Service Properties Trust (SVC) Q1 2021 Earnings Report, Transcript and Summary

Good morning and welcome to Service Properties Trust First Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to 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, May 10, 2021. 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. Reconciliations 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 on filed 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. And with that, I will turn the call over to John.

Thank you, Kristin and good morning. Our first quarter operating results reflect the continuing impact of the pandemic on the economy and especially on hotels and certain services retail businesses. As you know, we transitioned the branding and management of over 200 hotels to Sonesta during the past two quarters. The disruption driven by these transitions, coupled with normal seasonality and more restrictive government lockdowns through February had a negative impact on our hotel results that weighed on our overall results for the quarter. Despite current challenges, we are optimistic for a number of reasons lockdowns are easing in the growing number of states, more of the population is now vaccinated, and airlines are increasing flights this summer. So we see a light at the end of the tunnel for a return to a new normal. While we expect modest disruption to our second quarter results from recently transitioned hotels, we are encouraged by recent increases in demand and booking activity. Year-over-year comparisons look more favorable as occupancy levels exceeded prior year for the first time since the start of the pandemic in March and particularly each demand and drive to and resort markets has recovered meaningfully with properties like a Royal Sonesta San Juan, Sonesta Hilton and Sonesta Fort Lauderdale posting occupancy in excess of 80% in recent weeks. Business transit demand increases are likely to be more gradual not making a material contribution until 2022 and thereafter. In the near term at least group meetings will likely allow for a combination of in person and video attendance with proof of vaccination or negative COVID testing are requirement for attending. Our suburban extended stay hotels continue to outperform our urban full service and business focus select service hotels a trend we have seen throughout the pandemic. Our extended stay hotels continue to have a significant occupancy premium to non-extended stay hotels with our 165 extended stay hotels reporting occupancies of 54.5% during the quarter compared with occupancies of 31.2% to 28.7% respectively for our 94 select service and 51 full service hotels. We expect our diverse portfolio of suburban extended stay hotels will continue to outperform our hotels until business travel recovers. Importantly approximately 41% waiting rooms and extended stay hotels has positioned us well and helped to mitigate cash burn rates. The seasonally weak first quarter average occupancy for our comparable hotels was 40.1%, average daily rate was $87.19 and RevPar $34.96, each roughly flat with the fourth quarter as a result of the initially negative impact of the ADA transitions from Marion in February launch. However, results have trended upward on a monthly basis since year end with accuracy increases to 46.6% in March and 51% in April, compared to a low of 33.1% in December 2020. I think it will be helpful to update you on some aspects the operator, the largest number of our hotels. First of all, it is important to keep in mind the Sonesta and its capabilities are for different and improved today than they were when we first announced we will be taking back hotels last year. Back then, Sonesta was a small and independent hotel company that managed 53 hotels with 9600 rooms for us in the upscale extended stay and upscale and upper upscale full service segments. At that time, Sonesta employed approximately 800 people in its small corporate offices in Massachusetts. Sonesta currently manages 256 hotels with over 41,000 rooms for us in the extended stay, select service and full service segments, which range from midscale to upper upscale hotels. In addition, Sonesta recently acquired Red Lion hotels, which franchises approximately 900 hotels with over 100,000 rooms. Today Sonesta is one of the largest hotel management companies in the U.S., and it is the eighth largest hotel brand and franchise company in America. Sonesta currently operates 15 different brands and is close to 1300 hotels with over 140,000 rooms with the majority of them located in the U.S. With this massive increase in size Sonesta has also upgraded its management team with several recent management additions that have significant hotel industry experience. Today Sonesta employs approximately 6200 people and maintains his corporate offices in three locations spread across the U.S., New Massachusetts, Orlando, Florida and Denver, Colorado. Now I will provide more specific color on the hotels that we transition to Sonesta in the fourth quarter 2020, which included 112 hotels. Sonesta has now managed these hotels for a full quarter. And we are genuinely pleased with the progress to-date. Comparing the results of these hotels from March 2021 to results in October of 2020 the last stabilized months prior to the transitions Redbox with 102 former IHD hotels is slightly above the October levels at $43.61 despite lingering transition challenges. For the 97 Marriott Hotels, it's too soon to make relevant comparisons because most of those hotels were transferred in February-March. But early indications are showing the same trends we saw with the IHD transition. While the transition of hotels to a new manager is always just disruptive and it has been difficult to build Sonesta brand awareness during the pandemic we believe the worst of the transition disruption is behind us and Sonesta brand awareness is starting to grow. Nevertheless, even before hotel industry demand fully recovers Sonesta is starting to realize the benefits of its much larger scale. For example, Sonesta's increased sizes enabling it to significantly lower per transaction reservation costs to their own network as well as through the OTAs in the area is 15% to 20% savings versus last year. In short we believe that wants to transition management fully behind us and hotel industry demand improves further Sonesta will deliver solid results on both the top line and bottom line. In fact, we believe that this new largest Sonesta is positioned to perform as well as if not better than some of the larger more established hotel brand companies especially in the post-COVID world with less business travel and more competition for every marginal customer. SVC is also well positioned to participate in any upside realized by the creation of Sonesta as a major hotel brand and franchise company through its 34% ownership in the business. I also want to provide an update on our relationship with Hyatt. As you know, Hyatt sent SVC a termination letter in January, the effective date of which has been extended to May 22. We're attempting to negotiate mutually agreeable path forward for some or all of these hotels under this management agreement. And we are reasonably optimistic about how this is going. If we're unable to reach an agreement, these 22 hotels will transition to Sonesta by the end of the second quarter. For all of our recently transitioned hotels, we have entered short term management agreements with Sonesta through December 31, 2021 to allow for a thorough review of the highest and best use and renovation needs of each hotel. Turning to our net lease assets travel centers of America which represents about 27% of our total portfolio based on investment has continued to perform well for the pandemic and remain [courtyards] and its rent obligation choice, property level coverage [indiscernible] TA locations was 1.4 times this quarter. Rent collections from our net lease portfolio including TA were 93.1% during the first quarter and our service retail asset management team continues to work with our net lease attendants most affected by reopening and occupancy restrictions. Request for deferrals have slowed significantly and rent collections have stabilized. However, we continue to work with certain tenants in the hardest hit industries like movie theaters, as they reopen in accordance with easing lockdown restrictions. I believe we are past the worst of the COVID crisis. However, we continue to take steps to preserve capital and solidify our liquidity including drawing down the remainder of our revolving credit facility in January, maintaining nominal dividend, deferring non essential capital spending, working with our operators to control costs and completing selected assets sales. Supported by steady cash flow from TA and our net lease portfolio, we are well capitalized with ample liquidity and well-positioned with a diverse portfolio of assets to successfully navigate the gradual recovery [indiscernible]. We are confident that the early improving operating trends we're seeing in our hotel portfolio will continue to gain momentum as we finish out the second quarter and the balance of 2021. With that, I'll turn the call over to Todd to discuss our net lease portfolio in further detail as well as our recent transaction activity.

Thanks, John. As of March 31 2021, we own 798 net lease service oriented retail properties, including our TravelCenters with $13.5 million square feet requiring annual minimum rents of $375.8 million. Representing 42.5% of our overall portfolio based on investment our net lease assets were 98.5% leased by 174 tenants with a weighted average lease term of 10.7 years and operating under 142 brands in 21 distinct industries at quarter end. The aggregate coverage of our net lease portfolios minimum rents was 2.19 times on trailing 12 month basis as of March 31, 2021. Rent collections from our net lease tenants were stable at 93.1% for the first quarter up from a low of 80.5% for April 2020 and anchor buyer largest tenant TravelCenters of America, which represents 27.2% of our portfolio based on investment. We collected 97.7% of April rents from our net lease tenants. Since the beginning of the pandemic, we've provided rent assistance to 46 net lease tenants and deferred an aggregate of $12.1 million of rent net the previous deferrals granted and reclassified due to lease modifications or extensions. As of April 30, 2021, approximately $11 million of rent remains deferred. During the first quarter, we recorded rent reserves for uncollectible revenues of $4.8 million for certain of our net lease tenants primarily movie theater, fitness and restaurant leases. As a reminder, we recognize all changes in the collectability assessment for an operating lease as an adjustment to rental income. Turning to our recent transaction activity. During the quarter ended March 31, 2021, we acquired a land parcel adjacent to a property we own in Nashville, Tennessee, for a purchase price of $7.7 million, including acquisition related costs, and sold one net leased property with 2800 rentable square feet for $400,000, excluding closing costs. In April 2021, we sold the leasehold interest in one hotel in Florida with 146 rooms pursuant to a purchase option to exercise by the ground the store for $9.8 million, excluding closing costs and one that we use property in Colorado Springs with 32,000 rentable square feet for $1.2 million excluding closing costs. We're also under agreement to sell five hotels with 430 rooms for an aggregate sales price of $22.3 million. We are currently leasing these hotels to the potential buyer at 8% annual return on the purchase price, and we expect the sale to be completed this quarter. We continue to evaluate each of the recently transitioned as well as legacy Sonesta hotels to determine the long term highest and best use of each asset. In the upcoming quarters, we may decide to market for sale or repurpose some of the hotels that we don't envision operating as a Sonesta branded hotel long term. The decision to sell or repurpose can be the result of market overlap with other Sonesta hotels or otherwise as a mechanism for reducing leverage and improving the overall quality of our hotel portfolio through the disposition of capital intensive properties or hotels located and out of favor or declining geographic markets. I will now turn the call over to Brian.

Thanks, Todd. Starting with our consolidated financial results for the first quarter of 2021, normalized FFO was negative $42 million, or a loss of $0.26 per share, and adjusted EBITDAre was $48.7 million. Our hotel portfolio generated negative $38.2 million of adjusted hotel EBITDA for the first quarter of 2021 compared to $30.6 million of hotel EBITDA in the prior year quarter and negative $26.1 million in the fourth quarter of 2020. Guaranteed payments and security deposit utilization that supported our hotel returns under our historical agreements declined $60 million from the prior year quarter. Rental income from our leased properties declined $8.1 million year-over-year. $5 million of this decline relates to reserves for uncollectible rents and $3 million related to our net lease disposition activity. Interest expense increased $18.3 million over the prior year quarter as a result of our 2020 financing activities and our revolved draw this quarter. A $10.4 million decline and FFO and reserve income and a $1.4 million decline in G&A expense also impacted our overall results this quarter. For our 304 comparable hotels this quarter RevPar decreased 50.6%, gross operating profit margin percentage decreased by 21.7 percentage points to 2.6% and gross operating profit decreased by approximately $85 million from the prior year period. Below the GLP line costs excluding hotel transition related costs that are comparable hotels declined [$40] million from the prior year, primarily as a result of decreases in FF&E reserves, management fees, system and other costs that are tied to hotel revenues. Our consolidate portfolio of 310 hotels generated operating losses of $58 million for the quarter including $19.6 million of onetime rebranding related costs. $34 million of these operating losses were generated by our 51 full service hotels. Our full service urban hotels in key markets where lodging activity remains depressed such as San Francisco, Chicago, Boston and D.C. continue to weigh on the portfolio. Two of our full service hotels remain closed due to the pandemic and local market conditions. $21 million of hotel operating losses were from our 94 select service hotels driven largely by disruption related to rebrandings. $3.4 million of losses were from our 165 extended stay hotels excluding onetime rebranded costs are 165 extended stay hotels generated hotel EBITDA $4 million during the quarter. 49 select service, 36 extended stay and three full service hotels were rebranded during the first quarter. $19.6 million of transition related costs recognized during the quarter included $11.1 million [occurred] by Sonesta after they moved hotels to their brand flags. We also incurred an additional $8.5 million to Marriott for costs the majority of what's related to employee severance costs at the transition hotels. Excluding the $19.6 million rebranding cost adjusted hotel EBITDA for the 2021 first quarter was negative $38 million. Hotels in states that have lifted or have less restrictions or where we have leisure destinations have continued to improve performance. In the month of March, our 36 hotels in Florida, Arizona, Louisiana, South Carolina and San Juan generated positive hotel EBITDA in the aggregate of $5 million. To contrast Illinois, California, New Jersey and Massachusetts our 77 hotels in those states generated operating losses of $8 million in March. Overall 310 hotels generated negative hotel EBITDA of $9.8 million in March. 138 of our 310 hotels were cashflow positive in March and many others in their breakeven. As states continue to lift COVID restrictions we believe performance will continue to strengthen in the coming months. Excluding the 203 hotels that changed flag in the last flags in the last few quarters 105 comparable hotels in the month of March were just below breakeven with occupancies of 51% and ReVPar of $49.76, which represents a 36% sequential increase in RevPar till February 2021. Our overall occupancy for the month of April was over 51%, an increase of about 10% compared to the 46.5% seen in March. Overall RevPAR was $48.38 for April, a 13% sequential increase compared to March of 2021. Turning to liquidity. Our overall cash burn Q1 average approximately $16 million per month based on our adjusted hotel EBITDA for the first quarter. We currently expect our monthly cash burn to decrease in the second quarter before turning positive in the third quarter given the improving fundamentals in the hotel industry and as the disruption from rebranding a significant number of hotels subsides. Based on our current outlook and expectation for stronger lodging activity in the back half of 2021 and stable rent collections from our triple net lease portfolio, we continue to expect to be cash flow positive for the full year 2021 before any capital expenditures. We funded $29 million of capital improvements during the first quarter primarily for maintenance capital, rebranding costs and ongoing renovations at three full service hotels. We expect to find approximately $140 million from capital over the remainder of 2021 or a total of $169 million projected for the full year 2021. This projection represents a reduction of approximately $23 million of projected capital spend I provided during our fourth quarter call. We continue to be prudent as we evaluate and prioritize our capital spending as part of our liquidity management. Maintenance related capital is projected to be approximately $60 million for the year ongoing renovations at three full service assets including our Royal Sonesta Kaua'i in Chicago, and a full service and so in Irvine, California projected to be approximately $40 million. Capital investments related to the transition of the management branding of certain hotels [indiscernible] Sonesta is projected to be $40 million for the year. We funded the $25.4 million capital contribution Sonesta during the first quarter related to its acquisition of [Redline] hotels. SVC continues to maintain its 34% ownership of Soneta after giving after giving effect of this funding. To echo John's comments, we believe this acquisition by Sonesta will directly and indirectly benefit SVC. To significant scales, Sonesta achieved will provide cost savings that benefit SVC hotels and increase the value of SVC is ownership interest in Sonesta. Regarding our common dividends we continue to expect to maintain the current quarterly distribution rate of $0.01 per share through mid 2022. At quarter end, we had approximately $875 million of cash after filling drawn down our $1 billion credit facility as a precautionary measure to preserve our liquidity as we navigate not being in compliance with one of the financial covenants under our debt agreements. We currently believe we have adequate liquidity through 2022 and our next debt maturities in August of ‘22 and we believe we will continue to assess and explore all of our options to ensure we are well positioned until this pandemic is behind us in logic fundamental stabilize. Operators that concludes our prepared remarks. We are ready to open up the lines of questions.

Thank you. We will now begin the question and answer session. [Operator Instructions] Our first question today will come from Bryan Maher with B. Riley Securities. Please go ahead.

Good morning, John and Brian and Todd. A couple of questions for me first. Starting with liquidity I think you just touched upon the $875 million in cash, left from the draw down. When you think about the next two years. I think you just said plenty of liquidity through 2022. How much of that is cushion? I mean, if you go cash flow positive in the third quarter, is the bulk of that 875 just CapEx spending that you discussed and then the rest is cushioning at the yearend 2022?

Good morning, Bryan, thank you for that question. Yes, and I think if we do nothing else, we think we have enough cash to cover the $500 million that becomes due in August of ‘22. We think we'll be able to cover the CapEx and start building cash from operations in the latter half of this year into next year. So barring any other transactions that we might do or consider, we think we'll be able to ride right into 2023.

Okay and when you look back at the last five or six months with the transitions what has been the biggest challenges there and do you foresee with a much bigger Sonesta the opportunity to maybe convert some unhappy other brand owners to the Sonesta brand over the next couple of years?

Hey Bryan, it's John. I will take that one. I think the biggest challenge is that there's a notice period when you decide you're going to transition hotels or terminate an operator and obviously you're happy about the fact that they were losing hundreds of hotels from the system. So they stopped taking reservations for dates, post plans transition date. So there's usually couple of months where guests could be making reservations were [indiscernible] or IHD really weren't letting them. The prior operators call on those who have made reservations before that cut off happened, and try to move them to other hotels. So besides GDS codes and things changing the prior operators don't do you any favors leading up to the transition period. And from an operational perspective you typically don't get detailed employee information until just a couple of weeks maybe a few weeks before the transition date and until you have to make sure that you have all the information to make sure you have legally documented employees, I have to make sure they're appropriately trained in the new systems. And so that's time consuming, and it's much more problematic when a percentage of your workforces is furloughed. And so you're reaching out to introduce yourself not only to the existing employees but the furloughed employees and so I think those are the biggest challenges. But we think that Sonesta has done a pretty amazing job of taking the bull by the horns and transitioning these hotels quickly and ripping off the band aid and getting back to work. They've assessed their sales team. And they've got a number of really great employees that they transitioned over from IHG and Marriott. In some cases they found in the sales area that because of the strength of the systems that Marriot and IHG both had that some of the sales people that initially transitioned over were not scrappy enough to get out and battle for business. They were used to the telephone ringing and the computer screen popping up new reservations without having to work that hard. And so I think with the drop off in business travel, that Sonesta scrappiness and their new size is going to help them compete head on with the major brands. In terms of their, in terms of Sonesta's ability to franchise, I think that they're going to have a lot of opportunities to take on hotels from a number of the brands. I think that month in and month out, you see that the three largest brands, Marriott, Hilton and IHG, have most of the new development rooms are going towards their brands and they're really taken over a lot of the street corners and shelf space if you will for hotels such that new owners contemplating hotel probably going to have a difficult time making the economics work for the amount of dollars they have to invest to be one of the 15th or 16th Marriott property in a market where they have an ability with Sonesta to have the focus of the brand and the support of the brand, I think that's something that's going to distinguish Sonesta from the big bigger brands. Our experiences that hotel owners who think that Marriott is working for them and not working for Marriott, don't really understand what's going on at their hotels.

Great. And just one more quick one for me if I might, and then I'll hop back in the queue. Have you guys like kind of narrowed down what the cost per property is to convert from Marriott intercon to Sonesta that's the kind of the hard cost on signage. And then kind of a follow up to that I've noticed some signage previously other branded properties that are now Sonesta kind of have a temporary sign over the physical sign that was there before. Should we expect those to kind of stay on there while you analyze whether the property will be kept to Sonesta or sold as opposed to kind of spending the hard money to replace that only for it to be kind of wasted dollars two or three quarters from now.

Thanks, Bryan, I'll take that one. To answer the latter part of that I think a lot of what you're seeing if you see a temporary signage is just the timeline it takes to get permitting and get those dollars out there to put the permanent signage up. So I don't think it's really the latter of whether or not we're going to keep it to Sonesta at that point, I mean, obviously, we're evaluating the portfolio, and we continue to look at every property and there could be changes there, but for the most part it's the permitting and how long it takes to get that out there. But as far as the cost for hotel the transition I think I talked a little bit about the numbers in aggregate but if you break it down what we spend at the hotel level its average is about $120,000 per hotel from operations, whether it be procurement or getting revenue management systems and other legal costs from permitting and licensing and things of that nature on average. The capital component is about 225,000 hotel call it and that's what you're talking about signage and IT hardware, computer system, things of that nature.

Okay. Thank you.

Welcome.

And our next question will come from Jim Sullivan with BTIG. Please go ahead.

Thank you. I'd really like to follow on initially really on that same question about the operating expense cost to transition in this quarter sub-19 million of transition costs and Q4, 14 million of transition costs. So assuming that Hyatt, as you continue with Hyatt you don't transition, I guess the first question is how much additional transition costs should we be assuming for the full year in addition to what you've just reported here in Q1 for transition costs assuming no conversion of Hyatt.

Assuming no conversion Hyatt, I think from an income statement standpoint we've captured most of it, if not all of it to-date. I don't think there will be much of a bleed into the future quarters.

Okay and then secondly, you provide a very helpful detail regarding the calculation of hotel EBITDA and adjusted hotel EBITDA providing what being a good line item details on the expenses and then you deduct it to get to the adjusted hotel EBITDA $19 million of transition related costs, just looking a ton of those line items on a consecutive quarter basis. The big increase as you move from Q4 to Q1 was on the other direct and indirect expenses which rose about $11 million. Is that where the lion's share of the transition costs are located?

Yes, that's correct. That's why we showed that as an add back to strip out those onetime expenses. We don't think they are recurrent costs. So that's why we're adjusting the amount yes.

Yes. Okay. And then you had mentioned the employee severance in connection with the Marriott transition. So I wonder if you could help us understand Number one, when the hotels were branded Marriott and branded IHG, were the employees of the hotel subject to union contracts, number one. Number two, with the transition to Sonesta do those union contracts continue? Or do they become non union?

Yes. So there are a handful maybe a dozen hotels in the -- in our portfolio that are union hotels. Two of them are still closed. The other 10 spread out around the country but there's a concentration in New York, New Jersey, in Philadelphia markets, in Chicago as well. If the hotel was union, when it was managed by Marriott or IHG that has remained union when it's come over to Sonesta. In most cases, the owner has to sign a recognition letter acknowledging the union and there are significant costs a lot of which are pension related to trying to determining those relationships.

So they, I think that was cited in the prepared comments said about $8 million of the transition costs were for severance agreements. So do those arise because of the employment agreement that Marriott has with the employees and did IHG or does it Hyatt have a similar type of agreement with a similar type of expense if you were to transition?

A lot of the severance costs that we saw with Marriott related to employees that have been furloughed for a substantial period of time and there are a lot of nuances to if you're not planning to bring furloughed employees back initially, if it's, if operations are still negatively affected by the pandemic. And so there is an uncertain period of time, additional time that those employees would be furloughed. The labor councils or employment council at Marriott and IHG evaluated those and as soon as the two they all evaluated those conditions, and made some determinations as to which hotel employees needed to be terminated as opposed to trying to transition them as furloughed employees and that's just the way it should.

Okay. And then, just on one specific line item management phase on a sequential quarter basis, they more than doubled here in the first quarter from the fourth quarter. And I don't know if that had anything to do with the trend, if any of the transition costs are on that line item or not and or is that a result of the Sonesta transition agreement but kind of going forward should we assume that that kind of $5 million run rate is something that's likely to continue on this revenue base?

Yes Jim, that's directly correlated to the Sonesta contracts, historical contracts and these contracts related to transition hotels are the same. So full service hotels, Sonesta run a 3% management fee for extended stay 5%. So I mean that's directly tied to revenues. So as revenue grow that fee will grow in accordingly. So historical agreements you might recall under Marriott and IHG those were junior expenses, meaning that there was sufficient cash flow to pay our returns, then they could earn their profit fees. But in Sonesta structure, and which is more in line with the market agreement those fees are just part of operating costs.

Okay. That kind of leads to the final question, which is obviously, you've given very helpful information on top line trends by month here in terms of ADR, occupancy and RevPAR. Under the Sonesta agreements should we be assuming that as you, as the portfolio recovers hopefully to the pre-pandemic revenue run rate should we be assuming that the EBITDA margin, the hotel EBITDA margin would be the same as what it was under Marriott-IHG management and branding? Or should we assume it would be higher or lower?

I mean, as Brian indicated, the management fees will, base management fees on the Sonesta will be an operating costs. So in that respect, there will be added expense or at least that's the way it looks superficially, but the fact is that when the credit support ran out with IHG and Marriott and we talked about possible ways forward with them before deciding to transition to Sonesta among the changes that both IHG and Marriott insisted upon was that their management fees would become senior as well. So I think it was that aspect that changed to our P&L something that was going to happen across the board really without regard to whether it's Sonesta managing or one of the other brands managing.

Okay, great. Thanks, John.

Yes.

And this will conclude our question and answer session. I would like to turn the conference back over to John Murray for any closing remarks.

Thank you very much for joining us today. We look forward to seeing some of you at the in person and virtual hotel and real estate conferences coming up in the next couple of months. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.