Service Properties Trust (SVC) Q3 2026 Earnings Call Transcript

Operator: Good morning, and welcome to the Service Properties Trust Third Quarter 26 Earnings Conference Call. After today's presentation, there will be a-- Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, Senior Director of Investor Relations. Kevin, please go ahead.

Kevin Barry: Good morning. Thank you for joining us today. With me on the call are Christopher J. Bilotto, President, Chief Executive Officer, Jesse Abair, Vice President; and Brian E. Donley, Chief Financial Officer and Treasurer. Just a moment, they will provide details about our business and our performance for the third quarter of 2026, followed by a question and answer session with sell side analysts. I would like to note that the recording and retransmission of today's conference call is prohibited. Without the prior written consent of the company. Also note that today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2 thousand and other securities laws. These forward looking statements are based on SVC's beliefs and expectations as of today, November 5, 2026, actual results may differ materially from those that we project 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. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission which can be accessed from our website at svcreit.com or the SEC's website and in the forward looking statement to disclosures in our earnings presentation investor presentation. Investors are cautioned not to place undue reliance upon any forward looking statements. In addition, this call may contain non GAAP financial measures. Including normalized funds from operations or normalized FFO, adjusted EBITDAre, hotel EBITDA, adjusted hotel EBITDA, hotel NOI, cash basis NOI and cash available for distribution or CAD. A reconciliation of these non GAAP figures to net income is available in SVC's earnings release presentation that we issued last night which can be found on our website. Lastly, we will be providing guidance on this call. Including estimated 2026 normalized FFO hotel EBITDA, net operating income, adjusted EBITDAre. We are not providing a reconciliation of these non GAAP measures as part of our guidance, because certain information required for such reconciliation is not available without unreasonable efforts or at all. I will now turn the call over to Christopher.

Christopher J. Bilotto: Thank you, Kevin. Good morning, everyone, and thank you for joining the call today. Last night, we reported third quarter results that reflect continued progress in strengthening SVC's cash flows through active asset management portfolio optimization, and disciplined capital allocation. Normalized FFO was 34 cents per share and adjusted EBITDAre was $133.5 million both of which exceeded consensus estimates. Our rolling 4 quarter cash available for distribution turned positive compared with a deficit of $83 million a year ago helped by lower interest expense and moderating capital spending. At our 77 retained hotels, RevPAR increased 8.3% year over year outperforming the U.S. Hotel industry for the eighth consecutive quarter. Adjusted hotel EBITDA grew 16.2%, and adjusted hotel EBITDA margin expanded 130 basis points. Since the end of the second quarter, we sold 14 hotels for $116.7 million largely completing our 2026 hotel disposition program. The momentum we are seeing on top line is reflected in our updated full year guidance. We raised our RevPAR outlook for both our retained and exit hotels. At the same time, we narrowed our hotel EBITDA range by lowering the high end for 2 reasons. First, at our retained hotels, the Phase 3 opening of the Nautilus and Miami Beach is now concentrated later in the fourth quarter rather than its anticipated earlier opening. That defers approximately $3.8 million of its EBITDA contribution and increases total renovation displacement. Second, the exit hotels underperformed our original expectations in part due to the operational disruption that occurs with a sale process. Even with higher revenue, their losses widened, which reinforces why selling them was the right decision. Our net lease portfolio anchored by our travel centers continued to provide durable cash flow with rent coverage of 2.17x and occupancy of 97.6%. We lowered our net lease NOI guidance by $7 million at the midpoint reflecting higher operating costs and credit reserves and the timing of our capital recycling. Our priorities are unchanged Our Board approved strategy is to reduce debt expand margins at our retained hotels, and continue shifting our portfolio towards service focused retail net lease properties over time. I would also like to address the proposal we received in October. As disclosed in our earnings presentation, SVC received an unsolicited non binding proposal from TKO LLC to acquire our hotel portfolio for $2 billion. Our board of trustees, including all of our independent trustees, unanimously rejected the proposal because it believes the proposal's significant significantly undervalued SBC's hotel portfolio. We intend to continue executing our strategy including working with our hotel operators to improve hotel performance, to maximize long term value for our shareholders. We will not comment further on the proposal. What I will do this morning is walk through our operating results and the plan we are executing. I will start with hotel performance in the quarter, then discuss the operating roadmap outlined in our updated investor presentation. Jesse will then cover our net lease portfolio and travel centers. And Brian will conclude with our financial results, balance sheet and guidance. Turning to the hotel portfolio. Our 77 retained hotels delivered their strongest quarter of the year, RevPAR increased 8.3% year over year to $128.38 driven by a 33 basis point increase in occupancy and a 3.4% increase in average daily rate. Our retained hotels have now outperformed U. S. Industry RevPAR growth for 8 consecutive quarters, by an average of 240 basis points. The growth was broad based. Full service hotels increased RevPAR 7.6% focused service hotels increased 10.6% and both grew adjusted hotel EBITDA by approximately 16%. Each of our chain scales outperformed its industry comparable group. Excluding the Nautilus, RevPAR at our other 76 retained hotels grew 9.8%. By brand, Sonesta Select led with RevPAR growth of 14.7%. Sonesta Hotels and Resorts increased adjusted EBITDA by nearly 30%. Our hotels in Phoenix, St. Louis, Orange County and Philadelphia each outpaced their local markets by more than 8 percentage points. Profitability grew faster than revenue. Retained hotel adjusted hotel EBITDA increased 16.2% to $41.1 million and adjusted hotel EBITDA margin expanded 130 basis points to 15.4%. The margin gain reflects early progress on 2 initiatives, labor efficiency and lower customer acquisition costs, partially offset by higher sales and marketing and utility costs. Returns from our renovation program continue to build. Renovated hotels added $2.9 million of hotel EBITDA compared with last year led by Sonesta Hilton Head, Sonesta Los Angeles and our Hyatt portfolio. At Sonesta, Los Angeles Airport, Sonesta also added 4 airline crew accounts in the quarter, which bring a steady base of contract business. We also faced headwinds in the quarter. Renovation disruption at the Nautilus reduced revenue by $4.1 million and hotel EBITDA by $1.8 million. A hurricane affected our Kauai resort, Repeat group business in Las Vegas did not return this year, and our food and beverage revenue declined 3.6% on non repeat banquet events. Even with these headwinds, our retained hotels grew adjusted hotel EBITDA by double digits. Turning to the outlook. Last quarter, we outlined the margin initiatives our asset management team identified with our operators, and we said we would provide targets as that work progressed. With Sonesta's leadership team now 2 quarters into their tenure, we are doing that today. Slide 7 of our updated investor presentation lays out the plan. Starting from the midpoint of our 2026 retained hotel EBITDA guidance of $139 million, our operators working closely with our asset management team have identified approximately $96 million of potential operating upside over the next 12 to 24 months. Incremental RevPAR growth based on CBRE's industry forecast could add roughly $13 million more. Together, that represents approximately 109 million of incremental EBITDA and would take retained hotel EBITDA margin to approximately 20%. Our markets also have a favorable event calendar ahead, including the Super Bowl in Los Angeles and the MLB All Star Game in Chicago in 2027. The plan has 4 parts. First, renovation, lift and displacement recovery would contribute approximately $35 million. Since 2023, we have invested $628 million, or about $36 thousand per key in our retained hotels. Renovated hotels are ramping towards stabilized market share, and the largest single contributor will be the Nautilus and Miami Beach, with a phase reopening at the Nautilus in the fourth quarter. Second, operating synergies would contribute approximately $7 million. This includes the consolidation of vendor contracts across the Sonesta portfolio including in room entertainment and payment proceeds a leaner staffing model, an enhanced benefits program. Several of these initiatives are already underway. Third, revenue mix would drive approximately $16 million. The focus is on capturing more business at higher rates by reducing reliance on discounted online travel agency channels in favor of retail direct bookings. Sonesta is launching a new sonesta.com booking platform this month to drive more direct and is lowering its digital marketing cost per booking. Fourth, and our largest opportunity, lower customer acquisition costs would drive approximately $38 million. Sonesta is setting clear channel mix targets for each hotel, directing marketing spend to the higher converting channels, which reduces discounting needed to win business. In addition, following an evaluation of online travel agency virtual credit card payments each of our operators. Led by our asset management team. Hotels have recovered approximately $1.9 million of EBITDA year to date. Our asset management team is working closely with our operators on each of these initiatives, Some will ramp sooner than others, and timing will depend in part on market conditions. However, we are confident in this plan and we will update investors on our progress. Before I hand off to Jesse, let me close out on hotel dispositions. Including the Simply Suites we sold in January, we have now sold hotels in 2026 for $123.8 million. Through September, the hotels sold this year generated approximately $10.3 million of hotel EBITDA losses before the capital they would have required. As I noted earlier, they underperformed on expectations even as the revenue improved, which is why prioritizing exiting them. These sales completed a broader repositioning. Since January 2024, we have sold 142 hotels for approximately $1.1 billion. Nearly all of them were focused service hotels with higher capital needs and lower margin. What remains is a portfolio of 77 hotels weighted towards full service hotels in urban and resort markets, with 86% of keys in the upper scale and upper upscale segments compared with 62% in January 2024. We have signed letters of intent to sell our 2 remaining exit hotels with 795 keys including the Crowne Plaza Atlanta perimeter and at Ravenna. Our guidance assumes we own both hotels through year end, and we will provide updates as those transactions progress. To conclude, our third quarter results show the operating plan is gaining traction, and our 2026 hotel disposition program is largely complete. We have redeemed nearly $1.6 billion of debt this year, and we remain focused on our Board approved strategy to reduce debt expand margins at our retained hotels and continue shifting our portfolio towards service focused retail net lease properties over time. We believe this plan is the best path to maximizing long term value for our shareholders. Will now turn over to Jesse to discuss the net lease portfolio.

Jesse Abair: Thanks, Christopher, and good morning. Net lease portfolio continues to generate stable and dependable cash flows for S SVC, with assets that are characterized by minimal capital requirements, long duration leases, and resilient necessity based retail concepts. Once again, the portfolio exhibited sequential growth marked by improvement in cash basis, net operating income, occupancy gains and ongoing credit strength across our tenant base. Cash basis NOI for the net lease portfolio came in at $93.8 million, up slightly quarter over quarter supported by steady tenant collections and a reduction in credit reserves. Aggregate portfolio rent coverage improved to 2.17 times on a trailing 12 month basis. This performance was once again anchored by our TravelCenters of America locations, where rent coverage expanded 10 basis points to 1.44 times the third straight quarter of coverage expansion and a 20% increase from the fourth quarter of last year. We attribute this to a combination of sector wide improvements in diesel margins and freight demand, as well as a new TA leadership team, focused on driving operational efficiencies at the property level. With 175 travel centers, TA represents our single largest tenant relationship and the corporate guarantee of its investment grade parent, BP, provides SBC with exceptional credit protection for nearly 2 thirds of our net lease revenue. For the remainder of our net lease portfolio, rent coverage remained very healthy at north of 3.7x. Reflecting persistent demand across our retail operators. From an asset management perspective, this was our most active quarter in more than 3 years. Reflecting both the depth of our tenant relationships and the team's continued focus on value creation. We executed 20 lease deals impacting 61 assets totaling over 635 thousand square feet. Included in these efforts is the negotiated emergence of 2 of our QSR franchise from bankruptcy this quarter. As you may recall, earlier this year, these tenants accounted for over $2 million of credit reserves. Both of these master leases have now been assigned to their respective corporate franchisors and received an attendant enhancement in credit profile and all of the impacted properties were retained. We view this as a positive outcome that ultimately strengthens the portfolio and establishes sustainable lease structures for these tenants going forward. Our lease expirations remain well laddered, with just 3.2% rolling between now and the end of 27. Importantly, asset management team is proactively engaging with tenants well in advance of expirations working to secure long term renewals, extend term, and otherwise identify opportunities to enhance lease economics. In several cases, those discussions resulted in creative restructuring solutions that strengthen tenant commitment while improving the durability of our cash flows. Other situations, team quickly pivoted to alternative value creation strategies including adaptive reuse opportunities, ground lease structures with new resale concepts, and selective dispositions where we can generate proceeds to refresh the balance of the portfolio. Broadly speaking, the activity level across the portfolio remains elevated and we believe the work our asset management team is doing today positions us to drive additional leasing successes and create incremental value from our existing real estate. With regard to our capital recycling endeavors, since the end of the second quarter, we have closed on 5 net lease properties for $14.2 million. Year to date, acquired 9 properties totaling $23.4 million at weighted average cash and GAAP cap rates of 7.68.2%, respectively, and a weighted average lease term of nearly 14 years. On the disposition side, we sold 7 noncore assets bringing year to date dispositions to 26 properties for $15.3 million. This performance is tracking our 2026 capital recycling target of approximately $25 million. That said, we still have over 40 assets in our disposition pipeline representing over 250 thousand square feet much of which could be converted into opportunistic sales we exit at attractive cap rates and accretively redeploy that capital into brands and markets where we have long term conviction. Today, our net lease platform consists of 740 service focused resale properties totaling 13.5 million square feet. Generating nearly $400 million in annualized minimum rent. As part of its strategic transformation, SVC expects its net lease platform to comprise an increasingly larger share of its revenue mix. With that in mind, our asset management team remains highly engaged across the portfolio executing leases, extending wall, allocating capital selectively and pursuing creative opportunities to curate our tenant roster, improve credit quality, and maximize value from our net lease real estate. And with that, I will turn the call over to Brian to discuss our financial results.

Brian E. Donley: Thank you, Jesse, good morning. Before I discuss results, I would like to provide a reminder that we affected a 1-for-5 reverse share split in early July, so all historical share and per share amounts have been adjusted retroactively to reflect the reverse split. Additionally, comparisons of per share metrics to prior periods are not directly comparable due to SVC's equity issuance earlier this year. Turning to our third quarter 26 results. Normalized FFO was $43.8 million, an increase of $9.9 million or 29.3% compared to the prior year quarter. The increase in normalized FFO was driven by a $17.4 million decline in interest expense as a result of repaying debt to our equity offering and asset sales, partially offset by a reduction in hotel EBITDA of $6.6 million, driven by our disposition program. Exit hotels accounted for an $11.9 million decrease partially offset by a $5.3 million increase in performance across our retained hotels. Turning to our hotel portfolio performance. Our 87 comparable hotels generated adjusted hotel EBITDA of $41.5 million during the quarter. Representing an increase of 11.2% compared to the prior year period. For these 87 hotels, occupancy increased by 23 basis points RevPAR increased by 7.8%. 77 hotels in our retained portfolio generated RevPAR of $128.38 an increase of 8.3% year over year adjusted hotel EBITDA of $41.1 million, representing an increase of 16.2% year over year. Excluding the Nautilus Hotel, which is under renovation, RevPAR for our 76 retained hotels increased 9.8% and hotel EBITDA increased $9.2 million, or 27.1%. Within our net lease portfolio, cash basis NOI of $93.8 million was flat compared to the prior year quarter, increased 80 basis points sequentially. Turning to the balance sheet. During the quarter, we used proceeds from asset sales to repay and terminate the $45 million variable funding note was set to mature in January 2027. We currently have over $760 million of total liquidity including full availability of our $650 million revolving credit facility, matures in June 2027. Currently in discussions with our lending group to potentially extend or refinance this facility. Our next maturity is $580 million of zero coupon senior notes due in September 2027. These notes are secured by high quality net lease collateral, which we believe provides strong refinancing optionality. We also have a 1 year extension option. Turning to capital expenditures. During the third quarter, we invested $29.9 million in capital improvements, continued to be driven by our repositioning of the Nautilus and renovations at our Royal Sonesta New Orleans. Turning to our updated full year 2026 guidance. As outlined on Page 7 of our earnings presentation. We have updated our full year outlook as follows: for the 87 hotels we owned at quarter end, total hotel EBITDA is now expected to be between $124 and $134 million which reflects $135 million to $142.5 million from our retained hotels offset by $8.5 million to $11 million of losses from exit hotels. The lower overall range is largely driven by a $3.8 million reduction to the full year outlook for Nautilus Hotel related to increased displacement and renovation in place. Timing of dispositions and underperformance of exit hotels is the other driving factor to lowering the high end of our hotel EBITDA range. Within our net lease portfolio, NOI is projected to be between $373 million and $379 million This reduction to guidance is a result of several factors including higher credit reserves for the full year higher operating costs for vacant assets, and the timing and pace of our asset recycling plans. For our consolidated metrics, we expect adjusted EBITDAre of between $489 million and $498 million and normalized FFO of $113 million to $128 million, or $1.07 to $1.22 per share. This full year guidance assumes midpoint interest expense of $355 million, with cash interest of $280 million and non cash amortization of interest of $75 million. We are also assuming G&A expense of $40 million and a weighted average share count of 105.2 million shares. This guidance does not assume we complete the sale of the remaining 2 exit hotels. We have also reduced our full year capital expenditure guidance by $10 million at the midpoint and now expect total CapEx of $115 million to $125 million. Finally, cash available for distribution or CAD, was $32.1 million for the third quarter and our rolling fourth quarter CAD has now turned positive. We remain confident in our ability to generate positive CAD for the full year 2026. That concludes our prepared remarks. We are ready to open the line for questions.

Operator: We will now begin the question and question-and-answer session. Our first question comes from Floris Van Dijkum with Ladenburg Thalmann.

Analyst: Good morning, guys. Thanks for taking my question. So very encouraging what you are putting together in terms of hotel EBITDA growth potential -- 78% hotel growth, EBITDA growth and over 20% company growth, Wanted to maybe dig into that a little bit more. Obviously, the renovations that you have. And the capital that you have spent, the ROI that you have spent on the hotels that is more readily understandable. that is a big part of it. But maybe talk a little bit about the lower customer acquisition costs. There are 2 ways to think about that. 1 is to, you know, through direct apps, etcetera. Which is partly how your bigger brands the bigger brands can lower their cost. But also talk a little bit about the mix and how you see maybe doing more group business or etcetera, how much of an impact that has and how comfortable people should be about your ability to actually execute on those lower acquisition costs?

Christopher J. Bilotto: Yes. Thanks, Floris. I think, look, collectively, you know, it is kind of a multi tiered approach with respect to kind of those lower customer acquisition costs. So think as you are alluding to, there is channel specific mix targets and ultimately kind of directing kind of spend as far as our marketing and other allocation directed toward higher converting channels. And so that really is just kind of a change in strategy from, you know, more so with Sonesta just given kind of change in the portfolio and its operations. Giving the plentiful dispositions that have been done over time. And so, that is gonna be a big part of it. there is also you know, kind of a focus on the total discount of the rack rate. Which is kind of another big piece. And a kind of a broader push around overall discounts. So targeting kind of mid teens and kind of total left handed discounted inventory again, with the goal to drive, you know, overall room reverb to kinda higher you know, higher paying a transient and type business. And then I think, more specifically, there are just other levers, you know, kind of probably more smaller in nature that fit that kind of profile within. With respect to that bucket. And, again, the 2 biggest items are more about the channel specific mix target and then overall discounts off the rack rate. Just given where they have trended over the last year or so. Thanks, Christopher. Maybe my follow-up question Floris, I think you cut out. Can you repeat your question, please? Yes. Sorry, can you hear me? Yes. My question was regarding Sonesta. It appears to be a big value driver for your hotel portfolio. But we do not have much insight into Sonesta even though I think SVC owns a third of it. Maybe talk about you know, your comfort with what the new management team there is doing and how they are able to drive value and ultimately, you know, what could be a potential -- is there thoughts of an exit strategy for the business going forward? Yeah. I mean, Sonesta's a private company, so I cannot really speak to kind of the broader strategy. I can tell you where the focus is and all the dialogue that we have had has been around turning around performance and kind of repositioning kind of the overall operations that Holdco. But more specifically, I think the things that we have more insight into are consistent with the items that we identified kind of in the NOI bridge in our new investor deck on slide 7. And so look, the conviction level is high. I mean, you know, we spend. You know, we have a whole team here who is spends time, with, you know, different folks across the know, Sonesta platform, spending time kinda more hand to hand combat at the asset level. Myself included, I spent a lot of time with the executives at Sonesta. You know, talking through the strategies that they are undertaking. And kinda getting comfortable with the information they put forth to us. And so I think, you know, I think what everyone sees today with respect to what is in our investor deck is a byproduct of that confidence. And the ongoing dialogue that we have together. And so I think kinda more directed answer to your question, we have high confidence in them to be able to achieve these numbers. Thanks. Thanks, Christopher. Maybe if you can comment on the impact of higher rates on the net lease space as well in the transaction market. What have you seen Any changes? And does that make you more willing to be buyer or seller in this environment? Yeah. I mean, look. I think it is, you know, just a caveat. We have not been a very active buyer in the net lease side. it is been a very small piece of our capital activity and has been kind of a 100% in the form of capital recycling, so dollar in dollar out. And so I think it is less of a story for us as we think about the transaction side. I mean, certainly, being in a position where we can refresh the portfolio in do things strategically, the answer is yes. We will continue to do that. And I think you know, our average cap rate for our transactions over the last year is trending around 7.5 percent. And while, you know, cap rates you know, may widen depending on the volatility. I mean, look, as we all see, it kinda ebbs and flows over the course of time. But, yes, I think that, you know, selective acquisitions on the heels of supporting dispositions is not out of the cards for us, but I would just continue to kind of push the focus to driving hotel performance for the portfolio as where we are we are gonna spend the majority of our time and activity going into 2027. Thanks, guys.

Operator: Our next question comes from Tyler Anton Batory with Oppenheimer.

Tyler Batory: Hey, good morning. Thanks for taking my question. So, first 1 for me, to clean up the guidance commentary and specifically on the net lease portfolio lowering the NOI by $7 million, can you give a little bit more detail? I think you talked about higher operating costs credit reserves, etcetera. So just explain a little bit more the dynamic in terms of why you are reducing the NOI? And then as we think about kind of an updated or new run rate for NOI heading into 2027?

Brian E. Donley: Sure, Tyler. Good morning. A big part of the guidance on NOI related around acquisitions and the pace of acquisitions. A lot of that was front loaded in our guidance We had a more active pipeline at the outset of the year. And some of that was, you know, slowed down over the course of the summer and the back half of the year. Now you see interest rates, but they are Good credit reserves is another factor. If you recall in Q1 at the end of Q1, we had a significant reserve for 2 master leases that was not contemplated in our guidance the restructuring and some of the mechanics around those master leases put a little, more leakage on the portfolio from an expense standpoint. And then vacant assets and recycling is the other part. You know, when you have a. An asset go vacant, you have to, you know, still maintain security and landscaping. And so there is additional leakage that we have been seeing over the last couple of months that you know, us below the range. So, you know, we took the guidance range down.

Jesse Abair: And then Tyler, just on a go-forward basis, you know, with respect to those 2. The 2 franchisees that were in bankruptcy, the story there, I think it on the whole is a good 1. 1 of those franchisees emerged the corporate franchisor assumed all of those locations at and assumed all existing lease terms. So no real change from an economic standpoint on a go forward basis there. And then, with respect to the other franchisee, there was some restructuring work We took a slight roll down on that master lease, but also extended term a little bit. And got some percentage rent with some percentage upside in the in the event that they hit certain triggers. So, you know, with respect to credit issues going forward, there is nothing else on our radar that comes remotely close to those 2.

Tyler Batory: Okay. Then my follow-up is a multipart, broader strategic question. On 1 hand, you talked about shifting the portfolio towards net lease over time. But at the same time, seems like you are really optimistic about the hotel side and certainly a lot of growth initiatives that you are talking about here. So just can you give us some updated thoughts on your latest thoughts on why you want to transition away from hotels what that might look like, if the hotel performance remains exceptionally strong the next couple quarters or years? Would that change just how you are thinking about portfolio mix?

Christopher J. Bilotto: I mean, look. The focus is really on the fact that we think that we can drive meaningful value for the hotels and valuations ascribed to them just given the upside we see for EBITDA. As we have alluded to, it is a multiyear journey And then kind of being on the other side, being in a position to continue to evaluate you know, hotel sales and kinda how they inform the portfolio. And so what I do not wanna do is detract from the plan that you know, we are continuing to evaluate long term for the company. With respect to being a majority net lease company. And with that, comes sales of hotels over time. But I think more importantly, you know, that it is gonna take time. And again. And I think that time is well rewarded just given the upside that we see and the potential to do so. So, you know, I think as time progresses, you know, over future quarters, the next year plus, we will continue to have more inroads into the timing itself. But right now, as we put out 12 to 24 months of potential meaningful upside. With EBITDA. And again, we think that is gonna position the hotels to ascribe to meaningful valuation increases. Okay.

Tyler Batory: And just to a finer point on that in terms of potential asset sales on the hotel side, obviously, you have got, I guess, 2 on the market. Right now, in light of what you just said, I mean, is I mean, the probability of more sales in the next 12 to 24 months pretty low.

Christopher J. Bilotto: I do not wanna say it is low. We have not put out yet. With respect to, like, what our plan is for sales over the next 12 to 24 months. So I think it would be premature. To address that. I think, you know, you know, nationally, what we have talked about is that the 2 remaining hotel sales that will happen, know, probably in the first part of next year, And then again, as we continue to kinda work through quarter to quarter and see where the progress goes performance, that is gonna really be the guide and kind of the testament for how we think about dispositions of hotels. Okay.

Tyler Batory: And this last 1 for me on the transaction, market on the hotel side of things. Just interested a little bit more your thoughts, what you are seeing and it is interesting. You obviously cost of capital. Has gone up a little bit here, but hotel industry performance and I think interest. Hotels is probably going up as well. So, not sure what you are seeing just in terms of valuations or any high level broad stroke thoughts. Just on the transaction market?

Christopher J. Bilotto: Yes. I mean, look, there continues to be, I think, supporting transactions but it is a pretty wide bar with respect to where those sit. I mean, I think a lot of the prints that have shown you know, meaningful values have really been in that luxury side of the business. And, again, those are, I think, much larger chunkier type transactions. And then certainly on the other side, if you think about focused service, you know, I mean, look, we have got a lot of experience in the transaction market. Having sold over a 140 hotels. And so I think you know, kind of with, you know, some level of confidence can say that, you know, we feel good about our understanding of, you know, how these things trade, where there might be disruption and kinda how to, how to navigate you know, different kind of, you know, economic times. And with that, you know, on the focused-service, there, you know, there continues to be kind of a steady state with respect to where transaction volume is. But, you know, look, I think with anything you know, certainly being mindful of the interest rate environment impacting cap rates, are all things that we are monitoring. And I think it is a little preliminary to tell if there is gonna be a broader impact. But generally speaking, you know, there is generally more cushion in cap rates relative to treasuries than other sectors. And so know, there is not necessarily a kind of a wide swing on values. And again, that is all contingent on kind of where the hotels themselves sit with respect to the relative performance. Okay. Good detail. Thank you. that is all for me.

Operator: Our next question comes from Craig Kucera with Lucid Capital Markets.

Analyst: Yes. Hey, good morning, guys. Not to beat a dead horse, but I want to circle back to the net lease NOI guidance. You had a couple of tenants that you disclosed in prior quarters that had sub-1x rent coverage. Is any of the adjustments for that related to either credit reserve there, or maybe an expectation if those assets go dark?

Brian E. Donley: Not in the guidance range. Yeah. I think some of these other tenants that we have talked about you are not necessarily sub 1. Tenant credit coverage, rent coverage. it is more of situations with the tenant's financials and what they ended up doing from their own business standpoint. And some of our restructuring which leads to the reserves, which leads to additional operating costs, in some cases, So it is not necessarily specific to some of those other tenants You know, for guidance purposes, we generally just try to use a run rate for reserves and put some of these 1 offs can pop up here and there. Yes.

Jesse Abair: And Craig, just to add to that, with respect to the tenants that have sub 1 coverage, it is a small list. They all have, for the most part, long terms remaining. They are performing, right? And so and that coverage can fluctuate quarter to quarter. So it is a relatively dynamic list. And again, there is nothing that gives us short-term pause or with respect to those tenants for now. Okay. that is helpful. Changing gears, you had the reclass of land held for future uses in the portfolio. Can you give some color around that? Is that just vacant land or is it land that is sort of adjacent to assets or just some color on that? Yes. So the biggest bump in occupancy related to properties that we were characterizing as being held for lease. And with respect to those 7 properties that we are able to move off of that list, we have identified either potential ground lease deals or adaptive reuse or repurposing. Or they have just kind of rolled into their disposition status. So the bottom line, they are just. They are just no longer being held for lease, and we are pursuing alternate strategies for all of those at this point. So I think that is a credit to the asset management team and we have been charging them with really getting creative and thinking about, you know, different ways to use and think about and deal with those properties. And so I think that is a little bit of function of that.

Analyst: Okay. that is that is helpful. You know, looking at your CapEx, you know, particularly slide number 9, $97 million projected full year on the retained portfolio. You have sold almost all the hotels that you want to sell. Is that sort of a normalized level of how we should think about CapEx going forward, you know, sort of in a $100 million range or would that drop because you no longer have any real meaningful redevelopment projects?

Brian E. Donley: Hey, Craig. From where we sit here today, think that is a fair run rate looking forward. There are still projects that we will continue to move forward on. The scale and breadth of how much we have invested and how many hotels, the size of the projects we have done in the last few years has been tempered. We have gone through a lot of work investing in these hotels. But between, you know, regular maintenance CapEx and other projects such as, you know, refreshes or you know, renovations, we will continue to have some level of investment in the hotels. But I think that where we sit today, that is a fair run rate for future years. We will provide guidance in the fourth quarter earnings call on our 2027 CapEx. Okay.

Analyst: I appreciate that. And just 1 more for me. On the slide on page 7 of the deck where you are kind of outlining this $100 million-$109 million of incremental EBITDA upside. For the $38 million, there is been a few questions about the reduced customer acquisition costs. Does that require any meaningful technology build out or CapEx? I guess just how should we think about the spend related to that? Or is that really just a strategy shift?

Christopher J. Bilotto: it is a strategy shift. I mean, there is some investment that has been made in technologies. You know, some will come through kind of the new website, that will launch later this month. And then there are other tools around AI and other initiatives. But I would not look at this as a necessary larger capital cost as much as just a retooling of the infrastructure and systems in support of that bucket. Okay. Thank you. that is it for me.

Operator: Our next question comes from John James Massocca with B. Riley

John Massocca: Riley Securities. Good morning. I know you do not want to comment too much on the TKO proposal but would be remiss not to try to clarify Was the Board's rejection of TKO's offer purely around pricing? Or was there something or anything tied to understanding of the counterparty or the structure of the transaction that was proposed that made it unattractive?

Christopher J. Bilotto: Yeah. I mean, look, John, as we talked about, the board and all of its independent trustees, unanimously rejected the proposal. And, again, I think kind of the feedback there is it significantly undervalues our hotels. I think if you know, look at slide 8 of our investor deck, more specifically with respect to, I think, where perceived value is, I think, kinda generally speaking, there is a few things where we feel, you know, a high level of confidence that you know, the clear path to improved hotel EBITDA and support a better value. And so, look, we have invested in these hotels. You know, we have done a lot of the work. I mean, as illustrated or indicated in the total CapEx spend over the last several years. And so really, you know, we are sitting here on the other side of a lot of the noise, a lot of displacement, and in a position to kinda capture more organically the EBITDA upside ascribed to each of these markets and these hotels specifically. And So, you know, this is consistent with, you know, what the strategy has been and the plan has been for the company, and that is exactly what we are undertaking as shown, you know, with the materials we put out this quarter.

John Massocca: Okay. Maybe thinking then about hotel sales on a granular level, you know, going into 2027 and beyond, is there any kind of strategy shift where maybe you are selling hotels where more about kind of maximizing value and return. where you are starting to see some of this uplift in performance from the CapEx. Versus selling some assets that maybe were attractive to sell from, in terms of, what was able to do from a cash flow perspective? For SVC? Just curious if, it seems like a lot of the exit hotels were kinda poor performers. I mean, is it gonna shift now maybe to some of your better performers, and you are kind of trying to harvest the value you have created?

Christopher J. Bilotto: Yeah. I mean, I think kind of a I would say it differently from our view. As we continue to capture upside in EBITDA for the 77 retained hotels, which we think are better performers, a better profile, stronger market, good real estate, I think it would naturally align with a scenario where we are able to sell them because they are at better values and not kind of sales because they are cash drags are highly capital intensive. And so yes, to answer your question, that is how we would think about it.

John Massocca: As we sell hotels in the future. But I guess, kind of, are there additional hotels in your portfolio today that would kind of more meet the parameters of what you sold? This year?

Christopher J. Bilotto: Yeah. I mean, look. there is there is a few, you know, hotels that are lower performers. But I think that is very immaterial relative to kind of the broader portfolio. And even in kind of those handful of assets, there is a view that we can turn around EBITDA in a meaningful way and allow that to kinda guide next steps and support of those. And so I think it is fair to say that the hotels that we have sold and the remaining hotels that we are selling represent kind of the larger kind of set of hotels where there is either performance challenges in our view, material capital needs, or kind of market based headwinds where we felt like exiting those and using those proceeds to delever is a better strategy.

John Massocca: Okay. And then in terms of, like, immediate impact with the remaining exit hotels, is there potential is there potential to see kind of I know it was kind of an outsized impact relative to the expectations from certain exit hotels, most of which are now gone, that impacted how you felt for your guidance to turn out. I mean, is there still some concern about the 2 hotels you are selling, you know, being an additional drag relative to expectations? Or is that kind of accounted for in the guide today? Just kind of curious if there is any color on how impactful those 2 assets could be and how they are performing maybe even quarter to date.

Brian E. Donley: Yes, John. I mean, we have tried to factor all that into our remainder of the year guidance. The revenue in hotel in Atlanta are actually cash flows Operations are down ever since the sale process started, but we factor that into our outlook and know, the other Atlanta hotel you know, add some outsized impacts, but again, factored into our guidance range.

John Massocca: Okay. And then last 1 for me. Not to put too fine a point on it, Brian. The recasting of the revolver is that mostly to kind of continue to have that additional liquidity availability on hand? Or could that be used potentially to refinance some of the other debt that is coming due here in the next couple of years? Just kind of curious how you are thinking about best utilizing that potential piece of financing if you end up, depending on how it ends up looking. Post recasting.

Brian E. Donley: Sure. As you have noted, we disclosed that we are in discussions regarding the facility. It does mature in June 2027. And we are to us, this is normal course staying ahead of our maturities and looking to solidify our liquidity through our recast facility. So we will have more to update in the coming months. We do expect something to be done by the end of the year.

John Massocca: I guess given how the portfolio looks today, how the balance sheet looks today, even how the, you know, broader market looks today, should we expect that to be significantly changed versus the structure today? Or is the target kinda have it look relatively similar to what is already available to you?

Brian E. Donley: Yeah. I am not gonna comment on specifics, but we are going to size the revolver and make sure we have appropriate level of liquidity for the company. Okay. I appreciate the color. that is it for me. Thank you.

Operator: This now concludes our question and answer session. I would like to turn the conference back over to Christopher Bilotto, President and Chief Executive Officer for any closing remarks.

Christopher J. Bilotto: Thank you for joining the call today. We look forward to meeting and seeing many of you at the upcoming industry conferences, including NAREIT later this month. That concludes our call.

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