Q1 2024 Service Properties Trust Earnings Call

Operator: Good morning, and welcome to the Service Properties Trust first quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Stephen Colbert, Director of Investor Relations. Please go ahead.

Good morning, and welcome to the service properties Trust first quarter 'twenty 'twenty four earnings conference call.

Operator: All participants will be in listen only mode.

Stephen Colbert: Should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Stephen Colbert: After today's presentation there'll be an opportunity to ask questions.

Operator: Please note this event is being recorded.

Operator: I would now let's turn the conference over to Stephen Colbert Director of Investor Relations. Please go ahead.

Stephen Colbert: Good morning.

Stephen Colbert: Joining me on today's call are Todd Hargreades, President and Chief Investment Officer, and Brian Donley, Treasurer and Chief Financial Officer. This call will include a 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 the prior written consent of SVC. Additionally, I would like to point out that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

Stephen Colbert: Joining me on today's call are card hard graves, President and Chief investment Officer, and Brian Donley, Treasurer, and Chief Financial Officer.

Stephen Colbert: Today's call includes a presentation by management, followed by a question and answer session with analysts.

Stephen Colbert: Please note that the recording retransmission and transcription of today's conference call is prohibited without the prior written consent of SBC.

Stephen Colbert: These forward-looking statements are based on SCC's present beliefs and expectations as of today, May 8, 2024. However, actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the FCC, which can be accessed from our website at svcreek.com or the FCC's website.

Stephen Colbert: I'd like to point out that today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and other securities laws.

Stephen Colbert: These forward looking statements are based on sbcs present beliefs and expectations as of today may eight 2024 apps.

Stephen Colbert: Actual results may differ materially from those projected in these forward looking statements.

Stephen Colbert: Additional information concerning factors that could cause those differences is contained in our filings with the FTC, which can be accessed from our website at SBC REIT dot com or the Sec's website.

Stephen Colbert: 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. In addition, this call may contain non-GAAP financial measures, including Normalized Funds from Operations or Normalized SFO and Adjusted EBITDA RE. Reconciliations of these non-GAAP financial measures to net income as well as components to calculate AFFO are available in our financial reporting package, which can be found on our website.

Stephen Colbert: 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.

Stephen Colbert: In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized <unk> and adjusted EBITDA R E.

Stephen Colbert: Reconciliations of these non-GAAP financial measures to net income as well as components to calculate a F. F. O are available in our financial reporting package, which can be found on our website.

Stephen Colbert: And finally, we are providing guidance on this call, including Hotel Ibada. However, we are not providing a reconciliation of this non-GAAP measure as part of our guidance because certain information required for such a reconciliation is not available without unreasonable efforts or at all. With that, I'll turn the call over to Todd.

Stephen Colbert: And finally, we are providing guidance on this call including hotel EBITDA.

Todd: We are not providing a reconciliation of this non-GAAP measure as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all.

Stephen Colbert: With that I'll turn the call over to Todd.

Todd W. Hargreaves: Thank you, Stephen, and good morning. Our first quarter results are indicative of typical seasonality patterns in our lodging portfolio, as well as the stability of our net lease portfolio. Our full-service hotels experienced top-line growth through increased group demand, while our select-service hotels were impacted by softening transit travel and renovation activity. Our focus remains on improving the performance and quality of our portfolio through the disposition of non-core hotels and capital projects to put our operators in the best position for long-term success. Beginning with the hotel portfolio for the quarter, comparable REF PAR declined 3.5% year-over-year. When excluding the 23 active renovations, ADR declined 0.7%, and occupancy declined 0.2%, leading to a REPAR decline of 1.1%.

Todd: Thank you Steven and good morning, our first quarter results are indicative of typical seasonality patterns and our lodging portfolio as.

Todd W. Hargreaves: As well as the stability of our net lease portfolio.

Todd W. Hargreaves: Our full service hotels experienced topline growth through increased group demand, while our select service hotels were impacted by softening transient travel and renovation activity.

Todd W. Hargreaves: Our focus remains on improving the performance and quality of our portfolio through the disposition of noncore hotels in capital projects to put our operators in the best position for long term success.

Todd W. Hargreaves: Beginning with the hotel portfolio for the quarter comparable Revpar declined three 5% year over year.

Todd W. Hargreaves: When excluding the 23 active renovations ADR declined <unk>, 7% and occupancy declined <unk>, 2%, leading to a revpar decline of one 1%.

Todd W. Hargreaves: The renovation hotels, which include our Hyatt Place Portfolio, Sinesta Hilton Head, and others, experienced approximately $3.9 million of displacement during the quarter. Cost pressures led to a hotel EBITDA margin decline of 290 basis points over the prior year quarter for our 218 comparable hotels, as wages, property taxes, and insurance increases more than offset our operators' improved reliance on contract labor. Full service was our top performing segment during the quarter, where we gained 80 basis points of RAPFAR over the previous year's quarter, led by increases in group and contract sales.

Todd W. Hargreaves: The renovation hotels, which include our Hyatt place portfolio Sonesta, Hilton head and others experienced approximately $3 $9 million of displacement during the quarter.

Todd W. Hargreaves: Cost pressures led to our hotel EBITDA margin decline of 290 basis points over the prior year quarter four of 218 comparable hotels as wages property taxes and insurance increases more than offset our operators improve reliance on contract labor.

Todd W. Hargreaves: Full service was our top performing segment during the quarter, where we gained 80 basis points of revpar over the previous year quarter led by increases in group and contract sales.

Todd W. Hargreaves: Full service group performance was led by our Royal Sinesa Hotels in San Juan, San Francisco, and Kauai, while the increase in contract revenues was led by our Sinesa Hotels in Redondo Beach and Denver. F&B revenue gains occurred across our full-service hotels as well, led by our Royal Senestas in St. Louis and Kauai.

Todd W. Hargreaves: Full service group performance was led by our Royal Sonesta hotels in San Juan San Francisco, and Hawaii, while the increase in contract revenues was led by our Sonesta hotels in Redondo Beach in Denver.

Todd W. Hargreaves: F&B revenue gains occurred across our full service hotels as well led by Royal Sonesta is in St. Louis in Hawaii.

Todd W. Hargreaves: Yeah.

Todd W. Hargreaves: Our portfolio of select service hotels continued to see the most disruption during the quarter as 18 of our 61 hotels were under renovation, including our 17 high-end hotels, which began renovations in 2023. Overall, select service revenue declined by 13.2 percent due to these disruptions, as well as decreased year-over-year income from our five select service hotels located in the Phoenix area that benefited from the 2023 Super Bowl. Our extended CA portfolio experienced a 4.6% decline in REF part year over year, consistent with a trend from previous quarters or longer-term extended stay occupancy.

Todd W. Hargreaves: Our portfolio of select service hotels continued to see the most disruption during the quarter as 18 of our 61 hotels were under renovation, including our 17 Hyatt place hotels, which began renovations in 2023.

Todd W. Hargreaves: Overall select service Revpar declined by 13, 2% due to these disruptions as well as decreased year over year income from our five select service hotels located in the Phoenix area that benefited from the 2023 Super Bowl.

Todd W. Hargreaves: Our extended stay portfolio experienced a four 6% decline in revpar year over year.

Todd W. Hargreaves: System with a trend from previous quarters or longer term extended stay occupancy.

Todd W. Hargreaves: Stays of 7 plus nights have been declining due to the loss of non-repeat project-based roommates, while Synesthesia has actually pivoted to shorter-term stays at these hotels to fill occupancy. However, the increased room nights were not enough to offset the reduced rates. Group pace is up $15 million, or 12.3% over the same time last year, due to increases in room nights and ADR in both the Synesta and Radisson portfolios. The most notable games were related to Corporate Group at the Royal Synesthia, Cambridge, and there are Synesthia hotels in Chicago, where the Democratic National Convention will be held in August.

Todd W. Hargreaves: Stays at seven plus nights has been declining due to the loss of non repeat project base room nights.

Todd W. Hargreaves: Boston emphasis actually pivoted to shorter term stays at these hotels to fill occupancy.

Todd W. Hargreaves: The increased room nights were not enough to offset the reduced rates.

Todd W. Hargreaves: Group pace is up $15 million or 12, 3% over the same time last year due to increases in room nights and ADR in both the sonesta and Radisson portfolios.

Todd W. Hargreaves: Most notable gains were related to corporate group at the Royal Sonesta, Cambridge, narrow sonesta, Chicago hotels, where the Democratic National Convention will be held in August.

Todd W. Hargreaves: Combined revenues from our business travel for our operators declined slightly year-over-year due to the ongoing renovations in our HIA portfolio and the shift in the Easter holiday from April last year to March this year, while business travel increased in our Sinesta portfolio from key corporate accounts at our Select Service Hotel. OTA revenue as a percentage of total revenues declined from 25.6 percent to 24.8 percent year over year during the quarter, and our operators continue to concentrate efforts on driving bookings to their websites to lessen the dependency on third-party channels that charge commissions. Finesta remains focused on building its brand through numerous initiatives and recently merged its Travel Past Rewards Program with the Legacy Red Lion Loyalty Program, doubling its overall size.

Todd W. Hargreaves: Combined revenues from our business travel for operators declined slightly year over year due to the ongoing renovations at our Hyatt portfolio and the shift in the Easter holiday from April last year to March this year while business.

Todd W. Hargreaves: Travel, increasing our sonesta portfolio from key corporate accounts that are select service hotels.

Todd W. Hargreaves: O T. A revenue as a percentage of total revenues declined from 25, 6% to 24, 8% year over year during the quarter Niraparib.

Todd W. Hargreaves: And our operators continue to concentrate efforts on driving bookings to their websites to lessen the dependency on third party channels to charge commissions.

Todd W. Hargreaves: But that still remains focused on building its brand through numerous initiatives and recently merged travel past rewards program with the legacy Red Lion loyalty program doubling its overall size.

Todd W. Hargreaves: During the quarter, 25.9% of our Sinesta full-service hotel revenues were from loyalty program members, up 3.5 percentage points from 2023. Other ongoing SNES initiatives include a focus on driving ancillary revenues at the hotel, building out a sales organization, and investing in technology. Turning to our net lease portfolio, which represents 44% of SVC's portfolio by investment. As of March 31st, 2024, our 749 service-oriented retail net lease properties are 97.3% leased with a weighted average lease term of 8.7 years.

Todd W. Hargreaves: During the quarter or 25, 9% of our Sonesta full service hotel revenues were from loyalty program members up three five percentage points from 2023.

Todd W. Hargreaves: Other ongoing sonesta initiatives include a focus on driving ancillary revenues at the hotel.

Todd W. Hargreaves: Building out the sales organization and investing in technology.

Todd W. Hargreaves: Turning to our net lease portfolio, which represents 44% of saic's portfolio by investment.

Todd W. Hargreaves: As of March 31, 2024 of our 749 service oriented retail net lease properties.

Todd W. Hargreaves: We're 97, 3% leased with a weighted average lease term of eight seven years.

Todd W. Hargreaves: Our lease maturities are well laddered, and only 1.3% of our net lease minimum rents expire prior to the end of 2024. The aggregate coverage of our net lease portfolio's minimum rents was 2.37 times on a trailing 12-month basis as of March 31, 2024. The decline sequentially is largely driven by software EBITDAR reported by TA for Q1 2024.

Todd W. Hargreaves: Lease maturities are well ladder and only one 3% of our net lease minimum rents expire expire prior to the end of 2024.

Todd W. Hargreaves: The aggregate coverage of our net lease portfolios minimum rents was 2.37 times on a trailing 12 month basis as of March 31 2024.

Todd W. Hargreaves: The decline sequentially is largely driven by softer EBITDAR reported by T. A for Q1 2024.

Todd W. Hargreaves: Transaction activity during the quarter was limited to three net lease dispositions and one hotel disposition, a country inn and suites in suburban Minneapolis, for an aggregate sales price of $6.2 million. We continue to market 22 Sinesta hotels with a book value of $160 million. The sale process is well underway, and we're working with potential buyers to negotiate terms. In conclusion, we're optimistic that our hotel portfolio will see meaningful operational improvements as a result of our renovation program, as hotels benefit from much needed refreshes over the coming quarter.

Todd W. Hargreaves: Transaction activity during the quarter was limited to three at least dispositions and one hotel disposition of country and suites in suburban Minneapolis for an aggregate sales price of $6 $2 million.

Todd W. Hargreaves: We continue to market 22, sonesta hotels with a book value of $160 million.

Todd W. Hargreaves: The sale process is well underway and we're working with potential buyers to negotiate terms.

Todd W. Hargreaves: In conclusion, we are optimistic that our hotel portfolio will see meaningful operational improvements as the result of our renovation program.

Todd W. Hargreaves: As hotels benefit for much needed refresh it over the coming quarters. Additionally.

Todd W. Hargreaves: Additionally, the performance of our net lease portfolio remains steady and is anchored by an investment grade rated tenant in BP. With more than $700 million of liquidity and no debt maturities in 2024, we are well-positioned to implement our strategic plan. I will now turn the call over to Brian to discuss our financial results in more detail.

Todd W. Hargreaves: Additionally, the performance of our net lease portfolio remains steady and is anchored by an investment grade rated tenant B b.

Brian: With more than $700 million of liquidity and no debt maturities in 2024, we are well positioned to implement our strategic plan.

Todd W. Hargreaves: Now I'll turn the call over to Brian to discuss our financial results in more detail.

Brian E. Donley: Thanks, Todd, and good morning. Starting with our consolidated financial results for the first quarter of 2024, normalized FFO was $21.1 million, or $0.13 per share, versus $0.23 per share in the prior year quarter. Adjusted EBITDA RE declined 1% year-over-year to $115.5 million. Financial results this quarter as compared to the prior quarter were impacted by higher interest expense and a decline in hotel EBITDA. Rental income increased by $5.6 million this quarter compared to the prior year due to higher rental income recognized under our TA leases as a result of the BP transaction last May.

Brian: Thanks, Todd and good morning.

Brian E. Donley: Starting with our consolidated financial results for the first quarter of 2020 for normalized <unk> was $21 $1 million of 13 cents per share versus 23 cents per share in the prior year quarter.

Brian E. Donley: Adjusted EBITDA declined 1% year over year to $115 $5 million.

Brian E. Donley: Financial results this quarter as compared to the prior year quarter were impacted by higher interest expense and a decline in hotel EBITDA.

Brian E. Donley: Rental income increased by $5 $6 million this quarter compared to the prior year due to higher rental income recognized under our Ta leases as a result of the BP transaction last night.

Brian E. Donley: Turning to the performance of our hotel portfolio, for our 218 comparable hotels this quarter, rent power decreased by 3.5%, the gross operating profit margin percentage declined by 200 basis points to 23.3%, and gross operating profit decreased by $6.5 million from the prior year period. Below the GOP line, costs at our comparable hotels increased $2.8 million from the prior year, driven primarily by increased insurance expenses. Our 220 hotels generated hotel needs of up to $28.9 million, a decline from the prior year but in line with our guidance rates provided last quarter. By service level, Hotel Eats, year-over-year, increased $676,000 for our 48 full-service hotels, declined $5.6 million for our 61 select service hotels, and $3.4 million for our 111 extended-stay hotels.

Brian E. Donley: Turning to the performance of our hotel portfolio for our 218 comparable hotels this quarter Revpar decreased by three 5% gross operating profit margin percentage declined by 200 basis points to 23, 3% and gross operating profit decreased by $6 $5 million from the prior year period.

Brian E. Donley: Although the GOP line costs at our comparable hotels increased $2 $8 million from the prior year, driven primarily by increased insurance expense.

Brian E. Donley: Our 220 hotels generated hotel EBITDA of $28 $9 million decline from the prior year, but in line with our guidance range provided last quarter.

Brian E. Donley: By service level hotel EBITDA year over year increase $676000 for our 48 full service hotels declined $5 $6 million for a 61 select service hotels at $3 $4 million for 111 extended stay hotels.

Brian E. Donley: Turning to our expectations for Q2, we're currently projecting a full quarter Q2 REV PAR of $95 to $99 in hotel EBITDA in the $80 to $85 million range. Turning to the balance sheet, we currently have $5.6 billion of fixed-rate debt outstanding with a weighted average interest rate of 5.9%. Our next debt maturity is $350 million of unsecured senior notes maturing in March 2025. We currently have $80 million of cash, and a $650 million revolving credit facility remains undrawn for total liquidity of over $700 million.

Brian E. Donley: Turning to our expectations for Q2, we're currently projecting full quarter Q2, revpar of 95 to $99 and hotel EBITDA.

Brian E. Donley: The $85 million range.

Brian E. Donley: Turning to the balance sheet. We currently have about $46 billion of fixed rate debt outstanding with a weighted average interest rate of five 9%.

Brian E. Donley: Our next debt maturity is $350 million of unsecured senior notes maturing in March 2025.

Brian E. Donley: Currently have $80 million of cash of $650 million revolving credit facility remains undrawn for total liquidity of over $700 million.

Brian E. Donley: Turning to our investing activity during the first quarter, we sold one hotel and three net lease properties for an aggregate sales price of $6.2 million. Additionally, we made $69 million of total capital improvements at our properties during the first quarter. We currently expect full-year capital expenditures of $300 to $325 million, up from our previous guidance range of $250 to $275 million. We currently expect maintenance-type capital to be $100 million of the total spend this year.

Brian E. Donley: Turning to our investing activity during the first quarter, we sold one hotel three net leased properties for an aggregate sales price of $6 $2 million.

Brian E. Donley: We made $69 million of total capital improvements at our properties during the first quarter.

Brian E. Donley: We currently expect full year capital expenditures of $300 million to $325 million up from our previous guidance range of $250 million to $275 million.

Brian E. Donley: We currently expect maintenance type capital to be a $100 million of the total spend this year.

Brian E. Donley: Our capital program is focused on ensuring the best guest experiences, upgrading to brand standards, and positioning the hotels to improve their respective market share. To date, we've completed renovations at nine Sinesta hotels, and we're pleased with the post-renovation returns we're seeing thus far. We expect 22 hotels across all service levels to be under renovation in the second quarter and expect to have completed major renovations at 33 hotels during the calendar year, including 5 full-service hotels, 18 select-service hotels, and 10 extended-stay hotels. Finally, in April, we announced our regular quarterly common dividend of $0.20 per share, which we believe is well-covered, representing a 51% normalized FFFO payout ratio for the 21-12 months ended March 31, 2024

Brian E. Donley: Our capital program is focused on ensuring the best guest experiences upgrades to brand standards and positioning the hotels to improve their respective market share.

Brian E. Donley: To date, we've completed renovations at nine Sonesta hotels, and we're pleased with the post renovation returns we're seeing thus far.

Brian E. Donley: We expect 22 hotels across all service levels to be under renovation in the second quarter and expect to have completed major renovations at 33 hotels during the calendar year, including five full service hotels 18 select service hotels and 10 extended stay hotels.

Brian E. Donley: Finally in April we announced our regular quarterly common dividend of <unk> 20 per share, which we believe is well covered representing a 51% normalized.

Brian E. Donley: Total payout ratio for the trailing 12 months ended March 31 2024.

Operator: That concludes our prepared remarks. We're ready to open the line for questions. We will now begin the question and answer session.

Speaker Change: That concludes our prepared remarks, we're ready to open the line for questions.

Operator: We will now begin the question and answer session.

Operator: To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Bryan Maher with B-Rally Securities. Please go ahead.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Bryan Anthony Maher: If you were using a speakerphone please pick up your handset before pressing the keys.

Bryan Anthony Maher: To withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Bryan Anthony Maher: Our first question is from Bryan Mayer with B Riley's Securities. Please go ahead.

Bryan Anthony Maher: Thank you, and good morning, Todd and Brian. Maybe just stick with the CapEx for a minute, your $50 million increase. I think I did that math right. Can you talk about why and what that $50 million is going to be allocated to?

Bryan Anthony Maher: Thank you and good morning, Todd and Brian and maybe just sticking with the Capex for a minute. Your your 50 million increase I think I did that math right can.

Bryan Anthony Maher: Can you talk about why and what that $50 million can be allocated to.

Brian E. Donley: Morning, Brian. Thanks for the question. Yeah, a lot of it is just the pace of projects, and, you know, as we plan the rest of the year, each quarter, we decide which projects we think we should move forward with, which ones make sense from a timing standpoint to limit disruption. We also have a combination of major renovations at certain hotels as well as more routine stuff that we want to get done this year to continue to improve the position of the hotel.

Bryan Anthony Maher: Good morning, Brian. Thanks for the question Yeah, a lot of it is just pace of projects and as we plan. The rest of the year you know each quarter, we decide which projects. We think we should move forward with which ones makes sense from a timing standpoint.

Brian E. Donley: To limit disruption. We also have a combination of major renovations at certain hotels as well as more routine stuff that we want to get into this year to continue to improve.

Brian E. Donley: The positioning of the hotel. So it's a combination of a couple of things, but it's more so just the pace of projects has moved a little quicker than it has in past quarters. So it's more of a planning thing that anything. This is a multiyear program that we are we've now started at the end of last year and it will continue for a couple of years.

Brian E. Donley: So, it's a combination of a couple of things, but there is more. So, just the pace of projects has moved a little quicker than it has in previous quarters. So it's more of a planning thing that I get into. This is a multi-year program that we started at the end of last year, and it'll continue for a couple of years.

Brian E. Donley: Would you consider some or all of that $50 million a pull forward from what you would have spent in 2025? Yes, yes. Okay, and when we think about the Hyatt renovation disruption,

Brian E. Donley: Would you consider it or style or all of that $50 million a pull forward from what you would've spent in 2020 five.

Brian E. Donley: Some of it yes, yes.

Brian E. Donley: Okay, and when we think about the Hyatt renovation disruption can you talk about when you think that that is fully wound down and maybe give us some ideas as to how much you're spending per key on the renovations and kind of how deep they are.

Brian E. Donley: Sure, I can take that one, Brian. Good morning.

Speaker Change: Sure I can I can take that one Brian good morning. So the the Hyatt's. We started those late last year I would say we're through the majority of those or we shouldn't be getting through the majority of those shortly I would expect most of that to wrap up this quarter and have them.

Brian E. Donley: So, the hiatus, we started those late last year. I would say we're through the majority of those, or we should be getting through the majority of those shortly. I would expect most of that to wrap up this quarter and have those back online fully. So, I think we should start to see the benefit of that starting in the second quarter, but really fully, hopefully, in the third quarter.

Brian E. Donley: Those are back online fully so I think we should start to see the benefit of that.

Brian E. Donley: Starting in the second quarter, but really fully hopefully in the third quarter.

Brian E. Donley: The total cost for those renovations is right around $90 million, which Brian's calculating the per key cost now. Yeah, per key, it's around $40,000. Yeah, and it's rooms, common areas, facades, it's a pretty intensive renovation. Those hotels haven't been renovated in a while, so we expect to see a pretty significant pickup once those renovations are complete.

Brian E. Donley: The total of the total cost is for those renovations is right around $90 million.

Brian E. Donley:

Brian E. Donley: Which.

Brian E. Donley: Brian just calculating the per key cost now burkean throughout 40000, 40000, yeah, and it's it's it's rooms common areas. Besides it's pretty it's a pretty intensive renovation those hotels have been renovated in a while so.

Brian E. Donley: We expect to see a pretty significant pick up once those renovations are complete.

Brian E. Donley: Okay, and maybe kind of the same dialogue on Synesta, you know, kind of how much more you're spending per key. I think you mentioned in your prepared comments that you're selling, you know, 22 hotels.

Speaker Change: Okay, and then maybe kind of the same dialogue on the next day, you know kind of how much more what you're spending per key I think you mentioned in your prepared comments that you're selling you know 22 hotels book value $1 62, I mean, what is that sales D.

Brian E. Donley: T year kind of future Capex spend that you had been planning for.

Brian E. Donley: Yeah, from a synesthetic standpoint, it depends on the chain scale and the brand. You know, the simple sweeps at the lower end are, you know, 30 to 35,000 per key and could be upwards of 50,000 a key for some of the bigger boxes that we're doing.

Brian E. Donley: Yeah from from our Sonesta standpoint, it depends on the chain scale in the brand.

Brian E. Donley: Simply suites at the lower end is 30 to 35000 per key and it could be upwards of 50000, a key for some of the very boxes that we're doing we've got various full service hotels that are in the plan for this year, including our Hilton head property and some of the airport hotels.

Brian E. Donley: But yes, we as we look at different chain scale and different needs when last refresh happens.

Brian E. Donley: Yeah, and that should take off probably another $150 million total that we would otherwise have had to spend at these hotels.

Brian E. Donley: Yeah, and that should take off probably another.

Brian E. Donley: 150 million. So total that we otherwise would have had to spend at these hotels.

Brian E. Donley: And just two more for me. What kind of uplift are you looking for in REVPAR, roughly speaking, from the Hyatt renovations and the Synesta renovations, if you can break them out? I don't know what the best way to break them out is, but clearly, you've thought about what your REVPAR uplift would be. Can you share with us what you're thinking there?

Brian E. Donley: And just two more for me what kind of uplift are you looking for in Revpar you know.

Brian E. Donley: Roughly speaking from the Hyatt renovations and the sonesta renovations or if you can break them out I don't know what the best way to break it out is that they clearly you've thought about what your revpar uplift would be can you share with that.

Brian E. Donley: What youre thinking there.

Brian E. Donley: Yeah, I mean, I think rep power index is one metric. I mean, we're very focused on bottom line EBITDA, and we expect high single digit returns on a lot of the money we're deploying for what we're calling renovation capital, you know, you're not going to get that same lift from more routine stuff that is just maintenance type capital, but there are various ROI projects built into our program, and the amount of money we're putting in, we expect a significant lift that will be a high single digit EBITDA returns over the longer term, post-renovation periods.

Brian E. Donley: Yeah, I mean, I think Revpar index is one metric I mean, they're very focused on bottom line EBITDA and we expect high single digit returns on a lot of the money, we're deploying for what we're calling renovation capital.

Brian E. Donley: To get that same lift from more routine stuff that is just maintenance capital, but there are various ROI projects built into our program and the amount of money. We're putting in we expect a significant lift that will you know high single digit EBIT.

Brian E. Donley: Turns a little longer term post renovation periods.

Brian E. Donley: We finished nine semesters this quarter; not a lot of anecdotal evidence yet of some of these, because they're only a couple of months post-renovation, but some of the ones that have been finished for close to a year, if you look at the periods prior to when, before we started the renovations to ramp up the period afterwards, we're seeing those returns that we had forecast.

Brian E. Donley: Finished nine sonesta is this quarter.

Brian E. Donley: Not a lot of anecdotal evidence yet as some of these are only a couple of months post renovation, but yeah. Some of the ones that have been finished floor clause.

Brian E. Donley: Close to a year if you look at the periods prior to when before we started the renovations too.

Brian E. Donley: Ramp up period, afterwards, where we're seeing those returns that we had forecasted.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Operator: The next question is from Dori Kesten with Wells Fargo. Please go ahead.

Brian E. Donley: The next question is from Dori Kesten with Wells Fargo. Please go ahead.

Dori Lynn Kesten: Thanks, good morning. I appreciate the Q2 RevPAR and Hotel Evita guide. I was wondering what you're thinking of for the back half of the year. I know peers have highlighted a strong second half versus the first, but I'm not sure if you feel the SEC portfolio would participate as much given limited group exposure in the renovation headlines.

Dori Lynn Kesten: I think green I appreciate that's okay, Revpar and hotel EBITDA.

Dori Lynn Kesten: I'm wondering what you're thinking outside of the back half of the year I know up here is I've highlighted a strong second half versus first.

Dori Lynn Kesten: I'm not sure if you feel that that's what the portfolio looks like almost matched every one of them kind of explain kind of animals.

Todd W. Hargreaves: That's a great question, Dori. Thank you.

Speaker Change: Yeah, It's a great question Doron. Thank you.

Dori: You know I think our trends will mirror patterns that we've had in previous years, we expect Q2.

Todd W. Hargreaves: You know, I think our trends will mirror patterns that we've had in previous years. We expect Q2 to be a stronger period, obviously, than Q1. We think Q3 will be in line with Q2 before it starts trailing off. There is a lot of noise in our portfolio, given the renovation activity we've highlighted. So when we do see the ramp-up from certain hotels and pick up different business and market share, that could be weighed down by some of the other hotels that we're moving into renovation.

Todd W. Hargreaves: To be a stronger period, obviously in Q1, we think Q3 will be in line with Q2 before it starts trailing off.

Todd W. Hargreaves: There is a lot of noise in our portfolio given the renovation activity will have highlighted so when we do see ramp up from certain hotels in picking up a different business and market share, yes that that could be weighed down by some of the other hotels that were moving into renovation.

Todd W. Hargreaves: Okay. And as you wrap up negotiations on the 22 synopsis, I'm wondering what you learned from the marketing process and the negotiation process so far? And just based on the level of interest, would you expect there to be a round two of asset sales or would you consider yourself done for the year after these 22?

Todd W. Hargreaves: Okay.

Speaker Change: And as you wrap up your negotiations on the 'twenty, two and I am wondering what did you learn from the marketing process.

Todd W. Hargreaves: Some processes are.

Todd W. Hargreaves: I've lived in Tourettes I'm with you.

Todd W. Hargreaves: There can be around town of asset sales have been canceled and yourself for a year Apple for okay.

Todd W. Hargreaves: Sure, Dori. The marketing process. Just to clarify, we have gone through multiple rounds of bidding on the hotels. We've identified buyers for the majority of those hotels, and so we are, as you point out, negotiating contracts. It's not going to be a portfolio sale. It's not going to be to two or three buyers.

Speaker Change: Sure Dori.

Todd W. Hargreaves: The marketing process show, so just to just to clarify where we have gone through multiple rounds of bidding on the hotels, where.

Todd W. Hargreaves: We're we've.

Todd W. Hargreaves: To find buyers for the majority of those hotels and so we are as you point out negotiating contracts.

Todd W. Hargreaves: It's not going to be a portfolio sale, it's not going to be to two or three buyers theres going to be likely more than 10 buyers for these 22 hotels.

Todd W. Hargreaves: There's likely to be more than ten buyers for these 22 hotels, and we're likely to maximize proceeds that way. I think the process has gone somewhat as expected in terms of interest levels from a lot of smaller operators for these types of hotels, a lot of local operators. If you recall, these hotels today are losing their negative EBITDA for the most part.

Todd W. Hargreaves: Where we're likely to maximize proceeds that way.

Todd W. Hargreaves: I think that I think that process has gone somewhat as expected in terms of interest level.

Todd W. Hargreaves: From a lot of smaller operators for these types of hotels a lot of local operators.

Todd W. Hargreaves: You recall these east hotels today are.

Todd W. Hargreaves: They need CapEx, so local operators are coming in and really focusing on turning around some of these hotels. We did get a lot of interest, and I think the types of hotels that are trading, even with transaction activity down, are these types of hotels, kind of the lower price point hotels where buyers can come in at a good basis. So, you know, again, it was similar to what we expected. There were a lot of repeat buyers from the time we sold the 68 hotels a couple years ago as well. So I'm not sure we necessarily learned anything further.

Todd W. Hargreaves: Our are losing their negative EBITDA for the most part they need capex.

Todd W. Hargreaves: So local libraries are coming in and.

Todd W. Hargreaves: And really focusing on turning around some of these hotels.

Todd W. Hargreaves: You know that.

Todd W. Hargreaves: We did get a lot of interest and I think the types of hotels that are trading even with transaction activity down or these types of hotels kind of a lower price point hotels, where buyers can come in at a good basis. So.

Todd W. Hargreaves: You know again it was it was it similar to what we expected there was a lot of repeat buyers from from the time, we sold 68 hotels, a couple of years ago as well so.

Todd W. Hargreaves: I'm not sure we necessarily learned anything further I think there continues to be interest in these hotels are continues to be interest in groups buying these hotels and entering into franchise agreements with sonesta, which which was a positive to see as well.

Todd W. Hargreaves: I think there continues to be interest in these hotels, or there continues to be interest in groups buying these hotels and entering into franchise agreements with Synesta, which was positive to see as well. To answer your question about more hotels, I think we want to get through these first, but there could be other hotels in the system. I think it's just going to be a continuing evaluation of the performance of the hotels. And so there could be other hotels, but we haven't identified any yet.

Speaker Change: To answer your question on on more hotels, I think we want to get through these first but.

Todd W. Hargreaves: There could be other hotels in the system I think it is just going to be a continuing evaluation of the performance of the hotels and so there could be other hotels, but we havent identified any yet.

Brian E. Donley: Okay, and then my last one is just on tracking trends. So you've talked about the normalization of trends, and therefore, it makes sense that your rent coverage is coming in post-pandemic, but for context, like what level of rent coverage would make you consider the trend less of a normalization and more where it should be? And to be clear, I don't think you're there. I'm just wondering, like, what your line of

Speaker Change: Okay and then my last one is just on tax.

Brian E. Donley: Tracking trends you talked about the normalization of trends.

Brian E. Donley: That makes sense around how big is coming in.

Brian E. Donley: But for context like what level of rent coverage with both of them.

Brian E. Donley: And less of a normalization and more work.

Brian E. Donley: To be clear I don't think we're there I'm just wondering like what your what your lineup.

Brian E. Donley: Right. It remains to be seen. It's a good idea, it's, the commentary is, we agree with that commentary.

Brian E. Donley: Right.

Brian E. Donley: It remains to be seen a it's a good it's.

Brian E. Donley: The commentary is we agree with that commentary back in 2017 18 19.

Brian E. Donley: Back in 2017, 18, 19, you know, the coverage for those assets was probably closer to 1.8 or 1.9 times. And then, you know, once we came out of the, or once the pandemic hit and trucking activity picked up significantly, e-commerce activity picked up significantly, you saw diesel volumes and, more importantly, margins get to levels that we hadn't seen before, and that really drove coverage up. I think what you've seen over the past three or four quarters, does that really get back down to more what we view as normalized levels?

Brian E. Donley: The coverage for those assets was probably closer to one eight or one nine times and then.

Brian E. Donley: You know once we once we came out of that are.

Brian E. Donley: Once the pandemic hit in trucking activity picked up significantly e-commerce activity picked up significantly and you saw.

Brian E. Donley: Diesel volumes and more importantly margins get to levels that we hadn't seen before and that really drove cover job I think what you've seen over the past.

Brian E. Donley: Several court past three or four quarters is that really get back down to more what we view as normalized levels. We don't have as we don't have nearly as much insight now given that the lease amendment to the performance of these sites but.

Brian E. Donley: We don't have nearly as much insight now, given the lease amendment, into the performance of these sites, but we're following what BP says publicly. We have very little concern, given the investment grade credit backing these properties and leases and just the underlying value of the real estate. But... I don't necessarily have a number where I would say I would start to be concerned, but we're far away from that number.

Brian E. Donley: You know where where we're following what what what B piece there's publicly.

Brian E. Donley: We have very little concern given our investment grade credit backing. These these properties in leases and just the underlying value of the real estate.

Brian E. Donley: I don't have necessarily a number where I would say I would start to be concerned, but where we're far away from that number.

Dori Lynn Kesten: Okay, thank you so much.

Speaker Change: Okay. Thank you so much.

Speaker Change: No problem.

Operator: The next question is from Tyler Batory with Oppenheimer. Please go ahead.

Dori Lynn Kesten: The next question is from Tyler Batori with Oppenheimer. Please go ahead.

Tyler Anton Batory: Good morning, thank you. Follow-up question on the guidance for the second quarter. It looks like REVPAR at the midpoint, flat, year-over-year, 80 to 85 for Hotel Ibida. However, your margin is still down year-over-year. Is there a way to think about the renovation disruption that's in those numbers and then talk a little bit more about what needs to happen, maybe outside or even including renovation disruption? What needs to happen for you to really see some margin, margin improvement, and margin growth?

Tyler Anton Batory: Good morning. Thank you a follow up question on the guidance for the second quarter it looks like a rock.

Tyler Anton Batory: Revpar at the midpoint flat year over year 80 to 85 of hotel EBITDA margin.

Tyler Anton Batory: Margin installed still down year over year is there a way you think about the renovation disruption that's in those numbers and then talk a little bit more about.

Tyler Anton Batory: What needs to happen maybe outside or.

Tyler Anton Batory: Renovation disruption.

Tyler Anton Batory: The happen for you to really see some margin.

Tyler Anton Batory: Margin improvement and margin growth.

Brian E. Donley: Tyler, good morning and thanks for the question. Sorry, I didn't want to add anything, but, you know, as far as disruption goes in Q2, it's going to be more of the same. I think it'll have a little bit more of a lift on the portfolio side of the thing, with all 17 of those hotels going to be coming out throughout the quarter. So we're going to start to see some lift from that.

Speaker Change: Hey, Tyler good morning, and thanks for the question Oh, sorry, It sounds you won't have anything but you know as far as disruption goes in Q2, it's going to be more of the same I think it'll have a little bit more of a.

Brian E. Donley: Left side of the thing our portfolio from the highest coming out of renovation all 17 of those hotels are going to be coming out.

Brian E. Donley: So it's sort of going to negate some of the disruption we're seeing. These are some of our stronger seasonal periods. We're going to try to limit the number of rooms that are on our servers. So it's tough to fully quantify.

Brian E. Donley: Throughout the quarter. So we're gonna start to see some lift from that so it's sort of going to negate some of the disruption we're seeing but these are some of our stronger seasonal periods, we're going to try to limit rooms that are our servers. So it's tough to fully quantify them.

Brian E. Donley: And once you start a project and get into it, how fast it moves, and how many rooms you take out can vary. But the bigger overall question, how to drive margin, we believe it's an occupancy issue. We need to drive more demand for our hotels. We're doing that through various initiatives, including the CAPEX program. So those are our operators. Our other operators are also very focused on driving demand through different initiatives and marketing, promotions, and others. Projects they're working on to drive

Brian E. Donley: Once you start a project.

Brian E. Donley: How fast it moves how many rooms, you take out can vary.

Brian E. Donley: But it would be the bigger overall question how to drive margin.

Brian E. Donley: We believe it's an occupancy issue, we need to drive more demand at our hotels.

Brian E. Donley: We're doing that through various initiatives, including the Capex program. So that's the other operators or other operators are also very focused on driving demand through different initiative.

Brian E. Donley: Initiatives in marketing and promotions and other.

Brian E. Donley: Projects, they're working on to drive business.

Brian E. Donley: Yeah, I'll just add to that. We saw, we were very pleased with how the full-service portfolio did, especially the Royal Senestas that grew over 6% in rent per year over year, really driven by group business, but also our urban hotels really increased as well, just driven by increased citywide demand. So I think we're really optimistic with what we're seeing on the full-service side of things. We touched on a couple of things in the prepared comments, but especially on the select service portfolio because so many were out of business or disrupted during the quarter.

Speaker Change: Yeah, I'll just add to that I mean, we saw or we are very pleased with how the whole service portfolio did especially at the Royal Sonesta.

Brian E. Donley: That grew over 6% in Revpar year over year really driven by group business, but also.

Brian E. Donley: Our urban.

Brian E. Donley: Herb and hotels will really were increased as well just driven by increased citywide demand. So.

Brian E. Donley: I think I think we're we're we're really optimistic with what we're seeing on the full service side of things we touch on a couple of things in the prepared comments, but you know, especially on the <unk> you start to get a good comp on the select service portfolio because so many were out of.

Speaker Change: Well were disrupted during the quarter, but in terms of the extended stay I think our focus really is on.

Brian E. Donley: But in terms of the extended stay, I think our focus really is on having our operators really get back to getting that true tier four extended stay business of more than seven nights. In some cases, you can get 30, 60 nights, 30 to 60 nights, and especially in the seasonally weak quarters, you really rely on that occupancy for those types of hotels. But ideally, we see some of that more longer-term project-based business come back online. I think that's something our operators, especially Senesta, are very focused on.

Brian E. Donley: Having our operators really get back to getting that true tier for extended stay business.

Brian E. Donley: Of more than seven nights and some cases you can get 30 60 96, they're just 30 to 60 days nights and.

Brian E. Donley: Especially in a seasonally weak quarters, you're really rely on that occupancy for for those types of hotels.

Brian E. Donley: But ideally we we see some of that more longer term project based business come back online I think that's something our operators, especially semester are very focused on.

Brian E. Donley: Okay, okay, great. So in terms of the Synesta brand, I think you cited 30% of stays in the quarter were loyalty members. You know, I think a little bit lower than some of the other brands that are out there. Obviously, this loyalty program is still pretty new. So just talk a little bit more about kind of the adoption of the loyalty program and, more broadly, you know, just kind of an update on how Synesta is responding in the marketplace for travelers.

Speaker Change: Okay. Okay, great. So in terms of the Sonesta brand I think you started.

Brian E. Donley: 30% of stays in the quarter were loyalty members do you have a little bit lower than some of the other brands that are out there. Obviously this loyalty program installed pretty new so just talk a little bit more about kind of the adoption of the loyalty program and more broadly.

Brian E. Donley: Just kind of an update on on house the message is resonating in the marketplace with travelers.

Brian E. Donley: Right. And the number was about 26 percent, I believe, for full-service hotels. And it's a little bit lower in the focused-service hotels, but we are seeing increases there. I think the full-service, we saw a 300 basis point increase year over year. So we are really seeing the adoption, especially in the semester and royal semester hotels. But as you know, especially on the select-service side, it's, you know, so much of business-oriented hotels, you see it with some of the other brands, is really driven by loyalty members.

Brian E. Donley: Right.

Brian E. Donley: And the number was about 26% I believe for the full service hotels in it it's a little bit lower on the.

Brian E. Donley: On our focused service hotels.

Brian E. Donley: But we are seeing increases there I think that full service that we saw 300 basis point increase year over year. So we are really seeing the adoption, especially on the sonesta and Royal Sonesta hotels.

Brian E. Donley: But as you know, especially on the select service side, it's so much of our business.

Brian E. Donley: Business oriented hotels.

Brian E. Donley: You see it with some of the other brands is really driven by loyalty members. So that's really where we need to continue to see.

Brian E. Donley: To see pick up but it's certainly a positive that you're seeing it on the full service side, an increase of that much in terms of.

Brian E. Donley: Bookings through loyalty through the loyalty program so.

Brian E. Donley: So that's really where we need to continue to see pickup. But it's certainly a positive that you're seeing it on the full-service side, an increase of that much in terms of bookings through loyalty through the loyalty program. So, you know, Synesta is still at this size, and it's a relatively newer, younger company. So, you know, we're seeing things move in the right direction, and we are seeing that brand adoption in some of the numbers.

Brian E. Donley: Yeah. The sonesta is still at this size as it is a relatively newer younger company. So you.

Brian E. Donley: You know what we're seeing things move in move in the right direction and we are seeing that brand brand adoption in some of the numbers.

Speaker Change: Okay great.

Tyler Anton Batory: Okay, great. And then last question for me, I obviously know that maturity this year, but at what point do you start to think more about the 2025s and what sort of options might be on the table for those? And as we sit today, can you rank them in order of what looks most attractive to you in terms of handling those maturities?

Speaker Change: And then last question for me, obviously no debt maturity. This year at what point do you start to think more about the 2025 and what sort of options might be on the table for those and as we sit here today or can you can you rank order you know kind of what looks most attractive to you in terms of handling.

Speaker Change: Well its maturity.

Brian E. Donley: Hey, Tyler. It's a great question.

Speaker Change: Hey, John It's a great question.

Brian E. Donley: You know, we continue to monitor the debt markets, and we are going to continue to be proactive on our debt maturities. As we've demonstrated, we've got multiple options using SBC's portfolio, but our real preference is unsecured corporate debt. So that's something we're going to take a hard look at in the near term to stay ahead of our maturity wall, but we do have multiple options out there.

Speaker Change: We continue to monitor the debt markets.

Brian E. Donley: We are going to be continue to be proactive on our debt maturities.

Brian E. Donley: As we've demonstrated we've got multiple options using sec's portfolio, but a real preference is unsecured.

Brian E. Donley: Corporate debt.

Brian E. Donley: So that's something we're going to take a hard look at in the near term to stay ahead of our maturity wall.

Brian E. Donley: But we do have multiple options are out there.

Tyler Anton Batory: Okay, that's all for me. Thank you.

Speaker Change: Okay. That's all for me thank you.

Todd W. Hargreaves: This concludes our question and answer session. I would like to turn the conference back over to Todd Hargreades for any closing remarks.

Tyler Anton Batory: This.

Tyler Anton Batory: Our question and answer session I would like to turn the conference back over to Todd and her grades for any closing remarks.

Todd W. Hargreaves: Thank you, everyone, for joining today's call. We appreciate your continued interest in SBC. Thank you.

Todd W. Hargreaves: Thank you everyone for joining today's call. We appreciate your continued interest in SBC. Thank you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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