Service Properties Trust

Good morning and welcome to the Service Properties Trust third quarter 2026 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. Kevin, 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 Abair, Vice President, and Brian Donley, Chief Financial Officer and Treasurer. In just a moment, they will provide details about our business and our performance for the third 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 SVC's beliefs and expectations as of today, November 5, 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 can cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from our website at svcreit.com or the SEC's website and in the forward-looking statement disclosures in our earnings presentation and investor presentation. 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, Adjusted EBITDA RE, Hotel EBITDA, Adjusted Hotel EBITDA, NOI, Cash Basis NOI, and Cash Available for Distribution, or CAD. 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, 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. Last night, we reported third quarter results that reflect continued progress in strengthening SVC's cash flows through active asset management, portfolio optimization, and disciplined capital allocation. Normalized FFO was $0.34 per share and adjusted EBITDA RE was $133.5 million, both of which exceeded consensus estimates. A rolling four-quarter cash available for distribution turned positive compared with the deficit of $83 million a year ago, helped by lower interest expense and moderating capital spending. At our 77 retained hotels, RevPAR increased 8.3% year-over-year, outperforming the U.S. hotel industry for the eighth consecutive quarter. Adjusted hotel EBITDA grew 16.2%, and adjusted hotel EBITDA margin expanded 130 basis points. Since the end of the second quarter, we sold 14 hotels for $116.7 million, largely completing our 2026 hotel disposition programs. The momentum we are seeing on top line is reflected in our updated full-year guidance. We raised our REVPAR outlook for both our retained and exit hotels. At the same time, we narrowed our hotel EBITDA range by lowering the high end for two reasons. First, at our retained hotels, the phase three opening of the Nautilus in Miami Beach is now concentrated later in the fourth quarter rather than its anticipated earlier opening. That defers approximately $3.8 million of its EBITDA contribution and increases total renovation displacement. Second, the exit hotels underperformed our original expectations, in part due to the operational disruption that occurs with the sale process. Even with higher revenue, their losses widened, which reinforces why selling them was the right decision. Our net lease portfolio, anchored by our travel centers, continues to provide durable cash flow with rent coverage of 2.17 times and occupancy of 97.6%. We lowered our net lease NOI guidance by $7 million at the midpoint, reflecting higher operating costs and credit reserves and the timing of our capital recycling. Our priorities are unchanged. Our Board approved strategy is to reduce debt expand margins at our retained hotels, and continue shifting our portfolio towards service-focused retail net lease properties over time. I would also like to address the proposal we received in October. As disclosed in our earnings presentation, SVC received an unsolicited non-binding proposal from TKO LLC to acquire our hotel portfolio for $2 billion. Our Board of Trustees, including all of our independent trustees, unanimously rejected the proposal because it believes the proposal significantly undervalues SBC's hotel portfolio. We intend to continue executing our strategy, including working with our hotel operators to improve hotel performance to maximize long-term value for our shareholders. We will not comment further on the proposal. What I will do this morning is walk through our operating results and the plan we are executing. I'll start with hotel performance in the quarter, then discuss the operating roadmap outlined in our updated investor presentation. Jesse will then cover our net lease portfolio and travel centers, and Brian will conclude with our financial results, balance sheet, and guidance. Turning to the hotel portfolio, our 77 retained hotels delivered their strongest quarter of the year. REVPAR increased 8.3% year-over-year to 128%. have all received $1.38, driven by a 330 basis points increase in occupancy and a 3.4% increase in average daily rate. Our retained hotels have now outperformed U.S. industry REVPAR growth for eight consecutive quarters by an average of 240 basis points. The growth was broad-based. Full-service hotels increased REVPAR 7.6%, and focused-service hotels increased 10.6%, and both grew adjusted hotel EBITDA by approximately 16%. each of our chain skills outperformed its industry-comparable group. Excluding the Nautilus, RevPar and other 76 retained hotels grew 9.8%. By brand, Senesta Select led with RevPar growth of 14.7% and Senesta hotels and resorts increased at adjusted EBITDA RE by nearly 30%. Our hotels in Phoenix, St. Louis, Orange County, and Philadelphia each outpaced their local markets by more than 8 percentage points. Profitability grew faster than revenue. Retained hotel adjusted hotel EBITDA increased 16.2% to $41.1 million and adjusted hotel EBITDA margin expanded 130 basis points to 15.4%. The margin gain reflects early progress on two initiatives, labor efficiency and lower customer acquisition costs, partially offset by higher sales and marketing and utility costs. Returns from our renovation program continue to build. Renovated Hotels added $2.9 million of hotel EBITDA compared with last year, led by Sonesta Hilton Head, Sonesta Los Angeles, and our Hyatt portfolio. At Sonesta Los Angeles Airport, Sonesta also added four airline crew accounts in the quarter, which bring a steady base of contract business. We also face headwinds in the corner. Renovation disruption at the Nautilus reduced revenue by $4.1 million and hotel EBITDA by $1.8 million. Hurricane Lola affected our Kawaii Resort, repeat group business in Las Vegas did not return this year, and our food and beverage revenue declined 3.6% on non-repeat banquet events. Even with these headwinds, our retained hotels grew adjusted hotel EBITDA by double digits. Turning to the outlook. Last quarter, we outlined the margin initiatives our asset management team identified with our operators, and we said we would provide targets as that work progressed. With Sonesta's leadership team now two quarters into their tenure, we are doing that today. Slide 7 of our updated investor presentation lays out the plan. Starting from the midpoint of our 2026 retained hotel EBITDA guidance of $139 million, our operators, working closely with our asset management team, have identified approximately $96 million of potential operating upside over the next 12 to 24 months. Incremental REVPAR growth based on CBRE's industry forecast could add roughly $13 million more. Together, that represents approximately $109 million of incremental EBITDA and would take retained hotel EBITDA margin to approximately 20%. Our markets also have a favorable event calendar ahead, including the Super Bowl in Los Angeles and the MLB All-Star Game in Chicago in 2027. The plan has four parts. First, renovation, lift, and displacement recovery would contribute approximately $35 million. Since 2023, we have invested $628 million, or about $36,000 per key, in our retained hotels. Renovated hotels are ramping towards stabilized market share, and the largest single contributor will be the Nautilus in Miami Beach, with a phased reopening as the James Nautilus in the fourth quarter. Second, operating synergies would contribute approximately $7 million. This includes the consolidation of vendor contracts across the CINESA portfolio, including in-room entertainment and payment proceeds, a leaner staffing model, and an enhanced benefits program. Several of these initiatives are already underway. Third, revenue mix would drive approximately $16 million. The focus is on capturing more business at higher rates by reducing reliance on discounted online travel agency channels in favor of retail direct bookings. Senesta is launching a new Senesta.com booking platform this month to drive more direct bookings and is lowering its digital marketing costs per booking. Fourth, in our largest opportunity, lower customer acquisition costs would drive approximately $38 million. Senesta is setting clear channel mix targets for each hotel, directing marketing spend to the higher converting channels, which reduces discounting needed to win business. In addition, following an evaluation of online travel agency virtual credit card payments for each of our operators, led by our asset management team, hotels have recovered approximately $1.9 million of EBITDA year-to-date. Our asset management team is working closely with our operators on each of these initiatives. Some will ramp sooner than others, and timing will depend in part on market conditions. However, we are confident in this plan, and we will update investors on our progress. Before I hand off to Jesse, let me close out on hotel dispositions. Including the Simply Suites we sold in January, we have now sold 15 hotels in 2026 for $123.8 million. Through September, the hotels sold this year generated approximately $10.3 million of hotel EBITDA losses before the capital they would have required. As I noted earlier, they underperformed on expectations even as their revenue improved, which is why prioritizing exiting them. These sales completed a broader repositioning. Since January 2024, we have sold 142 hotels for approximately $1.1 billion. Nearly all of them were focused service hotels with higher capital needs and lower margins. What remains is a portfolio of 77 hotels weighted toward full service hotels in urban and resort markets with 86% of keys in the upper scale and upper upscale segments compared with 62% in January 2024. We have signed letters of intent to sell our two remaining exit hotels with 795 keys, including the Crowne Plaza, Atlanta Perimeter, and Ravina. Our guidance assumes we own both hotels through year-end, and we will provide updates as those transactions progress. To conclude, our third quarter results show the operating plan is gaining traction, and our 2026 hotel disposition program is largely complete. We have redeemed nearly $1.6 billion in debt this year, and we remain focused on our board approved strategy to reduce debt, expand margins at our retained hotels, and continue shifting our portfolio towards service-focused retail net lease properties over time. We believe this plan is the best path to maximizing long-term value for our shareholders. I will now turn it over to Jesse to discuss the net lease portfolio.