Q1 2020 Earnings Call
What do you read first quarter 2020, <unk> earnings conference call. At this time, all participants are in listen only mode.
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Now my pleasure to introduce your host Kelly Clark Vice President Investor Relations. Thank you you may begin.
Thank you and good morning, we welcome you to Apple hospitality read the first quarter 2020 earnings call on that the 19th day of my 2020.
Today's call will be based on the first quarter 2020 earnings release form 10-Q, and it could be 19 supplement which were distributed and filed yesterday afternoon.
As a reminder, today's call will contain forward looking statements as defined by federal Securities laws, including statements regarding future operating results and the impact to the company's business and financial condition from and measures being taken in response to kind of at night team.
These statements involve known and unknown risks and other factors, which may cause actual results performance or achievements and apple hospitality could be materially different from future results performance or achievements expressed or implied by such forward looking statements.
Participants should carefully review, our financial statement and the notes there too as well as the risk factors described an Apple hospitality <unk> annual report on form 10-K, but your ended December 31st 2019 quarterly report on form 10-Q for the quarter ended March 31, 2020 and other.
Filings with the FCC.
Any forward looking statement that Apple hospitality makes speak only as of today in the company undertakes no obligation to publicly update or revise any forward looking statements except as required by law.
In addition, certain non-GAAP measures of performance such as EBITDA EBITDA Ari adjusted EBITDA Ari adjusted Hotel EBITDA at that though and modified FX will be discussed during this call.
We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the FCC.
For a copy of the earnings release supplemental or additional information about the company, we've said that Apple hospitality read Dot com.
This morning, just a night, our Chief Executive Officer, and live Perkins, Our Chief Financial Officer will provide an overview of our results for the first quarter of 2020 as well as an outlook for the sector and for the company.
Following the overview, we will open the call for key Wednesday at this time. It is my pleasure to turn the call ever to our CEO Justin night.
Thank you Kelly.
Good morning, everyone and thank you for joining us today.
Sincerely hope that each of you and your loved ones are staying safe and healthy during these challenging times.
My Heart goes out to all those have been directly affected by the current a virus I would like to express my sincere gratitude to all first responders healthcare workers and never went on the for frontline stuff. This pandemic.
With travel restrictions I stay at home orders in place across most of our nation's since mid March cover 19 has disrupted every aspect of our daily life, and it's been particularly challenging for the hotel industry.
The pandemic and efforts to mitigate it have dramatically reduce both business and leisure demand and required us to make meaningful changes to the way we operate.
Our efforts to preserve our business and ensure our ability to thrive in future years have required us to make difficult decisions that affect our corporate employees, our shareholders and the associates at our hotels.
It is incredibly difficult for us to come to terms with the number of hotel associates that have been furloughed are laid off across our portfolio and the entire hotel industry. As a result to the abrupt changes and WPTE caused by companies like <unk>.
Well, we do not yet no how long the current situation will laugh, we look forward to a time when we can resume more normal operations and add back stop at our hotels I say environment improves.
Through February Revpar for our portfolio was essentially flat despite challenging year over year comps.
Occupancy began to drop beginning the second week of March by month that had settled between 15 and 16%.
Well, we began to see modest improvement in occupancy is in the second half of April we expect the current health and economic crisis, the materially impact our business through the remainder of the year.
Since the onset of the pandemic our team members have been diligently working in collaboration with our brands management companies banking teams and the industry Association to navigate the current environment maintain a sound liquidity position effectively adapt arpus I said safeguard long term value for our shareholders.
As the occupancy levels for our hotels began to decline in March we moved quickly to adjust the staffing model at our hotels have reduced other operating expenses in an effort to preserve cash and minimize near term office.
Working with our management companies, we establish minimum stocking levels for our hotels, reducing staffing by 70% to 75% on average.
With our brands, allowing flexibility to adjust operating models in response to the crisis, we dramatically reduced food and beverages that.
Lemonade just housekeeping during their first.
Worked with vendors to suspend or meaningfully reduce the cost of services.
Utilizing the energy management systems installed over the past several years, we were able to monitor energy usage and real time to achieve reductions and utility costs, well I'm sure in setting the protect and preserve our assets.
Together with our third party management companies, we've enhanced our sales efforts by focusing on demand generators related to covert 19 specific opportunities in certain markets and identifying other sectors that may have launching its including construction manufacturing government and maintenance industries.
Our management teams are also working with existing customers to move business to later in the year.
As local governments begin to loosen restrictions, we expect the pace and recovery across our markets to Barry.
Our portfolio with diversified across 87 markets with the majority of our hotels located and drive to location.
In line with industry expectations, we believe that leisure transient demand will be the first three terrain. We've tried to destination among the first about that.
We are already implementing enhance sanitation protocols that will help to ensure our hotels meet evolving customer expectations.
We are deeply committed to the overall health and wellbeing of all hotel associates and gas and we'll continue to work closely with the brands at our management companies to provide the highest level of sanitation safety at our hotels.
Our diversified portfolio from its focused hotels is uniquely positioned to effectively adapt to changing market conditions.
To date only one of our hotels are courtyard and Carolina Beach temporarily closed following a local government mandate prohibiting and short term watching in the area.
The we have consolidated operations in markets, where we have multiple hotels in order to drive incremental cost savings.
The size and efficient design of our hotels, along with employees, who have been cross trained the multiple functional areas have enabled us to effectively serve our gas with minimal staff presence at each hotel.
In conjunction with our operational response, we implemented a variety of cost containment initiatives at the corporate level to preserve and bolster liquidity.
We made the difficult decision to suspend monthly distributions beginning with our April distribution.
We recognize the importance of our monthly distributions to our shareholders, while we do not yet know how long the concentration alive.
Working diligently to ensure that we will be well positioned if the economy recovers and operating environment improves.
In March our executive Chairman Board of Directors high all voluntarily reduced our compensation for the air and Brian Perry and Krissy Gathright voluntarily deferred receipt of payment under their separation agreements, which would have otherwise been paid out in the second quarter.
Combined with anticipated reductions in payouts under our executive incentive program and other gionee costs, we anticipate a reduction of corporate expenses of approximately 25% for the air as compared to our February 2020, forecasts and approximately 30% as compared to 29 team.
Our brand partners have been exceptional to work with throughout this crisis.
With the easing the brand renovation requirements were able to postpone all non essential capital improvement projects for the year, focusing the remaining spend on asset protection projects and other needs as they arrive.
During the three months ended March 31st 2020, the company invested approximately $24 million and capital expenditures and anticipate spending an additional 10 million to $15 million during the remainder of 2020.
Approximately $50 million less than originally planned.
Prior to the onset of Cobot 19, our team has been focused on value creation through thoughtful capital allocation and during the first quarter, we sold our Springhill suites, and Sanford, Florida, and Springhill suites in Boise, Idaho for a total combined gross sales price of approximately $45 million and the company recognize the sale gain.
On sale of approximately $9 million.
In April we closed on the dual branded Hampton Inn, <unk> suites, and home to sweep and Cape Canaveral, Florida and development project.
Which we had contracted for in 2018.
The purchase price was approximately $47 million, which was funded by 25 million of cash on hand, and I know, but the developer for our approximately $22 million that is payable and 2021.
Part of our strategy has been to partner with trusted developers to invest in new non protocol high quality assets and prior to 2020, we entered into contracts for the potential purchase of three additional hotels for a combined total expected purchase price of approximately $130 million, including a dual branded Hyatt house and Hyatt place.
In Tempe, Arizona, and Hilton Garden Inn in Madison, Wisconsin.
Assuming all conditions to close in our Matt we anticipate acquiring the Tempe hotels during the second half of this year at Madison Hotel and 2021.
Subsequent to the end of the first quarter, we terminated the contract for the purchase of acquired by Marriott in Denver, Colorado, which had not yet begun construction.
During the first three months of 2020, we purchased under our share repurchase program approximately 1.5 million common shares at a weighted average market purchase price of approximately $9.42 per share.
In aggregate purchase price of approximately $14.3 million.
In March as economic conditions worsened, we terminate the written trading plan under our share repurchase program.
We have always maintained a conservative capital structure to provide stability for the company during periods of economic volatility and the flexibility to respond to changes in the operating environment.
In April we began discussions with our lenders to secure a temporary waiver of certain debt covenants and anticipation that deterioration operating performance during the second quarter could potentially result noncompliance.
Well, we have not yet finalized documentation, we anticipate obtaining covenant waivers with certain minimum liquidity and use of liquidity restrictions in line, but those announced by our peers.
We are grateful for the strong relationships that we have with our lenders and for their willingness to work with us to make adjustments necessary in the current environment.
Apple hospitality with intentionally structure to weather challenging times and produce attractive returns during periods of economic prosperity.
Over our 20 year history in the lodging industry, we have strengthened and refined our ownership strategy and we're confident we are well positioned to successfully manage fees unprecedented times, an excel as our nation and our economy recover.
We are rooms focus properties with best in class brands that have historically produced industry, leading operating margins.
We work with established regional and national operators, using innovative contracts cell line management and ownership interest and preserve flexibility to sell assets undone unencumbered.
We are broadly diversified across markets to reduce volatility and provide the portfolio exposure to a variety of industries and demand generators.
We have reinvested in our assets to maintain competitive position across our markets and we have maintained a conservative approach to capital allocation and a strong balance sheet.
As we begin the process of recovery our portfolio is exceptionally well positioned our hotels have proven appeal with the brought us group of potential customers.
The association with top brands and the strong value proposition I'd be upscale select service model have historically led to outperformance during periods of economic difficulty.
With the majority of our portfolio located and drive to markets outside of major urban city centers and low dependence on March group business. We believe our portfolio will be among the first to see benefit from loosening government restrictions and the early stages of an economic recovery.
It is during an unprecedented times like this that I am, especially grateful for the strong relationships, we have fostered throughout the hotel industry and the depth of our team at Apple hospitality.
We have a track record of creating value during challenging economic periods and I'm confident that we will emerge from the current crisis well positioned to outperformed is now my pleasure to turn the call over to live.
Thank you Jeff did and thank you everyone for joining us. This morning. These are incredibly challenging time for industry I want to take this opportunity to thank our team at Apple hospitality operators that are hotels and management companies the brand our banking team and our industry colleagues.
Together, we've been working diligently to explore implement initiatives to minimize cost operate efficiently strengthen our liquidity position and safeguard the health and wellbeing of our teams and gap that we are well positioned both during this crisis in first strong recovery is travel risk Sam.
During the first two months of the year operations were generally in line with our expectation with comparable hotels revpar trending around the midpoint of our recently withdrawn 2020 guidance range. Despite headwinds from previously discussed year over year comp.
As efforts to mitigate the sporadic Kobe 19, including travel restrictions to stay at home orders were implemented across the country and our market average occupancy for our portfolio declined from approximately 76% for the month of February to 41% for the month of March.
Keep in C level settled at around 16% during the last week of March and stayed around that level until mid April.
Although we started to see a slight improvement in occupancy towards the end of April and then to may be improvement has been partially offset by declines in rate largely the result of changes in the mix of business in our hotel.
We believe that the modest but notable increase in occupancy we are beginning to see as the result of the ongoing sales efforts of our asset management and hotel management team coupled with the inherent benefits of the assets we are invested and.
With broad geographic diversification and a high concentration of extended stay in suite properties, we're well positioned to provide accommodations to variety of grip and individuals on the front lines of the pandemic, including military traveling nurses healthcare professional and first responders.
Although this negotiated business has contributed to our decrease in 80, our as compared to last year is bolstering our occupancy.
For the week ended May nine portfolio occupancy with 24% with daily occupancy occasionally in the upper Twentys in the most recent week.
The immediate impact as cobot 19 in March with broad based and by mid April 59% of our hotels were running less than 15% occupancy.
Since that time, we've begun to see improvement with over 40% of our properties at 25% occupancy or greater and 15% of our properties over 50% occupancy for the weekend they may nine.
Some of our hotels, where we're seeing particular particular strength are located in Manassas in Suffolk, Virginia, Macon, Georgia, Miami, and Anchorage with demand ranging from construction military airline crew disaster recovery and even some minimal demand from more traditional corporate account.
Our portfolio of well maintain broadly diversified select service hotels are not only well suited to accommodate first responders and current travelers, but also to serve the demand that is expected to return over the next phase at the recovery.
Domestic leisure demand is expected to lead the recovery and we have begun to see early signs of this and stay at home orders are lifted in various states throughout the southeast.
Day after reopening following the government imposed closer adjusted mentioned, our Carolina Beach Court yard ran 70% occupancy at $170 average daily rate.
And just this past weekend with sold out and over $200 average daily rate.
Our broad footprint no exposure to gateway cities minimal dependence on inbound international business and almost 80% of our rents outside of urban locations. We expect to benefit from continued Ria relaxing of restrictions over the coming up.
Turning to the bottom line, our first quarter comparable hotels adjusted hotel EBITDA and adjusted EBITDA, Ari were $63 million and $54 million, respectively, and modified FFO per share was 17 cents all meaningfully down from the first quarter 2019, driven.
By the steep and abrupt revpar declines in March although the environment changed seemingly overnight our team acted quickly and purposely to reduce same store total hotel expenses by approximately 31% for the month of March resulting in a savings of approximately 9% for the quarter compared to last year.
As Justin mentioned, our low cost operating model has allowed for the company's hotels to remain open. So we have intentionally consolidated operations and occupancy just single building in markets, where we on multiple hotels in order to gain incremental efficiencies.
As of May 15th 71 of our hotels were involved in these market clusters with occupancy consolidated from 38 hotels.
Our select service route focused model gives us the flexibility to operate with minimal staff when necessary and positions us to quickly adapt to changing market conditions.
As occupancy began to deteriorate our asset management team worked with our management companies to quickly established minimum staffing levels for our hotels and initiate other cost savings initiatives. We're now working with each of our managers to establish labor models appropriate for the various occupancy level that will ensue ever the recovery benchmarking.
Those models across our portfolio to ensure we are thoughtfully optimizing results as we move forward.
In 2017, we implemented labor management systems across the majority of our portfolio to improve productivity at our hotels. These systems provide our property managers with a valuable tool and framework for managing staffing at various occupancy level and will allow us real time access to monitor individual property performance and benchmark labor model.
As demand returns.
With labor being the most significant operating expense staffing reductions are anticipated to produce approximately 65% to 70% savings entitle payroll on average at low occupancy hotels.
Our team has also worked to reduce other operating expenses finally get renegotiating national contracts and eliminating unnecessary services.
With these cost elimination and reduction strategies as well as our ability to quickly flex staffing models to adjust the changes in demand we have multiple levers we can pull to ensure maximum property level efficiency.
In March we went through 2020 guidance and respond to deteriorating market conditions and uncertainty related to the depth and duration at the current crisis. While April numbers are not final and the current operating environment and model is still evolving with these operational adjustments, we estimate our monthly cash burn rate, including property level expenses.
Corporate DNA property taxes insurance and debt service will be approximately $18 million, assuming occupancy levels of between 15 and 20%.
We expect property level breakeven occupancy for our portfolios to be between 30, and 35% and be able to cover corporate costs, including debt service and occupancy levels between 40, and 45% depending on average daily rate.
Well being immediately committed to minimize the operating losses. We also focused on our balance sheet in an effort to increase readily available liquidity drew down the remaining availability under our 425 million dollar revolving credit facility and had available cash of approximately $437 million as of March 31.
Our 2020.
As Justin mentioned to further preserve capital, we suspended monthly distributions postponed nonessential capital improvement projects terminated the written trading plan under our share repurchase program and our chairman CEO and board of directors voluntarily tough reject reductions in their compensation.
We've always believed that maintaining a strong balance sheet would provide us the stability during periods of economic difficulty and flexibility to act opportunistically.
We entered the current downturn with net net debt to EBITDA of approximately 3.1 time.
As of March 31 to 2020, we had approximately $1.8 billion of total debt outstanding with a current combined weighted average average interest rate of approximately 3.3% unrestricted cash of $437 million.
Excluding unamortized debt issuance cost and fair value adjustment. The company's total outstanding indebtedness is comprised of approximately $500 million and property level debt secured by 31 hotel and approximately $1.3 billion outstanding on our unsecured credit facility.
At March 31st 2020.
The company's total debt.
To total capitalization net cash was approximately 40% and weighted average debt maturities were five years with no maturities for the remainder of 2020 and $32 million net of reserves maturing in 2021.
Despite our track record of strategic commitment to a conservative capital structure and although at March 31st 2020, we were in compliance with the covenants under our credit facilities, we began discussions with our lenders to secure a temporary waivers of each of the covenant under our agreement and anticipation that the severe impact until that 19 on the economy.
The lodging industry, and our business, but potentially result and noncompliant.
We anticipate entering into an amendment to each of our credit facility that would provide relief from the covenants for a period of fourth quarter, beginning with the quarter ending June 32020.
The terms of the proposed amendment are expected to include minimum liquidity requirements and restrictions on the amount of the company's distributions capital expenditures share repurchases and acquisitions among other items during the covenant relief period.
Throughout our history and the lodging industry, we have fostered strong relationships with our lenders and we are grateful for their support while we cannot provide assurances we feel confident we will secure the flexibility necessary to whether the current crisis.
Before opening the call for Q and I I would like to again, thank all of our colleagues and stakeholders. We have received an outpouring of support broadly and specifically for many of you and we appreciate you greatly while these are unprecedented in challenging times I am proud to be part of Apple hospitality in this wonderful industry the commitment to our associates.
Yes, and the community is firing and our teams have worked swiftly tirelessly and effectively to manage the current environment.
Our well maintained young geographically diversified rooms focused portfolio had broad consumer appeal, and we believe we're well positioned to benefit and outperform as travel resumes.
We will now open the call to question.
Thank you, ladies and gentlemen, if he would like to ask a question at this time. Please press star one on your telephone keypad. The confirmation general indicate that your line is on the question Q. You May proceed start to if he would like to move your question from the Q for participants using speaker equipment and may be necessary to pick up your handset so far pressing the star.
Keith.
Our first question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Hey, good morning, guys.
Thanks for taking my questions.
Hey.
I appreciate your commentary as well first off.
You guys are one of the largest owners select service in the in the country and I know you guys to them a lot of the.
Brand committees are boards.
Of the largest brands as well wondering if you could just talk about sort of how you see the relationship.
Between the brands me owners evolving over the next 612 months some of your peers.
Generally commented on that.
Given your.
Slide reach with it was several flex service brands you probably have some good.
You know view on that so.
How do you kind of see that playing out and you think the pendulum is kind of shifted back in favour of owners and.
Maybe talk about any any permanent changes that you you see happening to the operating model going forward.
Thanks, and I'll take a stab at it.
Lives can fill in the fiction like in addition, both of US at on advisory boards within.
Marriott today both.
Both companies.
Yes, we only on one higher.
Hi, It has been equally good.
But both helping them at have.
Actively engaged with owners.
In dialogue related to how we deal with the current pandemic.
And.
See nuances associated with it and how we look at modeling our business for the future I think theres heightened sensitivity to.
The need to make near term adjustments in order to ensure the safety of our gas and associates, but Theres also I think increased recognition of a need to look at our business model in order to ensure long term profitability and so in those conversations we're looking at everything.
And with fresh eyes, and I'd say.
The conversations have been.
Dr. So theres been a tremendous mess on their side to here.
You know.
The feedback and commentary from the ownership to medium.
I think.
There was a sentiment that said potentially with consolidation on the ground side and significant pipeline growth with both helping them out that that the pendulum at ship shifted away from.
Ownership.
Generally speaking our relationship.
As has been viewed or from our perspective as collaborative.
Always and we've seen we've seen both of our major partners.
Working with us to achieve the comment goal of up long term profitability. So I'd say.
You know there a lot of things in flux right now.
But there's a lot of attention being paid to those issues that are most important both now.
And as we move into an environment, where guests to begin returning in Master hotel.
And Neil the second part of your question about what you thought might stick long term.
I think that thats still yet to be determined.
The obvious in the near term that guests have.
Different expectations and needs then.
How long that persist or what that looks like going forward from up from a long term perspective, those are the conversations that we're having with the various.
Brands to to help figure out what what's the best model for today, but what does that look like going forward to and so those are active conversation I think that.
[music].
As far as the balance of power goes there regardless of.
Who might have a slight advantage of any at any one point in time its mutually beneficial that we get this right for everybody.
We want to be relevant with guests we want.
The brands to be successful, but in order to do that we have to make money as well. So I think I think that getting this right will be a balance between between the brands and ownership.
Thanks appreciate your commentary.
You talked about.
Rates being impacted.
In the first.
And your March and April.
Some of your up full scale peers is more of an occupancy lots of great I'm wondering if.
We know how do you explain or what do you think that that drop is attributable to as it is it because.
You guys essentially all your hotels were open whereas a lot of this full.
Service more coastal focus players shot majority or all there.
Almost all their hotels.
Was it you know more of just taking OTA days.
You think they'd be less of an issue.
Given the the brand nature, and any thoughts or commentary on on that and maybe how your select service model, you know kind of ebbs and flows with with lower demand and you know with Opex changes things like that.
I live live commented in her prepared remarks that the majority of the shipped we saw.
As we rounded out the month of March what's really the result in changes in business mix, So I move away from transient business and leisure towards negotiated business.
Which is generally discounted business.
And given the low occupancy levels.
For the business and our hotels as we wrap our March and April.
April.
Fit into that category with a significant amount of first responders.
National Guard.
Business about type in addition to.
Other business clients, what we've seen them and highlighted.
The Carolina Beach example is.
In those markets where were seeing.
Leisure transient return.
You know were seen 10 ability to again push rate.
Occupancy.
Get closer to sell out our reach kind of higher ranges.
But you know as we look forward.
You have in the near term.
Decrease in Reagan send marci attributable to the mix of business.
I think our expectation is that as we begin to ramp occupancy.
At least from the early stages.
Buckets will be incredibly competitive.
We're.
Working with our management companies to ensure.
That we're maximizing rates wherever possible recognizing that we will still be competing for a smaller number of gas and many of our markets and they need to make adjustments to rate in order to build backspace occupancy, but what we've seen to date.
Largely a mix of business related and.
The other is more expectations of future.
Got it last one for me it looks like could you talk to your balance sheet being very strong and leading to opportunities should they present themselves you know ostensibly.
This.
This would lead to you know you got being more active or or looking at more things in the near term do you think you're going to have more success or more.
[noise] interest in stabilized assets or newer more recently.
Constructed assets.
It's a great question and.
I think.
The luxury being able to look back on to earlier cycles, where we were active participants in the market as the market recovered.
In both instances we were successful.
In acquiring existing assets.
Okay, so that long term value, but but at the same time locking in pricing on development yields which would be delivering in future years, which enabled us to essentially.
Ensure that adds value increase we were acquiring assets at attractive pricing now this cycle is radically different the past cycles and may play out differently.
But our expectation is that.
In the early phases of the recovery there will be.
An increase in in the number up opportunities that would be attractive to us our first preference though is.
Just getting back to cash positive.
So.
I think it would be reasonable for us to assume that while we are eager to pursue opportunities from a capital allocation standpoint, which would drive shareholder value. Our number one priority at this point is getting back to a position where we're we're producing positive cash flow from operations.
And until we get to that point I think it's fair to anticipate that we would be conservative and pursuing.
You know optional uses of cash.
Thank you guys.
Thank you.
Thank you. Our next question comes from Austin Wurschmidt with Keybanc. Please proceed with your question.
Hi, Good morning, everybody I'm wondering if you could help us understand.
Understand the difference between you know a hotel suspending operations.
Versus kind of the clustering strategy.
You guys have pursued and kind of quantify what that you know the benefit is where you're staying open but maybe not physically accepting yes, and if that's just provides.
Another source of demand I guess generator.
You know or marketing I guess benefit to some extent could you just help us understand that dynamic a little bit.
Absolutely and I'll take a stab again.
So as can correct me, where necessary, but bad but really I think it's important to look first at the decisions. We made for those assets that are.
Markets by themselves so.
We we have universally decided to keep our hotels open.
We went through a very detailed analysis.
To come to that conclusion and at the end of the date. The reality is one of the benefits of the select service.
Model is that our assets can be operated with very little staff.
Our our staff is cross trained our managers are our salespeople have the capacity to do laundry and.
Clean and turn rooms.
Provide foodservice and things and start which is a major differentiator and I think has proven to be a huge advantage as we looked at what we anticipated to be the duration.
At least the most challenging portion of the correct pandemic.
We assess each of our properties individually.
And decided that.
The difference in costs.
To stay open versus close was immaterial given a desire on our part to maintain sufficient staff in the assets.
To ensure that you didnt have a water league for a system breakdown because.
Long term damage to the asset.
On average that means having one to two people on property at any point in time.
And what we found is that that was sufficient SAP too.
So it's actually operate the hotel at minimal occupancy levels.
So that moving beyond that in markets, where we have multiple hotels.
And we have some occupancy.
We've been able to.
Gain incremental benefit by from a cost standpoint by concentrating.
The guests in a single hotel asset and in some markets, it's very easy where we own.
Dual branded asset or two hotels that are immediately across the parking lot from each other.
The nuances that reservation systems are open for all hotels.
And then accepting gas.
We're just concentrating the gas and want to hotel. So that we can we can better service them and service to more efficiently.
Yeah, I think another benefit is that we.
We continue to have as Justin mentioned the reservation systems opened but we also continued to retain a managers and in most cases as sales a sales person so 80% to 90% of our hotels have retained.
You know some sort of sales effort and so the momentum that we have as we come out of this we think will will be an advantage across the portfolio, whether consolidated or not.
And so in an effort to keep sort of.
The high performing talent and managers that that we have across our portfolio. The decision to completely closed a reservation system and close the hotel versus keep it opened and keep momentum going and keep the asset protected and maintained.
The benefits.
Outweighed outweigh the cost where as Justin mentioned, given our model.
You know unless we thought that this was going to last for an extended period of time and we would make further labor cut and really just bring and security you know and not being focused on asset protection or on sales efforts and things the sort.
The difference in cost was with fairly minimal and the again the benefits far outweighed far outweigh that.
No. That's that's helpful could you break out what the recent weak.
Occupancy detail is between your extended stay in suites product, which you know is over half of the portfolio and then what it is for sort of the balance of.
Of the portfolio.
I would say that for calling Cvs pharmacy, I would say that extended stay weather.
Whether it's the current week or even the trend.
For the past four weeks has been a 20 point occupancy.
Premium now keep in mind, we have where we've consolidated operations, we've consolidated into extended stay property.
By March and so that that helps that.
Two or three hotels occupancy or reservations and won but again that that type of product is definitely well suited for.
The type of business that.
We are getting at the moment with.
Many many retail and restaurants closed across the country.
With social distancing with extended stay.
Business being really what end markets right now the that specific product is it's a huge advantage for us. This suite products, an extended stay product and other select service or operating a little more similarly, although the bigger footprints and having microwaves and things like that and other suite products.
Certainly is benefiting but the big differential as they extended stay properties.
No. That's that's very helpful. And then I'm just last one I was curious if you guys did you incur any sort of.
Onetime severance or for low cost that you don't expect you know a on a go forward basis that you could.
Slide for us.
Yes in the quarter, we incurred I'm just over a million a half dollars.
And then one time for low cost.
Related to transition, which we would not anticipate.
You're not recur.
At this point.
Okay. Thank you appreciate the time.
[music].
Thank you. Our next question comes from Bryan Maher with B. Riley FBR. Please proceed with your question.
Good morning, just and then lids. Thanks for taking my question.
When it comes to the waivers.
That you're hoping to get.
Completed.
Thank you mentioned it and maybe this is a better question for lids distribution restrictions and I'm, assuming that would be on the dividends is that kind of an all or nothing restriction or is there going to be some formula in there that you could kick in at a later date, maybe in the first half of 2021 to where at some lower level.
I'll I'll speak broadly, but because we don't have anything.
Officially completed I'll, I'll I won't be able to speak too much to that but in general our lenders definitely understand our REIT status and that we need to pay out 90% of our taxable income. So you know I think that there will be some flexibility at a point in time, where were making money and would need to pay a depth dividends, but I wouldn't them ads.
And that we would be able to during the waiver period.
Hey outside distribution beyond that.
Okay, and then when we think about your ability to drive rate as markets start to reopen it and I suspect is the full service hotel competitors in your markets start to reopen their specific hotels. My guess is that rate competition, it's going to be pretty intense how are you guys.
Just thinking about focusing on marketing to the next one to two quarters is it via the brands via the Internet is it your sales managers, how how are you planning to address that.
But I'd say, yes to all of all the above right.
As highlighted the fact that we've retained sales staff at the property level.
Management companies have also recurring sales staff and are actively doing.
Direct sales efforts, both looking for business in the near term and courting potential clients for future business.
I think.
We had signaled over the past several calls.
Move within our company towards more online marketing and we'll continue those efforts as well, especially to the extent.
We feel we can attract leisure.
Customer sofitel switch.
Many of our locations are ideally positioned for that.
But I I think you know it's fair to assume that we will be leveraging all.
Mailable sales channels as we build back occupancy you know one of the advantages we have had historically as we.
Come out of more challenging economic period.
His select service hotels.
I have had an exceptional value proposition for a variety of gas, but user and business and you know appeal to a very broad group.
Weve signaled that our positioning within the flex service spectrum is particularly advantageous seemed kind of at a mid point, where during periods of economic prosperity people trade up and into our assets.
And during periods of economic difficulties, they have a tendency to trade down which has enabled us to maintain stronger occupancy throughout cycles.
We anticipate that will continue.
And we'll be aided in part by.
You know, what we anticipate to be a significant reduction new supply over the next several years.
Great and that's just last for me I'm guessing you mentioned the Carolina beachhead last week, and we're sold out and I think you said a 200 dollar rate you know as we sit here kind of a real time and kind of mid to late may add people and see to get out what do you guys seeing coming in in that bookings up similar type assets that you.
You might hold it is something that's giving you optimism as we approach June and July or would that kind of a one off.
I think you know as far as booking position goes it's it's last minute and so it would you know to stretch into June and July.
Maybe a little bit premature, but we are starting to see even if I just look at what actualized in the past.
Week, we are starting to see especially in the southeast in North Carolina, South Carolina, even Atlanta, and some Florida markets where occupancy.
Weekend occupancy is ticking up and so that that's encourage you know that's encouraging I you know I think across the country as restrictions are loose ends I think that people.
Who are willing to travel well and they.
Well get out and so I think there may be.
More drive driving traffic then.
You know people getting on airplanes, but but by and large weekend business I think into memorial day, and beyond particularly in the southeast where we're feeling a little bit encouraged.
Great. Thank you that's all for me.
Thank you.
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Thank you. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning, everyone.
Good morning.
Morning.
Following up on that question and somebody's market, where do you see reopening are you seeing any day.
Business return or is it so it's still too early to see that kind of business traveler corporate travel go bad.
I think the notable notable difference is so the uptick on the weekend.
In those markets, it's not to say, we don't have some base business, but it's still from sort of the sectors. We mentioned in our opening remarks that project business.
You know recovery business.
Medical traveling nurses things are the store, so I would I wouldn't I wouldn't say that we're seeing.
Really an uptick in BT at this point.
Got it what will the occupancy as of the weekend that basic cbm.
We have not share that but it is as we mentioned it in the prepared remarks, we had several days that were in.
Higher than the weekend they may 9th.
Got it okay.
And I'm like different trending more positively.
Got it okay different topic to the courtyard Denver, what drove the decision to not dope, where would that acquisition to be up.
The Gullberg, it's the way the project, what's your kind of overall commentary on how developers and you've got the environment now are you seeing cancellations.
More onerous financing, what's kind of the overall environment there.
So the Denver projects specifically.
We had been working with the developer for significant period time, so that that developers that same developer that southern attempt b assets and at Madison asset for us.
There had been complications and in that project and we were continuing to work through nuances associated with that adjusting room count because of you know.
Amount of land available shrinking and other things because that project had not yet started we had some additional flexibility.
Due to cancel.
And we've worked with the development to essentially put that project on hold.
Until you know until the market stabilizes then we have a better sense for what cost will be long term I think.
As we interact with others in the industry broadly speaking financing for new development projects.
Is as difficult as we've ever seen it to come by.
And for the most part developers are waiting right now in anticipation that the costs will eventually come down and they're also waiting to see where market settle.
To better understand what deals will make sense in the new environment.
You know I I think we are seeing some slowing.
Projects that are already under construction.
Depending on specific markets and restrictions that are being put in place relative to work crews.
But also related to delivery of products from our out of the country.
You know, but but on a go forward basis I think it will take longer for deals that are under construction to be delivered.
But you know the bigger impact for US will be said you know our expectation is that said developers generally speaking will be sitting on the sidelines.
Brokers have until markets begin to stabilize in their better able to underwrite book the costs and expected profitability of individual projects.
Did you expect to kind of a permanent change and how are these deals are financed you expect well be talking about more equity.
Coming to be kind of more about longer term headwinds wholesale develop generally as a result.
You know, where we have yet and we've been in this business for 20 years to see anything in a way of permanent change.
We have have seen extended periods of time.
Where it's more difficult to obtain financing.
Our expectation is that in the early phases a recovery.
Consistent with past two cycles that we've been through.
It will be more difficult for developers, especially new hotel developers to obtain financing.
Construction new construction.
To be viewed by lenders as higher risk.
Because you have market risk and development risks and you know our expectation is that in the near term.
Lenders will be much more focused on working through.
Working through nuances of deals they already have.
And less focused on signing up new deals.
Got it thank you.
Thank you.
Yes.
Thank you. Our next question comes from the line as Michael Bella Sorrow Oh Baird. Please proceed with your question.
Good morning, everyone.
Hey, Michael.
Just on that same topic can we drilled into the Madison deal, maybe where is that project in terms of development timeline in that I think you mentioned, a 21 delivery, but should we be thinking about it as of early 21 delivery or late 21, deleveraged trying to balance the potential cash outflow you might have in the near term.
That particular project was earlier and development when you have that make it there were also nuances associated with the site that had pushed potential delivery towards the very end of this year, even prior to the pandemic. Our current expectations are that it would be delivered.
You have to Barry and the first quarter or beginning of second quarter.
And again Madison is one of those markets, but it seems slightly tighter restrictions well.
Which is adding to the potential plays there.
Got it said, it's fair to assume you're going to move forward with that project irrespective of the environment, mainly because you don't have the same Alps like you did sort of the Denver deal.
That's correct the remaining development deals, but we have under contract how specific performance language and and you know absence.
And end of the World situation, where we became involved as a company. It's our our expectation that we when we would close on those assets.
Got it and then just thinking about the sources of capital I know a large cash balance today, but the plan was always so.
Hotels, the lower growth noncore properties to fund these deals.
Hi, how are you balancing the sources and uses going forward given that the transaction market is pretty much a standstill today.
They are likely to be understand so.
The six months from now.
Well year to date were perfectly balanced.
Our nearly perfectly balanced with the out.
First quarter sales funding essentially the C.
Project, we're continuing to received inbound inquiries I think.
Theres renewed interest in the hospitality space pricing isn't where we needed to be and I think it will take a while for the market to settle out you know we take a long term view to towards capital allocation and it's still in our view long term that said you will.
Funding.
The development deals with disposition proceeds.
So the timing of those trades made up perfectly aligned.
Right I think looking at what we currently have under contract and in our expected burn rate on a go forward basis, we feel very comfortable that we can manage our commitments or you know and maintain the operations and send the integrity of our Congress.
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Got it that's helpful. And then just lastly, maybe high level commentary on your management companies you ever.
A handful of more regional local focus operators can you give us an update on the health of.
Your third party managers and then just if there are any weaker ones any conversations you've had about maybe transition and then impact that might have on property performance near term or intermediate term.
I, absolutely and really first.
You know.
We we as you might imagine Vincent nearly constant dialogue with hard our various management company partners.
We have 20 management company, we work with a.
A portion of them are national a portion of them are resolved.
We've been incredibly impressed.
With.
Their ability to react quickly so the changes in the current environment, you know it and to effectively reduce cost dramatically across the board both in terms of property level expenditures and.
Corporate allocations, so we get for various services from them.
As we have interacted with them.
Fair in amazingly, good spirit, and generally or conversations around.
Longevity and financial status have been some very positive you know internally Weve had developed contingency plans in the of unlikely event that said any of them.
You know.
Became solvent because of the duration of the current crisis, but the reality is.
We have four of our management companies coming to us and telling US say would love an opportunity to take on additional management contracts extent, we had a need than we have management companies coming to us.
And telling us that that there and about position.
Where we were not as a company able to take advantage of.
Government.
In the form of PPP, along a number of our management companies, we're able to take advantage of the government programs, which has also helped.
You know to stabilize them in the current environment and enable them at the corporate level to retain employees that that they might have otherwise.
At the furlough.
Yes.
Got it that's helpful. Thank you.
Thank you.
Yes.
Thank you. Our next question comes from Tyler Battery with Janney Capital markets. Please proceed with your question.
Thank you good morning.
Good morning, good morning.
Hooper on paper was doing well appreciate all the commentary but as far.
Question just.
In terms of Capex spending right now I mean, you're pretty minimal levels.
Imagine the competition in your markets are doing the same can you remind us the average age of your portfolio and is it possible. That's a young the quality of your properties compared to the competition there was little bit higher heading into this crisis and maybe just an opportunity for you to take some market share.
So you said the easy answers the first and that's the average age is approximately 40 years.
We monitor effective interest well and coming into the crisis effective h., meaning time since filter last renovated was four years for our portfolio.
As you highlighted we've significantly reduced the number of major renovations.
We anticipate completing this year.
Cutting essentially 20 major renovations, which for anticipated happens.
In the summer and send towards the back half of the year, you know that said.
We also.
In many markets are running very low occupancy and so in the near term to wear and tear on those assets.
Not what it would ordinarily be which will help from a preservation standpoint.
But not in the way that we want to continue long term obviously.
We've been very strategic and acquiring assets.
That are well positioned within their individual markets that have advantages either from a location standpoint for.
Build out in terms of actual amenities and in most cases have both advantages. We have continued to redefine our portfolio through selective acquisitions and dispositions and feel really that were exceptionally well position both.
Because of the properties, we have but as I highlighted in response to an earlier question because of the management teams that we have on property to gain market share as we recover.
The fact that we've remained open and servicing guests.
Right the grade signaled to local accounts, especially.
We are at long term partner.
Willing to work with them and and we think will provide us with a meaningful advantage as we begin a more robust recovery.
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Okay. Perfect then what what percentage of your mix or your room count are located in markets that you think should appeal to both leisure transient drive to gas or or markets that you were going to there'd be more vacation oriented similar to the Carolina Beach courtyard for example.
Oh interesting question I think from a drive to standpoint, I know we it.
In thinking about.
I mean, most of our markets have a component of local negotiated business or you know inbound.
Somewhat leisure weekend business. So I think many of our markets will appeal.
Just from a drive to and leisure standpoint, now to what degree will depend on the leisure attractions. I think you know, we certainly don't have a large percentage of our portfolio that has direct access to be just but we do have some and we have a lot of Florida markets and a lot of California.
Markets and access to beaches here in Virginia, South Carolina, and North Carolina, So I think.
You know I think we do have a strong presence I think one other things to think through two is just the urban versus suburban mix of our portfolio, we have seen strong outperformance.
On a relative basis I guess.
With our suburban versus urban portfolio and the industry has seen the same thing suburban having the highest absolute occupancy for both the industry and us.
I think thats, a big differentiator as well as the makeup of extended stay.
Yes.
Okay. That's all for me thank you.
Thank you.
Yes.
Thank you there are no further questions at this time, so I'd like to pass the floor back over to Mr. night for any additional closing comments.
Thank you we really appreciate everybody joining us this morning I've highlighted in the past.
But I'll do it again today to the extent you are traveling and we hope that you are or will shortly we hope you take.
The opportunity to stay with us at one of our hotels be safety well, we look forward to talking to you can shortly.
Yes.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.
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