Q1 2021 RLJ Lodging Trust Earnings Call
[music].
Welcome to the R. O J lodging trust first quarter, 2020 One earnings conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be and opportunity to ask questions. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I would now like to turn the call over to NICU dollar R. L. Jay's, Vice President and Treasurer of corporate strategy and Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to <unk> lodging Trust.
2021 first quarter earnings call on.
On today's call and <unk>.
Hale.
And and Chief Executive Officer will discuss key highlights for the quarter.
Sean Mahoney, our executive Vice President and Chief Financial Officer will discuss the Companys financial results.
Tom Barth net our executive Vice President of asset management will be available for Q&A.
Forward looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results could differ materially from what had been communicated.
Factors that may impact the results of the company and can be found on the Companys 10-Q, and other reports filed with the SEC.
The company undertakes no obligation to update forward looking statements.
Also as we discuss certain non-GAAP measures. It maybe helpful to review the reconciliations to GAAP located in our press release from last night.
I will now turn the call over to Leslie.
Thanks, Neil Good morning, everyone and thank you for joining US we hope that everyone continues to remain safe and we also hope and you have a vaccination plan in place and is a meaningful step towards all of us getting back to normal again.
The current backdrop today is starkly different than where it was a year ago at this time on.
Although we have a ways to go and we are encouraged by the acceleration on lodging demand that we saw throughout the first quarter, which has continued into the second quarter.
Lodging fundamentals have benefited from a significant increase and vaccination rates and the easing of restrictions that have allowed many markets to reopen as well as the passing of additional economic stimulus. These positive developments and allow the industry to benefit from significant pent up demand during the first quarter and drove our re.
<unk> to exceed our expectations.
During the first quarter, we continued to execute on a number of funds and our portfolios relative performance unfolded as we thought it would.
Our relative performance confirmed our expectations that our portfolio would be and early beneficiary as the recovery starts to take hold and our continued market share gains illustrate this and highlights the appeal of our brands product type and footprint.
Additionally, we continue to operate with a minimal cost structure, our lean operating model enabled our entire portfolio to generate positive hotel EBITDA during the first quarter for the first time since the pandemic unfolded, while our open hotels generated positive hotel EBITDA for the third consecutive quarter.
We also materially improved our average monthly cash burn for the quarter relative to our estimates and we continue to maintain significant liquidity, which is providing the capacity to advance our growth initiatives and.
And finally, we made meaningful progress on each of our three conversions, including finalizing the design and scope of our renovations for the Wyndham Santa Monica, the Millhouse, Charleston, and the embassy suites Mandalay Beach.
With respect to our operating performance our open hotels achieved occupancy of 46, 4% during the first quarter and gained over 500 basis points of market share.
Occupancy improved sequentially each month, achieving 56, 1% in March which represents the highest monthly occupancy levels. Since the start of the pandemic. We were pleased that the occupancy for open hotels exceeded the overall industry during February and March demonstrating the benefit of our portfolio construct and geographic footprint.
These improving trends enabled our entire portfolio to generate positive hotel EBITDA each month of the quarter.
We are pleased to see this positive momentum continue into April which is expected to be even better than March.
From a segmentation standpoint, our leisure markets continued to outperform with drive to markets, such as South, Florida, Charleston, and Orlando benefiting from significant pent up leisure demand throughout the first quarter, including robust travel trends driven by an extended spring break and March.
Additionally, there were several markets that benefited from unique catalyst during the quarter, such as the Super Bowl and Tampa, the biannual legislative year, and Austin and inauguration related demand and Washington D C.
With all of our markets benefiting from some incremental leisure demand our portfolio achieved weekend occupancy of 56, 5% the highest of any quarter since the beginning of the pandemic.
In light of the work from anywhere flexibility for many of our brands and product type are allowing us to benefit from and elongated weekends, which now include Thursdays.
This past quarter. We also saw another uptick in both business transient and group demand.
Our hotels are capturing increased demand from small groups, such as sports teams educational or training groups and weddings, allowing our group revenues, which represented 10% of our first quarter room revenues to nearly double from the fourth quarter, albeit from very low levels.
We are also encouraged by the continued improvement and corporate demand, which increased 27% from the fourth quarter and was a contributing factor to the sequential improvement and our weekday demand trends from last quarter.
Corporate demand is still largely concentrated and local and regional accounts from such industries as insurance health care and government.
In conjunction with the improving pace of demand.
At our open hotels also improved each month and we are encouraged to see the relationship between demand and pricing hold for example, but nearly 19 point increase and occupancy at our open hotels from January through March was accompanied by nearly 12% growth and ADR, resulting and revpar growing by six.
89% during this period.
Our strong relative performance during the first quarter once again demonstrated the benefit of our portfolio Contra, which should continue to allow us to outperform as the recovery unfolds.
For example, our resort properties achieved 70% occupancy.
There are also hotels achieved 51% occupancy and also gained 11 points of share.
And finally, our drive to market achieved over 50% occupancy.
Our portfolio's ability to gain market share while continuing to operate under aggressive cost containment initiatives enabled us to achieve positive adjusted EBITDA for the first time during this pandemic.
Our improving performance enabled us to continue to reduce our average monthly cash burn, which was 30% below the low end of our first quarter guidance. We expect our average monthly cash burn for the year to continue to improve.
Now looking ahead, the strong start to the year has increased our confidence and the strength of the recovery of demand.
Leisure will remain a dominant demand driver and we expect the pace of vaccinations additional loosening of restrictions and recent stimulus to drive continued significant pent up travel demand.
Additionally, continuing work from anywhere flexibility should allow leisure demand to remain elevated during the summer.
With respect to business transient and group demand and we're encouraged by the sequential improvement and trends, we are seeing but our expectations relative to the ramp of these segments has not significantly changed since our last call. We continue to expect employees to begin returning to offices during the summer with a pace, increasing and the fall and schools.
Turn to in person learning, which should lead to a step change in business travel and the latter part of the year.
We also expect small group demand, which accounts for the majority of our group business to continue to ramp up as vaccination rates increase and size restrictions on gatherings loosen during the second half of the year, which should drive incremental demand from sporting and other special events.
Although the group booking window remains short booked our leads and conversions are continuing to strengthen especially for the summer.
On a more positive outlook for demand growth is also supported by the recent trends we are already seeing such as the airline passenger volume rising to the highest level since the start of the pandemic as well as the pace of employees already returning to offices and some markets and the number of venues and attractions with high attendance at our already or.
<unk>.
The overall momentum from the first quarter bodes well for the underlying strength of our lodging and recovery and could result in outperformance relative to our expectations for the balance of 2021.
As these improving trends unfold, we could not be more pleased with our overall positioning which will continue to allow us to outperform.
And we have demonstrated thus far.
Our exposure to drive to leisure markets and the overall attractiveness of our hotels is allowing us to gain market share are transient and urban hotels are positioned to benefit as business travel improves our hotels continue to be favored by small groups and have begun travelling or less operationally complex hotels with smaller footprints are currently generate.
And positive cash flow and a more efficient operating cost model should allow us to return to pre pandemic EBITDA sooner.
Additionally, the continued strength of our balance sheet is allowing us to remain well positioned to outperform long term given that.
Our strong liquidity of over $1 billion and low burn rate is enabling us to emerge with a healthy balance sheet and allowing us to pursue our growth strategies sooner.
As our dispositions demonstrate we continue to be active portfolio managers and are pursuing opportunistic sales that will create incremental capacity for growth without meaningfully shrinking our EBITDA base. Additionally.
Additionally, we are seeing the benefits of our portfolios improved growth profile and our relative performance and expect to thrive as business transient and group segments improve.
And finally, we are moving closer to unlocking the embedded value from our conversions that are expect to amplify our EBITDA growth throughout the cycle.
In addition to unlocking our growth catalysts, we are continuing to actively underwrite acquisition targets and remain well positioned to deploy growth capital during what we believe will be a multi year window for acquisitions.
We remain confident that our seasoned team will be able to source attractive acquisitions for oral day. This year as our pipeline of opportunities has grown since our last call.
That said, we will remain extremely disciplined as we underwrite opportunities.
Overall, we are encouraged by the improving backdrop, we are seeing and are incrementally more positive about the potential for further improvement and lodging demand for the rest of the year.
Moreover, we are pleased to see that our portfolio's recovery and our outperformance is unfolding as we expected.
Long term, we are energized by our strong positioning which will enable us to unlock our embedded growth opportunities and create significant shareholder value throughout the cycle.
Finally, and more importantly, we remain deeply grateful to our frontline associates, who are instrumental and helping us navigate the recovery as it unfolds.
I will now turn the call over to Sean.
Shawn.
Thanks Leslie.
And we're pleased with our first quarter results, which have continued to improve so far during the second quarter.
Our pro forma hotel operating results include the 101 hotels that we owned as of March 31.
Despite having four suspended hotels throughout the first quarter.
Pro forma numbers exclude the courtyard, sugarland, which was sold during the quarter.
Our reported corporate adjusted EBITDA and <unk> include operating results from any sold hotels during <unk> ownership period.
Our first quarter portfolio occupancy of 43%.
Presented and 880 basis point improvement from the fourth quarter.
Our portfolio is monthly occupancy accelerated throughout the quarter at 34, 2% and January 42, 5% in February and 52, 2% in March which was stronger than we expected and provides further evidence that our portfolio is well positioned to capture demand and the current environment.
The strengthening demand provided our hotel operators with the ability to yield rates.
Resulting in average daily rate growing by 11, 6% from $111 49 and January to $124.43 in March.
And markets with the highest demand such as key West Charleston, and Fort Lauderdale and Miami.
Our hotels also achieved higher pricing throughout the quarter.
Providing us with confidence that historical pricing dynamics will continue as demand returns post COVID-19.
Additionally, despite several of our urban assets and New York City, and San Francisco remaining suspended throughout the quarter, our portfolio generated positive hotel EBITDA each month.
We are encouraged that both of these markets are beginning to show signs of recovery.
Which is allowing us to have more constructive view on reopening our suspended hotels.
The improving trends during the first quarter led our entire portfolio to achieve hotel EBITDA of $11 $5 million.
Which also represented the first quarter of positive hotel EBITDA since the start of the pandemic.
Our ability to generate positive hotel EBITDA is affirmation of our high expectations for our portfolio's performance during a sustained recovery.
With respect to our 97 open hotels these properties achieved occupancy of 46, 4%.
Average daily rate of $119 and $18 $5 million of our hotel EBITDA.
Representing the third consecutive quarter of positive hotel EBITDA.
Similar to the overall portfolio, our monthly occupancy accelerated during the quarter at 37, 1%, 46% and 56, 1% and January February and March respectively.
Finally, as we expected our open hotel portfolio outperformed as demand returned and gained over 500 basis points of market share during the first quarter.
We are encouraged that second quarter demand trends have started off stronger than our expectations during.
During April our portfolio is expected to generate occupancy of approximately 55% and ADR of approximately $132, which both represent improvements over March.
Turning to the bottom line, our first quarter adjusted EBITDA was $3 $6 million.
And adjusted <unk> per share was negative <unk> 18.
We were pleased that our portfolio was able to generate positive corporate adjusted EBITDA for the first time since the start of the pandemic, which affirmed our assertion that <unk> would be one of the earliest to return to profitability due to our lean operating model and portfolio construct.
As we mentioned while demand accelerated throughout the first quarter, we remain vigilant in monitoring operator compliance with the aggressive cost containment initiatives instituted during the pandemic.
Underscoring our relentless focus on controlling costs are.
Our first quarter total operating cost declined approximately 49, 5% versus last year.
Our team also remained vigilant on controlling variable costs during the quarter.
<unk>, and a 51% reduction and wages and benefits from the first quarter of 2020.
The benefits of these stringent cost control measures are also evident and our quarter over quarter performance.
While our first quarter revenues increased 31, 7% from the fourth quarter.
Our operating costs only increased approximately 10, 1%, which allowed our portfolio to increase the bottom line by approximately $18 $7 million.
Turning to liquidity.
Against the backdrop of improving fundamentals, we paid down $200 million of the outstanding balance on our line of credit and March with cash on hand.
Even after this repayment we ended the quarter with approximately $648 million are on unrestricted cash.
$400 million of availability on our corporate revolver.
$2 $4 billion of debt.
And no debt maturities until 2022.
We continue to maintain significant flexibility on our balance sheet.
As of the end of the quarter approximately 95% of our debt is fixed or hedged at 82 of our 101 hotels are unencumbered.
We were encouraged and our first quarter monthly cash burn was significantly lower than expected, which was driven by the portfolio's accelerating demand growth throughout the quarter.
Our first quarter average monthly cash burn was approximately $14 million, which was 30% better than the low end of our estimated range.
Looking forward, we expect our second quarter average monthly cash burn to be and a range of $16 million to $20 million, which includes approximately $14 million and semiannual interest payments on our senior notes during June.
Based on our liquidity and low cash burn rate, we remain among the best positioned lodging Reits to take advantage of ROI investments and external growth opportunities.
And as a reminder, our cash burn estimates exclude <unk> capital expenditures, which we continue to estimate will be between $75 million to $85 million for the full year of 2021.
Looking ahead, our portfolio's lean operating model and portfolio construct should allow our hotels to continue performing substantially better that portfolio is comprised of traditional full service hotels.
Even as fundamentals are improving our efforts continue to be focused on maintaining adequate liquidity, while making prudent capital allocation decisions to position our portfolio to drive outperformance during the recovery and beyond.
To that and we are continuing to prioritize high value projects, including completing the room additions in Emeryville and Buckhead.
And finalizing the planning for the conversions and Santa Monica, Charleston, and Mandalay Beach.
We will also continue to prioritize less capital intensive ROI initiatives, such as parking and contract renegotiations.
As we look ahead <unk> remains well positioned with a flexible balance sheet.
Ample liquidity lean operating model and a transient oriented portfolio with many embedded catalysts.
Thank you and this concludes our prepared remarks.
We will now open the line for Q&A.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press star two if you'd like from all of your question from the queue.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. One moment. Please we poll for your questions.
Our first question comes from the line of Michael Bellisario with Baird. Please proceed with your question.
Good morning, everyone.
Good morning, Mike.
I wanted to start with a big picture question for you.
Your comments on the prepared remarks that makes it sound like Youre looking more closely at.
Acquisitions today, but maybe could you help us understand.
Your desire and maybe any sense of urgency or feeling to put some money to work today toward acquisitions, given the improvement and the fundamental outlook.
Well first of all let me just say obviously, we are pleased to be able to focus on growth as opposed to preserving capital and we have ample liquidity to do both internal and external growth. So we're well positioned for that.
What I would say Mike is that we do believe that the acquisition environment is going to be a multi year window.
But we do appreciate that early cycle acquisitions tend to create more value having said all of that we will be very disciplined with how we underwrite.
And make sure that the types of assets that we're looking at our and our strike zone, which we still have conviction on our investment model.
And we want to make sure that the deals we're doing on our accretive on a number of funds.
Whether it is.
Creative on it.
Complement to our portfolio, our operating metrics the quality of our assets and of course the returns.
And we remain disciplined and although we do appreciate that early cycle acquisitions can tend to create more value.
And then as a follow up there how would you or maybe for Sean if you want to jump in here how would you rank your different sources of capital today in terms of cost of relative attractiveness.
Sure. Thanks, Mike I think when.
Day be internal growth catalysts are.
And they are extremely compelling and we think it's probably the most valuable capital allocation source, we have cut our sorry use today.
Acquisition.
Because of their early cycle nature and ability to create value have gained a tremendous amount of steam and fundamentals improved and so I will review that is.
And as as a as a silver medallist if you will and the.
And the hierarchy.
But the beauty of our capital structure as we have the ability to do both and.
And you would expect us.
As we as we deploy our capital.
To be able to do both.
On that front.
And then just in terms of sources of capital.
Yeah. So from a source perspective, you would expect us to use our existing capacity first.
Sitting on a.
A tremendous amount of liquidity at over $1 billion, including roughly 650 of cash.
That would be our certainly our principal use and in addition, under our and our line of credit we have capacity because we did use.
On a mine to repay the line, which was a sign of our confidence around the recovery during the quarter and so we now have on $100 million of capacity under our line of credit covenants to be able to deploy as well, but we have more than that and balance sheet capacity. So we feel very well positioned.
Got it thank you.
Thank you. Our next question comes from the line of Austin <unk> with Keybanc capital markets. Please proceed with your question.
Great. Thanks, good morning, everybody.
So you guys had previously said you were running a heads and beds type strategy earlier this year.
And you referenced you saw 20, 27% increase and corporate demand. So just curious one what is corporate demand represent today as a percentage overall room nights and how does that stack up versus pre pandemic levels and then secondly, I'm just curious we've talked about the sort of local.
Business traveler being the primary driver of that but how much upside is there still from more of the local regional type corporate customers.
So Austin and the first part of your question Bt's contributing about 11%, 12% of our contribution and that's about 20% and 2019.
Levels, we continue to believe that for the balance.
Of the year BT will ramp gradually.
And that and the near term it is going to be your your insurance government health care players, we think that business travel is really going to be.
And increase of that is really going be contingent upon offices reopening, which we don't really anticipate to see that and a meaningful way until after labor day and.
And we could see a step change in demand and following that but in general that's what we sort of view as a cadence and we think that.
Obviously rate and occupancy of continuing to hold its relationship and as we've been able to drive.
Our occupancy we've been able to drive rate and we think the same thing will happen you know SPT ramps appropriately, but it's still at a very pretty anemic levels that only 20% of 2019 levels.
Okay.
Yes.
And then so do you think there's still upside simply from the corporate.
The local and regional customer corporate customer or does it really need to broaden out for you to see more meaningful shift and the mix.
Yes, I would say Austin this is Tom good morning.
On the local and regional is where it's starting and we definitely feel like Thats a good beginning but to have the type of demand from back to the levels that we're used to it is going to have to be more national as well as visitation and thats going to state to state versus internal so what we think is as <unk> previously stated.
And when offices start to open and we think that not only and will they go to their own office, but people will be allowed to visit their office and Thats, where youll start to really see the uptick.
The encouraging thing is weekday demand is picking up some of that is leisure and some of that is <unk>. So as we look at the type of travelers that's coming in today.
Pharmaceutical and medical insurance government, that's related to corporate and we think it's going and have the uptake more on the Q3 Q4 timeframe. When office is truly are opening and people are visiting or on a national level versus local and regional.
Got it appreciate the additional details on and then.
Expenses this quarter, you had some pretty significant.
<unk> cost savings you mentioned, the cash burn coming well below what you had anticipated you know how how.
How sustained and sustainable are those savings and.
And how do we think about the.
And the ramp.
Through the year a little bit.
Okay.
Well I think that you know.
Austin, we obviously believe that there are efficiencies that we have gained through this pandemic and that we think will carry over.
Clearly, we're going to have to put some of the cost back and as occupancy.
And it continues to improve but we've been very thoughtful about making sure that the cost we put back and as occupancy appropriate so whether it's and F&B incremental offerings that we have.
Or even on the labor side all of it has been occupancy appropriate.
Still have a ways to go on from a recovery perspective, so we're being very thoughtful and disciplined around around that.
Okay.
Understood. Thank you.
Thank you. Our next question comes from the line of Tyler <unk> with Janney Capital markets. Please proceed with your question.
Thank you good morning first question I had.
Back to the cost side of things I'm interested what youre seeing on the on the labor front and I'm also curious if you could discuss.
Our focused service force compact full service on the labor side of things and perhaps quantify.
The labor and labor requirements at those property types and perhaps how they how they differ.
Yes, sure Tyler everybody, obviously knows that there's a staffing issue within the industry. It's not just the lodging industry and the service industry overall.
And clearly that's being influenced by the extended benefits that associates are receiving lack of childcare because some students are not and school or just the inability of the flux and occupancy which is doesn't give us the ability to offer 40 hours.
Work, we think that those are temporary and transitory and as occupancy continues to improve.
And we get past September as it relates to the benefits that some of this labor pressure subside.
We think our team is doing a great job in terms of dealing with the shortage of staffing and being able to meet the needs of the customer and the consumer despite the lack of.
And the lack of our staffing and some areas, where you think it's sort of a general industry issue and.
Specific and I think Tom can comment more on the select service versus full service, but in general we're not seeing a difference and labor shortage across either either appetite.
Yes, Tyler I would add debt, we've been tracking ftes since the pandemic and when we think about quarter, four and I'll get into full service versus select service, but if we look at overall portfolio first we were running around 38% of FTE levels compared paired to pre pandemic when we were at.
Around 34% occupancy and just as.
We increased and quarter, one to about 41% of pre pandemic at 43% occupancy. So you can see a little bit of a stair step, but the controls around ftes has been pretty significant both and select service and full service, where we see the most need obviously is housekeeping as we're ramping up and occupancy and as long as I stated earlier.
Earlier on the food and beverage front, we're gradually opening up outlets as occupancy increases and our consumer preferences are out there when you run and 80 or 90% and and some of our resorts. So we are putting ftes back in that area. The one area I would also say that we've been very cognizant around making sure that we maintain our assets as we are.
Been very careful not to save on the on the rooms, and maintenance side, where we've only had around 22% compared to on the labor front, because we want to make sure. Our assets are in good shape getting ready for the demand and that's going to be coming this summer and we've been very thoughtful around that and.
And the last point that I would say on the full service and select service and we really haven't noticed a difference because we've always run our compact full services with.
And that flex service mindset, we haven't seen a major differential because most of our compact full service is our 300 keys.
And then maybe 5010 thousand square feet and meeting space. So we run it more similar to what we would say a select service margin would be able to acquire.
Okay. Okay.
And.
And as a follow up can you talk more about.
Weekday versus weekend performance and the <unk>.
Portfolio I think GAAP started to narrow.
You look at results from it.
And for March compared with earlier, and the first quarter or even the fourth quarter.
Yeah, I would say that there is still.
A meaningful GAAP there because this is obviously leisure is driving.
The demand here and we think leaves is going to continue to drive demand and the second quarter and third quarter. So our week, a weekend occupancy and the first quarter was 56% and our weak a weak day was I think 42%.
And so you can see the meaningful GAAP there we continue to see that into April.
And as well.
And would expect that to generally hold and one thing I would add too Tyler is.
And April the balance that we're seeing on weekends as for instance, we have 36 hotels that had occupancy higher than 2019 levels and so when we're able to push rate, we're really dialing into those opportunities where we see the demand is there where the relationship between rate and occupancy is giving us that opportunity to try to drive some.
ADR index at the same time, so we do also see a differential not only on occupancy, but ADR on weekend versus weekday.
Yeah, and the one thing to add on there we are seeing.
And uptick in weekday occupancy we saw a strong performance in April of and increase in weekday occupancy as well as we can but I think the perspective on how the portfolio is performing from an occupancy perspective is that both weekend and weekday are improving.
And is encouraging to us is demand.
Continues to accelerate.
And that's all from me appreciate the detail. 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 in terms of.
Acquisitions, what are you seeing I guess on the margin in terms of potential deal flow or are you seeing single assets portfolios.
And he was kind of a typical potential seller for your type of a type of product.
Yeah.
I would say generally Anthony that there continues to be kind of a limited volume of high quality assets that we want to purchase but I would say is that a number of conversations for us have have increased.
We're very focused on off market or limited bid type of transactions.
As you know the types of assets that we're looking at are generally positive cash flow at this point and.
So there's less pressure for those types of sellers, but we are seeing.
<unk>.
And the opportunity has really shifted from you know.
And say level of discount to access to opportunity and so we're seeing conversations whether it is a owner operator high net worth individuals.
P E. We're seeing it from a variety of different angles.
Institutional owners, who may.
Maybe not feel like the asset even though it's a great asset and may not fit there.
Therefore plans and so we're seeing it from across the spectrum.
And again, I think where we're encouraged by the increase in number of conversations that we are we are having.
Okay. Thanks, and how close are your brand partners and announcing this new brand standards for your various brand interest.
And I'm concerned that at multiples start to travel that theyre going to expect a certain level and many of them and it would be available or it may not be coming back at all so I'll just and just curious your cash.
And I'm, just kind of visiting with Hilton and Marriott and Hyatt.
Are they close to and really just announcing new standards and so that customers can know what they expected.
Yes, Anthony and good morning.
We've had a very collaborative relationship with all three brands that you mentioned Marriott Hilton and Hyatt and what's been interesting is they have started to see the ramp they've started to really think about what does the new future look like because we're getting closer to that which is encouraging as you come out of first quarter and starting to see occupancies and the 50% and 60% in April.
We are starting to see the consumer have different requests as they come and as you have more demand and what we're noticing is they are definitely keyed in on trying to do a reset.
For instance.
How they can actually take a look and hours of operations efficiency of operations and most importantly, the actual food and beverage deliverable as an example, right. When you think about the breakfast and our world, where we either have complimentary breakfast or a buffet or even evening receptions. There are modifications that are coming through so it's not going to go back to pre pandemic levels.
But we're very encouraged that theyre, taking a look at what was waste what was their area of opportunity to try to minimize.
The selection so that you actually are focused on what people actually like so we're thinking that theres going to be a change it's going to be after memorial day, but occupancy levels will drive that and we'll see that there'll be below pre pandemic levels. The last thing that I would say is on the housekeeping front and everybody is staying firm and regards to the current situation.
And where it's more of an opt in and Thats encouraging as well as we're going into cleaning after checkout versus on a state over and as we look at the take rate and that's continuing to climb a little bit, but thats one of the biggest areas of opportunity as you know because we are a rooms oriented portfolio and I would just sort of just want to emphasize what Tom.
And we're saying about occupancy I think the brands are being very thoughtful to ensure that whatever brand standards and they put back in place our occupancy appropriate and that's key because they're partnering with owners around this topic.
Thank you.
Thank you. Our next question comes from the line of Danny Assad with Bank of America. Please proceed with your question.
Hey, good morning team.
We touched on this a little bit through different questions. This morning, but I'm just trying to put it altogether. If we think about the four wall operating model of your specific hotels.
So just relative to last cycle, how do we think about <unk> margin potential. This cycle. When we know you've done a lot on the cost side from all on one.
And but at the same time, we keep hearing about labor constrains inflation, and just passed us and emerging risk here.
Yeah.
Thanks, Danny and I think the.
There is clear benefits to sort of what we call. The all weather strategy of the <unk> portfolio in the sense that.
From an operating cost standpoint, our lean operating model allows us to perform well and low occupancy environment, but also our locations within our portfolio provide us with the urban exposure to be able to have ADR lift and and.
And similar upside to sell on a more full service centric portfolios out in the market and so where we think our portfolio sits today is a portfolio that has the downside protection of.
The stability of more stable occupancy and tighter and more robust margins, while maintaining that upside potential at the higher rate through our through our urban locations and so I think on Aro Jay and positioning.
And post.
Over the last several years has been to be a portfolio that we believe should be able to perform.
Throughout the cycle and that's a combination of the of just organic.
Organic growth within the portfolio, but also the ability of our of our internal growth catalysts and the capital that we're deploying within the within the within the portfolio and so we're excited about our positioning and think that our portfolio should be an outperformer throughout the cycle because of how we position the portfolio and what we have left to go.
And and Sean just to follow up on that so so with everything you see in front of you right now do you feel confident or comfortable.
That we can hit.
And higher like relative to last cycle's margin peaks, we can hit higher margins this cycle with everything thats been done.
Yeah.
The you would expect <unk> portfolio.
And as the as the.
The cycle evolves.
The operating model is lower we believe it will be you would expect our <unk> portfolio.
To be within the mix to it too.
Of the margin expansion, we have not publicly provided what we think that margin expansion is other than we are confident that costs will stay out of the business.
We're confident that our portfolio.
Margin expansion will be in line.
Certainly within within.
The other the other portfolios, but we have not publicly given a range for that out of and our confidence around the ability that there will be margin expansion.
Understood and got it thank you.
Thank you. Our next question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Hey, everyone. Good morning.
First question.
Luckily and your commentary.
Today and written and the.
Released last night, you talked about your increased cabinets.
And the lodging recovery and totally see that on the.
Leisure side, but.
And I guess in terms of your market, maybe you look at.
You have reasonable reason, besides exposures to Chicago, California and might be.
These are very reliant.
On international travel and the larger corporate accounts group activity and he has also had some and most aggressive unions as well. So just kind of curious if you can maybe maybe parse that statements that you made or maybe kind of.
Yeah.
Disaggregate that a statement from the market.
And that I'm talking about but I'd be interested to get and how you how you view that.
And in comparison to some of your drive to.
Leisure oriented.
Markets and and hotels.
Yeah.
Yeah, and yeah, I think the way to sort of think about it is on and think about.
Our portfolio diversification and I appreciate the puts and takes and you sort of articulated but we clearly think that our portfolio because of our footprint and our exposure to the various.
Segmentation of the leisure exposure that we have as well as how we're positioned relative to BT.
And small group that we are positioned to outperform and we've seen that and our performance thus far and as the recovery unfolds, we would expect that relationship and relative performance to continue despite the individual market puts and takes because we're looking at it on a portfolio basis.
We've seen we still expect leisure.
And two to drive.
Leisure centric recovery and so we like our exposure there.
We think that BT will will rebound and we love we like our how our portfolio is positioned particularly and our urban select service component and we think that you know small group will lead the way and we're positioned for that and that's across our portfolio and I. Appreciate the puts and takes on some of the markets, but I think and aggregate our portfolio is going to be an outperformer as we demonstrated this quarter.
Okay.
Okay. Thanks, and then.
Just in terms of.
<unk> comment about.
Internal repositioning our wide project as being the best.
Use of.
Capital.
And I sit here today and.
Just wondering just given your given that and your commentary again being more bullish on the recovery do you think or are you more willing to think about pulling maybe some of the wyndham conversion forward.
Just kind of you know.
Getting them ready to take advantage of what should be.
You know probably record levels of domestic leisure travel over the next 12 to 18 months or so.
Yeah.
So.
Let me start and then I'll kick it over total.
Lastly, with respect to the timing and the renovations we've been very strategic about how we wanted to sequence out the Wyndham renovations right when we.
And when we got this opportunity, which we which we accelerated from what should have been a year and 'twenty two opportunity.
On a year.
And on 19 opportunity, we thought that the best way to sequence. These was to do.
To renovate and relaunch a couple of those.
Per year.
And the one to two based on where those where those markets were.
Relative to the recovery and so we've accelerated.
Santa Monica and Charleston, because when we looked at the assets that we saw on leisure centric markets and we wanted to prioritize those they were first but we have a sequencing.
Couple per year.
Within that we don't think that the debt.
And that the timing of the pandemic or COVID-19.
We'll change up.
Sequencing, because we want to make sure that we have the expertise to do it and we want to make sure that when we relaunched these things they relaunch and a in a way that strategic and so.
Anyway.
Okay.
Okay. So yeah, so kind of no change from from before.
That's right that's right.
Okay. Okay. Thank you.
Yeah.
Thank you. Our next question comes from the line of floors and I got on with Compass point. Please proceed with your question.
Hey, good morning, guys. Thank you for taking my question.
I'm just.
Thank you.
I guess you touched upon.
Yes.
And the questions, but maybe.
And maybe.
And because.
And I do think that when you talk about outperformance obviously.
The the investors compare you to your service.
Service peers, who also.
Broker and even on the on EBITDA basis and so.
Thank you.
Relative value for a lot of them and so how do you how do you stand out and how are you.
Total store too.
And it makes you stand out.
I'm, just thinking about it and locally.
And maybe if you could I know you guys have talked about this but I think it would be helpful to the market to understand you had $450 million of adjusted EBITDA and 19.
And your stabilized.
EBITDA will be once we get through this and.
Realize this could be three years.
And for years down the road, but if you could and then.
Some of the.
And the cost savings and permanent cost savings that have gone on too.
And the system.
Roy conversions or ROI investments.
And conversions and sort of your general index improvements relative to peers.
And what do you think your earnings power.
Look like.
And once we get to the other side.
So there's a lot impacted and there.
I will start with a piece of it and if we Miss a and that's a piece of it just follow up on it but look I would generally say that and the thing that gives us confidence about our ability to outperform is in nature and types of assets that we own.
And we own assets that you know.
When the recovery unfolds, and BT and group starts to take hold and rate really start to drive.
We have assets that are doing a tuck right up under with a full services are on on the rate side, but they have very attractive margin profile like select service assets. These assets generate significant free cash flow and a more resilient and our resiliency has been demonstrated through this pandemic and we think Thats and drive operating performance from that perspective, we think that our portfolio.
So is positioned to perform throughout the cycle and we think early in the cycle, we're demonstrating that on a relative basis and what we believe is our true peer group and <unk>.
We're going to outperform operationally, which we are if you look at our occupancy you look at not so much. The fact that its positive EBITDA, but the level of EBITDA and therefore, the and for instance, the ability to get back to 2019 levels sooner.
Additionally, we think that the the conversion opportunities and ROI opportunities that we have will allow us to get above recovery growth not just simple growth from their recovery taking hold the growth.
From the incremental value that we're that we are getting from our conversions and then finally and types of assets that we own today will also allow us to get back to because of the free cash flow that we own to get back and paying a dividend sooner as well relative to our full service peers and with what we think is one of our true.
It's true comps. So you have to look at it throughout the cycle, we think that we have benefits and every element of the recovery early in the recovery and middle over the cover on the back and the recovery is dividends become more prevalent and.
We believe that our model and our asset type of footprint is going to serve us well throughout throughout that component.
And.
But luckily.
And we're talking about a 10% EBITDA improvement.
Down the road or are we talking about a 15% EBITDA improvement.
Sorry.
If you can quantify any of that.
I think that is.
And what would help investors and get them more comfortable about that.
The upside potential from J.
Yeah.
So and so forth and youre, breaking up pretty badly and I apologize, sometimes they do my best to interpret because they are missing every other word.
But what I would say to you is this is that you know we're pretty confident.
And that.
Our ability to generate EBITDA above our 2019 levels.
And this we think that our conversion is going to play a key role on that and we think that the improved growth profile that we garner and when we sold about a third of our assets and 2019 all of those things will allow us to achieve.
EBITDA that's above our 2019.
EBITDA adjusted for Oxy as itself.
And we think we have a much better portfolio today, we think that the investment that we're going to make in our Wyndham will will generate significant returns there we remain.
Excited about all of our conversions, but in particular the two conversions.
And that's that we mentioned earlier, Santa Monica and Charleston, and you know these things are on target to start the renovations at the end of the year. We look forward to re launching those assets and 2022 at the start of our conversion pipeline, which is going to concern which is going to coincide with the return of the higher rated customer we have greater conviction to do.
Day.
As it relates to the returns on these assets.
Because we have a leisure centric recovery, that's coming and.
And we expect the returns to be well north of 40% on each of these assets. This is an example of a nature and types of conversions that we have on our portfolio.
And we're very pleased to be able to deliver these conversions at least two years earlier than we would've been able to deliver relative to the structure that was on these assets. So we think that the embedded value in our conversions and ROI properties and theres going to allow us to push past 2019. In addition, just the normal recovery.
Okay.
Thanks, a lot.
One follow up in terms of the dividend you touched upon it.
And it can investors expect a resumption of the dividend and the second half of this year.
Okay.
Ah I mean force, that's obviously a board decision and I think based on on.
The current pace of recovery, there and I wouldn't.
Expect lodging Reits to be returning to paying cash and cash dividends outside of if theres taxable income.
For 2021, but clearly that's a board decision.
Thanks, John I appreciate it.
Thank you. Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Yes, thanks, and good morning.
Mostly.
The discussions out there.
Net.
On the market and I was wondering if you could give us an update on that asset as well.
Yeah. So bill I think that we have a 100 asset portfolio.
And we're active portfolio managers as we have demonstrated we sold two assets at.
At the end of 2020, we have two other assets that are pending.
And we're continuously looking at our portfolio, we will evaluate opportunities and spoke to other assets, if and when it becomes necessary and as discussed but at this time and and we don't have anything to discuss on New York relative to attach sales.
Okay. Thank you.
Thank you. Our next question comes from the line of Gregory Miller with Truest. Please proceed with your question.
Thanks, and good morning.
And I apologize if this question's already been asked I got lost connection for a minute.
I'm curious to hear your latest thoughts on the financial distress of franchisees that lochia liquidity and how that distress may impact our old Jay for example, do you anticipate a greater number of lender takeovers of privately owned hotels this year, if thats, where its coming or perhaps merge.
<unk> private owners as.
As well.
Yeah.
Well.
I think that there's.
It's gonna be and elongated and window of how the impact of the pandemic unfolds.
And between the banks being accommodating for a period of time between owners being able to access their reserves and they're using lives and their balance sheet. The impact of that will take several years to see.
But what I would say is that the type of assets that we are most interested and theyre already they're already generating free cash flow and.
And so therefore as I mentioned before there's less pressure on those types of sellers, having said that we do think that there will be some assets that shake loose as a result of individual balance sheets.
And how the impact and you know the pandemic has affected them on but let's be clear there isn't a single industry that was severely impacted where balance sheets.
Arent going to have to be reshaped and some form of fashion and lodging is not agnostic to that.
But it's going to take a while to see how it ultimately unfolds.
And part of Thats going to be predicated on the ramp on the recovery.
But we will see some owners.
Sell assets.
And will be considered a stress sales.
To be determined but there will be some level of pressure on some of the pandemic, but we have to watch it unfold.
Okay, Great and then.
Shift to the demand side for a minute and <unk>.
Quarters, you've spoken to a short booking window.
I'm wondering if you could share your latest impressions on the length of the booking window today.
And perhaps the types of hotels are markets that are seeing more advanced bookings.
Leisure specific are you seeing it on the corporate side urban markets versus.
Leisure oriented markets.
And color and I'll start and I'll.
And I'll start and I'll, let Tom give us give some more color like what I would say is that our booking window continues to be relatively short.
And most encouraging on the small group side, where we've seen our leads.
Improve and we saw our conversions on on.
And.
Short conversions increase as well and you know and example of that as we mentioned earlier.
Small group represented about 10% of our revenues and the first quarter a third of that was booked in the quarter for the quarter just as an example.
And of the highest sort of think about that and you'll be booking window.
And Greg I'll start on the transient side and move over to group. So for instance, booking window is still strongest as you can imagine same day and one to three days, because leisure and theyre, making those last minute decisions and for instance, and the last four weeks they've been actually almost above 2019 level somewhere between 90 and one.
110% and 2019 levels and obviously there is more inventory because leisure is the main traveler what is interesting, though the 31 plus days is about 80% of 2019 levels and that's encouraging because people are starting to put their toe and the water and thinking about booking longer out. So for instance markets like New Orleans Charleston.
And the leisure markets, where people are saying I want to go there are actually making reservation sooner than last minute and some of those markets because they are higher demand markets similar to like what we have and key west where people know it's going to be busy down there on the group side to let this point earlier, what we're seeing is short term bookings are happening for instance about 40%.
Of our bookings into 2021.
And are actually happened in the quarter for the quarter. When we look at what happened and first quarter and then when we look at the rest of the year. Most of that business is going into 2021 and not 2022, when I think about the type of groups that are coming it is still within our power Alley peak night demand for group lead volume is roughly between 10 and 25 rooms or 25.
And 50 rooms, and that's almost.
Predominantly the major amount of groups that were seeing on on the booking pace and.
And a little color around group to give you. An example, and some of our markets. It is related to leisure, but we're also seeing some some opportunities where we're encouraged based on what's happened in Q3 and Q4 for instance on the leisure front, we have a maintenance standards.
And to put a roller coaster together and northern California. So that's the first time that we're going to see some and demand come out from that and the future. We're excited about Tampa for instance, where we had the Super Bowl. They really got some good press and we put about 4000 room nights at our embassy suites tamper with group Association and Q3 and Q4, so that's encouraging and then lastly I.
I'd say, we've all been talking about sports and weddings and training that's the activity that we're seeing and a small group, which again kind of bodes well for our type of portfolio.
Terrific.
Thanks very much.
Thank you we have reached the end of our question and answer session I would like to turn the conference back over to Leslie Hall for any closing remarks.
Thank you all for joining us this year has gotten off to a strong start which is encouraging and we're on.
Optimistic that that momentum will carry into the back half of the year.
Hope everybody remains safe and look forward to hopefully see and you all in person and at some point in the near future.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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