Good day and welcome to the Service Properties Trust Third Quarter 2019 Financial Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Kristin Brown of Investor Relations. Ms. Brown, the floor is yours ma'am.

Good morning. Joining me on today's call are John Murray, President; Brian Donley, Chief Financial Officer; and Todd Hargreaves, Vice President. Today's call includes a presentation by management followed by a question-and-answer session with analysts. Please note that the recording, transmission, and transcription of today's conference call is prohibited without the prior written consent of SEC. 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 SEC's present beliefs and expectations as of today, November 8th, 2019. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC. In addition this call may contain non-GAAP financial measures including normalized funds from operations or normalized FFO and adjusted EBITDAre. Reconciliations of normalized FFO and adjusted EBITDAre to net income as well as components to calculate AFFO are available in our supplemental package found in the Investor Relations section of the company's website. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Form 10-Q 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 statements. And with that, I'll turn the call over to John.

Thank you, Kristin and good morning. This morning we reported third quarter normalized FFO of $0.95 per share, a decrease of 10.4% compared to the $1.06 per share reported in the third quarter of 2018, primarily related to our disposition of 20 travel centers and the related lease amendments with TA we completed in January, lower returns recognized in our hotel portfolio, and higher interest expense, partially offset by our acquisition activity. The most significant event this quarter was completing our transformative $2.4 billion net lease portfolio acquisition from SMTA REIT and the name change to Service Properties Trust. The SMTA transaction added 767 net lease service-oriented retail properties leased by 279 tenants under 163 brands in 23 industries. We believe the new name more accurately represents our portfolio composition of hotels, service, and necessity-based retail net lease properties. As previously announced, we are targeting $800 million of dispositions to reduce leverage incurred to complete the SMTA transaction. Going forward, we expect hotels to generally comprise 55% to 60% of our portfolio and triple net lease service retail including travel centers to comprise 40% to 45%. Todd will provide an update on the positive progress we've made so far in asset sales in a moment. Turning to the consolidated results of our hotel portfolio, SVC's comparable non renovation hotels exceeded industry performance with a 0.9% increase in RevPAR this quarter. Hotels that were renovated in 2018 recognized healthy double-digit RevPAR growth this quarter and we expect growth from these hotels through the balance of the year. However renovation disruption continued, headwinds from new supply, and reduced citywide compression in certain markets offset this tailwind. In the third quarter, we had 13 comparable hotels under renovation versus 16 hotels under renovation in the third quarter of 2018. Renovations were evenly divided…

Thanks John. As John mentioned, we closed on the SMTA transaction in late September. As of September 30th, 2019, SVC owned 946 net lease service-oriented retail properties including our travel centers with 17.6 million square feet requiring annual minimum rent of $419 million, which represented 41% of SVC's total annual minimum returns and rents. The portfolio was 98% leased by 280 tenants with a weighted average lease term of 11.3 years, operating under 163 brands in 23 distinct industries. The aggregate coverage of SVC's net lease portfolios' minimum rent was 2.27 times as of September 30th, 2019. Rent coverage for our largest tenant TravelCenters of America was 1.92 times for the quarter up from 1.9 times in last year's quarter driven by increased fuel volumes sold, fuel margin, and non-fuel margin. Coverage was 1.84 times for the trailing 12 months ended September 30th, 2019, up from 1.79 times for the prior 12 months. As we previously announced, we plan to sell approximately $500 million of the net lease properties we acquired in the SMTA transaction. We are on track to execute sales in excess of $500 million by year end 2019. In October, we entered in agreement to sell 126 net lease properties for $438 million. We expect this transaction to close in November. We also sold two additional net lease properties in October for $63.2 million. This included the sale of the Las Vegas office property at a 6.4% cap rate or $411 per square foot a record price per square foot for the Las Vegas office market. We have one additional net lease property that is currently being marketed. The net lease assets we selected for sale are generally a cross-section of assets across various industries and certain assets that did not strategically fit the portfolio. Turning now to the recent investment activity. In October, we acquired the 261 room Chicago Palomar Hotel for a purchase price of $55 million or $211,000 per key, which we believe is well below replacement cost. This hotel opened in 2010 has 43 suites. There's over 10,000 square feet of function space and one food and beverage outlet. The hotel was added to our IHG management agreement. I will now turn the call over to Brian.

Thanks, Todd. Starting with operating results at our 322 comparable hotels this quarter, RevPAR decreased 0.3%, GOP margin percentage decreased by 176 basis points to 39% and gross operating profit decreased by approximately $9.4 million, which was the result of the negative impacts of renovations and increased operating costs. All our comparable portfolios experienced declines in GOP with the exception of Radisson, but results from our IHG Marriott 234 and Sonesta portfolios made up the majority of the decrease. Labor-related cost increased approximately 4% across the portfolio while repairs and maintenance and additional marketing efforts also contributed to increased expenses this quarter. Below-the-line GOP costs at our comparable hotels increased by $4.8 million from the prior year, driven primarily by increased real estate tax expenses and tax appeal settlements recorded in the prior year at certain hotels. Cash flow available to pay our minimum returns and rents for our comparable hotels declined $14.2 million or 9.4%. Cash flow coverage of our minimum returns and rents for our 322 comparable hotels decreased to 0.97 times for the 2019 quarter, compared to 1.09 times for the prior year quarter. As of quarter end, the balance of our security deposits and guarantees under our hotel operating agreements remained unchanged from the prior quarter at $217 million. Turning to SVC's, consolidated financial results. Normalized FFO was $155.6 million in the 2019 third quarter compared to $174.7 million in the 2018 quarter, a decrease of $0.11 per share. The decrease was part due primarily to the disposition of 20 travel centers and our lease amendments with TA in January, declines in realized returns under our IHG and Sonesta agreements and an increase in interest expense. This was partially offset by increases in minimum returns and rents from our acquisition activity and our funding of capital…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Bryan Maher of B. Riley, FBR. Please go ahead.

Great, thank you. Good morning. So can you give us any idea going forward, John what you're thinking in the way of acquisitions being that it's been a pretty active capital recycling year, and you think you're out of the game for a while? Or is it very selective? Or are you going to focus on one area over the other?

That's a good question Bryan. We have during the last quarter, really a couple of quarters been focused on the disposition plans to reduce leverage in connection with the SMTA transaction. But we have -- we did complete one Kimpton Hotel acquisition with IHG this quarter and we are currently looking at both net lease acquisitions and hotel acquisitions at the current time. We are being selective and we had dialed things back a bit while we focused on the disposition plan. But we expect to generally have approximately a 50/50 mix of hotel and net lease property acquisitions. They'll probably be a little bit lumpy particularly as we ramp up our net lease acquisition activity. But we're going to focus on master leases. We're going to focus on diverse tenant base. We're going to focus on coverage monthly financial reporting by the tenants. So there's a lot of things we're looking for there, but we have good relationships with a number of brands on the hotel side and -- as well as relationship with Sonesta. So, we expect acquisition activity on the hotel side as well probably in the range of a couple of hundred million dollars on both sides over the course of…

As you've gotten your hands dirty with the net lease portfolio and with dispositions, was there a geography or an asset type that you felt less comfortable with and thus that was in the pool of divestitures? And going forward, is there a segment of net lease that you're now involved in that you seem to like that you might expand upon?

I think generally speaking, we're trying to avoid those areas of retail where we think there's better opportunities for disruption from e-commerce. And so you'll probably see us avoid retail that's apparel based, probably avoid retail that's home furnishings type basis, we're going to probably -- we're weighted little bit more towards restaurants and quick service restaurants today. So we're not in a rush to growth that side of things dramatically, but we'll probably do some acquisitions there and probably won't grow our movie theaters as much.

Okay. And then last for me on the Sonesta rent coverage. We noticed kind of a downtick there. Can you tell us maybe what's going on there? Was that an aberration? Is it -- is there a problem there? How should we be thinking about Sonesta?

This is Brian. I'll take this one. So there's a little bit of noise in the portfolio. Just to give you some context, the full -- the 12 full-service hotels in that portfolio represent approximately 70% of the revenues. And we had four full-service hotels that were under renovation are closed. The Clift Hotel in San Francisco was closed in the third quarter for a complete renovation hotel in Lapides [ph], California, the Chase Park Plaza in St. Louis and our Fort Lauderdale hotel also had a drag. You strip those four out coverage was actually up a little bit 0.78 times versus 0.76 times. In the full-service hotels, the eight that are remaining outside of those four, coverage is over 0.9 times. So again it was a noisy quarter. The extended stay properties there's some renovation ramp-up going on but also a little bit of weakness as well. But overall I think the renovation activity is the primary reason.

Okay, thank you. That’s all for me.

Thank you, Bryan.

[Operator Instructions] At this time, we're showing no further questions. So we'll go ahead and conclude today's question-and-answer session. I would now like to turn the conference call back over to Mr. John Murray for any closing remarks. Please go ahead sir.

Thank you all for joining us today and we look forward to hopefully seeing some of you at the NAREIT Conference next week in Los Angeles. Thanks.

And we thank you sir also for your time today and to the rest of management team. Again the conference call has now ended. At this time you may disconnect your lines. Thank you. Take care and have a great day everyone.