Q2 2024 Service Properties Trust Earnings Call

Speaker Change: Good day, and welcome to the Service Properties Trust second quarter 2024 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: for Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2.

Stephen Colbert: I would now like to turn the conference over to Stephen Colbert, Director of IR. Please go ahead.

Operator: All participants will be in a 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. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Stephen Colbert, Director of IR. Please go ahead.

Speaker Change: Please note, this event is being recorded. I would now like to turn the conference over to Stephen Colbert, Director of IR. Please go ahead.

Stephen Colbert: Good morning. Joining me on today's call are Todd Hargreaves, President and Chief Investment Officer, Brian Donley, Treasurer and Chief Financial Officer, and Jesse A. Bear, Vice President.

Stephen Colbert: Joining me on today's call are Todd Hargreades, President and Chief Investment Officer, Brian Donley, Treasurer and Chief Financial Officer, and Jesse Hebert, Vice President. This call will include a presentation by management, followed by a question and answer session with analysts. 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. These forward-looking statements are based on SVC's present beliefs and expectations as of today, August 7, 2024.

Stephen Colbert: Good morning. Joining me on today's call are Todd Hargreaves, President and Chief Investment Officer, Brian Donley, Treasurer and Chief Financial Officer, and Jesse Hebert, Vice President.

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

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

Operator: Please note that the recording, retransmission, and transcription of today's call is prohibited without the prior written consent of SEC.

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

Operator: 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 security blogs. These forward-looking statements are based on SEC's present beliefs and expectations as of today, August 7, 2024. Actual results may differ materially from those projected in these forward-looking statements.

Stephen Colbert: 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 SEC, which can be accessed from our website at svcreek.com or the SEC's website. 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 FFO and Adjusted EBITDA REAP.

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 security laws.

Stephen Colbert: We are also introducing our calculation of cash available for distribution, or CAD, this quarter. 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. And finally, we are providing guidance on this call, including Hotel Ibiza. 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. And with that, I'll turn the call over to Todd.

Speaker Change: These forward-looking statements are based on SVC's present beliefs and expectations as of today, August 7, 2024. Actual results may differ materially from those projected in these forward-looking statements.

Operator: Additional information concerning factors that could cause those differences is contained in our filings with the SEC, which can be accessed from our website at sdcreac.com or the SEC's website.

Speaker Change: Additional information concerning factors that could cause those differences is contained in our filings with the SEC, which can be accessed from our website at svcreef.com or the SEC's website.

Operator: 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.

Speaker Change: 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.

Operator: In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO and adjusted EBITDA RE. We are also introducing our calculation of cash available for distribution, or CAD, this quarter. Reconciliation of the 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. And finally, we are providing guidance on this call, including hotel EBITDA.

Speaker Change: In addition, this call may contain non-GAAP financial measures, including Normalized Funds from Operations, or Normalized FFO, and Adjusted EBITDA REA.

Speaker Change: We are also introducing our calculation of cash available for distribution, or CAD, this quarter.

Speaker Change: 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.

Speaker Change: And finally, we are providing guidance on this call, including Hotel Ibadel.

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

Speaker Change: 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. And with that, I'll turn the call over to Todd.

Todd Hargreaves: And with that, I'll turn the call over to Todd. Thank you, Stephen, and good morning. As Stephen mentioned, Jesse Abert joined SBC in June as our vice president. Jesse is also a Vice President at the RMR Group, where he leads a team responsible for the sourcing, underwriting, entitlement, and leasing of all development projects managed by RMR. Welcome, Jesse.

Todd Hargreaves: Thank you, Stephen, and good morning. As Stephen mentioned, Jesse Hebert joined SVC in June as our Vice President. Jesse is also a Vice President at the RMR Group, where he leads a team responsible for the sourcing, underwriting, entitlement, and leasing of all development projects managed by RMR. Welcome, Jesse.

Todd: Thank you, Stephen, and good morning. As Stephen mentioned, Jesse Hebert joined SBCC in June as our vice president.

Speaker Change: Jesse is also a Vice President at the RMR Group where he leads a team responsible for the sourcing, underwriting, entitlement, and leasing of all development projects managed by RMR. Welcome Jesse.

Todd Hargreaves: I want to our results. During the quarter, we experienced rep-part growth that are full service and select service portfolios led by gains in our group and contract segments, while our Senate stay hotels continue to be impacted by reduced occupancy related to longer term stays. While we are seeing a pullback in leisure travel, our 34 urban hotels outpaced the market with a 4.1% RevPAR increase. 8 of our top 10 performing hotels, from a top line perspective, in terms of year-over-year improvement, were semester full service hotels, much of which was driven by group and our urban concentration, while our bottom performing hotels were either under renovation during the quarter or experienced softer transient demand due to non-repeat market specific events and markets such as Chicago, Nashville, and Atlanta.

Todd Hargreaves: Now on to our results. During the quarter, we experienced comparable growth at our full-service and select-service portfolios, led by gains in our group and contract segments, while our extended stay hotels continue to be impacted by reduced occupancy related to longer term stays. While we are seeing a pullback in leisure travel, our 34 urban hotels outpaced the market with a 4.1% REFPAR increase. Eight of our top 10 performing hotels, from a top line perspective, in terms of year-over-year improvement, were Sonesta full-service hotels, much of which was driven by the group and our urban concentration, while our bought and performing hotels were either under renovation during the quarter or experienced softer transient demand due to non-repeat market-specific events in markets such as Chicago, Nashville, and Atlanta.

Speaker Change: Now on to our results. During the quarter we experienced rep par growth at our full service and select service portfolios, led by gains in our group and contract segments, while our extended stay hotels continue to be impacted by reduced occupancy related to longer-term stays.

Speaker Change: While we are seeing a pullback in leisure travel, our 34 urban hotels outpaced the market with a 4.1% REF PAR increase.

Speaker Change: Eight of our top ten performing hotels from a top-line perspective in terms of year-over-year improvement were Sonesta full-service hotels.

Speaker Change: Much of which was driven by group and our urban concentration, while our bought and performing hotels were either under renovation during the quarter or experienced softer transient demand due to non-repeat market-specific events in markets such as Chicago, Nashville, and Atlanta.

Todd Hargreaves: Portfolio line performance was affected by revenue displacement at our hotels that were under renovation during the quarter. Excluding the renovation properties, portfolio rep-part increased 1.6% year-over-year, led by occupancy, which improved by 1.7 percentage points, and was highlighted by a 13.8% increase in group reunites at our Royal Sinesta hotels, moving to performance by service level. Our full service portfolio experienced top line gains in our group and contract segments were rep-part increased 10.6% and 5.5% respectively. This was offset by a decline in transient rep-part of 3.5%, resulting from market softness and renovation displacement. Excluding the five hotels under renovation, or full service portfolio rep-part increased by 2.9% year-over-year, outpacing the industry.

Todd Hargreaves: Portfolio-wide, performance was affected by revenue displacement at our hotels that were under renovation during the quarter. Excluding the renovation properties, Portfolio RepR increased 1.6% year-over-year, led by occupancy, which improved by 1.7 percentage points and was highlighted by a 13.8% increase in group room nights at our Royal Sinesta Hotel. Moving to performance by service level,

Speaker Change: Portfolio-wide, performance was affected by revenue displacement at our hotels that were under renovation during the quarter.

Speaker Change: Excluding the renovation properties, Portfolio RepR increased 1.6% year-over-year, led by occupancy, which improved by 1.7 percentage points, and was highlighted by a 13.8% increase in group room nights at our Royal Sinesta hotels.

Todd Hargreaves: Our full service portfolio experienced top-line gains in our group and contract segments, where REVPAR increased 10.6% and 5.5%, respectively. However, this was offset by a decline in transient REPCAR of 3.5% resulting from market softness and renovation displacement. Excluding the five hotels under renovation, our full service portfolio REF PAR increased by 2.9% year over year, outpacing the industry. Increased group revenues at our Synesta-branded hotels in Cambridge, Washington, D.C., Redondo Beach, and Denver, as well as our Radisson Vantage Hotels in San Diego and Seattle, contributed to the improvement, and the increased group demand led to higher F&B revenues, which increased $1.2 million during the

Speaker Change: Moving to performance by service level.

Speaker Change: Our full service portfolio experienced top-line gains in our group and contract segments, where REVPAR increased 10.6% and 5.5% respectively.

Speaker Change: This was offset by a decline in transient REV PAR of 3.5% resulting from market softness and renovation displacement.

Speaker Change: Excluding the five hotels under renovation, our full-service portfolio REF PAR increased by 2.9% year-over-year, outpacing the industry.

Todd Hargreaves: Increased group revenues are a Sinesta branded hotels in Cambridge, Washington, D.C., Redondo Beach, and Denver, as well as a Radison managed hotels in San Diego, Seattle, contributed to the improvement in the increased group demand led to higher FNB revenues, which increased 1.2 million dollars during the quarter. Notably, we experienced outside rep-part growth in some of the hotels and markets that have been most challenged, including 38% growth that are Royal Sinesta Minneapolis, and 34% growth that are Royal Sinesta in Seattle. Our extended state portfolio experienced a 1.6% decline in rep-part year-over-year, consistent with a trend from previous quarters. Our longer term extended state occupancy has been decreasing, without a little clients experiencing our hotels in Salt Lake City, Portland, Oregon, and Dallas.

Speaker Change: Increased group revenues at our Synesta branded hotels in Cambridge, Washington DC, Redondo Beach, and Denver.

Speaker Change: as well as our Radisson Vandish Hotels in San Diego and Seattle contributed to the improvement and the increased group demand led to higher F&B revenues which increased 1.2 million dollars during the quarter.

Todd Hargreaves: Notably, we experienced outsized red bar growth in some of the hotels and markets that have been most challenged, including 38% growth at our Royal Cines in Minneapolis and 34% growth at our Royals nest in Seattle. Our extended state portfolio experienced a 1.6% decline in REF bar year-over-year.

Speaker Change: Notably, we experienced outsized red bar growth in some of the hotels and markets that have been most challenged, including 38% growth at our Royal Senesca in Minneapolis and 34% growth at our Royal Senesca in Seattle.

Speaker Change: Our extended state portfolio experienced a 1.6% decline in REF bar year-over-year.

Todd Hargreaves: Consistent with the trend from previous quarters, our longer-term extended stay occupancy has been decreasing, with notable declines experienced in our hotels in Salt Lake City, Portland, Oregon, and Dallas. Performance at our Select Service Hotels was led by our Synestis Selects, reporting an increased rep par of 3.3% year-over-year, and by our contract segment at our hotels in Philadelphia, Nashville, and Atlanta. Hotel operating expenses impacted margins during the second quarter due to cost increases in insurance premiums and deductibles, as well as labor, our largest expense, representing 44% of total APEX, where we realized a 5.5% increase year-over-year on the per-available rebates. Segmentation is shifting away from transient toward the group, which now represents 20.8% of total revenues, up from 19.3% during the previous quarter.

Speaker Change: Consistent with the trend from previous quarters, our longer-term extended stay occupancy has been decreasing, with notable declines experienced at our hotels in Salt Lake City, Portland, Oregon, and Dallas.

Todd Hargreaves: Performance at our Select Service Hotel was led by our Sinesta Selects, reporting increased rep-part of 3.3% year-over-year, and by our contract segment at our hotels in Philadelphia, Nashville, and Atlanta. Hotel operating expenses impact the margins during the second quarter due to costs increases in insurance premiums and deductibles, as well as labor, our largest expense representing 44% of total outbacks, where we realize a 5.5% increase year-over-year, on a per-available basis. The segmentation is shifting away from transient toward the group, which now represents 20.8% of total revenues, up from 19.3% during the previous year quarter, and group pace is up 11.9% from the same time last year, with strong contributions across all our operating.

Todd Hargreaves: And group pace is up 11.9% from the same time last year with strong contributions across all our operators. TANASTA has made progress on its brand-building initiatives, measured by its Travel Pass Revenue Mix, which increased 8.6 percentage points in the full-service portfolio to 29.4%, and Travel Pass on-property enrollments are up 7% year-over-year. We're going to turn to our Net Lease Portfolio, which represents 44% of SBC's portfolio by investment. As of June 30th, 2024, our 749 service-oriented retail net lease properties will be for 97.3% lease with a weighted average lease term of 8.4 years.

Todd Hargreaves: Today's Senate has made progress on this brand building initiatives, measured by Strava Pass Revenue Mix, which increased 8.6 percentage points in the full service portfolio to 29.4%, and travel pass on property enrollments are up 7% year over year.

Todd Hargreaves: Turning to our net lease portfolio, which represents 44% of SBC's portfolio by investment as of June 30th, 2004, or 749 service-oriented retail net lease properties, where 97.3% leased with a weighted average lease term of 8.4 years. Our lease maturities are well-addered, and only 3.4% of our net lease minimum rents expired before 2026. The aggregate coverage of our net lease portfolio's minimum rents was 2.25 times on the drilling 12-month basis as of June 30th, 2004. The decline for the previous year quarter results from the lower EBITDA reported by TA and increased TA rents. As an update to our previously announced 22 non-core planned hotel dispositions, subsequent to quarter end, we closed on two hotels at an aggregate sales price of $10.8 million, and are under purchase and sale agreement to sell 16 hotels for $113.2 million.

Todd Hargreaves: Our lease maturities are well laddered, and only 3.4% of our net lease minimum rents expire before 2026. The aggregate coverage of our net lease portfolio's minimum rents was 2.25 times on a 12-month basis as of June 30, 2024. The decline from the previous year quarter results from the lower EBITDA reported by TA and increased TA rent.

Todd Hargreaves: As an update to our previously announced 22 non-core planned hotel disposition, subsequently to quarter end, we closed on two hotels at an aggregate sales price of $10.8 million, and are under a purchase and sale agreement to sell 16 hotels for $113.2 million. We are either marketing or negotiating contracts for the remaining four hotels, which have an aggregate net book value of $23 million. In conclusion, we expect our hotel portfolio to benefit from the needed renovations, although we may see mixed results due to revenue displacement until they are completed.

Speaker Change: and are under purchase and sale agreement to sell 16 hotels for $113.2 million.

Todd Hargreaves: By our either marketing or negotiating contracts for the remaining four hotels, which have an aggregate net folk value of $23.9 million.

Speaker Change: We are either marketing or negotiating contracts for the remaining four hotels, which have an aggregate net book value of $23 million.

Todd Hargreaves: In conclusion, we expect our hotel portfolio to benefit from the needed renovations, although we may see mixed results through the revenue displacement until they are completed. Ultimately, these refreshed properties combined with the anticipated removal of some of our more challenged hotels as sales are completed, will allow us to nested a focus on offering a higher quality portfolio and improve our market share. Furthermore, our balance sheet is well positioned with no debt maturities until 2026, and the performance of our net lease portfolio remains strong and is anchored by an investment-grade rated tenant in BP.

Todd Hargreaves: Ultimately, these refreshed properties, combined with the anticipated removal of some of our more challenged hotels as sales are completed, will allow Synesta to focus on offering a higher quality portfolio and improve our market share. Furthermore, our balance sheet is well positioned with no debt maturities until 2026, and the performance of our net lease portfolio remains strong and is anchored by an investment grade rated tenant in BP. I will now turn the call over to Bryan to discuss our financial results in more detail.

Speaker Change: Ultimately, these refreshed properties, combined with the anticipated removal of some of our more challenged hotels as sales are completed, will allow Senesta to focus on offering a higher quality portfolio and improve our market share.

Speaker Change: Furthermore, our balance sheet is well-positioned with no debt maturities until 2026 and the performance of our net lease portfolio remains strong and is anchored by an investment-grade rated tenant in BP.

Brian Donley: Now, now turn the call over to Brian to discuss our financial results in more detail. Thank you, Todd, and good morning. Starting with our consolidated financial results for the second quarter of 2024, normalized FFO with $73.8 million or $0.45 per share versus $0.58 per share in the prior year quarter. Adjusted EBITDA RE declined 7.4% year over year to $171.5 million. Financial results this quarter, as compared to the prior year quarter, were impacted by higher interest expense and lower hotel EBITDA. Results from our net lease portfolio remain consistent year over year. For our 218 comparable hotels this quarter, the red part decreased by 20 basis points.

Brian Donley: Thank you, Todd, and good morning. Starting with our consolidated financial results for the second quarter of 2024, normalized FFO was $73.8 million, or 45 cents per share versus 58 cents per share in the prior year quarter. Adjusted EBITDA RE declined 7.4% year-over-year to $171.5 million. Financial results this quarter, as compared to the prior year quarter, were impacted by higher interest expense and lower hotel EBITDA. Results from our net lease portfolio remain consistent year over year.

Speaker Change: Thank you, Todd, and good morning.

Speaker Change: Starting with our consolidated financial results for the second quarter of 2024, normalized FFO was $73.8 million, or $0.45 per share, versus $0.58 per share in the prior year quarter.

Speaker Change: Adjusted EBITDA RE declines 7.4% year-over-year to $171.5 million.

Brian Donley: For our 218 comparable hotels this quarter, REVPAR decreased by 20 basis points, the gross operating profit margin percentage declined by 170 basis points to 32.7 percent, and gross operating profit decreased by 5.9 million dollars from the prior year period. Below the GOP line, costs at our comparable hotels increased $6.3 million from the prior year, driven primarily by increased insurance expense, along with higher real estate taxes as a result of favorable tax appeals that benefited the prior year quarter.

Brian Donley: Gross operating profit margin percentage declined by 170 basis points to 32.7%. Gross operating profit decreased by $5.9 million from the prior year period. Below the GOP line, cost at our comparable hotels increased $6.3 million from the prior year. Driven primarily by increased insurance expense, along with higher real estate taxes as a result of favorable tax appeals that benefit as a prior year quarter. Our 220 hotels generated hotel EBITDA have $82.4 million, but declined from the prior year of $11 million, but in line with our guidance range provided last quarter. Service level, Hotel Lea, but the European decreased $5 million for our 48 full-service hotels, declined $1.9 million for our 61 select service hotels, and $4 million for our 111 extendously hotels.

Speaker Change: Below the GOP line costs at our comparable hotels increased $6.3 million dollars from the prior year, driven primarily by increased insurance expense along with higher real estate taxes as a result of favorable tax appeals that benefited the prior year quarter.

Brian Donley: Our 220 hotels generated a hotel EBITDA of $82.4 million, a decline from the prior year of $11 million, but in line with our guidance range provided last quarter. At high service level, hotel leave until year over year to increase $5 million for our 48 full service hotels. declined $1.9 million for our 61 select service hotels and $4 million for our 111 extended stay hotels. For the 21 hotels that were under renovation during the quarter, hotel EBITDA declined $5.7 million.

Speaker Change: Our 220 hotels generated hotel leavers of $82.4 million, a decline from the prior year of $11 million, but in line with our guidance range provided last quarter.

Speaker Change: declined 1.9 million dollars for our 61 select service hotels and 4 million dollars for our 111 extended stay hotels.

Brian Donley: The 21 hotels that were under renovation during the quarter, Hotel Lea, but that declined $5.7 million. Furthermore, our expectations for Q3 were currently projecting full quarter, Q3 rep power, of $94 to $97 in Hotel Lea, but in the $65 to $69 million range. To the balance sheet, during the second quarter, we successfully executed on a new $1.2 billion senior notes offering comprised of $700 million of 8.38% notes due in 2029, and $500 million of 8.78% notes due in 2032. We repaid all $1.2 billion of unsecured notes that were scheduled to mature in 2025. The interest expense is projected to be $99.2 million for the third quarter of 2024 as a result of these fine addings.

Speaker Change: The 21 hotels that were under renovation during the quarter, hotel EBITDA declined 5.7 million dollars.

Brian Donley: According to our expectations for Q3, we're currently projecting full-quarter Q3 REPAR of $94 to $97 in hotel EBITDA in the $65 to $69 million range. Here's the balance sheet. During the second quarter, we successfully executed on a new $1.2 billion senior notes offering comprised of $700 million of 8-3 eighths notes due in 2029 and $500 million of 8-7 eighths notes due in 2032. Additionally, we repaid all $1.2 billion of unsecured notes that were scheduled to mature in 2025.

Speaker Change: Per our expectations for Q3, we're currently projecting full quarter Q3 REP PAR of $94 to $97 in hotel EBITDA in the $65 to $69 million dollar range.

Speaker Change: Here's the balance sheet. During the second quarter, we successfully executed on a new $1.2 billion senior notes offering comprised of $700 million of 8-3 eighths notes due in 2029 and $500 million of 8-7 eighths notes due in 2032.

Speaker Change: We repaid all $1.2 billion of unsecured notes that were scheduled to mature in 2025.

Brian Donley: Interest expense is projected to be $99.2 million for the third quarter of 2024 as a result of these financings. We currently have $5.7 billion of fixed-rate debt outstanding with a weighted average interest rate of 6.4% and no debt maturities until February 2026. Additionally, our $650 million revolving credit facility remains undrawn.

Speaker Change: Interest expense is projected to be $99.2 million for the third quarter of 2024 as a result of these financings.

Brian Donley: We currently have $5.7 billion of fixed rate debt outstanding with a weighted average interest rate of 6.4%, and no debt maturities until February 2026. Our $650 million volume credit facility remains under on. According to our investing activity, we made $66 million of total capital improvements at our properties during the second quarter, comprised of $22 million of recurrent capital and $44 million related to our hotel renovation program. We continue to expect full year capital expenditures of $300 to $325 million. We expect 21 hotels across all our service levels to be under renovation in the third quarter, and we will have completed major renovations at 34 hotels during the full calendar year, including five full-service hotels, 18 select-service hotels, and 11 extended-stay hotels.

Speaker Change: We currently have $5.7 billion of fixed rate debt outstanding with a weighted average interest rate of 6.4% and no debt maturities until February 2026.

Brian Donley: According to our investing activity, we made $66 million in total capital improvements at our properties during the second quarter, comprised of $22 million of recurring capital and $44 million related to our hotel renovation program. We continue to expect full-year capital expenditures of $300 to $325 million. We expect 21 hotels across all our service levels to be under renovation in the third quarter, and we will have completed major renovations at 34 hotels during the full calendar year, including 5 full-service hotels, 18 select-service hotels, and 11 extended-stay hotels.

Speaker Change: According to our investing activity, we made $66 million of total capital improvements at our properties during the second quarter, comprised of $22 million of recurring capital and $44 million related to our hotel renovation program.

Speaker Change: We continue to expect full year capital expenditures of $300 to $325 million.

Brian Donley: To put the quarter in, we sold two hotels and three net lease properties for $12.6 million of total proceeds. We currently have 18 hotels with a carrying value of $97 million in 10 net lease properties with a carrying value of $6 million remaining as health percent. The 22 hotels sold are TV sold as a June 30th, 2024 generated losses of just $100 million for the second quarter. In July, we announced our regular quarterly common dividend of 20 cents per share, which represents a normalized FFSL payout ratio of 44%. This quarter, we have introduced our calculation of CAD in our earnings presentation.

Brian Donley: Subsequent to quarter end, we sold two hotels and three net lease properties for $12.6 million in total proceeds. We currently have 18 hotels with a carrying value of $97 million and 10 net lease properties with a carrying value of $6 million remaining as held for sale. The 22 hotels sold or to be sold as of June 30, 2024, generated losses of just under a million dollars for the second quarter. In July, we announced our regular quarterly common dividend of $0.20 per share, which represents a normalized FFL payout ratio of 44%.

Speaker Change: Subsequent to quarter end, we sold two hotels and three net lease properties for $12.6 million in total proceeds. We currently have 18 hotels with a carrying value of $97 million and 10 net lease properties with a carrying value of $6 million remaining as held for sale.

Speaker Change: The 22 hotels sold or to be sold as of June 30th, 2024 generated losses of just under a million dollars for the second quarter.

Speaker Change: In July , we announced our regular quarterly common dividend of $0.20 per share, which represents a normalized FFL payout ratio of 44%.

Brian Donley: This quarter, we have introduced our calculation of C and D in our earnings presentation. For the trailing 12 months ended June 30th, 2024, our CAB annualized payout ratio was 110% as a result of our elevated CapEx spending, higher cost of capital, and declining hotel EBITDA.

Speaker Change: This quarter, we have introduced our calculation of CAD in our earnings presentation. With the trailing 12 months ended June 30, 2024, our CAD annualized payout ratio was 110% as a result of our elevated capex spending, higher cost of capital, and declining hotel EBITDA.

Brian Donley: The trailing 12 months ended June 30th, 2024. Our CAD annualized payout ratio was 110%, as a result of our elevated capital spending, higher cost of capital, and declining hotel leave it to.

Operator: That concludes our prepared remarks, and we're going to open the line for questions.

Operator: That concludes our prepared remarks. We're ready to open the line for questions.

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

Operator: We'll now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Bryan Maher with B. Reilly. Please go ahead.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Speaker Change: If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Ryan Maher: The first question comes from Ryan Maher with B. Riley. Please go ahead.

Bryan Maher: Thank you and good morning. Just a few for me today.

Speaker Change: The first question comes from Bryan Maher with B. Reilly. Please go ahead.

Ryan Maher: Thank you and good morning. Just a few from me today.

Brian Donley: Can you talk a little bit about the actual and or expected return on capital of the cap expending and how you think about that relative to just selling, you know, a particular hotel and avoiding that cap expel together? Sure, Brian. Good morning.

Brian Donley: Can you talk a little bit about the actual and or expected return on capital of the CapEx spending and how you think about that relative to just selling a particular hotel and avoiding that CapEx altogether?

Brian Maher: Thank you and good morning. Just a few for me today. Can you talk a little bit about the actual...

Brian Donley: Good morning. I'll start and let Todd weigh in on some of the sales decisions. You know, when we deploy CapEx, you know, the CapEx is really, as we've tried to show in our calculations, recurring versus non-recurring renovations or redevelopment or repositioning. The repositionings and redevelopments, you know, we've talked about this in prior calls or investor conferences where, you know, we target around an 8% return on average. Some will do better; some, you know, might come in a little bit under that, depending on the market or the type of work we've done.

Brian Donley: I'll start, and I've taught way in on on some of the sales decisions. You know, when we deploy catbacks, you know, the catbacks is really, as we've tried to show in our calculations, recurring versus non-recurring renovations or redevelopment or repositioning. The repositioning and redevelopments, you know, we've talked about this in prior calls or investor conferences where, you know, we target around an eight percent return on average. Some will do better. Some, you know, might come in a little bit under that, pending on the market or the type of work we've done. It was starting to see some of the progress.

Speaker Change: Good morning. I'll start and let Todd weigh in on some of the sales decisions. You know, when we deploy CapEx, you know, the CapEx is really, as we've tried to show in our calculations, recurring versus non-recurring renovations or redevelopment or repositioning.

Todd: The repositionings and redevelopments, we've talked about this in prior calls or investor conferences where we target around an 8% return on average. Some will do better, some might come in a little bit under that depending on the market or the type of work we've done.

Brian Donley: And we're starting to see some of that progress. But we don't have enough volume yet to definitively say we're meeting or exceeding that. You know, there are some that are and some that aren't. It really depends on what's going on in the overall macro environment as well. So, it's not always easy to measure, but what we do is look at a period prior to doing any renovation work, let the hotel stabilize for a period, and then, you know, see where we are from a return standpoint.

Todd Hargreaves: We don't have enough volume yet to definitively say we're meeting or exceeding that. You know, there are some that are, and some that aren't. It really depends on what's going on in the overall macro environment as well. So it's not always easy to measure, but what we do is we look at, you know, a period prior to doing any renovation work, let the hotel stabilize for a period, and then, you know, see where we are from a return standpoint. Sure.

Todd: We're starting to see some of the progress. We don't have enough volume yet to definitively say we're meeting or exceeding that. There are some that are.

Todd: and some that aren't. It really depends on what's going on in the overall macro environment as well. So it's not always easy to measure, but what we do is we look at

Todd: you know, a period prior to doing any renovation work. Let the hotel stabilize for a period and then, you know, see where we are from a return standpoint.

Todd Hargreaves: Sure, and I'll add to that. When we're looking at potential sale candidates in the portfolio, one of the primary things we look at is, do these hotels need capital? What is the expected lift in terms of market share, REV PAR, and EBITDA that we're going to get from putting this money in? If we don't think we're going to get the appropriate return, that could factor into our decision to put a hotel on the sale list. So it's just one of the many factors that we consider.

Todd Hargreaves: And I'll add to that. When we're looking at the potential sale candidates in the portfolio, that's one of the primary things we look at is do these hotels need capital? What is the expected left in terms of market share, red part, and EBITDA that we're going to get from putting this money in. If we don't think we're going to get the appropriate return, that could factor into our decision to put a hotel on the sale list. So it's just one of the manufacturers that we consider.

Speaker Change: Sure, and I'll add to that. When we're looking at potential sale candidates in the portfolio,

Speaker Change: That's one of the primary things we look at is do these hotels need capital?

Speaker Change: What is the expected lift in terms of market share, REF, PAR, and EBITDA that we're going to get from putting this money in?

Todd Hargreaves: And how deep is the buyer pool that you're speaking with? You know, who are these people?

Ryan Maher: And how deep is the buyer pool that you're speaking with? You know, who are these people? You know, at what point do you stop selling?

Todd Hargreaves: You know, at what point do you stop selling? And do you have some kind of optimal mix in your heads as to how much, you know, full service you want to have versus how much select service? I mean, you know, I guess what I'm asking is, you know, kind of where's the end game here?

Speaker Change: And how deep is the buyer pool that you're you're speaking with, you know, who are these people, you know? At what point do you stop selling and do you have some kind of optimal mix in your heads as to how much?

Todd Hargreaves: And do you have some kind of optimal mixing your heads as to how much, you know, full service you want to have versus how much select service? I mean, you know, I guess what I'm asking is, you know, kind of where's the end gain here? Sure. So we're in the midst of selling the 22 hotels now. We've closed on a couple, and a number of others are under purchase and sale. And that's on the heels of the 68 Sinasta Hotels we sold back in 2021 and 2022.

Todd Hargreaves: Sure, so we're in the midst of selling the 22 hotels now. We've closed on a couple, and a number of others are under purchase and sale. And that's on the heels of the 68 Sinesta Hotels we sold back in 2021 and 2022. I'll take it in pieces here.

Speaker Change: Sure, so we're in the midst of selling the 22 hotels now. We've closed on a couple and a number of others are under purchase and sale.

Speaker Change: And that's on the heels of the 68th and that's the hotels we sold.

Todd Hargreaves: The first question in terms of the buyer pool, most of the hotels that we're selling are negative EBITDA producing hotels, they're towards the lower end of hotel quality and market, I would say in our portfolio. Most of the buyers that are looking at these hotels are, you know, the hotels are losing money, so they're not looking at it on an in-place cap rate, obviously. They're looking at it on a price-per-key basis, and they'll look at it on a total cost.

Todd Hargreaves: I'll take it in pieces here. The first question in terms of the buyer pool: most of the hotels that we're selling are negative EBITDA producing hotels. They're towards the lower end of hotel quality and market, I would say, in our portfolio. Most of the buyers that are looking at these hotels are, you know, the hotels are losing money, so they're not looking at on an in-place cap rate. Obviously, they're looking at that on a price-for-key basis, and they'll look at it on a total cost. Most of these hotels are in need of a renovation. If they're sold and covered of a Sinasta franchise, or if they're going to go to another brand or there's typically a pimp that don't need to do, so that typically gets added on, I'd say, anywhere from...

Speaker Change: back in 2021 and 2022.

Speaker Change: I'll take it in pieces here. The first the first question in terms of the buyer pool, most of the hotels that we're selling are negative EBITDA producing hotels. They're towards the lower end of

Speaker Change: hotel quality and market, I would say, in our portfolio.

Speaker Change: Most of the buyers that are looking at these hotels are, you know, the hotels are losing money, so they're not looking at it on an in-place cap rate, obviously, they're looking at it on a price-per-key basis, and they'll look at it on a total cost. Most of these hotels are in need of a renovation.

Todd Hargreaves: Most of these hotels are in need of a renovation. If they're sold in the comfort of a SNESTA franchise, or if they're going to go to another brand, or there's typically a PIP that they'll need to do, so that typically gets added on, I'd say anywhere from $25,000 to $40,000 a key, depending on which hotel. So most of these buyers are looking at it as they're pricing it on a stabilized return on cost basis. My guess is anywhere from 8% to 10% on an unlevered basis, probably mid-teens return on a levered basis.

Speaker Change: If they're sold in comfort of a Synesta franchise, or if they're going to go to another brand, or there's typically a PIP that they'll need to do, so that typically gets added on, I'd say anywhere from

Todd Hargreaves: 25 to 40,000 a key, depending on which hotel. So most of these buyers are looking at it as they're pricing it on a stabilized return on cost basis. My guess is anywhere from 8 to 10 percent on a number basis, probably mid-teens return on a number basis. So most of these groups are local operators. Most of what we're selling are select service and extended stay hotels. We have a handful full service in there as well. But most of these are local operators that own two, three, up to five hotels in their portfolio. They're going to be very focused on driving local business and have a business plan that they can operate it better than a national operator like Sneshtar, one of the larger brands.

Speaker Change: My guess is anywhere from from eight to ten percent on a non-levered basis, probably mid-teens return on a levered basis.

Todd Hargreaves: Most of these groups are local operators. Most of what we're selling are select service and extended stay hotels. We have a handful of full service hotels in there as well, but most of these are local operators that own, you know, two, three, up to five hotels in their portfolio. They're going to be very focused on driving local business and have a business plan that they can operate better than a national operator like Sinesta or one of the larger brands.

Speaker Change: You know, two, three, up to five hotels in their portfolio. They're going to be very focused on driving local business.

Speaker Change: and have a business plan that they can operate it better than a national operator like Synesta or one of the larger brands.

Todd Hargreaves: In terms of the ultimate mix for us, I'd say over 95 percent of what we sold or are selling are either select service or extended stay hotels. We sold a couple of full-service hotels as well, but we're not selling any of the Royal Sneshtar branded hotels. I think we're trying to shift the mix more away from business more towards leisure-oriented hotels that Sneshtar has proven the ability to compete or outperform the market. If you look at our Royal Sneshtar hotel, the past two quarters, quarter one, we saw our factories over 6 percent year over year.

Todd Hargreaves: In terms of the ultimate mix for us, I'd say over 95% of what we sold or are selling are either select service or extended stay hotels. We've sold a couple of full-service hotels as well, but we're not selling any of the Royal Sinesta branded hotels. I think we're trying to shift the mix more away from business, more towards leisure-oriented hotels that Sinesta has proven the ability to compete or outperform the market. If you look at our Royal Sinesta hotels in the past two quarters, quarter one, we saw our price increase over 6% year-over-year. This quarter, we saw it increase by 3.3% year-over-year.

Speaker Change: I'd say over 95% of what we sold or are selling are either select service or extended stay hotels.

Speaker Change: We've sold a couple of full-service hotels as well, but we're not selling any of the Royal Semester branded hotels, I think we're

Speaker Change: We're trying to shift the mix more away from business, more towards leisure-oriented hotels that Synesta has proven the ability to compete or outperform the market. If you look at our Royal Synesta hotels the past two quarters.

Speaker Change: Quarter one we saw REPR increase over 6% year-over-year. This quarter we saw it increase 3.3% year-over-year.

Todd Hargreaves: This quarter we saw increased 3.3 percent year over year. We're just trying to shift the mix more towards leisure-oriented hotels away from business.

Todd Hargreaves: So we're just trying to shift the mix more towards leisure-oriented hotels away from business. So that's some of the rationale behind why we're selling what we're selling. There may be more coming, but we haven't identified any yet.

Todd Hargreaves: That's some of the rationale behind why we're selling what we're selling. There may be more coming. We haven't identified any yet. We're in the market with these 22. But there could be more coming next year as we get more points, as we get more history on the performance, as we see the results of some of these renovations and the success we're having, the success we're not having that could lead to selling additional hotels as well.

Todd Hargreaves: We're in the market with these 22, but there could be more coming next year as we get more data points, as we get more history on the performance, as we see the results of some of these renovations and the success we're having, the success we're not having, that could lead to selling additional hotels as well. Part of the rationale and what we look at too is, what market are we selling into?

Speaker Change: There may be more coming. We haven't identified any yet.

Speaker Change: We're in the market with these 22, but there could be more coming next year as we get more data points, as we get more history.

Speaker Change: on the performance as we see the results of some of these renovations.

Speaker Change: and the success we're having, the success we're not having, that could lead to selling additional hotels as well. And part of the rationale and what we look at, too, is...

Todd Hargreaves: Part of the rationale and what we look at too is what market we are selling into. Right now, it's still very challenging to get any transaction done. Hopefully, or potentially, we see some relief in terms of interest rates, which should lead to more transaction activity and use your time selling hotels. Right now we're selling what we think we can get done, and that comes into the equations as well.

Todd Hargreaves: Right now, it's still very challenging to get any transaction done. Hopefully, or potentially, we will see some relief in terms of interest rates, which should lead to more transaction activity and an easier time selling hotels. But right now, we're selling what we think we can get done, and that comes into the equation as well.

Speaker Change: is what market are we selling into? Right now, it's still very challenging to get any transaction done.

Speaker Change: hopefully or potentially receive some relief in terms of interest rates which should lead to

Speaker Change: more transaction activity and meet your time selling hotels. But right now, we're selling what we think we can get done, and that comes into the equation as well.

Ryan Maher: Okay, just last for me, you know, we're getting a lot of calls and emails on the dividend, and we appreciate the CAD publication information to kind of cross-check versus our model. Is it fair to say that the CAD payout is above 100 percent because we're only capturing, you know, kind of the stronger second quarter, you know, second quarter, third quarter, strong fourth quarter, first quarter week.

Brian Donley: Okay. Just last for me, you know, we're getting a lot of calls and emails on the dividend, and we appreciate the CAD publication information to kind of cross-check versus our model. Is it fair to say that the CAD payout is above 100% because we're only capturing, you know, kind of the stronger second quarter, second quarter, third quarter, fourth quarter, first quarter weak, and as we, you know, get past the third quarter, the CAD payout ratio will be back under 100%, and, you know, just any general thoughts on the dividend here would be helpful. And that's all for me. Sure, Brian. I know it's been a lot.

Speaker Change: Okay, just last for me, you know, we're getting a lot of calls and emails on the dividend and we appreciate the CAD.

Speaker Change: publication information to kind of cross-check versus our model. Is it fair to say that the CAD payout is above 100% because

Speaker Change: We're only capturing the stronger second quarter, third quarter strong, fourth quarter, first quarter weak.

Brian Donley: And as we, you know, get past third quarter, that the CAD payout ratio will be back under 100 percent.

Speaker Change: And as we get past third quarter, that the CAD payout ratio will be back under 100%. And just any general thoughts on the dividend here would be helpful. And that's all for me.

Brian Donley: And, you know, just any general thoughts on the dividend here would be helpful. And that's all from me. Thank you. Sure, Brian. I know it's been a lot of a focus for a lot of people. You know, the CAD calculation, as I said in my prepared remarks, is over 100 percent on a trailing fourth-quarter basis. The CAPEX spends, even just the recurring CAPEX, that we deduct out of that calculation is still pretty high. It will be for the foreseeable future.

Brian Donley: Sure, Brian, I know it's been a lot of focus for a lot of people. The calculation, as I said in my prepared remarks, is over 100% on a trailing four-quarter basis. You know, the CapEx spend, even just the recurring CapEx that we deduct out of that calculation is still pretty high and will be for the foreseeable future. You know, our board will continue to evaluate the dividend level, consider, you know, talk about many factors, including the performance outlook of the portfolio, looking at our leverage, our liquidity needs, and other points that matter. So, you know, we'll continue to evaluate it on an ongoing basis as we have continuously done so.

Speaker Change: Sure, Brian . I know it's been a lot of focus for a lot of people. You know, the kind of calculation, as I said in my prepared remarks, is over a hundred percent on a trailing four-quarter basis.

Speaker Change: You know, the CapEx spend, even just the recurring CapEx that we deduct out of that calculation is still pretty high and will be for the foreseeable future.

Brian Donley: Our board will continue to evaluate the dividend level. Consider we talk about many factors, including the performance outlook of the portfolio. Looking at a leverage, our liquidity needs, and other points that matter. So we'll continue to evaluate it ongoing, as we have continuously done. I would say that.

Speaker Change: You know, our board will continue to evaluate the dividend level, you know, consider, we, you know, talk about many factors including the performance outlook of the portfolio, looking at leverage, our liquidity needs, and other points that matter.

Speaker Change: We'll continue to evaluate it ongoing as we have continuously done.

Operator: Thank you.

Speaker Change: Good to hear that.

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

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

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: The next question comes from Dori Kesten with Wells Fargo. Please go ahead.

Dori Kesten: Thanks, good morning. If you think about your expectations back in the beginning of the year, has the recovery in business transient been in line with better than or softer than you expected?

Dori Kesten: Thanks. If you think about your expectations back in the beginning of the year, has the recovery and business transients been, you know, in line with, better than, or softer than you expected? Dori, I think it's been relatively in line. I think we started to see a little bit of softening towards the end of last year. You know, this quarter, we've seen corporate negotiated revenues decline slightly year over year. Some of that is some of that is due to some displacement at some of our business oriented hotels that in our portfolio as well.

Dory Keston: Thanks, good morning. If you think about your expectations back in the beginning of the year, has the recovery in business transient been in line with, better than or softer than you expected?

Todd Hargreaves: Hi Dori, I think it's been relatively in line. I think we started to see a little bit of softening towards the end of last year. You know, this quarter, we've seen corporate negotiated revenues decline slightly year over year. Some of that is due to some displacement at some of our business-oriented hotels in our portfolio as well, somewhat as expected, maybe, maybe slightly, slightly lower. Okay.

Speaker Change: Hi Dori, I think it's been it's been relatively in line. I think we started to see a little bit of softening towards the end of last year. You know, this quarter we've seen corporate negotiated revenues decline slightly year over year.

Speaker Change: Some of that is some of that is due to some displacement at some of our business oriented hotels that in our portfolio as well I would say it's

Dori Kesten: I would say it's somewhat as expected, maybe, maybe slightly slightly lower. Okay.

Speaker Change: somewhat as expected maybe maybe slightly slightly lower

Dori Kesten: Okay, and then during prior multi-year renovation programs that you've gone through, the portfolio REF part growth tends to, you know, lag the chain scales or U.S. in the years you're doing the program and then outperform in the following several years. Is there anything different about the timing or the extent of this program that could allow you to outperform earlier, such as, you know, bigger or higher return projects being front-

Dori Kesten: And then during prior multi-year renovation programs that you've gone through, the portfolio rep hard growth tends to lag the chain scales in the US in the years you're doing the program and then outperforms in the following several years.

Speaker Change: Okay.

Speaker Change: And then during prior multi-year renovation programs that you've gone through, the portfolio REF part growth tends to, you know, lag the chain scales in the U.S. in the years you're doing the program and then outperforms in the following several years.

Todd Hargreaves: Is there anything different about the timing or extent of this program that could allow you to outperform earlier, such as, you know, bigger or higher return projects being front-loaded. I wouldn't say we're going to go into; I wouldn't say there's any major difference this time around than other times around. A lot of the hotels that we're doing now are full service hotels like Sinasta, Hilton ad, which may take longer to do, but I don't see. I don't think the left in terms of rep are getting market shares going to be any different than it's been in prior cycles.

Speaker Change: Is there anything different about the timing or extent of this program that could allow you to outperform earlier, such as, you know, bigger or higher return projects being front-end loaded? No. No. No. No.

Todd Hargreaves: I wouldn't say, Brian, you can weigh in too, I wouldn't say there's any major difference this time around than other times. A lot of the hotels that we're doing now are full service hotels like Syvester, Hilton had, which may take longer to do, but I don't think the lift in terms of REF PAR and gain in market share is going to be any different than it has been in prior cycles.

Brian Maher: I wouldn't say, Brian you can weigh in too, I wouldn't say there's any major difference this time around than other times around. A lot of the hotels that we're doing now are full service hotels like Syvester, Hilton had, which may take longer to do, but I don't see, I don't think the lift...

Brian Maher: in terms of our gain in market share is going to be any different than it's been in prior cycles.

Dori Kesten: Okay. And then my last question, the results implied at Sinasta this quarter, just based on your ownership stake, seemed to be much slower than we were expecting. Was there anything one time flowing through there this quarter, or are there incremental near term costs flowing through that for longer term gains? Just wondering if there was anything specific to this quarter, you note.

Dori Kesten: Okay. And then my last question, the results implied at CNESA this quarter, just based on your ownership stake, seemed to be much lower than we were expecting. Was there anything unusual flowing through there this quarter, or are there incremental near-term costs flowing through that for longer-term gains? I'm just wondering if there was anything specific to this quarter you'd note.

Speaker Change: Okay, and then my last question, the results implied at SINESTA this quarter, just based on your ownership stake, seemed to be much lower than we were expecting. Was there anything one time flowing through there this quarter, or...

Speaker Change: Are there incremental near-term costs flowing through for longer-term gains? I'm just wondering if there was anything specific to this quarter you'd note.

Brian Donley: There's a couple of things. Dory, similar to what we're doing, Sinasta also owns hotels directly. They have a large portfolio in New York, and some of those have been under renovation. They've been using construction loans to fund that, so there's additional cost there. They're also spending more on sales and marketing, and then other initiatives at the corporate level that have affected the bottom line. And so those are really the driving factors.

Brian Donley: There's a couple of things Dori, similar to what we're doing, Sonesta also owns hotels directly. They have a large portfolio in New York, and some of those have been under renovation. They've been using construction loans to fund that, so there are additional costs there. They're also spending more on sales and marketing and then other initiatives at the corporate level that have affected the bottom line. So those are really the driving factors.

Speaker Change: There's a couple of things, Dori. Similar to what we're doing, Sonesta also owns hotels directly. They have a large portfolio in New York and some of those have been under renovation.

Speaker Change: They've been using construction loans to fund that, so there's additional costs there. They're also spending more on sales and marketing and then other initiatives at the corporate level that have affected the bottom line.

Brian Donley: Okay, can you comment on, I guess, the timing of that and when you would start to see more of an uplift? You know, I think there's a handful of properties that will finish up this year. There's pretty extensive work going on in New Yorkers, and always move the fastest as far as projects, but you know, I think they'll also have to look at the financial side too and we'll rent the market.

Brian Donley: Okay. Can you comment on, I guess, the timing of that and when you would start to see more of an uplift?

Speaker Change: So those are really the driving factors.

Speaker Change: Okay can you can you comment on I guess the timing of that and when when you would start to see more of an uplift?

Brian Donley: I think that there are a handful of properties that will finish up this year. There's pretty extensive work going on, and New York doesn't always move the fastest as far as projects go. I think they'll also have to look at the financing side, too, and where we are in the market.

Speaker Change: You know, I think that there's a handful of properties that will finish up this year. There's pretty extensive work going on and New York doesn't always move the fastest as far as projects.

Speaker Change: But, you know, I think they'll also have to look at the financing side too, and we're right in the market. Yeah, the displacement for the New York hotels, that should be over shortly. They've met the Benjamin Hotel, the room renovations are substantially completed.

Todd Hargreaves: Yeah, the displacement for the New York hotels should be over shortly. They've met the Benjamin Hotel, and the room renovations are substantially completed. As Brian mentioned, some of that was because there's a loan in place where those renovations are being funded with that loan. But I think you should see that noise start to come off in the coming quarters.

Brian Donley: Yeah, the displacement for the New York hotels should be over shortly. They've met the Benjamin Hotel; the room renovations are substantially completed. As Brian mentioned, some of that was; there's a loan in place where those renovations are being funded with that loan, but I think you should see that noise start to come off in the coming quarters.

Speaker Change: As Brian mentioned, some of that was, there's a loan in place where those renovations are being funded with that loan. But I think you should see that noise start to come off in the coming quarters.

Operator: Okay, thank you.

Operator: Okay, thank you.

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

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

Speaker Change: Okay, thank you.

Speaker Change: The next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Tyler Batory: Thank you, good morning. Question on the extended stay hotels in the portfolio during the quarter. You know occupancy has been down a couple quarters in a row. Can you just talk a little bit more about what's going on? I'm not sure if there are some market-specific issues at play or perhaps just the strong growth in prior years, just making comparisons a little bit challenging.

Tyler Batory: Thank you. Good morning. A question on the extended stay, hotels in the portfolio during the quarter. You know, I can see you've been down a couple of quarters in a row. You just talked a little bit more about what's going on. I'm not sure if there's memories in the market. Specific issues apply, or perhaps just the strong growth in prior years, just making comparison a little bit challenging.

Tyler Battori: Thank you. Good morning. A question on the extended stay, hotels in the portfolio during the quarter. Your occupancy has been down a couple quarters in a row.

Tyler Battori: You just talk a little bit more about what's going on. I'm not sure if there's maybe some market-specific issues at play or perhaps just the strong growth in prior years, just making comparisons a little bit challenging.

Todd Hargreaves: I tell her that that that that is the service level, you know, on it; that that is the area where we've seen somewhat of a pull back, and we started to see this last quarter as well. And what we're seeing is a lot of non-repeat, longer-term, extended stay business, true extended stay business at those hotels. So we classify those into four different tiers. You have the tier three that's 15 plus room night 15 plus nights or longer. The tier four, which is 30 plus room nights or longer, and you really need that business for those hotels to succeed in what you've seen in our portfolio.

Todd Hargreaves: Hi Tyler. That is the service level unit on it. That is the area where we've seen somewhat of a pullback, and we started to see this last quarter as well. And what we're seeing is a lot of non-repeat, longer-term, extended stay business, true extended stay business at those hotels. So we classify those into four different tiers.

Tyler Battori: Hi Tyler, that is the service level you hit on it, that is the area where we've seen somewhat of a pullback, and we started to see this last quarter as well, and what we're seeing is

Tyler Battori: a lot of non-repeat longer-term extended stay business true extended stay business at those hotels so we classify those into

Todd Hargreaves: You have the Tier 3, which is 15 plus nights or longer, the Tier 4, which is 30 plus room nights or longer, and you really need that business for those hotels to succeed. And what you've seen in our portfolio is some of that project-related business that stays for those longer periods of time has not been repeat business this year for one reason or another. So we saw it in Q1 as well.

Tyler Battori: four different tiers. You have the tier three that's 15 plus room, 15 plus nights or longer.

Tyler Battori: The Tier 4, which is 30 plus room nights or longer, and you really need that business for those hotels to succeed and what you've seen in our portfolio.

Todd Hargreaves: Is some of that project-related business and stays for those longer period of times has been non-repeat this year for one reason or another. So we sought you one as well. And what you what you have to do there in terms of back feeling that occupancy is you have to rely on the OTAs to fill out those transient rooms. Any stays of one to six nights and that's been impacting ADR because you're paying fees associated with those OTAs. So there's a handful of hotels specifically in that Yes, Sweet portfolio that where we've seen the loss is concentrated in.

Tyler Battori: is some of that project-related business that stays for those longer period of times has been non-repeat this year for one reason or another. So we saw it in Q1 as well.

Todd Hargreaves: And what you have to do there in terms of backfilling that occupancy is you have to rely on the OTAs to fill out those transient rooms, any stays of one to six nights, and that's been impacting ADR because you're paying fees associated with those OTAs. So there are a handful of hotels, specifically in the ES Suites portfolio where we've seen the losses concentrated. If you look at the SimpliSuites, we actually saw an increase in their FPAR year over year, but it's really related to a handful of project-related business at some of the ES Suites.

Tyler Battori: And what you have to do there in terms of backfilling that occupancy is you have to rely on the OTAs to fill out those transient rooms, any stays of one to six nights.

Tyler Battori: and that's been impacting ADR because you're paying fees associated with those OTAs. So there's a there's a handful of hotels specifically in the ES suites portfolio that where where we've seen the losses concentrated in. If you look at the SimpliSuites, we actually saw an increase in REF PAR year-over-year, but it's

Todd Hargreaves: If you look at the simply sweet, we actually saw an increase in the rest of our year every year, but it's really related to a handful of project-related business and some of the sweet.

Tyler Battori: really related to a handful of project-related business at some of the suites.

Tyler Batory: Okay, and then to follow up on the guidance, I'm doing my math right looks like at the midpoint, right far up 1% year-over-year, roughly, hotel EBITDA down double-digits, close to 10%. So did I do that correctly, and then just talk a little bit more about what's going on on the EBITDA side of things in Q3, how much are those renovation disruptions impacting that number too? You are.

Tyler Batory: And then to follow up on the guidance, I'm doing my math right; looks like at the midpoint. Right far up. You know, 1% your year roughly even a hotel, even a down double digits close to 10%. So you know, did I do that? Did I do that correctly?

Speaker Change: And then to follow up on the guidance, if I'm doing my math right, it looks like at the midpoint.

Speaker Change: right far up, you know, 1% year-over-year, roughly, even at a hotel, even at a down.

Speaker Change: double digits close to 10% so you know did I did I do that did I do that correctly and then just talk a little bit more about you know what's going on on the EBITDA side of things in Q3 how much is that your renovation disruptions that's impacting that number too.

Brian Donley: And then just talk a little bit more about what's going on on the EBITAS side of things. Thank you for how much is that your renovation disruptions that's impacting that number two. You're doing the map correctly, Tyler. As we look at Q3, as I said in my remarks, we expect to have 21 hotels under renovation. Again, that's probably half of the expected decline, similar pattern we had in Q2. You're the 21 hotels we had under renovation. This corner declined $5.8 million, so it was a big part of the year-over-year chain. So that trend will continue in the Q3.

Brian Donley: Yeah, you're doing the math correctly, Tyler. And as we look at Q3, as I said in my remarks, we expect to have 21 hotels under renovation. Again, that's probably half of the expected decline, a similar pattern we had in Q2. The 21 hotels we had under renovation this quarter declined $5.8 million.

Speaker Change: Yeah, you're doing the math correctly, Tyler. And as we look at Q3, as I said in my remarks, we expect to have 21 hotels under renovation again. That's probably.

Speaker Change: Half of the expected decline, a similar pattern we had in Q2, the 21 hotels we had under renovation this quarter.

Brian Donley: So it was a big part of the year-over-year change. So that trend will continue into Q3. We'll continue to see some seasonal shifts as well, especially as we get into the latter half of the Labor Day holiday, similar to year-over-year in the prior years. So we'll see similar seasonal trends as well.

Speaker Change: declined you know 5.8 million dollars so it was a big big part of the year-over- year change so that trend will continue into Q3.

Brian Donley: We'll continue to see some seasonal shifts as well, especially as we get into the latter half, into Labor Day holiday, similar to year-over-year in the prior years. We'll see similar seasonal trends as well.

Speaker Change: We'll continue to see some, you know, seasonal shifts as well, especially as we get into the latter half into Labor Day holiday, similar to year-over-year in the prior years. So, you know, we'll see similar seasonal trends as well.

Tyler Batory: Okay, all right, I'll leave it there.

Tyler Batory: Okay. All right. I'll leave it there. That's all for me.

Tyler Batory: That's all from me. Thank you. Thanks, Tyler.

Operator: Thank you. Thanks, Tyler.

Speaker Change: Okay. All right. I'll leave it there. That's all for me. Thank you.

Operator: This concludes our question and answer session.

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

Speaker Change: Thank you. Thanks, Tyler.

Todd Hargreaves: I would like to turn the call back over to Todd Hargreaves for any closing remarks. Thank you, everyone, for joining today's call. We appreciate your continued interest in SVC.

Speaker Change: This concludes our question and answer session. I would like to turn the call back over to Todd Hargreaves for any closing remarks.

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

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

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

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

Operator: You may now disconnect.

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