Q1 2020 Earnings Call
Welcome to the RLJ lodging Trust first quarter 2020 earnings Conference call. As a reminder, all participants are in listen only mode and the conferences accordingly.
After the presentation, there will be an opportunity to ask questions.
Anyone should look quite the opposite assistance during the conference. Please press star zero on your telephone keypad <unk>.
I would now like to turn the call overcome that killed.
Oh, Geez, Vice President Treasurer of corporate strategy and Investor Relations. Please go ahead.
Thank you operator.
Good morning, and welcome to RLJ lodging trust 2024th quarter earnings call.
On today's call that's the Hill, our President and Chief Executive Officer, we discuss key highlights for the quarter.
Sean Mahoney, our executive Vice President and Chief Financial Officer will discuss the Companys financial result.
<unk>.
Our executive Vice President of asset management.
I'll be available documenting.
Forward looking statements made on this call well subject to numerous risks and uncertainty.
That mainly the companys actual results could differ materially from what had been communicated.
Factors that May impact the result of the company can be found in the company's 10-Q.
Other reports filed with the FCC.
The company undertakes no obligation to update forward looking steep.
Also as we just got certain non-GAAP measure it may be helpful to review the reconciliations to GAAP located in our press release from last night.
I'll now turn the call over to lovely.
Thanks, Nick you.
Good morning, everyone and thank you for joining us.
We feel we hope that everyone is in good health and doing well in light of beef Unprecedent at times.
As you all know since our last call our industry has been significantly impacted by cobot 19.
Which resulted in the near evaporation of Washington, <unk>, and led to when could be 1.9% decline and industry Revpar due in March.
Looking forward, we expect the second core to be the worst quarter of the year with April experiencing the most significant revpar decline.
With respect to our portfolio.
Well, we started the year strong and we're ahead of budget in January February.
Cobot 19 dramatically impacted our operating result in March.
All of our markets were impacted by the combination.
Down an airline travel group meeting restriction.
Citywide cancellation any enactment stay at home audiences.
During the first quarter, our Revpar declined 24.5% was primarily driven by 61.8% decline in March.
As he pandemic began to unfold, we proactively mobilized all of our resources first and foremost safeguard the safety and well being Barr associates in gas.
Next to determine what steps we needed to undertake along with all of our operating partners to mitigate the operational impact.
And then we moved to ensure that we had significant liquidity to whether this crisis.
I'm, putting standpoint, we started the year in a position of strength following the successful execution of our noncore asset disposition strategy last year.
This great work executed by our team not only improve our portfolio, but also strengthen our balance sheet.
We ended the year with nearly $909 unrestricted cash and low leverage at 3.1 times.
As a result, we're well positioned to navigate an extended period of uncertainty pivot to reopening our hotel even in a low occupancy environments.
At the onset of this crisis there were several key steps we took to respond operationally.
The man starts to fall in early March.
Working with our operators, we need we implemented aggressive cost containment initiatives, including reducing staffing levels quoting FNB outlet, eliminating all non essential services freezing nonessential purchases in closing floors to reduce room inventory.
At the operating environment became more difficult we doubled the framework to assess what for hotels could continue to operate extremely low occupancy.
In developing this framework, we worked with our operating partners can determine staffing level and built a bottoms up cost model for each hotel, reflecting a low to no occupancy environment. We then made the prudent decision to suspend operations.
I would tell the lack of demand or high carrying costs would result in the operating shortfall exceeding the call.
Lending operation.
We currently have suspended operations at 57 hotels with the remaining 46 hotels operating at low occupancy with minimal staffing no FNB and only central operation.
All of which is intended to minimize operating shortfall.
In conjunction with the operational response.
We took additional steps to preserve and bolster our liquidity.
We reduced our 2020 capital expenditures by over 80%.
We have limiting capital spending to either endpoint projects nearing completion or emergency life safety projects.
Well, we continue to believe that many of our projects represent an attractive embedded opportunity in our portfolio. We will revisit these projects when we have improved clarity.
We took a hard look at our corporate DNA and reduce costs, the renegotiating service contracts, eliminating travel related expenses and adjusting staffing related costs.
We will continue to monitor these changing environment and respond accordingly with additional measures as appropriate.
Additionally, our board of trustees reduced our quarterly common dividend to a penny per share.
Which represents an annualized cash saving of approximately $200 million.
And finally, we drew down $409 when our 600 million dollar line of credit to further shore up our balance sheet due to the ongoing uncertainty around the duration of this crisis.
All of these actions improved our liquidity and minimize our cash burn.
Having gotten our arms around our liquidity and having comfort with our financial position. We're now focused on developing a thoughtful framework to reopen our hotels in a socially and financially responsible manner.
And the stayed home ordinances are lifted we're carefully evaluating our decision to reopen hotel, which will correlate to both the timing of businesses reopening in a sequencing of the return of lodging demand.
Unlike prior recoveries, we do not believe that demand will necessarily follow traditional patterns in a recovery phase.
Consumer behavior adjusts to the new normal.
We anticipate the primary lodging demand segment will ramp up at a highly staggered pace.
We believe that initially there will be some pent up leisure demand and stay in place orders are lifted which should benefit our hotels and drive to markets, such as South, Florida, Southern California, Charleston in New Orleans.
There are some early indications at leisure demand is picking up in state where restrictions have already been lifted.
We expect airline travel to wrap up slowly as economy reopened with domestic travel recovering first followed by international we expect to see incremental demand at some of our hotels as air traffic ramp.
Although we anticipate some segments of corporate demand to come back sooner, we believe that overall corporate demand well see more gradual recovery.
In reopening our hotel, we will consider the pace of corporate demand on a hotel by hotel and market by market basis.
Finally, we expect the group segment to be the last you recover.
Prior to cope with 19, our contribution from group was less than 20%.
Clearly held a man ultimately build will be influenced by the trends and the number of cobot 19 cases and development of a medical solution.
With the backdrop of a gradual demand ran our reopening frame all well take a number of factors into account.
We will prioritize reopening hotels were operating trouble can either be reduced or eliminated in a low occupancy environment.
What's yours initially likely to consist of our select service hotels.
We will also pay close attention the nature and quality of the man initially opening hotels that stand to benefit from leisure demand in dry two markets.
Avoiding reopening hotel with seasonality does not permit and sustain ramp up in occupancy.
Additionally, where we own multiple hotels any cost or we will sequence the openings, but the return of the mammal keeping overhead costs low.
Operationally, we believe vigilant about maintaining a low cost model until the man normalizes.
Additionally, in light of rapidly evolving health safety and cleanliness standards, our asset management team is working diligently with our operating in brand partners to address the operational adjustments around cleanliness and hotel staffing levels.
We are not yet prepared to speculate as to the timing or the strength of a recovery.
However, we recognize that any form of recovery will likely be slow to build.
That said, we're encouraged by what we believe it a relative position of strength for oral Jay.
Our confidence draws from our lean operating model, the construct and geographic diversification of our portfolio.
Our strong liquidity position in the embedded value creation opportunities within our portfolio.
As the reopening of economy unfolds, our portfolios well position.
We all select service and compact full service hotels.
We feel we have smaller footprint or less complex and require lower occupancy to breakeven as compared to a traditional full service hotel.
Our lower costs operating model should allow us to return to profitability more quickly.
We also expect the transient segment, which in 2019 represented over 80% of our revenues to be the first segment to ramp up when demand returns.
Overall, we believe there a lean operating model combined with a sizable liquidity of $1.2 billion and flexible balance sheet provides a relative advantage during the current environment and ultimately in a recovery.
And finally.
The key milestones, we achieved last year, including asset sales refinancing and the Wyndham termination created the opportunity to unlock the embedded value in our portfolio.
Although we have pause our ROI initiative and the Wyndham conversions I wouldn't like to emphasize we continue to maintain a high conviction that these opportunities represent key growth catalyst in a source of embedded value creation for a long term.
Now before I turn the call over to Sean I.
I would like to say their hearts in our minds are with those who have been directly affected by this pandemic.
I also want to recognize our associates on the front lines, many of whom have been directly affected but who continue to help us navigate through this crisis.
And finally.
I want to say, how proud I am of the efforts of our corporate associates I could not have asked for more dedicated team.
I will now turn the call over to Sean for a more detailed review our financial result, and he will provide an update on our liquidity position and color on a recent discussions with our vendors Sean.
Thanks, a lot of <unk>.
As long as we discussed our portfolio was performing ahead of budget expectations, both January and February.
Covered 19 began to impact lodging demand in early March and accelerated each week through mid April.
Although we will continue to monitor trends in hotel fundamentals.
We currently lack visibility on the timing and cadence of returning to pre cobot 19 lodging demand.
While we are confident that lodging demand will ultimately returned to pre crisis levels.
We remain cautious about near term lodging fundamentals.
Turning to the numbers.
Although we have 57 suspended hotels.
We will continue to include all hundred three hotels within our reported Revpar results.
Our first quarter Revpar contraction of 24.5%.
What is driven by the combination of about 15, and a half percentage point decrease in occupancy.
And a 5.1% decrease in average daily rate.
Revpar performance wasn't even throughout the quarter.
With 0.4% growth in January.
Followed by Revpar contraction of 2.8% and 61.8% in February and March respectively.
Second quarter Revpar is expected to significantly decline has more than half of our portfolio is likely to remain suspended.
With the balance operating in an extremely low demand environment.
As an example of current operating trends.
Our April revpar contracted by over 95%.
He brought occupancy was 16.4% and HDR was $108 for our 46 opened hotels.
Which compares to 83.1% at $184 last year.
The demand at our hotels that remain open is primarily associated with medical professionals government and displays residents.
Despite the challenging operating environment, our operating model is proving relatively resilient as our portfolio game, approximately 240 basis points of market share during a difficult first quarter.
Turning to the bottom line, our first quarter pro forma hotel, EBITDA, and adjusted EBITDA or $51 million and $41.4 million respectively.
And adjusted FFO per share was 10 cents.
As we mentioned we were very quick to respond to cope with 19 and swiftly implemented aggressive cost containment initiatives.
Together with our lean and flexible operating cost structure, our first quarter operating costs declined 9.8%.
With a significant cost containment initiatives being implemented during the month of March.
Despite these initiatives being rolled out mid month.
We reduced our March operating costs by approximately 34% versus budget.
Excluding the impact of an accrual of benefits for furloughed employees, we reduce march operating costs by over 41%.
As you would expect our team remains focused on cost containment initiatives to minimize operating shortfalls in the current environment.
Our second quarter cost containment initiatives will eliminate over 75% of variable hotel expenses, resulting in the elimination of approximately two thirds of total hotel operating expenses.
Turning to liquidity, we entered the year with strong liquidity, including holding approximately $900 million a cash.
And it Undrawn line of credit.
That being said, we took quick and decisive action when it became clear that cobot 19 was going to create an unprecedented shock to lodging demand.
From a balance sheet perspective, our initial efforts, we're focused on ensuring that RLJ had adequate liquidity to withstand a protracted period of disruption.
To that and we temporarily suspended the capital allocation initiatives that we highlighted last quarter.
Leading share repurchases.
Senior notes redemption.
ROI initiatives and the Wyndham conversions.
Additionally, we completed a comprehensive review of our monthly cash burn, which consisted of assessing variable and fixed hotel operating costs.
And corporate level expenses.
The assessment of the variable hotel operating costs included all of our 103 hotels, whether suspended our operated with low demand.
In the current operating environment.
All of our hotels are expected to generate monthly operating shortfalls.
With hotels that remain open generating shortfalls that are more than 40% lower than suspended hotels.
Inclusive of both suspended and opened hotels.
We estimate that our average monthly variable operating costs, assuming current occupancy levels will be approximately $140000 per hotel.
The cost for individual hotels will differ by hotel type location and other factors.
The average monthly variable cost was approximately $110000 at our focus service hotels.
And $190000 at our full service hotels.
Overall based on our portfolios lean operating model.
Our hotels variable cost or is expected to be substantially lower than portfolio is comprised of traditional full service hotels.
We then layered in our hotel fixed costs on top of these variable costs with property taxes and insurance, making up the majority of these fixed costs.
Additionally, we incorporated the following assumptions for our corporate level outflows.
Quarterly common dividend of a penny per share.
Maintain existing quarterly preferred dividend.
Continue funding debt service.
And corporate Gionee at a reduced level.
In total our monthly cash burn for the remainder of beer is expected to range between $25 million and $35 million, excluding RLJ funded capital expenditures.
Which are estimated to be $50 million for the remainder of the year.
Our actual monthly cash burn will be influenced by many factors, including the time our portfolio is either suspended our open with low occupancy.
Our monthly cash burn is expected to be towards the low end of the range. If the economy opens at the start of the third quarter.
And the high end of the range assumes all of our hotels were suspended through the end of year.
Regardless, we expect the end of year with significant liquidity and remain well positioned to withstand a protracted period of limited hotel demand.
Turning to our fortress balance sheet, we ended the quarter with $2.6 billion of debt.
Approximately $1.2 billion of unrestricted cash.
No debt maturities until 2022.
Net debt to EBITDA at 3.9 times.
We continue to maintain significant flexibility on our balance sheet.
We ended the quarter approximately 84% of our debt is fixed or hedged and 84 of our 103 hotels are unencumbered.
Finally, I want to provide an update on our debt covenants.
To start no financial covenants are designed to withstand the impact the cobot 19 is having on a lodging business.
That being said our senior notes, our covenant Lite and we currently are in compliance and expect to remain in compliance under the no denture.
However, our unsecured line of credit and term loans includes several financial covenants that are tested each quarter.
Like all lodging Reits, we proactively reached out to our lenders to pursue a temporary waiver of these financial covenants.
We placed great value on our lender relationships and have historically aligned with lenders who are focused on long term strategic relationships.
These discussions are ongoing.
While we remain confident that we will obtain a covenant waiver. We can provide no assurances until final documentation is complete.
Before opening the call for culinary I wanted to affirm that despite all of the uncertainty facing our industry.
RLJ remains well positioned with a flexible balance sheet.
Ample liquidity.
You mean operating model and a transit oriented portfolio with embedded catalyst.
Thank you and this concludes our prepared remarks, we will now open the lines for culinary operator.
Thank you, ladies and gentlemen, if you'd like that's a question. Please press star one on your telephone keypad.
<unk> question.
Starches.
Your question.
So do you think speaker equipment it may be much.
Yes.
Oh I'm sorry.
Our first question comes from the line of Austin Wurschmidt with Keybanc capital markets. Please proceed with your question.
Hi, Good morning, everybody was just curious how you're you're balancing the thought of preserving your liquidity versus you know maybe being opportunistic if something presents itself. For example, you know repurchasing some of the preferred and we're just curious if you expect that.
The restrictions from the amended credit credit agreement would preclude you from taking such action or you know either with the preferred or you know with any steps towards the 6% unsecured bond do you have outstanding as as we approach midyear.
Okay. So often a personal good morning, what I would say just to make it clear that our number one priority today is to preserve liquidity and absence of having visibility. This is a complicated environment. We don't know how long is demand shocked is actually going to last month, the new normal is gonna look like.
But having said that you know at once we do have some visibility now we are going to be very thoughtful and disciplined around capital allocation.
Valuate, all the capital allocation opportunities that are available to us on a relative basis and determine where we wanted to put capital I think the good thing isn't that we already have the capital on hand, which allows us to be nimble and to to take advantage of any updated present themselves. When we have visibility and you know as it relates to or coming.
I'll, let Sean I'm jump in here, but there is something that we want to be thoughtful around really late to the covenant relief that will receive sure. Thanks Muslim.
First and foremost Austin.
Big value creation opportunities. They were identified early in the year all pauses as we have you mentioned during their prepared remarks.
As we rethink.
I understand what they're doing sort of a new normal is gonna be my go for basis, but specifically around things like share repurchases refinancing or the Felcor Bod et cetera. You know we have we aren't heart, we have ongoing discussions with the lenders I'm not going to get into the details of that other than yeah. There's a there's.
Market out there for restrictions on cash outflows as you would expect a we are in the middle those discussions right now so I can't really give you any granularity around those discussions, but just know that as we think about value creation. One of the things that we're certainly going to look at I'm on a go forward basis is what is the relative value creation no specific.
On the Felcor bonds, which wise wide three months ago, or two months ago, where they where the markets have ship. There is actually looks relatively attractive today at that at that 6% and so you know bags that as an opportunity that likely will be differ based on the credit markets coming back.
On that.
Okay. That's helpful and then I guess with leisure being the primary source of demand that everybody's been discussing just curious what that implies from you know a an 80 our perspective, then and you.
You know, how we should think about rates across the portfolio.
Austin This is Tom Bardenett, so what's interesting about 'em, what's happening is as we watched what how it was occurring at the late March period. It was all rate levels were opened so for instance, what demand is there today is obviously.
Medical business extended stay occupancy crude business and what we're starting to see with the restrictions lifted is the premium rates will come back, but they'll come back slowly for instance, corporations with national and local discount rates retail rates, but with the leisure market that you mentioned, obviously those are discretionary income.
Opportunities and they will build gradually as we look at average rate over time.
But we do think that what we're gonna be doing is we're not gonna be discounting rates were just going to open up the value levels and then we're not yielding as much obviously at these low occupancy levels. At this current juncture. So average rate will gradually left as we start to get premium business back and able to yield again, but in the current environment all value levels are open and then.
One thing that I would just generally add about leisure Austin as you mentioned benefiting from the drive to our portfolio is well positioned to benefit from that you know, we expect Charleston, South, Florida, New all in Southern California, Tampa, All those markets in an environment, where you're just trying to bring down your cash burn you know our exposure as well position.
And as I mentioned in my prepared remarks, you know, 80% of our portfolio transient oriented 45% of that historically its been leisure oriented and we expect over 35% of our markets to rep to benefit from drive to and you have to think about drive to slightly differently. Today, Yeah, we're seeing benefits in Austin, which is a market that we wouldn't have normally consider to drive to.
Who benefit Sherry market, but it is beneficiary if any right now and additionally, if we look at our <unk> our portfolio. We've got about 10% of our assets that are considered resorts. So we think you know I'm as an early mover on demand from leisure that our portfolio is well positioned to benefit.
Oh, that's really helpful color and then can you just clarify what amount as extended stay business in the portfolio.
Well, it's about 50%.
Yeah. When you look at the category that we have we have obviously residents and Homewood suites Hyatt houses, we would actually put the embassy suites that category as well on so when people are looking at the consumer behavior. We think the two based suite. The extra room is gonna be critical as we start to ramp up and we expect.
Many of the hotels that we kept open or because they were extended stay with longer term business in the assets at this time, it just it sort of where.
Oh, sorry.
Glad I was just curious what the break out was with and without the embassy suites maybe.
We have 21 embassy suites, so little bit less than 50% of the portfolio would be extended stay though.
Yeah, So often just they just to jump and roughly a good I'm talking numbers before the impact roughly 25% of our EBITDA historically came from the embassy suites brand and so when you when you.
So back that out about 25 years.
But yeah. That's it that's very old on to build on the Tom Barnett's point, though we do think that as consumer spend less time in a public environment public space of hotel the more time in their rooms, we think that the suite product that we have across our portfolio, including in C suite is gonna be beneficial.
Gary and that's why the 50% is gonna be important you know as we think about the very segments of the man you know we know that business traveler is going to be highly stagger, but we think that small business travelers as well as vendors and consultants who need to travel because its quarter their business. Our product is gonna be more attracted to them on a variety of for.
Wants and so we do think that that's gonna be helpful again, allowing us to benefit early as the various AMAG summit on demand segments a ramp up.
That's really helpful. Thank you all for the thought.
Yeah.
She comes from the line.
Fair.
Your question.
Good morning, everyone.
I just wanted to dig a little deeper on that last question. I think you mentioned 80 20 transient group split can you.
Kinda give us your best estimate.
Business versus leisure within that transit break out and then what are the different kind of rate categories discounted just a bit more fulsome breakdown of the transients side of the business and the customer was pre coated.
Yeah, I would say historically, Mike or break down on transit was 45% leisure and at 55% business in comedy is more calling me other segment.
Yes, so when you look within the transient category you know, we we would.
The average about 20% to 25%, depending upon which asset in locations for the national negotiated rates. The local negotiated rates as we look at the 18 tease. The IB ends Oracle Amazon that type of business retail was also in the 20. So when you look at a premium categories, those where your top two premium categories and then.
So at this point on leisure, sometimes you have leisure that comes in at retail and sometimes have leaves or that comes in.
People, a RP or the variety of opportunities that the brands give us where they they market a discount categories. So hopefully that gives you a little basis on the transient side.
On the group side within the 20% the thing that we are encouraged about is when we look at group within the RLJ portfolio. Both 40% of that business is you know kind of the SMERF business. The smaller groups the volleyball team. The the groups that don't have to have that the large convention space or the meeting space. In fact, most of our full service hotels average around.
1000 square feet and so we think we're gonna be prime to be able to be in a market, where we can get the type of groups that you know are a little bit smaller in nature versus having to rely on the large citywides are the large meeting space environments that will be slower to ramp up so hopefully that helps you a little bit on the percentages and Mike is just a point that Tom is making on the.
The small groups and and the smart type business is relevant because while we all know that group is going to lag whenever it comes back the types of group that are come back first or your small business group your social group, which our portfolio was built for it and is largely concentrated that's the type of group that we do so we again.
Think when you look across leisure when you look across business transient I mean look across group. However, the recovery unfold, we think that our portfolio as well position you know till ramp.
That's very helpful. And then one for Sean can you just remind us how many CMBS loans, you have where you are process discussing or having discussions with servicers and lenders there and what the opportunities for potential forbearance might be for you on that.
Sure. Thanks, Mike. So we are current on all of our all of all of our CMBS that you know so we have that 200 million dollar loan that we originated last year, which was a standalone CMBS and then we are also it hard Ed for CMBS loans from there from the Felcor.
Or acquisition you know we are not engaged in active discussions with any of the servicers are not because we're paying we're we're current on our on our debt service.
That's helpful. Thank you.
[noise]. Thank you. Our next question comes from the line.
Wes Golladay RBC capital markets. Please proceed with your question.
Good morning, everyone I just wanted to dig into the are you know starting them close in hotels is there a first a large cost to restart you know what is the time to reopen a hotel and if you were to have to re close it you know how much would that cost and so and if there's a large cost would you have to how big a big buffer between the you know profitability or less cash burn to do.
Decided to reopen the hotel.
So so west where we were pretty thoughtful about how we approached our suspension of hotels.
And in fact, the the ft count at expended hotel vary so much of that one that's open the only difference really is the housekeeping component of it.
And as a result of that that really allows us to ramp back open a hotel we need to within two to three days.
From a framework perspective in terms of how we're thinking about what we need to do in C. In order to reopen hotel yeah, we need to make sure that we opened a hotel that it's either going to breakeven or that it's going to reduce the burn rate. We think a baseline occupancy that we need at a flex service hotels anywhere from 5% to 10% and on a full service hotels 10 to 15.
Percent anything be sustainable we're trying to avoid the concept of opening and then closing so we're not let's just take for example, the leisure market. We obviously are having memorial weekend come come coming soon and although we're tracking that we're not gonna open hole tell simply for that weekend and the turn around and have that that demand Bert often have to shut the hotel. So we're not.
Doing that we're looking at you know how is the state opening but we're also looking at the Peter states around that to make sure those are opening as well because that's gonna be impact on the demand and there were also looking at the forward booking. So report reservation. So even though a hotel was extended we have dates out in the future that it's open and we can see whether or not we're seeing.
I mean any pick up on reservation. So combination of that is helping us sort of think through how to window. When the open hotel, but we are trying to see if we have sustainable occupancy that the level that I articulated and that will allow us to open hotel within two to three days I'm. When we do that our lean operating model I'm wouldn't incur any incremental costs as a result of.
Closing you know hotel opening at 'em, Sean wants to add point I just have bought on a likely is common Wes it's not going to be a binary open close decision with respect to a when demand comes back because we expect demand to come back and ramp relatively slowly and so as on on our Remobilization plan you would expect us to.
Going back the labor in to match the level of demand coming back into the hotel. So it's not going to be you bring everybody back immediately it's going to bring back there the labor pools of extent that there's demand there to support it and so I think you would expect us as well as others as we as we review as we ramp to be able to match that labor with.
With what the ramping revenue.
Okay, and then you know looking at the 57 hotels that are closed just trying to get you know maybe a distribution of how you know how many of the hotels are in that.
Longer lead time Gonna take a while the opening more group focus air travel seasonality is or many of the 57 in that tail.
So I would say one thing about the 57 to keeping to keep in mind is that there is about 15 to 17 assets that are part of clusters HM.
Wes and so as I mentioned in my prepared remarks that those assets were likely to be slow to ramp because.
Let's take Houston for example, we have three assets on one pad there would be no reason to open the two at other assets until you got back to a level of normal level occupancy. So those assets will be long lead items that stay out for a while and then obviously you can look at it you know when a market by market basis, like New York would be slow to reopen and Neill Park the San Francisco.
<unk> floater reopened given that the boxes and size is there any more occupancy to make it to make the breakeven or to reduce the burn rate there from our perspective, we would expect we have 46 assets open today, we would expect the next wave of older assets to open would be in Southern California, New Orleans, South Florida.
Obviously benefiting from the leisure demand side.
Oh, Thank you very much.
Yeah.
Thank you. Our next question comes on line of Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning, everyone. So.
Question on the wind projects I understand maybe it'd be ROI portion is the weight reduction version a lot of these <unk> leisure budget. So when it makes sense to convert and Gen interim bland well before you actually do the ROI portion.
Yeah. It's a great question Anthony all of those projects are largely delayed as well, while our view on the value creation opportunities still remains and in fact, we actually have more conviction that yeah look the Wyndham assets were Bulls eye real estate the remain Bulls eye real estate and so we are going to try to before that when that.
With those projects when it makes sense.
The only be it changes the timing, what we would generally like to or generally expect it to take advantage of the soft occupancy that we have today and to be able to time the conversions when demand really comes back. The reality is is as you recall, we said that our goal was to try to have two of those conversions completed.
Good in 2021 that was our original timing that may slip a little bit, but again overall demand for the overall industry. You know it can take a lot of come back. So ultimately we think that the way well staggered the project will align with when industry gets back to normal basis and on average.
Got it so just to be clear your check to keep the that's when the branded properties for.
Next year so that.
Yeah, They will remain wyndhams until we convert them fully.
Got it okay and.
One more for me just in terms of land standards and operating cost models. The brand just talk a lot about reducing cost and increasing efficiency across the board.
What do you want people in that process, what specific opportunities for you guys are owned and kind of.
Maybe permanently generates of some better economics for yourselves you.
Look I think Anthony a lot of that sort to be determined as a lot of discussions that are going on with the brands and I applaud. The brands were having that discussion I think we all recognize that has a unique moment in time right now to adjust the model. When those discussions are being had you know whether it's on brand standards or or shared services. The you know those things are.
<unk> to be determined, but we would expect to benefit from the adjustments in housekeeping, which will ultimately be losses you.
Clean less room is going to stay but increased the amount of time, it's been cleaning between stays but also is gonna be an increase cleaning within the public spaces. We think there's gonna be reduced FNB hours, so well see that within our portfolio and jobs sharing and less contract labor I think for US [laughter] quickly you know our smaller.
Public spaces, where we even as we move into a more high touch cleaning environment, it's going to be more efficient to clean our types of lobbies and it is for traditional full service lobbies right. We have less elevators, we have less escalators and things of that nature or there's going to be a tremendous amount of extra cleaning.
We should have less cost associated on a relative basis, you know Additionally, I'm as adjustments are being made to the SMB standards, we think that our embassy suites, which again represent 25% of our portfolio will benefit as we move away from to higher cost structure of a have a of a word.
I'm looking for.
On anything besides the.
Large level.
The buffet there you go banking. Thank you [laughter], we move away from the buffets, right, [laughter] and and and I think that's really going to benefit our embassy suites.
And we're going to reduce costs hopefully around that all of this is still to be the Turkmen, but we think that overall the industry is going to see some impact in our portfolio, specifically, we'll see some incremental benefit.
Okay. Thank you.
Thank you. Our next question comes from a line of Chris Woronka with Deutsche Bank. Please proceed with your question.
Hey, good morning, everybody I'm wanting to.
Circle back on the Wyndham portfolio and my question is I notice from the first quarter.
Those who calls perform relatively in line with the rest of the portfolio and I know first quarter is no longer good indicator, but would you expect that no relative performance continue or do you see a reason why they might decouple from that in this environment.
So when you look at the Wyndham portfolio segmentation.
Obviously, the brand needs to rely a little bit more on OTI A's crew business. Some of the business that actually has allowed the those hotels to remain open and to lessees point about Bulls eye real estate. Many of those are in leisure markets as we have San Diego Santa Monica you look at Philly.
In the historic District those are locations that are you know leisure markets. In addition to that we had two in medical markets in Boston as well as Houston. So that's been a benefit through this in a unique time that were located next to mass General and then obviously, a you know MD Anderson and all the business that comes into Houston, that's related to medical so.
We feel like the segmentation at the current levels is appropriate to be able to remain open and then it'll obviously ramp depending upon where we see business demand come in a lot of the wyndhams to do not have significant meeting space comparatively in regards to you know other full service hotels. So we think there are ripe for conversion.
Ones to other brands as we get into that and then we'll start to see more premium business that we talked about on the retail national corporate local Gore corporate base based on the other brands, having a little bit more familiarity with those type of accounts on a long term basis.
Okay very helpful. Thanks, Tom and a follow up question on.
New York is it's possible that kind of just get your your world view.
On how the city is ultimately going to recover and.
What that means for for the Nick and I know, it's still very fluid situation, but but do you have any longer term thoughts about how it might unfold.
Yeah look I think that it's too early to sort of see how any markets kinda, particularly unfold. What we do know today is that New York was a challenge market, even before cobot 19 isn't and is more challenge today look I think New York is a great city with a rich history, but it's gonna have to overcome the stigma associated with being a hot spot and I have no idea how long that's.
Going to take or what is he is going to take on psychology of that to change.
You know, we do think that New York will benefit ultimately as some rooms come out of the system. If they don't it's some hotel don't open back up and we think that it will benefit from reduced inventory there being b. I think long term, we believe in New York and we believe in our assets in New York, but you know, it's still too early to say how any.
In one particular market, it's going to 'em form.
Okay fair enough. Thank you.
Thank you know our next question comes from <unk>.
Hi battery with Janney capital markets. Please proceed with your question.
Hey, good morning, Thanks for taking my questions just a few questions on the new normal what do you think the competitive environment looks like as we move past somebody that's I mean, some of your peers have talked about operating at full service hotels more like select service hotels. So you can back that pressure you may make a tougher to differentiate.
And then additionally, just to ask the rate question, a little bit differently.
Once demand starts to normalize do you think we could see a race to the bottom on rate or do you think environment could be more rash.
Yeah.
Well, let's Tyler I, you know I find it interesting there appears to say they would operate their hotels more like select service I have heard that but I find it interesting I think it has always been our mentality to operate all of our hotels, what is left or compact full service at select service hotels, and so you know we welcome the challenge to extend that anyone who wants to do that I think as.
As it relates to your question around rate.
You know I think that Tom framed it you know before you know the rate.
Aggregation, we've seen wasn't a result to people racing to the bottom. There was a result of what demand with available right and so I think I'm in a short to medium term. We're gonna have to open up channels that we would normally like a yield out because that we have to rely on whatever demand is available I think the reality of it is is that I. Appreciate a lot of people are focused on rate and how much.
Going to grow from our perspective, we're focused on just reducing our burn rate. So whatever we heads in beds and we can get to bring down that burn rate is what we're focused on and so I think you're gonna see more of that channels as opposed to drop of rate you know on that tell me what to add something at two things I would add too and that is.
If you think about two organizations that are large and that will impact rate in the future. One is global business travel Association typically that event takes place in August and is now has moved in November so rate negotiations for 2021, we'll move to the backend of 2020, which we think is is positive for the industry knowing that.
You know as corporation start to ramp up start to put people back in the office and start to travel again they'll be it a little bit more normal process in the November timeframe versus in the summertime when rates start to get negotiated for future years and the second group is the PC I may which is the professional management.
All the meeting planners that book group business and so when you look at the out years and you look at the postponements that were cancelled this year that moved to 2021 or 2022 rates weren't renegotiated and those contracts because obviously deposits were held opportunities to be able to you know rebook that business were discussed and.
So we think those two key categories also could potentially lift up rate when they start to re book and so I just wanted to add that to less Lee's point.
Okay. That's very helpful. I appreciate that you've done in the second question. If I had its just a housekeeping on our Capex I think you said.
$50 million it spending the rest of the year. So you know how long beyond 2020, you can do you can maintain such low levels of Capex stack them.
The Remy catch up spending outside of the project Capex in 2020 Warner 2022.
[noise], Yeah, I would say I wouldn't call it sort of catch up I mean, what we're going to do this role our campaigns out a year I until you know we will move back to normal level of renovation campaign when that when the environment I present itself to be able to do that I think that our balance sheet will allow us to be able.
Sustain a normal level cat a of Capex you know when we have visibility you know relative to how the recovery going to unfold.
And the boat on allegedly we say I just wanted to reaffirm Tyler that you know a big part of our story was reallocating capital from our slower growth assets that we disposed of in 2019 by and reinvesting into our portfolio, which will include Capex, but we think it's gonna have high ROI, the wyndhams or a subset of that and there's other so.
Based reconfigurations and other initiatives that are pause to today.
But as long as we mentioned in her remarks arc, our expectation is that we will pick those back up in the future because we're going to believe that that the returns associated with that with that with those with those projects continue one theme that we talked about before cobot 19 or hit was a lot of these projects.
Or we're not dependent on the cycle and so I think as we step back and think about the value creation from a lot of these projects Wyndham being there being the largest of all those we still believe that it's not like with dependent the shape of the recovery is going to influence timing and and sequencing, but you know we feel good that.
Capital was gonna have to go into the portfolio. That's why we're sitting on liquidity that we that we sat on because we've already raised that capital as part of the disposition program in 2019, but you would expect us and 2021 2022 to be able to accretive we deploy that capital in our portfolio.
Okay very helpful. Thank you.
Thank you. Our next question comes from the line of Neil Malkin Capital One securities.
Your question.
Hey, guys good morning.
First question I, just given what's going on.
You know the disparity between you know some some a you know sunbelt coastal markets. A you know in terms of opening timeline.
You know the variety of political climates, and you look in California, you see things like.
You know potential prop 13.
Repeals you know the things like that and then if you just or overlay that with.
The idea that in all likelihood supply for the industry is gonna be heavily reduced for the next probably three to five years do you do you think about potentially reallocating or.
Where are you.
Allocate a incrementally will be you know maybe not so focused a in the California market and maybe more of the.
Sunbelt markets.
[noise], Yeah, Neel, Oh listen as we you know part of the initiatives that we put in place in 2019 wise to reallocate into the into the markets and geographic locations that we felt comfortable about not only for 2019 and 2020, but long term.
I think they be examples that you're you're.
Mentioning are all true, but all relatively short term in nature I think as we step back and look at at where our geographic concentration is today you know, we like our South Florida exposure, we like our California exposure and we like our frankly, we are we have a bunch of the sunbelt as well I think a as we think about.
Pulling on acquisitions, which were which which you know we still need to get through cover 19 before really focusing on on on acquisitions any meaningful way up, but but but certainly the new normal factor in.
To our thoughts around geographic reallocation when that are within our portfolio, but our footprint. Today you know we haven't we have it Ah portfolio for a reason, which is we like to have a you know.
Diverse geographic dispersion and we're comfortable with our footprint today.
Okay appreciate that they wanted to me.
Have you seen a a pick up or I guess, it maybe stabilization.
In in occupancy or future bookings from the middle Middle of April till now the travel data looks like you kind of bottomed out in mid April and although it's still at very low levels, you know more than doubled from the anemic levels. It wasn't in mid April so just kind of wondering how that's translating into.
Oh, what you're seeing at the property level.
[noise], Yeah Neel them. This is Tom in regards to bookings you know we are seeing bookings at our hotels that are remaining open that are exceeding cancellation. So there is a positive sign we are seeing week to week that even if you look at T. I say would travel it went down under 100000 from two to two point.
5 million on a daily basis now it's above 200000 for the last four days when you look at our portfolio. What we've seen is hotels that are looking to open up again, we're actually starting to see demand happen based on restrictions being lifted now we're in phase one so we need restaurants and location.
Ends and offices to open up with us to be able to have that sustainability that we're talking about earlier that laissez brought up but we do think theres signs of opportunities as we kept our hotels opened in the system for future reservation and just to give you an indication we have seen you know some business demand that you know has occurred from even a corporate.
When we saw campuses potentially opening up 50% of their offices in Denver, We got some business from Oracle and century link we got some business in L.A. accent Chevron.
30, 30 to 35 rooms, working on refinery work. So there is business out there above and beyond what you typically have heard which is crew rooms, and medical business and things related to covert 19, and then lastly, I would say that you know what's interesting in the future. There's a different type a group that might come with this environment too and that's a in June.
Adversities, we've had you know business in Pittsburgh than we had with University, we're looking to potentially how's more of that business because the social distant things with campus is coming back and even in NOLA. We're looking at a couple opportunities with Xavier into lane for the fall semester. So we're we're navigating opportunities and understanding where demand is going to come from an.
Knowing that you have to book business, that's different in 2020 to to get ready for 2021, and the last example of that I would give is a in our hotel on Mandalay around 18% you know that's a great opportunity because of the beaches in California. There's only two hotels that are on the beaches and that's you know Dell coronados as well as often mandalay, whereas.
56% month today, so we do see as the restrictions are lifted people will travel and that pent up demand will occur, it's just how fast and the and the swing and how you know where it where it is going to happen, but that's what we're paying attention on the demand 360 in future bookings to get ready for that.
Okay, Great and then I guess, just maybe following up on that.
I don't think you mentioned it before but.
Could you give us some context on what occupancy looked like in mid April and then what it looks like now or maybe what the occupancy average in April versus what it looks like now.
So Sean games, our April occupancy you want to reiterate that yeah NSR. Our April occupancy was was roughly 15% 15 or 16% for that for our hotels that remained open so portfolio wide. It was you know call. It you know 7% to 8% we.
Seeing occupancy started tick up a little bit into may and but it's you know its gets obviously coming off very very low numbers I think our our portfolio demand is tracking into may wait what we're seeing in the broader industry.
But you know it's still it's it's early days the recovery and it's coming off a very very low ranks.
Gotcha. Thank you.
Thank you ladies and gentlemen, we've reached the conclusion of our human extension, let's turn it back to live.
<unk>.
[noise] [noise]. Thank you guys for joining us today. It goes without saying that these are unprecedented times. However, based on the Swift actions that we've taken we believe that we're well positioned to not only whether this environment, but also to be one of the early beneficiaries of any form of recovery.
On behalf of the entire Arles, Doug RLJ team I want to convey that we wish everybody remain safe and healthy and we hope everyone. It takes care before to senior in the future.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines.
Thank you for your participation.