CorePoint Lodging Inc. (CPLG) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, everyone. This is the CorePoint Lodging First Quarter Earnings Conference Call. I would now like to turn the conference over to Becky Roseberry.
Becky Roseberry: Good afternoon and welcome to CorePoint Lodging's first quarter 2021 earnings conference call. In a moment, we will have remarks from Keith Cline, our CEO and Dan Swanstrom, our CFO. 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. For more details on some of these risks, please refer to the risk factor section of the company's most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 12, 2021.
Keith A. Cline: Thank you, Becky. Good afternoon everyone and welcome to our first quarter call. We are pleased you can join us and also, I want to thank everyone for their patience as there was clearly some technical issues in getting this call started today. While the global pandemic is still creating a challenging environment for CorePoint as well as the lodging industry in the US and global economies, the performance of our portfolio of select service hotels has strengthened from the seasonally low demand periods of November through February. I am pleased with the work that our corporate team and third-party management have done as we continue to balance the need for a vigilant focus on cost containment and cash preservation, while quickly responding to the accelerating demand environment over the last two months. With nearly 80% of our non-core dispositions either sold or under contract, we're also very pleased with the attractive multiples and sales proceeds we are generating to pay down debt and create value for our shareholders. Dan will get into more of those details later. Turning to operations. Our portfolio of select service hotels has continued to outperform the broader lodging market. We were able to achieve property level EBITDAre of $8 million for the quarter, which includes the seasonally low demand periods in January and February. We have continued to experience some market improvement in operating results with strong RevPAR Index gains. This relative outperformance is occurring most dramatically in our drive-to destination markets including those in Florida, California and other Sun Belt states. Leisure travel currently represents over two-thirds of our bookings and weekends are still outperforming weekdays. In addition to leisure, we are seeing some recovery in certain segments of corporate travel related to essential businesses such as construction, transportation and project-related businesses. As we have noted on previous calls, our fourth and first quarters are historically part of our slower non-peak season. Through that end, we have achieved comparable occupancy of 53% and comparable RevPAR of $39 for the first quarter, with March being our strongest month at 62% comparable occupancy and $48 of comparable RevPAR. We continue to see positive momentum into April with even stronger comparable RevPAR of $52.
Daniel E. Swanstrom: Thank you, Keith and good afternoon, everyone. I will start today by providing a brief review of the first quarter operating results and recent trends. I will also provide updates on our balance sheet, liquidity position and non-core disposition strategy. The comparable RevPAR decline of approximately 24% during the first quarter was driven by a 22% decrease in ADR and 150 basis point decline in occupancy. As expected, the decrease in year-over-year total revenues is primarily due to the reduction in room rate and demand resulting from the impact of COVID-19 as well as the impact of sold hotels.
Operator: Thank you. Our first question comes from the line of Chris Woronka.
Chris Woronka: Hey, good afternoon guys.
Keith A. Cline: Hey Chris.
Chris Woronka: Hey, how are you? Question was on - the first question was kind of on visibility in booking windows and I know for your business it's always inherently short, but even a little bit of direction can matter, right. So I'm curious as to whether you saw any lengthening in the admittedly short booking windows of stuff booked in the first quarter or whether you're seeing that kind of present day?
Keith A. Cline: Yes, Chris. That's a great question. The booking window continues to be very narrow. As we've discussed on previous calls, as we move through the pandemic, the booking window narrowed further compared to historical results over the past, let's call it two to three years and results today, continue to stay in a very narrow booking window, especially around people making the choice to pursue leisure travel as you approach weekends.
Chris Woronka: Okay, thanks, very helpful. And can you give us maybe a little bit of a sense for right now or historically how much kind of delta there is between weekend or leisure rates and weekend or weekday in more commercial rates? Is there any way to kind of triangulate that?
Keith A. Cline: Well, I don't have the daily rates mapped out in front of me, but certainly as you think about weekends, as I mentioned in my prepared remarks, since the beginning of the spring break travel season, we really have been able to drive fairly consistent rate growth on weekends. And that's really reflective of the fact that slightly more than two-thirds of our bookings today are leisure and the leisure traveler really does seem to be out there around either events, weekends, long weekends, destination markets, etc. and it is providing, albeit on a relative basis, some opportunity to push rate, given the compression of demand.
Chris Woronka: Okay. Yes, sure. Understood. And then maybe can you talk for a minute about labor. There has been a lot of headlines and a lot of questions on all the hotel calls about what you're seeing in terms of hourly - impact on availability of workers, but also kind of expectations for hourly rate? So any color there would be great.
Keith A. Cline: Yes, Chris. There has been a lot of discussion, both across the industry and obviously on calls around the labor issue. We came into the pandemic as an industry with the labor shortage and that labor shortage has increased. Obviously, the industry has done a lot of things similar to what we're doing, for example, not cleaning stay-over rooms, right, to kind of create additional housekeeping capacity in the hotels. Obviously, we are in dialog every day with our third-party manager on either a combination of incentives or programs to incent people to jump into the hospitality industry and once they're in, incentives for them to stay. So we're in active discussions now on programs we'd like to deploy as we go into the summer months. But rest assured, the shortage of labor today is certainly one of the top topics in this building.
Chris Woronka: Okay, great. Very good, thanks guys.
Keith A. Cline: Thanks, Chris.
Operator: The next question comes from the line of Omer Sander.
Omer Sander: Hey, Keith, Dan, Becky, I appreciate you taking the question. I appreciate the color on some of the more recent April trends. You discussed the 62% occupancy, which is a nice step-up from the recent months and quarters, but how does that compare to 2019? And I guess, do you see a path if we sit here six months from now, do you think that there is a possibility that you're back to 2019 levels on the occupancy front?
Keith A. Cline: Well, that tends to be the question right. And if you think about the way that occupancy is laid out and what you'll see in our Q once that has crossed the line, there are some charts in the document that layout Jan, Feb, March and April and show '19, '20 and '21. And what you'll see in there is that the 62% in April for 2021 compares to 71% in 2019, so, obviously, we're still lagging 2019. We are encouraged, as I mentioned in the prepared comments, around this trend and I think the rest of the story honestly will play out as we go through the summer months and really see how strong peak season is this summer. I don't want to go out too far right now and project crossing 2019 results, but we are certainly encouraged by the amount of the gap versus '19 that's been closed in the last couple of months.
Omer Sander: That's helpful. Appreciate it. And then one on asset sales and obviously you've had impressive progress on that front. But I guess not to say that you're a seller of assets in the core markets, that's not what you guys were trying to do, but how do asset values compare in the core markets versus the non-core markets? And I guess where I'm going with this question is if you're 80% of the way towards that 210, is there a possibility that at some point you kind of flip the switch and become an incremental buyer of assets?
Keith A. Cline: Yes, I mean, so obviously, we're working down toward the 105 core assets in our portfolio. We did provide a little additional color in our prepared remarks around how the core has been performing, but the reality is the core portfolio does get valued a little bit differently, as we've talked about, the non-core portfolio generally the way the buyers look at these assets is on a multiple of revenue given that they're going to underwrite a different cost structure, given in the markets these assets are in and the fact that they are switching from being institutionally managed to, in many cases, owner-operator managed. As you look at the core 105, I mean those are going to be valued similar to how you would value many of the hotels in our competitors' portfolios really based on EBITDA multiples and cap rates and certainly their one size certainly doesn't fit all. Now, I know in some previous investor decks, we've tried to provide some of the building blocks on getting the value, maybe I'll kick it over to Dan to layout - in the last investor deck what was laid out in terms of kind of the details to get sort of evaluation.
Daniel E. Swanstrom: Yes, Omer. If you recall, when we announced the Phase 2 of the non-core disposition strategy, I think it was back in our March 2020 Investor Presentation, we provided some details related to the core portfolio, which represents 105 hotels. Those are again about 50% in our core states of Florida, California and Texas. And we provided what those produced in 2019, which was about $410 million of total revenue and about $108 million of total hotel EBITDA. And as we've mentioned several times in the past that corporate portfolio, which produced 26% EBITDA margins in 2019 has been significantly stronger performer with respect to margins versus the non-core portfolio that we've been selling and, as Keith mentioned, kind of that value arbitrage selling at a revenue multiple and significantly in excess of EBITDA multiples for the non-core portfolio.
Omer Sander: Thanks.
Operator: There are no further questions at this time. I will now turn the conference back over to Keith Cline.
Keith A. Cline: Thank you. Thank you all for the time today and once again, thank you for your continued interest in CorePoint Lodging. Have a great day.
