Q1 2021 Apple Hospitality REIT Inc Earnings Call
Greetings, ladies and gentlemen, and welcome to Apple Hospitality <unk> first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation should anyone require operator assistance. During the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded.
It is now my pleasure to introduce your host Kalle.
Kelly Clarke, Vice President of Investor Relations I can't you may begin thank you.
And good morning, we welcome you to Apple hospitality REIT first quarter 2021 earnings call on this the seventh day of May 2021.
Today's call will be based on the first quarter 2021 earnings release, and form 10-Q, which were distributed and filed yesterday afternoon.
As a reminder, today's call will contain forward looking statements as defined by federal Securities laws, including statements regarding future operating results and the impact of the company's business and financial condition from and measures being taken in response to COVID-19.
Statements involve known and unknown risks and other factors, which may cause actual results performance or achievements of apple hospitality to be materially different from future results performance or achievements expressed or implied by such forward looking statements.
Participants should carefully review, our financial statements and the notes there too as well as the risk factors described in Apple hospitality <unk> annual report on form 10-K for the year ended December 31, 2020, and other filings with the SEC.
Any forward looking statement that Apple hospitality makes speaks only as of today and the company undertakes no obligation to publicly update or revise any forward looking statements except as required by law.
In addition, certain non-GAAP measures of performance such as EBITDA EBITDA Ari adjusted EBITDA Ari adjusted Hotel EBITDA F F O and modified <unk> will be discussed during this call.
We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the SEC.
For a copy of the earnings release or additional information about the company. Please visit Apple hospitality REIT dotcom.
This morning, Justin Knight, our Chief Executive Officer, and Liz Perkins, Our Chief Financial Officer will provide an overview of our results for the first quarter of 2021.
Following the overview, we will open the call for Q&A at this time. It is my pleasure to turn the call over to Justin.
Good morning, and thank you for joining us today.
In the first quarter, we produced our strongest operating results since the beginning of the pandemic with our portfolio occupancy exceeding the industry averages and our internal expectations.
Positive cash flow after all corporate level expenses, including capital expenditures.
Occupancy and rates continue to improve in April and with strong leisure demand and signs of improvement in business transient we have reason to be optimistic for the remainder of the year.
Last year was the most challenging year on record for the hotel industry working together with our onsite management teams, we swiftly adjusted operations and significantly reduce costs to keep our hotels opened and capture existing demand within our market.
With low leverage and broad market diversification and efficient asset level operations, we returned to positive corporate level cash flow by early summer and we're able to produce positive modified funds from operations for the full year.
Equally positioned to focus on increasing profitability not minimizing cash burn, we preserve the strength flexibility and capacity of our balance sheet without dilutive capital raises.
Having now weathered what we hope is the worst of the pandemic, we are incredibly well positioned to grow the value of our company organically as we focus on long term operational efficiencies to drive higher margin.
And externally through accretive transactions.
Demand for our hotels has been broad based occupancy and ADR steadily improved during the quarter, resulting net revpar of over $68 from March.
Revpar increased 25% from January to February on 27% from February to March.
And positive trends have continued since the end of the quarter. We estimate full portfolio occupancy was approximately 68% for the month of April with continued improvement in rate.
It is important to note that these results include all of our hotels as we were able to remain open and operational even during periods of lower occupancy or.
Portfolio of rooms focused hotels has performed better than the overall industry as well as our chain scales as reported by STR, even without a full return on business travel with business demand expected to meaningfully increase from the back half of the year. We are confident we are well positioned for continued outperformance.
The scale ownership of upscale rooms focused Marriott Hilton and Hyatt branded hotels diversified across different markets and managers, we benefit from unparalleled access to detailed performance data.
We utilize the information to perform extensive benchmarking analysis and work with our managers to implement the most efficient and effective practices across our portfolio.
As we face the challenges of the pandemic, we closely evaluated every aspect of our business to find incremental efficiencies and to focus our efforts on what matters most to our guests.
We quickly established standardized staffing and operating models for lower occupancy hotels, and meaningfully reduce costs by renegotiated national contracts with vendors and service providers.
We maintained efficiencies as we grew occupancy in the first quarter with total hotel operating expenses reduced by 41% as compared to the same period in 2019.
As a result, we achieved adjusted hotel EBITDA of $35 million adjusted EBITDA already of $27 million.
Modified funds from operation of $9 billion and comparable hotels adjusted hotel EBITDA margin of 23% during the quarter.
Apart from April of last year, we have been profitable at the hotel level every month since the start of the pandemic we.
We have a track record of optimizing operations in order to deliver industry, leading margins throughout economic cycles as we emerge from the current environment. We will work to ensure that a portion of the cost savings and operational efficiencies. We have achieved during the pandemic continue resulting in higher operating margins for our portfolio as we build back rate and occupancy at our hotels.
We have always believed in the merits of owning income producing real estate with low leverage and have as a result maintained a conservative flexible balance sheet.
In March we entered into amendment to our unsecured credit facilities that extend the covenant waiver period enhance our ability to exit the waiver period and provided additional flexibility to be acquisitive.
Based on our continued outperformance in the terms of the recent amendment. We believe we are positioned to be among the first of our publicly traded peers to exit the covenant waiver period.
Transaction volume in the hotel space remains relatively low, but we have seen an increase in deal flow and have been actively underwriting assets, both as a potential buyer and seller.
As we move through the recovery, we expect opportunities on transaction volume will continue to increase we intend to be active in the market pursuing accretive transactions that maximize long term value for our shareholders and that further grow and enhance our existing portfolio.
Relatively lower debt obligations and strong property level performance, which generated positive corporate level cash flow after G&A and debt service. Despite a global pandemic enabled us to acquire five hotels for a combined total of $161 million since the onset of the pandemic, including the Hilton Garden Inn in downtown Madison, Wisconsin, which we acquired during the first quarter for <unk>.
<unk> $50 million.
Since the beginning of the year, we have sold three hotels.
Including our Homewood suites hotels in Charlotte, North Carolina in Memphis, Tennessee, and our Springhill suites in Overland Park, Kansas for a combined total of $24 million.
With a current average effective age of five years, we entered the pandemic with a young well maintained portfolio.
During the quarter, we invested approximately $2 million in capital expenditures and we anticipate investing an additional $23 million to $28 million in capital improvements during the remainder of 2021.
While we are prudently reduced our capital spend in the current environment. We continue to ensure that our assets are well maintained they remain competitive in their markets and that all systems continue to operate efficiently as we welcome increasing numbers of guests back our hotels already.
Looking back over the last year and how far we have come we are incredibly grateful for the dedicated associates at our hotels and our amazing management teams, who in light of unprecedented challenges have been exceptional and carrying forward in serving our guests.
Last year associates at our hotels were faced with incredibly challenging circumstances as we work to adapt to the evolving operating environment with many taken on additional responsibilities.
Next week, we plan to announce the recipients of our 2020 Apple Awards for these awards, we focus on the associates at our hotels and we look forward to recognizing five individuals nominated by their management companies and peers for their outstanding contributions to the safety and wellbeing and overall satisfaction of our guests.
I also want to take a moment to welcome our newest board member Howard Willie Howard brings with him a wealth of experience in technology public policy and advocacy and we look forward to his contributions over the coming years.
We have developed and refined our hotel investment strategy unique in its ability to mitigate risk and volatility.
While producing compelling investor returns through economic cycles. Our strategy is straightforward on a portfolio of geographically diversified select service hotels affiliated with the best brands work with the best management teams in the industry consistently reinvest in our hotels to ensure they remain relevant and competitive and maintain a flexible capital structure.
Trucks with low leverage on.
Our outperformance during these unprecedented times it is not only a testament to the strength of our underlying strategy, but also to the perseverance of our team I want to take this opportunity to recognize the efforts of our Apple team members, who have continued to work tirelessly to drive outstanding results for our company.
We remain intently focused on maximizing long term value for our shareholders and are confident we are well positioned as travel continues to recover it.
It is now my pleasure to turn the call over to Liz who will provide additional detail on our financial results and performance across our markets.
Thank you Justin we are extremely pleased with the performance of our portfolio during the first quarter.
As expected our market diversification and largely suburban concentration continued to result in our portfolio's outperformance versus national averages during the quarter on our last call. We highlighted that the pullback in occupancy in November and December was consistent with typical seasonality and we anticipated sequential improvement as we.
Through the first quarter with strong leisure and improving business transient fueled by an accelerated rollout of COVID-19 vaccine demand improved more quickly than anticipated, especially as we entered spring, resulting in a 65% increase in occupancy from 40% in December to 66% in March.
Our in house revenue team worked closely with our management company revenue support and on site sales teams to grow market share during the quarter, which furthered our out performance, enabling us to produce results that exceeded internal expectations.
By February we surpassed occupancy achieved in October of last year, which is typically a seasonally strong month and had been our strongest month since the onset of the pandemic in April occupancy continued to grow reaching approximately 68% down only 16% to April 2019, as compared to the <unk>.
Fourth quarter, where occupancy was down 36% versus the same period in 2019.
With improving occupancy we produce sequential improvement in rate moving from ADR of $95 in January to over $103. In March we are encouraged that the GAAP to 2019 ADR levels began to shrink as we moved through April and into May.
While we saw meaningful improvement in both weekday and weekend occupancies.
Weekend occupancy continued to exceed weekday occupancy during the quarter indicative of the relative strength of leisure demand weekday.
Weekday occupancy moved from 42% in January to six 2% in March while weekend occupancy moved from 51% to 80%.
Emily while we were able to increase ADR mid week and on the weekends stronger weekend occupancy facilitated more meaningful growth.
Weekday ADR increase from $95 in January to $101 in March while weekend ADR increased from $94 to $108 over the same period.
In April we saw similar trends as our portfolio ran 63% occupancy at $106 mid week and 81% at $116 on weekends.
As we've highlighted on past calls as our portfolio is able to consistently produce occupancies at or above 70%. We can more effectively manage the mix of business in our hotels to drive more meaningful increases in rate.
Looking at Saturdays in the month of April where we consistently ran occupancy above 75%. We grew right from $102 at the beginning of the month to $121 in the last week.
Not surprisingly a number of our top performing hotels and markets during the quarter.
We're located in warmer parts of the country with strong performance in many of our California, Texas, and Florida hotels, and with Burbank, San Bernardino, San Jose Los Angeles, Overall, East, Texas, El Paso, Fort Lauderdale, Palm Beach, Jacksonville, and Tampa stand out.
27 of our hotels ran occupancies in excess of 80% for the full quarter.
Strong performance in these markets was driven by a wide variety of demand generators, including leisure project business Entertainment insurance medical government military relocations and a number of other small corporate accounts.
Our suburban hotels continued to outperform urban hotels in the quarter with occupancy at 57% as compared to 49%. We also generally saw weaker performance from our hotels in the northeast and northwest and from our hotels located in markets with greater historic exposure to large group and convention.
Detroit Minneapolis, St Paul Denver, and New Orleans produced lower Occupancies as did our hotels located in the Chicago suburbs. The strong performance of our portfolio overall during the quarter is a tribute to our broad diversification, which provides exposure to a myriad of market and demand generators.
These markets, where we're still experiencing weaker results relative to our overall portfolio will provide greater opportunity for growth in future quarters as we see more widespread relaxing of COVID-19 related restrictions and continued improvement in business transient demand.
In the near term, we expect to see continued outperformance from markets with fewer imposed restrictions on travel and less dependence on convention international travel and large corporate business.
Increased vaccinations incorporations returning to more regular office work should improve occupancies and a growing number of markets as we move into the back half of the year.
Given the makeup of our portfolio, we are optimally positioned to outperform throughout the recovery and anticipate continued improvement in operating results as demand becomes more robust and a growing number of markets.
Our team's relentless efforts to control costs and maximize profitability resulted in first quarter 2021 comparable adjusted hotel EBITDA of approximately $36 million and comparable adjusted hotel EBITDA margin of approximately 23% down only 410 basis points to the first quarter.
Of 2020, but representing an increase of 530 basis points from the fourth quarter of 2020.
And <unk> was approximately $9 million or four cents per share for the first quarter.
With experience owning an unparalleled number of branded select service hotels over multiple economic cycles, we have developed and fine tuned the strategy and partnership with our third party managers to maximize property level profitability in any environment.
Over time this has enabled us to produce best in class operating result at the property level and positioned us to make necessary adjustments to our business as we saw occupancies deteriorate in the spring of last year.
Looking back over the past four quarters, our asset management and third party management teams have done an exceptional job managing our business producing competitive cost savings despite entering the pandemic with meaningfully more efficient operation.
Our total property level expense reduction over that 12 month period was 80% of the revenue decline with revenue down 48% in the first quarter relative to the first quarter of 2019, we were able to reduce total hotel expenses by 37% and expense reduction ratio of <unk> eight.
This is particularly impressive given increases in occupancy and over half of our revpar decline, resulting from the decline in rate relative to 2019.
Cross utilization of managers and hourly team members combined with relaxed brand standard enabled us to achieve total payroll on a per occupied room basis of under $27 down 20% to 2019, even with seasonally lower occupancy in January and February we expect total labor cost to increase.
What over the coming months as we continue to build back occupancy and increased staff appropriately.
Total hotel operating expenses for the quarter were down 41% to 2019 and 33% to 2020.
Since the onset of the pandemic, we have spent considerable time with both our brands and our management companies to modify long term brand standards and rethink property level staffing models to ensure that a portion of these savings remain through the recovery and beyond.
With the strength of our balance sheet, our track record of disciplined capital allocation and our current operational outperformance, we secured an extension to our covenant waiver period as previously disclosed during the quarter.
Dancing flexibility without raising additional capital or further encumbering our portfolio as we continue our efforts to preserve equity value for our shareholders.
Under the terms of our current amended credit facilities agreement, we successfully achieved key objectives to enhance our ability to exit the waiver period through less restrictive financial covenants for a transition period and to enhance flexibility to use up to $300 million from equity issuances and up to $300 million in proceeds.
From the sale of assets for acquisition.
We're incredibly grateful for our long standing relationships with our lenders and their continued support and feel we have flexibility to manage our business and pursue accretive opportunities in the near term while remaining focused on exiting the covenant waiver period.
As of March 31st 2021, we had $1 $5 billion and total outstanding debt with a weighted average interest rate of three 9% consisting of $510 million of mortgage debt secured by 33 hotels and $1 billion outstanding on our unsecured credit facilities at the end.
The quarter, we had available cash on hand of approximately $6 million and.
<unk> borrowing capacity under our revolving credit facility of approximately $275 million with only $55 million of maturities in 2021.
With approximately $281 million of total liquidity only 32% total leverage positive cash flow from much of 2020 and for the first quarter of 2021, we are confident in our ability to continue to navigate the current environment preserve the value of our equity and strategically position ourselves to take advantage of.
Opportunity.
Our talented team and investment strategy have enabled us to effectively weather the most challenging environment ever experienced in our industry.
As we proceed through the recovery we are positioned for continued outperformance with operations producing cash in excess of debt service corporate cost and capital expenditures and with ample balance sheet capacity to enable us to pursue scaled acquisition. We are confident in our ability to drive long term value for our shareholders.
We can now open the call to questions.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please poll for questions.
Our first question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Good morning, everyone.
Congrats on a true cash flow positive.
Great Congrats on.
Thank you.
Sure first one for me.
Just in terms of acquisitions external growth.
You mentioned in the call I think was your ability to.
Execute on your best practices from your large portfolio and you know a long track record and your ability to asset manage properly or better than most you know.
That being said are you kind of more willing to or maybe thinking about getting more aggressive on acquisitions potentially raising.
Some capital too to really kind of get some scale early on in this cycle, particularly when a lot of the valuations are being price off of 19, and we all know based on all of these changes to the model EBITDA as are our stabilize youre going to be.
Significantly above that.
Kind of.
Curious, how youre thinking about that side of the equation.
And if you've kind of been.
Closer to pulling the trigger on any.
Acquisitions.
As I mentioned on our remarks, our prepared remarks, we have seen increased transaction volume in the market.
And have been actively underwriting deals, but both as a buyer and a seller I had highlighted earlier.
Earlier calls and it continues to be the case that that there are relatively few assets currently traded on the market that said.
We are increasingly having conversations with groups.
We feel our productive related to the potential acquisition of assets that would be.
Good fit for our portfolio.
See opportunity on a selective basis as we have already this year.
The disposal of assets really primarily as a way to manage long term capex needs for our portfolio.
Our expectation is that over the coming 12 to 18 months, we will see a continued increase in total transaction volume with more assets coming to market remembering again that in the near term banks have been flexible governments have provided or the government's provided subsidies for ownership groups and the brands from that.
A tremendous amount of flexibility around brand standards from renovation cycles as some of that leniency wears off we will see an increased number of assets come to market given the.
The fact that a number of these ownership groups of depleted reserves in order to fund operating deficits in the near term.
We think in the near term there will be attractive opportunities.
We think the window for acquisitions will be an extended window and as low as highlighted in her prepared remarks, we feel like we're uniquely positioned from a financial standpoint to pursue those.
Deals, which are a good fit for our portfolio on which.
We anticipate will enhance value for our shareholders over the long term.
It's worth noting as well we've been doing this for a long time through multiple cycles and have a tremendous amount of experience acquiring assets.
Given the lack of visibility today.
Today.
That exists I think.
And our relative exposure and experience from the space, we have somewhat of a competitive advantage as we assess various opportunities I feel really good about the deals that we've done to date since the beginning of the day.
Since the beginning of the pandemic on.
Each of those deals I think are located in markets with demand generators that are likely to outperform and to produce.
On a significant room nights at attractive pricing as we begin the recovery.
Looking at our all in per cube.
Rice that we've had for those acquisitions I feel incredibly good and we feel that's just the start.
Okay. Thanks, I appreciate that Justin.
And then can you maybe talk about.
And how about occupancy in April and maybe talk about sort of occupancy thus far in may and kind of what the pricing or ADR trends kind of looked like for you I guess and that's just relative to like.
On the return of your local and regional business travel I think that's when you're really going to be able to change the mix not just from leisure higher rated leisure to getting in that business travel. So if you could just maybe talk about the.
Sorts of things and the progress on the non leisure side of the book and you know just.
Just kind of pricing power.
Over the.
Very recent past.
As for April and and as we progress through April and into May our weekends has continued to outperform so leisure has continued to outperform.
At least as you look by day of week day pattern that said between January and April and into May.
Occupancies have also increased mid week, which is.
Favorable and a good sign for both.
Local regional business travel business travel in general it's been fairly widespread as well that we're seeing those trends. So on average for our portfolio weekend and weekday improvement through the quarter and into April.
Every single week both.
Mid week and weekend, we were able to increase rate each week over the prior week.
More significantly as I mentioned in the prepared remarks on the weekends.
Due to occupancy levels and demand over that time period, but also mid week, just not as significantly and so I think as we continue to see midweek demand improve we will get that pricing power at that point as well and I think you know to the extent.
Business travel comes back more meaningfully you mentioned and Youre correct that that will give us an ability to better mix manage in the interim as we look at booking position and look further out.
We're encouraged by.
More bookings going into the month for longer stays in the future.
No.
<unk> are getting confident about booking in the future, we're having more bookings going into may than we had into April and the ADR on the books going into the month is higher.
So we're encouraged by both the ADR and occupancy trends, we're seeing in our in the bookings information that we have.
Recognizing that most of our bookings still a relatively short term although.
That has improved slightly as far as the mix of total bookings as we progress through this year relative to last year and in sort of.
On the heart of the pandemic.
Okay, I guess on on the way you know in terms of the business I mean have you seen it.
You know a market decrease in the spread on the occupancy between weekend.
Good day.
Just as an indication that your you know the <unk>.
First leg of the business travel, which is the local regional are getting more comfortable traveling more et cetera.
Okay.
It's a good question however.
As we go into spring, even in normalized times or weekends.
Tend to outperform week day, or Saturday becomes a peak Knight when leisure is typically strong and so the differential between weekday and weekend isn't apples to apples as you're coming out of force Inc. First quarter.
We do believe that we are seeing incremental weekday demand.
But weekends have certainly picked up more meaningfully.
Clients have gotten more warmer.
Warmer you'd had spring break.
Restrictions have been lifted and people have been vaccinated I think that the first the <unk>.
First surge of of occupancy here really has been led by the weekend, but we continue to see improvement mid week as well.
Thanks, guys. Thank.
Thank you.
Thank you. Our next question comes from the line of average coup check with Baird. Please proceed with your question.
Good morning, good morning.
First one is on the credit waiver period.
With how well things have progressed, what what needs to happen on the demand from free to exit that restriction period ahead, a year and I think we're just trying to get a pulse on over on that piece today and just understand what metrics you guys are looking at going going through the summer.
I mean that the metric or the covenant to play pay closest attention to is the debt to EBITDA covenant, we negotiated as part of the extension in March elevated.
<unk> financial Covenant, so where historically, we had to be at six five times debt to EBITDA. We have a period of time, we can be at eight five times than eight times and progressed back down.
Into 2023 to the stabilized six five times.
At eight and a half times, that's probably $45 million to $50 million for the quarter annualized that's not too far from a reasonable expectation for <unk>.
Future quarters here I think you know as we look at it we want to ensure that we are being low risk.
Responsible and exiting early and believed that theres, some sustained sustainability and demands in rates and that will be able to consistently produce.
Higher EBITDA quarter over quarter, and and build so that we can make.
Maintain.
Or sustained being out of the covenant waiver period, but it is certainly a focus for us and you.
Looking at where we finished from an EBITDA standpoint in Q1, and recognizing the demand trends going into some of the strongest quarters of the year.
Certainly remains a possibility that we could exit before the end of the year.
That's helpful and then on the small Kansas sale can you provide any update on the process on pricing there and then just kind of pulling back.
As you guys have been selling kind of these small non core assets over the past six months, obviously buyer attitude shift on whether it be pricing or the type of assets. They are looking for just looking for color there.
So the campus Springhill suites was sold to a hotel EBITDA local hotelier.
Looking at the three hotels. So we've solved this year two were.
Older extended stay products that were sold to groups looking to convert the hotels to apartments.
Kansas was sold to a group that wanted to continue to operate the hotel as a hotel.
On a combined basis.
The blended cap rate was around an eight on 2019 numbers for the three assets.
And that's excluding Capex I highlighted.
In response to Neal's earlier question that the part of our thinking related to dispositions as the management of our out year Capex, it's worth noting that.
For the three.
Hotels combined.
Our expected Capex in the near term was over $10 million and so in part the benefit of the sale was the attractive pricing that we were able to secure for the assets.
But it was it's important as well to note.
The sales help us to manage our long term capex needs and we feel that we can redeploy proceeds from those sales into newer assets that have a greater growth trajectory on a go forward basis separately the Kansas.
Springhill suites on 2019 numbers was in the nine ish cap range pre capex and mid sixes all in.
That's helpful. And then kind of just leading into that last comment you made on acquisitions can you just speak a little more of the composition of your active deal pipeline, just R&D market's location brand screening more attractive today as you've kind of put pen to paper and start underwriting deals.
I mean, we continue to like the types of assets that exist within our portfolio and so as we look at acquisitions.
We continue to look for select service assets branded with Hilton Marriott or with Hyatt.
Generally we're looking at newer assets theyre not exclusively.
We're looking to build out our portfolio and to continue our strategy of broad geographic diversification.
Yeah.
I think we've highlighted in past calls and certainly shown.
And our recent performance results.
Our focus on markets with multiple demand generators yields the strongest long term results for us.
And as we invest we're looking to buy hotels in markets that did benefit from a mix of leisure and business demand recognizing that in the near term leisure will be the stronger component in many of those markets.
But in ensuring that as we progress through the recovery and we see it.
<unk>.
On a more robust return in business transient that we're also poised to benefit from that.
Thanks for the color and thanks for taking my questions I appreciate it.
Thank you. Our next question comes from the line of.
Austin, We're Schmidt with Keybanc. Please proceed with your question.
Hey, good morning, everybody.
So it was your comment on achieving ADR of I think you said $120 $121 in late April.
That was for the overall portfolio correct and then we've talked in the past about ADR growth becoming more.
Exponential versus linear when you reach that 70% occupancy level. So are we there now.
Does that view still hold with the mix of business that you have today.
So I'll answer.
The question relative to the $121 that was for the portfolio for them.
Weekend for weekend.
ADR.
For the last week in April.
We are beginning to see.
Sort of.
The benefits of some consistent higher occupancies on the revenue management systems do appear to have.
Recognize the recent demand trends and our future booking demand trends and.
As we progressed through the first quarter one of the positive trends that we saw on our booking data was where we had been last year going into the month with a rate on the books from future bookings as we progress real time in the month for the month, where we were achieving most of our bookings that.
With decreasing over the month and actualized lower than the ADR, we went into the month with the bookings that were there.
As we progressed through this core this quarter this year.
We saw that change about February into March instead of.
Decreasing it would plateau and stay flat and then as we moved into April we finished the month at a higher ADR that we started with with the bookings that were on the books for the total portfolio and so and into May as we look at booking data from Mei, we're going in with a higher booked.
Rate than April.
With.
And because it's high it's a higher rate.
It's higher rated on the books now anticipate and even see in future months as people are booking that the revenue management systems are recommending higher rates. So we're just beginning to see some traction I think that the consistency of demand in our portfolio and and the revenue management systems.
<unk>.
Starting to price higher rates.
As a positive sign I think too as we move throughout the spring and summer.
And having those higher rates on the books that will help.
Conversations with our management companies about the mix of business on our books or at what rates, they're taking base business should they still feel that they need it and so I do think we have turned our started to turn a corner how.
How quickly rate growth will depend on part with what occupancy does but as we have heard from our.
Our peers broadly and as we've seen in the industry. We certainly have seen an uptick in demand and should that continue believes that ADR.
We'll begin to improve.
So that's really good detail. Thank you can you just share what percent corporate travel represents today as either percentage of revenue or room nights vs.
Several months ago.
You know.
So that's a good question.
We stabilized we've always estimated that we were probably 75% business transient or business travel and 25% leisure over the last year I'd say, we thought we were more 50 50, given that we still continue to see outperformance on the weekend, even though.
Going into the second and third quarter.
Weekends are seasonally strong anyway relative to mid week, we're probably closer to that 50 50 still today than the $25 75, but making some progress back towards the 25 75 of.
Our normal stabilized split if that makes sense.
Yeah got it no I didn't mean to put you on the spot but that's helpful.
If alert on that wasn't it.
On a perfect science.
And then Justin you know on the disposition side, you know given the conversations you're having.
Why not sell more today given there as you know.
Your conversations are starting to pick up it sounds like.
And you know it seems to be like Theres tremendous demand out there for assets and so why not build your capacity ahead of what you're talking about is kind of a ramp in opportunities over the next 612 18 months.
What's sort of holding you back from maybe doing something on on.
A more larger transaction and portfolio type deal.
I think there is an openness on our part to doing a larger transaction for the reasons that you've highlighted.
That said, we don't have a need to do that and so for us the attractiveness of a larger scale transaction its really wholly dependent on the pricing were able to achieve for that I highlighted.
On that as we look at out years managing.
Our capex spend is an important component.
As we look at our ability to generate outsized returns for our investors throughout the recovery.
And the sale of assets is one way to manage that.
A more scaled transaction brings with it some efficiencies on that these smaller transactions do not benefit from and so.
I think consistent with the discussions that we've had on past calls we continue to entertain offers from and to actively look for opportunities.
Opportunities with larger groups and markets.
And we will pursue transactions to the extent, we feel pricing is appropriate.
Got it thanks for the time guys. Thank you.
Thank you.
Our next question comes from the line of.
Tyler battery with Janney capital markets. Please proceed with your question.
Hi, Good morning. This is Jonathan on for Tyler. Thanks for taking our questions first one from me wondering if you could provide some color on the labor market that's out there.
You guys are seeing.
Terms of hiring back additional workers that occupancy as Greg fairly meaningfully over the last few months and then.
And any thoughts on when some of those pressures that are out there.
Maybe alleviate.
Hi.
Interestingly, there's been a lot of talk about.
Yeah.
The labor crisis or challenge that a number of service industries are having finding good workers in today's environment and certainly we are as are most businesses in the in service industries impacted by that.
Relative to our full service tiers I think we're advantaged on the margin in that.
We came into this year running higher Occupancies and had.
No.
In the last year.
Have for some period of time in market, adding back employees as we build back occupancy we made the strategic decision in November.
November and December when we saw seasonal declines in occupancy to retain workers that we have brought on as we ramp to our prior peak occupancy in October.
And as we build back occupancy this year, that's worked to our benefit.
On.
The labor pressure isn't.
Isn't quite universal were feeling it more.
In certain markets than in others, but anticipate that it will continue to be an issue as we see a ramp up in service businesses across the country.
And I think there has been significant discussion in prior earnings calls from our peers about other factors that are contributing to the challenges that we have not included <unk>.
Difficulties.
Childcare for certain individuals.
Competitive environment.
Governments subsidized unemployment all of which we think overtime stabilize and put us on a much better position overall, but the trick is in the near term.
Meeting our needs. So I think we're fortunate in that our business.
<unk>, specifically to our full service peers as efficient by design and so the total number of workers that were looking for as we build back occupancy is meaningfully less we don't have outlets that we need to staff.
In addition to the kind of the normal base functionality on our hotels, which we see as an advantage.
Okay, Great I appreciate all that detail and then turning to the Capex side, unless you provide the capex guidance, which I believe was consistent from the last time, you reported and I'm curious if the recent strength in demand changes the way you think about the capex spend for the remainder of the year.
We're continually assessing and we meet regularly to look at our Capex plan for this year and quite frankly for the next several years.
We feel comfortable with what we currently have budgeted for this year.
And are in the process of beginning a number of renovations.
It focused on those assets, where we see the greatest potential channel.
Incremental investment.
Should should operating performance.
Dramatically exceed our expectations, we have the flexibility to add to our current project list.
That said I think we feel comfortable given the current condition of our assets and the plan that we have for the remainder of the year with what we currently anticipate.
Okay. Thank you for all the color and congrats on the quarter. That's all from me.
Thank you.
Thank you. Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, just a question about the market for Flex service assets, I mean, hell of Investor demand and valuations for the type of hotels that you own trended.
Recent I guess quarters, we've seen I guess on the resort side deck.
Pricing seems to be above pre COVID-19 levels and demand is very high as well given your performance I would expect to see that similar dynamic for your types of assets have you seen that in the market.
So and if not why don't you think you know why not.
We definitely have seen the same and to some extent.
It's a function of supply and demand coming into the downturn there was a lot of money raised.
To invest in what was anticipated to be a large number of distressed assets.
On the level of distress at least.
From a valuation standpoint, and has not yet manifest and part of that is for the reasons that I highlighted earlier, the flexibility that the brands and banks have extended as well as government subsidies for private owners.
Okay.
I think that there exists the possibility that as we move through.
This cycle, we might see better pricing for select assets, but in the near term there continues to be very strong demand for our assets and thats keeping pricing relatively stable to pre pandemic levels.
Got it and then I guess could you give us your.
View on supply growth for limited service properties, you know, obviously coming into the downturn there was a lot of supply.
But given higher labor cost construction cost and the brand seeming to shift to more international development.
Could you see supply growth.
Remaining lower during this early part of the cycle than maybe in prior recovery cycles.
The supply growth always lags demand trends.
And.
As a result last year, we continued to see.
An increase in supply in a number of our markets.
As we move through this year that becomes less of a factor.
And certainly as we look at 'twenty, two 'twenty three and even beyond our expectation is that we will see meaningfully less supply growth in the majority of our markets.
Construction costs continue to be relatively high and the labor shortages impacting developer's ability to get deals done in the current environment. We've also found that early cycle lenders.
Tend to be more conservative in their underwriting of development deals on availability of capital is.
The most meaningful constraint on supply over the long run.
The benefit will have coming out of this cycle is our expectation.
Is that the rebound will be.
More dramatic than it was over the last cycle, where.
Demand recovered slowly over a more extended period of time.
And because of the lag and new supply coming online that should create a number of years, where we could see meaningful.
Outsized performance relative to prior prior years.
Alright sounds good thanks.
Thank you.
Thank you our net.
Question.
Comes from the line of Bryan Maher with B Riley Securities. Please proceed with your question.
Good morning, just two from me.
When we look at the portfolio and what seems to have performed best lately it seems to skew towards more of the upscale.
Sweet extended stay type product, whether that's you know the town plays home two's residents in even the embassy is that going to skew. What you look at when you go to make acquisitions or was their performance or I should say outperformance recently more of an anomaly.
That's a good question. So when I look at 2019 sort of stabilized occupancy premiums for extended stay versus the rest of our portfolio.
It had a five point occupancy premium.
Through last year.
That GAAP was significant I think at one point it was as much as 25 percentage points of occupancy premium and has steadily decreased from there we actually are pleased with.
The share growth on our.
Whether it be sweet or more traditional select service products over the last 28 days and through the first quarter and have started to see that occupancy premium shrink. Most recently, which we think is encouraging on multiple levels on the.
Fact that you're more transient in nature hotels with shorter lengths of stay are picking up as a positive sign for business travel, but it also means that more aspects or more demand generators are getting back to more normalized.
More normalized patterns and so it's still a significant GAAP and occupancies between extended stay and select service products, but not not the 25 points, we saw sort of in Q2 on the onset of the pandemic, we're probably in the over the past.
Four weeks, we're probably more in the 15 point premium range and again stabilized stay where 2019 may were five points in occupancy premium and from an acquisition standpoint, certainly that is something that we take into consideration as we look at potential acquisitions.
I think having owned a broad variety of select service and extended stay brands over an extended period of time, we have a good understanding of the relative merits of each of the operating models.
And as we look at.
Total ROI over an extended period of time, we take into consideration operation operating efficiencies, which.
Benefit these extended stay properties, but we also take into consideration the long term capex spend against the hotels.
That is a factor that plays to the detriment of extended stay and suite product in certain markets where the.
The room footprint is meaningfully larger and their associated costs with that and so as we build out our portfolio I think it's safe to assume that we will mix.
Product looking at the total return potential over a more extended period of time.
Got it that's helpful and then.
You touched upon you know the likelihood of permanent margin expansion coming out of <unk>.
This COVID-19 era and cutting costs.
Offsetting that clearly it's going to be.
Labor cost and it's really hard to kind of re trade labor costs downward once you've kind of elevated them how.
The increase in labor cost cut into that permanent margin expansion from other areas. So for instance, maybe you thought margins might expand two or 300 Bips does it cut into half of that and then just big picture.
I mean interestingly there are two things playing right one is continuing.
Continue unexpected increase in the cost per hour.
Labor.
Markets across the country on.
On the opposite side of that is what we anticipate to be increased productivity in parts.
Because of learnings that we've had during the pandemic, but also as a result of conversations that we're having now with the brands related to long term.
Brand standards.
On the service and amenity models, our expectation is that we will have fewer full time employees coming out of the pandemic than we had going into it and we've always expected that there would be pressure on wages looking more broadly on holistically the upside to that.
Is that.
As people earn more.
They tend to travel more in.
There is a piece of that that generates incremental demand, especially for the types of hotels that we own.
But.
For the reason that you've highlighted.
Been reluctant to throw out a specific number when it comes to anticipated margin expansion and instead.
Tried to to help investors to understand the component parts that were working with and how things might play out as we look forward.
Okay. That's helpful. Thank you.
Thank you.
Thank you. Our next question comes from the line of.
Dori Kesten with Wells Fargo. Please proceed with your question.
Hi, Thanks, Good morning, I apologize if you've addressed this but how should we think about the timing around Apple reinstating common quarterly dividend and how that may ramp. If you may be exiting or if you may be able to exit the waiver period at some point this year.
In terms of reinstating, we did pay a first quarter dividend of a penny per share.
And under our current waiver agreement.
We have the flexibility to continue to pay a penny per share per quarter.
Through the entirety of that period of time beyond that we're limited to whats legally required of us in order to maintain our REIT status.
Looking forward.
We have we have losses that were carrying forward from last year and so we.
We do not anticipate in the near term there being an obligation for us to pay a significantly higher dividend and what we've currently reinstated that said.
Looking longer term, we understand the value of the dividend to our investors.
And anticipate based on.
The lead we have on our peers in terms of cash production.
And our expected trajectory this year and next that we would be in a position to reinstate a more meaningful dividend as our operations continue to.
Proof in the near term our focus is on other ways to further drive.
Value for our shareholders and as I've highlighted in response to some of the earlier questions. We are intently focused on managing our portfolio.
Selling and buying assets in ways that drive incremental value, which should translate into a stronger share price.
Okay. Thanks, Justin.
<unk>.
Thank you. Our next question comes from the line of Boris.
Well on disk Compass point. Please proceed with your question.
Okay. Thanks, guys. Thanks for taking my question.
Justin maybe.
I know you don't want to quantify that.
Savings, but can you.
Highlights too.
Two people may be your peak to peak margin improvements. If you look if we look past the past two quarters past cycles, and what you've experienced in your portfolio.
So we do not have the same portfolio today that we had during the past few cycles, we were able to look back and we have 14 assets that we owned from peak to peak during the last cycle. So we outspend in 2007.
And on them today, and including each of those assets. So in total we were able to grow margin from 2007 and through the last peak over 270 basis points and so we certainly have always been focused on.
On efficiency and maximizing performance.
And so given that track record given our experience and given the fact that at that time.
These brands that we've been Investor day that we've invested in.
We're continuing to evolve and elevate offerings and product.
And so some of the brand standards and amenities had gotten more expensive over that same time period, but yet we were still able to drive margins.
From peak to peak I think in an environment like we're in today given that the brands are so constructive about looking at the operating model.
Each standard each offering and finding ways to be more efficient that we're confident with that parallel with our benchmarking and our deep experience with our brands and our constant commitment to maximize and be as efficient as possible.
We should be able to.
To grow margins.
On.
Long term as as the operating model stabilizes.
In Florida, we've highlighted in past conversations and in past calls.
That our primary areas of focus with our brands are around the service model typically housekeeping and the food and beverage offering looking at our total expenditures.
On the historically, 40% of our total cost structure has been labor related.
While we anticipate individually, we will be paying employees more we're working with the brands.
On ways that we can adjust our service model.
And have Ah.
Need for fewer people, which which should yield.
A meaningful benefit to us on outside looking more broadly speaking.
I think assessing where we might be at the end.
On this when we get back to a more stabilized level.
In some ways, it's easier to look at our company than some of our peers. We have since the beginning of the pandemic, but net acquirers of assets. So we have not sold assets to pay down debt.
And really have been able to fund our operations with cash flow from our assets, which.
Which has kept us from needing to take on additional debt or have other dilutive equity raises which would also impact the value of our equity so coming out of this getting back to 2019 levels. We feel good about the value of our equity and how.
How we compare to some of our peers, who have been forced to take more drastic measures in managing their business.
For the reasons that Liz highlighted we feel.
Really confident in our ability to further drive margins and create incremental value on that way.
That's helpful guys. Thank you thank.
Thank you.
Thank you, ladies and gentlemen at this time I would like to turn the floor back to Justin Knight for closing comments.
I'd like to thank all of you for joining US today, we recognize that many of you are busy and have other calls to join but we hope that as you travel and we hope that you will travel you've taken opportunity to stay with us at one of our hotels have a great day, and we look forward to talking to you soon.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.