Q1 2020 Earnings Call
Our Focus service portfolio, whether branded or independent offer significant more flexibility in op-ex without shutting down. Most of our open hotels are operating a cruise and just four to five employees on property.
Over eighty percent of our portfolio was purpose built for transient guests our Courtyards Hamptons Hilton Garden Inns and most of our independent hotels even while our ass centrally located to capture increased demand during compression periods the hotels and their operational platforms are not reliant on large-market conventions or even mid-size groups to generate substantial portion of their revenue only four of our hotels generated more than 30% of their business from groups in 2019.
These hotels are not only able to run with marginally size staff, but are also able to reopen more quickly and efficiently one of the many benefits of our owner operator franchisee model is that we can close and reopen our hotels with very little lead time. We can wait for market dynamics to prove out Hotel demand and then optimize GOP and limit our cash burn off. We may keep some of our luxury or group-oriented hotels closed until occupancy recovers more significantly, but expect to open most of our suspended hotels across the month of June.
Our portfolio has been strategically assembled to operate in a geographic cluster strategy to maximize revenues and to leverage economies of scale for cost efficiencies off some of the primary benefits of this strategy include cross utilizing staff between our hotels such as employing area general managers to oversee a suite of assets which not only lowers our own labor costs, but also leverages the extensive market knowledge or scope of the management team across the cluster additionally our sales teams can focus on a market rather than just a single asset for their leads and this results in additional cross-selling opportunities among our hotels as it pertains to locally negotiated clients smaller corporate groups traveling sports team, ultimately this tactic leads to increased Revenue generation customer loyalty and the ability of our Market portfolio to consistently outperform. It's competitive sets.
this cluster strategy has been a clear Advantage for our model and
Traditional operating environments and has been an unintended benefit in this environment as we have shuttered hotels that are more costly to operate in a low occupancy Market but have transitioned bound Revenue opportunities to one or two hotels in a specific Geographic cluster. Our sales teams have had consistent communication throughout this process with hospitals Airline Crews to relief workers and law enforcement to generate bookings at our hotels in each of our markets and I want to highlight a few of this a few of these in this morning up in Boston. We're housing medical relief Crews at our Holiday Inn Express in Cambridge and capturing nightly occupancies in the twenty to twenty-five percent range allowing us to keep the asset operating on a very reduced staff.
Here in Philadelphia. We have closed our Rittenhouse and Western properties, but we've been able to generate incremental Revenue at our Hampton Inn convention center through our relationships with the local medical community and first responder agencies in New York City the majority of our hotels remain open as close to 90% of our assets operate on a limited service offered in New York. We have commitments from government groups as well as medical personnel and First Responders at each of our assets in the JFK submarket while in Brooklyn are Nu hotel in communicating with the NYPD and and the fire department of New York to house Personnel seeking Refuge while working on the front lines in Manhattan our Hilton Gardens in Tribeca and minutes and midtown east are also working with NYPD and ft New York while our Hampton Inn Seaport is contracted with a leading Medical Institution Lower Manhattan to house
Staff we will continue to offer our hotels as a safe haven for these essential workers as an alternative to commuting to and from their homes during this pandemic. I can see across our New York City portfolio which stands the five boroughs was 45% during the month of April showcasing our local Revenue management team's ability to generate incremental demanding even in times of Crisis down in South Florida. Government-mandated closures on Miami Beach and Key West forced us to shut her operations at the majority of our hotel with whoever our residents in Coconut Grove. We have maintained 15 to 20% nightly occupancy primarily from group setting up testing centers throughout the Miami area wage.
And out on the west coast are independent and select service hotels in Silicon Valley have been generating incremental demand traveling nurse groups have been staying at our TownePlace Suites and suck while bear Bay Area residents have been seeking Refuge at our Sanctuary Beach Resort in Monterey whose layout is conducive for compliance with social distancing.
We anticipate the sanctuary and our hotel Milo and Santa Barbara and the ambroeus in Santa Monica will all be popular destinations. As we enter the typically robust travel season for the region as we've already witnessed with California residents seeking Refuge along the coast only a drive away. We believe that the Leisure traveler will return with families looking for a summer vacation drive to destinations and Leisure Resorts bearing the initial fruit of pent-up demand for travel over the last few years. We've Acquired and repositioned smaller transient oriented resort hotels within driving distance of our Gateway Market clusters. We believe these hotels about 25% of our portfolio will be the first to benefit from the reopening of the travel economy hotels like a Marriott between New York and Boston or the newest hotel in the portfolio the Annapolis Waterfront hotel which underwent a full guest room in public area renovation during this first quarter. We believe it will wage.
to get away for New visitors
First to this historic city as well as well washingtonians and philadelphians choosing the Chesapeake for a summer break earlier. I mentioned how well our South Florida hotels perform during January and February and peak season this summer. We believe Floridians will flock to the Miami and Key West markets and larger numbers than in previous Summers with a focus on drive to destinations fog is over the next several months. The range of economic possibilities is extraordinarily wide. We are forecasting very minimum occupancy for the second quarter. We expect to see a recovery as the economy open slowly in phases by the third quarter.
While we remain hopeful that these forecasted demand Trends ring true and we will be able to reopen the assets. We shuddered sooner than later. We will continue to monitor all situations in real time to ensure the health and safety of our employees and our guests at our hotels during this crisis while also operating the assets efficiently and in a cost-effective manner of our stakeholders further to this point in conjunction with our proprietary sustainability program Earth view. We are launching our rest assured program at each of our home to ensure all of our current and future guests. Feel safe during their stay.
our new program will be visibly and convincingly focused on advanced cleaning protocols and new cleaning Technologies Transforming Our operational processes taking additional box urinary measures around distancing inside and leveraging Innovative Technologies for guest access and perhaps most importantly increasing communication with our guests before I go out and after their stay
before transitioning to Ash to discuss our recently announced amendment to our bank credit facility expense reduction initiatives and plans for guidance. I want to update you on our pending a sales along with our fourth quarterly earnings release. We announced a creative binding sales agreements on for assets in our portfolio for a total asset value of $140,000. But Duane Street Hotel in New York City for twenty million dollars the Blue Moon Hotel on Miami Beach for 30 million dollars and the exit of the fifty percent ownership and to South Boston hotels the courtyard South Boston and the Holiday Inn Express South Boston for $94 million dollars.
Since our last earnings call we've had follow-up discussions with each of our buyers who have asked for a 90-day extension to close on the individual transactions. We have granted these extensions wage and and we now expect them to close by the end of the third quarter.
We have hard deposits on each of the Consolidated asset dispositions and a buy-sell right for our JV and we will continue to keep you apprised of developments related to the timing of the thousands of these transactions.
Across the last Twenty One years. Our portfolio is evolved from Suburban select service to Urban select service. And then this life cycle doubling down on Innovation oriented Gateway markets and adding small transient resorts near our Gateway clusters.
But always staying true to our high-margin rooms oriented business model.
We are proud of our high absolute revpar or are high absolute ebitda perky, but didn't become f&b or group dependent to generate our cash flow.
The amendment of our bank credit facility the additional hundred million dollars of liquidity and receiving a five quarter Covenant holiday showcase has the high quality of our portfolio wage underlying real estate nearly all of our hotels include the fee interest in Irreplaceable land in the best neighborhoods in New York. Boston Washington gave me Los Angeles Innovation districts and Seattle Silicon Valley. Our hotel real estate is recently built or redeveloped hotels with very little cap Xbox card for the foreseeable future. We are purpose-built for category killing Brands like Courtyard and Hampton, but also owned several transient oriented luxury and lifestyle hotels off completely unencumbered of brand and management.
It is a very unique portfolio that lenders and investors can Peg to replacement cost our markets and locations are poor and cash flows will return in the office in years difficult times like these demonstrate the breadth and depth of our team here at Hersha. Those are twenty first year in the public markets J. And I have had the privilege of leading a nominal and ever-evolving team in navigating three cycles and nearly a dozen major demand trucks together. I want to thank all of our team members in the field engineer offices for the extraordinary efforts, they have made and the character they have demonstrated across the last two months. We have a tremendous appreciation for all essential workers that are on the three lines battling this pandemic and consider our desk agents and housekeepers serving these Heroes not only essential but exceptional themselves, they teach us faith.
Courage is even more contagious than fear.
Despite the uncertain road ahead for hotel travel. We remain diligent in our execution of Cost Containment Revenue generation and accretive asset management to drive incremental margin growth to our hotel real estate time will tell when we can see a more robust resumption and travel to all markets and hotel segments. And when that time comes all of our loyal and new guests can rest assured that our properties will remain at the highest standards of cleanliness appropriate distancing and most importantly Hospitality off with that. Let me turn it over to Ash to discuss in more detail our Cost Containment initiatives balance sheet dividends and guidance.
All right. Thanks.
Good morning, everyone as previously discussed. We were pursuing several strategic initiatives earlier this year to drive continuing ramp up at our Focus investments from the past few years. These assets were performing above expectations until the pandemic abruptly arrived launching the lodging industry into the worst crisis. We faced since the Great Depression within a matter of days off actions were singularly focused on the one priority Above All Else ahead of what we expect it to be Broad and extreme distress for the lodging industry, which is liquidity. I'll folks the majority of my time today on the actions. We've taken two days to shore up our liquidity and to ensure that we are operating in a manner that minimizes our burn rate and allows us the flexibility to make it through this pandemic and come back stronger on the other side.
As the covid-19 impact became more apparent in early March. We immediately began discussions with our bank group to amend our credit facility the first lodging team to perform this necessary action with our bank group was supportive of our efforts as we were able to access an additional hundred million dollars of our credit facility at no additional interest spread on the revolver or on any of the page loads within the credit facility.
Additionally, we received a full Financial Covenant holiday for five quarters with the next Covenant test on June 30th 2021 as a year progresses and more US market Thursday from closure edicts and lockdown will continue to pursue other avenues to shore up our liquidity. We remain encouraged with the breadth and scope of our recent Capital markets activity, even in this early stage of the pandemic access to Capital remains extremely attractive and supportive to companies such as Hersha who is inherently valuable assets and outsized growth trajectory can be projected economic fundamentals recover.
Amending. Our credit facility was a top priority in our action plan to shore up liquidity for our portfolio. But we also initiated additional cost-saving measures to conserve our cash balance off that reduction in above property Staffing will result in an estimated 25% Sg&a expense savings on an annualized basis for twenty twenty.
After extensive discussions with our Board of Trustees, we felt it would be in the best interest of the company's liquidity preservation plan to suspend the common and preferred dividends until we have a clear picture on the acceleration of more stable demand fundamentals of the lodging industry. The suspension of our twenty-twenty dividends will yield seventy two point five million dollars in savings and not all the preferred dividends will accrue without interest. We have a variety of options at our disposal to generate additional liquidity.