Q2 2020 Xenia Hotels & Resorts Inc Earnings Call
Welcome to the Xenia hotels <unk> resorts incorporated.
The quarter 20, Twond Scott Caldwell.
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Thank you Mike afternoon, everyone and welcome to the second quarter 2020, earning call and webcast for Xenia hotels <unk> resorts I'm here with myself robots are chairman Chief Executive Officer variable.
Operating officer Energy Shah, our Chief Financial Officer.
My fellow began with a discussion of the quarter and each of our current portfolio status variable.
Detailed and an update on our major capital projects and T cell finished the caught up in our liquidity and balance sheet. Following today's prepared remarks, we will open the call for Q <unk>.
Before we get started let me remind everyone that certain statements made on this call or not historical facts and are considered forward looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on form 10-K, and other LTC filing which could cause our actual results to differ materially from those expressed or implied by our comments.
Forward looking statements in the earnings release that we issued earlier this morning, along with comments on this call are made only as of today July 3rd Yes 2020.
We undertake no obligation to publicly update and you have these forward looking statements is actual events unfold you can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks and this morning I enjoy.
This call will be available on our website for 90 days without I'll turn it over to most probably get started.
Thanks Lisa.
Thank you all for joining our second quarter, two 2020 earnings call.
It's hard to believe how much has changed in lodging industry since the beginning of the year or even since our first quarter earnings call in early may.
The second quarter operating environment, what's unlike anything we've experienced in lodging industry with a sector facing dramatic declines in revenues as a cobot 19 pandemic resulted in government mandated lockdown restrictions on travel under severe negative impact on consumer desire to travel.
I would like to again, thank our hotel operating teams and corporate employees for their children resilience. During this time precedent to chart.
Our continued dedication to the health and safety guests at our hotels and resorts.
Facial doesn't environments, we took swift and decisive actions to preserve company value when liquidity.
We outlined in our first quarter earnings call.
These actions include a drawing down the balance of our revolving credit facility.
And with our operators to significantly reduce operating expenses and working capital requirements at our hotels <unk> resorts.
Substantial reduction in staffing.
Expenses at the corporate level.
50 million dollar reduction and anticipated capital spending 40 year.
And the suspension of our quarterly dividends or first quarter payment.
Most significantly during the second half of March and early part of April.
31 of our 39 hotels temporarily suspended operations.
Her to minimize our immediate cash needs.
[music].
Since we last spoke to you in early May our team is continuing to work extremely hard to position the company to not only got through this crisis, but to also prosper again, when the inevitable recovery takes hold.
[noise] significant efforts revolved around balance sheet activities checks that that'd be successful negotiation will be amendments to our credit facilities and secured mortgage flights.
Which I teach will cover in his remarks.
We've also worked closely with her operators as we minimize working capital needs device detailed plans to reopen our properties in a safe and efficient manner at the appropriate time to do so.
As adjusted on property operations and amenity offerings in accordance with state laws and look forward access.
We commend our operating companies for moving aggressively to control expenses and helping to reduce our average monthly recurring expenses relative to our previous estimates.
We believe that many of the steps we've taken will continue to benefit us as demand recovers we approached prior peak operating performance in the years ahead.
Not all hotel portfolios are created equal.
We are extremely proud of the portfolio that we own today.
We believe we have curator the portfolio that will serve as well as we navigate this crisis, there, particularly asbury recover from the spend Eric.
Our management team has worked several downturns in the past.
And well known the work stream at the current crisis.
Somebody's experienced this has helped solidify our view a diversification is crucial throughout any part of the cycle.
The characteristics of a truly diversified portfolio includes not only geography market concentration.
But also aspects such as branch managers asset type and the ability to attract a variety of demand centers.
This has become even more important in the current environment.
For certain locations and demand second I, just had an impact a disproportionately.
We believed that our ability to work side by side with our operators at favorite to short term leisure demand has been and will remain crucial and and driving occupancy at our hotels <unk> resorts. There are currently open and operating.
Over the last few months, we have a reminder, though some of our company's key advantages.
We believe only hotels that are attractive fair diverse types of the mass excluding high at leisure business.
That's helped us reopen hotels that are from face.
As a tomorrow.
The five over at 39 hotels will be opened in operating.
Representing 83% of work total room count.
Our hotels <unk> resorts located in key leisure and drive to markets, where the first reopened as we benefited from our longstanding strategic focus on these types of assets and locations.
He believes that having a broad geographic presence without heavy concentration in a handful urban gateway markets, that's proven to be beneficial.
Being affiliated with a stronger brands at a time a trusted brands matters. The most there's also a major strength.
Having a high quality recently renovated portfolio gives us confidence that our properties are well suited to pretty inevitable recovery.
Finally, our solid balance sheet, our liquidity position have been critical this year and we expect each tell us about her to store should the seasonal clear for some time.
Turning to our recent Reopenings after suspending operations in March and April at 31 of our 39 hotels <unk> resorts.
We began the process of Recommencing operations at temporarily shuttered hotels and at night.
[laughter] thoroughly analyze I expect the cash flows on staffing models, we first reopened five of our smaller drive to leisure oriented hotels <unk> resorts.
As we anticipated that lever demand and markets wherever restrictions were being lifted would likely be a first second that's a return at a meaningful level.
In June we recommenced operations at an additional 30 hotels.
With more hotels, having reopened thus far in July.
Our 30 50 hotel is scheduled to open tomorrow.
We currently anticipate that afford remaining properties in our portfolio, we commence operations before do you ended the year.
That's very well touch upon in his remarks.
The opening our reopening of I'll tell.
Acquires a significant amount of forethought and planning.
Overall strategy is critical and managing costs generating demand and maintaining quality I guess safety.
We have learned along in the past several months has been closed and subsequently reopen hotels and will carry those lessons forward throughout the recovery.
What is important isn't the first couple of weeks of performance following reopening.
We have I'm pleased with our portfolio's performance thus far.
Instead, we believe it is critical to focus on the positioning of our properties going forward, capturing as much demand as possible in the third and fourth worse off 2020 to 2021.
Turning briefly to the transaction environments.
As mentioned in our earnings release. This morning, the sale of Renaissance Atlanta, Waverly will not be closing tomorrow hazmat exactly.
As a result.
I expect the received the 7.75 million non refundable deposits from escrow.
As a result of this transaction not moving forward.
Positively we also announced this morning that we have entered into a settlement agreements regarding the kimpton portfolio deposit, which had been held Buddy escrow agent.
As a result of this settlement, we received $19 million out of the $20 million deposits held in escrow.
Well, we are disappointed that neither of these transactions nor to sell Renaissance Austin close as a result of the buyers not proceeding.
We're pleased that we have received approximately $29 million and deposits, while retaining ownership of these nine high quality hotels.
Although the overall transaction environment remains challenging we continue to explore potential dispositions as one avenue to provide additional liquidity lower our lever leverage that extends our average definite surety.
We are encouraged with a deficit in the market epicentral valuation for certain assets and are hopeful that dispositions could be an actionable tool for us going forward.
Regarding potential acquisitions, we have a strong record record of acquisition activities at appropriate times in the lodging cycle.
Moving as we emerged from the financial crisis and twice and 2011.
However, our immediate focus is on continuing to strengthen our existing portfolio or further solidifying our balance sheet.
Well, we'll monitor landscape are interesting additions to the portfolio, we do not expect to be a acquires and the near term.
We believe there could be a significant number of opportunities in the years ahead and patients will be rewarded as the market Pfizer's equilibrium.
In addition, there are a significant number of buyers currently pursuing hotel assets sort of feel for good asset this competitive.
Like most of our up up our properties open and operating.
We are positioned to capture demand for both the second half of this year and into next year.
Well the uptake of Cobot 19 cases, several stages concerning it's not unexpected given the increased level of social activities that inevitably come out just after lifting of stay at home or shelter in place mandates and states, such as Florida, Arizona, Texas and California.
The increase in cold in 19 cases in many parts of the country.
Undoubtedly slow the recovery.
However, we are confident that our focus on locations into sunbelt, both for the long term and as we navigate through the current crisis.
We believe our geographic footprints that particular advantage in contrast, certain large urban gateway and exclusively flight to markets.
Which in many cases rely on both domestic and international travel.
And were lodging demand is likely to be severely impacted for a prolonged period of time and the expense burden shows no sign of letting up.
We currently have no class or we suspended operations at any of our hotels are resource.
Our <unk> reopening analysis and planning has been based on establishing expense structures, which permit the properties to operate and very low occupancy levels, and we had losses compared to the levels experienced wont be inflow.
Monthly days to July 25th.
Our open properties and keep an average occupancy up nearly 25%.
Consistent with the level, we have we saw in June for our properties that were open at that time.
[noise] significantly above the levels, where it would be prudent to consider we suspended operations with any of these properties.
We believe our diverse collection of high quality hotels and resorts has broad appeal.
As such our operating teams are pivoting to capture future demands.
Polluting customers seeking to trade up the nicer hotels.
And we remain dedicated to making the right operational decisions to reduce ongoing losses and conserve liquidity.
While it is all known as the demand, we're now seeing will sick or improve in the near term.
We do know that having desirable diversified portfolio matters.
Not all hotel portfolios will recover to say.
Once business Gulf recover we believe the renewed industry focus on streamlined operations.
While hotel owners to better deliver marking margin gains in future years.
In addition, we anticipate a lengthy periods in which competitive supply growth will be muted.
Primarily as a result of construction financing being likely severely limited.
Well, especially benefits existing <unk> dollars.
In the meantime, we can seem to be focused on preserving value first fellow shareholders.
Keeping our high quality portfolio in great condition.
And positioning the company for a future upcycle.
I will now turn call over to Barry Who'll provide more detail on our operating for war performance and our capital expenditures for you.
Thank you myself.
I'll be discussing our property performance for the second quarter.
Accomplishments, we've achieved resuming operations at the large majority of our hotels.
On Friday details regarding our historic and future capital expenditures.
For our 26 properties or open and operating for some part of the core hotels achieved 17.4% occupancy at an average everybody to $184 26.
Well the pipeline is obviously, unlike any we have heard before.
The sequencing of these results, which can truly improved during the quarter as reflects an occupancy of 5% Navy yard $157. The eight hotels. The remained open throughout the month of it.
Maybe was notably improved the twox on occupancy I need you are $185 13 hotels are open for all or a portion of May and June results further improve twin occupancy of 20.2% and eat you are $186. A 26 hotels open for all of June.
We also wanted to share a few non traditional mattress, we've been tracking closely.
Consumer confidence ship from week to week.
I'll, just I'll be referencing up for the first 25 days in July.
For that period, our hotels has continued to perform as well as come to you expect this environment.
25% occupancy and HDR of approximately $169 due in part with strong fourth of July weekend.
Despite recent commentary up as much concern regarding a potential slowing of business, but even sunbelt states in which we operate due to increasing levels of coated 19 cases.
Our results for the weekend in July 25th for slightly ahead of our lunch today.
We're particularly pleased 17 hotels were open for the entire lots of June growing occupancy by 6.5 points, thus far in July.
Our increased nearly 7%.
In many cases, we've aggressively move to we commence operations hotel and we continue to see the strongest performance in the portfolio, our drive to leisure markets and resort hotels, which collectively represent approximately 31% of our probably all the hotel rooms.
And approximately 25% of our total portfolio.
He's tried to unencumbered hotels cheese and occupancy of approximately 31% Navy yard to around $3 in July.
Not surprisingly the strongest performers include many of our smaller boutique hotel as our 15 hotels. During the 200 rooms have achieved approximately 39% occupancy all our 17 hotels with greater than 200 rooms have achieved approximately 19%.
Yeah, Hi, 13 hotels achieved approximately 30% of greater occupancy so far this month, including six exceed 50%.
These include each about 1000, Boes Savannah and Napa.
Well the just want to trials in key West Mountain Brook, Alexandria, Boston, Santa Barbara, Portland, Denver, Chicago, and Charleston, South Carolina.
We believe the wall portfolio was inherently built on track and ultimately equal portions of demand from the corporate transient leisure.
Major segments are opened hotels is extremely well in order to be able to track. So given portion of leisure business, which I haven't used to social media pricing promotions and services, specifically designed to appeal to the leisure customer.
We can certainly confirmed that this business as a fresh for booking window often in the weak for than we even in the day for the day.
You need to work on hotels to identify additional opportunities in effect do you believe we'll see leisure bookings slow the official summer and incidence returned to their studies.
On the group side, we're fortunate to have a portfolio, which is not which does comparatively little business from citywide conventions due to our specific locations and markets.
The last group business has historically been an important part of our diversified portfolio.
As we look ahead, the vast majority of group business for the third quarter, it's been cancel although our hotels made significant efforts rebooked after them into Q4 2020 in the first half 2021.
As we ended June group cancellations have resulted in approximately $180 million lost revenue for all future dates.
Well some of this business has been successfully we booked for later in 20 and 21 no assurances that this business will come to fruition.
This is not the same theres no because our hotels, we've seen certain as we've seen certain types of group business. It's actually do you pass the sporting events professional sports teams related Crescent media as well, especially leisure driven group is especially hard with us.
We continue to expect corporate and small group demand for term prior to larger group programs.
I mean, a large majority of our hotels open positions us well be able to capture corporate transient and group demand as it relates to mark.
We don't valuable lessons from eight hotels remained open as to how our operators are able to operate full service hotels, and a very low occupancy environment.
It's experienced allowed us to easily transfer knowledge or other hotels and they planned for their reopens.
Correct recognized that drives decimation lease ran hotel, but at the quickest ramp ups and the current environment. We worked closely with our property level management teams and try to input to our major operators designing new staffing and business model will allow us the opportunity to flex costs demand rebounds.
We continue to work on building out touched the surface and such as mobile check in check out the values all contractual expenses complex certain management position and of course about them at a deep cleaning and sanitizing housekeeping services, primarily upon checkout and on cash requests.
We continue to identify the best means of altering our food and beverage that uses we have shifted away from the phase service reduced at the bar capacity and shipped and never operations to grab and go in fast casual concepts, but more limited menus and inventory turns this ramp up phase.
We expect there are many changes to the operating model will become Poland aspects of our industry's operating structure, our experienced asset management team and portfolio initiative efforts, including the deep knowledge of our hotels that we have gained through on property optimization process.
The company welcomes task.
We expect to incur additional onetime an ongoing costs, we have now historically incurred as we reopened hotel.
Although we had assumed when compared to a significantly higher cost for these additional supplies and startup costs of average owning approximately $25 per guest.
Our current estimate for the supplies on ongoing basis, approximately one dollar occupied room and current occupancy levels.
We continue to endorse h. at least safety program as an umbrella for the subsidy programs have been developing into our brands managers I'm, particularly supportive of H. always newest guidelines regarding based companies, which are friends and adopt.
[noise], we've continued to focus on expense control. So tells ramp up slightly from initial occupancy levels.
I believe the wheel management companies have developed appropriate operating models that are sustainable in the current environment do not currently expect to be in a position on where we would again tougher again temporarily suspend operations any of our currently open hotel.
We look forward to opening for about Dallas Tomorrow.
We are in September as I will discuss in more detail shortly.
Expect to open a remaining three hotels prior to year end, there primarily focused on corporate demand on larger groups. He's include the calorie a tower the western Galleria, where the Oaks towers currently operating I read she Santa Clara and Hyatt Regency Portland.
During the second quarter, we invested $19 million of capital into our portfolio focused on three major projects reelected to continue despite the challenging environment.
These are each project, which we prioritized apartments in scope and timing adjustments I felt from one despite our overall for your reduction in capital expenditures by 40%.
Our largest private for this year the transformation of park I'll be our continued to progress extremely well the first quarter, we substantially completed the guestrooms corridors meeting space renovation.
A major renovation to lobby lobby bar and outdoor tourist continued throughout the second quarter and is rapidly approaching its completion.
We continue with the heavy lifting on these significant interior exterior work, including the pool area. It's your function space and it brings to all landscaping, which we expect to completing some temper.
We've completed the design and are now executing the conversion of existing specialty restaurant, and 23 meal dining concepts and the conversion of existing female restaurants into highly functional means face focused on small groups.
It's worth will also be completed in the fourth quarter.
The final piece of this project will be the renovation of the golf club house, including a chef focused specialty restaurant, which will be completed in the first quarter of 2021.
Overall, the property looks terrific. We continue to believe it'll be very well positioned to capture precisely the type and quality business, which has been creed.
The opportunity to complete a significant portion of the work while hotels temporarily suspended operations was colloidal silver line as we believe the work was done more efficiently and Expediently I don't even higher level of quality I have to work being done an operating hotel.
As a result, we just slightly ahead of our initial comments the project expected fully reopen the hotel in September.
This will likely be just prior to the golf club, which we opened in late May hosting the annual LPG HQ Classic golf.
We made significant progress on our additional major capital projects for the year as well you Guestroom renovation Marriott woodlands began a scheduled balloon made it was completed last week.
Extensive renovation of the existing bar in the meeting space at Hyatt Regency Grand Cyprus begin has scheduled for mid June.
Next to be completed in September.
With that I will turn the call over to reduce.
Thank you Barry I'm going to discuss our.
What are the balance sheet.
That's sort of liquidity, we continue to have a strong position at the end of the second quarter, we've had over $305 million cash cash equivalents.
Additionally, at the end of the quarter, we had approximately $50 million restricted cash and property I thought the knee replacement reserves.
Three agreements with our hotel operators, we were able to temporarily utilized.
Responds per hotel operating expenses.
We estimate that about 20 of the $50 million unrestricted intercompany reserves is appropriately matched.
The properties that are more likely to incur losses in the near term.
Moving onto our expenses as they relate to our liquidity.
We have been focused on managing our expense base during this unprecedented time.
Our teams have been focused on reducing recurring expenses, while also keeping our properties in good condition.
Being positioned to read commence and ramp up operations and effectively manage our corporate functions.
While the majority of our properties are currently open and operating we still think it's useful to provide a figure reflecting the extreme scenario of all hotels, having operations temporarily suspended.
Under that extreme scenario, our estimate of average monthly recurring cash expense is approximately $22 million.
No I figure includes corporate cash <unk> expense as well as debt service.
Yes, that's the thing is at the low end of the range. We had provided a few months ago.
Let me take a moment to walk through our change in cash from the end of first quarter. The ended the second quarter.
Our cash and cash equivalents declined by approximately $91 million in the second quarter.
In addition, our restricted cash declined by approximately $19 million.
So in total that as a $110 million a change in our total cash.
Now, let's walk through the outlays during the quarter there are three items.
First we paid our first quarter dividend in April that was $32 million.
Second we had capital expenditures tied to a project that was $19 million.
And third with everything else, including hotel operations corporate overhead and that service.
Some of that third item was $60 million.
That approximately $20 million on average per month is below our estimate of $22 million average recurring expenses that would be the keys under and all closed scenario.
This is because some properties where operational during the quarter as well as a variety of puts and takes.
Some of those puts and takes were specific to the second quarter, such a severance costs.
In sum affect cash balances every quarter, including changes in receivables payables payables and the timing of certain payments.
Moving ahead to discuss our breakeven level, our estimate of portfolio breakeven occupancy is still in the 40% range at the hotel level.
This portfolio wide metric reflects varied levels of breakeven by hotel.
In addition assumptions around 80, our non rooms revenue and margin can cause variations in our estimate of breakeven occupancy.
During the month of June six of our hotels achieved positive hotel EBITDA.
On average the six hotels since June occupancy of about 50%.
Rates were down almost 20% to last year.
Given that some of these hotels to just reopened we learned a lot and hope to flow better over time.
We also hope to grow the number of hotels achieving breakeven in the month ahead.
Moving had to our overall balance sheet, we amended each of our corporate credit facilities during the quarter.
We're pleased with the outcome and the ability to manage the business with some level of flexibility.
The amendments provide a full covenant waiver until March 31st 2021, and relax financial covenants until mid 2022.
They also extend the maturity of 175 million dollar term loan that was scheduled to mature in February 2021 by one year.
In exchange, we have provided additional security to the lenders as well as agreed to certain negative covenants and you minimum liquidity covenant and a higher spread on each of our credit facilities.
Over the last couple of months, we also modified each of our eight secured loans.
While the terms varied by loan these modifications generally provide temporary covenant relief.
Temporary and limited debt service deferrals as well as the ability to utilize any reserves for hotel operating expenses should they be needed.
Overall, our balance sheet continues to be strong we have no debt maturities until 2022, we have a supportive lender group evidenced by the unanimous support received on our credit facilities amendments and secured loan modifications.
And we have multiple levers to use to enhance our balance sheet overtime.
We continue to believe that with our strong liquidity position, we can navigate through this prices and positioning the company for opportunities in 2021 and beyond.
And with that we will turn the call back over to Mike can begin or even a session.
Hi, Thank you Sir.
We'll now begin the question answer session to ask a question.
So our doesn't want under touched from if he is a mistake or foam, let's pick up <unk>, if any time request and husband addressed through like to address your question. Please press Star then.
Again, the Star then one question.
At this time it would just pause momentarily.
Let me first question, where that will come from Bill Crow Raymond James.
Hey, folks thanks, good afternoon, what information there appreciate that.
I think it was your.
Prepared comments, you mentioned that slowdown was inevitable because of the increase in the case count I didn't get a sense, but that was reflected in your July date.
The results, which seemed kind of even with June.
What are you seeing in Newport bookings that indicate that the slowdown is it's here or is coming.
Well Bill obviously ever for its and I'll, let Barry speak a little bit more specifically for what we're seeing kind of on the ground as far as a forward bookings and kind of what we're seeing on a day to day basis, but obviously, there's been a lot of talk in general about economic slowdown.
As a result off a the covert 19 cases, increasing at a lot of markets throughout the U.S. So my comments are.
Not quite as specific to what we saw a july today compared to June because we actually been fairly encouraged studs. Despite a lot of this stuff going on in these states. That's a that our hotels are holding up pretty well compared to where we're seeing in June.
And I think very refer to it that actually over the last week, we saw some in a little bit off so it's hard to call. It's Frank putting up these kind of levels, but a little bit of improvement over what we saw during the weeks before death.
Yeah, Mike My comment in General was also relates to the fact that.
We certainly never expected to see kind of a straight line recovery, we were very much for parents and expect to prepare for unexpected.
They are somewhat on I guess, even recovery and I think anyone that's a that kind of saw how people were starting to behave a space we're opening back office.
Logically expecting some increases in cases that would.
Potentially Pos things a little bit again.
What I'd say that that's that's something that's I fully expect you're gonna see throughout the country dosing to kind of open back up. So I don't think is this particular to to sunbelt states or anything like that it's just more a reflection of increase mobility increased activities and obviously hopefully with some of the measures that are putting being put in place and a lot of stays right now.
This will slow things down little bit and I will go back to that's kind of continued improvement.
And the overall environment.
Okay.
Second topic I wanted to jump into a little bit.
I appreciate you discussion of briefly in your remarks was the.
Transitioning from the summer period to the fall and I'm just wondering I know you don't have a.
Specially long booking window, but what do you see in as we get past Labor day.
Oh tenuous is the kind of.
Decision to reopen hotels ahead of what what appears to be a pretty slow fall from a business.
Troubled perspective.
I think and again varied and will jump in here I second to.
Got a little bit more feedback on what's what's happening on the ground but.
Certainly you you alluded to is coming to booking windows are extremely short.
And undoubtedly the majority off the type of business, you're seeing right now is that leisure oriented business. So clearly that does give you a little bit of pause as you think about where the fall will be and and as you look at expectations for you know who will be filling your hotel.
Sales at that time, we certainly are hopeful that we'll see a little bit more corporate demand going into the fall it'll also be very interesting to see and again, it's hard to put any specific data around is because of the booking windows parcel short.
It's interesting to see if you really do see as more to a traditional break and leisure demand a one to schools I went back up given the fact that they obviously there are so much works with their there's so much work working from home going on students being educated virtually at all those type of things that might also means.
But it's not quite as clear caught as you've seen in prior years, where to summer and so you don't see I guess, he is very significant decline and leisure.
I think I'm parcels final point I think that is what we expect to see and what we're targeting our plans around it. It. Unfortunately, it's just too far away from post labor day to give any meaning to to the data that's out there in fact, when we look at it because when we look year over year, we never.
You don't have at least for bookings you don't have a separation between what is on the books for leisure and what's on the books for corporate transient. So it's really a combined number some of those numbers softer than last year looking ahead, a month, absolutely, but we know there's.
Virtually no corporate demand isn't there yet so what we've done and a big part of our strategy across the system is there's more Marcellus point is that how we think there's going to be opportunities for people to kind of continue.
Behaving the way they behave particularly in the drive to leisure destinations in the resort markets, where people are going to take long weekends. If they have children, who were in virtual schools and working from home, they're going to be able to take more time off did weaken otherwise might have and we're trying to do is design.
Program offerings.
It really designed to draw people away from their homes for that kind of get away. We there's no question that you guess our hotels are there primarily because they are tired of being at home and they want a different experience to the extent, we can start to differentiate got expansion all hotels by offering.
A lot for talking about it kind of generically kind of feeling weekends or especially programming or unique.
Activities that make them want to choose Aro 12, another hotel, that's the kind of positioning we're putting in place now focused on those fall Mike.
All right appreciate I got one more but I'm going to.
Cut out everybody else can come back in later thanks.
Thanks Bill.
And next well Michael Bella sorry.
Good afternoon, everyone.
Afternoon.
And just on the topic of dispositions.
Presumably buyers want drive to and leisure public hotels, but.
It's also what you want to own right now so how are your balancing that then how are you evaluate <unk> properties that you might.
Yeah clearly Mike.
There's talk of assets that people whatever primary interest in our are obviously assets that are also.
Great.
In this current environment than a it clearly is a balancing act to the extended you're willing to actually so I quite a assets how do you balance selling assets, where you're discounting pretty cold with level. So if you will which is obviously a focus a lot of people.
This is a little is somewhat minimize or you do need to balance of with your view of how you want to build your portfolio and and and keep your portfolio over the long term.
You know certainly obviously these are that as a situation where we're looking at a lot of different avenues to continue to bolstered our balance sheet and like I said dispositions could be one of those so it is a a it absolutely is a balancing act to say do we feel comfortable would've potential sale that asset at a certain valuation compared.
To certain other avenues that you might go down.
And that's something that we'll continue to evaluate and like I said.
Disposition will be in it will be one of the tools that will look we'll continue to look out and to the extent of we feel that there isn't a good amount of death for a certain asset where we've we believe theres a fair valuation that is preferable to them maybe pulling some of the other levers that we have at our disposal there'll be something that.
We consider very closely.
And then if you weren't Ted.
Selling asset or generate proceed.
Maybe through a financing what what's the waterfall of a repayment that needs to occur.
Yes, that's a good question I mean, there's it would.
It varies based on level of revolver borrowings outstanding but in general the majority would be towards debt reduction.
Got it and then just last one for me I noted that three.
Big box hotels that you hope to reopen by year end I guess.
Two part question what gives you the confidence that that that will happen in that what do you need to see on the ground. The flip the switch to decide to open it actually.
Well it might be each one of those kind of little bit different situation, just the easiest first which is the.
Galleria tower in Houston, if the lesson Galleria.
Those are two relatively equal size towers, we have the Oaks tower open and then there's business that.
Sufficient to fill that tower will open the Galleria tower, and we can actually even to the extent we had group business on the books a book of business, we could it's pretty easy for us to move them.
From tower to tower, so that's pretty easy Santa Clara I, just Santa Clara is interesting.
Yeah, the adjacent theme park and opened this summer we would definitely be open. So I mean that that hotel is always enjoyed some different because it's not so we're not a we have some oh, we do a fair amount NFL business and related business that hotel given its proximity to Levis stadium. So we're looking in watching.
How about business comes around and also transient demand in the valley Silicon Valley in General So we think that so those are things we're we're watching.
And then piracy Portland is really going to be much more dependent on activity in the.
Nearby never Jason's Convention center, and when citywide business coming back into that market. Although we do think we have Oh, we've developed in some very as we have an although it's also very lean staffing models, where if there was even a relatively small amount of corporate transient demand, we'd be able to get the hotel successfully opened.
Although not necessarily operating optimal.
Okay.
Thank you.
Hey, next we have already quite a b. I'm.
Thanks.
I'd call it it.
[laughter] <unk> hey, pretty.
But having <unk> bank and cross market and Mark less impacted that that you've seen.
You were Oh sure, but still saw some but are you were breaking all but it was very hard to hear your question.
Sorry about that just asked called the cases that reason it sounds like occupancy has stayed consistent but hasn't barrier markets that have been more or less impacted by the right kind of it.
So one of the things we took a look out as we took a look in particular, it at a Arizona, California, Florida, and Texas and.
Even in those markets, while we saw some decline in the week or two following July 4th which in part was to be expected because we knew July 4th was a relative peak weekend isn't related to our leisure demand that week.
Each one of those markets. We are in each one of those markets. We saw I can see rise in the last week.
So.
We are so different so it has not behaves differently differently in those four markets again, Arizona, California, Florida, and Texas and it really has across the portfolio as a whole.
I think that.
And just one maybe one last question, it's unclear bucking plenty plenty.
Has there been any cancellation I yet for that.
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They have been they've been relatively isolated just wanted to probably something we're watching.
Very closely.
It's no doubt, we're not putting the amount of business on the books for 2021 to be ordinarily would be at this time I think we'll probably being a better positioning to talk about 2021 in the November call.
Thank you.
Your next question will come from Tyler badly of Janney capital markets.
Oh, Yeah, hi, good morning, or good afternoon, and thanks for taking my question I Wonder just real quick just about the pricing environment I'm sure. If how promotional environment is one of the competition is doing on HDR and can you also the spin off a little bit more the revenue management graduate somebody's properties that are just reopen just curious.
Well, you're doing on the rubber to imagine as you ramp up operation.
Yeah. Thanks, Tyler really good question, obviously, and then obviously varies a lot market by market and the one thing that did we know for sure is the most hotels have now gone back to kind of much more.
Manual and.
Individual person thinking in terms of revenue management rather than than using the.
Brand management focus black boxes, it's obviously the data that they rely on is always based on prior period. So we're really in a kind of different environment. Here. So what that has got to put a lot more pressure on the individual revenue managers and know how to make sure that they are watching what competitors are doing watching literally every day kind of how business is flexing the good.
News is is that a.
The silver lining in fact, Rob will keep us as far out because we have a lot of ability to make decisions pretty quickly. So for example, they are still watching today our rates in in our leisure and and resort hotels for Tomorrow night, and Saturday night, because we're not yet book to capacity, we want to attract more business. So we're doing whatever we think it takes on revenue man.
I've been side to be able to do that as I mentioned to.
Two prior question what were part of what we're trying to do is shift away from pure rate plays and try to come up with more value add opportunities identifying things services amenities that we're offering that we can get the word out to our loyal guests and repeat guests through social media and other relatively easy to use channels to try to get them to.
Want to stay at our hotel and be a little less price sensitive when the otherwise would I think one of the things that we have found in many of these markets is that the guest is in some cases trading up and then where our hotels are positioned maybe at a higher quality level, but some of the places guests would stay before they're willing to pay a premium over where they might traditionally stand that has given us some.
Hi support in a lot of the markets that were working engines and has helped soften what would otherwise be a decline in right.
Okay, and then follow up question habits, just I'm trying to understand more on the operation thought a big obviously I've done a great job managing the cost structure and made a lot of changes there. So multipart question I mean, how much flexibility you have.
Potentially trying to get worse, then maybe find even more on the savings and then kind of on the reverse.
Things start to accelerate through the upside or horrible Betty.
You know how much about Boston are gonna be potentially coming back and as more people start back after property.
I mean, I think it's it's safe to kind of go back to you know well go back to my professorial days and think about managerial accounting a little bit and there's no question that the Weve developed models now we're very comfortable that we've kind of covered the fixed costs. It in the hotels I think that gives us probably a lot more.
Opportunity on the upside to drive margin.
As we start working in costs I think there much much more likely to be variable cost and fixed cost are very lease b b step costs, where we're only growing fixed staffing. For example, you know every you know 50 or 100 Guestrooms are occupied so I think we feel really good about the upside.
On the downside I think we certainly have opportunities to go if we don't sustain the business levels that were asked and I think.
Look we were very low business levels overall, we can't sustain those will look and have to identify opportunities to to figure out how to further cost the businesses or are designed to be operating today in a place where we're kind of covering fixed cost making money on the variable cost and that we have a lot of we have a lot of.
People in particular, a lot of our management team suit towards their credit working really really hard and doing things that are outside of the general.
Duties that they would only be doing has made it was whether that's.
Being additional security on on weekends that swimming pools or or lobbies or whether it's kind of engineers doing similar kind of work whether our you know front office managers are out some phase taking drink orders that had a pool bar we have we're operating very very.
Additionally, in in really all of our hotels.
Yeah, and going back to teachers comments about how we've reduced the.
The did the cash outflows really in a situation with all hotels being suspended.
We're comfortable saying that we viewed that as a worst case scenario and as we can run very low occupancy levels and do better than what those numbers are that we talked about.
And obviously there are fluctuations that you'll see multi month that are some of the puts and takes that appears talked about including what it includes severance amounts of tournaments and those type of things, but we're pretty comfortable at this point, saying that our team has done a tremendous job of freely tightening down these expenses and.
Being comfortable that this is kind of the worst case scenario as as we presented with all hotels clubs.
Okay I'll leave it there appreciate the commentary thank you.
That's live Austin Wurschmidt upkeep.
Hi, good afternoon, everybody. The tissue you talked about some of the cost per month during the second quarter and that being around the $20 million level.
But there's a number of nonrecurring items in there and I'm just curious if you have a sensor, but yes, the what that number looks like on July as a result, given you've opened a significant number of hotels and you've seen occupancy improved through the month.
Yeah. That's it that's a tough Las then I mean, there there's I mean, those puts and takes you know are they vary by month as I mentioned is they are already p. Its you know some items that you might get build for semi annually, you're buying annually as opposed to monthly like insurance and real estate.
Access so it moves around a little bit month to month I would just say there's a you know there's obviously a lot of focus as we bring these hotels back on you know.
The flow through and higher levels of performance relative to these hotels were closed and and so we're moving in that direction and we feel comfortable and confident in that but there's going to be a little bit of choppiness from month to month.
Fortunately don't have a good number for July and we'll we'll just have to see how it.
Comes in.
You know as things finish up and as the books close.
Got it and then Marcel just revisiting your comment on that transaction in Bart environment.
One I guess, how should we think about the total dollar value that you would consider selling and then you also referenced some other tools at your disposal the to enhance liquidity and improve the balance sheet can you give it some additional detail of what else you're considering.
[laughter].
Oh, Yeah, that's really.
<unk>.
Tough to say, how much we would consider selling or.
What's what kind of the outside numbers that we would be willing to do it really depends on what's what do we see out there for market condition wise and how do we feel about current values you are able to cheat on some assets versus where we believe value for assets. So we don't have a pre describe number in our in our had so if we'd like to so you know X.
X amount and a and frankly it also depends a little bit on how palatable that tool whispers of some of these are tools.
I can I can run through all of them and were being very nimble and we're being very careful when considering all the options that are out there, but any kind of lift you can think offsets a that create liquidity for a company like ours. It's something we'll obviously look at very closely and some of those are little bit more appealing to others. So little Sir.
When you compare continuing to look at.
Potential financing avenues or what are what are secured or unsecured we'll continue to look at ads that sales of assets and.
So many other things are could be considered but the great thing as I said, we came into this what a great balance sheets, we have a very good amount of liquidity. We took all the steps to really shore up our balance sheet and add to create additional runway for us as a piece pointed out were very supportive lender group, we've been working with set or no gone through our heads.
To do anything we don't feel under the rest of we absolutely have to pull the trigger on some of these things that's our probably.
You know, maybe a little bit port urgent for people that came into it is what a much more levered balance sheet.
Yeah, I mean, the other piece I went as you know there's no maturities until 2022 as I mentioned and you know again I think you know we have strong relationships with all sorts of capital providers, it's our existing lenders and its others in the space.
I think that's you know gives us some confidence that we can navigate through a as I'd mentioned, so you know again all those various tools that we could utilize I mean, there's obviously trade offs associated with each and every one of them and you know we think about you know the tools that are in.
Concert with how we think about the business evolving and so obviously you know we've given this worst case scenario the cash burn, but as the business moves forward well have a better handle on exactly know where what kind of capital levels, we might need to to raise to further strengthen the balance sheet and also you know where we want to position the.
Company in light of opportunities that may be coming and so no somebody activities or that you could see from us and others in the space frankly are.
You know a combination of defensive and offensive based on their views. So I think it's just a little bit too early but I think what we wanted to do is explained that we do have a lot of these tools and we are thinking about them you know.
Very frequently and how to think about appropriate levels of sequencing and and total dollar amounts as well.
Okay. Thank you.
That's right.
The rally FBR.
Thank you and that's the my questions have already been answered, but if I can drill down just a little bit more pilot question regarding.
The pricing environment.
We bought this call I would think that went around and I was I didn't I.
All.
Brad out or simply trying to make that best pricing a high quality.
Nicolas They know price are you done that out in the marketplace.
Debate that it gets a fall off.
However later.
So by part of that cut out, but I I think I can I mean, I can get to that to the core of the question or at least the answer that we Oh. The question. We can answer best with regard to that today, which is that.
That unlike what we saw before the primary demand driver without question phone calls today is the leisure traveler and I and the leisure traveler buys rooms, very definitely obviously then either the.
The.
Corporate transient volume traveler, where those rates are negotiated often in advance or the group business where.
They're generally being booked by sophisticated meeting planners. So I think that's part of why.
We feel like pricing has held up moderately while because that lesion cast one there's demand and when they want to go someplace is not we've not seen them looking necessarily for the best deal. We've seen them looking for the best hotel that they want to stay at its within their price right. So that doesn't mean rates not down rate is down the par rate.
Being down is that when we look at a traditional typical blended hotel.
Even in some of these drive to markets, where we would have a decent component of corporate business in some cases or in other cases large scale large volume group the race in those sectors again it varies proper it properly, but those rates are often higher than what the transient guests is paying and that's part of why we see 80 are softening a little bit lobby.
Markets. So I don't know if that gets all the way the answer the question happy to happy to follow up or or address anything else more specific but it's a very different environment and again. The summary is a different I'm very different environment for sure. We don't know what things are gonna look like when corporate and group really come back but the transient.
Got it seems to be willing to pay a respectable price for hotel and they're choosing hotels based on quality location and amenities more so in many cases it seems to me on price and its you know there's a big variation in our portfolio. I mean, you have 80 hours and a $100 range of Mdrs well north of 300 right now so.
Based on location and what else is open in the market.
He's had been a week.
I think the the occupancy declines if you look year over year in June and July month to date have been sort of in that mid to high teens kinda percentage range, 15% to 20% in that range. So you know obviously as Barry said no doubt on but maybe not.
As significant as one would expect for think relative to prior downturns.
And I would add to that part of part of that is.
Part of the proof of that is that we're kind of reaching in many cases kind of equilibrium occupancy.
Which means that we're pricing.
Pricing appropriately for the demand in the Mark we can't reduce additional demand necessarily through lower pricing. So a lot of hotels with maintain pricing it but we think are pretty respectable level.
That's helpful. Thank you.
Next well Thomas Allen.
Yes.
Hey, Thank you good afternoon problem. So we really do build additional money. They all are the best blade.
Can you give us some more detail on June trend, including what Revpar declines were injured and adjusted EBITDA.
The Revpar decline you you said June or July Thomas.
Currently we said you do you ever through cop good to get the why because they're library parts on pretty bad I suppose though can you I mean look what I'm working on it that is what the exit rate was in the second quarter for EBITDA on Red bar and it sounds like July it's pretty simple right.
Yeah, we obviously have more all girls opened on July than we had a good. So I mean, we will use reported on the hotels that were open in June and what kind of what kind of Revpar day. They achieved so during the days. They were opened were right at about a $43 referenced obviously.
A very significant decline from having 39 hotels opened last year for the full month.
Running it obviously a much more significant referred on what we saw a in June so far yeah. I mean I were all side I mean in terms of EBITDA. We said during the quarter you know our if we gave our hotel EBITDA number and it was about a third of that was a decline a month so roughly.
18 million.
So does it go to get to improve and remember the price <unk>.
Well.
But what I was going out there, which I think partially answered. Your question. Thomas is that there's obviously different puts and takes that go into different markets like like if you just talked about where there are certain accrual will fit that hit certain moms horizontals.
So that's why when you actually look at the monthly EBITDA as they weren't that different from month to month and in a.
In the second quarter, but again that is more driven by some of the.
Thanks, I just had a different times in the core.
Okay. So you guys didn't give.
Last year.
They are not hearing right, so, but if I take the June revpar numbers, you disposed to reopen properties and we take total twoq revpar flat there.
They imply for the real property Revpar was down about.
Then you assume some probably close we're close that probably down around 80 is that fair estimate.
Yes, that's right that's roughly Farah yeah.
Okay. Thank you.
Well David Katz.
Jefferies.
Hi, good afternoon, everyone.
Thanks for taking my question.
We've talked a couple of quarters or a go or really at the outset of the pandemic about you know how relationships and the discussions between yourselves and management companies. The brands have have been how have those evolved over the past you know the recent past 30 days or so.
Assuming that there are constructive, but what kinds of things you know are you sort of focused on addressing with.
Yep.
Definitely constructive I think I would I would suggest that our our relationships both in general, but also I think as it relates to assist with people we work with at our largest brands.
I've never been in better shape right [laughter], everyone recognizes what we need to do to work through the crisis, but specifically.
You know they they have sought a lot of input from the owner community and in particular from from larger owners that they respect like us a lot of input and feedback on what their.
Corporate structure and support structures looks like going forward I think that's something that's really important to them and they want to make sure that there, but they've got the right above property services and above property numbers of people to be able to do some things that they've done historically, whether that sales or digital marketing or revenue management and how.
And how they bring those services back and how they figure out how to rightsize costs on those brands and jump in very very receptive to owners spots in that regard.
We've also been I think very receptive as relates to owner feedback on.
Specifics to be operating model and what opportunities. There are two combined conditions among properties. The properties that are jointly owned or one of their properties that are that span across multiple owners in terms of how to much more efficiently providing combine some.
Some of those services are providing getting through actual people in market as opposed to a truly about property, but I think also just really as it relates to input on ideas as to if this write it just how we should be thinking about managing housekeeping or managing food and beverage for things like that.
Right. So in in the and if you check is it fair to take away that you're confident but if it comes away with a more efficient and sort of better.
Interaction.
And does that leave you know in the end with the rubber meets the road, you know and economic efficiency for you as well.
I'd say economic efficiency for sure I think relationships between owners and managers will always have points of disagreement and points of misalignment and a you know we think whereas as good as that guys. Good at that has anybody but I think we're certainly the period of great cooperation now, but no doubt, but are we a time when.
Then there's going to be disagreements over this or that it is strategic initiative or another one.
But I think regardless I think we're going to come out of this in a much more economically beneficial decision that we wanted to.
Got it thank you very much.
Thanks, Dave.
Well it does sound more so no further questions well Glenn conclude our question that's.
Oh, and all that sort of call back over to Mr. must sell verbose one of the close Walmart.
Thanks, Mike Thanks, everyone for joining us today, obviously unprecedented times I'm very proud of how to team continues to manage through this.
And I hope everyone on the fall stays a safe and healthy and we look forward to speaking to you again next quarter.
[noise] and what they do so to the Russell so badly.
The conference calls.
At this time you may disconnect. Your lines. Thank you you never want to take care and have a great day.
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Hmm.
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