Good morning and welcome to Service Properties Trust's third quarter 2020 financial results conference call. All participants are in listen-only mode. Please note this event is being recorded. I now 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, November 9, 2020. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made on 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 our Investor Relations section of the company’s website. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Form 10-Q to be filed later today with the SEC and in our supplemental, operating, and financial data found on our website at www.svcreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statement. And with that, I will turn the call over to John.

Thank you, Kristin and good morning. The COVID-19 pandemic and related lockdowns across most of the United States have had a dramatically negative impact on our economy, particularly hitting hotels, restaurants, and other service retail businesses such as theaters and fitness centers hard. We are confident that the most severe effects are behind us, as we have seen gradual improvement across our portfolio since April when the impact was at its most acute. Against this backdrop of challenging circumstances and a gradual recovery, we continue to take necessary steps to preserve capital and solidify our liquidity. As we announced last week, we amended our $1 billion revolving credit facility to ensure continued access to undrawn amounts and obtained waivers of all financial covenants through mid-July 2022, which Brian will discuss in more detail. As a reminder, in June, we raised new debt capital and largely addressed our 2021 debt maturities. Other steps we have taken to further reinforce our financial position include reducing our quarterly dividend, deferring non-essential capital spending, and moving forward with certain of our previously planned hotel sales, which Todd will discuss. As we were unable to reach a mutually beneficial resolution with IHG or Marriott, we made the decision to terminate these agreements and transition management and branding of these hotels to Sonesta. As a reminder, SVC owns 34% of Sonesta and will benefit from Sonesta’s growth as well as sharing more of the upside from the recovery of these hotels. We believe some of the new normals as we emerge from the pandemic will include a greater focus on safety, service, and travel experience. We also think videoconferencing technologies that people and businesses have utilized during the pandemic will have a longer-lasting negative impact on business travel, which we believe will translate to less impact and value from the major brands’ guest rewards programs. The rebranding of these hotels with Sonesta will also create greater flexibility in managing these hotels through these challenging market conditions, give us improved decision-making control over dispositions or alternative uses, and have a positive impact on this portfolio’s performance in the future. Initially, we expect to enter one-year management agreements with Sonesta through December 31, 2021, to allow for a thorough review of the highest and best use of each hotel. While hotel results still continue to compare favorably to the prior year quarter, year-over-year declines have moderated from the decline seen in the second quarter and sequential improvement is encouraging. Average occupancy for our comparable hotels in the third quarter was 46% compared with 30.1% in the second quarter. Average daily rate was $89.50 compared to $84.15 in the second quarter, and RevPAR was $41.17 compared to $25.33 in the second quarter. Importantly, we have seen improvement in most markets since the middle of April and our suburban extended stay hotels and select service hotels continue to outperform our urban full-service hotels, reflecting demand from airline crews, healthcare workers, special projects, or extended stay guests using the hotel’s temporary housing. SVC's extended stay hotels continue to have roughly a 30 percentage point occupancy premium to non-extended stay hotels, with our 183 extended stay hotels reporting occupancies of 62.1% during the quarter compared with occupancies of 32.6% and 26%, respectively, for our 95 limited service and 51 full service hotels. Results also vary by portfolio as leisure, first responders, social groups, project, and government demand outweighed business and group travel. The results favored hotels with competitively priced offerings in non-urban locations that could accommodate extended stays. For our comparable hotels, our Sonesta and Wyndham portfolios performed the best in terms of both nominal RevPAR and percentage decline from last year’s quarter. Conversely, our Radisson and Marriott portfolios saw the greatest percentage RevPAR declines versus last year and the weakest nominal RevPAR results. Subsequent to quarter end, hotel performance continues to improve. All but two of our 329 hotels are open, and overall occupancy has steadily increased to 46.7% for the four weeks ended October 24 from a low of 21% in April. We expect our diverse portfolio of suburban extended stay and select-service hotels will continue to outperform our urban full-service hotels through at least 2021. Importantly, our approximate 69% weighting of rooms in extended stay and select-service hotels has positioned us well and has helped us to mitigate cash burn rates. Also, extended stay hotels with full kitchens provide maximum flexibility for guests and markets with still restricted restaurant access, especially with outdoor dining options becoming a challenge in Northern markets. Turning to our net lease retail portfolio, TravelCenters of America, which represents about 25.6% of our minimum returns and rents, has continued to operate throughout the pandemic to support an efficient supply chain. Although negatively impacted by the closure of its full-service restaurants and a decline in gasoline sales, TA’s primary services to the trucking industry, including diesel fuel sales, quick-service restaurant offerings, and truck repair services have shown resiliency and enabled it to navigate the pandemic better than most of our tenants. TA is current on their rent obligations to us. Property level coverage at our TA locations was two times this quarter. Among our other service retail net lease tenants, rent collections have trended upward to 87.4% in October from a low of 45% in April, as businesses that were temporarily closed due to government mandates or guidelines have mostly reopened. Our service retail asset management team continues to work with our net lease retail tenants affected by opening restrictions. Requests for deferrals have slowed significantly, except for certain tenants in the hardest-hit industries like movie theaters, whose reopening prospects have changed. Tenants who requested deferrals at the height of the pandemic began to pay in September. Todd will discuss this in more detail. We believe we are past the worst of this crisis, supported by steady cash flow from TA and our retail net lease portfolio. We are well capitalized with ample liquidity and well positioned with a diverse portfolio of assets to successfully navigate a gradual recovery for the hotel portfolio. With that, I will turn it over to Todd to discuss our net lease portfolio in further detail as well as our recent transaction activity.

Thanks, John. As of September 30, 2020, we owned 804 net lease service-oriented retail properties, including our travel centers, with 13.7 million square feet, requiring annual minimum rents of $369.8 million, which represented 38% of our total annual minimum returns and rents. The portfolio was 98% leased by 183 tenants with a weighted average lease term of 11 years, operating under 129 brands in 22 distinct industries. The aggregate coverage of our net lease portfolio’s minimum rents was 2.12 times on a trailing 12-month basis as of September 30, 2020. Rent coverage for our largest tenant, TravelCenters of America, was 1.81 times for the trailing 12 months ended September 30, 2020, compared to 1.97 times for the prior year period, due to lower gross margins as a result of the pandemic and lower fuel prices. Representing 25.6% of our minimum rents and returns, TA is current on all of its lease obligations due to SEC. For our other net lease tenants, which represent 12.9% of our total minimum rents and returns, we collected 87.2% of rents during the third quarter, up from 59.3% during the second quarter. We collected 87.4% of October rents from these tenants. The most challenged industry in the net lease portfolio continues to be movie theaters, which represent 42% of uncollected October rent. Today, we have entered into rent deferral agreements with 51 net lease retail tenants, with leases requiring an aggregate of $53.4 million, which is 5.6% of SVC’s total annual minimum rents and returns. We have deferred an aggregate of $13.4 million of rent to date. Generally, these rent deferrals are for one to four months of rent and will be repaid by the tenants over a 12 to 24-month period. Repayment for a portion of these deferrals commenced in September 2020, and so far, we have collected 82% of the deferred rents due in September and October. Turning to leasing activity during the third quarter, we entered lease renewals for an aggregate of 497,000 rentable square feet at average rents weighted by rentable square feet that were 11.6% below prior rents for the same space. The weighted average lease term was 13.6 years, and leasing concessions and capital commitments were $4.9 million, or $9.86 per square foot. We also entered into new leases for an aggregate of 2,535 rentable square feet at weighted average rents that were 34.7% above prior rents for the same space. The weighted average lease term for these leases was nine years, and leasing concessions and capital commitments were approximately $189,000 or $74.64 per square foot. During the recent transaction activity, for the quarter ended September 30, 2020, we sold five net lease properties, totaling 46,000 square feet for an aggregate sales price of $5.9 million. Subsequent to quarter end, we sold three additional net lease properties, totaling approximately 83,000 square feet for an aggregate sales price of $4.8 million, excluding closing costs. We have entered into agreements to sell 39 hotels, including 24 Marriott branded hotels and 15 Wyndham branded hotels, with 4,601 rooms with a net carrying value of $204 million for an aggregate sales price of $218 million. We expect these sales to be completed in the fourth quarter of 2020 and the first quarter of 2021 and the use of proceeds to repay outstanding debt amounts. We amended our management agreement with Wyndham so they will continue to manage the 15 Wyndham hotels under contract until they are sold, and we have already transitioned the management and brands of four of the five remaining Wyndhams to Sonesta. We originally targeted 53 hotels for sale, but in addition to the four Wyndhams that have been transitioned to Sonesta, we have not been able to come to acceptable terms on nine Marriott branded hotels and one Wyndham full service hotel. The management of the nine Marriott hotels will be transitioned to Sonesta on December 15, 2020. The Wyndham properties remain available for sale. Relative to the discount sale transactions for full-service urban hotels that have recently occurred in the market, pricing for the hotels that are under contract to sell is at or near pre-pandemic levels. Generally, we have found that the extended stay hotels marketed for sale have maintained their values due to strong buyer demand from investors interested in continuing to operate the properties as hotels as well as from groups looking to convert to multifamily. I will now turn the call over to Brian.

Thanks, Todd. Starting with our consolidated financial results, normalized FFO was $23.2 million in the 2020 third quarter compared to $155.6 million in the prior year quarter, a decrease of $0.81 per share. The decrease was due primarily to lower returns recognized under our IHG and Marriott agreements. As discussed last quarter, we fully utilized the Marriott guarantee and security deposit in the second quarter and utilized the remaining $9 million of security deposit under the IHG agreement in the third quarter of 2020. The minimum returns recognized under the IHG and Marriott agreements declined by $42 million and $35 million respectively compared to the prior year quarter. Third quarter operating losses under our Sonesta and Wyndham portfolios resulted in year-over-year declines of $22 million and $10.7 million respectively, a $19 million decline in FF&E reserve income, and a $28 million increase in interest expense were partially offset by the $25 million positive impact from the SMTA transaction we closed at the end of the third quarter of 2019. G&A expense for the 2020 third quarter was $12.4 million, roughly flat versus the prior quarter. Lower business management fees due to RMR in the 2020 quarter were offset by elevated legal and other public company costs over the 2019 period. Adjusted EBITDAre was $103.6 million in the 2020 third quarter, representing a 50.5% decline from the 2019 third quarter. Turning to operating results at our 314 comparable hotels this quarter, RevPAR decreased 56.6%, gross operating profit margin percentage decreased by 18.2 percentage points to 21.2%, and gross operating profit decreased by approximately $144 million over the prior year period. Below the GOP line, costs at our comparable hotels were down $28 million from the prior year as a result of lower FF&E reserve contributions, which are suspended for certain of our hotel agreements, and lower system and other fees paid to the hotel brands. Hotel EBITDA, which we have historically referred to as cash flow available to pay our minimum returns and rents for our comparable hotels, declined $116 million, or 94.2% to $7.1 million compared to the prior year quarter. On a sequential basis, hotel EBITDA for our 314 comparable hotels increased $41.5 million compared to losses of $34.4 million in the second quarter of 2020. Occupancy improved 15.9 percentage points, and RevPAR increased 63% over the second quarter of 2020. Of note, we are now presenting the details of our hotel operations and the calculation of hotel EBITDA in our earnings release and supplemental information package that is available on our website. Our 15 non-comparable hotels, which are all full-service hotels that either remain closed or have only recently reopened from the pandemic shutdown, generated losses of $13.4 million during the quarter. Our consolidated portfolio of 329 hotels generated net losses of $6.3 million for the quarter. Turning to our balance sheet and liquidity, as of quarter end, debt was 51.9% of total gross assets, and we had $86 million of cash, including $38.1 million of cash escrowed primarily for future improvements to our hotels. As I mentioned earlier, we exhausted the credit support we had under both the IHG and Marriott agreements. As of September 30, 2020, the guarantee available to cover shortfalls in our cash flow available to pay our minimum returns and rents under our Hyatt agreement for 22 hotels was $3.1 million, and we project that will be exhausted during the fourth quarter of 2020. The guarantee balance under our Radisson agreement for nine hotels was $19.5 million as of September 30, 2020. Based on current projections, the Radisson guarantee could be exhausted by the third quarter of 2021. During the 2020 third quarter, we advanced an aggregate of $10.7 million of working capital to certain of our hotel operators to cover projected operating losses. We are currently projecting that an additional $20 million of working capital advances could be funded in the fourth quarter, for a total of approximately $110 million for the full year 2020. As Todd discussed, we have deferred $13.4 million of rent to date for certain retail tenants. During the third quarter, we recorded reserves for uncollectible revenues of $2.4 million for certain of our net lease tenants. We recognized all changes in the collectibility assessment for an operating lease as an adjustment to rental income. We funded $29.9 million of capital improvements during the third quarter, primarily for maintenance capital and ongoing renovations at certain Marriott and Sonesta hotels. Year-to-date, SVC has funded $108.4 million of capital improvements, and we currently expect to fund approximately $50 million of capital improvements in the fourth quarter of 2020, primarily for maintenance, ongoing renovations, and the costs to transition the management and branding of certain hotels to Sonesta. We have not yet completed our budget for 2021 capital expenditures, and we expect we will have more clarity on anticipated spending during our fourth quarter earnings call. As John noted, we amended the credit agreement governing our $1 billion revolving credit facility and $400 million term loan and have secured waivers in all of the existing financial covenants in the agreement through July 15, 2022. Following the closing of the amendment, SVC will provide first mortgage liens on 74 properties owned by subsidiaries that we have pledged equity interest in to secure our obligations under the revolver. These properties include 62 travel centers in 26 states with a gross book value of $1.2 billion and 12 hotels in nine states with a gross book value of $641 million as of September 30, 2020. Other key terms in the agreement include the repayment of our $400 million term loan using undrawn amounts under our revolving credit facility and a 30 basis point increase in the interest rate premium over LIBOR we pay on outstanding amounts. In addition to the full covenant relief, we also secured the flexibility we need as we look to reposition the hotel portfolio going forward. We have the ability to fund up to $250 million of capital expenditures per year as well as up to $50 million of certain other investments per year. Other limitations we agreed to in the amendment we signed back in May, including the minimum liquidity requirement, will remain in place. Regarding our liquidity position, our cash burn from the hotel portfolio in Q3 was relatively small at around $2 million to $3 million per month. Although we currently expect our cash burn for our hotel portfolio to modestly accelerate in Q4 and Q1 relative to Q3 given some seasonality and the rebranding of a substantial number of hotels starting in December. Our solid base of triple net lease assets, assuming current collection rates, covers our corporate overhead and debt service costs. Assuming the trends we are currently seeing continue, we believe we have ample liquidity through 2022. Our next major debt maturity is in August of 2022, and we will continue to assess and explore all of our options to improve our liquidity position during these extraordinary times. Operator, that concludes the prepared remarks. We are ready to open the line up for questions.

Thank you. The first question comes from Bryan Maher from B. Riley FBR. Please go ahead.

Good morning guys and thank you for all that information. It’s super helpful. John, regarding the vaccine news this morning and everything rallying, first of all, have you received a call from Marriott wanting to reverse their decisions? And secondly, is it going to slow your disposition thought process as the sector recovers?

Thanks, Bryan. So far, I have not received any calls from IHG and Marriott this morning. I think that this morning’s news, if it continues to pan out, is very favorable for the industry. If everybody can get the vaccines and boosters by the end of next year, the recovery in the hotel space should accelerate in 2022, which is really good news and sooner than a lot of people are expecting. In terms of our disposition activity, the hotels that we have identified for sale were either in weaker markets or for various reasons were not performing well in a lot of cases, and the pricing that we achieved matched up with estimations of value that we received from brokers before the pandemic hit. So, we feel like the pricing that we have got under the agreements we have entered into is reasonable regardless of a vaccine. Therefore, we are going to continue forward with those transactions. It may impact what we do with the remaining hotel portfolios as we examine the highest and best use once we transition some of the hotels to Sonesta.

Great. And we have a lot of questions on the transition of hotels to Sonesta. Can you give us some background on what’s going on there with Sonesta getting ready to take on so many hotels and becoming a much bigger brand? Is it running ahead of schedule, behind schedule? We noticed that Wyndham is going to continue to manage some hotels for a while. Can you give us any color on how that transition process is going?

Sure. First of all, the Wyndham extension really has nothing to do with Sonesta. It’s a reflection of the timing of when our buyer would be ready to close. It just didn’t make sense to transition hotels from Wyndham to Sonesta to our buyer’s management company. So, Wyndham was willing to extend there. In terms of the Sonesta situation, they are taking on a significant amount of growth with the transition of these hotels, and they have been working hard to increase their staffing. They are well on their way to creating a shared services platform of much larger scale that can accommodate the select-service hotels in the IHG portfolio and subsequently in the Marriott portfolio. I think they are very close on agreeing to space to add that capability, most likely in the state of Florida. They have significantly enhanced their management team on both the finance and operation side. They recently hired a new Chief Operating Officer. So, they are taking a lot of positive steps. I would say that they are not behind or ahead; they are at about where we expected they would be. We do expect that they will be ready to take these hotels on. Essentially, 99 of the hotels are going to transition with IHG managing through November 30 and Sonesta taking over on December 1. The hotels in Toronto, two hotels there and the one hotel in San Juan will transition during December. Then there will be nine hotels for Marriott that convert on the 15th, and then the rest of the Marriott portfolio subsequently next year. So I think Sonesta is going to be ready.

Great. Thanks for that and good luck with everything.

The next question comes from Jim Sullivan from BTIG. Please go ahead.

Yes, thank you. John, I wonder if you could update us on any decisions made since the time that the Marriott agreement was changed at the beginning of this year. The company had committed to invest upwards of $400 million into the assets in the portfolio and I think the last number that I recall was upwards of $80 million was supposed to be invested this year. Can you provide any updates regarding the balance of the $400 million that was not invested and if there’s a plan moving forward?

Yes. So, we had – I will let Brian tell you the exact amounts that we have spent in a moment, but when the pandemic hit, we were well on our way with planning for a number of renovations to not just the Marriott portfolio, but we had renovations that were ongoing in the IHG, Radisson, and Hyatt portfolios. When the pandemic hit, we restricted our CapEx focused on liquidity and maintaining the quality of our balance sheet. We finished and continued to spend on projects that were well underway, but didn’t start too many new projects. The $400 million wasn’t expected to be spent all in 2020; it was roughly planned to be invested over a two to three year period. We have continued our planning process. As part of that, we have been doing the design work for the Marriott hotels, which will transition to Sonesta. The planned renovation will work well for the hotel, regardless of the branding, as it is just a well-done design concept. So, I think we approved ordering the FF&E for that renovation last Friday. It will take some time for that, especially considering Chinese New Year, between the normal time it takes to furnish the hotel, but we plan to begin renovations in the second half of next year. For the rest of the portfolio, we will decide whether to go forward with renovations, depending on if some of the extended stay hotels may be repositioned or repurposed for multifamily use in some markets, which seems to be a higher and better use than hotels at this point. We won't renovate those hotel standards if they are going to become apartments. Regarding the courtyards, we will need to revisit whether we need to complete 100% of the bathrooms or focus on a smaller percentage initially. The flexibility we have as we move forward may be more advantageous than otherwise.

To add to that, during the year, we anticipate approximately $50 million of CapEx for Q4, with roughly $30 million affecting rebranding costs, as we look to move 100 plus hotels in December. For those transitions, we are using about $300,000 per hotel as the benchmark for changing signage and systems at each of these hotels as they move into Sonesta. The Marriott amounts year-to-date were roughly around $70 million, and we expect another 15 to 20 million in the fourth quarter. We continue to operate under the agreements we signed with Marriott, and at some point in '21, when we move these over, we will reevaluate what projects will proceed and how we’ll approach the hotels.

And lastly, is there a scope for material reduction in the operating costs for the hotels, if they transition to Sonesta?

I think that, initially, it will be a bit choppy as more than 200 hotels transition, but we hope that, once we have a steady state and the shared services platform is operating, it will be less costly from an operating expense perspective than what we’re experiencing today. However, I can’t give you exact projections at this point as it’s too early.

When discussing the amounts of the security deposits and guarantees used in the third quarter, could you confirm the total amount between Hyatt, Radisson, and any other deposits or agreements at the end of Q3?

As of Q3, the Hyatt agreement guarantee is down to around $3 million and the Radisson is $19.5 million, so roughly $22 million total from those two contracts.

And you expect the Radisson guarantee to be used based on current industry trends in Q3 of '21, correct?

That's correct.

Thank you. The next question comes from Dori Kesten from Wells Fargo. Please go ahead.

Thanks, guys. Good morning. Marriott had some comments on their call regarding the ROI of the assets as Sonesta’s versus Marriott’s. Can you provide detail on how you underwrote the portfolio under the two brand families?

I think I saw those comments, and I don’t want to get into any mudslinging, but the Marriott portfolio is stable and large, while the Sonesta portfolio had several key assets under renovation. The return calculations discussed were not truly apples-to-apples. In converting these hotels to Sonesta, it is in the interest of our shareholders to take control of the situation and be proactive, rather than allowing IHG and Marriott to avoid payment. By converting to Sonesta, we ensure that cash flow that would go to replenish guarantees and security deposits now goes to us. We believe this will result in better earnings for SVC. Additionally, we have noted that the finance team has seen savings due to less travel expenses from corporate America. As a result, we don't believe business travel will recover as quickly as others might project. We think the value of the guest rewards programs historically tied to business travelers will lessen post-pandemic. This increased scale for Sonesta will position them to be much more competitive as they gain recognition as a larger brand. We have done various modeling and projections but will really need to see how things unfold.

Do you have any initial thoughts on expenses per occupied room? We can make assumptions on the top line for how Sonesta will perform versus Marriott, but do you have insights on their expense structure?

Because of the growth and the new platform Sonesta is establishing, it's a bit too early to tell. We should be able to provide more clarity during our next call.

Can you walk us through your thoughts on equity issuance? Historically, you've closely matched funded equity issuances with acquisitions. Is there a change in strategy?

We still believe the shares are undervalued, and we're not thinking about equity at these levels. We think we have adequate liquidity and will keep managing the balance sheet as we have been while evaluating all options. Equity issuance is not something that will sway us at this point.

Regarding keeping the Marriott hotels in a separate management agreement, should we have a new number in our heads or is it too early for sales expectations?

The current numbers for hotels under agreement to sell is $200 million. We previously discussed $300 million, but we've decided not to sell about 14 of those. So, I believe $200 million is a solid number to use for now. As John mentioned, we will likely identify some other hotels for sale over the next year during the transition of the IHG and Marriott hotels to Sonesta, as there may be overlap in markets.

Thank you.

Thank you very much for joining us today. We look forward to catching up with some of you at Virtual NAREIT. Take care.

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