Q1 2020 Earnings Call
Welcome to choice hotels Internationals first quarter 2020 earnings call.
All lines are in listen only mode.
I'll now turn the conference over to at least summers Investor Relations director of choice hotels.
Please go ahead.
Good morning, and thank you for showing yesterday.
Before we begin or we would like to remind you said during this conference call surgeon predictors of forward looking statements will be used to assist you in understanding the company and its yourself.
Actual results may differ materially from sows indicated and forward looking statements.
You should consoles the company's form 10-K, and other SCC filings for information about the important risk factors affecting to companies that you should consider.
These forward looking statements speak as of today's date.
Undertakes no obligation to publicly update them to reflect subsequent events or circumstances.
He can further conciliation, our non-GAAP financial measures referred to and I work remarks.
The first quarter Twentytwenty earnings press release, which is supposed to dealer website, it's choice hotels dot com under the Investor Relations section.
We would like to acknowledge that this is a challenging times for the hospitality industry, including choice hotels and refer everyone to <unk> earnings release, we issued this morning and that they too will start later today for important details about how cold it they paid us and talk to it and they continue to.
In fact choice.
Instead of reiterating that information here, that's patients Oh, President and Chief Executive Officer, and drug is it Oh Chief Financial Officer.
I'm really focused during this call on a few items, we believe our strategic importance and differentiate us from our competitors.
There will be going to their own by Scott Oak Smith, Senior Vice President real estate finance.
So in part to stones remarks, we'll be happy to take your questions, let's start I'll turn the call overtime.
Thanks, Sally and good morning, everyone. We appreciate you taking the time to join US and hope you and your families are well.
Before we begin I first want to express my gratitude to those on the front lines have been working tirelessly to keep all of us safe through this crisis.
I'd like to also recognized the dedication of our franchise owners and their staff, who have been carrying for essential travelers. During this trying time.
They are truly remarkable.
On behalf of all of US a choice hotels. Thank you.
Well the current situation has no true precedent choice is uniquely positioned to outperform its peers as it has in past economic downturns.
Trend that is once again bearing out.
It is the strength of our well known brands that drives the performance of our company in both rising and declining demand environments.
Our hotels outperformed the competition in the first quarter on several fronts.
System wide occupancy rates were higher than the overall industry, especially for our extended stay brands.
This contributed to a domestic system wide revpar growth rate that outperformed the overall industry by 430 basis points.
Additionally, our brands Revpar outperformed the primary chain scale segments in which we compete as reported by STR.
These trends have continued throughout the worst weeks of the pandemic into the second quarter.
For the past eight weeks, our brands have consistently achieved revpar share gains versus the competition.
And as shown in exhibit seven of our press release occupancy rates have been climbing since early April and even this past week occupancy continued to grow over the previous week.
We attribute this outperformance to our long term strategy of growing the right brands in the right segments and in the right locations.
Our midscale brands represent two thirds of our total domestic portfolio a segment that outperformed in the first quarter 2020 and continues to do so through early may.
Our 410 extended stay hotels maintained an occupancy level of 60% in the month of April.
And our would spring brand was even higher at 64%.
And almost 90% of our domestic hotels are in suburban small town and interstate locations areas that according to STR retained higher industry wide consumer demand than hotels in urban or resort destinations.
There are additional factors that contributed to our revpar and occupancy outperformance.
Since our hotels, mostly serve domestic travelers our portfolio has been insulated from the precipitous drop in international travel caused by the pandemic.
Finally, we benefited from the loyalty of those who know us best.
Business customer segments like transportation logistics, construction and government travelers, who have been staying with our brands for years.
Our company also entered the crisis with a strong balance sheet. Thanks, two years of exercising a prudent capital allocation strategy and maintaining low levels of debt.
Our financial position and liquidity allowed us to take a strategic measured approach to cost management and additional capital needs based upon our revised view of the environment.
Dom will cover this in more detail in his remarks.
Choice hotels outperformed the competition, thanks to a combination of our resilient franchise owner base and the significant level of support we've provided them throughout the crisis.
Our typical franchisee is an owner operator with two hotels financed with low overall debt levels.
Which provides them financial flexibility in down cycles.
To adapt to a softer demand environment, our franchisees can flex payroll costs reduce operating expenses and postpone capital expenditures.
These limited service hotels are less labor intensive and in general operate at higher margins as compared to full service hotels.
In response to the crisis, we reduced several fixed program fees extended brand program deadlines and adopted more flexible brand standards to lower owner's cost.
We've contacted nearly every franchisee in the system to help them manage their cash position according to each owners individual situation.
With an eye towards helping them succeed in the longer term.
To date, 10% of hotels have been enrolled in our tailored feed deferral program.
Just for perspective, the average occupancy across our portfolio has been above 30% since the week of April 12.
Indicating that many owners have been able to operate without additional assistance.
At the same time, we ramped up our advocacy efforts at the federal level to expand our franchisees access to capital.
I was fortunate to have a substantive exchange with president Trump when I visited the White house, along with my industry colleagues on March 17th.
Because 90% of our hotels qualify as small businesses I use the opportunity to call for specific provisions that would expand eligibility for owners and provide relief for their workers through the small business administration.
We are pleased at the S.P.A. provisions, we advocated strenuously for were included in the cares Act.
Even before the cares Act was signed into law, we launched an outreach and online education program to enable our franchisees to access this new capital as quickly as possible.
To date, nearly 70% of our hotels have applied for or secured vital SBK loans through the paycheck protection program and economic injury disaster loans or <unk> deal.
We've also taken steps to help franchisees reduce their operating costs in a lower occupancy environment through proactive outreach online training and virtual town halls to share best practices.
We've delivered business to our owners that they would not otherwise have with a robust sales team that we not only retain during this crisis, but plus stop by redeploying a number of choice associates to support the sales effort.
And we developed and launched our commitment to clean initiative, which highlights for gas the many ways our franchisees professional housekeeping staff achieve appropriate levels of cleanliness and the additional steps they are taking in this new environment.
The relationship with our franchisees has always been strong as demonstrated by our 98% voluntary retention rate and the high proportion of new franchise agreements awarded to existing and returning owners every year.
The feedback we've received from our owners about the overall level of support we provided during this crisis has been overwhelmingly positive.
As our occupancy rates show, our long history of investment in a franchisee first approach paid off during their most difficult time.
This is also a difficult time for the country, which is why together with our owners and guest we're giving back to those affected by coven 19.
Many of our franchisees have committed their rooms at discounted rates or on a complimentary basis to support communities in need.
As in previous crises, our choice privileges loyalty program members are stepping up to help as well.
Choices matching CP member donations at various levels. In addition to making our own contributions to several great organizations, including the American Red Cross and operation Homefront.
Well there are hopeful tangible signs that states are beginning to contain the virus brought uncertainty remains regarding the course of the virus the lifting of travel restrictions and the economic impact on the consumer.
Our expectation is that the near term recovery will be sporadic and regional.
There are however, several reasons to believe our franchisees will be well positioned to capture demand as conditions improve.
First leisure travel, which comprises about two thirds of our room nights is expected to lead the recovery and rebound faster than business travel.
Second.
Our brands are at the right price point and location for the type of traveler who's been on the road. These past eight weeks and who we expect will lead the return to travel the resourceful American our core customer.
As they did in previous down cycles. We expect these guests will replace lavish trips with lower cost getaways, presenting an opportunity for our portfolio when folks get back on the road.
And speaking of the road, we expect Americans will choose to drive when their ability and appetite for travel return.
We believe that heightened concern about the safety of air travel low gas prices and our strong presence in drive two locations will taken together allow us to capture an outsize share a pent up travel demand as stay at home orders are lifted.
Well, we do expect new franchise agreements to be lower than last year, we do see development opportunity on the horizon.
During the great recession, we continue to grow at a faster pace than the overall industry supply through increased hotel conversions.
In Q1, our pipeline grew 2% year over year to 1000 domestic hotels.
Nearly a quarter of which are conversions, representing a 5% year over year increase.
Despite the cobot 19 pandemic and travel restrictions weighing on the industry, we awarded nearly 60 new agreements in the first quarter.
Nearly three quarters of which were for conversion hotels.
Further approximately half of the contracts in the first quarter were awarded in the last two weeks of March.
The company's brands are well positioned to grow in this environment and I'll highlight a few.
The refresh of the comfort brand over the past several years positions us well for the expected demand recovery.
Comfort hotels that completed their renovations continued to experience Revpar index gains versus local competitors for the past four consecutive quarters.
And nearly half of the domestic comfort portfolio has now installed new exterior signage with the modern brand identity.
Comforts high brand awareness is expected to attract both travelers and hotel developers looking for our brand they know and trust to deliver a proven value.
Finally, even amid a lower demand environment conference loyalty contribution was 45% in the month of April.
Our strategic focus on the cycle resistant extended stay segment and investment to grow our new construction would spring suites brand afforded us a competitive advantage as the crisis unfolded by allowing us to capitalize on demand for longer terms days.
In the first quarter, we grew the number of would spring suites hotels by more than 8% and its pipeline by 20% over the same period of the prior year.
We launched our newest bran ever home suites back in January to provide franchisees with another opportunity to capitalize on one of the fastest growing segments of the hotel industry and helped drive returns in practically any economic environment.
The upscale ascend hotel collection, which saw its initial growth during the last recession.
And today is 373 hotels strong globally.
Well likely attract interest from independent and boutique hotel owners looking to improve their reservations delivery reduced customer acquisition costs and improve their revenue management tools.
There's also opportunity for our upscale Cambria hotels brand, which well designed for the modern business traveler over indexes on leisure travel demand as a result being affiliated with our system.
Cambria same store hotels also outperformed the upscale chain scale in the first quarter.
Taken together, our upscale brands experienced revpar growth rates 270 basis points better than their competitive set in the first quarter of 2020 as reported by STR.
We anticipate that as the current period of low travel demand and occupancy, whereas on new owners will seek to affiliate with a large proven franchise or like choice.
In closing we are confident in our ability to weather the storm, while supporting our franchisees.
Choice hotels has been through challenging times before in our 80 year history and each time, we have always emerged stronger given our long term focus proven brands broad franchisee base and high caliber associates.
Before I hand, it over to Dom I want to say, how proud I am of the entire choice hotels team around the world who have been working tirelessly. These past eight weeks.
Our company's purpose statement puts our franchisees at the center of what we do.
And when this crisis began our people knew exactly what to do and move with incredible speed to support our owners.
Our associates have demonstrated resilience focus and commitment at every turn and we greatly appreciate all they've done.
And continue to do to help the 13000, largely small business owners, who fly the choice hotels flag.
Dom.
I'd like to Echo Petsense, Matt and thanks to incredible choice associates for their continued contributions to our company.
Choice continues to benefit from its resilient, primarily asset light franchise focused business model, which has historically provided stable earnings stream.
Low capital expenditure requirements and significant free cash flow.
Today in addition to delving a bit deeper into our first quarter performance I will provide more insights around our liquidity profile.
Management efforts and approach to capital allocation.
I'll close by sharing our thoughts on the outlook for the road ahead.
For the first quarter 2020, total revenues, excluding marketing in reservation system fees were $107.8 million.
Adjusted EBITDA totaled $69.2 million, representing an adjusted EBITDA margin of 64%.
And adjusted earnings per share were 76 cents per share.
Our domestic revpar for the first quarter declined 15% compared to the same period of the prior year due to the cobot 19 crisis and subsequent impact on the travel industry.
Through February domestic system wide revpar trend at the high end of our previously provided guidance.
However in March domestic system wide revpar declined 37% year over year as occupancy levels fell below 50% for the month.
The most pronounced occupancy softening.
Heard over the last week of the month, averaging 29%.
While domestic system wide revpar declined 60% year over year in April we observed consistent daily occupancy improvement in the last two weeks of them up.
With continued outperformance versus our competition.
Rising occupancy trends continued into may with average occupancy rates a 34%.
And reached 39% mid last week.
The highest since mid March when the crisis began.
Despite the challenging environment. Our brands have continued to perform ahead of the primary chain scale segments in which we compete.
In terms of our first quarter unit and room growth performance, we increased the number of domestic hotels by 1.2% and rooms by 2.7% year over year.
We're particularly pleased with the expansion of our domestic extended stay portfolio to 410 hotels in the first quarter.
A 9.6% year over year increase.
We were also able to grow our upscale room count by 42% year over year, with Cambria and ascend increasing their room counts by 25% and 48% respectively.
Finally, we are pleased to report that our comfort brand family posted positive unit and room growth as the brands transformation journey enters its final stages.
Our domestic effective royalty rate increased 10 basis points in the first quarter versus the same period of the prior year to 4.94%.
Given the attractive value proposition, we provide to franchisees their continued desire to be affiliated with our strong brands and our current pipeline. We expect to observe continued growth of this lever for the remainder of the year, despite the softer environment.
We entered this crisis with a strong balance sheet and liquidity position highlighted by a gross leverage ratio of approximately two and a half times, which is below our long term target range of three to four times.
In addition, we prudently refinanced our senior notes offering in the fourth quarter of last year to take advantage of the low interest rate environment with the new 10 year senior note offering.
This allowed us to push all material debt maturities to mid 2022.
As the current situation to evolve we decided to take precautionary steps to increase our financial flexibility and ensure our strengths will carry us through this uncertain time.
Specifically, we borrowed $300 million of our 600 million dollar senior unsecured revolving credit facility and had $322 million in cash on hand at March 31st 2020.
We also obtained in April a 364 day 250 million dollar term loan with the possibility of a one year extension to further enhance our liquidity position.
As a result of this action as well as the remaining capacity under our 600 million dollar revolving credit facility, we improved our current liquidity position, which now includes over $725 million in cash and available borrowing capacity through.
Through our revolving credit facility.
In preparation for a lower consumer demand environment. We've also taken steps to adjust the company's cost structure.
Resulting in 2020, SGN a cost reductions of approximately 25%.
We expect these measures will more optimally align our cost structure in the post pandemic environment.
I would now like to turn to our capital allocation approach.
As we navigate through unchartered waters, we will continue to follow a prudent and disciplined approach decision, making and ensure the level of investment activity is aligned with the current environment.
This includes scrutinizing, all investments and reducing or delaying spending as we reassessed priorities.
In the first quarter of 2020 and prior to the covert 19 crisis, we returned approximately $67 million back to our shareholders through a combination of $12.8 million in cash dividends and approximately $54.1 million in.
Share repurchases.
In addition, the company declared a cash dividend on its common stock up 22, and a half cent per share which was paid on April 16th of this year.
We previously announced that we are suspending the payout of future dividends for at least the remainder of 2020 in response to the crisis.
We expect this decision will increase our 2020 cash flow by approximately $25 million reinforcing our already strong balance sheet position.
In addition, and as previously announced we have temporarily suspended share repurchases under our stock repurchase program.
Before closing I'd like to offer some thoughts on what lies ahead.
The ultimate and precise impact of the pandemic on our business in the second quarter full year 2020, and beyond is largely unknown.
As is the exact trajectory of our industry's recovery.
Both are dependent on many factors outside our control.
Such as government mandates the nature of the virus itself.
Consumer confidence to travel and the overall macroeconomic backdrop.
While we are not issuing formal guidance today.
We currently expect the impact of Cold 19 on our performance to be more significant for the second quarter versus the first quarter 2020.
Despite the uncertainty we remain optimistic that we will see some degree of sequential improvement in the back half of the year spurred by the government stimulus and anticipated pent up travel demand.
We will continue to evaluate the impact of Kobin 19 across the business and will provide further updates in August during our next earnings call.
While we're not immune to the pressures faced by the industry. We entered this crisis with a strong financial foundation and low leverage levels.
As we have done in the past, we will continue to manage our business conservatively through this period of uncertainty keep listening to our guest and franchisees and take necessary steps to prepare for a post pandemic future as travel restrictions lifted end markets recover.
At this time patent I would be happy to answer any questions operator.
Thank you we will now begin the question answer session.
To ask a question you May press Star then one lender touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble a roster.
Our first question comes from Shaun Kelley with Bank of America. Please go ahead.
Hi, Good morning, everybody on can you hear me, Okay, My Shaw absolutely our chanate.
Our families are well.
I hope everybody safe and healthy. Thank you for Ah. Thank you for that thank you for taking my question. So you Dom you made an interesting comment about the royalty rate and that's a little bit you'd he gives you guys seem pretty strong growth and that metric throughout the last couple of years on can you talk us talk to us about how you would expect that to perform notched up.
20, but maybe just kind of threw out a cycle or how it performed last cycle. If I recall correctly, you tends to be somewhat kind of market condition and I'm not saying its its specific your choice that you do give some rebates or discounts on initial franchisees and things like that to accelerate unit growth. After some of the development activity.
Slows down so just cyclically can you remind us of some of the behavior there.
Absolutely. So if you think about it and then if you go back to the prepared comments John I think it's it's clear that based on what we have in the pipeline today those agreements that have already been side based on what we're seeing from a pricing perspective, the value prop its out or Oh, we would expect to see continued growth in that effective royalty rate through twice.
Obviously, I wouldn't expect to see a 10 basis point increase going forward, we talked about that earlier this year that we would see it moderating back to call. It those low to mid single digits now in an environment, where development activity slows a little bit you tend to see some discounting. So you might see some pressure on that effect of world.
Right in the out years, but obviously, we can't give formal guidance right now and what we think that effective royalty rate is going to be you know 2021 and beyond.
Great and then my other question would be in just because it goes back to hitting some of attach content in the prepared remarks, but the on did I believe he said that 10% of your hotels are in a few deferral program. So thank you for quantifying that could you could you give us a little more color on what that program either consists of or what it looks like specific.
Really what fees are or a available for deferral and you know does this impact I think most importantly does this impact the royalty rate or it could be it's a is it some sub component of other components of the of the overall system. These thank you very much.
Sure. So broadly speaking Shaw and what we did have a lot of our fixed fees.
Well more things that we we took a discount on offering to our franchisees so things like revenue management and the like with regard to the franchise fees and the and the marketing fees. Those are the ones that we are included in that tailored program and we we look at this in more of a strategic nature, 60% of the portfolio.
Yeah, performing above 25% occupancy so not everybody needed relief and so what we wanted to deal with the clubs. This in a more strategic fashion. So it is more when we say tailored. We are we are doing more of a rather than programatic, we're doing more of a targeted pipe of default program and sell those fees.
It could be a mix of franchise or or marketing or something so it can up he can impact both.
And then what we've also done differently as we've given our franchisee they longer period of time to to pay it back again the focus here was on their liquidity needs in the near term and also we needed to be thinking about what happens if we have a more jagged recovery.
We have a that you know another downturn in the fourth quarter on a like so we wanted to be thinking more long term or we wanted to be more strategic.
But the real focus on the.
On the on the franchisees cash position just one other item I would I would answer on your your prior question to Dom.
We're entering this downturn with a different set of brands than we had the last time.
So we don't discount on would sprang yeah, we have the ascend collection, which is you look at where our royalty rate was on that brand back 10 years ago versus where it is today. That's increased and then we've also raised the royalty rate rack rate on all of our brands over the last three years, so from a and overall sort of compare.
Being an apples to apples, it's really different because the brand portfolio is different and the the value of our brand isn't higher demand and during this downturn than we had in the prior downtime.
Yes, Sean and just to address your question on the effective royalty rate you would not expect to see an impact on either revenue or effective royalty rate given the fact that these are deferrals and not necessarily waivers on that the other on the royalty fee a lot of the deferral comes on the marketing and reservation fee and so it's a fairly immaterial when you take a look at it overall.
Or maybe call it.
Anywhere from a $10 million to $20 million networking capital drag that you see but we do expect to see those fees being collected over the next 123 years or so and so a fairly immaterial in the overall grand scheme of things, but no impact whatsoever that we expect on the effective royalty rate or royalty revenue.
Yes.
Thank you very much both for the detailed answers.
Thank you.
Our next question comes from Michael Bellisario with Baird. Please go ahead.
Good morning, everyone.
Morning.
I'm, just thinking out a little bit.
The Big picture question, as well continue going off and I guess I'm asking from.
Well, it's a strategic perspective, but also in the context does.
Any restrictions that are in place because they are new term loan a in your credit agreement that that might limit your ability to invest in the near term how should we think about both those aspects of going on all sides.
Yeah, I think on off balance I mean, this as we've said over multiple calls both of the business model that can play in both cycles both the.
Rising demand and also lowering demand because of our new construction portfolio as well as our conversion portfolio, we don't have to shift.
A number of our brands are all new construction. Another other brands are all conversion. So it's a its a continued sort of I would think of it as about too long.
Yeah, what all one on one of the last one on the right and they both the to both keep the entire entity moving during different periods. So.
I think from that standpoint, we're we've always been growing and they are our quality inbred last year I think was the highest growth brand in the Midscale segment.
And that's 100% conversion at the same time, Yeah, we were building a significant portfolio of new construction comforts in our portfolio as well. So it's a it's a market or a portfolio rather that approaches the market and both sides because you do have owners.
That are more interested in new construction and you have others that are you know interested in conversions, even trying to good time and thanks to on the downside is just the conversions would probably be a much larger contributor to our to our unit growth over the next couple of years as we recover from up from 19.
Yeah.
Then just in terms of the balance sheet. The question on the on the term loan Michael I mean at the end of the day, we that did this under a fully precautionary lives. It's not because we had two but frankly it gave us a little more liquidity overall it was fairly cheap when you take a look at when you compare our term loan versus what others have seen across the entire.
Story and it really had and you mentioned the covenants are the term loan had similar covenants that we have today on our credit facility with an option to extend by a year. So could give us certainly the the two years of liquidity and so given the fact that I mean that you end up today, we have not had asked for any sort of covenant relief and so we feel like we're in a very strong.
Position from a balance sheet perspective to go on the offensive immediately.
Think about where we're positioned as well from that regard net debt is still sitting at about two and a half time. So we feel really good about our leverage position.
Got it that's helpful. And then just one follow up from the prior question, maybe and I tend to $20 million networking capital drag that you referenced any any other cash inflows or outflows that might impact the balance sheet at least in the near term or anything else that.
Could be offsetting the recurring operating cash flows that are coming in every month.
Well when you think about the standard Capex for the company, it's anywhere between call. It 30 and $35 million a year. When you take a look at and I mentioned at my prepared remarks, we reduced our SJ by about 25% that's actually not have somebody out some of the severance and other restructuring charges that we would take it.
It's closer almost 30% if you if you've got those area. If you don't include those severance charges.
From a capital perspective that call it 35 million or so we were also able to reduce our capex forecast for the year by little more than 20% as well. So we expect to see that from a maintenance capital perspective dropped below 30% everything else is really it for all intents and purposes. Its its discretionary so we had the.
Realty to monitor the environment, where we are and we talked about prepared remarks being very prudent discipline in terms of how we deploy that capital against either obviously internal strategic opportunities or you know returning that capital shareholders in the long term and we'll certainly continue to be prudent in doing so prior to.
Prior to the disbursing any of that capital.
Got it very helpful. Thank you. Thank you.
Our next question comes from Robin Farley with you V. S. Please go ahead.
Hi, Thanks, I Wonder if you could.
Talk about potential for.
What do you have interest in acquiring more extended stay brands its seems to be obviously big strength here in the portfolio.
Made acquisitions past or do you feel like the brands you have or enough to capture that potential crescent.
Yeah. Thanks, Robin Yeah, we've talked in the past about clearly there's white space in our portfolio for an upscale extended stay brand.
So there may be an opportunity.
To do something in that space I mean, we're really excited about the performance of would spraying mainstay in suburban.
Particularly over the last eight weeks.
And the introduction of ever home in January its really tailor made for this type of environment and so you know that's brand that brings our expertise in the mid scale segment and the extended stay segment together and something that its purpose built for the extended stay business you know what we've done.
The analysis last year was like 20% of a room nights in the U.S. for seven nights days or above, but only 9%. Other supply is actually purpose built for that and there's a big opportunity. We believe in the Midscale segment for something that is new and fresh and allows guests to really Taylor, the workspace and and living.
Space and a in the up in the accommodation. So we were really bullish on ever and we think it'll be an opportunity for us to grow even during this downturn as we have there any prior downturns.
It's hard to then I'm certain that decision to the not necessarily interested in anything on the acquisition front end extended stay.
Not at not at this point I mean, we if we look at everything that comes along and as I've said in the past its really got to pass to litmus test one can choice hotels improve the ROI the asset owner and two can I grow the brand to benefit our shareholders and you know if something were available we would look at it it's those thing too.
Litmus test that we always look at and I think if you look at our acquisition of would spring it followed that that path perfectly so.
That's how it up sort of answer the M&A question.
Okay, great. Thank you.
Our next question comes from Jared children with Wolfe Research. Please go ahead.
Hey, good morning, everyone. Thanks for taking my question.
Right under a volume so it's probably way too early to see any evidence of foreclosures, but can you just talking about your expectations around that IDN keep talking about what that process.
It looks like in terms of what fees are paid you during the transition and how we should think about the brand remaining intact.
You're talking about hotels that might not make it through this downturn.
Guarantee that you're correct.
Yeah Okay.
So the way I would think about it god.
I would think about a gerard its really the profile of our franchisee I'm so on average.
Our franchisee owned fewer than two hotels, primarily financed with equity and so it's it's not all other up a possibility to see higher than 50% equity that's injected into the these assets are the foreclosure risk in our portfolio is very low even during the great recession to be solved very very few foreclosures in the portfolio. So feel like we're in a very soon.
Long position overall from that regard.
Obviously, we would continue to Ah to work with our franchisees to avoid something like that but overall, we're not seeing that that's a material risk to our portfolio.
Okay. Thank you and then I think you said two thirds leisure travel so implying you know roughly the other third its business travel can you just talk about that type of business traveler and maybe how that differs from you know like as some of the more full service oriented brands and our these people usually.
What do you traveling by air to get your properties can you just help us understand that dynamic little bit better.
Yeah, Jared, it's more and it's certainly more drive to.
We have I think it's only about 5% of the portfolio, that's actually and then airport market, but even in those markets you've got airline crews and cargo airline crews that that stay on those hotels, when we say transportation a lot of that as truckers railroad business Yeah logistics.
People are everybody from trainers and no I can you support professionals those types of folks we have a high level of business travel from traveling nurses in the health care space and also education services.
So all of those actually when you look at what's happening in the jobs report those segments actually had fewer job losses than than than others, obviously that the hospitality space was one of the largest contributors, but as far as our core customer on the business travel side and that one third they are the people that keep the country moving.
So they'd been staying at our hotels over the last eight weeks, we do expect them to continue to stay with us, but that's really the lion share what makes up that one third of business travelers.
Okay. That's helpful. Thank you and just one more quick one if I may do you have your cash burn number for the month of April and you know is there any any sense you can give us in terms of this revpar environment, how to how to be thinking about sort of your monthly burn if if there's even a burn at all.
Yeah, Let me, let me I'll give you a headline and then Dom can can fill it in I mean, we've looked at if we had a zero revenue.
Environment, we have enough cash to get us through really two years of operating without without doing additional you know changes to the structure.
And that's wrapping their environment, we're looking at three years of of ability to move at this at this pace. So the cash position liquidity isn't isn't a strong place Tom you want to add to that.
During the went the way it I would think about it is your cash expenses, obviously with no revenues coming in the door somewhere in the ballpark of that 30 million dollar figure, which is where if you take a 725 million of capacity and divide it by that it gets you to call. It close to close that 24 month period, so actually slightly a little bit higher than 24 months.
If you assume that the trend that you've seen in Alaska call. It month, two a month and a half and in a very low occupancy environment continued through the three years or so which obviously, we don't expect either of those things to happen yeah. The draconian no no revenue environment or even continuing to see what you're seeing today.
That's probably more like 20 20 million or so per month, which is putting you out to that that three year period of time and so obviously in the last week or so we've seen those occupancy levels rise by 234 or 500 basis points. So that with all the further reduce that $20 million of cashmore.
Great. That's really helpful. Thank you very much.
Thank you.
Our next question comes from Thomas Allen with Morgan Stanley. Please go ahead.
Hey, good morning, Thanks for the positive commentary on the occupancy improvements, you're saying any color on how pricing is trending and any expectations for her pricings and trying to the future. Thanks.
Yeah in the and the whole I'm sort of slide since the beginning of March.
With Revpar, it's been about two thirds of that has been occupancy decline at about a third of it was with great. So which has been really positive to see that our franchisees have not tried to chase demand that wasn't out there by lowering rate and that is gonna be really important as recovery is starting to occur. So it's a promise.
It's really been about two thirds dock one third rate in a in the mix of of Revpar as we've seen over the last eight weeks.
Okay helpful. And then just help us think through kind of what a labor expenses for one of your typical franchisees and Mike how flexible. It is when properties are closed and then when they're kind of yeah, and this kind of demand environment. Thanks.
Sure, Yes, it's obviously it depends on the segment you're in.
You've got a would spring hotel that could have five at full time equivalents all the way up to a comfort in that has call. It 25.
To a cambria that might have slightly more than that so a lot of that depends on and our owners flex there they're up their housekeeping staff.
And there and their sales force is based on the seasonality that they see in their in their markets. So it's a it's a it's a moving target and they're used to flexing depending on changing demand environment at 1.1 of the lowest demand periods in the hotel sector is that sort of in RPM, where we are is that.
Week between Christmas and new year's and that's normally probably like the lowest.
Occupancy and and in a hotels year, but so they're used to sort of having to set themselves up for that they weren't used to being surprised by the middle markets. All that's happening at one time, so their ability to to flex payroll is pretty significant.
The P.P.P. loans.
And the ideal loans are helping them you know sort of get through you know this eight week window that they have when you get one of those loans. So there isn't it there there are options out there at the federal level and also the state level for relief programs that are helping owners hang onto their workforce and that's been really important because they don't know when demand is.
On a return and they want their they want their staff back.
Two out to be able to Ah to meet demand when it does return, but that's just give you a general sense of a sort of how many people work at the hotels and what the a the owners flexibility is with regard to labor.
Helpful. Thank you.
Thank you Tom or Nick.
Our next question comes from David Katz with Jefferies. Please go ahead.
Hi, Good morning, Oh, sorry, I needed to on your a good to hear everyone's voice and love to hear your well Oh I wonder.
Thank you I wanted to just go back to <unk>, you know the development efforts.
I recognize it's an issue that I got you know we've discussed in the past about you know Cambria development in particular, where you, but some capital I think you usually give US you know an update on you know what that what that balances can you talk a bit about you know what's in there and you know where that.
Where that capital stands today.
Sure David So so thanks for the question its very similar to what we talked about last quarter at the the 10000 foot view right now that that capital outstanding sit today, just north of its right around $580 million. So you did see a slight increase in that.
One of the things I will say similar what I, what I said last time is a good portion of that already owned assets. So the the portfolio that we took down last year about 50% of that 581 sits in the sits in the owned assets call. It 15, or so percent is key money a little over 10% JV and the remainder <unk>.
Our best loans of one of the things that I would say David as we feel really good about where the Cambria Cambria brand is 50 hotels that are currently open 25 that are going vertical at this point in time, you know another 60 to 70 or so in the pipeline over and above that so this is one of those areas and that's why I was talking about my earlier.
Oh, that's where you know $30 million is our as more of our consistent Capex run rate everything else is really discretionary. So we feel that there's a solid Cambria project out there that we want to deploy capital against we can certainly do that but this is one of those levers that we can flex up and down during this environment. It gives us the flexibility to do that the.
Portfolio. Overall this is Scott that runway for scale, we talked always about 75 to 100, you see that just what what's opened and whats in the pipe or under construction today. So again, we can start like flex that up and down and I just wanted to make sure that you understood that that full 500 <unk>.
Good to hear and if I can follow up quickly on you know a number of companies have talked about a.
Breakeven occupancy level.
And your case I assume it would apply both at the hotel level and then you know I suppose Corporately get better question is really where earnings neutral is you know based on the changes that you made so far.
Yeah, David the.
The if I if you had to look at all it system wide basis, it's probably around 30% occupancy.
Obviously that changes depending on an economy hotel versus a cambria, but we look at it system wide, our largest brands comfort quality economy Lodge, you're really talking about an occupancy level of about 30% breakeven now that's inclusive of the debt service.
So you also have we have hotels that I'm the owners are paid off the mortgage.
So again back to my point about a tailored approach here.
Every owner is in a different plays depending on what they paid for their land, what their mortgages and alike, but 30% about breakeven for that sort of Midscale segment, it's a little bit higher as you move up obviously into the Cambria segment.
Yeah, well, that's where we've really been running the last several weeks with regard to system wide occupancy.
Perfect. Thank you very much well.
Thanks you.
Our next question comes from Anthony Powell with Barclays. Please go ahead.
Hello, Good morning.
You just mentioned that you have 60 at Cambria hotels in the pipeline our votes fully financed and how do you see this event changing the old which I'll financing market over the long run you expect a few more.
We required in Kashmir required how did that impact your strategy.
Thanks. Thanks, So just to give you a break down there's there's 50 that are open. There are 25 that are going vertical. So obviously the ones that are going vertical our for net finance and there's 60 plus additional in the pipeline of which you know a portion of our obviously financed and so overall, what we saw pre covert are pretty covered with some.
Where where you saw the ltcs, reducing from call it 75% down to 65% or so and and certainly we've seen a little more hesitancy in some of the lenders or let anybody in this environment. Obviously, we would have to reevaluate once we get on the tail end of this but overall like I said.
I'm just what the 25 that we have they're going vertical today, we're feeling very comfortable.
In terms of in terms of what we think that future LTC is going to be a little too early to tell right now given the fact that most of those are tiny at this point, but 60 Ah we still feel really good about those that are under construction.
Got it sounds like can you talk about revenue seems to be a a lot with past a couple of years, how do you keep pushing back when we tend to be up as you see versions in this environment do you want to convert Highland properties in any kind of chain scale or what's what's the approach here.
Yeah, I think it's a it's really looking at those segments on locations, where we're at a higher revenue opportunities are for us as a company and I think those are still gonna be there I think from the standpoint of you know continuing to push a new construction comforts into markets.
Where there is a higher revpar opportunity that's what's in our pipeline now and no significant amount of that is under construction that comfort when spring I mean, there's there's a lot of lot of opportunity that we still see bye bye bye, having our hotels and these higher revenue intensive locations and that also this.
Segments at the Iran. I'm also will over time I think.
Prove the revenue intensity on average across the entire portfolio because of that approach.
Okay, great. Thank you.
As a reminder, if he would like to ask a question. Please press Star then one.
At this time there are no additional questions I'd like turn the conference back over a pet patients for any closing remarks.
Thank you operator, thanks again for your time. This morning. These are undoubtedly challenging times, but there are opportunities going forward into the second quarter as well, we see several reasons, our franchisees are better positioned than most to capture demand as the economic conditions approved so I hope you all will stay safe and healthy.
And we'll talk to you again this summer take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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