Q4 2020 Diamondrock Hospitality Co Earnings Call
And the brands.
And <unk>.
[music].
Ladies and gentlemen, and thank you for standing by and.
And welcome to Diamond Rock hospitality fourth quarter earnings call at.
At this time, all participants are and a list and only most after the speaker presentation and it will be a question and answer session to ask a question during the session and you will need to press star one on your Touchtone telephone.
Please be advised that today's conference maybe record. It should you require any further assistance. Please press stars zero and I will now like to hand, the conference over to your house clean and Vice President and Treasurer.
Brian and quaint Madam you may begin.
And.
Good morning.
Alright.
I considered to be forward looking statements.
Okay.
And our filings.
And these statements are subject to numerous arrests and and.
Certainties that could cause feature results to differ materially from those and pie by our comments today.
And in addition on today's call, we will discuss certain non-GAAP financial information.
Ah reconciliation and this information to the most directly comparable GAAP financial measure can be found and our earnings press release.
With that I'm pleased to try and the call over to Mark Burger, Our President and Chief Executive Officer.
Thank you Brian.
Good morning, everyone.
Before we begin on behalf of Dime rock I Wanna take a moment and extend our condolences to the sore and some family filing the unexpected and heartbreaking news of Barney's passing.
Over two decades ago, I began my career and lodging by working under Arnie. When he was a relatively new C F L at Marriott.
I will dearly Miss his friendship but.
But I take comfort knowing that the light he brought to his family and.
And his friends.
And the industry will continue to shine well into the future.
As we look towards the future we are more optimistic today about the coming and likely robust recovery up the hotel industry.
We are certainly more optimistic than at any point over the past year.
And the short time since her last earnings call multiple COVID-19 vaccines have been approved and.
And over 65 million doses have been administered and the U S. Since distribution began and mid December.
Daily vaccinations have doubled and last month and they are projected to exceed 2 million shots per day and coming weeks.
Encouragingly, the Johnson and Johnson vaccine is set to receive approval next week and.
And president bite and has publicly said that the U S should have enough vaccines for everyone by early summer.
We are optimistic that the combination of the rapid decline and cases over the last six weeks and the increasing pace of vaccinations will lead to and easing of governmental restrictions.
And the Untethering of pent up travel demand.
The current data points to continued strength and leisure demand.
And and emerging modest trend upcoming improvement and the group and business transient segments.
<unk> focus on drive to resorts has been a source of strength for our company throughout the pandemic.
Almost half of our hotels 14 of 31 or leisure oriented.
Getting that favorable waiting was a result of a multi year strategic initiative.
As demonstrated by the fact that seven of our last eight hotel acquisitions squarely fit into this category.
I'm proud that our team was early to recognize the trend here.
And we remain committed believers.
We are certainly glad to have a headstart on competitors that are now jumping on the bandwagon.
Leisure revenue and our portfolio increased 17% sequentially and the fourth quarter Bill.
Building on a positive trend.
And the third quarter.
Ah resort portfolio generated $4.6 million a positive hotel adjusted EBITDA.
And the fourth quarter, we solve this earnings production increase nearly 50% to $6.8 million at a 30% G O P margin.
And January alone Hotel, adjusted EBITDA, and our resorts was two and a half million dollars.
To put this in context.
Ah resorts are on pace to generate nearly as much EBITDA and the first quarter of 2021.
S. A did and the entire second half of 2020.
[noise] encouragingly.
Over President's day weekend.
10 of our hotels, so daily occupancy surpassed 75%.
We are optimistic that summer 2021 is well positioned to outperform December 2020.
Due to the easy comparisons.
That's the nation progress.
And pent up consumer demand.
Mmm.
Let me point out that consumers are sitting on plenty of money to scratch their travel itch.
Aggregate personal savings and the U S.
Have increased 100% and 2022 point <unk> 2.4 trillion dollars.
Turning to the group segment.
The data suggests we are seeing early signs of improvement.
Many of our hotels are now seeing activity levels that they haven't seen and months.
For example, fewer.
Future bookings for larger groups those needing more than 100 room nights are making up a larger and larger share of the group pipeline.
We're also seeing a return of incentive activity from corporate accounts looking into the back half of the year.
And the fourth quarter, we received 700000 room nights of leads across the portfolio a.
A 7% increase over the third quarter.
And just the past four weeks.
We have received over 400000 room nights of leads for future quarters.
This is a 72% increase from the average for we pace and the fourth quarter.
And the highest piece that we've seen since last March.
Moreover, these leads today are predominantly new business.
Whereas back and Q2 2020 activity was largely re bookings.
Top producing hotels, where the west and Boston, Chicago, Mary at Western Fort Lauderdale, and the Renaissance Worthington.
Ultimately our success and booking group will depend largely upon the vaccination timeline.
We expect of cancellations will continue for events scheduled for the first half of 2021.
But we were cautiously optimistic that we're trending towards fewer cancellations for the second half of 2021 because.
Because meeting players are showing growing confidence to book into late 2021, and even more so for 2022.
As for business transient.
The book you window remains extremely short <unk>.
However, most of our top accounts are telling us that they expect their business transient activity to start picking up late and the second quarter.
But really gaining momentum as we move into the fourth quarter of 2021.
Looking back at the fourth quarter of 2020.
Business transient rooms, and revenue, so modest 5% to 6% growth over the third quarter.
This may not seem material, but compared to Q3 Q4 did sequentially better despite a number of headwinds which includes a creased holidays.
And bad weather as well as diminished demand from the presidential election headlines.
A reduction and social activity as consumers bubbled up before returning home for the holidays.
And a big resurgence and COVID-19 cases at the end of the year.
And short the fourth quarter overcame a lot.
And was better than we originally projected.
As we look forward to 2021.
And the outlook is highly dependent upon the vaccines rollout and other external factors beyond our control.
While we do not expect to be profitable and the first half of the year sequential improvement and quarterly earnings over the course of 2021 has.
Has the potential to turn on the portfolio profitable as earliest third quarter.
Looking back.
Daimon rock made outstanding progress and the fourth quarter of 2020 on multiple fronts.
Let me highlight a few achievements.
One we reduced our monthly burn rate.
Significantly, beating our third quarter pace as well as our own expectations for the fourth quarter.
And two.
We increased our total liquidity.
We actually ended 2020 with less total debt that we had at year and 2019.
Three.
We've raised $87 million through use of our a T M program to find attractive Roy projects and pursue our Papa pipeline of acquisitions.
For the.
The major maryanne multi property deal done at the depth of the crisis is already delivering tangible benefits from converting Marriott management to married franchise.
And total we converted six hotels during 2020.
And the last highlight on mentioned is that subsequent to quarter and we completed a favorable amendment to all of our $800 million and bank debt debt waves, all financial covenants through full year 2021, and relaxes Covenant test into early 2023.
Let's turn specifically to dime rocks fourth quarter financial results.
Hotel adjusted EBITDA in the quarter contracted seven $6 million, which was a marked improvement from the 17th for 17.4 million dollar loss and the third quarter.
Corporate adjusted EBITDA.
Was a 14.9 million dollar loss dramatically better than the 24.4 million dollar loss and the third quarter.
Fourthquarter adjusted F. F O per share was the loss of four cents.
And proving from the loss of 22 cents and the third quarter.
Even adjusting for the $2 million and pandemic insurance proceeds we successfully negotiated and the quarter.
The fourth quarter results were still well ahead of the third quarter and our internal expectations.
During the fourth quarter we.
We had twenty-seven hotels open throughout the quarter, comprising nearly 90% of our total rooms.
Including the three closed hotels, and New York occupancy for the portfolio was 21.8% or about 56 points below the prior year.
However, it is important to recognize.
That this was a real improvement compared to the 18.6% occupancy level and the third quarter.
Which was 64 points below the prior year.
Subsequent to quarter and we close one additional hotel for the slow winter season, the Chicago Mariette on magnificent mile.
As we have said and the past is our duty to reopen or re clothes hotels, if we can lose less money doing so.
Total revenue for the portfolio decreased by 75% and the fourth quarter.
However, we are encouraged by the steady progress we've seen as measured by the year over year.
Improve and declines and revenue.
And April the first four full month, we felt the pandemics impact.
Year over year revenue declined 96% as compared to 2019.
By June we were a little better at down 87%.
September improve modestly day down 77%.
And December was even a little better at down 72%.
And we expect of January 2021 will show continued improvement.
Let's talk about profitability.
Our asset managers always oversee operations with the goal of maximizing absolute profit.
Through a combination of strict expense control and.
And aggressive sales strategies.
The fourth quarter was no exception.
Total revenues were $59 million or $9 million ahead of the third quarter.
With 60% of this growth coming from rooms revenue.
This translated into $6.6 million of gross operating profit for the portfolio.
Double the 3.4 million earned and the third quarter.
G O G O P margin was 11%.
Up from just under 7% and the third quarter.
These trends are encouraging.
The number of hotels generating positive G O P and the fourth quarter increased to 16.
Up from 14 hotels and the third quarter.
On it adjusted hotel EBITDA basis.
10 hotels were profitable and the fourth quarter as.
As compared to seven hotels and the third quarter.
Yeah.
Let me share with you some positives from portfolio and the fourth quarter.
The bears and Sedona saw a 25% increase and Revpar over Q4, 19 with total rep par, surpassing $975 per night, and EBITDA margins up over 1100 basis points.
The resort hit a new record.
For average room rates and the fourth quarter.
The adjacent property the orchards, so like 4% increase and rub par over Q4 19.
With EBITDA margins up nearly 1300 basis points.
The Lady and a lake Tahoe, So a 6% increase and rep or with a D. R of nearly $330 per night and.
And EBITDA margins, increasing over 700 basis points as compared to queue for 19.
The resort ASO hit a new record for average room rates and the fourth quarter.
We also saved a million dollars and disruption during the fourth quarter by accelerating the final phase of the repositioning of the Barbree Beach House and key west and the queue for.
This has the added benefit of making more high rated rooms available for the peak season.
And the quarter.
Capex spending for the portfolio was $9.8 million.
Outside of ordinary maintenance or primary Capex focus remains on prioritizing projects that can produce high returns.
These projects have recently included the <unk> initiatives, and our hotels and Sonoma and Charleston, as well as completing the conversion at the Barbara Beach.
We expect these ror investments to be measurable earnings contributors and 2021 with average irr's exceeding 30%.
Beforehand, and the call off to Jeff.
I want to touch on our environmental social and governess or ESG achievements and 2020.
Daimon rock was recognized by the global real estate sustainability Benchmark survey, where Greg B as global listed sector leader, among all public lodging wreaths and.
And received five Green stars.
Additionally, dimer I could cheat I assesses E S G corporate rating a prime and early 2020.
A performance based rating reserved for the highest performing real estate companies worldwide.
Finally, downright continued to Sliter ship position for high quality ESG disclosures.
Receiving irises quality score ratings for environmental social and governance, all within the top third of the real estate sector.
We are deeply committed to being good corporate citizens.
And we expect to have more good news to share and 2021.
Now, let me turn the call over to Jeff Donley to discuss our balance sheet.
And thanks Mark.
Start off we successfully amended all of our bank debt subsequent to quarter and.
And several notable features and our amendments that benefit the company.
First we extend and our financial covenant waivers for the entire year. Our next scheduled covenant and test will not be conducted until second quarter 20 twenty-two using results from first quarter of 2022.
Second we extended our relaxed covenant period and thereafter early 2020.
Early twenties twenty-three.
This is five quarters beyond the waiver period, and two quarters longer than we had and our earlier amendment.
Third we secured the ability to sell certain hotels and recycle those proceeds and the new acquisitions.
Force, we have the ability to use all the cash raised from $150 million preferred and $87 million a common equity on our a T M for new acquisitions.
And fifth we were please at the interest rate on our term loans only increased five basis points. I believe this may be the lowest increase of any non investment grade hotel read.
He's company favorable terms speak to the excellent and long standing relationships the diamond rock has with its lenders.
We appreciate their continued support and believe that the amendment gives the company the ability to operate our business and focus on creating value for our shareholders both to internal investments and new acquisitions.
The balance sheet and great shape.
He ended the third quarter with $112 million of cash and $345 million and undrawn capacity on a revolver.
At the end of the quarter, we had $598 million and nonrecourse mortgage debt at a weighted average interest rate of 4.2% and $455 million a bank debt comprised of $400 million and unsecured term loans and $55 million drawn on our unsecured revolving credit facility.
Our maturity schedule is also in great shape.
Yeah, just one small mortgage maturity and early 2022, which has an extension option.
More significantly a revolver matures and 2023 and that too has a one year extension option.
Or $350 million a term loans mature.
Mature and 2024, and a 50 million dollar term loan matures and late 2023.
Our extended maturity schedule means that we are not under pressure today to address that majorities. Nevertheless, we will continue to be opportunistic and reviewing debt capital opportunities to reduce our borrowing costs.
And you've liquidity and extend our weighted average maturity.
Moving on to liquidity, we concluded the quarter with $482 million total liquidity, including corporate level cash hotel level cash and Undrawn revolver capacity.
Our liquidity was bolstered by the issuance of 10.7 million shares of common stock on there are a T. M program and an average price of 823 per share for net proceeds and $86.8 million. We raised our goal amount and no shares have been issue after quarter and.
We also preserve liquidity by pausing, the reconstruction and French, Missouri early last year.
To further derisk our exposure.
And create shareholder value and late 20th 20, we engaged and consultant to identify a capital partner to help fund the completion of the rebuild.
We expect to complete that process later in 2021.
And the fourth quarter, we recognized GAAP impairment loss of $174.1 million related the French <unk>.
Under U S. GAAP rules, we're required to recognize the impairment loss as a result of a determination that it was more likely than not we would not hold the property for its remaining useful life.
Turning to our burn rate and extremely pleased to report that we are beating our original monthly cash burn estimate.
And for capital expenditures are burn rate and the fourth quarter average $10 million per month.
This is 27% better than the midpoint of the 13 and a half to 14 million dollar monthly range, we provided it NAREIT and 32% better than our third quarter page.
Let me explain why we were roughly $4 million, a month or nearly $12 million for the quarter ahead of our expectations for.
First hotel and that operating income and the quarter was over $6 million better and we had projected representing half of the beach.
Second we received on one time business interruption payment of $2.2 million related to a pandemic insurance claim.
Third we received reductions and 2020 property taxes assessments for our Chicago hotels that reduced our accruals by $3.4 million and the quarter.
Unlike the one time insurance payment, we should continue to benefit from the lower taxes assessments and 2021 and the.
These three items collectively explain the $12 million b and our queue for burn rate.
If I had just for the one time insurance payment or average monthly burn rate still represented 822% improvement over our expectations and a 27% improvement over our queue three pace.
Including capital expenditures, but again and excluding the one time insurance payment benefit.
Our total company burn rate was $13.7 million per month during the quarter and implies a runway that extends to nearly 2024.
For the obvious reasons associated with the uncertain trajectory of the recovery, we are not providing earnings guidance for full year 2021.
However, we do expect our monthly cash burn rate for hotel on O Y and corporate G and a combined to be around eight to eight and a half million dollars and the first quarter.
Which is flat with our prior estimate for the fourth border.
And that is Casper and estimate for Q1 is a little higher than what we realized and the fourth quarter, but recall that the fourth quarter benefited from the one time insurance payment and the favorable changed and tax accrual. Moreover, first border 2021 and began with the travel restrictions that were put in place only towards the very end on the fourth.
Order.
Adding five and a half million dollars forget service and preferred dividends and roughly $4 million for average monthly Capex. We expect the total company burn rate will be 17, and a half to $18 million and the first quarter of 2021 with that I will turn the call back over to Mark.
Thanks, Jeff.
Before we take your questions I want to cover three additional points.
First as Jeff mentioned, we Opportunistically raised $87 million through our a T M program and late December.
We access these funds to fund our pipeline of high RLI capital projects and position ourselves for external growth.
Together with our previous preferred offering today, we have $200 million of capital available for acquisitions.
We are currently actively underwriting a number of resort properties.
Mostly and our existing markets.
That have the potential to generate returns that exceed our cost of capital.
We will update you when we have more details to share.
The second point that we wanted to cover was that and August 2020, we struck a sweeping transaction with Marriott that we estimate created more than $50 million of and Navy and our portfolio.
The deal among other factors led to the conversion of five brand managed hotels to franchise agreements.
This deal came on the heels of another deal we struck with Mariette earlier and 2020 to convert the 793 room, Boston Western from brand management to a franchise as well.
These changes were and many ways transformative for dimer rock as we now have the least management and covered portfolio among all full service lodging reach.
And we are already experiencing revenue and cost reduction benefits from these changes.
And total all these managed to franchise conversions are going to give dimer like a significant and unique tailwind coming out of the pandemic.
In fact, they objected to add and incremental 50 basis points to the entire portfolios full year profit margins upon stabilization.
The final highlight I'll cover is.
Is that we are not standing still and rebranding opportunities within the portfolio.
In fact, we are exploring the potential upbringing of six of our hotels over the next year.
Let me point out a few of those for you the largest nomo will convert to an autograph brand. After it completes its $15 million renovation this summer Ah.
Our Vail resort will convert from a standard Marriott to a luxury collection brand. This fall as a complete it's 42 million dollar multiyear renovation.
Additionally, today, we were excited to announce that we are proceeding with the conversion and upbringing ending of the J W married Denver to a luxury collection brand.
Now, while we cannot provide additional details at this time on other opportunities we expect to have many more exciting details for you and announcements later this year.
Finding value creation opportunities that are owned hotels is an obsession of ours.
That concludes our prepared remarks, we're happy to close the door on 2020, and we are encouraged by the trends, we're seeing a and emerging recovery and 2021.
We have great assets, a solid balance sheet.
And strong industry relationships and an experienced management team that has weathered numerous prior downturns over the last 30 years.
<unk> as in good shape to outperform going forward.
On that note will now open up the call and are happy to take your questions.
As a reminder to ask a question you will need to press star one on your Touchtone telephone to withdraw your question and press the pound key please stay on by while we compiled and Q&A Ross.
Our first question comes on line of Austin fortunate of Keybanc. Your question. Please.
A good morning, everybody and thanks for for all the detail that you provided and I wanted to start out on the group side and and I'm really most interested and activity at the Boston, West and and and Chicago, Mary and and I was hoping you could provide some additional detail and comparisons on how you know group room nights and the back half of this year.
Or or even 2022 are stacking up versus.
And you know a 2018 or 2019, and then you know any any rate comparisons that you can provide as well would be helpful.
Hey, good morning off and this is mark I'll I'll start off and then kick it over to Tom Force of comment, but if you look at the convention calendar for both Boston Chicago for 2022, they're both very encouraging and fact room nights.
From convention citywide, they're actually over 2019 levels. Some move into the 2022, so that feels very good we are still experiencing short term cancellations and people get and they're cancellation window and Q1 and Q2.
And we expect to see momentum built on the back half of the year as I mentioned the prepared remarks uhm momentum is really picked up and the last four weeks uhm. So we are seeing increased activity and increasingly volume and we'll still have to close a lot of that business. So that transfer really been a fairly recent phenomenon and there's people I think have more confidence with the vaccine rollout.
And I think more confidence and when the.
And when fully pool vaccination of <unk> of the U S will occur and early summer so they're feeling more and more confident booking really really Midsummer really September on and and certainly the the greater strength is and 2022.
At the time do you Wanna make some comments on what you're saying is you'll hotels sure sure Uhm and high level, we when we look at look at the <unk>.
Have been comparing I think the first half of 20.
21 is going to behave like the the second half of 2020. So we're heavily focused on Q3 and Q4 and what we can we can salvage and what we can shift into those months uhm on a positive note.
We have about 78000 room nights on the books for Q4 and to compare that's and 19, we had 79000 and gripped room nights on the books for poor 19, so that that bodes well now you've heard a lot of people talk about goes cancels and and.
Groups waiting to get inside their contract terms.
And could use force majority and get out of their contracts, we've had a lot of that and in queue for his Mark mentioned, we had some significant cancels in and Q4 four four Q4 and also for the 2021 and much of the cancel that occurred in.
Q for for 2021 were in the first half of the year. So once again that goes back to the point where focusing on Q.
Q3, Q4, which are holding up.
And and 2022 looks looks very positive right. Now 2022, we have about 268000 rooms on the books, that's up from 217000 rooms, when we spoke last quarter.
To give you to give you an idea we actually had in the in the quarter, we had about 700000 room nights prospects.
Prospects come up for future future months. So that's that's extremely positive and some <unk> trends that we've been monitoring is January momentum.
Kept up through the month and the the last three weeks, where the highest and the U S. Since March awarded Rfps, while we're up week over a week each week and January and February so momentum look strong there.
The last two weeks of January the average booking window improved almost back to pre COVID-19 booking window levels uhm larger meetings of 100 rooms or more are growing and share.
We continued to shift towards cute cute second half of 2021, and and 22 arrival dates which looks looks very positive we're seeing the bookings even to receive that shift and the same way, we're seeing and with property level and generally the book and windows back to normal the largest market.
And.
Demand is still down paces of about 44% for 21 and 58% for 22 and then right.
But positive year over year for 2022.
And uhm, social leisure and education, and still showing the most strength uhm and the segment segmentation based on what's coming and there really are no significant changes to.
Corporate pick up yet at this point and that that we can see but we know that corporate very short term and it'll come to give you. An example, we had 525000 rooms on the books and 2019 and then we we finished the year at 777000, and so we picked him about 250000 in the year for the year and 2019 that bodes well for us the back half of this.
Sure and certainly as we as we move into 2022 and and other notes on 2022 ethics are important and we look at the citywide pace Boston Boston is about 362000 and room nights on the books that is up 42% and.
Give me a benchmark 2019 at the same time, we had 349000 on nights on the books, so Boston's actually head of 19th pace Chicago.
Has been about 1.26 million rooms on the books, that's up 32%.
Byrd to 19, which is another important metric.
Was 1.142, so Boston and Chicago citywide pace or both up to 19, you know as compared to like San Francisco, which has about 648000 on the book.
Now that shows that it's up significantly to prior year, but it's still down significantly to 2019 at about 845000, and so he sees up 416000 and room nights on the book, that's up 48% compared to 19, which was a 387000 and then some other highlights markets that were.
Looking positive San Diego's up about 739000, and that's about 44% compared to 19 at 732000 and so it's up it's a very positive 2022, and shaping up pretty positive and and we're seeing we're seeing good activity and our portfolio.
Thanks, a lot a lot of great detail and there uhm wanted to transition to the the acquisition pipeline and opportunities you have before you and you know I I guess could you give us a sense of you know where you are in the process of of you know I guess, the comfort level and moving forward with <unk>.
As action, how would you characterize competition and and pricing for these types of assets, which have increased you know certainly you were there early but it feels like others are increasingly you know looking for the same types of deals and then when you you know if you were to transact can you give us.
Sense of where that would get you towards your kind of targeted exposure that you've talked about two resorts.
Sure and this is mark so a lot of sub questions and they're so first on the comfort level. So we are comfortable shifting from defense to offense at this point I think we feel comfortable that we we can see the light and a tunnel and we can uhm underwrite the vaccine rollout, we're not gonna get these actors directory right, but I think we have and.
Confidence that we kind of have a good feel forward and it's gonna go.
Also on the cover level, where we're comfortable with a capital we have today to go out and deploy too and a million dollars and acquisitions, we do have a pipeline it as a competitive environment as I mentioned and prepared remarks, one of the things that we're doing there is to focus on a number of the.
Existing markets that we're in we're we're it's both strategic enter synergistic with assets we already own.
So that we can to write those deals and often and we have relationships within those markets of owners of other assets to try to you know try to encourage off market transactions. So we have a pipeline. It is competitive we're hoping that are headstart and kind of you know we've been working on a number of these owners and off market assets for for years frankly.
And that will be able to price on loose and and create some some deals and this environment.
And then just with respect to kind of weird. This would put you I guess.
With your target and exposure.
Yeah, So where whereabouts third resort leisure, we'd like to get 50%. So obviously all incremental at some point will probably lighting up on some of our urban assets over the next couple of years as well to to get to that shift as well.
Great. Thanks for answering all the questions.
Awesome.
Thank you. My next question comes from Smithers rows of sitting on your line is open.
Hi, folks I wanted to ask you just a little bit more about the potential to try and uhm positive I think you mentioned that the portfolio level and the third quarter and.
And I just wanted to check talk about what sort of occupancy levels equal to need to achieve and.
And in order to do that and would you say your portfolio is that uhm, that's not at the corporate level and just talk about what you wanted to get to corporate level breakeven as well.
Did you have to you and take that.
Yeah, Uhm mornings needs, we had talked and the past that we gave some different thresholds on occupancy about where we would you know need that to be in order to break even both at the hotel level and at the corporate level I think the the figures that we're looking at is on a G. O P level I think the occupancy was kind of and the low to mid.
And a mid 20 per cent occupancy level I think at the corporate EBITDA level I think the figures were looking at is gone around 40% to 45% occupancy and that presumes that you know rates are down and you'll probably 15% to 20%.
Okay. So the <unk> I mean, it seems like the cost savings or scattered and what you were anticipating certainly.
Browse at the Armato, and and you mentioned that the fourth quarter was better than your internal expectation and so that that doesn't.
And is there.
Uhm forecast in terms of getting to break even.
And I'm, sorry, you broke up a little bit on the last part of your question.
It seems like the fourth quarter and it makes sense savings was a Saturday and what you guys had expected and I'm just wondering cause back just reset. This gives me more confidence and being being able to get to be breakeven at the levels. You mentioned or do you think you could maybe maybe the uhm and you can lower levels.
Give it a better and I'm ready to savings and yeah.
Yeah. Thank you sorry, it's a good question I would say compared to the start of it and it started the pandemic we have seen our our threshold for breakeven measured by occupancy trend lower over time, and I think some of that as as you pointed out that we've had more confidence and more success around the expense side and.
I think that's a good a good way to.
Explain it uhm I think as we roll forward, obviously, it's a function of the mix and where that occupancy and you know materializes within our portfolio cause every hotel has a lot of it's own unique breakeven point, but uhm.
Have been encouraged about our ability to control cost and this environment.
Thanks, and and and Mark could you just talk a little bit about given the height interest and was there at that does that extend into French and are you, having a lot of like a constructive conversation throughout bringing it apart are there are kind of order, what's the kind of feel on the at the market level.
Sure I mean, I think the the macro environment is people are hunting for deals right. There's been a lot of capital raised and a lot of interest and particularly leisure oriented as it. So we mentioned last call. We we've engaged and investment adviser to go out and seek capital partner that can fund the balance of the of the rebuild with us that processes.
And I think the the amount of interest Etsy are initial expectations and.
So that that's positive and I think for the reason that you said it which is people you know people recognize that leisure is going to be strong and more durable and probably more willing to stretch and those kind of assets and so yeah. We have more interest and we originally expected were work and that process now and you will have to get the results and.
Come and.
Okay. Thank you.
Sure.
Oh.
Thank you our next question and come from Thomas Allen of Morgan Stanley Ear line is open.
Hey, good morning, Uhm, So what would your covenants. It allows you to sell assets and between those person to make acquisitions. How are you thinking about about potential disposition.
Did you have a smart so uhm.
You know, we like we like our balance sheet position and so we're not feeling compelled but we are getting a lot of inbound inquiries on and number of assets and so I guess every asset is technically for sale at the right price. So what what date and evaluated have and the flexibility to sell particular urban assets and and redeploy those into more Alicia worded assets is certainly can.
And with our strategic goals.
So, we'll evaluate those and and kind of work individual mostly and bound inquiries over the over the balance of 2021 to see if we can find the arbitrage and and kind of keep at our strategic transformation.
Purple Thanks, and then and then just on the business interruption and insurance Uhm I think it's been pretty uniform that companies haven't been able to get business interrupt and insurance because they're covered and.
How are you able to get it.
Well everyone Yep.
Yeah, if I could jump and here I mean everyone's got a different insurance policy, we negotiated for a P. I N demick uhm a pandemic insurance.
With some specific Sullivan.
So.
And yeah, we were able to track the cancellation for bookings day kind of work into that that claim. So we were entitled Toby negotiated for when we got our policy, which was pretty pandemic and we're happy that the insurers.
Agreed with our claim.
Do you think you'll be able to continue using it or are they just kind of it.
There's a sub limit per property uhm. So we've we've hit that sublimate for the Boston Watson, which is like where the claim was related.
Perfect and <unk>.
Thank you. Our next question comes from the line of anthem. Your Pal Barclay. Please go ahead.
Hi, good morning.
A lot of and 80 yard work and some of the resources and it's been pretty impressive do you think we'll be able to hold on to that that grew up on this year and future years as more options for travel and and re emerged.
Yeah.
I think generally yes, there will probably be some go back and I think for 21 and for 22 domestic travel is gonna still be.
The beneficiary of people and not going abroad, and I think people are discovering and some of these resorted didn't discover them before.
So I think we brought and the audience and I think they are telling their friends and colleagues.
Colleagues and so I think that the great and they're having great experiences I mean, if you read the reviews of the people stay and he's reviewed resorts even at these higher elevated adr's, they're having good experiences.
And the other the other piece of it I think that May backfill, if there's little athene over the next couple of years is that we basically have no small groups of these resort so to the extent and we might lose a little bit of rain.
Go to the south of France, and says Sedona, we were able to put in some high some high rated incentive and some high ready group that just doesn't exist right now so it's probably that washed out. So we're we're pretty encouraged about the future of these kind of assets.
And he is a follow up me and you <unk> you mentioned, you're doing some more a branding and some of your hotels you'd identify three and I just have three more is that.
And are you just seeing a better rate opportunity to graduate portfolio, and then you inspected or what kind of diet and these are blending.
And so you're making.
Yeah, I think we've had good success and I think particularly merits show and a lot of willingness if we if we come up with good designs and good plans and good execution on operating models to to allow us to move into higher categories with more luxury rated brands. So.
And so we think it's a really good use of our money and May view that we put out a and updated investor deck last night, and if you'll get the ROI page on on the slide 11.
The average return IRR on these projects and and number of them and there is 40.
47% and.
And all of our our I project. So I mean that is it's hard to buy and ask that where you can get a 47% are are so we remain excited about those are some of the best investments, we can make and so the team Super focused on finding more of those high returned opportunities within the portfolio.
Great. Thank you.
Thank you.
And can you. Our next question comes from Michael Bellisario of Bird Your line is open.
Good morning, everyone.
Good morning.
Yeah just.
First question on the the a T M usage could could you help us think about the issuance price versus what your your mark the proceeds for and I know you've talked about the R. O I returns, but just the relative return on there and then secondarily, if you're opportunistic with the issuance and December and why haven't you bet and opportunistic year to date, but the.
Stock, 20th and 25% higher.
And my who great question. So again, it kind of relates back to the wrong projects schedule and so we have.
You look on the deck, we put out last day with $67 million have identified Roy projects and we have about another 30 million on top of that that are and the evaluation stage and.
Including the three other repositioning that we were trying to finalize now so it it just seemed like very smart cap allocation to be able to raise the money redeployed, 40% plus I ours.
And the relative trade was good we don't have an unlimited amount of those I wish we did so we thought that the Maui raised was sufficient to match funded with a high value on Roy projects that we had and just further positioned us as well to starts to shift from defense to offense as we have more clarity and are more optimistic about the <unk>.
Coverage and lodging.
Got it and then just back to the the the group and the the Big box hotels can you help us kind of get our arms around or how you're getting your arms around values underlying real estate values of your <unk> focused hotels today and also your expectation for both the ramp up and and fundamentals, but also.
So the underlying real estate value that you see on that may be prospective buyers would see our underwriting and those big box group on this hotels.
Yeah, I would say of all the all the assets well I think New York and San Francisco and hard on on valuation to kind of figure out where value is.
And or to probably been the easiest and I think big boxes would fall into the spectrum of of tough to understand value.
We are seeing good group pace and the last four weeks. So we will continue to clarity, but I think it's a big checks.
<unk> for these hotels and so it's more risky because it to see your investment.
Would that big checks. So I think it's harder there has there has been virtually no trades and big boxes and the U S. I think it will be dependent city by city. Some of these cities cover much quicker than other cities and.
I think we're more optimistic on are are too big box hotels, because of the city wise and Boston and Chicago and 2022.
But but valuation is still I think still uncertain on this kind of assets right now is that where it's gonna take out.
Okay. Thank you.
[noise]. Thank you. Our next question comes on the line Lucas Heartbreak of Green Street and your question. Please.
Thanks, and so there seems to be pretty decent odds and we'll see an increase and the minimum wage I'm just curious what your thoughts on around that issue.
Yeah, and if you look at where our assets are concentrated generally this mark it's already have increased minimum wage and I may I bet, less and 2% of our workers on hotels make minimum wage so it shouldn't be it shouldn't be a major impact on us there will be some markets, where it probably is more and pack.
But if you think about where the bulk of our assets are located and those markets raise the minimum wage. The you know 11 $15 isn't going to have a major impact I mean, our our housekeepers and New York City.
Probably about $28 an hour and.
So.
Uhm, Yeah, it's it's more pressure on a cost structure, but I don't think you'll see a major hit two of profitability and hotels and.
And the kind of markets that were and.
Do you think that maybe it is the minimum wage increases it kind of forces.
That ratio you know its employees are earning you know and a wage above the the minimum wage and.
Today, you know and the minimum wage increases that ratio kind of goes down does that ratio change or does it stay constant which would put upward pressure on these employees, earning.
You know above the minimum wage.
Yeah, and I'm sure, they're somewhat were pressured for the employees and make you $2 above the the new set a minimum wage when you bring and new new people. So that's yeah basic.
<unk> again, we don't have that many people around minimum weight. So it's probably there'll be some impact, but but it's not one of our top 10 concerns on cost containment right now.
Yeah on it.
And then last one for me since last year, there was an expectation that would see supply reductions and some markets and most notably and New York, but also and some other markets I'm just curious it I think we're seeing some evidence of that and your budget are you seeing evidence outside of New York and Ah supply the inconvenience out of us.
Nowhere now and it's very market specific them and New York is obviously, the the poster child for that opportunity, but we're really not seen it and and other markets and then there's a little and student housing first and some of the other markets where it might happen to be right next to the university, but by and large it's a new York City phenomenon and at this moment.
Excellent. Thank you.
Sure.
Thank you and next question comes from Chris for Wanka of Deutsche Bank. Your line is open.
A good morning, guys.
You, you've talked about and potentially lightening up on on on certain urban assets and come years folks on resorts.
I'm curious.
As to whether you think there's a there's a major difference and how you underwrite recovery and.
And or value and some of those urban markets relative too.
And how potential buyers are underwriting that you know that same recover your value.
Yep different different point of view and make some market. So yeah I mean.
I don't want to talk against any of our assets and we might consider selling but yeah, and we're gonna have different different views and May I think we have a different view on San Francisco probably.
Probably more negative and then some other people out on the marketplace.
Yeah, and new York's and interest the market. We think it is very submarket dependent Midtown east removed Polish on I think you know south the battery and that kind of very financial district would probably more bearish on so yeah. There there are funds being raised with specific themes and frankly I had a call.
Yesterday from a broker who was representing and fun that was just focused on big box hotels and they raised money just to buy those.
And so that I would talk to another another investor.
<unk>, maybe two weeks ago that interest raise money just to invest in New York City and in New York City recovery thesis. So people are gonna take different positions.
It's a competitive environment out there I think you'll see people take relatively aggressive.
Pretty narrow focused trade thesis and deploy those and inevitably some of those are going to be <unk>.
Different and our perspective and hopefully there's arbitrage there that we can late and I'll put some of the urban assets and redeploy those into more leisure oriented assets over the next couple of years.
Okay that that's helpful. And then I'm also mark we over here.
The brand certainly talking about a lot of conversion opportunities and and it seems like many of those go to soft brands and you're doing a few of them yourselves how.
And how do you think about that obviously, it's not a new supply it's on new rooms, but <unk>. If it's within is this the same brand family do you you think hotel across the street from your hotel that goes through a software and does that is that a net positive or or or net negative to to your hotel.
Yeah, So I guess it depends a little bit on the unique circumstances. So if we had a hotel and we are helton and there was a.
And another a property across the way that was already there, but was not and health and system becomes a curio. Yeah. That's gonna have an impact is certainly much less of an impact and if they built a brand new hotel and made a curio and you know it's dramatically smaller, but it will have an impact.
And when they manager yeah, there's some right integrity. So if they can bring in and independent yeah. Let let me use that same example, so let's say there we own and Hilton across the street, there's a 300 room independent and it's been problematic and that day. They don't have a big enough funnel to have right integrity and it goes and.
And becomes a curio and it's got a much bigger pipe and it can be and I've seen this it can be synergistic and that.
<unk> you know you don't know you don't have this hotel right across the street at 50 dollar low rate, there's more parity because it's got the stronger brand channel and it actually helps your hotel and so I think it just depends on the unique circumstances, clearly if that yeah and if they're converting.
<unk> of rooms nearby it'll it'll dilute the pipe going into your building.
But it can also help take independence that are struggling on right, especially on this environment and get that right up and that can help your hotel. These are not be and undercut on the right.
Okay very helpful. Thanks, Mark.
Sure.
Thank you. Our next question comes from Bill Crow of Raymond James. Please go ahead and good morning, and thank you.
Uhm I'm curious, how far down the path of and asset sale or multiple asset sales you went before deciding to raise equity and the fourth quarter. There were reports out there and the media that you were Mark and and you know X as an example, and I'm just curious whether you were down that path that sunstone and pebble broke and others have gone through.
Yeah, It's it's a good question and and capitals, all relative or what you can sell on what you can redeploy uhm.
<unk> sense of the market and I think any of these have gone up considerably probably and the last 45 to 60 days was the mark on some of the assets, where they were versus the ability to issue equity and the certainty of having the funds to deploy and these high RLI opportunities. It was it was just a clearer path and I think.
Selling last year and kind of the prices that people are talking about just thought we could get a lot more for the assets. If we waited another three to six months.
Until the vaccine was out and the rollout and there was clarity so it seem smarter to issue a little bit of equity to fund to match fund. These are on projects.
Sell something that we thought it was too much and discount where we could see that.
Pretty soon and the <unk> would be rising and the private markets and we'd be able to take advantage of that if we chose to.
Okay, Uhm, maybe going back to to Tom Heatley, Uhm group, and 2022 and <unk> <unk>.
Curious I'm on the new book group meetings versus those that were already on the books How's the price and different.
Bill I think we're seeing 2022 pricing is is stable that's not as I mentioned earlier.
<unk>.
And what's going on the books is is probably at at or around 19th pricing levels. So I think we're we feel good about the pricing for 2022 as I mentioned city wiser up that gives the property team has more confidence and and a lot of our markets are pace. It is not.
And it's in good shape and I think we think in the year for the air as theirs pent up demand, it's gonna be positive and we were gonna push certainly push right further.
Is there any <unk> sorry go ahead and put a note.
And I was I was I was just curious whether there's any sense on your part that maybe the medium planners are starting to get worried about.
Losing crime date for next year's interest too early for that that concern.
I think it's I think it's too early to tell and there's so many.
As mentioned that goes cancels and such there's so many chefs we've seen it up the cancels where see we saw on queue for about 27.4%.
Of the groups that cancelled and got rebooked, and they're pushing out there pushing into queue for it and and to cute into 2022. So there's a lot of noise with shifting right now I think everybody's still trying to it. The challenges is what is what's on the books Gonna stay and and is what's on the books gonna pick up so.
There's no history at this point for like a citywide block historically speaking, it's 10000 rooms and will come in at 10000 rooms that will come and at 5000 rooms, and all of a sudden you know how that works it in the when it when it actualize and it starts to come in all of a sudden everybody reacts to if it doesn't pick up it's block and there's a reaction and <unk>.
Stop so and then you are trying to backfill with self contained groups. So it's a it's a tricky puzzle and I think we're focused on right because that's where our profit is gonna come from and we see things good yeah.
Good one more for me for your time is are you getting more requests for hybrid meetings.
You know I I can't say that we've hurt.
Hear of that it on especially with the groups the associations that.
Meetings are they making revenue their revenue generators on for them. So they want to do hybrid to get to continue the meetings and their shows we're hearing that I'm not sure that that trend continues you know I just I I think day I can't see that occurring long-term I think that's a short term thing and.
I'm in on.
Okay. Thank you.
Thank you. Our next question comes from Flores and then they come of Corpus point. Your line is open.
Great and thanks for taking my question guys Mark I just wanted to maybe if you asked if if you could maybe provide some additional comments on the equity raised you know we understand that the proceeds were used to fund the high R. O Y and obviously maintain balance sheet integrity, but in hindsight.
It it it appears like it was really expensive equity.
Do you have a better sense of of Diamond rocks and a V. Then the street should do you have a bad better and sense of of where your N. A V should be and and did you really think that N. A V was in the in the mid eight and when you when you raise that.
Yeah, So I'll I'll fur questions and I think we looked at it it's not a statement of N. A V. It's a statement of use of proceeds and so again, if our irr's are correct on this and writing and we can get a 40% return then that's a smart equity issuance given that relative.
Even at 823 years and I came to 40% are are on it that return and it's a good smart trade of raising equity and redeploying into those high value opportunities.
And it's hard to know where your stocks going to ever at any point in time right. There's a lot of caught crosscurrents I do think any of these have increased as I mentioned earlier over the last 45 60 days.
We can see that we've we had it's interesting we track inbound inquiries and there's some brokers and represent people that have been chasing assets and our portfolio and I would say within the last three weeks people have come back to us with prices that are <unk>.
10% to 15% higher than they were in.
November December last year.
Great Great Great I always do my best and another.
A follow up maybe <unk> as as you build a war chest, obviously want us to to sell some of your existing assets would you guys have talked about and and that makes you know and you know strategic sense and and and also you know and and you know <unk> protects the integrity of the balance sheet again have you thought about pursuing convert similar to to your.
Two one of your peers to to build a war chest and and maybe signal to and the market actually guys. This is where our any of us are significantly higher.
Sure, Jeff you want to take that.
Yeah happy to Uhm, Yeah, and I I recognized the total of our peers have explored converts and it's something that we do look at on and opportunistic basis as ways to push out our our debt maturities Uhm and one point out would raise that thus far you know, there's probably be and three or four of our peers who've done bond deals and convert deals and and those proceeds are really been to <unk>.
Finance existing debt that was maturing and the next 12 to 24 months for us to explore convert which is viewed as debt. It is unsecured debt, but it is nevertheless viewed as debt and puts more pressure on your covenants for us to raise convert proceed today if I if I'm. Assuming your example is to raise convert to you know use that to the R. O Y project.
<unk> and I appreciate that and attractive return on capital as well, it's a it's a favorable spread but and as a leveraging of that you know you're leveraging up to do that and I recognize there might be a time you know in the future. We'll look back and say that's you know it was an ideal time, but on the other hand, we're still not out of the woods and industry Uhm.
Yeah, and and I think you know folks are trying to find ways to ensure that we will be compliant with covenant and so there is there is risk inherent and and leveraging into the environment right now I would say.
Fair enough I I appreciate the comments <unk>, maybe if you can provide some additional comment on the pricing for resorts you know again rumors of the four seasons Calistoga going for for 2 million a key presumably you're not willing to pay those kinds of prices what type of.
And would you like and and and does pricing for resort hotels actually makes sense right now and in your view.
Yeah.
It's it's the it's the hot flavor for the right reasons and today's Mark place. So yeah, I think some of the <unk> listen to so that that's there there will be bad deals that will be made on some resorts. Our focus has been really on deals that we've been chasing for a long time and unique individual relationships we have.
And particularly places where we have an advantage because we have existing assets and so it's not always strategic but there are synergies as well, where we can complex things and make it even if it's it's a little bit pricey the cost savings from the synergies make it a really compelling deal for our company. So that's that's how we're trying to stay with ourselves you know I think it's good that we've been doing.
And this for a number of years before other people are starting to get into it I think that gives us a little bit and edge, but prices for a lot of these assets and we're gonna have to work hard to make sure. We're doing very solid deal with I think we have a good strategy to do that we certainly the right team and I think our head starts going to kind of give us at distinguishing feature or we can uncover some deals that actually work and great value.
Or other people that are just.
And I will call new to the game, maybe forced over payable but.
Thanks, Mark I appreciate it.
Absolutely.
Thank you. Our next question comes from door and cast and Ah Wells Fargo. Your line is open.
Alright, Thanks, good morning, everyone.
And is there and internal preference can J, the French news nurse and and outright sale and it has engaging a consultant to find capital partners resulted and and increasing inbound calls and.
Four and how great sales.
[noise] directed great question, so our our advisers been out there with the primary goal of finding someone that can help fund and get this hotel open as soon as possible and then what we've told folks and and partners as we're flexible on the structure. So we believe in it so are we happy to stay and.
And and take more of a back and sure uhm and different investors come to us with I would say.
She's probably six to eight different structures have been presented to us. So they all have kind of tradeoffs of.
How much risk we take on the the construction versus the purchase price versus more involvement or less involvement more back and did more front ended so I I think the I think the kind of the broad outlines are we still believe and the pro forma we would be happy to take a you know a more back and and peace and a structure deal.
And we are going to accommodate the capital partner, who can move the fastest and.
And also a price the highest NPV for our shareholders.
To do a structure deal.
Okay. Thank you.
Absolutely.
Thank you our next question.
It's a follow up from Austin or Schmidt of Keybanc and your line is open.
Yeah. Thanks for taking this guy's just one quick one a little bit of a follow up on Bill's question around dispositions you guys amended the franchise agreement at the Lexington Hotel last year on to include a termination right you know option up until I believe this April could you just give the the latest update on that.
So first of all on the so we did amendment electricity and grieve as part of this week and transaction with Marriott and it gives the ability to terminate that franchise agreement at any point in the future they're actually the costs.
It's down over time.
Oh and her eyes weather, Sir subsequent fire and certainly substantially increases the marketability and flexibility with that ethic going forward. So that's asked that we probably won't on five years from now but that that's certainly helps on the disposition side and it certainly makes it more marketable and that was the the.
Primary goal and negotiating that feature with Mary.
And a good observation.
Understood. Thank you.
Mmm.
Thank you. Our next question comes from Stephen Grambling of Goldman Sachs. Your line is open.
Thanks, you've answered lots and and thanks for giving me and giving your focus on more independent.
Resort properties, how would you evaluate a soft brand like curator launched by your peer pebble broke as a way to potentially further increase that edge that you referenced and operating knees and then as a related follow up what are the barriers to entry for someone like you watching something similar given your niche.
Yeah. So.
I don't really Wanna come in on someone else still the the deals that we've done and we'd be able to find a lot of synergies through our operators, so whether that's purchasing power and or the ability to get lower O T a negotiate fees or credit card fees.
By having the right operator, and there I think we can realize on with all those synergies. So I don't think by creating something on our own probably the cost of setup and doing that.
Offsets any any small incremental difference there and then frankly it'd be hard to get the buying power of some of the managers that we use.
So that's not a road we're gonna go down and we are focused on uhm soft brands and independence and lifestyle hotels, we had a lot of success with those I mean, the the things that worked out and on is the God. The stars and the portfolio right now are the landing in Lake Tahoe, and blueberries and to Sedona both of those are independent.
And we are getting the benefit of the operators there and their synergies with you know all day or buying power within their system. So we already realize those and our P&L. So I don't think that there is incremental profit and I'm trying to create a.
Re creative the wheel on on that.
Got it helpful. Thanks, so much.
Absolutely.
And thank you at this time I'd like to turn the call back over the President and CEO Mark Bruegger for closing remarks, Sir Okay.
Thank you everyone on this call and we appreciate your continued interest and dime rock and we look forward to update you on the next call take care.
Ladies and gentlemen, and this concludes today's conference call. Thank you for participating you and al disconnect.
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