Service Properties Trust

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

Good morning. Joining me on today's call are Tard Hargraves, President and Chief Investment Officer, and Brian Donley, 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 the prior written consent of SVC. 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 SDC's present beliefs and expectations as of today, May 8, 2024. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the FCC, which can be accessed from our website at svcREIT.com or the FCC'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 SFO, and adjusted EBITDA RE. Reconciliations of these non-GAAP financial measures to net income, as well as components to calculate ASFO, 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. 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. With that, I'll turn the call over to Todd.

Thank you, Stephen, and good morning. Our first quarter results are indicative of typical seasonality patterns in our lodging portfolio, as well as the stability of our net lease portfolio. Our full-service hotels experienced top-line growth through increased group demand, while our select service hotels were impacted by softening transient travel and renovation activity. Our focus remains on improving the performance and quality of our portfolio through the disposition of non-core hotels and capital projects to put our operators in the best position for long-term success. Beginning with the hotel portfolio for the quarter, comparable REF PAR declined 3.5% year-over-year. When excluding the 23 active renovations, ADR declined 0.7% and occupancy declined 0.2%, leading to a REF PAR decline of 1.1%. The renovation hotels, which include our Hyatt Place portfolio, Sonesta Hilton Head, and others, experienced approximately $3.9 million of displacement during the quarter. Cost pressures led to a hotel EBITDA margin decline of 290 basis points over the prior year quarter for our 218 comparable hotels, as wages, property taxes, and insurance increases more than offset our operators' improved reliance on contract labor. Full service was our top performing segment during the quarter, where we gained 80 basis points at RAPFAR over the previous year quarter, led by increases in group and contract sales. Full-service group performance was led by our Royal Sonesta hotels in San Juan, San Francisco, and Kauai, while the increase in contract revenues was led by our Sonesta hotels in Redondo Beach and Denver. F&B revenue gains occurred across our full-service hotels as well, led by our Royal Sonestas in St. Louis and Kauai. Our portfolio select service hotels continue to see the most disruption during the quarter, as 18 of our 61 hotels were under renovation, including our 17 Hyatt Place hotels, which began renovations in 2023. Overall, select service REF PAR declined by 13.2% due to these disruptions, as well as decreased year-over-year income from our five select service hotels located in the Phoenix area that benefited from the 2023 Super Bowl. Our extended stay portfolio experienced a 4.6% decline in REF PAR year-over-year. Consistent with a trend from previous quarters, our longer-term extended stay occupancy, stays of seven-plus nights, has been declining due to the loss of non-repeat project-based room nights. While synesthesis actually pivoted to shorter-term stays of these hotels to fill occupancy, the increased room nights were not enough to offset the reduced rates. Group PACE is up $15 million, or 12.3% over the same time last year, due to increases in room nights and ADR in both the Sonesta and Radisson portfolios. The most notable gains were related to corporate group at the Royal Sonesta Cambridge and at our Sonesta Chicago hotels, where the Democratic National Convention will be held in August. Combined revenues from our business travel for our operators declined slightly year over year due to the ongoing renovations in our Hyatt portfolio and the shift in the Easter holiday from April last year to March this year. while business travel increased in our Sonesta portfolio from key corporate accounts at our select service hotels. OTA revenue as a percentage of total revenues declined from 25.6% to 24.8% year-over-year during the quarter, and our operators continue to concentrate efforts on driving bookings to their websites to lessen the dependency on third-party channels that charge commissions. Sinesta remains focused on building its brand through numerous initiatives and recently merged its Travel Pass Rewards program with the Legacy Red Lion loyalty program, doubling its overall size. During the quarter, 25.9% of our Sinesta full-service hotel revenues were from loyalty program members, up 3.5 percentage points from 2023. Other ongoing Sinesta initiatives include a focus on driving ancillary revenues at the hotel, building out a sales organization, and investing in technology. Turning to our net lease portfolio, which represents 44% of SVC's portfolio by investment, as of March 31st, 2024, our 749 service-oriented retail net lease properties were 97.3% leased with a weighted average lease term of 8.7 years. Our lease maturities are well-laddered, and only 1.3% of our net lease minimum rents expire prior to the end of 2024. The aggregate coverage of our net lease portfolio's minimum rents was 2.37 times on a trailing 12-month basis as of March 31, 2024. The decline sequentially is largely driven by soccer EBITDA reported by TA for Q1, 2024. Transaction activity during the quarter was limited to three net lease dispositions and one hotel disposition, a country and suites in suburban Minneapolis for an aggregate sales price of $6.2 million. We continue to market 22 Sinesta hotels with a book value of $160 million. The sale process is well underway and we're working with potential buyers to negotiate terms. In conclusion, we're optimistic that our hotel portfolio will see meaningful operational improvements as the result of our renovation program as hotels benefit from much needed refreshes over the coming quarters. Additionally, the performance of our net lease portfolio remains steady and is anchored by an investment grade rated tenant in BP. With more than $700 million of liquidity and no debt maturities in 2024, we are well positioned to implement our strategic plan. I will now turn the call over to Brian to discuss our financial results in more detail.