Q2 2020 Pebblebrook Hotel Trust Earnings Call
Greetings and welcome to the Pebblebrook Hotel Trust second quarter earnings call. At this time, all participants are in listen only mode.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Raymond Martz Chief Financial Officer. Thank you. Please go ahead.
Thank you Donna and good morning, everyone welcome to our second quarter 2020 earnings call webcast. Joining me today as Jon Bortz, our chairman and Chief Executive Officer.
But before we started quick reminder, that many of our comments today are considered forward looking statements under federal Securities laws and these statements are subject to numerous risk and uncertainties as described in our 10-K for 2019 and our other at SEC filings future results could differ materially from those implied by our comments today.
Looking statements we make today are effective only as of today July 31st 2020, and we undertake no duty to update them. Later, you can find or after she reports and earnings release, which contain reconciliations of non-GAAP financial measures. We use on our website at Telework hotels Dot com.
So the second quarter was grow it clearly the most challenging in the history of the hotel business due to the pandemic and the government restrictions put in place to try to slow the spread of the virus and protect the health the journal public.
On a positive note hotel and travel demand currently bottomed in mid April and slowly it consistently improved during the second quarter.
Demand is primarily from leisure with a smattering of business travel beginning to up here.
Unfortunately, Unfortunately due to the recent growth in the spread of the virus and the roll back of some of the state and city Reopenings the gradual recovery in travel and hotel occupancy seem to have flattened out over the last few weeks, though we have continued to see some week to week improvements within our portfolio as newly opened hotels ramp up their share of market to me.
And.
We now have 24 hotels open open marking a significant increase from the end of March when we had just eight hotels open.
We expect to open another five hotels in August assuming we don't experienced any further step back from cities reversing their reopening phases.
As a result of these hotel reopenings and improving leisure travel demand our monthly hotel cash burn for May and June averaged about $10.5 million, which is $6 million better at the midpoint than the $15 million to $18 million average monthly cash hotel burn or we estimated during the first quarter call by.
Under our worst case scenario assumed abra hotels were close.
Our combined hotel and corporate level average monthly cash burn for May and June was $22.5 million, which includes all interest and dividend payments.
This is down $5 million at the midpoint from our $25 million to $30 million Muthee average cash burn we estimated on our first quarter call.
Based on the 24 hotels that are currently open we estimate our hotel cash burn for July pre nine to 12 million in our combined total cash burn to be 19 to 24 million.
Our focus continues to be on reducing our cash burn in returning to profitability.
For the second quarter, which represents the first full quarter impact since the pandemic started total revenues of 22.39 were 94.5% below the prior year period with total hotel level expenses up 63.1 billion, which were reduced by 75.7% from the prior year second key.
Order.
Excluding fixed operating expenses, such as property taxes insurance and ground rent.
Operating expenses were cut by 84.5%.
We can feel it's good to be can't about these relative operating results and what has been the most challenging quarter was ever experienced our hotel teams did a great job, reducing operating expenses about the suspended hotels and the opened hotels.
For what it's worth and evidencing that slow gradual improvement during the quarter in operating performance, albeit a previously unimagined below levels, our portfolio generated 3.5 million a revenue in April eight hotels open.
5.6 million in May with nine hotels open.
13.2 million in June with 16 hotels open what sent some opening just a few days before the end of June.
So the second quarter same property hotel EBITDA was negative 40.8 million compared with positive $146.9 million in the prior year period incredible same property hotel EBITDA was a negative 17.4 million in April which was a low point in the quarter and improved the negative 12.7.
In may and negative 10.6 million in June.
Just realize hotel EBITDA to show an incremental improvement from June.
Our eight resorts, which had been the bright spot in their portfolio due to their obvious appeal to leisure demand and our drive to locations generated a positive $1.3 million of hotel EBITDA in June following operating losses in April and May.
EBITDA for the resort should be higher in July and August assuming governmental restrictions don't become more severe.
Average daily rates at our resorts during June were up over last year by 18.5%.
Weekly occupancy has climbed to 46.4% for the most recent weeks ending last Sunday.
As a reminder, leisure transient about portfolio wide has historically accounted for about 40% of our demand with business transient at 35% and group at 25%.
Our adjusted EBITDA was negative 50.2 million compared with a positive hundred 51.69 in the prior year period.
Last years numbers include 7.5 million of EBITDA from hotels, we have sense. So.
Our current quarter also reflects 3.8 million a onetime charges associated with Furloughing hotel level employees and suspending hotel operations.
Adjusted episode declined to a negative 58 cents per share compared to a positive 85 cents per share for the prior year period.
In the quarter, we invested 39.5 million of capital into our portfolio with the vast majority related to our renovation and redevelopment projects.
As transformational projects include Redeveloping. The Donovan hotel is their hotels, you know, Washington, DC Mason rock into Viceroy Hotel, Washington DC.
A dramatic upgrade of shopping resort into a luxury resort.
The comprehensive redevelopment of apart in West Hollywood.
And their previous Hilton, San Diego resorts $32 million transformation into the luxurious and independent San Diego Mission Bay resort.
We currently expect to invest an additional $35 million to $40 million over the balance of the year, primarily to complete this year as major redevelopment projects.
With this year is completed renovations 40 of our 53 hotels had been redevelop or renovated over the last five years, which highlights the excellent excellent condition of our portfolio. This will provide us with a competitive advantage in this downturn compared with other hotels, they either having recently been renovated or had owners who don't have the access.
As to reinvest for reinvestment capital.
I just saw early this week, we completed the sale of Union station Nashville for 56 million, which equates to approximately $440000 per room. There was also $6 million to $7 million, an infrastructure repairs required and another 3 million for prior Pip requirements. When we purchased hotel, none of which would have generated any improvement in performance.
We're delighted with the sale given the current environment.
Year to date was completed $387 million or property sales, which significantly enhances our liquidity.
And since the closing of our corporate acquisition in November 2018, we've completed 16 property sales as part of our strategic disposition plan totaling $1.7 billion at a 5.8% cap rate.
This highlights the desirability of our individual hotels, and our ability to transact and challenging markets.
Moreover, the proceeds from these sales were used to eliminate the debt taken out to complete the Lasalle acquisition and to further enhance our corporate liquidity.
Turning to our balance sheet at the end of June we had $2.5 billion of debt hundred percent of which is unsecured and that is effective interest rate of 3.7%. This equates to a net debt to depreciated book value of approximately 37% and less than 30% of our estimated the cost of the replacement cost rubber hotel.
Portfolio.
We had $253 million available on our $650 million unsecured credit facility and 352.8 million of cash on hand, which implies total liquidity of 606 million for our ongoing operating and capital investment needs, which should carry as far into 2021 and beyond depending on.
The pace of the recovery and assuming we don't complete any additional asset sales or raise new debt.
These numbers do not include the net proceeds from the just completed $56 million sale of Union station Nashville was transacted on Wednesday.
Also all of our assets, our unsecured and we have the enhanced flexibility of securing additional debt proceeds for liquidity through property level financings in the future if needed.
Overall, we're in good shape, our debt maturities, which is $50 million of debt maturing in November 2021, which is our next debt maturity and no meaningful debt maturities into November 2022.
And as you know we successfully completed our waiver agreements with our banks on June 29.
This waiver period continues into the second quarter of 2021, and we will have a relax relax debt covenant period until third quarter.
2022.
In addition, we can make opportunistic acquisitions and other investments as well as other capital reinvestment projects during the waiver period.
And with that I would now like to turn the call over to John talked to the quarter.
Thanks, right. So I thought I'd start by repeating a many of our key observations and thoughts from last quarter's comments.
I'd say generally continue to be relevant today.
That was comments really help explain the level of uncertainty our industry and frankly, all travel related industries are unfortunately, having to deal with now and in the near future.
And our best guess as to how the hotel business would progress in this pandemic.
We started with the obvious these are unprecedented times.
Travel demand as never before been effectively eliminated at the same time all around the world.
Unknown was how long the impact with last.
How much damage it would cost of the economy.
And what impact it would have over the long term on travel human behavior and the lodging business. So our conclusion was focus our efforts on protecting the business under the assumption that the negative impact would last for a significant period of time.
So a plan for the worst do everything we can to achieve the best.
We expected the recovery would be dictated by the virus and the world's ability to mitigate it so predictions.
I would be extremely difficult.
Well, we thought that disruption would be significant for most demand segments for the better part of the year.
We believe the second quarter would be the worst quarter.
The April being the worst month.
And the third and fourth quarters would provide a slow but positive improvement.
Leisure transient should be the first to recover.
Then business transient then small groups than larger groups and Citywides.
We thought group would be the hardest hit.
And most of it would not likely return anytime this year without an effective health solution.
In fact, we indicated that we counseled our property teams to assume that none of the group on the books would materialize.
And they should plan and staff accordingly.
We were uncertain when government restrictions on gatherings would moderate.
And most state and local governments indicated that large gatherings would likely require significant health advances before being allowed.
And even if pull out how willing what individuals b to congregate and large groups with physical physical distancing and other requirements like mass and testing.
We also expected companies to be very cautious with travel eliminating most of the demand from business.
Small businesses service providers vendors consultants and others were travel is more critical to their businesses might be the exception.
We were convinced that international travel would be minimal for the rest of the year.
We thought domestic leisure travel would be the one segment likely to return.
So only had modest levels and we expected resorts to be the biggest beneficiaries, particularly drive to resorts.
We also are expected to reopen our properties one at a time based upon demand and only when they could be operated to lose less money than if they were to remain closed.
We said and did this because we thought demand would recover very slowly.
And we believe there was no strategic reason to hurry to reopen our hotels or maintain substantial staff sales or otherwise.
We thought hotel operations would be substantially different.
With enhanced cleaning protocols to protect our hotel associates and guess.
And an industry wide certification would be developed and the cost of these protocols would be covered by reductions and services and amenities, including the elimination of in room housekeeping during I guess day and new staffing models.
We expected more cross training.
Job sharing and shifts work by managers.
And food and beverage would be simplified to reduce costs.
These proceeding observations seem as relevant today as they were three months ago.
And while significant uncertainty continues to exist.
What has become clear is that we should not expect any dramatic improvement in travel.
Or the hotel business until our society is either more willing to make the relatively minor personal sacrifices necessary to mitigate the contagion.
Where our global Society is successful.
In developing either treatment options to substantially mitigate health outcomes.
Or healthcare solutions that are population is willing to participate in.
Meaning even if there is an effective vaccine developed.
That the vast majority of people must be willing to be vaccinated and do so as often as needed.
We are however, very encouraged by the pace and number of potential vaccines being developed and tested.
And the early results that had been disclosed so far.
I thought I'd also provide you with some key operating data based on the last couple of months, including July.
Or at least provide what we think is important and some per se, but perspective based on that data.
First and stating the obvious June is not really indicative of any kind of stabilized performance in the midst of this pandemic since most of our hotels that reopened.
Good so it either the end of May or early in June or even the end of June.
But what we can take away from June is that leisure travel did return modestly.
Despite many government imposed restrictions.
And our resorts did pick up occupancy pretty quickly.
As was the case with some of our urban properties as well.
And we can see that the improvement in our total room revenues for June.
Which more than tripled from May.
As we look at July.
And we have preliminary information for most of the months at this point.
Total room revenues are looking at increasing another 60% plus from June.
These numbers are still way below last year obviously.
But yet theres still encouraging.
In total we look to go from being down over 92% in roadmap room revenues compared to June last year.
To down approximately 87% in July versus last year.
For the 23 hotels open in July.
We're excluding the one that opened just last Friday.
We're currently estimating occupancy at 28% or just a tad above.
With a tier $239 80, our give or take.
Resorts are driving our numbers for opened hotels.
Resort occupancy should be around 45% for July for the eight resorts open.
At an 80 our of roughly $315.
Which is 15% or so higher than last year's HDR in July.
These are really good numbers all things considered.
By comparison, our urban hotel should and around 20% occupancy or a little better at an 80 Arbor route $175.
Which is really not a bad average rate considering such a low occupancy level.
What's even more encouraging to us or other dramatically improved efficiencies of our property operations.
All new operating models at each property.
That were created to address these much lower demand and occupancy levels.
This was literally a true zero based budgeting effort between our asset management team and our operators.
For July we're currently estimating that our 23 opened hotels.
Which I said it should average of 28% occupancy level.
Well run somewhere between breakeven EBITDA and a loss of a million dollars.
And as we open more hotels and as the currently open properties ramp up from reopening.
We would expect our hotel EBITDA performance to improve.
As it relates to the timing of additional Reopenings, what we said last quarter continues to be our guide.
That is to reopen our hotels only as demand dictates and only when we can lose less money open then by remaining closed.
And that is very hard to forecast beyond a couple of weeks away at this point.
But we are currently planning to open another five hotels over the next two weeks.
Including the large 803 room Westin Copley in Boston.
And as stated our focus is to lower our cash burn as the markets allow and ultimately returned to profitability.
We expect this is likely to continue to be a slow and gradual process.
Regardless, we're doing everything we can to accelerate this process.
Including hunting for additional contract business like airline crews, which we otherwise wouldn't have previously taken due to lower rates, but for the next year or two we believe there will be financially attractive in most situations.
And we've had some luck in that area, which should help reduce our cash burn as airline travel further recovers.
We've also pursued and just successfully executed two separate large contracts for two different hotels in Boston with two different colleges.
The house a significant number of students for the fall semester, which begins next month.
Combined these two contracts represent over 70000 room nights.
And should reduce our cash burn at these properties.
Over $1.5 million a month through the end of 2020.
On a combined basis.
Which should allow both properties to achieve either breakeven.
Or to turn EBITDA positive at least for the last four months of the year.
Both of these could potentially be extended into the wet winter semester.
And we also continue to pursue other non traditional businesses business for our hotels.
Over the next few years, we would expect our hotels to outperform their markets.
Similar to what they did last year and early this year before the pay Pandemics drop.
Being able to dip down and compete with lower price point hotels and be successful with contract business.
Only happens because our hotels are of high quality and in good locations and in very good condition.
Generally our hotels are in better condition than most of our competitors in our markets.
As Ray said 40 out a 53 of our properties have undergone major renovations redevelopment or transformations in just the last five years.
Nine in just the past few months and 10 more in 2018.
This will be a big advantage over the next few years.
Many of our private sector competitors are likely to lack the capital to maintain their hotels in years to calm widening the advantage we already have.
We expect hotel conditions will rule with the customer base.
We also expect our lifestyle hotels to outperform in the recovery.
Because of their experience will focus for customers, particularly leisure.
Looking for something that lowers the stress and anxiety that many now feel about trap.
And we already see this with our hotels, we have open.
Our resorts are all independent and lifestyle focused and compete extremely effectively in their markets and they're far less expensive to operate as well.
And our urban hotels that are open are doing well on a competitive basis.
Including our hotels in West L.A. and downtown San Diego.
Some of which are all suite and residentially oriented such as Montrose, Le Parc Chamberlain and embassy suites.
And others that have high style and significant personalities such as Palomar and Solamar.
There were also able to offer more personalized services to our guess.
Seem to be attractive to gas because of their smaller size footprints and smaller public areas, which allow travelers to feel safer in our properties.
Perhaps even more important is that our smaller size lifestyle hotels.
Both the independent ones as well as the ones with major lifestyle brands.
Like luxury collection and W.
Our generally more attractive to transient customers, particularly leisure.
And they historically have needed less group business to be successful.
Our independent lifestyle hotels are also much more able to quickly adapt to new customer preferences.
There are more flexible on their operations and they sport lower fixed and variable costs in a low occupancy environment.
Which is why we expect for at least the rest of this year.
As we look forward at the potential upside from the crisis.
We also expect there will be significant opportunities over the next few years to acquire properties in distress.
Due to a large number of cash strapped and over Levered owners.
And many properties that will go back to lenders.
Our team has been through two prior crisis driven opportunistic periods.
Including the creation of Pebblebrook in late 2009 during the tail end of the great recession.
Following that crisis, we were able to fairly quickly and aggressively.
Assemble a unique portfolio of high quality hotels and resorts.
At very attractive prices that also had substantial upside opportunities.
Given our ability to operate our properties more efficiently than the vast majority of owners and buyers.
Our unique strength and redevelopments and our transformation capabilities.
And our high profile and positive reputation in the industry.
We believe will have significant competitive advantages.
As opportunities arise over the next few years.
Finally.
It's safe to say, we all find ourselves in uncharted territory.
With that almost complete lack of clarity about how the future will play out.
We continue to be confident that our senior management teams experience.
Reputation for site creativity.
Work ethic.
<unk> track record.
All supported by an incredible team.
Combined with strong liquidity and a fantastic portfolio.
Will allow us to not only grind through the current challenge, but thrive during the recovery and the next up cycle.
With that we'd now like to move on to your questions data you May proceed with the QNX.
Thank you the floor is now open for questions.
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Our first question is coming from rich Hightower of Evercore. Please go ahead.
Hi, good morning, guys.
[music].
Morning.
So a question on cash burn.
And maybe maybe this is sort of an immaterial thing, but in terms of working capital and managing payables and receivables how does that factor into the.
To the cash burn analysis and would you say that the any changes that took place within those categories over the last few months are those are those sustainable through year end or how should we think about that.
Yes, so generally what we're trying to isolate provider cash burn is look at what is on the hotel level, but what's really the true cash in and out we're not trying to make this a cash flow statement.
So items like property taxes that are lumpy.
We're not trying to do gear that we're trying to even that out in terms of what the current run rate based on all those.
Ended outs in drawn down.
Those numbers. So we're now tried it we're not going to factor in any benefits of drawing down in our a our as an example, that's actually some of that benefited us over the last 90 days as you saw the ours come down but that was not reflected or incorporated into our cash burn estimates that just additional classes. There. So we're trying to look at it really on a cash in and out.
On a now sustainable going forward basis, what are the do without having to hotel side, what's happening corporately, what's happening on the interest side Thats factored that in.
Okay got it so it's more of an accrual based analysis and then like you said picking it from the cash flow statement that sort of thing.
Well, well well now Guy I would say, it's more about its a hybrid so on those lumpy or things like property taxes and insurance, yet it's more accrual, but on the hotel operating side through that so down through GLP, it's really on the cash coming in and out and and rich I think as it relates to sort of working capital I think.
For the most part it washes out or might even be a little favorable because frankly without much group business you don't build much in a are.
With most of your transient being paid.
At the time of the transaction so.
It's.
Hello, it's not problematic from from that perspective that.
Your build up you have to build up working capital that.
Negatively impact your cash flow.
Okay got it that's helpful guys and then.
Second one here.
Terms of.
Furloughed employees.
Are you able to tell us what percentage of those have become permanent layoffs in the past 90 days and then as we think about.
Hope reopening hotels and staffing up are there any difficulties that that might come from attrition in the workforce in that sense or just just anything along those lines.
Yes, I think as it relates to ramping back up.
Weve.
We've had some problems with.
With bringing people back given the the generous nature of the combined unemployment insurance.
Benefits, coupled with the challenges that some people have with either child care or.
Generational.
Issues that family members that have that might be at risk. So.
We've had in many cases to sort of work down the list.
Where where where some folks may decline to come back and I would say, but we've been able to staff.
Per our needs.
Pretty much throughout the portfolio, but but we do see some people who.
Declined to come back.
Or prefer to come back later, if we can provide that flexibility.
Okay. Thank you.
Thank you. Our next question is coming from throws of Citi. Please go ahead.
Hey, good morning.
I just wanted I wanted to ask you with the cost structure that you're putting in place now assuming some of these cost reductions will be kind of permitted as business recovers do you have a sense of maybe.
Business, we're back to sort of normal revenue levels back to say 2019, what would be the.
Sort of overall change at the margin.
On a.
Basis.
It's a really good question, Smedes and and frankly, not not one that we're able to answer I would say I can speak more anecdotally, but theres no doubt that.
And I don't I don't know what normalized but it's going to be 345 years out in all likelihood.
But there's no doubt that these properties will will be operated with fewer people, particularly managers.
And in some cases Aurelius where technology.
Where we can take advantage of technology and the customer wants to use that that technology. So I think from that from that perspective should be better I also think food and beverage operations will be more efficient.
I think when we when we come back and we ultimately recover group I think the food programs are going to be different theyre going to be more efficient.
They are likely to be lower labor, particularly in the kitchen.
And as a result of that margins should be better on that side in that department as well.
Okay. Okay, and then I just wanted to ask you guys just.
You mentioned reopening the Copley.
I think of that it's kind of more of our group assets relative maybe sort of your others. I was just wondering kind of what are you seeing them thats driving your decision to reopen that.
At this point.
Sure. So we just signed a contract with northeastern University for 50000 rooms.
Between.
End of while mid August and mid December and what that does.
It shrinks our hotel from.
First of all its attractive its fifth financially desirable in terms of reducing our losses.
But but second it shrinks the hotel from from 800 rooms to 350 rooms.
And so what's left also becomes a more profitable opportunity.
Than previously the other piece of it as northeastern is actually going to be having classes.
Utilizing meeting space that they're also going to be compensating us for so.
That's the that frankly, that's the only.
That business is probably the only thing that would have allowed us to reopen that hotel in a matter that would be.
Financially more attractive than staying close.
Gotcha, Okay. Thank you appreciate it.
Yep.
Thank you. Our next question is coming from Neil Malkin with capital One Securities. Please go ahead.
Hey, guys good morning.
Good morning.
Maybe switching gears, a little bit something that was brought up maybe in.
April when this thing really started getting.
Pretty bad was the ability or potential too.
Make business interruption claims for hotels given.
The government mandated.
Shutdowns or restriction.
I'm wondering if you have any update with that.
If theres any potential Q.
Just some sort of agreements or some sort of.
Proceeds to help offset.
Lots of particularly when shutdowns our garden government mandated.
Sure well with you as you know these things are a complicated and.
And at some there won't be easy.
To work through insurance companies or something I can make it easy, but we're evaluating our options.
And multiple angles here and.
Well as we make progress on that will have dialogue as needed, but just see managed your expectations whatever resolution there is it won't be quick.
Likely, especially if it's a it's there is a any opportunity there. These things you take years to resolve but.
Well, we we've agreed insurance policy integrate coverage here and well go through and evaluate that and if theres an opportunity will proceed with that and if we have any.
Material updates will well keep you apprised of that.
Okay great.
And I know that in some of your hotel, even if you're not open or you don't plan on opening you do forward bookings are prebook need to kind of gauge your test the waters.
Just curious.
Are you talking about five hotels opening in August based on the sort of pre booking or initial demand that you're kind of.
Trying to ascertain using that you could potentially open more than five hotels.
Maybe if you can you give a comment on on how those those trends have look.
So far.
And they also so interestingly I mean, we go back to April.
No as as I noted in my comments and repeated the the idea was to open a few if you could lose less money right and so how do we gauge that we said what we want to make sure. The business is on the books well what we what we learned over the last three months is that the.
And business, which is pretty much all the business there is effectively.
Right now, it's 98% of the business is incredibly short term I.
I mean within a week or two weeks, we have some resorts that may go out four weeks, maybe six weeks, but that it really tails off and the urban properties don't go out that far that they are really short term in fact, we have days, where we double our occupancy is in the day for.
For the day at some of our urban properties not a lot I mean, we might go from.
8% to 16% that day. So so what we've determined as we really have to look at the market. We have to look at what we think the relevant competitors are we have to look at that 360 reports that show the demand in the market.
At the different price points and open based upon that with with the expectation that because of the quality and location of our properties, we're going to get our share at least if not more and so far everything we've opened has ramped up to a level.
That that that has reduced our burn and has gotten us too.
Or is getting us to what we think will be market share or better. So as it relates to opening additional properties, yes, we think.
That theres a possibility to open additional properties in August.
We're very closely monitoring, including with our properties in the market opening additional properties in L.A. I think as we as we indicated that process worked in San Diego, We opened all of our downtown properties in San Diego as a result of that at the beginning of July.
So there could be additional properties open with with the Westin opening and the W. opening in Boston.
In in the next two weeks because of the.
Contracts with the two universities.
We'll have all of our properties open in Boston and we're just beginning to open.
Next week two properties in DC, which again has been a slower market to reopen the one caution I would provide an ad.
You know I think I hope I was clear in my comments, but we do not anticipate any substantial improvement.
In business travel.
Or travel in total over the course of the rest of the year, we think it's unrealistic.
To expect at this point given the resurgence.
In the case is in debts in hospitalizations.
Particularly as compared to other places around the world, we have not gotten control of this virus.
And we shouldn't expect businesses to all of a sudden decide because labor day passes that they're now going to travel.
Corporations as you know like yours are not changing their travel policies.
When Labour day comes and probably not for the rest of the year unless there is significant improvement.
Every piece of group business.
Other than some small weddings for social pieces, very small social pieces of business.
Cancel.
Before arrival.
So.
When we reopened hotels at this point.
Our objective is to reduce the burn may be 100 or $200000 a property over the course of 60 day ramp up.
Add and less their special circumstances like at this at the West and and the W. In Boston with those dorm contracts. So.
Realistically.
Now at this point, it's best to forecast kind of where we are.
And if it gets if it gets better.
It's that'll be great, but it's not going to get a ton better over the course of the rest of the this year and I don't mean to be.
Debbie Downer here, but we're just trying to be pragmatic.
And we're all in the same boat that nobody seeing anything different.
At the end of the day, we we have plenty of business on the books in the fourth quarter.
It's not going to show up.
It's all getting rebook every piece of business.
Either gets cancelled or read bucked for sometime next year.
Okay. Thank you.
Thanks Neil.
Thank you. Our next question is coming from Shaun Kelley of Bank of America. Please go ahead.
Hi, John High Ray. Thank you for the all the detail and the comments on.
John I want to follow up on that sort of that last comment that you had about on just the sequential recovery and the overall travel demand from here.
Yes, I think clearly.
Those remarks, I think are very clear and.
But if we think about some of the other factors here you have an impact around seasonality at least in certain markets.
Perhaps not some of your more California oriented hotels, but but that's something we're after factoring if we go back in.
The history together.
School calendars, how about a big impact right, we had a really late labor day.
This year and you should start to be seeing in August.
Some of the behaviors are around back to school. Some people are optimistic that maybe that could change travel patterns. If side people don't go back to school.
You just talked about a couple of those factors I know your lead time, you're booking window is probably not going to lead you out that far so maybe just given your own intuition or gut feel would be helpful. For us to just get a sense since youve analyze this industry in these patterns longer than almost anyone.
Sure So FX.
That means on the all this.
Yes.
Thanks.
Sure.
Hi.
Dig of the other shall we appreciate that let me grab let me grab my came.
So so so yeah. So.
There's reason to have concerns about the seasonality.
Traditionally.
Leisure strength.
Is in the summertime.
I think that the.
The transition into the fall won't be quite it's not likely to be a severe given.
The large number of school districts that aren't going to go back physically.
That are going to be virtual the vast majority of the people who don't go back to their offices after labor day and continue to work from home.
I think there'll be a lot more flexibility.
And people will continue and even to a greater extent feel even more cooped up.
At the end of the day, so weekends could be stronger.
And weekdays probably.
A little less seasonality.
And then what the traditional dropdown might be.
We think some of that maybe all of it gets offset that offset by some improvement in business travel that's likely particularly non major corporate business travel I know.
Our some of our people are traveling now our asset managers.
Property teams our operators.
Architects designers.
Consultants. They are there some of them are back on the road and that's likely to increase into the fall again subject to what happens with the virus again I think the virus can dictate.
In one direction or the other.
Depending upon how successful or not we are in getting that contagion under control. So that's why what were and as indicated by the contracts we signed.
What the two universities.
For us at some of the decline or maybe more than the decline will see on the laser side can get offset by some of that contract business. In addition to some regular business that return. So that's kind of our best guess at this point, Sean which which suggests.
Yes, again, we don't see a dramatic change in either direction.
Leading into the fall.
No. That's helpful. And then maybe thinking about just the urban piece right. You were kind of helpful. In digging through a few the statistics youre seeing on the urban side relative to the resort side too.
Can you just help us like seeing through what kind of the specifically the rate environment on the urban hotels at least for the ones that you've kind of opened in and Youre out there in the market competing and then what do you just generally seeing on kind of the urban supply side at least for Pebblebrook market.
Are you seeing more supply trying to open up either anticipate in anticipation of labor day or or just kind of testing the market or are you seeing a substantial amount of hotels remained close given sort of the burn rates and what everybody's kind of competing against just what's the what's the dynamic in those markets.
As far as you see it.
I think you know, we where we're seeing.
A slow reopening of some hotels in the urban markets.
You can you if you track any other stuff online what you'll see people.
People post reopening dates.
So far a lot of those they just take those down posts push it back further.
We've certainly been doing that at our properties that have not reopened.
And and as Neil was asking you know we will take bookings beginning those dates.
I will cancel those bookings are move them. If we can if we don't open so.
So we are seeing some supply come back to those markets, obviously that has that'll absorbs some other growth.
In demand that comes into the market.
I think in the fall in some cities and I know Theres other properties in Boston as an example.
That have booked universities like Suffolk University.
Who's taken two or three hotels in the market.
For for students that will take some of the supply out in the market.
I think theres some markets like New York.
It's going to be a really slow reopening and and I Dare say as we've said before a lot of properties that probably don't reopened.
For a while I think we'll see in Chicago.
So the winter in Chicago without conventions is not a good time.
Even in good times and so it won't surprise us if many hotels don't reopened this year in Chicago in New York as an example in Boston.
Big Big hotels are much more of a struggle to reopen and.
We're fortunate to be able to get that business for Copley.
In in Boston, we've not been successful in Chicago, nor am I aware that many hotels have been successful getting other replacement business in that market. So it's going to be a tough.
Fall doesn't make a lot of sense to open into the fall.
And maybe a marginally better environment only to close for the winner and not reopened until.
April may when Chicago would typically get better and assuming that there is some health solution at that point, so thats a little bit of color shot I would say the markets that are better are the ones with better weather.
And that will continue into the fall.
Certainly.
You know downtown San Diego La good examples people will come there because of the weather.
Welcome to the beach because its cooler so.
So those markets benefit more so than maybe some of the northern markets.
Thank you very much.
Thank you. Our next question is coming from Michael Bellisario Baird. Please go ahead.
Good morning, everyone.
Hey, Mike Good morning.
And just looking at the resort portfolio stats in your slide deck looks like that weekend HDR has been down now for the last two weekends in a row.
Anything to read into that how much as mix shift and really just anything there that might give you a pause on the laser major front heading in August and September yes. It's a good question. It's really it's a mix shift, but it's a property mix shift meeting ramping up of properties like skamania and Sean monoxide.
That that don't have the same kind of rates as low barriers in Paradise point and and the properties in key west. So it's it's more.
Because you're you're picking up more revenue in ramp up from the lower rated hotels is is why.
That is happening, but we continue to drive.
We'll go from I think we said about a million three in EBITDA.
In in June at the resorts.
To something closer to three and a half million plus.
In July.
So so the bottom line numbers.
Continue to get better.
Got it thanks, and then just shifting gears on San Francisco I know, we've talked about at last quarter, but any update on the recently passed legislation there and then how that's impacting your thinking about.
Reopening near close hotels, and then also capex spending, but I think you had a renovation has got to that Villa Florence later this year.
So.
So San Francisco's up the only city in California that has yet to allow tourists and leisure to retire and they're still in.
I don't know phase, one be or something of their reopening or if they move to to a they move backwards with the resurgence in cases in other parts of California.
So theres not much business in San Francisco anyway.
So.
For the moment I don't think the passing of the cleaning ordinance really has an impact on what hotels were going to reopen we're not going to reopen any hotels.
Until they reopen the city and we see some demand return I mean, we have two little hotels open theres just not much demand in the market unless you have other business.
And I think I mean, my my hope is that.
I mean, the legislation there is driven by the Union and I think it is inter related with negotiations.
Related to.
Operating procedures on reopening and during the pandemic.
Add I'm hopeful that as we work through and reach resolution and some other markets that don't get clouded by this extra layer of noise from the legislation that the rational resolutions and other markets will.
Ultimately make their way to San Francisco.
And some other markets, where there's where there might be noise, so but in the in the meantime, I mean, we eat up we don't have any plans to reopen any hotels in San Francisco, We don't see right now a recovery in the cards in that city based upon their approach to Rio.
Opening and.
Well just play it by ear if that changes.
Thank you.
Thank you. Our next question is coming from Anthony Powell of Barclays. Please go ahead.
Hi, good morning.
I'm seeing a lot more permanent closure announcements in New York another synergies.
Are there any markets, where you and what you think maybe you could benefit over the long run for.
More permanent closure conversions in the industry.
Well I mean, I think the closures will help all the whatever markets. They close in right and there's reasons for those closures, meaning the economics in that market.
Out.
Our vary in those markets are very challenging so.
I do think that will be the case I think sometimes also permanent closures are permanent.
They may signal.
A negotiation that needs to two I've come to conclusion, it's part of a tactic or in some cases.
There.
Under new ownership might have a new ownership might have anew perspective, but but we do think as it happened in prior cycles. So we'll be significant number of closures, particularly properties that are more expensive to operate and maybe not as have not been as competitive but when things were.
Good they could hang on but in tough times and going forward.
Now that it's not a good business box or business location.
Got it and you mentioned that most of your groups are cancelling and Rebooking can you give us a beach on on how the Rebooking and also some commentary on.
Yes, the convention centers in the city or trying to schedule citywide conventions. So I could happen next year or 2022, what kind of the.
Activity there.
Yes.
So.
Theres no statistics that would be relevant.
And let me explain that as it relates to.
Booking our rebooking.
Theres, probably groups Weve rebook, three or four times already.
Clouds, all the numbers there, they're not none of that information and look I don't mean to be I don't know kras or whatever I'm just trying to provide trying to help everyone investors research I understand that numbers for this year.
There certainly are not relevant.
And if something read books.
We're starting to see cancellations in the first quarter of next year, you've seen some corporate announcements like Google say theyre not returning until.
July to their offices.
I don't think anything changes when December 20, when at December 30, Onest and it goes to January Onest until there's.
Progress on on controlling this contagion so.
I have to tell yet I haven't looked at our group pace in three months.
Because it's not relevant.
And until we begin to get some more certainty that the bookings mean something.
I, it's there's no point me quoting any numbers to you because they're they're misleading.
At the end of the day frankly so.
That we are booking plenty of business for next year.
I don't know, whether it'll come or not.
There's a bunch of convention center still have homeless in in their facilities.
What what are they going to do with those people.
The solutions, there and when can convention business come back I mean, we can't even have teams play baseball right now let alone have fans in the stands so again I don't mean to be negative or sobering, we're just trying to be realistic no that.
There's nothing to be glean from group pace at this point.
Understood. Thank you for that and just maybe one more you talked about.
Societies to make it simple sacrifices to give the singer control you're obviously its share of HL a.
What do you recommending to policymakers in the public to that to get this better in the near term.
Well you know the industry.
Just adopted.
Hey.
Hey policy as part of our say stay program.
That guess are required to wear masks.
Within our properties in the public areas inside.
People should wear masks.
They should the even with mass they should stay six feet apart.
They shouldnt have.
Major gatherings.
Whether they have mass on or not.
At the end of the day I'm just follow the science and the recommendations that are that are being provided these are.
So it it's not a constitutional rights issue, because we impose plenty of things on society for societies. Good.
Yes, we require people to take test to drive a car.
You can't drive why your drunkard stoned speed limit their speed limits.
I mean to where amassed to protect others.
Okay. If you don't want to protect others.
That's fine I mean, there plenty of selfish people on the world, but it doesn't seem like a big deal to do that and so.
I'd say follow the science, we're trying to do it as an industry.
Sent letters to every governor in the country.
Begging them to impose mask requirements and mandates in their states.
And.
And you know you can see every day or every week there more states that either impose those mandates or have increased cases.
So that's sort of the approach we've taken and we want our gas and our associates not only to be safe, but to feel confident that theyre going to be safe.
At the end of the day.
Great. Thank you.
Okay. Thanks.
Appreciate it Anthony.
Thank you. Our next question is coming from Lukas Hartwich of Green Street Advisors. Please go ahead.
Thanks morning.
We're also getting used to a world of zoom slack teens et cetera.
Can you provide an update of your views of what the potential long term impact is from a from us adopting those technologies on business transient travel.
Sure I mean I think.
It's it's continuing trend that we've been living with for the past 10, or 15 years I mean I remember this from prior cycles, where people said video technology is going to replace all meetings.
And that was not the case I think.
Interestingly.
Meetings have grown over that period of time, because there are other reasons for it social interaction, where human where humans, we want us socially interact in person.
It's important to our psychological well wellbeing.
Will there be some groups and some transient travel that doesn't occur because it can be done.
By zoom or equivalent.
Digital technology sure.
Do I think it will change the world and cause any kind of substantial retracement of demand no I don't and.
I think.
We live in a competitive world and when when someone who's competing for business can go meet with someone in person and go out to dinner and get to know them and and.
Get deeper into issues show that they care that that clients important to them. They are going to win business from somebody who's sitting in their office trying to meet with that client over the internet.
And I would have postulate something else.
As well and that is.
And you're already seeing stories about it and companies come out and say well maybe this work from home thing.
Isn't quite what it's all.
It's all been so far I mean, let's think about it for a second.
It sure Productivities up at home, there's nothing else to do.
You can't go anywhere you can't do anything so yeah.
I look at surveys that we've done of our employees. We just did another one.
Now.
You can't turn it off when you're at home, what's the beginning in the end of the day.
And we believe.
No companies will be more flexible with allowing.
Workers to work from home, sometimes but I think what happens is.
If you think about it the more people are not together in the office.
The more important it is in order to build a culture to build binding to have meetings to strategize to work on projects together the more important it actually becomes to get together. So we actually think meetings actually go up over the long term as work from home.
Increases from where it was pre pandemic.
At the end of the debt.
And I, certainly think I certainly think leisure.
You can look at all or pictures on the Internet and videos and everything on the Internet, but.
It's not like going there, it's not like eating in the restaurants and trying the food and.
Going to the museums, even if you can do on virtually it's not it's right. It's not the same at the end of the day.
Great.
And then just one quick follow up.
Do you any views on additional financial support from the government I mean, clearly the industry at large is is in a very tough place and Im just curious do you expect there to be additional support there.
Yes, I do I do I mean support comes in in different through different pieces of different programs. We do think unemployment insurance the supplemental federal.
At some level will get extended.
We actually are supportive of.
Ill limit audit.
Where people don't make more money unemployed than they did employed and we've seen the downside of that where folks have declined to to come back.
And so I don't think Thats the best use of what is.
We are capital the second as we think the PPP or some equivalent will get extended.
For industries that have been severely impacted whether that's defined as 50% drop in revenues or 35% dropping in revenues from pre pan pandemic levels.
We think the PPP well.
Or equivalent program will will provide and that'll help individual owners of of hotels.
To get through help them get through what we'll continue to be a really long slow and difficult recovery.
And then we think there I mean, we continue to have discussions.
With treasury and and with the Senate in the house over changes to the main street lending program, which is really not been used.
By the real estate industry, because the leverage limitations really not meant for.
For secured real estate.
Lending and so.
We're we've proposed things like LTV.
Criteria as opposed to.
EBITDA multiple criteria at the end of the day. So we do think and all of those areas Lucas there should be.
Additional benefits to the industry.
That come out of this next legislation that again, we believe will ultimately past based upon a broad based bipartisan compromise.
Great. Thank you.
Thank you. Our next question is coming from Gregory Miller of Suntrust Robinson Humphrey. Please go ahead.
Hi, John Ray.
Yes.
Yeah, John I watched the hotel industry women are you are on recently with the hotelier from Helsinki, and if I recall you spoke about the need for a perception of safety within the entire travel experience.
One could argue that the hotel industry is somewhat reliant on good practices not just by the consumer or by government mandates.
By corporate operating standards within the related travel space.
And going off of your remarks today, especially following the recent travels.
What do you think the travel and related companies should do differently today.
To improve the perception of safety fear perspective hotel demand, especially if some government bodies do not require masks.
Yes, that's a really good question. So we continue to speak with the airline industry.
And and the operators of of airports to have a consistent program across the country. So I.
I think most airlines have now adopted a requirement to wear masks on flights, but Dave.
It took a long time and I think it could have.
It they still need to make a bigger deal out of it I don't know that all of.
The potential customers out there no not only what the requirements are but frankly, what their cleaning protocols are I know that they have seen adds I've seen other programs, but you don't know is that just related to that airline as it related to all the airlines do that do they all spray down.
Planes in between flights today.
Do they all require masks are they require are they seeing people at middle seats or not.
Frankly, I think in this environment, they should band together and have a consistent program that will be more effective because it's across the entire industry.
And.
And we'll instill more confidence knowing that theres consistency everywhere that you travel and if you're taking a connecting flight which.
There are lot more of them now than there than there used to be or or maybe the other way around there's a lot fewer nonstops than than than there used to be you have to take connectors, what I connect what's going on in that airport I don't know I don't know what their program is our people required to wear masks in those airports most of that.
I've seen the answer is no.
And if it is theres no enforcement Theres no signs there is no recommendation. So those those that's certainly relates to the airlines.
I think it'd be helpful for them to promote the fact that flight attendants are no more have been no more likely to get the virus than anyone else and they fly constantly so.
Planes evidently are frankly pretty safe places because of the air systems.
And the cleaning protocols, but I don't think they've gotten that point across based upon the customer surveys we've seen and then.
Interestingly rental car business is probably up over as compared to over or left given that people feel more comfortable with the belief that there the one controlling their they only one is going to be in the car.
And and presumably that rental car companies have a cleaning protocol and at worst.
But down when you get in and then no one else gets and until you return on the car so.
I think those are the things I'd suggest.
Great. Thanks, John and then you also from a thing called you talked about operations in some cases being like at VNB today.
How long do you expect some of your property management to be engaging and the traditional hourly functions and are you concerned that that there might be some impact to your senior management, saying.
Really not desires of doing this any longer and may move onto other roles within the travel industry or elsewhere.
Yes, I mean, it I think what will come out of this is.
Jams will will in the long term b.
It's been described to me by some operators and I would agree with US maybe more chief operating officers of their business.
And and will be more proactively involved as more of.
But more of the of the decisions get made off site.
In in corporate back office, where resources are being built that we're seeing outside of the major brands as an example.
So whether its revenue management, whether its finance and accounting.
I think theres going to be more.
There'll be more done.
Offsite not India off site, but back in the operators corporate offices, where you probably have.
More experience for senior people and you can move.
The operations at the property more to the physical operations and the guest satisfaction side, and maybe a little bit away from some of the financial side. So maybe it's.
Maybe it's going from being CEO to COO.
Of your business and do I think some people.
May leave and May lead the industry sure I mean, and frankly, we see that we saw that pre pandemic.
At the end of the day and I think there'll be some people, who perhaps would prefer not to do that but I do think when we get back to.
When we're running in the eighties again.
There that probably won't happen.
They're they're gonna have to be back to managing people.
And and and probably not not actually.
Checking people in.
Other than special situations.
Well look forward to those days.
Thanks, and enjoy the rest of your summers thanks, Craig Thank you.
Thank you our last question today is coming from Patrick level of Goldman Sachs. Please go ahead.
Hey, it's actually Stephen Grambling Goldman Thanks for sneaking in.
I guess thinking about.
Future has your thought process or do you think the industry thought process around the right leverage levels for the business or even as you think about pursuing.
Acquisitions as they potentially start coming up.
On the back end of this has a wall.
Yeah. That's a really good question, we took we talk about it a lot we talk with the brokerage community a lot about that we talked to the lending community a lot I think I think what will evolve for the near term and that it probably gets overwhelmed by capital availability, which is what.
Typically happens in a cycle as you know the terms will get.
More restrictive the loan levels the leverage levels will come down the Costco go up.
I think the.
I think one other things that will come out of this that.
Perhaps wasn't focused on is maybe less so about the leverage level and more about liquidity about resources. So if you're if you have a hotel fund.
Now I got to think about.
Not just the leverage level, but I need excess liquidity right I need.
I mean, what why are we still here, we had 650 million dollar unused credit line.
That we put together following the the acquisition of Lasalle.
That's critical to our ability to survive and and critical to anyone trying to survive in the hotel business. Today is liquidity. So I do think that's probably the biggest thing that changes.
The leverage level the restrictions the cost.
That that usually happens cyclical.
And usually gets overwhelmed including.
Expiries experience and and.
Memory.
Usually gets so overwhelmed by.
Capital.
Towards the end of a cycle, so yes, and Steven also as you're thinking about the Saudi liquidity side I think from the Republic, we standpoint, clearly those yet more liquidity benefit in this area. Even if you had a ton of cash as we've seen this wasn't a leverage issue for the hotel reads. It's been a revenue issue an EBITDA issue.
Going way with demand so even reach that had very low leverage still how to get waivers. So it's about liquidity and having availability there, but then the other side is going to be.
The different pools of capital because.
You don't necessarily want to rely in just the bank market. So.
Theres lot of pressure combined all the reach that our line of that make markets I think as you go into that.
Next cycle here I think you'll look at different sources of debt whether that's.
More folks acts accessing the debt markets.
Like we saw with park recently or other channels, we have access to the private placement market.
Outside so I think I'll be an area, where we'll be focused as we get into next cycle. Because you can't just wondering one source for debt because as we know that could be finicky at certain times or not be available I think the one other piece of that is.
And I think we had sort of.
Moved away from CMBS debt.
And partly because when you have a problem there is nobody to talk to.
There's no relationship Theres just a contract.
And they had multiple client their client as are the bondholders there are not the borrower at the end of the day. So so it'll be interesting to see how the view of CMBS changes, particularly among the public companies.
And well they move well they move away.
From that source of capital to other sources, perhaps bonds or or or private placement to capital as Ray mentioned.
I guess, a quick follow up on that I mean would you ever consider effectively buying into CMBS or other types of.
Loans as a way of potentially getting exposure to a recovery and maybe ultimately controlling announcement.
Yes, we would but I think it would be it would likely be more driven by.
An expectation that we we are likely to gain control the asset.
As opposed to just a financial return.
In buying a financial instrument, because our real value add is.
His asset management and redevelopment and ownership.
And capital allocation.
And while we were that might fulfill our capital allocation expertise.
Frankly, being a lender going through a process is not our expertise and and so it would have to be pretty pretty compelling.
For us to pursue that and frankly be successful with other capital that is much more experience in that area.
Makes sense. Thanks, so much.
Thank you at this time I'd like to turn the floor back over to Mr. boards for closing comments.
Thanks, Don.
For anybody who is still with us.
Sorry about the time, but we'd like to answer all the questions that folks have.
Thank you so much for participating and have a good rest of the summer. However, long it last here. So we look forward to updating you again.
In late October.
Thank you ladies and gentlemen, thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
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