Good morning, and welcome to the Service Properties Trust First Quarter 2023 Earnings Conference Call. All participants will be in a 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 Stephen Colbert, Director of Investor Relations. Please go ahead.

Good morning. Joining me on today's call are Todd Hargreaves, President and Chief Investment Officer; and Brian Donley, Treasurer and Chief Financial Officer. 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 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 securities laws. These forward-looking statements are based on SVC's present beliefs and expectations as of today, May 9, 2023. 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 filings with the SEC, which can be accessed from our website at svcreit.com or the SVC website. 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. In addition, this call may contain non-GAAP financial measures, including normalized funds from operations, or normalized FFO and adjusted EBITDAre. Reconciliations of the non-GAAP financial measures to net income, as well as components to calculate AFFO are available in our enhanced earnings released presentation, which can be found on our website. We believe this combined presentation will be helpful for analysts and investors to efficiently digest information about our company and financial results. Finally, on today's call, we will be discussing the previously announced terms of our agreement with BP that will be effective upon the completion of their acquisition of TravelCenters of America. TA's special shareholder meeting to vote on the transaction is scheduled for tomorrow, May 10. And we will not be taking questions on that merger. And with that, I'll turn the call over to Todd.

Thank you, Stephen and good morning. Last night SVC reported first quarter results, which reflect improvement in our hotel portfolio compared to the previous year quarter, a period that was significantly impacted by the Omicron variant, and lagging recovery in our Northern U.S. urban hotels, led by the strong performance in Fort Lauderdale, Hilton Head, New Orleans and Phoenix comparable hotel RevPAR increased by 22% versus the prior year period, with ADR up13.9% and occupancy increasing by 3.8 percentage points. This strong performance translated to a 251% increase in comparable hotel EBITDA over the same period last year. Our operators were successful and continuing to close the performance gap to the market as SVC's portfolio RevPAR growth exceeded the industry by 5.3 percentage points an indication that the initiatives of our primary operators Sonesta are leading to greater success and increased brand awareness. Our full service portfolio grew RevPAR by 30.6% through increased group demand and business transient travel, specifically Miami, Boston and Toronto, and events such as the JPMorgan Healthcare Conference in San Francisco, and the NCAA Tournament in Salt Lake City, Utah. Our hotels located in urban markets are the greatest year-over-year RevPAR increase at 38.9% while - the growth at our resort hotels was more moderate at 20%. Our select service portfolio continued to show top line improvement as well, with RevPAR increasing 27.2% year-over-year, led by occupancy gains that were 3.2 times greater than industry. Revenues were driven by increased transient business up 21.7% from both business travel and OTA and grew up 58.1%, largely driven by Super Bowl demand in February at our Phoenix properties. In our extended stay portfolio RevPAR increased 9% over the previous year quarter, led by our Sonesta Simply Suites portfolio which outpaced industry - midscale chain growth by 4.8%. Simply…

Thank you, Todd and good morning. Starting with our consolidated financial results for the first quarter of 2023 normalized FFO was $37.1 million, or $0.23 per share, versus negative FFO of $0.02 per share in the prior year quarter. Adjusted EBITDAre was $116.8 million for this quarter, a 30% increase over the prior year. The major drivers impacting normalized FFO over the prior year quarter, included the improving performance of our hotel portfolio, which generated an additional $25 million of hotel EBITDA or 277% increase over the prior year quarter. The repayment of amounts drawn on our revolving credit facility which was fully drawn as of March 31, 2022 and the repayment of $500 million of senior notes in the second quarter of 2022 resulted in a $10.8 million decrease in interest expense. Rental income declined $1.9 million this quarter compared to the prior year, as a result of unfavorable changes in our reserves for uncollectable rents, as well as the vacancy of four movie theatres, three AMC and one Regal Cinema. Turning to the performance of our hotel portfolio for our 219 comparable hotels this quarter RevPAR increased 22%, gross operating profit margin percentage increased by 373 basis points to 25.2% and gross operating profit increased by $27.8 million from the prior year period. Below the GOP line costs at our comfortable hotels increased $2.4 million from the prior year, driven by higher base management fees as a result of our top line growth. Our consolidated portfolio of 220 hotels generated hotel EBITDA of $35 million. By service level, the increase was driven primarily by improvement in our 48 full-service hotels, which generated $15.4 million of hotel EBITDA during the quarter compared to losses of $1 million in the prior year quarter. Our 111 extended stay hotels generated $14.5…

[Operator Instructions] And the first question today comes from Bryan Maher with B. Riley. Please go ahead.

Thank you. Good morning. Couple questions from me, when we think up to the 2024 and 2025 maturities, which are meaningful, how are you guys thinking about that today? I mean, between the cash you have and the cash you're about to get minus CapEx spend this year, it's probably $500 million or so leftover. Is there any thoughts related to taking the enhanced TA credit via BP and maybe securitizing some of those assets to get lower cost debt for the 2024 maturities?

Good morning, Bryan, thank you. It's a great question and it's something that's on our short-term radar to address and start thinking about the maturities for next year. As I mentioned in the remarks, we have $350 million due in March and another $800 million in the fall of 2024. And the cash position we have today, plus the BP proceeds, we think will put us on pretty good footing as we look to deal with those maturities in due course. But to answer your specific question, yes, I think the TA transaction is going to provide a significant flexibility with - financing options, as we look to do something and '24. And whether that be secured financing, or some sort of bond offering remains to be seen. And we'll think that through as time passes here, but, we believe that transaction is going to give us pretty good credit to work down the coupon, as you mentioned.

Do you have any initial thoughts as to what that savings might be with that enhanced credit? Is it maybe 50 bps over what you might have got before give or take?

Yes, it's tough to say exactly, because it really - will depend on what market we go to, and what the actual terms could be. But I think, the credit compared to today, versus having an A- tenant backing those leases, we believe will be significant, and would definitely be something that would be more cost effective than where our bonds are trading today.

Yes, I think it gives us, just to add, I think it just gives us another option for even - for when we want to address those maturities - similar to how we did the ABS facility this year. One of the reasons, we went that route, is because it was, close to a 300 basis point savings versus doing our typical senior unsecured. So it just gives us another option, it's hard to say exactly what the savings would be versus those other options, but it is another option.

Okay. And then maybe shifting gears to the growth side of the business. What are your current thoughts about, all discussion about the back half of 2023 is going to see full service gateway hotels, where owners can't refinance it and some of those assets coming to market. I mean, clearly the higher end Royal Sonesta exposure to a variety of gateway markets could use enhancing? Is, there thoughts to maybe pursue some transactions there and then kind of part two to the question is there any thoughts of bringing the four properties that Sonesta and SVC acquired last year, fully into the SVC portfolio?

Sure, I'll take the first one first. Yes, it's certainly an interesting market right now, for higher end hotels. I don't think it's that necessarily something you got to wait for the end of the year either. We're closely evaluating a number of opportunities in markets that we think are strategic to our growth that we talk about on previous calls, notably, Miami and Los Angeles are two markets, we think we're under exposed in. And even today, there's, not a lot of transactions happening. And I wouldn't say it's necessarily even transactions where sellers have to sell, but it's more maybe the fund is sunsetting or if they don't want to put in the capital to do a renovation, but there's certainly opportunities out there. And it's a good time to be a buyer, especially if you're able to take something down without putting secure the property level of debt on it. Lenders, for hotels, for any property type right now are being extremely conservative. Interest rates are extremely high as well, leverage levels are low, so that that creates interesting opportunities for a group like us that has the ability to take something down without putting secured financing on it. So again, we're evaluating a couple of opportunities now, and we'll continue to do that throughout the year. But we're being opportunistic, I think, we're seeing opportunities today that we didn't see 12 months ago, we didn't see back in 2019, we may not see 12 months from now. So, we think there's, potential opportunities to take advantage of that and, like you say, grow into markets that we think we're under exposed. And then the second part of your question, the short answer is no, there's no - current discussion about bringing those 4 New York hotels into our SVC portfolio.

Okay. And then just lastly quickly on the Royal Sonesta hotel that will be opening on 20 Mass Ave. I think sometime in the next couple of months, is there any meaningful CapEx, you're going to need to spend to get the doors open on that property? And I think you get a free rent period for some number of quarters. When do you actually start paying rent on that property? And is it a fixed rent and what might that be?

Hi, Bryan, just to clarify, that's not at SVC on property, OPI office properties Income Trust owns that. And I don't know the exact terms. I think there's some sort of reread period that they have. But that's a relationship between Sonesta and OPI.

Okay. So there's no real financial impact you guys at all other than that, you own 34% of Sonesta?

That's right.

Okay. Thank you.

Thanks Bryan.

[Operator Instructions] The next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Hi, good morning, guys. This is Jonathan on for Tyler. Thanks for taking my questions. First one from me, can you provide some color and more recent demand trends, any pockets of weakness or slowing that are worth calling out? Whether that's an urban or BP right, extended stay properties just given some of the volatility that we've seen over the past few months, anything worth calling out there?

Sure, hi Jonathan. Yes, I mean, just overall trends we're seeing I mean, we're continuing to see strong year-over-year growth in pretty much all areas of the business. I think you're starting to see a softening more on the leisure resort or destination type hotels, which we have relative under exposure to, but we still saw a 20% increase year-over-year RevPAR, a lot of the stronger year-over-year growth has shifted more towards, group and business, travel markets. We're seeing an uptick, certainly in group occupancy, as well as business transient revenues. A couple of data points, Sonesta portfolio, for example, in terms of segmentation in Q1 of last year group represented about 17% of total revenues that's up to 28%. So certainly seeing a significant shift there over the past few months, I wouldn't say there is any significant change in the trends we're seeing. We kind of expect to continue to see a softening on the leisure side of the business and a continued uptick in business transient group.

Okay excellent, thank you for the color on that. And then, in a similar vein, I'm curious your perspective on the financial markets right now, given the regional bank issues have been going on since March? Has that caused any noticeable changes in the conversations you've had with your lenders?

That's a good question and the short answer is no. The regional banks and some of the banks affected in the news recently. We don't have relationships with really any of those banks. We don't use them for cash investing. And none of them are - for example SVC revolver, we typically deal with the larger financial institutions that we think are on pretty good footings.

Okay, excellent. And then last one from me, if I could, now that you've worked through the planned asset dispositions, can you provide some color on how you're thinking about capital allocation throughout the year? And there's a priority on that front just maybe a quick reminder for us?

Sure, yes. I mean, there's - like you pointed out, we are now fully through the sales of 68, Sonesta branded hotels, the 60 Marriott branded hotels, and I think that was, we view that as a pretty good success, given the volatility and the transaction markets, especially towards the end there. There's no immediate plans to sell anything else, I think we've, right size the portfolio and shifted it more towards a mix that we kind of view as long-term. Doesn't mean we won't continue to evaluate the transaction, the transaction market and value in our portfolio and there's a potential that we sell something down the road again, just to reiterate, there's no immediate plans or anything targeted. I think if we did sell something, it would be more in terms of strategically capital, recycling capital into other areas or geographies that we want to kind of shift the portfolio to, but again, nothing immediate.

Okay, great, understood. Thank you for all, the color. That's all for me.

Great, thanks for the question.

This concludes our question-and-answer session. I'd like to turn the conference back over to Todd Hargreaves for any closing remarks.

Thank you, everyone for joining today's call and we appreciate your continued interest in SVC. Thank you.

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