Q1 2020 Earnings Call
Oh and welcome to the hotels and resorts first quarter 2020, <unk> earnings Conference call, all participants will be in listen only mode.
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I'd now like turn the conference over to Lisa Lamy, Vice President Finance. Please go ahead.
Thank you.
Afternoon, everyone and welcome to the first quarter 2020 earnings call Katherine Xenia hotels, <unk> resorts I'm here with my talk about our chairman and Chief Executive Officer, very well, our president and Chief operating officer, and she shops, our Chief Financial Officer.
The only give an overview of the current landscape in the company's recent actions very will follow with BARDA Taleban operations and a piece of the call discussing our balance sheet and liquidity.
Today's prepared remarks, well open the call for Q4.
Before we get started let me remind everyone that certain statements made on this call for novice trickle back and are considered forward looking statements.
These statements are subject to numerous risks and uncertainties.
Describing our annual report on form 10-K, and other SEC filings.
Which could cause our actual results could differ materially from those expressed or implied by our comments.
For the segment in the earnings release that we issued earlier this morning, along with comments on this call I might only as of today May 11, 2000, and why are we undertake no obligation to publicly update any of these forward looking statements as actual events unfold you.
You can find a reconciliation of non-GAAP financial measures to net income and definition, but certain items refer to it aramark as Frank earnings really.
This call will be available on our website for 90 days.
I'll turn it over my thought like as far as.
Thank you Lisa.
Thank you everyone for joining our call today.
First of all hope that or want to staying safe and healthy journeys unprecedented times.
Well the world economy lodging industry intercompany continue to be severely impacted by to cope with 19.
Our team is working extremely hard to assure that the company not only got screwed, it's difficult time, but once again thrive when this crisis upsides.
So before I give an overview of the most significant aspects impacting our business as we navigate these challenging waters.
First like to thank our associates, well have shown tremendous dedication that they're working harder than ever for the benefit of our company and our shareholders, while dealing with significant new challenges in their personal launch.
I'm proud to be part of an incredible team continues to rise to the challenges we face each and every day.
I also would like to thank and acknowledge the many impact the team members employed by our operators at our hotels, we continued to take care of our guest or in many cases are anxious to return to work.
Correct families, while facing to many unknowns about the bars.
Our salt her with all of them and especially those who have experienced health issues themselves are within their circles a family or friends.
When we spoken our yearend earnings call in February we discuss their expectation that 2020 would be a transitional year for the company. That's a few significant renovations and ramp up from newly acquired assets were expected to negatively impact our cash flow well setting us up or enhance growth kind of years ahead.
Well, we expect the this transitional year clearly at that time, we could not happen different they impact cobot 19, what's going to happen our industry.
This impact has been a notice and I'm personally.
The year started relatively strong for us with both January and February coming in slightly ahead of our expectations.
The covert 19 pandemic began so I pulled in January.
The United States confirming its first case.
But we didn't know began to see a significant impact work portfolio until halfway through the quarter.
The group segment, which represented approximately a third of our revenues in 2019, and it's the most significant leading indicator up demand at the lodging industry began to see a severe uptake and cancellations on future bookings during the last week of February I need to them off at March.
On March 11, we went through our previously issued for your 2020 guidance as the uncertainty surrounding the spend that it continues to increase exponentially.
On March 31st we announced that in cooperation with their operating partners, we suspended or worried a process of suspending operations at 24 or 39 properties.
During the month of April the number of temporarily shirt hotels <unk> resorts increase the 31.
The remainder of the company's properties continue to operate what staffing and expense levels, reflecting the reduced levels of demand experienced that those hotels.
In some cases, the temporary closure of our properties was the result of a mandate from the city or county in which the property is located sectors in key west another.
Barter hotels <unk> resorts, our asset managers worked with her operators to conduct a rigorous property by property analyses to guide her decisions regarding temporary closures.
Very well go through the factors that went into the decisions to suspend operations at our hotels as well as the aspects that are driving our reopening decisions in more detail later on.
Suffice it to say to their health and wellbeing of guests Kinda associates is that a couple of the list.
Followed by cash flow considerations, both in the short and longer term.
We're pleased with the efforts by our hotel operators to decisively on significantly reduce expenses.
Our operators have been able to substantially reduce staffing and other expenses to minimize cash outflows. During this time at our properties are your shirt or running at historically low occupancy.
Throughout this time, our asset management team has been working closely what our operating partners and we believe no more than ever that being affiliated with some described as a brand companies in the industry is a significant strategic advantage where a company.
Our largest brand companies Marriotts Hyatt and Kimpton, that's provided strong leadership and guidance across their platforms as we navigate this pandemic together.
We believe that are operators have significant advantages as they respond to this crisis, who their ability to implement and communicate their best in class safety and cleanliness and actually that's their premier revenue generation systems on loyalty programs.
And there are well capitalized balance sheet.
He believes that our affiliations with these companies will prove to be vital because we recovered from this unprecedented downturn.
In addition to the expense reduction efforts undertaken at the properties.
We have taken significant actions at the corporate level to reduce general and administrative expenses and capital expenditures.
Our anticipated full year cash DNA upstairs has been reduced by more than 20%.
Or approximately five and a half million dollarss.
Excluding nonrecurring restructuring cost.
Additionally, we canceled or deferred approximately $50 million out of our 2020 capital expenditure budget.
As Barry will detail in his remarks.
Turning to the three potential disposition transactions, we have previously disclosed.
As we announced in April the sale of restaurants also hotel did not close that's contemplated in our amended agreement and the agreement was terminated.
We were paying that sumerians, our deposit that was previously released from escrow.
In early March we entered into agreements Costar seven hotel Kimpton managed portfolio it at attractive terms.
Last week, the sale did not close and scheduled as the buyer parties failed to close when I will get it to do so.
We are vigorously pursuing to release the 20 burned art apologists currently held in escrow.
Regarding the sale Renaissance Atlanta, Waverly Hotel, there continues to be no change the timing were times of the transaction.
In closing is currently scheduled to occur, but you got to July and they get $7.75 million nonrefundable deposit remains in escrow.
We cannot provide assurances that this transaction will close that's currently agreed upon where at all.
As a result of our actions over the past several years.
We believe it we're well positioned coming into this crisis with an outstanding portfolio strong balance sheet and manageable debt maturities.
While the social and governmental response it a pandemic that's very dramatic effect on the bats throughout the <unk> travel industry.
We believe their liquidity position and strong relationships with our banks and our capital providers will assist us in these difficult times.
We can seem to engage and constructive dialogue with our lender group as we intend to reach agreement on amendments to our unsecured credit facility and their unsecure terminals and are hopeful this will occur in the second quarter.
We look forward to finding the best staff for their lender group that'll also comedy company to be well positioned.
Pretty eventual ramp up of business.
As we look ahead to a face reopening of the economy and the easing of stay at home or similar restrict trends across the country.
We will continue to work with our operating partners to evaluate the best strategy and approach.
Commencing operations are currently shuttered properties.
Currently we are planning to recommence operations at five of our hotels before the end of May.
Bringing their total of open hotels in our portfolio to 13 body after that.
These hotels are primarily smaller resorts or lifestyle boutique properties appealing to guess who are driving through these locations.
These properties collectively represent one third of the properties in our portfolio.
But only about 15% over our total then Scott.
We believe this will provide us very valuable you into the way we can expect demands a return throughout the remainder of the portfolio, while limiting the ramp up in operating expenses.
Our success and significantly increasing the appeal of our portfolio took many different sources of demand should benefit us as we navigate through the current health crisis.
At work to stabilize our operations as lodging demand recuperate.
Our high quality portfolio has historically benefited from a balanced mix between group corporate transient and leisure demand.
We are hopeful that our geographic diversification, our exposure to drive to markets.
Concentration over his work in our portfolio and our lack of reliance on citywide conventions that international travel will aid us as we emerge and recover from this crisis.
We expect that the way the business will recover in the industry will likely be uneven across markets and segments.
We are fortunate the on a large number of hotels <unk> resorts that can be nimble and pivot to attract various sources of demand including to drive two liter business that is likely to return earlier net corporate transient and group demand.
Our experienced management team has successfully navigated through previous challenging times in our industry.
I think on many different types of hotels and navigating through the ups and downs of various cycles.
As prepared as well to draw and these experiences and be creative as we evaluate our strategy looking ahead.
The strong liquidity position, an excellent relationships with brands operators brokers financial institutions and our capital sources.
We believe we are well equipped to get through this extraordinary time positioned the company for future growth.
Very well I'll provide additional details on our operations.
Thank you Marcel today, we'll be discussing our property performance for the first quarter, our decision, making process running temporarily suspending operations and plan to resume operations, our hotels and providing details regarding our historic and future capital expenditures.
Financial information I'll be speaking about is on a same property basis for the 38 hotels owned a quarter it.
Same property Revpar declined 27.6% for the quarter as I can see dropped approximately 20 points and rate was down 3.3%.
Revpar for January was down 3.2% in February down 5.2% to last year, both slightly ahead of our expectations as we'd anticipate significant disruption from renovations the park at our Yara, that's crops and Pentagon city.
March was down 67% as 24 of our hotels had suspended or were in the process of temporarily suspending operations as of March 31st.
Same property EBITDA margin was 15% as a result of hotel closures related costs and the accrual of certain furlough cost totaling approximately $6 million.
Despite our operators best efforts reacting quickly to win a ruling demand environment was challenging.
Group business for the quarter was 35% the transient at 65% generally in line with a historic annual trends.
As we look ahead, the vast majority of group business for the second quarter has been canceled although our hotels to meet significant efforts to rebooked that business into the latter half of 2020.
As of the end of April group cancellations have resulted in approximately $70 million of lost rooms revenue for the year nearly all cancellations coming from events scheduled for March through June.
Well some of this business has been successfully re book for later in 2020 and 2021. There are no assurances that this business will come to fruition.
And business returns, we expect leisure demand, which was approximately 25% of our total demand in 29 team to recover first restricting the former Staycation and other drive to business at our leisure focus lifestyle hotels destination resorts, followed by corporate and group demand and ultimately larger group programs.
And we look to temporarily suspending operations at our hotels, we first considered the potential impact of remaining open on our manners employees and their personal safety.
We have performed rigorous hotel by hotel analysis books on expectations for near term demand and incremental costs remain open versus close.
Well, we've worked with our operators on developing detailed plans for maintaining the safety and security of ourselves, while they're close I mean training 24 hour maintenance and security service.
And our eight hotels have remained open it wouldn't valuable lessons and how our operators can operate full service hotels, and a very low occupancy environments.
Occupancy for April piece hotels averaged approximately 6%, but cost for well maintain maintained and we believed that there was no incremental cost to keeping an open versus temporarily suspending operations.
Many of our hotels it remain open or in markets, where competitors are also open and we look those markets is relative bright spots of economic activity begins to pick up.
In recent weeks, we have transfer younger analytical, let's look more closely reopening certain of our hotels. In addition to the obvious state and local regulations and ordinances. We're focused on the ability to maintain a property level of cleanliness physical standards and safety for hotel employees and guess, what the particularly focused on identifying near term business opportunities.
We believe that drive destination leisure oriented hotels and have the quickest ramped up in the current environment. We're working closely with our property level management teams as well is probably in Petro major operators designing new staffing in business models will allow us the opportunity flex costs as demand rebounds.
It includes the alteration of food and beverage venues rely primarily on grab and go concepts as hotels ramp up providing deep cleaning and sanitizing housekeeping services, primarily on checkout, relying on Texas services, such as mobile check in and checkout.
We expect that many of these changes the operating model will become permanent aspects of our industry's operating structure.
Experienced asset management team and portfolio initiative efforts, including the deep knowledge of our hotel we've gained through our property optimization process have positioned the company welfare. This task.
As we reopened hotels, we expect to incur additional one time, an ongoing cost we have not historically concur.
He is one data link food equipment and supplies designed to promote enhance guest employee safety and aid in insurance, ensuring compliance social distancing requirement.
We fully endorsed H. allay safe stay program as an umbrella for the specific programs are being developed by each of our brands of managers as we evaluate demand and the ultimate pace for the ramp up in each hotel.
We will also consider the onetime costs, you may experience and shifting their business models, putting physical alterations and severance costs in order to permanently reduce our hotel staffing.
That's controls will be a primary focus we're talking to wrap up slowly from initial occupancy levels. As a result, we will likely see our full service hotels operate more like select service hotels in terms of staffing and amenities offered.
We expect the hotel staff will be reduced as we may leave entire guestroom floors in areas of meeting space out of inventory for extended periods of time.
Many of our group oriented hotels and destination resorts will pivot to attract a higher component of leisure travel in the coming months.
And we'll also focus on small meetings business as we continue to seek opportunities for group business and hopefully not too distant future.
As Mike discussed as we focused on maintaining liquidity across the platform.
[noise] reevaluated, our original capital expenditure budget expenditure budget $110 million to $130 million and if cancels referred approximately $50 million of capex, eliminating non essential budget expenditures and continuing primarily project are in progress for forge materials had been ordered.
We're now expecting to spend approximately $70 million on capital expenditures this year.
During the quarter, we invested $22 million capital into our portfolio.
February we completed the meeting space renovations at the Ritz, Carlton Pentagon City, and Western Auvs Houston.
Our largest project for this year the transformation of per kw are continuing to progress with relatively minor changes to the scope and timing as a result of corporate banking.
We've now completed the Guestrooms corridors and meeting space rubbish.
The major renovation of the lobby lobby bar and outdoor cherished began during the second quarter, we were able to somewhat shorten the time on for this portion of the project true, though it's all being temporarily closed.
We're pleased with the execution of date of the major renovation of the exterior couldn't the pool area, it's true function space and upgrades all landscaping.
Overall, we're on track with slightly ahead of our initial timeline as we've been able to complete some faced with project faster given the resorts is temporarily suspended operations.
We continue to plan designs remaining components of the renovation, which include the conversion of existing specialty restaurant into a new three meal dining concept.
Conversion of existing three new restaurant in a highly functional meeting space for small groups and the renovation of the spawn fitness area.
We're making great progress on the planning of Schuff focused specialty restaurant as part of the renovation of the Golf Club House.
Given the continued excellent plane condition of the golf course, which is one of the LPG a key classic we made the decision defer to defer the golf course renovation to a later date.
Other than the golf course improvements we continue to expect this product to be fully completed in the first quarter of 2021.
We continue to be excited about the opportunities that lie ahead for this resort post transformation.
Turning to forces that originally drove the design elements of the transformation of the transformation work one to be more appealing to family oriented leisure business too dramatic we just don't ever pool areas and to create additional meeting space within the hotel optimal we designed to serve small meetings.
We are fortunate that these components will be renovation or ideally match with our expectations of demand in the near future.
The initial reception reaction design of the spacious and target markets, including families in the first case and leading industry players in the biotech and pharmaceutical business and the second case has been very strong.
We're continuing with the Guestroom renovation of Marriott woodlands, which is expected to begin this month to be completed in third quarter. However of deferred renovation of the guess bathrooms and amicable guns to later date.
We're also continuing with renovation of the existing meeting space at high when she began cypress scheduled for this summer.
You have reduced the scope with this project by eliminating or deferring some non essential components of the project primarily in the pre functionary.
With that I will turn the call over to teach.
Thank you Barry and good afternoon, I'm going to discuss three topics today.
First our liquidity position.
Second our monthly recurring cash expenses.
And third I will provide an update on our balance sheet and discussions with our lenders.
Starting with our liquidity.
The company continues to be well position from a liquidity perspective.
We have taken actions to improve liquidity over the last eight weeks, including drawing on our line of credit reducing corporate expenses.
Curtailing capital expenditures, the extent possible and working with our operators to reduce property expenses.
We intend to suspend our dividend and see share repurchase through at least your end.
At the end of the first quarter, we had approximately $400 million of cash cash equivalents.
This reflects approximately $365 million of cash at the corporate level and approximately $35 million of hotel level working capital.
Additionally, we had over $65 million of restricted cash held in Africa knee replacement reserves as of the ended the first quarter.
We expect to utilize a portion of this restricted cash for hotel operating expenses a certain of our operators have allowed for the this temporary use subject to specific conditions such as more replenishment.
Turning to my next topic, our monthly recurring cash expenses.
We provided this information in the release, we issued this morning.
We are presenting this information assuming all hotels had temporarily suspended operations.
So we expect to have 13 hotels operating by the end of the month. This scenario is one way to assess our liquidity runway.
Assuming all 39 hotels, where to temporarily suspend operations, we estimate our near term monthly recurring expenses would be approximately $20 million.
This includes health insurance costs for furloughed employees property employees as well as wages and benefits for limited socket properties.
And fixed costs, such as property taxes and insurance.
It also includes our corporate general and administrative.
Expenses.
Our monthly cash debt service is an additional $5 million should all debt service be paid in accordance with current got agreements.
If hotels were to continue having suspended operations beyond a few months our operators would begin to further reduce costs.
Our monthly recurring expenses would decline from approximately $20 million to approximately $17 million.
Again this is exclusive of debt service, which would add another $5 million per month.
Should it be paid per current that agreement.
If properties were to suspend operations for a longer duration, we would look for opportunities to further ratchet down hotel operating and other expenses.
No we have excluded capital expenditures from the monthly expense rate just provided.
Given the capital expenditures are more discretionary and tied to specific projects their best to view separately.
In addition, we can utilize existing assets any replacement reserves for a portion of planned capital expenditures.
For the remainder of 2020 capital expenditures would average approximately $4 million Cas expense per month.
If all hotels have operation suspended for many months, we would further restrict capital expenditures to only essential like safety and minor maintenance projects.
Overall, we believe our rate of monthly expenses.
Capital expenditures currently yields more than a year of runway again, assuming all hotels were to suspend operations.
Moving had to my final topic, our balance sheet.
We had a strong and straightforward balance sheet going into this crisis. We now have approximately $1.6 billion that after drawing the entire availability on our line of credit.
Approximately 35% is secured by property mortgages and 65% of our dad is unsecured.
At quarter end, our net debt to adjusted EBITDA Ari was 5.2 times, reflecting the severe downturn that began in March.
At the end of the first quarter, our weighted average interest rate was 3.32%.
We anticipate our weighted average interest rate at present is approximately 3.5% due to an increase in spread on our unsecured borrowings.
After discussions with our lenders we are appreciative of the support we are receiving from them.
On the unsecured side, our lender group consists of top notch banks, with whom we have strong relationships.
We are negotiating an amendment to our unsecured borrowing agreements with our lenders.
As part of the agreement, we expect to have flexibility to manage our business over the months ahead.
We also intend to address our financial maintenance covenants into next year.
At the end of the first quarter, we've reached one financial maintenance covenants.
We expect the amendment to address not as well.
As to our secured debt, we have a mix of bank and life company lenders, we do not have any CMBS debt. We're in discussions with several of our six secured lenders to obtain temporary covenant waivers and additional temporary relief.
After the end of the first quarter, we were in plot in compliance with all secured debt covenants.
In closing I'd like to acknowledge the support of all our constituents as we manage through the unprecedented global crisis due to cope with 19.
We are fortunate to have strong relationships with our operating companies lenders and other industry participants.
We entered this crisis with a high quality well located diverse portfolio of assets.
We hope to emerge from this crisis, having preserve value for our shareholders and being position for future growth.
With that I'll turn it back over to idly for ARX you in a session.
As we are ready to take our first question.
Well now begin the question and answer question I asked the question you know press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your hands up before passing the keys.
Well withdraw your question you can probably die from Q.
Our first question today comes from Thomas Allen with Morgan Stanley.
Hey.
Good good mid day airborne.
I'm a heavy use so so interesting comments about reopening hotels. He is talking about kind of where current what you're seeing in current bookings any any promising results there. Thanks.
Well, it's hard to talk about burn bookings Franklin Thomas So and we we obviously are these decisions that were making around some of these properties that were where reopening our blade really not driven as much by what we see on the books or what existing reservations look like or anything like the it.
As much more driven by looking at kind of market dynamics and expectations all potential leisure demand. It will start coming back to some of those assets a little bit more quickly than other properties.
You know where.
Do you know most of the forward looking booking information that you can normally hang your head on as related to group demand and group demand is obviously a completely disappear.
And even what stuff that's still on the books for quarters. It's just highly questionable whether any of that starts materializing. So some more of the decisions around reopenings are truly based on just a sense for the markets, having some having very in depth all until those markets seeing what's kind of happening with overall kind of economic activity in some of those markets and.
Drawing some conclusions from that that we we know we're gonna have to you know kind of build off from basically a zero base and most of these properties. So we're going to we're going to open up some of those properties. We have pretty good hopes that we can start rebuilding some occupancy there, but it's also based on what are we seeing what's on the assets that have remained open you know we have eight assets like Barry talked about.
So on average right.
In the mid single digits occupancy and a in April thoughts at that level, we were running probably profitability or lack of profitability that was very similar if not a little bit better than being closed. So we know that we can open up some of these assets kind of start building up hopefully a little bit of occupancy and certainly not lose more money in the early.
Going there.
And that brings me to my next question I'm. How are you guys generally thinking about breakeven levels, both from a cash flow and then from a EBITDA level.
So when we when we look at it Thomas from the at the hotel EBITDA level.
We have centered around on a portfolio wide basis breakeven I comes even around 40% now it varies a lot property. The property, we have some hotels and the larger scale resorts that may have creek even.
As high as 50% and we have some some of the.
[music].
More urban hotels that we can operate in a very similar to select service model was breakevens are down in the low 30% range, but around 40% overall for the portfolio kept us to a zero hotel EBITDA.
And then beyond that I think if you were to layer in corporate overhead and that service you'd be in the 50% occupancy range roughly speaking and that all these numbers also reflect a rate decline because obviously you know we would anticipate that rates will be lower coming out of this so we're not assuming kind of the same rate profile.
Ill.
Pre co head initially to come up with that 40% to 50% range.
And teach any like.
Around what kind of rate is that assuming.
That assumes about a 30% at 80, our Oh Wow, Okay. All very helpful. Thank you.
Our next question comes from Austin, Wurschmidt with Keybanc.
Yeah, Hi, good afternoon, everyone.
Just curious if there was any any discussion whatsoever about renegotiating the kimpton transaction pushing out the date and then also curious kind of what the grounds are.
For their claim to breaching the you know the contract and acquisition agreement.
Yeah as you could probably imagine also not a whole lot I can say around to.
Reality is stutz, we were a ready willing and able to close the the date of closing a the buyer did not show up for closing so are we actually southern our announcement, where vigorously pursuing the 20 learned our deposit that's a that's held in escrow so really density.
Much more about that at this time.
No I understood and then you know are.
Are there any hotel you know beyond the five that you announced where.
You see kind of a future of reopening from from mandated closures getting lifted and that would otherwise be open in to the extent that those those mandates weren't in place.
Yes, Austin Marcel mentioned in his commentary about the hotels.
Close by mandate today or in key west and Napa, where we have two hotels and those would generally fit the profile of the hotels were opening and trends and having high components of leisure man and being in markets, where there's a lot of.
Dr. Chiu business.
So those two are not included in the five that you expect to reopen by the end of May.
Correct correct, there any great.
The declare a study outsells. That's you know two hotels in about one in a wanting Qs and US as you may have seen into keys, obviously as a drugs to market.
Finally, coming from South Florida are you happy to be dependent on that area. So the south Florida has been a little bit behind the rest of Florida as far as being being allowed to we opened some of their economic activity. So it's gonna be pretty much tied to what you'll see in south Florida, what are the keys for likely start lifting their restrictions.
Then.
Well I will react relatively quickly obviously to the extent that we can move forward on those but it's going to be part of those are to Barrys point, specifically driven by that what we probably would act a little bit more quickly to open up those hotels, but it's a given the given where we are there maybe some water assets into portfolio to to that will end up.
Nice similar timeline, we're continuing to review it really on a day by day week by week basis.
And obviously you you don't make a decision to open up I'll tell you know by Tomorrow. The you know you need to a few weeks Oh, the kind of prepare for it and to make sure does he opened up the booking channels and all those kinds of things without making too many adjustments to that.
The only thing or without looking at 16 16 hotels in total that have.
Less than 200 rooms. So you know we view kind of this this next yeah. These five hotels are opening over the next couple of weeks as a way to really.
I understand and OSAT, most are opening process and what demand looks like and how we can build from there. So.
These are ones that we've already identified.
Assuming it goes well you know we can we can look to others in our portfolio and as both Marseille and very mentioned, we have a lot of diversity in the portfolio and hotels that either do a fair amount of leisure can pivot towards doing more leisure so feel fortunate in that regard the weekend build off of it.
And Ah around these first two to continue that into you know the weeks ahead.
Got it appreciate the thoughts thank you.
Our next question comes from Michael Bellisario with Baird.
Good afternoon, everyone.
Good afternoon.
Wonderful as load on Houston, those two properties more group exposure you mentioned a renovation to out one of them.
And then there is the the obvious energy weakness, but it was your best performing market. So it's a question how are you, saying it outperformance of these assets and the market as a whole.
Moving forward from here and how we should think about maybe relative outperformance in the near term. Despite all those other headwinds that I think.
Right.
And then I mentioned as well.
So I think as always what kind of take it in two pieces of each the hotels is very different are what's going to tell jokes and Galleria you know serve a pretty broad demand base in terms of corporate demand and group demand that hotel happened to both of those hotels happened to have some meeting space. It is pretty well design.
And it has an ability to have a both meeting space been renovated to sort of small and medium demand.
As a as a note the gallery a mall is open it opened a first and while traffic in the light. There are we view that also I think a little bit of Oh, the near term beacon in terms of tracking leisure business.
It's going to want to common as it does from some of the both within the city, but from outside of the city as well in terms of of shopping in opportunities. The wouldn't was a little different you know that market that entire mark has driven a lot by a single company Exxon and the reality is it today on Exxon is generating.
The same not room nights as most other large corporate demand generators throughout the country, which is very very little in the hotel. So I'll, we've not had weve, while we're in dialogue with them, we don't have a sense for poor how.
The downturn in oil prices really affected their near term view at this point don't view, a particularly any differently than we would view any other large corporate demand generators in the portfolio.
Thank you.
Our next question comes from our equine with BMO capital.
Thanks, maybe just following up on the on the hotel openings question. When you think about your non major focus to hotels when should one or you kind of planning or expecting dose to begin a opening and what are kind of the guide posts there.
Thank you are looking at the start opening does.
I think is if you look at a kind of in general as a as an asset class kind of larger urban hotels. So I think we've talked about our plans for our and our intentions for our smaller lease drawing hotels as well as our resorts, where we think we can do transient business near term I think the guide posts for your.
[noise] larger urban hotels are going to be two things one understanding that there's sufficient domestic travel both capacity and demand that there is but there are business travelers who are back on the road and are going to major urban centers during the week and I think also looking at.
In particular, certainly at least initially the kind of demand patterns and demand in requests for smaller group meetings, which we think will follow individual business shop of demand by some period of time handicapping. Those time periods right now is really something where we are.
We're not doing we're just not handicapping that because were but we are looking at where every everyday and every week, we're monitoring reservation flow or trying to understand whether people are calling interested in rooms, whether we're seeing demand not just not hotels, but are we seeing commercial demand in within the markets. Our hotel search so I know us.
Got a perfect answer, but I'd say, that's really the kind of where we are and how we're looking at it yeah. Some so as soon as there are no certain amounts of meeting or type businesses that are still on the books and we're obviously looking at it very very closely to see if those could be real demand said, we'll actually materialize.
The other part about some of those larger assets is that he can't imagine.
The startup expenses or getting a larger asset to operate again are a little bit more significant there's so many smaller hotels, so, whereas we can get some comfort around the fact that we can open up a few more of these smaller leisure oriented hotels and run it would be very very lean staffing model and not needs a whole lot of occupancy.
So to have Oh results that are at least equal or hopefully better than results of the enclosed you know, there's obviously a little bit different decision, making that goes into the larger hotels, where it just is a larger a bigger expense base that you have to start off with.
Got it and then just on the the hotels our plan to be sold and that didn't go through.
Are you just are you putting them back on the market how should we think about asset sales may be more broadly.
And what is the market like currently.
But you're saying.
Well as you can imagine aneurysm, so I'm sure you.
You witnessed been hurt from many industry participants obviously the market as this is pretty much frozen as it relates to two transactions right. Now so that that means that's probably shouldn't expect us to be overly active with a with any of these into shorts and short now.
We will continue to evaluate what are we believe it's appropriate to potentially still sell these assets down the road, a and watered out say better solution at whatever valuations are appropriate at that time versus continuing to own sold these assets what I, what I will say is that's.
When you look at the southern Kimpton hotels that we all.
We never.
Sold them, because we didn't like the assets and we'd like the US has their high quality assets. They fit type of assets are worked well within our portfolio. The reason we were looking to sell them potentially was that we were taken advantage of some pretty good market conditions for assets of that nature that we felt.
We could sell very attractively.
Yeah first Frank on the balance sheet creates a more flexibility overall for the company.
Well, it's continuing to own. This on these assets is not a burden for us we like the properties as a matter of fact, we think that these properties crews working very well in this short term situation where people are looking for more leisure.
Were little bit more leisure demand will probably start filling hotels. So there. These are properties that are open.
And we'll continue to be open and we feel very good about still owning those assets.
Thanks to the color.
Our next question comes from Tyler Bob.
Capital markets.
Hey, good afternoon. Thanks for taking my questions dimensions Om group cancellations March through June curious of what you're seeing beyond June and group business and then also curious to get in touch on cancellation fees as well.
So in that in the period beyond June reason, we talked about March and June Tyler is that there has not been significant cancellations in the latter half of the.
There have been some cancellations, but not of significance that I think is as you may have heard from others and certainly true from us is that.
Theres little wouldn't sign and for those groups to cancel now they would much rather wait to cancel closer in when.
We may not be able to perform as opposed to 'em canceling now when they would likely depending on the contract but in many cases, the obligated to pay of some cancellation fees. So I think you've see you see a little bit at a stalemate in terms of in terms of why there's a lot of group business on the books demand may not actually intend to.
Have their meetings.
When that time rolls around and we've seen some of that as we've rolled into June for example in seem that doesn't start to fall off the books in a much more meaningful way.
As it relates to our Rebooking, we've seen a decent amount of rebooking from the business that was cancelled in March through June into the latter part of 2020 and 21 again there are incentives for groups to want to do that because in many cases, they're kind of protecting that cancellation fee until such time as they would can.
Well that business. So a lot of doing pushed out it's hard to gauge whether they really ultimately will.
Have their programs are not depending on the brightest circumstances, including obviously hotel availability as well as whether they're comfortable having more group in a in a meeting format and what regulations might be in place as it relates to meetings are going to sizes.
Yeah. The only thing I've read is that I I think when you look at our group business and our group business cancellations and the amount of room bookings.
Probably not too dissimilar from what you're seeing from most of our peers. The reality as world dealing with the exact same situation, which is we're all hopeful that there's materion does materialize as the remainder of the year, but there. It's obviously not something you can absolutely count on given all the uncertainties that everyone is well aware.
Okay that makes sense then just as a follow up question, we looked at some of the properties in some of the markets, they're going to be Robert in here have you had any discussions concerning limits <unk> occupancy either voluntary you guys wondering if those were permitted by the government you're obviously, there's some market that they're opening would.
Limits to occupancy at restaurants, and whatnot. So just curious how you might managers that.
And do side of things or on the room side.
So on the FNB side, we'll obviously intended to follow whatever regulations are in place in the jurisdictions with autonomy opened up as it relates to the hotels were.
At this point, we don't expect initial demand to cause any issues with that in.
At least one case some hotels were opening we are only opening a section of the hotel that happened and that will also that we know that well that is a very resort focus property and we know that will help us maintain what we think of the proper physical distance limitations at the pool, a that hotel by limiting the number of Guestrooms that we're actually making available.
Okay. That's all for me thank you.
Our next question comes from Dave UPOP with Jefferies.
Oh, hi afternoon or.
Good afternoon, everyone, yes, it is afternoon.
I found the commentary I guess would begin Barry and then some of my ourselves as well.
Particularly thoughtful around you know the reopening of hotels and thinking about you know looking at these hotels in the context about limited service offering.
And I'm wondering the degree to which.
You know.
At some point, whether it's now in the future you think about one of reinventing somebody operating models to you know keep it that way right, but but they provide a better profitability or a lower volatility operating model ongoing.
Thanks, David So I think it's interesting and it's something that obviously, we're working very closely with the brand the managers on and they are very focused on this as well and I think you certainly they have certain received a lot of input from the owner community that there are we need to rethink the entire business model, we look at what services were providing what.
Services were charging for what services were providing on a cop 90 basis I mean, there's been a lot of great dialogue around that quite frankly between owners individually on his collectively and the various management companies and brands that service and particularly the larger institutional owners I personally think it's a unique in rare opportunity that we didnt have.
In either in any of the major downturns at least in my career, where you kind of reacted you came down a little bit and you kind of overtime bookings backup we're literally starting many hotels from a true zero based budget and that gives us a really really unique opportunity to really we think the business model and we're doing it so.
How how far that goes and what the right answer as I think it's too soon to tell but there is given ongoing dialogue.
Between owners and operators within the operating companies themselves and I think there are I think we will come out of this with a far lower cost structure than we ever could have imagined. If we had had a downturn like 911 or downturn like a financial crisis, just because we're building that we have the ability.
To look at everything from a true zero base.
Right and if I can follow that up with the group hotels that you're Gonna open first can you just give us a sense for.
So what normal number of FTTS might be on average and kind of what you're thinking about in terms of opening with firms about teams just to put some perspective around it.
Well I think it's a little too soon to talk about that are our larger our largest hotels a carry a ratio of around half an F. T E per room.
Roughly in that range, maybe a little more than that but the issue is going to be in the larger hotels is do you have consistent group demand to be able to staff up the level would you can serve as that group.
And then be able to react if there's a dip of a few days for a week for two weeks before the next major we've been those that's what's going to make their considerations and open the larger group hotels for everyone. I think it tougher and tougher question because if you need to staff for a group that is going to take 80% of your hotel you're gonna have to staff.
And then to be able to service, 80% of hotel and if you don't have another group coming in shortly thereafter.
Staff groups or or transient business or leisure business. If you can put on top of that group then that's going to change at all for how you make that decision to open.
Did you want to hear about the smaller tells you said grew by.
As far as those are the ones were about the opens it.
So David what I will say about the white collar about though but is that we.
Obviously are looking at it from our perspective of where close right now we have kind of step up the skeleton crew.
Basically that as you know pretty uniform across the portfolio for those type of hotels as far as a the type of personnel that is onboard even when you're close to reopen some of those hotels, you're really not adding a whole lot initially and it's really not very sad because of the offerings being significantly reduced not having in most cases.
On to open or very limited limited amount being open you're just adding you know a couple of to ease basically to be able to open up a those type of photos right now.
Got it and if I can ask just one last detail.
Regarding the you know failed so we're obviously, putting the EBITDA back into the model is there any capex that we should be ponton plating, along with that or you know is is the math is simple exactly as I lay off.
No. There's there's really no near term Capex, we actually did some renovations of those hotels and you know very reasonably okay.
Okay. So the ones that were frankly, a little bit longer into two that needed to that money that really has happened over the last couple of years. So were very good shape there.
You know I wish I could tell you just add the EBITDA back that we had in 19 per dose properties for that's probably not.
Not on the cards for some period of thought.
Probably not the right answer okay. Thank you very much appreciate the answers good luck.
Our next question comes from not built with B. Riley <unk> they are.
Hey, guys. Good afternoon. This is a bad on for Brian I, just wanted to turn to the cost savings side of things and I apologize if I Miss this but from.
The initiatives that you've implemented thus far I guess, what areas would you consider the changes or adjustments to be areas that could be more permanent going forward.
Thanks, Matt I think certainly as we've seen another downturns the level a number of fixed staffing, meaning management personnel on property and very end the levels of staffing that you have I think we'll see I figured in number of levels of management probably come.
Out.
As we as you reopen Henry and re ramp.
I think that's certainly one area certainly I think opportunities become more efficient throughout the hotel, whether that's through providing housekeeping only on checkout, whether that's through really getting to the point, where a mobile key so keyless checking in check out there.
But he left key passing the desk into checking in check out I think both are those are really large initiatives that we've been working toward for some time that I think we'll we'll have some legs as we go through this I think certainly.
Shortening and moving food and beverage.
Offerings to more limited offerings and offerings at a much more expedient to be able to prepare on a style that may be available for grab and go I think those are those are the primary areas, where I think you you'll see a cost saving initially and things that have potential to stay in the operating model longer term.
Okay, and then is there anything else that you're considering implementing or do you believe that everything that's been put in place will be enough. So whether any additional near term headwinds.
Well well I mean, obviously as you know at 31 of our 39 hotels are closed so what weve implemented. This there are close [laughter], So where we certainly hope we're not going to continue to implement that's pretty entire portfolio, one and we'll look to obviously at the services there and he doesn't expenses are near I think various.
Talk for a few of those those categories. That's an IDE corridor, we agree with his comments about is a great opportunity to zero base operations. That's a really build back those pieces that are truly necessary to run the business and I think that's where.
As an owner of the type of hotels that we own a there's a great opportunity to creates a better more efficient model to some extent then that's on the hotels were previously operating owner.
Lets side of that I think those cells that we own are still enormously attractive for oil kind of different events, including corporate transient and leisure demand. That's a even if you were scaling down some some short term operations.
And amenities, but there will still need anything you know very attractive to stay up in comparison with its you know maybe just some of them more cookie cutter type Uh huh.
Thank you.
Our next question comes from Bill Crow with Raymond James.
Good afternoon guys.
So I know you're laughing about just adding back late TV, but but it does bring up a question and largely because we are kind of a sum.
Surprising the answer to that question earlier today, but what do you think we get back to 19 levels.
Well Bill.
[laughter] and I know if you knew the mature.
But.
You got a bunch of business for some sort of <unk> skating right.
Yeah, absolutely I mean, obviously.
In other way that we're managing our business right now as a as both looking at short term and longer term views of how we get back to those type of those type of performance outside our view of it as you got obviously operated what I strategy hope is not a strategy. So that it's not we're not sitting here, saying, we hopefully we'll be back of these these levels at this time.
It certainly is going to take a you know in our mind, if there's not a at 12 months a situation clearly coming but it's something that's going to take a couple of years so to work its way out and.
You know when you hear and I've I didn't personally it here some of the things that you may have heard earlier today, but right. What I will say is that you've heard a lot of people talking about you know he is a 22 is at 23 kind of him. That's a that's the timeframe and you know what we're seeing right now I.
In many ways you know its flipping to say your guess is as good as mine because I guess should be a little bit better, but so there's obviously a lot of variables that are going to go into how quickly things come back another quickly thing to rebound, but so and that is probably the closest that we can say to no into.
Yeah later in 2002 into 23 is probably more realistic way of looking at things yeah. The only other thing I went out. It's just you know if you think about topline in revpar versus profitability and some other things we're talking about in terms of operating costs and maybe margin potential even at lower levels of revpar might translate into you know even.
You don't get to exactly the same level of Revpar you know when a couple of years, maybe you can do well better on the profitability standpoint, because you know we've we've got a different operating model than in the past. The other pieces would be obviously be supply growth, which you know it's hard to envision a lot of supply growth.
Beyond what is currently under construction actually opening up whenever that happens, but beyond that you know I think you're going to have a lengthy period with not a lot of new supply growth. So yeah. Those are some other factors to think about as you think how this how this industry might look for years.
Yeah, No I appreciate the very much and one other question at what point do we have to get to before you can start to really push cancellation fees clearly you can't push push any of that now.
But if were reopened as a country by the end of the year, but groups still don't want to travel. So as you look at that had your your pace in 2021 do you start to really push cancellation fees.
That does that is that legitimate or or does that just lead the backlash.
PR nightmares and things like that.
Well I think it's obviously, a it's a delicate balancing act clearly and this is really something that the operators are very focused on.
It is a very unique an unprecedented situation right now so there's a lot of flexibility being shown.
As it relates to we bookings are those type of thing. So we think thats appropriate and the current situation.
I wouldn't want to say you know it's not my it's not my position to right now say, hey, we're going to enforce them through a certain days or nothing for US and then started forcing after a certain but it's really kind of depends very much on what the situation as on what the you know the true likelihood of some of the Rebooking.
You know some to re bookings are those type of thing so it feels a little bit too early to really.
Make any hard and fast statements about that I think and the operators you know the focus is really on particularly to the big larger operators and the brand companies on.
Conveying this declining this is safety really you know really focused around that to make hotels welcoming comfortable for people in the future.
All right. Thanks appreciate it.
This concludes our questions asked this question I would like to turn the conference back over to myself or bought for any closing remark.
Oh. Thank you. Thank you all for joining the call today, it's a as we set a number of times. During this call obviously impressive at the time sets a it's something that's again I'm very proud to be part of the steam everyone's working extremely hard through this crisis and.
We feel very good about about the team we out of the portfolio. We have the relationships. We have some extra this thing really want to thank all of you for joining us today and Oh, a stay stay healthy stay safe and well look forward to connect them with you a minimal Ted.
The conference has now concluded. Thank you for attending today's presentation you may not this tomorrow.