Good morning. And welcome to Service Properties Trust’s Second Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to the 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, Chief Investment Officer. Today's call includes a presentation by management, followed by a question-and-answer session with the analysts. Please note that the recording, retransmission and transcription of today's conference call is prohibited without the prior written consent of SVC. 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 SVC's present beliefs and expectations as of today, August 7, 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 in our Form 10-Q 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 statement. Please note that John will provide commentary on IHG default during his prepared remarks, but we will not be taking questions related to the ongoing discussions between SVC and IHG. And with that, I'll turn the call over to John.

Thank you, Kristin. Good morning. The COVID-19 pandemic and related lockdown of most of the United States has had a dramatically negative impact on our economy and that hit hotels, restaurants and other service retail businesses like theaters and fitness centers, particularly hard. Although significant uncertainties remain as to the timeframe and trajectory of a recovery, we are confident that the most severe effects are behind us as we have seen gradual improvement across our portfolio, since April, when the impact of the pandemic was most acute. We continue to take the necessary steps to preserve capital and solidify our liquidity during these challenging times. We have raised new debt capital and largely addressed our 2021 debt maturities. We also amended our $1 billion revolving credit facility to ensure continued access to undrawn amounts and obtained waivers of certain covenants we knew we would not meet in this operating environment. Brian, we'll discuss these financing transactions in more details in a few moments. Other steps we have taken to further reinforce our financial position includes reducing our quarterly dividend, deferring non-essential capital spending and moving forward with certain of our previously planned hotel sales, which Todd will discuss in a moment. As we announced in late July, we did not receive payment from IHG for the $8.4 million balance of July minimum returns, after applying the remaining $9 million of IHG security deposit, or the August minimum returns and rents of $18 million due to us. As a result, we sent IHG a notice of default and termination of the IHG agreement in late July. We have begun discussions with IHG regarding its management agreement with us to see if there may be a mutually beneficial resolution. Absent a cure of these defaults or if no settlement is reached, we…

Thanks, John. As of June 30, 2020, we owned 809 net lease service-oriented retail properties including our travel centers with 13.7 million square feet requiring annual minimum rents of $369.4 million, which represented 38% of our total annual minimum returns and rents. The portfolio was 99% leased by 180 tenants with a weighted average lease term of 11.1 years, operating under 129 brands in 23 distinct industries. The aggregate coverage of our net lease portfolio’s minimum rents was 2.16 times on a trailing 12-month basis as of June 30, 2020. Rent coverage for our largest tenant TravelCenters of America was 1.83 times for the trailing 12 months ended June 30, 2020 versus 1.97 times for the prior year period due to lower gross margins as a result of the pandemic and lower fuel prices. Representing 25.6% of our minimum rents and returns, TA is current on all of its lease obligations due to SVC. For other net lease tenants which represent 12.8% of our total minimum rents and returns, we expect coverage metrics will continue to decline for various retail tenants as the full effect of the pandemic is realized. We collected 59.3% of rents from these tenants during the second quarter, increasing the 75% in June from 45% in April and 58% in May. We collected 80% of July rents from these tenants. To-date, we have entered into rent deferral agreements with 80 net lease retail tenants with leases requiring an aggregate of $59.3 million or 6.2% of total annual minimum rents and returns. Generally, these rent deferrals are one to four months of rents and will be repaid by the tenants over 12 to 24-month periods, beginning in September 2020. We have deferred an aggregate of $11.3 million of rent to-date. Turning to leasing activity during the second…

Thanks, Todd. Starting with operating results at our 306 comparable hotels this quarter, RevPAR decreased 72.3%; gross operating profit margin percentage decreased by 40.5% to 1.95%; and gross operating profit decreased by approximately $182.6 million, driven by the sharp occupancy declines during the quarter, particularly in April. Below the GOP line, costs at are comparable hotels were down $24.5 million from the prior year as a result of lower FF&E reserve contributions, which was suspended for certain of our hotel agreements and lower system and other fees paid to the brands. Cash flow available to pay our minimum returns and rents for our comparable hotels declined $158.1 million, or 121% to a loss of $27.5 million for the quarter. Cash flow coverage of our minimum returns and rents for our 306 comparable sales decreased to negative 0.23 times for the 2020 second quarter compared to 1.1 times for the prior year quarter. All of our hotel operators were quick to implement cost saving measures amidst scale-back operations. However, we've also made necessary investments and the operational changes to support employees and guest safety across the whole portfolio. We estimate approximately $10 million of incremental expenses have been spent year-to-date to mitigate COVID-19. It’s too early to say what the permanent impact of operational changes will be to our hotel operations. Turning to our consolidated financial results. Normalized FFO was $78.2 million in the 2020 second quarter compared to $168.8 million in the prior quarter, a decrease of $0.55 per share. Decrease was due primarily to operating losses at our Sonesta and Wyndham hotels, the unguaranteed portion of our Marriott minimum returns, the suspension of FF&E reserve contributions across the portfolio and an increase in interest expense, partially offset by the impact of the SMTA transaction we closed in the third…

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

Good morning, everyone. A couple of quick questions - or maybe not so quick. When it comes to the hotel expenses, we were a little bit surprised at how low they were for the quarter. Can you talk a little bit about what actions were taken there and how the agreement with Marriott, InterCon and others might impact how low those expenses were for the quarter?

Good morning, Bryan. I hope all is well. I'll start on the -- on the income statement for SVC, the credit support we received in the form of security deposits and guarantees are presented in the income statement as a reduction to operating costs. So, the underlying hotel expenses were higher than what's in the GAAP consolidation in order to show the correct profit due to SVC during the period, we have to show sort of a concrete expense amount if you will, on the P&L. So, expenses actually exceeded revenues in the period, to make sure we're clear on that. The hotel portfolio lost, I think it was $27 million on a comparable basis for the quarter. So, hopefully that gives you a little clarity on how the expense side works. I mean, obviously, cost initiatives and reductions across the portfolio were enacted. But, I just want to make sure you're clear on the presentation and the income statement. Savings wise, labor was down 60% on an operational level and other cost measures right down the line based on the impact of COVID.

Right. That's what I thought it was in reading the footnote, but I just wanted to clarify. John, I think, you mentioned that the Marriott hotels underperformed. Any particular reason why that might have been?

I think that Marriott really historically has excelled in strength of their rewards program and their corporate negotiated rates and group sales and business transient drivers and in the pandemic that business has really dried up. And I think maybe, it's reflection of how many people have been furloughed or else it's a reflection that historically they've had it so good that they're not as well prepared to sell to other types of businesses when events like this hit. But they just didn't really drive the business like some of the other portfolios.

Okay. And then, kind of moving on to hotel asset sales, I was pleased to hear that those are starting to ramp up again. And I'm going to assume that they're being done at reasonable pricing. I didn't catch what was said on the call regarding the Sonesta hotels, which I think earlier this year you had estimated to sell some -- all of. But given the instance in which IHG might not come to an agreement with SVC and those IHG hotels be branded as Sonestas, would it make sense to hold off selling the other Sonestas, because at that point, you have a really meaningful brand at Sonesta that could gain traction on the recovery? What are your thoughts there?

I think, you pretty much nailed it, Bryan. We have been evaluating the Sonesta ES portfolio. When the pandemic hit, we were right about to launch a marketing effort to sell those assets. But, as the impact of the pandemic settled in, obviously, we saw that the extended stay hotels were performing much better than any other hotel type. And so, we stopped any marketing efforts. We also had been evaluating whether some of those hotels might be converted to an alternative use, like multifamily. And that's something we're still considering, but in light of the IHG situation, you're absolutely right, that would significantly increase the amount of extended stay hotels that Sonesta operates, if we are not able to work something out with IHG. And so, we're not currently moving forward or we've changed our plans with respect to the Sonesta ES portfolio for now, and we're going to reevaluate as we move through the recovery and see what transpires.

Thank you very much. Good luck for the third quarter.

Thank you.

Next question comes from Dori Kesten of Wells Fargo. Please go ahead.

Thanks and good morning, guys. Can you tell us if all the hotel managers other than InterCon paid their July returns? And what percentage of the net lease rent payments were received in July?

So, from a hotel standpoint, IHG, which we've talked about in our release and in-depth in the script, we utilized the rest of the security deposit for July and did not receive the rest of that payment. Marriott works a little bit differently. It's all done in arrears. To-date, we've collected more than 80% of the returns. So, each period, we have to relook at what the hotels have generated and how much we've received to-date, and then figure out who owes what for the hotel portfolio. Hyatt and Radisson continue to honor their guarantees, and Sonesta and Wyndham just based on cash flows of the properties, which are currently running in losses in recent months. So, net lease side of it, collections have continued to ramp up, the of 45% in April has gone up to 80% in July, and TA’s in current in all their obligations on top of that. So, we feel pretty good about the trend on the net lease side of things. July’s early -- excuse me, August’s early collection results seem to be trending a little bit better than July as well. So, we continue to see that as a good sign.

And for asset sales, I think you initially said $300 million. But, I assume that was also including all of the Sonestas, which you just mentioned, Sonesta ES Suite may stay in the portfolio. And then, I think previously you had said you're marketing for sale of 20 Wyndhams and in this release it says that any unsold would go to Sonesta. So, I'm just trying to reconcile the original $300 million with what's I guess, currently on the market or is being planned to be sold.

Yes. Since the pandemic hit, the sale process has been dicey. So, I apologize, if it’s gotten a little confusing. The $300 million did not include the Sonesta ES portfolio. So, we had -- it was based on the 20 Wyndham branded hotels and 33 Marriott branded hotels. And Todd mentioned the transactions we have currently under agreement, we're very close on purchase and sale agreements for two other groups of assets, the portfolio of 15 Hawthorn suites and the portfolio of 16 Marriott branded hotels, that's 13 Courtyards, 3 Residence Inns that per our agreement can remain -- will remain in the Marriott brands. And, I think probably within the coming week, we’ll most likely sign the purchase and sale agreements there. So, possible that those will close late in the fourth quarter, but together, the pricing is 170ish million dollar range on those two.

Okay. So, $300 million was to the 33 Marriotts and the 20 Wyndhams.

Correct.

Okay. Got you. And I guess, if Marriott follows the path of IHG, should we assume that those hotels could be rebranded as Sonestas also?

Yes. I mean, we're hopeful that doesn't come to pass. But if it were to happen, there isn’t any -- there's no reason why we would treat Marriott any differently than we’re treating IHG. We’d try to protect our agreements and our returns.

Was there a follow-up, Ms. Kesten?

No. I'm good. Thanks.

Thank you.

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

Thank you very much for joining us today. Stay well.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.