Service Properties Trust

Good morning and welcome to the Service Properties Trust fourth quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference 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 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 fourth 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, February 26, 2026, 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 SVC's earnings release presentation that we issued last night, which can be found on our website. Lastly, We will be providing guidance on this call, including estimated 2026 normalized FFO, hotel EBITDA, and adjusted EBITDA RE. We are not providing reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all. I will now turn the call over to Chris.

Thank you, Kevin. Good morning, everyone, and thank you for joining the call today. Yesterday, we reported fourth quarter results that highlight our continued progress optimizing SBC's portfolio, strengthening our financial profile, and repositioning the company for long-term growth and value creation. I will begin today's call with a brief update on our key strategic and financial initiatives and share operating highlights from our hotel portfolio. Jesse will provide an update on our net lease platform and recent acquisitions. Brian will then discuss our financial results and balance sheet, along with the introduction of annual guidance for 2026. Starting with our strategic priorities, we had a productive quarter completing previously announced hotel sales and taking action to reduce leverage and strengthen SVC's balance sheet. During the quarter, we sold 66 hotels, totaling nearly 8,300 keys for $534 million. This activity increased our total dispositions for the year to 112 hotels, totaling approximately 14,600 keys for nearly $860 million. We used the proceeds and cash on hand to proactively redeem all $800 million of our 2026 debt maturities and $300 million of our February 2027 notes. Building on this momentum, in 2026, we'll remain focused on selling additional hotels and executing further strategies to improve SBC's cash flows, debt maturity profile, and overall cost of capital. Consistent with these objectives, in January, we sold the Simply Suites for $7.1 million with 133 keys and launched the remarketing of nine focused service hotels that we initially brought to market in 2025. These hotels benefit from stable occupancy and positive cash flow, providing an opportunity to cater to a wider buyer pool, which is supported by the current interest level we are seeing with the marketing process. Also in January, we initiated the marketing of seven full-service Senesta managed hotels with 2010 keys with locations across the Southeast, Midwest, and Pacific Northwest. Given their current cash drag, the sale of these seven properties is expected to increase annual EBITDA by approximately $13 million and improve our leverage metrics. We believe these assets offer an attractive opportunity for investors seeking value-add lodging real estate with repositioning potential through targeted capital investments. In terms of timing, our current plan is to formalize offers and select buyers over the next several months, and we are targeting staggered closing during the back half of 2026. We estimate total proceeds of $175 million to $200 million, which will be used for debt reduction. Complementing these efforts, earlier this week we announced further action to strengthen our debt maturity profile. We priced $745 million of new five-year mortgage financing, secured by our existing net lease master trust. To support this financing, SVC contributed to the trust an additional 158 retail properties, which included legacy properties where we renewed tenants or re-tenanted the property, one of our travel center master leases, and assets we acquired over the past year. In total, the contributed properties had an appraised value of approximately $1.1 billion. The transaction proceeds will be used to redeem all $700 million of our 8 and 3 eighths percent notes due in 2029 at significantly lower interest rates. Based on the weighted average coupon of 5.96%, we expect this transaction to result in annual cash savings of approximately $14 million, or 8 cents per share. With the completion of this new financing in 2026, we will continue to focus our efforts on improving performance within our hotel portfolio. along with capital preservation, which includes reduced net lease acquisition activity to roughly $25 million funded through sales of select net lease assets, along with a reduction to our overall capital spend across our hotel portfolio, which Brian will speak to momentarily. Turning to hotel performance, during the fourth quarter, the U.S. lodging industry remained soft amid uneven demand trends, with RevPar declining 1.1% year-over-year. Performance continued to be bifurcated as the luxury and upper upscale segments were the only segments of post-growth supported by higher income leisure travelers and premium experiences. The business transient segment remained muted, reflecting the impact of the prolonged government shutdown and value-conscious customers remained sensitive to broader macroeconomic conditions pressuring lower tier segments. SBC's portfolio continued to deliver steady top-line growth as RevPAR increased 70 basis points year-over-year, outpacing the broader industry by 180 basis points and representing the fifth consecutive quarter of outperformance. We have invested significantly in hotel renovations in recent years, upgrading nearly half of our retained portfolio, and these assets are delivering stronger top-line performance. We expect this momentum to continue as our renovated hotels capture market shares. Excluding the hotels we are exiting, our remaining 77 hotels delivered relatively stronger fourth quarter performance with rep par up 170 basis points year-over-year, driven by occupancy gains of 140 basis points. Contract business, particularly airline-related demand, remained a key growth driver, partially offset by a decline in government bookings and softer transient revenues. Hotel EBITDA declined year-over-year due to elevated labor costs and broader operating expense pressures. Additionally, the scale and timing of hotel dispositions during the quarter created temporary operational disruptions that weighed on performance, which we view as largely transitional. As the volume and pace of dispositions conclude, we expect this disruption to taper, allowing performance to normalize. Further complementing our efforts to support performance improvement across our hotels, Senesa, which manages the majority of SVC's owned hotels and is 34% owned by SVC, recently announced the appointment of Keith Pierce and Jeff Lear as co-CEOs affected April 1st. We believe their leadership and experience will be instrumental in further optimizing Sinestra's rep power and market share performance while driving operational discipline and efficiencies across the SVCO portfolio. Looking ahead to 2026, we are cautiously optimistic that lodging market conditions will improve and that demand will stabilize as the year progresses. More specifically, our hotel footprint is well positioned to benefit from large events throughout the year, including the World Cup, with 75 matches taking place in SBC markets, representing over 40% of our retained hotel rooms. Across our net lease portfolio, we are forecasting continued improvement with ongoing leasing, sales of non-core assets, and benefits from the full-year NOI contribution from our acquisitions in 2025. I will now turn it over to Jesse to discuss the net lease portfolio in more detail. Thank you and good morning.

As Chris mentioned, over the past year, we successfully executed our acquisition strategy aimed at growing annual base rent and improving the metrics of our NetLease platform. Accounting for three closings subsequent to year-end, investments over the past year total $101 million, which were funded with a combination of cash on hand and proceeds from NetLease dispositions. The acquisitions included a balanced mix of quick service and casual dining restaurants, automotive services, fitness, and value retailers. In total, the acquisitions had a weighted average lease term of 14.3 years, average rent coverage of 2.7 times, and an average going-in cash cap rate of 7.5%, and an average gap cap rate of 8.3%. Moving forward, our disciplined investment criteria will remain unchanged, with a focus on service-based brands that demonstrate resilience even in uncertain macro environments and remain largely insulated from e-commerce disruption. However, the pace of acquisitions will be mostly limited to capital recycling within our portfolio. For the full year, 2026, we project total net lease deal volume of approximately $25 million. With the tenant roster augmented by our recent acquisitions, we will be actively looking for ways to leverage our new and established brand relationships for additional growth opportunities in the form of sale leasebacks and off-market deals. With respect to our net lease results for the fourth quarter, at year end, SBC's portfolio consisted of 760 properties across 42 states with annual base rents of $390 million. The portfolio was approximately 97% leased with a weighted average lease term of 7.4 years. We have over 180 tenants operating under 140 brands across 21 distinct industries. Annualized base rent increased 2.4%, largely a function of our recent acquisition activity. Our asset management team had a particularly strong quarter, executing leases totaling 536,000 square feet, averaging over nine years of term, and a cash rent roll-up of 15%. Portfolio lease expirations remain well-laddered, with just over 5% of annualized rents expiring through the end of 2027. Approximately two-thirds of our annual base rents are generated by our TA travel centers, backed by BP's investment-grade credit profile. Thirty-four of our travel center assets leased to TA served as collateral for our recent ABS financing. We are pleased with the strong investment grade ratings and robust investor demand that these notes received, which we believe reflects confidence in the stability of cash flows from these assets for years to come. And with that, I'll 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 2025, normalized FFO was $27.5 million, or 17 cents per share, flat compared to the prior year quarter. Adjusted EBITDA RE decreased $5 million year-over-year to $125.6 million. Overall financial results this quarter as compared to the prior year quarter were primarily impacted by an $11.8 million, or 7 cents per share, decline in hotel EBITDA, partially offset by a $6 million, or $0.04 per share, one-time tax benefit related to our hotel in San Juan, and $5 million, or $0.03 per share, related to our 34% share of Senesta International's results. For our 94 comparable hotels this quarter, rep power increased by 70 basis points, and gross operating profit margin percentage declined by 370 basis points to 20.5%. Below the GOP line, costs at our comparable hotels improved 1.5% from the prior year, driven by lower property taxes at certain hotels. Our hotel portfolio generated adjusted hotel leave until $21.3 million, a decline of 35% from the prior year as a result of elevated labor costs, higher hotel overhead costs, and the impact of non-repeat business interruption insurance recognized in the prior year. 77 hotels in our retained portfolio generated rep par of $106, an increase of 170 basis points year-over-year, and adjusted hotel EBITDA of $25 million during the quarter, a decrease of $8 million year-over-year. Turning to the balance sheet, we currently have $5.2 billion of debt outstanding, with a weighted average interest rate of 5.95%. Using the proceeds from asset sales in January, we partially repaid $300 million of SVC's aggregate $400 million senior notes scheduled to mature in February 2027. On Monday, we announced our second securitization of that lease assets. This new five-year financing totaled $745 million in principal and a weighted average coupon of 5.96% and a maturity of March 2031. SVC is contributing 158 net lease properties with a total appraised value of $1.1 billion. We're using the proceeds to fully redeem SVC's $700 million of 838 senior guaranteed unsecured notes with a June 2029 maturity to maximize cash flow savings and improve our debt covenants, specifically coverage of interest expense. This refinancing will result in annual cash interest savings of approximately $14 million or $0.08 per share. Our next debt maturities consist of $100 million remaining of our 4.95% unsecured senior notes due February of 2027, which we plan to address with proceeds from asset sales, followed by our $580 million zero coupon notes due September 2027, which are secured by one of our TA leases and have a one-year extension option. Turning to our capital expenditure activity. During the fourth quarter, we invested $106 million in capital improvements, bringing our full year spend to $238 million. Fourth quarter capbacks included commencement of our redevelopment of the Nautilus in Miami, major projects at the Royal Sinestas in New Orleans and Cambridge, the Sinesta in Denver, and ongoing renovations at the Sinesta ES Suites in Anaheim and the Simply Suites in Las Vegas. Turning to our financial outlook. We introduced full year 2026 guidance on our earnings presentation issued last night. For the full year 2026, we're currently projecting the following. For the 94 hotels owned as of year end, we expect total rent for $108 to $113, and hotel EBIT to $124 to $144 million. Within our net lease portfolio, we expect net operating income of $380 to $386 million. For our consolidated metrics, we're projecting adjusted EBITDA of $500 to $520 million, a normalized FFO per share of 65 to 77 cents. This full year guidance assumes midpoint interest expense of $378 million with cash interest of $300 million and non-cash amortization of interest of $78 million. We're also assuming G&A expense of $40 million and a weighted average share count of 169 million shares. This guidance does not reflect the impact of completing 17 Senesta hotel dispositions, and it assumes $25 million of capital recycling in our net lease portfolio. We expect total CapEx for the year $120 million to $140 million. Collectively, our financial guidance projects SVC to generate free cash flow after CapEx in 2026. This marks an important milestone following three years of elevated capital investments to enhance our retained hotel portfolio. To conclude, our fourth quarter results demonstrate continued momentum in repositioning SVC and strengthening companies' cash flows, supported by our capital market transactions and execution on asset sales. As we move forward, we remain focused on growing EBITDA and further optimizing SVC's portfolio to drive sustained value for our shareholders. That concludes our prepared remarks. We are ready to open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Jack Armstrong with Wells Fargo. Please go ahead.

Hey, good morning. Thanks for taking the question. Can you share with us how REVPAR has trended in the first quarter to date and what's driving the width of your REVPAR growth guidance? It's about 250 basis points wider than we've seen from your peers that have given guidance so far.

As far as what we're seeing so far in the early part of Q1, we're tracking in line, if not exceeding, our projections for the full-year guidance. We have January's actuals in the books, and we see red par through the mid-February, so all is trending well so far. As far as the range, given some of the volatility in our portfolio with disruption and displacement, You know, we put the range in, you know, which we think is appropriate for the activity in our hotels and some of the uplift and some of the citywide events and whether or not some of that activity pans out could have an impact on either side of our guidance range and our midpoints.

Okay, helpful there. And then on your net lease acquisition guidance, you know, it's a meaningful step down from 2025 levels. Can you walk through the strategy shift there and how you're thinking about deploying capital in the net lease business now?

Yeah, I think from kind of an overall strategy, I think, you know, more specifically, we're looking at just overall capital deployment holistically for the company, which includes decreasing capital spent at the hotels accordingly, and then also kind of thinking about just our overall acquisition trajectory. And we've got the opportunity to kind of flex up or down as needed, but ultimately the $25 million guidance will be supported by sales of net lease properties, so kind of net zero in that standpoint. And we think that's kind of a healthy outlook just based on, you know, where our performance guidance is for 2026.

Okay, great. And could you provide some color on what your guidance assumes for expense growth at the midpoint and maybe break out some of the components like labor, insurance, and anything else that we should be focused on?

Sure. Overall, to the midpoint, you know, just top line is a little over 4% expectation on growth. The bottom line, you know, we're seeing around 6%, and a big part of that is labor. You know, base labor and wages is roughly three to three and a half percent, but we're seeing increased pressure on the benefit side, you know, which continues to, you know, hamper margins. You know, where the midpoint guidance assumes, you know, margins, you know, relatively flat, you know, we get those numbers.

Okay, and then do you have a sense of how any of the changes coming at Synesta with the new management team may impact SVC? Is there any benefit included from that in your 2026 guidance?

No, the 2026 guidance is based on, you know, kind of budgeted, forecasted hotel performance and kind of the things we've touched on. You know, certainly, you know, with this management team coming in, I think there's, you know, a legacy track record of experience. you know, from each of them and kind of what they've done historically. And so I think, you know, net, we view it as a positive and we embrace any opportunity for change to drive performance. And I think they'll do just that. So I think anything they bring to the table will be incrementally beneficial.

Great. That's it for me.

34. Sorry, I was going to say the 34%, you know, share of Sinesta's earnings. We're not projecting much growth there in the guidance.

Okay. Makes sense. Thanks for the time.

The next question comes from Tyler Batori with Oppenheimer. Please go ahead.

Hey, good morning. Thanks for taking my questions. You want to start on the hotel portfolio and the guidance. And, Brian, I think you had mentioned 4%. Top line growth. Just help us think about how much of your rep are in 2026 and the performance on an apples to apples basis versus 2025. Do you think it's being driven by a higher quality portfolio, maybe progress on Senessa brand recognition versus market factors, things like the World Cup, etc.? ?

Yeah, the guidance and the growth trajectory, you know, the midpoint rep par is around 110, which is a 3% rep par growth, 4% on gross revenues. That is apples to apples. You know, so again, we have higher rep par based on the weighting of full-service hotels. And a lot of the growth we're expecting is coming from lifts, from, you know, some of the low benchmarks we had in 25 because of renovations and displacement. You know, we'll see some displacement still in 2026. And we'll put that number out in our earnings presentation. And, you know, that's part of, you know, the Nautilus and some other bigger projects. But I think market factors, you know, Chris mentioned the World Cup is America 250 and other citywide events that we should see some benefit from. So it's a little bit of everything there.

Okay. Um, and then in terms of the margin outlook, you mentioned, um, go flat year over year. Um, you know, so low teens, 12%, um, I guess any help, I mean, how, how much displacement is still in that number? How much disruption is still in that, that margin number? Um, and just any help thinking about, um, a normalized EBITDA margin for the portfolio or, or kind of where you'd like to see EBITDA margin for the portfolio move over the medium term.

Yeah, in the 26 guidance, we've noted about $12 million in displacement from renovations. And so I think, you know, that it's going to vary year to year, right, depending on the renovations that we do specifically. And, you know, I think kind of generally speaking, we're doing some larger renovations, you know, specifically with the Nautilus, and it'll have an outsized impact to displacement. So, I wouldn't view that as a run rate. I think it would be less than that, generally speaking, probably consistent with what we saw in 2025. But again, as we think about capital deployment, it's another factor. We touched on the fact that we're being mindful of how we deploy capital, so that's going to then dictate how we think about the types of renovations and which hotels we address. So it really will be on a case-by-case basis as we think about kind of the go-forward scenario.

Okay, great. So good segue to my next question, just in terms of CapEx in 26 versus 25, meaningful step down there. Just remind us what's being planned for 2026. How much is the Nautilus? And then any reminders in terms of what you're thinking about a normalized CapEx for the hotel portfolio going forward?

Sure, the 120 to 140 is a big step for us. You know, I think the pace of large significant renovations are winding down for us. You know, we're going to be more spacing projects out. The Nautilus is definitely the biggest piece of this year. You know, we had about $12 million of CapEx activity, Q4 of 25 related to the Nautilus, which is mostly exterior work. The rooms renovation is kicking off next month. I think it's roughly 30, 35 million we're projecting in the first half of 26 related to that project alone. We're also, you know, the Cambridge Royal Sonesta, there's two towers in that hotel. We're doing one of those. You know, there's a property, one of our properties, hotels down in D.C. as well as some other hotels scattered across the country that we're still doing renovations. But again, the pace and the volume and the size will continue to wind down so that 120-ish is probably what we're thinking for next year and probably for future years as well at this stage.

Okay. So switching gears to the debt side of things and now that you've done the $745 million of securitized notes. I guess, how much more room do you have in terms of whether it's covenants or just overall capacity in terms of utilizing some of those assets to fund some of the debt maturities that are coming up the next couple of years?

Yeah, I mean, that was a well-executed transaction for us. It did bring our secured debt to total asset capacity down. The covenant went from 20-something percent to 33% out of a max of 40 under our covenant. So not a lot of headroom for a large transaction, but the way we're thinking about debt maturities, the zero coupons are already secured by assets, so we can refinance those with the existing collateral or in another manner. Maybe we have some unsecured notes that we need to clean up by early 27. And then, you know, our focus is largely on the unsecured notes due at the end of 27, which, you know, between asset sales and, you know, potential other transactions, we'll look to refinance those out.

And then last question for me, just to tie together all the commentary on the debt side of things and lots of moving pieces. I know you've got asset sales and you've made a lot of adjustments in terms of what you're doing with your cash. But just kind of level set what you have coming due 2027 and 2028 as well. And just like in an ideal scenario, how are you thinking about handling all of those maturities?

Sure. In my prepared remarks, we talked about the $100 million that's currently due in February, which the asset sales, we think we'll be able to use those proceeds to clean those up. I mentioned the zero coupons as the next bigger maturity. And there is an extension option. Those are backed by TA assets. We feel very good. We'll be able to either refinance those or extend those, followed by the 27th, the December 27th. You know, the asset sales that are in flight, we'll knock out a piece of those. And then behind that is February 28th unsecured notes. which we're very focused on, whether it be asset sales, further asset sales, or refinancing. It's a little early to talk about specifics on how exactly we're going to execute, but we feel confident given what we just did. It'll give us some breathing room for covenant purposes and then just be able to evaluate our options in the market and potentially bring more properties for sale to help mitigate those maturities.

Okay, great. So thank you for all of you, Cal, very helpful. It's all for me.

Thank you. Again, if you have a question, please press star then one. The next question comes from John with B. Riley. Please go ahead.

Good morning. Maybe focusing on the hotel dispositions, that you kind of have out there in 2026. Do those largely or entirely reflect, you know, the assets you called out in December as being marketed for sale and then also the assets that needed to be remarketed that kind of slipped out of the 2025 dispositions?

Yeah, that's correct. So, the nine focus service that are part of the 16 we're in the market with are the carryover from 2025. So, those reflect the remarketing. And then the seven full service hotels, which we launched in January, reflect, you know, those hotels that we articulated that we had identified to sell. And again, these are kind of the cash drag hotels. more specifically as part of that endeavor. So yes, these 16 reflect those that we previously communicated.

Are the nine kind of remarketed hotels, are those EBITDA positive? And if so, how much kind of offset would that be to what you've already stated in terms of the EBITDA drag from the seven larger hotels you're marketing?

Yeah, those are EBITDA positive. I mean, they ended the full year with roughly $3 million in positive EBITDA for those nine. And net, if you look at 2025, the total drag would be about $10 million of what we'd be saving.

Okay. And if you think about potential gross proceeds from those sales, I think if I took what they were originally being marketed for plus the range you were giving for the new hotel sales you're expecting in 2026, it would be somewhere, I think, roughly like $190 million. Is that still kind of what you're seeing, or has there been some change in pricing given some of these assets are being remarketed?

Yeah, I mean, we talked about $175 million to $200 million as the range. And I think, you know, look, Activity is strong. We've been out in the market since early January with these different portfolios, the two, and there's good activity. Call for offers is going to start in the next couple of weeks, and then it will be staggered. There's three different portfolios that we're marketing, so they'll come in staggered, and I think that'll be indicative of within that range, you know, where we think we're going to land on the higher, the lower, the mid. So we'll have more to talk about. But, again, the activities there, we feel good about the execution. And, again, we'll just have more to talk about in the next couple months.

Okay. And then I guess pro forma for those sales, do you still expect kind of run rate EBITDA mix to be around 70% and at least 30% hotel at the end of 2026?

Yeah, that's about right. Obviously, we'll get a lift from removing negative drag, but it's still right around that range.

Okay. And, I mean, I guess where does that roughly stand today, just pro forma for all the transaction activity in 4Q?

Yeah, and I think it's not too far off from high 60s to low 30s to promote even the mixed transactions.

Okay. Maybe switching gears to net lease, post the transaction in February, I guess, how much in the way of non-hotel assets kind of remain that are unencumbered by debt, either in terms of like total property number or just kind of brackets around value?

Yeah, I mean the – If there was something we thought we could have used in the debt transactions, we would have contributed more assets and taken more proceeds and done a little bit more. The properties that sit outside the securitization, there's roughly, call it $27 million of rents. It's not a big portfolio. The weighted average lease term is under five years. There's work to do on leasing. There's movie theaters mixed in. So it's not, I don't think we look at that part of the rest of the going to use for a financing necessarily, unless, again, we're able to secure more at least term and growth in those assets. But, you know, for the most part, you know, all five TA assets are now part of some sort of collateral package in our bonds or debt structure. You know, the hotel portfolio is completely uncumbered, sans one, the high portfolio that backs the revolver. So there is capacity on the hotel side. But again, I think the way we're thinking about our refinances going forward, it's going to be a mix of potential bonds or guaranteed bonds or some other form of instruments.

And I would add, John, that on the retail properties that are remaining, we talked about raising proceeds through sales. Some of those hotels, excuse me, those retail properties kind of fit within the remaining properties as far as Some we'd be selling as well.

Okay. And then anything specific on the net lease side to call out? You know, it's not a huge move quarter over quarter, but coverage did drop below 2X. I don't know if that's just the impact of lease escalators taking effect or if there was something you're seeing a specific either individual tenant or tenant industry that maybe is driving a little bit of weakness quarter over quarter on coverage.

Yeah, John, I would say the coverage drop is largely a function of TA coverage dropping seven basis points quarter over quarter. If you take out the TA assets, coverage remains well north of 3.5, 3.6 times. And then with respect to the TAPs, obviously there's a lot of components that go into that business, but I would say broadly speaking, we're seeing BP spending a lot of time and effort with that portfolio. towards the end of last year, they brought on a new leadership team. They've implemented a business plan for TA specifically aimed at increasing free cash flow through 2027. We continue to see them invest in these sites, particularly EV charging at scale. So, I mean, our sense is that it's probably going to take a little bit of time for that coverage to get back up to where it was, you know, probably going back a year and a half, two years ago. But in the meantime, as we know, those leases are backed by BP credit. And so we feel pretty good about that. And, you know, it's worth noting that there's just a lot of inherent value in those sites, right? The overall network, the sites themselves, and the long-term fundamentals for trucking. So I think overall we feel pretty comfortable with that subportfolio.

Okay. I appreciate all the color. That's it for me. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Chris Villato. President and Chief Executive Officer, for any closing remarks.

Thank you for joining today's call. We look forward to meeting with many of you at upcoming industry conferences this spring. Operator, that concludes our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.