Good day, and welcome to the Xenia Hotels & Resorts, First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask question.

[Operator Instructions] Please note, this event is being recorded.I would now like to turn the conference over to Lisa Ramey, Vice President of Finance. Please go ahead..

Thank you.

Good afternoon, everyone, and welcome to the first 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 and Chief Financial Officer.Marcel will begin with an overview of the current landscape and the Company’s recent actions.

Barry will follow with more details on operations. And Atish will finish the call discussing balance sheet and liquidity. Following today’s prepared remarks, we will open the call for Q&ABefore 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, May 11, 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..

Thank you, Lisa, and thank you everyone for joining our call today.First of all, I hope that everyone is staying safe and healthy during these unprecedented times.

While the world, the economy, the lodging industry and our Company continue to be severely impacted by the COVID-19 pandemic, our team is working extremely hard to assure that the Company not only gets through this difficult time, but once again thrives when this crisis subsides.So, before I give an overview of the most significant aspects impacting our business as we navigate these challenging waters, I would first like to thank our associates who have shown tremendous dedication as they are working harder than ever for the benefit of our Company and our shareholders, while dealing with significant new challenges in their personal lives.

I’m proud to be part of an incredible team that continues to rise to the challenges we face each and every day.

I also would like to thank and acknowledge the many impacted team members employed by our operators at our hotels who either continue to take care of our guests or in many cases are anxious to return to work and provide for their families while facing with many unknowns about the virus.

Our thoughts are with all of them, and especially those who have experienced health issues themselves or within their circles of family and friends.When we spoke on our year-end earnings call in February, we discussed our expectation that 2020 would be a transitional year for the Company, as a few significant renovations and ramp-up from newly acquired assets were expected to negatively impact our cash flow, while setting us up for enhanced growth in the years ahead.

While we expected this transitional year, clearly at that time, we could not have envisioned the impact COVID-19 was going to have on our industry. This impact has been enormous and unprecedented.The year started relatively strong for us, with both January and February coming in slightly ahead of our expectations.

The COVID-19 pandemic began to unfold in January with the United States confirming its first case.

But, we did not begin to see a significant impact to our portfolio until halfway through the quarter.The group segment which represented approximately a third of our revenues in 2019 and is the most significant leading indicator of demand in the lodging industry, began to see a severe uptick in cancellations of future bookings during the last week of February and into the month of March.

On March 11th, we withdrew our previously issued full year 2020 guidance as the uncertainty surrounding pandemic continued to increase exponentially.On March 31st, we announced that in cooperation with our operating partners, we suspended or were in the process of suspending operations at 24 of our 39 properties.

During the month of April, the number of temporarily shuttered hotels and resorts increased to 31.

The remainder of the Company’s properties continued to operate with staffing and expense levels reflecting the reduced levels of demand experienced at those hotels.In some cases, the temporary closure of our properties was a result of a mandate from the city or county in which the property is located such as in Key West and Napa.

Throughout our hotels and resorts, our asset managers worked with our operators to conduct rigorous property by property analyses to guide our decisions regarding temporary closures.

Barry will go through the factors that went into the decisions to suspend operations in our hotels, as well as the aspects that are driving our reopening decisions in more detail later on.

Suffice it to say that the health and wellbeing of guests and associates is at the top of the list, followed by cash flow considerations, both in the short and longer term.We are pleased with the efforts by our hotel operators to decisively and significantly reduce expenses.

Our operators have been able to substantially reduce staffing and other expenses to minimize cash outflows during this time when our properties are either shuttered or running at historically low occupancies.Throughout this time, our asset management team has been working closely with our operating partners.

And we believe, now more than ever, that being affiliated with some of the strongest brand companies in the industry is a significant strategic advantage for our Company.Our largest brand companies, Marriott, Hyatt and Kimpton have provided strong leadership and guidance across their platforms as we navigate this pandemic together.

We believe that our operators have significant advantages as they response to this crisis, through their ability to implement and communicate their best-in-class safety and cleanliness initiatives, their premier revenue generation systems and loyalty programs, and their well-capitalized balance sheets.

We believe that our affiliations with these companies will prove to be vital as we recover from this unprecedented downturn.In addition to the expense reduction efforts undertaken at the properties, we have taken significant actions at the corporate level to reduce general and administrative expenses and capital expenditures.Our anticipated full year cash G&A expense has been reduced by more than 20% or approximately $5.5 million, excluding non-recurring restructuring costs.

Additionally, we canceled or deferred approximately $50 million out of our 2020 capital expenditure budget, as Barry will detail in his remarks.Turning to the three potential disposition transactions we have previously disclosed.

As we announced in April, the sale of Renaissance Austin Hotel did not close as contemplated in our amended agreement, and the agreement was terminated. We retained the $2 million deposit that was previously released from escrow.In early March, we entered into an agreement to sell our seven-hotel Kimpton-managed portfolio at attractive terms.

Last week, the sale did not close as scheduled as the buyer parties failed to close when obligated to do so. We are vigorously pursuing the release of the $20 million deposit currently held in escrow.Regarding the sale of Renaissance Atlanta Waverly Hotel, there continues to be no change to timing or terms of the transaction.

The closing is currently scheduled to occur by the end of July and $7.75 million in nonrefundable deposit remains in escrow.

We cannot provide assurance that this transaction will close as currently agreed upon or at all.As a result of our actions over the past several years, we believe we were well-positioned coming into this crisis with an outstanding portfolio, a strong balance sheet and manageable debt maturities.

While the social and governmental response to the pandemic has had a dramatic effect on demands throughout the travel industry, we believe that our liquidity position and strong relationships with our banks and our capital providers will assist us in these difficult times.We continue to engage in constructive dialogue with our lender group as we attempt to reach agreement on amendments to our unsecured credit facility and their unsecured term loans and are hopeful this will occur in the second quarter.

We look forward to finding the best path forward with our lender group that allows the Company to be well-positioned for the essential ramp of business.As we look ahead to phased reopening of the economy and the easing of stay-at-home or similar restrictions across the country, we will continue to work with our operating partners to evaluate the best strategy and approach for commencing operations at our currently shuttered properties.Currently, we are planning to recommence operations at five of our hotels before the end of May, bringing the total of open hotels in our portfolio to 13 by the end of the month.

These hotels are primarily smaller resorts or lifestyle boutique properties, appealing to guests who are driving through these locations. These properties collectively represent one-third of the properties in our portfolio with only about 15% of our total rooms count.

We believe this will provide us with a valuable view into the way they can expect demand to return throughout the remainder of the portfolio, while limiting the ramp-up in operating expenses.Our success in significantly increasing the few of our portfolio to many different sources of demand, should benefit us as we navigate through the current health crisis and work to stabilize our operations as lodging demand recuperates.

Our high-quality portfolio has historically benefited from a balanced mix between group, corporate transient, and leisure demand.

We are hopeful that our geographic diversification, our exposure to drive-to markets, the concentration of resorts in our portfolio and our lack of reliance on by statewide conventions and international travel will aid us as we emerge and recover from this crisis.We expect that the way that business will recover in our industry will likely be uneven across markets and segments.

We are fortunate to own a large number of hotels and resorts that have been nimble and pivot to attract and various sources of demand, including the drive-to leisure business that is likely to return earlier than corporate transient and group demand.Our experienced management team has successfully navigated through previous challenging times in our industry.

Having owned many different types of hotels and navigating through the ups and downs of various cycles has prepared us well to draw on these experiences and be creative as we evaluate our strategies looking ahead.With the strong liquidity position and excellent relationships with brands, operators, brokers, financial institutions, and other capital sources, we believe we are well equipped to get through this extraordinary time and position the Company for future growth.Barry will now provide additional details on our operations..

Thank you, Marcel.Today, we’ll be discussing our property performance for the first quarter, our decision-making process surrounding temporarily spending operations and plan to resume operations at our hotels, and providing details regarding our historic and future capital expenditures.Financial information I’ll be speaking about is on a same-property basis for the 38 hotels owned at quarter-end.Same-property RevPAR declined 27.6% for the quarter as occupancy dropped approximately 20 points and rate was down 3.3%.

RevPAR for January was down 3.2% and February down 5.2% to last year, both slightly ahead of our expectations as we’ve anticipated significant disruption from renovations to Park Hyatt Aviara and Ritz-Carlton, Pentagon City.

March was down 67% as 24 of our hotels had suspended or were in the process of temporarily suspending operations as of March 31st.Same-property EBITDA margin was 15% as a result of hotel closures, related costs and the accrual of certain furlough costs totaling approximately $6 million.

Despite our operators’ best efforts, reacting quickly to an eroding demand environment was challenging.

Group business for the quarter was 35% with transient at 65%, generally in line with our historic annual trends.As we look ahead, the vast majority of group business for the second quarter has been canceled, although our hotels have made significant efforts to rebook that business in the latter half of 2020.As of the end of April, group cancellations have resulted in approximately $70 million of lost rooms revenue for the year, nearly all cancellations coming from events scheduled from March through June.

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.

As business returns, we expect leisure demand, which was approximately 25% of our total demand in 2019, to recover first, particularly in the form of staycation and other drive-to business at our leisure focused lifestyle hotels and our destination resorts followed by corporate and group demand and ultimately larger group programs.When we look at temporarily suspending operations of our hotels, we first considered the potential impact of remaining open on our manners of employees and their personal safety.

We have performed rigorous hotel by hotel analysis, focused on expectations for near term demand and incremental costs to remain open versus closed, where we worked with our operators on developing detailed plans for maintaining the safety and security of ourselves while they are closed by maintaining 24 hour maintenance and security services.At our eight hotels that remained open, we learned valuable lessons in how our operators can operate full service hotels in a very low occupancy environment.

Occupancy for eight of these hotels averaged approximately 6% but costs were well-maintained and we believed that there was no incremental cost to keeping them open versus temporarily suspending operations. Many of our hotels that remain open are in markets where competitors are also open.

We look at those markets as relative bright spots as economic activity begins to pick up.In recent weeks, we have transformed our analytical lens to look more closely at reopening certain of our hotels.

In addition to the obvious, state and local regulations and ordinances, we are focused on the ability to maintain appropriate level of cleanliness, physical standards and safety for hotel employees and guests with a particular focus on identifying near term business opportunities.

We believe that drive-destination leisure-oriented hotels and have the quickest ramp up in the current environment. We are working closely with our property level management teams as well as providing input to our major operators, designing new staffing and business models while allow us the opportunity to flex costs as demand rebounds.

These include the alteration of food and beverage venues, relying primarily on grab and go concepts as hotels ramp up, providing deep cleaning and sanitizing housekeeping services primarily on checkout, relying on touchless services such as mobile check in and checkout.We expect that many of these 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 a deep knowledge of our hotels that we’ve gained through our property optimization process have positioned the Company well for this task. As we reopen hotel, we expect to encourage additional one time and ongoing costs that we have not historically incurred.

This will undoubtedly include equipment and supplies designed to promote and enhance guest and employee safety and aid in ensuring compliance with social distancing requirements.We fully endorse AHLA Safe Stay program as an umbrella for the specific programs that are being developed by each of our brands and managers.

As we evaluate demand and the ultimate pace of the ramp up in each hotel, we will also consider the onetime costs we may experience in shifting these business models and putting physical alterations and severance costs in order to permanently reduce our hotel staffing model.Expense controls will be a primary focus as hotels may ramp up slowly from initial occupancy levels.

As a result, we will likely see our full service hotels operate more like select service hotels in terms of staffing and amenities offered. We expect that hotel staff will be reduced as we may leave entire guestroom floors and airs of meeting space out of inventory for extended periods of time.

Many of our group-oriented hotels and destination resorts will pivot to attract to higher component of leisure travel in the coming months.

And we’ll also focus on small meetings business as we continue to seek opportunities for group business in the hopefully not too distant future.As Marcel discussed, as we focus on maintaining liquidity across our platform, we evaluated our original capital expenditure budget to $110 million to $130 million and have canceled to defer approximately $50 million of CapEx, eliminating non-essential budget expenditures and continuing primarily with projects that were in progress or for which materials have been ordered.

We are now expecting to spend approximately $70 million on capital expenditures this year.During the quarter, we invested $22 million of capital in our portfolio. In February, we completed the meeting space renovations at the Ritz-Carlton, Pentagon City, and Westin Oaks, Houston.

Our largest project for this year, the transformation Park Hyatt Aviara continued to progress with relatively minor changes to the scope and timing as a result of COVID-19. We’ve now completed the guestrooms, corridors, and meeting space renovation.

The major renovation of the lobby, lobby bar and outdoor chairs began during the second quarter, we were able to somewhat shorten the timeline for this portion of the project due to the hotel being temporarily closed.

We are pleased with the execution of date of the major renovation of the exterior, including the pool area, exterior function space, and upgrades to all landscaping.

Overall, we’re on track or slightly ahead of our initial timeline as we have been able to complete some phases of the project faster given the resort has temporarily suspended operations.We continue to plan and design the remaining components of the renovation, which include the conversion of the existing specialty restaurant into a new three-meal dining concept, conversion of existing three-meal restaurant in a highly functional meeting space for small groups and the renovation of the spa and fitness area.

We’re making great progress on the planning of chef-focused specialty restaurant as part of the renovation of the golf club house. Given the continued excellent playing condition of the golf course, which is home to the LPGA Kia Classic, we made the decision to defer the golf course renovation to a later date.

Other than the golf course improvements, we continue to expect this product to be fully complete in the first quarter of 2021.We continue to be excited about the opportunities that lie ahead for this resort post transformation.

Two of the forces that originally drove the design elements of the transformation work, one, to be more appealing to family-oriented leisure business through a dramatic redesign of our pool areas; and two, to create additional meeting space within the hotel optimally designed to serve small meetings.

We’re fortunate that these components of the renovation are ideally matched with our expectations of demand in the near future.

The initial reception and reaction to design of these spaces from target markets including families in the first case and leading industry players in the biotech and pharmaceutical business in the second case, has been very strong.We’re continuing with the guestroom renovation at Marriott Woodlands, which is expected to begin this month to be completed in the third quarter.

However, we deferred renovation of the guest bathrooms and other components to a later date. We are also continuing with the renovation of the existing meaning space of Hyatt Regency Grand Cypress scheduled for this summer.

We have reduced the scope of this project by eliminating or deferring some non-essential components of the project, primarily in the pre-function area.With that, I will turn the call over to Atish..

First, our liquidity position; second, our monthly recurring cash expenses; and third, I will provide an update on our balance sheet and discussions with our lenders.Starting with our liquidity. The Company continues to be well-positioned from a liquidity perspective.

We’ve taken actions to improve liquidity over the last eight weeks, including drawing on our line of credit, reducing corporate expenses, curtailing capital expenditures to the extent possible and working with our operators to reduce property expenses.

We intend to suspend our dividend and seize share repurchases through at least year end.At the end of the first quarter, we had approximately $400 million of cash and cash equivalents. This reflects approximately $365 million of cash at the corporate level and approximately $35 million of hotel level working capital.

Additionally, we had over $65 million of restricted cash held in FF&E replacement reserves, as of the end of the first quarter.

We expect to utilize a portion of this restricted cash for hotel operating expenses, as certain of our operators have allowed for this temporary use, subject to specific conditions such as replenishment.Turning to my next topic, our monthly recurring cash expenses. We provided this information in the release we issued this morning.

We are presenting this information, assuming all hotels had temporarily suspended operations. So, we expect to have 13 hotels operating by the end of the month. This scenario is one way to assess our liquidity runway.

Assuming all 39 hotels were to temporarily suspend operations, we estimate our near-term monthly recurring expenses would be approximately $20 million. This includes health insurance costs for furloughed property employees, as well as wages and benefits for limited staff at properties and fixed costs such as property taxes and insurance.

It also includes our corporate, general and administrative expenses. Our monthly cash debt service is an additional $5 million, should all debt service be paid in accordance with current debt agreements.If hotels were to continue having suspended operations beyond a few months, our operators would begin to further reduce costs.

Our monthly recurring expenses would decline from approximately $20 million to approximately $17 million.

Again, this is exclusive of debt service which would add another $5 million per month, should it be paid per current debt agreements.If properties were to suspend operations for a longer duration, we would look for opportunities to further ratchet down hotel operating and other expenses.

Note that we have excluded capital expenditures from the monthly expense rate just provided. Given the capital expenditures are more discretionary and tied to specific projects, they are best to view separately. In addition, we can utilize existing FF&E replacement reserves for a portion of planned capital expenditures.

For the remainder of 2020, capital expenditures would average approximately $4 million of cash expense per month.

If all hotels have operations suspended for many months, we would further restrict capital expenditures to only essential life safety and minor maintenance projects.Overall, we believe our rate of monthly expenses inclusive of capital expenditures currently yields more than a year runway, again, assuming all hotels were to suspend operations.Moving ahead to my final topic, our balance sheet.

We had a strong and straight forward balance sheet going into this crisis. We now have approximately $1.6 billion of debt after drawing entire availability on our line of credit, approximately 35% is secured by property mortgages and 65% of our debt is unsecured.

At quarter-end, our net debt to adjusted EBITDAre was 5.2 times, reflecting the severe downturn that began in March. At the end of the first quarter, our weighted average interest rate was 3.32%.

We anticipate our weighted average interest rate at present is approximately 3.5% due to an increase in spread on our unsecured borrowings.After discussions with our lenders, we are appreciative of the support we are receiving from them. On the unsecured side, our lender group consists of top notch banks with whom we have strong relationships.

We are negotiating an amendment to our unsecured borrowing agreements with our lenders. As part of the agreement, we expect to have flexibility to manage our business over the months ahead. We also intend to address our financial maintenance covenants into next year. At the end of the first quarter, we breached one financial maintenance covenant.

We expect the amendment to address that as well.As to our secured debt, we have a mix of bank and life company lenders. We do not have any CMBS debt. We are in discussions with several of our six secured lenders to obtain temporary covenant waivers and additional temporary relief.

As o the end of the first quarter we were in compliance with all secured debt covenants.In closing, I would like to acknowledge the support of all our constituents as we manage through the unprecedented global crisis due to COVID-19. We are fortunate to have strong relationships with our operating companies, lenders, and other industry participants.

We entered this crisis with a high-quality, well-located, diverse portfolio of assets. We hope to emerge from this crisis having preserved value for our shareholders and being positioned for future growth.With that, I’ll turn it back over to Eileen for our Q&A session as we’re ready to take our first question..

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Thomas Allen with Morgan Stanley..

Hey. Good midday, everyone. So, interesting comments about reopening hotels. Can you just talk about kind of where current -- what you’re seeing in current bookings, any promising results there? Thanks..

Well, it’s hard to talk about current bookings, frankly, Thomas. We obviously -- these decisions that we’re making around some of these properties that we’re reopening are really not driven as much by what we see on the books or what existing reservations look like or anything like that.

It is much more driven by looking at kind of market dynamics and expectations of potential leisure demand that will start coming back to some of those assets a little bit more quickly than other properties. As you know, most of the forward-looking booking information that you can normally hang your add on is related to group demand.

And group demand has obviously completely disappeared. And even with stuff that’s still on the books for groups, it’s just highly questionable whether any of those start materializing.

So, more of the decisions around reopening are truly based on just a sense for the markets, having some -- having very in depth knowledge of those markets, seeing what’s kind of happening with overall kind of economic activity in some of those markets and drawing some conclusions from that that we know, we’re going to have to kind of build off from basically zero base at most of these properties.

So, we’re going to open up some of those properties. We have pretty good hopes that we can and start rebuilding some occupancy there. But, it’s also based on what we’re seeing with some of the assets that actually remained open. We have eight assets, like Barry talked about, still on average rent in the mid-single-digits occupancy in April.

But at that level, we were running probably profitability -- or lack of profitability that was very similar, if not a little bit better than being closed.So, we know that we can open up some of these assets, kind of start building up hopefully a little bit of occupancy and certainly not lose more money in the early going there..

And that brings me to my next question.

How are you guys generally thinking about breakeven levels, both from a cash flow and then from a EBITDA level?.

So, when we look at it, Thomas from -- at the hotel EBITDA level, we have centered around on a portfolio-wide basis to breakeven occupancy of around 40%. Now, it varies a lot property to property.

We have some hotels on the larger scale resorts that may have breakevens as high as 50%, and we have some of the more urban hotels that we can operate in a very similar service model, those breakevens are down in the low 30% range.

But, around 40% overall for the portfolio gets us to zero hotel EBITDA.And then beyond that, I think if you were to layer in corporate overhead and debt service, you’d be in the 50% occupancy range, roughly speaking. And these numbers also reflect a rate decline because obviously, we would anticipate that rates will be lower coming out of this.

So, we’re not assuming kind of the same rate profile as pre-COVID initially to come up with that 40% to 50% range..

And Atish, like around what kind of rate is that assuming?.

That assumes about a 30% hit to ADR..

Oh, wow. Okay. All very helpful. Thank you..

Our next question comes from Austin Wurschmidt with KeyBanc..

Hi. Good afternoon, everyone. I was just curious if there was any discussion whatsoever about renegotiating the Kimpton transaction, pushing out the date. And then, also curious kind of what the grounds are for their claim to breaching the contract and an acquisition agreement..

Yes. As you could probably imagine, Austin, not a whole lot I can say around that. The reality is that we were ready, willing, able to close at the date of closing. The buyer did not show up for closing. So, as we said in our announcement, we’re vigorously pursuing the $20 million deposit, that’s held in escrow.

So, really can’t say much more about that at this time..

Got it, understood.

And then, are there any hotels beyond the five that you’ve announced where you see kind of a future of reopening from mandated closures getting lifted that would otherwise be open to the extent that those mandates weren’t in place?.

Yes. Austin, Marcel mentioned in his commentary about the hotels we have closed by mandate today are in Key West and Napa where we have two hotels, and those would generally fit the profile of the hotels we’re opening in terms of having a high components of leisure demand and being in markets where there’s a lot of drive-to business..

So, those two are not included in the five that you expect to reopen by the end of May?.

Correct..

Right. To be clear. It’s 3 hotels, 2 hotels in Napa and 1 is Key West. And as you may have seen, the Keys, obviously as a drive-to market, particularly coming from Southern Florida, pretty heavily dependent on the area.

So, the South Florida has been a little bit behind the rest of Florida as far as being allowed to reopen some of their economic activity. So, it’s going to be pretty much tied to what you’ll see in South Florida, whether the Keys will likely start lifting their restrictions.

And we’ll react relatively quickly obviously to the extent that we can move forward on those. But, it’s going to be part of -- those are, to Barry’s point specifically, driven by that where we probably would act a little bit more quickly to open those hotels.

But, given where we are, there may be some other assets in the portfolio too that will end up on a similar timeline. We’re continuing to review it really on a day-by-day, week-by-week basis. And obviously, you don’t make a decision to open up a hotel by tomorrow.

You need those few weeks to kind of prepare for it and to make sure that you open up the booking channels and all those kind of things without making too many adjustments to that..

The only thing I would add is that, 16 hotels in total that have less than 200 rooms. So, we view kind of these next -- these five hotels that are opening over the next couple of weeks as a way to really understand and assess most of the opening process and what demand looks like and how we can build from there.

So, these are ones that we’ve already identified. Assuming it goes well, we can look to others in our portfolio. I mean, as both Marcel and Barry mentioned, we have a lot of diversity in the portfolio and hotels that either do a fair amount of leisure or can pivot towards doing more leisure.

So, we’re fortunate in that regard that we can build off of the experience around these firsts to continue that into the weeks ahead..

Our next question comes from Michael Bellisario with Baird..

Good afternoon, everyone. I just wanted to focus a little bit on Houston, those two properties, more group exposure, you mentioned a renovation to it, one of them. And then there’s the obvious energy weakness, but it was your best performing market.

So, I guess the question is, how are you thinking about the performance of these assets and the market as a whole, moving forward from here and how we should think about making relative outperformance in the near term, despite all those other headwinds that I think you mentioned and I mentioned as well?.

So, I think, as always, we’ll kind of take it in two pieces. Each of the hotels is very different. Our Westin hotels, the Oaks and Galleria, sort of a pretty broad demand base in terms of corporate demand and group demand.

That hotel happens -- both of those hotels happen to have some meeting space that is very well designed and has an ability now that both these spaces have been renovated to sort of smaller meeting demand.As a note, the Galleria Mall is open. It opened May 1st.

And while traffic is light there, we view that also I think as a little bit of a near-term beacon in terms of attracting leisure business that’s going to want to come and as it does from some of the -- both within the city but from outside of the city as well in terms of shopping and opportunities. The Woodlands is a little different.

That entire market is driven a lot by a single company, Exxon. And the reality is that today, Exxon is generating the same amount of room nights as most other large corporate demand generators throughout the country, which is very, very little in the hotels.

So, while we’re in dialogue with them, we don’t have a sense for how the downturn in oil prices really affected their near term view. And at this point don’t view it particularly any differently than we view any other large corporate demand generators in the portfolio..

Our next question comes Ari Klein with BMO Capital..

Thanks.

Maybe just following up on the hotel openings question, when you think about non-major focused hotels, when are you kind of planning or expecting those to begin opening, and what are kind of the guideposts there that you’re looking at to start opening those?.

I think if you look at, kind of in general as an asset class, kind of larger urban hotels. So, I think we’ve talked about our plans for -- and our intentions for our smaller leisure-oriented hotels as well as our resorts where we think we can do transient business near term.

I think, the guideposts for your larger urban hotels are going to be two things.

One, understanding that there’s sufficient domestic travel, both capacity and demand that there are business travelers who are back on the road and are going to major urban centers during the week; and I think also, looking at in particular, certainly at least initially, the kind of demand patterns and demand requests for smaller group meetings, which we think will follow individual business travel demand by some period of time.

Handicapping those time periods right now is really something we’re not doing.

We’re just not handicapping that because we are looking at it and where every day and every week we’re monitoring reservation flow or trying to understand whether people are calling and interested in rooms, whether we’re seeing demand, not just in our hotels, but are we seeing commercial demand in -- within the markets that our hotels serve.

So, I know it’s not a perfect answer, but that’s really the -- kind of where we are and how we’re looking at it..

Yes. At some instances, there are certain amounts of meeting type businesses. They’re still on the books. And we’re probably looking at it very, very closely to see if those could be real demands that will actually materialize.

The other part about some of those larger assets is as you can imagine, the startup expenses of getting a larger asset to operate again are a little bit more significant in some of the smaller hotels.

So, whereas we can get some comfort around the fact that we can open up a few more of these smaller leisure-oriented hotels and run it with a very, very lean staffing model and not need a whole lot of occupancy to have results that are at least equal or hopefully better than results of being closed.

There’s obviously a little bit different decision-making that goes into the larger hotels where it just is a larger -- bigger expense base that you have to start off with..

Got it. And then, just on the hotels that were planned to be sold and that didn’t go through.

Are you putting them back on the market? How should we think about asset sales maybe more broadly, and what is the market like currently that you’re seeing?.

Well, as you can imagine, and as I’m sure you’ve witnessed and heard from many industry participants, obviously, the market is pretty much frozen as it relates to transactions right now. So, that means that probably shouldn’t expect us to be overly active with any of these in the short term.

We will continue to evaluate whether we believe it’s appropriate to potentially still sell these assets down the road and whether that’s a better solution at whatever valuations are appropriate at that time versus continuing to own some of these assets.What I will say is that when you look at the 7 Kimpton hotel that we own, we never sold them because we didn’t like the assets.

We like the assets. They’re high quality assets. They fit the type of assets that work well within our portfolio.

The reason we were looking to sell them potentially was that we were taking advantage of some pretty good market conditions for assets of that nature that we felt we could sell very attractively, further strengthen the balance sheet, create some more flexibility overall for the Company.But continuing to own this -- own these assets is not a burden for us.

We like the properties. As a matter of fact, we think that these properties can work very well in this short term situation where people are looking for more leisure -- where a little bit more leisure demand will probably start filling hotels. So, these are properties that are open and will continue to be open.

And we should be very good about still owning those assets..

Thanks for the color..

Our next question comes from Tyler Batory with Janney Capital Markets..

Hey. Good afternoon. Thanks for taking my questions. You mentioned group cancellations March through June. Curious what you’re seeing beyond June and group business? And then, also, curious if you can touch on cancellation fees as well..

So, in the period beyond June, the reason we talked about March to June, Tyler, is that there has not been significant cancellations in the latter half of the year. There have been some cancellations but not of significance.

And I think it is -- as you may have heard from others, it’s certainly true from us is that there’s little incentive for those groups to cancel now. They’d much rather wait to cancel closer in when we you may not be able to perform as opposed to them canceling now when they would likely, depending on the contract.

But in many cases, they’re obligated to pay us in cancellation fee. So, I think you see a little bit of a stalemate in terms of why there’s a lot of group business on the books that may or may not intend to have their meetings, when that time rolls around.

And we’ve seen some of that as we’ve rolled into June, for example, and seeing that business start to fall off the books in a much more meaningful way.As it relates to rebooking, we’ve seen a decent amount of rebooking from the business that has canceled in March through June in the latter part of 2020, and in 2021.

Again, there are incentives for groups to want to do that, because in many cases they’re kind of protecting that cancellation fee until such time as that they would cancel that business. So, a lot of them is pushed out.

It’s hard to gauge whether they really ultimately will have their programs or not, depending on a variety of circumstances, including obviously hotel availability as well as whether they’re comfortable having their group in a meeting format, and what regulations might be in place as it relates to meetings of various sizes..

Yes. The only thing I would add to that is, I think when you look at our group business and our group business cancellations and the amount of rebookings, it is probably not too dissimilar from what you’re seeing from most of our peers.

The reality is we’re all dealing with the exact same situation, which is we’re all hopeful that this materializes the remainder of the year. But, that’s obviously not something you can absolutely count on, given all the uncertainties that everyone is aware of..

Okay. That makes sense. Then, just as a follow-up question.

When you look at some of the properties in some of the markets that are going to be reopening here, have you had any discussions concerning limits to occupancy, either voluntary you guys putting in those or mandated by the governments? Obviously, there’s some markets out there opening with limits to occupancy at restaurants and what not.

So, just curious how you might manage that on either the F&B side of things or on the room side..

So, the F&B side, we’ll obviously intend to follow whatever regulations are in place in the jurisdictions at the time we open up. As it relates to the hotels, we’re -- at this point, we don’t expect initial demand to cause any issues with that, in at least one case of the hotels we’re opening.

We are only opening a section of the hotel and that will also -- we know that will -- that is a very resort-focused property and we know that will help us maintain what we think are the proper physical distance limitations at the pool of that hotel by limiting the number of guest rooms that we’re actually making available..

Okay. That’s all for me. Thank you..

Our next question comes from David Katz with Jefferies..

Hi. Afternoon everyone. Yes, it is afternoon..

Good afternoon..

I found a commentary, I guess it was in Barry and then some of Marcel’s as well, particularly thoughtful around the reopening of hotels and thinking about looking at these hotels in the context of a limited service offering.

And I’m wondering, the degree to which, at some point whether it’s now or the future, you think about kind of reinventing some of the operating models to keep it that way, right, that may provide a better profitability or a lower volatility operating model ongoing..

Thanks, David. So, I think it’s interesting. And it’s something that obviously we’re working very closely with the brand and managers on, and they are very focused on this as well.

And I think you certainly -- they have certainly received a lot of input from the owner community that there are -- we need to rethink the entire business model, and we look at what services we’re providing, what services we’re charging for, what services we’re providing on a complementary basis.

I think, there’s been a lot of great dialogue around that quite frankly, between owners individually, owners collectively and the various management companies and brands that service, in particular larger institutional owners.

I personally think it’s a unique and rare opportunity that we didn’t have in either -- in any of the major downturns, at least in my career, where you kind of reacted -- you came down a little bit and you kind of over time built things back up. We’re literally starting many hotels from a true zero-based budget.

And that gives us a really rare and unique opportunity to really rethink the business model and we’re doing it.So, how far that goes and what the right answer is. I think it’s too soon to tell, but there is active and ongoing dialogue between owners and operators within the operating companies themselves.

And I think, there are -- I think, we will come out of this with a far lower cost structure than we ever could have imagined, if we had a downturn like the 9/11 or a downturn, like a Financial Crisis just because we’re building that -- we have the ability to look at everything from a true zero base..

And if I can follow that up with the group of hotels that you’re going to open first, can you just give us a sense for what normal number of FTEs might be on average and kind of what you’re thinking about in terms of opening with in terms of FTEs, just to put some perspective around it?.

I think it’s a little too soon to talk about that. Our largest hotels carry a ratio of around half an FTE per room, roughly in that range, maybe a little more than that.

But, the issue is going to be in the larger hotels is do you have consistent group demand to be able to staff up to the level that you can serve as that group and then be able to react if there’s a dip of a few days or a week or two weeks before the next major group.

And that’s what’s going to make the considerations and open the larger group hotels for everyone, I think, a tougher question.

Because if you need to staff for a group that’s going to take 80% of your hotel, you’re going to have to staff to be able to service 80% of the hotel.If you don’t have another group coming in shortly thereafter, or stack groups or transient business or leisure business, if you can put on top of that group, then that’s going to change and alter how you make that decision to open.Do you want to hear about the smaller hotels? You said group, I thought….

Smaller hotels, the ones that were about to open..

So, David, what I will say about the ones that we’re about to open is that we obviously are looking at it from a perspective of -- we’re closed right now. We have kind of a skeleton crew, basically that is pretty uniform across the portfolio for those types of hotels, as far as the type of personnel that is on board, even when you were close.

To reopen some of those hotels, you’re really not adding a whole lot initially. And it’s really very sad because of the offerings being significantly reduced.

Not having -- in most cases, not having restaurants open or very limited amount being open, you’re just adding, a couple of these basically to be able to open up those types of portfolio right now..

Got it. And if I can ask just one last detail, regarding the failed sale, we’re obviously putting the EBITDA back into the model.

Is there any CapEx that we should be contemplating along with that, or is the math as simple as I lay out?.

No, there’s really no near-term CapEx. We actually did some renovations of those hotels very recently. So, the ones that were frankly a little bit longer in the tube that needed that money that really has happened over the last couple years. So, we’re in very good shape there.

I wish I could tell you, you just add to EBITDA back that we had in ‘19 for those properties but that’s probably not on the cards for some period of time..

That’s probably not the right answer. Okay. Thank you very much. I appreciate the answers. Good luck..

Our next question comes from Matt Boone with B. Riley FBR..

Hey, guys. Good afternoon. This is a Matt on for Bryan. I just wanted to turn to the cost savings side of things. And I apologize if I missed this.

But, from the initiatives that you’ve implemented thus far, I guess, what areas would you consider the changes or adjustments to be areas that could be more permanent going forward?.

Thanks, Matt. I think, certainly, as we’ve seen in other downturns, the level and number of fixed staffing, meaning management personnel on property and the levels of staffing that you have, I think we’ll see a significant number of levels of management probably come out as we -- as you reopen and reramp. I think that’s certainly one area.

Certainly, I think opportunities become more efficient throughout the hotel, whether that’s through providing housekeeping only on checkout, whether that’s through really getting to the point where mobile key, so keyless check-in checkout -- or not keyless, passing the desk into check-in and checkout.

I think, those are really large initiatives that we have been working toward for some time that I think will have some legs as we go through this.

I think certainly, shortening and moving food and beverage offerings to more limited offerings and offerings that are much more expedient to be able to prepare on a style that may be available for grab and go, I think those are those are the primary areas where I think you’ll see, both cost savings initially, and things that have potential to stay in the operating model longer term..

Okay.

And then, is there anything else that you’re considering implementing or do you believe that everything that’s been put in place will be enough to weather any additional near term headwinds?.

Obviously, as you know, 31 of our 39 hotels are closed right now. So, what we’ve implemented is, they’re closed. So, we certainly hope we’re not going to continue to implement that for the entire portfolio and will look to obviously add to services that are needed and expenses that are needed. I think Barry’s talked to a few of those, just categories.

And I wholeheartedly agree with his comments about a great opportunity to zero base operations and to really build back those pieces that are truly necessary to run the business.

And I think that’s where as an owner of the type of hotels that we own, there’s a great opportunity to create a better, more efficient model to some extent than some of the hotels, were previously operating under.On the flip side of that, I think though, that we own are still enormously attractive for all kinds of different demands, including corporate, transient and leisure demands.

That’s even if you’re scaling now some short term operations and amenities, but they will still be very attractive to stay up in comparison with maybe some of the cookie cutter type of hotels..

Got it. Thank you..

Our next question comes from Bill Crow with Raymond James..

Good afternoon, guys. Marcel, I know you’re laughing about just adding back ‘19 EBITDA., but it does bring up a question and largely because we heard kind of some surprising answer to that question earlier today.

But when you think we get back to ‘19 levels?.

Well, Bill…..

I know, if you knew the answer, I understand, but you got to manage your business for some sort of gain, right?.

Yes, absolutely. I mean, obviously, the way that we’re managing our business right now is both looking at short-term and longer term views of how we get back to those type of performances. Our view of it is, you got to obviously operate with strategy, hope is not a strategy.

So, we’re not sitting here saying we hope we will be back at these levels at this time. And certainly, it’s going to take a -- in our mind it is not a 12 months situation clearly. I mean, that’s something that going to take a couple of years to work its way out..

Right..

And when you hear, and I didn’t personally hear some of the things that you may have heard earlier today..

Right..

But, what I will say is that you’ve heard a lot of people talking about, these are ‘22, there are ‘23 kind of in that timeframe.

And what we’re seeing right now, in many ways, it’s flipping to say your guess is as good as mine, because our guess should be a little bit better, but there’s obviously a lot of variables that are going to go into how quickly things come back and how quickly things rebound.

But, that is probably the closest that we can say that into -- later in ‘22 into ‘23 is probably a more realistic way of looking at things..

Right..

Yes.

The only other thing I would add is just, if you think about top-line and RevPAR versus profitability and some of the things we’re talking about in terms of operating costs and maybe margin potential, even at lower levels of RevPAR might translate into -- even if you don’t get to exactly the same level of RevPAR, in a couple of years, maybe you can do better on the profitability standpoint because we’ve got a different operating model than in the past.

The other thesis would be obviously the supply growth, which is hard to envision. A lot of supply growth beyond what is currently under construction actually opening up, whenever that happens. But beyond that, I think, you’re going to have a lengthy period with not a lot of new supply growth.

So, those are some other factors to think about as you think kind of how this industry might book for couple of years..

Yes. No, I appreciate that very much. And one other question, at what point do we have to get to before you can start to really push cancellation fees? Clearly, you can’t push any of that now.

But if we’re reopened as a country by the end of the year, but groups still don’t want to travel, so as you look ahead, your pace in 2021, do you start to really push cancellation fees at that point? Is that legitimate or does that just lead to backlash and PR nightmares and things like that?.

Well, I think, obviously it’s a delicate balancing act. Clearly, in our business, this is really something that the operators are very focused on. It is a very unique and unprecedented situation right now. So, there’s a lot of flexibility being shown as it relates to rebookings and those type of things.

So, we think that’s appropriate in the current situation. I wouldn’t want to say -- it’s not my position to right now say, hey, we’re going to enforce them through a certain day or not enforce and then start enforcing after a certain date.

It’s really going to depend very much on what the situation is and what the true likelihood of some of the rebookings are, and those types of things. So it feels a little bit too early to really make any hard and fast statements about that, I think..

And the operators, the focus is really on, particularly the big, larger operators and the brand companies on conveying the cleanliness, the safety, really focused around that, to make hotels welcoming comfortable for people in the future..

This concludes our question-and-answer session. I would like to turn the conference back over to Marcel Verbaas for any closing remarks..

Thank you. Thank you all for joining the call today. It’s, as we said a number of times during this call, obviously unprecedented time. It’s something that’s -- again, I’m very proud to be part of this team, everyone’s working extremely hard through this crisis.

And we feel very good about the team we have, the portfolio we have, the relationships we have to manage through this. I really want to thank all of you for joining us today. And all stay healthy, stay safe, and we’ll look forward to connecting with you in the months ahead..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..