Xenia Hotels & Resorts, Inc. (XHR) Q2 2020 Earnings Report, Transcript and Summary

Good day and welcome to the Xenia Hotels & Resorts Incorporated Second Quarter 2020 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Ms. Lisa Ramey Vice President Finance. Ms. Ramey the floor is yours ma'am.

Thank you, Mike. Good afternoon everyone and welcome to the Second Quarter 2020 Earnings Call and Webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas our Chairman and Chief Executive Officer; Barry Bloom our President and Chief Operating Officer; and Atish Shah our Chief Financial Officer. Marcel will begin with a discussion of the quarter and details on our current portfolio status. Barry will follow with operating details and an update on our major capital projects and Atish will finish the call discussing our liquidity and balance sheet. Following today's prepared remarks we will open the call for Q&A. Before we get started let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued earlier this morning along with the comments on this call are made only as of today July 30, 2020 and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release. An archive of this call will be available on our website for 90 days. With that I'll turn it over to Marcel to get started.

Thanks Lisa and thank you all for joining our second quarter 2020 earnings call. It's hard to believe how much has changed in the lodging industry since the beginning of the year or even since our first quarter earnings call in early May. The second quarter operating environment was unlike anything we have experienced in the lodging industry. With the sector facing dramatic declines in revenues as the COVID-19 pandemic resulted in government-mandated lockdowns restrictions on travel and a severe negative impact on consumer desire to travel. I would like to again thank our hotel operating teams and corporate employees for their agility and resilience during this unprecedented time and their continued dedication to the health and safety of guests at our hotels and resorts. Faced with this environment we took swift and decisive action to preserve company value and liquidity as we outlined in our first quarter earnings call. These actions include drawing down the balance of our revolving credit facility, working with our operators to significantly reduce operating expenses and working capital requirements at our hotels and resorts, a substantial reduction in staffing and expenses at the corporate level, a $50 million reduction in anticipated capital spending for the year and the suspension of our quarterly dividends after the first quarter payment. Most significantly during the second half of March and early part of April 31 of our 39 hotels temporarily suspended operations in an effort to minimize our immediate cash needs. Since we last spoke to you in early May, our team has continued to work extremely hard to position the company to not only get through this crisis, but will also prosper again when the inevitable recovery takes hold. Significant efforts revolved around balance sheet activities such as the successful negotiation of the amendments to our credit facilities and secured mortgage loans which Atish will cover in his remarks. We have also worked closely with our operators, as we minimize working capital needs, devise detailed plans to reopen our properties in a safe and efficient manner at the appropriate time to do so and adjusted on-property operations and amenity offerings in accordance with state laws and local ordinances. We commend our operating companies for moving aggressively to control expenses and help us reduce our average monthly recurring expenses relative to our previous estimates. We believe that many of the steps we have taken will continue to benefit us as demand recovers and we approach prior peak operating performance in the years ahead. Not all hotel portfolios are created equal and we are extremely proud of the portfolio that we own today. We believe we have curated a portfolio that will serve us well as we navigate this crisis and particularly as we recover from this pandemic. Our management team has weathered several downturns in the past. And while none were as extreme as the current crisis each of these experiences has helped us solidify our view that diversification is crucial throughout any part of the cycle. The characteristics of a truly diversified portfolio include not only geography and market concentration, but also aspects such as brands, managers, asset type and the ability to attract a variety of demand segments. This has become even more important in the current environment, where certain locations and demand segments have been impacted disproportionately. We believe that our ability to work side-by-side with our operators and pivot to short-term leisure demand has been and will remain crucial in driving occupancy in our hotels and resorts that are currently open and operating. Over the last few months we have been reminded of some of our company's key advantages. We believe owning hotels that attract diverse types of demand including high-end leisure business has helped us reopen hotels at a strong pace. As of tomorrow 35 of our 39 hotels will be open and operating representing 83% of our total room count. Our hotels and resorts located in key leisure and drive-to markets were the first to reopen as we benefited from our long-standing strategic focus on these types of assets and locations. We believe that having a broad geographic presence without heavy concentration in a handful of urban gateway markets has proven to be beneficial. Being affiliated with the strongest brands at a time when trusted brands matter the most is also a major strength. Having a high-quality recently renovated portfolio gives us confidence that our properties are well suited for the inevitable recovery. Finally our solid balance sheet and liquidity position have been critical this year and we expect each to help us weather the storm should the sea is not clear for some time. Turning to our recent reopenings. After suspending operations in March and April at 31 of our 39 hotels and resorts we began the process of recommencing operations at temporarily shuttered hotels in mid-May. After thoroughly analyzing expected cash flows and staffing models, we further reopened five of our smaller drive-to leisure-oriented hotels and resorts. As we anticipated that leisure demand in markets where restrictions were being lifted would likely be the first segment to return at a meaningful level. In June, we recommenced operations at an additional 13 hotels with 8 more hotels having reopened thus far in July. Our 35th hotel is scheduled to open tomorrow and we currently anticipate that the 4 remaining properties in our portfolio will recommence operations before the end of the year as Barry will touch upon in his remarks. The opening or reopening of a hotel requires a significant amount of forethought and planning. The overall strategy is critical in managing costs, generating demands and maintaining quality and guest safety. We have learned a lot in the past several months, as we close and subsequently reopen hotels and we'll carry those lessons forward throughout the recovery. What is important is in the first couple of weeks of performance following reopening, though we have been pleased with our portfolio's performance thus far. Instead, we believe it is critical to focus on the positioning of our properties going forward and capturing as much demand as possible in the third and fourth quarters of 2020 and into 2021. Turning briefly to the transaction environment. As mentioned in our earnings release this morning, the sale of Renaissance Atlanta Waverly will not be closing tomorrow as we had expected. As a result, we expect to receive the $7.75 million non-refundable deposit from escrow as a result of this transaction not moving forward. Positively, we also announced this morning that we have entered into a settlement agreement regarding the Kimpton portfolio deposit, which had been held by the escrow agent. As a result of this settlement, we've received $19 million out of the $20 million deposit held in escrow. While we are disappointed that neither of these transactions nor the sale of Renaissance Austin closed as a result of the buyers not proceeding, we are pleased that we have received approximately $29 million in deposits, while retaining ownership of these nine high-quality hotels. Although, the overall transaction environment remains challenging, we continue to explore potential dispositions as one avenue to provide additional liquidity, lower our leverage and extend our average debt maturity. We are encouraged with the depth of the market and potential valuation for certain assets and are hopeful that dispositions could be an actionable tool for us going forward. Regarding potential acquisitions, we have a strong record of acquisition activities at appropriate times in the lodging cycle, including as we emerge from the financial crisis in 2010 and 2011. However, our immediate focus is on continuing to strengthen our existing portfolio and further solidifying our balance sheet. While we will monitor the landscape for interesting additions to the portfolio, we do not expect to be at acquirers in the near term. We believe there could be a significant number of opportunities in the years ahead and patience will be rewarded as the market finds its equilibrium. In addition, there are a significant number of buyers currently pursuing hotel assets, so the field for good assets is competitive. With most of our properties open and operating, we are positioned to capture demand for both the second half of this year and into next year. While the uptick of COVID-19 cases in several states is concerning, it is not unexpected given the increased level of social activities that inevitably commenced after lifting of stay-at-home or shelter-in-place mandates in states such as Florida, Arizona, Texas and California. The increase in COVID-19 cases in many parts of the country will undoubtedly slow the recovery. However, we are confident in our focus on locations into Sunbelt both for the long-term and as we manage through the current crisis. We believe our geographic footprint is a particular advantage in contrast to certain large urban gateway and exclusively fly to markets, which in many cases rely on both domestic and international travel and where lodging demand is likely to be severely impacted for a prolonged period of time and the expense burden showed no sign of letting up. We currently have no plans to re-suspend operations at any of our hotels and resorts. Our reopening analysis and planning has been based on establishing expense structures, which permit the properties to operate at very low occupancy levels and limit losses compared to the levels experienced, while being closed. Month-to-date through July 25, our open properties achieved an average occupancy of nearly 25% consistent with the level that we saw in June for our properties that were open at that time and significantly above the levels where it would be prudent to consider re-suspending operations at any of these properties. We believe our diverse collection of high-quality hotels and resorts has broad appeal. As such, our operating teams are pivoting to capture future demands, including customers seeking to trade up to nicer hotels, and we remain dedicated to making the right operational decisions to reduce ongoing losses and conserve liquidity. While it is unknown if the demand we are now seeing will fix or improve in the near term, we do know that having desirable diversified portfolio matters. Not all hotel portfolios will recover the same. Once business does recover, we believe the renewed industry focus on streamlined operations will allow hotel owners to better deliver margin gains in future years. In addition, we anticipate a lengthy period in which competitive supply growth will be muted, primarily as a result of construction financing being likely severely limited, which will especially benefit existing hotel owners. In the meantime, we continue to be focused on preserving value for our shareholders, keeping our high-quality portfolio in great condition and positioning the company for the future upcycle. I will now turn the call over to Barry, who will provide more detail on our operating performance and our capital expenditures for the year.

Thank you, Marcel. Today I will be discussing our property performance for the second quarter, the significant accomplishments we've achieved in resuming operations at the large majority of our hotels, and providing details regarding our historic and future capital expenditures. For our 26 properties that were opened and operating for some part of the quarter, our hotels achieved 17.4% occupancy at an average daily rate of $184.26. While this headline is obviously unlike any we have heard before, we are pleased with sequencing of these results, which continually improved during the quarter as reflect an occupancy of 5.5% and ADR of $157 in the eight hotels that remained open throughout the month of April. May was notably improved with 12% occupancy and an ADR of $185 for the 13 hotels that were open for all or a portion of May. The June results further improved to an occupancy of 23.2% and an ADR of $186 for the 26 hotels open for all or a portion of June. We also wanted to share a few non-traditional metrics, we've been tracking closely as business and consumer confidence shift from week-to-week. All of the statistics I'll be referencing for the first 25 days of July. For that period, our hotels have continued to perform as well as can be expected in this environment, our nearly 25% occupancy and an ADR of approximately $169 due in part to a strong 4th of July weekend. Despite recent commentary and potential concern regarding a potential slowing of business in many of the Sunbelt states in which we operate due to increasing levels of COVID-19 cases. Our results for the weekend in July 25 were slightly ahead of our month-to-date performance. We are particularly pleased with the 17 hotels were opened for the entire month of June have grown occupancy by 6.5 points thus far in July with a RevPAR increase of nearly 17%. In many cases, we have aggressively moved to recommence operations at hotels and we continue to see the strongest performance in the portfolio from our drive-to leisure markets and resort hotels, which collectively represent approximately 31% of our currently opened hotel rooms and approximately 25% of our total portfolio. These drive-to and resort hotels achieved an occupancy of approximately 31% and an ADR of $203 in July. Now, surprisingly the strongest performers include many of our smaller boutique hotel as our 15 hotels with fewer than 200 rooms have achieved approximately 39% occupancy while our 17 hotels with greater than 200 rooms have achieved approximately 19% occupancy. We have had 13 hotels achieve approximately 30% or greater occupancy so far this month including six that exceed 50%. These include each of our hotels in both Savannah and Napa as well as additional hotels in Key West, Mountain Brook, Alexandria, Boston, Santa Barbara, Portland, Denver, Chicago, and Charleston South Carolina. We believe that while our portfolio was inherently built to attract relatively equal portions of demand from the corporate transient, group, and leisure segments. Our open hotels have pivoted extremely well in order to be able to attract a significant portion of leisure business through dynamic use of social media pricing promotions and added services specifically designed to appeal to the leisure customer. We can certainly confirm that this business has a very short booking window often in the week for the week and even in the day for the day. We continue to work with our hotels to identify additional opportunities in this segment. We believe we will see leisure bookings slow as the traditional summer end and students return to their studies. On the group side, we are fortunate to have a portfolio which is not -- which does comparatively little business from citywide conventions due to our specific locations and markets. Nonetheless group business has historically been an important part of our diversified portfolio. As we look ahead the vast majority of group business for the third quarter has been canceled although our hotels made significant efforts to rebook that business into Q4 of 2020 and the first half of 2021. As of the end of June, group cancellations have resulted in approximately $180 million of lost revenue for all future dates. While some of this business has been successfully rebooked for later in 2020 and 2021 there are no assurances that this business will come to fruition. This is not to say that there is no group business in our hotel we have seen -- as we have seen certain types of group business such as youth fans and sporting events professional sports teams and related press and media as well as specialty leisure-driven group business such as auto events. We continue to expect corporate and small group demand to return prior to larger group programs. And the large majority of our hotels open positions us well to be able to capture corporate transient and group demand as it reenters the market. We learned valuable lessons from our eight hotels that remained open as to how our operators are able to operate full-service hotels in a very low-occupancy environment. This experience allowed us to easily transfer our knowledge to our other hotel as they plan for their re-openings. We correctly recognize the drive destination leisure-oriented hotels would have the quickest ramp-ups in the current environment. We worked closely with our property level management teams provided input to our major operators designing new staffing and business models that will allow us the opportunity to flex cost as demand rebounds. We continue to work on building out touchless services such as mobile check in and checkout, evaluated all contractual expenses, complex certain management positions, and of course, have implemented deep cleaning and sanitizing housekeeping services primarily upon checkout and on guest requests. We continue to identify the best means of altering our food and beverage venues as we have shifted away from buffet service, reduced at the bar capacity, and shifted a number of operations to grab-and-go on fast casual concepts with more limited menus and inventory during this ramp-up phase. We expect that there are many changes to the operating model will become permanent aspects of our industry's operating structure. Our experienced asset management team and portfolio initiative efforts including the deep knowledge of our hotels that we have gained through our property optimization process have positioned the company well for this task. We expected to incur additional one-time and ongoing costs we have now historically incurred as we reopened hotel. Although we had assumed and were prepared for significantly higher cost for these additional supplies, the start-up cost of average holding approximately $25 per guest room. Our current estimate for these supplies on an ongoing basis is approximately $1 per occupied room at current occupancy levels. We continue to endorse AHLA Safe Stay program as an umbrella for the specific programs that have been developed by each of our brands and managers and are particularly supportive of AHLA's newest guidelines, regarding face coverings which our brands have adopted. We have continued to focus on expense controls as hotels ramp up slowly from initial occupancy levels. We believe that we and our management companies have developed appropriate operating models that are sustainable in the current environment. We do not currently expect to be in a position where we would gain -- again temporarily suspend operations at any of our currently open hotel. We look forward to opening Fairmont Dallas tomorrow and Park Hyatt Aviara in September as I will discuss in more detail shortly. We expect to open our remaining three hotels prior to year-end as they are primarily focused on corporate demand and larger groups. These include the Galleria tower at the Westin Galleria where the Oaks Tower is currently operating Hyatt Regency Santa Clara and Hyatt Regency Portland. During the second quarter, we invested $19 million of capital into our portfolio focused on three major projects which we elected to continue despite the challenging environment. These are each projects which we prioritize and apart from some scope and timing adjustments have held firm with despite our overall full year reduction in capital expenditures by 40%. Our largest project for this year the transformation of Park Hyatt Aviara continued to progress extremely well. In the first quarter we substantially completed the guestrooms, corridors, and meeting space renovation. The major renovation of the lobby, lobby bar, and outdoor terrace continued throughout the second quarter and is rapidly approaching its completion. We continue with the heavy lifting on the significant interior -- exterior work including the pool area exterior function space and upgrades to all landscaping which we expect to complete in September. We have completed the design and are now executing the conversion of the existing specialty restaurant into a new three meal dining concept and the conversion of the existing three meal restaurant into highly functional meeting space focused on small groups. This work will also be completed in the fourth quarter. The final piece of this project will be the renovation of the golf clubhouse including a chef focused specialty restaurant which will be completed in the first quarter of 2021. Overall, the property looks terrific and we continue to believe it will be very well-positioned to capture precisely the type and quality of business for which it has been created. The opportunity to complete a significant portion of the work while the hotel has temporarily suspended operations was clearly a silver lining as we believe the work was done more efficiently and expediently and to an even higher level of quality than had the work been done in an operating hotel. As a result, we are slightly ahead of our initial time line for the project expect to fully reopen the hotel in September. This will likely be just prior to the golf club which reopened in late May hosting the Annual LPGA Kia Classic Golf Tournament. We made significant progress on our additional major capital projects for the year as well. The guestroom renovation at Marriott Woodlands began as scheduled in mid-May and was completed last week. The extensive renovation of the existing ballroom and meeting space at Hyatt Regency Grand Cypress began as scheduled in mid-June and is expected to be completed in September. With that I will turn the call over to Atish.

Thank you, Barry. I'm going to discuss our liquidity and balance sheet. As for our liquidity, we continue to have a strong position. At the end of the second quarter, we had over $305 million of cash and cash equivalents. Additionally, at the end of the quarter, we had approximately $50 million of restricted cash in property FF&E replacement reserves. Through agreements with our hotel operators, we are able to temporarily utilize these funds for hotel operating expenses. We estimate that about $20 million of the $50 million in restricted FF&E reserves is appropriately matched to properties that are more likely to incur losses in the near-term. Moving ahead to our expenses as they relate to our liquidity. We have been focused on managing our expense base during this unprecedented time. Our teams have been focused on reducing recurring expenses while also keeping our properties in good condition being positioned to recommence and ramp-up operations and effectively manage our corporate functions. While the majority of our properties are currently open and operating, we still think it's useful to provide a figure reflecting the extreme scenario of all hotels having operations temporarily suspended. Under that extreme scenario, our estimate of average monthly recurring cash expense is approximately $22 million. That figure includes corporate cash G&A expense as well as debt service. This estimate is at the low end of the range we had provided a few months ago. Let me take a moment to walk through our change in cash from the end of the first quarter to the end of the second quarter. Our cash and cash equivalents declined by approximately $91 million in the second quarter. In addition, our restricted cash declined by approximately $19 million. So in total that is $110 million of change in our total cash. Now let's walk through the outlays during the quarter. There are three items. First, we paid our first quarter dividend in April that was $32 million. Second, we had capital expenditures tied to our projects that was $19 million. And third was everything else including hotel operations corporate overhead and debt service. The sum of that third item was $60 million. That approximately $20 million on average per month is below our estimate of $22 million of average recurring expenses that would be the case under an all-closed scenario. This is because some properties were operational during the quarter as well as a variety of puts and takes. Some of those puts and takes were specific to the second quarter such as severance costs and some affect cash balances every quarter including changes in receivables payables and the timing of certain payments. Moving ahead to discuss our breakeven level. Our estimate of portfolio breakeven occupancy is still in the 40% range at the hotel level. This portfolio-wide metric reflects varied levels of breakeven by hotel. In addition, assumptions around ADR non-rooms revenue and margin can cause variations in our estimate of breakeven occupancy. During the month of June, six of our hotels achieved positive hotel EBITDA. On average these six hotels had June occupancy of about 50%. Rates were down almost 20% to last year. Given that some of these hotels had just reopened, we learned a lot and hope to flow better over time. We also hope to grow the number of hotels achieving breakeven in the months ahead. Moving ahead to our overall balance sheet. We amended each of our corporate credit facilities during the quarter. We are pleased with the outcome and the ability to manage the business with some level of flexibility. The amendments provide a full covenant labor until March 31st 2021 and relax financial covenants until mid-2022. They also extend the maturity of $175 million term loan that was scheduled to mature in February 2021 by one year. In exchange, we have provided additional security to the lenders as well as agreed to certain negative covenants a new minimum liquidity covenant and a higher spread on each of our credit facilities. Over the last couple of months, we also modified each of our eight secured loans. While the terms vary by loan these modifications generally provide temporary covenant relief, temporary and limited debt service deferrals as well as the ability to utilize FF&E reserves for hotel operating expenses should they be needed. Overall, our balance sheet continues to be strong. We have no debt maturities until 2022. We have a supportive lender group evidenced by the unanimous support received on our credit facilities amendments and secured loan modifications and we have multiple levers to use to enhance our balance sheet over time. We continue to believe that with our strong liquidity position we can navigate through this crisis and position the company for opportunities in 2021 and beyond. And with that we will turn the call back over to Mike to begin our Q&A session.

Thank you, Sir. [Operator Instructions] The first question we have will come from Bill Crow of Raymond James.

Hi, folks. Thanks. Good afternoon. A lot of information there I appreciate that. Marcel, I think it was your prepared comments you mentioned that slowdown was inevitable because of the increase in the case count. I didn't get a sense that that was reflected in your July to-date results which seem kind of even with June. What are you seeing in your forward bookings that indicate that the slowdown is here or is coming?

Well Bill, obviously, I referred and I'll let Barry speak a little bit more specifically to what we're seeing kind of on the ground as far as forward bookings and kind of what we're seeing on a day-to-day basis. But obviously, there's been a lot of talk in general about economic slowdown as a result of the COVID-19 cases increasing in a lot of markets throughout the U.S. So my comments are not quite as specific to what we saw July to-date compared to June because we actually have been fairly encouraged that despite a lot of this stuff going on in these states that's -- that our hotels are holding up pretty well compared to what we were seeing in June. And I think Barry referred to it that actually over the last week we saw some -- a little bit of -- it's hard to call it strengthening at these kind of levels, but a little bit of improvement over what we saw during the weeks before that. My comment in general was also related to the fact that we certainly never expected to see kind of a straight-line recovery. We're very much prepared and expected -- prepared for and expected a somewhat uneven recovery. And I think anyone that kind of saw how people were starting to behave as states were opening back up was logically expecting some increases in cases that would potentially pause things a little bit again. And I'd say that that's something that's I fully expect you're going to see throughout the country as things kind of open back up. So I don't think that this is particular to the Sunbelt states or anything like that. It's just more a reflection of increased mobility increased activities. And obviously hopefully with some of the measures that are putting being put in place in a lot of states right now this will slow things down a little bit and we'll go back to that kind of continued improvement in the overall environment.

Okay. The second topic I wanted to jump into a little bit, you -- I appreciate you discussing it briefly in your remarks was the transition from the summer period into the fall. And I'm just wondering, I know you don't have a, especially, long booking window, but what are you seeing as we get past Labor Day? And how tenuous is the kind of decision to reopen hotels ahead of what appears to be a pretty slow fall from a business travel perspective?

I think -- and again, Barry can -- will jump in here in a second to give a little bit more feedback on what's happening on the ground. But certainly, you alluded to it I mean, the booking windows are extremely short. And undoubtedly the majority of the type of business you're seeing right now is that leisure-oriented business. So, clearly that does give you a little bit of pause as you think about where the fall will be. And then, as you look at expectations for who will be filling your hotels at that time. We certainly are hopeful that we'll see a little bit more corporate demand going into the fall. It will also be very interesting to see. And again, it's hard to put any specific data around this because of the booking windows are so short. It'd be interesting to see, if you really do see as much of a traditional break in leisure demand when the schools open back up, given the fact that obviously there is so much work. There's so much working from home going on, students being educated virtually and all those type of things. That might also mean that it's not quite as clear cut as you've seen in prior years where the summer ends and you don't see -- you see a very significant decline in leisure.

Yeah. I think on Marcel's final point, I think that is what we expect to see and what we're targeting our plans around. Unfortunately, we're just too far away from post Labor Day to give any meaning to the data that's out there. And in fact, when we look at it, because when we look year-over-year, we never -- you don't have -- at least in forward bookings you don't have a separation between what is on the books for leisure and what's on the books for corporate transient. So it's really a combined number. So, are those numbers softer than last year, looking ahead a month? Absolutely. But, we know there's virtually no corporate demand in there yet. So, what we've done and a big part of our strategy across the system is more to Marcel's point is that, we think there's going to be opportunities for people to kind of continue behaving the way they behave, particularly in the drive-to leisure destinations in the resort markets where people are going to take long weekends if they have children who are in virtual school or have been working from home. They're going to be able to take more time off mid-week than they otherwise might have. And what we're trying to do is design programmic offerings that really designed to draw people away from their homes for that kind of getaway. There's no question that the guests in our hotels are there primarily because they are tired of being at home and they want a different experience. To the extent we can start differentiating that experience in our hotels by offering for lack or to talk about it kind of generically kind of theme weekends or, specialty programming or unique activities that make them want to choose our hotel than other hotel, that's the kind of positioning we're putting in place now focused on those fall month.

All right. I appreciate. I’ve got one more, but I’m going to cut out, everybody else chance, I’ll come back in later. Thanks.

Thanks, Bill.

And next we have Michael Bellisario of Baird.

Good afternoon, everyone.

Good afternoon.

Just on the topic of dispositions, presumably buyers want drive-to and leisure-focused hotels, but that's also what you want to own right now. So, how are you balancing that? And how are you evaluating in terms of properties that you might sell?

Yeah. Clearly Mike, there's the type of assets that people would have a primary interest in are, obviously, assets that are also great on -- in this current environment. And it clearly is a balancing act to the extent that you're willing to potentially sell assets. How do you balance selling assets where your discount to pre-COVID levels, if you will, which is obviously a focus of a lot of people is a little -- is somewhat minimized? And you do need to balance that with your view of how you want to build your portfolio and keep your portfolio over the long-term. Certainly obviously, these are -- it is a situation where we're looking at a lot of different avenues to continue to bolster the balance sheet. And like I said dispositions could be one of those. So, it is a -- it absolutely is a balancing act to say do we feel comfortable with a potential sale of an asset at a certain valuation compared to certain other avenues that you might go down? And that's something that we'll continue to evaluate. And like I said, disposition will be one of the tools that we'll look -- that we'll continue to look at. And to the extent that we feel that there is a good amount of debt for a certain asset where we believe there is a fair valuation that is preferable to maybe pulling some of the other levers that we have at our disposal that will be something that we consider very closely.

And then, if you were to sell an asset or generate proceeds maybe through a financing, what's the waterfall of repayment that needs to occur?

Yeah, that's a good question. I mean there is a -- it would -- it varies based on level of revolver borrowings outstanding. But, in general, the majority would be towards debt reduction.

Got it. And then just last one for me on the three big box hotels, that you hope to reopen by year-end. I guess two-part question, what gives you the confidence that that will happen? And then, what do you need to see on the ground of what to switch to decide to open it eventually?

Well Mike, each one is kind of a little bit different situation. Just the easiest first, which is the Galleria tower in Houston at the Westin Galleria. Those are two relatively equal-sized towers. We have the Oaks tower open. And then there's business that -- sufficient to fill that tower we'll open the Galleria tower. And we can actually -- even to the extent we have group business on the books or book group business we could -- it's very easy for us to move them from tower-to-tower, so that's pretty easy. Santa Clara, Hyatt Regency Santa Clara is interesting had the adjacent theme park been opened this summer, we would definitely be open. So, I mean that hotel has always enjoyed some different business. It's not. So, we're not. We have some -- we do a fair amount of NFL business and related business at that hotel given its proximity to Levi's Stadium. So, we're looking and watching how that business comes around and also transient demand in the Valley -- Silicon Valley in general. So, we think that -- so those are the things we're watching. And then Hyatt Regency Portland is really going to be much more dependent on activity in the nearby near adjacent convention center, and when citywide business comes back into that market. Although, we do think we have a – we've developed some very – as we have at all the hotels some very lean staffing models, where if there is even a relatively small amount of corporate transient demand, we'd be able to get that hotel successfully open, although not necessarily operating optimally.

Okay. Thank you.

Next, we have Aryeh Klein of BMO.

Thanks. Just as COVID cases – but have there been any variances across markets that have been more or less impacted that you've seen?

You were – not sure if it was just us, but Aryeh you were breaking out. It was very hard to hear your question.

Sorry about that. Just as COVID cases have risen, it sounds like occupancy has stayed consistent but has it varied across markets that have been more or less impacted by the rise in COVID cases?

So one of the things, we took a look at is, we took a look in particular at Arizona, California, Florida and Texas. And even in those markets, while we saw some declines in the week or two following July 4, which in part was to be expected, because we knew July 4th, was a relative peak weekend as it related to leisure demand that week. Each one of those markets we – in each one of those markets we saw occupancy rise in the last week. So we – so the – so it has not behaved significantly differently in those four markets again Arizona, California, Florida and Texas than it really has across the portfolio as a whole.

Thanks for that. And just one – maybe one last question just on group bookings into 2021. Have there been any cancellations yet for that that you've seen?

They have been. They've been relatively isolated at this point. It's obviously something we're watching very closely. It's no doubt we are not putting the amount of business on the books for 2021 to be ordinarily would be at this time. And I think, we'll probably be in a better position to talk about 2021 in the November call.

Thank you.

The next question, we have will come from Tyler Batory of Janney Capital Markets.

Yes. Good morning – good afternoon. Thanks for taking my questions. I wanted to ask real quick, just about the pricing environment. I'm curious, how promotional the environment is? What the competition is doing on ADR? And then, can you also discuss a little bit more the revenue management regarding some of these properties that have just reopened? Just curious, what you're doing on the revenue management front as you ramp up operations in the company?

Thanks Tyler. Really good question obviously, and it obviously varies a lot market by market. And the one thing that, we know for sure is that, most of the hotels have now gone back to kind of much more manual and individual person thinking in terms of revenue management rather than using the brand management focused black boxes. And so obviously the data, they rely on is always based on prior periods. So we're really in a kind of different environment here. So what that has done is put a lot more pressure on the individual revenue managers in the hotel, to make sure that they are watching what competitors are doing, watching literally every day, kind of how business is flexing. The good news is, is that the silver lining and the fact that we're not booking business far out, is we have a lot of ability to make decisions very quickly. So for example, they are still watching today, our rates in our leisure and resort hotels for tomorrow night and Saturday night, because we're not yet booked to capacity. We want to attract more business. So we're doing whatever we think it takes on the revenue management side to be able to do that. As I mentioned to a prior question, what we're – part of what we're trying to do is shift away from pure rate plays and try to come up with more value-add opportunities, identifying things, services amenities that we're offering and that we can get the word out to our loyal guests and repeat guests through social media and other relatively easy-to-use channels to try to get them to want to stay at our hotel, and be a little less price-sensitive than the otherwise would. I think one of the things that, we have found in many of these markets is that, the guest is in some cases trading up and that where our hotels are positioned maybe at a higher-quality level than some of the places guests would stay before. They're willing to pay a premium over where they might traditionally stay and that has given us some price support in a lot of the markets that we're working in and has helped soften what would otherwise be a decline in rate.

Okay. And then the follow-up question, I have is just I'm trying to understand more on the operation side of things. Obviously, you guys have done a great job managing the cost structure and made a lot of changes there. So a multipart question, I mean, how much flexibility, do you have if potentially trends get worse than maybe find even more on the savings front? And then kind of on the reverse, if things start to accelerate to the upside or hold steady, how much of that costs are going to be potentially coming back in as more people start staying at your properties?

I mean, I think, it's safe to kind of go back to – I'll go back to my professorial days and think about managerial accounting a little bit. And there's no question that, that we've developed models now we're very comfortable that we've kind of covered the fixed costs in the hotels. I think that gives us probably a lot more opportunity on the upside to drive margin as we start working in costs, I think, they're much more likely to be variable costs than fixed costs or at the very least the staff costs where we're only growing fixed staffing for example every 50 or 100 guestrooms that are occupied. So I think we feel really good about the upside. On the downside, I think we certainly have opportunities to go, if we don't sustain the business levels that we're at. And I think, look, we're at very low business levels overall. But if we can't sustain, those we'll look and have to identify opportunities to figure out how to further cut costs. But the businesses are designed to be operating today in a place where we're kind of covering fixed costs, making money on the variable costs, and that we have a lot of – we have a lot of people in particular a lot of our management teams who to their credit are working really, really hard and doing things that are outside of their general duties that they would only be doing as managers, whether that's being additional security on weekends at swimming pools or lobbies, or whether it's kind of engineers doing similar kind of work, whether our front office managers are out some days taking drink orders at a pool bar. We are operating very, very efficiently in really all of our hotels at this point.

Yeah, and going back to Atish's comments about, how we've reduced the cash outflow is really in a situation with all hotels being suspended. We're comfortable saying that, we view that as a worst case scenario and that we can run in very low occupancy levels, and do better than what those numbers are that we talked about. And obviously, there are fluctuations that you'll see month-to-month that are some of the puts and takes that Atish talked about, including whether that includes severance amounts and churn amounts and those type of things. But we're pretty comfortable at this point saying that our team has done a tremendous job of really tightening down these expenses and being comfortable that this is kind of the worst case scenario as we presented it with all hotels closed.

Okay. I'll leave it there. Appreciate the commentary. Thank you.

Next we have Austin Wurschmidt of KeyBanc.

Hi, good afternoon, everybody. Atish, you had talked about some of the cost per month during the second quarter and that being around the $20 million level. But there's a number of nonrecurring items in there. And I'm just curious, if you have a sense or best guess of what that number looks like on July's results given you've opened a significant number of hotels and you've seen occupancy improve through the month.

Yes. That's a tough one, Austin. I mean, there's -- I mean, those puts and takes are -- they vary by month as I mentioned, it's AR, AP it's some items that you might get billed for semiannually or biannually as opposed to monthly like insurance and real estate taxes. So it moves around a little bit month-to-month. I would just say there's obviously a lot of focus as we bring these hotels back on the flow-through and higher levels of performance relative to these hotels were closed. And so we're moving in that direction and we feel comfortable and confident in that. But there is going to be a little bit of choppiness from month-to-month. So I -- unfortunately I don't have a good number for July and we'll just have to see how it comes in as things finish up and as the books close.

Okay. Got it. And then Marcel, just revisiting your comment on the transaction environment. One, I guess how should we think about the total dollar value that you would consider selling? And then you also referenced some other tools at your disposal to enhance liquidity and improve the balance sheet. Can you give us some additional detail of what else you're considering?

Yes. It's really tough to say how much we would consider selling or what's -- what kind of the outside number is that we would be willing to do. It really depends on what's -- what do we see out there from market condition-wise and how do we feel about current value you're able to achieve on some assets versus where we believe value for assets is. So we don't have a pre-described number in our heads. So if we'd like to sell x amount. And frankly, it also depends a little bit on how palatable that tool is versus some of these other tools. And I can run through all of them and we're being very nimble and we're being very careful in considering all the options that are out there. But any kind of list you can think of that creates liquidity for a company like ours is something we'll obviously look at very closely. And some of those are a little bit more appealing than others. So we'll certainly compare -- continue to look at potential financing avenues whether secured or unsecured we'll continue to look at sales of assets and many other things are -- could be considered. But the great thing is, is that we came into this with a great balance sheet. We have a very good amount of liquidity. We took all the steps to really shore up our balance sheet and to create additional runway for us. As Atish pointed out, we have a very supportive lender group we have been working with. So there's no gun to our heads to do anything. We don't feel under duress that we absolutely have to pull the trigger on some of these things that are probably maybe a little bit more urgent for people that came into this with a much more levered balance sheet.

Yes. I mean the other piece, I would add there's no maturities till 2022 as I mentioned. And again, I think we have strong relationships with all sorts of capital providers. It's our existing lenders and it's others in the space. And I think that gives us some confidence that we can navigate through as I had mentioned. So again all those various tools that we could utilize. I mean, there's obviously trade-offs associated with each and every one of them. And we think about the tool set in concert with how we think about the business evolving. And so obviously, we've given this worst case scenario the cash burn. But as the business moves forward, we'll have a better handle on exactly what kind of capital levels we might need to raise to further strengthen the balance sheet. And also where we want to position the company in light of opportunities that may be coming. And so some of the activities that you could see from us and others in the space frankly are a combination of defensive and offensive based on their view. So I think it's just a little bit too early, but I think what we wanted to do is explain that we do have a lot of these tools and we are thinking about them very frequently and how to think about appropriate levels of sequencing and total dollar amounts as well.

Okay. Got it. Thank you.

Next Bryan Maher of B. Riley FBR.

Thank you. And most of my questions have already been asked and answered. But if I can drill down just a little bit more on Tyler's question regarding the pricing environment. I think most of the people on this call I would think that weren't around in 2009 and 2010 when we saw distressed owners who were simply trying to make debt service pricing, high-quality room ridiculously low prices. Are you seeing that now out in the marketplace, or do you anticipate that as you get into the fall of occupancy doesn’t cover this later?

So, Bryan, part of that cut out, but I think I can get to the core of the question or at least the answer that we -- the question we can answer best with regard to that today, which is that that, unlike what we saw before, the primary demand driver, without question for hotels today is the leisure traveler. And the leisure traveler buys rooms very differently, obviously, than either the corporate transient volume traveler, where those rates are negotiated often in advance or the group business, where they're generally being booked by sophisticated meeting planners. So I think that's part of why we feel like pricing has held up moderately well, because that leisure guests when there's demand and when they want to go someplace is not -- we've not seen them looking necessarily for the best deal. We've seen them looking for the best hotel that they want to stay at that's within their price range. So that doesn't mean rates not down, rate is down. But part of rate being down is that when we look at a traditional -- a typical blended hotel, even in some of these drive-to markets where we would have a decent component of corporate business in some cases, or in other cases large scale large volume group, that rates in those sectors, again, it varies property by property, but those rates are often higher than what the transient guest is paying. And that's part of why we see ADR softening a little bit in a lot of these markets. So I don't know if that gets all the way to the answer of the question. Happy to follow-up or address anything else more specific. But it's a very different environment. And again, the summary is, it's a different -- very different environment for sure. We don't know what things are going to look like when corporate and group really come back. But the transient guest seems to be willing to pay a respectable price for the hotel and they're choosing hotels based on quality location and amenities, more so in many cases it seems than they are on the rest.

And it's -- there is a big variation in our portfolio. I mean, you have ADRs in the $100 range and you have ADRs well north of $300, right now. So based on location and what else is open in the market and, obviously, day in a week. I think that the occupancy declines, if you look year-over-year and June and July month-to-date have been sort of in that mid to high teens kind of percentage range 15% to 20% in that range. So, obviously, as Barry said, down but maybe not as significant as one would expect or think relative to prior downturns.

And I would add to that. I think part of that is -- and part of the proof of that is that we're kind of reaching, in many cases, kind of, equilibrium occupancy, which means that we're pricing appropriately for the demand in the market. We can't induce additional demand necessarily through lower pricing. So a lot of the hotels have maintained pricing at what we think are pretty respectable level.

All right. That’s helpful. Thank you.

Next we have the Thomas Allen of Morgan Stanley.

Hey. Thank you. Good afternoon. So we really appreciate all the additional monthly color in the press release. Can you give us some more detail on June trend including what RevPAR declines were in June and adjusted EBITDA? Thanks.

The RevPAR -- you said June or July, Thomas?

Currently you said it was too complicated to give July, because there are a lot of moving parts on free cash flow. So can you -- I mean, what I'm looking to understand is what the exit rate was in the second quarter for EBITDA and RevPAR. And it sounds like July is pretty similar, right?

Yes. We, obviously, have more hotels open in July than we had in June. So, I mean, we’ve reported on the hotels that were open in June and what kind of RevPAR they achieved. So during the days they were open, we were at about $43 RevPAR. So, obviously, a very significant decline from having 39 hotels open last year for the full month, running at obviously a much more significant RevPAR than what we saw in June so far.

Yes. I mean, I would also add, I mean, in terms of EBITDA, we said, during the quarter we gave our hotel EBITDA number. And it was about a-third of that. It was a decline in month of June, so roughly $13 million.

So it gets improve relative to the prior month?

Well, what I was going to add there, which I think partially answers your question, Thomas, is that there's obviously different puts and takes that go into different months like Atish talked about, where there are certain accrual that hit certain months versus other months. So that's why when you actually look at the monthly EBITDA, they weren't that different from month-to-month in the second quarter. But, again, that is more driven by some of the things that just hit at different times in the quarter.

Okay. So, you guys didn't give last year's ADR and occupancy, right? So -- but if I take the June RevPAR numbers, you disclosed the reopened properties and we take total 2Q RevPAR from last year, they imply to the reopened properties, RevPAR was down about 75%. Then you assume some properties closed -- were closed, so it's probably down around 80%. Is that a fair estimate?

Yeah. That's rough -- that's roughly fair yeah.

Okay. Thank you.

Yeah.

Next we have David Katz, Jefferies.

Hi. Afternoon everyone and thanks for taking my question. We've talked a couple of quarters ago or really at the outset of the pandemic about how relationships and the discussions between yourselves and management companies the brands have been. How have those evolved over the past -- the recent past 30 days or so? And assuming that, they're constructive, but what kinds of things are you sort of focused on addressing with them?

Yeah. Definitely constructive, I think, I would suggest that our relationships both in general, but also I think as it relates to the specific people we work with at our largest brands, have never been in better shape. I think, everyone recognizes what we need to do to work through the crisis. But specifically, they have sought a lot of input from the owner community, and in particular from larger owners that they respect like us, a lot of input and feedback on what their corporate, structure and support structures look like going forward. I think that's something that's really important to them. And they want to make sure that they're -- that they've got the right above property services and above property numbers of people to be able to do some of the things that they've done historically, whether that's sales or digital marketing, or revenue management. And how they bring those services back and how they figure out how to right size costs on those. The brands in general have been very, very receptive to owners' thoughts in that regard. They've also been I think, very receptive as it relates to owner feedback on specifics to the operating model. And what opportunities there are to combine positions among properties or the properties that are jointly owned or whether they're properties that span across multiple owners, in terms of how to much more efficiently provide and combine some of those services are providing them through actual people in market as opposed to truly above property. And I think, also just really as it relates to input on ideas as to, is this right, is this how we should be thinking about, managing housekeeping or managing food and beverage, or things like that.

Right. So, in the end is it fair to takeaway, that you're sort of confident that it comes away with a more efficient and sort of better interaction? And does it leave, in the end when the rubber meets the road, an economic efficiency for you as well?

I'd say economic efficiency for sure. I think relationships between owners and managers will always have points of disagreement and points of misalignment. And we think we're as good as that -- as good at that as anybody. But I think we're certainly in a period of great cooperation now, but no doubt there will be a time when there's going to be disagreements over this or that and this strategic initiative or another one. But I think regardless, I think, we're going to come out of this in a much more economically beneficial position, than we wanted to.

Got it. Thank you very much.

Thanks, David.

Well, at this time, we're showing no further questions. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Marcel Verbaas, for any closing remarks, Sir?

Thanks Mike. Thanks everyone for joining us today. Obviously unprecedented times and I'm very proud of how the team continues to manage through this. And I hope everyone on the phone stays safe and healthy. And we look forward to speaking to you again next quarter.

And we thank you to the rest of the management team for your time also today. The conference call is now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care. And have a great day.