Good day and welcome to Service Properties Trust First Quarter 2020 Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Kristin Brown. Please go ahead.

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 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, May 11th, 2020. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC. In addition, this call may contain non-GAAP financial measures including normalized funds from operation or normalized FFO and adjusted 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 we 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. The COVID-19 pandemic and related lockdowns of most of the United States had a dramatically negative impact on our economy, and particularly hard hit has been hotels, restaurants, and other service retail businesses like theaters and fitness centers. While the sudden absence of demand midway through March significantly impacted the typically weaker first quarter, the most severe effects are expected to be felt in the second quarter. Thereafter, if the economy safely reopens, we expect gradual improvement. SVC has maintained a strong balance sheet and has well structured agreements, which enabled us to be well positioned as we entered the pandemic-driven lockdown, and we are taking necessary steps at both the corporate and property levels to help navigate the storm as we have in previous crises. We are taking multiple necessary and difficult actions to preserve capital and our liquidity position. This morning, we announced we amended the credit agreement governing our $1 billion unsecured revolving credit facility and $400 million unsecured term loan. The amendment, which Brian will discuss in further detail, includes a waiver of certain financial covenants through March 31, 2021 and provides continued access to undrawn amounts under the credit facility. Also, as we announced in March, SVC's Board of Trustees reduced the company's regular quarterly cash distributions on our common shares to $0.01 per share, which will preserve up to approximately $262 million of capital in 2020. Our planned capital expenditures for the remainder of 2020 will be prioritized to maintenance capital, projects in progress, and contractual obligations. At our hotels, our asset managers continue to work diligently with our hotel operators to mitigate the impact of the pandemic on our hotel operations. Efforts to reduce operating expenses include, but are not limited to, staffing reductions and furloughs, utility…

As of March 31, 2020, SVC owned 813 net lease service-oriented retail properties including our TravelCenters with 14.5 million square feet requiring annual minimum rent of $379.5 million, which represented 39% of SVC's total annual minimum returns and rents. The portfolio was 98% leased by 187 tenants with a weighted average lease term of 11.1 years operating under 128 brands in 22 distinct industries. The aggregate coverage of SVC's net lease portfolio's minimum rent was 2.28 times on a trailing 12-month basis as of March 31st, 2020, compared to 2.32 times as of December 31st, 2019. Rent coverage for our largest tenant TravelCenters of America was 1.87 times for the trailing 12 months ended March 31, 2020 versus 1.96 times for the prior-year period, driven by lower non-fuel margins and increased operating costs. Representing 25.5% of SVC's minimum rents and returns, TA is current on all of its lease obligations due to SVC. SVC's other net lease tenants represent 13.7% of SVC's total minimum rents and returns. As of April 30th, SVC has collected 45% of April rents from these tenants. To date, SVC has entered into rent deferral agreements with 84 net lease retail tenants with leases requiring an aggregate of $62 million or 6.4% of total annual minimum rents and returns. Generally, these rent deferrals are for one to three months of rent and will be repaid by the tenants over a 12-month period beginning in September 2020. SVC has deferred an aggregate of $8.6 million of rent to date, comprising $4.7 million for April, $2.4 million for May and $1.5 million for June. Notably, we've recently experienced several of our tenants resending previously requested rent relief as a result of accessing liquidity through the Paycheck Protection Program and anticipate that many of our other small and mid-size…

Thank you, Todd. Starting with operating results at our 321 comparable hotels this quarter, RevPAR decreased 19.5%; gross operating profit margin percentage decreased by 10.6% to 24%, and gross operating profit decreased by approximately $67 million, driven primarily by the sharp occupancy declines during the last two weeks of March. Below the GOP line, costs at our comparable hotels were down from the prior year as a result of lower FF&E reserve contributions, partially offset by higher insurance costs. Cash flow available to pay our minimum returns and rents for our comparable hotels declined $63.5 million or 64.7%. Cash flow coverage of our minimum returns and rents for our 321 comparable hotels decreased to 0.20 times for the 2020 first quarter compared to 0.70 times for the prior year quarter. Turning to our consolidated financial results, normalized FFO was $123.1 million in the 2020 first quarter compared to $144.6 million in the prior-year quarter, decrease of $0.13 per share. The decrease was due primarily to operating losses at our Sonesta and Wyndham hotels in the 2020 first quarter and an increase in interest expense, partially offset by increased returns and rents as a result of our 2019 acquisition activity. Adjusted EBITDAre was $195 million in the 2020 first quarter. Our adjusted EBITDAre interest coverage ratio was 2.7 times for the first quarter and net debt to annualized adjusted EBITDAre was 7.9 times at quarter-end. We have previously indicated our target leverage levels to be around 6 times. Based on the current environment, we expect our leverage metrics to continue to be elevated until our hotel portfolio results stabilize. G&A expense for the 2020 first quarter was $14 million compared to $12.2 million for the first quarter of 2019. The increase in G&A expense was a result of higher business management…

[Operator Instructions] Our first question today comes from Bryan Maher with B. Riley FBR.

Can you go into a little bit more detail on the type of net lease retail tenants that are requesting deferrals? And I think you kind of quickly went through the couple of months what deferrals you expected in millions, but to what magnitude do you think that those deferrals might increase from here?

Bryan, this is Todd. So we're typically seeing the rent deferrals in - large portion of them are in the movie theaters, in the fitness centers, the tenants in industries where the operators just shut down at least for the near term. We also are seeing a lot in the casual dining as well as some of the quick service. I'd say that's the majority of where the deferral requests are coming. We have deferred - the majority of it is April. A lot of those requests came in kind of that last week of March before a lot of the CARES Act have been finalized and where the tenants really understood where they could be getting some government relief from. So for context, I'd say of the rent deferrals that we've granted in April, only 43% of those, we granted for May. So while collections are consistent with where they were at this time in April, we're cautiously optimistic that may have been a little better, and as some of these restrictions are lifted and some of these tenants start to open for business again or open more of the aspects of their business, and some of these tenants can take advantage, the larger tenants specifically can take advantage of specifically the Main Street Lending Program and programs that they may not have qualified for before. We're hopeful that June, July, August, we do see some improvements. In May, we did have a few tenants that requested May, there have been requests in April, but for the most part, most of the requests that we've granted came in that last week of March, first week of April.

And are you still seeing April rents trickle in as we move through May? And as it relates to the deferrals, are you requesting that the tenants provide you with financials in order for you to ascertain their ability to pay back?

Yes. The first part of your good question, most of the April rent collections, I think we accounted for. Again, we've collected 45%. 42%, we've deferred and then there is another 13% where we're currently negotiating some kind of blend and extend with tenants where we may end up - we won't forgive rent, but we may abate that April rent, but there is a handful of tenants where we will likely put them into default and exercise our revenues under the lease. We haven't done that yet, but we will - our first priority is to try to work with these tenants, but we may end up doing that. What was the second part of your question, Bryan?

I think - I forgot if you answered it or not, the finances. If you've been requesting the financials to ascertain ability to pay.

Yes. We are requesting the financials. We didn't always get those at the end of March. Again, they're coming in - the requests were coming in very quickly, and more rent was coming due. And the first thing we looked at was, okay, is your store open for business, can you get some kind of governmental relief, what do the financials - we didn't request the financials yet, we didn't always get them, but we are trying to get them when we can. A lot of these - what we're seeing a lot of these restaurants, they operate at very low margins that carry high debt load. So it's - we're not anymore surprised that those came in and we had to grant those deferrals. Again, the movie theaters and fitness centers that were with government mandates, that had to shut down, we weren't surprised that those came in either. We do get a number that we denied as well and those tenants still end up paying. So we are seeing some of that where some of the tenants are requesting deferrals or some kind of relief. We're getting the financials, we're starting to talk to them, we're understanding that they're open for business and we've denied those. So we are taking it on a case by case basis, and when we can get financials, where they otherwise would have been able to provide them, at least we are doing that.

Okay. And lastly and probably most importantly, when the security deposits for the hotel operators, namely Marriott and InterCont run out probably in the second quarter, I know you guys noted in your prepared comments what Marriott contractually agreed to pay, I think, you said 80% of the minimum rents and InterCont, to avoid default, but this crisis is unlike what we saw in '01 and the great recession, and I've always been kind of amazed that they re-up on these contracts when they come up for renewal, but what do you assign the probability that this time around they just drop their hands after the security deposits run out and just let it default? I mean, how do you think about that?

Well, Bryan, my crystal ball is nothing better than yours, but the beauty of our large portfolio transactions is that we pooled, in the case of Marriott, over 120 properties and with IHG, we pooled 100 properties, and they are good, well branded, well located hotels that typically perform well under normal circumstances and we do have the ability to deflag and rebrand as other types of hotels if there is a default. So I think it's important to these brands not to lose that volume of hotel in their systems. And so I think there is a better chance that we do get paid even after the credit support is burned through.

This concludes our question-and-answer session. I would like to hand the call back over to John Murray for any closing remarks.

We just want to thank everybody for joining us on today's call. Stay well.

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