Q2 2020 Pebblebrook Hotel Trust Earnings Call
Greetings and welcome to Pebblebrook Hotel Trust second quarter update call.
Time, all participants are in listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star there on your telephone keypad.
Please note this conference call is being recorded.
I'd now like to turn the competition, but your host remarks. Thank you you may begin.
Thank you Rob and good morning, everyone welcome to our second quarter 2020 update call webcast. Joining me today is Jon Bortz, or chairman and Chief Executive Officer.
Before we start quick reminder, that many of our comments today are considered forward looking statements under federal Securities laws. These statements are starting to numerous risks and uncertainties I described our 10-K for 2019.
<unk> SEC filings in future results could differ materially from those apply bard comments.
Forward looking statements. We make today are only affected as of today July 1st 2020.
Undertake no duty to update them later, you can find or does he see reports and our updated released an investor presentation, which contain reconciliations of the non-GAAP financial measures. We use wonder website a couple of work he tells that comp.
The purpose of our call. This morning is to provide an update on our second quarter operating trends, including reopening of our hotels <unk> resorts. Since we last updated you went really Matt you will also provide or updated cash burn rate as a result over hotel Reopenings first as you Hope you saw this morning, we successfully executed an agreement with our banks.
Instead of financial Covenant waivers and an extension of most of our November 2021 debt maturity to November 2022.
The agreement provides a waiver of all of our financial covenants through the end of the first quarter of 2021, starting in the second quarter 2021 until the third quarter 2022, we will have relax financial covenants for a handful of our most important credit terms.
This will provide us with an extended period of flexibility as a hotel industry recovers from this global pandemic.
We think our banks are private note holders for a strong support.
Also the Green It provides an extension of 242 of our 300 million November 2021 debt maturity out in November 2022.
The remaining $58 million is our only 2021 maturity.
Fixing this extension provides us with enhanced liquidity over this uncertain time.
Although we will have some limitations on our use of cash during our waiver appeared we have the flexibility we desired with capital renovations acquisitions and investments, while also allowing us to continue to pay our preferred equity dividend.
Or one cents per quarter common dividend.
We will be filing the detailed amendments to the loan agreement. So if you have any questions. Please feel free to give me a call.
Shifting to our operating trends as we noted in our press release. This morning, we reopened seven resorts between late namely June meeting all eight of our resorts are now open as it were open as of June 20 said.
Within just a few days, we expect out of 23 hotels <unk> resorts open which marked significant progress front lit ne when we only had eight hotels open.
As a result of this encouraging progress we estimate or average monthly cash burn has been reduced from our worst case scenario. Previously provided is now running approximately $3 million lower implying or total average monthly corporate cash burn is now at $22 million to $27 million.
As a reference at the end of May be a cash on hand at $627.5 million.
I want to turn the call over to John Doe to provide more detail on our operating trends in our recent hotel Reopenings John.
Thanks, Ray and good morning, everyone.
That's right you indicated we've made significant progress, bringing our business back up and running following the government ordered shutdown of the economy and of course travel.
Hotel demand clearly bottomed in mid April and it's been returning gradually and consistently over the days and weeks since then.
Leisure is leading the return of demand as individuals couples families and friends looked to get away for vacations.
As a family members or just escape from their home shelters.
Not surprisingly well air travel has also been gradually and consistently recovering.
Much of the leisure travel is by car.
We're seeing strong demand for weekends at our eight drive to resorts in particular.
Well, we're also seeing some weekend demand in the cities where were open including at our hotels in West L.A.
San Diego and most recently in Boston.
And mid week leisure demand has been recovering as well.
A school season has ended.
That recovery is showing up in gradual and consistent growth and would midweek occupancy is throughout our markets.
In addition to the information we provided in our release this morning, I thought I'd provide some additional anecdotal data.
Certainly we have some positive and encouraging results.
Last weekend, a number of our resorts hit occupancy is for at least one of the nights eightys and ninetys, including both of our key west resorts.
Southernmost and marker harbor fraud.
Which both had nights in the Ninetys.
In fact marker had both nights at 94%.
Paradise point, which is a large resort.
Mission Bay, San Diego has 462 keys.
On Friday at 79% and Saturday at 88%.
With a weekend rate and a strong $328.
Well bears del Mar in Southern California ran 83% on Saturday night, and the weekend at 78%.
501 dollar average right.
In fact as shown in the information we provided this morning in our press release and Investor presentation.
We're not discounting at our resorts and we ran average rates in total at our resorts that were higher than last year.
And these are not low rates, our resorts ran an average rate of over $347. This past weekend.
And southern most and marker had nights over the weekend with Revpar is higher than the same weekend nights last year.
We've also begun to see some business travel return in our markets and at our hotels.
So I'm entertainment business is returning in west L.A. as production restarts.
With some foreign production returning to outlet.
We've also begun to see some project business return.
The other business, which can only be conducted locally or in person.
A few small groups have met for business.
And a few small weddings had moved forward.
In fact, we had a 50 person wedding at Skamania Lodge, just this past weekend.
But the return of any meaningful group business as well as any medium to large groups.
Still likely a long way off.
Particularly as our country is experiencing a resurgence of virus spread.
Cases, and hospitalizations in many markets.
And of course, this resurgence could impact the recovery in all travel, including leisure. So we're keeping a very close eye on transit cancellations and bookings.
As a result of the overall gradual and consistent recovery in demand we've experienced in many of our markets.
We have or shortly will reopen three hotels in Westell I.
Two additional hotels in downtown San Diego.
Two additional hotels in Boston.
And one each in Miami and Chicago.
That will bring us to 23 opened hotels and resorts.
Including all seven are a bar hotels and resorts in San Diego.
Reopening additional hotels will continue to be based on the ability to achieve occupancy levels and revenue.
Allow us to reduce our losses.
And cash burn compared to remain in closed.
That will not only depend on city governments progressing with their reopening plans.
But business and late and leisure feeling comfortable traveling.
In the meantime, well continue to maximize the performance of those hotels open.
And minimize costs at those hotels that remain close.
This will allow us to continue to lower our monthly cash burn.
As has occurred over the last two months.
So with that we'd now like to move to the QNX.
Rob you May proceed with questions from our distinguished listeners.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad <unk>.
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My first question comes from Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning.
Good morning, Anthony.
<unk> <unk>, you mentioned that you're looking at possible a slowdown of transient bookings given the rising told me cases in the country have you seen anything to debate and indicates that year that companies are starting to pull back a bit.
Just yesterday.
We saw some.
Cancellations down in key west after they announced the closing of the bars.
At both of our resorts and that that was.
A level of cancellations slightly above what we've generally been saying a lot on a daily basis. So.
That's the only thing we saw in the portfolio, we did not see that on the west coast.
But we did see that in key west.
Got it and I guess of my next question Yeah. A lot of these statements are you considering I guess indoor dining given some indoor spread were seeing.
How important it indoor dining gena I listen to the hotels now and what happens to your property that today.
California word a band indoor dining are scaling back anyway.
Yeah, you know it's interesting it it it might actually help us Anthony because our resorts are the most part have outdoor dining.
At had at all of them.
Whereas art art urban properties that are open we're actually not doing any dining at those properties. So so banning indoor dining wouldn't have any impact pretty much anywhere within our portfolio, Alan and possibly a positive impacts from a from a competitive.
Perspective.
Got it maybe just one more in terms of urban hotels, Boston, Chicago, but what are you seeing better in terms of before bookings and dollar you back to Q.
Yeah, I mean, the idea of forward bookings I think I would just throw away in the garbage right now.
What we're seeing throughout the country is you know for the most part bookings within a couple of weeks.
Including quite a lot of bookings in the weak for the weekend and even in the day for the day and that includes the urban properties I mean, our property EM.
In a in.
In West Hollywood, Montrose, which has been open throughout.
You know is seeing as much as 10% occupancy pickup in the day for the day so.
I don't know if that's just in some cases people wanting to get out of their houses if its people deciding to drive up that day and.
And stay overnight you know it it.
It's hard to say since we're limiting our contact with our customers as much as possible because that's what they're looking for so there's not a tremendous number of conversations that are going on with our with our customers.
Alright, thank you.
Our next question comes some already Klein with BMO capital markets. Please proceed with your question.
Thanks, Good morning, I mean, maybe can you talk a little bit about what you're seeing aren't performance standpoint, where they're talking to your aer at your knowledge. Our property you obviously it sounds like <unk> demand trends are pretty healthy at the retail properties, but just curious what you're seeing saying at an honest darts.
Yeah. So so the at the urban properties, we had what we've seen.
Since mid April as is a gradual increase in occupancy. So I think in in mid April we got down as low as you know, 4% on average occupancy levels and and those have been growing pretty consistently a sense and we started to see those run up into that.
Twentys and even even Thirtys, we've had a few days in the fortys depending on.
The individual market.
Right rates are generally significantly discounted.
A part of that is is mix, we are still in some markets accommodating health care demand and those are at.
At a low rates and then the the additional customers.
Our rates, what we're seeing in the market is rates significantly below last year in those urban markets now weve in general, but increasing that was rage gradually.
Bye bye $10 a week as an example in a number of our markets and and and we are getting traction.
On those on those rate increases but.
We're we're a long way off we don't have the highest rated business. Obviously, we don't have a lot of corporate transient we don't have a lot of bar rated business right now and in the urban markets.
Thanks, and then yes cars the waiver agreement.
Any additional vitale confirmed by on the M&A carved out in there and then just broadly when do you expect that M&A markets become more active there been any kind of narrowing between bid ask spreads.
Sure. So are you just some details and we'll be filing that the full attendance.
Later today.
For all the details if you haven't quite different questions, but.
For additional acquisitions and investments we have the ability to complete up two additional $600 million now it's in a couple of buckets.
One is we have reinvestments of assets. So if we sell an asset we can does take that capital to reinvest into new hotels. So we've got the $200 million of reinvestment assets.
Up to $300 million up new acquisitions and that will be provided through.
An equity raise its complete those and then we have up to 100 million dollar simply other investments where this is a investment in a joint venture where some others sort of investment in a another asset or entity. So 600 million total industry different buckets for for all of that.
And our in terms of the that you're a question about bid ask spread.
There's not much on the market, we're starting to see some foreclosure sales.
Awesome noted sales some some mezz position sales.
Within the market, but it's still a relatively limited at this point as there obviously a lot of discussions going on between lenders and borrowers.
But and outside of that really not not much on the market that's being offered.
But by equity holders.
You will so hard to measure at this point, whether there's a spread at all between a buy and sell it if there's not much on the market.
Great appreciate the color.
Sure.
Our next question comes from Rich Hightower with Evercore. Please proceed with your question.
Hi, good morning, guys.
Good morning.
I was straining to come up with a clever joke about Christie brinkley in a Ferrari given the hold music, but I just couldn't come up with one summing up I'm going to move right to my question [laughter].
So you know I'm eyeballing some of the resort data that you guys put into the deck here and you know in some cases I think in every case actually the the weekly 80 ours are are far above what was achieved last year. So I'm wondering just on that topic of mix I mean are you.
Are you just sort of compressing a hotel given given limited occupancy or are those rates representative of what you think a sort of normal run rate might be or how do how do we think about how you're starting to sort of getting to those rates at this point.
Sure. It's good question. So so part of that is.
Next.
And and part of that is just regular demand and and revenue management, we're offering.
Our regular bar rage, Gerard transient rates.
Well at various levels, primarily above last year's last year's offerings and what we're finding.
Is.
You know most of our business is coming through.
Direct channels and and much of it is purchasing bar rage.
And and or length of stay packages and what were what we don't have is the discounted business.
Group at our resorts generally prices below trend Jim.
And we don't have any F.I.T. international business.
Typically comes in at lower rates, because it's done through a the wholesalers or the the.
The the major package of providers, so because of the mix change, we're averaging rage that are higher than last year and I think that is telling you that on the weekends and to some extent during the week.
We are seeing transient offset.
Group and those other those other channels.
That we use last year.
You got to high occupancy levels.
Okay got it that is that it's helpful and you know maybe just thinking a little bit ahead I know, we're playing this day to day week to week at this point in time, but you know leisure demand seasonally a strong right now what are your expectations for the fall when when you know the businesses more depend.
And on corporate transient and group traditionally and you know, we just don't know where things are going to be.
In terms of second wave shutdowns, if that happens and what do you what do you sort of foresee at that point and then how do we contemplate the possibility for for renewed sort of closings of hotels, if it ever came to that how do we think about that.
Yeah, I mean, it's it's its certainly something to think about I don't.
And I don't have a crystal ball about how this healthcare crisis is going to continue to play out.
So I don't know, where we're going to end up in the fall.
It's interesting one of the things. We're seeing is is we are seeing people who.
Who look I'm doing this I'm in California, right now or will be out here for 17 days I'm working from.
You know I'm working from San Diego or L.A.
From my hotel or or resort as our some other people that we we've seen a around the property and and so there'll be some pushes and pulls from it obviously, we'd love to see that the health care part of this mitigated so that.
More folks can feel comfortable on traveling at the end of the day, but.
So our schools going to open in the fall how much flexibility will people how are they going to go back into the office I mean, it here in L.A. I spoke with some folks they are reopening their offices, you know, they're bringing in 30 or 50% of their people on a daily basis.
Other other businesses, our remaining with work from home so.
Rich I I, just it's hard to prognosticate <unk>. The one thing I feel pretty comfortable about which unfortunately is a negative but I I just don't see major group coming back this year.
Doesn't seem like we're on a path.
From a health care perspective in fact in some places as you indicated.
We're going in the opposite direction.
As we get these flare ups and I suspect that's probably what we're going to see for the most part for the next few months.
Okay. Thanks for the color John.
Our next question comes from Wes Golladay with RBC. Please proceed with your question.
Yeah. Good morning, guys. So quick question on the $300 million a potential acquisition is tied to an equity raise would that be any type of equity wed.
Probably more so dispositions at this level with the stock is and for the national asset that is pending sale would that be included.
Yes, so just as to be clear.
The $300 million that's for common equity raise isn't just because we had the ability to do that in the flexibility doesn't mean, we're.
Do it has to be facing opportunities and clearly at these prices with no.
Desire here for raise equity and then your question on getting Nashville. So for example in Nashville sale.
If that is completed we could designate dot is a reinvestment asset.
If we choose to use that for additional acquisitions or the apart from the 300 million dollar acquisition bucket.
Okay. Thanks, right Oh, no look enough that 12 to 15 million hotel cash level burn for the balance of the are now is up front half loaded I would imagine and I guess, how would you see that into your baby in the fourth quarter.
Yes, well, we do our best as we noted here, it's hard to forecast month to month, let on week to week here. It's our best guess based on what properties are trending right now with the resorts and.
Looking out for the balance of the are assuming no additional hotels are no improvement in performance.
I would still bring us with liquidity.
In the range of.
Overthrown $50 million upwards of $400 million and liquidity. Just so you are clear is that that's all cash plus availability, we have under our $650 million credit facility.
And I get it was numbers don't include the Union station disposition numbers, but okay, and I guess, maybe looking up the the hotel <unk> your guidance Embeds, some sort of opening plan for the balance of the 31 hotel that are not said no idea if and only adult.
It does in West we were playing this day by day and and week by week. So I'm just since it's similar to my answer to rich, it's impossible to forecast and so what the only thing we're forecasting is that the sort of pace.
The existing performance.
Doesn't worsen so.
That's the reduction it's based on primarily the resorts.
You know turning EBITDA positive in June and continuing to be EBITDA positive at the same number not that any kind of improving number would certainly could be the case over the course of the summer, particularly as we we literally open five of them in June.
The last one opening on June 25th which was just a few days ago. So the fact that they've turned EBITDA positive. So quickly is an indication of the strength.
Of leisure demand and the attractiveness of drug to resorts, but it doesn't we're not currently driving.
At positive EBITDA on the urban hotels, yet that we do have a couple of them that upturn EBITDA positive.
Okay. Thanks, a lot guys.
Well thanks Rod.
Our next question comes from Michael Abella, several with Baird. Please proceed with your question.
Good morning, everyone.
Good morning.
And just along the same lines on the other 31 hotels is it possible that some of those remain closed for the rest of the year and how are you think about maybe contingency planning for those 31 properties at this point.
Yeah, I mean again, we are taking a day by day.
It would be speculating on our part I mean could they be could there be some of them closed through the full year, yes, I'd make a particular note of San Francisco.
Which you know the only city and in California that has not reopened for leisure and tourist business.
There are at their lagging behind a significantly not because.
Of health care, you know a resurgence, but just because of their very conservative approach.
To reopening and not for me to judge, whether that's right or wrong, because I'm not a health care expert.
The the challenge that were most concerned about in San Francisco is it is a recent ordinance that was.
It is being hurt by the board of Supervisors in San Francisco that was a that's being urged by a unite here and Sci view.
To adopt a set of a pretty.
Wildly extensive and unnecessary cleaning standards.
And purely frankly as a jobs bill.
Which will have the opposite effect unfortunately, meaning the the level of cleaning, which is not supported by science or by the CDC.
Goes to a level that causes us to to increase our reopening occupancy requirement.
From on average about 10% for our hotels in San Francisco.
Which is readily achievable if they reopen the city.
To something closer to 35% to 40% or more depending on the property in the market.
And that just means our hotels are likely to remain closed.
Until there's that much demand in the market and.
For an urban market.
That's a pretty high level of.
Of demand were clearly not seeing anywhere near that anywhere.
In the United States and.
With a major group conventions not happening this year.
Corporate.
Ah that's unlikely to be.
Sort of released if you will end in size.
In the fall.
You know, obviously, our concern would be that.
Getting to that level of demand is not likely and it means that we keep our hotels closed in fact, it it would likely lead us to close the two hotels that we have opened that are running you know 10% or so.
Slightly better than that at one of the to where we have an international crew but.
The supporting demand in the market is only about 10% and.
And so that's that's the one market we would highlight as.
The most concerning primarily because of this.
Legislation and the.
The conservative.
Nature of their reopening process.
That's very helpful and.
Slightly different topic, I know it might not be comparable to prior years given.
Everyone's flexibility to travel what's what's the typical leisure next or makeup of the portfolio.
To Q versus Threeq you.
I don't have that data Mike we can we can take a look at down and get back to you but.
For the year leisure runs you know 35.
To 40% in total in the portfolio so it definitely would.
Generally run higher but I don't know that you can you know that you can count on leisure.
Coming back into some of these cities right I mean are I don't see leisure.
Coming to New York, This summer and and.
Boston, and San Francisco, and and some of the major cities, we will see it in San Diego and are seeing it because of the leisure activities in the city. The the opening of the restaurants the zoo, though.
The other entertainment facilities, the water and the weather.
But but.
Projecting that into.
You know New York.
In San Francisco, as examples or even DC, which is been.
Slow to reopen its just not something that that.
Anybody should be doing at this point.
Got it and just look last quick one for me is the national sales still on track and then.
Fair to assume though sale proceeds go to pay down the remaining $58 million. That's on the November 21 maturity.
Well that the the sale is continuing to move forward that there's no expectation at this point that it won't happen the the buyers hard there.
There there.
They're working on the transitions et cetera and.
The hotels going to remain closed until they on it and then they're going to reopen it so.
But no it's not it would not be appropriate to assume that that's what the proceeds will be I mean first of all that's a year and a half away.
And and so the minor amount of maturity next year I wouldn't be too concerned about that at this point, we have plenty of liquidity to pay it down if ultimately we can't replace it or have an extended so.
Uh huh.
The use of the proceeds.
For the moment.
I would be used to pay down I presume our line or just sitting in cash.
Got it that's helpful. Thank you.
Our next question comes from Shaun Kelley with Bank of America. Please proceed with your question.
Hi, everyone. Good morning.
John You mentioned something pretty interesting as it relates that ordinance in San Francisco, and it's sorta hits on a broader theme that we approached on a earnings call that I'm. Just curious now do you have a few more hotels up and operating which is you know what have you kind of learned or seen so far on in terms of the cost structure is as you kind of move to reopen <unk>.
And this is more of an operational question right just on moving things around I think early on the response was that I guess, one at a pretty normal experience and behavior on is that continuing is there any differential between on urban and ER and resort properties or just kind of what do you see in at hotel.
The margins as as we put together some of the pieces on a few weeks further.
Yeah. It's interesting you know HL Angels released a survey that they just did and it's pretty consistent with what we're finding which as you.
You know something on the order of about two thirds of the gas.
I don't want to anyone entering their room during their stay.
I would say that's the case whether.
It's a resort or an urban property.
But based upon again this is our anecdotal evidence it's there.
Survey information, but I don't think their survey.
Uh huh.
You know tries to.
Differentiate between resorts and then an urban hotels.
I also think we're starting to see a bit of a change and customer behavior, where with more states coming out.
Either requiring or strongly urging people to wear masks, we are seeing more of that our properties in most cases do require folks to wear masks as they.
Enter.
The restaurants, even the outdoor restaurants, but then of course, when they sit down and eat you can eat with a mask on that yet although I've seen some new masks with little holes for straws. So.
<unk>, probably something that was created for bars.
At the end of the day, but in terms of the cost Sean I mean again Weve <unk>. Our models are trying to adapt so that we are mitigating you know the losses that we have and what were your what we're doing primarily is a lot of <unk> a lot of job sharing where we.
We can do it.
Certainly at the non Union properties.
We're doing that having managers work shifts frankly, because in many cases, they don't have a lot of things to do you know our sales agents.
Are still they still plenty of time to work shifts as opposed to do.
Sales efforts, because there's not a lot of in the year activity going on right now that's real.
And and so what we're finding is we are running more efficient.
We have to at this point in time in order to bring even the people back that we've already brought back it by mitigating that that the losses that we have so.
So we are we are.
Not offering.
Cleaning during stay overs add a I think pretty much all of our properties and then of course, if but we're providing whatever service you want if you need extra tells will bring your child's.
Many cases, we have.
Either knocking drop or we have carried out if we have a restaurant that's operating on the premises and otherwise you can order from through grubhub, or postmates or whatever and and pick it up in the lobby for delivery. So.
From a cost perspective.
At this level of revenues were going to run.
Lower losses or or or or more positive cash flow than we would have last year with the same level of revenue.
That's helpful. John and then the other kind of question I have is just as you think about the demand side.
Obviously, the your commentary on the bar rates and just the natural mix shift is is pretty interesting.
Anything else.
Brooks doing in terms of the ability to maybe target.
Lee you know even more long stay you know a tight tight gas I think there's been some some people that have been somewhat successful in targeting a little bit more of an extended stay type traveler, meaning you basically get into almost a a crossover to you know sort of short term residential component, but is there I'm sure you're looking at every stone.
And so any success or failure isn't in you know attacking a vertical like died or what some of the risks could be in doing that.
Yeah, I mean, there's a there's a few things we're doing its more successful in some places than than others.
We certainly are encouraging leg length of stay in so the one place where yields you might see quote discounting would be it the resorts would be to encourage those weekdays bomb, but encouraged them only through length of stay so if you're staying one night during the week day, there's no.
No discount, but if you're staying three.
You might get 10, or 15% off et cetera, the longer this day the bigger the discount.
And in some of the urban properties.
We have been targeting some longer length of stay both health care and and non health care. We've had some success with that you know in West Hollywood.
And we just opened our our second property that.
<unk> is all suite slow Park. In addition to Montrose, which has been opened the whole time.
We are targeting longer length of stay and we've had some success with that with folks staying multiple months. Some of that is you know somebody's renovating their home or building, a new home or they they've moved to the area, they're looking for a home and they're gonna stay a month or two or three.
We certainly do have some of that and have been targeting it and have the properties for it where we have you know I mean compared to.
A new York apartment, if we have 600 or 650 square feet.
With a full kitchenette in a stove and and microwave and et cetera sink.
Separate living room from bedroom, we are seeing takers in that regard, but it's not enough at this point would be material in anyway, and I don't know.
I don't see the hotel shifting to.
A monthly leasing model, but the one thing we have seen.
Sean is there there is.
There is demand in some of the markets.
For.
From the colleges and so we are we are.
Looking at.
In some cases competing for a business that might run.
Four months or might run eight months if its.
Two semesters and that business would obviously be at lower rates, but it would be without services.
As well so.
It would definitely be a good replacement.
For business that.
Particularly group that we just don't expect in this year.
And John that's effectively.
To be able to spread people out from dormitories and double occupancy is that sort of thing in some of the really highly compressed yeah, yeah, it's to reduce its to reduce density.
And in some cases interaction so in one case business, we're competing for.
It's it's a college of a university.
Its you know, it's a hundreds of rooms, so actually do their classrooms on the premises and they'll do their meals on the premises as well.
So.
To me it sounds a little like a jail, but hey.
That's not [laughter] not not for me to judge no.
But in the brochure [laughter] I don't think they'll be locked in the property by the way, but [laughter] understood. Thank you very much.
Sure.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we pull for questions.
Our next question comes from Neil Malkin with capital One Securities. Please proceed with your question.
Hey, guys good morning.
Good morning, Neil.
Hey at first off I, just wanted to say I hope.
Statue in the Sam add to the surpass Sir Francis Drake bar doesn't get torn down this weekend.
[laughter].
The I'd be a challenge because the hotels closed and boarded up so I'm not too worried about that but that yes.
You never know, though yeah no.
And I see the other question or first question is.
On the earnings cause all companies, it's kind of given initial thoughts on.
What talks with brands will be in the sort of new restructured operating model as we emerge from.
The cobot pandemic one of the things that was talked about a lot as is a pretty significant change in the FNB.
Outlet or Avenue and in totality and I'm just wondering on your non room revenues like FNB other especially at some of your larger properties. How do you see that playing out or do you see I eat that model sort of being reef reconfigured.
On to adjust for for example.
Last groups, you know lower quantities of groups last density restrictions.
You know, maybe lower minimum spends et cetera.
How do you think about how that side of the business.
Well.
Winds up shaking out.
As we gather the pandemic and maybe more over like a long term basis.
Yeah, I mean I I.
[laughter].
You have to tell me, what the world's gonna be like what they health risks are gonna be like what is post pandemic mean and.
If if but our view would be.
And that we get to the point where.
Hi, Good 19 is equivalent to the flu.
In terms of outcome.
Potential outcomes than my our answer would be it's pretty much going to go back to the way it was a in in terms of.
Group business and and we don't really see.
Any kind of secular or structural change in.
In the desire on the part of businesses to need in fact, we would see a likely increase.
If if in fact there are.
More people working from home or people, who work from home, one or two or three days a week versus non.
Before theres, an increasing reason to get your people together.
Promote your corporate objectives your goals your culture.
Which is going to be harder to do if everybody is not in the office at the same time.
So we actually would see a greater reason for businesses to get together.
I think I do find it.
I don't know to some extent amusing that.
There's so many positive comments about technology that I think only.
Works.
Partly.
And I think it's a great video can be a great replacement for.
Telecom firms, but I don't know that it's much of a replacement for in person.
In general and it it doesn't work that well it's not like.
Sitting down having a drinking and it's not like going to a convention and having casual interactions that frankly are usually more valuable than the planned.
Meetings and interactions.
And so.
We're not really planning for.
You know things to be totally different now we're going to take this day by day week by week month by month as we mentioned.
And we just have to see how it all plays out we don't know.
I think things will be done differently.
I think that this.
This will change some customer desires I think people have gotten used to ordering meals online I think we can do a lot more personalization.
Group meetings than than having you know abroad. The phase I think we'll be able to do that hopefully less extensively and provide a better quality product and service at the end of the day.
I think Uh huh.
So yes, I think it's the outlets I think it's room service I mean interestingly Neil.
For properties, where words, <unk>, where we're still operating call. It room service, it's obviously not can drop right now.
But.
The demand for that not surprisingly is off at our properties right. More people are there are plenty of people, who would rather have their meal in their unit or on their patio or their balcony as opposed to going into a restaurant and sitting down even if it's an outdoor restaurant in many cases, so we we've seen an increase.
And that we've seen an increase in parking everybody is driving our parking revenue which was on a.
Pretty pretty consistent decline is now increasing.
And at our properties and where we've had valet weve, where we can we've we reverted that to self park and put in the equipment to do that so I mean woke will continue to make changes as we go along I haven't seen anything come out of the brands, yet and I and I wouldn't expect this to say here's how things.
We're going to be on the other side and that's because we're still trying to figure out how things are on this side of it.
And how we operate so.
I'd Love to tell you have we we have the answer for your question, but we unfortunately, we don't.
Now I understand it's pretty tough I I kind of just more referring to when you know the sort of FNB at call. It the that your your branded properties that have a you know buffet or maybe a couple of outlets. We've heard you know shutting down nonprofitable or reducing buffet, reducing hours reducing amenities offer.
Has the potential things like that could come out of and I just wonder if that's the case.
And you've reduced you know.
A lot of the other revenues in the hotel doesn't that bring down.
With that.
On an absolute basis, you know potentially for a long long term bases are permanently.
Yeah, I don't I don't think so I think it would it would have the the impact you actually were you mentioned in which is.
The ability to reduce things that are on profitable.
I think I think that will increase.
I think.
You know you're going to [laughter], you're going to see far fewer FNB outlets in hotels in New York and many of the major cities because.
They're they're unprofitable or their marginally profitable and.
And the amenity can be provided a easily and quickly.
Through delivery or carry out that people have gotten accustomed to so.
I do think it's accelerated trends just like it's accelerated online retail at the end of the day I think we've we've accelerated the use of apps you know if you go into many of our restaurants at our resorts.
Their touchless now your your menu is a QR code you read it on your phone and new order off of that so you know does that reduce costs. It does I mean, we don't have to produce menus for for the most part anymore. So they're going to be advances in technology.
That help a that come out of that that come out of this this a pandemic and there'll be more mobile check in though ultimately be fewer people at the front desk.
You know I believe in five to 10 years, you're likely to have almost nobody at the front desk and it's done through and video interaction if you need it.
At the end of the day with a person as opposed to with a robot.
[noise] <unk> type appreciate that last one for me is are you seeing any.
You know differences are disparities.
And your hotels are open.
In terms of business travel I'm sure, there's very little audit, but have you noticed that potentially your smaller accounts you are more local or regional accounts are back on the road as opposed to the larger Facebook I began googles of the world just given the.
The larger companies have.
HR legal yes, G., you know sort of implications, whereas.
Bob boating, probably doesn't have that are you seeing those things play out or is it hard to discern those things from from our your data.
Well I I would say the the that the business that we're seeing and again, we don't we don't know why everyone. There certainly that somebody's there for for multiple nights, there's likely to be some interaction and and we can find out why someone there and who they work for in some cases were.
Not seeing much come through our corporate accounts.
And we see that through our corporate rate or the rates being utilized so that certainly is easier to to see and there's not a whole lot.
There, we are seeing a little bit of project business.
In in a couple of our markets and and again that comes through.
The corporate booking code.
But but yes, we are seeing more local accounts that are obviously is where we put more efforts. They don't have those kinds of restrictions you mentioned there are more flexible we're seeing business in advance or production in L.A.
Both in terms of some crude business some production crew business as well as the actual actors and performers. So that that's more of the kind of business that we're seeing a if you. If you have technology, you're installing it has to be done.
In person on site.
Somebody's coming in for that and and staying for that so we.
We are seeing that kind of business.
Thank you.
Your next question is from Gregory Miller with Suntrust. Please proceed with your question.
Thanks, Good morning gentleman.
Good morning, I'd like to asked a question Hey, I like this couple questions on Capex.
The revised credit agreement seem to suggest that your im still not resuming a pre kobe 19 level of our capex spend.
Do you consider the back half of 2020 or early 2021 preferred time to take advantage of potentially lower labor and material costs versus say.
Pulling out and perhaps approaching ROI capex and later 2021 or beyond.
Yeah, So we've built into the ER.
The arrangement with the banking group or the ability to do a number of projects.
That were part of our plan.
And that is in a those projects.
Uh huh.
Somewhere I think for.
Four to six projects.
That we could move forward with should we choose to we haven't made decisions on those yet Greg we want to see how.
It plays back how things play out.
How does the recovery go how does that help situation advance.
I would tell you that yes costs have come down.
And we.
On the other hand, we also don't expect them to increase.
Over the next several years, because we think a capital investment is going to be restrained.
Particularly in the hotel business.
Over the next few years, so I don't think Theres, a rush to do these to take advantage of lower costs and unfortunately in many cases, particularly as it relates to the two just some of the urban markets.
We don't think Theres, a rush to avoid displacement because we think.
There's not going to be a lot of displacement over the next.
At least 12 months.
In those projects so.
We are prepared to move forward, we've been moving forward with design and approvals and permitting.
So that we're in a position to be able to pull the trigger and move forward, particularly with any of the closed hotels already when we had projects scheduled where we could roll right into the renovation a wall the hotel remains closed.
Two at less expensively and more quickly.
And and not have much impact on on operations should we do have the flexibility there to move forward with a number of projects that we discussed.
Last quarter and.
And.
We'll just have to see whether that's the right decision.
Based upon how things play out.
Thanks, and just a quick follow up.
On the same topic.
The the once you release a lot of the projects to your listed.
That were in repositioning phases were expected to be completed around the end of second quarter.
Is it was that timing intact or a lot of these hotels now completed in terms of the renovations or has that been pushed back I'm somewhat and to this quarter.
So there there's well they proceed and.
Some of them or have been completed so I just toward last week, our properties down in San Diego three of them are complete the west and a gas slab.
The embassy suites, and the San Diego Mission Bay Resort, which we completed and then reopened on the 25th the June. So those are done they look spectacular customer response seems to be pretty good.
I was pretty impressed frankly.
Of the quality of the work and I think the properties look great and that'll help them moving forward where.
We're probably.
A month behind it the viceroy in Santa Monica.
Due to just work crews being smaller than than where they were before.
And but we don't have plans to open that hotel just yet anyway that should be completed by July 15th So couple of more weeks.
And then in DC.
To the Viceroy.
The one that will be converted to the viceroy Dee Ann Mason, <unk> rook and the Donovan, which has been converted to xena. Those are both wrapping up this month originally they were scheduled to be.
Zeena was scheduled to be done by Memorial day, again, with smaller crews and and delays in delivery and.
And other impediments that came up slower response from the district on on inspections.
That will be done this month as well.
By mid month, and then Viceroy same thing so.
However, we have yet to determine opening dates as as demand than in the district has has been a has been fairly minimal.
In the market.
So that's it.
They all get done and all get done at this point bye.
Oh by the end of July and with no.
No impact on operations at the end of the debt.
Great. Thank so look forward to seeing light fixtures versus rendering hopefully later.
Yeah. Thanks, Thanks, that's all from offer me.
Our next question comes from Stephen Grambling with Goldman Sachs. Please proceed with your question.
Hey, Thanks for sneaking me and then I apologize if you already addressed this little bit but on the last call. I think you alluded to and you were kind of highlighting this again I want to the other questions.
This.
On the supply side, a lack of development likely being a positive ray of light.
I guess any updated thoughts on what you're seeing and you do the.
Outline of new.
Construction in markets, where your portfolio is and any changes in terms of things that were in the pipeline that maybe have you been abandoned or deferred.
Yeah, I mean, we well that the most obvious thing we've seen a as we track you know supply is is delays.
Just as I was mentioning Steven with our renovations new construction as is all taking longer occurs or smaller.
Materials.
I've had hiccups in coming in a lot of materials coming from other markets, whether it's in Asia or its south of the border.
Or even in the United States, where plants shut down.
There have been a lot of delays in that regard so weve certainly seen projects pushed deliveries for existing construction being pushed back anywhere from three to six months and of course.
Then you still have even if you're done what you're opening decision.
And is it appropriate to open I can't say I've heard much of abandon projects just yet, but again im not sure those would be announced.
At the end of the day and we're gonna have to learn that through probably some on the ground research to see a work is actually happening on some sites.
Things advancing in the pipelines.
There isn't that a construction financing available to speak of them and.
And and so we expect not much to roll out of.
The planning phases or the almost oh almost to start construction phase.
Into the construction phase for.
Frankly for a long time now there's no there's nothing now be.
I'll be zero right, because the always be someone who finds a way perhaps with dramatically increased equity.
But but by and large we expect new starts to shut down and and that is what were that is what we're seeing in the markets.
Great. Thanks, so much.
Our next question comes some Smedes rose with Citi. Please proceed with your question.
Hi, Thanks, I was just wondering if you guys have received any.
Sort of incremental data on a convention for next year and some of the markets, where typically convention to man has been a positive for your properties in San Diego or Boston or if you see in any change some sort of overall group bookings that the core conventions.
Centers are seeing that you could share.
Yeah. The I mean, we continue to get updates from the convention authorities and the sales organizations for those conventions.
I would say for the most part sales for major Citywides are proceeding.
<unk> pretty much as as normal.
With one exception, which as we've we've begun to see if you.
Particularly smaller.
Or corporate driven.
Citywides cancel in first quarter.
Next year, it's not a lot but its.
It's noticeable and.
In many ways again not surprising.
Given the position some corporations have taken based upon travel policy.
Sort of pre announced in some cases for next year. So.
That's pretty much all we've seen smedes and.
Frankly, I think any at any of those certainly a corporate travel policies could all be reversed if there was a health solution that.
That occurred.
Yeah. Okay. Thank you and then I just wanted to ask you I was reading about that ordinance you mentioned earlier San Francisco So just.
I don't remember your so your hotels in San Francisco, our Union or this would apply to any hotel regardless of its status.
Well the legislation proposed would apply to all hotels.
Regardless of whether they're union or non union.
The only <unk> and by the weighting it includes office buildings as well, although it does exclude city.
State or county buildings into wrestling, which I guess don't need to be as clean compared to a.
Commercial providers, so I, we find that kind of rather curious and.
Not only.
That that probably discriminatory.
At the end of the day to businesses so.
So our our properties are a mix of.
Union and non Union and Oh, it would apply to all of them.
Okay. Thanks Darren.
Next question comes a math any Powell with Barclays. Please proceed with your question.
Hi, just follow up for me or in terms of Boston and Chicago.
See what's the biggest schedule in terms of getting things like museums opened another attractions is more broadly.
Are these jurisdiction to you in travel and conventions.
Right now are they looking to try to get them back or the cautious about them, what's kind of the overall.
Regulatory approach to these industries and the current environment.
Yeah, I don't think I'm I can't say that I'm I'm completely up to speed up by day on a museums and and other similar facilities in.
Those markets.
D. sees a little slower.
To reopen so I don't.
I think any of the museum said reopened interestingly in some of those cities like San Diego that have.
Have been on the the the more progressive side of reopening they have opened the zoo they have opened.
Xeriums and so.
I think.
In most cases.
Xeriums.
Our on a reasonable list as opposed to live sporting activities or with fans are concerts that.
Or large groups that would be sort of in the last final phase in most of these.
Cities, so it would be encouraging to see.
You know museums open up zoos open up.
Sea World opening up.
And do it in a in a safe way, obviously, you're aware that disneyworld opened in Orlando, but Disneyland, it's been postponed a in in Orange County in California.
Yeah.
Just maybe more broadly our Sydney governments.
Actively trying to get travel reopened or I mean, just more cautious in there and that brings to the segment given call, but all the digital.
I would say.
It varies but most of the city's tend to be liberal.
They seem to be a little more maternal let's stick or paternalistic.
And so they been I.
I would say slower and reopening than say, a San Diego, which has a Republican.
There and maybe a less liberal.
Oh Council, which has been.
HM.
More aggressive or or.
It certainly at least a being more active than in reopening.
Earlier.
Right. Thank you.
We have reached end of the question and answer session. At this time I like to turn the call back over to John Board for closing comments.
Thank you. Thank you offer participating the one thing I would certainly encourage you to do as indicated by our song. This time is you know if you. If you really want to do research you need to get out on the road, even if it's by car and see what it's like because I could.
I would encourage you it's it's actually a good experience it's good for your soles.
And it's good to get out of your house or your neighborhood.
Or your city and see what's going on in a in the rest of the country and I think it's both good personally.
Good for research in a business perspective for for everyone and and so hopefully by the time, we do our second quarter call. A late later this month. Some of you are many of you will have.
On that research and no no more about what it's like out there in the real world.
<unk> updating you guys in a few weeks about our second quarter performance.
So again for participating.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.
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Well.
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