Q2 2020 Apple Hospitality REIT Inc Earnings Call

Participants Rhonda listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded it is now my pleasure to turn the conference over to your host Kelly Clark Vice President Investor Relations. Thank you you may begin.

Thank you and good morning, we welcome you to Apple hospitality rate second quarter 2020 earnings call on this a seven day of August 2020.

Today's call will be based on the second quarter 2020 earnings release, and form 10-Q, which were distributed and filed yesterday afternoon.

As a reminder, today's call will contain forward looking statements.

Fine by Federal Securities laws, including statements regarding future operating results and the impact of the company's business and financial condition from and measures being taking it in response to kind of in Nike.

These statements involve known and unknown risks and other factors, which may cause actual results performance or achievements.

Fatality to be materially different from future results performance or achievements expressed or implied by such forward looking statement.

Participants should carefully review, our financial statements and the notes there too.

Well, that's a risk factors described in Apple hospitality used annual report on form 10-K for the year ended December 31st 2019 quarterly report on form 10-Q for the quarter ended June Thirtyth 2020, and other filings with the FCC.

Any forward looking statement the Apple hospitality makes speaks only as of today and the company undertakes no obligation to publicly update or revise any forward looking statements if except as required by law.

In addition, certain non-GAAP measures of performance such as EBITDA EBITDA already adjusted EBITDA Ari adjusted Hotel EBITDA.

So and modified after that so well be discussed during this call.

We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the FCC.

A copy of the earnings release.

Additional information about the company please visit Apple hospitality Riet Dot com.

This morning, just a night, our Chief Executive Officer, Ellipse Perkins, our Chief Financial Officer will provide an overview of our results for the second quarter of 2020.

Following the overview, we will open the call for key Wednesday at this time, it's my pleasure to turn the call ever to Justin.

Thank you Kelly.

Good morning, everyone and thank you for joining us today.

I hope that each of you and your loved ones are staying safe and well.

The current operating environment to something like anything we've experienced during our more than 20 year history in the lodging industry.

Strain and resiliency of our portfolio and underline strategy have been tested.

And the results are consistent with our expectation.

Our portfolio are predominantly rooms focused hotels that are aligned with industry, leading brands have broad consumer appeal and our diversified across 87 markets.

Given the size efficient design and location of our hotels Oliver hotels are currently open and accepting reservations with enhanced health and temptation measures in place.

From the onset of the pandemic, we have been intently focused on maintaining sound liquidity position.

Cutting long term value for our shareholders and then churn our ability to thrive in future years.

Our initial efforts have been focused around reducing our cash burn every turning to cash flow positive as quickly as possible.

Minimizing our cash burn in the near term preserves the strength of our balance sheet protects the value of our equity and positions us to take advantage of strategic opportunities in the early stages of a recovery.

As occupancy improved some markets begin to stabilize we will look for ways to further optimize our portfolio through opportunistic dispositions and disciplined capital allocation.

Yes, your economic disruptions impact individual markets differently and thoughtful portfolio management will ensure that we are positioned appropriately.

With the flexible balance sheet, we look for accretive opportunities that leverage our industry experience and the strength of our underlying platform. That's operations began to stabilize.

I'm confident we are uniquely positioned to whether the current operating challenges and outperform has traveled recovers.

When the initial shock at the Cobot 19, pandemic and efforts to mitigate it spread hit the travel industry in mid March we worked with our management companies to meet Swift operational changes the staffing in service models consolidated operations in certain markets minimize utility usage on unused floors Reid.

Used for eliminated operational costs, adjusted food and beverage offerings reduced amenities renegotiate hotel service contracts and modified our sales strategy to focus on sectors with continuing lodging needs.

At the corporate levels, we postponed all non essential capital improvements projects for 2020.

We suspended monthly distributions, we reduced board and senior executive compensation and we terminated the written trading plan under our share repurchase program.

Through our efforts in collaboration with our property management teams were able to realize a cash burn during the month of April month, when total portfolio occupancy was less than 18% there was inline with expectations, we outlined during our first quarter call.

It's challenging economic at an operating environment the industry assays, we produced positive hotel level EBITDA for the quarter.

Positive corporate level EBITDA for the month <unk> Jude.

Based on topline results, we estimate we achieved positive cash flow in the month of July.

Performance of course varies by market and there remains significant uncertainty as to when operations at our hotels will return to 29 million levels.

Given the ongoing uncertainties related to the depth and duration of the cobot 19 pandemic, we're not yet in a position to provide an operational outlook for the company.

We have however demonstrated the resilience of our portfolio and the value of our strategy in a challenging environment.

As the economy recovers, we are exceptionally well positioned to benefit.

Our assets are affiliation with strong brands, our partnership with exceptional third party matters, our data driven benchmarking approached asset management.

Balance sheet, our broad geographic diversification and our experience team at Apple provide us the security and uncertain times and the ability to produce strong returns for investors during periods of economic prosperity.

In our conceal effort to refine our per player to maximize performance over the long term, we are strategically partner with trusted developers to invest in new non prototypical assets and targeted markets.

In April we closed on the dual branded Hampton Inn <unk> suites at home to sweep in Cape Canaveral, Florida Development project, which we had contracted for in 2018.

The purchase price was approximately $47 million, which was funded by $25 million a cash on hand, and a note with the developers secured by the hotels for approximately $22 million that is payable in 2021.

I live in our unique development contracts subsequent to closing on these hotels and quarter end, we realized shared savings with the developer that resulted in an over 1 billion dollar reduction in the purchase price.

You anticipate closing on the dual branded Hyatt House and Hyatt place in Tempe, Arizona Development project, which we contracted for in 2018 later this month for a total purchase price of approximately $65 billion.

And the Hilton Garden Inn in Madison, Wisconsin, which we contracted for in 29 team for approximately $50 million is currently under construction.

So I mean, all conditions to close enough that we anticipate acquiring the Madison hotel in 2021.

An effort to preserve our future liquidity, we terminated the contract for the purchase of a to be developed courtyard by Marriott in Denver, Colorado during the quarter.

Historically, new supply as follow demand trends and while we have not yet seen a meaningful decline in new supply across our markets. We anticipate the pandemics unprecedented impact on demand and the economy overall will meaningfully flow the level of new construction starts over the next several years.

Continue to explore disposition opportunities and during the quarter, we entered into a contract for the sale of our Homewood suites in Memphis, Tennessee for approximately $9 million.

We anticipate that total transaction volume for the industry will be down through the remainder of here. We will continue to opportunistically pursue transactions that further refine and enhance our portfolio.

We have consistently reinvested in our existing hotels to maintain their value and to ensure their market competitive with us.

As a result of these investments and the quality of our on site management teams. Our portfolio has consistently outperformed on measures of guest satisfaction and benefited from strong market share.

With the temporary easy or brand renovation requirements and an effort and in an effort to preserve capital we postponed all non essential capital improvement projects for the year, reducing our anticipated 2020 spend by approximately $50 million.

During the six month ended June Thirtyth 2020, we invested approximately $30 million and capital expenditures completing renovations that 16 hotels started prior to the onset of corporate 19.

In July we completed renovation work at our Hilton Garden Inn, and Islip, and we expect to completion of our Richmond map renovation to occur late this summer.

We anticipate spending an additional $5 million to $10 million during the remainder of the year.

You have always maintaining a conservative capital structure to provide stability for the company during periods of economic volatility the flexibility to respond to changes in the operating environment and the ability to act on opportunities that may arise within the marketplace.

In June we entered into amendments to each of our credit facility to suspend the financial covenants under the credit agreement until June Thirtyth 2021.

While still allowing us to make investments in new acquisitions and in our existing hotels.

We are grateful for the strong relationships, we have with our lenders for their willingness to work with us to make adjustments necessary in the current environment.

Apple hospitality was intentionally structured to weather challenging times and to produce attractive returns during periods of economic prosperity.

You have strengthened and refined our ownership strategy over 20 years, and the lodging industry and through multiple economic cycles.

And our first quarter call I highlighted the fact that we were uniquely position because of the type of assets, we haven't our geographic diversification, our efficient corporate structure and our low relatively low leverage to be among the first the benefit from relax restrictions and a reopening of the economy.

Well I business was and continues to be materially impacted by the covered 19 pandemic I may we were producing positive hotel EBITDA and in June we were just shy of covering all corporate level cost, including principal and interest on I loans.

We anticipate that we will produce positive cash flow at the corporate level in July well before the majority of our peers.

The challenges facing the industry are complex and we do not anticipate that the path to recovery will follow a straight line.

However, we have consistently articulated the strategic benefits of owning a rooms focused portfolio diversified across locations Marketsite brands and hotel operators.

The current environment has provided the ultimate test of our assertion that our strategy would provide for relative stability during periods of economic difficulty.

Hotels have proven appeal with the broadest group of potential customers.

And the association with top brands combined with the strong value proposition I'd be upscale select service model has historically led to strong performance, starting all phases of economic cycles.

Our team has a track record of creating value during challenging economic period, and I'm confident that we will emerge from the current crisis well position to outperform.

It's now my pleasure to turn the call ever to live.

Thank you Justin and thank you everyone for joining us this morning.

We entered the quarter with weekly occupancy around 16% for our portfolio.

I'm in April we began to see some improvement as our team worked diligently to focus our sales efforts on cobot ninetys specific opportunities to maximize performance based on available demand.

Addition to first responders and other business directly related to the pandemic. We were also able to successfully market to other demand generators, such as leisure, which grew stronger as we entered the summer month construction manufacturing project business and government.

Occupancy steadily improved each month during the quarter and for the month of June our hotels achieved occupancy a 38% at an average daily rate of $105.

Positive trends have generally continued and we finished the month of July at an occupancy of approximately 45%.

The immediate impact of covered 19 in March with broad based and for the month of April more than 50% of our hotels were running less than 15% occupancy and only 6% had occupancy above 50%.

We began to see improvements in may with 27% of our hotels running less than 15% occupancy and 18% of our hotels that occupancy levels up 50% or greater.

In June 15% of our hotels Ram less than 15% occupancy and 32% of our hotels had occupancy above 50%.

The end of July almost half of our portfolio was running at or above 50% occupancy and only 6% of our hotels at occupancy below 15% 18 of which were intentionally consolidated in market clusters.

Our asset management and hotel management teams have done a tremendous job working to identify topline opportunities across our markets and maximize operations in the current environment.

Several several characteristics of our portfolio have and will continue to position us for outperformance both in the current environment as well as in the recovery.

Our portfolios broadly diversified with almost 80% of our brands located outside of urban markets limiting our dependence on international travel and large convention business, allowing us to realize greater benefit from areas that have each travel restriction.

Extended stay in suite properties account for over 50% of Iran, which have consistently had strong consumer appeal, but also provide ideal accommodations to those most likely to be traveling in the current environment.

Our reliance on group demand, which is expected to take the longest to recover as low with only 14% of our traditional room night next coming from this segment.

The majority of our properties are located and drive to market, which has allowed us to benefit from the recent relative strength of leisure demand.

Also allow us to capitalize on regional based business travel expected to return before larger corporate demand.

Our leisure markets in the South East were particularly strong in the quarter, but we also experienced higher occupancy and several others, including sapphic pockets of Houston, El Paso, New work and Anchorage with demand in those markets coming primarily from construction military airline crew.

And disaster recovery business.

In addition to improvements in the topline performance during the quarter. We grew operational efficiencies and are pleased to have achieved steady improvement in bottom line performance as we progressed through the quarter.

Adjusted Hotel EBITDA for the month of June was $8 million and for the quarter was $704000.

Due to the Swiss efforts of our team and our hotel operators to implement a variety of cost elimination and efficiency initiatives at each of our hotels hotel operating expenses were reduced by 67% during the quarter as compared to last year with all of our hotels opened and receiving reservation.

In markets, where we own multiple assets, we have intentionally consolidated operations and occupancy in order to gain increments incremental efficiency.

As of June Thirtyth 18 of our hotels had consolidated operations down from 38 hotels in May.

We continue to reduce this number as occupancy is impressive.

What's our asset management team established new Labour and operating models appropriate to navigate the extreme low occupancy experienced at the onset of this crisis. They quickly transitioned and began working with each of our management companies just that models at various occupancy levels in an effort to prepare for the variability and recovery across markets and who.

No.

And establishing these labor models and operating plans our team leveraged benchmarking across all of our management companies sharing best practices and optimizing the plans as a result.

Pre establishing labor models in operating plan based on various occupancy levels has allowed us to proactively in short we have the appropriate framework to maximize performance as occupancy has increased.

We have worked diligently with our managers to ensure that our approach is well balanced with sufficient measures and resources deployed to protect the physical asset our associates and our guest saying it's heavily focused on setting our hotels up for success over the long term.

During our last call when these operational adjustments in mind, we estimated our monthly cash burn rate, including property level expenses corporate G.N., a property taxes insurance in debt service would be approximately $18 million at an occupancy level and occupancy levels between 15% and 20%.

We were able to meet these estimates while operating at the lowest occupancy levels and continue to reduce our cash burn throughout the quarter and occupancy has increased and we estimate.

We achieved positive cash flow in July with approximately 45% occupancy.

The current operating environment remains incredibly uncertain with growing concerns related to new Kobe note 19 cases in recent weeks and some cost increases as we implement enhance cleaning standard across our portfolio and add back staff to service higher occupancy at some of our hotel.

However, we continue to believe we're well positioned to flex that's necessary as these challenges arrived and mitigate the impact to our liquidity.

Significant representation on brand Advisory Council, we are actively involved in discussions related to increasing the efficiency of future service and staffing models in ways that were more than offset potential cost increases related to the implementation of enhanced health and safety protocols and improve long term operating margin.

We've always believed that maintaining a strong balance sheet would provide us with stability during periods of economic difficulty and flexibility to act opportunistically.

We entered the current downturn with net debt to EBITDA of approximately 3.1 time.

As of June Thirtyth 2020, we had approximately $1.6 billion a total debt outstanding with the current combined weighted average interest rate of approximately 3.8% cash on hand of approximately $156 million and availability under our revolving credit facility of approximately.

Late $225 million.

Excluding unamortized debt issuance cost and fair value adjustment the company's total outstanding indebtedness. It's a comprised of approximately $519 million in property level debt secured by 33 hotels and approximately $1.1 billion outstanding on our unsecured credit facility.

In March two increased readily available liquidity, we drew down the remaining availability under our 425 million dollar revolving credit facility.

As a result entering into amendments to our credit facilities and the effective reduction in our monthly cash burn, resulting from improved occupancy and cost containment efforts the company repaid approximately $225 million and $100 million of borrowings under our revolving credit facility in June and July.

Hi, respectively.

The reduced borrowings on our line generate approximately $2 million in quarterly interest savings.

To preserve capital in the current environment. We also suspended monthly distributions beginning with the April distribution postponed non essential capital improvement projects terminated the written trading plan under our share repurchase program and meaningfully reduced corporate level GNS.

At June Thirtyth 2020, the company's total debt to total capitalization that Kashi cash equivalents with approximately 40% and weighted average debt maturities were five years no maturities for the remainder of 2020 and $53 million net reserves maturing in 2021.

As Justin mentioned effective June that we successfully entered into amendments to each of our credit facility. That's it spans the testing a financial covenants under our credit facilities through June Thirtyth 2021, with the option for us to opt out if things improve and modify the calculations for the following year, allowing for.

Additional flexibility following the covenant relief period.

The terms of the amendments include minimum liquidity requirement and limitation on limitations on share repurchases and cash dividend payments.

However, during the waiver period. The amendment does allow for up to $50 million inked discretionary capital expenditures and up to $370 million and acquisitions, including the allowance for properties currently under contract, but serving flexibility to be opportunistic.

Throughout our history, we have fostered strong relationships with our lenders. We appreciate their confidence in our ability to manage this current crisis and are grateful for their continued support during these challenging times.

I also want to thank our teams to have worked tirelessly to optimize performance in the most challenging operating environment. Our history, our industry has ever faced their efforts and experience coupled with the strength of our platform have put us in a position where at current occupancy levels, we expect to be cash flow positive preserving liquidity.

Okay through this crisis, and giving us great ability to be opportunistic as we look to bring long term value to our shareholders.

We will now open the call to question.

Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tell indicate your line is in the question Q you May press Star too if you like to remove your question from the Q.

<unk> participants use and speaker equipment, it may be necessary to pick up your handset before a person. This dark use one moment. Please why we poll for questions.

Our first question comes from Austin Wurschmidt with Keybanc. Please proceed with your question.

Hi, good morning, everybody and.

Congratulations on getting back to to the breakeven level.

Well, what I'd like to understand I guess it is as you look out you know could we continue to see occupancy move higher and as you look into August and September or whatever visibility on bookings yeah.

Or do you think it's possible that may be performances is peaking out here.

Just given the lack of corporate demand and you know it will require kind of corporate demand coming back to see that next.

Thank you Austin and they are a good question, obviously, if the last six months have proven anything to us. It's that anything is possible and you know I I think we're fortunate enough to have explored occupancy levels and operating models at those occupancy levels that we had.

You know when our 20 here I experienced in the industry not seen before and I think should there be a dip we are adequately prepared.

To make the adjustments necessary to ensure minimal cash burn during that period time. That's said you know what we're cautiously optimistic that things continue and and yeah. I think we have reason to feel that way.

I highlighted in my remarks that we don't anticipate the path forward will be a you'd have follow a straight line that there will likely be bumps in the road, but you know we're incredibly well positioned I think having a broadly diversified portfolio gives us exposure to you know the largest.

Number of different region for the country and demand generators related to those areas and gives us I think increased confidence that what we're well positioned regardless of what the future free.

I appreciate the thoughts and then maybe a another one three justin so despite achieving that breakeven level on July and balance sheet, certainly in <unk> and relatively good position now being being back at those levels and preserving that capacity you're under contract to sell a small lots that which you know.

Sensibly I think you might think it's the worst time you'd want to be a seller right. Now. So can you just help us understand the decision process, maybe give us a sense or what valuation looks like you know on this that's one deal with knowing that it's relatively small, but you know what the appetite is for additional sales sort of in the bay.

Kathy.

Absolutely I highlighted in my remarks that that our expectation as and always has been that markets change over time, and the relevance and appeal of our assets. The Fas in those markets changes as well we've been consistent out from the beginning and our approach to our portfolio looking for opportunities.

The buy and sell assets in ways that didn't have the overall value I'm thinking the conversation or related to that Memphis asset begins prior to the pandemic.

The buyer as a private equity investor I'm interested in investing in that that hotel for an alternative use conversion to multifamily and this particular asset is somewhat of an outlier in our portfolio in that it's over 30 years old Hi, and is a first generation Homewood suites with a company.

Shoved into an extra corridors.

As we looked at over the next couple of years Didnt renovation needs of the property, which we viewed as being substantial in that 35 to $40000 E ranged and the prospects for that hotel long term it made sense for us to consider as a potential disposition and and pricing on that.

Particular outside what's attractive and as the buyer I think again in part.

Because the intended use was something other than hotels has maintained pricing on it and which was attractive on a cap rate basis.

Come again, well below 7% pre you know on 29, P. numbers pre capex and in the neighborhood of a four cap. If you factor in for renovation Dollarss that we anticipated. So I I again, something something of an anomaly within our portfolio, but but from a strategic standpoint.

I think wholly consistent with our intent right you know.

From the very beginning and certainly something as I highlighted in my remarks, there will be even more focused on over the next several months says we see how markets emerge from the current environment I'm wanting to ensure that the we're well positioned.

Yeah from a concentration standpoint in those markets, which are most likely to outperform.

Okay Thats great detail. Thank you I think.

Absolutely.

Our next question comes from Neil Malkin with capital One Securities. Please proceed with your question.

Hey, everyone. Good morning.

Good morning.

I just wanted to first off Echo awesome comments a.

Great job getting back to among above breakeven and on the cash flow basis, I really estimates your guys strategy. So.

So first question I'm.

Just in terms of the sort of spotty business travel business transient customer can you maybe talk about the differences if any that you're seeing and you know first off your more I guess your larger primary markets like maybe in southern California.

Versus some of your more I guess secondary or tertiary.

Markets and then.

Maybe if you're the difference you're hearing from local versus national accounts at your hotels is in terms of you know planned resumption of travel or the strength of the negotiate a negotiating season, you had with them that'd be great.

As far as trends you know in California versus tertiary I think you know broadly still we're seeing suburban outperform urban outperform urban on an absolute basis. You know we still are seeing higher occupancy is in suburban markets then.

Yes, seeing you know the weakest occupancy in our most urban core markets where.

Historically, they may have benefited from citywide convention, so our downtown Denver asset or Atlanta, right next turbine Mercedes and you know some of those markets are struggling more and then the suburban assets and more drive to drive two cents, California.

And yet interestingly you know even as cases have spiked a whether it be and your sunbelt area or California.

See mixed you know mixed recent trends as results of that California over the last week day over day is still showing increases every day of the week from an occupancy standpoint, Arizona as well, whereas you know, Alabama weekday is seeing some increases in occupancy but weekend.

Has softened a little bit, but not not dramatically and so you know the trends are.

I guess, it's even it's even challenging to called them trends there not all similar even where we're seeing similar I guess themes around common Kate so yeah, we're still seeing strength in the Sun belt in the southeast and California.

You know and by and large suburban outperformed our Ben.

Got it and then yeah. The just in terms of the local versus national conversation in terms of the Corpus that you do you have any any additional commentary there or you know things to call out.

I think you know I'm sure you heard Chris yesterday on your he gave some really good color on corporate you know corporate negotiated accounts I think you know he is hearing a variety of things from you know we want to capitalize from our rate perspective.

On you know on your need for our business, but we're not we're not sure that we can commit volume to some let's say, we will travel and but we understand the environment. Your end and we'll take a percentage on a ballpark you know our keep rates flat in line with negotiated rates in the previous year again, I'm not sure committing to.

You know any significant increasing volume or or even the same volume as previous years do I think those those conversations are ongoing both both with the brands and and for our hotels you know I think we work to try to find a situation where we still are the purpose.

Bird you know the preferred hotel for any corporate or local accounts its traveling.

But you know we're in the middle of sort of those corporate negotiated conversations.

You know locally I'd say you know those those are I'm going to depend on market, but we've certainly seen property direct business increase.

You know since the pandemic had in some of that would be you know.

You know <unk> groups related to first responders or governments or you know some of the business. That's unique to the pandemic itself and saw mis business. It's been in market that we just haven't had to take historically, but it's more local in nature and so I do think we're seeing some strength in local.

Negotiate accounts are local group business I think that that's likely to come back before corporate negotiated I think you know regional drive to locations. You know I think it's it's broad broadly anticipated in the industry that that that will perform ahead of corporate large corporate and.

National account.

Okay, great other long for me is.

You.

I guess, maybe along the same line can you kind of mentioned this in your press release, but what are some of the things you're doing you know either from an asset manager or property manager level, a two to gain a opportunistic business or or additional business in creative ways.

I'm, particularly particularly as a leisure demand tapers off toward the end of the year.

I think I can start at messenger and moves can fill in.

Key to our success in this area has been keeping our hotels open so.

And as we've looked at staffing models reduced staffing models for hotels. There were two remain open during the toughest periods in April.

We were careful to maintain key salespeople.

You know where possible such that we were well positioned to continue our efforts on the sell side and I think.

It would be it'd be wrong to underestimate the positive impact that's had as we've begun to see stronger recoveries I'm, having a hotel opened taking reservations for the entire at the time period and retaining talent on the sale side have both give enough.

Lake up I'm as business returns in market, you know and put us.

You know ahead of ahead of others, who took more drastic measures in order to I cut costs.

The short term.

We were able to do that I think in large part because.

The operating model for our hotels and our ability to run them a with so few people total you know and beyond that we've been incredibly targeted and I'd like to say our management teams are even scrappy and that you know over the years we've been through.

Multiple cycles and their accustom to operating and highly competitive markets and going after the business that's available and because of the broad appeal of our assets, sometimes that means leisure sometimes that means you know property direct our local negotiated business, sometimes that that's you know managing our revenue man.

When systems in order to optimize business that is readily available and coming through brand channels or a t. A's and you know I think what we've highlighted and validate it is you had the strength of the individual management companies, we work with the quality of their onsite and above property style.

Jeff and I am really quite frankly, the ability of our asset management teams to work with those groups to get the absolute best results possible at market.

Okay. Thank you guys.

Thank you.

Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning, everyone.

That's similar line of questioning so when you look at the verticals like construction manufacturing project does this doubling that.

Is there any kind of temporary nature to any of its business and is there any seasonality to that that would you expect to be pretty durable.

All across the fall and really Windsor or is there any part that makes doorway adventure.

I mean.

I don't know that we have perfect visibility like Justin mentioned at the beginning of the call I think if the past few months have taught us a anything is that you know the current environment is its not predictable and yeah. I don't know that that we can accurately give me you know you any exact answer but you know.

Some of the business that we're picking up now whether it be construction or manufacturing.

No its business that's consistently in market. It just isn't business, we have historically taken given the lower rated nature of the business and being able to you know.

Replace that or take higher rate Ed. This is transit in corporate negotiated as an alternative and and better time. So I think you know the broad appeal of our assets affords us the opportunity to capitalize on business that it's consistently or has concern.

Certainly been in the market and is currently still in the market at this time and so I.

I don't have.

No I don't have perfect visibility into whether that well dissipate.

As we move through the coming months, you know as of right now that has been a solid in stable piece of our business you. Since we began recovering at the end of April and into May. So it's it's not something that's wavered, it's been a consistent theme as we talk with our management companies in our hotels as to what you know what isn't.

Taking up the demand, it's not all leisure our improvement in occupancy and as I mentioned, you know earlier, we're still growing some mid week and stack, we don't use that could be leisure, but it also could be local negotiated accounts and some of this project business as well and so you will we speak to our management companies and that's held it we.

We have a diverse set of demand generators, even currently in our hotels, it's not it's not only first responders or construction and we we we certainly have some of that business. It is helping us and but I expect you know to the extent, we fear that an increase in cases will pull back on leisure you know in it.

Increasing cases will also maintain first responder business in our markets and so you know, there's an offset to some extent of a and I think it's some of the reason that even at pieces have increased you've seen some stability and some of these markets where are you would've expected a bigger pull back a end demand and it's important to remembered it were in over 80.

Markets and so the specific demand drivers for each market are distinct and each markets more heavily reliant on a different industry and the seasonality for our markets varies. So for example, leisure demand in Phoenix and in some of our Florida markets actually improves as we get into the winter months.

And so you know I think it would be wrong to assume that as we get into the winter month, we would see a dramatic reduction leisure across our entire portfolio. Given the fact that we haven't even gotten into peak season, yet for for Phoenix, and and again some of our Florida market.

Thanks for that and it seems there obviously you gave some share in some markets. If you take it doesn't make business that made watch other hotels that have all competitors either reopener we've staffed.

Do you think they may try to get to get back you discounting they've got to restore given kind of high quality real child Mediabrands do you expect retaining that didnt.

Editors try to when it back.

I think that if you know competitors reopen it will be because of.

Bare reopening as demand is is improving and so that that will be hopefully an offset to what will be more competitive I think it's it's a real.

No. It's it's a real risk to that as things open you know things would things would be more competitive however, as Justin mentioned, you staying open and and taking care of people when others couldn't or wouldn't and doing well and having them be in house and feel safe and you know have the increase.

Sanitation protocols in place and just having been there I think you know I think will afford us some stability at things reopened in certain markets, but you know.

Competition is competition and and it may put pressure on rates or you know.

But you know we've heard from.

No.

From others in the industry that that they're tending not to open until they see see some stability and demand and end market and so I think hopefully that will be an offset to some of the competition I think three open and remember you know, but because of the locations that were in we didnt see.

Closing.

You know from.

In order of magnitude similar to our peers, who are more heavily concentrated in urban markets, where you know closures were significantly more pronounced.

Okay, well thank you.

Thank you fix if any.

Our next question comes from Tyler, but sorry with Janney capital markets. Please proceed with your question.

Hi, Good morning. This is Jonathan on for Tyler. Thanks for taking a question first one for me can you just talk broadly about from the trend you're seeing in regard to be extended stay portion of your business and kind of how that compares to your select service assets.

I'm absolutely from either similar to what we've discussed on our Q1 call. We certainly are seeing our extended stay properties performed the strongest across our portfolio and and France at some of that is it's consistent even pre pandemic I mean, our our extended stay pro.

Operators have historically done well they tend to be able to maximize revpar by building on good long term based business and maximizing rate potential on the remaining rounds and so.

You know historically, we've seen strength, there and now it's no different and I think there's particularly you know particular.

Particular appeal to them in an environment, where restaurants have been closed and people need additional space and they have kitchens. You know we've run as much as I've 20 point or $20, a revpar premium a and and our higher higher.

Higher and I extended stay brand. So we've we've certainly seen outperformance there.

Okay, Great. That's very helpful. And then I'm switching to the operation side in regards to the cost students or how much of those savings do you think hurt port permanent in nature and how much do you expect them to creep back up at the hotel demand on Iraq to levels.

Well well certainly a portion of the expenses are variable and very with occupancy. So are you know 67% year over year savings.

It's unrealistic as we begin to see meaningfully higher occupancy is in our hotels.

That said.

You know and we highlighted or this highlighted in her prepared remarks, and and Chris highlighted in his remarks yesterday, we are working a with the brands in our capacity is as representatives on various advisory boards and just given the long standing relationship that we have a with senior executives that this brand trust.

Publish a model coming out of those that's more profitable for us as investors I think and still important they still preserves the strong value proposition for our brands with consumers and those conversations have been fruitful and our expectation we've made meaningful adjustments to service levels.

And other aspects of our business as a result of the current environment the room, which is abnormal hopefully a on a go forward basis, but there have been learnings as part of that process and our expectation is that we will take those learnings coming out of this to run better margins than than we have historically.

Okay. Great appreciate the detail that's all for me. Thanks, Scott. Thank you. Thank you.

Our next question is from Keilman Jews with B. Riley. Please proceed with your question.

Good morning. This is Kyle on for Bryan Maher.

What I was just hoping morning.

I was hoping if you could talk a little more on the thoughts around continuing to bring back hotel stuff and then was curious.

Wage levels, you're seeing as you bring people back relative to levels pretty called <unk>.

So as I highlighted earlier.

We're we're ramping a employment at our hotels as we see occupancy improved and a portion of a more significant portion would be a place that are coming back our hourly workers.

And the use of their time berries with occupancy at the hotel. So so that matched is good there with unemployment being significantly higher wage pressure in individual markets.

His grew less than it was pre pandemic with the caveat that that's partially offset by the fact that that there are a very meaningful unemployment benefits available to people now.

So in some markets, where those are extremely high.

That there is pressure from a a wage standpoint.

As were looking to bring people back, but but by and large our expectation is that the the primary pressure on wages for us historically was basically a result of low unemployment and availability of people to fill jobs.

Well. Unfortunately, we're not in a position now and unemployment numbers are significantly higher and which you know puts us in a position to be selective bring back the best talent in an environment, that's much more competitive on their side.

Great. Thanks, that's all from it.

Thank you.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

One moment, please while we pull for questions.

Our next question is from Michael Abella, several with Baird. Please proceed with your question.

Good morning, everyone.

Good morning.

Just first question on the July trends, you gave a 45% occupancy level, but could you give us some more metrics are on the what was that versus last year and what was the rough percentage change for the portfolio in July.

Revpar percentage change has you know has slowed relative to the increases that we thought you never man made over April I'm. So it has you know revpar has slowed slightly you can see that in the occupancy trend to yeah 80, our is very similar to what we saw in.

In June but has moderated so similar similar trends.

And.

What about a year over year basis, the percentage change got a percentage change has moderated.

But the absolute numbers are similar from an 80 our perspective.

Got it and then just.

Maybe back to send her comments earlier on in the prepared remarks, just relative to your internal expectations that you had 60 or 90 days ago.

And aside from the fact that occupancy was a little bit better ticked up throughout the quarter, where where the positive surprises for you I'm on the fundamental side.

I think the the most positive surprise was that things ended up playing out pretty much as we anticipate if they would I think in our last.

Paul we highlighted the fact that our expectation was that we would be profitable at the hotel level between 30, and 35% occupancy and at the corporate level between 40 and 45% occupancy.

As business came back we had a you know a perfect opportunity to prove out those assumptions during the quarter and then those assumptions were were or our expectations for Matt I I think we continue to be impressed not surprised.

But impressed with the ability.

No if our management companies and our onsite teams to adjust and to operate incredibly efficiently and effectively in the current environment. These are a as I highlighted in my prepared remarks unprecedented times than we've been in the business you know for several decades now and they are.

Our management companies and our on site teams have performed admirably I think aided obviously buy an asset management team, whose been all over all over this.

Working with their management teams to identify best practices and trust I wish norms as such that we achieve optimal results on our properties.

Great. Thank you.

Thank you.

We have reached the end of the question and answer session I will now I'll turn the call over to just a night for closing comments.

Thank you and we really appreciate you taking the time to to join US This morning on our call.

These are unprecedented times incredibly challenging as I highlighted earlier I'm incredibly pleased with the way our portfolio and our team has performed we had going into this three priorities first to get back to Oh level, where we could establish a cash flow positive on.

Operation.

I can't I have to look at our portfolio and to begin to explore opportunities to fine tune in response to changing changing demand profiles of individual markets and third to leverage the strength of our portfolio to pursue opportunities in the future I think we're executing an incredibly well against that strategy and I'm I'm excited.

About what the future a husband star for Us at Apple appreciate your interest in the company and I hope that as you travel.

And I hope you travel the you'll take opportunity to visit us and to stay in our hotels.

Have a great when we look forward to talk with you soon.

This concludes todays conference you may disconnect. Your lines at this time, we thank you for your participation and your interest in Apple hop hospitality read thank you.

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