Service Properties (SVC) Earnings Call Transcript

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DATE

Feb. 26, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Christopher J. Bilotto
• Vice President — Jesse Abair
• Treasurer and Chief Financial Officer — Brian E. Donley
• Director of Investor Relations — Kevin Barry

TAKEAWAYS

• Hotel Asset Dispositions -- 112 hotels totaling approximately 14,600 keys sold during the year for nearly $860 million in gross proceeds.
• Debt Reduction -- Proceeds from hotel sales and internal cash used to fully redeem $800 million of 2026 maturities, and $300 million of 2027 notes.
• Q4 Hotel Portfolio Performance -- RevPAR increased 70 basis points year over year, outperforming the U.S. lodging industry's 1.1% decline.
• Retained Portfolio Hotels -- 77 hotels showed RevPAR up 170 basis points, and occupancy up 140 basis points year over year in the quarter.
• Hotel EBITDA -- Adjusted hotel EBITDA totaled $21.3 million in Q4, declining 35% year over year due to increased labor costs, overhead, and lack of prior-year business interruption insurance gains.
• Sonesta-Managed Hotels for Sale -- Seven full-service properties (2,010 keys) being marketed with expected proceeds of $175 million to $200 million, anticipated to increase annual EBITDA by $13 million upon sale.
• Net Lease Portfolio -- 760 properties, 97% leased, produced $390 million in annual base rents, with a 7.4-year weighted average lease term at year-end.
• Net Lease Acquisitions -- $101 million invested in new assets during the year, delivering an average GAAP cap rate of 8.3%, a cash cap rate of 7.5%, and weighted average lease term of 14.3 years.
• Net Lease Financing -- $745 million raised through new five-year mortgage financing collateralized by 158 properties (appraised at $1.1 billion) at a 5.96% coupon, with proceeds to fully redeem $700 million of 8.38% notes due 2029.
• Annual Interest Savings -- New net lease financing expected to reduce annual cash interest expense by $14 million, or $0.08 per share.
• Normalized FFO -- Q4 normalized funds from operations were $27.5 million, or $0.17 per share, flat compared to the prior year quarter.
• Adjusted EBITDAre -- Adjusted EBITDAre was $125.6 million, down $5 million from the prior year quarter.
• Full-Year 2026 Guidance – Hotels -- RevPAR projected between $108 and $113; hotel EBITDA expected to range from $124 million to $144 million for 94 hotels owned at year-end.
• Full-Year 2026 Guidance – Net Lease -- Net lease net operating income projected at $383 million to $386 million.
• Full-Year 2026 Guidance – Consolidated -- Adjusted EBITDA forecasted at $500 million to $520 million, normalized FFO per share at $0.65 to $0.77, and total CapEx of $120 million to $140 million.
• Capital Expenditures -- Q4 investment of $106 million; full-year 2025 total $238 million, with significant projects including the Nautilus in Miami, and large-scale renovations at multiple Sonesta properties.
• Net Lease Portfolio Lease Executions -- 536,000 square feet newly leased in Q4, with average cash rent roll-up of 15%, and average term exceeding nine years.
• Debt Profile and Covenants -- Current debt totals $5.2 billion at a weighted average interest rate of 5.95%; secured debt to total-asset covenant rose to 33% of a 40% maximum limit.
• Portfolio Mix -- Post-Q4 and anticipated transactions, EBITDA mix expected to be approximately 70% net lease, and 30% hotel by end of 2026.
• EBITDA Impact from Dispositions -- Nine remarketed focused service hotels generated approximately $3 million positive EBITDA; anticipated net $10 million annual drag reduction from planned hotel asset sales.

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RISKS

• Adjusted hotel EBITDA declined 35% year over year in Q4 due to "elevated labor costs, higher hotel overhead costs, and the impact of non-repeat business interruption insurance recognized in the prior year."
• Disruptions from hotel dispositions contributed to operational performance pressures, described as "largely transitional" by management.
• Benefit expense pressures and labor costs continue to "hamper margins," with margin guidance assuming these costs remain elevated.
• Net lease rent coverage dropped below 2x, mainly attributed to "TA coverage dropping seven basis points quarter over quarter," indicating operational softness in the travel center segment.

SUMMARY

Service Properties Trust (NASDAQ:SVC) completed substantial hotel asset sales, materially deleveraged through retirements of 2026 and 2027 notes, and arranged a $745 million mortgage financing at improved interest rates. Consolidated hotel RevPAR outperformed the broader U.S. market, though hotel EBITDA faced pressure from expense growth and operating disruptions linked to asset dispositions. Guidance for 2026 indicates measured performance improvement, ongoing capital recycling, and reduced CapEx, with free cash flow expected post-investment. Annualized base rent in the net lease portfolio rose on acquisition activity, and the financing of 158 net lease assets will lower annual interest costs.

• Hotel portfolio repositioning continues, as the sale of seven Sonesta-managed properties in 2026 targets a $13 million annual EBITDA lift, and the sale process for nine focused service hotels with stable occupancy is underway.
• Net lease asset acquisitions were funded entirely by proceeds from portfolio dispositions, and cash on hand, reflecting a capital-recycling approach.
• Weighted average cash cap rates, and long lease terms on new net lease assets signal management's focus on accretive, long-duration income streams.
• Displacement from significant hotel renovations, especially at the Nautilus, will continue to impact results, but the company expects renovation-related disruptions and CapEx intensity to decrease in future periods.
• Following refinancing and asset sales, EBITDA mix is projected to remain near a 70% net lease, and 30% hotel allocation, with minimal short-term headroom remaining for incremental secured financings under existing covenants.

INDUSTRY GLOSSARY

• RevPAR: Revenue per available room, a hotel industry metric for operating performance.
• Adjusted EBITDAre: Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization, and real estate-related adjustments; common in REIT reporting.
• Normalized FFO: Normalized funds from operations; a key REIT metric representing recurring, cash-based profitability, excluding specified non-recurring items.
• Cap Rate: Capitalization rate, calculated as property net income divided by acquisition price or value; indicates return on investment.
• Net Lease: Lease structure where the tenant pays property taxes, insurance, and maintenance, lowering landlord operating risk and costs.
• GOP Margin: Gross operating profit margin; hotel revenues less operating expenses as a percentage of total revenue.
• Displacement: Temporary loss of hotel revenues or profit due to renovations or other operational disruptions.

Full Conference Call Transcript

Kevin Barry: Good morning. Thank you for joining us today. With me on the call are Christopher J. Bilotto, President and Chief Executive Officer, Jesse Abair, Vice President, and Brian E. Donley, Treasurer and Chief Financial Officer. In just a moment, they will provide details about our business and our performance for 2025 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 1995 and other securities laws.

These forward-looking statements are based on Service Properties Trust's beliefs and expectations as of today, February 26, 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. 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, and adjusted EBITDAre.

A reconciliation of these non-GAAP figures to net income is available in Service Properties Trust's earnings release and 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, and 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 Chris.

Christopher J. Bilotto: Thank you, Kevin. Good morning, everyone, and thank you for joining the call today. Yesterday, we reported fourth quarter results that highlight our continued progress optimizing Service Properties Trust's portfolio, strengthening our financial profile, and repositioning the company for long-term growth and value creation. I will begin today's call with a brief update on our key strategic and financial initiatives and share operating highlights from our hotel portfolio. Jesse will provide an update on our net lease platform and recent acquisitions. Brian will then discuss our financial results and balance sheet, along with the introduction of annual guidance for 2026. Starting with our strategic priorities.

We had a productive quarter completing previously announced hotel sales and taking action to reduce leverage and strengthen Service Properties Trust's balance sheet. During the quarter, we sold 66 hotels, totaling nearly 8,300 keys for $534 million. This activity increased our total dispositions for the year to 112 hotels totaling approximately 14,600 keys for nearly $860 million. We used the proceeds and cash on hand to proactively redeem all $800 million of our 2026 debt maturities and $300 million of our 2027 notes. Building on this momentum, in 2026, we remain focused on selling additional hotels and executing further strategies to improve Service Properties Trust's cash flows, debt maturity profile, and overall cost of capital.

Consistent with these objectives, in January, we sold an ESA Suites for $7.1 million with 133 keys and launched the remarketing of nine focused service hotels that we initially brought to market in 2025. These hotels benefit from stable occupancy and positive cash flow, providing an opportunity to cater to a wider buyer pool which is supported by the current interest level we are seeing with the marketing process. Also in January, we initiated the marketing of seven full-service Sonesta-managed hotels with 2,010 keys with locations across the Southeast, Midwest, and Pacific Northwest. Given their current cash drag, the sale of these seven properties is expected to increase annual EBITDA by approximately $13 million and improve our leverage metrics.

We believe these assets offer an attractive opportunity for investors seeking value-add lodging real estate with repositioning potential through targeted capital investment. In terms of timing, our current plan is to formalize offers and select buyers over the next several months and we are targeting staggered closings during 2026. We estimate total proceeds of $175 million to $200 million will be used for debt reduction. Complementing these efforts, earlier this week, we announced further actions to strengthen our debt maturity profile. We priced $745 million of new five-year mortgage financing secured by our existing net lease master trust.

To support this financing, Service Properties Trust contributed to the trust an additional 158 retail properties which included legacy properties where we renewed tenants or re-tenanted the property, one of our travel center master leases, and assets we acquired over the past year. In total, the contributed properties had an appraised value of approximately $1.1 billion. The transaction proceeds will be used to redeem all $700 million of our 8 3/8% notes due in 2029 at a significantly lower interest rate. Based on the weighted average coupon of 5.96%, we expect this transaction to result in annual cash savings of approximately $14 million or $0.08 per share.

With the completion of this new financing, in 2026, we will continue to focus our efforts on improving performance within our hotel portfolio, along with capital preservation, which includes reduced net lease acquisition activity to roughly $25 million funded through sales of select net lease assets, along with the reduction to our overall capital spend across our hotel portfolio which Brian will speak to momentarily. Turning to hotel performance. During the fourth quarter, the U.S. lodging industry remained soft amid uneven demand trends, with RevPAR declining 1.1% year over year. Performance continued to be bifurcated, as the luxury and upper upscale segments were the only segments that posted growth supported by higher income leisure travelers and premium experiences.

The business transient segment remained muted, reflecting the impact of the prolonged government shutdown and value-conscious customers remaining sensitive to broader macroeconomic conditions, pressuring lower tier segments. Service Properties Trust's portfolio continued to deliver steady top line growth as RevPAR increased 70 basis points year over year, outpacing the broader industry by 180 basis points and representing the fifth consecutive quarter of outperformance. We have invested significantly in hotel renovations in recent years, upgrading nearly half of our retained portfolio and these assets are delivering stronger top line performance. We expect this momentum to continue as our renovated hotels capture market share.

Excluding the hotels we are exiting, our remaining 77 hotels delivered relatively stronger fourth quarter performance with RevPAR up 170 basis points year over year, driven by occupancy gains of 140 basis points. Contract business, particularly airline-related demand, remained a key growth driver partially offset by a decline in government bookings and softer transient revenues. Hotel EBITDA declined year over year due to elevated labor costs and broader operating expense pressures. Additionally, the scale and timing of hotel dispositions during the quarter created temporary operational disruptions that weighed on performance, which we view as largely transitional. As the volume and pace of dispositions conclude, we expect this disruption to taper, allowing performance to normalize.

Further complementing our efforts to support performance improvement across our hotels, Sonesta, which manages the majority of Service Properties Trust's owned hotels and is 34% owned by Service Properties Trust, recently announced the appointment of Keith Pierce and Jeff Leer as Co-CEOs effective April 1. We believe their leadership and experience will be instrumental in further optimizing Sonesta RevPAR and market share performance while driving operational discipline and efficiencies across the Service Properties Trust-owned portfolio. Looking ahead to 2026, we are cautiously optimistic that lodging market conditions will improve and that demand will stabilize as the year progresses.

More specifically, our hotel footprint is well-positioned to benefit from large events throughout the year including the World Cup, with 75 matches taking place in Service Properties Trust markets, representing over 40% of our retained hotel rooms. Across our net lease portfolio, we are forecasting continued improvement with ongoing leasing, sales of non-core assets, and benefits from the full-year NOI contribution from our investments in 2025. I will now turn it over to Jesse to discuss the net lease portfolio in more detail.

Jesse Abair: Thank you, and good morning. As Chris mentioned, over the past year, we successfully executed our acquisition strategy aimed at growing annual base rent and improving the metrics of our net lease platform. Accounting for three closings subsequent to year-end, investments over the past year totaled $101 million which were funded with a combination of cash on hand and proceeds from net lease dispositions. The acquisitions included a balanced mix of quick service and casual dining restaurants, automotive services, fitness, and value retailers. In total, the acquisitions had a weighted average lease term of 14.3 years, average rent coverage of 2.7x, an average going-in cash cap rate of 7.5%, and an average GAAP cap rate of 8.3%.

Moving forward, our disciplined investment criteria will remain unchanged, with a focus on service-based brands that demonstrate resilience even in uncertain macro environments and remain largely insulated from e-commerce disruption. However, the pace of acquisitions will be mostly limited to capital recycling within our portfolio. For the full year 2026, we project total net lease deal volume of approximately $25 million. With the tenant roster augmented by our recent acquisitions, we will be actively looking for ways to leverage our new and established brand relationships for additional growth opportunities in the form of sale-leasebacks and off-market deals.

With respect to our net lease results for the fourth quarter, at year-end, Service Properties Trust's portfolio consisted of 760 properties across 42 states, with annual base rents of $390 million. The portfolio was approximately 97% leased with a weighted average lease term of 7.4 years. We have over 180 tenants operating under 140 brands across 21 distinct industries. Annualized base rent increased 2.4%, largely a function of our recent acquisition activity. Our asset management team had a particularly strong quarter, executing leases totaling 536,000 square feet, averaging over nine years of term and a cash rent roll-up of 15%. Portfolio lease expirations remain well-laddered with just over 5% of annualized rents expiring through 2027.

Approximately two-thirds of our annual base rents are generated by our TA travel centers backed by BP's investment grade credit profile. Thirty-four of our travel center assets leased to TA served as collateral for our recent ABS financing. We are pleased with the strong investment grade ratings and robust investor demand that these notes received, which we believe reflects confidence in the stability of cash flows from these assets for years to come. With that, I will turn the call over to Brian to discuss our financial results.

Brian E. Donley: Thanks, Jesse, and good morning. Starting with our consolidated financial results for 2025, normalized FFO was $27.5 million or $0.17 per share, flat compared to the prior year quarter. Adjusted EBITDAre decreased $5 million year over year to $125.6 million. Overall financial results this quarter as compared to the prior year quarter were primarily impacted by an $11.8 million or $0.07 per share decline in hotel EBITDA partially offset by a $6 million or $0.04 per share one-time tax benefit related to our hotel in San Juan and $5 million or $0.03 per share related to our 34% share of Sonesta International's results.

For our 94 comparable hotels this quarter, RevPAR increased by 70 basis points and gross operating profit margin percentage declined by 370 basis points to 20.5%. Below the GOP line, costs at our comparable hotels improved 1.5% from the prior year driven by lower property taxes at certain hotels. Our hotel portfolio generated adjusted hotel EBITDA of $21.3 million, a decline of 35% from the prior year as a result of elevated labor costs, higher hotel overhead costs, and the impact of non-repeat business interruption insurance recognized in the prior year.

Seventy-seven hotels in our retained portfolio generated RevPAR of $106, an increase of 170 basis points year over year, and adjusted hotel EBITDA of $25 million during the quarter, a decrease of $8 million year over year. Turning to the balance sheet, we currently have $5.2 billion of debt outstanding with a weighted average interest rate of 5.95%. Using the proceeds from asset sales in January, we partially repaid $300 million of Service Properties Trust's aggregate $400 million senior notes scheduled to mature in February 2027. On Monday, we announced our second securitization of net lease assets. This new five-year financing totaled $745 million in principal at a weighted average coupon of 5.96% and a maturity of March 2031.

Service Properties Trust is contributing 158 net leased properties with a total appraised value of $1.1 billion. We are using the proceeds to fully redeem Service Properties Trust's $700 million of 8.8% senior guaranteed unsecured notes with a June 2029 maturity to maximize cash flow savings and improve our debt covenants, specifically coverage of interest expense. This refinancing will result in annual cash interest savings of $14 million or $0.08 per share.

Our next debt maturities consist of $100 million remaining of our 4.95% unsecured senior notes due February 2027, which we plan to address with proceeds from asset sales, followed by our $580 million zero coupon notes due September 2027 which are secured by one of our TA leases and have a one-year extension option. Turning to our capital expenditure activity. During the fourth quarter, we invested $106 million in capital improvements bringing our full-year spend to $238 million.

Fourth quarter CapEx included commencement of our redevelopment of the Nautilus in Miami, major projects at the Royal Sonestas in New Orleans and Cambridge, the Sonesta in Denver, and ongoing renovations at the Sonesta ES Suites in Anaheim and the Simply Suites Las Vegas. Turning to our financial outlook. We introduced full year 2026 guidance on the earnings presentation issued last night. For the full year 2026, we are currently projecting the following: For the 94 hotels owned as of year-end, we expect total RevPAR of $108 to $113 and hotel EBITDA of $124 million to $144 million. Within our net lease portfolio, we expect net operating income of $383 million to $386 million.

For our consolidated metrics, we are projecting adjusted EBITDA of $500 million to $520 million and normalized FFO per share of $0.65 to $0.77. This full year guidance assumes midpoint interest expense of $378 million with cash interest of $300 million and noncash amortization of interest of $78 million. We are also assuming G&A expense of $40 million and a weighted average share count of 169 million shares. This guidance does not reflect the impact of completing 17 Sonesta hotel dispositions and it assumes $25 million of capital recycling in our net lease portfolio. We expect total CapEx for the year of $120 million to $140 million.

Collectively, our financial guidance projects Service Properties Trust to generate free cash flow after CapEx in 2026. This marks an important milestone following three years of elevated capital investments to enhance our retained hotel portfolio. To conclude, our fourth quarter results demonstrate continued momentum in repositioning Service Properties Trust and strengthening the company's cash flows supported by our capital market transactions and execution on asset sales. As we move forward, we remain focused on growing EBITDA and further optimizing Service Properties Trust's portfolio to drive sustained value for our shareholders. That concludes our prepared remarks. We are ready to open the line for questions.

Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset. The first question comes from Jack Armstrong with Wells Fargo. Please go ahead.

Jack Armstrong: Hey, good morning. Thanks for taking the question. Can you share with us how RevPAR has trended in the first quarter to date? And what is driving the width of your RevPAR growth guidance? It is about 250 basis points wider than we have seen from your peers that have given guidance so far.

Brian E. Donley: As far as what we are seeing so far in the early part of Q1, we are tracking in line, if not exceeding our projections for full year guidance. We have January's actuals in the books and we see RevPAR through mid-February. So all is trending well so far. You know, as far as the range, given some of the volatility in our portfolio with disruption and displacement, we put the range in, which we think is appropriate for the activity in hotels and some of the uplift of the citywide events and some of whether or not some of that activity pans out, you know, could have an impact on either side of our guidance range and our midpoint.

Jack Armstrong: Okay. Helpful there. And then on your net lease acquisition guidance, it is a meaningful step down from 2025 levels. Can you walk through the strategy shift there and how you are thinking about deploying capital and the net lease business now?

Christopher J. Bilotto: I think from kind of an overall strategy, I think, you know, as you know, more specifically, we are looking at just overall capital deployment holistically for the company, which includes decreasing capital spend at the hotels, and then also kind of thinking about just our overall acquisition trajectory. We have got the opportunity to kind of flex up or down as needed, but ultimately, the $25 million guidance will be supported by sales of net lease properties, so kind of net zero in that. And we think that is kind of a healthy outlook just based on, you know, where our performance guidance is in 2026.

Jack Armstrong: Okay. Great. And could you provide some color on what your guidance assumes for expense growth at the midpoint and maybe break out some of the components like labor, insurance and anything else that we should be focused on?

Brian E. Donley: Sure. Overall to the midpoint, just top line is a little over 4% expectation on growth. The bottom line we are seeing around 6% and a big part of that is labor. Base labor and wages is roughly 3% to 3.5%, but we are seeing increased pressure on the benefit side which continues to hamper margins. We are—the midpoint guidance assumes margins relatively flat if we get those numbers.

Jack Armstrong: Okay. And then do you have a sense of how any of the changes coming at Sonesta with the new management team may impact Service Properties Trust? Is there any benefit included from that in your 2026 guidance?

Christopher J. Bilotto: No. The 2026 guidance is based on, you know, kind of budgeted, forecasted hotel performance and kind of the things we have touched on. You know, certainly, you know, with this management team coming in, I think there is, you know, a legacy track record of experience, you know, from each of them and kind of what they have done historically. And so I think, you know, net-net we view it as a positive, and we embrace any change to drive performance, and I think they will do just that. So I think anything they bring to the table will be incrementally beneficial.

Brian E. Donley: Sorry, I was going to say the 34% share of Sonesta's earnings, we are not projecting much growth there in the guidance.

Jack Armstrong: Great. That is it for me. Okay. Makes sense. Thanks for the time.

Operator: The next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Tyler Anton Batory: Hey, good morning. Thanks for taking my questions. Want to start on the hotel portfolio and the guidance. And Brian, I think you had mentioned 4% top line growth. Just help us think about how much of your RevPAR in 2026 and the performance on an apples-to-apples basis versus 2025 do you think is being driven by a higher quality portfolio, maybe progress on Sonesta brand recognition, versus market factors and things like the World Cup, etcetera?

Brian E. Donley: Yes. The guidance and the growth trajectory, the midpoint RevPAR is around $110 which is a 3% RevPAR growth, 4% on gross revenues. That is apples to apples. So again, we have higher RevPAR based on the weighting of full service hotels. And a lot of the growth we are expecting is coming from lift from some of the low benchmarks we had in 2025 because of renovations and displacement. We will see some displacement still in 2026. And we put that number out in our earnings presentation and that is part of the Nautilus and some other bigger projects. I think market factors, Chris mentioned the World Cup and other citywide events that we should see some benefit from.

It is a little bit of everything there.

Tyler Anton Batory: Okay. And then in terms of the margin outlook, you mentioned flat over year so low teens, 12% I guess, any help—I mean, how much displacement is still in that number? How much disruption is still in that margin number? And just any help thinking about normalized EBITDA margin for the portfolio or kind of where you would like to see EBITDA margin for the portfolio move over the medium term?

Christopher J. Bilotto: Yes. In the 2026 guidance, we have noted about $12 million in displacement from renovations. And so I think, you know, that—it is going to vary year to year, right, depending on the renovations that we do specifically. And, you know, I think kind of generally speaking, we are doing some larger renovations, you know, specifically with the Nautilus. It will have an outsized impact to this displacement. So I would not view that as a run rate. I think it would be less than that, generally speaking, probably consistent with, you know, what we saw in 2025. But, again, as we think about capital deployment, it is another factor.

You know, we touched on the fact that we are being mindful of how we deploy capital. So that is going to then dictate how we think about the types of renovations and which hotels we address. So it really will be on a case-by-case basis as we think about kind of the go-forward scenario.

Tyler Anton Batory: Okay. Great. So good segue to my next question just in terms of CapEx in 2026 versus 2025, meaningful step down there. Just remind us what is being planned for 2026? How much is the Nautilus? And then any reminders in terms of what you are thinking about a normalized CapEx for the hotel portfolio going forward?

Brian E. Donley: Sure. The $120 million to $140 million is a big step for us. You know, I think the pace of large significant renovations is winding down for us. We are going to be more spacing projects out. The Nautilus is definitely the biggest piece of this year. We had about $12 million of CapEx activity in 2025 related to the Nautilus, which is mostly exterior work. The rooms renovation is kicking off next month. I think it is roughly $30 million to $35 million we are projecting in the first half of 2026 related to that project alone. We are also—you know, the Cambridge Royal Sonesta is two towers in that hotel. We are doing one of those.

There is a property to one of our hotels down in D.C. as well as some other hotels scattered across the country that we are still doing renovations. But again, the pace and the volume and the size will continue to wind down. So that 120-ish is currently what we are thinking for next year and probably for future years as well at this stage.

Tyler Anton Batory: Okay. So switching gears to the debt side of things and now that you have done $745 million of securitized notes, I guess how much more room do you have in terms of whether it is covenants or just overall capacity in terms of utilizing some of those assets to fund some of the debt maturities that are coming up the next couple of years?

Brian E. Donley: Yeah. I mean, that was a well-executed transaction for us. It did bring our secured debt to total asset capacity up—the covenant went from 20-something percent to 33% out of a max of 40% under our covenant. So not a lot of headroom for large transactions, but the way we are thinking about debt maturities, the zero coupons are already secured by assets. We can refinance those with the existing collateral or in other manner. Maybe we have some unsecured notes that we need to clean up by early 2027. And then our focus is largely on the unsecured notes due in 2027, which between asset sales and potential other transactions, we will look to refinance those out.

Tyler Anton Batory: Okay. And then last question for me just to tie together all the commentary on the debt side of things and lots of moving pieces. I know you have got asset sales and you made a lot of adjustments in terms of what you are doing with your cash. But just to kind of level set, you know, what you have coming due 2027 and 2028 as well? And just, like, in an ideal scenario, how are you thinking about handling all of those maturities?

Brian E. Donley: Sure. In my prepared remarks, I talked about the $100 million that is currently due in February, which the asset sales, we think we will be able to use those proceeds to clean those up. I mentioned the zero coupons is the next bigger maturity, and there is an extension option. Those are backed by TA assets. We feel very good we will be able to either refinance those or extend those, followed by the 2027, the December 2027. The asset sales that are in flight will knock out a piece of those. And then behind that is February 2028 unsecured notes, which we are very focused on, whether it be asset sales, further asset sales or refinance.

It is a little early to talk about specifics on how exactly we are going to execute, but, you know, we feel confident given what we just did. It will give us some breathing room for covenant purposes and then just be able to evaluate our options in the market and potentially bring more properties for sale to help mitigate those maturities.

Tyler Anton Batory: Great. Great. Thank you for all the detail. Very helpful. That is all for me.

Operator: The next question comes from John James Massocca with B. Riley. Please go ahead.

John James Massocca: Good morning. Maybe focusing on the hotel dispositions that you kind of have out there in 2026. Do those largely or entirely reflect, you know, the assets you called out in December as being marketed for sale and then also the assets that needed to be remarketed, you know, that kind of slipped out of the 2025 dispositions?

Christopher J. Bilotto: Yeah. That is correct. So the nine focused service that are part of the six we are in the market with are the carryover from 2025. So those reflect the remarketing. And then the seven full-service hotels, which we launched in January, reflect, you know, those hotels that we articulated that we had identified to sell. And again, these are kind of the cash drag hotels more specifically in part as part of that endeavor. So, yes, these 16 reflect, you know, those that we previously communicated.

John James Massocca: Are the nine kind of remarketed hotels, are those EBITDA positive? And if so, you know, how much kind of offset would that be to what you have already stated in terms of the EBITDA drag from the seven larger hotels you are marketing?

Brian E. Donley: Yeah. Those are EBITDA positive. I mean, they ended the full year with roughly $3 million in positive EBITDA for those nine. And net-net, if you look at 2025, the total drag would be about $10 million of what we would be saving.

John James Massocca: Okay. And if you think about, you know, potential gross proceeds from those sales, I think if I took what, you know, they were originally being marketed for plus the range you are giving for the new hotel sales you are expecting in 2026, it would be somewhere kind of, I think, roughly like $190 million. Is that still kind of what you are seeing, or has there been some change in pricing given some of these assets are being remarketed?

Christopher J. Bilotto: Yeah. We, I mean, we have talked about $175 million to $200 million as a range. And I think, you know, look, activity is strong. We have been out in the market since early January with these, you know, these different portfolios, the two, and there is good activity. You know, a call for offers is going to start, you know, in the next couple weeks. And then it will be staggered—there are three different portfolios that we are marketing. So they will come in staggered, and I think that will be indicative of within that range, you know, where we think we are going to land on the higher, the lower, the mid.

So we will have more to talk about. But again, the activity is there, we feel good about the execution. And, again, we will just have more to talk about in the next couple of months.

John James Massocca: Okay. And then, I guess, pro forma for those sales, do you still expect kind of run-rate EBITDA mix to be around 70% net lease, 30% hotel at the end of 2026?

Brian E. Donley: Yeah. That is about right. Obviously, we are going to lift from removing negative drag, but it is still right around that range.

John James Massocca: Okay. And, I mean, I guess, where does that roughly stand today just pro forma for all the transaction activity in 4Q?

Brian E. Donley: Yeah. And I think it is, you know, it is not too far off from, you know, high sixties to low thirties from an EBITDA mix.

John James Massocca: Okay. Maybe switching gears to net lease. Post the transaction in February, I guess, how much in the way of non-hotel assets kind of remain that are unencumbered by debt? Either in terms of, like, total property number or just kind of brackets around value?

Brian E. Donley: Yeah. I mean, if there was something we thought we could have used in the debt transactions, we would have contributed more assets and taken more proceeds and done a little bit more. The properties that sit outside the securitization, you know, there is roughly, call it, $27 million of rents. It is not a big portfolio. The weighted average lease term is under five years. There is work to do on leasing. There are movie theaters mixed in.

So it is not—I do not think we look at that—the rest of that part of that portfolio as something that we are going to use for a financing necessarily unless, again, we are able to secure more lease term and growth in those assets. But for the most part, all five TA assets are now part of some sort of collateral package in our bonds or debt structure. You know, the hotel portfolio is completely unencumbered, sans one, the Hyatt portfolio that backs the revolver. So there is capacity on the hotel side.

But again, I think the way we are thinking about, you know, our refinances going forward, it is going to be a mix of, you know, potential bonds or guaranteed bonds or some other form of instruments.

Jesse Abair: And I would add, John, that on the retail properties that are remaining, you know, we talked about, you know, raising proceeds through sales. So many of those retail properties kind of fit within the remaining properties as far as some we would be selling as well.

John James Massocca: Okay. And then any specifics on the net lease side to call out? You know, it is not a huge move quarter over quarter, but coverage did drop below 2x. I do not know if that is just the impact of lease escalators taking effect or if there was something you are seeing—either individual tenant or tenant industry—that maybe is driving a little bit of weakness quarter over quarter on coverage?

Jesse Abair: Yeah. John, I would say the coverage drop is largely a function of TA coverage dropping seven basis points quarter over quarter. If you take out the TA assets, coverage remains, you know, well north of 3.5x to 3.6x. And then with respect to the TA, you know, there is a lot of components that go into that business, but I would say broadly speaking, we are seeing BP spending a lot of time and effort with that portfolio. Towards the end of last year, they brought on a new leadership team. They have implemented a business plan for TA specifically aimed at increasing free cash flow through 2027.

We continue to see them invest in these sites, particularly EV charging at scale. So, I mean, our sense is that it is probably going to take a little bit of time for that coverage to get back up to where it was, you know, going back a year and a half, two years ago. But in the meantime, as we know, those leases are backed by BP credit, so we feel pretty good about that. And it is worth noting that there is just a lot of inherent value in those sites, right? The overall network, the sites themselves, and the long-term fundamentals for trucking. So I think overall, we feel pretty comfortable with that sub-portfolio.

John James Massocca: Okay. I appreciate all the color. That is it for me. Thank you.

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

Christopher J. Bilotto: Thank you for joining today's call. We look forward to meeting with many of you at upcoming industry conferences this spring. Operator, that concludes our call.

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

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