Q1 2021 CorePoint Lodging Inc Earnings Call

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Yeah.

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Good afternoon, which conference re dialing in for today. Please.

The core point lodging earnings call.

Thank you very much share may I. Please have your first and last name.

John Brown, J O H N B R O W N.

Thank you very much of Mr Brown, which company day represent Sir.

Error AI E R. A.

Yeah.

Alright, Thank you very much Mr. Brown I could try another call. They haven't started yet they should start on a few minutes or.

Okay. Thank you.

Gotcha.

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Yeah.

Okay.

Good day, everyone. This is the core point watching first quarter earnings conference call I would now like to turn the conference over to Becky Roseberry.

Good afternoon, and welcome to core point logics first quarter, 2020 One earnings conference call at the moment, we will have remarks from Keith Cline, our CEO and Dan Swanstrom, our CFO before we start I would like to remind everyone that our remarks today will include forward looking statements actual results.

Could differ materially from those indicated if bookings chemo and forward looking statements made today speak only to our expectations as of today, we can do not undertake any duty to update forward looking statements. These statements are subject to risk factors that may cause our actual results to differ materially.

From those expressed or implied for more details on some of these risks. Please refer to the risk factors section of the company's most recent annual report on form 10-K as filed with the Securities and Exchange Commission on March 12, 2021 in today's remarks, we will also refer to certain non <unk>.

<unk> financial measures corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP tricks are provided in our earnings release, which is available on our website at <unk> Dot com finally for those listening to a replay of this call. After may six 2021, we remind you that this presents.

She will not be updated and it is possible that the information discussed will no longer be current with that I will now turn the call over to Keith.

Thank you Becky and good afternoon, everyone and welcome to our first quarter call. We are pleased you can join US and also I want to thank everyone for their patience as there was clearly some technical issues and getting this call started today.

While the global pandemic is still creating a challenging environment for core point as well as the lodging industry in the U S and global economies. The performance of our portfolio of select service hotels has strengthened from the seasonally low demand periods of November through February I am pleased with the work that our corporate team and third party manager have done as we continue to.

Balance the need for a vigilant focus on cost containment and cash preservation, while quickly responding to the accelerating the main environment over the last two months.

With nearly 80% of our non core dispositions either sold or under contract. We're also very pleased with the attractive multiples and sales proceeds were generating the pay down debt and create value for our shareholders Dan will get into more of those details later.

Turning to operations our portfolio of select service hotels has continued to outperform the broader lodging market.

We were able to achieve property level EBITDA of $8 million for the quarter, which includes the seasonally low demand periods in January and February.

We have continued to experience of market improvement in operating results with strong Revpar index gains.

This relative outperformance is occurring most dramatically in our drive to destination markets, including those in Florida, California, and other Sunbelt states.

Leisure travel currently represents over two thirds of our bookings and weekends are still outperforming weekdays and.

In addition to leisure we are seeing some recovery in certain segments of corporate travel related to our central businesses, such as construction transportation and project related businesses.

As we have noted on previous calls our fourth and first quarters are historically part of our slower non peak season.

To that end, we have achieved comparable occupancy of 53% in comparable revpar of $39 for the first quarter with March being our strongest month at 62% comparable occupancy and $48 of comparable revpar.

We continue to see positive momentum into April with even stronger comparable revpar of $52 <unk>.

Given the relative strengthening in demand our asset management team is working closely with our property manager to drive rate Opportunistically and capture the property level EBITDA opportunity.

With demand strengthening at the onset of the spring break travel season in March and our mix of leisure traveler, we have consistently delivered weekend rate growth.

While we are optimistic about this current trend as well as the continued rollout of the COVID-19 vaccine and easing of restrictions, enabling the opening of attractions and travel are default posture will be the maintain a tightened reign on cost control initiatives until the demand returns closer to pre pandemic levels, while adjusting property level cost to meet customer needs.

Given the positive sequential trend in March and April and the continued success, we're having in disposing of our non core hotels I want to highlight the performance of our core portfolio.

This portfolio of 105 assets, which are mostly located in the top 50 Msas continues to outperform with over 1000 basis points higher Revpar index gains that are non core portfolio for the first quarter of 2021.

With approximately $8 of roughly 23% higher revpar values that are non core portfolio in the first quarter. The core portfolio produced stronger hotel level EBITDA margins and continues to narrow the year over year Revpar percentage decline GAAP as compared to the noncore portfolio.

With the concentration in higher growth West Coast and Sun belt markets. We continue to believe that the core portfolio represents our higher quality and growth potential assets.

Lastly, we continue to think it's realistic to expect it will take some time to see a full recovery in our business and the lodging sector. In general we are optimistic for the future, though given the strong positioning of our geographically diverse portfolio continuing vaccine deployment the impact of additional stimulus measures and our exposure to <unk>.

Robin drive to destination at Interstate adjacent locations with that I'll turn the call over to our CFO, Dan Swanstrom Dan.

Thank you Keith and good afternoon, everyone I will start today by providing a brief review of the first quarter operating results and recent trends I'll also provide updates on our balance sheet liquidity position and non core disposition strategy.

The comparable Revpar decline of approximately 24% during the first quarter was driven by a 22% decrease in ADR and a 150 basis point decline in occupancy.

As expected the decrease in year over year total revenues is primarily due to the reduction in room rates and demand, resulting from the impact of COVID-19, as well as the impact of sold hotels for.

For the quarter, we achieved hotel level, adjusted EBITDA of <unk> of $8 million and adjusted EBITDA, our EBITDA of $3 million.

On a sequential basis, the positive $3 million of adjusted EBITDA.

Compares favorably to the negative $5 million generated in the fourth quarter of 2020.

As Keith mentioned, we are encouraged by the most recent operating trends for the month of April 2021, preliminary operating metrics are pointing to the best monthly results since the start of the global pandemic with comparable occupancy of 62% comparable ADR of $85 and comparable <unk>.

Par of $52.

Our portfolio of select service hotels predominantly focused on the mid scale segments is well positioned to capture of the current levels of transient room demand our portfolio footprint is mostly in suburban markets near multiple demand generators, and we are benefiting from leisure and other guest demand for drive to destinations and Interstate adjacent Ho.

<unk> these characteristics continue to be positive differentiators for the core portfolio.

Now to our balance sheet year to date, we have repaid approximately $73 million in total debt, resulting in an approximately $295 million of total debt repaid since the beginning of 2020 and approximately $410 million of total debt repaid since the inception of our non core disposition program.

As of today, we have paid down our CBS debt to $657 million through the continued use of net proceeds from asset sales and we've paid down our revolver balance to 80 million using cash on balance sheet.

Our current weighted average interest rate is approximately three 3% the.

The next maturity date for our MBS loans is in June 2021, However, we of borrower options to extend the maturity date for for success of terms of one year. Each through June 2025, we recently provided notice to the lender to exercise our next option to extend the CBS facility for one year through June 2022.

With respect to our revolver as we discussed on our last call. We were pleased to execute of loan amendment with our bank group that extended the revolver maturity to May 2022.

From a liquidity perspective, our cash balance today is approximately 145 million, which excludes lender on other escrow of approximately 40 million of.

Our current liquidity reflects the recent positive momentum and operational performance and compares favorably to the cash balance of approximately $130 million at the time of our last call on March one.

We are encouraged by the current trends as Keith noted earlier, we are maintaining a focus on cost containment and capital preservation initiatives.

Turning to our non core disposition strategy during the first quarter, we closed on the sale of nine hotels for total gross proceeds of approximately 42 million subsequent to quarter end. We have closed on the sale of six additional hotels for total gross proceeds of approximately $37 million.

The $79 million of transactions were completed at attractive valuations and average 2019 revenue multiple of approximately two seven times two.

2019 hotel adjusted EBITDA multiple of approximately 15 times and about 45000 per key.

Since inception of our non core disposition strategy. We have now completed the sale of 120 hotels for approximately $530 million in gross proceeds at highly attractive valuations we.

We achieved an average 2019 revenue multiple of approximately two six times, which is slightly higher than the midpoint of our valuation expectations range.

We also have an additional 48 hotels under contract with qualified buyers that are expected to generate total gross proceeds of approximately $278 million at generally similar valuation levels to those achieved to date based on average 2019 revenue multiples.

Between the 120 hotels sold to date and these 48 hotels under contract we've addressed about 80% of the 210 hotels, we identified as non core this strategy as a proven value creator for four point and we look forward to reporting our continued progress on the strategy during the year with that we will open the <unk>.

<unk> for your questions operator.

Thank you. Our first question comes from the line of Chris for all day.

On.

Hey, good afternoon, guys Hey, great.

Hey, how are you.

Question was on the first question was kind of on.

Visibility of booking Windows and I know for your business, it's always inherently short, but even a little bit of direction can matter right. So I'm curious as to whether you saw any lengthening in the in the.

Admittedly short booking windows of.

The booked in the in the first quarter or whether youre seeing that kind of present day.

Yes, Chris that's a great question the booking window continues to be very narrow.

As we've discussed on previous calls as we move through the pandemic the booking window narrowed further compared to historical results over the past, let's call. It two to three years.

The results today continue to stay on a very narrow booking window, especially around people, making the choice to pursue leisure travel issues as you approach weekends.

Okay.

Okay. Thanks, very very helpful. And then could you give us maybe a little bit of a sense for right now or historically, how much kind of delta of the range between weekend or leisure rates and weekend weekday in more of commercial rates is there any way to kind of triangulate that.

Well I don't have the daily rates mapped out in front of me, but certainly as you think about weekends.

As I mentioned in my prepared remarks since the beginning of the spring break travel season, we really have been able to drive fairly consistent rate growth on weekends, and that's really reflective of the fact that.

Slightly more than two thirds of our bookings today are leisure and the leisure traveler really does seem to be out there around either events weekend long weekend destiny destination markets et cetera, and it is providing albeit on a relative basis, some opportunity to push rate given the the compression of demand.

Okay, Yes sure understood.

And then maybe can you talk for a minute about labor theres been a lot of headlines of lot of questions on all of the hotel calls about what Youre, what youre seeing in terms of hourly impact on on availability of workers, but also kind of expectations for hourly rates. So any color there would be great.

Yes, Chris there has been a lot of discussion of both across the industry and obviously on the calls around the labor issue, we came into the pandemic as an industry with the labor shortage and that labor shortage has increased obviously the industry has done a lot of things similar to what we're doing for example, not cleaning stay over <unk>.

<unk> right to kind of create additional housekeeping capacity and the hotels. Obviously, we are in dialogue every day with our third party manager on either a combination of incentives of our programs to incent people to jump into the hospitality industry and once they are in incentives for them to stay so we are in.

Active active discussions now on programs, we'd like to deploy as we go into the summer months.

But rest assured the the shortage of labor today is certainly one of the top topics in this building.

Okay, great very good thanks, guys.

Thanks, Chris.

The next question comes from the line of Omer Sander.

Hey, Keith and Becky I appreciate you taking the question.

We share the color on some of the more recent April trends.

You discussed the 62% occupancy, which is the nice step up from the recent months and quarters, but how does that compare to 2019, and then I guess do you see of path.

We sit here.

The six months from now.

Do you think that there is a possibility that you are back to 2019 levels on the occupancy from <unk>.

While that tends to be the question right and if you think about.

The way that occupancy has laid out of what youll see in our Q.

Once that has crossed the line there are some charts.

And the document the layout of Jan February March and April and show 19, 2020, one and what Youll see in there is that the 62% in April for 2021 compares to 71% in 2019. So obviously, we're still lagging 2019.

We are encouraged as I mentioned in the prepared comments around this trend and I think the rest of the story honestly will play out as we as we go through the summer months and really see how strong peak season is this summer I don't want to go out too far right now in project crossing 2019 results, but we are certainly encouraged by the.

The amount of the GAAP versus 19 Thats been closed in the last couple of months.

Yeah.

Okay. That's helpful. I appreciate it and then one on one.

The one on asset sales and obviously you've had.

The progress on that front, but.

I guess not just any of your of seller of assets in the core markets that that's not where you guys are trying to do but.

How are the asset values compare in the core markets versus the non core markets.

I guess, where I'm going with this question is if youre, 80% of the way towards that 210 is there possibility of that at some point of view kind of flip the switch can become.

And then correct the buyer of assets.

Yes, I mean, so obviously, we're working down towards the 105.

Core assets in our portfolio, we did provide a little additional color on our prepared remarks around how the core has been performing but the reality is the core portfolio does get valued a little bit differently as we've talked about the noncore portfolio of generally the way the buyers look at these assets as on a multiple of <unk>.

Revenue.

Given that theyre going to underwrite of different cost structure, just given the markets. These assets are in and the fact that the switching from being institutionally managed to in many cases owner operator managed as you look at the the core 105, I mean, those are going to be valued similar similar to how you would value many of the hotels in our competitors' portfolios really based on.

The EBITDA multiples and cap rates and certainly their one size certainly doesn't fit all now I know in some previous investor decks. We tried to provide some of the building blocks on getting the value of maybe I'll kick it over to Dan to lay out.

In the last investor deck.

What was laid out in terms of.

The kind of the details to get to evaluation.

Yes, Omar if you recall, when we announced the phase two of the non core disposition strategy.

It was back on our March 2020, Investor presentation, we provided some details related to the core portfolio, which represents 105 hotels.

Our again about 50% in our core states of Florida, California.

And Texas and we've provided what those produced in 2019, which was about $410 million of total revenue.

And about $108 million of total hotel EBITDA and as we've mentioned several times in the past at corporate portfolio, which produced 26% EBITDA.

EBITDA margins in 2019.

As has been significantly stronger performer with respect to <unk>.

Margins versus the non core portfolio that we've been selling.

And as Keith mentioned kind of that value arbitrage selling out of revenue multiple and significantly in excess of <unk>.

EBITDA multiples for the non core portfolio.

Thanks.

There are no further questions at this time I will now turn the conference back over to Keith Cline.

Thank you. Thank you. Thank you all from the time today and once again. Thank you for your continued interest in core point lodging have a great day.

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