Q3 2024 Service Properties Trust Earnings Call
Hello and welcome.
Well.
The service properties Trust third quarter 2024 conference call.
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As a reminder, this conference is being recorded.
Speaker Change: I would now like to hand, the call to Kevin Berry Senior director of Investor Relations. Please go ahead.
Speaker Change: Thank you and good morning, everyone. Thanks for joining us today with me on the call are Todd Hargreaves, President and Chief Investment Officer, Jeff D. A bear Vice President and Brian <unk>, Treasurer, and Chief Financial Officer in just a moment they will provide details about our business and our performance for the third quarter of 2024, followed by a question and.
Speaker Change: The answer session with sell side analysts I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.
Speaker Change: Also note that todays conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and other securities laws.
Speaker Change: These forward looking statements are based on <unk> beliefs and expectations.
Speaker Change: Today November seven 2024, and actual results may differ materially from those that we project.
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.
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 <unk> dot com or the Sec's website investors are cautioned not to place undue reliance upon any forward looking statements.
Speaker Change: In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized <unk> cash.
Speaker Change: Cash available for distribution or <unk>.
Speaker Change: And adjusted EBITDA already a reconciliation of these non-GAAP figures to net income are available on Sec's earnings release presentation that we issued last night, which can be found on our website and finally, we are providing guidance on this call, including hotel EBITDA. We are not providing a reconciliation of this non-GAAP measure as part of our guidance because.
Speaker Change: Information required for such reconciliation is not available without unreasonable efforts or at all.
Todd Hargreaves: With that I will turn the call over to Todd.
Todd Hargreaves: Thank you Kevin and good morning, our third quarter results reflect a continued trend of mixed performance across our lodging portfolio due to our ongoing hotel capital improvement renovation program balanced by the stable cash flow generation within our net lease portfolio.
Todd: Before discussing results I would like to highlight some actions we are taking to improve our liquidity and reduce leverage.
Todd: October 16th we announced the reduction of our regular quarterly common dividend from <unk> 20 per share to one cent per share.
Todd: The reduction would result in approximately $127 million of annual savings providing.
Todd: Providing us with significant flexibility to accelerate deleveraging, while continuing to execute on our portfolio optimization initiatives.
Todd: We also announced our plans to sell 114 focused service hotels in the sonesta portfolio.
Todd: Which have an aggregate of 14925 could you use and the net carrying value of $850 million.
Todd: We expect to sell these hotels in 2025 and are targeting proceeds of approximately $1 billion.
Todd: Additionally, we expect the sales of these hotels will result in savings of approximately $725 million in capital expenditures.
Todd: Which is forecasted to be spent on these properties over a six year period.
Todd: These divestitures will transform our sonesta portfolio to focus on full service hotels as well as certain higher performing focused service hotels.
Todd: Upon completion of the disposition plan, we expect that Sonesta will continue to manage 39 full service hotels.
Todd: <unk> thousand 14 extended stay hotels at six select service hotels owned by Us or U C. S.
Todd: <unk> will continue to only 34% of sonesta.
Todd: Turning to our results for the hotel portfolio during the quarter overall performance continued to be affected by revenue displacement that certain of our hotels undergoing renovation.
Todd: Comparable revpar declined 80 basis points year over year.
Todd: Excluding the renovation properties comparable revpar experienced an increase of one 7% year over year.
Todd: Beginning with our full service portfolio, which reported a revpar decline of less than 1%.
Todd: Strength within group was offset by the impact of renovation displacement on transient revenues as well as top line weakness in contract business.
Todd: Excluding the four full service hotels under renovation during the quarter full service portfolio Revpar grew by two 5% year over year.
Todd: Outpacing industry growth by 160 basis points.
Todd: Eight of our top 10, performing hotels in terms of year over year improvement were sonesta full service hotels.
Todd: More specifically, our Royal Sonesta Hotel in New Orleans, just benefited from improved group results, along with a related uplift and banquet revenue.
Todd: The Royal Sonesta, Houston, Galleria experienced an increase in demand in the aftermath of hurricane barrel.
Todd: And our properties in Chicago generated gains from the Democratic National Convention.
Todd: Our extended stay portfolio experienced the most disruption in our portfolio is 11 hotels were under renovation during the quarter compared to only three in Q3 2023.
Todd: In addition longer lower longer term stays at our hotels in Atlanta, San Diego and Las Vegas led to lower extended stay occupancy.
Todd: Based on this multi quarter trend that is currently focused on enhancing value from shorter term stay bookings through OTA and wholesale channels.
Todd: In total Revpar for our extended stay portfolio declined one 5% year over year.
Todd: Within our select service portfolio Sonesta slapped generated 50 basis points of Revpar growth driven by.
Todd: Increased occupancy and growth within contract business, specifically at our hotels in Philadelphia and Atlanta.
Todd: However, this increase was offset by residual effects from recently completed renovations within the high portfolio, resulting in a total select service revpar decline of 20 basis points year over year.
Todd: Turning to hotel operating expenses, despite strategic shifts towards in house staffing and reductions in contract labor.
Todd: Rising wage rates across all service levels continue to weigh on hotel profitability.
Todd: Occupancy growth in our full service portfolio led to the most pronounced labor cost increases.
Todd: Beyond labor the largest cost increases during the third quarter, It's just a group commissions in real estate taxes.
Todd: In terms of customer segmentation, we continued to see a decline in mix of transient business offset by an increase in group revenues on a year over year basis.
Todd: During the third quarter transient group customers represented approximately 74% and 19% of our total hotel revenues respectively.
Todd: Followed by contract business revenues, representing 6%.
Todd: So that's what remains focused on increasing brand loyalty with an emphasis on growing as travel pass program.
Todd: Across our full service focused service Sonesta hotels travel pass revenue represented more than 25% of room revenue during the quarter.
Todd: With over three percentage points of growth, we've been full service hotels year over year.
Todd: We continue to make progress on strategic dispositions during the quarter selling six hotels with an aggregate of 822 keys for an aggregate sales price of $44 $9 million.
Todd: Since quarter end, we have sold five additional hotels with an aggregate of 640 <unk> for an aggregate sales price of $32 $2 million.
Todd: We've also reached agreement to sell sell eight hotels with an aggregate of 980 <unk> for a combined sales price of $44 $2 million.
Todd: In closing, we are taking measures to increase our liquidity and reduce leverage highlighted by our recent announcement to sell a 114 hotels.
Todd: And reflective of the continuation of our long term strategy to build a managed portfolio in key growth markets.
Todd: I will now turn the call over to Jesse to discuss the net lease portfolio mortgage debt.
Jesse: Thank you Todd.
Jesse: Turning to our net lease portfolio, which represents 44% of FCC's portfolio by investments as of September 32024.
Jesse: Our 745 service oriented retail net lease properties were 97, 6% leased with a weighted average lease term of eight three years.
Jesse: Approximately two thirds of our portfolio is anchored by a strong credit quality tenants and BP and the remainder includes more than 170 diverse tenants operating in over 20 industries.
Jesse: At least maturities are well ladder with only two 6% of our net lease minimum rents scheduled to expire before 2026.
Jesse: The aggregate coverage of our net lease portfolio with minimum rents was two two times on a trailing 12 month basis as of September 32024, which was consistent on a sequential quarter basis excluding.
Jesse: Excluding the Ta properties minimum rent coverage was three seven times.
Jesse: Between the beep feedbacks Ta leases and the strong coverage for the balance of the portfolio. We expect our net leased assets to continue their consistent performance, providing stable cash flows to SPC.
Jesse: In addition to the hotel dispositions Todd discussed earlier transaction activity during the quarter included the sale of four net lease properties containing a combined 52000 square feet, resulting in approximately $3 $6 million in aggregate sale proceeds. We also entered into an agreement just about 3300 square foot net lease properties for 1 billion.
Jesse: Overall, our net lease portfolio continues to generate steady and predictable income streams that afford us the flexibility as we execute our hotel capital improvement plans and take steps to optimize our balance sheet I will now turn the call over to Brian to discuss our financial results.
Brian: Thank you Jessie and good morning.
Speaker Change: Starting with our consolidated financial results for the third quarter of 2020 for normalized <unk> was $52 9 billion or 32 cents per share versus 56 per share in the prior year quarter.
Speaker Change: Adjusted EBITDA declined 11, 6% year over year to $155 million.
Speaker Change: Financial results this quarter as compared to the prior year quarter continue to be impacted by higher interest expense and lower hotel EBITDA.
Speaker Change: For our 213 comparable hotels this quarter Revpar decreased by 80 basis points gross operating profit margin percentage declined by 380 basis points to 27, 5% and gross operating profit decreased by $15 million from the prior year period.
Speaker Change: Below the GOP line costs at our comparable hotels increased $600000 or 1% from the prior year, driven primarily by increased real estate taxes, partially offset by lower insurance expense.
Speaker Change: Our 214 hotels generated hotel EBITDA of $60 1 billion, a decline of $15 $4 million from the prior year.
Speaker Change: By service level hotel EBITDA year over year decreased $9 $5 million for our 47 full service hotels declined $2 million for Ah 60, select service hotels and $4 million for 107 extended stay hotels.
Speaker Change: So the 17 hotels that were under renovation during the quarter Hotel EBITDA declined $7 $1 million.
Speaker Change: As Todd discussed earlier, we plan to sell 114 focused service and Thats the branded hotels with 14925 keys in 2020, but we.
Speaker Change: We have provided operating statistics within our earnings presentation that provides details on the hotels, we are exiting and the hotels FCC currently expects to retain.
Speaker Change: For the quarter, but 130 hotels, we are exiting including hotels currently in the market for sale generated revpar of $72 and hotel EBITDA of $16 9 billion.
Speaker Change: The 84 hotels FCC plans to retain generated revpar of $113 and hotel EBITDA of $43 million during the quarter.
Speaker Change: Turning to our expectations for Q4, we're currently projecting full quarter Q4, revpar of 82 to $85 and hotel EBITDA of 34% to $39 million range.
Speaker Change: Turning to the balance sheet, we currently have $5 $7 billion of fixed rate debt outstanding with a weighted average interest rate of six 4%.
Speaker Change: Our next debt maturity is $350 million of senior unsecured notes maturing in February 2026.
Speaker Change: We currently have over $700 million of total liquidity, including full availability of our $650 million revolving credit facility.
Speaker Change: We expect to generate approximately $1 billion in 2025 from the 114 hotels, we announced we are selling and expect to use the sales proceeds for the repayment of debt.
Speaker Change: Turning to our investing activity, we made $82 billion of total capital improvements at our properties during the third quarter.
Speaker Change: The $30 million of recurring capital and $52 million related to our hotel renovation program.
Speaker Change: Largest spend this quarter was for renovations at our full service hotels in L. A X White Plains, New York, and Miami Airport, which totaled over $26 million.
Speaker Change: Capital during the quarter.
Speaker Change: These same three hotels generated $5 7 million decline in hotel EBITDA year over year.
Speaker Change: We currently expect our full year 2020 for capital expenditures spend to be around $300 million.
Speaker Change: We expect 15 hotels across all of our service levels to be under renovation in the fourth quarter and we will have completed major renovations at 30 hotels during the calendar year, including for full service hotels 18 select service hotels and eight extended stay hotels.
Speaker Change: During the quarter, we sold six hotels with 822 keys were $44 $9 million and four net lease assets for $3 $6 million were under agreement to sell eight hotels with 985 keys for sale price of $44 2 million.
Speaker Change: We made the difficult, but prudent decision to reduce the common dividend to <unk> <unk>. This quarter given the recent operating performance of our hotels and the extensive Capex program, we have initiated and we expect to save $127 million annually, enhancing our liquidity and financial flexibility.
Speaker Change: To sum up we're taking steps to deliver our commitment to refocus our hotel portfolio reduced capital expenditures repaid debt to improve our position for the long term.
Speaker Change: That concludes our prepared remarks, we are ready to open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: Ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing Nicky.
Speaker Change: To withdraw your question you May Press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Today's first question comes from Bryan Maher with B Riley. Please go ahead.
Bryan Maher: Thank you and good morning, looking to probe a little bit more on the longer term outlook for renovation activity and more specifically on the full service hotels can you give us any rough idea of what we're looking at a number of years.
Speaker Change: <unk> of dollars.
Speaker Change: Hey, Brian Good morning, and thanks for the question.
Speaker Change: We're not prepared to give guidance on capex spend for 25 or beyond what we're going to do that on our fourth quarter call as is typical for us.
Speaker Change: I will say, we expect the number to be below.
Speaker Change: What we're spending this year, it's just there's so much going on right now with sales timing, yes, we continue to reevaluate projects as they come up for approval and whether or not it makes sense to move forward. So there's a lot of moving pieces today I just.
Speaker Change: Some of it up by saying, we do expect a lower spend next year.
Speaker Change: I think in prepared comments, you said that you were planning on retaining 84 hotels.
Speaker Change: Maybe to ask it a different way of the 84 hotels, how many do you think need a more than normal capex.
Speaker Change: Deep renovation to some degree.
Speaker Change: Yeah, I mean, I think you know that the hotels that we're keeping the full service boxes being the largest concentration there. There's a good number of them that have been renovated or in good quality standing right now in the market.
Speaker Change: But there is definitely a portion of that we'll continue to we'll continue to deploy capital and I'm just not prepared to guide exactly how many that might be.
Speaker Change: Yeah, we'll give more color as we as we go forward as I described right now Aldo.
Speaker Change: For a large number hasnt been renovated already I mean that includes all of the 17 hyatt's.
Speaker Change: One of the Radisson <unk> as well as several of the SaaS as well.
Speaker Change: Is there any update on doing the nautilus and when that would be.
Speaker Change: Yes, <unk>, we're expecting to start that renovation.
Speaker Change: At some point in 2025.
Speaker Change: You recall that hotel when we purchased it.
Speaker Change:
Speaker Change: We reported that we were going to put it in another $25 million into the renovation to convert that to a James do some work around.
Speaker Change: The rooms.
Speaker Change: And common areas. There. So that's still the plan that may not be the final budget, but.
Speaker Change: We expect that to be operating as a James.
Speaker Change: In 2026.
Speaker Change: Okay, just two more quick ones the.
Speaker Change: Hi, what's the Humana data earlier this year I think Revpar was maybe negative six in the second negative two in the third I'm, assuming there was some lag there can you give us any early indications as to what you're seeing there in the fourth quarter.
Speaker Change: Yeah, I mean, we have completed the.
Speaker Change: All of these specifics on.
Speaker Change: On the on the Revpar and EBITDA at the hotels for.
Speaker Change: So far in the fourth quarter, but yes.
Speaker Change: To your point, we have completed the renovations at all of those hotels. There still are some a little bit of work that's gone on on the exteriors as well.
Speaker Change: Couple of other things, but there are substantially done.
Speaker Change: So we expect to start seeing that last year in the next quarter or two.
Speaker Change: From from those renovations.
Speaker Change: Okay, just slapped on 114 hotels that you didn't ask that youre going to sell how many of those do you expect to stay encumbered by this and that's the brand.
Speaker Change: Okay.
Speaker Change: It's hard to say exactly how many might my sense is the.
Speaker Change: The majority of the hotels will remain encumbered brand and Thats based on our experience with the recent.
Speaker Change: Hotels, we have sold through.
Speaker Change: Phase of 68 22 that we're currently in process just based on <unk>.
Speaker Change: Our success.
Speaker Change: How long those hotels.
Speaker Change: And if they have stayed encumbered or not.
Speaker Change: The hotels were selling in this portfolio are strong much much stronger performers and what we've done what we sold over the past few years.
Speaker Change: Which I believe well.
Speaker Change: The ability to or that.
Speaker Change: More of a likelihood that they stay sonesta branded most of what I would say probably 85% of what we sold.
Speaker Change: The sonesta hotels is.
Speaker Change: <unk> remained encumbered under our franchise agreement most of the ones that we.
Speaker Change: We're sold unencumbered ware.
Speaker Change: <unk> wanted to convert the Es suites.
Speaker Change: <unk> family and we're willing to pay.
Speaker Change: 30% premium.
Speaker Change: <unk>.
Speaker Change: We're more so.
Speaker Change: I know the exact number but it's going to it's likely to be.
Speaker Change: Kind of around that percentage or higher.
Speaker Change: Yeah. Thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: As a reminder to ask a question you May press.
Speaker Change: That's fine.
Speaker Change: Telephone keypad.
Speaker Change: The next question comes from Dori Kesten with Wells Fargo. Please go ahead.
Dori Kesten: I'm, just I'm trying to reconcile the capital.
Speaker Change: Owner might need to put in versus the EBITDA per key that day.
Speaker Change: That they generate.
Speaker Change: You were talking about I guess, the first part of the question is that related to that.
Speaker Change: The sale of hotels.
Speaker Change: Yeah the 114.
Speaker Change: Sure.
Speaker Change: So the 114, so and we have included in the supplemental.
Speaker Change: Details of the EBITDA for the casino hotels, and if you annualize that it's about $60 million in EBITDA.
Speaker Change: I think most of those hotels not not all of them at the same some of them arent as don't need as large of a renovation as some others might but I think for the most are.
Speaker Change: Anywhere depending on the brand.
Speaker Change: And last renovation day, I would say anywhere from <unk>.
Speaker Change: 25 to 50000, Nike, a buyer well anticipate having to invest in the hotel above the purchase price.
Speaker Change: Okay.
Speaker Change: The 114 doses are unexplained 12 basis, you were saying does generate around 60 million in EBITDA.
Speaker Change: That's right that's right.
Speaker Change: Okay.
Speaker Change: And can you give us a sense.
Speaker Change: How about for the retained hotels, where your trailing 12 margins are and longer term, where do you expect those to stabilize.
Speaker Change: Wednesday renovation upside has been realized.
Speaker Change: Yes, the 84 hotels dori.
Speaker Change: Generated on the trailing 12 about $156 million of EBITDA margin on a net basis was only 15%.
Speaker Change: 14.
Speaker Change: Select service and the other properties that we're keeping.
Speaker Change: You had a much higher margin to that.
Speaker Change: Again with 114 focused service hotels, we're disposing I've had margins in the fifteens the ones, we're keeping them focused service or the 30% range. The full service hotels, what's dragging down the weighted average margin of EBITA at the 15% level given the noise in that portfolio and some of the.
Speaker Change: The highest focus service sites as well as the Sonesta full service hotels. So there is a mixed bag going on.
Speaker Change: Okay.
Speaker Change: Selected the highest performance focused service hotels to retain the sonesta portfolio and those margins are very healthy.
Speaker Change: The <unk> below <unk>.
Speaker Change: We think they should be running the full service hotels, we have work to do to get those margins back up.
Speaker Change: To where they need to be in the 20% upwards of 30%.
Speaker Change: Okay.
Speaker Change: Sorry, let me just repeat that the exit hotels are currently around 15% margin and the ones that you're keeping are also somewhere around there, but all but eventually they should get towards the.
Speaker Change: Hi, 2030 range is that correct.
Speaker Change: Yeah, Yeah, I tried to illustrate the bifurcation of focus versus full service.
Speaker Change: What we're retaining.
Speaker Change: There's a split of sort of a story of why that's dragging down to 15% of it was related to the full service hotels and some.
Speaker Change: Some of the properties, we've had under renovation like the highest only generated a margin of 7%.
Speaker Change: Surely we expect that to ramp up very quickly as we move into 'twenty five that will have some of these averages.
Speaker Change: And then some of the other properties that were under renovation at very low margins right now.
Speaker Change: Okay, and then last one since you made the announcement of your disposition plans have you have you received any inbound interest in portfolios or is it a little bit early.
Speaker Change: Yes, we've received we received a lot of interest. It is it is very early still very preliminary.
Speaker Change: We're going to we're going to <unk>.
Speaker Change: We're in the process of engaging a broker so we are going to run a process.
Speaker Change: But we have received significant interest.
Speaker Change: Because.
Speaker Change: Yes.
Speaker Change: Lot of institutional groups that have been really trying to scale.
Speaker Change: These types of portfolios.
Speaker Change: Just on what's been in the market and what's currently in the market and to my knowledge was expected to come to market.
Speaker Change: For select service and extended stay hotels, there just haven't been.
Speaker Change: Many large kind of a high quality portfolio. So a lot of groups that pad.
Speaker Change: <unk> been having to buy these properties and ones twos and threes. So.
Speaker Change: We've received a lot of inbounds for groups that want to buy portfolios of 2030 hotels to relative to relative scale up so.
Speaker Change: Not surprised with the interest.
Speaker Change: With the inbound interest but.
Speaker Change: Really just confirms our belief that there's going to be a lot of demand for their portfolio.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is from Tyler Battery with Oppenheimer. Please go ahead.
Tyler Battery: Thank you good morning, So I got a bunch of follow up questions here.
Speaker Change: Just talking about the the $1 billion number.
Speaker Change: What do you think was.
Speaker Change: But did better than we had been expecting.
Speaker Change: I guess.
Speaker Change: Confidence do you have in that its nice to see you folks that hold that out but I'm not sure I'm, just just kind of where your expectations are in terms of pricing and just to be clear on a few on a few topics with the stay out and are you expecting these to be no more kind of one offs or do you think there are.
Speaker Change: Some larger portfolio opportunities are larger buyers out there and groups obviously the move in interest rates more recently cost of capital I'm not sure. If that's playing into things and I think you said a portion of the hotels are going to be sold unencumbered just talk a little bit about bath probably high.
Speaker Change: Do we think about the value of the Sonesta brand.
Speaker Change: Just kind of pricing.
Speaker Change: So the associated with sonesta versus giving buyers a little bit more a little bit more flexibility.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: Starting with the first the first question.
Speaker Change: So.
Speaker Change: $1 billion that that.
Speaker Change: That's an estimate obviously.
Speaker Change: Wanted to give some guidance into what we were expecting to get and that's based off.
Speaker Change: Our internal valuations outside broker valuations.
Speaker Change: Historical sales.
Speaker Change: Of hotels in our portfolio.
Speaker Change: Adjusted for.
Speaker Change: We think that the better.
Speaker Change: <unk> and performance of these hotels are.
Speaker Change: These are very different hotels, and what we sold in the past in the sonesta portfolio.
Speaker Change: The 68, and the 22 that we're in the midst of selling.
Speaker Change: In aggregate both of those portfolios had negative EBITDA at the time of sale. So buyers were looking at those on a per key basis on a stabilized yield on cost basis.
Speaker Change: They're not all the same some of them.
Speaker Change: Well price on a cap rate basis, some of them will still price on a per key basis or a revenue multiple basis, but but again you just had.
Speaker Change: $60 million or so of EBITDA on a trailing 12 month basis. So much different set of hotels a lot of these are in.
Speaker Change: Our in good markets. Some have had have been recently renovated as well so.
Speaker Change: It's a different set so so.
Speaker Change: No.
Speaker Change: How we came up with a value was a combination of Turkey.
Speaker Change: And cap rate. So again $1 billion is really really just an estimate but.
Speaker Change: But it is above that that book value number that we.
Speaker Change: For these hotels.
Speaker Change: To your second question.
Speaker Change: Yes, this isn't going to sell at one portfolio, but.
Speaker Change: Okay.
Speaker Change: If you ask me today I would envision it.
Speaker Change: Sold as larger portfolios, maybe 10 2030 hotels.
Speaker Change: That's based off a lot of the conversations we've had.
Speaker Change: Back to <unk> question about you know.
Speaker Change: <unk> gotten a lot of inbounds from institutional groups looking to put out a good amount of capital and looking to grow in scale.
Speaker Change: That said.
Speaker Change: We're also going to get a lot of interest from buyers who are interested in buying the ones twos and threes similar to what we have sold.
Speaker Change: In terms of.
Speaker Change: Encumbered versus unencumbered.
Speaker Change: I don't know I mean, yeah.
Speaker Change: I'm not sure exactly where that lands, but.
Speaker Change:
Speaker Change: Based on I think you were getting at the value of how FCC values the values that our brand encumbrance, it's going to be a similar calculation as we've done in the past when we're comparing offers and where we're trying to evaluate the value of the.
Speaker Change: Royalty fee streams, given our 34% ownership interest in sonesta.
Speaker Change: When comparing the offer so.
Speaker Change: That's going to be something we'd look at as soon as we get offers Ed.
Speaker Change: Again, just based off what we saw in the past what parts.
Speaker Change: Parts of the market so far I expect most of these hotels again I would I would estimate today, if I had to estimate 85% plus or would be sold encumbered, but we'll see where offers come in.
Speaker Change: Okay, Okay great.
Speaker Change: Just talk about kind of questions at once so I. Appreciate you are hitting on all of those.
Speaker Change: In terms of the EBITDA performance in the portfolio both in the quarter.
Speaker Change: And for Q4, I mean, you came in at 60 million for Q3. The guide was 65 to 69.
Speaker Change: I think in Q4 the range there was a little bit lower than we than we had you know there's a lot of moving pieces in the portfolio. So I'm not sure.
Speaker Change: Maybe the renovation disruption was a little bit greater than you thought you were going through the asset sales, obviously impacts that that number too. So I'm not sure if theres some kind of some some outside factors here that are that are impacting the EBITDA performance and EBITDA generation of the of the hotel portfolio.
Speaker Change: Okay.
Speaker Change: A little bit of everything.
Speaker Change: The renovations are sometimes tough to pin down and how fast things recover.
Speaker Change: There is.
Speaker Change: A lot of anecdotal stories of different hotels, some of the select service and extended stay properties when you renovate.
Speaker Change: There are groups that won't damage.
Speaker Change: Property has construction going on and sometimes it takes longer to build some of that business back up.
Speaker Change: There's various stories like <unk> for example last year was performing.
Speaker Change: Outperforming because of the compression from the Maui fires and some other one time adjustments on the P&L that.
Speaker Change: Negatively compared to this year's performance.
Speaker Change: There's a disruption as we talked about but also cost pressures and just softening demand in leisure.
Speaker Change: Overall lodging so yes it is.
Speaker Change: The mixed message, but theres a lot going on in the portfolio as we talk about it.
Speaker Change: We continue to be focused on executing on the on both the Capex plan to disposition plan operating efficiencies and just trying to get this portfolio to where it needs to be.
Speaker Change: Okay.
Speaker Change: And then thinking about the Revpar performance here I think the past couple of quarters.
Speaker Change: I think you've lagged some of the other some of the other peers.
Mark: Yeah Mark.
Speaker Change: He started looking for guidance, but I mean, do you think that that trend could could start to flip I mean, you've done some renovations going on.
Speaker Change: Some easy comps you have a higher quality hotel portfolio left I mean is that is it possible you might start to outperform the industry is that something that would be that we might see.
Speaker Change: Next year, possibly just from a from a revpar perspective.
Speaker Change: Sure No I think that's a fair a fair assessment.
Speaker Change: A lot of our.
Speaker Change: Impact to revenue has been disruption from the renovations. If you if you take out if you take out the renovations we saw Revpar increase.
Speaker Change: Although we continue to expect to have more renovation. So we continue to expect to have more disruption.
Speaker Change: <unk>.
Speaker Change: Once we get through the sales of the 114 hotels again this goes back to Brian's comments.
Speaker Change: We see a lot of upside in the full service portfolio.
Speaker Change: A lot of the markets.
Speaker Change: These hotels are in and then what we're keeping on the focused service side again, Brian Brian mentioned, it but I'll repeat it.
Speaker Change: The 20 hotels were keeping in the sonesta Es suites, nessa select and simply suites. I mean, those are very strong performers today, they're on a trailing 12 month basis, there are over 30% margins.
Speaker Change: And one of the reasons, we're keeping those in selling the others. So these hotels specifically if you look at the relative to the other ones were selling.
Speaker Change: It's.
Speaker Change: 35% Revpar premium that these hotels are getting weaker.
Speaker Change: Had.
Speaker Change: A challenging time driving margins on some of the hotels that we're selling with the lower revpar because of just the fixed costs you have on the expense side. So.
Speaker Change: Long way of answering your question, but yes, I think that we should expect as we start to see more of a lift from the renovations again, we're going to continue to add disruption going forward, but.
Speaker Change: As we exit some of these hotels, where we don't see that growth in revpar ability.
Speaker Change: We should start to at the very least.
Speaker Change: So you see an uptick in revpar.
Speaker Change: Okay.
Speaker Change: Last for me.
Speaker Change: To tie everything together, Jim you've made.
Speaker Change: A number of strategic decisions I guess, how comfortable are you with your liquidity.
Speaker Change: Paired with the debt obligations that you have.
Speaker Change: The next the next couple of years and I think it's something that a lot of a lot of folks are focused on maybe just talk about the debt maturities that are coming coming coming due and obviously I think in the near term have a pretty good handle on things, but the question starts to come up with like Wow. You know is there more that might need to be done to handle some of these.
Speaker Change: Obligations, but a little bit a little bit farther out so just trying to get a good sense of kind of how comfortable you are with things.
Speaker Change: In the short term and obviously no one has that has a crystal ball.
Speaker Change: But just talking to have been a little bit longer term I'm, just kind of how you think you're positioned.
Speaker Change: Handle some of the debt maturities that you have coming in 2026 and beyond.
Speaker Change: Sure. It's a great question, we're comfortable with our liquidity position in the short term I think that part of the story and the response to that question is yes, we have been trying to demonstrate and I think we have demonstrated our ability to access the markets.
Speaker Change: We've done capital raises $1 billion in last.
Speaker Change: Last November and the other one in the spring.
Speaker Change: To de risk maturity debt maturities coming due at SCC.
Speaker Change: We are selling a significant amount of the hotels to raise cash to repay debt, but that's not to say we can't refinance the debt.
Speaker Change: This is part of a broader strategic decision to de lever.
Speaker Change: We feel comfortable we'll be able to refinance debt user different channels, we've done that within the retail portfolio the travel center portfolio.
Speaker Change: Unsecured corporate basis.
Speaker Change: So we think we will have plenty of levers to pull as we've shown over the last few years.
Speaker Change: So I don't have I'm not overly concerned with liquidity at this point.
Speaker Change: Okay great.
Speaker Change: That's all for me. Thank you very much for the detail.
Speaker Change: Thank you.
Speaker Change: Thank you. This concludes our question and answer session I would like to turn the call back over to Mr. Hard Green for any closing remarks.
Speaker Change: Thank you everyone for joining today's call. We appreciate your continued interest in SBC and look forward to seeing many of you at NAREIT later this month.
Speaker Change: The conference has now concluded.
Speaker Change: Can you for attending today's presentation you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].