Service Properties Trust

Good morning and welcome to the Service Properties Trust third quarter 2025 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. 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. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Good morning. Thank you for joining us today. With me on the call are Chris Bellotto, President and Chief Executive 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 third quarter of 2025, 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, November 6, 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 could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from our website at 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 SDC'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 Chris.

Thank you, Kevin. Good morning, everyone, and thank you for joining the call today. Last night, we announced our third quarter earnings results, which reflect continued momentum on our strategic objectives. I will begin today's call with a brief update on our key initiatives and share operating highlights from both our hotel and net lease businesses. Jesse will provide further details on our net lease platform and recent acquisitions. Brian will then discuss our financial performance, balance sheet, and quarterly guidance. Starting with our strategic priorities. We had another productive quarter, completing previously announced hotel sales, advancing our capital recycling initiatives, and taking decisive steps to strengthen SVC's balance sheet. Since our last earnings call, we have been active in the capital markets, raising over $850 million in proceeds, including $295 million from asset sales during the quarter, $67 million in asset sales in the months of October and November, and approximately $490 million from the issuance of our new zero coupon bonds. The proceeds were used to fully repay our evolving credit facility and retire all of our 2026 senior notes. Each of these steps further improved SVC's debt maturity profile, enhanced our financial flexibility, and strengthened our covenant position. Turning to current dispositions, earlier this year, we committed to exiting 121 hotels, totaling nearly 16,000 keys for gross proceeds of $959 million. We remain on track to complete the balance of these sales, including six hotels that sold in October for $66.5 million and 69 hotel sales expected to close in November and December for $567.5 million. Proceeds from these remaining sales will primarily be used to initiate the repayment of our February 2027 Senior Entrepreneur Notes. With respect to acquisitions, we continue to advance modest growth supporting our net lease portfolio, which Jesse will expand upon. This is intended to improve our net lease portfolio fundamentals, provide optionality with financing sources, and support our business model transitioning toward a net lease company. Turning to our hotel performance. At the macro level, the U.S. travel market continues to face headwinds with demand trends remaining uneven amid persistent economic uncertainty. Domestic leisure travel has declined to its lowest point in several years, reflecting heightened price sensitivity and a shift towards shorter booking windows. These behaviors suggest a more cautious consumer mindset in the current environment. SV's portfolio continues to deliver steady top-line growth, with RevPAR increasing 20 basis points year-over-year, outpacing the broader industry by 160 basis points, and representing the fourth consecutive quarter of outperformance. This growth was primarily driven by occupancy gains, while AVR declined modestly. Excluding the hotels we are exiting, our remaining 84 hotels delivered stronger third quarter performance with REVPAR increasing 60 basis points year over year, driven by occupancy gains of 140 basis points. Across the broader portfolio, contract business, particularly airline-related demand, remained a key growth driver and was partially offset by softer group and a decline in government bookings. Transient revenues were flat year over year, reflecting stable but subdued discretionary travel activity. Hotel EBITDA declined compared to last year, primarily reflecting elevated labor costs, insurance deductibles, and broader expense pressures. The scale and timing of hotel dispositions during the quarter introduced operational disruption that weighed on performance, which we view as largely transitional. As the disposition pipeline normalizes, we expect this shift will support stability and market improvement as we move into 2026. In recent years, we have also made significant capital investments to elevate the quality and performance of our hotels, having undergone major renovations that close to 45% of our retained hotel portfolio. We see positive indications of increasing performance, and we expect these renovated hotels to deliver incremental growth over the next year as they capture additional market share. Within the retained hotel portfolio, approximately 15 hotels generated a combined EBITDA loss of over $20 million over the trailing 12 months. While several of these assets are in the midst of a performance ramp-up following the noted renovations or undergoing operational turnarounds, others are identified candidates for disposition. The reduction in cash drag combined with proceeds with these 2,026 hotel sales serves as a meaningful catalyst for further deleveraging. These actions enhance our financial flexibility and support our long-term strategic objectives. We expect to provide additional detail on these disposition plans in future updates as execution progresses. Turning to our triple net lease segment, our portfolio continues to deliver steady performance, highlighted by rent growth over 2%, stable rent coverage, and occupancy over 97%. the triple net lease market continues to demonstrate resilience and growth driven by supported consumer behavior. Operators are capitalizing on consumer preferences for convenience, affordability, and accessibility, driving continued demand for QSRs, express car washes, and discount stores, industries in which SVC currently maintains or is increasing its exposure. Following the balance sheet initiatives executed during the quarter, we believe SVC is well positioned to advance both its hotel and net lease strategies. These efforts are expected to support sustained cash flow growth and enhance long-term value creation for shareholders. I will now turn it over to Jesse to discuss the NetLease portfolio.