RLJ Lodging Trust
Q4 2020 Earnings Call Transcript

Published: 26 Feb 2021

[Operator:]

Welcome to the RLJ Lodging Trust Fourth Quarter 2020 Earnings Conference Call. . I would now like to turn the call over to Nikhil Bhalla, RLJ's Vice President and Treasurer of Corporate Strategy and Investor Relations. Please go ahead.

[Nikhil Bhalla:]

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2020 Fourth Quarter and Year-end Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Executive Vice President of Asset Management, will be available for Q&A.

[Leslie Hale:]

Thanks, Nikhil. Good morning, everyone, and thank you for joining us. I would like to start by saying that we are saddened by the loss of Arne. He was an exceptional leader for Marriott and the entire hotel industry. He was a mentor to many, myself included, but more importantly, he was an exceptional person, and it was truly an honor to have had the privilege of knowing him. He will be profoundly miss and our prayers are with his family. As the new year continues to unfold, we sincerely hope that everyone remains safe and healthy. We remain deeply grateful to our frontline associates, whose tremendous efforts and personal sacrifice, helped us navigate an extremely challenging year. We would also like to thank our management companies and our lenders, who are also instrumental in helping us through these uncertain times. Given the severity of the impact of the pandemic on our industry and the entire country, I am very proud of how well we responded. Our team was nimble and quickly pivoted to adjust the cost structure of our operating model and to preserve our liquidity position. We are not only positioned to benefit early during the recovery, but also to outperform throughout the entire cycle as we advance our long-term growth opportunities. During the year, we executed on a number of fronts

[Sean Mahoney:]

Thanks, Leslie. I would like to echo Leslie's comments on the passing of Arne, an outstanding leader and visionary in our industry. We were pleased to see the continued sequential improvement in our occupancy for the fourth quarter and continued improvement in the fundamentals so far this year. Our pro forma hotel operating results include the 102 hotels that we owned as of December 31, despite having 7 suspended hotels throughout the fourth quarter. Pro forma numbers exclude the residents in Sugarland, which was sold during the quarter, but include the Courtyard Sugarland, which was sold in early 2021. Our reported corporate adjusted EBITDA and FFO include operating results from sold hotels during RLJ's ownership period.

[Operator:]

. And our first question is from the line of Austin Wurschmidt with KeyBanc.

[Austin Wurschmidt:]

Leslie, you flagged that you guys have a tremendous amount of opportunities within your existing portfolio, and you're sequencing those based on risk-adjusted return profile. So as we start to think about the opportunities on the acquisition side, are those going to be more newer operating assets that just have kind of attractive demand generators and growth ahead? Or will they be more reveal that what's within the portfolio and require some additional heavy lifting like the conversions that you've got -- that you've been talking about now for the last several years?

[Leslie Hale:]

Austin, thanks for the question. Well, I would say that it will be a combination of all of the above, given the fact that we have demonstrated the ability to do deep turns, we've demonstrated the ability to create value in all the assets that we've purchased, and we continue to do that. Today, where we sit, we have a greater amount of conviction in the types of assets that we invest in, rooms-oriented, high-margin premium branded assets. And we believe that we've demonstrated their resiliency today, but also, we believe that how they will perform in a recovery is another reason why we would focus in on those assets. And so what I would say is that, yes, we'll be looking at younger assets, but we will also not be afraid to look at assets that require a deep turn because we have an in-house team that has demonstrated the capacity and capability to do that. And we will do that also on our conversions that we've highlighted that we're working on right now as well.

[Austin Wurschmidt:]

Got it. And then, Sean, you outlined you expect to spend $75 million to $85 million on RLJ funded capital expenditures this year. How much additional maintenance spend are you anticipating? And can you expand a little bit on some of the most notable projects that are in that pipeline?

[Sean Mahoney:]

Sure. So Austin, the lion's share of the $75 million to $85 million in 2021 is related to the 3 big conversions in Mandalay Beach, Charleston and Santa Monica. The incremental maintenance CapEx will be in line with what it was over the last couple of years and a relatively small component of that capital. And so when we think about where we're deploying capital in 2021, we're focused on these conversions, which we think are high-value add. As Leslie mentioned, we have more conviction around those today, in light of the fact that we believe leisure is likely to outperform throughout the next cycle. And so positioning these assets to benefit from that leisure outperformance is critical. And if you step back and look at those markets and Mandalay Beach 1 and 2, Hilton Hotels along the California coastline, a great box that has fantastic opportunity with which to shift to a Curio eliminate the comp, F&B, drive rate, remix the hotel. We have great conviction there. And on that asset because of that unique location, Charleston and Santa Monica, both great, also leisure-centric locations where we're converting from the existing brand, one going to an independent in Santa Monica and Charleston going to one of the global brands, lifestyle brands. Both of those locations should be in great position to benefit from that uptick in leisure as well. I'll also add that those -- all 3 of those assets during the pandemic have performed beautifully for us, and have really shown the conviction that the leisure customer likes those even as it is. And so it gives us even more conviction that reposition that the upside is there.

[Austin Wurschmidt:]

And when do you think you're going to give some additional detail on the Charleston global lifestyle brand and any key money that may go along with that?

[Sean Mahoney:]

Sure. So we've made tremendous progress on all fronts with respect to discussions with -- negotiations with all of our stakeholders, scope setting, negotiation contract, et cetera. And we look forward to be in a position sometime this year to provide more clarity around scope, return expectations, capital, et cetera, but that's something that we're going to roll out later this year. But we acknowledge that the market is excited about getting that information, and we're excited to present it because we think these are going to be really compelling ROI opportunities for us.

[Operator:]

Our next question is from the line of Michael Bellisario with Baird.

[Michael Bellisario:]

Leslie, just as you're evaluating the growth opportunities that you referenced, maybe big picture. What signals data points, macro indicators are you looking for in order for you to say, yes, let's put more money to work? Or now is the time to move faster?

[Leslie Hale:]

So Mike, as we've said before, one of the key things for us was to be able to have visibility to be able to underwrite an asset at least breakeven so that we weren't taking on assets that were burning incremental cash. Additionally, we wanted to make sure that we had conviction in our underwriting. Based on the way that fundamentals have continued to show positive signs early on in this year, we feel that where we sit today, we have a greater amount of confidence in our ability to underwrite an asset getting back to pre-COVID levels. Now we may be off a little bit on the initial ramp here or there, but our confidence in the ability of the asset to return to pre-COVID levels is something we feel greater confidence today. Additionally, given how our portfolio has performed and achieving breakeven at our open hotels, we feel that we can also underwrite that as well. And so we are entering that zone of comfort in terms of being able to move on external growth, Mike.

[Michael Bellisario:]

Got it. Very helpful there. And then just one more for me on your closed hotels in New York, Chicago, San Francisco. How far away do you think we are on the fundamental front from getting to a point where those hotels maybe can reopen or, at least, you start to think more seriously about reopening them?

[Leslie Hale:]

We're encouraged by some of the news about restrictions being lifted in both of those markets. I think most recently, New York talked about opening movies. Well, that's not a big demand driver for us, but it does tell us about the psychology of what's going on in the broader market. Look, we developed a framework that allowed us to operate hotels in a low occupancy environment. We will apply that same framework to these assets. And as we see the demand, appropriate demand arriving or emerging rather within those markets, we'll open these assets. I mean, obviously, San Francisco and New York are higher cost structure markets, which therefore requires incremental demand relative to other markets. But as we see that emerging, we will open those assets. And we're incrementally positive today relative to the restrictions being lifted.

[Operator:]

Our next question comes from the line of Neil Malkin with Capital One.

[Neil Malkin:]

Good quarter. Can you elaborate on -- you had very good expense controls, like you said, far better than you expected. Maybe could you elaborate on how you think about, for example, FTEs in the current environment and particularly as demand normalizes? And how you kind of look at that labor structure, given that you've had a lot of success running at lower occupancies and maybe rethought that FTE versus maybe more flexible variable part-time structure?

[Thomas Bardenett:]

Yes. Neil, this is Tom. What I would say is we've been -- as Leslie spoke earlier, really monitoring the model and taking control of how many FTEs are allowed at each asset. And we have the luxury of benchmarking because of the amount of assets we have to be able to understand what that model should look like, no matter where it is in the country. So first and foremost, we kind of looked at the first quarter as the threshold to compare to as we looked at the quarters 2, 3 and 4 in 2020, to be able to understand what we came from and where we are today. And then we looked at what we are actually doing at the property level, from food and beverage closing outlets to a breakfast in an environment that's no buffets. And so you drastically reduced FTEs in the food and beverage area. When we think about rooms and protocol and housekeeping, we also really identified the productivity opportunities related to the fact that no longer are you cleaning -- on every stay over, you're actually cleaning on checkout. So we also looked at FTEs knowing that productivity would improve in those areas, even though we had to do more cleaning in the housekeeping area in the lobby areas. But at the end of the day, we think when we come out of the recovery, we will be at less FTEs than we were when we started in quarter 1 2020. So as we gradually increase and ramp-up in occupancy, we also have a model in regards to when to put those FTEs back. So the biggest relationship will be when food and beverage starts to open outlets. And sales and marketing comes back in regards to group business and BT when we start to look at the management payroll. But on the actual associate payroll, we feel very good about where we're at, running similar levels in Q1 than we did in Q4. And then we'll gradually ramp up as occupancy ramps up knowing that we don't want to get back to the ultimate level we started in Q1 2020. Sean, do you want to add to that?

[Sean Mahoney:]

Yes. And Neil, to provide some data points around that. So for the fourth quarter, our cost per occupied room at the rooms departmental level was down roughly 24%, which was split. Roughly 2/3 of that was wages and benefit savings per occupied room. And the other 1/3 of that was around commissions and other costs per occupied room. So we think that not only have we successfully limited the cost of the business. But when you look at it on a per occupied room basis, which is a proxy for getting more efficient, that's helpful. In addition, on the F&B side, I was -- we were super proud this quarter. Our revenue on the F&B side was down 90%, but we actually still made a profit at the F&B departmental level, which was an incredible accomplishment for our team in the sense that we were able to manage those costs. And so we feel good that we're able to demonstrate that. As we look forward, we do believe that there will be synergies that come out of this, which is an underlying question. Around the overall cost structure and labor is going to be a big part of that. Leslie?

[Leslie Hale:]

No, no. I think Sean put a bow on the very end there in the sense that we've been operating this low occupancy environment for over 9 months. And we have a greater amount of confidence in our ability to have some of these costs efficiencies sustained past the recovery. And you heard Tom talk about food and beverage and housekeeping. And we also believe that the conversations we've had with brands on above property costs relative to shared services. We also think that we've been operating within some of these clusters. We've always done clustering in assets that were close proximity. But we've expanded the clustering to include assets that are further away, assets that are with other owners, and we think that there's an opportunity for some of those cost savings to sustain themselves pass recovery as well. So I think overall, we are incrementally positive on the ability to see some benefits here.

[Neil Malkin:]

Interesting. Well, yes, I think that's already working. So look forward to seeing how that plays out. Second one for me. You talked about you sold some assets in Houston. It looked like they were in need of some CapEx, which I imagine, drove the sale. But just curious on your overall view of capital allocation in this coming cycle. Are there markets that you feel like you maybe want to lighten up on in the form of acquisitions and other places? You mentioned you expect leisure to outperform this cycle. And just given that I think a lot of paradigms have changed for a lot of coastal markets in -- post-COVID in terms of people leaving, remote work, et cetera. How does that go into your calculus of how to move the portfolio forward over the next, say, 5 years?

[Leslie Hale:]

So I think you had a couple of questions embedded in there, Neil. On the disposition side, I think that there's really no -- we're genuinely happy with our overall portfolio, given the amount of dispositions we did in 2019. And we did a lot of heavy lifting there and fill that. We'll continue to be active portfolio managers and look at deals opportunistically, but there's no markets that we're looking to exit at this time. As we sort of think about how the recovery will unfold and look at acquisitions, we're going to rely on our traditional wins. We've always looked at markets that are going to be outperform or have catalysts for higher growth relative to the overall industry. We look for markets that are -- fit well within our existing footprint and are accretive that way, and where we don't have enough exposure, we fill. We also look at how we think the recovery is going to unfold with leisure being the dominant demand driver throughout this cycle. And obviously, with BTs coming back in a staggered way and group coming on the heels of that. So we want to make sure that the types of assets that we look at have the ability to draw multiple segments of demand. We don't want to build the church just for Easter Sunday. You need to have all 3 legs of demand come back in order to have a full recovery. We want to make sure that we have assets that cannot only drive weekend demand, but also that midweek demand as well. And so we will continue to look at multiple -- assets that have multiple demand drivers in markets that are accretive to our overall footprint.

[Operator:]

Our next question is from the line of Tyler Batory with Janney Capital Markets.

[Tyler Batory:]

Apologies if this was already addressed. I wanted to go back to the capital allocation discussion and interested as you're looking at things. How does paying down debt or looking at something creative potentially with the preferred, how does that fit in? I'm curious when you think about those as options to create value.

[Sean Mahoney:]

Great. Thanks. Good question around capital allocation there. I think from our perspective today, we think the most valuable capital allocation returns we're going to get are around a combination of both internal growth within our portfolio conversions being the biggest driver there, as well as acquisitions as a subset of that for external growth. On debt and deleveraging, we think that our leverage levels that we entered into are appropriate. We understand that this was a once-in-thousand year flood or whatever. And we think that our balance sheet actually was able to allow us to thrive on a relative basis during this pandemic. And so I think that actually validates our view around where our leverage levels were. And so I think from a balance sheet perspective, our priorities are around thinking through our debt maturities. Frankly, we don't have any until 2022, but the markets are accommodating. So we're looking at proactive and opportunistic financing opportunities, but that's going to be around the opportunities in the marketplace today. Specifically around the preferreds, under our credit agreements, we're not allowed to buy back preferreds even if we want to. And so I think that on a relative basis, that's really not an option for us today. Historically, pre-COVID, they always traded at a premium to par. And so that made the math difficult around that, even if that was something that we want to pursue.

[Tyler Batory:]

Okay. Very helpful. And this is a follow-up question. On your revenue management sales strategies, can you talk a little bit more about what you're doing right now? But I'm also interested how those strategies might evolve over the next several months here as some demand starts coming in? And then also interested, if you have an idea of potentially roughly how many hotels in some of your markets, some of your competitors, how many are still closed? And yes, there are instances where properties that we opened recently, what that is doing to market trends?

[Sean Mahoney:]

Yes, I'll start with the revenue management question, Tyler. And what I would say is, we're still in a heads and beds philosophy today. And the reason that is, is going into the quarter, fourth quarter, we still had -- predominantly, when we look at segmentation, leisure was the dominant player, as Leslie stated. When we look at group, it was still in the 7%, 8% level in quarter 4. What's interesting now is you're starting to see the mix shift just a touch as we get out of the gate in quarter 1, where group, for the first time is up to almost 11%. So we're starting to see some of what Leslie mentioned about earlier, which is social, weddings, sports groups and things like that. We're still hopeful that BT will start to show its head, but we're still around 12% on corporate in regards to what's happening, and that's mostly medical, pharma, insurance and project-related group and government business that's coming in, in that category. So what I would say to you from a revenue management standpoint is where restrictions are being lifted, we are automatically seeing opportunities to raise rates in those markets. For instance, warm weather climates like Key West, South Florida, where we see that the demand is there, we are having an opportunity to mix a little bit more on the average rate side than we were, let's say, if we're at 30% or 40%. So as demand starts to book and the pace starts to pick up, we're seeing slight opportunities to start to get a little bit more average rate. But when we're still in the 30% or 40% occupancies midweek, we're really just trying to fill with that last-minute demand that's coming 0 to 3 days, which hasn't changed in some of those markets. We are encouraged though that the group, we're seeing more leads, as Leslie mentioned, and we're seeing more bookings. For instance, as an example, in the month of March. We are -- think about last year at the same time, all the pro seasons canceled the second week of March. We now have bookings for the NBA All-Star Game in Atlanta. We have some bookings in the NCAA tournament in Indianapolis. Because they're allowing some of the folks to go back into the stadiums. And lastly, I would say, spring training. So as we start to see more group and start to see the opportunities to mix manage where there's occupancy increases, we'll continue to press the accelerator on average rate and change the mix that way. In regards to open hotels, closed hotels, for the most part, when we think about our select service assets in most of our markets, almost all hotels are open. The last to open are still the large convention center hotels in some of the urban markets that we talked about earlier, which was primarily New York and San Francisco. But if you look at Star, there's very few hotels that aren't open that are in the select service world and compact full-service similar to us. So it's really market that's driving that, which is the high cost models that Leslie referred to earlier.

[Operator:]

Our next question is from the line of Chris Woronka with Deutsche Bank.

[Chris Woronka:]

I think you mentioned that you're going to be going ahead on working on 3 of the Wyndham conversions and repositionings this year, later this year. I guess is there any appetite to begin working on more than 3, given that you're still going to be running kind of below peak occupancy probably for most of the year. Are you able to accelerate some of those even if you don't have the final brand decision made yet?

[Thomas Bardenett:]

Yes, Chris, great question there. I think first of all, just it's actually only 2 of the 3 are Wyndhams. The other is Embassy Suites in Mandalay that we're converting to Curio. We think that from a sequencing standpoint, we want to sequence the relaunch of all these hotels to coincide with the updraft in fundamentals. And so we think the sequencing of Santa Monica, Charleston as well as Mandalay Beach, coming out in 2022 is -- will be positioned to benefit from the updraft. I think from a standpoint of sequencing, these are incredibly complicated projects to make sure that as we're relaunching and converting from Wyndhams, which have performed beautifully, by the way, as you can see by the numbers in the supplemental during the pandemic. But as we remix these hotels, it takes a lot of work to get the design right, to get the rebranding, et cetera. And so we don't want to, frankly, rush that process. And so what we did from a prioritization standpoint is Charleston and Santa Monica were the 2 that we prioritize because we believe that those hotels -- the opportunity was more short-term and the ability to sort of -- to capture that immediately was there. We would expect to sequence these in a way where we would have a couple of the following year and a couple of the following year after that. And so we think a couple per year is the right level where we're able to devote the right attention and sequence the rollouts in a way where it's going to provide not only a short-term catalyst for RLJ, which is important. But also as we sequence that, as we roll out these new ones -- these incremental conversions, that provides lift to our fundamentals in the out years as well. And so we want to make sure that we provide that.

[Chris Woronka:]

Okay. I appreciate that. And then I think we've heard a trend coming out of COVID could be less office space in certain urban areas and more -- but the need for more meetings in areas close to those cities and you guys own properties there. I'm specifically thinking about maybe the embassies, don't know what kind of the meeting space situation is at a lot of those right now, but do you think there's an opportunity to capture if this happens this kind of regional smaller meetings? Are you able to capture that? Or would that require some reconfiguration?

[Leslie Hale:]

Yes. I would say that what you're describing is sort of some of the puts and takes, right? If people work from home more their need to visit the home office increases or team offices increase. And I would tell you that our product type and our overall portfolio, that type of meeting is right in our sweet spot. Group historically has only represented 20% of our contribution. But small meetings have represented 65% of our demand. And so that what you were describing is right in the sweet spot. And as we think about 2021, the trend that is emerging is small group meetings, most of it's smurf related, social related, but we also saw some team training. And as we see BT upticking on the back half of the year, we would expect to be able to capture a meaningful portion of that.

[Operator:]

Our next question comes from the line of Gregory Miller with Truist Securities.

[Gregory Miller:]

I'd like to follow up on one of my favorite topics, given many mornings that I have spent at the breakfast buffets lines at brands such as Embassy Suites and Residence Inn. Last quarter, I believe we heard from Tom that you're having conversations with the brands on revised F&B standards. Could you update us on that timing given that customers may become more demanding for normal buffets as we emerge from the pandemic?

[Leslie Hale:]

So first of all, I just want to say that Tom owes me $1 because I betted him that this question will come up, and I'll let him answer. Go ahead, Tom.

[Gregory Miller:]

It's an important one for somebody like me.

[Thomas Bardenett:]

Greg, we will feed you again. I'll just let you know when and how. First and foremost, as you know, everybody, whether you're a full-service hotel, select service hotel has really modified the breakfast experience because that was the first thing to go to. So as you think about the current environment that we're in, and this is an update in regards to what the brands are thinking about after we all kind of start to move past, let's say, 30%, 40%, 50% occupancy is kind of the threshold to make a change. But the first current environment that we're in is still doing a bottle water, a yogurt, maybe a breakfast sandwich, just to be able to say that here's something for you if you gave free breakfast in the past. The ramp-up is all being looked at as the second phase because we're still not to hotel profitability, as you all know, until you start to get into the 40%, 50% occupancy range, where you start to feel like you can put services back and the customer, actually, the consumer is changing, too. As Leslie mentioned earlier, it's a significant leisure customer and your core customer, BT and group, has not come back to the great degree that we want it to be. So what the ramp is going to do is now start to move towards more of a, what I would call served breakfast. So Greg, in the past, you would go and you would have that buffet opportunity to meander around and decide what you wanted to grab and go. Now you have to go and actually have it served primarily because of sanitation and the safety protocols that we have in place. We also believe, though, that's a good thing long-term because it's going to remove waste, and it's also going to change the amount of labor that you're going to have by having people go to have it served to you versus having it be a free for all. What I would think is going to happen over the next 60 to 90 days is what's that future going to look like after the ramp. That's where the brands are spending time and energy right now. And I can tell you that it's not going to be what it was, it will be less than what it was. So for instance, evening reception for an Embassy Suites what we're talking about is the potential of having 1.5 hours with a 2-drink maximum and having the opportunity to upsell at our bars that are open for people to purchase alcohol. So I think it's evolving. The brands are really taking it seriously because they know not only the hours of operations that Leslie spoke to in regards when to open and how long, but the actual deliverables that happened. But I do think, Greg, it won't be what it was. And we adjust at the end of the day in regards to how that gets to that final phase when we get to the back to the 70s and 80% occupancies as the portfolio used to operate at. .

[Gregory Miller:]

I appreciate all that insight. And I hope I do contribute too much to the labor costs when I get a chance to get back to traveling again. My second question is a variant of Neil's first question. We've received questions from investors recently, RLJ investors, relating to the differences in post-COVID margin expansion opportunities at compact full-service hotels versus select service hotels. And while I recognize that your portfolio has a broad geography with labor and operating models that are not uniform across markets or city centers versus suburbs. Could you provide some high-level thoughts on if you anticipate more long-term margin expansion opportunities from your compact full-service hotels or from your select service hotels?

[Sean Mahoney:]

Yes. Let me start, Greg, and then I'll turn it over to Tom on that. I mean, so net-net, we don't see a really material difference between the performance of a select service hotel or a compact full-service. And that's the beauty of the compact full-service model is that we run them with lean operating models as if there's select service from a cost structure standpoint. But with respect to where we expect cost to be long term, we do believe, as Leslie indicated in her prepared remarks that we believe that there's an opportunity for the EBITDA to get back to pre-COVID levels in advance of revenue getting back, which naturally implies some level of margin expansion. We have not quantified and won't quantify what we think that is because it's too many years in advance, and we just think that there's a lot of moving parts there. But we do have confidence that there is costs that are going to be taken out of the model post-COVID and pre-COVID. From what kind of buckets that they fall into, the F&B question that Tom just addressed is one of them. Labor is certainly going to be a driving force there. I mean, if you recall, leading into COVID, labor cost pressures were a several year phenomena within our portfolio and industry wide. And so we expect to have some level of ability there. In addition, the complex thing that Leslie mentioned, and to be able to expand the scope in just a number of hotels as well as how deep that goes within the portfolio. Sorry, within the individual hotel, it used to be just a GM or an engineer, and now we can complex deeper into the hotel is also one of the drivers. And the last driver from potential cost synergies is going to be around some of the corporate allocations from the brands, which historically were less eat what you kill or sort of pay per play within those. And we think that the model going forward is going to be -- you're going to choose -- you going to opt-in for those as opposed to opt-out. And then the last on a subset of labors around housekeeping. And I'll let Tom or Leslie sort of talk specifically about housekeeping around synergies there.

[Thomas Bardenett:]

Yes. So I would just add one more thing. And that is when we looked at labor throughout 2020, 60% is rooms, about 15% R&M and 12% food and beverage. So when you think about the labor side, rooms is your predominant player. And what Leslie mentioned earlier, which I think is worth repeating is the take rate. And the way the consumer acted in the past is they went to the desk, and we had to ask them if you didn't want your room clean. Now it's real reversal in regards to -- you need to ask if you want your room clean. So that productivity is really the driver, no matter you're a compact full-service or you're a select service hotel. And so I just think if you pinpoint where the most opportunity is, it's probably in that category. And we'll have to see when BT comes back, as well as group, because they're going to be a different consumer paying a higher average rate and probably have a preference potentially where that take rate might go up. So I think that's what we're going to monitor and evaluate as we go forward, Greg.

[Leslie Hale:]

Yes. I think the things that we have identified that give us incremental confidence and the ability for the efficiencies to sustain past recovery are universal to all hotels. They are not specific to full-service or limited service. So the housekeeping, the F&B, the above property cost of clustering, that is agnostic to the type of hotels.

[Operator:]

Our next question is coming from the line of Anthony Powell with Barclays.

[Anthony Powell:]

Question on CapEx and the renovations. I was modeling a bit higher for CapEx this year. So I was wondering if the -- if a scope of the Wyndham and also the Mandalay Beach renovations has been changed at all. And looking past 2021, what kind of annual just absolute CapEx should we be just expecting for you guys as you renovate the properties?

[Sean Mahoney:]

Yes. Anthony, the scope around those renovations has not changed. I mean, we think that we continue to -- our branding choices haven't changed based on what sort of our baseline is. So we feel -- we don't have a comment. We don't know what you modeled. So -- but from our internal perspective, they have not. From a normal run rate, we've historically, in total capital, been around $100 million for a portfolio our size. I think from a long-term modeling perspective, that's probably as good a baseline as you can model. That being said, when we -- there are years where we've accelerated capital in markets that we thought we should position the hotel for outperformance there and that we could do that in the future as we think about the sequencing of the capital. But over a long-term run rate, the $100 million is a fair proxy.

[Anthony Powell:]

Got it. Okay. And a balance sheet question. I guess, before the pandemic, you were planning to maybe refinance your 6% notes due 2025. I guess during the pandemic pricing been -- what didn't make that, I guess, a smart transaction, but we've seen some of your peers do converts at a very low coupon. So could that be an option for you to maybe do a convert and take out that -- those notes at good pricing?

[Sean Mahoney:]

Yes, Anthony, that's one of the options in front of us. I mean, I think, from a financing perspective, the 2022 maturities are sort of first on our hit list with respect to opportunities. In addition, the incremental capital that we raised, we believe is today is more valuable on the internal catalyst, conversions, et cetera, as well as acquisitions. But relative to the FelCor debt, that is, on a relative basis, at the 6% among our highest cost of debt. But we are going to -- we would look at that opportunistically. I think you're right. The high-yield and convert markets have both been very receptive this year. And so we would never say never to that. But it is not -- it's high up on the priority list as it would have been last year. Last year's opportunity there was going to be around bank debt. And the arbitrage between the 6% and new bank debt, which was -- we were modeling roughly -- we could borrow at 3%. That isn't back there yet, particularly on bank debt, but that's something that we will continue to monitor around opportunities. You should expect us to be active and opportunistic around all elements of our capital structure.

[Operator:]

At this time, we've reached the end of our time for today. I'll turn the floor back to Leslie -- excuse me, Leslie Hale for closing remarks.

[Leslie Hale:]

Well, thank you, everybody, for joining us. We hope that all of you are able to get your vaccine soon as we sort of move into the beginning of the year, and that everybody sort of stays safe and healthy. Thank you again for joining us.

[Operator:]

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.