Service Properties Trust

Good morning and welcome to the Service Properties Trust fourth quarter 2024 earnings conference 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. 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 2. Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Kevin Barry, Senior Director of Investor Relations. Mr. Barry, the floor is yours.

Kevin Barry, Senior Director of Investor Relations.

Thank you for joining us today. With me on the call are Todd Hargraves, President and Chief Investment Officer, Jesse Hebert, Vice President, and Brian Donley, Treasurer and Chief Financial Officer. In just a moment, they will provide details about our business and our performance for the fourth quarter of 2024, followed by a question and 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. Also note 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 beliefs and expectations as of today, February 27, 2025, and actual results may differ materially from those that we project. 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. Additional information concerning factors that can cause those differences is contained in our filings with the SEC, which can be accessed from our website, svcreep.com, or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO and adjusted EBITDA RE. A reconciliation of these non-GAAP figures to net income is available in SVC'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 adjusted 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 will turn the call over to Todd.

Thank you, Kevin, and good morning. Last night, we reported solid fourth quarter earnings results that reflect SVC's strongest hotel revenue growth in almost two years, as well as continued steady performance from our net lease retail properties. I'll begin today's call by providing an overview of the hotel portfolio, including an update on the process of the sales of 114 Senesta hotels, before turning it over to Jesse to discuss our net lease portfolio and Brian for financial results. Overall, comparable hotel rev par grew 4.2% year over year, outpacing the industry by 60 basis points, despite meaningful revenue displacement from renovation activity. Excluding 14 hotels under renovation during the quarter, comparable rev par increased 6.8%, driven by increased transient and group occupancy. The continued effects of hotel renovations and pressures on expenses, including labor and real estate taxes, impacted overall hotel profitability, With GOP flat year-over-year, an adjusted hotel EBITDA declined 2.4%. Our full-service hotels reported an increase in REF PAR of 4.3%. Strength within group and transient was partially offset by a modest decline in contract business. Excluding the three full-service hotels under renovation during the quarter, full-service portfolio REF PAR grew by 6.3% year-over-year. Seven of our top 10 performing hotels in terms of year-over-year improvement were Sonesta full-service hotels. More specifically, our three Sonesta hotels in downtown Chicago benefited from citywide compression and double-digit market share gains from improved group, corporate, and OTA performance. The Royal Sonesta Hotel in New Orleans benefited from improved transient results from citywide demand and an increase in contract business drove strong top-line growth at Royal Sonesta San Juan and Chase Park Plaza in St. Louis. Our select service portfolio produced exceptional growth with RevPAR up 9.6% year-over-year, mainly driven by occupancy growth in both our Hyatt Place and Sonesta Select portfolios. Notably, RevPAR growth grew to 26% year-over-year at our recently renovated Hyatt Place hotels. RevPAR and Sonesta Select grew approximately 4%, driven by occupancy and discount in contract segments, specifically in Miami, Philadelphia, and Atlanta. In our extended stay portfolio, REF PAR grew 1.2%, with increased occupancy more than offsetting a decline in ADR. Renovation activity continues to have a more pronounced impact on our ES Suites portfolio performance, as 10 hotels were under renovation during the fourth quarter compared to one in the prior year period. To mitigate this disruption, Senesta remains focused on driving short-term stays and additional room nights with transient discounts and targeted marketing at government and wholesale channels. As we announced in October, we are marketing the sale of 114 focused service and ESSA hotels with a total of 14,925 keys across the ES Suites, Simply Suites and Select brands and plan to utilize the proceeds to reduce SVC's leverage. We launched our formal marketing effort in January to sell the properties and have asked interested buyers to submit offers for one or more sub portfolios that range from eight to 18 hotels that are group based on chain scale and regional geography. Earlier this month, we received first-round offers. As we expected, the buyer pool is deep and well-capitalized and resulted in more than 50 sub-portfolio bids with multiple bids for each portfolio. Given the strength of the initial bids, we expect SVC to net sales proceeds of at least $1 billion. Most, if not all, the hotels will likely remain under the Senesta brand, which we believe will provide a long-term benefit to SVC as it is a 34% owner of Senesta through our share of related royalty fee streams. We have moved to a second round of bidding with the goal of selecting buyers and entering purchase and sale agreements in March and to begin closing on sub-portfolios during the second quarter. In addition to commencing our marketing of the 114 Sinesta hotels, we further executed on the plan we announced early in 2024 to sell 22 non-core underperforming hotels. During the fourth quarter, we sold eight of these hotels with 1,004 keys for an aggregate sales price of $49.1 million and increased the total number of hotels sold for the year to 15. Since quarter end, we have sold one additional hotel with 149 keys for a sales price of $4 million. We have also reached agreements to sell five hotels with an aggregate of 623 keys for a combined sales price of $28.5 million. Further, we have commenced marketing the sale of our remaining IHG-managed hotel, a 495-key property in the perimeter sub-market of Atlanta. Assuming the completion of the sales, SVC's portfolio will consist of 83 retained hotels, which during the fourth quarter experienced a rep-par increase of 6.3% to approximately $101, and adjusted hotel EBITDA increase of 10% year-over-year to $30.6 million. In comparison, for the 123 exit hotels, Rath Park grew 60 basis points to $64, and adjusted hotel EBITDA declined 23% year-over-year to $12.4 million. As we enter 2025, our focus remains on strengthening our balance sheet through asset sales and reinvesting in our hotels with the highest opportunity for upside. We expect 14 hotels will be under renovation this year. Notable completions will include the renovation of our Sonesta Los Angeles Airport and our Sonesta Hilton Head during the first half of 2025, and our Sonesta in Atlanta and Simply Suites in Burlington, Massachusetts during the back half of the year. We remain confident that the current renovation program, coupled with our portfolio rationalization efforts, will lead to continued meaningful occupancy and rate gains in the year ahead. I will now turn it over to Jesse to discuss the net lease portfolio.

Thank you, Todd. Our net lease portfolio continues to generate stable and reliable cash flows for SVC. As of December 31st, we own 742 service-oriented retail net lease properties with annual minimum rents of $381 million. Our net lease assets, which represent 44.2% of our overall portfolio based on investment, were 97.6% leased with a weighted average lease term of eight years. Our diverse tenant base consists of 177 tenants operating under 136 brands spanning 21 distinct industries, thereby mitigating our exposure to any one retail sector and offering opportunities to grow our existing relationships with a variety of different operators. Our lease maturities remain well-laddered, with only 2.2% of our net lease minimum rents scheduled to expire in 2025 and approximately 3% in each of the following years through 2029. The aggregate coverage of our net lease portfolio's minimum rents was 2.1 times on a trailing 12-month basis as of December 31, 2024, which was down less than one-tenth of a point on a sequential quarter basis. Excluding our TA travel center properties, which are backed by BP's investment-grade credit, minimum rent coverage held steady at 3.7 times, essentially unchanged compared to the prior quarter. In light of the strong credit of our TA leases and healthy coverage for the balance of the portfolio, combined with our diversified tenant base and staggered expiration schedule, we expect our net lease portfolio will continue to serve as a dependable income stream for SVC. On the transaction side, we sold three net lease properties during the quarter, containing a combined 10,000 square feet, resulting in $2 million in aggregate proceeds. Since the end of the quarter, we have sold or entered into agreement to sell an additional four net lease properties for an aggregate price of $7.1 million. Given the consistent performance of our net lease assets, we are evolving our strategy to focus on growing this portfolio through well-vetted and strategically located acquisitions. Our investment criteria for externally sourced growth will prioritize properties leased to operators expanding their networks with established brands and that are in retail quarters that exhibit durable land values with appealing demographics. Properly curated, these acquisitions can enhance our tenant and geographic diversity, increase portfolio weighted average lease term, and offer flexibility in terms of future reuse. To this end, SBC is under agreement to acquire a net lease retail property with an 18-year remaining lease term for $5.3 million, and we are actively evaluating additional targets as we build out our acquisition pipeline. We are also seeing meaningful growth opportunities within our existing portfolio and are expanding our outreach efforts to identify tenants with whom we can partner for organic growth. With proactive asset management efforts and opportunistic acquisitions in the coming year, we believe we can drive Walt upward, optimize the makeup of the NetLease portfolio, and ultimately increase the portfolio's economic contributions to the SVC platform. I will now turn the call over to Brian to discuss our financial results.

Thanks, Jesse, and good morning. Starting with our consolidated financial results for the fourth quarter of 2024, normalized FFO is $28.6 million or 17 cents per share versus 30 cents per share in the prior year quarter. Adjusted EBIT to RE declined 7.4% year-over-year to $130.6 million. Financial results this quarter as compared to the prior year quarter were impacted most by a $9.4 million increase in interest expense and an $8.4 million decline in interest income. For our 205 comparable hotels this quarter, rep par increased by 4.2%, gross operating profit margin percentage declined by 160 basis points to 25.3%, and GOP was flat compared to the prior year period. Below the GOP line costs at our comparable hotels increased $759,000, or 1.7%, from the prior year, driven primarily by increased real estate taxes. Our 206 hotels generated adjusted hotel leave until $43.1 million, a decline of 2.4% from the prior year, but exceeding our guidance range. By service level, adjusted hotel leave year-over-year decreased $900,000 for our 47 full-service hotels increased $1.6 million at our 59 select service hotels, and decreased $1.8 million for our 100 extended stay hotels. For the 14 hotels that were under renovation during the quarter, adjusted hotel EBITDA declined $8 million. In 2025, we plan to sell 123 hotels with 16,426 keys. In the fourth quarter, these 123 hotels generated a rep par of $64, an adjusted hotel EBITDA of $12.4 million, representing a decline of 23% year-over-year. Assuming we sell the 114 Senesta hotel portfolio for at least $1 billion, that pricing would imply a 16.5 times multiple on 2024 hotel EBITDA of $60.5 million. This valuation is well above SVC's multiple of approximately 10 times full-year 2024 adjusted EBITDA RE. As it relates to the retained portfolio, the 83 hotels SVC plans to keep generated a REVPAR of $101, and adjusted hotel EBITDA of $31 million during the quarter, or an increase of 9.7% year-over-year. Turning to our expectations for Q1, we're currently projecting full quarter Q1 red bar of $82 to $84, and adjusted hotel leave within the $20 to $24 million range. We will continue to see softer seasonal results through the remainder of the winter months before activity picks up in the spring. Our portfolio will also see continued disruption in 2025 at hotels we have under renovation, and the timing of our dispositions may impact our results. Turning to the balance sheet, at quarter end, we had $5.8 billion of debt outstanding with a weighted average interest rate of 6.4%. Our next debt maturity is $350 million of senior unsecured notes maturing in February 2026. We currently have $61 million of cash on hand and $50 million outstanding on our $650 million revolving credit facility. During the door investing activity, we made $85 million of total capital improvements at our properties during the fourth quarter, bringing our full year spend at $303 million, which is in line with our previous guidance. We completed renovations at 28 hotels in 2024, with the largest spend for our high-place portfolio, full-service Sonesta hotels at LAX, White Plains, New York, and Miami Airport. We currently expect full-year 2025 capital expenditures to be approximately $250 million. Notable initiatives will include the kickoff of multi-year projects to convert our Royal Sonesta in Washington, D.C. and DuPont Circle and the Nautilus in South Beach to the James brands, as well as projects at Royal Sonestas in New Orleans and Cambridge. Of the 2025 capital expense, we expect $110 to $130 million of maintenance capital, with the rest going towards renovation initiatives. Beyond this year, we expect our total capital spending to continue to trend lower in 2026 and 2027 as the pace of our hotel renovation program slows. That concludes our prepared remarks. We're ready to open the line for questions.

Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If any time a question has been addressed and you'd like to withdraw your question, please press star, then two. Again, it is star, then one to ask a question. At this time, we will just pause momentarily to assemble our roster. The first question we have will come from Dori Keston of Wells Fargo. Please go ahead.

Thanks. Good morning. Now that you won't be spending CapEx for the 115 assets to be sold, how have your return expectations changed for the remaining assets?

Good morning, Dorian. Thank you for the question. This is Brian. I'll take that one. You know, I think generally speaking, our expectations are the same. We have that high sort of single-digit return versus prior positioning of the property before the renovations, that can fluctuate depending on the property and the market and depending on the scope of the projects. You know, for example, the James, the conversion to the James, the Nautilus property in South Beach and our upscale lifestyle brand initiative there in Washington, you know, we expect much higher returns, you know, as we reposition the property that these projects were expected So, it'll differ across the portfolio, but on average, it's still sort of a high single-digit target.

Okay. And then you mentioned a new focus on acquiring net lease assets. Can you put some context around what that acquisition volume may be on an annual basis?

Yeah, I think for particularly the first half, this is Jesse, Dory, for the first half of the year, I think the intent here is just to get out, get a feel for what's out in the market, build out our pipeline. I think initially this will be, you know, relatively small volumes, small dollars, you know, individual asset acquisitions. And then I think as we get towards the middle and the end of the year, we can kind of reevaluate the strategy at that point once we have a better sense of kind of where we're transacting.

Okay. And then just a few balance sheet questions. How much of the 150 that you borrowed on the line in Q4 has now been paid back, I guess, to date in Q1?

There's 50 outstanding today. You know, we made that draw at the end of the year for liquidity management purposes. You know, our hotel results are pretty soft at December, January, and into February. And just from a working capital standpoint, we made that draw. But again, 50 is off standard for them.

Okay. And then the, I think it was in, maybe it was this month, you amended the credit facility to reduce the minimum debt service coverage down to, I think it was 1.3 from 1.5. What are you modeling for that ratio, I guess, throughout this year?

Yeah. There's a couple of reasons we did that, Dori. The hotel portfolio that secures the credit facility includes a lot of the hotels we are selling. It includes properties that we've been renovating so that the results have been declining. And we were getting up against some of the covenants within the credit agreement, which are different than how the calculations are done for the public debt. So we wanted to make sure we weren't in breach of anything. So we were able to reach an agreement to amend that. We are swapping out hotel collateral to release all the Senesta hotels that are in that collateral package as we are selling a good portion of them. We're swapping that out with one of the travel center pools.

Okay. So, I mean, throughout this year, would you, are you expecting to get close to that 1.3 or you think it'll stay around where it ended the year around 1.5 and change?

Yeah, I don't think we'll get, we're not going to dip really below that 1.5. It was more precautionary, but also making sure, you know, there's adequate cushion and we'll have much more stability with, you know, the way the collateral package works for the revolver covenants.

Okay, great. Thanks so much.

Again, if you would like to ask a question, please press star, then one on a touchstone phone. Again, add a star, then one. Next, we have Tyler Battery of Oppenheimer.

Hey, good morning. Thank you. So I want to start on the hotel portfolio, specifically the guidance for Q1. You've got a lot of moving pieces. The 20 to 24 hotel email number applies a margin that's down a little bit year over year. Is there a way to isolate or think about the performance of the 83 retained hotels in Q1? Additionally, when you think about those 83 hotels, and I'm not sure if you gave this number, what was the EBITDA contribution or the EBITDA margin for those properties for the full year 2024?

Hi, Tyler. For the 83 retained hotels, we were about 15% margin and But the Sonesta Hotel, we were $60 million of EBITDA. Brian, do you have the EBITDA for the other two portfolios?

Yeah, the Hyatt Place portfolio, those properties were under renovation still and just coming out of renovation. So it was, you know, call it 10% on average. As we look to Q1, Remember, the retained hotels is heavily concentrated with full-service hotels. So we do expect that year-over-year decline. We'll continue to see softness in Q1 from our concentrations in Chicago and some other areas where margins are definitely weaker in Q1. So we will see that degradation, as you said, that decline year-over-year in margins. But, again, the typical seasonal patterns plus throw-in. that won't be done until the end of Q1. And, you know, Hillbed, we're also doing the public space there. So some other hotels will continue to have meaningful impact to our results early in Q1.

Right. And then if you look at the fourth quarter, the adjusted EBITDA for those 83 retained hotels actually increased 10% relative to the overall portfolio, which declined a couple percent.

Okay. Okay. Thank you. Follow up on the asset sales and maybe give some good commentary on the process, which I appreciate. But I know a lot of investors are really focused on what's going on here. So just talk a little bit more about how the process is going versus your expectations. Maybe the interest is perhaps a little bit higher than you might have thought. I'm not sure. And then the comments in terms of selling all of those hotels with the Synesta brand. Is that a little bit of a change from what you were thinking before and kind of walk through the price dynamics of selling those assets, encumbered versus unencumbered, please.

Sure. Yeah, the process has gone very well so far. Probably a little better than expected, but we've been in the market with a lot of hotels over the past few years. So I think we have a pretty good sense of who the buyers are, what the interest level is. And, you know, these hotels in particular, the select service and extended stay hotels, there's just not a lot of portfolio sales of this scale and this magnitude that have been in the market, that are in the market, that are coming to market. And there's a lot of groups that want to grow these service levels in their portfolio. So I'm not surprised of the level of interest that we've gotten from a lot of larger institutional hotel owners. In terms of In terms of price, we're already close to what our initial guidance was. If you take the top bids from each of the sub portfolios, again, not a surprise, but certainly a positive and I think an indication of how strong and deep and competitive the process and buyer pool have been so far. So, again, we're very pleased with where things are so far, and, you know, ideally groups will come up even more in the second round. In terms of the encumbrances, most, if not all, these hotels we do expect to be sold with long-term Sinesta franchise agreements. I wouldn't say that's unexpected. In the past, the hotels that we have sold that were Sonesta branded and managed, I'd say on average about 80% of the hotels were sold encumbered and the ones that were sold unencumbered were from groups that came in and either wanted to redevelop the properties and convert the use to multifamily and we're going to pay a significant premium above the encumbered offers to do that. Or they were hotels that were in markets that other competing brands might not have had a presence in. So they were a lot more aggressive in terms of key money or trying to get their flag on the hotels. I think these hotels are a little different for the most part. They're strong performing hotels. They're in better markets than what we've sold in the past. So a lot of the competing brands are already there. And if we do receive unencumbered offers, You know, the way we look at that relative to encumbered offers is we put a value on the royalty fee stream, look at SVC's 34% share as a 34% owner of Sonesta, apply an appropriate multiple to that, apply an expense load to that, and then compare the two offers. And that's how we would look at any unencumbered offers versus encumbered offers to the extent we receive those on this portfolio.

Okay. Okay. Very good detail. Thank you. To follow up on the CapEx, the $250 million number, is any of that spend on hotels that are going to be sold this year? And then the 110 to 130 maintenance portion, is that a good run rate? to be thinking about for the 83 retained hotels going forward?

Hey, Tyler, there will be some spillage for properties we're exiting for projects that were underway or just some maintenance items that we need to do regardless as we get ready for sale. It's not a large percentage, call it 20 to 25 million for the hotels that are exiting. As far as the maintenance capital, it is oversized, the 110 range, the 130 that I mentioned. Yeah, we do expect a more normalized range for what's going to be left in this hotel portfolio to be closer to $65 million to $75 million going forward. So we are doing some deferred maintenance catch-up, and some of the stuff that we're doing won't be repeated ongoing.

Okay. Okay. And then my last one, a little more open-ended perhaps. As we sit here at the start of the year, just help us think about your capital priorities as we go through 2025. You've got a lot going on with asset sales. I'm sure focused on leverage. It sounds like maybe going on the offensive side with the net lease, although that's probably going to be pretty small. Just kind of walk through that. kind of rank order, if you will, just what you're prioritizing as 2025 goes on.

Sure, Tyler, I'll start, and then others can jump in. But the priority, once we start recognizing the sales proceeds, will be to address our 2026 debt maturities. That is first and foremost. We've got the $350 million due in Q1, and then another large bullet in the fall of 26. We're looking to address all that with the hotel sales And then, you know, as far as, you know, the CapEx investment is next in ranking as far as our priorities to continue to enhance our hotel portfolio and position these properties to succeed longer term. And then, you know, from there, it's, you know, starting to recycle that lease and grow that lease. I think are the priorities.

Yeah, and I'll add on to that. I think that, you know, I think we see, as Jesse mentioned earlier, we see an opportunity in the net lease space and I think you've seen what we've done through the asset sales and the planned asset sales, as well as the limited acquisitions we've done over the past few years in terms of what we want this portfolio overall to look like long-term. And you've seen us continue to sell some of the select service and extended stay hotels, focus more on the full service assets, shift more of our mix on the hotel side from from business to leisure-oriented, where we've been under-concentrated historically. And on the net lease side, you look at that portfolio, and that portfolio has been an excellent performer for us over the past several years, backed by the travel center assets with an investment-grade entity behind that. very strong performing other net lease portfolio that's throwing off a 3.7 EBITDA to rent coverage. So, you know, we think there's opportunity to add assets to that side of the portfolio. You know, we're really going to be focused on strong operators and good sectors with lease term, and we think we can get decent yield on those assets. So that is, again, that's priority number one is paying down debt. Priority number two is CapEx into our hotels. And then the third priority is potentially acquiring some more net lease assets throughout the year.

Okay. That's all for me. Thank you.

Next, we have Meredith Jensen of HSBC.

Yes, good morning. Thanks. I was wondering if you could speak a little bit more about the net lease portfolio. Are there portfolio assets that you would also sort of prune as you add more, such as the net amount stays stable? And I guess what I'm getting at is sort of the long-term mix in investments, you know, that sort of pie of SVC investments between hotels and net lease?

I think in terms of pruning the net lease portfolio, you know, I think we're pretty consistently going through those assets and identifying sectors we see growth in versus sectors we don't and making disposition decisions along those lines as well as You know, I think at this point we're really quick to identify when those assets go dark, whether we think there's a release or a redevelopment scenario. And if not, those will tend to go to disposition as well. I'll let Todd speak to kind of the overall mix between the hotel and that lease assets within the portfolio. But I think historically we've always shot for some version of a 40-60 split, you know, 50-50, somewhere in that going either direction.

Sure. I think you covered it well, Jesse. And the only thing I'll add to that is, you know, as we look to kind of buy assets in that portfolio, you may see us be a little more optimistic in terms of selling leased assets, whether that's, as Jesse pointed out, to kind of reduce our exposure to certain industries or brands or tenants that we have. we have concerns about or are not as optimistic on. But you'll also see us execute a lease renewal and then sell a property as an example as well. So you could see us doing some more of that and then look to recycle that capital back into that lease space. And then overall, you know, similar to the answer I gave Tyler is, you know, we see the net lease portfolio as a strength of our portfolio. And that doesn't mean we don't see the lodging as a strength as well. And I think we're optimizing that portfolio now. And, you know, if the performance of those hotels this last quarter, where you saw, you know, We're keeping the hotels that have the most upside. We're keeping the hotels that are going to benefit most from the renovations. So, again, before these sales, I think we're 54% hotels. After the sale, we'll be 47%. Like Jesse said, I don't envision us going below 40% on the hotels, but anywhere from kind of that 40% to 60% range long term.

Okay, great. That's super helpful. And I know there's a lot of matrix and a lot of information in the deck about geography and sort of location urban versus suburban. But if you could just narrow the scope to the hotels that you'll be keeping sort of some guidance in terms of seasonality and sort of geography and how to think about you know, basically through the year in 2026 as we start fresh, what that portfolio rev par and, you know, quarterly sort of cadence will be?

Sure, I can start. The, so, you know, and I'll focus more on this nested portfolio because that's where we're transacting for the most part. And that all, those are all good points and we're all factors as we selected what we wanted to sell. and what we wanted to keep. But for the most part on the extended stay select service, we're keeping the better performers there on average for 24. Those hotels did over 30% margin, so they're good performers. We're selling most of the hotels that are in suburban business parks that really rely on that midweek business traveler that's just really, it's really been a challenge for that to come back over the past few years. A lot of the select service and extended stay we have are in good, strong, more urban infill markets. And then our full-service portfolio, we'll have, you know, 39 of those hotels in the Senesta portfolio, all Royal Senesta. And full-service Senesta, we also have a couple of hotels that we're converting over to the James brand this year as well. Those... right now are more focused urban than they are kind of true destination resort hotels. But over the next few years, I think as we continue to build out the hotel portfolio, I think you'll see us acquire more assets like the Nautilus acquisition that we bought a couple of years ago. So that's really what we're more focused on. Right now our portfolio is more urban, our full service at least is more urban and more concentrated in the northern part of the U.S.

Yeah, and for modeling purposes, Meredith, I think from a seasonality standpoint, Q1-25, Q4-25, you know, that's The goalpost for the bell curve, you know, our portfolio will be strongest in Q2 and Q3. So my guidance of $20 to $24 million of cash flow, hotel EBITDA, you know, represents, you know, a high single-digit margin. We expect that margin in Q2 to exceed, you know, 20%. So you see that ramp up. into our strong spring and summer periods will affect how the seasonality trends play out for the year. And beyond that, when we sell the hotels, there'll be some more normalization of the seasonality trends as we exit so many hotels. But generally, Q1 and Q4 will continue to be the weaker quarters for SVC's hotel portfolio.

Thanks. That's super helpful. Last question. Is it fair, you know, it does seem just hearing that the process is going pretty quickly, but in terms of closing and all of that, you think that the sort of debt pay down and full exit could happen all in 2025? Just trying to see when we have a clean slate for the hotel, you know, if it's going to be 27 over 26 or it'll bleed further out.

There and I think I think it's I think it's safe to assume that the hotels will all be closed by during 2025 and we're we should be selecting buyers here in the next few weeks and moving moving to close. You know we have we have a goal, maybe an aggressive goal to close these by by June 30th. Some may may go past that, but you know we should have all these clothes by by the third quarter. And Brian, do you want to talk about the debt repayment?

Yeah. I mean, once we have, you know, certainty and have the cash in hand and have the proceeds in mass, we'll look to use that to, you know, address leverage as we've talked about with the proceeds.

Great. Thanks so much. That's super helpful.

Thank you.

Sure. Thanks for the questions.

Well, this concludes our question and answer session. I would now like to turn the conference call back over to Mr. Todd Hargraves for any closing remarks. Sir?

Thank you, everyone, for joining today's call and for your continued interest in SVC.

And in today's conference call, the conference call is now concluded. At this time, you may disconnect your lines. Thank you. Take care and have a great day, everyone.