Q2 2021 Chatham Lodging Trust Earnings Call
Greetings and welcome to the Chatham Lodging Trust second quarter 2021 financial results Conference call.
The time, all participants are in a listen only mode.
And the answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I'll now turn the conference over to your host Chris Dailey you may begin.
Thank you smiling.
Good morning, everyone and welcome to the Chatham Lodging Trust second quarter 2021results conference call. Please note that many of our comments today are considered forward looking statements as defined by federal Securities laws.
These statements are subject to risks and uncertainties, both known and unknown.
Crowds on our most recent form 10-K, and other SEC filings all.
All information on this call is as of August 3.2021, unless otherwise noted and the company undertakes no obligation to update any forward looking statement to conform the statements to actual results or changes in the company's expectations.
You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website of Chatham lodging Trust dotcom.
Now to provide you with some insight in the Chatham the 2021 second quarter results allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer.
Dennis Craven Executive Vice President and Chief operating Officer, and Jeremy Wegner, Senior Vice President and Chief Financial Officer, Let me turn on the session over to Jeff Fisher Jeff.
Well, thanks, Chris Good morning, everyone I appreciate everyone who's joining us this morning.
Good to be here and talk a quite a bit about.
Our quarter and the successes that we had we became cash flow positive after corporate G&A. After all debt service in April the second hotel REIT to reach that achievement for the quarter, we generated <unk> per share of <unk> 10 cents up 36 cents over the same quarter last year, we saw.
Excess fully executed our first preferred stock offering, which was well oversubscribed raising $120 million and using a portion of those proceeds we are positioned to acquire 2 incredible premium branded extended stay hotels of.
Adjacent to the domain in Austin, Texas on market that we all know is absolutely thriving and will generate meaningful revpar growth and EBITDA growth for us going forward.
Our revpar continues to grow meaningfully each month driven of course by strong leisure travel, but aided by a bit of business and other non leisure travel our operating margins continue to accelerate now at 43% and not far off 2019 operating margins of 46%.
Despite much lower revpar and the brands are finally, tweaking housekeeping standards and other complementary service requirements that you have been asking and talking about with the brands for many years.
Before I touch on operating trends I want to emphasize our corporate efforts.
Because we've emerged from the pandemic, where the stronger balance sheet and more liquidity than we had going into the pandemic. Our liquidity was $135 million on March 31.2020.
And it fits of 253 million as of the 2021 second quarter, our leverage ratio was 36%.
On March 31, 2020 and is now 29%.
Hi, I'm real proud of that our lowest level in a decade reinforcing my point on EBITDA recovers, many probably don't realize that our debt to EBITDA ratio is going to be lower than it was heading into the pandemic to the tune of 1 on a half to 2 full turns lower excluding the.
The preferred and half to a full turn lower including the preferred.
Since April of 'twenty 'twenty, we have raised proceeds of approximately $251 million consisting of the 116 million preferred offering $70 million of asset sales at a premium cap rate of.
$40 million construction loans and common equity proceeds of $25 million.
We are using a $141 million of those proceeds to construct the 170 room home 2 suites in L. A.
Which is expected to open in the fourth quarter as well as to acquire the 132 room residence Inn and the 137 room tower place suites in Austin, Texas. All 3 of these assets are expected to generate stabilized cash yields well over 8%.
Repay the $13 million mortgage that matures this year and have no debt maturities until 2023.
Lastly, I want to highlight that our cumulative cash burn throughout the pandemic was only $35 million only about 70 cents of lost the equity value.
Our asset classes kind of continue to produce the highest occupancies in profit over the next year or 2 on.
I think we will be among the first the benefit from the return of the business traveler and other non leisure travelers, we should be cash flow positive from here on out even if there is a period post labor day, when leisure travel slows down a little bit of.
Of course, we expect business travel to start to pick up.
We have the confidence to go on the offensive we've signed the contract to acquire these 2 hotels after successfully managing our way through the worst era in the history of our industry and as we look to grow our portfolio.
We are going to increase our exposure to premium branded extended stay hotels and markets that appeal to a diverse set of demand generators.
In our Austin acquisitions are ideal additions to our portfolio. We are really excited about those hotels. These 2 hotels are 2 of our youngest 4 hotels with the town place suites, having just opened in June and we expect both hotels will enhance our portfolio of Revpar.
The domain in Austin is a master of rapidly growing mixed use submarket within Austin that is seeing the highest amount of growth in 1 of the fastest growing markets in the country.
There is already 4 million square feet of office space in the domain with another $3 million on of construction and another 4 million planned thereafter by the way that $3 million on the construction is of course not spec space, it's mostly all spoken for with large Ma.
<unk> Tech names that we are very familiar with from Silicon Valley, and our ownership and operation in the valley for over 25 years.
It includes significant retail and entertainment options as well as the multifamily growing rapidly for all of the new workers that need to be housed to work in the market that's growing so fast.
There's a brand new stadium for the Austin FC just open and it is already benefiting from other games such as the U S men's soccer team on the Gold Cup in the U S Women's soccer team and of friendly just before the Olympics. The domain is home to a who's who of today's top.
Please.
Apple IBM, Amazon Facebook Expedia V R B of indeed trend micro and many others.
As I said I think our familiarity with these customers specifically booking room should really enhance our operations both in Silicon Valley and our ability to ramp these hotels up, particularly the brand new town place suites very rapidly.
Acquisitions that match, our strict underwriting criteria remain difficult to find.
We'll stay disciplined and we'll use our precious capital and our liquidity to acquire assets that are going to be accretive to earnings value enhancing and really are based on a diverse set of demand generators certainly the pandemic has taught us a lot of lessons.
And and being a price.
Market that has the ability to generate.
Great midweek corporate business yet.
Yet have the base around it and the demand generators around it to enhance the weekend business.
Is obviously very important and kind of continue to be important.
Portfolio Revpar performance continues to experience meaningful growth month to month of 2021 second quarter occupancy was almost 70% in July occupancy was the strong 75%.
We're seeing demand from leisure health care government and military as well as the business traveler.
ADR is are already showing great growth as second quarter ADR of $127 as the.
Excuse me far outpaced by July ADR of approximately $152.
July Revpar of $113 is up 18% over June and up 30% over second quarter Revpar.
With only a handful of our 39 hotels located in pure of leisure markets our performance throughout the pandemic and continuing this summer proves the high quality of our assets and the flexibility that we've talked about with the extended stay business model and the strength of our opera.
<unk> teams.
Our portfolio sees demand from all types of travelers up and down the segments.
We have seen the return of the non leisure traveler as evidenced by occupancy patterns that are developing mid week, our weekday first quarter occupancy was only about 48% that's jumped the weekday occupancy of 65% in the second quarter of.
I'd like to also point out that our Revpar performance throughout the pandemic continues its impressive performance. This is important despite what I would call sluggish performance in our most significant market Silicon Valley Silicon Valley Revpar was only $73.1 of the <unk>.
Weakest of our top markets, but first quarter of Silicon Valley Revpar was $54. So it is beginning to show signs of life. We know that most of the tech companies and you read about it every day have said that they will come back to their offices after labor day, we've all read about.
Apple postponing that for about a month or a month and a half because of delta, but we still are hearing that other companies plan on resuming office operations, which of course should favorably impact our revpar in the valley.
Among our top markets, South, Florida remains on fire and our Fort Lauderdale residence and posted the highest revpar of all of our top markets with Revpar of $170 up almost $40 from the second quarter of 2019.
Second quarter, 2021, ADR was $195 almost $30 higher than 2019.
As we've said on our last quarter call, we expected our predominantly leisure markets to excel and of course, that's what we've experienced Savannah, and Portland, Maine continue to outperform.
As we look to the second half of the year. We all know the July and August as we're living it right now are gonna remains strong the question, everyone asking and honestly nobody knows the answer to is what's going to happen after labor day.
And the Delta of Varian as I said adds another layer of unknowns, but we do know that in most markets kids are going back to school and person companies are getting their employees back in the office, although some major companies as I said have delayed reopening by a month or so.
Companies will get their employees back to work and Occupancies, particularly in ADR.
<unk> mid week will rise.
We certainly believe that leisure travel is going to remain strong, especially on the weekends and holidays, but with kids in school as I sat in on employees back on the office leisure, obviously as the fall sets and will tick down.
We think that business will continue to cautiously expand their travel patterns.
And those travelers will be looking for cost conscious options as well as accommodations that in todays economy allow for a longer use than 1 or 2 nights day, obviously, our extended stay hotels suite that perfectly.
The recovery continues in the business traveler does come back we will continue to get more than our fair share of revenue because we've got the largest concentration of extended stay rooms of all lodging Reits and almost 60% and the business travelers going to get the most value and flexibility in our kind of hotels.
Our upscale extended stay hotels provide us the flexibility during periods of growth or weakness to diversify our customer base to maximize revenue.
<unk>, we believed in our spas for almost 4 decades with these hotels.
With that I'd like to turn it over to Dennis.
Thanks, Jeff.
Good morning, everyone. All of the 2 of our 39 hotels had occupancy over 50% in the quarter and that compares to 20 of our 39 hotels in the first quarter.
21 of our hotels had occupancy.
Over 50% in the quarter with a third of our hotels that had occupancy of over 50% in the third of of our hotels had revpar over $100 in the second quarter.
Looking at our most recent trends our portfolio continues to rise since the start of the pandemic. We produced the highest weekly ADR is over the last most recent 4 weeks and our highest revpar over the most recent 3 weeks in.
On June 6 of our 39 hotels had higher ADR of <unk> in 2019, and 3 of our hotels had higher revpar compared to June 2019, and.
In July of 2014 of our 39 hotels had higher ADR of 2019, and 11 of our hotels had higher revpar compared to 2019.
Just this past weekend over half of our portfolio produced higher Revpar again compared to 2019 or.
Our most significant brands in the quarter had the highest occupancies with the residence Inn at 73% Homewood suites of 70% and Hampton had the highest occupancy of 78% bolstered by strong performance at our Portland, Maine, and extra New Hampshire hotels that had occupancies of 72% and 85% perspective.
<unk>.
Looking at our top markets are supportive of suburban New York assets of New Rochelle, and White Plains had average occupancy of over 90% in the quarter up from 72% in the first quarter and ADR of about $150 on New York market hotels of performed the best of our top markets since the start of the pandemic sums.
You certainly aren't hearing about from many hotels in the Manhattan area.
In Los Angeles, we've shifted away from a lot of medical and government related business to leisure guests visiting Disney and South in southern California, and a little bit of corporate demand in our Marina del Rey Hilton Garden Inn.
In Dallas, we were able to scare of significant block of business related to the immigration department in our downtown courtyard hotel at our downtown courtyard Hotel and in Houston, We're seeing meaningful increase in demand attributable to the Houston Medical Center and MD Anderson on.
5 highest hotels with the absolute revpar.
In the second quarter were a residence Inn Fort Lauderdale that Jeff spoke about our Springhill suites in Savannah, Our Hampton Inn in Portland, Maine.
The residence Inn in New Rochelle, New York, and the residence Inn in White Plains, all with the Revpar of at least $130.
Our top 5 absolute occupancy hotels on the quarter, where the residence in new Rochelle of the Springhill suites Savannah, our residence Inn in Charleston, Summerville, our residence Inn in White Plains, and then a residence Inn Fort Lauderdale, all with occupancy of at least 87%.
Again, reinforcing the diversity of our portfolio only 2 of those 5 hotels would be considered predominantly leisure hotels.
All Linkedin, although our length of stay is clicked down a bit from the first quarter. We continued to see an average length of stay much longer the historical levels for our portfolio at our residence Inn hotels. Our average length of stay was 3.4 nights, which is down a bit from the 4 and a half nights in the first quarter.
But well above the 2 of $2.4 nights and the pre pandemic 2021st quarter.
For our Homewood suites hotels, our average length of stay was 3.4 nights.
Compared to $3.7 nights in the first quarter and $2.7 nights and the 2021st quarter before the pandemic.
From an operating expense standpoint, we continue to be hyper focused on every expense and we've been.
We've been able to produce incredible cash flow flow through of 65% on the sequential revenue improvement from the first to the second quarter on.
On an $18.6 million increase in hotel revenue, we drove an increase in GOP of $12.2 million, which is particularly impressive given the fact that portfolio occupancy rose from about 52% in the first quarter to almost 70% in the second quarter.
Because of that significant occupancy jumped we've needed to bring on more staff or use outside labor to service our front of house operations as well as service our rooms.
We continue to invest in data analysis on the operating expense side and working alongside island. We have of best in class operating model that drives premium of operating margins, we've generated positive GOP and hotel EBITDA each month during 2021, our second quarter operating margins were 43% on revpar of $87.
Which is of 43% increase over our first quarter operating margins of 30% on revpar of $55 flow through on operating leverage within our portfolio remains strong.
If you look at our 39 hotels 38 of our hotels generated positive G. O P. In the second quarter compared to 32 in the fourth quarter or in the first quarter and even if you look back over the trailing 12 months all of the 2 of our 39 hotels generated positive G O P and all of that 6 of our hotels generated positive hotel EBITDA.
Just a remarkable performance during this pandemic our top 5 producers of G. O P. In the second quarter, where the residence Inn Gaslamp in San Diego, which is doing.
Well, despite there being zero convention business downtown.
The Springhill suites Savannah, the Hampton Inn in Portland, which are both leisure markets followed by the residents in New Rochelle, and then the courtyard Dallas downtown.
Again multiple different brands represented in our top 5 list.
On a per occupied room basis at our 39 comparable hotels payroll and benefit costs were approximately $22, which is down about 27% or $8 from first quarter.
Cost per occupied room of 30 Bucks.
Our employee count as of the end of the quarter was 1067 up about 150 employees since the end of the first quarter, but still down about 40% compared to pretax pre pandemic levels of almost 1700.
The current employment environment remains challenged we are doing everything we can to attract and retain talent, we have gotten some traction with the brands. When it comes to the housekeeping standards that Jeff talked about and Hilton was certainly the first company to introduce new standards for our guest who must opt in to have the room cleaned and if they do not rooms will be.
Cleaned less frequently.
Since our hotels have a longer length of stay we should see some meaningful decreases in housekeeping cost debt other owners, who have a much shorter average length of stay and more transient guests.
We will not be able to get the benefit as travelers check in and out more frequently and rooms will have to certainly be flipped to be resold.
On the food and beverage side, you've only got 1 or 2 dedicated employees in the select service hotel any way to do the breakfast into the evening evening complementary cocktail hour, which again, we as we've talked about for a couple of quarters. The extended stay hotel brands have generally gotten rid of all of the evening cocktail cocktail hours. So we've.
And we will we have seen savings there and we're certainly looking forward to limited items.
On the breakfast menu from what it was prior to the pandemic, which again should help with some savings.
In addition to the expected labor labor savings based on feedback from premium travelers brands have worked with owners to reduce the offerings that will be.
That will be provided.
Of course breakfast is still getting up to speed as corona virus related restrictions of lesson, but we are seeing a nice reduction in cost compared to the 2019 second quarter are complementary of food and beverage costs have come down 55%.
From that period, our breakfast cost per occupied room of come down from about $2.90.
2 of about $1.84 in the 2021 second quarter of decrease of 37%.
And of course since with the evening hospitality.
There's basically eliminated.
Our cost of come down essentially $300000 from 2019 on.
On the Capex front, we spent approximately $2 million in the quarter with our budget for the full year is still about $6.5 million on that again as capital excluding the Warner Center development.
With the Warner with respect to our home 2 suites at the at.
The Warner Center in Los Angeles.
We have spent about $59 million on that hotel versus the budget of $70 million.
And we as Jeff said, we're looking forward to that opening here in the 2021 fourth quarter, so with that I'll turn it over to Jeremy. Thanks, Dennis Good morning, everyone. Chatham Q2, 2021 revpar of $87 represents a 57% increase versus our Q1 revpar of $55.
During the quarter Revpar increased from $75 in April to $88 in May of $96 in June and Q3 is off to a great start with revpar of $113 in July.
Our $87 Q2, Revpar represents a 39% decline from a revpar in Q2.2019, and our July of 2021 revpar of $113 represent the decline of 26% to July 2019.
Through our significant efforts to contain costs, we were able to generate of Q2 hotel EBITDA margin of 31, 2% and GOP margin of 43, 3%, which are quite strong in light of the $87 revpar in the quarter and are higher than many other hotel owners margins before the pandemic, our Q2.2021hotel.
EBITDA was $15.6 million adjusted EBITDA was $12.5 million adjusted <unk> was <unk> 10 per share and cash flow before capital would represent the hotel EBITDA less corporate G&A cash interest and $2.1 million of principal amortization was positive $4 million for the quarter.
I think it's worth noting that these solid results were achieved even with the very limited amount of business travel demand in Q2, some of our largest and most profitable hotels before the start of the pandemic like the 4 residence inns in Silicon Valley on the residence Inn Bellevue are very dependent on business travel and have seen the least amount of recovery of all of our hotels.
The date whenever business travel starts to recover in a more meaningful way our portfolio of should experience significant upside from its current performance.
Chatham portfolio has demonstrated remarkable resilience during the pandemic on our unique focus on extended stay hotels has enabled us to get through the worst of the pinned of pandemic with significantly less cash burn than most of our peers.
In addition to the outperformance of our hotels during the pandemic as Jeff mentioned earlier, we have taken a number of actions to reduce leverage and the increased liquidity during the pandemic and ways that won't reduce the long term upside to shareholders as performance continues to recover.
Over the course of the last year the steps, we have taken such as selling the residence Inn mission Valley at of 6.5% cap rate obtaining the construction loan for our Warner Center development issuing $120 million of perpetual preferred equity and issuing of very limited amount of common equity have generated over $250 million of incremental liquidity.
From Q2.2020 through Q1.2021, our cash burn before capital is only $35 million, we were coming out of the pandemic with a stronger balance sheet and significantly more liquidity than we had going in.
At June 30th we had $253 million of liquidity between our unrestricted cash balance of $131 million and $122 million of revolving credit facility availability.
The $120 million preferred equity offering we completed in Q2 closed on June 30 of which is why our cash balance was so high at the end of the quarter on July 1st we use the $116 million of net proceeds to repay credit facility borrowings.
After we closed the $71 million acquisitions of the residence Inn in town place with the Boston at of the domain, our pro forma Q2 liquidity will be $182 million.
Our monthly free cash flow is now meaningfully positive.
So we expect that our liquidity will continue to increase going forward, even when there was a reduction of leisure travel after the peak summer months and even if the expected recovery in business travel is pushed back a couple of months are positive free cash flow on our solid liquidity put us on a great position to opportunistically pursue attractive investments.
In addition to coming out of the pandemic with a better balance sheet than we had going in we're also going to be exiting the pandemic with a better hotel portfolio than we had going in.
The pending acquisitions of the residence Inn in town place suite, Boston, which are expected to close on the near future and the completion of the development of the home to Warner Center, which is expected in Q4 will meaningfully enhance Chatham is growth and the quality of our portfolio by adding 3 newly constructed high revpar hotels and markets that have very strong demand growth.
We are very optimistic about the future given the potential for significant improvements in operating performance of business travel begins to recover.
The growth that we expect to be honest the the Austin acquisitions on the Warner Center development to generate and our ability to pursue additional growth opportunities given our strong balance sheet and significant liquidity.
This concludes my portion of the call operator, please open the line for questions.
Yeah.
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1 moment, please while we poll for questions.
My first question is from Ari Klein with BMO capital markets. Please proceed with your question.
Thanks, and good morning, Yeah, maybe.
Maybe first just on the on the Labor front I think they're probably of that 1000 basis points below 2019 on on occupancy and I think you mentioned, 40% below on S.
S. T E C could you just talk about the dynamic and are you where you want to be.
From a hiring standpoint.
Where do you think you'll end up with and are you having to increase pay at all.
As you bring on it on.
The new employees.
Thanks, Alright this is Dennis.
Listen, we're not an ideal staffing level.
For sure we are supplementing our current labor numbers.
Not only with additional overtime for those employees, but also casual labor, which is obviously generally more expensive.
In certain of our <unk> and certain of our markets, we have had to increase our or pay levels.
Just talking with the.
The operations side yesterday about kind of the challenges that we've seen as we've toured some assets up in the Boston area.
And even though there might be some premium hourly rates at the moment, but as the labor pool expands there might be an opportunity to reset some of those that have already seen some increases as you start to replace or hire additional employees.
We it is a bit more.
Cost at the moment, but we're not we're certainly not of the belief that you know.
Hourly wages continue to rise as the employment and labor force starts to become more available.
Got it.
And then just on the seasonality of the business that typically we would see of debt and of course.
The quarter.
The trends are still continuing to improve but we may have this lag between leisure and business.
The recovery. So I guess, that's how shall we think about on the fourth quarter relative to what we normally see.
From a seasonality standpoint.
I mean, I'll start and then Jeff can add I mean, I think you know 1 we do expect there to continue to be seasonality in our portfolio generally August is a bit.
A bit less than July generally septembers, a bit less in August and then October is usually 1 of our strongest months.
Of the year. So we expect there to continue to be seasonality, we saw that even in the first and second quarters.
Of this year. So we don't expect there to be any different trends. We do believe I think as Jeff talked about in his prepared remarks that there will be what is a little bit different is we do expect leisure to remain pretty strong on weekends and holidays in the in the fall and certainly as you get towards the end of the year.
Year and really the question is is what is that midweek business travel are going to be doing and how quickly is it going to ramp up post labor day.
I Couldnt do any better thanks des.
Alright, thanks for the kind of debt.
Thank you Sir.
And our next question is from Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, just a question on the transaction environment, and obviously branded the upscale extended stay has outperformed for the past several quarters and through the pandemic have you seen valley.
Values for these hotels.
Reach or exceed pre pandemic level, then how did the impact your ability to do more deals this year on next year.
Hey, Anthony it's Jeff.
All of you certainly got the drift of of what's happening in the market and I would say that values are certainly.
At or pretty close for almost all of limited service product honestly to pre pandemic levels 2019 valuation.
That's why I said, it's a difficult environment and we're just having to work really hard.
To kind of.
Pick and choose I would say cherry pick a few opportunities on a direct basis that might might be out there for some.
Folks and some developers that just want to recycle some capital or have some other reasons as always exist.
On our world, whether it's the partner issue, whether it's I'm getting old whether it's a state planning that kind of thing whether it's <unk> I need to fund some hotels. The during the pandemic really really suffered I'm not going to lose them, but.
No.
Absolutely.
Like to gain some liquidity if I could so those of the circumstances that now and again I think we'll be able to take advantage of mostly because of our long standing kind of just direct relationships with owners and developers.
Within the Marriott and Hilton franchise community really I think more so than anything else, but.
Extended stay hotels are hard to come by within the within the limited service sales.
The class of hotels.
Because of how well they've performed relative to most of the other brands.
And do you think that dynamic will lead to maybe of faster resumption of development of supply growth than you originally thought.
I still think that from what we're hearing there's plenty of financing constraints.
On that front and more.
Than we thought and more importantly was just pricing for construction I mean, Dennis and I was sitting with our contractor on the construction trailer what was of 2 weeks ago now.
Warner Center.
I said, so what's this kind of cost me to build a few of pricing it today.
And that kind of looked around at each other and came back and said, Jeff at least 25% more.
And when you look at that kind of increase.
Whichever way you want to look at it.
Even if you just automatically assume 2019 Revpar and then you put a little growth on it I think theres a lot of deals that just don't pencil.
For developers. So you know you see a little bit of the sequential decrease I was just reading and marriott's.
The numbers, it's small, but it's probably larger than all of.
And what you are reading per se. So I think we still feel pretty good about where we've come on where we're headed from a cyclical upswing perspective, and you have to remember with Chatham assets and you lived through with US in 17, 18 and 19 we.
<unk>, a disproportionate share of supply increase in Silicon Valley and in the Bellevue, Washington area and other areas of frankly.
Most of our hotel clusters did a Dallas you can go on and on so a lot of the brands that really would be directly competitive.
Have come in the market 2 of 3 years pretty new.
Prior to the pandemic, so that in and of itself I think presents somewhat of a barrier to entry for us.
Got it maybe just 1 more unrelated you know in markets like Fort Lauderdale or of Portland, where you're charging more than you charge that you have on the 19, but guests arent getting daily housekeeping or the Brexit may be downgraded.
How are the guess reacting or are they taking them at I guess that debt.
Lower service level, okay or of the complaining what's kind of the reaction on the ground.
Generally speaking.
As we look at our guest service scores it look at customer complaints and of course, the Hampton Inn brand has 100% satisfaction guarantee we don't really see you know much more of an uptick given money back for example, the Portland, Maine for charging [laughter].
What we're charging there so that experience has been pretty good frankly.
Yeah.
We'll see how that continues going forward, but so far so good I think people are very happy obviously just to get out of their house get in of hotels.
And experience what they are experiencing in the markets they are visiting.
Alright, thank you.
Yeah.
Our next question is from Kyle Mendez with B Riley of Securities. Please proceed with your question.
Good morning. This is Kyle on for Bryan I was hoping if you could provide a little bit more detail on the 2 announced the acquisitions and how they were sourced.
And then any cap rate or expected return information would also be helpful.
Yeah, we would expect about at 8.5% return on those once that TPS, we think the residence Inn.
Because it was open a couple of years before the pandemic.
We'll just continue to increase Revpar of law.
Along with the pandemic recovery TPS will take 12 to 18 months to ramp up so within that period of time, that's our expected yield at least of course theres, a heck of a lot of activity and on.
Austin so.
We hope we're going to err on the conservative side, I think we have with that number.
I actually we actually bought the we'll buy this because the clos to be clear closing.
Should be this week.
The.
From somebody that we have transacted with on 2 of 3 different occasions before even going all the way back to our or my Innkeepers USA Trust day, so kind of long standing almost 25 or 30 year relationship.
We were able to avail ourselves these are pretty attractive.
Our opportunity is obviously.
And we're just I think cherry picking some great assets here.
Great. Thanks for that color and then also could you talk a little bit about leverage.
As you look to grow the portfolio of what leverage level would you be comfortable with.
Jeremy you want to pop that 1.
As we come out of the pandemic and and business gets back.
More normal I think we would probably target of.
Our net debt to EBITDA.
Before the preferred of something like <unk>.
For the 3 quarters to 5 of the quarter times sort.
Of that sort of ballpark.
Great. Thanks, that's all from me.
Thanks Carl.
Yeah.
And again as a reminder, if anyone has any questions you May press star 1 on your telephone keypad in order to join the queue.
Our next question is from Tyler the battery with Janney Capital markets. Please proceed with your question.
Hey, good morning.
Thank you taking my questions I appreciate all the all the commentary so far.
Last question from me just in terms of the improvement in July versus June can you give a little bit more specific in terms of of what drove that I mean was the corporate getting a little bit better and then have you seen any impact from the adult of bearing on the results yet.
Yeah, I'll work backwards, we really haven't seen any impact on the delta very any significant impact on the delta.
<unk>.
We did have a book of business in Silicon Valley.
Debt is expected to come back in the fall.
So it's been kind of delayed they are going to have a little mini session. Here. This summer, which is now pushed to a bigger session in the fall.
But outside of that no meaningful.
No meaningful events.
I think you know.
Certainly as we look at July over June you continue to see for Us, our Portland, Maine asset, our Portsmouth, New Hampshire Hilton Garden Inn.
Those are 2 hotels, especially in the north East where.
The leisure traveler.
<unk> is a little bit more.
The frequent and less rate resistant in July versus June. So, we certainly saw some increases there month over month.
But you know as Jeff talked about and I've talked about we've seen no other real what I would call drivers other than just still kind of steady accumulation of of the of of occupancy from month to month. So.
I think that's.
That's.
Pretty pretty consistent for us that we've seen over the last few months and really the only incremental spike would be in those kind of northeastern leisure hotels.
Okay, great and the term.
Follow up on some of the other questions, perhaps kind of debt.
Some of these topics.
On a different way.
On the on the margin side of things clearly very impressive where you are right now versus where you were pre pandemic, considering where revpar and occupancy are.
Trends hopefully continue to improve into the fall I mean, how sustainable do you think these margins on and given some of the labor pressures that are out there.
The occupancy go a little bit higher guest expectations ramp up.
Is that something that you're concerned about or something that you're considering as you're looking at where margins might go on the back half of the year.
I mean listen you know, we certainly believe.
On an apples to apples basis debt.
That our operating margins should be a bit better.
On a stabilized basis than they were in 2019.
I think listen there's going to be a lot of bumps in the road between now and then with respect of staffing, especially.
What the 1 thing that is fundamentally fundamentally different now than it was in 2019.
From an operating standpoint is the likes of Hilton the likes of Marriott officially changing.
On the housekeeping standards, which is obviously, where our biggest cost component is so.
Total you've heard us talk about this for several years now.
But that is a big driver and it's going to benefit.
Companies that have portfolios that are not flipping the rooms every 1 in the half nights more so than others. So.
We certainly believe we're going to have to continue to add more staff as we move from 75 to what was historically our portfolio occupancy was in the low to mid Eighty's. So we're not far away from that.
And so we have been bringing back staff and as I talked about earlier, we've had to use casual labor and overtime.
To close some of the GAAP, but we are at least encouraged that our operating model from a profitability standpoint is going to be better on a long term basis.
Okay very helpful and last question from me is just.
In terms of the capital allocation I mean, you're talking about beverage.
I think the liquidity position you have right now is extremely strong.
Think of a little bit more about the priorities for that I mean, it sounds like acquisitions are really priority number 1 but 1 of the other sort of avenues could you look at in terms of deploying some of that capital how conservative would you like to be with that going forward and then also if you could.
Touch on potentially when the 1 of the dividend.
Start to get more sales.
Oh, let me just start an index could pick up that yes acquisitions in growth I think of our first and foremost on her of mind.
As we said kind of in the when we were talking on the prepared remarks.
Barring a real shut down.
We think we've got cash burn behind us so the need to maintain an ultra conservative with our balance sheet and the liquidity, probably obviously is not as great. As it was that's why we want to be in a growth mode.
So that's really what we're thinking about on the capital allocation side by the way you know, we still are trying to recycle some capital as well and talking about selling a couple of hotels that we just think are a little bit older in the portfolio that once the brands do come back with.
With some resumption of renovation requirements and otherwise are probably gonna taken of outsized amount of capital for return that we don't think is there.
So that may provide even more liquidity for us in the near term if we're successful in that endeavor.
We feel pretty good about where we sit as Jeremy was talking on.
On the balance sheet side.
Did you have something else on the dividend and on yes on the dividend look our boards perspective on that has always been the PE taxable income.
And we would think that there is sub dividend, obviously some dividend resumption.
Most likely next year not this year based on our numbers and carry forwards.
Okay.
Okay, Great. That's all from me I appreciate the detail. Thank you.
Thanks Tyler.
And we have reached the end of the question and answer session on now I'll turn the call back over to Jeff Fisher for closing remarks.
Well again I'd like to say, we appreciate everybody being on the call today, and we look forward to continuing our successes in moving forward in a very positive manner.
Hopefully with more good news as the third quarter winds itself up and we'll talk to you then thanks.
And this concludes today's conference and you may disconnect. Your lines of this time. Thank you for your participation.
Okay.
Yeah.
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