Q3 2020 Service Properties Trust Earnings Call
[music].
Good morning, and welcome to service properties Trust third quarter 2020 financial results Conference call.
Participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded.
I'd now like to turn the conference over to Kristin Brown director of Investor Relations. Please go ahead.
Good morning.
Joining me on today's call are John Murray, President, Brian Donnelley Financial Officer, and Todd Hargrave, Chief Investment Officer. Today's call include a presentation by management, followed by a question and answer session with analysts.
Please note that the recording retransmission and transcription of today's conference call is prohibited without the prior written consent SBC.
I would like to point out that today's conference call contains forward looking statements within the meaning of the private private Securities Litigation Reform Act of 90, 95, and other securities laws.
These forward looking statements are based on FCC present beliefs and expectations as of today November nine 2020.
The company under undertakes no obligation to revise or publicly release the results of any revision to the forward looking statement made on today's conference call other than through filings with the Securities and Exchange Commission or Sep.
In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO and adjusted EBITDA Ari reconciliations of normalized FFO and adjusted EBITDA Ari to net income as well as components to calculate avnet, though are.
Are available in our supplemental package found in the Investor Relations section of the company's website actual results may differ materially from those projected in the forward looking statement.
Additional information concerning factors that could cause those differences is contained in our form 10-Q to be filed later today with the FCC and in our supplemental operating and financial data found on our website at Www Dot FCC read Dot com investors are cautioned cautioned not to place undue reliance upon any forward looking statements and with that I'll.
During the call we thank.
Thank you, Chris and good morning.
Golden 19, pandemic unrelated locked down with most of the United States has had a dramatically negative impact on our economy.
That said hotels restaurants, and other service retail businesses like theaters and fitness centers, particularly hard.
We are confident that the most severe effects are behind us.
As we have seen improvement, albeit gradual across our portfolio since April when the impact was at its most acute.
Against this backdrop of challenging circumstances will be gradual recovery, we continue to take the necessary steps to preserve capital and solidify our liquidity.
As we announced last week, we amended our $1 billion revolving credit facility to ensure continued access to an undrawn amounts and obtained waivers of all financial covenants through mid July 2022, which Brian will discuss in more detail.
As a reminder.
June we raise new debt capital and largely address the 2021 debt maturities.
The steps we have taken to further reinforce our financial position include reducing our quarterly dividend deferring nonessential capital spending.
Moving forward with certain of our previously planned hotel sales, which Todd will discuss.
As we were unable to reach a mutually beneficial resolution with large Geo Marriott we made the decision to terminate these agreements and transition management brand name. These hotels just announced.
As a reminder, SBC owns 34% of Sonesta and will benefit from Smith this growth as well as share in more of the upside from the recovery of these hotels.
We believe some of the new normals as we emerge from the pandemic will be greater focus on safety service and the travel experience.
We also think video conferencing technologies that people and businesses have utilized during the pandemic.
We'll have a longer lasting negative impact on business travel, which we believe will translate to less impact in value from the major brands guest rewards programs.
The rebranding of these hotels with Sonesta will also create greater flexibility in managing these hotels through these challenging market conditions give us improved decision, making control of the dispositions for alternative uses.
And have a positive impact on the portfolio's performance in the future.
Initially we expect to enter one year management agreements with Sonesta through December 31st 2021 to allow for a thorough review of the highest and best use of each hotel.
While hotel results still continue to compare favorably to the prior year quarter year over year declines have moderated from the decline seen in the second quarter and six sequential improvement is encouraging.
Average occupancy for our comparable hotels in the third quarter was 46% compared with 30.1% in the second quarter.
Average daily rate was $89.50 compared to $84.15 in the second quarter, and Revpar was $41.17 compared to $25.33 in the second quarter.
Importantly, we have seen improvement in most markets since the middle of April and our suburban extended stay hotels and select service hotels continue to outperform our urban full service hotels, reflecting demand from airline cruise health care workers special projects for extended stay guests using the hotels temporary housing.
SVC extended stay hotels continue to have a roughly 30 percentage point occupancy premium to non extended stay hotels with our 183 extended stay hotels reporting occupancy was up 62.1% during the quarter compared with occupancy as of 32.6% and 26% respectively for a 95.
The limited service and 51 full service hotels.
[noise] results also varied by portfolio as leisure first responder social groups project and government demand outweighs business in group travel.
The results favorite hotels with competitively priced offerings and non urban locations that could accommodate extended stays.
For our comparable hotels, sonesta and Wyndham portfolios performed the best in terms of both nominal revpar and percentage decline from last year's quarter.
Conversely, a radisson and married portfolios. So the greatest percentage revpar declines versus last year and the weakest nominal revpar results.
Subsequent to quarter end hotel performance continues to improve over to about 329 hotels are now open and overall occupancy has steadily increased to 46.7% for the four weeks ended October 24th from a low of 21% in April.
We expect our diverse portfolio of suburban extended stay and select service hotels will continue to outperform urban full service hotels through at least 2021.
Importantly, our approximate 69% weighting of rooms, and extended stay and select service hotels has positioned us well and has helped us to mitigate cash burn rate.
Also extended stay hotels with full kitchens provide maximum flexibility for guests in markets with still restricted restaurant access, especially with outdoor dining options, becoming a greater challenge in northern markets.
Turning to our net leased retail portfolio Travelcenters of America, which represents about just about 25.6% of our minimum returns and rents has continued to operate throughout the pandemic to support and efficient supply chain.
Although negatively impacted by the closure of its full service restaurants, and the decline in the sell gasoline.
<unk> primary services to the trucking industry, including diesel fuel sales quick service restaurant offerings and truck repair services have shown resiliency and enabled it to navigate the pandemic better than most of our tenants.
He is current on their rent obligations to us property level coverage at our to U T locations was two times this quarter.
Among our other service retail net lease tenant rent collections have trended upward to 87.4% in October from a low of 45% in April as businesses that were temporarily closed due to government mandates the guidelines have mostly real.
Our service retail asset management team continues to work with our net leased retail tenants affected by opening restrictions recur.
Regret request for deferrals have slowed significantly except for certain tenants and the hardest in industries like movie theaters, whose reopening price prospects have changed.
Tenants, who requested deferrals at the height of the pandemic began to pay in September Todd will discuss this in more detail.
We believe we're past the worst of this crisis supported by steady cash flow from T.A. and our retail net lease portfolio, we are well capitalized with ample liquidity and well positioned with a diverse portfolio of assets for success successfully navigate the gradual recovery for the hotel portfolio.
With that I will turn it over to Tom to discuss on that portfolio in further detail as well as our recent transaction activity.
Thanks, John as of September Thirtyth 2020, we own 804, net lease service oriented retail properties, including our travel centers were 13.7 million square feet require an annual minimum rent of $369.8 million, which represented 38% of our total annual minimum returns.
Threats.
The portfolio was 98% leased by 183 tenants with a weighted average lease term of 11 years operating under 129 brands and 22 distinct industries.
The aggregate coverage of our net lease portfolios minimum rents was 2.12 times on a trailing 12 month basis as of September 32020.
Right coverage for our largest tenant Travelcenters of America was 1.81 times for the trailing 12 months ended September Thirtyth 2020.
This is 1.97 times for the prior year period due to lower gross margins as a result of the pandemic and lower fuel prices.
Representing 25.66% of our minimum rents and returns T.A. is current on all this lease obligations due to ask you see.
For our other net lease tenants, which represent 12.9% of our total minimum rents and returns we collect at 87.2% of rents during the third quarter up.
Up from 59.3% during the second quarter, we'd like to 87.4% of October and somebody's tenants most.
Most challenged industry in the net lease portfolio continues to be movie theaters, which represent 42% of uncollected October rat.
To date, we have entered into rent deferral agreements with 51 net lease retail tenants with leases requiring an aggregate of $53.4 million or 5.6% of Stcs total annual minimum rents and returns.
Deferred an aggregate of $13.4 million of rent today.
Generally these rent deferrals or for one to four months of rent and will be repaid by the tenants over a 12 to 24 month period repair.
Repayment for a portion of these deferrals commenced in September 2020, and so far we have quite at 82% of the deferred rents during September and October.
Turning to leasing activity during the third quarter, we entered lease renewals for an aggregate of 497000 rentable square feet at average rents weighted by rats rentable square feet that were 11.6% below prior rents for the same space.
Weighted average lease term was 13.6 years and leasing concessions and capital commitments were $4.9 million or $9.86 per square foot.
We also entered into new leases for an aggregate of 2535 rentable square feet at weighted average rents that were 34.7% above prior rents for the same space weighted.
The weighted average lease term for these leases was nine years and leasing concessions and capital commitments for approximately $189000 or $74.64 per square foot.
Turning to recent transaction activity.
During the quarter ended September Thirtyth 2020, we sold five net lease properties totaling 46000 square feet.
For an aggregate sales price of $5.9 million subsequent subsequent to quarter end, we sold three additional net lease properties totaling approximately 83000 square feet for an aggregate sales price of $4.8 million, excluding closing costs.
We have entered into agreements to sell 39 hotels, including 24, Marriott branded hotels and 15, Wyndham branded hotels with 4601 rooms, where the net carrying value of $204 million for an aggregate sales price of $218 million we.
We expect these sales to be completed in the fourth quarter of 2020 at first quarter of 2021 and to use the proceeds to repay outstanding debt amounts.
We amended our management agreement with window. So they will continue to manage the 15 Wyndham hotels under contract until they are sold we have already transitioned the management and brands to four of the five remaining went upstairs.
We originally targeted 53 hotels for sale, but in addition to the four windows that have been transitioned to sonesta, we've not been able to come to acceptable terms on nine Marriott branded hotels and one Wyndham full service hotel.
The management of benign Marriott hotels will be transitioned to sonesta on December 15th 2020, the window remains favorable for sale.
Relative to the discount of sale transaction as a full service urban hotels that have recently occurred in the market pricing for the hotels, we are under contract to sell is at or near pre pandemic levels.
Not really we found the extended stay hotels, we marketed for sale have maintained their values as a result of strong buyer demand from investors interested in continuing to operate the properties as hotels as well as from groups that would convert to multifamily.
I will now turn the call over to Bryan.
Thanks Todd.
Starting with our consolidated financial results normalized FFO was $23.2 billion of the 2023rd quarter compared to $155.6 million in the prior year quarter degrees of 81 cents per share.
The decrease was due primarily to lower returns recognized under our eyes. She married agreements.
As discussed last quarter, we fully utilized the Marriott guarantee and security deposit in the second quarter and utilize the remaining $9 million of security deposits under the ice GE agreement in the third quarter of 2020.
The minimum returns recognized under the ice you married agreements declined by $42 million and $35 million, respectively compared to the prior year quarter.
Third quarter operating losses under our Sonesta Wyndham portfolios resulted in year over year declines of $22 billion and $10.7 million respectively.
$19 million decline and Thats up in the reserve bank and a $28 million increase in interest expenses were partially offset by the $25 million positive impact from the S&P a transaction we closed near the end of the third quarter of 2019.
DNA expense with the 2023rd quarter was $12.4 million roughly flat versus the prior year quarter lower.
Lower business management fees due to RMR, the 2020 quarter were offset by elevated legal and other public company costs over the 2019 period.
Adjusted EBITDA was $103.6 million in the 20 to 23 quarter or a 50.5% decline from the 2019 third quarter.
Turning to operating results in a 340 comparable hotels this quarter Revpar decreased 56.6% gross operating profit margin percentage decreased by 18.2 percentage points to 21.2% in gross operating profit decreased by approximately $144 million over the prior year period.
[noise] below the GLP one costs at our comparable hotels were down $28 million from the prior year as a result of lower revenue reserve contribution.
Suspended for certain of our hotels.
Lower system and other fees paid to the hotel brands.
Hotel, EBITDA, which we have historically referred to as cash flow available to pay our minimum returns and rents for our comparable hotels declined $116 million for 94.2% to $7.1 million compared to the prior year quarter.
On a sequential basis hotel EBITDA for arthritis, 14, comparable hotels increased $41.5 million compared to losses of $34.4 million in the second quarter of 2020.
Occupancy improved 15.9 percentage points in Revpar increased 63% over the second quarter 2020.
Oh, no. We're now presenting the details of our hotel operations and the calculation of hotel EBITDA in our earnings release and supplemental information package that is available on our website.
Our 15, Noncomparable hotels, which are all full service hotels that either remain closed or have only recently reopened from the pandemic shutdown generated losses of $13.4 million during the quarter.
Our consolidated portfolio of 329 hotels generated net losses of $6.3 million for the quarter.
Turning to our balance sheet liquidity as of quarter end debt was 51.9% of total gross assets and we at $86 million of cash, including 30 $818.1 million of cash escrowed, primarily for future improvements to our hotels.
As I mentioned earlier, we exhausted the credit support we had under both the ice being married agreements.
As of September Thirtyth 2020, the guarantee available to cover shortfalls in our cash flow available to pay our minimum returns and rents under our Hyatt agreement for 22 hotels was $3.1 million and we project that it will be exhausted during the fourth quarter 2020.
The guarantee balance under our route as an agreement for nine hotels was $19.5 million as of September Thirtyth 2020.
Based on current projections, the radisson guarantee could be exhausted by the third quarter of 2021.
During the 2023rd quarter, we advance an aggregate of 20 $10.7 million of working capital to certain of our hotel operators to cover projected operating losses.
We are currently projecting an additional $20 million of working capital expenses could be funded in the fourth quarter or a total of approximately $110 million for the full year 2020.
As Todd discussed, we have deferred $13.4 million of rent debate for certain retail tenants.
During the third quarter, we recorded reserves for uncollectible revenues of $2.4 million for certain of our net lease tenants.
We recognize all changes in the Collectability assessment for operating leases as an adjustment to rental income.
We funded $29.9 million of capital improvements during the third quarter, primarily for maintenance capital and ongoing renovations at certain married up so that's the hotels.
Year to date Sbcs funded $108.4 million of capital improvements and we currently expect to fund approximately $50 million of capital improvements in the fourth quarter of 2020, primarily for maintenance ongoing renovations as well as cost of transitioning the management in branding of certain hotels to sonesta.
We have not yet completed our budget for 2021 capital expenditures that we expect will have more clarity on anticipated spending during our fourth quarter earnings call.
As John noted, we amended the credit agreement governing our $1 billion revolving credit facility and 400 million dollar term loan and have secured waivers and all of these existing financial covenants in the agreement through July 15 2022.
Following the closing the amendment SBC will provide first mortgage leaving 74 properties owned by subsidiaries that we have placed equity interest to secure our obligations under the revolver.
These properties include 62 travel centers in 26 states with a gross book value of $1.2 billion and 12 hotels in nine states, where the gross book value of $641 million as of September Thirtyth 2020.
Other key terms of the agreement include the repayment of our 400 million dollar term loan music Undrawn amounts under our revolving credit facility and a 30 basis point increase in the interest rate premium over LIBOR, we pay on outstanding amounts.
In addition to the full covenant relief, we also secured the flexibility we need as we look to reposition the hotel portfolio going forward.
We have the ability to fund up to $250 million of capital expenditures per year, as well as up to $50 million of certain other investments per year.
Although limitations, we agreed to an amendment, we signed back in may including the minimum liquidity requirement will remain in place.
Regarding our liquidity position, our cash burn from hotel portfolio in Q3 was relatively small at around $2 million to $3 million per month.
Although we currently expect our cash burn for our hotel portfolio to modestly accelerate in Q4, and Q1 relative to Q3, given some seasonality and the rebranding of a substantial number of hotels starting in December.
Our solid base of Triple net leased assets, assuming current collection rates covers our corporate overhead and debt service costs.
Assuming the trends we are currently seeing continue we believe we have ample liquidity through 2022 are.
Next major debt maturity is in August of 2022, and we will continue to assess and explore all of our options to improve our liquid liquidity position. During these extraordinary times.
Operator that concludes our prepared remarks are ready to open the lineup for questions.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Your first question comes from Bryan Maher from B. Riley FBR. Please go ahead.
Good morning.
Hi.
Well the estimation Super helpful.
John as you come into this vaccine news this morning and everything rally.
Yeah first of all have you received a call from Marriott right wanting to reimburse you know their decisions and secondly is it going to slow your disposition thought process as you know the sector recovers.
Thanks, Brian.
So far have not received any calls for MACI Americas. This morning.
You know I think that.
This morning's news is you know if it continues to to Pan out is very favorable for the industry and.
If.
If everybody can or can you get the vaccines in the boosters by the end of.
Next year, you know the recovery should ER in.
In the hotel space should should accelerate.
In 2022, which is I think you know really good news and sooner than a lot of people are expecting so so.
No that's good in terms of our disposition activity.
The hotels that we had identified.
For sale.
You know you use the word we weaker markets or for variety of reasons, we're not I'm not well performing in a lot of cases and.
The pricing that we achieved a matched up with opinions of value that we got from brokers before the pandemic hit so.
You know, we feel like that the you know.
The pricing that we've got and under the agreements that we've entered into are a pretty reasonable regardless of the whether it is a vaccine or not so we're going to continue forward with with those transactions.
It may impact what we do with the remaining hotel portfolio is as we examine.
He was the highest and best use once we once we once we transition some of the hotels to sonesta.
Great and then we get a lot of questions on the transition of its out just in that that can can you give us. Some you know kind of background on what's going on there with sonesta getting ready to take on so many hotel and becoming a much much bigger brands. You know is it running kind of ahead of schedule behind schedule, you know we noticed that window.
It's going to continue.
Continue to manage some hotels for a while can you give us any color on how that transition process is going.
Sure first.
First of all the the Wyndham extension.
It has nothing to do with Sonesta, it's it's a reflection of the timing of when our bio was would be ready to close so.
It just didnt it didnt make sense to transition hotels from.
From Wyndham Sonesta to our buyers management company. So so wyndham was willing to extend their.
The terms of the Sonesta situation you know there they are taking on a significant amount of growth with the transition of these hotels and.
They've been working.
Hard to to.
Increase their staffing the they're well on their way to creating a shared services platform of much larger scale that can accommodate the.
Select service hotels.
It's cheap portfolio and then subsequently easy in the in the married portfolio.
You know I think.
You know there.
They're very close on a agreeing to space to to add that capability in a most likely in the state of Florida.
He is a significantly enhanced already there their management team.
You know in both the the finance side as well as the operation side. The recently hired a new chief operating officer, So they're taking a lot of a lot of positive steps and I'd say, you know that they're not behind their not ahead. There I think about where we expected they would be and we do expect that.
They will be ready to take these hotels on.
You know the.
Basically 99 of the hotels are going to transition.
Besides gene managing through November thirtyth incentives to taking over on December 1st.
The hotels in in Toronto, two hotels, there and the one hotel in the San Juan.
We will transition during December.
A bit more complexity to those.
Then they'll be nine hotels that for Marriott the convert on the 15th.
And then and the rest of the married portfolio subsequently next year.
I think sonesta is going to be ready.
Great. Thanks for that and good luck with everything.
Thank you.
The next question comes from Jim Sullivan from BT <unk>. Please go ahead.
Yes. Thank you John I Wonder if you could update us to the extent any decisions have been made but at the time that the Marriott agreement was you.
You know what's changed at the beginning of this year.
The company had committed to invest upwards of 400 million into the assets in the portfolio.
And of course, good increases in the base minimum rent accordingly, and I think the the the number that I seem to recall is that something upwards of 80 million was going to be invested this year.
And to the extent you can you give us any updates on this.
What is what is assumed at and the conversations about.
Capex and cash flow for 22 regarding the balance of the 400 million that was not invested.
Is there a plan I you know I know that there's a cost to transition each assets were married to.
The Marriott branch of the Sonesta brand, but.
Most of the money of course, the 400 million was what it was was it had nothing to do with that.
So maybe if you could just give us an update as to what kind of a capex number you.
You know your we should be assuming in in a cash flow analysis out to 22 for this and that stuff. So the management of those assets.
Yeah. So.
We had oh like Brian tell you the exact amounts that we've we've spent in a moment but.
You know what when the pandemic hit you know we are well on our way with planning for a number of renovations to not just the Marriott portfolio, but we had renovations that were ongoing in the H.G. and and Radisson and Hyatt portfolios.
And.
When the pandemic kit, we we restricted our capex I'm focused on on liquidity in a.
You know maintaining the quality of our balance sheet and so.
We finished and continue to spend on projects that we're.
We're well underway, but we didnt.
It costs too too.
Great extend to many new projects and I would I would say that I would remind you that the 400 million Watson that wasn't 400 million, we are expecting to spur.
Spend in 2020, it was 400 million roughly that we were planning to spend over a two to three year period, and so you know we weren't expecting it ought to happen. We have continued on the planning as part of that the amounts mentioned on on the renovation weve been doing the design work.
For the CLI, Marriott, which will transition to sonesta and the renovation that was a plan to design there is.
You know, it's going to work well for the hotel rooms.
Regardless, regardless of the branding really it's just a well done design concept and so.
You know Weve I think on this past Friday JV at the go ahead to order the f. need for that renovation. So you know it'll take some time for that between Chinese new year and.
Just the normal the normal time, it takes to for a for furniture, but.
We'll be we'll be renovating that hotel in the second half of next year and the rest of the portfolio. We're you know we're going to look closely as we decide.
Some of the extended stay hotels may be repositioned or re purpose to to a multifamily use in some markets that seems like it's a higher and better use and then hotels at this point.
And so you know we won't renovate doors.
I always tell standards, if they're going to become apartments.
The other hotels you.
You know we were going to evaluate whether we go.
Go forward for instance on the courtyards, if we go forward with the same.
Facade renovation has had been planned if those were to remain courtyards and we we may revisit whether.
We need to let you.
You know what do 100% of the bathrooms tub to shower conversions or where a smaller percentage. Initially so there's a number of areas. The flexibility that we have as we move forward that that we might not have otherwise.
Yeah, I'll just add that the opening remarks, I said approximately $50 million of Capex for Q4.
Earlier that roughly affected rebranding costs as we look to move you know I've heard plus hotels in December.
Yeah, we've been using about $300000 per hotel is sort of the benchmark of changing signage and systems.
Each of these hotels as we move into so as to you know the Marriott numbers year to date. It was roughly around 70, which I think you mentioned that you know another 15 to 20 is expected in the fourth quarter. So we continue to.
You know operate under the agreements that we signed with what Marriott and that at some point to any one one of the movies over there we are.
Reevaluate as John mentioned, what what projects will move forward and how we look at the hotels.
And one other question for me on Sonesta the.
You made reference to their shared services platform and under the agreement the management agreements with Marriott married of course is entitled to a significant amount of.
What people refer to was above property.
Expenses or some of the fixed and.
You know others, perhaps driven by the services that the Marriott brand provides and I just wonder given the difference in prominence of the brands.
Whether there's any scope for.
In a material reduction or any reduction in fact in that in that side of the cost the operating cost for the hotels, if they transition to sonesta.
Yeah, I think that you know initially its going to be a little bit choppy as [noise].
As you know more than 200 hotels have transitioned.
So, but we are hopeful that when once we have the steady state and the shared.
Shared services services platform is operating that.
But it will be less costly from an operating expense perspective, and then what were experiencing.
Experiencing today I can't I can't give you exact projections at this point, it's too too early.
And then in the prepared comments there was discussion about the amounts of the security deposits and guarantees they were.
No were used in the third quarter and I just wanted to make sure I'm clear on this if you could confirm what the total amount is between Hyatt Radisson and any other deposits or agreements that you still have how much that the combined total is for security deposits and guarantee at the end of Q3.
The Q3, that's the highest agreement that guarantees down to around $3 million.
The Radisson is $19.5 million or roughly 22 total those two contracts.
Okay, and I think you had said that they expect the radisson to be yeah.
He is based on current industry trends in the third quarter of next year third quarter of 20 Watt right.
That's correct.
Okay, great. Thanks, guys.
Thank you.
The next question comes from Dorothy Kasten from Wells Fargo. Please go ahead.
Hi, Thanks, guys. Good morning, and Mary I had some comments on their call regarding the ROI of the assets as assets versus Marianne can you just give us a little detail on how you underwrite the.
The portfolio under the <unk> brand family.
Yeah, I mean, I I think.
I saw those comments and and.
No I don't want to get into a mudslinging, but.
You know the.
Married portfolio is a stable portfolio a large portfolio.
The sonesta portfolio had a several key assets that were under renovation.
And so.
The the return calculations really that were that were discussed really weren't apples to apples. So.
Well I.
Well, we just think about converting to these hotels to sonesta.
First of all.
We think it's in bad it's it's in the interests of our shareholders not.
To do what's good for I., HD, and Marriott and allow them to not pay us and just sit here and say Oh, well shucks we're.
We think it's a it's a lot better to try to take to take control of the situation would be proactive.
And no. This is a very well diversified portfolio.
Portfolio of hotels.
Well maintained.
If.
You know if we take the hotels.
And convert them to Sonesta, then as we move forward through the recovery cat none of the cash flow that would otherwise in the waterfall go to replenish guarantees and.
And security deposits, we'll we'll go back to married or H.G., those instead, and and we won't share and the upside 50 50 with the two of them instead of the cash flow as as the recovery takes hold we'll go 80% to us and so.
You know we think that there is you know that that's going to be a much better result for for Espcs earnings.
You know and then as I mentioned, you know I think that.
You know that.
Heard it from from a.
The finance team here, how much savings have occurred as RMR as a result of a less travel and entertainment and more video conferencing and you know I think probably every finance and accounting team in corporate America and worldwide is is Ah.
You know looking for this so some of the silver linings in on what's been going on and.
I think that there's going to be a lot of pressure.
To to keep teeny expenses to a from increasing dramatically once once the vaccines are out and available and people trying to get back to normal. So so we don't think that business travel is going to recover.
As quickly as some people may be projecting and we think that it's that business traveler.
But historically, but after the rewards program points and that has driven the value in those in those programs and we think that that those programs are going to be less value.
And less important post Pandemics and then they have done historically and so.
That and the increased scale that that sonesta will gain as a result of these Ah rebranding suite, we believe will position them to be much more competitive as they become a much more well known brand and so.
You know we've done various models, we've done various projections, but you know that.
We won't really know until until it plays out so so well have to see but we're confident that CMS is going to be you.
You know as you do as well for US as married nights, GE, who who who decided not to pass at all so.
Right do you have a <unk> done.
And then in the last few question you kind of got into this but do you have any initial yeah soccer like expenses Trackpad remarks, and then we can all make assumptions on the top line and that's how we think that that's not that can do persons Marianne.
Right and I guess is there anything that you can point out about a staff the expense structure and personnel that maryann expense structure.
You know I think that because of the number of hotels that they're adding and because of the new platform. They are creating that it's a it's a little too early to tell but I think we'll be able to give you a lot more color on that on our next call.
Okay.
And can you walk through how you're thinking about equity issuance at this point Hey, yeah.
Yeah, [laughter] holdings in Atlanta, nine should decide historically pretty much closely matched funded equity issuances with acquisitions I'm just wondering if there is that.
No change in strategy or I guess, what's your thinking about at this point.
Yeah, I mean at this point Dorian and we still believe the shares are undervalued and we're not really thinking about equity. These levels. You know we think we have a good runway with liquidity and we're going to keep managing the balance sheet.
The way, we have that and until things improve.
Well, we'll keep evaluating and keep all our options open but equities, even despite today's pop in the market and the industry.
I thought it was going to sway us at this point.
Okay and just one last question when you when you were talking about keeping the Marriott hotels into separate management agreement as you reassess or what's going on there potential sales is there a new number we should have in our heads time or is it or is it too early for some initial sales actually.
Occasions.
That's the last number that we had kind of floating out about 300 million, but among portfolios.
Sure good or as Todd.
So the hotels that were under agreement to sell its 200 million. We were talking about 300 million early on but you know we sense decided not to sell about 14 or though so.
I think that 200 plus million is a is a good number to use for now you know as as John mentioned earlier.
As we are looking to transition all the I's Sheehan Mariastella sonesta, there's likely going to be some other hotels that we identified for sale over the next year or so you know there's gonna be overlap in markets or you know we have sonesta is already and you know there's going be some mark.
As to how that sonesta and nitrogen to marry up so we're likely to identify a number of hotels out about 200 that were transitioning over the next year or so so so theres like are going to be some sales coming out of that in the next 12 months that we at least identify.
Okay. Thank you.
Sure.
We have a follow up question from Jim Sullivan from P.T.I.G. Please go ahead.
Hi, John just on the topic are subject to potential sources of liquidity other than obviously raising equity at current market prices.
I'm.
I'm, just curious to what extent the company would consider.
Selling any of the Travelcenters assets.
Obviously, the that part of the portfolio has performed the best here cap rates on kinda freestanding I net leased assets have been pretty strong some tremendous amount of activity both in.
Public buyers as well as private equity and just wonder to what extent the company might consider perhaps selling more of the travelcenters assets.
It's a good question Jim I, you know the short answer is that.
When we're not currently I'm thinking about selling out any more of the travel centers, we sold some of the.
As part of a sort of a restructuring we sold some of the less well performing travel centers back to T.A. last year.
But we're not we're not currently contemplating transactions like that but we are keeping all of our options open.
And you know a year ago we.
We actually tried to raise some debt capital.
And the you know the collateral for that for the transaction was going to be some of the travelcenters and and it really wasn't no interest in such a transaction.
Last week, we announced that we are providing security for.
For our revolving credit facility and you know the only assets that the banks were.
Seems interested in whether the T.I. assets. So you know the world and you know in a year as everybody knows has kind of been turned on its head. So good you know where were watching all all the assets in our portfolio closely and.
And evaluating markets and opportunities.
With without sort of cross.
Crossing anything off the list, but we are not working at the current time, we're not working on.
Well.
I was thinking about it but any T.I. sales.
Okay, great. Thanks.
There are no more questions in the queue. This concludes our question and answer session I'd like to turn the conference back over to John Murray CEO for any closing remarks.
Thank you very much for joining us today, we look forward to maybe catching up with some of you at virtual Navy.
Take care.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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