Q3 2020 Xenia Hotels & Resorts Inc Earnings Call
Good day, and welcome to Xenia hotels, <unk> resorts third quarter earnings Conference call.
All participants will be in listen only mode.
If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Today's presentation will be opportunity to ask questions.
Please note that this event is being recorded.
Now I'd like to turn the conference over to me, we saw Amy <unk> Vice President of Finance. Please go ahead.
Thank you Nick.
Good afternoon, everyone and welcome to the third quarter 2020 earnings call webcast for Xenia hotels, <unk> resorts I'm here with Marcel robots are chairman and Chief Executive Officer, They blame our president and Chief operating Officer, and a T. Shah our Chief Financial Officer, Mike.
I will begin with a discussion of our quarterly performance as well as recent transactions and capital markets activity Barry will follow with a brain detailed update on our major capital projects and occasionally finish the call with a discussion of our balance sheet and various liquidity metrics. All in today's prepared remarks, we will open the call for Q and a.
Before we get started let me remind everyone that certain statements made on this call are not historical facts and are considered forward looking statements.
These statements are subject to numerous risks uncertainties as described in our annual report on form 10-K, and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.
Forward looking statements in the earnings release that we issued earlier this morning, along with the comments on this call are made only as of today October Thirtyth 2020, and we undertake no obligation to publicly update any of these forward looking statements as 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 gradually and.
An archive of this call will be available on our website for 90 days with that I'll turn it over to Marcel to get started.
Hi, Lisa.
Thank you all for joining our third quarter 20.8 were in school.
Lodging industry continues to be impacted severely by the COVID-19 pandemic.
Restrictions imposed by governmental authorities.
Numerous allison's fourth travel.
Well the industry have seen encouraging Levine says.
So some relaxation of love dogs and other restrictions over the past several months.
And that's from the corporate friends in the group segment continues to be limited.
Secondly, in the upper upscale and luxury <unk>.
While these segments continues to be impacted most severely.
Current year over year result.
We remain steadfast in our belief that the luxury and upper upscale segments well.
Well carrots are robust and we don't.
Particularly as covert liking treatments therapeutics improve and affective vaccines are widely available.
Looking back on the previous two downturns in our industry luxury and upper upscale rebounded very strongly.
I see no reason to believe this time will be any different.
Especially doesn't know supplies insurance would be very limited in the next few years <unk>.
Particularly on the properties that are currently under construction or completed.
We also continue to believe that the quality of our uniquely positioned portfolio and our markets froze.
Will benefit us greatly as the lodging industry will experience is notable recovery in the years ahead.
Our operating results for the quarter were reflective of the weak industry fundamentals.
Net loss for third quarter was <unk> point.
$23 million.
Adjusted EBITDA was negative $21.1 million.
FFO per share was negative 27 cents.
With both numbers representing sequential improvements over second quarter majority of our properties were closed for a significant portion of the quarter.
[noise] like the second for the third quarter continues to provide an extremely challenging opera.
[laughter], we were faced with a gradual improvement of our portfolios performance, which has continued through the month of October.
Our geographic diversification with the emphasis on sunbelt locations a focus on key leisure destinations.
But as I said in the past.
But it has become an even more important in the current environment and as we look towards the future.
Our market strategy, that's what was our focus on owning hotels and resorts that appeal to various demand segments.
Contributing to our ability to 36, 37 hotels and resorts that we currently own.
Open and operating.
What 12 of these properties achieving positive EBITDA during the third quarter.
We have recommenced operations at our hotels <unk> resorts that are very thoughtful and methodical way over the past few months.
Emphasizing the need so thoroughly analyze potential sources of the man.
Competitive landscape.
As we projected operating performance compared to a close and scenario for each individual asset.
As a result, we have been able to reduce our monthly cash burn while enhancing our ability to stabilize operations at each of our assets as quickly as market conditions will allow.
Turning to page will provide additional detail on our operating results and cash burn later during this call.
Well the capital markets progress, we have made significant strides in bolstering our liquidity, so strategic capital raising initiatives.
In August we completed our gay do senior secured notes offering.
$300 million at 6.38%.
And we raised an additional $200 million this flow through an add on that a slight brains apart.
Okay.
A portion of the net proceeds from both offerings were used to repay outstanding balances.
Eric its corporate credit facilities.
The remaining proceeds retained by the company for general corporate purposes.
Following the October offering we addressed all of our near term debt maturities by paying off the remaining balance of our two term loans.
Her in 2022 as well as a mortgage loan related to our Merial Dallas hotels.
As a result, we now have no debt maturities until 2023.
Our strong relationships with our lender group resulted in collaborative negotiations as we also were able to negotiate amendments to our corporate credit facilities, which include covenant waivers for all of 2021.
Relax covenants during the first quarter of 2023.
The two year extension of our revolving credit facility pushing this maturity out to 2024.
Turning to our transaction activity.
After three transactions that were announced in the early part of the year did not close we were able to collect a total of approximately $29 million in non refundable deposits as we have previously disclosed.
These transactions it not close as anticipated, we thoroughly analyze our portfolio for opportunities to gain additional balance sheet flexibility and liquidity through a potential disposition of assets.
Our collection of high quality desirable assets, that's proven to be an efficient source of liquidity.
As we've been able to negotiate a number of dispositions at attractive pricing, particularly given the current operating environment.
We previously announced two of these dispositions, which were both completed in October.
As we recently entered into agreements to sell two additional hotels.
We believe that these transactions coupled with our recent senior notes offerings or the most logical and cost effective size or capital raising at the moment.
Our capital markets and disposition activities have bolstered liquidity.
Yes near term maturities.
We believe this has reduced any potential near term needs for a dilutive equity interest issuances.
We strongly believe that must be dispositions alter our long term strategy were negatively impact our growth outlook.
Well each transaction has unique.
Disposition generally shared more and more of the following characteristics.
Substantial near term capital requirements without an appropriate projected return seeking.
A significant directly competitive supply additions.
The difficulty in recovering hotel operations to breed cobot levels.
And or assets that are not closely aligned with our long term strategy.
These transactions further shaped the profile of our company.
We believe will further improve the quality and growth prospects of our company in the near and longer term.
On October Onest, we completed the sale of residents in Boston, Cambridge.
The only remaining select service or extended stay hotel in our portfolio were $107.5 million or $486500 per key.
The sell this asset was a highly competitive process that resulted in a very attractive so pricing.
The price represented an 11.6 times multiple on the hotel was 2019, even though.
An impressive number in the current environment, particularly when considering upcoming capital needs are though which we were able to avoid through a sale this asset.
In addition to the purchase price, we retained the $3.8 million F neighbors or.
In connection with the sale the buyer or some of the existing $60 million mortgage loan.
Which along with the net proceeds received from the transaction further increase our balance sheet flexibility.
On October 22nd we completed the previously announced sale Marriott Napa Valley Hotel in spot.
Third point $1 million or $364000 per key.
We acquired this hotel in 2011 for $72 million.
And realized an unlevered, IRR or 10, and a half or settled as investments and during our ownership.
This was another competitive process and we were pleased with the execution and pricing, which reflected a 9.8 times multiple and the properties 2019 EBITDA.
Which was the high watermark during our ownership of though.
We remain bullish on the long term strength of the Napa markets as evidenced by our continued ownership of all dogs, Tampa, which is a high quality luxury hotel.
However, the sales the Marriott Napa allowed us to reduce our exposure in the markets are selling there's more group oriented hotels in this high end leisure focused mark.
Similarly to the residents in Cambridge. So this transaction helped us eliminate a significant additional capital investment in the coming years.
In addition to the net proceeds received from the transaction. We also retained <unk>, knowing that a half hour African neighbours or.
In this morning's earnings release, we announced that we recently entered into separate agreements to sell two additional hotels.
Renaissance Austin Hotel and hotel Commonwealth in Boston.
We previously had restaurants Austin under contract to be sold earlier this year a deal to sell through as a result.
Well Byron appreciated the closing.
Relatively early days of the COVID-19 pandemic.
After a thorough evaluation, we decided to remarket the Austin hotel.
As our views regarding the desirability of long term ownership of this hotel has not changed.
And certain characteristics of the asset, particularly its dependence on group demand and the outsized impact of COVID-19 on this demand segments.
It did less appealing to delay potential disposition of this asset.
Despite the discounted price as compared to erect original sale agreements.
We firmly believe it's the benefits of selling Renaissance Austin.
The way holding yes.
As it will allow us to continue our strategy of improving the overall quality of the portfolio well.
Well also avoiding significant near term capital expenditure needs.
The sales hotel Commonwealth upon completion will mark our exit from the Boston market for the time being.
We acquired this hotel almost four years ago, 400, <unk> hundred $36 million.
Sort of sale price of $113 million represents a disappointing outcome for this investment.
However, the sale price reflects an 11.8 times multiple on 2019 hotel EBITDA.
Which is an attractive pricing level and this pandemic environments and.
We are pleased with the result is competitive process.
As is the case with Braskems Austin, we believe the benefits of selling this hotel at this pricing, though outweigh holding the asset longer term.
As we evaluated our liquidity needs and desires to shape, our balance sheet to not only get through the current crisis, what set ourselves up to be opportunistic as the recovery takes hold we.
We believe the civil this hotel provides an opportunity to essentially efficiently raise a significant amount of capital and a superior cost into other alternatives.
Well both of these transactions are subject to ordinary closing conditions. There are no financing contingencies and both buyers that posted substantial Edwards deposits.
We currently expect each of these transactions to close in the fourth quarter.
Successfully completing the two sales in October assigning these two additional contracts shows the liquidity of our high quality diverse portfolio as well as our ability to pivot is when the need arises.
If the two pending transactions are completed as anticipated.
Although sold these four properties for nearly $400 million.
Approximately 10 times 2019, you would have multiple.
But overall valuation that has significantly or significantly above the level, where our shares are currently trading.
We have always prided ourselves on being transaction oriented.
This is another indicator that even in difficult markets and unprecedented times, we were able to move forward quickly make decisions.
The strong relationships, we have throughout the industry drive these transactions to completion.
Finally, we continue to appreciate the dedication and efforts of all of our operators a socialist at our hotels and resorts and our corporate employees.
During these difficult times in our industry.
We continue to believe that our efforts before answer I guess pandemic to shape, our portfolio and balance sheet have positioned us well to not only deal with these short term challenges challenges, but also allow us to thrive during the inevitable recovery.
I will now turn the call over to Barry who will provide details on our third quarter weeks of the operating performance as.
As well as an update on our capital expenditures.
And the exciting progress on the transformative renovation.
Recent reopening of park Hyatt out here.
Thank you Marcel as you mentioned I will be discussing our property performance for the third quarter have continued success and reopening in operating our hotels in this difficult environment.
And an update on our recent capital expenditures.
On a same property basis for the quarter occupancy was 24.7% and average daily rate of $169.77.
Alton Revpar $41.95.
This same property basis includes 38 of the 39 hotels owned as of quarter end, which excludes Hyatt Regency Portland is calculated as if all rooms were available to the entire quarter, regardless of operational status.
This reflects a decline in revpar of 74.8%.
As a result of the 67.9% decrease in occupancy and a 21.5% decrease in rate.
Revpar was down 80.3% in July 72.5% in August and 71.5% in September.
For all of our operating metrics for the quarter I will now be referring to the 37 properties are open and operating for at least some portion of the quarter and these metrics include the two hotels, we sold in October.
These metrics are based on the number of days individual properties were open and operating.
The third quarter, our hotels achieved 28.5% occupancy and average daily rate of $106 million.60 per rep or a $40.41.
Well the absolute amounts you remain unprecedented we continue to be pleased with the cadence and continual improvement in results during the quarter, particularly as many projected a significant decline in performance. Following the labor day holiday, which has historically mark the end of the summer season.
July's occupancy was 23.9% and needy Ark $170.04.
August saw significant improvement in occupancy of over 580 basis points to 29.7% and an IDR $169.45.
September occupancy further improved over August to 31.6% and rate was identical and $169.45, but the strong labor day weekend to start off the month and continued leisure demand and some early signs of slow improvement in corporate and group demand throughout the month.
Currently estimate that for the month of October 36 spoken in operating hotels will performed as we expected running approximately 33% occupancy and 80 are probably $189 aided by unique piece of business with apartheid I've yard, which I will discuss a bit later.
As we did last quarter, we want to share with you a few non traditional metrics, we've been tracking closely as business and consumer confidence shift from week to week.
Overall, we continue to see strong performance of the portfolio from our drive to leisure markets and resort hotels.
We had 19 hotels achieved 30% or greater occupancy for the quarter, including eight exceeded 50%.
These included both of our hotels in Savannah.
One of our hotels in Napa as also tells a mountain Brook key West Alexandria, Charleston, South Carolina, and Santa Barbara.
Our six hotels in Texas Chapin, primarily business focused were notable laggards, but showed improving results from month to month as four bit hotels reopened in the third quarter.
As we are management companies continue to get experience operating in this new environment. We continue to refine the balance between services offered and cost structure for the most part we recognize the guests in upper upscale and luxury hotels require some sort of food and beverage operations continued to open restaurants and bars throughout the portfolio, albeit with more limited and.
Cost efficient menu offerings some.
Similarly, we reopened fitness centers spot and pool facilities as local ordinance or what ordinances allow and business conditions dictate.
We have learned numerous lessons regarding how to encourage social distancing in these spaces, while still providing outstanding guest experiences.
As we continue to keep guessing employee safety at the forefront of our operating strategy. Our hotels are learning how to be more efficient in dealing with guest requests, including Bell service housekeeping on demand food and beverage room supply delivery and trash removal.
Overall, our hotels ability to control costs in the current environment has been very good.
Paul is challenging from an HR perspective payroll costs across the portfolio were reduced by approximately 65% in the third quarter of 2020 as compared to the third quarter of 2019.
Other operating expenses were reduced by approximately 60% during the same period.
These are materially reductions on revenue levels the decline approximately 75%.
You bet these efforts and support that continually expanding EBITDA profile. The 13 of our hotels generating positive hotel EBITDA for the quarter.
He is largely track the higher occupancy hotels that I referenced earlier and include each of our hotels in Savannah and Napa.
And hotels and Mountain Brook, Key_west, Alexandria, Charleston, South Carolina, and Santa Barbara from our high occupancy list as well as hotels in Atlanta, and Salt Lake City, Scottsdale, and one of our hotels in Portland.
Our customer mix has continued to evolve as well there's no doubt that our leisure demand has continued post labor day as evidenced by our September and October performance.
The segment continues to be stronger than expected throughout the portfolio and photos off especial packages and promotions. So actually the work from Hyatt program that are specifically designed to encourage longer lengths of stay and provide some mitigation to softer overall mid week demand.
Our hotels, especially a boutique hotels and resorts could become experts in creative uses of social media and the development of innovative pack of innovative package offerings.
We continue to confirm that this business has a very short booking window often in the week for the week and even in the day for the day, although we are seeing earlier bookings for traditional holiday periods, including Thanksgiving and Christmas week.
On the corporate training side business is certainly coming back, albeit slowly overall, we are seeing a faster recovery of demand for smaller regional firms then from traditional large demand users. It's actually the big four accounting firms Bicsthree consulting firms and fortune 500 companies.
On the group side, we can find the report the cancellation activity slowing the leads for future dates are increasing month over month.
To date, we've experienced approximately $235 million in group cancellations for all future dates.
We're starting to see groups canceling move business scheduled for the first quarter of 2021, we're seeing relatively few cancellations for the second half of 2021.
Seeing some increases in new booking activity for that period.
We are fortunate to have a portfolio, which is not overly reliant on city wide conventions due to our specific hotel locations and markets.
In the last group business has historically been an important part of our diversified portfolio.
We are pleased with the efforts our hotels have made in pivoting and working aggressively to attract group business that is available in their respective markets.
Sports business has been a stand out in this regard is five of our hotels hosted major League baseball teams. This season.
Several of our hotels opposed to college and NFL football teams as well as production crews for football and golf events.
We've also hosted several significant group political fundraising events and other non traditional government business.
In addition, we can continue to see demand from you've dance pageant and sporting events as well as specialty leisure driven group business such as automobiles.
Our hotels have also done a great job and pivoting their service to these groups completely outdoor meetings and events are now commonplace and our larger resort hotels in Orlando Scottsdale in Carlsbad collectively have available over 400000 square feet of flexible outdoor space and are located in climates that now that we're past the summer season ideally suit.
Good for outdoor events. In addition, many of our boutique hotels continued rooftop where other desirable outdoor space that can be utilized for meetings and events.
Our hotels are also at the forefront in servicing part in person part virtual meetings in general and weddings in particular in partnership with our audio visual vendors having.
Having this optionality will be a significant benefit to our hotels in the coming year. It's meeting planners learn accretive think creatively think about how they design meetings and events.
Transitioning to capital expenditures during the third quarter, we invested $18 million of capital into our portfolio.
Focused on the three major projects, which were already underway and we elected to continue despite the challenging environment.
And our largest project this year the transformation of <unk>. We've now completed the most significant and disruptive portions of our upgrades we reopened the resort on September Thirtyth.
During the quarter, we completed the renovation of the lobbying reception area, including the lobby lounge and bar.
The renovation and additions to the pool area and water amenities, including the addition of dueling Waterslides an innovative splash pad saw substantial progress during the quarter and are being completed as we speak.
The remaining projects. The resort include the conversion of the existing specialty restaurant into a new three meal dining concept, which is expected to be completed by the end of the fourth quarter.
The renovation to the golf clubhouse, including a new restaurant concept is expected to be completed by the end of the first quarter 2021.
We were excited that the resort announced this week that Richard Blaze renowned celebrity chef and former top ship all stars winner with the strong San Diego and National presence will be spearheading this yet to be named restaurant operation.
Overall, the probably looks terrific and as we have said before we continue to believe it will be very well positioned to capture precisely the type and quality of business, which has been created in which we envisioned when we acquired the property in 2018.
Our first example of this was the reopening of the hotel on September Thirtyth June 18 day buyout by Major League Baseball for the American League Division a championship series.
By all accounts it was an amazing execution by the hotel team is a great indication of the quality and quantity of business. This five star five Diamond resort continued to attract is beautiful facility. It has now been significantly enhance to appeal to a broader group market.
In addition, as we've mentioned before the property is now better equipped to compete for high end leisure business. That's true peer group of luxury, California coastal properties, which is performing very well in the current environment.
Also in the quarter, we completed the Guestroom renovation at Marriott Woodlands Waterway Hotel and Convention Center and have now completed the renovation of existing ballroom and meeting space at high reached the Grand Cypress with that I will turn the call over to Richie.
Thanks, Barry I will discuss our balance sheet and provide a reminder, on our breakeven levels of occupancy.
Kasper.
Okay.
Through our actions since July we have strengthened the balance sheet, giving the company additional flexibility and runway to three outcomes that are most notable are as follows number one increased liquidity number two no financial maintenance covenants through the end of 2021 and number three.
No debt maturities until 2023, we achieve these outcomes.
Two productive dialogue and negotiations with our lender group as well as strong execution in the high yield bond market and the dispositions completed this month.
Our liquidity at the end of the third quarter was $515 million and our liquidity position today is approximately.
$600 million today's liquidity reflects unrestricted cash of approximately $330 million.
And parent Undrawn revolver capacity of approximately $270 million.
As to our high yield offering most of the details have been announced before our debut offering in August was substantially oversubscribed, resulting in an attractive coupon. We also had strong demand for the add on that we completed a few weeks ago.
We welcome these new fixed income investors in the company and look forward to growing our relations with them overtime.
As to our corporate credit facilities, our bank lenders continue to be supportive of the company and are pleased with our actions.
As mentioned, we extended the duration of our covenant waivers by three quarters.
After year end 2021, certain of our financial maintenance maintenance covenants.
Relaxed and gradually returned to pre corporate levels.
Over the following five quarters or by early 2023.
There are two more minor changes, we recently made to our corporate credit facilities.
First we can acquire hotels using equity during the covenant waiver period.
And second assuming no more than $350 million is outstanding on our line of credit.
Other capital raising proceeds would be split evenly between paying down the line and coming into the company for general corporate purposes.
In other words, no ongoing sweep to permanent pay down of bank debt that matures in 2023 and 2024.
Moving ahead to our breakeven occupancy.
On this measure the progression here continues to be good and confirms our modeling as.
As you May recall six of our hotels achieved better than breakeven hotel EBITDA in June those six properties had average occupancy of about 50% and an HDR decline on average of about 20% during the month of June.
July eight of our 37 hotels achieved better than breakeven hotel EBITDA in August it was up to 11 properties and then in September 17 of our 37 properties were hotel EBITDA positive.
For September those 17 properties had an average occupancy just over 40%.
Average 80, our decline for those properties was about 18% in the month.
Based on these results, we estimate that approximately 40% occupancy with rates down in the 20% to 25% range is what is needed to achieve breakeven hotel EBITDA.
Turning now to our monthly cash burn as you may recall during the second quarter. It was roughly $20 million per month inclusive of debt service.
During the third quarter, our cash burn declined to approximately $11 million per month again inclusive of debt service.
As we have recently provided a monthly run rate average cash burn of 16, and a half million dollars came in at $11 million I want to take a minute to explain the variation.
There are three main factors.
First burn from hotel operations on a normalized basis, we would have expected this to be about $4 million, a month or $12 million for the quarter.
Instead in the third quarter, it was about $3 million per month or about $9 million for the quarter.
This variance was due to strong expense controls and the timing of certain <unk>. They are.
Second on real estate and personal property taxes and insurance.
Normalized basis, we would expect this to be about $5 million a month on average or.
$15 million for the quarter. However, in the third quarter, it was about $2 million per month or about $6 million for the quarter.
This is due to the timing of payments most.
Most of our real estate taxes and insurance expenses are paid in other quarters.
We also received some tax refunds and reduced assessments.
The latter of which is one of the reasons, we've brought down our estimate for this to be four and a half million dollars per month on a normal normalized average basis going forward.
Third on debt service on a normalized basis, we would have expected this to be about $6 million, a month or $18 million for the quarter. Instead in the third quarter. It was about four and a half million dollars per month or about 14, and a half million dollars for the quarter.
The reason for this is again timing as we paid down term loans and revolver during the quarter, but the first interest payment on the new notes, it's not until next year.
We also had $2 million of temporary debt service deferrals unsecured loans, so again, a timing benefit.
In total those three items represent about five and a half million dollars per month and that.
Forms the bulk of the variance between our results in the third quarter and normalized average monthly cash burn.
Just to recap the $11 million per month in the third quarter reflects hotel operations DNA expense and debt service and it it excluded inflows from deposits received from terminated transactions and net proceeds from our notes offering in August as well as outflows for Capex.
Moving ahead to our current estimate of average cash burn we estimated to be approximately 14, and a half million dollars per month exclusive of Capex.
This reflects normalizing for certain items.
Current demand levels, and current who tell status, meaning 36 of our 37 hotels open and operating so.
So we have tightened this to reflect reflect better expense controls and the additional disposition.
Offset by the additional costs of the add on offering.
The estimate of 14 and a half million dollars per month does not include Capex, we estimate capex to be approximately $4 million per month during the fourth quarter.
We expect to Capex figure to decline next year and that's to future Capex, we have not yet established our two 2021 Capex budget. We expect Capex next year to be focused on required maintenance and a central building and like safety projects. Therefore, we currently expect that our average monthly capex in 2000.
21 will be much lower than $4 million per month.
Turning to our runway assuming a near term all in burn rate of 18, and a half million dollars per month, and a lower all in monthly burn rate starting in January.
Our current $600 million and liquidity reflects a runway of over 30 months.
Yeah and this is just assumes no change in demand from current levels.
In conclusion to my comments, we expect the next few months to be anything, but certain given limited booking windows.
It's pretty.
Predicting how the next few months will evolve is challenging.
On the things, we can control such as our liquidity transactions and Capex. We have made great strides in doing so we have positioned the company for a range of scenarios.
We look forward to being opportunistic and growing shareholder value in the future.
And with that we will turn the call back over [laughter] for.
For Q and a session.
Well begin the question answer session.
Good question.
You May press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
This time, we'll pause momentarily to assemble the roster.
First question comes from David.
Excuse me first question.
Come from David Katz with Jefferies. Please go ahead.
Hi, good afternoon, everyone and thanks for all of the very helpful and thoughtful detail.
I wanted to ask about the Commonwealth in particular.
Because a it.
It happens to be an urban hotel.
And I just wonder what your kind of broad thoughts are about urban hotels and the degree to which you know the fact that it's in no an urban location played into the decision to sell it at this point.
Oh definitely this is.
Marcel I'll take that question.
Obviously, it's a it's a transaction that hasn't been completed yet so as I'm sure you can appreciate which made it a little bit less liberty to go too much detail on these transactions that haven't closed yet versions of wasn't that close and in general obviously, what I will say is that something that Harry hours. They highlight of two.
Okay says, we feel very good about having a portfolio that has a pretty heavily focused on sunbelt locations that has the opportunity.
Only attract some more meetings hopefully as meetings are starting to come back that are a little bit more focused on having I think a lot of outdoor space available.
Those type of things so in general, we obviously see a little bit more recovery earlier on that some of those assets that have more of those type of characteristics as oh. Some passionately. So many assets that are and that's kind of a run more [laughter], but I'm, saying that as a general comment there.
I don't want to get too specific as it relates to anything related to Commonwealth as points.
Totally fair and [laughter] [laughter] Twoish I want to.
You know and I ask this in just the right way to make it clear that I am not predicting such but you know is it fair to assume that that you know you have sets of contingencies and strategies, you know should things either stall or you know even reverse a little bit from some of the progress.
It's been made.
Yeah, I mean, I think that is a fair assessment look I mean over the last six months, we've learned a lot and operating teams will certainly learned a tremendous amount and so they have the ability to flex and we're certainly mindful of.
Trends as they take shape. So I think when it comes to our hotel operations and extend structure fare as well as how we think about a company's positioning overall, how those comments I mean were meant to indicate that yeah. There are reinsure scenarios or outcomes you know over the next several months.
We have prepared both the balance sheet and our thinking about those variety and potential outcomes in how we think about the strategy going forward.
Got it and you.
You know Barry I know you gave up a fair amount of detail and I'm going to apologize because I got knocked off for a moment, while you were speaking.
And dialed back in but you know with respect to providing.
Solutions that may include rapid testing or other forms of.
You know.
Reputed input you know.
What what kind of plans and provisions have you started to work on.
That may assist in that regard.
What I, what I can tell you and I am really trying not to get ahead of.
Anything that May have been said publicly certainly the brands are all looking at thinking about and.
Learning how to adapt to what the needs of clients are I can tell you that having done.
Done.
Little more than a handful now of kind of complete hotel buyouts every group has taken a little different.
Had a different thought process on what kinds of testing.
Or.
Regulations, they put on their attendees requested they've made for on hotel employees and things like that so I think I think that that's probably all of its safe to say on that at this point is we're going to do what the customers want and expect us to do with the brands taking the lead on how we're going to effectuate that.
Okay.
That's it for me good luck and thanks very much.
Thank you thanks.
Thank you. The next question from Bill Crow with Raymond James. Please go ahead.
Thanks.
Good afternoon, everybody Mercer.
Marcel as you as you sell out of Boston and reduce your exposure Napa Cheryl Austin.
It obviously has the other impact of increasing your exposure to the remaining markets and that includes Dallas Houston, I think I'd read worse from Dallas <unk> assets were maybe on the market just thinking about how you're how you're thinking about the portfolio overall and the the perception of quality of the portfolio. When you sell out of some of these big.
Big coastal markets.
Yeah, Great question I don't know you know as we as we looked at this and as we looked at which hotels were willing to sell in this environment.
And I guess, just a couple of times in my prepared remarks, we are very focused on maintaining the quality of the portfolio and the growth prospects of the portfolio. You guys were as we're looking at selling these assets and in some ways. You can look at these four let's say do they represent a little bit of a cross section of the portfolio.
But as you can imagine and we believe very strongly that these four properties would be outperforming the remainder of our portfolio over the next several years, we probably wouldn't be too anxious to sell so so clearly we have a view of these assets aren't hampering us strategic strategy standpoint is to not have them.
In our portfolio anymore, and we clearly have a expectation go smaller assets that will hopefully outperforming side I think you kind of alluded to this a little bit in his remarks, too which is the fact that we are preparing for a number of difference outcomes and prospects going forward, we significantly strengthened the balance sheet.
Oh to deal with any kind of short term challenges that could be out there. We've also said, though really bullish.
Bolstered our liquidity and strengthen the balance sheet.
Hopefully be opportunistic coming out of this so clearly our longer term view is those assets that we would be selling today.
<unk>, hopefully, providing us less growth than assets that we could be finding out there when presumably there will be a good amount of opportunities out there over the next few years.
One of the additional things I'll say, there and have you you refer to it obviously selling an asset like Austin.
One of the considerations. There is the fact that we that helps us reduce our Texas concentration a little bit.
Because we do still have exposure and in Houston and in Dallas, Obviously.
You mentioned it so I'll respond to Oh, we currently don't have any other properties on the market.
We are not looking to sell assets. Additionally.
As we sit here today.
That doesn't mean to US you know going forward, we wouldn't look at competition potential additional debt.
Just wanted to make that clear in response to your questions.
Yeah. That's that's helpful and one other question for me.
It was discussed on this mornings appears called the sporting.
It did that I think seasonally you know we're going into a slower demand period as you transition from third quarter to the fourth quarter going into the winter months, you know I think that kind of extends through January et cetera is there anything in your your portfolio from a seasonality perspective, a locational perspective that that the Mike.
Change that in other words that the fourth quarter could be similar to the third quarter, we just kinda due for a pull back here.
Well in general and all voluntary cynical, but more specifically into it as well, but in general obviously as you know November and December are generally slower months in the industry and the primary reason for that is because you are your corporate demand generally tails off in November and December clearly.
Clearly it just points along the demand is being driven by leisure demand.
So there are some who does that holds up through November and December but I would think that in general. Your thesis is appropriate to say does your you always see a little bit more of a slowdown towards the end of the fourth quarter, whereas obviously, the beginning with the fourth quarter is kinda you're a high watermark because October is generally are strong.
From a from over.
From a corporate perspective, so nothing too specific in our portfolio, although I wouldn't say that we obviously do have a portfolio with a lot of these drives two liter locations.
Assets does that are appealing for people doing flips around Thanksgiving Christmas potentially on the leisure side, but.
You know I wouldn't say, there's any particular big drivers that would make it either.
Thanks, Mike.
Yeah, I mean, I think the only other point is if you look at.
Our portfolio for seasonality and 2019, obviously, we're in a very different environment than the first and second quarter are a little bit stronger than you know corner each close a little closer to 30% just in terms of weighting of hotel EBITDA. So when you sort of.
Because of where our hotels are located so just talk a little bit more business in those quarters third quarter is typically been a little bit lighter touch them all here in the mix.
Got obviously the.
This year is very different the drivers around.
The top are very different so that's just a historical view.
Yes.
Got it thanks for the time.
Thank you next call question is from Michael Bellisario Baird. Please go ahead.
Good afternoon, everyone.
Good afternoon.
Uh huh.
Right. So I'll just go back to that that last topic, just on the transaction front and your comment about not marketing anything else for sale today I mean I suppose the question is the one why is that and especially if you can get the pricing that you've gotten so far what's the what's the rationale there.
Well as you know, we've obviously very significantly enhanced our liquidity on our balance sheet as we sit here today and either.
Even before hopefully.
Hopefully completing these two additional transactions here in the fourth quarter, you know, we've got about $600 million liquidity today, so from our perspective, there not a particular needs to further enhance debt transactions.
Again, my comment about urban properties on the market. Today. This is exactly that no today [laughter] that doesn't mean that in the future. We will continue to evaluate and there's additional opportunities and.
It will really be would with with an eye towards what I also said in response to Bill's question, which is do we do we feel like that you'll still have some additional assets wherever where there may not be quite as much growth potential versus potential acquisition opportunities if those opportunities exist.
Oh, well certainly look at it very closely but there's really two sides to that point yet to be very confident that there are those kind of opportunities out there and you have to look at your existing portfolio I feel like maybe some of those growth opportunities are quite there and then you can that you're better off monetizing some of those assets. So as you know.
Thank you if you compare us to most of our peers weve been always pretty active throughout the year is coming into its been there's been no. We've obviously been very active this year and taken all the very decisive steps we've taken to to be where we are today. So transaction oriented mindset as part of part of who we are and will continue to let us some opportunities.
So as I said in my statements as Oh, it's true correct as we sit here today.
Got it that's helpful. And then maybe taking a step back looking at the the two deals that closed in the two others that are pending but you maybe tell us in on what you've seen or what you've learned so far that was maybe surprising or and how that informs your view of the of your remaining portfolio in the value you see there and those assets.
Well, that's what books.
I'm not sure if it was I mean anyway surprising and all that we obviously felt that our portfolio as a as a desirable portfolio that can create a good amount of liquidity for a company like ours and that's part of our strategy that we've had over the years as far as the buildings type of quality portfolio that we have today. So we were fairly confident coming out with some of these properties.
That there would be a pretty competitive process for for some of these assets and and I. You know I think we we somewhat time them correctly and we did we obviously.
Like I said I mean, we have the type of assets that there's a good amount of demand for so I wouldn't say that ive been particularly surprised by anything as it relates to that we've gone obviously a lot of questions probably from you do but certainly promoters above where discounts boasts pandemic or is that where prices pricing once before dependent.
Which obviously isn't normally hard question to answer.
We feel that.
The bulk of these these dispositions were doing that that's a discount is relative.
Relatively small obviously a little bit larger on the one that you can actually point to point to which was Austin that we had under contract before and now we are selling its oh open and close. It later this quarter at a discount that's that's roughly 30% to where we had it under contract before but it is certainly not something you can apply kind of a broad brushed it because.
No as I mentioned in my comments, you know often is obviously and type of property that you just have to acknowledge the fact that as an asset it is a little bit more group dependents and they probably have some capex needs, where and it's probably really on the high end, So where you would expect some of those discounts to come out of that.
That being said you know as I said in my comments, we still felt really strongly that that was the appropriate thing for us to do.
Selling outside of this.
Got it and then just one last one from me maybe for Tim just I know you mentioned, the amendments and being able to use equity to fund acquisitions, but as you think about other sources of capital going forward. What are the options out there that you have that you're thinking about that and do the senior.
Bond that you issued do those preclude you from doing anything differently on the capital structure front going forward.
Oh, Yeah. That's a great question I mean, obviously, we you know we have a multiple tools at our disposal, whether it's your dancing.
Prefer to you know other types of capital raising tools I think you know we spent a lot of time evaluating kind of the different levers and reached the conclusion there.
The senior secured notes made the most sense for us and you know I think they don't preclude us from doing other things. Obviously, there are some incurrence test and things like that we have to be mindful of but for the most part we have the ability and flexibility.
To do other things post having done those that offering.
Thank you.
You're welcome.
Thank you next question comes from Thomas Allen important Stanley. Please go ahead.
Thanks, So just take your thinking on the transaction.
The topic, yeah, you're you're obviously going to be sitting on a ton of cash after the disposition.
So can you just give us some more color on like what you're looking for to buy you know like a that figure I said smaller I said, you know I understand you want to be a growth. There are more assets would would better growth trajectory than what you had but you.
You know, where you know what specific market potentially if you could give us some color there and like where are there deals based like where do you think you can find the best return. Thank you.
I think it's still early days, but I was wondering if that's also I think that we are confident that there will be a lot of opportunities coming over the next few years and as you know from US we have been to type of buyer has been relatively opportunistic and that doesn't get boxed in or pigeonholed into saying our next or revise any of these things.
Our markets. We've also never said somewhere you know we're going to be just concentrated in markets X y and Z like our peers.
Which just allows us to be opportunistic as the fine fine assets that have the right kind of characteristics that were looking for which isn't different from what we've done in the last few years, which is looking for assets that have a complaint two different types of demand segments.
So they have a component of leisure to hear that every component of corporate transient.
Obviously, even though group is a formula four letter word right now in the future if that's going to be an important component again anything you're looking at so so were going to continue to look forward to talking about something you've seen us by over there.
Last few years, and we do think that there will be a their own data lead will be some fall out over the next couple of years, where it will be interesting opportunities through these available.
I know how lawyer you to be like completely contrary and right like are you willing to like go out and buy a big group boxes today and wait it out for a year because you assume that business is going to come back at some point.
Or do you want like more safety and security and Mike will buy are interested in leisure assets that are doing decently well now, but you think that there's opportunity out of that.
I think you know that.
ER.
The obvious answer to that is you know, we're always going to be taking a longer term view at all so it's fair and I'll just kind of look at whats makes sense for the next six months or nine months and it goes for for both assets that we'd be looking to buy and four existing portfolio. So again, we will look at you know the different characteristics. What I will tell you is don't.
The purpose of buying properties here in the next couple of months I mean, when you're in your question is would you be willing to do anything today I think there's a good amount of uncertainty still out there there's not enough product out there there should be more product out there that you can actually kind of pick your way through a little bit. This year. There are some things that could be appealing going forward. So we're perfectly fine sitting on the sidelines here.
A little bit and then letting things play out a little bit done and have a balance sheets that can withstand any kind of further downturn study extends that anything to the negative side happens.
But also be prepared to be opportunistic coming out of this so it's a it's it really is a little bit early days to say this ER. So I can certainly tell you that you know right.
Right now a big Oh.
Group box, no probably not but we're going to wait a little bit to see how things stabilized on things good things could change pretty quickly and rapidly yes.
After a very even effective vaccine and rolled out in and we're seeing some recovery in the industry, a which hopefully will happen.
If we can believe the experts on this if there really is a situation, where we're more comfortable with treatments and their vaccine or sometime in 21 hours.
Okay landscape could change pretty quickly and dramatically where it could be there could be some very interesting opportunities and we'll look at all the long term characteristics that we like and he asked.
So we buy.
That's helpful. Thank you.
Again, if you have a question. Please press Star then one.
Our next question comes from Tyler, but story of Janney capital markets. Please go ahead.
Alan you there.
Nick I don't think we have them. So you can go to the next question if you have any.
Again, if you have a question. Please press Star then one.
We have no further questions at this time I would like to turn the conference back over to Mr. Marcelo <unk> for closing remarks. Please go ahead.
Thank you Nick by causing I'll, just echo what soon as he said earlier as he concluded his remarks, which is obviously, we're certainly still in a very uncertain situation then.
Overall national and global environment. So we feel like we've put ourselves in a position to be able to deal with any uncertainty over the next few months for sure.
We are encouraged by what we've seen operationally over the last couple of months in our portfolio and I am extremely pleased with the efforts that weve undertaken over the past few quarters to strengthen our balance sheet bolster our liquidity and really set ourselves up to get through it is ER and the appropriate way and that drive coming out of this.
Thanks, everyone for joining us today on our call and we look forward to speaking with you over the next few quarters.
[noise] Conference is now concluded. Thank you for attending today's presentation you may now disconnect.