Good day, and welcome to Service Properties Fourth Quarter 2019 Financial Results. [Operator Instructions] Please note the event is being recorded. Now I’d like to turn the conference over to Ms. Kristin Brown, Director of Investor Relations. Please go ahead.

Good morning. Joining me on today’s call are John Murray, President; Brian Donley, Chief Financial Officer; and Todd Hargreaves, Vice President. Today’s call includes a presentation by management followed by a question-and-answer session with analysts. Please note that the recording, retransmission and transcription of today’s conference call is prohibited without the prior written consent of SEC. I would like to point out 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 present beliefs and expectations as of today, February 28, 2020. 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 other than through filings with the Securities and Exchange Commission or SEC. In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO and adjusted EBITDAre. Reconciliation of normalized FFO and adjusted EBITDAre to net income as well as components to calculate AFFO are available in our supplemental package found in the Investor Relations section of the company’s website. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained on our Form 10-K to be filed later today with the SEC and in our supplemental operating and financial data found on our website at www.svcreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. And with that, I’ll turn the call over to John.

Thank you, Kristin, and good morning. As this is both the fourth quarter and year-end investor call, I want to start off by recapping some of the major strategic milestones we achieved in 2019 in an effort to improve the security and predictability of SVC’s cash flow and improve growth prospects. First, in January, we agreed to sell 20 TravelCenters to TA for $308.2 million and amend our leases. We recorded a gain on sale of $160 million accelerated payment of previously deferred rent to start this year and reduced rent to reflect the sale. These 20 sold TravelCenters were weaker performing locations and rent coverage has improved as a result. Second, in late September of 2019, we closed on the SMTA transaction for $2.4 billion, which added 767 service necessity-based retail properties, providing considerable diversity by location, business type and brand, while increasing property level rent coverage and cash flow predictability. We financed this purchase with new senior notes and draws on our revolver, which brought leverage up. However, we also articulated a plan to reduce leverage including the sale of approximately $500 million of net lease retail properties and $300 million of hotels. The first step toward deleveraging began with the sale of shares we held in the RMR Group on July 1 at a price of $40 per share for net proceeds of $93.6 million. This investment generated a total return to us of 283%. We next executed the sale of 130 net lease assets during the fourth quarter for approximately $513 million. We also reached an agreement with Marriott to combine our three existing agreements and extend the term to 2035, with $30 million of additional credit support. As part of the Marriott agreement, we plan to sell 33 non-core properties and fund between $350 million…

Thanks, John. As of December 31, 2019, SVC owed 816 net lease service oriented retail properties, including our TravelCenters with 14.9 million square-feet requiring annual minimum rents of $381.7 million, which represented 38% of SVC’s total annual minimum returns in rents. The portfolio was 98% leased by 194 tenants with a weighted average lease term of 11.4 years operating under 131 brands in 23 distinct industries. The aggregate coverage of SVC’s net lease portfolios minimum rents were 2.32x on a trailing 12 month basis as of December 31, 2019 compared with 2.27x as of September 30, 2019. Rent coverage for our largest tenant TravelCenters of America was 1.92x for the 2019 calendar year versus 1.88x for the 2018 calendar year driven by improved fuel volumes and non-fuel margins. During the fourth quarter, SVC entered lease renewals for an aggregate of 218,000 rentable square feet at weighted average minimum rents that were 75 basis points below prior rents for the same space. The weighted average lease term for these leases was 8.1 years and leasing concessions and capital commitments for these leases were $500,000 or $0.31 per square foot per year. The 75 basis point decrease in rents was related to net lease retail tenants with either above market rent or declining sales that were on a watch list with the previous owner. In the upcoming quarters, we may experience additional rent roll down to associated with other properties on our list of tenants we are monitoring and will continue to proactively asset manage these properties, which may result in early renewals of disposition. Turning to our recent investment activity. As previously announced, we acquired the 261 room Chicago Palomar Hotel in October for purchase price of $55 million or $211,000 per key, which we believe is well below replacement costs.…

Thank you, Todd. Starting with operating results of our 321 comparable hotels this quarter. RevPAR decreased 0.2%, gross operating profit margin percentage decreased by a 206 basis points to 35%, gross operating profit decreased by approximately $9.7 million, which was primarily the result of the negative impacts of renovations and increased operating costs. All our comparable portfolios experienced declines in GOP with the exception of our Radisson portfolio. Below the GOP line cost at our comparable hotels were down slightly from a prior year as a result of lower real estate taxes, partially offset by higher insurance costs. Cash flow available to pay our minimum returns and rents for our comparable hotels declined $9.4 million or 8.6%. Cash flow coverage of our minimum returns and rents for our 321 comparable hotels decreased to 0.71x for the 2019 fourth quarter compared to 0.79x for the prior year quarter. As we announced yesterday our agreements with Sonesta will result in our exit of 39 extended stay hotels and Sonesta will continue to manage 14 full-service hotels. The 39 extended stay hotels required minimum returns of $12.3 million and generated $2 million of cash flow available to pay these minimum returns for the 2019 four quarter. The 14 full-service hotels required minimum returns of $22.8 million and generated cash flow available to pay these minimum returns of $7.7 million for 2019 fourth quarter. Looking ahead for the 2020 first quarter, we currently estimate our 53 Sonesta Hotels could produce cash flows available to pay our minimum returns that are 10% to 20% less than the fourth quarter 2019 results for this portfolio. Renovation ramp up from the full-service hotels we have discussed on prior calls will be more impactful in the second and third quarters of 2020. As a reminder, we do not…

[Operator Instructions] First question comes from Bryan Maher, B. Riley FBR. Please go ahead.

Good morning, guys. Just a couple of questions. And I know you briefly ran out of some of these numbers. But on the sales of the Sonesta properties and some of the others, I think you talked about the timing of the Hawthorns and the Marriotts. But do you expect the entire process to take the bulk of the year? Or will it all play out in the second and third quarter?

We’ve – we’re in the final rounds of bidding on the Hawthorns and the TownePlace suites in another week or so is the call for offers on the balance of the Marriott hotels. So I think then you allow a couple of weeks to get that purchase and sale agreed to. So we’ll be, in the latter part of March, and if you figure at a minimum 30 days of diligence and 30 days to close, it brings you through April and May. So I think that realistically, it will be in the second quarter that most of the Marriott and the Hawthorn portfolio trade. We haven’t done a call for offers, we set a call for offers date yet on the – for Wyndham branded hotels, we’re waiting on a couple of brands to complete pips to help buyers understand potential renovation costs. So we’re waiting on that. The Sonesta assets to the extent they’re sold will be – we’ve engaged the broker, and they’ve been assembling a data room. We expect them to launch the – start their marketing effort next week. So there will be a window of 30, 45 days sort of initial marketing. So that will definitely be a third quarter event.

Okay. And then who are these purchasers out there? And has anything changed in the last week or two, as it relates to people pulling back your cap rates or trying to reprice deals with what’s going on in the marketplace?

We’ve – so far, we’ve gotten portfolio bids, multiple portfolio bids, I should say, on each of the subsegments. And a number of the bids have offered hard money deposits upfront because of a number of bids where we’re very close to one another. We went back for second round offers and all of the bidders stuck with the deals. And as of just last night, we’re seeing bids increase and we’re seeing portfolio bids on everything that we were calling for offers on. So and it’s a private equity – smaller private equity shops, high net worth individuals, some bidders from the Asian-American Hotel Owners Association, just a mix of buyers.

Okay. And then just lastly for me, John, when you look at it, the balance of 2020 to the extent that you do any more acquisitions, where is the bias with what you’re seeing in the marketplace? Is it more net lease? Is it hotels? Is it TravelCenters?

Well, we are actively, since we’re relatively new to the space. We are probably spending a little bit more time trying to develop relationships in the net lease space than we are in the hotel space. Because we’ve obviously been players there for a long time and have a number of good relationships. But we’re not seeing that many opportunities that we find attractive either because of the current branding or because we’re so late in the cycle, it’s more difficult to get the type of deal structure that we like in hotels. And that’s historically been the case. It’s typically during the weaker periods, and early in the recovery stages, where we intend to buy hotels with the most volume. And later in the recovery cycles, we tend to be less active. And so I think that’s kind of how it’s playing out. We’ve been doing – we’ve been selective about our investments on the hotel side. And mostly investing to improve or help expand existing relationships. And I kind of expect that, that’s what you’ll see for most of this year. And more of a focus on net lease.

Okay. Thank you, John.

Our next question comes from Dori Kesten, Wells Fargo. Please go ahead.

Thanks. If you guys exclude the hotels you expect to sell from rent coverage, what would that have been in 2019? Or I mean, if you’ve cut it in a different way, you can…

Yes. I mean, I think from the Marriott side, coverage would increase around 20 points on that portfolio. I didn’t really run the math, what the net lease included, so just looking at it from a portfolio segment. If you can remove the Wyndham altogether, and that’s pretty easy math. And at the end of the day, that’s not the portfolio. The coverage for that portfolio really you could take out the $30 million, we knocked off the top and it approves another 15 to 20 points on that portfolio.

Okay. And I’m not sure if you said this on the call, but when you separate the full-service on the extended stay, what was the coverage for each of those? Not in the quarter for the year?

For 2019, yes, coverage was – sorry, I was going to pull it real quick. Of course, 0.4x versus 0.7x.

Which was which?

The lower end is on the extended stay side of it.

Okay. And has Marriott Intercon Hyatt, have any of them expressed interest in the 39 extended stay?

Well, we haven’t – we’re not really launching marketing until Monday. We didn’t – the impacted hotels at Sonesta ES program are formers residences and suites that Sonesta and related employees in the corporate office only found out about the strategic change last night or this morning. And so we didn’t think it was appropriate to be discussing the 39 hotels outside of this office until we had – everybody was in the know we need it to be. So that said, a number of the properties in the Sonesta ES program are formers Residence Inns and Summerfield Suites that are older generation with exterior entrances and multiple buildings. So they’re not brand standard for Marriott today for conversion to Residence Inn. I think the same is probably the case for Staybridge. So it would require for them to be interested in the all 39 would require them pending some of their brand standards, which probably unlikely. That said there are probably a dozen or so purpose-built – former purpose-built Staybridges that are part of the ES portfolio. And so it may be that IHG either would have an interest in having them rebrand and added to our IHG portfolio or might bring franchisees of theirs to the table with a longer term franchise agreement on those assets. So we’ll still have to see how it plays out.

Okay. And how do you expect the remaining 14 full-service to ramp over the next few years from the 0.7x today?

We expect to see a pretty good ramp up the Fort Lauderdale hotel. The St. Louis, Chase Park Plaza hotel were both significantly impacted by major renovations during 2019. The Clift in San Francisco was totally closed for I think since August through December. It reopened in early January in time for the J .P. Morgan Healthcare Conference in San Francisco. But not with all of its rooms available, all of the rooms are available today. And but there’s still a little bit of work going on some finishing, some facade issues and some F&Bs space. But so we expect very significant pickup, when you factor in a major market like San Francisco gone from being closed – to being closed and not having been renovated since Ian Schrager renovated in 2002 to a brand new state-of-the-art facility, I think we’re expecting significant growth there. We’re already seeing a very strong group bookings, Chase Park Plaza and St. Louis, the Fort Lauderdale hotel. So far, we don’t have the end of the March, but was on track to beat first quarter budget and numbers. So we’re feeling pretty good that we’re going to see nice improvement across the 14 hotels.

Okay, thank you.

This concludes our question-and-answer session. And I’ll like to turn the conference back over to Mr. John Murray for any closing remarks. Please go ahead.

Well, thank you all for joining us on the call today and we look forward to catching up with you in the coming weeks and month. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.