Q2 2020 Ashford Hospitality Trust Inc Earnings Call
Greetings and welcome to the Ashford Hospitality Trust Inc. second quarter 2020 results conference call.
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A brief question and answer session will follow the formal presentation.
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It's now my pleasure to introduce your host Jordan Jottings Investor Relations for Ashford Hospitality Trust. Thank you you may be getting.
Good day, everyone and welcome to today's conference call to review the result for Ashford Hospitality Trust for the second quarter 2020 and to update you on recent development on the call today will be Rod Hayes, President and Chief Executive Officer, Deric, Eubanks, Chief Financial Officer, Jeremy Welter, Chief operating officer.
Your results as long as notice of the accessibility of this conference call on in listen only basis over the Internet were distributed yesterday afternoon, and a press release.
At this time, let me remind you that certain statements and assumptions and this conference call contain or are based upon forward looking information and are being made pursuant to the safe Harbor provision of the federal Securities regulation.
Such forward looking statements are subject to numerous assumptions and uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These doctors to more fully discussed any company filings with the Securities Exchange Commission.
The forward looking statements included in this conference call are only made as other date of this call any companies not obligated to publicly update or revise them.
In addition, certain terms used in this call our non-GAAP financial measures reconciliations of which are provided in the company's earnings release, an accompanying tables or schedule, which had been filed on form 8-K with the FCC on July 29, 2020, and May also be accessed did the company's website at www dot.
H.T. Riet dotcom.
Each listener is encouraged three review those reconciliations provided in the earnings release together with all other information provided in the release also unless otherwise stated all reported results discussed in this call compare these second quarter of 2020 with the second quarter of 2019, I'll now turn the call over to raw pace. Please go ahead Sir.
Good morning, and welcome to our call I hope, everyone is continuing to be safe and healthy.
These last several months or unlike anything most of us an experienced or lifetimes and he's remain challenging times for our country the economy and of course, the hospitality industry.
I'll start with the current environment and how Ashford trust as manage through the pandemic any early parts of this recovery.
After that Derek will review, our financial results and Jeremy will provide an operational update on our portfolio.
This quarter's been defined by the current a virus pandemic and while we have made progress getting our business back up and running the impact of Coven 19 is on the U.S. hospitality industry and the day to day operations, our hotels has been profound.
As we discussed on our last earnings call. Our spots. This pandemic has been swift and comprehensive.
We are focused our efforts on providing a safe environment for guests and our staff the properties and while at the same time taken aggressive measures to protect our properties and maintain financial flexibility. So we can be in a position to return to profitability as the economy opens up and travel resumes.
Additionally, given economic impact to this pandemic, we were required to make difficult decisions and temporarily suspend operations at many of our properties I'm pleased to report that we currently have only four properties was suspended operations compared to 23 properties. The time her last earnings call and those last few property should be reopening very soon.
As we look at our portfolio. We continue to believe the fastest segments to rebound will be leisure and other transient business with the group segment slower in its recovery.
We're concerned about the state of the industry, what it maybe after labor day, when leisure travel slows and hotels typically rely more heavily on group and business travel as those segments are unlikely to rebound quickly we do not yet feel confident that we will see a material improvement in occupancy as we go into the fall which is concerning.
There continues to be significant reopening uncertainties in the economy with newly read reinstated could 19 travel advisories and restrictions in some parts of the country. While we do not expect another national shutdown. We do anticipate some regional impact is travelers are again encouraged to stay at home.
Operationally, we are focused on mitigating the financial impact of a pandemic with cost control initiatives, including working closely with our property managers to manage cost structures and maximize liquidity at the properties and this is where our relationship with our affiliated property manager Remington really sets us apart Richard has been able to quickly cut costs and rapidly adjust this new operating environment.
We're proud of their efforts and believe it sets us up well to outperformance industry recovers Jeremy will discuss this more in detail shortly.
We've also significantly reduced our plan span for capital expenditures for the year, we've suspended both our common and preferred dividends and we've reduced our corporate gionee by approximately 25% difficult as discussed this in more detail around our liquidity shortly but throughout the quarter, we have taken action to maintain our financial flexibility, including not making principal or interest payments on.
All of our loans since April 1st.
We've been actually working with our lenders and our property level debt to arrange mutually acceptable for parents arrangements to reduce our near term cash utilization and improve our liquidity. We've had some success with those discussions including executing forbearance or other agreements on six loans secured by 24 hotels. In addition, we have come to agreement in terms on several.
Other loan pools that are currently being documented and we hope to have them signed up the next few weeks.
Discussions on the remaining loan pools are ongoing.
Forbearance agreements typically allow us to defer interest on loans for up to six months subject to certain conditions. They also allow the company utilize lender in manager held reserve accounts, which are included in restricted cash and the company's balance sheet in order to fund operating shortfalls that the hotels, we look forward, providing additional information as we continue to work through this process.
It is likely however that we will be unable to agree on forbearance terms with all of our loan pools and investors should anticipate that we may be heading back some assets to lenders in the months to come there are several reasons, while we may decide to give back assets to lenders. One there is negative equity in the loan pool that is unlikely to reach positive equity in the medium to long term to the.
Cash requirements of the properties, such as operating shortfalls ongoing debt surface or capex that we do not believe or economical or three turbines the lenders or special servicers are proposing our onerous and make keeping the property and attractive.
While we hope to retain as many of our properties as possible I do think it is important for investors to know that we will plan on hand, you back assets that do not create long term value for our shareholders.
First off of 2020 has been extraordinary by any measure that cannot be proud or the effort and the performance of our teams. During this time I believe our response has been the right one for both short and long term health of our guests our portfolio communities, we serve and our shareholders. We're closely monitoring the fluid situation of plans in place to continue to reopen close properties as Gov.
Edicts allow and business demand conditions improve our management team has extensive experience in effectively navigating tough market environments and extended downturns, each crisis and isn't never invariably different but we believe we the right management team in place to protect long term values our assets in the company. So I'll now turn the call over to Derek to review, our second quarter financial performance.
Thanks, Rob for the second quarter of 2020, we reported net loss attributable to common stockholders of $215.3 million or $20, maybe five cents per diluted share for the quarter, we reported AFFO per diluted share negative $12, a 32 cents adjusted EBITDA Ari.
Total negative $56.5 million for the quarter.
At the end of the second quarter, we had $4.1 billion of mortgage loans with a blended average interest rate of 3.7%.
This average rate does not take into account any default rates are loans were 9% fixed rate a 91% floating rate our loans are all non recourse than we have no corporate loans as Rob mentioned, we have signed forbearance or other agreements on six loans secured by 24 hotels that are discussing forbearance agreement with our property lever.
Lenders on all other loans.
We ended the quarter with $274 million of liquidity, including cash and cash equivalents of $165 million unrestricted cash of $95 million.
The vast majority of that restricted cash is comprised of lender and manager held reserve accounts, we have been and continue to work with our property managers and lenders in order to utilize the lender and manager held reserves to fund the operating shortfall at our hotels.
At the end of the quarter, we also had $13 million than do from third party hotel managers.
This represents cash held by one of our property managers, which is also available to fund hotel operating costs.
As of June 32020, our portfolio consisted of 116 hotels with 24719 net rooms.
Our current share counts down to 12.5 million fully diluted shares outstanding which is comprised of 10.5 million shares of common stock and 2.1 million LP units and reflects our recent one for 10 reverse stock split.
On July 22020, we filed a preliminary S. Four describing it offered to exchange our preferred stock per common stock and cash as this is a preliminary filing we cannot comment on the offering and we'll have to wait until the registration statement as effective to discuss the details around this offering on July 27th 2020, we also.
While the preliminary proxy statement, calling a special meeting of our common stockholders for the purpose of approving matters related to our proposed preferred stock exchange offer. The proxy statement is also subject to FTC review and comment and as a result, we will have to wait for its effectiveness as well in order to comment on it.
This concludes our financial review and I would now like turn over to Jeremy to discuss our asset management activities for the quarter. Thank you Eric comparable Revpar for our portfolio decreased 88.3% during the second quarter of 2020 hotel EBITDA flow through was 48%.
Business in April was driven by Cobot, 19, responders and healthcare workers, where we saw significant participation and married up Bridgewater Embassy Suites, New York Manhattan Times Square and Embassy suite Santa Clara.
Transient leisure travel, especially on weekends return later in the quarter.
There was very little corporate business travel.
Generally revpar bottomed out by mid April and experienced steady week over week growth over the next few months.
Also select service and extended stay hotels tended to fair better driven by long term stays in essential travel segment.
When it became apparent that the cover 19 pandemic was going to severely impact our hotels performance, we took swift action to put ourselves in position for long term success.
During the second quarter, we reduced operating expenses significantly by 73.6% or a $185 million relative to last year.
These cuts resulted in hotel EBITDA flow through a 48%, which is a remarkable accomplishment by our asset managers and our property managers working together.
We responded quickly and aggressively to reduce costs in response to the unprecedented decline in hotel revenues.
Of the 23 hotels, where we temporarily suspended operations all but four have reopened.
We suspended services at these hotels in order to minimize costs, where there was little business in that in a market.
These are unprecedented times and as a result asset management property management and the brands are all working together as never before.
We want to bring back or associates as soon as we can once hotel demand recovers.
Our associates have been stretch to their limits working through significant challenges.
Folks have risen to the occasion.
We are proud as management team to see how everyone has contributed well being asked to do more for less.
The following our a few other many steps we've taken at our hotels to reduce expenses and generate revenue.
We have reduced staff through furloughs and layoffs to skeleton crews.
And have put a freeze on employee hiring and are deferring new hires.
We're scheduling partial shifts when full shifts are not necessary and we have substantially eliminated housekeeping service for sailors we.
We have substantially eliminated band Transportation Airport Shuttle service valet parking services turned down service and all amenities exceed brand standards.
We suspended services accounts years, lounges, and clubs and spas and kids clubs.
We have blocked off and shutdown floors and wings of hotels in set all thermostats and rooms and public spaces to temperatures that can serve the most power.
We have turned off and room freight refrigerators and unlike kitchen back of house in office equipment.
We suspended services and many food and beverage outlets.
We renegotiated pricing on or our canceling service contracts.
We're working diligently to collect cancellation fees or partner with group customers to rebooked of programs for later date.
Our hotels participated in Hilton's frontline program, and Marriott rooms for responders and community caregiver rates.
And we have registered hotels with FEMA CLC hotels for hope stabilizing associations in California is hotels for healthcare workers.
We are actively seeking how we can best partner with local and Citigroups to help in our communities and provide shelter for first responders and vulnerable populations.
Additionally, our focus has been on securing partnerships with long term projects airline crews and universities to provide student housing during upcoming semesters.
As I mentioned earlier.
We had a number of hotel successfully participate in it the Hilton and Marriott room programs for responders for example, the Marriott Bridgewater averaged 60 rooms per night through Marriotts program in April and May contributing to hotel EBITDA flow through of 52% during the second quarter, while comparable Revpar fell 83.1%.
In addition, the Guestroom renovation was started on June 15, following a pause due to new Jersey restrictions in completion is estimated for September.
Another one of our hotels that helped US local company is Marianne Research Triangle Park in Durham, North Carolina.
Local shelter bought out the hotel for the duration of the second quarter actually leading to an occupancy increase of 19.2% despite comparable revpar decreasing 49.1%.
Hotel EBITDA flow through was 65% and.
EBITDA margin grew 73 basis points.
Since early May our focus has shifted.
Shifted to ensure we have strategies in place to accommodate pent up leisure travel.
The Lakeway resort in Austin, Texas is a good example of how drive to leisure markets drove results, especially on weekends.
Attracting leisure travelers the hotel.
Rebounded toward the end of the second quarter was 71% occupancy in June and they sell out every weekend in June.
Despite comparable revpar for the second quarter, decreasing 43.8% rate increased 1.8% and hotel EBITDA flow through was 56%.
During the last few years, we've invested significant significant capital and renovating our portfolio to maintain competitiveness.
Looking ahead to the second half of 2020. These investments will provide us with competitive advantage, while our industry weathered the storm brought on by the cover 19 pandemic. Additionally, our capital investment strategies will allow us to allocate more capital shrewdly for the remainder of the year, including the completion of the guest room renovation America.
Bridgewater towards the end of the third quarter.
That concludes your prepared remarks.
Before we move to Kuni.
I want to thank our brand partners Marriott Hilton in Hyatt.
For the remarkable efforts on our behalf and our continued partnership with us during these unprecedented times.
We will now open the call for Canada.
Thank you we will now be conducting a question and answer session you.
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One moment, please while we pull for your questions.
Our first questions come from the line of Tyler, but story of Janney capital markets. Please proceed with your questions.
Thank you good morning.
I have a multipart question.
On the operations side of things.
Can you discuss a little bit more of the world Remington in terms of.
Finding these cost savings talk a little bit more about how much of an advantage that relationship is for you in this environment and then in the prepared remarks, you ran through a number of examples in terms of cost savings, which is helpful. Does it look like the breakeven occupancy levels of your properties today are much different than what you thought of.
Your month ago, and then lastly, do you think there could be further room to treat the operating structure to preserve cash or has most of the low hanging fruit already been harvested at this point.
Yeah. This is that this is jeremy.
I'll take those questions.
Remingtons huge advantage, there's no question about it and.
I do want to give credit to our to our management team and actually the direction of Monte as well we were well prepared.
Had ended the pandemic we saw it is a big risk for us very early.
It is early is really late January when we started to track some of the information overseas.
So in early early May when it was very clear to us that this was a huge risk we started aggressively cutting cost immediately and and it definitely was a lot quicker off the blocks with with Remington because we have control over you know those assets.
And so they were weeks ahead of.
The brand managers I do think that our brain managers have been incredible partners. During this process I do want to commend them and let them know we appreciate all the flexibility Theyve had not only on the hotels that they manage for us, but the ones that they franchise to us because they had been incredibly incredibly understanding flat.
A couple and partnering.
What we need to do to conserve cash across the board.
But theres no question that the Remington has been.
A huge advantage for us during this downturn.
Thank continues to be and so they are been stretched very thinly we cut a lot of corporate positions that would otherwise be allocated some of the properties as well. So just across the board we had substantial reductions in costs.
Moving onto the next question he had on a an occupancy breakeven occupancy you mentioned, maybe a few months ago.
I don't know if it's changed from a few months ago, because few months ago to me is.
It seems like years ago, turning this pandemic, which is.
Did a lot longer than we would've hoped but few months ago, and let's say May April I think we were quick to retool all of our hotel operations I mean, we've gone through every level of expense detail you can imagine we're getting gino level reporting from Oliver.
Management companies, we're going through all that information on a weekly basis. So we have really dissected our properties down.
And our rebuilding them up and the new expense model. So as it relates to a few months ago I think the occupancy breakevens, probably similar but from maybe six to nine to 12 months ago materially different materially different in terms of how we're operating our hotels today and we'll continue to operate them in the in the near to mid to maybe the long term.
This is what they were let's say during 2019 or January of this year.
Much different model.
And in our and our associates have been very understanding and accommodating and everybody across the board has rolled up their sleeves to put in the hard work at effort to just retool our business model.
In terms of further room for expense costs and cuts I think at the property level I think we've kind of reset point there might be a few contracts that maybe we had service agreements that we would do that were underlying and maybe the vendor wasn't as understanding.
And so we might be able to cut cut those costs are not renewed them as they come up so I think theres, probably a little bit, but theres not any low hanging fruit at this point.
Certainly on a property tax side I think you'll see some significant reductions in property taxes next year.
They are just has to be in terms of valuations for our hotels. So that's that's certainly a big number and.
And yet in terms of.
Property insurance.
Hopefully in the next renewal, which would be June June of next year, we might be able to gets more savings, but aside from that I think it's just continued efforts and incredibly close monitoring on a daily basis I mean, the reporting we are getting.
On a on a daily basis of all our hotels, how they're performing we've got a really really good paulsboro operations and I felt like we had that before this pandemic, but even more so just because everybody is working around the clock to preserve value maximize value for our shareholders.
Okay perfect I appreciate all that detail and follow up just a general question.
In terms of the company structure on the preferred I know you can comment specifically here, but at a high level, what sort of restructuring options have you considered and any general thoughts or comments you can make on the cap structure and what that might look like in the future.
Yes, it's a good question I mean, you're right in that were somewhat limited until some of our various registration and proxy statements are effective and so.
So we've got to kind of be careful on comedy on those so as not to.
Deem soliciting so I've said encourage you and others listing to see the docs, but I think generally.
Frankly, I think all things are on the table.
We've looked at and are currently looking at a variety of ways too.
Raise capital right of ways to partner.
It's more of we're in a situation where as we sit here now we feel like we have.
Ample liquidity to deal with when we got to deal with now but with that amount is finite and we don't know how long. This crisis is going to last and so we've got to be proactive to try to figure out our plans and continue to see plans and continuing plans upon continuously plants.
And so thats what were undertaking but I think I, what I would do is I mean, we I think laid out in the documents kind of a list of of options and alternatives that.
That we'll be looking at and a lot of that will just depend on the.
What happens here the next few months in regards to.
That process.
Okay, that's all from its because you're going to detail.
Thanks.
Thank you. Our next question has come from the line of Michael Bellisario of Baird. Please proceed with your question.
Good morning, everyone.
Hi, Mike.
Just a follow up on that same topic, just about rightsizing the balance sheet.
How are you thinking about the outcomes or the potential outcomes are the discussions you're having with your lenders today and how does that impact you're thinking about how and when to recapitalize, maybe why why haven't you waited to see what the other three quarters of your debt amendments and forbearance agreement, they're going to look like before you proceed.
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Well.
Or a process that were that easy and straightforward than now degree it would but as you can imagine these are all very fluid discussions.
You know across all the different loan pools, and we have everything from certain servicers lenders that are highly responsive and highly cooperative and others, who are less responsive and are taking their time and others, who are a little bit more difficult to deal with.
And so we just don't know what the timing of all of that looks like.
Though we're actually pushing aggressively did too to get as many of them done as soon as we can on terms that are favorable to our shareholders.
But if I waited until all of those are wrapped up I just don't have confidence that I'll have all of them wrapped up in a period of time, but I think we have enough knowledge from being kind of in the trenches and on the ground to have a sense of what we think this will look like and that gives us enough confidence to start putting in place additional stuff.
Reps to move right and so.
We've just got to be proactive and make decisions and we can't Miss the good for the sake of the perfect.
And so thats.
We're going to further to move forward that with that.
Got it that's helpful and then where do asset sales fit into this equation in why would that be a good source of liquidity for you today.
That's a good question, we know prior to a prior to knee stepping into this role you know the company had market a couple of of of assets.
That had in our opinion significant equity value.
To get at a market check and to see if that was a source of capital that we wanted to raise.
The company decided obviously to pull those back given the have dramatically lower those values were than pre coated prices.
So those are really particularly attractive I think it's something that will.
They're not entirely off the table, but as I sit now it's a lesser of a priority we've got.
A variety of different capital reason options were looking at and investigating.
And that may be a part of it. It's just right now we've got kind of enough other things that we're focused on that frankly, I think are more substantive and can give raise more substantive capital.
Than than assets sales, but as we continue to go down the path with with our lenders and.
We will see.
We'll see <unk>, we just don't focus right now.
Got it and then just last one for me.
Terms of handed the keys back to the lender and not sure how many properties that's going to be it's still too early to tell but how are you guys thinking about potentially triggering the ashford inc. termination fee, if a certain number of properties or hand, it back within a certain time period, and then where might that payments in the priority order of payments going forward.
Now lets it so good question and that is.
Something that we have to take into account yet at this at the same time I feel fairly confident that to the extent that we see us coming into that sort of range.
That will be working with Ashford inc. on that on that front to see.
For alternative outcome that makes sense in both for their shareholders and our shareholders as well because that's obviously not a goal of ours is due to trigger any sort of termination payment, but it is there. It is a contractual right that we have to.
Honor and deal with.
But in this environment, where we are.
Having all of us.
Thrive through this crisis and get on the back side of this to continue to grow that's the goal.
We need to takes into their maybe assets that may need to go back as I said, our comments and we want to retain as many properties as we can but I can't make decisions that are on economic to our shareholders and that may mean that some we'll go back to the lenders and and so we'll continue to links and work with.
Ashford Inc. and work with Remington in order to to come up with so what that strategy looks like.
So.
Hi, I feel confident we'll be able to find a path that doesn't.
No it doesn't and lead to that sort of.
Outcome.
Thank you that's all for me.
Thank you. Our next question is coming from the line of Bryan Maher of B. Riley. Please proceed with your question.
Good morning, So a couple of quick questions I'm really kind of on the bigger picture side.
And maybe this is a little bit of a sore subject given the whole PPP thing that we all read about ad-nauseum into you, but there is an article in the journal today about Texas Congress person been Taylor.
Trying to push through a bill that would help.
In particular, the hotel industry, how is Ashford trust thinking about the potential that the government might provide some eight year relative to what's been going on and the fact that seems like the government. So far has been picking winners and losers and to this point you guys.
Ben.
Hello.
Oh, that's a good question Brian.
I've got some initial thoughts and I think Derrick has some as well because these have been in little bit closer to that specific topic, but I have to act and make decisions as if that capital or any sort of help from the government or any other agencies are not going to happen and so.
I'm focused on I said, raising capital working with with Jeremy and his team to keep operations lean and profitable as we can and getting business focused but obviously to the extent that something like the hope that can be helpful or it's obviously very.
Interesting to us it could make a material impact on our business and more importantly kind of our in our employees.
And on the future of the company so handed over to Derek I know he has some comments and thoughts on that okay. Well I mean brought out does that I mean, I know, you're well aware and.
Just how significant are industry has been impacted by this pandemic and you've now seen it in our financial results.
In terms of our second quarter numbers, along with the job losses that have.
That happened in our industry. So.
It's been unfortunate to this point that.
Our elected officials have done more to assist our industry.
The PPP did did not work for our industry as it was as it was hoped and really designed to it just wasnt wasn't enough help our our industry specifically it has been hit too hard.
For that to be very helpful. So up to this point nothing has been done there was a as you because you've mentioned there was a bipartisan bill that was introduced in the house yesterday, it's called the Hope Act and it basically takes some of the.
Cash that's part of the cares act and would allow the fed and the treasury to use that for commercial property owners that have experienced a significant revenue loss and use that as a source of liquidity to keep their loans current.
Which would be a huge help for us.
And not just us but for other property owners that are all in the same position that we are in where you know in some cases hotels were considered essential businesses and stayed open even those very little demand, but in other cases local jurisdictions forced hotels to shut down and it just doesn't make any.
Since that a government could force and owner to close their property just so a lender can can take it back from them. It doesn't doesn't make any sense. So.
So we're hopeful and optimistic that.
That this this will get some traction we think theres definitely a need for as Rob said, we can't just sit here and.
Put all of our.
Just put of our chips on on that momentum that happening, but but we are hopeful. We do you think it makes a lot of sense and.
I know property owners would be very appreciative of elected officials doing something too to assist us, especially in the hospitality industry.
As you've seen the revenue losses that we've experienced has just been been gut wrenching gut wrenching results that.
As I was going through my section of the of the of the scrip. It's just it's hard to even fathom the numbers coming out of them Alf in terms of the.
Financial results that we've had to report some.
Right for sure and I'm sure you guys are aware.
At a number of funds are being formed as we speak.
By distressed real estate, whether their private equity you know or other types of funds.
Out there and some with the specific focus on hospitality are you in touch with or or plan to be in touch with those type of pools of cap, but they're being created a unfortunately, they're going to be.
Really trying to get good pricing.
That may be as an alternative to handing back the key for lenders, where you can't come to agreement or is it just simpler to hand, the key is back and focus on the asset you want to keep.
I see a question I mean, we are I'd say proactively in discussions and in contact with a number of potential capital sources.
That's where we're spending a decent amount of time.
You know what that would that looks like in any timeline, it's I don't know, but those sorts of discussions are.
Underway and fundamentally we're trying to make those decisions based upon you know economics and based upon whether or not we think those assets.
I have a real path to creating shareholder value.
There are certain assets.
In our and our pools, where frankly, it's going to be likely that some may go back because.
Either maybe they had issues prior to even this you know pandemic or they're in markets or situations, where they may not be able to cover debt service for years and that the only way too to get back to any sort of equity value or cash flow is a very rapid.
Recovery in the next couple of years, which we'll see.
And so we and of course, we have finite capital right if I add.
$5 billion of cash laying around that might be little bit different than than the one hundreds of millions that I have now so we.
But my goal is to be able to work with partners and try to raise capital. So that we're not handing back any assets that we otherwise wouldn't right that nobody would kind of putting the amount of capital necessary to to kind of co save them.
If there wasn't a path to get strong returns on that that capital.
Right. Thank you very much.
Thanks, Brian.
Thank you. Our next question has come from the line of Chris Woronka Rocco.
Survey. Please proceed with your question.
Yes, Hey, good morning, guys.
I wanted to ask you on the.
On the loan agreements, you're you're you're working on.
I know you mentioned that there was typical.
Relief is maybe six months and I guess the question is.
Is that are there scenarios, where that's enough and kind of what happens.
If you enter into a forbearance agreement.
Now for six months and then six months from now you're you're not any closer to to where you need to be.
Yeah, and that's the that's the fundamental question, Chris I mean, that's what we've been struggling with.
Since the beginning and that's why when when we first went too.
When to our lenders in March or April.
We for solid that fundamental issue in the first kind of ask poured first discussions that we had with many of our lenders was a much more substantive turn to it because you're right.
The these forbearance arrangements that we're signing.
By and large.
We will likely not suffice to kind of quote to get us through.
Which is why we've been very focused on.
Trying to avoid high fee is trying to avoid high cash outlays, avoiding additional guarantees and these sorts of things because we might be willing to do some of that to the extent that there was more runway and we felt confident that there was a.
Im not a guaranteed path, but a.
Highly confident path that it would suffice.
But at the same time, we want to.
Not have or loans in default and be able to.
No that were in good standing with our with our lenders and so that's the that's attention so.
The extent that those agreements that we haven't yet signed up and Thats.
You kind of hit the nail in the head on what the fundamental issue is the amount of either capital or guarantees or fees that the servicers lenders are trying to.
Work are proposing to us are ones that are in our opinion justified given the short runway of of the forbearance.
And so it means that nets discussion I think we've.
Worked with the lenders that we've gotten thus far I mean, I think we've got good.
Good discussions and dialogues and I think they see the same numbers that were seeing.
And so I think they understand that I think there is a good number on that as soon as we're getting one for done we likely will be starting on discussions with another until we have a real sense for what this recovery I can have confidence in it.
So that the.
The kind of the situation that we have to deal with I wish there was an easy way to solve it but I think until lenders are at a state willing to consider longer term either restructures or solutions, it's just to see which will be in for a while.
Yeah, Yeah fair enough. Thanks, Rob.
I guess, maybe using using very broad.
Strokes and not done and getting into individual assets, but I mean would you characterize.
The.
The discussions I mean is a different conversation for a hotel that has maybe a lot of underlying theoretical underlying asset value versus one that doesn't or one that is generating.
Peak was generating a lot of EBITDA versus will leave the dollar or was there any way to kind of bucket those or do you think that's conversations are all kind of all over the map.
Let's see and.
Frankly, I don't think the commerce additions by and large that Weve had have almost been focused on oh the.
It's almost less focused on the asset right you would kind of think that it would be oh. This this is an asset that you.
This confidence theres equity value today, and here's confidence that there is not and so that.
Trains, how aggressive or not aggressive.
Servicer or lender or we are and honestly that really hasn't been the case the situation in the dynamic that we're seeing really is.
Our who is servicer.
Who is the lender.
Because by large the balance sheet.
Lender have been reasonable.
We haven't gotten everything we wanted we have to give on some things, but by and large they've been better to deal with.
And then either.
CMBS Servicers, there's been a a pretty wide gap of those that are I'd say more reasonable and those who are materially less so.
And I think the what we've seen thus far is the.
Point of pressure intention is not is not the LTV or the coverage is alone the issue is whether or not theres mezzanine debt.
Above that senior because what our experienced thus far as Ben is that I don't think these senior lenders. This the the bond holders to see the special services at CMBS are looking to aggressively for close but what they are doing is putting pressure on mezzanine lenders to do something.
So theres lots of threats of.
For closing on them a default interest of other bad things.
And frankly, I think kind of the the servicers that.
Our thinking smartly longer term about the health of their own industry and the health of their own business are ones that.
Our being a little bit more flexible with the mezz lenders because the mezz lenders by enlarge our see the same number that we do in realized that stepping into an asset at this moment is probably have a difficult idea given the potential negative cash flows and everything else coming out these properties.
It doesn't really make sense for anybody to aggressively trying to take over assets. One there's the yelp morally questionable aspect of doing that and middle of a pandemic, but it is what it is.
But they are you know when I think really wants to do that unless their hands are forced and so I think in many cases the situations that we've been in warm as lenders have started take steps I think by largest because their hands or be enforced by senior servicers that.
Our just trying to get some you'll get some movement.
It's been it's been interesting because we do have a decent number of.
The CMBS loans that don't have any mezz on them.
And by enlarge those conversations are moving along and there doesn't seem to be a ton of pressured lots of threats.
And so it's it's been more about who's in the capital stack and has a servicer as opposed to the underlying collateral.
Has been my experience thus far.
Okay very helpful color, maybe one question for a for probably Jeremy.
I know you mentioned almost all your hotels are back open and I understand breakeven occupancy is certainly was lower than it was six nine months ago.
But.
It's a decision to reopen does anybody does a hotel half the kind of EBITDA positive or is it more of a case of you're losing less EBITDA by being opened than youre by being close.
Hi, it's the latter it's the latter for sure we have internal models on every single Anatel. We're doing weekly cash flow models on every single hotel, but decision on whether or not to reopen a hotel is not whether or not there tell it's helpful. Breakeven. It's just is it is it to to lose less cash.
Cash flow then to keep it closed I mean, given I know hotel and haven't closed a there's no way around having negative cash flow because you got property tax and got insurance you've got.
You know management teams that even leave reduce their salaries and their their hours and are there.
The.
Furloughs.
It's still cost money to own a hotel that it shut down and so it's all a breakeven model from the perspective of losing mass and that's that's how we make a decision on window to reopen and there's a lot of an.
Analysis it goes into it.
Yeah, we've got a pretty good insight and all the different markets that we operate in.
Pretty good inside of what what other properties in the markets are operating and what rate and potential occupancy would be so I I feel like we've got a pretty good pulse and you know and level of accuracy on what the right decision is on whether or not opening a hotel or keeping a close.
And I mentioned I mean like you know this is.
We were continuing to see.
Every month, you know the occupancy is getting better I mean, you know, what's clearly hit the trough in in April or May was better in April doing better the man and July is ramping up we did have.
You know a little bit of a period of time, where there was just a little bit of every week the.
You know revpar at our properties, Nick you know in terms of occupancy and Revpar was accelerating a week over week basis.
We've seen a little bit of a at steady state with the kind of the second wave, we seen but thats starting to dissipate as well and so.
You can kind of go forward in terms of what it makes sense to keep hotels open most of them make sense at this point just given where we are in terms of current market conditions.
Okay very helpful. Thanks, guys.
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Great. Thanks, Yeah. My question is kind of falling.
So you're talking about the sequential improvement I guess it would like to hear about your expectations as you look out over.
Over the next month.
Since from.
Demand at some properties for leisure travel I guess, when we move towards Q4.
What's your expectation I know you can quantify a little bit your mix leisure versus business travel and how that changes as you go from Q3 Q4 and just.
What are your expectations about that sequential that we see sequential recovery.
Just one more challenged heading into Q4, just some thoughts around them. Thank you.
Yeah. This Jeremy Yeah, we haven't we've we've always had to the position if not giving guidance and that was in a timed where there was probably a lot more what we thought was a lot more certainty obviously were wrong a in February we thought there is certainly going forward or January of this year, and then that global pandemic, it but I can't really comment on.
I mean in guidance, but I can give you kind of what we're seeing in terms the markets and and segments and certainly you know I think our portfolio.
Does help a little bit of trust given that it's pretty well diversified in terms of no top 25 markets and then you know hotels outside the top 25 markets got a good but level diversity of extended stay a and select service and full service assets and we don't really have a lot of exposure what you would call Big box Group pass hotel.
So just a few of them that we have that a decent amount of group business.
But by and large most of our hotels are either leisure transient or business transient.
And what we've seen as I mentioned is that every single week a week over week you know the.
Trend has gotten better we've seen a little bit of a slowdown.
Just because of that second you know.
Wave, but if you look at April our April results were down 93% Revpar may was down 89 and in June was down 82.
Are you know 90, 380, 982, and so in July I would expect it yeah, we'd be in that somewhere in the 70 range.
And then the question is due to your point on looking into Q3 in Q4, how does that change and its hard for us to say I mean, Unfortunately, you know typically in a in the good times. Our average booking window is three weeks you know I'm in today its own probably three days and so there's just not a lot of.
Clarity, but but what I can tell you is it you know even our internal forecast that we've had when we've been.
Putting together a models and cash positions and what we thought I was going to happen. We've always exceeded that we've always been higher than what we thought it was going to be and I think that trend will probably continue. So were you know assuming the worst we're prepared for the worst and a and Fortunately, we're seeing a little bit better.
Other than than what we're preparing our teams for so I think I think eventually you know in.
People want to travel I think you'll see travel resumed people are resilient, a and we're starting to see that as I mentioned certainly in July and I'm, a little bit in August as well and so I would expect it you'll see sequential growth.
Month over month week over week, there might be a few patterns, where you know maybe it finds out for a little bit, but we're talking weeks not months and certainly not years that helps.
Oh.
That's helpful. I Wonder could you quantify in kind of a normal year last year or just an average that sort of.
Delta between business and leisure transient as you move from Q3 Q4, how how much of it just curious.
Yeah. It's it's always it's always difficult for us to know if someone we know we know it's a guest is transient versus group and then we don't always know if their business transient versus leisure just because you know it's just it's hard to know why someone standing or hotel and.
We don't you know interrogate tend to know understand our hotel, but but I would say that you know certainly during the summer months, we do have a higher level of leisure travel and Q3 Q4.
We'll be more business oriented, but I don't know that I can comment on what the historical mix or pattern as for the portfolio, but what we are seeing a little bit which is you know for for areas, where folks are doing home school, yeah that they're taking advantage of traveling maybe did.
Different locations with their families.
And I think you might see that in Q3 in Q4, where folks are typically you know it's being the offices and maybe you know a working somewhere else in a different location, a and that my fuel. Some leisure you know related business, it's not necessarily a business transient.
Okay. Okay. That's helpful. Thank you and just last question is.
You commented a little bit about occupancy breakeven.
I don't know if I may have missed you put any numbers on that or range of because they're going to be different by individual property level, but.
Is there a range, we should think about kind of the overall average where it's breakeven person at the property level and then I don't know for sure. Thank you for person.
Corporate wide. Thanks.
Yes, I think I think what we talked about in the last earnings call was something in the range of for limited service properties kind of their their property break even with somewhere between 25 in 35% occupancy.
And that for the full service hotels, who is buying large times 35, 45% occupancy.
Some individual assets that are maybe in some.
Higher wage markets could be a little bit higher than that maybe closer to 50% or so.
And then you probably to add some around another 10 points or soda.
Kind of get to a total corporate level.
Breakeven.
And then your comment today was that does know for sure.
Maybe just what was your lower than you previously thought that's.
Now they are pretty consistent with with what we thought what my comment was is was.
When we projected out and forecast of what we thought or occupancy levels would be.
Or our rate would be we've actually exceeded our internal forecast typically on a weekly and monthly basis.
But that doesn't change what what the you know the break even point range of operating or hotels.
Okay, all right great. Thank you very much all great question thinking thanks.
There are no further questions at this time I will now turn the call back over to management for closing remarks, thank everybody for joining today's call. We look forward to speak when do you again next quarter.
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