business management fees due to RMR also impacted overall overall results this quarter.
For our 302 comparable hotels this quarter Revpar decreased 59, 2% gross operating profit margin percentage decreased by 28 percentage points to seven 5% gross operating profit decreased by approximately $145 million over the prior year period.
Below the GOP line costs of our comparable hotels declined $9 7 million from the prior year.
And if any reserves management fees system and other cost to other type of hotel revenues declined 21 2 million.
These expense savings were partially offset by a $12 $2 million increase and onetime costs, including expenses for the rebranding of certain hotels the sonesta during the quarter.
Our consolidated portfolio of 310 hotels generated operating losses of $45 million for the quarter.
$38 million or 84% of these operating losses were generated by our 50 full service hotels.
Full service urban hotels in key markets, where logging activity of the most depressed puts the San Francisco, Chicago, Boston and D. C. The name of few continue to weigh on the portfolio.
$4 million of hotel operating losses were from our 95 select service hotels.
165 extended stay hotels continue to perform relatively well and were slightly below breakeven this quarter generating a small operating loss of $2 million and more.
Negatively impacted by the rebranding of 81 extended stay hotels in December.
Excluding $15 $1 million of rebranding costs and of $4 million of legal contingency for certain hotels adjusted hotel EBITDA for the 2024th quarter for the negative $26 1 million.
Turning to our balance sheet liquidity as of quarter and debt was 51 eight percentage of total gross assets and we have $91 $5 million of cash, including $18 $1 million of cash escrowed, primarily for future improvements to our hotels.
Our overall cash burn in Q4 averaged approximately $10 million per month based on our adjusted hotel EBITDA for the fourth quarter and pro forma for the full drawdown of our revolving credit facility.
We currently expect our cash burn to be similar and the first quarter of 2020, 'twenty one relative to Q4, given the continued weakness and the hotel industry the impact of seasonality and additional disruption from the significant number of additional hotels being rebranded however.
However, our solid base of Triple net lease assets largely covers our corporate overhead including debt service costs.
Based on our current outlook and expectation that lodging activity will improve and the back half of 2021. We currently expect to be cash flow positive for the full year 2020 months before and capital expenditures.
We funded $32 $4 million of capital improvements during the fourth quarter, primarily for maintenance capital and ongoing renovations at certain part of that and sonesta hotels as well as for rebranding certain IHG hotels in December for.
For the full year of FCC completed 18 hotel renovations.
Pardon me it appears the speaker's line has disconnected and we'll try and get them back on the line momentarily. Please hold onto it and losses. Thank you for your patience.
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Okay. Thank you everybody of the presenters have reconnected. Please go ahead.
Thank you as of today, we have approximately $950 million of cash after fully drawing down our $1 billion credit facility as a precautionary measure to preserve our liquidity.
As previously disclosed we expect to be honest compliance with one of the financial covenants under our debt agreements that will benefit us from acquiring additional debt until we are back and compliance, which we currently don't expect to occur until the first half of 2022.
As a reminder, we secured waivers of all of the existing financial covenants under our credit agreement through July of 2022, but are still subject to the covenants under our bond indentures.
Regarding our common dividend. We currently expect to maintain the current quarterly distribution rate of <unk> <unk> per share through mid 2022 of which we agreed to as a provision of our amended credit agreement.
We currently believe we have adequate and adequate liquidity for 2022.
Our next debt maturities and August of 2022, and we will continue to assess and explore all of our options to ensure we are well positioned and until the pandemic losses behind us.
Operator that concludes our prepared remarks and ready to open up the line for questions.
We will now begin the question and answer session to ask the question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing and the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Bryan Mayer with B Riley Securities. Please go ahead.
Good morning.
Couple of questions. When you look back at the fourth quarter.
And the lodging results specifically what was the bigger source of pain was the conversion of the hotel for the Sonesta brand or.
Was it the full service urban hotels and are you seeing any signs of positivity as you look to 2021 on the full service urban.
Hi, Brian and Thats a good question.
I mean, the fourth quarter.
There was definitely significant impact from the transitioning transitioning of 100 hotels.
We continue to see weakness, we have still of a couple of full service hotels that are closed we are not seeing.
A big pickup yet in business travel so some of the Earth.
And full service hotels have had.
Pretty weak occupancy levels.
And we.
We did see after after the Thanksgiving holiday and then into the year and holidays that.
A number of states and cities incur.
The increase there.
And the restructuring.
<unk> and reduced the amount of occupancy the various businesses could have so so there are a lot of negative factors of all coming together for what is always a weak quarter anyway. So.
As we look forward we are seeing.
<unk>.
Solid improvement and the hotel portfolio.
And both at the.
The extended stay select service and full service hotels, but it's most anemic for the full service hotels because of business travel.
And still hasn't.
And it Hasnt recovered as we've had and headed into the first quarter and.
And those are mostly mostly urban.
<unk>. So we don't expect to see a full service hotels experienced material improvement until the.
The back half of <unk>.
2021, and and really into 2022 and 2023.
Okay, and as you transition the totality of the Sonesta brand now that you have kind of a lot of them under your belt converted.
And what has typically been the conversion costs, whether it's signage or the other costs that you have to make them and that says from the Marriott merger Colin.
Brian I'll take this one Brian.
So we had about $15 million of expenses run through the hotel ledgers for the quarter and a big portion of that relates to putting people out and the field for it conversions and getting the system set up as well as peak sharing supplies with the brand name on it and whatnot.
The capital side of it will relate to permanent signage on the buildings and around the property and inside of the hotel as well as the hardware for the technology side. So in the past we've talked to people about roughly $300000 per hotel and half of that will run through the P&L and the rest of.
Of it will be capital.
Okay, and then after drawing down the the 950 year whatever million that you have now sitting in cash I get it that you have.
Things you need to worry about over the next year, but what would it take for you to see whether it sometime during 2021 or maybe early 2022.
The start to return some of that cash and pay down the facility.
Yeah, we're not prepared to pay down the facility until the our covenant issues are behind us.
So I think we're looking at 2022 of the earliest.
Okay. Thanks, that's all for me.
Thank you.
The next question is from Tyler battery with Janney capital markets. Please go ahead.
Hey, good morning, Thanks for taking my quick questions.
And I wanted to circle back to the Sonesta of transition real quick if I credit I know.
So early but obviously some disruption maybe when those transitions, which was as expected any sense for the properties you converted and December how much disruption and there was in January and February relative to December and from any thoughts in terms of how long it might take for operations to <unk>.
Turning to normal so to speak of at some of the properties that have already been transitioned.
Yes.
It's a good question, it's a little bit difficult to.
Get a specific measurement on that because of.
And the separate COVID-19 impacts and seasonality impacts.
But.
I would say on average looking looking at.
And our numbers it seemed like there is.
John.
The prior prior to the transition the.
Outgoing brand shuts down there of reservation system for days past the conversion date.
You can't get a new GDS code for reservations for for the new brand.
And until the transition occurs because the same hotel can be on the reservation system.
Two different numbers, so so theres some technical complications to the transition process that.
And result.
<unk> and occupancy is dropping and immediately after the transition and.
And it looks like Revpar drops maybe around a quarter to a third from where it was pre conversion and then it makes up about half of that from the following month and it looks like we're trending to be within within three months of the transition to the back where we were.
Pre transition so it's about a quarter of disruption.
Okay. Okay, that's helpful and.
Just a follow up strategically on on asset sales on the hotel side of things and I'm interested more broadly yet.
The extended stay properties and certainly some of whats the transition to the naphtha.
The number of those for all of those I should say of short term contracts and just interested what sort of factors you're looking at in terms of potential asset sales and because it's simply a price disc.
The discussion.
And what maybe you could results and you're getting more aggressive in terms of selling some assets and the portfolio just interested what sort of factors you are considering.
And there's a variety of factors that we're considering.
One one of those factors is the.
The extent of capital needs.
Another obviously is the effort.
Projected performance.
Another is.
The market market concentrations and we had some markets where we had.
A couple of Sonesta hotels, the couple of Marriott extended stay hotels couple of IHG extended stay hotels.
Now instead of all sonesta extended stay hotels.
That may be too many in any given market. So.
And I'd say those are those of the primary factors, where we're considering.
Yes.
We're also and I should add and we're also considering what other uses and some markets.
There is a shortage of.
And on affordable housing and there may be.
And there may be attractive conversion opportunities to to move from hotel to a multifamily use.
And so and.
Select markets, where we are evaluating that as well.
Okay. Okay, and then just last question for me.
Brian on the on the Capex side of things can you just remind us the spend and the fourth quarter and the split between.
And then.
Versus renovation and flash rebranding and then.
Any commentary in terms of the future outlook for those items in 2021 would be helpful. Too. Thank you.
Sure so about half of that number in Q4, I would say is it was maintenance capex.
We have some renovations, we're finishing up and some of those costs spilled over and I would say of five to 10 million of approximately was related to the conversion costs of a lot of those numbers will spillover into 2021.
So I would put out a number and in the prepared remarks for 2021 of approximately $192 million for the spend.
I would say about $110 million of that is related to maintenance capex and the conversion cost with the remainder of I would describe as discretionary related to renovation activities. We've got several large projects going on and.
<unk> as well as Chicago, and southern California as well.
But again, the maintenance piece of it as roughly $75 million to $80 million.
Okay. That's all for me. Thank you for the detail I appreciate it.
Thank you.
The next question is from Dori Kesten with Wells Fargo. Please go ahead.
Hi, Thanks, good morning, everyone and.
Can you tell us one of the Revpar index for the Sonesta branded line pre conversion.
Sorry, John could you say that again.
And the Revpar index for the Sonesta brand pre conversion.
So before all of the Entercom and and Marriott's came into it.
Yeah.
And I don't have the.
Thank you.
Yeah.
And we don't we don't have that the index numbers handy, we can follow up on that one.
Okay.
And then as you look through the the hotels.
Debt.
Net converted of kitchen, and Scott do you have and internal asset sales goal for the year.
And you mentioned that pricing would be pretty comparable to pre can't pre pandemic levels debt.
And I guess and in aggregate.
That team and the.
The multiple range on each of the 19 numbers.
Yes, so we don't have a specific target that we're shooting for in terms of asset sales.
And not.
And not every day.
And then maybe hotels that don't get sold but the kit get removed from the.
The hotel base.
The transitions of the use as I mentioned, perhaps multifamily.
Of the uses like that.
But yes I think.
The cap rates on select service hotels that we sold during the year.
We are.
We did better a little bit better than where the broker opinions of value where and.
And those broker opinions of value.
And during the middle of 2019.
And they reflect a.
And the fact that.
And the hotels needed capital.
So.
Taking into account the Pip the.
The the cap rate and turnaround of around 10%.
Okay.
And and Brian and since then we may not have a great look through on taxable income when it comes to and 2022 and Eric you and decent way do you think to back in Q1 of the potential dividend payout could be.
Perhaps if you realize that percentage of assets out for sure.
Yes, I think the way to look at it with the hotel losses that we've been building up.
And we probably won't have any taxable distribution requirement and the foreseeable future.
When you compare it and the way we used to report coverage for <unk>.
Over.
One times and the hotels aren't making the returns we're running taxable losses.
The way I look at from a simplistic standpoint, obviously, there's more tax nuances and that but thats sort of of the benchmark.
And if we're not earnings sort of the full returns under our hotel contracts there are taxable losses being incurred.
Generally speaking.
Okay. So looking at the 22, you may not be paying.
Yes.
It's possible and it's really too early to tell for 'twenty to 'twenty, one and I feel comfortable saying that.
Okay. Thank you.
Again, if you have a question. Please press Star then one day.
Next question is from Jim Sullivan with <unk>. Please go ahead.
Good morning, and thank you for taking the question.
First question is on the Capex I know under the cash.
And a waiver agreement.
As you outlined and the release.
The advice before you have the can spend up to $250 million annually Capex and and then it refers to and up to $50 million for certain other investments per year.
To find and the agreement can you just remind us what other investments kind of qualify for that $50 million spent.
Jim This is Brian and I'll take that one thanks for the question, yes, we have various opportunities.
<unk> that come up every so often relating to the.
The property surrounding our current properties that could help the operation or another example would be.
If we haven't ground leased the property, we can buy out of the ground lessor.
Anything that really adds value to our existing portfolio that carve out really is not meant for new acquisitions, it's really just value enhancing and.
Larry type transactions and for the existing portfolio.
Okay. Thanks for that.
And then and talking about the strategy and I think John you touched on this and your prepared comments.
The initial agreements with Sonesta short term.
While the company considers.
You know what to do with the assets ultimately whether to convert them or sell them or what have you.
And I just wonder if you can help us.
Anticipate after that one year term and after you have gone through the portfolio and decided what to keep and presumably the continue to have.
Managed by the Sonesta can you just give us some indication as to whether.
And it would be contemplated at that time that the debt. The agreement would say that still would be long term in line with the kind of the agreements who previously had with Marriott and Intercontinental of whether they would continue to have more flexibility and the prior agreements that were in place.
Yes, Jim Thats, a good question and our expectation is that.
Around the end of this year once we've sort of the dust is settled and we've decided what we're going to do it with each of the hotels that the.
The hotels that are going to remain within the sonesta portfolio will be added to the long term contracts similar to the.
So that's the portfolio management agreements that existed before these transition started.
So it would be of long term.
Management agreement.
Okay and would the would it have.
The agreements have any additional flexibility versus.
The other contracts that Marriott that you have the Marriott and Intercontinental and where they otherwise would be pretty similar and you know one of them.
I'm thinking of us and particularly given that the sonesta brand as it is virtually and unproven and brand.
And would there be the opportunity to the you know two for service too.
Cancel the contract and the event of non performance, where the budget or what have you or underperforming the door versus an index or.
And some other way to cancel the agreement and.
Uh huh.
For service.
Yes.
And there is.
I didn't study and the terms of the existing agreement before the call I apologize.
There are provisions if there are if there is.
For performance there are.
Termination rights.
And so there is there is some flexibility there is also of the flexibility of <unk>.
Sonesta is.
And the affiliate and so.
But by virtue of that we have a little bit more flexibility in terms of.
The ability to.
John.
And work more collaboratively with them on.
And whether we and.
Capital and what amounts get invested and and whether we.
And we'll make decisions about individual hotels.
Nothing outperforming whether whether we should be.
And not just evaluating this year, what the highest and best use is but.
On a regular basis looking at the portfolio to see.
If we should be pruning weaker performing hotels and.
I think we have greater flexibility to do that.
<unk>.
Just because of our.
Murray affiliates and then.
And would if.
If we were and the situation between.
US and the Marriott and IHG for instance.
Okay, and then John again, you touched on the business travel exposure of the major.
The major brands and how that how the.
And it has impacted performance post COVID-19.
Early days I know with the Sonesta brand, but can you give us any indication as to sonesta is mix of business and.
And how it contrasts with say Meredith or IHG.
I think that.
Across the board what we've been seeing is.
Leisure travel.
And then the driver of regardless of the brand.
During the.
During the pandemic there has been a large amount of contract business.
And from groups ranging from.
And visiting nurse associations to two.
The people trying to acquire and team to National Guard.
The different groups that have been deployed to help and different locations.
As there have been surges and the like so.
And so there's been.
A fair amount of that type of business, that's been sort of the COVID-19 related and one way or another.
And again I think that we've seen that.
Fairly consistent across the brands and possibly a little bit stronger for sonesta because.
They're waiting towards extended stay hotels.
And their mix of the extent to the legacy extended stay hotels within the sonesta portfolio were weighted towards all.
Of the campus style.
John.
Developments and.
Those were largely perceived as more safe.
And the more the more recent vintage of extended stay hotels that are in the single building because you Didnt you can go directly to your room without.
And that and even needing to go through the lobby or up a staircase or through an elevator you can just go directly to you.
You're building so.
And so sonesta picked up market share during the pandemic.
But that's the type of business it was noisy the pandemic related or leisure very little business strength.
Okay. Thanks for that and then finally for me.
You know given the service says as that's a significant equity interest and sonesta.
And as the set us the brand becomes a much bigger.
The business in its own right with the continued transition.
Two of the brand.
This quarter and perhaps later in the year.
I Wonder whether you can tell us about the outlook for sonesta.
In terms of profit of a loss.
You know some some indication very broad brush, obviously, and it's very early days I understand but.
When would one and anticipate that sonesta could possibly break even or make or make the profit.
Yes, I think.
And our sonesta is.
Is growing.
<unk> has grown and is growing quite rapidly.
And.
And I expect that the.
Cost and growing pains of the experience that they have experienced in the fourth quarter, and we will experience and the first half of 2021.
But with the pickup in leisure travel and the second and third quarters and.
And hopefully the pick up in business travel as we get later in the year.
We do expect currently that debt.
Yes.
That's an estimate be slightly positive and net income for 2021.
There are also.
And awaiting the results of the shareholder vote.
The sonesta has.
And sign the merger agreement with the Red Lion hotels.
That would <unk>.
Get them into the franchising business and I think that.
The combination of all of these activities sonesta will be one of the 10 largest hotel operators and franchise ores and.
And the United States, and I think that.
And that franchise growth and also.
Initially it won't be a.
The big contribution, but it will be of contribution and we expect that that will grow for sonesta overtime and so we are expecting profitability going forward.
Okay. Good thanks John.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to John Murray for any closing remarks.
Thank you everyone for joining us today, we appreciate your interest thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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