Q1 2021 Sunstone Hotel Investors Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and thank you for standing by and.
Welcome to the Sunstone hotel investors first quarter 2021 earnings call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time.
And I would like to remind everyone that two day at this conference is being recorded two day.
And for 2020 one at.
At 12 P M eastern time.
I will now turn the presentation over to Mr. Aaron Reyes Senior Vice President and Treasurer.
Please go ahead Sir.
Thank you operator, and good morning, everyone by.
By now you should have all received a copy of our first quarter earnings release, and supplemental which were made available yesterday.
If you do not yet have a copy you can access them on our website.
Before we begin I would like to remind everyone that this call contains forward looking statements that are subject to risks and uncertainties, including those described in our prospectuses.
10 Qs.
10-K, and other filings with the SEC, which could cause actual results to differ materially from those projected.
We caution you to consider these factors and evaluating our forward looking statements.
We also note that this call may contain non-GAAP financial information, including adjusted EBITDA of our E. Adjusted F F O and property level adjusted EBITDA of R E.
We are providing that information as a supplement to information prepared in accordance with generally accepted accounting principles.
With us on the call today are John Arabia, President and Chief Executive Officer.
Brian Julia Chief Financial Officer.
Chris After povich and Marc Hoffman.
So chief operating officers and.
And Robert Springer, Chief Investment Officer.
After our remarks, we will be available to answer your question.
With that I would like to turn the call over to John. Please go ahead.
Thank you, Eric and Hello, everyone and thank you for joining our call today.
I'm happy to report that our recent operating results exceeded our expectations and there is clear evidence that we are rapidly approaching better days.
While we continue to face challenges across our portfolio and current results are nowhere near their potential we continue to see sustained improvements and leisure group and commercial demand.
As has been widely discussed the leisure segment has demonstrated the most robust demand to date.
However, at the nascent recovery and business transient and group demand witnessed in the fourth quarter of 2020.
<unk> continues to gain steam at.
And if our forward looking data is correct business and group demand should produce far more meaningful benefits as the year matures.
Based on the recent acceleration and bookings across all business segments. We continue to believe that the larger recovery has begun.
Our portfolio is currently sustaining cash flow positive operating levels.
And we expect the returned of quarterly corporate profitability and.
And the second half of the year.
Today I'll provide a recap of our first quarter results along with comments on recent operating and booking trends.
We'll then discuss our recent acquisition of montage Healdsburg, a spectacular newly built luxury resort and Sonoma County, along with the potential for additional acquisitions of long term relevant real estate.
Finally, I will talk about our chief operating officer transition.
Brian will later provide more details on our liquidity earnings and dividends.
So let's talk about our first quarter operating results.
When we last spoke on our year end call on February we stated that we expected the seasonally slower first quarter of 2021 to be very similar to the fourth quarter of 2020, and then for operating fundamentals to accelerate starting in the second quarter.
Fortunately.
Our forecast proved to be conservative and the first quarter materially exceeded our expectations.
Comparable 17 hotel portfolio of revenues were $47 million and Revpar was $42 19, which.
Resent declines of 73% and 70% respectively.
Compared to the first quarter of last year.
Our portfolio Revpar of just over $42 increased 66% from the $25 achieved and the fourth quarter and increased 137% over the $18 achieved and the third quarter.
The sequential improvement of Revpar was a function of increased leisure demand as we reopened our higher rated leisure hotels.
Increased group demand, particularly from government sources.
And a modest lift and business transient volume.
Despite occupancy still lagging compared to pre pandemic levels four of our hotels, including oceans edge.
Cargo embassy suites, Hyatt, Chicago, and Wailea Beach resort.
Achieved higher room rates and this past quarter than was the case and the first quarter of 2019.
This is important because it shows at the industry has learned from its past mistakes and when possible our hotels of pushed rates despite lower occupancy levels.
For example, just because wildly is running below its pre pandemic occupancy levels at does not mean that we need to discount our rooms.
For once were actually doing the opposite and <unk>.
Certain situations, which should prove to be beneficial when occupancy returns to 2019 levels.
For the first quarter leisure remain the dominant source of business for many of our hotels.
Our resort destinations continued to significantly outperform our city center properties, particularly on the weekends and over spring break.
As our higher rated hotels continue to ramp up our portfolio experienced a 24% increase and transient rate and the first quarter compared to the fourth quarter of last year.
Oceans edge and key west was nearly flat and occupancy compared to the first quarter of last year.
But this year's ADR increased by 15% and Revpar increased 13%.
The performance was led by strong transient demand, particularly on the higher rated premium segment.
With many area attractions still closed more guests are electing to utilize on property food and beverage outlets.
Oceans edge saw a 13% increase and food and beverage spend per occupied room in the first quarter as compared to pre pandemic levels.
Similarly, wildly of beach resort, which benefited from additional airlift and relax restrictions during the quarter was able to drive rate. Despite occupancies below 2019 levels.
During the first quarter as occupancy grew from the high teens to the mid sixties, we focused on maintaining premium pricing as opposed to dropping rates and hopes of inducing demand.
As a result, the hotel commanded a 7% higher rate than most of the case and the first quarter of 2019.
Similar to what we saw on key west food and beverage outlets spend per occupied room, and wildly increased nearly 70% as compared to the first quarter of 2019.
We continue to believe that our outstanding hotel product and the desire by travelers to vacation and Maui will allow us to maintain our high rates, while the building occupancy as more people feel comfortable traveling.
We are excited about the resorts potential going into the summer months with very high occupancy already on the books.
Now, let's take a look at our quarterly group performance.
Group business increased to approximately 51000 room nights and the first quarter of 2021 up from 32000 room nights and the fourth quarter of last year.
Group business continues to be comprised primarily of government related groups, all of which tend to be short term in nature, but work well and the current environment is they don't require long term commitments for our space.
Similar to last quarter, we saw instances of traditional groups holding their meetings is planned.
For example, during the first quarter, we had some corporate and medical groups hold their events at our resort properties, including Wailea Beach resort oceans edge and Renaissance Orlando.
We expect to see a steady acceleration of traditional group meetings, including citywide corporate and association meetings and the second quarter and the remainder of the year.
During the first quarter property level expenses declined by 59% compared to the first quarter 2022.
Despite such a material decline and cost the low occupancy environment resulted in a property level adjusted EBITDA loss of $15 million and the first quarter.
We had expected our seasonally slow first quarter to produce a more significant loss and the $18 million loss, we generated and the fourth quarter and we're pleasantly surprised by the strength and both leisure and group demand.
Despite a property level EBITDA loss from the first quarter in March for the first month since the pandemic began we effectively broke even at the hotel EBITDA level.
This is an important milestone.
Given the rates and occupancy levels, we see developing and the second quarter, we expect to reach property level profitability earlier in the quarter than we previously expected.
Looking towards the remainder of the year booking trends for all segments continue to accelerate.
This is evident and our continued sequential monthly revpar improvement in April.
And through the first 28 days of April our 16 hotels that were open for the entire month, excluding montage healdsburg.
Generated revpar of $80.
This figure represents a $15 increase from the hotels opened in March which itself was a nearly $19 increase from February.
While transient trends remained strong.
We now have increased confidence and the improving group and business demand trends, which we believe have just begun and should continue to strengthen into the second half of this year.
Given the current trajectory, we feel more confident now than we did a quarter ago.
As we look at the group business and the second quarter more cities are easing meeting restrictions, allowing more groups to confirm their intent to hold their events and more attendees aiming to make the trip.
For example, after California announced the lifting of certain meeting restrictions to Hilton Bayfront confirmed and in House Medical related group meeting for June the Renaissance Orlando has had several in house group and local social events confirm their events starting as early as April and accelerating into May.
This gives us additional confidence that non government related group business will begin to increase and the second quarter.
As travel restrictions and social distancing requirements fees group activity should accelerate and the mid to late summer as meeting planners have become more confident about holding their events and the third and fourth quarters.
Based on these assumptions, we expect our group contribution will perform materially better and the second half of 2021, and specifically and the fourth quarter.
The current pace of future group bookings also points to recovery.
Following the relaxation of stay at home orders, we saw a meaningful increase in bookings and group of related lead volume.
Since the beginning of the first quarter through April we booked 236000 group room nights for all future months.
While a portion of these bookings relate to specific event driven business and the remaining balance still represents an acceleration from previous months and demonstrates pent up demand to hold meetings as conditions permit.
Production for the portfolio has steadily improved each quarter since the beginning of the pandemic.
Hilton San Diego Bayfront produce significantly more room nights and the first quarter of 2021.
And then in the same period of 2019 and Renaissance Long Beach had its best first quarter production since 2017.
In addition to more optimistic outlook for group business transient trends are steadily improving since of vaccine distribution began.
While our net transient reservations are still short of normal levels bookings continue to accelerate.
Our trailing six week booking trends compared to the same time 2019 are down roughly 25% to 35%, which marks a material improvement from the 80% to 90% declines we saw at the first of the year.
The booking window, which had shrunk to just a few days at the start of the pandemic.
Is extending with reservations starting to pick up 30 days out.
Our resort and leisure destination hotels are seeing the earliest reservations with reservation stretching out through the summer and even into the holiday season.
For example at wildly and we currently have more transient rooms on the books for each month from June through December than we did at the same time and 2019 with average rates, but also exceeded 2019 levels.
While we still have a ways to go to get back to normal operating levels. The trend is heading and the right direction.
Moving to transactions, we are excited to add montage healdsburg to our portfolio.
130 room newly constructed luxury resort opened at December 2020.
Located in one of the most sought after and highest rated leisure destinations and the U S.
This resort as a perfect example of long term relevant real estate.
With this strategic acquisition, we've increased our concentration of long term relevant real estate improve.
And improve the overall quality of our portfolio.
And entered a market that is difficult to assemble developable land to build competitive luxury resorts.
The acquisition was financed with a combination of cash on hand, and $66 million of directly issued preferred equity that has an initial yield tied to the performance of the resort.
The preferred equity aligns us and the seller and motivates the seller to finish of the residences, which we'll be able to participate and the resorts rental program and will add further and ciliary business demand, including food and beverage and Spa revenue.
We expect the resort to generate of 6% to 7% stabilized yield on our investment after the property reps up and it increases our overall leisure exposure.
To approximately 30%.
The acquisition of montage Healdsburg is consistent with our long stated strategy of acquiring early in the cycle, adding high quality <unk> to the portfolio and.
And maintaining our balance sheet strength.
With a strong balance sheet and a growing deal pipeline.
We expect montage healdsburg to be the first of several acquisitions of LTR to be completed and the early stages of this new operating cycle.
As we continue to add to the portfolio and the near term, we will look to sell the remaining non LTR assets to finance future acquisitions.
To sum things up we believe that the worst is behind us and we are now in a period of recovery.
The vast majority of our portfolio is operating and we are seeing trends that give us increased optimism and confidence that we are on the path to return to corporate quarterly profitability and the second half of 2021.
And finally, the addition of montage Healdsburg adds a high quality of leisure oriented LTR asset to the portfolio while.
And while deploying a portion of our available cash.
Before I turn the call over to Brian I'd like to address a bittersweet moment for me and for the company.
After 15 years of service, our Chief operating Officer, Marc Hoffman will be retiring and just a few short weeks.
And it's been a pleasure to work with Mark and his contributions of the company can be seen throughout our portfolio.
His foresight and vision to transform the plane and mundane and two exceptional can be seen at Boston Park Plaza wildly at Beach resort and most recently at the Bidwell and Portland.
On behalf of at Sunstone team I want to thank mark for his contributions to the company.
I also want to thank mark for taking an active role and identifying his successor.
Chris Asta Povich, our new Chief operating officer has been at the company two months and is already proving why he is the right choice for the job.
Chris has big shoes to fill but I am confident.
But he is up to the task and we will serve our shareholders well.
With that I'll turn it over to Bryan Bryan. Please go ahead.
Thank you John and good morning, everyone.
As of the end of the quarter, we had approximately $365 million of total cash and cash equivalents, including $45 million of restricted cash and an undrawn $500 million revolving credit facility.
Adjusting for the acquisition of montage Healdsburg, our pro forma cash balance at the end of the quarter would have been approximately $167 million.
After deploying a portion of our excess liquidity, our balance sheet remains strong and positions us well to grow the company through the acquisition of long term relevant real estate as the industry recovers, while maintaining a best in class balance sheet.
We continue to focus on managing our costs and minimizing hotel expenses, while maintaining our properties in good condition and opportunistically investing in projects that would have resulted in material displacement.
Working with our operators, we have seen on operating expense reductions ranging from 60% to 75% since the start of the pandemic with the most recent quarter at nearly 60%.
Our current expectation is that in total our portfolio with sustained cash flow positive operating levels and the second quarter and we will achieve positive quarterly corporate EBITDA and this second half of the year.
March and April results provide us with more confidence in achieving this trajectory.
Shifting to the first quarter financial results.
Full details of which are provided in our earnings release and our supplemental.
First quarter results reflect a strengthening operating environment, driven by leisure and some select group business first quarter. Adjusted EBITDA was a loss of $15 million and first quarter adjusted <unk> per diluted share was a loss of 13.
These results far surpassed our previous expectations.
Now turning to dividends.
We have suspended our common dividend until we return to taxable income, which may or may not occur in 2021.
Separately, our board has approved the routine quarterly distributions for all of our outstanding series a preferred securities.
And with that we can now open the call to questions. Operator. Please go ahead.
And at this time, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, please.
And limited to one question per caller.
Well pause from moment to compile the Q&A roster.
And your first question comes from Rich.
Hi, Catherine.
Hey, good morning out there guys.
Hey, Rich How're you doing.
Good day.
And if Marc Hoffman and listening in and I just wanted to say Mark.
Profit from any conversation that you are a part of of learned a lot over the years and really appreciate your evident enthusiasm for the work you did so.
Just wanted to put debt on the record but.
Maybe to shift thank you so much appreciate it.
Oh got you on the line great.
Awesome.
So to shift to the monetize deal for a second guys maybe just.
Walk us through the financial structuring and maybe some of the incentives around on a taking.
At the preferred as partial consideration and the manner of outlined and then also.
On sort of a second part to that how much of the eventual 6% to 7% stabilized yield is dependent on.
Income from the residences versus sort of the main hotel if you don't mind.
Yeah, Let me, let me start off with of financing.
So roughly 75% of the transaction was financed with cash on hand using.
A notable portion or.
Part of our excess liquidity that we have been holding up we still have excess capacity pass. This there was about $200 million went to the cash portion of the transaction the.
The other part of the transaction and I actually think it was an elegant solution to deal with different aspects of the transaction was a preferred.
Equity.
Issued directly to on other seller.
Debt preferred which is 100% callable at our election Theres no five year lockout, which is typical for preferred so completely at our election.
Bears an interest rate that is tied to the yields of the hotel. Obviously this is of hotel just opened up and would expect to ramp.
Including the delivery of the montage Healdsburg residents, which will have the option to be put into the rental program, which will become.
Call it.
A 10% of the total earnings of the hotel, but we'll just add another dimension.
Of the resort as a reminder, we will not on the residents of on a will continue on those lots of develop those residences.
But there are an important part of the long term earnings power of the asset.
So to me rich it was we were able to hedge out of portion of the operations.
<unk> 25 per cent of the operations of the hotel on the short term, but we would love nothing more than that to become an incredibly expensive piece of preferred paper because of that means that the hotel is doing exceptionally well and at that point, we are 100% free at our option to finance at $66 million.
With the.
Lower coupon.
Security or cash on hand, or what have you.
Okay great.
Yes.
That's great and then.
Second question here, just looking at the very strong rate performance.
At several of the resorts that you mentioned, while and oceans edge and so forth.
How much of that would you attribute to the mix of the hotel whether it was on the room mix the customer mix, probably one and the same I would imagine.
And how would you expect that to trend as we kind of move along and the hotels open up more fully as we get through the year here.
Yes, I think it has less to do with with mix quite honestly rich and quite honestly I think it has to do with the amount of pent up demand.
For properties like that and experiences like that.
People want to get out of their homes they have cancelled numerous vacations.
Wealth.
<unk> has increased oddly enough through this entire pandemic and people are looking for experiences such as Hawaii, why layout oceans edge key west et cetera.
So I would say, it's predominantly that and as demand has come back and we started off Huawei and and Occupancies and the teens and I think I remember, saying on one of our conference calls start booking now because we're going to quickly get to a sold out point.
And that is coming true when when you take a look at our bookings for this summer.
And our bookings are.
Well ahead of normal pace at a far higher rate I would encourage all of you to take a look at for example, our availability and while they are for June there are very very few dates left to check in.
And they are all at extraordinarily high rates and demand is there.
And we expect other parts of our business to start seeing that snapback in demand as well it is taking longer for commercial and four group.
And I firmly believe that and through conversations with meeting planners etcetera. There is a lot of pent up demand.
<unk> hotel for hotel and travel.
Alright, great. Thank you.
And as a reminder, please limit your questions to one question. Your next question is from Danny.
Assad.
Hey, good morning, everybody actually of a little bit of a follow up question on to Rich's original question.
But at more of like a flow through question right. So during the stage of this recovery. We know there's like an element of bringing cost back into your operating structure, but at this time around you have assets like the montage wire lay out oceans edge and they're all probably going to be generating pretty significant ancillary or of non room revenues and you have guests spending.
More time on property so.
John when you look at this early cycle recovery versus let's say the last one how do we think about any upside that Samsung can have here from a flow through standpoint.
Several things and their data and by the way Hello.
Several things and there.
First and foremost we have the opportunity.
And the opportunity, we probably never thought we had to effectively zero base these budgets and add back incremental services.
People.
As occupancy ramps up it is not a one size fits all approach I would tell you that those hotels that are running.
Excuse me lower Occupancies.
We are very focused on on on.
On expenses, adding back slowly et cetera.
Those hotels such as wildfire.
And that is currently running a call at a five six $700 right.
Oceans edge, that's running and some days running of four five $600 right.
And have certain expectations from guests debt, we are balancing and meeting.
And so those hotels that we see this business coming back we are quickly adding back those services because it's the right business decision for the long term.
So it's I would say that it's a mix.
Now the real question is which you brought up is what do we do long term and at how much have we learned from this experience to increase our margins going forward I can turn it over to Chris <unk>, who I know, Chris and Mark have both been and direct lines of conversation and a four.
Months and months.
And working with our operators to talk about what the operations look like and the future.
Chris Thanks, John and.
Nice to hear your voice Danny.
And the Big picture standpoint, our operators have figured out how to operate our hotels much more efficiently.
And whether it's managers that are taking on more responsibilities within the hotel if they if they only manage one department before now they're very comfortable.
Managing two or three and then when we look at adding back services as John mentioned.
Doing it when it makes sense, whether it's at why layer of whether it's at oceans edge. If the guests are looking for those services, we're adding it back when it makes sense for us and the customer.
And whether it's food and beverage whether it's valet parking.
And right now as we add those back we expect them to be incremental where in the past maybe maybe they weren't incremental to us. In addition to that some of the big management companies have really.
Taking the opportunity to engage with us understanding more of the ownership perspective.
And recognize that at.
At the end of the day, they are spending our money and going forward.
And the recent.
Perspective, they pulled back a lot of programs and now there is of dialogue as they add them back similar to adding services at the property level, adding services back whether its brand standards expectations and that the key thing is there is there is appears to be a lot more flexibility going forward and what makes sense for each of the assets.
Versus just on across the board.
Implementation.
Got it thank you very much.
Thanks Danny.
And your next question comes from David Katz.
Hi afternoon, everyone.
At the time.
Hey, Dave.
John I got stuck on one line I don't want to say stock because that sounds negative, but one line from the release jumped out at me.
Which is we would expect montage to be the first of several acquisitions.
Completed over the early stage of this new operating cycle.
Would you mind, just elaborating a bit more on.
What you were all thinking when and when that when you put that in there.
Yeah sure David fairly straightforward.
<unk>.
We have said repeatedly debt we're unlikely to be.
Acquisitive or less likely to be acquisitive later on at an operating cycle. We've had numerous conversations about that and what we've done is built up capacity, we didn't know how the cycle would end.
And one of only knows that we weren't anticipating at pandemic, but here we are nonetheless.
We feel more confident early on and on operating cycle to put capital to work.
To use.
A good portion of our.
Of our excess capacity and actually to increase our normalized leverage levels, all consistent with what we've been saying for the past.
Basically decade.
And so we would anticipate to be more acquisitive.
Here on these early days of this cycle, we have been working on acquisitions, Robert and the team and we're working on acquisitions for.
Eight nine months shortly after we just got our footing and the pandemic, even though things were still rough we set our eyes on growing the company.
And so we've been having a lot of conversations with folks and hopefully we are successful and acquiring not just any hotel, but long term relevant real estate.
And doing so successful at because we think that those assets will not only standard of time, but deliver superior returns.
I'd also tell you at.
Should not be lost on people that those companies with the better balance sheets are those companies striking first and those companies that I believe will be more acquisitive.
Through this cycle than others.
So.
Okay.
<unk> on the on the deal at two.
Beautiful hotel good luck.
Thanks, David.
And your next question is from Smedes Rose.
Alright. Thanks.
Just wondering you mentioned youre seeing some acceleration and.
At group bookings outlook and.
When you're at.
What are you guys getting any sense on from the corporate side that theres any pullback on business spending or corporations getting used to having not had at travel budget and really for the last year or so and.
Wanting to kind of impair that going forward or is that and not something that's really coming up and your conversations.
Conversations.
No not coming up and our conversations yet with the first the first question really has been can we have the meeting and people are getting far more comfortable that those meetings are happening.
Some are happening and the second quarter several of our happening in the third quarter and all of water happening and the fourth quarter as people get more comfortable obviously.
The dynamics could currently dynamics could change over time, but that's what we're seeing and conversations are operating as conversations of the meeting planners.
Oddly enough, we've actually seen a fair number of groups at.
Actually increase their book and keep their spend and so.
So far we have not seen.
Lots of instances, where people are coming and materially cutting their expenditures and.
And in fact at one of our one of our large hotels, we just booked a significant book of business over the past two days for early 'twenty two.
And the food and beverage component was spectacular.
So I would say that there is I continue to believe that there is pent up demand for group.
And it won't come on a straight line, but on fueling I'm feeling good about it.
Okay, and then could you also just maybe touch on of anything Youre seeing on the labor side and <unk>.
And I'm sort of.
Ability to bring people back or having to pay more to get people to come back or anything youre seeing there may be of short term debt.
Sure. Good questions means we are having some challenges filling open positions at several of our hotels.
And including her most notably at some of the resorts that have rebounded so quickly and I think there's a few reasons one.
Through this pandemic there folks several folks still have children at home that are taking classes remotely.
And that's making it difficult to get back to work.
But we believe that the largest factor at play is the government benefits, including extended unemployment.
Debt are a great safety net but at the end of the day Unfortunately earn disincentive to work.
That said our operators are finding ways to get the job done.
And.
And as Chris had mentioned earlier finding ways to do at efficiency efficiently, which has created some savings.
And I would expect that this challenge to remain in place at several of our hotels.
Largely through labor day, and at SAR flopped at once the extended unemployment benefits.
Spire and.
And kids can go back to school and person.
A good portion of these problems should should mitigate.
Okay. Thank you.
And your next question comes from Anthony Powell.
Hi, good morning.
And sorry, if you went over this already but just could you go over how much actual capacity you have on to year on year credit facility agreement too.
On the hotel with what current liquidity.
Your appetite to do Atms or other equity offerings on.
Further deals this year and.
And your overall financing outlook for two of these transactions.
Over the next couple of years.
Good morning, Anthony.
We've talked about this several times, but while we did not.
The build of balance sheet geared for a global pandemic, we did build of balance sheet debt was built.
To withstand of significant cyclical downturn.
And so if you.
If you go back and look at our 19 earnings and you.
Or to say, we would achieve 50% of our 19 earnings that would put our leverage at about four times at 75%, we would be about three times.
These are lower leverage levels than many of our peers were at prior to the pandemic.
So what this means is we have significant capacity.
We have we have room and the balance sheet as EBITDA comes back.
Two.
Have the option to decide how to fund future acquisitions, whether it'd be through asset sales. We have 165 million net of cash remaining on the balance sheet, we have the credit facility.
And that's undrawn at this time, so we have a lot of different options.
As John said.
The.
Overall plan ways was always too.
Increased leverage early in the cycle, and then moderated down to where we have always had our peak of cycle targets and so we expect to continue to do that that will that doesn't mean that every deal will be debt funded.
But it will be a mix of of.
Of that of.
Equity at the right time, and right price and and.
And also asset sales that we can use to.
We can find acquisitions and the future and so it'll be a combination of those but the bottom end of line is that we still retain <unk>.
<unk> cash on the balance sheet and more importantly, we retained significant capacity and the balance sheet.
And just to be clear, so do you need to be out of it.
Amendment actually habits capacity or can you access some of that as of now and when.
And make sure and.
And everything.
We can use several of those levers now and then based on our expectations and our projections.
It will be in the latter part of this year, where we expect to.
To be able to exit.
All of the covenant restrictions at that time.
Alright, thank you.
Thanks Anthony.
Your next question comes from Chris <unk>.
Rocco.
Hey, good morning, guys. Thanks for taking the questions.
Maybe we could talk a little bit more about acquisitions more broadly.
It seems exists.
Yourselves and maybe some of your peers have an idea to maybe make a little bit more of a bet on leisure or resort market.
And this next up cycle. So the question is kind of.
Is that correct, but at what point does and urban opportunity come along and are you.
Willing to even consider those or are there certain bets on markets of receipts or segments that you really don't want to make.
Montage Healdsburg is obviously a.
Leisure oriented.
Resort luxury resort, but also has a group component and smaller group component I would not take that acquisition as we are solely focused on resort acquisitions. We will continue to look at resort acquisitions.
And we're a long term owner.
Robert and the team of underwritten.
Urban hotels group hotels et cetera, and we will continue to right now resort is favored.
But that too at some point and will change and I think and the not so distant future and then we will.
Share recovery and group and transient so we have taken a look at all types of hotels, but we are not moving away at all from the desire.
The other direction of other long term relevant and real estate.
Okay. That's helpful and John you mentioned earlier that.
Youre seeing a lot more price discipline right now, even though occupancy levels are way below 2000 <unk>.
Below 2019 levels.
And some of your hotel what do you think is driving that is that is that just a function of <unk>.
Different people in different places at the at the operators or is it is at a computer computer and kind of learning or how do you how do you explain it.
I think more discipline around the topic and even at some of those markets where we are.
Our occupancy is unbelievably low we've we've held firm and said we're on.
Likely to spur incremental demands is dropping dropping rates further now keep that on a perspective, we have several hotels that yes have dropped rates, but not as much as we thought would have been the case, given the very low occupancies and other areas, where we see strength and day.
<unk>.
We are being incredibly aggressive and pushing rates, where we can and thus far we are not seeing pushback from the consumer and in fact and consumer continues to come which I think is more evidence of the pent up demand to travel and that I think is going to be robust for quite some time.
Okay very helpful. Thanks, John.
Thanks, Chris.
Your next question comes from.
And Michael.
Well.
So Rio.
Hey, Michael morning, guys.
Hey, John.
One question two parts of our I just back to montage.
If you look out over the next three to five years.
Sure.
Alright, so underlying assumptions will give you everything but effectively the ADR that we're assuming and.
And our ADR levels that are already captured and had been captured for years and that market. It is one of the highest ADR markets on the luxury set.
In the country and.
And some of those hotels that we believe we will go head to head with have consistently generated eight yours of 1100 plus dollars.
Right.
Very very strong transient very strong weekend, and very strong seasonally and into the fall of the crush et cetera, and also with the number of events that are held and the overall wine region Napa and Sonoma.
Drive pretty significant business.
The margins on this type of hotel I would say just in general of typically in the mid twenties of 30% EBITDA margin level.
There is a lot of food and beverage there is a lot of other income.
Net moves through a hotel like this.
So those of the those of the general parameters, but I want to make one point of abundantly clear that we are not assuming anything that isn't already being done and that market.
And given the sense of place.
Given the montage name.
Given the quality of the asset we feel very comfortable about hitting that all of our stabilized basis.
To your question about supply.
Unfortunately.
There was a tragedy and the Napa area of.
Of Calistoga ranch being broke down and the classifier and metal would primarily leisure and group hotel, but at a formidable group hotel.
<unk>, partially burned down and the glass fire.
That has taken out a decent part of supply part of that supplies being we expect metal wood too we have heard of metal wood will eventually come back it's unclear about calistoga.
And.
And it's being replaced right now by montage and soon to be completed four seasons poor seasons Napa.
So I think the market has the ability to absorb those rooms.
But honestly I wish we on weekends and and special weeks I wish we had a much larger hotel because the amount of of turn away demand that we have at montage healdsburg.
And as significant.
So we feel very good about at Michael.
Very helpful. Thanks, John.
Thank you.
Your next question comes from Lucas Heart, which.
Thanks, and good morning.
Hey, Lucas.
So when it comes at LDR acquisitions.
There is a limited opportunity set and there is a ton of competition for those assets.
Would you ever consider investing outside the U S. Clearly, there's a lot of hotels and I think we hit that.
And that target in terms of type of hotel, but and it's obviously outside of that so I'm. Just curious how you guys think about that.
Never say never but.
Pretty comfortable saying not know and probably not soon.
Given the tax implications given.
And then then becoming experts on different markets given the.
Some of the challenges and asset managing those assets from afar.
So I would say not on our radar screen right now Lucas.
Plus I think that there are plenty of target opportunities here.
We continue to.
Either underwrite or.
And keep our eye on keep in mind at the relationship with <unk> has been developed over the past 10 years, we've been talking to them about this asset for several years.
And it finally came together together over the past eight and nine months, sometimes these things take a very long time to nurture of the relationship and get at Dawn.
So we continue to do that and I think there are a lot of opportunities for us I do believe that it is a very highly sought after asset class.
Which again is one of the reasons, we like it.
As you've seen in this downturn.
Asset values for LCR or do not dip as much as commodity price commodity of hotels I think they not only keep their asset value, but increase their asset value more than a commodity of hotel and there will always be a buyer for that asset.
Thank you.
Thanks, Lucas and your.
Our next question comes from Steven gambling.
Okay.
Hey, good morning, as you look at the urban markets, perhaps can you just.
Give us a little more color on what youre thinking about business transient recovery and maybe the interplay between group and leisure in urban markets.
Sure urban market has been slower to come back is I think been widely known Boston has been slow Chicago slows San Francisco slow, but we are starting to see a nascent recovery in and business transient and those markets.
We are seeing as we talked about on our prepared remarks that transient reservations.
Every single week since the start of the year of basically increased and continue to increase.
And so that gives us confidence debt business is starting to come back now what I think is a big wildcard debt.
I'm actually pretty bullish on.
Is <unk>.
Many corporations are starting to talk about going back to the office as soon as memorial day and his latest labor day.
And we have heard that many corporations are allowing people to travel as soon as they get back and the office, we've heard that anecdotally from numerous corporations.
That is the case and giving the booking window on that business. I think there is a very good chance that we start seeing a pretty rapid increase in business transient or commercial travel starting this summer and then accelerate meaningfully after labor day.
We shall see.
That's helpful and I guess as you think about pricing just as a quick follow up.
And if business transient ends up plateauing, maybe not quite where you were pre pandemic.
Does the pricing.
On behavior change, where you try to you would anticipate that some of those properties could try to backfill.
And the software business transient with strength and group for the strength in leisure.
Back filling.
Good question some of our larger and some of our larger hotel Citycenter hotels do have the ability because they actually of a fair amount of meeting space take a look at Embarcadero. For example, that's one where I think the hotel is actually very well set up to backfill with other types of demand whether it's in house group.
Leisure on the weekends sitting right next to the ferry terminal building et cetera, So I can see that I.
I think it's at probably on a case by case basis, but you can see net.
That's helpful. Thanks, so much.
Thank you.
And your next question comes from Floris Van der COVID-19.
Hey, guys. Thanks for taking my question.
And I hate to do this you guys, because but I'm going to asking another question on your montage acquisition.
And I guess the danger of when you only have 17 assets one of them can dominate.
Hmm.
John what would you say to the.
To the comment that Youre, basically, making a beta of bets on on resorts and and at what price or what kind of EBITDA level would you say that you had surpassed all of this has been a homerun as it is at north of $20 million and north of $25 million a year of sort of assuming.
$17 5 million of.
Of EBITDA.
On a stabilized yield do you think that this has the potential to get up to those levels.
Yes.
Okay.
Thank you.
And if we achieve the $6 seven yield on an asset like this.
Think buyers and today's interest rate environment quality environments.
Et cetera, I think and asset like this could be price.
Sub five probably even mid fours cap rate.
If we get to that level of earnings, which I think is doable.
I think this hotel as a homerun.
Plain and simple and price per key starts becoming irrelevant and it really comes down to EBITDA production.
Take a look at the same thing that we have and while at.
While lab people thought we overpaid for it I think that asset is probably worth per million one of $1 two plus of key because it is so productive and there again, there will always be a buyer for it.
And now did we have our struggles during COVID-19 share, but that hotel is ramping so quickly because people want to be there. It is a spectacular experience and those of the types of assets that we're going to go after so yes.
And I'm very confident and.
And this acquisition and I think we can achieve those numbers.
Thanks and maybe.
One follow up in terms of.
You have to lease holds remaining.
And one of them being the Hilton I think bayfront and.
And is the fact that it was leasehold and presumably I would've thought at that hotel would of had positive EBITDA given that at the resort hotel and it's and a drive to market, but it actually showed.
Largely negative EBITDA for the for the month of is that partly because of the.
The lease payments that you have to make there and what are your thoughts about potentially buying those out or disposing of that and I think the Magnus and miles the other leasehold and your portfolio.
So at the Hilton Bayfront is of 11 90 room spec.
Spectacular group hotel and.
And our team of phenomenal team on property there have done a great job of running at that hotel at.
As a seven to 900 room transient hotel on the weekends and picking up that business. Despite the fact that the hotel really was not built for that type of business. So the profitability of that hotel is going to absolutely take off when groups come back and wound care and comes.
Back because of that is what that hotel was built to do we have stemmed our losses there.
Because of that transient business, but I would not I would not define that as a transient resort.
The lease payment does make a higher hurdle to the EBITDA line.
But we are confident and Chris and Mark.
So if the asset managers were all down and in fact, we're doing a lot of work to the hotel now as the building is slow.
But we are highly focused on returning that hotel to significant profitability and we believe we will do so later on and the year and into next year as group comes back.
Thanks, John.
Thanks Louis.
And now I would like to turn the call over to John <unk> for closing remarks.
Well. Thank you everybody for your interest very much appreciate it we are all here in the office. If there are any follow up calls.
Have a wonderful day and of Great summer take care.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
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