CorePoint Lodging Inc.
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 CorePoint Lodging, Incorporated Earnings Conference Call. At this time all participants are in a listen-only mode I would now like to hand the conference over to your speaker, Becky Roseberry, SVP of Finance and Investor Relations.

[Becky Roseberry:]

Good afternoon, and welcome to CorePoint Lodging's fourth quarter and full year 2020 earnings conference call. In a moment, we will have remarks from Keith Cline, our CEO; and Dan Swanstrom, our CFO. Rob Song, our SVP of Investments; and Howard Garfield, our CAO, are also on the line with us. Before we start, I would like to remind everyone that our remarks today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements. And forward-looking statements made today speak only to our expectations as of today. We do not undertake any duty to update forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.

[Keith Cline:]

Thank you, Becky. Good afternoon everyone and welcome to our fourth quarter call. We are pleased you could join us. Looking back at our earnings call a year-ago, days ahead of a nationwide shutdown, we outlined several of our top initiatives for 2020. These included being able to respond aggressively to a rapidly evolving environment, ensuring that platform improvements were in place and executing on the next phase of our real estate strategy. While this global pandemic has provided unprecedented challenges to CorePoint as well as the lodging industry in the U.S and global economy, I am proud of the work that our corporate team and third-party manager accomplished related to guest safety, cost containment and cash preservation. We are equally proud of the attractive multiples and sales proceeds we're generating to pay down debt as part of the continued success of the non-core disposition program. Dan will get into more of those details later. Much of our communications throughout the year were focused on the improvement of our business since the peak impact of COVID and the subsequent waves as well as our success in managing through those periods. But we also delivered on other initiatives that will help us prepare for our future beyond COVID. Turning to operations, our portfolio of select service hotels has continued to outperform the broader lodging market. As we're able to achieve property level breakeven for the fourth quarter which includes the seasonally low demand periods in November and December. Given this low revenue period, our cash burn was $13 million in the fourth quarter, excluding CapEx. As we noted on our second quarter call, all of our hotels are fully open, which compares favorably to when we had 30 hotels that were temporarily not accepting transient guests. Since that time early in second quarter, we have experienced a marked improvement in operating results with significant RevPAR index outperformance and year-over-year RevPAR change for the fourth quarter that outperformed the broader industry.

[Daniel Swanstrom:]

Thank you, Keith, and good afternoon, everyone. I will start today by providing a brief review of the fourth quarter operating results and recent trends. I will also provide updates on our liquidity position, balance sheet, recent revolver loan amendment and non-core disposition strategy. The comparable RevPAR decline of approximately 43% during the fourth quarter was driven by a 23% decrease in ADR and a 1,640 basis point decline in occupancy. As expected, the decrease in year-over-year revenues is primarily due to the significant reduction in room demand resulting from the impact of COVID-19 as well as the impact of sold hotels. While we achieved hotel level breakeven for the fourth quarter, our adjusted EBITDAre was negative $5 million. For the second half of 2020, from July through December, we achieved positive hotel level adjusted EBITDAre of $12 million and positive adjusted EBITDAre of $3 million. Our portfolio of select service hotels, predominantly focused on the midscale segments is well-positioned to capture the current levels of transient room demand. Our portfolio footprint is mostly in suburban markets near multiple demand generators, and we are benefiting from leisure and other guest demand for drive-to-destination and interstate adjacent hotels. These characteristics have proven to be favorable for the CorePoint portfolio relative to the broader industries operating performance. As Keith mentioned, we are encouraged by the most recent operating trends for the month of February 2021. Preliminary operating metrics were in line with the months of September and October of 2020 with comparable occupancy of 51% and comparable RevPAR of $37, which represent meaningful increases from the months of November, December and January which have historically been part of our slower non-peak season and lower occupancy months for this portfolio.

[Operator:]

Thank you. And for our first question, we'll go to Chris Woronka of Deutsche Bank.

[Chris Woronka:]

Hey, good afternoon, guys. Thanks for -- thanks for the details. Hey, how are you?

[Keith Cline:]

Good.

[Chris Woronka:]

I guess first question would be on the -- in the past, you guys have segmented the two, the non-core and core hotels into kind of two buckets. Can you kind of tell us how those performed during 2020 relative to your expectations? And whether those non-core or I should say core hotels were still generating - were they still generating the kind of performance you thought or was there some difference due to the COVID disruption?

[Daniel Swanstrom:]

Yes. Hey, Chris. This is Dan. Good afternoon. I guess a few takeaways on that question. One is that the core portfolio did have higher year-over-year RevPAR declines compared to the non-core. But that was in line with our expectations, given the higher chain scales and ADR price points that they compete at in some of their locations. However, the core portfolio continued in 2020, to continue to produce much stronger margins relative to the non-core, which has been a consistent theme going back over the last couple of years. And in fact, the core portfolio generated the lion share of the total positive 2020 hotel EBITDA of $22 million.

[Chris Woronka:]

Okay. That's helpful. And then just going back to the January and February data points, I think you gave us on occupancy, which sounds like it averages out to 47% or 48%, which is about where you were in the fourth quarter. Were you roughly in the same place from a hotel EBITDA perspective in the first 2 months, which is, I guess, kind of breakeven?

[Keith Cline:]

Yes, we hadn't disclosed any operating metrics around EBITDA performance at the beginning of the year. We'll provide a detailed update on that on our Q1 call. But you're right, I mean, our occupancy average somewhere in the -- the high 40s across Jan and Feb. And as we indicated on the call, we're continuing to see strength and occupancy as well as we move into the month of March. So though, we're optimistic, but certainly encouraged by what we're seeing.

[Chris Woronka:]

Okay, great. And then -- congratulations on the asset sales in 2020, I think, really good result compared to what we would have thought last March, and it certainly seems as if pricing held up really well. So I guess the question is going forward, I mean, is there an opportunity to -- do you see prices on these hotels you're selling stable? Do you see it maybe inching up a little bit?

[Keith Cline:]

I mean, if you think about the pricing that we've got over the entire program, as Dan mentioned, from the beginning of this program we sold 113 hotels at really attractive revenue multiples and even more attractive EBITDA multiples. And we've pretty consistently performed at the upper end of the range that we had originally put out there, looking at the hotels that we sold even in Q4 of this year through today in Q1, the revenue multiples have been consistent with what we've seen over the entire program. Now there's a lot of things that bake into how those multiples are performing, including the availability of debt, what's going on with the small business association, etcetera. So, as Dan indicated, there's 31 hotels under contract for about -- estimate about $185 million in proceeds. And we would expect that the sale multiples that we've achieved thus far to be fairly consistent with what we're seeing on the deals that are coming in.

[Chris Woronka:]

Okay, very helpful. And just to kind of clarify, Keith, are the buyers generally valuing those on the 2019 save revenue multiple, or maybe a per key number? Or are they looking at some other metric whether it's fully baked recovery or alternative use or something else?

[Keith Cline:]

Well, it's interesting, right? So a lot of those things baked into how the negotiation occurs. And every location can have some variety in terms of underwriting metrics from the buyers perspective. We focus on our kind of exit multiples based on 2019 to try to really preserve the value of the asset, right, in our mind in terms of how we're monetizing it. So certainly buyers are using a variety of things to underwrite how they believe the hotel could perform, not only in their hands, but also post-pandemic. We're simply focusing on the 2019 multiples to really make sure we're preserving value.

[Chris Woronka:]

Okay. Yes, very helpful. Makes sense. Very good. Thanks, guys.

[Operator:]

All right. And there appear that there's no additional questions in the queue. Mr. Cline, I will turn it back to you for any closing remarks.

[Keith Cline:]

Great, thank you. And once again, thank everyone for participating today and thank you for your ongoing support of CorePoint Lodging. Have a great day.

[Operator:]

And ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect.