Q2 2020 CorePoint Lodging Inc Earnings Call
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Speakers presentation there'll be a question answer session to ask a question during the session you integrate press star one or your telephone keypad. Please state by today's call is being recorded either acquire further sits just from an operator, Please press star zero.
I'd now like to hand, our conference I was your speaker today Ms. Becky Roseberry. Please go ahead.
Thank you good afternoon, and welcome to core point lodging second quarter 2020, <unk> earnings conference call in a moment, we will have remarks from Keith Cline, our CEO and Dan Swans from our CFO, Rob song, our SVP of investments and Howard Garfield RC.
Our also on the line with us.
Before we start I would like to remind everyone that our remarks today will include forward looking statements.
Actual results could differ materially from those indicated in the forward looking statements and forward looking statements made today speak only to our expectations as of today, we do not undertake any duty to update forward looking statements. These statements are are subject to risk.
Factors that may cause our actual results to differ materially from those expressed or implied.
For more details on some of these risks please refer to the risk factor section of the company's most recent annual report on form 10-K supplemented by the company's quarterly report on form 10-Q for the quarter ended June Thirtyth 2020, and any subsequent reports filed with the.
Securities and Exchange Commission.
In today's remarks, we will also refer to certain non-GAAP financial measures corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release, which is available on our website at core point Dot com finally for those listening to a replay of this call.
Paul After August 10th 2020, we remind you that this presentation will not be updated and it is possible that the information discussed will no longer be current with that I'll now turn the call over to Keith.
Thank you Becky good afternoon, everyone and welcome for please you could join us.
First I'd like to provide an operational update highlight our continued coping 19 response efforts to reduce expenses and preserve liquidity and review our current cash burn levels. Then I'll briefly discuss the status of our real estate strategy and finally, the system platform improvements underway with window.
Dan will then provide an update on our operating results liquidity profile balance sheet and the additional details on non core hotel sales.
As it relates to operations all of our 230 hotels are now fully open.
This compares favorably to our peak of 30 hotels, there were temporarily not accepting transient guests.
During our first quarter earnings call in May we shared early second quarter operating insights since that time, we have experienced a market improvement in operating results as evidenced by a significant reduction in our monthly cash burn rate.
Revpar index share outperformance.
In the year over year Revpar change for the second quarter that outperformed the broader industry.
This recent outperformance is driven by a combination of factors, including.
Strengthening transient room demand primarily leisure travel.
Some recovery in certain segments of corporate travel related to a central businesses, such as construction transportation and project related businesses.
And the Halo effect of our properties being located primarily in transient drive through markets adjacent to interstates as well as destination locations.
Additionally, our cost containment efforts of the property level remain in place such as reduced staffing levels elimination of all non essential amenities and the freezing of all spending at the hotels to only what is essential to run the hotel safely while serving our guests during this challenging time.
More specifically our revised labor standard reflects a significant reduction in housekeeping hours, driven by lower occupancy as well as reductions in areas such as breakfast maintenance van drivers and guest service associates to better match, our cost structure with the number was sold.
The end goal of these containment efforts is to reduce our monthly cash burn rate.
We noted in our last earnings call that for the month of April which had an occupancy level of approximately 21% and revpar of approximately $13.50. Our estimated property level cash burn was in the range of $9 million to $10 million.
With the total company cash burn in the range of $13 million to $15 million.
We're very pleased to report that for June, which had an occupancy level of approximately 50% and revpar of approximately $34. We saw a positive $3 million of property level EBITDA.
This positive hotel level performance for June brings us closer to a monthly breakeven for the total company with our total interest expense at approximately $3 million and our cash corporate gionee between $1 million to $2 million monthly.
Additionally, as Dan highlighted last quarter, we have significantly scaled back all non essential capital expenditures to an estimated annual spend a 15 million to $20 million.
While we're pleased with this recovery to date, we remain cautious about the uncertainty in the months ahead for the lodging industry as we continue to navigate through the ongoing global pandemic.
Our hotels have benefited from a strong recovery with leisure travelers as demonstrated by higher occupancy and rates on weekends compared to weekdays and relative outperformance in drive to destination markets, including those in Florida, Arizona and California.
As you look ahead to the fourth quarter of this year and the first quarter of next year, two quarters, which are historically part of our slower non peak season, we're cognizant of the potential for operational declines.
We're currently benefiting from seasonal leisure travel, which could abate as we enter quarters that historically have a higher dependence on business travel.
As overall business conditions change our cost control initiatives will continue to be adjusted accordingly.
Turning to our real estate strategy.
As we discussed in our previous call. We did experience a slowdown in asset sales during the first half of the second quarter due to delays in the financing process, including with ESPN loans compared with prior periods and with some buyers waiting until they have more forward visibility.
In the second half of the quarter through today, our investments team has been very active on existing transaction closings and dialogue with prospective buyers.
For these buyers there continues to be a high level of interest and owning a property with a looking to flag.
Since our last call we've closed on additional 14 hotels for total proceeds of approximately $67 million.
We have another 19 hotels under contract that are expected to generate total gross proceeds of approximately $84 million, which if completed this year would bring us to a total of 59 hotels sold in 2020 for anticipated gross proceeds of $264 million.
While this rebound in assets outpaces encouraging.
The could be additional headwinds due to the macro uncertainty in the months ahead, but as we've noted in the past this is a multiyear process.
We are focused on delivering on the significant value creation that we have demonstrated and believe we can continue to generate through this noncore disposition strategy.
I would also note given the current operations volatility due to the impact of Cobot 19, we incurred at $52 million non cash and GAAP impairment charge during the quarter.
Lastly, I would like to provide an update on system platform improvements underway with Wyndham.
Wyndham remains generally on schedule to meet the 2020 deliverables under our settlement.
The deployments of certain legacy booking tools were completed and the implementation of the enhanced dynamic best available rate setting tool is required under the Wyndham settlement to be completed by no later than the end of 2020.
As a final note I would like to take the opportunity to think not only our corporate team for how well. They have responded to the challenges we have faced over the past several months.
But also like to thank those individuals working at our hotels to diligently provide great service to our guests in this difficult environment.
With that I'll turn the call over to our CFO, Dan Swanstrom Dan.
Thank you Keith and good afternoon, everyone.
I'll start today by providing a brief review of the second quarter operating results in recent trends and will also provide updates on our liquidity position balance sheet and noncore disposition strategy.
The comparable Revpar decline of approximately 62% during the second quarter was driven by 27% decrease from DDR 30, 450 basis point decline in occupancy as expected the decrease in year over year revenues is primarily due to the significant reduction in room demand, resulting from the impact of coated 19.
As well as the impact of sold hotels.
This contributed to decline in adjusted EBITDA already to a negative 8 million for the second quarter.
We continue to be encouraged by the early signs of recovery in demand for our hotels off of their mid April legally occupancy low point of approximately 16%.
During the second quarter hotel room demand increased each month on a sequential basis, resulting an acceleration of comparable occupancy from 21% in April to 38% in may to 50% in June this drove a gradual improvement in comparable revpar from $14 in April to $34 engine.
And preliminary results for the month of July or even stronger than June with comparable occupancy of 53% and comparable revpar of $38.
As we highlighted on our call last quarter, we believe our portfolio select service hotels predominantly focused on the Midscale segments is well positioned to capture room demand coming back online in particular as it relates to leisure travel and associated demands for many of our drive to destinations and interestingly adjacent hotels.
Combined with our mostly suburban markets portfolio footprint. These characteristics have proven to be favorable for the core point portfolio relative to the broader industries recent operating performance.
From a liquidity perspective, our cash balance today is approximately $195 million, which excludes lender and other EPS growth of approximately $31 million.
Our current cash level is slightly more than 190 million of cash we have time of our last earnings call and May Twentyth.
Our current liquidity reflects the significantly lower total monthly cash burn and cloud within our recent operating results driven by the improvement in portfolio Revpar and the implementation of various cost containment measures at both the corporate and hotel level.
And the benefit of franchise fee payments deferrals until September totaling about $11 million.
While we are encouraged by this recent improvement in operating results as compared to the month of April. The fact remains were operating in a challenging lodging environment and our near term priorities remain focused on cost containment and capital preservation initiatives.
Turning to our balance sheet at the time of our last earnings call on May 20, and we had paid our CMBS debt down to 865 million through the use of asset sale proceeds.
As of today, we are paid down our CMBS debt, even further to 807 million using net proceeds from our most recent asset sales, while our revolver balance drawn as $110 million.
Our current weighted average interest rate was approximately 3.2%.
As we mentioned on our last call. We were pleased to execute alone Amendment with our bank group the extended the maturity of the revolver to May 30, Onest 2021, and that eliminated both the total net leverage from interest coverage financial covenants through the extended maturity.
As part of the amendment, we are required to repay $25 million of our revolver balance outstanding in $5 million per month increments. Starting later this month through December of 220.
With respect to the CMBS facility in June we exercised our first extension option to extend the maturity date to June 2021, we have additional borrower options to further extend the maturity date for another four successive terms of one year each.
Both the CMBS and revolver extensions as well as the revolver amendments provide additional and enhance balance sheet flexibility.
The successful execution of our noncore hotels disposition program continues to be a proven value creator during the second quarter. We closed on the sale of seven hotels for total gross proceeds of approximately 29 million.
These transactions were completed at attractive valuations and averaged 2019 revenue multiple of approximately 2.5 times.
2019 hotel adjusted EBITDA already multiple approximately 16 times and about $40000 on a price per key basis.
Subsequent to quarter end through today, we have closed on the sale of an additional 10 hotels for gross proceeds of $61 million.
Representing an average 2019 revenue multiple of approximately 2.6 times 2019 hotel adjusted EBITDA already multiple of approximately 21 times and about 42000 on a price per key basis.
We're very pleased to close on the sales in 17 hotels over the last three months at highly accretive and attractive valuation levels.
As we highlighted previously we believe there is compelling strategic rationale for our noncore disposition program and narrowing our focus to go forward core portfolio of 105 hotels focused on our higher quality and growth potential assets that are primarily located in top 50, Mrs. We have been and we'll continue to be patient you thoughts.
I want to execution of this noncore disposition program to realize meaningful value for these hotels.
With that we'll open the line for your questions operator, yes at this time, if and when does have a question. She can press star. One are you touch on keypad and we do have a couple of question. Darren first question is from the line of Chris Woronka from Deutsche Bank.
Hey, good afternoon guys.
Okay, great. Thank you thanks for all the information in.
Graduations on on more progress on the asset sales.
One of the kind of ask you if.
Given the differences in recovery, you're seeing in different markets does any of what you're seeing or what you expect to see over the next several quarters change any of the calculus on on the asset sales in terms of selling more selling fewer selling different hotels.
So Chris as we laid out on our last call and we kind of put put a sizing on our disposition program. We stated that we're focused on this core portfolio of 105 hotels really focused on our higher quality at higher growth potential assets and as Dan mentioned located primarily in top 50 MSR.
That hasn't changed and our view that this is a multiyear process hasn't changed and as we mentioned on our Q1 call. We did say was reasonable to expect at some slowing would occur and we did see that in the first part of the second quarter, but are certainly very pleased that you know there continues to be a high level of interest in these assets and Rick.
Continuing to get exit valuations on these properties that are.
Highly accretive even if you look at 2019 multiples of both revenue and EBITDA. So argue hasn't changed and we still believe believe it's a multiyear process that will continue to work towards.
Okay very helpful and then.
Pretty impressive market share gains in the quarter is there any you have any sense for kind of where you're pulling out market share from is it I mean I assume the comp sets or are the same each quarter, but do you think it has to do with some of the brands you're typically competing against 30 pulling demand up or down or its did you.
Benefited from other hotels being closed is it possible to know any of that.
Well, obviously as you think about Theres a lot of factors that can affect the market share gains in the business. Certainly we've worked very hard to ensure that our rooms were open and available for any demand that shows up in the market. As we mentioned we went from a peak of 30 hotels that were in accepting transient reservations to to a situation today. We're all of our hotels are open.
The reality is I mean, this really highlights the benefit of the chain scale that we competed right midscale upper mid scale select service.
We've got a trans hit either drive through or destination locations a lot of Interstate adjacent sees which if you take a look at the STR results that are out there. The interstate locations are the markets that are that are clearly dominating what I can't tell you is that the lucky to brand in this environment has has resonated with the leisure.
Transient traveler, that's out there and certainly the.
Essential businesses from a corporate standpoint that are traveling our guests that know this brand well.
So we've been very focused on evaluating demand on a hotel by hotel basis, and working alongside our management company to ensure that were.
Testing the elasticity in pricing in those markets to generate solid financial returns and and we've been pleased so I think it's a it's a combination of factors.
But clearly right now we're benefiting in this environment.
Okay very very good thanks, Thanks Pete.
Thanks, Chris.
And we do have one more question on the line from the line of Mersenne Center from JP Morgan.
Hey, everyone appreciate the color and thanks for your question.
However.
So just just want to us on the sequential improvement and Thats why you gave that in in the release. The April May and June can you are now it's early but can you discuss kind of those trends in July whether it be the rep, our opex and cash burn for the month, presumably at improved just based on the STR data improving off of the offer the June level.
And how do you think that how do you think about cash burn going forward heading out of the seasonally heavily transient travel period.
Well.
Dan mentioned in the comments that kind of July month to date hockey mid occupancy is approximately 53%. So it's about three points above where June finished revpar that about $38. So about $4 above where June fitted finished we don't have any any insights into EBITDA performance at this point in terms of how the month.
Is going to shake out, but we do continue to monitor our overall cost architecture labor model labor hours et cetera, and we're continuing to operate within the standards that we've set.
Over the past many months in our business. So we're certainly encouraged that in June we came very close to breaking even at the corporate level and we'll update the markets as we as we get to Q3 in terms of how that has progressed, but you're right. We are remaining we are retaining a healthy amount of.
Caution around the third quarter, because there's a lot that we don't know what does back to school look like what does the end of what's typically the summer season look like and the move from transient the corporate travel given the corporate travel has abated quite a bit. So so we're going to continue to monitor the business on an everyday basis and.
We'll update the market as we have something to to share.
Okay. Appreciate it and you mentioned to briefly corporate travel and not a small portion of your business, but is there.
Specific industry that that.
That youre intelligent attracted over the last couple of months whether it be.
I know you mentioned contractors.
Maybe a recovery workers are helped.
Is there anything is that kind of.
Been consistent over the course of the recovery.
Well early discovery, but.
Yes. It has certainly mirrored as our business levels increased rate not only to be seen increase and transient leisure travel as we moved throughout May and ended June is certainly in July but people that are viewed as essential workers that are traveling to keep the country open everything from the construction industry.
To transportation to a lot of different project related businesses.
See out in the hotels.
Historically.
The looking to brand Palm has had a healthy mix of what we call traditional leisure and then and then corporate related business certainly as as many people in the industry have experienced the typical white color corporate traveler just isn't there in four shed, but as you think about blue collar travelers and.
The types of industries that we mentioned during the prepared comments are certainly out there and they certainly are showing their affinity for the looking to brand right now.
And then just last one for the seven hotels sold during the quarter and then the 10 sold subsequent to quarter end.
Or are these discussion generally ones that started pre co bed or where they wanted to sort of developed in more and more recent weeks and months.
As we mentioned in the prepared comments, we've been focused on closing transactions.
That were under contract.
Our our investments team led by Rob song has has constant conversations with potential buyers of our of our non core portfolio, but the primary focus has been on on hotels that were under contract that we were seeking to get closed.
Okay. Appreciate it thanks much.
And then a question on the line.
Well I want to thank everybody for their continued interest and support a core point lodging everyone. Please have a nice debt.
And this concludes today's can you may now disconnect.
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