Q1 2021 Pebblebrook Hotel Trust Earnings Call
Yes.
[music].
Greetings and welcome to the Pebble Brook Hotel Trust first quarter earnings Conference call.
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It is now my pleasure to introduce your host Mr. Raymond Martz Chief Financial Officer. Thank you Sir Please go ahead.
Thank you Donna and good morning, everyone welcome to our first quarter 'twenty to 'twenty, one on earnings call and webcast. Joining me today is Jon Bortz, our chairman and Chief Executive Officer.
But before we start this morning quick reminder, that many of our comments today are considered forward looking statements under federal Securities laws. These statements are subject to numerous risks and uncertainties as described in our 10-K for 2020, our other SEC reports in future.
Results could differ materially from those implied today and by our comments forward looking statements that we make today are effective only as of today April 32021, and we undertake no duty to update them later on.
SEC reports on our earnings release contains reconciliations of the non-GAAP financial measures, we use which are available on our website at Palo Verde hotels Dot com.
Discussing our financial and operating results, we will in many cases also compare our first quarter results for the first quarter of 2019.
We believe this is a more accurate representation of the comparable operating and financial performance rather than comparing to 2020.
We provided these comparative performance measures for 2021 2020 in 2019 in the financial statement tables as part of our press release, we filed last night.
Okay onto the highlights of the first quarter.
Last year. This time hotel demand was virtually zero when we only had eight of our hotels opened we regarding between $25 million to $30 million of cash per month.
We also had about $450 million on liquidity.
Today about a year later, we have 48 hotels open 11 more than when we started the year and eight more since last quarter in March for the first time since the pandemic began we achieved positive hotel EBITDA for the month this exceeded.
Our expectations due primarily to a greater pickup in March from an extended spring break.
Our total corporate cash bearing March was approximately $12 million.
<unk> improvement from January and February when we averaged over $21 million per month and today, we have over $900 million of liquidity.
Progress on vaccinations combined with significant pent up leisure travel demand provides us with more confidence and optimism in the path to recovery Despite business travel and group demand still way off pre pandemic levels.
This is far from over on the hotel industry and our portfolio are heading in the right direction and trends are improving monthly which is very encouraging as.
Is there a song from the seventies indicated yesterday is gone and tomorrow should be better.
Same property total revenues of $83 2 million or 74, 7% below the first quarter of 2019 book marked.
At 12, 3% improvement from the first quarter of 2004th quarter of 2020.
With revenues of $74 million Youll recall, when we spoke two months ago, we thought the first quarter will be slightly below the fourth quarter.
Total hotel level expenses.
<unk> of $99 3 million were reduced by 58, 5%.
Versus Q1, 2019 expenses before fixed costs like property taxes, and insurance were cut by 66, 6% versus Q1 2019, our total property level expense reduction was 78% of the revenue decline and 89% before fixed expenses.
This highlights the tireless efforts of our operating and asset management teams, who have been focused on maintaining enhanced cleaning and safety protocols for our guests and hotel team members, while also instituting cost controls and implementing new best practices to improve efficiencies.
Our hotel operating teams are also trying to overcome the challenge we are experiencing with a lack of available workers in every market. We expect this shortage of hotel workers to remain a challenge for several months, but improving September as enhanced unemployment benefits are due to run out children should be back in school full time and the fear of the virus dramatically.
Reduced due to widespread vaccinations.
On a same property revpar basis versus the comparable period in 2019 January was down 83% February was down 76, 4% in March was down 72%, which represented our best performing months since the pandemic started last March.
For the second quarter, we currently expect revpar to be down between 66, and 70% compared with the comparable period in 2019, which continues the improving trend.
Our total portfolio generated $19 4 million of revenue in January with 37 hotels open $26 million in February with 38 hotels open and $38 1 million in March with 39 hotels opened.
We forecast revenues of approximately $42 million for April.
Slightly up from March with 44 hotels open.
Now at 44 Hotel 44 excludes the additional four hotels, we reopened.
End of the month please.
Please keep in mind that these last hotels reopen they opened with lower occupancies and the reopening of lower occupancy and slow recovering markets. So ADR is also will be at lower levels. So they weighed down our overall statistics, but increased our total revenues in hotel EBITDA numbers.
For the first quarter same property hotel EBITDA was negative $16 1 million compared with a positive $89 4 million from Q1 2019.
However, it does mark an improvement from the fourth quarter of 2020, when we had the hotel EBITDA loss of $19 1 million.
By month same property hotel EBITDA was negative $11 4 million in January net.
$6 million in February and positive $1 3 million in March our resorts have been consistent bright spot in our portfolio throughout this pandemic, whether summer fall winter or spring day.
They generated a positive $14 $5 million of hotel EBITDA quarter.
This resulted from an occupancy of 41% and an average daily rate of $406, which was more than $93 and a 30% increase over the comparable 2019 first quarter.
Then at our resorts was also up meaningfully over the comparable period in 2019, resulting in total revenue per occupied room higher by more than 10%.
As a reminder, leisure transient portfolio wide has historically accounted for about 40% of our demand with corporate transient at 35% and group at 25%.
Not only do our drive to resorts benefited from strong leisure, but all of our urban markets have strong leisure components in markets like San Diego and Los Angeles are benefiting now.
Washington D C, Boston, Seattle, Portland, San Francisco, Chicago, and Philadelphia should also benefit from this summer assuming the amenities and attractions are open in those markets.
Our adjusted EBITDA was negative $25 million in the first quarter compared with a positive $90 5 million in Q1 2019.
Despite the seasonally slower first quarter. This is an improvement compared with a negative $27 9 million of adjusted EBITDA for the fourth quarter ending December 31, 2020 and shows a positive direction of the portfolio.
Adjusted <unk> per share declined to a negative <unk> 42 per share compared with a positive 46.
<unk> 46 per share in Q1 2019.
Shifting to our capital improvements during the first quarter, we invested $9 6 million in our portfolio.
About a third of this capital was related to the redevelopment of blueberries in del Mar, California.
This transformation is expected to be completed several weeks and the new lobby outdoor restaurant, new cafe and renovated rooms have reopened.
2020 for 2021 we anticipate investing an additional $60 million to $80 million for a total of $70 million to $90 million on our portfolio. We have decided to move forward on the $25 million redevelopment of hotel Vitale in San Francisco and two until the one hotel we.
We will start this renovation later this summer and target to complete it by year end.
As a result, we will keep hotel vitale closed for the rest of this year to complete the redevelopment and transformation with lesser disruption net the hotel was opened.
This will also allow us to complete the renovation more quickly and at a lower cost.
We will also be moving forward on the $5 million redevelopment and renovation of the Grafton on Sunset in West Hollywood, California, We expect to start this renovation in the fourth quarter with completion in the first quarter of 2022.
We will relaunch the hotel as the Ace member of the unofficial Z collection upon its completion with a news Z named yet to be finalized.
Our decision to ramp up our reinvestment projects are very positive indicator of our confidence in the direction of travel recovery is beginning to take hold and our strong overall financial condition and resources, we want our hotels will be in position to take advantage of the substantial step up in travel and hotel demand that we expect in 2022.
Beyond which is why we are moving forward with these renovations, which are transformational it should lead to outsized cash flow growth.
Shifting to asset dispositions on April one we announced we completed the sale of the surf Francis Drake Hotel in San Francisco.
We generated approximately $157 6 million of proceeds from the sale.
Since the second quarter of 2020, we completed approximately $225 million of property dispositions.
We intend to strategically reallocate this capital into new investment opportunities that we believe will provide enhanced returns and greater diversification for our portfolio as the opportunities become available.
Turning to our balance sheet and liquidity with the proceeds from the recent sales those are Francis Drake, we have more than $920 million of liquidity includes cash of 279.
And $643 million available under our secured credit facility or.
Our net debt to book value is approximately 42% and excluding our convertible notes, which can be converted to common equity when your common share price exceeds $25 47 per share this ratio is 27%.
We're proud of the tremendous progress we've made strengthening our balance sheet, reducing near term debt maturities and increasing increasing our liquidity. This should allow us to take advantage of new investment opportunities as they become available.
With that I'd now like to turn the call over to Jon Jon. Thanks.
Thanks Ray.
So I thought I'd focus on what we're currently seeing in our business.
And how do we think this year is likely to play out now that it seems we have perhaps a more predictable path.
So it continues to be a path with quite a lot of uncertainty.
None of us has ever been through a pandemic. So the big variables include the progress we make against the virus both here and around the World and then how governments individuals and businesses in particular behave as the health issues recede, assuming we have no setbacks.
We're certainly very encouraged by the reduction in our country's daily cases, hospitalizations and deaths and the pace and general level of vaccinations.
This years recovery is being led by the leisure traveler, who continues to be most of the demand currently traveling.
While all segments will increase as the year goes on.
Leisure travel is a segment that is likely to remain the driving force behind the recovery for the second and third quarters.
As government restrictions ease and as more and more people feel safe and comfortable traveling.
In fact, we've already seen the leisure recovery pick up speed since the beginning of the year when it was at its low point.
Not only did occupancy pickup in February and March, but overall bookings consistently increased through the entire first quarter.
Including for future months.
For us demand consistently increased throughout all of our markets.
For example, total hotel revenue per day in February.
Average to about 49% higher than in January.
In March increased another 32% from February.
And April is forecasted to be up another 17% from March.
Based on the first 25 days of the month.
Room revenues have improved even more average daily room revenues increased 55% from January to February.
Another 35% from February to March.
And we're forecasting there'll be up another 17% from March to April again based on the first 25 days of the month.
While the nominal numbers are still very low averaging about $1 $2 million per day in March for total revenues.
The improvement in transit demand in occupancy have clearly been significant.
Overall, except for periods. Following holidays are total transient bookings have increased week over week.
Just about every week this year.
We're also encouraged that we're seeing forward transient bookings pick up as well as.
As the leisure customer feels increasingly confident booking vacations and leisure trips further out than they've been doing so far during the pandemic.
When it comes to rates, we've seen consistently strong growth in ADR is at our resorts.
With seven of eight of them achieving significant increases over 2019 levels.
In the first quarter average rate at our resorts on a combined basis increased $93 88 over 2019, as first quarter or a whopping 31%.
Weekday rate growth at our resorts was even stronger than weekend rate growth.
31, 5% on weekdays versus 26% on weekends.
The leisure customer has plenty of money to spend and a greater number are choosing upgraded and more expensive room types, including view rooms and suites.
And this is helping to increase average rates.
While the same cannot be said for rate growth at our urban hotels.
The strength of our resort portfolio has been so great that it dramatically mitigated the urban rate decline of 31, 5%.
This decline was less on the weekends than on the weekdays.
Not surprisingly given our traditional weekday high rated business and our urban markets comes from citywide conventions corporate group and business transient.
All segments traveling in a very limited amount during the first quarter.
Yet because of the huge rate increases on our resort portfolio.
The entire portfolio only experienced a four 7% rate decline from 2019 Q1.
And we continue to focus our revenue management efforts on recovering ADR in our urban markets, particularly as demand improves.
During last September and October we saw the beginnings of a modest recovery in business travel.
However, with the rise in the virus's spread.
Increased government restrictions and the arrival of winter transient business travel slowed significantly in the first half of Q1.
We're encouraged that we've begun to see some business travel return again.
Some examples include TV movie and music production in L. A.
Consultants health care pharmaceutical and related project travelers in various markets, including Boston.
And some government as well as sports and entertainment throughout the portfolio as those event venues reopen again with spectators and fans.
We've also had some corporate groups actualize, primarily in Florida, including incentive groups and strategic planning meetings.
We expect to see a gradual improvement in business travel over the course of the year.
Well, we don't really expect a major increase until after labor day in early September.
Growth in business travel between now and Labor day will likely come from private businesses and small to medium sized public companies.
We've also hosted many social groups that our properties, especially related to weddings in fact wedding bookings for the second half of the year continue to pick up and we may see a record number of weddings in the second half.
In the first quarter group accounted for 10, 2% of our total room revenues.
This does not include the University student business at W. Boston.
But it does include airline crew business throughout the portfolio representing over 4% of total room revenues.
Corporate group represented a little over 2% of total room revenues in the quarter.
There are also a significant number of groups that have or intend to re book.
Into the second half of 2021.
And into 2022 as well.
We're very encouraged about how well group is shaping up for 2022 at this point.
While 2022 pace continues to be significantly behind the pace in 2018 for 2019 not surprisingly.
It's down 28% in room nights.
Activity has definitely picked up as meeting planners returned to work.
And become more confident about holding meetings.
There is more clarity in optimism on success against the virus.
With restrictions on meetings being loosened or dropped altogether.
And thats, providing more comfort that groups will be able to meet or hold their events. After they do book their business.
Equally encouraging is that rate is holding as well our group rate for 2022 is currently ahead by three 8% versus the same time in 2018 for 2019, which was our last normal pre pandemic year.
Yeah.
When we look at the second half of 2021 were definitely much more cautious about group and trying to forecast when businesses will move forward and meet in person.
In the last four months, we are encouraged by the continuous improvement and activity related to the number of leads site tours discussions and group bookings throughout our portfolio.
Nevertheless, overall activity levels, especially bookings are not yet at the levels of 2019.
And they certainly vary meaningfully from market to market.
Our group pace for the second half of 2021 is down roughly 45% with ADR about flat, which is very encouraging.
Group rates have generally held up or been rolled forward from previous bookings.
And some have even increased if they've moved from a seasonally lower rated time of year to a seasonally stronger time of the year.
We certainly hope group will begin to pick up as the year moves along and progress continues against the virus.
However, we are concerned that businesses will be more cautious about meeting this year, particularly before labor day.
There are glimpses of hope however, including the concrete citywide to be held in Las Vegas in June.
Seems like a pretty scary idea.
Concrete in Vegas, Nevertheless, we should go forward.
We have the Alice convention.
Scheduled for late July in L. A which should go forward, if California, and la reopen as announced and allow such a large conference.
And I am sure there are many other examples so we'll get a better view of the willingness of business travelers to attend meetings conferences and conventions later in the second quarter.
From an expectations perspective if.
If we assume continued progress against the virus we.
We believe the second quarter should be better than the first quarter.
We should be able to achieve not only positive hotel EBITDA, but we should be able to generate positive corporate adjusted EBITDA for the quarter.
And with further progress in the second half of the year.
We're hopeful that we can eliminate our operating cash burn and generate positive adjusted <unk> sometime in the third quarter.
One important item about the first quarter I want to point out.
Previously we had indicated that we believed we needed to get to 30% to 35% occupancy in order to get to breakeven for the portfolio.
In March we achieved a positive $1 $4 million of hotel EBITDA.
At an occupancy level of just $24.
7%.
Obviously much lower than our prior estimates so think about that profitability at an overall occupancy level less than 25% pretty remarkable I think.
This very positive result was primarily due to a pretty healthy portfolio wide average rate of $245.
As well as our new operating models throughout our portfolio.
While this average rate in March benefited from prime season rates in South, Florida that will come down as we move out of high season.
Our average rate will be helped by increases in rates at our other resorts on the west coast as they move into prime season in Q2, and Q3 and as we benefit from the Redevelopments that recently took place at mission Bay Resort Chaminade Skamania.
Low bearish del Mar La Playa marker Harbor front resort and Paradise point.
All of our resorts, except southernmost resort, which will undergo a major renovation this summer.
In addition, most of our urban markets will be moving into stronger leisure months as we move into the middle of the calendar and into and through the summer.
Hopefully just in time for business travel to accelerate in the fall. So we're very optimistic that our overall operating model is much improved and should allow for enhanced results as revenues continue to recover.
When we think about 2022.
We're focused strategically on the year being a very strong recovery year overall.
Group should be as strong.
As we believe Theres, a great deal of pent up demand and it will also benefit from all the meetings being re booked from 'twenty to 'twenty two from.
I'm, sorry, 'twenty, 'twenty and 2021.
We also think leisure will continue to be robust with a lot of pent up demand for vacations, and getaways and outbound international probably still more limited.
This means we don't expect significant rate discounting in 2022.
Again this is with the obvious caveat that we get to relatively normal behavior by the end of this year and it remains relatively normal next year.
We believe we're on a great position to take advantage of this recovery in 2022 and beyond based on the outstanding condition of our hotels and resorts.
As we've reported we're moving forward with the redevelopment of southernmost resort in key west the summer.
The tolly into a one hotel in San Francisco in the fall.
Grafton into an unofficial Z collection hotel in West Hollywood.
So in the fall.
And we're completing low barriers del Mar next month.
As it relates to the remaining the few remaining redevelopment projects, we deferred due to the pandemic, we're continuing to complete plans in permitting and we will pull the trigger on these projects when we have more clarity on the recovery and progress against the virus.
Specifically as it relates to the $37 million redevelopment and transformation of Paradise point in San Diego's Mission Bay into a Margaritaville Island resort.
We're still working our way through discussions with governmental authorities.
At this point, we don't expect to be able to start construction until at least late this year, assuming we get the necessary approvals in the next six months.
All of these completed redevelopment and transformation.
Including the large number in the past few years.
And all of the upcoming projects and improvements will provide significant upside for our portfolio over the next few years as the recovery takes hold and rolls forward.
Importantly, the vast majority of the dollars for these projects have already been invested.
As we look at the silver lining of potential upside from this crisis, we expect there will be significant opportunities over the next few years to acquire properties in distress to.
Due to a large number of cash trapped and over Levered owners and many properties that will go back to lenders.
In this regard we're actively looking for opportunities to reinvest the dollars from the hotels, we have sold over the last 12 months.
We believe we have significant competitive advantages as opportunities arise over the next few years.
These include our ability to operate properties more efficiently.
Then the vast majority of buyers the.
The additional cost benefits from the additional economies of scale that can be generated from curator.
Our unique strengths and Redevelopments and transformations.
And as well as with independent or small brand lifestyle hotels.
Our vast number of operator relationships.
And our high profile and positive reputation in the industry.
We're confident that our industry and our portfolio are currently on a path to recovery that is becoming increasingly clear.
And we believe we've got the team the portfolio the knowledge and the experience.
To perform exceedingly well in this recovery.
And we appreciate your patience.
Your support and your confidence in us and with that.
We'd now like to move on to questions. Donna you May proceed with the Q&A.
Thank you ladies and gentlemen, the floor is now open for questions.
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Our first question is coming from Neil Malkin with capital One Securities. Please go ahead.
Hey, everyone. Good morning.
Good morning.
Hey.
First question.
Yeah, a lot of people have been talking about.
Are you going to be.
People, who wanted to come back for groups you know, how that's gonna look re bookings etcetera, but theres two sides of that coin.
On the cities and municipalities have to give the go ahead and yeah I'm just curious.
So in markets like San Francisco, New York.
L a et cetera.
Are you confident that you know, let's say, California reopened June scheme.
That you know you'll have the okay from the city to basically go in.
Full scale, our normal capacity group events. If there they are in fact on the book So let's say in the fourth quarter of this year or do you think it will take some time for <unk>.
On sort of head count or density restrictions to kind of live.
Lift therefore, providing a temporary capacity constraint.
Yes, yes.
Asking me to predict government and.
You know I'm not a terribly good at that I would tell you based upon the guidelines that have come out already.
In California.
And other markets.
On that there are many markets that.
Where we do believe that.
Hotels will be able to have good sized meetings.
With appropriate safety and cleaning precautions.
And but in terms of the big City, Wides and and if those are handled in the same way as they were pre pandemic I'm.
I'm not sure I'd have a lot of confidence in that Neil before the end of the year, but it's really going to depend upon where the cases are where hospitalizations and deaths are and so.
If we can if we can look like Australia, where they haven't had a desk since October of next year and they have single digit cases, a year or zero.
Because people get vaccinated.
And and.
And we've protected those who are at greatest risk then, yes, I see no reason why they are on.
All of the governments.
Wouldn't move forward with allowing normal behavior normal meetings normal commerce in their markets and I don't think at this point.
Per perhaps Cal.
California might be behind or Florida, or Texas or some of the other southern southern states in their progress, but I don't believe they're behind any of the east coast cities. As an example, who again I think our being more.
Cautious.
About.
Allowing normal commerce.
In their markets.
Okay. Yeah I appreciate that other one from me is.
It seemed like since last quarter, there has been a huge shift.
Shift or pulled forward in and when you get to not even hotel but.
Corporate cash.
Cash flow positive net and then you made the comment about being profitable at lower Occupancies, but I'm. Just wondering you know can you maybe expand upon that a little bit in terms of.
How that you see that playing out.
Particularly in like the third quarter for example, I mean youre going to have essentially all of your urban hotels open at that point with lower occupancy than lower ADR, which will weigh on you know overall.
I guess.
<unk> youre going to have.
You're gonna be off season for the on the resorts so.
And you're going to have more demand like more occupancy.
However, he picks up so wouldn't that require more.
Fixed a fulltime employees and therefore, making it I kind of like that step wise function, where you.
You kind of hit that next level of demand and there are certain requirements from the staffing side.
You know that would that would weigh on on margins or profitability at that next level of occupancy can you just maybe go through.
Especially corporate isn't really back that that strong you know how you plan on on what gives you the cabin is to get to that.
That's sort of profitability.
Well.
First of all we haven't said, we're confident we're going to get there. We've said it's possible that we could get there in the third quarter.
It does depend upon the progress on the health side and the return of some travel, particularly business travel when you get to the last four months of the year, but.
We.
While we're going out of prime season, as I said in my remarks Neil.
In Florida.
We are going into prime season in Q2, and Q3 with the other five resorts on the West coast and so those will see their their rates increase.
There is a larger number and as a result of that we should be able to maintain.
The kind of average rate that we've been delivering.
Even as we reopen.
<unk> urban hotels.
So.
When it comes to margins.
When we look at where we're at.
In order to get to that corporate breakeven level, we need about 12 on a half $12 million 11, and a half million more monthly profit than we made in March and in order to do that we think we need about twice.
Level of revenues, which will come from both rooms and from other revenues and keep in mind as occupancy is do ramp up we are achieving greater profitability in our.
Food facilities will have more banquets, and catering which is more profitable than our outlet profitability and so when we look at the overall profitability again, we think with about a 50%.
Flow through from the additional revenues.
We'll get to corporate profitability and so that means in all likelihood getting the overall portfolio to the low forties.
And occupancy.
And with.
How much stronger leisure through the year and business picking up gradually over the first.
Over the next four months and then.
Hopefully a mark a quicker pace over the back four months, yes.
We think it's reasonable to think that we can get there.
Sometime in the third quarter.
Okay I appreciate the thoughts thank you.
Yep. Thank you.
Thank you. Our next question is coming from Smedes Rose of Citi. Please go ahead.
Hi, Thanks, I was just wondering on the group bookings that you said, you're starting to see some improvement on and some albeit modest gains in business transient or are you hearing at all.
I'd say, the healthcare concerns any sort of pushback from businesses looking to not spend as much going forward and sort of take advantage of the fact that no. One has been traveling yet productivity has been.
Apparently fairly robust over the last year or so.
Just kind of curious if you're hearing anything on that front.
Yes.
We're actually seeing the opposite.
We're seeing greater spend.
Keep in mind, what we're what we have right now are more limited.
Numbers, but in terms of what folks are looking at for their activities. There is they are spending more on property, which is beneficial so theyre going off property less they're providing more.
For there.
For their attendees.
And their ultimate their overall expect to spend more so we're not seeing any hesitation on the part of groups to spend.
And that translates into the rates there is there really isn't pushback on rates at all.
At this point on the group side so.
You mentioned, a couple of things about productivity and frankly, I don't I don't know that those are lasting.
But nevertheless busy.
Businesses are very profitable they tend to be more stringent about that what they spend when theyre not so profitable and their businesses and good and they tend to be pretty generous with their people I mean think about this for a second.
And I know with the people who work on our company people who work at our hotels.
I need vacations, they need to relax they need to be pampered and.
That's what we're seeing and hearing from businesses.
We had a big incentive group down in Florida.
In an.
Earlier this month.
And they spent $30000 on F&B.
Over the course of three days.
And it was not a large group.
So they were spending over $1000 a day per person.
On their people and look that's anecdotal.
But it's an indication that businesses want to reward their people.
When they're when they're getting out and meeting and traveling and.
And that seems to be translating into that.
On the kinds of activities they are booking around their actual meetings.
Okay. That's really helpful on that I just wanted to ask you kind of more specifically on the conversion of the hotel Vitale.
At the EBITDA results for that property. It looks like it peaked back in 2014 and kind of just continued to trail down through 19.
Is it your thought that with the $25 million investment you can get back to the kind of that 2015 level 11 million or would you expect to surpass that assuming kind of a normalization of business trends.
Yeah I mean.
On the.
Looking at historical numbers has there is a lot of variables in those smedes, particularly at Vitale, which.
Which was impacted by a few things in the market right you had the convention Center go.
Under the knife for the expansion and the renovation that impacted the market overall, so vitaly was not alone.
In peaking near and around 15 or 16.
We also had the sale of destination hotels, and <unk> to Hyatt and then the changeover of operators as a result of that which impacted the property and then finally, you had sort of a natural.
The natural part, which we do we do think we will make up and more which is the property had not been renovated.
It was built.
So I think youre talking about 12 or 13 years now.
Now, it's 14 or 15.
And so we do think we will get a double digit cash yield on the investment that we're making in terms of improvement in performance, but that'll be that'll be dependent upon.
Where the market goes over the next few years and in.
And so we do think through higher rate, primarily and a little bit of occupancy and and.
And events that will will make significantly more profits in and get a non attractive return on those dollars.
Also that to that on vitality as you recall when we acquired Lasalle.
The properties of the California properties on a step up in property taxes.
On impacted vitale as well as any of the legacy Lasalle hotels in California that explains on so some of the 2019 performance relative to 2018.
Gotcha, Okay. Thank you I appreciate it.
Thanks.
Thank you. Our next question is coming from rich Hightower of Evercore. Please go ahead.
Hey, good morning, guys. Thanks.
Thanks, as always for the great detail.
So just a couple of questions first one just a quick housekeeping on I think for array.
Can you remind us I think theres, a $500 million unrestricted investment bucket in your current.
Waver package does the conversion of the converts change that at all or is there anything to look out for as that may happen in the future.
The conversion of the converts is no impact other than that.
In a way have $500 million less that we have to worry about refinancing.
We had three three bucket three investment baskets one is.
$500 million on new investments that we can compete with any sort of equity raises we have five up to $500 million also from the Reinvestments from hotels, we have sold and we've we've sold about 225 million as we talked about and then we have in other <unk>.
Basket of $100 million of other investments, which can.
A bunch of other things, whether that's looking at a joint ventures, but the other sort of structures and other special investments so plenty of flex it flexibility right now and the good thing as interest.
Environment right now the banks are banks been very supportive so thats net of constrained and with the improving trends as we noted on our call.
We'll be more active on looking at some opportunities.
Hey, Andrew.
Rich if you have one more question go ahead, we have a pretty long queue. So I think we're going to ask people just to pick their best question and and then fire away. So we can we can get through everybody.
Yes, sure feel free to take it I'll take it offline thanks guys.
Thanks.
Thank you. Our next question is coming from Ari Klein of BMO capital markets. Please go ahead.
Thanks.
Good morning, what do you.
What are you seeing from a staffing standpoint at resorts, where occupancy is a lot closer to pre pandemic levels and has there been any pushback from customers maybe being impacted in some way from lower levels of staffing and then just separately on the Villa Florence I think its the only hotel in San Fran that's still not open if you can just update us there.
So as it relates to staffing at the resorts with with higher Occupancies I mean there.
I'm getting getting labor back is a challenge.
There is a few primary reasons frankly.
Frankly, we're seeing it everywhere, it's not it's not just where we have higher occupancies in fact.
It might even be a little bit less and that was property than it is at this at the properties with lower the markets with lower Occupancies, but.
Theres really a few things inhibiting folks from coming back right now, which is why we think much of its transitory one is the.
The enhanced unemployment insurance benefits and the free Cobra.
That have come through in the various legislation passed by Congress.
When you compound that with kids in many places not in school five days a week.
And.
One of the parents needing to stay home.
<unk> two.
To take care of those kids and help those kids learn.
There are also folks who so thats childcare related.
Some have a generational issues with parents they need to take care of in this period of time and.
And so when when when we look at those issues, we think those mitigate dramatically when we get into the fall on the unemployment insurance runs out clearly there have been people who have left the industry.
And gone into other industries, but there is still what we hear from the employees we call.
We have.
We have the less we go through the less is.
Those issues in the last one which is some who haven't been vaccinated, yet still fear coming back to work.
And interacting with with their colleagues and guests some in some cases, who don't behave properly so.
We think those mitigate and in the meantime, we are.
The industry is actively sourcing people from <unk>.
Other areas.
Going back to colleges as an example, where many.
Many graduates are having trouble finding jobs.
In the hospitality or retail or other industries.
As well as.
Younger students in college, who have had a hard time getting internships.
Who can come work for the summer.
And learn about hotel industry. So.
There's a whole host of things our properties are doing differently to source folks.
Because it's not necessarily we're not getting the staff we need just from the people who have been previously employed.
As it relates developed Laurence.
It's really the same boat as Vitaly Vitol. He is going to remain closed through the year because of the benefits of of of renovating while we're closed.
And then reopening as a one at.
At the end of the year or at the very beginning of next year before the Jpmorgan conference and.
We have a.
A redevelopment plan for Villa Florence that is not unlike completed we actually purchased the <unk> sitting in a warehouse in the Bay area and we're just waiting until we feel comfortable that.
The investment makes sense and so in the meantime, we're keeping it closed.
Does we May go through the same thing there and we don't need to pull the trigger on the renovation.
Yet because we already have the <unk>, which is usually a year long lead item. That's why we needed to make a decision to move forward with Vitaly because you got a 16 to 20 week lead on on <unk> today.
Thanks, I appreciate the color.
Sorry.
Our next question is coming from Michael Bellisario of Baird. Please go ahead.
Good morning, guys.
Good morning, Mike.
Sort of.
Kind of back to that labor.
Topic.
Touched on all of them sort of a combo labor labor market outlook question, but just on your view of that the 100 or 200 basis points that you've talked about previously that the longer term margin upside how do you see that playing out in your better performing markets like Naples for example versus some of your more impacted urban markets basically where do you see more upside where do you see upside and then.
How does labor affect your outlook and play into that analysis today.
Yeah I mean.
It's hard to make that differentiation.
You know.
Between the two different properties because I <unk>.
Think the same.
The same benefits accrue in both places obviously bigger property. So we'll get we'll get more benefit but the.
On the properties are being run more efficiently and.
And we found different ways to do business and we're using more technology and we're providing.
Adding the services in a way that the customer wants.
And and we have a lot more cross trained people.
Which is good for them in their careers.
In terms of career development, So I don't I don't know.
Mike that it that it really varies by urban versus resort.
When it comes down to it I do think.
And I think our he asked this question I mean, if you've eaten in a restaurant.
Recently.
You may be a little bit unhappy with the speed of service.
And that's because everybody is struggling with having enough labor.
To deal with the periods of time, when you get to Max our near Max occupancy.
Whether it's cooks in the kitchen or servers or buses or.
Just somebody to answer the phone.
I don't have the technology to do it it's going to be at a different level I think for the next four or five months in the country.
In a lot of different businesses. So.
I think we feel good about what we've said previously we don't see this temporary labor issue as any kind of long term issue.
And we hope that all of those folks who are sitting at home are going to come back to work sooner rather than later.
Got it thank you.
Thank you. Our next question is coming from Shaun Kelley of Bank of America. Please go ahead.
Hi, everybody good morning right.
Jon just maybe a fairly straightforward one but I believe there was a $200 million ATM program that was filed on could you just comment on that yes.
Any thoughts on potential opportunities or what that could be used for.
Sure well. This is similar we had an ATM program that we let expire several years ago.
And so we just renewed its $200 million of last one is 175.
This provides us with another tool to.
Our capital in the event there is an opportunity.
You should not expect that because we have an ATM in place that we're going to you're going to use it there are many quarters.
Ears, when we on an ATM.
Obviously, and we had zero usage on it so it's just another tool in there.
We have.
Sufficient liquidity right now we have cash from the recent sales.
So in terms of uses of cash for any investment opportunities.
Like we use that first.
Given where we are and so I wouldn't read anything into it other than it's.
Administratively a good thing to have in place.
Okay, and so I mean usage for like direct deleveraging.
It is less likely I think you guys have been pretty cautious about using I think straight equity, but obviously the stock has run so I just wanted to kind of make sure that that's still largely to plan.
It's not all a less likely its not going to happen.
I think there is a clear yes.
Yes, I mean, we don't have a deleveraging issue so.
We don't have too much leverage we need EBITDA to recover so we see no reason to to lower the leverage level and a recovery.
From from low levels already.
And so on and also the timing of that now as we did in concert with the filing of our Q, just because we say legal fees and audit consent fees on all those things doing it now versus doing it a month from now or two months from now or so so that was the reason for the timing.
Thank you very much. Thank you very much thanks.
Thank you.
From this bill Crow.
<unk> of Raymond James Please go ahead.
Hey, good morning, guys.
Jon It really want to focus on the recovery of group travel, which isn't here yet but.
I'm curious when it does come back it will probably be different for a while especially in markets that were closed or more closed on others.
Is that a disadvantage to smaller independent hotels.
As these meetings may fill up the host hotels first and maybe not have the same spillover or city wide effect.
That they used to have what do you think about that.
Hum.
I think a lot of people would prefer not to stay on a host hotel for so many reasons they tend to be they tend to be large in personal.
Crowded.
Often inconvenient.
Long elevator waits et cetera, So I don't know that particularly as we move forward Bill and.
It would be interesting to see how people react from a behavioral perspective to what they've been what they've now gotten used to which is limited number of people on the elevator.
A limited number of people on a room in our space.
Aye.
That's a behavioral issue and I'm not an expert in that area, but I think it's going to be something that gradually changes.
It won't happen all at once and and so I actually.
Don't have any concerns about that particular issue.
And that was to be clear when we say host hotel, where means the convention center host hotel not our neighbors upstairs alright.
Correct.
That is correct Jon just if you could clarify on Colombia. It sounded like you are still very very optimistic about the acquisition opportunities in distressed opportunities and that Hasnt changed based on some of the prints that we've seen which <unk>.
Certainly some fully priced.
No because all you are seeing right now are.
They're really good properties.
At least those are the ones that get the newspaper headlines there is.
A lot of there's.
There's property is trading at a pretty crappy numbers.
Nobody wants to write about other than the occasional New York story that says somebody bought this for $100 million in that day.
Three years ago, and somebody new just bought it for $2 million. So we're a long way from seeing volume.
And there's a lot of.
A lot of extensions going on right now forbearance.
On which is not abatement.
And so you know loan levels are piling up.
And liquidity is lacking and I think <unk>.
As there was in the last cycle.
We were already bought from the middle of 2010.
After we can't had already come out of the recession.
Through the early part of 2015, so I think this will be a multi year.
Opportunity.
To buy a resort property, so I don't think.
The opportunity is about buying at a discount if.
If youre going to buy a resort property I think it's about buying the.
A good property.
I think for US Bill again, it continues to be.
Where we want where and what we want to buy is going to be opportunistic.
And it.
What we look for our properties that we can make a difference from an operations perspective, we you know we're not into spread investing or.
Purely cyclical investing we want to buy assets that and invest in assets that.
We can get a better return because we can bring in expertise to those assets.
Through redevelopment and transformation brand change operator change best practices of efficiencies.
Those kinds of things so.
Not troubled at all by.
Some of the headlines of assets that are trading.
In most cases, they're not assets.
We have an interest in any way.
Yep, Okay. Thanks, Jon Thanks, Greg.
Thank you.
Our next question is coming from Jim Sullivan of <unk>. Please.
Please go ahead.
Yeah. Thanks.
Jon I, just kind of following on a little bit for what.
From your answer to Bill's question I'm curious, how you think about the supply variable today versus where it was pre COVID-19 and what I'm thinking of as you know.
Pre COVID-19 the industry appeared to be facing a situation of.
Somewhat weakening demand growth in percentage terms.
And potential growth or.
The growth in supply in terms of hotels and construction on otherwise.
That was going to be running ahead of that demand growth.
And with.
We hear a lot of talk about hotels that are closed that won't reopen number one.
Number two there is this.
Uh huh.
The percentage of assets and we can describe that as kind of the walking wounded, where they're not cash flowing.
They're probably up deferred capex to not being maintained.
Therefore, arguably they're not going to be competitive with a with a well maintained portfolio. So I just wonder as you think about.
On the supply demand variables post COVID-19, how are you feeling about that and do you have a handle on how many hotels that are closed will not reopen and.
Maybe what percentage of the prior inventories really not going to be competitive for a while.
Yeah.
I can speak.
Pretty generally to your question on and I think it's a really.
Good question as it relates to how maybe we maybe we take these things for granted that.
In the neck in the typical recovery you know the first 345 years, we see very little new construction delay.
<unk> delivered and that gives the industry.
Historically, the long runway to recover from from a downturn.
We're clearly cyclical.
And.
In this cycle.
In many ways, it's no different than others and in some ways, it's very different but because this was this was event driven where you have an economy that actually outside of a few affected industries is really humming and you've you've obviously had trillions of dollars pumped into.
Into the economy from both the monetary side and the physical side and so when you think about.
The next three to five years.
We think about a period with with little to no new supply, whereas anything that was under construction gets delivered but youre seeing other properties as you've said become obsolete and leave the market, particularly in the urban markets, but you're even seeing it.
Urban markets it.
The lower end and older suite product that debt.
Can be converted to residential as an example, so I think we feel very good about it.
And about how things are going to go that we're not going to have.
Supply is a headwind in fact, we might have supply as a tailwind in terms of flat to potentially negative supply.
We have very little construction financing available over the next certainly not very little today and likely for the next few years doesn't mean there'll be no starts but there'll be very few.
And we have huge increases right now from when we talk to developers.
And I'm sure you hear this in other industries, but huge increases in cost of construction and development.
Whether it's steel and concrete or its lumber.
<unk> Board labor.
It's all <unk>.
Working to make.
New development and much more expensive, which will again provide a longer runway for the recovery of operations and values in the industry and we do think this recovery will be quicker.
Because of the strength of the economy and as I indicated that the amount of dollar I mean, you look at our consumer the consumer today.
They're in a position where you typically are at the end of a cycle not the beginning of a cycle with with money in the bank.
And pent up demand so.
I think it shapes up pretty well bill, but clearly we got to get past past the health side.
Of the pandemic and get back to a level of of normalcy.
Great. Thanks, Jon.
Thanks, Jim.
Thank you. Our next question is coming from Gregory Miller of true. Please go ahead.
Yes.
Good morning, everyone. Thanks for taking my question.
I wanted to follow up also on the group front.
How concerned are you that vaccination interest in the U S appears to be slowing in some parts of the country.
And that there may be a meaningful percentage of the population that intends to travel for work and remain on vaccinated.
And I, particularly think of the implications to convention demand and whatever health safety measures may still need to be taken next year to ensure events kitchen can transpire with normalized attendance and for most attendees they feel comfortable enough to show up in person before the true ended the pandemic.
Yes, I mean, I think I think it's going to depend upon its not just whether folks are vaccinated, but it's whether the virus is spreading in the community right. So.
We know.
People aren't going to be vaccinated for various reasons and.
And so we need to get to a level, where it just it's not.
It's not.
<unk> from person to person.
And in the community and so on and I think until we get there you're going to continue to have them.
Our CIO just came back from.
A 70 or you said, maybe 55 person meeting down in Florida.
And it was an HLA meeting of the.
A hotel investment round table.
And he said you know that you had to take a test.
Before.
Show that you didn't have the virus you had to show your vaccination card and so if you're two weeks past the.
I suppose it full effectiveness then you didn't need to take a test and then they also provided testing on site.
In case someone wasn't able to get their test.
Before they got there so I think youre still going to have protocols, while the virus is spreading in the community.
And clearly that.
Is more likely to spread less if more people will get vaccinated.
And.
And so we're just going to have to see how it plays out and hopefully we do get to the level of spread that is very minimal and people feel comfortable and it doesn't matter, whether you're vaccinated or you're not because it's not sporadic.
Thanks, Jon.
Thanks, Greg.
Thank you. Our next question is coming from Anthony Powell of Barclays. Please go ahead.
Hi, good morning.
Kind of on the same topic you know there's a lot of talk about things improving after labor day into the third or fourth quarter, but some experts, including Dr. Scott Gottlieb have said that they expect.
Seasonal kind of increase the resurgence of COVID-19 in the late fall to winter timeframe, let's say Thanksgiving to February.
Just due to kind of actually people natural seasonality of registry on food and whatnot.
Does that concern you have you heard that being brought up in any of your conversations.
Conversations could that put things like with J P. Morgan conference at risk and in January just talks about that seats that seasonality risk that could still be around.
This year or even next year to be honest.
Yeah. So.
Interestingly.
None of us have gone through a pandemic, including the pandemic experts and.
So.
We continue to be concerned about the virus, that's why we're cautious about.
You know an inability to make forecasts and provide confidence in guarantees so.
We have to see how it plays out.
We've seen our predictions that have come true.
Going to be another wave following the holidays.
In November and December and that happened.
We've heard we heard that last winter would be disastrous because.
We were gonna have the flu season on top of the.
The pandemic the virus and we didn't have a flu season because of course everybody.
Hasnt meeting with other people and it was hard to transmit.
So I mean, the answer to your question is I'm not an expert on this.
I think there continues to be concern on the part of it.
Businesses and individuals about resurgence and we just have to see how it goes it right right now.
We're seeing increasing increases in leads and bookings and I think thats evidence of people being increasingly confident but were not at normal pre pandemic levels, which again suggests that some people arent there yet and I think that's why this is going to take some time and why.
The only way to get back to a level of normalcy as to really crushed this thing.
And it really does mean people.
Participating in society by getting vaccinated, because what's clear is vaccinations work.
And while they are probably going to be need to be boosters, and maybe an annual one and one for variance on all those things. It seems like the science is pretty confident in its ability to deliver.
He quickly vaccines that work.
Against this virus and it really comes down to humans, who have to make these decisions for the benefit of society and I don't mean to be preaching but.
It's very selfish not to get take a vaccine because its for the benefit of society.
And it's not just about you're not getting sick, it's about youre, not getting sick and passing it along to somebody else.
So you know.
Always urge people to go get a vaccine but.
Because I don't think we're going to crush this thing unless.
Most people do.
Right agreed on that but given the season, given the seasonality risk shouldn't you be trying to pull demand forward as much as you can let's say into the summer if possible.
Opposed to waiting for the fourth quarter.
Yeah, just seasonality.
Anthony we're not waiting for anything.
We're trying to get the most amount of demand we can get as soon as we can get it it's but you need the customers. It's right, it's not likely suggest to a business customer that they have their meeting in October.
Should have it in in July August and they say no. We're going on we want to have it in October.
I mean, that's all we can do so.
So so yeah just to be clear.
We're trying to fill as soon as we can and encourage people to travel but.
Folks are still going to make their own decisions alright. Thank you.
Thanks.
Donna.
Yes, our next question.
<unk> with Green Street. Please go ahead.
Thanks.
So the ESG movement and starting to focus on the admissions related to business travel I'm just curious if that's coming up in conversations with corporates.
And maybe just how youre thinking about that looking out a few years I know COVID-19 kind of our focus at the moment, but is that something you're worried about maybe three five years down the road.
Yeah, that's a good question Lucas it.
It's an issue.
That we're going to need to understand.
We are.
We've actually ask clients that question.
And and some of the larger folks in particular.
Are increasingly focused on thinking about.
How that might affect their businesses and how they run their businesses and how they meet and how they travel I mean, the I think I'd be a little bit more concerned if I was an airline than than a hotel because.
One of the things we hear from folks is it may mean that we don't allow day trips.
On an airplane because the biggest producer in travel is not the hotel.
Getting to the hotel, it's the airline in particular.
And so.
It may lead to longer stays.
Longer trips.
But I think it's really too early to understand the dynamics of it but it's a real issue we were talking to an account and I haven't seen this announced but I think we are going to see it shortly as the airlines working with a number of the major corporate travel accounts, where that the incorporation.
<unk> are committing to pay basically over current.
Fares in order to subsidize alternative fuels.
For certain airline routes, so theres a lot of things that we're going to see.
They inquire about our sustainability practices.
Rfps and I think that's becoming increasingly common and increasingly important and.
Of course, we take our commitment to ESG very seriously.
We're moving to.
Too much more sustainable practices and.
More interaction with all of our stakeholders, including their community.
The communities that we do business with but I think.
Your question related to our people going to travel less because.
Of ESG I don't know the answer to that and I don't think the clients know either.
That's really helpful. Thank you.
Thank you. Our next question is coming from Floris Van <unk> of Compass point. Please go ahead.
Thanks for taking my question I know, it's a long it's a long line here.
And hopefully we're close to the edge.
Can you maybe comment on curator, we've talked about a lot of the other other key issues here, but maybe touch on.
What youre seeing with I know you signed up on stage recently.
Any updates you can provide on how that.
Moving house.
The signing up of new New partners is going and if you are feeling good about where that stands.
Yes, so we are feeling good about.
The speed at which it is growing.
On the progress, we're making in terms of of building out the the benefits which are through.
Attractive.
Our master service agreements with.
Our product and service partners in the industry.
And as we build those out we're seeing increasing commitments on the part of our.
On the part of folks who are in the independent side of the business I think.
The one thing we've learned floris based upon the number of leads we have of people who have contacted us and.
And the number of property say have is that the addressable market is actually probably more than double the size. We thought it was so I think we were thinking the market.
500 hotels or so we think.
Today, we think it's probably 1000 hotels are more just in the U S. So.
I think we feel really good about.
Where we're going and we did provide an update in the press release on the number of.
Members, who signed up there the hotel set of signed up now and the number of Master service agreements. We've completed on the number that are in process. So we.
We feel good about the progress so far.
Thanks, Jon just you mentioned.
Domestic is there a potential that you could take this.
Broad as well down the road.
Presumably it would increase the market size significantly but.
Yeah.
That's.
That's possible.
We're not an expert on how things are purchased abroad.
And so.
Now if it's anything like the U S.
That that the larger you are the better pricing you get I certainly, we certainly know that with some of the of the service providers that.
That's the case around the world, but we don't know about some of the other products and services, it's not something we've investigated yet we've got our hands full within the U S. The one area I would say we are beginning to look into.
As an expansion of it is with restaurants independent restaurants outside of hotels.
Who who suffer from the same.
Sort of anti competitive situation.
As independent hotels do so that's something we're beginning to look at and talk to some folks about and that may be an opportunity to expand.
We're we're curator is focused.
Yeah.
Thanks, Jon.
Thanks Force.
At this time I'd like to turn the floor back over to Mr. Bortz for closing comments.
Hey, Thanks Donna thanks.
Thanks, everybody for taking the time long call, we wanted to get to everybody's questions.
So we appreciate that and.
And wish everybody to stay safe and healthy.
And go travel if you've been vaccinated.
A lot of funds.
Go to a meeting I think you'll find.
It's not as scary experience. So thanks for taking the time, we look forward to updating you 90 days.
Ladies and gentlemen, thank you for your interest in Purple book.
You may disconnect your lines at this time and have a wonderful day.
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