Q1 2021 Service Properties Trust Earnings Call
Good morning, and welcome to the service properties Trust first quarter 2021 book Financial results Conference call. All participants will be in a listen only mode should you require assistance. Please press Star then zero day signal for an operator. Please note. The this event is being recorded I would now like to turn the conference over to Kristin Brown director of Investor Relations.
Please go ahead.
Good morning, joining me on today's call are John Murray, President, Brian Donley, Chief Financial Officer, and top of our group Chief Investment Officer. Today's call includes 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 is prohibited without 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 1995 and other security book.
These forward looking statements are based on SEC's present beliefs and expectations as of today made half of 2021 of.
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 true filings with the Securities and Exchange Commission our service.
In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized <unk> and adjusted EBITDA reconciliations.
Reconciliations of the normalized <unk> and adjusted EBITDA EBITDA already to net income as well as components to calculate <unk> are available in our supplemental package found in the Investor Relations section of the company's website actual results may differ materially from those projected any forward looking statements.
Additional information concerning factors that could cause those differences is contained in our form 10-Q on file with the RBC and in our supplemental operating and financial data found on our website at Www Dot FCC Reed Dot com investors are cautioned cautioned not to place undue reliance upon any forward looking statements.
And with that I will turn the call over to John.
Thank you Christian and good morning.
Our first quarter operating results reflect the continuing impact of the pandemic on the economy, the especially on hotels in certain service retail businesses.
As you know we transitioned the branding and management of over 200 hotels to sonesta during the past two quarters.
The destruction disruption driven by these transitions.
Coupled with normal seasonality and more restrictive government lockdowns through February had a negative impact of the hotel results. The weighed on our overall results for the quarter.
Despite current challenges we are optimistic for a number of risks locked.
The Lockdowns are easing from the growing number of states more of the population is now vaccinated in the airlines are increasing quite for summer. So we see a light at the end of the tunnel for of returned to a new normal.
While we expect modest disruption to our second quarter results from recently transitioned hotels. We are encouraged by recent increases in demand in the booking activity.
Year over year comparisons look more favorable as occupancy levels exceeded prior year for the first time since the start of the pandemic in March.
The particular leisure demand in drive to and resort markets has recovered meaningfully with properties like a royal Sonesta, San Juan Sonesta, Hilton head and Sonesta Fort Lauderdale, posting occupancy is in excess of 80% in recent weeks.
Business transient demand increases likely to be more gradual not making a material contribution until 2022 in the area.
In the near term of at least group meetings will likely allow for a combination of in person and video of attendance with proof of vaccination were negative COVID-19 testing a requirement for attending.
Our suburban extended stay hotels continue to outperform our urban full service and business focused select service hotels the trend we have seen throughout the pandemic.
Our extended stay hotels continue to have the significant significant occupancy premium to non extended stay hotels with out of 165 extended stay hotels reporting occupancies of 54, 5% during the quarter compared with occupancy as of 31, 2% to 28, 7% respectively for non.
The for select service from 51 full service hotels.
We expect our diverse portfolio of suburban extended stay hotels will continue to outperform our hotels until business travel recovers importantly, approximately 41 versus our approximate 41% weighting of rooms of the extended stay hotels has positioned us well and helped to mitigate cash burn rates.
For the seasonally weak first quarter average occupancy for our comparable hotels was 41% average daily rate was $87 19.
Revpar was $34.96 each roughly flat with the fourth quarter as a result of the initially the negative impact of the 88 transitions from Murray in February March.
However results of trended upward on a monthly basis since year end with occupancy increasing to 46, 6% in March and 51% in April compared to a low of 33, 1% from December 2020.
I think it will be helpful to update you on some of the operator of the largest number of our hotels.
First of all of it is important to keep in mind. The sonesta of its capabilities are for different and improved today than they were when we first announced it will be taken back hotels last year.
Back then for that there was a small independent hotel company. The managed 53 hotels of 9600 rooms for us in the upscale extended stay and upscale and upper upscale full service segments.
At that time Sonesta employed approximately 800 people and it's a small corporate office of the Newton, Massachusetts.
So that's the currently manages 256 hotels with over 41000 rooms for us in the extended stay and select service and full service segments, which range from mid scale to upper upscale hotels and.
In addition, so that's the recently acquired Red Lion hotels, which franchises approximately 900 hotels with over 100000 rooms.
Today's sonesta is one of the largest so comments from companies in the U S. Net is the eighth largest hotel brand and franchise company in America.
So that's the currently operates 15 different brands and as close to 1300 hotels with over 140000 rooms with the majority of them located in the U S.
With this massive increase the size. So that's the has also upgraded its management team with several recent management additions to have significant hotel industry experience.
Today's sonesta employees, approximately 6200 people and maintains its corporate offices in three locations spread across the U S, Massachusetts, Orlando, Florida, and Denver, Colorado.
Now I will provide more specific color on the hotels that we transitioned to the semester of the fourth quarter of 2020, which included 112 hotels.
So thats as of now manage these hotels for a full quarter and we are generally pleased with the progress to date.
Comparing the results of these hotels from March 2021 to results.
October of 2020 for the last stabilized months prior to the transition Revpar for the 102 for IHG hotels slightly above the October levels of $43 61, despite lingering transition challenges.
For the 97 married hotels, it's too soon to make relative comparisons because most of those hotels were transferred in February March.
The early indications of showing the same trends, we saw with the IHG transition.
While the transition of the hotels to of new manager of always is disruptive and it has been difficult to build so that's the brand awareness during the pandemic. We believe the worst of the transition disruption is behind us and so thats the brand awareness of starting to growth.
Nevertheless, even before hotel industry demand fully recovers so thats just starting to realize the benefits of its much larger scale. For example for this has increased size of the enabling it to significantly lower per transaction reservation cost to their own network as well as through the Otas in the area of the 15% to 20% savings versus last year.
In short we believe that once the transition noise is fully behind us and hotel industry demand improve.
Improves further sonesta will deliver solid results on both the topline and bottom line in.
In fact, we believe that this new larger sonesta is positioned to perform as well as if not better than some of the larger more established hotel brand companies, especially in the post COVID-19 world with less business travel the more competition for every margin customer.
SPC is also well positioned to participate in any upside realized by the creation of the Sonesta is the major hotel brand and franchise company through its 34% ownership of the business.
I also wanted to provide an update on our relationship with <unk> as you know, Ohio Center SBC of termination letter in January the effective date of which has been extended to May 20 <unk>.
We are attempting to negotiate a mutually agreeable path forward for some or all of these hotels under this management agreement and we are reasonably optimistic about how this is going.
If we are unable to reach an agreement. These 22 hotels for transition to semester by the end of the second quarter.
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 and renovation needs of each hotel.
John.
Turning to our net lease assets travel centers of America, which represents about 27% of our total portfolio based on investment at.
That has continued to perform well for the pandemic and remains current on the trends obligations to us property level coverage of our Ta Ta locations was one four times this quarter.
Rent collections from our net lease portfolio, including Ta were <unk> 93, 1% during the first quarter and the service retail asset management team continues to work with our net lease tenants most effected by reopening in occupancy restrictions.
Request for deferrals of slowed significantly in rent collections of stabilized. However, we continue to work with certain tenants of the hardest hit industries like movie theaters as they reopen in accordance with easing of lockdown restrictions.
I believe we are past the worst of the COVID-19 crisis. However, we continue to take steps to preserve capital and solidify our liquidity, including drawing down the remainder of our revolving credit facility in January of maintaining a nominal dividend deferring non essential capital spending.
Working with our operators to control costs and completing select asset sales.
Supported by steady cash flow from Ta and our net lease portfolio, we are well capitalized with ample liquidity and well positioned with the diverse portfolio of assets to successfully navigate congratulatory coverage of non core assets.
We are confident that the early improving operating trends, we're seeing in our hotel portfolio will continue to gain momentum as we finish out the second quarter and the balance of 2021.
With that I'll turn the call over the time to discuss our net lease portfolio for the detail as well as our recent transaction activity.
Thanks, John as of March 31, 2021, we owned 798 net lease service oriented retail properties, including our travel centers.
For $13 5 million square feet, requiring annual minimum rents of $375 8 million.
Representing 42, 5% of our overall portfolio based on investment our net lease assets were 98, 5% leased by 170 for tenants with a weighted average lease term of 10 seven years and operating under 142 brands in 'twenty, one distinct industries at quarter end.
The aggregate coverage of our net lease portfolio is the minimum rents was two nine times on trailing 12 month basis as of March 31 2021.
Rent collections from our net lease tenants were stable at 93, 1% for the first quarter up from a low of 85% for April 2020, and anchored by our largest tenant travel centers of America, which represents 27, 2% of our portfolio based on investment.
We collected 97, 7% of April rents from our net lease tenants.
Since the beginning of the pandemic, we've provided the rent assistance to 46 net lease tenants and deferred an aggregate of $12 $1 million of revenue net of previous deferrals granted and reclassified due to lease modifications of our extension.
As of April 30 of 2021, approximately $11 million of rent remains of deferred.
During the first quarter, we recorded reserves for uncollectible revenues of $4 8 million for certain of our net lease tenants, primarily movie theater fitness and restaurant leases.
As a reminder, we recognize all changes in the Collectability assessment for an operating lease as an adjustment to rental income.
Turning to our recent transaction activity during.
During the quarter ended March 31, 2021, we acquired a land parcel adjacent to a property we own in Nashville, Tennessee for a purchase price of $7 $7 million, including acquisition related costs.
So the one net lease properties with 2800 rentable square feet for $400000, excluding closing costs.
In April 2021, we sold the leasehold interest in one hotel in Florida, with 146 rooms pursuant to a purchase option exercised by the ground lessor for $9 8 million, excluding closing costs and one net lease properties in Colorado Springs for 32000, rentable square feet for $1 2 million, excluding closing costs.
We're also we are also under agreement to sell five hotels with 430 rooms for an aggregate sales price of $22 3 million.
We are currently leasing these hotels for the potential buyer at an 8% annual return of the purchase price and we expect the sale to be completed this quarter.
We continue to evaluate each of the recently transitioned as well as legacy sonesta hotels to determine the long term highest and best use of each asset.
In the upcoming quarters, we may decide the market for sale or repurpose some of the hotels that we don't envision operating of the Sonesta branded hotel long term.
The decision to sell or repurpose can be the result of the market overlap with other sonesta hotels or otherwise of the mechanism for reducing leverage and improving the overall quality of our hotel portfolio through the disposition of capital intensive properties or hotels located in the out of favor for declining geographic markets.
I will now turn the call over to Brian.
Thanks Todd.
Starting with our consolidated financial results for the first quarter of 2021 normalized <unk> was negative $42 million or a loss of 26 per share and adjusted EBIT was $48 7 million.
Our hotel portfolio generated negative $38 2 million of adjusted Hotel EBITDA for the first quarter of 2021 compared to $36 million of hotel EBITDA in the prior year quarter of negative $26 $1 million in the fourth quarter of 2020.
Guarantee payments and security deposit utilization that supported our hotel returns under our historical agreements declined $60 million from the prior year quarter.
Rental income from our leased properties declined $8 $1 million year over year $5 million of this decline relates to reserve for uncollectible rents of $3 million relates to our net lease disposition activity.
Interest expense increased $18 $3 million of the prior year quarter as the result of our 2020 of financing activities and our revolver draw this quarter.
A $10 $4 million decline in net up any reserve income at a $1 $4 million decline in G&A expense also impacted our overall results this quarter.
For our 300 for comparable hotels this quarter Revpar decreased 56% gross operating profit margin percentage decreased by 21, seven percentage points to two 6% and gross operating profit decreased by approximately $85 million from the prior year period.
Below the GOP line costs, excluding hotel transition related costs at our comparable hotels declined $40 million from the prior year, primarily as a result of decreases in <unk> reserves management fees system and other costs of the type of hotel revenues.
Our consolidated portfolio of 310 hotels generated operating losses of $58 million for the quarter, including $19 6 million of onetime rebranding related costs.
$34 million of these operating losses were generated by our 51 full service hotels.
Our full service urban hotels in key markets, where lodging activity remains depressed such of San Francisco, Chicago, Boston and D. C continue to weigh on the portfolio.
Two of our full service hotels remain closed due to the pandemic and local market conditions.
$21 million of hotel operating losses were from our 90 for select service hotels, driven largely by disruption related to rebrand ex.
$3 $4 million of losses were from our 101 165 extended stay hotels, excluding onetime rebranding costs are at 165 extended stay hotels generated hotel EBITDA of $4 million during the quarter.
49 select service 36 extended stay and three full service hotels were rebranded during the first quarter.
$19 $6 million of transition related costs recognized during the quarter included $11 $1 million occurred by Sonesta the move the hotels for their brand flags.
And we also incurred an additional $8 $5 million to Marriott for cost the majority of which related to employee severance cost of the transition hotels.
Excluding the $19 $6 million of rebranding costs adjusted hotel EBITDA for the 2021 first quarter was negative $38 million.
Thank you.
Hotels in the states that have lifted or have less restrictions are where we have leisure destinations have continued to improve performance.
In the month of March of 36 hotels in Florida, Arizona, Louisiana, South Carolina, and San Juan generated positive hotel EBITDA in the aggregate of $5 million.
The contrast in Illinois, California, and New Jersey of Massachusetts are 77 hotels in those states generated operating losses of $8 million in March.
Overall, our 310 hotels generated negative hotel EBITDA of $9 $8 million in March.
138 of our 310 hotels were cash flow positive in March and many others of near breakeven.
As states continue to lift COVID-19 restrictions, we believe performance will continue to strengthen in the coming months.
Excluding the 203 hotels of changed flagging the last flagged in the last few quarters 105 comparable hotels in the month of March were just below breakeven with occupancy of 51% and revpar of $49 76.
Which represents a 36% sequential increase in revpar compared to February 2021.
Our overall occupancy for the month of April was over 51% an increase of about 10% compared to the 46, 5% during the March.
Overall Revpar was $48 38 for April of 13% sequential increase compared to March of 2021.
Turning to liquidity.
Our overall cash burn in Q1 average of approximately $60 million per month based on our adjusted hotel EBITDA for the first quarter.
We currently expect our monthly cash burn to decrease from the second quarter before turning positive in the third quarter, given the improving fundamentals in the hotel industry and as the disruption of from rebranding of significant number of hotels subsides.
Based on our current outlook and expectations for stronger lodging activity in the back half of 2021 and stable rent collections from our Triple net leased portfolio. We continue to expect to be cash flow positive for the full year 2021 before any capital expenditures.
We funded 29 $29 billion of capital improvements during the first quarter, primarily for maintenance capital rebranding costs and ongoing renovations of three full service hotels.
We expect to fund approximately $140 million from capital over the remainder of 2021 or a total of $169 million projected for the full year 2021.
Projection represents a reduction of approximately $23 million of projected capital spend I provided during our fourth quarter call.
We continue to be prudent as we evaluate prioritize our capital spending as part of our liquidity management.
Maintenance related capital is projected to be approximately $60 million for the year ongoing renovations of three full service assets, including our Royal Sonesta in Cuba in Chicago and of full service Sonesta in Irvine, California are projected to be approximately $40 million.
Capital investments related to the transition of the management branding of certain hotels. The semester is projected to be $40 million for the year.
We funded the $25 $4 million capital contribution of Sonesta during the first quarter related to its acquisition of Red Lion hotels.
<unk> continues to maintain the 34% ownership of soon after I forget the after giving effect of the funding.
The Echo John's comments, we believe this acquisition by some of that that will directly and indirectly benefit of SBC. The.
The significant scale of the Sonesta has achieved will provide cost savings of benefit sbcs hotels and increase the value of FCC's ownership interest in sonesta.
Regarding our common dividend, we continue to expect to maintain the current quarterly distribution rate of <unk> <unk> per share through mid 2022.
At quarter end, we had approximately $875 million of cash after fully drawing down our $1 billion credit facility as a precautionary measure to preserve our liquidity as we navigate not being in compliance with <unk> one of the financial covenants under our debt agreements.
We currently believe we have adequate liquidity through 2022, and our net debt maturities in August of 'twenty, two and we believe will we will continue to assess and explore all of our options to ensure we are well positioned until this pandemic is behind us and lodging fundamentals stabilize.
Operator that concludes our prepared remarks, we are ready to open up the line for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and once again that the stores in one to ask a question.
Our first question today will come from Bryan Mayer with B Riley Securities. Please go ahead.
Good morning, John and Bryan and Todd a cup.
Full of questions from me the first starting with liquidity.
I think you just touched upon the $875 million of cash left from the draw down when you think about the next two years I think you. Just said you know plenty of liquidity through 2022, how much of that is question I mean, if you go cash flow positive in the third quarter is.
Is the bulk of that 875, just yes.
Capex spending that you discussed and then the rest of this question at the year end 2022.
Okay.
Good morning, Brian. Thank you for that question, Yes, I think if we do nothing else. We think we have enough cash to cover the $500 million of becomes due in August of 'twenty two.
We will be able to cover the Capex and start building cash from operations in the latter half of this year and into next year.
So barring any other transactions that we might do or consider.
We think we'll be able to ride right into 2023.
Okay, and when you look back at the last five or six months of the transitions.
What has been the biggest challenge is there.
And do you foresee with a much bigger sonesta.
The opportunity to maybe converge.
Unhappy other brand owners to the Sonesta brand over the next couple of years.
Hey, Brian It's John I'll take that one.
I think the biggest challenge is that there is a notice period, when you decided to get the transition hotels of the Terminator and operator.
Obviously.
The the Marriott and IHG, we're happy about the fact that they were losing hundreds of hotels from the system.
So.
They stopped taking reservations for dates.
Post.
Post planned transition day. So this is.
Usually no of couple of months, where guests could be making reservations were Murray.
And of our IHG really weren't letting them.
The the.
Prior operators.
Call on those who have made reservations before that cutoff happened and try to try.
<unk> tried to move them to other hotels so.
Besides the GDS codes and things changing.
The prior operators don't do you any favours leading up to the transition period.
And then.
From an operational perspective, you typically don't get.
Details of employee information.
Until just a couple of weeks, maybe a few weeks before the transition date.
And.
And so you have to make sure they have all the information to make sure you have.
Documented employees.
You have to make sure of that appropriately trained.
The new systems.
And so that's time consuming and it's much more problematic win win.
Percentage of your workforce is furloughed.
And so you're reaching out to.
Introduce yourself not only to the existing employees, but the furloughed employees.
And.
So.
Those I think those of the biggest challenges, but we.
We think that.
So that the has done a pretty amazing job.
<unk>.
Of taken the bull by the warrants from transitioning these hotels quick.
Quickly and ripping off the band aid and getting back to work.
The state of the SaaS their sales team.
The.
<unk> got a number of really great employees that day to.
But the transitioned over from from IHG Marriott in some cases.
They found in the sales area that debt.
The cost of the strength of the systems.
Debt Marriott and IHG, both had debt some of the salespeople that initially transitioned over.
We're not scrappy enough to get out and battle for the business. They will use of the telephone ringing.
The computer screen popping up new reservations without having to work that hard and.
So I think.
With the drop off in the business travel.
At the Sonesta scrap Eunice.
And the new size.
Is going to help them.
Compete.
Head on with the major brands in terms of their.
In terms of senescence ability of the franchise.
I think that theyre going to have a lot of opportunities to take on.
Hotels from a number of the brands I think that.
Month end of month out you see that.
For the three largest brands Marriott Hilton and IHG has.
John.
Most of the new development rooms are going towards their brands in there.
It really.
<unk>.
Taken over a lot of the street corners in the shelf space, if you will for hotels such debt.
New owners contemplating the hotel.
Probably going to have the difficult time.
John.
Making the the economics work for the amount of dollars they have to invest.
To be one of the the 15th or 16th Marriott property in the market.
Where they have an ability with.
With sonesta the has.
The focus of the brand and the support of the brand.
I think that's something that's kind of distinguishing us from from the bigger brands.
Our experiences that debt.
The hotel owners, who take the Marriott is working for them and not working for merit.
Don't really understand what's going on at the hotels.
Great and just one more quick one for me if I might and then I'll hop back in the queue.
You guys like kind of narrow down what the cost per property is to convert.
From a married in the car.
Two of US in that state you know kind of of the hard cost on signage and then kind of a follow up to that I've noticed some signage at previously other brand new properties that are now the NASDAQ kind of habit of temporary sign over the.
Physical sign that was there before should we expect those the kind of stay on there while you analyze whether the property will be capped the sonesta are sold as opposed to kind of spending the hard money to replace that only for it to be kind of a waste of dollars two or three quarters from now.
Thanks, Brian I'll take that one.
The answer the latter part of that I think of lot of what Youre seeing if you see of temporary signage is just the timeline it takes to get permitting and get those dollars out there to put the permanent signage up.
So I don't think its really the latter of whether or not we're going to keep its analysis of that point I mean, obviously, we are a value of the portfolio and we continue to look at every property and there could be changes there, but for the most part of the permitting.
A lot of it takes to get that out there but.
As far as the cost per hotel of the transition.
I think I talked a little bit about the numbers in aggregate, but if you break it down what we expect at the hotel level EBITDA of average is about $120 per hotel.
From operations, whether it be procurement or getting.
Revenue management systems, and other legal cost for permitting and licensing and things of that nature on average the the.
The capital component is about 225000 of hotel call it and Thats, what youre talking about signage and it hardware computer system things of that nature.
Okay. Thank you.
Okay.
And our next question will come from Jim Sullivan with <unk>. Please go ahead.
Thank you.
I'd really like the of follow on initially of really on that the same question about the operating expense cost of transition.
In this quarter it was up $19 million of transition costs.
Q4 of $14 million of transition costs.
So assuming that the Hyatt.
Continue with Hyatt you don't transition.
I guess the first question is how much additional transition costs should we be assuming.
For the full year. In addition to what you just reported here in Q1 for transition costs, assuming no conversion of Hyatt.
Assuming no conversion of hired I think from an income statement standpoint, we've captured most of it if not all of it to date.
I don't think there'll be much of a bleed.
Into the future quarters.
Okay, and then secondly.
You provide the you know.
Very helpful detail regarding the calculation of hotel EBITDA and adjusted Hotel EBITDA, providing what do you know of.
Good line item detail.
On the expenses.
Then you deduct to get to the adjusted hotel EBITDA of $19 million of true.
Does that show related costs.
Just looking at kind of the those line items on the consecutive quarter basis the bid.
The increase as you move from Q4.
Q1 was on the other direct and indirect expenses, which rose about $11 million of that where the lion's share of the transition costs are.
Located.
Yes, that's correct. That's why we showed the as an add back the strip out those one time expenses. We don't we don't think they were current cost. So that's why we're adjusting the amount yet.
Okay, and then you had mentioned the.
The employee severance in connection with the Marriott the transition so I wonder if you could help us understand.
Number one when the hotels were of branded Marriott branded IHG.
Of the employees of the hotel subject to Union contracts number one number two with the transition to sonesta.
Do those union contracts to continue or do they become non union.
Yes, so there are.
A handful maybe a dozen hotels on the book and our portfolio that are Union hotels.
Two of them are still closed.
The other 10.
Spread out around the country, but there is a concentration in the.
The New York, New Jersey and Philadelphia.
<unk>.
And if.
In Chicago as well if the hotel was union when it was managed by Marion for IHG.
The has remained you need when it has come over to sonesta.
It's.
In most cases the owner the owner has to sign a recognition letter acknowledging the the union.
And there is there are significant there are significant costs.
A lot of which of pension related to trying to.
To trying to.
Determining of those relationships.
So the I think that was cited in the prepared comments that about $8 million of the transition costs were for severance agreements.
So those of rise because of the of the employment agreement the Marriott has with the employees.
And desired did IHG or does the Hyatt have a similar type of agreement where the similar types of expense if you would of transition.
The.
A lot of the severance costs that we saw.
Marriott related too.
The employees that have been furloughed for a substantial period of time.
And.
There are a lot of nuances to.
If you're if you're not planning to bring furloughed employees back initially.
As the operations are still.
Negatively affected by the pandemic.
And so there is an uncertain period of time additional time for those employees will be furloughed.
<unk>.
The labor Council for them.
Employee of employment Council.
At Marriott and IHG.
And the dose.
And Thats an institute the all evaluated those conditions.
<unk> made some determination as to which hotels, which hotel employees.
You needed to be terminated as opposed to trying to transition and sterling of employees.
Yeah.
That's just relationships for channel.
Okay and then.
Just on one specific line item of management fees of it.
On a sequential quarter basis day more than doubled here in the first quarter from the fourth quarter.
And I don't know if that had anything to do with the true if any of the transition costs are on that line item.
Or are not in the fall or is that of the result of the sonesta transition of the agreement.
Going forward should we assume that that kind of $5 million run rate is something that's likely to continue on this revenue base.
Yes, Jim Thats directly correlated to the sonesta contracts the historical contracts and the these contracts related to transition to hotels of the same.
So of full service hotels, Sonesta, Aaron's of 3% management fee for.
Extended stay.
The 5% so that's directly tied to revenues.
So as revenue grow that fee will grow accordingly, so the historical for image you might recall.
Under Marriott and IHG those were junior expenses, meaning if there was sufficient cash flow to pay our returns then they could earn their profit fees, but in the sonesta structure, which is more in line with the market agreement.
Of those fees are just part of operating costs.
Okay that that penalty for the final question, which is.
Obviously, you've given very helpful information on topline trends by month here.
In terms of ADR occupancy and Revpar.
Under the sonesta agreements.
Would we be assuming that as you as the portfolio of recoveries hopefully to the pre pandemic revenue run rate should we be assuming that the EBIT margin the hope.
I'll leave it at the margin would be the same as what it was under Marriott.
IHG management and branding or should we assume it would be higher or lower.
Yes.
I mean, as Brian indicated the management fees.
Base management fees on the sonesta will be.
And operating costs. So in that respect there'll be added expense.
Or at least that's the way it looks.
Superficially, but the the.
The fact is that when the credit support ran out with IHG.
IHG Marriott.
And we talked about possible ways forward with them before before deciding to transition to sonesta.
Among the.
The changes that pulse IHG Marriott.
Assistant upon which the.
The fair management fees would become senior as well so.
I think.
It was.
That aspect of that change to our P&L of something that was going to happen across the board really.
<unk>.
Without regard to weather the sonesta managing one of the other brands managing.
Okay, great. Thanks, John.
Yes.
And this will conclude our question and answer session I would like to turn the conference back over to John Murray for any closing remarks.
Thank you very much for joining us today, we look forward to seeing some of you at the.
In person and virtual hotel in the real estate conferences of the coming up for the next couple of months. Thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.
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Okay.
John.
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Okay.
Yes.
Okay.
John.
John.
Okay.