Service Properties Trust

good morning and welcome to the service properties trust third quarter 2023 earnings call all participants will be in listen only mode should you need assistance please signal a comfort specialist by pressing star then zero on your telephone keypad after today's presentation there will be an opportunity to ask questions to ask a question you may press star then one on your telephone keypad to withdraw your question please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Stephen Colbert, Director of Investor Relations. Please go ahead.

Good morning. Joining me on today's call are Todd Hargraves, President and Chief Investment Officer, and Brian Donnelly, Treasurer and Chief Financial Officer. Today's call includes a presentation by management, followed by a question and answer session with analysts. Please note that the recording, retransmission, and transcription of today's conference call is prohibited without written consent of SCC. I would like to point out that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on SVC's present beliefs and expectations as of today, November 7th, 2023. 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 svcreep.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 RE. Reconciliations of these non-GAAP financial measures to net income, as well as components to calculate AFFO, are available in our supplemental operating and financial data package which can be found on our website. And with that, I will turn the call over to Todd.

Thank you, Steven, and good morning. SVC's solid third quarter results reflect moderate top line improvement in our hotel portfolio. As year over year, comparable rev far increased 0.8% and comparable hotel EBITDA was generally flat despite displacement from 12 active renovations during the quarter impacting performance. Top line performance was led by Sonesta with an 11.9% gain in group revenue and a 17.6% gain in contract revenue, mitigating some of the softening demand we are experiencing at our leisure-oriented hotels. Our full-service portfolio continues to outperform our other service levels, driven by improvement at our urban hotels as full-service RevPar increased 2.5% year-over-year and EBITDA increased by $2.4 million. REF Pard our select service portfolio declined 0.2% year-over-year with occupancy gains of 0.8 percentage points, while REF Pard our portfolio of extended stay hotels decreased 1.3%. Removing the hotels into renovation, REF Pard our select service hotels increased 2.7%, and REF Pard our extended stay portfolio increased 0.7% as 53 of our extended stay hotels reported a positive index to 2022. There's been a notable shift in segmentation as Q3 transient revenues as a percentage of total hotel revenues declined from 78.1% to 75.4% from the previous year quarter, while group increased from 15.5% to 17.2%, and contract revenues increased from 5.4% to 5.9%. The largest decrease in transient occurred in the full-service portfolio due to market-driven declines in San Francisco, Chicago, and New Orleans. Group revenues were led by our full-service segment with gains at our Royal Sonesta Cambridge, Royal Sonesta Minneapolis, Sonesta Denver, and Crowne Plaza Atlanta as a result of strong corporate group as well as increased citywide events. Our Sonesta full-service portfolio led the increase in contract-related business with new airline crew activity and increased rates for existing accounts at our properties in Redondo Beach, San Jose, and Nashville. All of our hotel operators remain focused on steering bookings to their respective websites and direct sales channels to lower commissions, and OTA revenues as a percentage of total revenues decreased from 30.8% to 29.4% year-over-year. Business travel continues to trend positively as corporate negotiated revenue increased by 1.3% year-over-year, and SVC's portfolio is now at 76.1% of 2019 levels, up from last quarter's index of 70.8%. The recovery has been led by small and mid-market accounts, while the larger national accounts have been slower to return. The gap between weekend and weekday occupancy is narrowing, and Senesta's weekend occupancy has outpaced weekday by 4.9 percentage points in September, down from a 5.8 percentage point gap in September 2022. Our largest operator, Senesta, remains focused on increasing its brand awareness through its advertising and media campaigns and build out of its loyalty program. Revenue from Senesta's travel pass program as a percentage of total revenue increased from 22.5% in Q3 2022 to 25.9% in Q3 2023 led by room nights, which increased by 15.1% with ADR increasing 1.4%. Group pace improved across all our operators led by Senesta, which is 32.5% ahead of last year. Gains are widespread with 85% of our full service hotels reporting positive group pace led by the Royal Sinestas in San Francisco, St. Louis, Houston, Washington, D.C., and the Sinestas in Nashville. Hotel operating expenses across our portfolio remain elevated and continue to pressure margins. Insurance premiums increased by $1.6 million, or 15% year over year, an increase we expect will continue into Q4. On the labor front, our hotels are relying less on contract labor, shifting more labor in-house, which has resulted in contract labor per occupied room decreasing in each of the last four quarters. However, wages for in-house employees are increasing and the portfolio experienced a 4% increase in total wages plus benefits on a cost per occupied room basis over the previous year's quarter. Turning to our net lease portfolio, which represents 45% of SBC's portfolio by investment. As of September 30th, 2023, our 761 service-oriented retail net lease properties We're 95.8% leased with a weighted average lease term of 9.1 years. Our lease maturities are well laddered and only 8% of our net lease minimum rents expire prior to the end of 2026. The aggregate coverage of our net lease portfolios minimum rents was 2.72 times on a trailing 12-month basis as of September 30th, 2023. The decline sequentially from 2.94 times is largely driven by increased rents in our TA leases as a result of our amendments in May and softer EBITDA reported by TA for Q3 2023. Importantly, TA is our largest tenant in the portfolio, and the rent payments are guaranteed by an investment-grade rated subsidiary of BP. Rent coverage for our other retail net lease tenants improved 3.68 times in Q3, up from 3.58 times in Q2 2023. Transaction activity during the quarter was relatively muted with no acquisitions and limited net lease dispositions. We continue to evaluate select acquisition opportunities, specifically full-service hotels and target markets, but remain disciplined in these volatile capital markets as we carefully consider how we allocate capital. While Brian will provide more detail on the balance sheet, I'd like to emphasize the strong position SVC is in to refinance our upcoming debt maturities due in 2024 and 2025. Our hotel portfolio continues to demonstrate improved financial and operational performance And our net lease portfolio provides dependable cash flows with 68% of annual minimum rents coming from an investment grade rated tenant BP. With over a billion dollars of total liquidity and a large pool of highly valuable unencumbered assets, including all of our travel centers leased to TA, we plan to be proactive in determining the most efficient and cost effective solutions to address these maturities in the near future. I will now turn the call over to Brian to discuss our financial results in more detail.