Q3 2020 Park Hotels & Resorts Inc Earnings Call

More detail on our balance sheet and liquidity follow.

Following our prepared remarks, we will open the call for questions with that I would like to turn the call over to Tom.

Thank you Ian.

And welcome everyone.

I want to start by saying that I hope all of you and your families remain safe.

Healthy and well.

Unfortunately, the pandemic is continuing across much of the globe.

And its impact has been profound in our industry.

As we have adjusted and adapted to this new reality.

I am pleased to report that park has made significant progress on its near term objectives, while keeping an eye towards longer term opportunities.

The more widespread travel resumes.

Since the onset of COVID-19, our priorities have been clear.

First and foremost to ensure the health and safety of our employees in hotel guest.

Second reader.

Reduce our burn rate by aggressively asset managing the portfolio, including the responsible suspension and subsequent reopening of hotels.

And third so.

To strengthen the balance sheet by raising additional liquidity.

Eliminating near term debt maturities and extending debt covenant relief to a point when we believe the challenges of the COVID-19 virus will largely be behind us.

I'll start with the proactive decisions were made to bolster our balance sheet and liquidity during the quarter.

We worked diligently with our financial partners to further fortify our balance sheet and ensure the company is well positioned to successfully navigate these unprecedented times.

By executing a strategic capital raise and.

And extending our near term debt maturities.

Accordingly in mid September Park.

Park launched our second corporate bond offering successfully raising $725 million of eight year secured notes at very attractive pricing and eliminating the risk of impending debt maturities and liquidity concerns.

Im incredibly proud of the collective efforts of our team and our partners to make impactful changes in such a short period of time.

Finally, as it relates to the balance sheet, we remain focused on continuing to selectively sell noncore assets.

With net proceeds expected to be used to pay down debt.

While the bid ask spread remains wide there.

There is a significant amount of capital on the sidelines and we anticipate.

A more active transaction market once the path to recovery is more apparent.

Turning to operations since.

Since March our team has been focused on mitigating the impact of severely diminished hotel demand.

We have undertaken several initiatives in order to reduce our monthly burn rate and maximize efficiencies and a low demand environment.

During much of the second quarter, our actions were largely defensive.

As we suspended operations at 38 of our six hotels.

At the height of travel restrictions and.

And reduced operations at several others.

Ending the quarter on a more positive note.

With our first set of hotel Reopenings in June.

During the third quarter as we witness pockets of increased demand across our portfolio and move closer toward a recovery.

We opened an additional 14 hotels, including our 1500 room Bonnet Creek complex of hotels in Orlando, which exceeded 30% occupancy during the quarter and the 1600 room Hilton New Orleans, Riverside, which averaged 42% occupancy.

Among our drive to leisure markets occupancy for the quarter average over 30%.

Up from 8% in the second quarter.

Key West continued to post very solid results with occupancy averaging 57% for both properties for the quarter in.

In fact, our CASM arena resort in key West.

Along with our Hilton resort in Santa Barbara and the Hyatt Regency Mission Bay in San Diego, All impressively held rate relative to last year supporting the appeal to drive leisure resort locations.

Our teams also continue to find areas of incremental demand such as the MBA related business. Good water for story at Bonnet Creek.

As well as University related demand at the Hilton, New Orleans, which resulted in $9 million of revenue for the quarter.

Thus far in the fourth quarter, we have opened two additional hotels.

Decree Bay Hilton in Puerto Rico, and the Hilton Lake Buena Vista in Orlando and we currently plan to open both Hawaiian hotels in the coming weeks.

In mid October the state of Hawaii.

Began accepting proof of a negative coded tests taken within 72 hours of departure to bypass the mandated a 14 day quarantine.

Data from these first few weeks show strong demand with airline load said over 50% and forward trends for airlift to the state are also encouraging with Hawaiian airlines reporting that they expect to reach over 50% capacity by December of both United and southwest expect to significantly ramp up.

Flights into Hawaii over the next two months.

Based on these initial positive reception.

And as we continue to monitor the demand patterns in reaction to these testing protocols. We currently plan to open the Hilton Waikoloa village around mid November and we expect to open the 793 room Rainbow tower at the Hilton Hawaiian village by mid December.

All combined we would expect to have 50 out of our 60 hotels opened by year end.

And with those hotels, representing 74% of our total rooms.

In terms of the remaining 10 suspended hotels for our in San Francisco.

The city's lengthy restrictions on travel for suppress leisure demand and it's irresponsible healthy building ordinance has added unreasonable incremental cost.

And with higher occupancy thresholds needed in New York, and Chicago, coupled with little or no business.

Across these markets during the winter months, the New York Hilton Midtown and the Hilton Chicago will remain suspended through the rest of the year unlikely through most of Q1.

2021.

As I emphasized on our last call.

We do not expect to see a meaningful increase in demand until vaccines and therapeutics become widely available.

Given this current situation we remain disciplined in our approach to hotel Reopenings.

Moving forward only when the economic benefits outweigh the cost in order to preserve our liquidity.

Turning to forward trends.

While our property teams and brand partners are working hard to generate demand and reassure the public that the hotel brands have instituted top of the line cleanliness standards.

Ongoing concerns over the surgeon cases through the winter months will likely dampen business transient and group demand over the balance of this year.

Overall, we expect leisure to continue to outperform during the fourth quarter.

And net positive for park with 40% of our hotels located in drive two locations.

As we continue to witness solid trends among our resorts in markets like key West Santa Barbara and San Diego.

We are also encouraged by the expected reopening of our properties in Hawaii and the initial lift to the state, indicating that there is indeed pent up demand for leisure related travel to Hawaii.

We do note that just this week.

The state of Hawaii changes policy and now allows travelers from Japan to also bypass quarantine with a proof of negative cobot test.

So we are hopeful that this will lead to a similar rebuilding of demand from Japan over the coming weeks and months.

On the group side, there was little demand for the balance of 2020 and.

In group bookings in the first half of 2021 continue to weaken as meeting planners look to cancel their events a quarter or two in advance.

However.

Group pace for the second half of 2021 is holding.

It clearly dependent on medical solutions being available by early next year.

Over 25% or 450000 room nights of the co that Council group business has been booked into future years with approximately 6% booked into the second half of 2021.

And 5.5% booked in 2022.

In this environment, we are laser focused more than ever on cost savings and opportunities to reimagine the business model.

As a result, we.

We took the very difficult, but necessary steps to reorganize property level management across our portfolio, which will result in $70 million of savings on an annualized basis.

Equating to a 200 plus basis point improvement in margins based on 2019 revenue levels.

While these savings are significant we also continue to work with our brand partners to identify ways to eliminate cost from the business model, including revisiting both operational and Capex brand standards calm flexing.

Positions reinventing, the food and beverage model and reducing above property expense allocations.

I'm very proud of our progress to date and we'll continue to keep you apprised of additional initiatives in the expected improvements to the bottom line.

While there are many challenges still ahead I am reassured by the incredible work our team has done to date and managing through this crisis.

And positioning park to successfully navigate through.

This through the other side.

I also believe in our country's resilience.

And do not believe that virtual mediums over place the fundamental need people have to connect in person.

While we have limited near term visibility on when demand will return to normal.

We have an incredibly strong platform with high quality assets that should realize outsized benefits and operating leverage as demand recovers and we will continue to work tirelessly to serve our stakeholders and position park for long term success.

And with that I'd like to turn the call over to Sean who will provide some more color on our balance sheet and liquidity.

Thanks, Tom turning briefly to our third quarter results. We ended the quarter with an 86% Revpar decline at several of our big box hotels remain suspended during the quarter.

That said, we continue to witness incremental improvement in demand with.

With hotel occupancy for our consolidated opened hotels, improving sequentially from 30% in June to 32% July 39% in August 42% in September and 43% in October.

No surprise, our drive to leisure resorts experienced solid demand with occupancy averaging 45% in September.

While opening hotels in airport in suburban locations reported September occupancy of 40% and 30% respectively.

Occupancy at our opening urban hotels averaged 45% in September although the strength was driven in large part by the Hilton New Orleans, Riverside, which recorded 74% occupancy for the month, mostly due to university related demand.

Overall, our encouraging results further highlight our strategic and disciplined approach to hotel Reopenings, which takes into account restrictions step by state and local ordinances airlift capacity demand and booking trends alternative sources of demand likely captured in bulk New Orleans, and Orlando and consolidation of demand.

Into neighboring Park hotels.

This is another great example of the collaborative effort between our operating partners and asset management team, which helped to drive each great results.

In terms of profitability as of September 30 by 39 open consolidated hotels or at breakeven EBITDA or better producing a combined EBITDA of $3.2 million with top performing hotels, including the Hilton, Santa Barbara, which generated $1.5 million EBITDA, Casa Marina, which exceeded 500.

$1000 and help in Riverside up approximate $350000. Thanks in large part to the Xavier University business, which are expected to remain at the hotel through May 2021.

As demand improved so did our monthly burn rate, which improved from $59 million during the second quarter to $50 million for the third quarter, helping to further extend our overall liquidity to over 30 months.

Looking out over the balance of the year the operating environment is expected to remain challenging with.

With group revenues projected to be down over 90%.

And revpar declining over 80% with a slight improvement in demand as occupancy should continue to improve by another 150 basis points from the third quarter.

Turning to the balance sheet as Tom noted in his comments, we are incredibly pleased with our ongoing efforts to fortify the balance sheet, having executed another very successful bond offering in late September issuing $725 million of eight year bonds at very attractive five and seven eights coupon and three times over.

Subscriber.

Our transaction, which further demonstrates our ability to access alternative sources of capital had several intended effects, including helping to further enhance our liquidity.

Improving our debt profile back standing near term maturities and also further diversifying our capital sources, while reducing our exposure to bank debt.

Which provide us with a longer runway to successfully navigate through this crisis.

Specifically net proceeds from the offering were used to fully repay $631 million term loan maturing in December 2021.

We also successfully negotiated two year extension of a majority of our revolver, which was also set to mature in December 21.

Finally, given the ongoing uncertainty around the slope of the recovery, we successfully negotiated additional covenant relief pushing out covenant testing until March 31 2022.

As of quarter end the balance sheet is in very solid shape with net debt totaling $4.2 billion, while our liquidity stood at $1.6 billion, including $474 million available on our revolver.

That concludes our prepared remarks, we will now open the line for Q and aim to address each of your questions. We ask that you limit yourself to one question and one follow up.

Operator may we have the first question. Please.

Thank you at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Hey, confirmation tone indicate your line is another question in queue.

For participants using speaker equipment may be necessary to pick up your handset before if I could just lucky.

Our first question comes from Smedes Rose with Citi. Please proceed with your question.

Hi, Good morning, Vincent Thats on first needs.

Just thinking about.

Good morning.

So are you thinking about more meaningful way to de leverage why they're bringing in capital partners are looking at asset sales.

Yes. It is.

Great question first if you think historically.

The part playbook, obviously, a low levered balance sheet has really been part of our DNA brought out from Chesapeake deal and we had about 470 million asset sales.

Modeling down and then you've got down to about 4.2 times.

We obviously had to.

Leveling off.

Slightly due to the global pandemic none of us.

For what.

But it is clearly our intermediate and long term to get down to a sub four level.

We've made great progress over the years, selling 24 assets, including no Fourg international some very seasoned and experienced team is relates to transactions.

We are in active discussions on asset sales.

As we said on the previous call, we encountered discount ones to lie.

30% to 40%, there's a tremendous amount of capital than sitting on the sidelines mass debt capital available right now, but we do believe that the cobi discount is going to narrow.

And we are cautiously optimistic that you will see asset sales from us.

In the coming months.

The use of those proceeds will be to de lever.

Continuing to strengthen the balance sheet.

Okay.

We do not.

At this point see the need for any operating partners at this time and we certainly.

Do not see the need for a dilutive.

Equity offering at this time.

Great. Thanks, and then just one follow up.

Just.

The way you're thinking about strategy would you want to reduce your exposure to large group assets.

It's easy to look today, and and see obviously, given the fact that obviously parks got more exposure and and and certainly some of the most affected markets.

I would also say that we get on the other side of business I do believe.

Passionately wanting.

One of the great men and women in scientific community that are working on medical solutions and that once we got the medical solutions in place and hopefully the adoption rate rising and the people who are impacted living a more normalized.

Having the footprint that we do in some of these great cities will be really a strategic advantage also.

So we'll look around the edges in call of certain markets. There obviously are some markets in sunbelt and I think maybe in terms of their status.

MS return nature of investments there.

I certainly wouldn't bet against a New York long term Austin reduced two year, Chicago and San Francisco.

In.

In Hawaii for that matter I really do think there will be significant.

Demand over time, clearly there are huge barriers to entry in terms of getting new development done so I really see those as real advantages in the market.

Long term more painful for us today.

But as we get to the other side than the damaged art will be a huge tailwind.

Great. Thanks.

Our next question comes from David Katz with Jefferies. Please proceed with your question.

Hey, David.

Hi.

Good to hear everyone's voices hope you're all doing.

Doing well and vis vis maybe a follow up to the answer you just gave Tom.

Which is you know thinking about the long term value versus the near and intermediate term value of urban hotels and you know what your collective view is around business travel and.

The trajectory of that recovery.

Just balancing the long term with the near term.

You know getting you know getting to your goal of leverage and other financial metrics.

Just urban versus not thank you.

Yeah, David It's a it's a fair question obviously.

Hard to answer based on our strong belief that.

The urban centers are are still going to be a very attractive investor.

The investment thesis.

I'm reminded of.

Many years ago, there were a lot of people that need the benefit.

We ought to be.

Independent hotels in New York and other markets in at the expense of branded hotels.

I don't think that worked out as well for many people that need that singular event and I would respectfully submit may come out of New York incredibly challenged.

When you think about the recent that's normal occur I know Barry Sternlicht that he's not perhaps 50% of the supply costs.

I would go away.

Assume that it's only 25% and certainly based on the run off that we saw in supply over the last decade.

And given the fact that the municipalities also additional restrictions in place that will make it more difficult to construct.

We have to believe that one of the great cities of the world will come back it.

It will be choppy right now we're obviously in the eye of the storm So books books.

He seamless run.

I do think over the intermediate to long term.

The city like time, and again, you'll see as I mentioned I do believe that you're going to come back.

Actually leads to your follow up question months regarding kind of remote working.

I I do believe obviously, the zoom and others.

Had an impact.

I would say that they are the beneficiaries of what's happening today, but you never lose.

Benefit.

Pupils together, whether that's a sales call what we must be personal connection.

And that's the group meeting and even those companies that I think are going to.

Perhaps use a little more be little more flexible working I could make an argument that the need for group business will be even greater need to bring their people together for.

For celebrations for incentive plans for recognition.

For training and I think that would impact make our meeting one of many of these major cities even more value.

So we like our footprint, we'd we'd call some exposure in some markets sure.

We would certainly like to have a little less exposure in parts of the west coast.

You know we were blessed with two extraordinary resorts in Hawaii I hope.

No one knows that you could never replicate.

Given the footprint to 22 acres.

Housing wrongs.

Incredible story over 60 years and generation still growing.

I would I would bet that that will be continued should be viewed as a great investment thesis for generations to come. So hopefully I've answered. Your question you have and if I may sort of follow that up and just to overlay those comments around the notion of how your definition of non.

Core versus core.

May have evolved over the recent past.

You know I'd love to hear your thoughts on that too. Please yeah. It's another another great question. If you look at the portfolio you know clearly.

Clearly we sit today.

Lets 60 homes house, our top 30 hotels that we also refer to provide data on obviously account for about 90% of our value I would say respectfully. If you were to compare Austin, perhaps our closest.

Closest peer in a host I think our our top 30 compare really well to their top 40, I think those really capture the investment thesis.

And and where we're focused on as I mentioned there are markets that I think we will continue to grow and perhaps will be beneficiaries.

Perhaps some population migration.

No I wouldn't see a Denver, certainly picking off I would see Austin continue.

Once in Texas, I would see Nashville, So clearly those are markets I think on them.

We'll be become a little more attractive you can say nashvilles. This only have gone Solomon of supply, but I can see those being the extensions of where we're investing today, but I certainly would not be walking away from ocean funded Miami your.

Good friends that we have in Hawaii and San Francisco.

Certainly the Ah.

The resort that we own jointly.

Convention Center Hotel, we owned jointly with Sunstone in San Diego. So clearly we tend to be focused on brands. We believe were the brand team and certainly believe that Hilton.

Maryann highest certainly BG and give them down they have today, we expect that that's only going to change and continue to expand over time.

Thank you so much I appreciate it.

Thank you.

Our next question comes from Rich Hightower with Evercore. Please proceed with your question.

Hey, good morning, guys good.

Good morning Rich.

Hopefully bodes well.

So Tom I think I think you may have helped answer my question here, but just on a couple of your CMBS assets. So if my arithmetic is correct. There's there's close to maybe $450000. The key is a CMBS debt on Hawaiian village.

Obviously, it's an irreplaceable.

Sort of asset and there is a lot of value in that but maybe if you could just comment on the <unk>.

Your view of long term value of that asset in relation to the debt and then likewise.

This morning I saw.

Just a blurb that Oh Union Square Park 55, CMBS replaced on a on a CMBS watch list now I'm sure. That's just a technicality and if you're still current on debt service is probably not a big deal, but maybe just some additional color behind behind that as well if you don't mind.

Yeah.

A couple of things rich if you look at the entire portfolio.

You know we estimated replacement cost.

And that's probably the all 60 assets, but let's just sort of focus on the top 30, yes.

You're about 16, and a half billion so you're somewhere at about 770000 a key.

Look at that and you know where were trading today now somewhere south of certainly 7 billion all all in enterprise value. So we're we're trading at a discount to replacement cost somewhere between 65 and 70%.

Those are eye popping numbers.

Think about something like.

Hilton Hawaiian village will again, five towers, nearly 2900 homes 150000 square feet of meeting space, Another 150000 square feet of.

Retail <unk> impact.

Impossible to replicate that.

Obviously, we've got the CMBS mortgage about 1.275 billion doesn't mature I think in some time in 226.

We are not at all worried about that we think that's an asset that we will continue to grow and do the dominant warmer than it has been for generations.

That's one regarding San Francisco, we're obviously the two assets there were in the high the storm right now Sean.

Sean can correct me in terms of the mom and dad I think it's 400.

And 70 million 25, yes.

So 125 million over the two of the two assets we are current.

Built into the cash burn rate or debt service all of them.

Our assets.

We are uncovering without issue, we see no issue in the near term there are no. Other oh your shoes that we need to be concerned about that will mature in 2023.

And we certainly believe of confidence given all the great work happening in scientific community.

It will be in the rearview mirror out.

Both themselves will be reopened and and performing as well as they have in store.

Okay I appreciate that color, Tom and then.

Just a question on future supply obviously, there's a lot of discussion right now between owners in brands and maybe in the context of operating expense savings you know the the owners for the first time in a long time that you know maybe gaining some of the upper hand in those negotiations, but you know if you listen to the brands on their calls.

Obviously, the the the the new unit growth.

As opposed to tell that engine, it's cranking as we speak and so you know how do you. How do you think about that that particular issue you know even if there's a law in supply in the next sort of near term how do you think about it over the longer term.

Yes, it's a great question rich and I as you know given my background, having worked for Threed American companies.

He worked for Hilton twice I'm I, perhaps have a unique perspective.

You know brands.

Our wonderful brand partners, they create brands and they're all about distribution.

I think we were getting out of balance my before Kobe and I don't think perhaps you and many of your peers would disagree I think this crisis is forcing you reset in a wake up call. While their businesses are capital light businesses are also dependent on having a really healthy ownership community.

Oh, the owners and franchisees.

It's been hurt.

Her hard I suspect that you will see the supply numbers shoot you to reduce over the near and intermediate timeframe. I think there will be less debt capital I think you're going to see less development and so I would respectfully reviewed some of those are pretty optimistic growth.

Scenarios. They have in these select service side on that business has become more and more like a commodity.

And newer fresher wins, so for those older assets.

You are replacing.

In terms of the supply growing you've been kind of with that we've seen in the past I just don't I don't think the math huge.

I feel pretty strongly about that I also think that this crisis is really for us all of us to rethink the operating model and as we pointed out not prepared remarks, we've already taken 70 million cost out and sort of a 200 basis points.

That's non union hotels that is has really gotten to the point of what I think is a real opportunity to sit down.

We those employees represented by CB A's and finally better balance there and I think this price is doing good.

Really worth that kind of dialogue as well if you look at supply and the impact it has on par we we have given our footprint much less supply risk.

That almost all of our peers, so we see that as a competitive advantage.

As we move forward, but clearly the New York take your pick is it 25 or 50% of the supply that goes way look at Chicago will be certainly a significant reduction there there's going to be the.

The stress and we're paying is gonna be conversions and said conversions into.

Residential is that.

To a workforce housing is that going to be homeless shelters, there's going to be a reduction supply that's naturally going to come out.

It's an extraordinarily unprecedented.

Impact on on our industry.

All right thanks to the common stock.

Thank you.

Next question comes from Anthony Powell with Barclays. Please proceed with your question.

Hi, Good morning question on Hawaii and in terms of mourning side. What are you seeing in terms of demand there and then where are those cuts was being sourced in the U.S. and.

Maybe on the Waikoloa is the Big island still not opting into the testing program and how that maybe impacting demand for that property versus your Hawaiian village property.

Anthony all great questions.

You know clearly the governor lifted the 14 day orangeade and <unk>.

In mid October based it within 72 hours negative test or the proof of the negative just I was also doing that for Japan is.

As we announced during our prepared remarks, let me frame kogan for a second for listeners.

Been about 50000 cases all of Hawaii.

Among the least impacted across our great nation, and only 219 deaths now I don't want to minimize that any loss of life is horrible.

Look at the scope the devastation, it's really been pretty minimal.

On the islands of Hawaii.

We do believe that there is significant pent up demand.

And if you look historically, that's always been really short booking patterns answer your question a lot of the demand coming West coast.

HM.

And as we look out and we said in our prepared remarks Hawaiian Airlines is already providing good data.

Q4 schedules are looking at probably 35% to 40% of the 2019 levels.

Spec to be about 50% in December.

The United and southwest are also significantly ramping up over the next two months.

They expect a wanting airlines are they expected the summer 2021 to be 15% to 25% lower than.

The 2019 levels. So also encouraging.

For us in the Goldman wind village, a we're going to open in mid December Rainbow tower normal wind village will.

Well go to open here in the next week or so.

No. The one village if you just think about Rainbow tower, one of the five towers.

We will open they're looking at probably 600 of the newly 800 rooms selling out we're selling at 600 9800. During the week of Christmas May then they only be 20% to 25% of the on campus role. He opening one tower. So that's a really good signal.

Very good start.

80 are probably down about 20%, that's encouraging and if you think about it in the wine Villa in whom Waikoloa village.

You know, we're looking at probably two to 300 room nights and obviously you've been at reduced hotels and sounds on timeshare two to 300 out of the 600 problems applicable to the hotel. So again really good signals already and I think ruling confirms that there is a lot of pent up demand. So.

We remain encouraged why one of the special places if you think historically about eight and a half million visitors to the island.

About 62% of that coming out of the U.S. and about 17%.

Half of that coming out of coming out.

Japan.

We're encouraged we think.

Part of the first step in that process, we also hear that.

So your final question about the Big Island.

We understand that the mayor is considering relaxing such that the second level of testing would only apply to 20%.

People.

That arrived and become random we also think that will be a lessening.

Less of a burden.

It also will be an encouraging step as we move forward in this journey.

Got it thanks, and maybe for Sean I, just wanted to confirm you know when.

When you were selling assets and the past an issue was kind of a low tax basis of about <unk> of the portfolio.

Given the losses this year, that's probably shouldn't be an issue, but I wanted to confirm that your impairment that you took in the first quarter would.

Would be fully I guess be able to use that losses to offset any taxable gains on.

On asset sales in the future.

And they got a good question you know related to you know we have a five year period. After the spin more we are subject to built to gain tax so that he'd have lost we take operational.

He would not offset the heat, namely that you know only extends through the beginning of next year. So guidance. We sell it you know today is Nick next 12 months would ultimately be one where we kind of feel like we have factored mission solutions, there, whether it's 10 31 or whether it might be kinda Chesapeake asking what we have seen a basis from that transaction.

Last year, so in the near term, we still time or ine that limitation longer term, obviously will have losses will continue to carry through and will be used to offset.

Your gains going forward as it relates to distributable income.

Dividends.

Got it thank you.

Our next question comes from every claim with BMO capital. Please proceed with your question.

Thank you.

Yeah.

So the other remaining hotels that are closed can you talk a little bit about San Francisco market, specifically and how you are thinking about wide open there given some of the unique challenges in that market.

Yeah, I think Sean did a great job in the prepared remarks kind of walking through I mean, we are we.

We're being incredibly disciplined about the metrics, we're looking at in terms of demand patterns you.

Do you think about San Francisco, we've got the JW Marriott opening the Hyatt centric. They never closed so we had medical personality get airline crew. We have first responders both of those hotels have been averaging occupancy.

Third quarter in the.

Hi, Twentys.

In fact, it's continued even until October.

28, 29% so.

That's it.

Good sign would be maintained.

Given the fact that there's little mono citywide business, there's no little more business transient.

You've got remote work remote work going to be strongly encouraged are mandated by the city Oak Grove and the remaining four hotels.

Does it make sense at this point, we actually will lose less money, but keeping them close and again one of our primary objectives is continuing to keep the cash burn rate as low as possible and you've seen the great progress that we've made here.

Now regarding to eat healthier buildings ordinance.

I think our remarks were clear it is unfortunately, it's not seek to build its nothing more than.

A jobs.

Jobs Bill.

Not helpful for.

There.

Our associates and workers or guest.

And we will continue to monitor and you think demand is sufficient well make the assessment against whatever whatever incremental operating costs. There are before we reopened. So this is a very experienced team of men and women.

We're going to be thoughtful about how and when we would be open.

And we believe in San Francisco.

Over the long term no doubt one of the great cities of the country will cover we will get to the other side because we think in the near term, it's really important to be prudent disciplined reopening.

[noise] that thanks, and then just a quick follow up on Hawaii, I know exactly what that change ticket pants specifically.

But have you seen any booking window standpoint, any any kind of initial demand trends on that market.

We like we have no we haven't again, it's early and again. This is you know what we hear this.

This is rescinded in terms of film I'll.

Oh no.

I told the wind village. So if you think historically in terms of the visitation. There you know about 30% of the business into H.D.W. The Hooman why were all up about 30% to 63%.

Our international demand a 223 room night, if you look back to 2019.

We're from Japan, so over the last 30 years, it's been stable its been reliable.

Fully expect that will continue but it's too early I think to get that give me more data there.

Clearly as we gave some color on what we're seeing already.

Typically the holiday season is very encouraging coming again, mostly the U.S. and coming really on the west coast.

Great. Thank you.

Our next question comes from Dorothy Kidston with Wells Fargo. Please proceed with your question.

Hi, Thanks, good morning, everyone.

Hi, George.

I'm good how are you.

Right.

Most would agree that prior peak he adopted to reach should return before prior peak Revpar and independent spelling out you know keeping things in my comments can be I'm going to 200 basis points. I mean is there anything specific to your portfolio, whether yeah [laughter] size or location are deemed good expected.

I didn't realize from Chesapeake that could put you have in that range, yes, that's right.

You broke up a little bit doing maybe you could just ask the question again to make sure.

Oh man I feel like I was saying that I think the expectation its prior peak EBITDA reach and he should return before prior peak revpar incentive thrown out that the gains in margins can be hundred to 200 basis points and I was just asking is there anything specific you want portfolio whether it's.

And again that you expected from the Chesapeake portfolio, they haven't yet realized location or asset size that that could put you added that claims you know either positive or negative.

Yeah, I think it's a it's a great question and if you think back to 200 Chesapeake deal we.

We made the observation that there were 24 million.

Synergies, we had realized about 20 billion of that by February.

And that was both overhead and that was both.

Redoing the management contracts, so we were well on our way there.

We're confident given the tailwind that we saw the tailwind that we saw both renovated properties both in applying our asset management strategies. So we were very very encouraged there and we still are over the long term I think a couple of the things that are going to help as part of the reset to the point that we made about 70 million.

<unk> expenses that we've already taken out of the business again based on 2019 levels.

That's well over 200 basis points in margin there so I don't disagree.

With the colleagues in the U.S the range under the 200 basis points I might even be a little more aggressive and say either that.

Or could be on the higher end of that.

As we look out I think there was a real reset that's occurring one of the things one of the nice benefits coming out of this crisis is that the open honest dialogue.

Owners and.

On the brands and recognizing that we've got to have at least that you got to have advances in technology, obviously, there's going to be steady or less thing over fleeting in some form or fashion, depending on what gets like I clearly, there's going to be a reset on food and beverage every much of this is going to end up and going to be other semi permanent permanent.

Which I think are also going to continue to improve margins over the.

Long term so I have no problems getting confident they are 100 to 200 basis points margin benefit and I think on the parts side that you have a higher end.

Okay. Thank you.

Thank you.

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

Yeah.

Hi, good morning, everyone.

Yeah, Hey, first question, you know with the brand standards and a lot of the changes happening it seems like it to be out of room revenues or outlets that that are going to be most impacted I'm. Just wondering in some of your larger hotels group oriented.

Hotels, what what do you think happens to that space.

We know after you know those things are shut down or reduced or whatever you call. It you know how do you plan to you know get economic use out of the space.

You know one of the things. We've heard is that you know as as office footprint shrink they will turn to hotel space as they sort of same day or temporary office meeting space I guess, just curious on your thoughts because you know that that's a big component of your total revenue.

Yeah. It's a great question and I think I think your comments are really spot on I think what you're going to see and we're already seeing evidence of that whether its a.

A day off is whether its setting up for incremental training.

Do we end up being more of a satellite or.

A lot of the for the offices and people decide will need less office space.

Can recapture some of that you know whether it's training.

Whether its celebrations, whether its incentive travel I could recapture some of that bye bye.

Looking over or utilizing.

The expansion, we expanded meeting space that that many of us have particularly on the parts side.

We see that being a huge advantage for us in particularly many of the urban European centers. So we see that as a as a real net positive and that's it.

Many respects can be far more profitable depending on how it's structured and perhaps some of the food and beverage business as you know, which historically the banquet business has been.

It's been profitable in other parts of the last fall. So we see that as an opportunity going forward.

Again this crisis is forced all of us to think differently.

What we've done with you'd be a.

What we've done obviously, even Xavier University in New Orleans.

We have just been it's created as possible and everybody's forced to think out of box here.

Thank you from all sources of revenue.

Okay. Thank.

Thank you other one for me is on.

Maybe a broader question Tom.

Just in terms of being a public read public lodging read I mean, if you look at the you know the lower margin of the of the asset class cyclicality, obviously wilder swings in public equity pricing.

And you also layer on top the need to have to pay out a significant part of your your your precious capital.

And the fact that you have to.

How you are mandated to use third parties to manage your hotels I mean did it do you have heard I think about the opposing kind of you know being public and you think it makes sense long term for you know hotel Reits to.

I mean public.

Yeah, It's an interesting question obviously its a.

A fair one to ask right now when we're in the in the worst of times, but you know having been in this business a long time.

And also having run a private equity platform with <unk>.

I think the access to.

Public markets, whether that's on the equity or the debt side I also think given the scale and.

Candidly the lower cost of capital at <unk>.

At some point in the cycle.

It certainly is a.

Very viable platform.

Tougher today.

But I think we all understand why it's tougher I do think that the crisis really gives us an opportunity for reset and I think that there's an opportunity to continue to expand and build on that in the future.

We will do what's in shareholders best interest.

And so we I've always said that.

Lose whether that's selling assets selling the company and we will do what's in shareholders best interest to create the most value.

I appreciate your thoughts.

Our next question comes from Brandt Montour with JP Morgan. Please proceed with your question.

Hello, Good morning, everyone and thanks for taking my questions. Good morning. So just a quick question on and some of the stats you guys gave in your release.

Just the open hotels, you know looking at August and September Monkey result, looks like you guys found some pretty nice gains in occupancy they are lending into October, but then rate retrenched, a little bit and then it looks like that's comparable set as a set of hotels. So just curious sort of the broader electricity price elasticity and.

Demand that you're seeing it with that sort of by design to take pricing back down or is it more of a function just doesn't makes moving into the fall.

Brent I mean kind of a quick answer to that is really the new Orleans herbicide impact you're getting is either a contract we had in there and they're not really taking which is obviously as we mentioned a great piece of business for hotel that mainly relied on business that won't be there I'm certainly through the first half of <unk>.

Yourself that they just came online mid August ramped up honestly students came to talk about.

Only about 400 basis point impact the portfolio on a given month at.

That hotel alone to arrange some kind of remove that you kind of see you know things more in line into more normalized.

Decline.

That's really helpful. Thank you and then just a follow up Ken.

Curious you know how how the game plan or you know what the game plan is for bringing back sort of Opex as you move above the breakeven level for your hotels, which you know those those 37 hotels in September did do so just curious what the strategy is either an email.

Gene for you for you know breakeven for the next several points of occupancy are you going to be not trying to maximize cash flow.

I think you know this.

The name of the game, it's Kinda zero base, you know build up aspect here is you're going to we're going to be very much focused on every kind of oxy point level as to how we're bringing back in <unk> <unk>.

Look at quarter over quarter.

Flow through as we Bowman hotel and brands hotels, you on the room side were 80% flow through on EPS beat you know, which is obviously not banquet catering. It's just the outlet or we are blowing through about 40% so being very smart as we kind of build up and ramp up the occupancy and you know they will continue to do so.

Just because to be breakeven doesn't mean start opening up.

We need to have a need to make sure that we're we're maintaining our share we need to make sure that we are appealing to the guest and their needs. So that would be certainly come conversations at certain times about whether or not were augmenting the offerings on them yet besides very thoughtful about that and the management providing to the guest but clearly you know.

Seeing some are getting you know certainly some views that deal would have some 20 hotels are operating at 67% occupancy that we kind of guar you've got some of the learnings there to kind of apply to other other assets and they kind of come through but very thoughtful on how we would do that don't really have a lot of numbers and the answer to give you at this point ramp I think.

Killing it'd be very disciplined as we bring this business back.

Back.

Got it thanks for the comments good luck.

Thanks.

Next question comes from Chris Woronka Joseph Bank. Please proceed with your question.

Hey, good morning, guys good.

Morning, Chris or.

Doing well, thanks, I hope you're doing well also.

Wanted to ask you about group about group business kind of in 22, and 23 and I know, it's it's very early but I mean, Tom do you think that no matter, where 21 ends up it's a transition year doesn't really have anything to do with what you learn and 22 do you think there is a possibility that group comes all the way back whether it's 22 or 23.

Three and you actually have.

Higher group concentration that you didn't say 19.

Yeah, Chris it's a it's a great. It's a great question.

No I said in my prepared remarks, but we don't believe that demand is.

Really going to accelerate until the vaccine therapies are in place and candidly.

Widely adopted.

I believe that.

We had favorable announcements here in the next few months will begin in the distribution process.

Certainly we would see the second half of 21, getting better which is given how weak. The tenant is the discussions what we here 22 23, you might think that some of the rhetoric coming out of our peers as well there will be a lot of pent up demand.

For both social business group business Convention business.

So with that.

Provides.

I think encouraging signals from.

22, 23, and beyond that we could get back to 2019 wells on the group side a little faster.

No doubt on the leisure side, you're going to see that continue to accelerate.

Details of this transaction side I think comes back.

That will probably be a little slower as we don't talk about how that ramps up again that need for people to be together they had the interaction.

It is it's not going to go away.

He survived in this business on T.A.S video.

Video conferencing, and the jet age or being able to go travel and same thing come home. We've all heard all those we're going to continue to destroy the lodging business and they haven't.

We have no doubt that the business the core business will come back here.

Once we get on the other side of medical challenges.

Yeah. That's a that's helpful. It sounds encouraging the other question is as we think about.

You and your peers re imagining that the cost structure at some of these full service hotels, I guess, particularly the urban ones.

How much do you see the the why blurring between select service, especially newer select service and full service and then the question in that is you know what will the rate integrity be able to hold up if service levels are different.

Yeah. Another another great question clearly.

Clearly your value proposition has to be there.

So when you when.

When you think about how the food and beverage experience may change how room service made.

Change I think the reality is that the customer you know once that limited touch point, probably more that knocking drop.

Oh, I think that could be net positive from a profitability standpoint, you Shimon.

Mhm services not been terribly.

I think on the bank Quint.

And how the meeting platform is going to change I think there will be other sources of revenue.

Oh, sorry, I don't see the foodservice business getting to a commodity business.

If we manage it the right way I mean on the select service, obviously, I know that sector well.

It's becoming more and more of a commodity just given the amount of supply.

Secrets out.

I do think it given our footprint, where our assets are located the optionality that we have.

We're very encouraged.

As we as we look to the future very tough environment today, as we look out in the intermediate and long term.

Really like our footprint really liked this portfolio, particularly the coordthree homes.

Okay very helpful. Thanks, Tom.

[music].

Our next question comes from Stephen Grambling with Goldman Sachs. Please proceed with your question.

Thanks, its two questions first hey, first too well what are your thoughts on engaging in another timeshare conversion as a potential source of capital, especially given the strength in leisure and then second what changes do you think.

Are being considered or should be considered in the structure of management and franchise contracts to better align owners or managers and brands.

Yeah, two two great questions I think I.

I think the timeshare business and given how resilient it is and given obviously the growth we're seeing in leisure I think that's another benefit of the park portfolio they get.

Provides optionality for us and a number of situations that not lost on US and you will continue to see us explore.

Again, having our footprint given the size of the distribution.

And that could be timeshare indoor resi.

Residential piece so.

Great question is clearly something that we that we will continue to explore.

I would rather not get into that.

Negotiations and how you think about it but I would also say that the value proposition.

The capital like business model only works if they have a healthy owner community.

There are lots of costs that we think whether it's through a loyalty programs, whether it's the reallocation sales and marketing whether it's distribution.

I think this is we're seeing all of us to rethink that.

Sean or Joe and our asset management team just done phenomenal job.

Thinking about the 70 million, that's just labor not.

Not even with the allocation side.

So we think there are a lot more lumpy.

<unk>.

<unk> excess cost in the system.

We need to work collaboratively with.

With our brand partners to and our management companies to take cost out of the business.

Those those are both helpful. One very quick follow up on the timeshare side, I mean, where do you think timeshare and Ramsey valuations are versus pre covidien versus.

Where you're seeing the the covert discount into hotels now thanks.

Yeah, I don't I don't have that information steed with music. It's a fair question as you can tell just by the great progress. We've made we are laser focused on priorities.

Reopening hotels because of the cash burn working on our balance sheet.

Sending out maturities keep in mind, we were proactive and had a need to given our debt profile, but to go back to back the way we did on the covenant relief.

A lot of credit to the men and women on the party.

He knows how to execute.

And that's where our focus has been really you'll see us continue to explore on non core asset sales will also.

Strong track record and you'll also see US continue to look for creative ideas, whether its timeshare received or whatever but given the footprint. We have there's a lot of optionality at lot of embedded value in this portfolio.

I said earlier, we're trading at 65% to 70% discount to replacement cost.

We know we are worth a lot more of it where were trading today.

And we will prove it out over time.

That's great. Thanks, so much.

Our next question comes from Robin Farley would you be EPS. Please proceed.

Great. Thanks, a lot of my questions have been.

It's already just circling back to the.

Asset sales.

I know you had talked about seeing a long term value in the in the core markets that you read but I'm just curious whether your plan for asset sales.

Our <unk> are there more assets now you're likely to sell than what you had been thinking about kind of it.

Thanks.

Yeah, It's a it's a fair question around hope you're well.

Look we are constantly combing through the portfolio.

And as Sean mentioned too we do have some assets that have been historical look back space. If some assets up to get the higher are there. Some that we think are.

Assets that are more attracted to a family office private equity.

So all of that goes into the sausage makers, we were engaged in the dialogue.

We've got a lot of success selling assets as you know the 24 since the spin them, which sold and 14 international all of which were highly complex.

Whether the legal tax and.

Your European.

Locations so.

We are we are always in discussions.

Where we have been hesitant in is that we're not going to sell that 30% to 40% discount. So we don't have to we have the liquidity we can get to the other side. We're also know that those gaps are going to narrow.

Particularly as we get more visibility and you'll see us house you'd be prepared to move quickly, but there will be a natural color. There are some markets, where it's just not long term for us. There are other markets that are great markets, but we'd like to reduce our concentration.

You'll see us continue to be thoughtful disciplined but the decisions we make as a team.

Okay, great. Thanks, very much thank you.

Our next question comes from Lukas Hartwich with Green Street. Please proceed with your question.

Thanks, Good morning.

Hey.

Morning, just a quick one for me Sunny operating efficiency right do you think there are lessons learned.

That will be able to be applied to the group operations once.

We get into a normal environment, what people are having group event.

Yes, it's a great question Lukas, we're spending again, a lot of credit to Sean in our asset management team the men and women there no operating partners, we we're starting with a blank canvas just rethinking.

Whether it's labor.

Charlie can adapt technology.

And again with getting that response and desires from customers as well. So I think you're going to continue to see more and more efficiencies come out right.

We could improve we can get a reset we could re imagined this business and it certainly could be far more profitable.

As an investment thesis as we move forward.

Great. Thank you thank.

Thank you.

Thank you at this time, we've reached end of the question and answer session I would like to turn the call back to Mr. Baltimore for closing remarks. Thank.

Thank all of you for taking time today we.

We hope that you and your families will stay to sage they'll be well, we look forward to continued discussion with many of you at our upcoming me read virtual meetings.

And.

B well.

Thank you. This does conclude today's teleconference. You may disconnect. Your lines. This time and thank you for participation.