Good morning. Welcome to Service Properties Trust Fourth Quarter 2021 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 today's event is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Director of Investor Relations, Kristin Brown. Please go ahead.

Thank you and 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 the 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, it's prohibited without the prior writing consent of SVC. I'd 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 security laws. These forward-looking statements are based on SVC's present beliefs and expectations as of today, February 25th, 2022. 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 operation or normalized FFO and adjusted EBITDA [Indiscernible] reconciliations of these non-GAAP financial measures 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 file with the SEC and in our supplemental operating and financial data got on our website at www. spt.com. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Thank you, Kristin, and good morning. Last night, we reported fourth quarter normalized FFO of $0.17 per share and adjusted EBITDA of $119 million representing an 83% increase from the prior-year quarter, reflecting a generally improving hotel portfolio, as well as steady performance from our net lease service oriented retail properties. Demand across the portfolio continues to be stronger on weekends versus weekdays due to strength on leisure demand and warmer climates. Spiking COVID cases driven by the Omicron variant resulted in canceled room nights in late December and impacted January most acutely. Certain conferences opted to go virtual dampening the return of business transient demand in what is already a seasonally weak month. As an example, a decision to move the January JP Morgan Healthcare Conference Virtual wiped out $3 million of revenue at the Clift hotel in San Francisco. With COVID cases subsiding, related mandates being lifted and more employees returning to office work, we believe that the lodging recovery resumed in February and expect further improvement as business travel rebuilds, leisure demand remains elevated and extended stay occupancies remain stable. We expect that trajectory of recovery will accelerate as we move through 2022, particularly as urban markets and CBD office buildings reopen. Historically, SVC's select service in urban full service hotels have generated approximately 75% to 80% of their revenues from business related travel or meetings. And we believe a more widespread return to in-office work is important to seeing that level of business demand resumed. 50% of room nights were booked through OTA channels that have select properties this quarter, due to lagging business transient demand. We believe 70% of the margin weakness at Sonesta select hotels reflects business travel-related revenue weakness rather than cost pressure. For the fourth quarter, SVC's comparable RevPAR was 72% of…

Thanks, John. The Sonesta brand hotel sales and portfolio optimization initiative continues to be a primary focus of management, and we continue to make progress on the previously announced sales of 68 Sonesta branded hotels. We have closed on two hotels for $28 million, one during Q4, 2021 and one during Q1, 2022. We are under purchase and sale agreement to sell 45 hotels for $402 million and are under letter of intent to some additional 19 hotels for $132 million. There are two hotels for which we have not yet selected a buyer. Aggregate pricing for the hotels remains in line with expectations we discussed on our third quarter earnings call, and we expect to close the majority of these sales over the balance of Q1 in early Q2. We expect aggregate sale proceeds for the 66 hotels either sold or under agreement to total of $560 million, or approximately $66,000 per key. Approximately, 72% of the sale hotels are expected to be sold encumbered by long-term Sonesta branding, maintaining Sonesta's distribution and assisting in jump starting, franchising efforts for the Sonesta brands. As well as providing SVC with an additional future revenue stream, through its pro rada ownership and Sonesta, and the royalties that we will receive from these franchisees. An additional 13% of the sale hotels are expected to be sold under short-term franchise agreements, while the buyers exploring multi-family alternatives. Which could potentially convert to more permanent branding arrangements, if the buyers determined logic is the highest and best to use. The balance of the sale of hotels that will be re-branded or converted to an alternate use. We believe the timing of these sales has been favorable given the excess demand to buyers targeting hotels relative to the supply being offered. While most of the…

Thanks, Todd. Starting with our consolidated financial results for the fourth quarter of 2021, normalized FFO was $27.9 million or $0.17 per share. A $50.4 million increase over the prior-year quarter, and a sequential decrease of $15.8 million over the third quarter of 2021. Adjusted EBITDA was $119 million for the fourth quarter, a $54 million increase over the prior year quarter, and an $18.3 million or 13.3% sequential decrease over the last quarter. The major drivers impacting normalized FFO this quarter, included the results from our hotel portfolio, which generated $28.4 million of hotel EBITDA for the fourth quarter of 2021, compared to negative $26.1 million of hotel EBITDA in the prior year quarter. Guaranteed payments that supported our hotel returns under our historical agreements declined $13.4 million, negatively impacting year-over-year comparisons. Rental income from our leased properties for the fourth quarter of 2021 increased $8.6 million over the prior year quarter, primarily as a result of a $4.3 million increase in annual percentage rents recognized under our leases with TA and a $4 million decline in reserves for uncollectable rents. Interest expense increased $9.7 million over the prior year quarter as a result of our senior notes issuance in November 2020 in our revolver draw in January 2021. G&A expense decreased $445,000 or 3% in the current year quarter, primarily as a result of lower legal and other professional service costs, largely offset by higher business management fees due to RMR, as a result of an increase in our market capitalization compared to the prior-year period. We account for our investments Sonesta into the equity the method of accounting, and include our share of Sonesta's results in our earnings. Our share of Sonesta's normalized FFO recognized from our 34% ownership interest was $397,000 an increase of $4.6 million…

Thank you. As mentioned, we will now begin the question-and-answer session. [Operator Instructions] Please hold while we assemble our roster. The first question comes from Bryan Maher with B. Riley Securities.

Good morning. Am Bryan thanks for the comments on the capital stack and the expected maturities that hit some of my questions here. But once all is said and done, and it seems like you're well-positioned through 2022, where would you like the cash position to be once you've paid off the 500 million taking care of the revolver, holding a billion dollars in cash clearly is not ideal. Where should we think that that level is three or four quarters from now?

Brian, great question. Thank you. And good morning. Our expectation is through late 2022 will probably keep the cash on hand and the real catalyst will be when we're out of the so-called penalty box under our bond covenants. That 1.5 times incurrence tests, we're currently not meeting. We do expect to hopefully get past that later in the year -- by the end of the year. At that point, our ability to incur debt and use the revolver as it's intended, at that point we'll then consider taking the cash off the balance sheet.

Okay. And as it relates to capex, the $600 million over three years, I know you said 200 million this year, but should we expect the other $400 million offset to be equally split amongst 2023, 2024?

Brian, yeah, that's a -- I think that's a good estimate for now. We're planning out and strategizing about the order in which we'll renovate the hotels and we might, just because of supply chain issues and other timing issues, we might get a later start on some of those renovations on Sonesta properties this year. So it's a possibility that it could be a little bit lighter this year and a little bit more than 200 million in the next couple. But for now, I think the best estimate is that we'll spread it out evenly.

Great. And the recovery in extended stay and select service hotels has been pretty well documented and you're seeing it in your portfolio. But maybe, John, could you give us a little color on how the urban full service hotels are doing in some of your markets? And is there any notable highlights where you're seeing a faster recovery than you might have thought?

That's a good question, Brian. We've seen a couple of markets. St. Louis has picked up some good business from Wells Fargo recently, and their performance is picking up. Our full service hotels in resort and other southern markets are doing well. Hotels like San Juan and Fort Lauderdale and Miami Airport, which has been doing a super job with both -- some corporate -- local corporate businesses as well as -- capitalizing on airline industry distress and COVID impacts. Those types of hotels are doing very well, even help them continues to generate leisure business, and particularly around the -- during holidays did much better than expected. Aware we are seeing weakness continues to be cities like Washington DC, San Francisco, where we expected the year to get off to a great start, but then the JP Morgan Healthcare Conference, got canceled. The Clift Hotel was one of the centerpieces of that conference. Several million dollars of revenue just disappeared overnight. San Francisco has been struggling. Philadelphia remains a little bit weak. So I think that's -- on balance that's the mix, [Indiscernible] northern most cities, like Minneapolis as well.

Once you're comfortable with results across the hotel segment, the sale of the hotels, full service starts to recover and you start to get back to normal for lack of a better word, and when you start to move back into growth mode, whenever that might be, 2023, 2024, where across your three segments, hotels -- I break it down. Hotels and net lease and TravelCenters, do you think you might pursue the most growth?

Well, that's good question. I think that TA has been actively franchising and acquiring assets for their own account, and I don't expect in 2022 or 2023 that there will be any noticeable activity between us and TA properties. I do think that there will be a balance of retail and hotel acquisitions. And Sonesta has been actively bidding on some hotel properties on their own and also looking at potential franchise growth. And to the extent that they do transactions, we might get capital calls to maintain that 34% interest, so there may be some growth for maintaining that interest in -- ownership interest in Sonesta. And then I think that as we look at our portfolio markets like New York, Miami, Los Angeles are markets where we don't have enough penetration, we don't think. And we could probably benefit from having a little bit more resort exposure. I think that that has benefited some of our peers over the past couple of quarters as revenge travel has come out of the gates pretty strong. It remains to be seen how reopening of international markets and impacts that. But I think we could use more in the way of resorts.

Just to follow up on your TA comment. I think at one time you guys had a low fall on any properties TA would look to acquire. Is that still in place? And are they putting properties to you to see if you want them first before buying them themselves?

That's correct. You have an excellent memory. There is a right of first offer. And so when TA acquires properties, they are required first to show them to us. When they franchise properties, because we own the TA brand, there's some consents required before they can franchise and there's some trade area protections that we have as well for -- regarding how close new TA franchises might be located to our existing sites, a 75 mile radius, so -- which sounds like a big distance, but it's not very much when you drive in between TravelCenters. So anyway, yes, we do have those provisions in our leases, and our board regularly, just about every quarter reviews that activity and makes decisions about it, our independent trustees.

Thanks, and last for me. I know you touched upon it, but I think I might have missed some of it. Can you give us a little bit more color on the labor issue, and how and when you see that starting to dissipate, hopefully some point this year or the next?

Yes. I mean, it's challenging. We see it. TA is probably doing a little bit better than our healthcare and hotel operating companies at attracting employees. I think maybe -- TA maybe it's down about 15% from its normal levels. Sonesta is about -- 20% of their normal positions are unfilled. And so there is an active effort to fill those positions and offer pay rates that are compelling so that employees stay for a long period of time, but the more less skilled the positions, the higher the turnover seems to be. So we've -- throughout this past year, we've run -- Sonesta has run at about a 20% deficit in terms of open positions. And so they've tried to manage brand standards, how often they clean rooms. Obviously it depends on the price point of the hotel and how you manage guest expectations. But -- then they've had some housekeeping and food and beverage employees working extra shifts and overtime. They've had -- in some hotels, they've had front-desk employees helping at peak hours to clean rooms, with sales staff covering the front desk. Those types of measures, while it's great to see teamwork and everybody pulling together, it causes burnout and some job dissatisfaction as well. So it's been a constant battle, the contract labor is very expensive. So Sonesta l think is getting better at -- and as well as Marriott, IHG, Hyatt and Radisson, they're all getting better at managing their shifts to try to get the least amount of contract labor, the least amount of overtime, but -- to make sure that they're getting all the rooms cleaned and all the guests who are in the restaurant waited on. So I think that it's a little bit speculation that the -- that all of the operators are keenly focused on this and I think they're get -- doing a better job with each passing day. And as business levels both continue to grow and become more predictable, that the effort on the labor front becomes easier. It's when you think you have everything figured out, and you're on a good trajectory and then, a new variant comes out of the woodwork and business drives up that, that will labor management really becomes problematic. So we're confident that the worst is behind us, and that will see less of these contract labor, and less overtime, and that the wage increase issue will abate.

That's all from me.

Thank you. This concludes question-and-answer session. Now I'll turn the call to John Murray for any closing comments.

Thank you everyone for joining us today and we look forward to hopefully seeing some of you in Chicago at the end of the month. Thanks.

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