Chatham Lodging Trust (CLDT) Q2 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Chatham Lodging Trust Second Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Daly, President of Daly Gray Inc. Please go ahead.

Thanks, Sachi. Good morning, everyone and welcome to the Chatham Lodging Trust second quarter 2020 results 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, as described in our most recent Form 10-K and other SEC filings. All information in this call is as of August 5, 2020 unless otherwise noted and the company undertakes no obligation to update any forward-looking statement to conform the statement 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 at chathamlodgingtrust.com. Now, to provide you with some insights into Chatham’s 2020 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. Jeff?

Thanks, Chris. Good morning, everyone. First and foremost, thank you for your interest in Chatham and we sincerely appreciate your participation during these unusual times. The COVID-19 pandemic has been one of the most destructive events to the global and national economy in history and its impact on the lodging industry is unprecedented, forcing hotel owners and operators to manage our businesses under the most dire circumstances. This unprecedented period has required intense asset management and operating focus. And I am very proud of the efforts of our teams, both the Chatham and Island Hospitality, allowing us to generate some of the best operating results of all public lodging REITs. We have allotted our best-in-class operating platform since our IPO. And during these turbulent times, the benefits of that platform standout as the ideal operating model, allowing us to work closely together to deliver leading results. For the quarter, our RevPAR declined 77% to $33. Although a dismal absolute RevPAR, the decline of 77% for our entire portfolio, not just some small subset of open hotels is much better than most companies who have already reported RevPAR declines over 90%. I certainly believe that our outperformance is attributable to the fact that 70% of our 2019 EBITDA and 60% of our rooms are made up of extended stay hotels. An important differentiator is that Chatham has the highest percentage of extended stay rooms of all lodging REITs, basically double the next highest REIT and this is often overlooked. Additionally, more than 96% of Chatham’s rooms are characterized as limited service rooms, the highest percentage among public lodging REITs. Our upscale extended stay hotels as well as our select and limited service hotels provide us the flexibility during periods of growth or weakness to diversify our customer base to maximize revenue and that’s exactly what our operating team has been doing. Within the quarter and in July, we have seen gradual revenue improvement since hitting bottom in late March. We laid out in our press release our monthly RevPAR stats and RevPAR performance by brands for the quarter and there are some interesting points. First, occupancy improved 1,000 basis points in each of May and June. Companies who have already reported earnings have stated that July has been similar to June, but for us, our occupancy further increased over 400 basis points to 48% for our entire portfolio. Having suites with full kitchens and large rooms has been beneficial in winning business from today’s travelers, primarily first responders and government or military in the first couple of months after the collapse. These wins allowed us to keep all 40 of our hotels open. Additionally, in Silicon Valley, where we have 4 Gen-1 Residence Inns, those hotels are laid out to provide extra space and rooms well distance for longer term corporate guests when they return and this should aid our direct sales efforts. In addition, those Gen-1 Residence Inn hotels have of course separate entrances without the need to even enter a lobby of the hotel and folks can have a contactless experience 100% of the way, which we think as you move through 2021 will certainly prove to be another big plus for us. Second, average daily rate has rebounded, not surprising ADR took a hit as the rate profile of early pandemic travelers was lower. ADR bottomed out for us in May, but gained 12% in June and another 6% in July. Third, RevPAR index, let’s talk about our market share. RevPAR index measures the share of business you are getting versus your competitors within a market and it skyrocketed throughout the pandemic. Even as hotels have reopened in the markets, we have been able to maintain a significant premium of around 144 for the past 4 months, which is 22% higher than our 2019 average of 118. This fantastic performance is a direct result of the outstanding efforts by Island’s direct sales and revenue management efforts, again, winning more than our share of existing demand. Fourth, average length of stay has markedly changed for our portfolio driven by the type of traveler during the pandemic, who prefer our extended stay hotels. Second quarter 2020 average length of stay was up to 5 nights for the Homewood hotels and 5.9 nights for Residence Inn, which compares to second quarter 2019 average length of stay of 2.6 nights for Homewood Suites hotels and the same 2.6 nights for Residence Inns. And fifth, daily demand trends have completely flipped. Of course, you have all read about that for the industry in our portfolio as demand is strongest on the weekends, for the past couple of months, Friday, Saturday occupancy was 50% at an ADR of $108, while for the remainder of the week, occupancy is 45% and ADR is $105. As most are aware, the leisure traveler is the driver of this trend. People want to travel and get out of their house. Lastly, revenue per day has increased every month since April and July revenue per day is higher than June. With the exception of the week after July 4, room revenue has sequentially increased each week for the last 9 weeks. The current trends remain somewhat encouraging, although the rate of growth from month to month has slowed. But if we have learned anything, it’s these times are incomparable and there is really no way of accurately projecting the future. Looking past the summer, we have seen some corporate demand percolating, but only time will tell if in fact that comes to fruition. And I could say that the corresponding rate is well down from the prior year, but slightly improved from the second quarter. I firmly believe that given our portfolio attributes, we believe that we will be able to return to 2019 revenue level levels sooner than most of our lodging REIT peers, but the full return of the corporate transient traveler will be predicated on the availability of a vaccine. As I stated earlier, I am thankful to have our best-in-class operating platform with Island Hospitality. And this has been further proven when you look at our ability to operate much leaner at lower operating levels, which allowed us to reach operating profitability much sooner and at lower RevPAR levels than indicated. Dennis and Jeremy will talk a little bit more about that, but I will tell you that it required extensive adjustments to our cost structure. Compared to pre-pandemic levels we laid off or furloughed approximately 70% of our employees and reduced that number to 60% today as occupancy has come back. We have reduced service levels, reduced staffing at our hotels to minimal, but functional levels reduced compensation and are carefully analyzing every expense. When you look at the monthly detail of hotel profitability in our release, you can see that we were able to achieve positive GOP, gross operating profit at RevPAR less than $30 and positive EBITDA at RevPAR of about $40. Those are remarkable achievements accomplished by staying hyper focused on managing expenses across all departments using our experienced operating teams and providing them the right tools to actively manage expenses on a daily basis. As a result of much better operating performance, our second quarter cash burn before CapEx of $8.4 million was a meaningful 40% lower than our original estimate of $21.3 million. Our June cash burn before CapEx of $2.8 million was approximately 50% better than our prior forecast of $7.1 million. If you wanted to assume that June was where we were going to perform for the foreseeable future, our liquidity runway is 41 months, enough to get us through the end of 2023. Most industry experts and pundits seem to think that it will take until 2022 or 2023 before RevPAR returns to 2019 levels. Not knowing how long this downturn is going to last operating so efficiently produces operating profit, which lessens our cash burn and ultimately this has a meaningful impact on long-term equity value for our shareholders. Our teams at Chatham and Island have the experience to persevere through these situations and we know how to lead a public lodging company through these challenging times. With that, I would like to turn it over to Dennis.

Thanks, Jeff. I’d further add on the outlook that the impact of new supply is going to lessen significantly in the future. Hotels under construction, for the most part, are going to be slowing down, but will be completed. And if you aren’t under construction currently, it’s going to be difficult to underwrite the appropriate terms, returns that justify construction. Additionally, even though we were able to close on that – on the construction loan for our hotel in LA, it’s a pretty difficult process underwriting very challenging at this time and given our good credit, our good relationships, we were able to get that loan closed, but don’t think that, that’s a pervasive thing that people are going to be able to do moving forward. Given the flow expected recovery for the industry, it’s hard to imagine new supply being an issue for at least the same amount of time given the fact that it took essentially almost 8 years for new supply to approach 2% after the financial crisis. Among our key markets, San Diego was the top performer with RevPAR of $52 as it benefited from military and government-related business, Silicon Valley RevPAR of $38 was better than our portfolio average with a bit of corporate travel business in late May and June. Our three coastal hotels in Maine and New Hampshire were hampered during the quarter due to severe hotel restrictions that were loosened in July. So, those hotels will be and have been better in the third quarter. Like the industry, our leisure market hotels have certainly seen the best rebound at our Residence Inn Anaheim second quarter occupancy of 45% – was 45%, even the hotel was under renovation. And June occupancy was actually 71% and July occupancy was 93%. At our Residence Inn Lugano and Fort Lauderdale, second quarter occupancy was 44%, with June occupancy of 60% and July occupancy of 97%. In Savannah at our Springhill Suites, second quarter occupancy was 26% with June occupancy of 44% and July occupancy of 50%. The three coastal New England hotels had second quarter occupancy in the low 20s, but July occupancy for those three hotels was approximately 65% after some of those restrictions were loosened. 11 hotels had second quarter occupancy over 50%, out of our 40 hotels and 3 hotels had occupancy under 15%, but of those 3 hotels, 2 of them are complex with an adjacent hotel, where we are consolidating most guests into one hotel, that’s at our Courtyard and Houston West University and then at one of our Residence Inns in Sunnyvale, Silicon Valley. On a relative basis, government revenue has been our best performing segment during the quarter, but it still makes up the lowest of the three major segments for our business. Corporate revenue comprised approximately 26% of our second quarter revenue in 2020 versus 29% last year, with RevPAR of 79% and ADR of 40% to 50%. Importantly, within this segment is that about 40% of this business was related to traveling nurses and doctors fighting the pandemic. On the retail side, retail revenue comprised approximately 53% of our second quarter revenue this year versus 56% last year, with RevPAR of 78% and ADR again of about 35% to 40%. Government revenue production doubled this year to approximately 16% of our second quarter revenue and revenue is off 55% with ADR of about 25% to 30% to $125. We have certainly had a lot of government-related production related to ships and military being housed in one of the hotels outside – 2 hotels actually – both hotels outside of Charleston. Operationally, as a major Hilton and Marriott franchisee, we do believe that the operating model is going to look a bit different going forward. The pandemic has triggered us as an entry – as an industry to reevaluate how guests are served, whether that’s with respect to housekeeping, food and beverage or other complementary services. As most of you have heard from us for a while, we have been pushing the brands for change. These changes certainly aren’t going to happen overnight, but of course, the brands are now very much in concert with us relative to making the necessary changes to generate better returns. We are adhering to all cleanliness and life safety standards and have only limited exposure to unions with only one of our hotels unionized that being the Residence Inn in White Plains. All lodging companies are having to analyze liquidity needs which is something unheard of in the lodging industry, especially for well-capitalized companies such as Chatham. At the corporate level, we have been very aggressive as a means of adjusting our cost structure during these difficult times in minimizing cash outflow. Our G&A was already one of the most – was among the lot – the lowest of all lodging REITs, but we still wanted to be as aggressive as possible. We have had to reduce our headcount unfortunately by about 25%. Jeff and I took 50% pay cuts and every corporate employee also took a 25% pay cut. In total, we have reduced salary costs by approximately 50% in the quarter. Our Board of Trustees also reduced their 2020 compensation by 25%. And all-in, our cash G&A is down approximately 35% or over $3 million for the year. We did file a business interruption claim related to COVID-19 losses and we will continue to pursue them, but any potential recovery is going to take a long time and certainly the amount is not estimable. As Jeff discussed, we are very pleased to see that our cash burn was much less than originally modeled. Our GOP breakeven RevPAR ended up being approximately $26 versus our original estimate of $32 to $35, a 20% improvement. Our hotel EBITDA breakeven RevPAR was about $40, again about 20% below our original estimate of $50. And importantly, we estimated on our last call we would need RevPAR of approximately $90 to $100 to be cash flow positive after debt service. And as we sit here today, we think that RevPAR breakeven level was probably now about $75, again 20% to 25% better than previously expected. On the CapEx front, we spent approximately $8 million in the second quarter, including $4 million on the Warner Center development, $1.2 million on the renovations of the Anaheim Residence Inn and Residence Inn in New Rochelle, New York and another $1 million wrapping up renovations in Silicon Valley. We have suspended all renovations that have not started in all non-emergency CapEx, preserving $10 million in 2020. We slowed down CapEx spending on our Warner Center development until we closed on a dedicated loan for that project. We do expect to spend approximately $4 million on all CapEx other than Warner Center through the balance of the year. We are pleased to have just recently closed on the construction loan that further solidifies our capital structure by not using liquidity on our credit facility and allows us to move full speed ahead with an expected completion in early 2022. We expect this hotel to ramp up quickly and provide meaningful hotel EBITDA in 2022 and beyond. As you saw in our release, the Inland portfolio has been appointed to receiver by the special servicer of the loans. Ownership is ultimately in transition and we are fully cooperating with the receiver. Although, this investment didn’t quite pan-out as expected. Since our IPO, joint venture investments have generated attractive returns. Our total JV investment since our IPO were approximately $87 million and those investments have generated cash returns of approximately $150 million. So, all-in-all pretty good deals. I think with that, I am going to turn it over to Jeremy.

Thanks, Dennis. Good morning, everyone. Chatham’s Q2 2020 RevPAR was down 77%, but we saw positive trends throughout the quarter and after. RevPAR increased from approximately $24 in April to $31 in May to $45 in June to $52 in July. Through our significant efforts to contain costs, we were able to limit our adjusted EBITDA loss for the quarter to $3.3 million. As with RevPAR, we saw positive EBITDA trends throughout the quarter with hotel EBITDA losses of $2.3 million in April and $0.8 million in May before generating positive hotel EBITDA of $0.8 million in June. At the end of Q1, we wrote-off our entire investment in the Inland JV and in Q2, we stopped recognizing any income or EBITDA from it. The Inland JV has not been able to negotiate a debt forbearance agreement and the servicer started the process of appointing a receiver to oversee control of these hotels. Excluding the Inland JV, Chatham’s pro forma 2019 net debt to EBITDA ratio would be 5.4x versus 5.7x if it was included. The Innkeepers JV is continuing to pursue a debt forbearance agreement. Both JV loans are non-recourse to Chatham except for certain bad boy acts and default under the JV that do not trigger cross-defaults under any Chatham debt. Chatham has a strong balance sheet that positions us well to weather the disruption being caused by the COVID-19 pandemic. We ended Q2 with $36.9 million of unrestricted cash and $8.9 million of restricted cash escrowed with loan servicers that can be used for capital expenditures, property taxes and insurance. In early May, we completed an amendment to our credit facility that provides us covenant relief until the end – until Q2 2021 and the ability to utilize the entire $250 million capacity of the facility. When covenants begin to be tested again starting in June 2021, EBITDA and NOI figures used for covenants will be calculated on an annualized basis through the end of the year. At June 30, we had $114 million of liquidity between our unrestricted cash balance and revolving credit facility availability. Even at our June 2020 RevPAR of $45, our monthly cash burn, including corporate G&A, interest expense and principal amortization was approximately $2.8 million before CapEx. So, our current liquidity position covers our current monthly cash burn for approximately 41 months. This provides a significant amount of time for operating performance to recover. Just yesterday, we obtained a $40 million construction loan to fund the remaining cost of our Warner Center development. This will enable us to complete the project without using any of the liquidity provided by our current cash balance or revolving credit facility. The construction loan has a 4-year maturity with two 6-month extension options and is initially priced at LIBOR plus 750. Once, the property achieves a debt yield of 9%, the spread on the loan decreases to 600 basis points. While we don’t believe, we will need additional liquidity beyond what we already have we have 6 unencumbered hotels, with a book value of $276 million that could serve as collateral to raise additional debt proceeds. Chatham’s balance sheet also benefits from minimal debt maturities over the next several years. The only debt we have maturing between now and the end of 2021 is a single $12.8 million non-recourse mortgage loan that matures in September 2021. After that, the next debt maturity that we have is for our credit facility in March 2022. We have an option to extend that maturity through March 2023. We will have a significant amount of time for both hotel operating performance and the capital markets to recover before we need to refinance a material amount of debt beginning in 2023. With the current lack of visibility around operating performance, we withdrew our earnings guidance in March. Since visibility around the timing of recovery and hotel operating performance remains limited, we are not going to provide guidance at this time. This concludes my portion of the call. Operator, please open the line for questions.

Thank you. [Operator Instructions] The first question is from Ari Klein of BMO Capital Markets. Please go ahead.

Thank you and good morning. Can you talk to the specifics of what has been done to reduce the breakeven versus prior expectations? And then how much of the cost reductions do you think are permanent or maybe how different would you expect staffing levels pull up when we get back to normalized occupancy levels over the next few years?

Hey, Ari, this is Dennis. Yes. Listen, I think, the outperformance on the operating side is, I hate to say it, but it’s really across the board, but it’s primarily focused, a third of our costs are labor related. So, it’s primarily focused on being really efficient on the staffing side and you certainly have with most F&B offerings, even in the select service, complimentary hotels, where it’s obviously free, the breakfast has been trimmed back significantly, both in terms of what has been provided, as well as the staffing of that, and there are no evening social events. So, our best contributor to the performance is purely labor driven and the ability to hold off on some of that rehiring as occupancies, improved from 20%, now to almost 50%. And we have really only brought back about 10% of our employees is pretty meaningful. So, it’s just really working those as much as possible we have a team of analysts that are really in day-to-day touch with every hotel GM, every regional manager that is looking at, current expenses for all types of every expense basically, but is looking at that on a daily basis and projecting those for the – for within a month for the month. So, it’s just hyper focus on every dollar that’s going out the door. And as far as the second part of your question, as – I think as we get to a stabilized basis, we do believe that, the housekeeping model is going to change a bit and we do believe that, the evening social hours are probably going to go away, for the most part and breakfast is going to be modified as well. So, those should be beneficial to our model on a stabilized basis.

Got it. And then just on the [Technical Difficulty] balance out as the recovery advances from here. And you mentioned some of the corporate negotiations that you have been having, are they worse than the ADR declines that you have seen to date?

No, no, they are – no, they are not worse. I think, as we have, I think ADR’s are going to slowly come back as the corporate traveler comes, begins to come back into our hotels, the rate profile for most of the people, like I said, 40% of our corporate business in the quarter was from traveling nurses and doctors, and they are just at a much lower ADR profile. So, as room blocks, come back in the third quarter and fourth quarter hopefully from the corporate traveler that rate is improved from where we are today.

Okay. And then just last question, any seasonality we should be aware of post the summer and maybe leisure travel declining a little bit?

I think – this is Jeff. Hi, Ari. Look, I think that that’s a reasonable thing to at least be considering. We know the hotels, particularly with this weekend occupancy that we are talking about here, are – is leisure driven, kids go back to school around the country, there’s a strong possibility that we do get some flattening or bleed off on some of that leisure travel. So, I think we are going to take a wait and see attitude, but we would also expect for – or certainly hope that for some of that potential bleed off of leisure, there is as Dennis was talking about a little more corporate travel coming back in to these markets and to these hotels. But, hey, only time we will tell that’s why we are not putting out any guidance, nor anybody else, it’s difficult to predict.

Sure. Alright, thanks for that. Thanks for the color.

Thank you.

The next question is from Anthony Powell of Barclays. Please go ahead.

Hi. Good morning, guys. Another question on the seasonality issue. What about the seasonality of a current against corporate business and government businesses in the hotels now is that going to be pretty steady or do you expect that to fall-off or change in anyway in the fall or winter?

Well, certainly, the traveling nurses are going to fall off. That we have seen a slow decline in that production month-by-month, since April, so that there will be some seasonality just because of the pandemic and the people that are moving around and putting out the hot spots. So, that we have seen a slow off in that type of business, but it’s been offset by whether it be leisure or corporate in certain markets.

Okay. Thanks. And just may be moving on to the Warner Center both the construction and the loan. Just curious, you’ve been pretty positive on the opportunity, what caused you push on with that and may want more details on the loan? Just negotiation there the terms that attractive, was not attractive just more details that will be great.

Okay, Anthony, this is Jeff. I think, I will take the first part of the question, which is when you look at where we were in the construction process, with the first four floors of the structure, being completed. But a hotel that has underground parking and underground mechanicals. It’s a complex structure. It’s not a stick built suburban extended stay hotel. So therefore, we determined and the contractor helped us, obviously in detail without analysis, that leaving that for some extended period of time, where we already had some of the mechanical equipment for example, in the basement of the building, etcetera, below grade, pumping water out of the surrounding of the building dewatering expense and other things like that. Certainly, predicated continuing the construction. And additionally, we have talked about the opportunity in Warner Center, in our view being pretty unique, because it is a competitive set full of very old, large group based full service hotels and one old courtyard across the highway. So, we feel very strongly that our projections will come to fruition in terms of ADR and occupancy there by the time, this thing really gets finished and opened and pre opened and ramped up. Therefore, we went out to find a construction loan. And let me tell you something. This is where Dennis or Jeremy will pick up finding a construction loan while we are the test case. Well, we solicited through, I think, one of the best mortgage broker for hotels in the country, I think what was it Dennis, over 100 folks, they pinged and Dennis will get in just not a lot, but a little more detail about how difficult it is to secure this kind of loan. And therefore some of our comments about lack of new supply generally for the industry, I think we have got a pretty good first handed experience relative to the ability of finding that kind of loan. Yes, Jeremy, I don’t know if you want to add some color to that.

Yes, just point out we are very, we are very happy to get this loan done. It was challenging, like Jeff mentioned, we reached out to 100 potential lenders here. There were a very limited number that have had the interest of making a construction loan at this time. And I think, there is some unique factors about our project that helped us get it done. Frankly, we have $30 million of equity invested already. The project is 40% done already so a little bit of risks off the table and then having a public REIT behind the loan and supporting the project is very different from most private developers. So, all those things put together help us get this done and again, very happy to get it done. But I think hard to read into, this – the saying that there’s much availability of construction financing out there right now.

And, of course, what we did there, that Dennis mentioned, was very importantly, not further encumber our line of credit or our other assets that support the line, therefore reducing our liquidity. So a very important there as a standalone loan for that hotel.

Got it. Thanks for the color. Have you guys announced a brand for that hotel or that’s still pending?

See, I almost slipped it out there while I was talking, but we have not so far.

Got it. Okay, thanks a lot. I appreciate it.

I did say no, as I said extended stay.

Yes, yes now and got it.

We will get the process of elimination going there and figure it out.

Yes, yes, it’s one maybe two or three possibilities. I think I have a good idea which one is better. Thanks a lot guys.

Thank you.

Thank you, Anthony.

The next question is from Kyle [indiscernible] of B. Riley FBR. Please go ahead.

Hi, this is Kyle on for Brian. Just had a couple of questions. First off, is occupancy levels improved, do you anticipate any government mandated occupancy limits in the near future?

No, no. I guess, if we this is Jeff, I guess we probably would have had them already if more at the front end of the pandemic but

Yes, I mean, listen, there were in especially in New Hampshire and in Maine, we are probably two of the more, risk averse in terms of travel restrictions for people traveling into the state or through the state or whatever it might be. And hotels did have some occupancy restrictions in May and June in Maine and New Hampshire with and those have been loosened in July. So, that was a bit of a restriction, but thankfully as we passed it.

Makes sense. Thanks. And then lastly, just thinking about ramping up staffing, has it been fairly easy to bring back furloughed employees and also of that pretty much at the same wage levels as pre-COVID?

No, it’s not, it hasn’t been easy. I think, a common theme whether it’s retail, restaurant, hospitality, bringing employees back when they were getting the extra $600 unemployment supplement has been pretty challenging in some markets where occupancy is rebounded significantly and has required us to, to actually go and find some outside sources of labor in certain instances. Having said that, I do believe that moving forward, the average wage per hour is probably going to be on a stabilized basis lower than what it was before the pandemic. So, again, we should get some benefit out of that.

Great. And then do you expect to run at least around 60% staff reduction in this quarter, is that what you are running?

We are not a 60%. We are about at a 60% reduction at the moment. I think, as we have moved into July and August, we will probably, that will probably come down. I don’t know if we will get to 50%, if – listen, it’s a very flexible and pretty – from an operating model perspective. So, I think for us we are being as aggressive as we can on limiting the comeback on the hotel employee side.

Great, that’s all for me. Thank you.

Thank you.

The next question is from Tyler Batory of Janney Capital Markets. Please go ahead.

Thank you. Good morning. What a good news in this report and all the call this morning which I think is worth acknowledging. I wanted to first tie the loop on July trends if I could. I am curious a little bit more in some of the markets that have seen COVID cases spike specifically California is there much difference in what you are seeing week-over-week in those markets compared to some of your locations that’s maybe we have not seen quite as much of a surge with respect to the virus?

Hi, no, not exactly Tyler. I mean, I think, whether you are talking about California, you are talking about, the Carolinas, Florida, even in even Texas, I mean, we have at least compared to June, July has been improved. So, I can’t – I don’t believe we would say that it’s automatically whacking our travel.

Okay. And then also I just – I look at the rate of growth and I am mid ticking a little bit but no certainly there’s been a little bit of moderation in July versus June compared to the sequential improvement? I mean, is that just you kind of hitting a wall maybe if you will, on how far leisure travel can take you or is there anything else going on that’s worth calling out there?

I don’t see much there. Really, other than purely math, which is what’s the denominator and what the numerator is. And as the early part of the acceleration obviously is going to show up a higher percentage gain, then what you are going to show as you move through this thing in the next 12 to 18 months, but again, we had particularly with a couple of hotels in Florida thought that things were really going to go the other way on us and did not I mean, Laguna hotel in Fort Lauderdale is running 90 plus occupancy and hadn’t slowed down and those even though there is some – a lot of increased cases and that hotels in Broward County, which was pretty high on that list. I tell you what, people are still coming out. Obviously, this fundamental midweek business of first responder type business in that hotel, but great, we got leisure business as well. So that was really a pleasant surprise on that front. I think the real question is what other kind of corporate travel – travelers do in the fall and as I said earlier, only time will tell on that front.

Okay, I appreciate that. And I also wanted to go back to your RevPAR index, obviously, quite strong, can you elaborate a little bit more on the direct sales efforts and your revenue management strategy in terms of gaining a little bit more market share here?

Yes. Listen, I think it’s something that started early on in the pandemic with, on the Island side, they have a direct sales team, that’s some based in our corporate office, some around the country that have been very aggressive early on going out to some of those sources of business, listen, definitely government, nurses, doctors and they have reached out early on in the pandemic, express our availability with providing hotel rooms and certainly, I think that has carried us essentially in through April and May. And listen, I think on the – so that’s been pretty pervasive throughout the portfolio for Chatham. I think the revenue management side is working in tandem with direct sales. Certainly, there is production through the brand.com sites and rates are coming down as a result of the softened demand after the pandemic, but it’s really opening those channels that were quite honestly we have had closed off when times were really good, because the rates are a little bit lower. So, it’s a benefit and it’s an attribute of our portfolio and our asset types in our room types that whether it’s in a growth mode or whether it’s in a period like now, we have got the ability to diversify our customer base and for the direct sales teams to reach it down to the providers of traveling nurses and doctors and government channels that again we turn the on button on for those as opposed to 6 months ago that was off.

Okay. And last question for me more just housekeeping, can you remind us the restrictions in terms of dividend right now and when those are lifted?

Yes. Jeremy, you want to take that?

Yes. Right now, we have to keep our dividend below REIT taxable income and that’s going to be in place through the end of this credit facility amendment, which is March of next year. And to the extent this year that there was taxable income we have to pay a portion in stock, but I think there probably won’t be taxable income this year. So, it would really be next year at the earliest that, that would be possible to pay a dividend.

Okay. Alright, that’s all for me. Thank you.

Thanks, Tyler.

There are no further questions at this time. I would like to turn the floor back over to Jeff Fisher for closing comments.

Well, we certainly appreciate everybody being on the call today. As somebody said, there is a fair bit of good news in here certainly on a relative basis. I am just pleased to be able to talk about things in a somewhat positive manner looking at our hotels and looking at the kind of business that our teams have been able to secure. And really, it’s that nationwide direct sales effort, it’s the ability to talk to somebody that can put first responders or nurses or other folks, even National Guard folks that are setting up testing centers, whether that be on the West Coast of the United States or suburban Boston or South Florida. That’s an advantage together with our daily vigilance on costs. And we all receive lots of sales updates on a weekly basis from our Island team and are very, very, very cued in on what expense trends and particularly payroll trends are doing and what hotels may or may not be spending money on with a team of folks that are spending 100% of their time on the Island side monitoring and doing that. I think the results speak for themselves and we look forward to working our way through this and getting back into a, what I would say is, full boat positive cash flow mode. And as Dennis indicated, only another $3 million or $4 million to spend on CapEx for the rest of this year on some essential projects and not much to spend nor by the way have the brands really even thought about ramping up any requirements to spend much money for 2021 on that front. And our hotels were in great shape to begin with. So, we feel real, real good about how we can operate moving forward. Thank you. Appreciate your time.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.