Q2 2020 Sunstone Hotel Investors Inc Earnings Call
To remind everyone that this conference is being recorded today August sports Twentytwenty at 12 PM Eastern time, I will now turn the presentation over to Mr., Aaron Rakers, Vice President of corporate Finance and Treasurer. Please go ahead.
Thank you Roma and good morning, everyone.
Right now you should at all received a copy of our second quarter earnings release, and supplemental which were made available earlier today.
Not yet have a copy you can access and winter website.
Before we begin.
To remind everyone that call contains forward looking statements that are subject to risks and uncertainties, including those described in our prospectuses 10-Q's, Kincaid and other filings with the FCC, which could cause actual results to differ materially from those projected.
We caution you would you consider these factors in evaluating are forward looking statement.
We also note that this call may contain non-GAAP financial information, including adjusted EBITDA, adjusted FFO and hotel adjusted EBITDA margin.
We are providing that information as a supplement information prepared in accordance with generally accepted accounting principles.
With us on the call today, or John Arabia, President and Chief Executive Officer, and Bryan Giglia, Chief Financial Officer.
After our remarks, we won't be available to answer your question.
With that I'd like to turn the call over to John. Please go ahead. Thanks are.
Good morning, everybody and thanks for joining us today.
As you are aware we are in unprecedented times.
Our second quarter results are nothing short of sobering.
This is the hotel industry as much of our portfolio remain effect of we closed.
Emitted revenues in the quarter.
Goal was not lost.
We're pleased to report we're in the process of resuming operations at many of our hotels.
Occupancy trends those hotels that have resumed operations are encouraging.
Our estimated cash burn rate is less than we had estimated.
Should continue to gradually decline.
And our low leverage sizable cash position not only protect us during these challenging times.
I was to play Austin's from many others are likely to be focus.
Sure enough liquidity.
Today ill first review the progress made towards resuming operations at our hotels and provide some commentary on our operating trends.
I'll then discuss revised estimates were monthly cash burn rate, which has improved from the range provided last quarter.
And talk about recent steps taken to enhance our already sizable and buebel liquidity position.
In closing I will provide an update from a few are ongoing capital projects before I turn it over to Brian to provide more details in a recent earnings liquidity dividends.
So let's talk about our recent operating results starting with the policies, which are hotels resumed operations.
Of our 19 hotels for have remained in operations for the duration of the pandemic.
Putting the embassy suites oil Renaissance only ex Renaissance long Beach, Boston Park Plaza.
Six hotels that had suspended operations have recently reopened.
Polluting oceans edge in early June five other hotels in the early to mid July leaving us today.
Kind of or 19 hotels in operation and currently welcoming gosh.
It's only a small subset of our hotels operating or second quarter revenues were only $10 million.
At par and total portfolio revenues declined by 98 at 97%, respectively compared to the second quarter of last year.
Over the same period or total property level operating expenses were 54 million.
Resulting in property level EBITDA loss of 44 million in the second quarter.
Well, perhaps hard to believe.
Property level loss was several million dollars less than we had anticipated as we were able to work with our operators.
To streamline operations.
Lemonade non essential services and reduced property level expenses by an unprecedented 73% from the prior year.
Like much of the industry occupancy for our operating hotels during the quarter 50 low in April gradually improved as the most progressed.
For the four hotels that have maintain operations throughout this year.
Witnessed an average occupancy of 39% in March.
Fine tool low of just <unk> percent in April.
And then gradually increased to 13%.
16% and their nearly 23% in May June and July respectively.
Despite increased concerns about a recent spiking code cases.
Similarly, oceans edge, which resumed operations in early June quickly ramped up to sustain occupancy levels near 50%.
Mid June and remain there through early July, but a sense witness occupancy levels in the mid to high 30% range as a result of resurgence of koby cases.
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The six hotels resumed operations in June and July in general achieved occupancy percentage levels in the teams within the first two weeks of opening.
So these hotels to slow occupancy level is generally sufficient to reduce but not eliminate.
The operating losses and cash drag despite the increased cost of enhance clean protocols and protective measures taken to keep the hotel associates and guess safe.
Our last call, we provided an estimate of or monthly cash burn assuming most hotels had suspended operations and those that were in operations would run very low occupancy is as was the case in the second quarter.
Three months ago, we estimated that we will incur property level cash losses of approximately $18 million to $21 million a month.
$10 million to $11 million, a month of corporate expenses debt service preferred dividends in capital spend for a total monthly cash burn of 20 to 32 million.
Which again includes capex because that does not include extraordinary items.
I'm happy to report that as a result of strong expense controls in the past quarter.
Our estimate of property level cash burn.
Has been reduced by approximately $4 million a month.
Resulting in total monthly cash burn.
Approximately 25 to 28 million.
For a 10% decline, which is inclusive of approximately $3 million to $5 million of monthly capex.
Furthermore.
So tells generally resume operations and occupancy slowly increases our cash burn rate is expected to be reduce further.
Assuming the 10 hotels in operations.
Continue to operate at recent levels.
Keep in mind that five of these hotels did not open until July.
Our property level cash losses would be reduced by roughly $1 million to $2 million a month to approximately $12 million to $15 million.
When combined with our corporate requirements.
Our total cash burn rate on average is estimated to be between 23, and 27 million or nearly a 20% decline from our previous range.
Again, we would expect this cash burn rate to gradually decline as we methodically resume operations at additional hotels and as occupancy builds has been which has been the case over the past couple months.
So lets turn or discussion to group dynamics and what it means for near term operating fundamentals.
As you can imagine nearly all of our group business canceled in the second quarter.
Other than a few government groups, 90%, 96% of our second quarter group room nights on the books prior to the onset of dependent canceled.
For the third quarter the trend is expected to be virtually the same as 95% of the group business on the books pre coated.
Has already canceled.
As a pandemic continues group cancellations for the quarter fourth quarter have increased as well.
Only nearly two thirds of our fourth quarter group nights on the books pre code of canceled.
We remain hopeful that several of these groups will materialize into fourth quarter.
Particularly as we begin to resume operations and a few of our large group hotels, including the Hilton Bayfront next week.
However, we believe the group business will not return in scale until there's a greater comfort and travelling in congregating.
This means that group business is unlikely to return in a meaningful way.
Until a vaccine indoor reliable therapeutics are developed.
Which remain hopeful.
Be the case by the end of year.
The silver lining in terms of group business is that our strategy of keeping sales professionals on property in taking care of our customers is paying off.
Since March we booked 86000, new group rooms for all future months.
In addition to the new bookings, we up thus far Rebooked 138000 group room nights, the previously cancelled or 23% of all Council group room nights since the start of the pandemic.
Furthermore.
An additional 61000 group room nights that have been canceled have expressed their intent to read book.
All right at various stages of reworking their group contract.
Group contracts, which would increase our rebook percentage to 32% of total canceled group room nights.
Taken together recently booked groups and data definitely definitive or tentative rebook groups represent approximately $70 million to $75 million of group rooms revenue and roughly $100 million of total group revenue.
We are confident.
We could not have captured all of this business. If we did not keep sales professional on property to work with and take care of our meeting planners in group customers.
I'd like to thank all the hard working management teams and sales professionals that have rebooked is very important future business.
For 2021, well are pure group room night pieces down.
We have approximately 577000 group rooms on the books, representing a $145 million of group rooms revenue.
We have nearly 16% of our 2021 occupancy on the books, which is slightly below our three year average of approximately 18%.
At this time of the year.
As we continue to rebook canceled room nights, we could cross over into 2021 was significantly more groups on the books than we originally expected.
For context, we all knew 2021 that was going to be it was going to be down in terms of group business compared to our initial 2020 expectations.
Furthermore, we continue to see role to strengthen the leisure and government business at certain hotels, including those in Boston.
West in Southern California.
And while it is still early.
We are starting to slow we see the return of business transient travelers and a few of our hotels, albeit starting from a very small base.
So where does this leave us in terms of.
Resuming operations that are remaining nine hotels, well, we are likely to resume operations a two to three more hotels in August as was another few hotels in September and October time period.
That said it is important to mention that one or more hotels may not resume operations until later this year due to ongoing government.
Travel restrictions in corn tools for the.
Ill conceived cleaning mandates brought on by various city councils across the country that not only increase operating costs and therefore delay the resumption of operations.
But more importantly increased health risk to both hotel associates and just like.
Assuming we opened hotels on this general timeline and meet our estimated occupancy thresholds, we will likely reduce our monthly cash burn rate even further.
So, let's switch gears and talk a bit about are significant and viewable liquidity position.
By the ended the quarter, we repaid 250 million of the 300 million dollar line draw that we completed back in late March.
At an abundance of caution.
In July we increased our liquidity through the previously disclosed sale of the of the Baltimore Renaissance.
Excluding the $50 million of remaining line balance at the ended the quarter, including the net proceeds from the sale of the Baltimore Renaissance, we held approximately $570 million of unrestricted cash at the ended the quarter on a pro forma basis.
With low leverage and significant cash balances gives us ample liquidity to weather the storm, even if it last for prolong period.
To meet our commitments and to take advantage of opportunities. We believe will become available next several quarters.
This is an enviable position.
And one that is not shared by many hours.
Now, let's talk about our ongoing capital projects.
As you were likely to remember, we postponed approximately $35 million a capital projects. This year, leaving approximately $40 million for 2020 budgeted renovations.
At the same time, taking a long term view of our business, we accelerated $6 million to $8 million, a very disruptive projects that were on hold awaiting a quiet time to be completed.
I'm happy to report that our largest project to the year repositioning of the marry up Portland.
We'll be ready to open in September and the hotel looks fantastic.
Furthermore, we have completed or close to completing.
Three of the projects that were accelerated includes including the atrium flooring.
A renaissance Orlando.
The escalators important to share the Renaissance DC.
And the addition of 32 beautiful night decks at Wailea Beach resort, which significantly increased the appeal of these ocean front rooms.
The good news is that most of our capital projects were heavily loaded into the first half of the year.
Our capital investments are expected to decline to only $18 million to $22 million in the second half of the year.
To sum things up.
We believe we believe the worst is behind us.
10 of our 19 hotels are operating and we expect.
We expect to would open additional hotels in August and September.
The hotels or remain open or have resumed operations have witness encouraging occupancy trends.
And are reducing our overall losses in cash burn.
And finally, our significant cash on hand for drawing down on our credit facility.
Not only provides us with incredible stability during these uncertain times, but will allow us to fund attractive investments earlier than others.
We may be more focused on shoring up liquidity.
With that I'll turn it over to Brian Brian. Please go ahead.
Thank you John and good morning, everyone.
And the ended the quarter, we had 540 million of unrestricted cash, including 50 million drawing on our 500 million credit facility.
Subsequent to the ended the quarter, we completed the sale of the Renaissance Baltimore for gross proceeds of 80 million.
Adjusting for the sale, our pro forma cash balances over 600 million.
Following the ended the quarter, we also finalized amendments to our unsecured debt, providing the covenant holiday through the first quarter 2021 within next Covenant test being Q2 2021.
The amendment provides necessary relief during the pandemic impacted time periods.
Also providing flexibility to invest in our portfolio and to pursue acquisition opportunities.
Our balance sheet strength in ample liquidity have positioned us not only to survive the economic shock we are experiencing.
To also come out of this with more flexibility and ability to capitalize on opportunities than many others will have.
We continue to focus on managing our costs and minimizing hotel expenses, while maintaining our properties in good condition and opportunities opportunistically investing in projects.
I would have resulted in material displacement.
Working with our operators, we have reduced operating expenses by approximately 73%.
Based on our current projected cash burn rate of 23 to 27 million per month.
Reflects the hotels open as at the end of July.
We estimate that we have approximately two years of liquidity based on existing cash again that is nearly 24 months and liquidity before we would need to take on any additional leverage from proceeds from our line or other capital sources, including asset sales.
Which could extend that liquidity D up to another two to three years.
It is important to note that our estimated cash burn includes three to 5 million I might have.
Capital investment in our portfolio.
We could always curtailed that investment if it was needed.
This is a very important distinction when we emerged from this pandemic, we will have significantly more capacity than others. Our balance sheet was already designed to handle any major downturn. So even if we emerge.
Into a recessionary macro environment, which is likely.
We will not need to access additional equity capital to shore up our balance sheet or rightsize our leverage.
This may not likely be the case with everyone in our industry.
Shifting to second quarter operations financial results are provided in our earnings release in our supplemental.
Second quarter operations, reflecting less dramatic decline in domestic demand the industry has seen.
Second quarter adjusted EBITDA was a loss of 47 million and second quarter adjusted FFO per diluted share with a loss of 31 cents.
Second quarter earnings.
Were negatively impacted by 7.5 million, which included 6.4 million related to currency future wages and benefits for furloughed were laid off hotel employees and 1.1 million severance pay related to workforce restructuring.
Additionally, during the second quarter, we impaired who we incurred an impairment totaling 18 million related to the sale of the Renaissance Baltimore.
Now turning to dividends as John mentioned.
As pre it John previously mentioned in efforts to preserve liquidity, we had suspended our common dividend.
Pending on whether or not there's taxable income this year will determine when our common dividend will be reinstated.
At this time, we do not anticipate taxable income for the need for any additional distributions in 2020.
Separately, our board has approved the routine quarterly distributions for both outstanding series of our preferred securities.
With that I'd like to now open the call to questions. Roma. Please go ahead.
Thank you if he would like to ask a question. Please take note by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Good. Please press star one if you would like to ask a question.
We will pause for just a moment to allow everyone an opportunity to signal for questions.
We will now take our first question from Lukas Hartwich split from Green Street Advisors.
And.
Color.
Your line.
It is now a lot your line is now lives.
Hello.
One of the rate was going down.
Hi, good there, yeah, Hey, I'm just curious.
Everyone surprised a little bit with how well technology is a it's helping ever on do business. In this current environment I'm just curious looking out further than the next year or two maybe three to five years out I'm just curious what you think.
The potential long term impact could be on on business travel demand, particularly.
Business transient.
Very good question Lucas and.
Fortunately I think this is everybody's first pandemic. So we're trying to figure out these new book the short term in the long term implications of this I would agree that.
Technology has made it easier for people to do their business at home.
I continue to believe that face to face interaction is critically important.
Every time it for the technology will.
And up eliminating corporate travel it proves not to be the case, particularly when some of these competitors go out and get the business.
So I do think on the margin, particularly in the near term I think that its.
The business travel is likely to be down.
Longer term, particularly in those areas, where we are located.
With what I believe is long term relevant real estate.
I feel comfortable that Ah well before.
That's helpful. And then I was also curious.
With this experience we're going through as this altered it all sunstone strategy in terms of what types of hotels do you want to invest in one market things like that.
Not really.
Well. This is this is obviously a major blow to be economy to all of us to measure markets.
I still believe in the in the long term relevance of several of the areas of your located you take a property like while and even though it's effectively shut right now and could be one of the one of the hotels it opens up less than or portfolio, not last but until the longer and so to speak.
Hi, I continue to believe that that is a hotel in that as a market that will be.
Highly sought after.
From the traveling public.
I would say that there are probably a couple of markets that.
We'll end up doing better or have moved up in the rankings and a couple of markets and I think it probably move down in the rankings.
New York I'd put at a a market that I think is going to struggle for some time.
San Francisco, who think or which I think was probably the darling or the industry for so long and people couldn't get enough San Francisco exposure.
Given some of the challenges I think in that market I think a little bit of.
Bloom has come off the Roes there.
Great. Thank you.
Sure.
Our next question comes from Smedes Rose City.
Caller your line is five.
Hi, Good morning, that's a soft on for Smedes here, just wondering what the timing of potential assets.
It would be if interest to you guys.
But do you have seen in terms of.
That's potentially coming to market.
Thanks.
We we started seeing just a trickle in terms of potential opportunities and those were.
Early highly sought after by a fairly large group of folks in fact, it was it was a bit surprising how many people were bidding on the one or one or two hotels that we've already seen come to market other than that I still believe it's early days in that in that regard.
Lenders are providing forbearance.
People are trying to figure things out so to speak and so I do believe that it's going to take a few quarters.
To shorten many of those items out.
And we believe that at a certain point lenders will.
Stopped giving as much of the way.
In terms of forbearance or other.
And so I think it's going to for some people's hands in the near term I don't believe that Theres a lot of opportunities, but you know I think in a few quarters, that's going to start working its way through.
Great. Thanks.
Thank you.
Our next question comes from David Katz from Jefferies.
Your line is now live.
Hi, good morning, everyone. Good afternoon, depending on where you might be.
And thank you for including me I wanted to just to ask you know obviously, the the core thrust of and the opportunity you have could include no buying assets or.
And I know.
If this is repetitive for me I apologize, but you know entire companies.
You know have you set me boundaries around whether.
Corporate acquisitions are included or excluded.
Oh I think that's that's always something we would look at the hurdle is pretty high David [noise].
The first and foremost it would have to include a significant portion of long term relevant real estate.
I'm not really interested in ours are border management team interested and just.
Bulking up for precisely that [noise].
I find that that does very little in fact, probably goes the wrong way.
And in the current time period.
Balance sheet strength, the relative balance sheet strength would also play into that because there's a couple of us a few of us that I would say have.
A real strength in terms of the balance sheet.
And.
You'd be a real struggled to take over somebody that was on the opposite side of the spectrum.
So there are at least two hurdles. In addition to the the other hurdles or does the price makes sense and can you get over the social issues.
Yes, as you know, we we've actively underwrote.
Two of the three M&A opportunities that are presented themselves over the past few years now and.
Something that I am sure we'd be invited to the table if something came up.
Right and just following up how do you think about the you know the balance between you know being opportunistic and and sort of buying low if we were to hypothetically pick a market.
Like.
You know, there's maybe a bad example, but Hawaii right, where you know assets could be challenged for a little while.
Therefore, maybe an opportunity.
Versus kind of immediate right immediate accretion.
Where.
Right I mean, you may be buying something that's a in a little better operating position today.
That you may have to pay for all right.
Yeah, not as focused on the short term you just did you just need to be able to make sure you get through the other side.
What I mean by that is.
We would fully anticipate anything we're looking at here near term probably has very challenged a near term cash flow scenarios, just like a good portion of our existing portfolio.
But if we are confident in the market confident in the asset comfortable that we can do with it.
Even though the cap rate might look.
Tragic so to speak.
In the short term if we believe in the long term value we have no problem pull a trigger on something like that.
Okay. Good luck. Thank you.
Thanks, David have a good luck.
Our next question comes from Anthony Powell from Barclays.
Your line is no life.
Hi, good morning stuff.
Question on asset sales I guess that can you walk through maybe the sale of the Baltimore after that and what I used to the price and what's the profit to future sales over the next couple of quarters.
Sure. So so Baltimore, we've actually been working on some time it even before the pandemic I think it's widely known that we have had we had that property under contract to sell for closer to $100 million.
Pre pandemic.
Our buyer hope things together and even though we fell out of contract at least once or twice and put the project down.
They kept coming back to us and we ended up transacting at a 20% lower.
That's an asset like like many assets, it's probably going to have a short term cash burn.
So, it's an asset or market, even though it's a nice physical asset. It is not a market that we felt strongly about did hit our strategy long term.
So to US who is a little bit of a hedge in that's you know as group comes back quicker low.
We have a group hotels it would do just fine probably even a little better group takes a while to come back then.
Probably okay, letting that go to 20% discount.
In terms of other sales.
We are contemplating other sales, although we're not interested at all and fire selling them at fire, so prices, but something that strikes us, we'll see but it strikes us that we'll need to have a debt markets come back a bit before we have a better.
Transaction market right now.
The CMBS market has come back.
But not just for but not for hotels.
I think market has come back.
But not for hotels and so there is a challenge in the hotel market right now that with the exception of maybe a few.
Strong relationship.
Owner or slash financiere relationships.
Pretty difficult to get anything done without debt.
Hi, Thanks in a similar it's Hawaii, Yeah, we all know that there's a restrictions on SAP and so wide.
I think if those words to be lifted would you be able to get a hotel EBITDA positive that that hotel.
[music].
Either once we currently section of the lifted or once maybe knee corn I guess, a testing the farm Swift and that had.
It's a question is.
It is going to wholesale open what could your hotel cash burn or do you reduce by if you got to some kind of.
Short term normalized level.
Hard to say in terms of how quickly that would happen, but I would just we do this anthony that I do believe that there's a significant amount of pent up demand for for leisure destination like that or reserve like that I feel comfortable that once we turn to switch on.
And we the airlines et cetera.
Particularly if there are better therapeutics et cetera.
That there will be demand for that hotel and those hotels along that strip.
So overall I feel good about it.
Okay. Thank you.
Thanks Anthony.
Our next question from comes from Dory Pets Sen with from Wells Fargo.
Please go ahead.
Morning, guys, Hi, Brian can you walk through the various outcomes. Thank you can see for that the Hilton times square.
We we gave a update last quarter on.
The status of the Hilton Times square at this point since I last call. We don't really have an update we continue to be.
Engage in conversation with our lender and the groundless or but don't have anything additional to disclose at this time.
Okay. Thanks.
Our next question comes from Bill Crow from Raymond James.
Yes. Please go ahead.
Yes, good morning.
Hey, John.
Can you just clarify the.
A few.
Hotels that have come to market.
That were.
Were decent fits I guess with your portfolio have you made bids on those the where you were surprised by the level of activity or.
Yes.
We were in the bidding process, yes, or on a one asset in particular.
Please.
Yeah, we are the bidding process so.
That's an asset that probably be announced here in the next.
Month or to the final the final buyer.
But there's just a real dearth of Theres, a real dearth of high quality assets for sale I would anticipate that back log jam will break.
As such.
People continue to struggle hi, Levered.
Owners continue to struggle and are looking for liquidity and as things start, forcing those hands a bit.
Yeah.
Understood.
You talked about the.
Government imposed and I guess kind of union.
Originated cleaning restrictions and certainly San Francisco, it's been talked about zero fear that there's some contagion in that process.
We're hearing about some ticketing and Hawaii from from a workers Fury theoretically fear and going back to work.
It's kinda.
Tell us how you're thinking about.
Some of the challenges and some of these marks Chicago, New York et cetera.
Well below you hit a you hit the nail and ahead I do think that there's going to be in certain markets or is going be greater challenges and which will delay reopening.
Let me say this first.
First and highest priority is the safety of the associates and the gas and working with our operator, we've come up with extensive protocols, we come up with extensive protections.
To keep the health and safety.
Hi, and again as the first priority.
I do believe that some of the mandates that have been originated by city councils et cetera.
Not about health and safety, it's about a trying to being bring back as many people as possible.
In the near term, which I think is very short sighted because we'll end up happening is some of those protocols not only will delay reopening.
Which is unfortunate but it is would you does but more importantly, we believe put people's health and safety risk.
So those conversations are going on and Fortunately they've taken a turn that.
I don't think is all that productive.
Yes, it will delay the reopening of certain metals.
Yeah I appreciate those comments.
One final thing for me John is what are what are trip advisor scores doing those guests that are that are coming into this this new operating environment or they are they've been.
Understanding of the changes and.
Are they expecting less less and then surprised by what they get or.
How are you how you monitoring them.
Yeah, we are monitoring that so for example, oceans edge as we've been very pleasantly surprise that we've received some very good trip advisor scores that hotel was incredibly claim they felt save for the protocols were in place that enough room to.
Not feel like they were being pushed by others or felt impeded on by others.
And so we've been pleasantly surprise in places like that.
I don't have anything more than anecdotal evidence for you though.
Okay. Because you know there's been so few people staying at these hotels and we're just starting to reopen though remember yeah.
The five of our hotels five six of our hotels six of our hotels just reopened past couple of weeks. So we should have more more information for you.
Near term.
In the also another thing to think about is.
But some of the business that we have picked up wouldn't would typically be.
Our guests staying at some of the hotels that we have opened right now.
We have relied more on some contract business government business et cetera.
And you know also in this time time period I think people are understanding.
That not everything is going to be open I mean, not everything's up and down the street, the restaurants or an open maybe down the street et cetera et cetera. So I think people are becoming more used to the fact that that's not completely business as usual.
You have heard that some of the higher end. This is this is just completely anecdotal bill, but I have heard at some of the very higher end hotels that have made cutbacks but are also charging.
Very very high rates because they're open.
Service levels are not being delivered to people's expectations and then.
Interest to John I always appreciate the comments thanks.
Thanks, Bill I'm going to.
Our next question comes from Rich Hightower from Evercore.
Please go ahead.
Hi, good morning out there guys.
Hey, rich.
Town I want to go back to some of the prepared commentary around group pace. You know touching go as it is but are you able to give us any indication.
The the pricing and the terms associated with some of those group contracts that are at or tied to the tentatively being negotiated a renegotiated or are really kind of how those elements are expected to to play out maybe in 2021 2022 at this point.
Sure.
So of of the groups that we have rebooked.
Clearly one of the one of the pieces of conversation is what happens if code continues and so they're looking for.
Flexibility is one is you could imagine we're providing that flexibility given the unknowns in the world right. Now are operators are providing that flexibility. So that's that's I would say is a primary importance in these discussions.
Finding spots has also been part of the discussion in terms of when you go into let's say our third quarter of next year, where some of these groups are a good portion of the groups are now going.
We're kind of run another room believe it or not and some some hotels.
The good news is is the the hotel.
Excuse me the groups that have been re booked in the near term.
So call. It 2021, the rates are flat to where they were.
Those going in and 22 and beyond we're actually seeing increases in rates.
And the group planners have been accepting those increases in rates.
Cetera, So the groups in general or just a tad bit smaller it happens excuse me, let me clarify that.
The groups that are rebooking tend to be the larger groups.
But what they're coming back with is slightly smaller.
A number of group room nights, which makes sense.
Okay that okay, then the yeah that that it's helpful color.
And secondly, you know I think we look at a pretty good idea of where sunstone stands relative to other riets in terms of balance sheet capacity flexibility and that's sort of thing, but John what's your.
What's your view of the of the of the competitor said in in the private markets and as you think about.
Private equity balance sheets are other other other players you know other traditional non traditional I mean, how how competitive do you think.
You know that group of folks who is going to be.
Targeting the same opportunities that sunstone is gonna be targeting over the next couple of years.
Very good question, so, let's let's start with what they currently have.
Private equity tends to run at higher leverage levels, you know, it's not uncommon to see 70% to 80% of leverage.
And one of the reasons I think somebody opportunities are delayed is.
At that pricing level, there's the implied equity value is not significant if anything and so that is going to delay.
Transactions are those assets actually coming to market.
But in terms of other private equity being active I do believe that some of the larger household name private equity funds are very well capitalized right now and while they are dealing with their own issues of assets that they currently own.
I do believe that private equity will be.
Private equity will be active and and competing for some of those assets as well.
Okay, great. Thank you.
Thanks, Rick.
Our next question comes from Chris well wrong go from Deutsche Bank.
Please go ahead.
Hey, good morning, guys.
Wanted to ask you Hey mortgage on wanted to ask you come out of this switch may seem like going a long time away, but they will come and we've heard a lot of your peers talk about re imagining the operational model and you know you guys have always been I think it kinda the forefront of.
Running a hotel.
The right way so in the context. The some of these things we've seen in these markets like San Francisco, where they're trying to be onerous in a tie both despair. I mean is is it reasonable to think that there are still going to be productivity gains coming out of this is there any way to think about that right now.
I do believe Adobe productivity gains.
Over the near and medium term, even long term as we find a more efficient ways to conduct business.
That will.
Probably be easier to implement in certain markets versus others.
But I do believe in that premise longer term I do believe that it's also a little bit early to put a number behind those.
But those conversations are already transpire and with a.
Sizable group of influential owners and our brand partners are operating partners, who by the way I think are doing.
An excellent job.
With us working with us.
The dialogue with our operators I don't think has ever been any better.
And really my hats off to several of our operators both in and the trenches at the hotels in the corporate level.
Okay Fair.
Fair enough and then if you look to open more hotels and maybe you can draw a little bit on the experience from the hotels you have reopened thus far how much of an impact is there from the market perspective have you opened a hotel is it skews. It there's that much demand is there or is this reliant on kind of taking share from <unk>.
Players that reopened or remained open.
Oh really tough to tell you know we're all we're all trying to reopen some of us around the same time, but we've been pretty pleasantly surprised that once weve reopened hotels in markets, where we had been monitoring that demand was coming in.
That.
That weve reopen did occupancy levels kind of in the mid teens in general for several of those for most of the hotels that we just recently reopened which.
It is a level, where we can improve upon our current cash burn. When we've also found is opened hotels tend to garner more business than closed hotels.
And so we're pretty pleased to.
Occupancy levels at a few of our hotels have actually increased quicker than we had thought.
It was one of our hotels it on one day last week and occupancy level in the high 70% range, which.
It's only one day and there was a.
A fair amount of government business, but we were pleased to get that business, obviously at lower rates.
And you know what we've also started to see which we weren't anticipating is we're actually starting to see some BT business come back.
Into a few of our hotels, it's not it's not a huge amount of business.
But it's great to see that some of our corporate travelers.
Or starting to come back in a few of our hotels and in a small and growing way.
So that's been a that's been an upside surprise that we weren't anticipating that I'm hopeful that continues.
Okay very helpful. Thanks.
[laughter].
Next question comes from Patrick Scholes with Suntrust.
Good morning right.
Yeah there.
You are in it.
And you have.
Private equity interest in individual that I.
I Wonder what you think about what might be.
Interest right now from private equity for.
Purchasing who will read right and to be clear I'm not.
Thank you know.
But right now, but just in general what well <unk> equity.
Yeah for for retail what's your gut.
Yeah.
Well in eliminate discussions with a few of our colleagues are friends on the private equity side. It seems that there's been a increased level of interest actually and reach share prices for through direct conversations upgrades.
Generally view that hotel REIT share prices are.
Creating it notable discounts to revised in a these based on on asset values that have declined meaningfully.
And so they are well, it's not something that they normally do they are happy parking.
The shares of of some of the more higher quality public companies.
So that is what I've heard anecdotally.
We have seen.
Obviously, a couple of private equity firms taking positions are smaller positions in in some of the reach so you know that seems to be.
Happening.
Okay arms of whether or not somebody could take down a entire company.
Probably will probably be a little easier if and when the debt markets return.
However, though there are certain private equity companies that have.
Top tier status with the banks and so that will come down to their relationships with those lenders to try and find capital.
Okay.
Hi, Thank thank you for the color on that that's it.
Sure.
We will now take our next question from Smedes Rose with Citi. Please go ahead.
Hey, it's Michael Bilerman hearing AIDS, John I said to follow up three you want lets just in terms of putting capital to work.
How interested are you.
In buying sort of paper on assets and then working with the lenders to get hold of the fee.
And also you know one of the comments you made was.
Lenders are providing forbearance and sort of kicking the can down the road I guess are you actively talking to the lenders about trying to put yourself in a position.
For them to for closing then you would be the equity Parker to recapitalize the asset.
Sure Hey, Michael.
So first question are we interested in buying paper to try and get to the asset.
[noise], we have looked at paper recently.
That.
My experience is always a much more difficult than bumpy road did it seems on paper no pun intended.
And so that's one where the discount would have to be so self evident given the vagaries uncertainties of.
Foreclosure deed in lieu of bankruptcy process, which always and what I've seen in limited experience always tends to be.
Less certain more expensive and longer than anybody anticipates.
I wouldn't cross it off the list of things that we would do.
But.
We would enter into it I think with the appropriate level of.
Conservatism perhaps.
To your second question are we in discussions with lenders about providing a eventual home. Yes, we have had those conversations and folks know where we stand in terms of our overall liquidity.
Its not an infinite bucket Michael until you know.
So we see improved share prices and I'm not talking Michael about share prices going back to where they were pretty coded or back to any viewed levels pre coded but.
Share prices going back to reflect even the current values.
The current private market values and at that point, we've seen this in the past I know you've seen this in the past that there is a certain time period.
That their reach or afforded a equity cost of capital that is accommodative to growth.
That's we're hopeful for.
Right. Yeah, I was just thinking there are so much lodging dead on banks books are obviously, there's a time <unk> lodging debt within CMBS, which are a little bit harder to have an active dialogue on I would just a thought that.
I'm trying to yeah, I assume a lender would be more than happy not to provide forbearance [laughter] actually get somebody who is willing to pay our the interest on the debt. If you now and you certainly have the balance sheet capacity to take on highly leveraged assets.
I would've thought that would be the big area for you to get some discounted.
So assets into the company.
Yeah. The problem right now Michael just speaking openly as you have you have some owners that are holding onto assets that know that they might be underwater, but don't want to give up hope that there will be underwater.
In the in the medium or long term and so they're going to fight to Stan.
Right and that's the problem in the spot market.
They might not have any equity.
But it needs to work itself out.
Right.
And then I wanted to come back to your comment that you need to a Green Street just in terms of you know the impact of technology and I agree with you for my face to face is someone who wrote a major conference for our industry I know that that group a interaction isn't being together in one place makes sense.
But I don't think you can say the same thing about everything the group in an activity, that's and hotel world and while I. Appreciate the element of your portfolio in the markets that you're in this whole where technology is today is so different than where it was 10 years ago, and certainly 20 years ago and this was this has been a forced.
Adoption to everybody and I think there has been.
Element of working a neat things into guide your day to day into the future into I.
I guess I was taking the backed by your comment that you know everything is going to go back to normal.
Well, we have the vaccine or therapeutic.
You don't think there's been a permanent some level of permanent impairment like I look at like retail you know you look at the retail market. There is a permanent impairment on retailers do not think theres, a permanent reduction from a lodging prospective.
By the same impact.
No I don't believe that that was my comment the let me let me restate I do believe in the near term that technology and the shift to the economy is going to have a near term impact their medium term impact to business travel.
The comment was really more towards we don't anticipate group coming back in any meaningful way until there is a therapeutic or or vaccine et cetera.
Longer term I think for the right assets and the right markets I'm not as concerned about the technology edge, but I agree with you that that.
The improving technology is likely to have an impact on on business travel.
I disagree.
Thank you.
Thanks.
Our next question comes from Bill Crow with Raymond James.
Please go ahead.
Yeah. Thanks for the follow up John.
It really goes back to acquisitions, not necessarily by sunstone or private equity, but just if you think back about the period. After 2009. It was kind of the debt markets that knowing that the party for for rates to be able to buy a lot of assets on the cheap and re Fi became a became a.
Good alternative if we think about what might happen.
456 months from now if we do get a effective vaccine even if we haven't distributed it yet.
We would anticipate the reach your prices, but certainly jump on that news the private market values would jump to right. So he is it is it possible the only real window we have.
Is over the next four to six months.
No I don't think so bill I mean, when when I take a look back at the last the last cycle, we actually we were pretty active and acquiring hotels.
Not in the downturn of course, our balance sheet was a different balance sheet at the time, but when I took a look at the opportunities opportunities went for a while no I want to set everybody's expectations and I just.
To say that there could be opportunities doesn't mean that they're going to be bargain basement.
I think that there'll be more attractive opportunities and what we saw.
In the past three years.
I think that will be reflected in.
Declines in price per key et cetera.
No, but bill I think there'll be opportunities best that.
Okay.
Thank you.
Sure. Thank you.
Our next question comes from Anthony Powell with Barclays.
Please go ahead.
Hi, just one more follow for me a you mentioned a couple of times about bigger screen get coming up at some hotel that maybe some more detail than whats hotels was markets, what kind of industries, where those got much coming from.
BT accounts is a few of our hotels, particularly in southern California, a long beach embassy suites, La Jolla, ER and we've actually seen it in our hotels and Boston just.
So.
Pretty small members Anthony but it's nice to see that we're actually getting some of that business coming through the beauty lies.
You know you consultant lawyers, yeah, that's a month or is that kind of what kind of almost one.
Project work on a couple of level.
Okay.
Yes.
Thanks Anthony.
This concludes today's question and answer session I.
I would now like to turn the call over to Mr. John Arabia.
Great. Thanks, everybody. Thanks for your interest thanks for being here today and we are around if you have any follow up questions. Appreciate your interest have a great day.
Ladies and gentlemen. This concludes today's call you may now disconnect.
[noise].