Service Properties Trust (SVC) 2020 Q3 法說會逐字稿

Good morning, and welcome to Service Properties Trust Third Quarter 2020 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to 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 analysts.

Please note that the recording, retransmission 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 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 statement 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 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. The COVID-19 pandemic and related lockdown of most of the United States has had a dramatically negative impact on our economy and has hit hotels, restaurants and other service retail businesses like theaters and fitness centers, particularly hard.

We are confident that the most severe effects are behind us as we have seen improvement, albeit gradual 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 the 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 obtain 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 nonessential 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 be greater focus on safety, service and the travel experience. We also think video conferencing 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 1-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, health care workers, special projects or extended stay guests using the hotel as temporary housing.

SVC extended stay hotels continued to have a roughly 30 percentage point occupancy premium to nonextended 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 varied by portfolio as leisure, first responder, social groups, project and government demand outweighed business and group travel. The results favored hotels with competitively priced offerings in nonurban 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 of RevPAR declines versus last year and the weakest nominal RevPAR results.

Subsequent to quarter end, hotel performance continues to improve. All but 2 of our 329 hotels are now open. And overall occupancy has steadily increased to 46.7% for the 4 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 gasoline markets with still restricted restaurant access, especially with outdoor dining options becoming a greater 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 the sale of gasoline, 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 2x 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'll 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 TravelCenters with 13.7 million square feet requiring annual minimum rents of $369.8 million, which represented 38% of our total annual minimum returns in 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 2.12x on a trailing 12-month basis as of September 30, 2020.

Rent coverage for our largest tenant TravelCenters of America was 1.81x for the trailing 12 months ended September 30, 2020 versus 1.97x 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 this lease obligations due to SVC.

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.

To date, we have entered into rent deferral agreements with 51 net lease retail tenants with leases requiring an aggregate of $53.4 million or 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 1 to 4 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 9 years and leasing concessions and capital commitments were approximately $189,000 or $74.64 per square foot.

Turning to recent transaction activity. During the quarter ended September 30, 2020, we sold 5 net lease properties totaling 46,000 square feet for an aggregate sales price of $5.9 million. Subsequent to quarter end, we sold 3 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 4601 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 first quarter of 2021 and to use the 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 to 4 of the 5 remaining Wyndhams to Sonesta.

We originally targeted 53 hotels for sale, but in addition to the 4 Wyndhams that have been transitioned to Sonesta, we have not been able to come to acceptable terms on 9 Marriott branded hotels and 1 Wyndham full-service hotel. The management of the 9 Marriott Hotels will be transitioned to Sonesta on December 15, 2020, the Wyndham remains available for sale.

Relative to the discounted sale transactions of full-service urban hotels that have recently occurred in the market, pricing for the hotels we are under contract to sell is at or near prepandemic levels. Generally, we found the extended stay hotels we marketed for sale have maintained their values as a result of strong buyer demand from investors interested and continuing to operate the properties as hotels as well as from groups that would 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 the $28 million increase in interest expense were partially offset by the $25 million positive impact from the SMTA transaction we closed near 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-year 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 or a 50.5% decline from the 2019 third quarter.

Turning to operating results in 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 were suspended for certain of our hotel agreements and lower system and other fees paid to the hotel brand.

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 to 2020.

I will 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 noncomparable hotels, which are all full-service hotels that either remained 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 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 ISG and Marriott agreements. As of September 30, 2020, the guarantee available to cover shortfalls and 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 it will be exhausted during the fourth quarter 2020.

The guaranteed balance under our Radisson agreement for 9 hotels was $19.5 million as of September 30, 2020. Based on our 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 additional $20 million of working capital advances could be funded in the fourth quarter or 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 recognize 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 from maintenance, ongoing renovations as well as cost to transition the management and branding of certain hotels to Sonesta.

We've not yet completed our budget for 2021 capital expenditures, and we expect we'll 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 placed equity interest in to secure our obligations under the revolver. These properties include 62 TravelCenters in 26 states with a gross book value of $1.2 billion and 12 hotels in 9 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 our prepared remarks. You're ready to open line up for questions.

(Operator Instructions) The first question comes from Bryan Maher from B. Riley FBR.

Thank you for all that information, super helpful. John, as it comes to this vaccine news this morning and everything rallying, has it -- first of all, have you received the call from Marriott and Radisson 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 or Marriott this morning. I think that this morning's news is -- if it continues to pan out is very favorable for the industry. And if everybody can get the vaccines and the boosters by the end of next year, the recovery should -- in the hotel space, should accelerate in 2022, which is, I think, really good news and sooner than a lot of people were expecting. So that's good.

In terms of our disposition activity, the hotels that we have identified for sale at -- either were in weaker markets or for a variety of reasons were not well-performing in a lot of cases. And the pricing that we achieved matched up with opinions of value that we got from brokers before the pandemic hit.

So we feel like the pricing that we've got under the agreements that we've entered into are pretty reasonable, regardless of the -- there is a vaccine or not. So we're going to continue forward with those transactions. It may impact what we do with the remaining hotel portfolio as we examine the highest and best use once we transition some of the hotels to Sonesta.

Great. And we get a lot of questions on the transition of hotels to Sonesta. Can you give us some kind of background on what's going on there with Sonesta getting ready to take on so many hotels and becoming a much, much bigger brand? Is it running kind of 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. So it just -- it 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've been working hard to increase their staffing. They've -- they're 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 then subsequently in the Marriott portfolio.

I think they're very close on agreeing to space to add that capability in -- most likely in the State of Florida. They've significantly enhanced already their management team on both the finance side as well as the operations side. We recently hired a new Chief Operating Officer, so they are taking a lot of positive steps. And I'd say that they're not behind. They're not ahead. They're, I think, about where we expected they would be. And we do expect that they will be ready to take these hotels on. Basically 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, 2 hotels there, and 1 hotel in San Juan will transition during December. So a little bit more complexity to those. Then there'll be 9 hotels from Marriott that convert on the 15th and then the rest of the Marriott portfolio subsequently next year. I think Sonesta is going to be ready.

The next question comes from Jim Sullivan from BTIG.

John, I wonder if you could update us to the extent any decisions have been made. But at the time that the Marriott's agreement was changed at the beginning of this year, the company had committed to invest upwards of $400 million into the assets and the portfolio, and of course, get increases in the base minimum rent accordingly. And I think the number that I seem to recall is that something upwards of $80 million was going to be invested this year. And to the extent you can give us any updates on this.

What is assumed in the conversations about CapEx and cash flow for '22, regarding the balance of the $400 million that was not invested? Is there a plan? I know that there's a cost to transition each assets from Marriott to -- the Marriott branches of the Sonesta brand, but most of the money, of course, the $400 million was -- had nothing to do with that. So maybe if you could just give us an update as to what kind of a CapEx number we should be assuming in a cash flow analysis out through '22 for the Sonesta management of those assets?

Yes. So we had -- I'm going to let Brian tell you the exact amount that we've 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 and Radisson and Hyatt portfolios.

And when the pandemic hit, we restricted our CapEx, focused on liquidity and maintaining the quality of our balance sheet. And so we finished and continue to spend on projects that were well underway. But we didn't kick-off to a great extent, too many of new projects. And I would say that or remind you that the $400 million wasn't -- that wasn't $400 million we were expecting to spend in 2020. It was $400 million roughly that we were planning to spend over a 2- to 3-year period. And so we weren't expecting it all to happen.

We have continued on the planning as part of that, the amounts mentioned on the renovation. We've been doing the design work for the Kauai Marriott, which will transition to Sonesta and the renovation that was planned. The design there is going to work well for the hotel regardless of the branding, really, it's just a well-done design concept. And so we -- I think on this past Friday, gave the go-ahead to order the FF&E for that renovation.

So it will take some time for that between Chinese New Year and just the normal time it takes to -- for furniture, but we'll be renovating that hotel in the second half of next year. And the rest of the portfolio, we're going to look closely as we decide -- some of the extended-stay hotels may be repositioned or repurposed to a multifamily use in some markets that seems like it's a higher and better use than hotels at this point. And so we won't renovate those to hotel standards if they're going to become apartments.

The other hotels, we're going to evaluate whether we go forward, for instance, on the courtyards, if we go forward with the same facade renovation as had been planned, if those were to remain courtyards. And we may revisit whether we need to do 100% of the bathrooms' tub to shower conversions or a smaller percentage initially. So there's a number of areas of flexibility that we have as we move forward that we might not have otherwise.

I'll just add that the opening remarks, I said approximately $50 million of CapEx for Q4, $30 million of that roughly is expected rebranding costs as we look to move 100-plus hotels in December. We've been using about $300,000 per hotel, as is sort of the benchmark of changing signage and systems at each of these hotels as we move into Sonesta. The Marriott numbers year-to-date was roughly around $70 million, which I think you mentioned and another $15 million to $20 million is expected in the fourth quarter. So we continue to operate under the agreements that we signed with Marriott. And then at some point in '21 when we move these over, we're going to reevaluate, as John mentioned, what projects will move forward and how we look at the hotels.

And 1 other question for me on Sonesta, the -- you made reference to their shared services platform. And under the agreement -- the management agreements with Marriott, Marriott, of course, is entitled to a significant amount of what people refer to as above property expenses, some of them fixed and others perhaps driven by the services that the Marriott brand provides.

And I just wonder, given the difference in prominence of the brands, whether there's any scope for material reduction or any reduction, in fact, in that side of the cost, the operating cost for the hotels if they transition to Sonesta.

Yes. I think that initially, it's going to be a little bit choppy as more than 200 hotels have transitioned. And so -- but we are hopeful that once we have a steady state and the shared services platform is operating that it will be less costly from an operating expense perspective than what we're experiencing today. I can't give you exact projections at this point. It's too early.

And then in the prepared comments, there was a discussion about the amounts of the security deposits and guarantees that were used in the third quarter. And I just want to make sure I'm clear on this, if you could confirm what the total amount is between Hyatt, Radisson and any other deposits or agreements that you still have, how much that the combined total is for security deposits and guarantee at the end of Q3?

In Q3, the Hyatt agreement, that guarantees down to around $3 million, and the Radisson is $19.5 million, so roughly $22 million in total for those 2 contracts.

Okay. And I think you had said that they expect the Radisson to be used based on current industry trends in the third quarter of next year -- third quarter of '21, right?

That's correct.

The next question comes from Dori Kesten from Wells Fargo.

Marriott had some comments on their call regarding the ROI of the assets as Sonesta's versus Marriott's. Can you just give us a little bit detail on how you underwrote the portfolio under the 2 brand families?

Yes. I mean, I think I saw those comments, and I don't want to get into a mud slinging, but the Marriott portfolio was a stable portfolio, a large portfolio. The Sonesta portfolio had several key assets that were under renovation. And so the return calculations really that were discussed really weren't apples-to-apples. So when we think about converting to -- these hotels to Sonesta, first of all, we think it's in the interest of our shareholders not to do what's good for IHG and Marriott and allow them to not pay us and to sit here and say, "Oh, well, shucks, we think it's a lot better to try to take control of the situation and be proactive."

And this is a very well-diversified portfolio of hotels that are well-maintained. If we take the hotels and convert them to Sonesta, then as we move forward through the recovery, none of the cash flow that would otherwise in the waterfall go to replenish guarantees and security deposits will go back to Marriott or IHG those instead. And we won't share in the upside 50-50 with the 2 of them. Instead, the cash flow, as the recovery takes hold, will go 80% to us. And so we think that there is -- that's going to be a much better result for SVC's earnings.

And then, as I mentioned, I think that -- I've heard it from the finance team here how much savings have occurred at RMR as a result of less travel and entertainment and more video conferencing. And I think probably every finance and accounting team in corporate America and worldwide is looking for some of the silver linings in what's been going on. And I think that there's going to be a lot of pressure to keep T&E expenses to -- from increasing dramatically once the vaccines are out and available and people trying to get back to normal.

So we don't think that business travel is going to recover as quickly as some people may be projecting. And we think that it's that business traveler that has historically been after the reward program points and that has driven the value in those programs. And we think that those programs are going to be of less value and less important post-pandemic than they have been historically.

And so that and the increased scale that Sonesta will gain as a result of these rebrandings, we believe, will position them to be much more competitive as they become a much more well-known brand. And so we've done various models. We've done various projections, but we won't really know until -- until it plays out. So we'll have to see. But we're confident that Sonesta is going to be as -- do as well for us as Marriott and IHG, who decided not to pay us at all.

Right. Do you have -- I mean the last few questions kind of got into this, but do you have any initial thoughts of like expenses per occupied room or -- and we can all make assumptions on the top line of how we think that Sonestas can do versus Marriotts. But I guess, is there anything that you can point out about a Sonesta expense structure versus a Marriott expense structure?

I think that because of the number of hotels that they're adding and because of the new platform they're creating, that it's a little too early to tell, but I think we'll be able to give you a lot more color on that on our next call.

Okay. And can you walk through how you're thinking about equity issuance at this point holding '08/'09 to the side? Historically, you've pretty much closely match-funded equity issuances with acquisitions. So I'm just wondering if there's a change in strategy or just what you're thinking about at this point.

Yes. I mean, at this point, Dori, I mean, we still believe the shares are undervalued, and we're not really thinking about equity at these levels. We think we have a good run rate with liquidity, and we're going to keep managing the balance sheet the way we have been until things improve. And we'll keep evaluating and keep all our options open, but equities, even despite today's pop in the market in the industry, that's not something that's going to sway us at this point.

Okay. And just 1 last question. When you were talking about keeping the Marriott hotels in the separate management agreement have you reassessed what's going on their potential sales? Is there a new number we should have in our heads? Or is it too early for some initial sales expectations? I think the last number that we had kind of floating around was about $300 million, but among portfolios.

Sure. Dori, it's Todd. So the hotels that were under agreement to sell is $200 million. We were talking about $300 million early on, but we've since decided not to sell about 14 of those. So I think that $200-plus million is a good number to use for now. As John mentioned earlier, as we are looking to transition all the IHG and Marriotts to Sonesta, there's likely going to be some other hotels that we identify for sale over the next year or so. There's going to be overlap in markets. We have Sonestas already, and there's going to be some markets that have Sonesta and IHG and a Marriott. So we're likely to identify a number of hotels out of the 200 that we're transitioning over the next year or so. So there's likely going to be some sales coming out in the next 12 months that we have these identified.

We have a follow-up question from Jim Sullivan from BTIG.

John, just on the topic or subject of potential sources of liquidity other than, obviously, raising equity at current market prices. I'm just curious to what extent the company would consider selling any of the TravelCenters' assets. Obviously, that part of the portfolio has performed the best here. Cap rates on kind of freestanding or net-leased assets have been pretty strong. Some tremendous amount of activity, both in public buyers as well as private equity.

And just wonder to what extent the company would consider perhaps selling more of the TravelCenters' assets?

It's a good question, Jim. I -- the short answer is that we're not currently thinking about selling out any more of the TravelCenters. We sold some of the -- as part of a sort of a restructuring, we sold some of the less well-performing TravelCenters back to TA last year. But we're not currently contemplating transactions like that. But we are keeping all of our options open.

And a year ago, we actually tried to raise some debt capital, and the collateral for the transaction was going to be some of the TravelCenters. And there really was no interest in such a transaction. And last week, we announced that we were providing security for our revolving credit facility. And the only assets that the banks were -- seemed interested in were the TA assets. So the world in a year, as everybody knows, has kind of been turned on its head. So we're watching all the assets in our portfolio closely and evaluating the markets and opportunities without sort of crossing anything off the list. But we are not working -- at the current time, we are not working on or thinking about any TA sales.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to John Murray, CEO, for any closing remarks.

Thank you very much for joining us today. We look forward to maybe 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.