Service Properties Trust

Good day and welcome to the Service Properties Trust second quarter 2026 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 a question. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to hand 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 Bilotto, 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 second quarter of 2026, 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 SEC's beliefs and expectations as of today, August 6th, 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 svcreap.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, net operating income or NOI, and adjusted EBITDA RE. We are not providing a 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. I will begin to conclude with a review of our financial results, balance sheet, and outlook. Last night, we reported second quarter results that reflect continued momentum, advancing SVC's strategic priorities, and strengthening the company's financial profile. Our net lease portfolio delivered steady NOI growth, providing a highly predictable cash flow stream that anchors our portfolio. And within our hotel segment, RevPar outperformed the industry benchmark for the seventh consecutive quarter. Overall, normalized FFO per share of 43 cents was in line with consensus expectations, and we are maintaining our full-year earnings guidance. Starting with our strategic priorities, we remain focused on enhancing our net lease portfolio, improving the cash flows, and operating performance of our retained hotel portfolio, and further enhancing our balance sheet through disciplined capital allocations. Since the beginning of the second quarter, we have sold 20 properties for approximately $32 million, including 19 net lease assets and one hotel. A portion of these proceeds, combined with over $540 million of net proceeds from SVC's successful equity offering in April, was used to redeem $550 million of unsecured debt, reducing our leverage profile and decreasing annual interest expense, while providing a company with enhanced flexibility to focus on operational execution and Cashflow Growth. Turning to hotel performance, our retained hotel portfolio excluding the 15 sales hotels delivered another quarter of improved operating results. RevPar increased 6.6% year over year with balanced growth and occupancy in ADR and relative strength in full service and upper upscale hotels. Red Park growth was partially offset by expected displacement related to our active redevelopment and renovation projects, most notably the Nautilus South Beach. Excluding the Nautilus short-term disruption, underlying Red Park growth across the balance of the portfolio was meaningfully stronger at 9%, reinforcing our confidence in the improved fundamentals in our portfolio. The portfolio continued to benefit from completed renovations, a 22% lift in contract segment revenue, as well as rate-driven demand related to World Cup and Selecto Cities. Importantly, this positive momentum has carried into the third quarter with preliminary July rev par for a retained hotel portfolio of 7.1% year-over-year. Retained hotel EBITDA increased 4%. are operating at 4.2% this quarter, with notable strengths at the Sinesto properties in Hilton Head and Miami Airport, as well as Radisson in Salt Lake City. To put this performance into context, our retained hotel portfolio generated a quarterly adjusted hotel EBITDA margin of approximately 19.4%. By comparison, the 15 hotels we are exiting operated at a negative EBITDA margin over that same period. This gap is the core economic logic behind our capital recycling strategy. rather than continuing to dedicate capital and management attention to a cohort of assets with structurally negative returns, we are redirecting those resources toward a retained portfolio that is already demonstrating a clear trajectory of margin improvement. Building on this, we see significant additional opportunities for improved profitability across our retained hotel portfolio. Our asset management group continues to work with our operators on several opportunities to expand hotel EBITDA margins both at Senesta and our other operators. These efforts are initially centered on three primary pillars. The first pillar relates to revenue optimization, targeting customer acquisition costs by driving more business to the direct and most profitable channels like brand.com, therefore reducing reliance on higher cost OTAs. This also includes a continued focus on driving contract and group base along with ancillary revenue streams such as food and beverage and parking. Second, in support of improved labor efficiency, our operators are implementing a leaner and more dynamic labor model to better align staffing with demand and reduce reliance on costly contract labor. Within the quarter, we're already seeing the benefits of this with Sonesta, Radisson, and ISG all improving labor productivity year over year. The third pillar relates to capitalizing on operating leverage with anticipated savings from benefits plans, property insurance, and Diligent Controls over energy and utility costs. As our renovated hotels stabilize and occupancy grows, this will provide enhanced pricing power and position the property to capture additional event-driven demand, which in turn will absorb fixed costs more effectively, ultimately driving profitability. While early in the process, initial benefits are starting to materialize, including the positive trend with labor productivity, a recent 20% reduction in property insurance cost across the portfolio, the noted 22% lift from contract revenue, largely from new airline crew business, and the adoption of certain technologies and processes that will drive margin improvement. As these initiatives progress, we provide further updates on targeted revenue and expense benefits. Beyond these initiatives, SVC is positioned to capture meaningful performance upside from the elimination of approximately $15 million of negative economic drag from our exit hotels. The gradual burn-off of displacement and corresponding performance growth from our hotel renovations, most notably the ongoing redevelopment of the Nautilus in Miami Beach. While these benefits will be realized over time, they provide a roadmap for improvement in hotel EBITDA and cash flow generation, complementing our top-line initiatives focused on driving market share across the portfolio. Turning to our hotel dispositions. We remain on track to sell the previously disclosed 15 hotels, which included the sale of a 133 key hotel in July for $18.4 million. To date, we are under a purchase and sale agreement or letter of intent with 13 hotels and are marketing one hotel. We expect the majority of the remaining dispositions to be mostly completed over the balance of 2026, with proceeds continuing to support debt reduction and to further improve our financial flexibility. As part of this process, we also intend to bring to market a remaining IHG-managed full-service hotel of 495 key property located in the Atlanta Perimeter Submarket. As some may recall, we removed this asset from the marketing process last year while we evaluated varying strategies with the in-place agreement and Capital Outlook. This followed a comprehensive hold versus sell analysis undertaken as the hotel's management agreement approached its scheduled expiration. While the property has performed well operationally, we believe a sale represents the more attractive path to unlocking value for shareholders relative to continuing to own and reinvest in the asset. We expect marketing to commence in Q3 and look forward to providing future updates. Before I conclude, I would also like to briefly touch on corporate governance. As we previously announced, our board continues to actively evaluate candidates for an additional independent trustee. The search remains focused on identifying an individual with meaningful hospitality industry experience who can further complement the board's experience and support SVC's ongoing strategic evolution. Looking ahead, our priorities remain clear. Translate the operating momentum in our retained portfolio into sustained margin and cash flow improvement while completing the exit of our non-core hotels to further strengthen SVC's financial profile. With a stronger balance sheet and the initiatives we have underway to further enhance performance, We believe SVC is well positioned to unlock value across the portfolio to drive long term shareholder returns. I will now turn it over to Jesse to discuss the net lease portfolio in more detail.

Thank you and good morning. Our net lease assets continue to serve as a dependable source of cash flow for SVC with minimal capital requirements, long duration leases, and a diversified tenant base. The portfolio exhibited strong performance in the second quarter, led by meaningful NOI growth, sustained leasing momentum, and continued improvement in the performance of our travel centers. Highlights from the quarter include an increase of 2.2% in cash basis NOI quarter over quarter as a result of contributions from recent acquisitions, contractual rent growth from our existing leases, and a reduction in our credit reserves. Occupancy was unchanged from the prior quarter at 96.6%, although we expect to see incremental growth in occupancy throughout the remainder of the year, given the current state of our leasing pipeline and our asset management team's dedicated efforts to efficiently dispose of vacant properties and cycle in new brands. Optimizing our portfolio and developing new operator relationships will be an ongoing focus for our team as we continue to transition SVC toward the net lease side of the business. The aggregate rent coverage of our portfolio improved to 2.09 times on a trailing 12-month basis. The improvement was driven primarily by our TA travel centers, where rent coverage increased 10 basis points to 1.34 times. This is the second straight quarter of coverage growth for TA and represents a 12% increase since the fourth quarter of last year. For the balance of the portfolio, rent coverage again came in north of 3.5 times as tenant credit quality and operating performance remained stable. On the leasing front, our asset management team executed deals totaling 210,000 square feet with a weighted average lease term of roughly 7 years. With just 1% of annualized base rent scheduled to expire through year-end and 3.8% rolling through the end of 2027, our near-term expiration schedule remains very manageable and our asset management team has been proactively engaging with tenants that have upcoming expirations to negotiate renewals. Turning to capital recycling, we continue to execute our measured growth strategy. On the acquisition side, year-to-date, we've invested approximately $9 million across four properties operating in the QSR and automotive services industries. These acquisitions were completed at weighted average cash and GAAP cap rates of 7.9% and 8.8%, respectively, and carried weighted average lease terms of approximately 15 years. We are under agreement on another five properties, a mix of dollar stores and casual dining concepts, for a total of $14.2 million, which we expect to close in the third quarter. These transactions, funded through capital recycling, put us well ahead of schedule for our target of $25 million of annual acquisition activity. Since the beginning of the year, we have sold 21 properties for $15 million, and we expect a similar level of dispositions during the second half of 2026. The NetLease portfolio now consists of 745 properties with annualized base rent of nearly $400 million and a tenant roster that includes 185 businesses operating under more than 140 brands across a diverse range of industries led by travel centers, quick service restaurants, fitness centers, and grocery stores. More than 95% of our annualized base rent is derived from leases that contain contractual rent increases or percentage rent provisions, providing embedded NOI growth and inflation protection over time. As we work to reposition SVC toward a more net lease-oriented company, our focus will be on enhancing portfolio quality, maintaining strong occupancy and credit metrics, extending WALT, and generating durable cash flow growth. We believe our disciplined asset management and capital allocation strategies will ensure SEC's measured transition to a primarily net lease platform. And with that, I'll turn the call over to Brian to discuss our financial results.

Thank you, Jesse, and good morning. As we previously announced, SEC affected a one-for-five reverse share split in early July, and all share information on our earnings report in 10Q have been retroactively adjusted. Additionally, given SBC's recent equity issuance, comparing per share data to prior periods is not meaningful. Starting with our consolidated financial results for the second quarter of 2026, normalized FFO was $55 million, down $2.6 million, or 4.5% compared to the prior year quarter. Normalized FFO this quarter, as compared to the prior year quarter, were primarily impacted by a $20 million decline in hotel results, largely from our hotel disposition activity, partially offset by a $15 million decline in interest expense and a $2.3 million increase in performance from our retained hotels and a $1.3 million increase in NOI from the net lease portfolio. Turning to our hotel portfolio performance, for our 93 comparable hotels this quarter, Repire increased by 6.5%, gross operating profit margin percentage declined by 60 basis points to 28.7%. Below the GOP line, costs at our comparable hotels increased by $3.5 million from the prior year, driven primarily by higher insurance costs. Our 93 comparable hotels generated adjusted hotel leave at $55 million during the quarter, which was relatively flat compared to the prior year quarter. The 78 hotels in our retained portfolio generated rep par of $135, an increase of 6.6% year over year. adjusted hotel EBITDA of $57 million during the quarter, representing an increase of 4.2% year-over-year. Excluding the three hotels under renovation, hotel EBITDA increased $6.5 million, or 13.4%. The Sonesta Exit Hotel, which is sold or continuing to market for sale, produced losses of $1.9 million during this quarter, a decline in profitability of $2.2 million year-over-year. and OI from our net lease portfolio increased $1.3 million over the year prior year as a result of our acquisition and leasing activity, partially offset by vacancies and credit losses. Turning to the balance sheet, we have been active in the capital markets and took steps to further strengthen our balance sheet, improve our debt maturity profile and our cash flows. During the quarter, we raised net proceeds of $542 million from our equity offering and redeemed all $450 million of our outstanding 5.5% senior guaranteed unsecured notes due 2027 and the remaining $100 million of outstanding 4.95% senior unsecured notes due 2027. This activity resulted in an additional annual cash interest savings of $30 million. We currently have $4.7 billion of debt outstanding, with a weighted average interest rate of 5.66%. As of today, there are no amounts outstanding on our $650 million revolving credit facility. This credit facility matures in June 2027, and we have a one-year extension option available to us. Our $580 million of zero-coupon senior secure notes mature in September of 2027, and they are supported by strong net lease collateral, which we believe provides refinancing optionality. Turning to our capital expenditure activity, during the second quarter, we reinvested $30.5 million in capital improvements, which continue to be driven by the renovation of the Nautilus in Miami, as well as projects at the Royal Sinestas in Boston, New Orleans, and Columbus. Turning to our annual guidance, we are reaffirming our full-year outlet for hotel EBITDA, and at least NOI, and consolidated adjusted EBITDA. We're maintaining our normalized FFO range of $124 to $144 million, or $1.20 to $1.35 per share. Per share amounts assume a weighted average share count of 105 million shares.

This full year guidance assumes midpoint interest expense of $25 million of capital recycling on that lease portfolio.

We continue to expect total CapEx for the year of $120 million to $140 million. Cash flow available for distribution was $42.5 million for the quarter, and we continue to expect to generate positive CAD for the full year 2026. Operator, that concludes our prepared remarks. We're 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 key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. and our first question will come from Tyler Batteries of Oppenheimer. Please go ahead.

Hey, good morning. Thanks for taking my questions. View on the hotel portfolio first, and I'm really focused on the retained Hotels. Talk a little bit more about the renovation activity that I believe was impacting margin in Q2. And you talked about a number of initiatives to improve the margin performance at the retained hotels. Just talk through a little bit in terms of the timeline on when some of those initiatives might start to show up. in the performance of the margin side of things. And just remind us again where you'd like to go in terms of moving margin in the retained hotel portfolio.

Hey, good morning, Tyler. This is Brian. I'll start, then Chris will jump in with some of the more forward-looking stuff. Yeah, for the three hotels, we earmark as under-renovation. I mean, those hotels, I mean, the biggest one is obviously the South Beach property, which we've been talking about. But those hotels, you know, generated... A million dollars of revenue this quarter, but it was a $3.3 million decline year over year. One of the three is an exit property, so it's a little bit of noise on both fronts. But the Nautilus is projected to be completed by the end of October and early November with some phased completions with rooms and public space. That's our biggest project for the year. It's got a lot of financial impacts on both the REVPAR top line and bottom line. and, you know, this Q1, Q2 is the high season for Miami. You know, so that was a particular drag in our results. Yeah, but as we look forward to Q4, you know, we should see a positive uplift from that property amongst others. You know, some of the other properties under renovation or that recently completed renovation have also started ramping up. You know, we have Simply Suites in Las Vegas, for example. You know, we're doing work in Cambridge, I mentioned, in New Orleans. So, There's still a bit of noise and moving pieces.

Yeah, I would just add and kind of to the back half of your question, you know, with respect to kind of some of the initiatives. Look, it's iterative, right? This is a kind of a broader strategy kind of in line with what we've talked about coming into the year and over, you know, even into Q1. I think, you know, some of kind of the small wins, you know, we've, you know, reduced our property insurance by 20% effective 7-1. So that's a fiscal year. And there's also some benefits that come with that with reduced deductible. And so we would expect there to be kind of just less overall costs. Just the insurance premium alone is a couple million dollars for the fiscal year. We're starting to kind of see the inflow of other types of ancillary revenue alongside contract business. So those are all kind of near term initiatives. I think kind of the bigger piece is much more of the work being done with our operators. And so that's a big piece of that. As you recall, there's a new management team that started their effective August 1st. And I think it goes without saying, kind of giving them room and runway to really kind of dig in and unpacked opportunities in the portfolio is something that they've been focused on. And many of these strategies are kind of tied to. And so we would expect for more of that to flow through towards the end of the year and predominate like some of the bigger things like benefits in Q1 of next year. And I think the idea is that we'll provide kind of more specific numbers tied to these levers after we've given them kind of the needed time to vet through that. So, you know, potentially as early as this next Q3. The other thing I would highlight, which I think kind of goes without saying, is selling these assets, you get rid of negative $15 million of EBITDA drag. That's the addition by subtraction. In our guidance, we have $12 million of displacement occurring with these renovations. And so getting that money back gets you to zero. let alone the uplift that's going to come when performance turns around and so when you start to add up you know these numbers they become very material and I think all those will just kind of continue to fold in and ramp up specifically as we get into 2027.

Okay great and to follow up on the REVPAR side of things we thought Q2 was really strong if you kept the four-year guidance range so just talk about the outlook for the rest of the year I'm not sure if the Renovation activity or anything else is impacting that outlook, but curious if there's any extra conservatism in terms of what you're providing or what's implied for the second half of the year.

Sure, Tyler. Thank you. I think from our standpoint, Q2 is definitely strong. We've seen our preliminary July results, which gives us some optimism going into the third quarter. But if you look at our portfolio and the seasonality of it, we do expect to slow down in the back half of August and then into Q4. It's just the way our portfolio trends and some of our geographies. But we feel comfortable with the guidance range as we sit here today. And there's a lot of different things and moving pieces in motion as we look to the back half of the year as Chris outlined in throwing some of the disposition activity and the potential timing of some of that could affect our numbers and hopefully to the upside.

Okay. And last question from you on the asset sales. Remind us that the timeline there, I think the pair of remarks you said by the end of 2026, but any sort of execution risk in terms of getting those Completed. And then a bigger picture question, just talk a little bit about the market overall for asset sales and help us think through any updated thoughts in terms of future assets that might be on the market for sale. I know you're now marketing that asset in Atlanta. I'm not sure if there's anything else in the portfolio that might make sense down the road here.

Yeah, so I think first and foremost, you know, with respect to the 15 properties that we've been active with, you know, given where we are with those groups, again, mostly under contract, it's really kind of a Q3, Q4 type of execution. I would say, you know, of the quantum, which is just shy of $100 million, representing kind of that bucket of under contract maybe between 20 and 30 million might transact in Q3 with the balance in Q4. There's one that we're marketing that might find its way into the early part of 2027. And then certainly I think with respect to the Atlanta perimeter, just given where we are in the process, I think it's fair to say that an early 2027 is a reasonable expectation depending on where pricing comes in. And so you know to your broader question like look you know our plan has been and continues to be to really kind of dig into each hotel and figure out where we can optimize performance and we've contemplated and communicated that that's a multi-year journey. I think what we're selling this year and then even the introduction of this hotel in Atlanta is a testament to kind of how we think about you know when the timing is right we're ready to come to market but More importantly, I would set the expectation that driving performance to drive value is a big part of our business, and that's something that we will adhere to. I think the last question you had about the broader market is it's mixed. I think for focus service hotels, I think we've continued to see some level of strength just kind of given where that price point is. and then for more luxury hotels there seems to be kind of capital chasing you know those those types of concepts and then in between depending on that price point you know the 50 to 100 million dollar price point it's a little bit softer and so it doesn't mean that there's not an ability to transact but I think most of the transactions are coming from more kind of stabilized hotels versus kind of the journey where we're on is kind of turning around performance to kind of get us to that point.

Great. Very helpful. That's all from me. Thank you.

The next question. Once again, if you would like to ask a question, please press star, then one. And our next question will come from Jack Armstrong of Wells Fargo. Please go ahead.

Hey, good morning, and thanks for taking the question. Can you provide us with your updated thoughts on the ramp for the Nautilus, when you expect it to open, what the EBITDA drag is in the third and fourth quarters, and then where you expect the asset to stabilize and the pathway to get there?

Sure, Jack. Good morning. The Nautilus project is underway today. We expect delivery by November, just ahead of where the season starts ramping up for That market, I think from a cash drag standpoint for the full year, it's around $4.5 million for that property. So it's a significant swing in our expectations going forward as it ramps up. We'll obviously get more color as we get into next year's guidance, but the property did around $5 or $6 million before renovation on an annual run rate. We expect that to significantly increase going forward. between that property and some of the others that are still ramping. We're optimistic. We'll continue to see the right results.

A helpful color there. And then just can you touch on what percentage of your bookings were through the OTAs in Q2 and then maybe where that's been historically and then what the goal is there going forward out of some of the initiatives you talked about?

Typically, the bookings across the OTA have kind of hovered in the mid-20%. you know where that bogey needs to be I think is still TBD I mean certainly we want that to come down you know closer to 20 percent but I think that's a you know there's a lot of work that needs to go in to do that so between 20 and 25 is probably kind of a healthy expectation in the medium term and then again I think that's going to come through the things that I referenced with respect to kind of just changing some of the channels you know kind of allocating more resources through growing kind of loyalty programs and driving business through loyalty programs. And I think as we bolster other areas within the business, whether it's group or contract business, let alone transient, that in itself will kind of just truncate where that percentage comes from. But I think to answer your question, it's kind of getting closer down to that 20% mark.

And then maybe one on the net lease side. Can you give us your updated thoughts on credit losses in the back half of the year? Maybe provide an update on where the two franchisee bankruptcies stand and any changes to your tenant loss list?

Yeah, Jack, this is Jesse. I'll take that one. With respect to the two bankruptcies we announced last quarter, I think good news on both of those fronts. The Popeyes franchisee will be emerging from bankruptcy in Q3 We've got a deal in place to assign those assets back to corporate, so there'll be a credit bump there. All remaining economics of the existing master lease will stay the same, so they're already back to a rent-paying status. So probably net-net, that's a good story, a positive story. And then with respect to the other franchisee, again, this is another QSR. Similar story, we expect all those to remain open and get assigned to corporate, so we'll see that credit bump as well. Still negotiating the deal terms. with respect to exactly how it's going to play out in terms of the rent going forward. I would say the big story on the net lease side of things for us relates to the TA coverage piece, and this is now the second straight quarter. We've seen a pretty meaningful bump. As best as we can tell, we think that's probably a function of a few things. We're seeing double-digit growth both in terms of freight pricing as well as diesel margins. Those are two pretty big indicators of how that business is going to go. Thank you very much. Maybe the third piece to that is we may be seeing some early fruits of the business improvement plan that BEP has implemented with respect to those TA assets. So they've now had several quarters of new management and the opportunity to execute on that plan. So multifactorial, certainly, but I think the big news in terms of how we think of the net lease portfolio is driven by the increased performance in TA.

Really helpful. That's information. Thanks.

Thanks.

The next question comes from Floris van Diegum of Landenburg-Dalman. Please go ahead.

Hey, good morning. It's Autumn for Floris. Thank you for taking the question. Can you walk us through your current thinking on addressing the remaining 2020 debt maturities, especially around the timing for debt? Thanks.

Sure. From our standpoint, we've got $45 million in at least mortgage notes. It's a variable funding note coming up in January. We expect to take that out with asset sale proceeds. I mentioned the revolver is up in June. We do have a one-year extension option, so we're planning, thinking around that in the coming months, what to do there. and then the zero coupon senior secured notes mature in September of 27. Again, back half of this year, early next year is probably when we'll consider transacting depending on market conditions. Those notes are backed by two of our travel center lease pools, so very strong collateral. So we think we have flexibility in refinancing those notes and then whether or not we pay some of it down with asset proceeds remains to be seen. depending on the quantum. But that's our shorter term thinking as far as what's upcoming on the balance sheet.

Thank you. Thank you.

The next question comes from John Masoka of B. Reilly. Please go ahead.

Good morning. Maybe sticking with the balance sheet question and the zero coupon bonds in particular. I mean, do you think where you sit today after the equity raise, you're at a good enough position from a covenant perspective to refinance those with more kind of traditional secured debt? Or would you still need to probably for covenant related reasons go a more unique angle like you did with the last debt raising?

John, thanks for the question and good morning. Our current thinking is that it will probably most likely be a regular way type debt instrument. The zero coupon was sort of a temporary need from a covenant standpoint, as you outlined, pre-equity raise. I think we do, as we sit here today, and how those bonds have traded, I think we'll be in a pretty good position to be able to do that. and absorb the cash interest that would be expected with such a refinancing. Again, those bonds in the market have traded very well. The collateral is very strong and I think we've set us up in a good spot.

Okay. And then on the hotel front, with the two assets that you're kind of marketing but don't have like pricing agreed to or under contract on, are there kind of brackets or are looking for. I know we might be a little bit specific given it's only two assets. Just kind of curious if there's like a range of proceeds we might expect from those dispositions.

Yeah, we'll provide more color as time progresses. I think where we stand, we want to let the process play out a little bit and let that guide kind of overall expectations.

Okay. And then with the asset in Atlanta, you kind of previously marketed it was it the kind of operational position of the property that made it attractive to take it back for sale or it seemed like it did pretty well last quarter as there been kind of a change in overall performance that now might make it more attractive to buyers. I was kind of curious why that specific asset, why take that back into the market today.

Yeah, last year when we took it to market, there was a couple different factors. One was just on kind of unpacking a little bit more around the capital needs and the overall expectations with the brand. I think where we were seeing offers was a factor as part of that as we wanted to rethink it. As we sit here today, what's attractive about where we're at with that asset is that agreement expires at the beginning of next year and so it provides optionality with the buyer pool whether or not they want to purchase that with or without the brand and again just give general flexibility on kind of execution of whatever business plan is associated with their capital needs and so I think from a timing standpoint and kind of Timing the market relative to kind of some of those timeframes is just in our view is a much more attractive candidate for a buyer.

Okay. And then like bigger picture as we look into 2027, should we kind of expect hotel sales to be one-offish in nature? You know, I know it's early days, but any outlook for that versus maybe a more kind of portfolio-driven or kind of more structured disposition program next year?

It's early days, you know, John. I think, as I mentioned, you know, the real focus is around performance improvement. You know, that's a journey that we've kind of talked about. We'll let that guide how we think about dispositions, and so... As we kind of get through the year and more specifically into 27, I think we'll have more color on what that could look like. Okay.

And then one last one on the hotel front, just a quick clarification. The 7.1% July REVPAR growth, was that for the total portfolio or just the retained assets? That was just the retained assets. Lastly, one on the net lease side, how should we think about lease expirations here over the remainder of the year? Is the outlook that those are strong candidates for renewal or how are you thinking about those assets specifically?

We don't have a ton of expirations in the back half of the year. We've got our arms around most of them. We expect to be really doing the vast majority. There may be one or two that go dark, but even that would be somewhat of a surprise for us. So I think we're in good shape for the balance of 2026, and now we're kind of trying to get ahead of the 27s as well at this point with the team.

Okay. That's it for me. Thank you very much.

This concludes our question and answer session. I'd like to turn the call over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks.

Thank you for joining today's call. Please reach out to our investor relations if you're interested in scheduling a meeting with SBC. That concludes our call.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.