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Hersha Hospitality Trust (NYSE:HT)
Q1 2020 Earnings Call
May 7, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Hersha Hospitality Trust First Quarter 2020 Conference Call and Webcast. All participants will be a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Greg Costa, Manager of Investor Relations. Please proceed, sir.

Greg Costa -- Manager of Investor Relations

Thank you, Eric and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust first quarter 2020 conference call. Today's call will be based on the first quarter 2020 earnings release, which was distributed yesterday afternoon. Prior to proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance or financial positions to be considerably different from any future results, performance or financial positions. These factors are detailed within the company's press release as well as within the company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust's President and Chief Operating Officer. Neil, you may begin.

Neil H. Shah -- President and Chief Operating Officer

Good morning and thank you for joining us on today's call. Joining me this morning are Jay H. Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer. Let me begin by sending you our wishes for your family and your health and safety during this jarring pandemic. These are uncertain and incomparable times for not only the heavily impacted travel sector, but for businesses of all scale and size in every sector of the global economy. My primary focus this morning will be on the actions we undertook and the outcomes achieved in the last nine weeks to bolster our liquidity, mitigate our cash burn, and position our portfolio of hotels for a low occupancy environment for the remainder of the year.

But first, I'll spend a minute on our operational results prior to the impact of the pandemic, which highlights the earnings growth potential and the inherent value of our purpose built portfolio. We entered 2020 with high expectations for our portfolio to deliver RevPAR and EBITDA outperformance from our newly renovated hotels, most notably our South Florida assets. We started the year on strong footing with robust results on Miami Beach during January and February as our suite of hotels generated weighted average RevPAR growth of 55% and outperform the Miami Beach market by 2,500 basis points during this period.

Performance was exceptionally strong following our transformational redevelopment of the Cadillac Hotel & Beach Club during the first two months of the year, which generated 64% RevPAR growth, outperforming its comp set by more than 3,500 basis points. Down in Key West, the newly renovated Parrot Key Hotel & Villas grew RevPAR by 27% during January and February. Unfortunately, momentum during the peak South Florida season, ground to a halt as the spread of COVID-19 led to increase cancellations, a travel ban on international visitors and ultimately, a government mandated closure of all hotels in the region, not housing, essential life saving personnel. By early March, we had entered an unimaginable operating environment in our industry.

Jay, Ash and I have run the company together through three lodging cycles. The current pandemic is far more broad based and its impact with asymmetrical recovery trajectories that will be hotel and market-specific. But our experiences from the late 90s tech burst to September 11 and the great financial crisis. And Hurricane Sandy, Irma and Dorian have all proved invaluable in our team's ability to respond quickly to this catastrophe. By early March, we began to mitigate corporate and operating expenses and shore up liquidity to navigate a yet uncertain environment, three nearly immediate steps.

At the corporate level, our cost containment measures led to more than a 25% reduction in our SG&A run rate for 2020, which is projected to decrease from $15.6 million in 2019 to less than $11.5 million in 2020. Jay and I have each taken voluntary 50% salary cuts for the remainder of 2020, while our board of trustees has elected to take all payments for the year in stock. Second, we revoked our first quarter dividend payments and suspended future distributions on both our common and preferred securities, resulting in approximately $72.5 million in savings for 2020 based on 2019's distributions. Third, we deferred all planned capital expenditures for the balance of the year, resulting in $10 million -- $10 million to $15 million of estimated savings for 2020.

As fundamentals dropped precipitously with each week in March, we zero based budgeted each of our hotels and the markets in which they operate and the overall cost to run our properties on low occupancy versus completely shuttering assets. We reduced operating expenses by nearly 80% on a go-forward basis, but continue to operate 27 of our 48 hotels in even this difficult environment. We own a unique portfolio of assets, although, we generate high absolute profits per room, we do so through a primarily rooms oriented business model of smaller hotels, which allows us to generate nominal gross operating profits and even low occupancy environments. Our focus service portfolio, whether branded or independent, offers significant more flexibility in opex without shutting down.

Most of our open hotels are operating with crews of just four to five employees on property. Over 80% of our portfolio was purpose built for transient guests, our Courtyards, Hamptons, Hilton Garden Inns, and most of our independent hotels even. While our assets are centrally located to capture increased demand during compression periods, the hotels and their operational platforms are not reliant on large market conventions or even midsize groups to generate a substantial portion of their revenues. Only four of our hotels generated more than 30% of their business from groups in 2019.

These hotels are not only able to run with marginally sized staff, but are also able to reopen more quickly and efficiently. One of the many benefits of our owner/operator franchisee model is that we can close and reopen our hotels with very little lead time. We can wait for market dynamics to prove out hotel demand and then optimize GOP and limit our cash burn. We may keep some of our luxury or group oriented hotels closed until occupancy recovers more significantly, but expect to open most of our suspended hotels across the month of June. Our portfolio has been strategically assembled to operate in a geographic cluster strategy to maximize revenues and to leverage economies of scale for cost efficiencies.

Some of the primary benefits of this strategy include cross utilizing staff between our hotels such as employing area general managers to oversee a suite of assets, which not only lowers our overall labor costs but also leverages the extensive market knowledge or scope of the management team across the cluster. Additionally, our sales teams can focus on a market rather than just a single asset for their leads. And this results in additional cross-selling opportunities among our hotels as it pertains to locally negotiated clients, smaller corporate groups, traveling sports teams. Ultimately, this tactic leads to increase revenue generation, customer loyalty and the ability of our market portfolio to consistently outperform its competitive sets.

This cluster strategy has been a clear advantage for our model and traditional operating environments and there's been an unintended benefit in this environment. As we have shuttered hotels that are more costly to operate in a low occupancy market but have transitioned inbound revenue opportunities to one or two hotels in a specific geographic cluster. Our sales teams have had consistent communication throughout this process with hospitals, airline crews, disaster relief workers and law enforcement to generate bookings at our hotels in each of our markets. And I want to highlight a few of this -- a few of these in this morning. Up in Boston, we are housing medical relief crews at our Holiday Inn Express in Cambridge and capturing nightly occupancies in the 20% to 25% range, allowing us to keep the asset operating on a very reduced staff.

Here in Philadelphia, we've closed our Rittenhouse and Westin properties, but we have been able to generate incremental revenue at our Hampton Inn Convention Center through our relationships with the local medical community and first responder agencies. In New York City, the majority of our hotels remain open as close to 90% of our assets operate on a limited service model in New York. We have commitments from government groups as well as medical personnel and first responders at each of our assets in the JFK sub-market. While in Brooklyn, our Nu Hotel has been communicating with the NYPD and the Fire Department of New York to house personnel seeking refuge while working on the front-lines.

In Manhattan, our Hilton Garden Inn Tribeca and Midtown East are also working with NYPD and FD New York. While our Hampton Inn Seaport is contracted with a leading medical institution in lower Manhattan to house its staffs. We will continue to offer our hotels as a safe haven for these essential workers as an alternative to commuting to and from their homes during this pandemic. Occupancy across our New York City portfolio, which spends the five boroughs was 45% during the month of April, showcasing our local revenue management team's ability to generate incremental demand even in times of crisis. Down in South Florida, government mandated closures on Miami Beach and Key West forced us to shut our operations at the majority of our hotels.

However, our residents in Coconut Grove, we've maintained 15% to 20% nightly occupancy, primarily from groups setting up testing centers throughout the Miami area. And down on the West Coast, our independent and select-service hotels in Silicon Valley have been generating incremental demand. Traveling nurse groups have been staying at our TownePlace Suites in Sunnyvale while Bay Area residents have been seeking refuge at our Sanctuary Beach Resort in Monterey, whose layout is conducive for compliance with social distancing. We anticipate the Sanctuary and our Hotel Milo in Santa Barbara and The Ambrose in Santa Monica will all be popular destinations as we enter the typically robust travel season for the region.

And as we have already witnessed with California residents seeking refuge along the coast only a drive away. We believe that the leisure traveler will return with families looking for a summer vacation and drive to destinations and leisure resorts bearing the initial fruit of pent-up demand for travel. Over the last few years, we've acquired and repositioned smaller transient-oriented resort hotels within driving distance of our gateway market clusters. We believe these hotels about 25% of our portfolio will be the first to benefit from the reopening of the travel economy. Hotels like the Mystic Marriott between New York and Boston or the newest hotel in the portfolio, the Annapolis Waterfront Hotel, which underwent a full guest room in public area renovation during this first quarter. We believe it will remain an attractive getaway for new visitors to this historic city as well as Washingtonians and Philadelphians choosing the Chesapeake for a summer break.

Earlier, I mentioned how well our South Florida hotels performed during January and February and peak season. This summer, we believe Floridians will flock to the Miami and Key West markets in larger numbers than in previous summers, with a focus on drive to destinations for vacations over the next several months. The range of economic possibilities is extraordinarily wide. We are forecasting very minimal occupancy for the second quarter. We expect to see a recovery as the economy open slowly in phases by the third quarter. While we remain hopeful that these forecasted demand trends ring true and we will be able to reopen the assets we shuttered sooner than later. We will continue to monitor all situations in real-time to ensure the health and safety of our employees and our guests at our hotels during this crisis, while also operating the assets efficiently and in a cost effective manner for our stakeholders.

Further to this point, in conjunction with our proprietary sustainability program EarthView, we are launching our rest assured program at each of our hotels to ensure all of our current and future guests feel safe during their stay. Our new program will be visibly and convincingly focused on advanced cleaning protocols and new cleaning technologies, transforming our operational processes, taking additional cautionary measures around distancing inside and leveraging innovative technologies for guest access, and perhaps most importantly, increasing communication with our guests before, throughout and after their stay.

Before transitioning to Ash to discuss our recently announced amendment to our bank credit facility, expense reduction initiatives and plans for guidance, I want to update you on our pending asset sales. Along with our fourth quarter earnings release, we announced accretive binding sales agreements on four assets in our portfolio for a total asset value of $144 million. The Duane Street Hotel in New York city for $20 million, the Blue Moon Hotel on Miami Beach for $30 million and the exit of the 50% ownership in two South Boston hotels, the Courtyard, South Boston and the Holiday Inn Express, South Boston for $94 million.

Since our last earnings call, we've had follow-up discussions with each of our buyers who have asked for a 90 day extension to close on the individual transactions. We have granted these extensions and we now expect them to close by the end of the third quarter. We have hard deposits on each of the consolidated asset dispositions and a buy-sell right for our JV, and we will continue to keep you apprised of developments related to the timing of the closings of these transactions.

Across the last 21 years, our portfolio has evolved from suburban select service to urban select service. And then this last cycle, doubling down on innovation-oriented gateway markets and adding small transient resorts near our gateway clusters, but always staying true to our high margin, rooms-oriented business model. We are proud of our high absolute RevPAR or our high absolute EBITDA per key, but didn't become F&B or group dependent to generate our cash flow. The amendment of our bank credit facility, the additional $100 million of liquidity and receiving a five quarter covenant holiday, showcases the high quality of our portfolios underlying real estate.

Nearly all of our hotels include the fee interest in irreplaceable land in the best neighborhoods in New York, Boston, Washington, Miami, Los Angeles, innovation districts, and Seattle, Silicon Valley. Our hotel real estate is recently built or redeveloped hotels with very little capex required for the foreseeable future. We are purpose built for category killing brands like Courtyard and Hampton, but also own several transient-oriented luxury and lifestyle hotels, completely unencumbered of brand and management. It is a very unique portfolio that lenders and investors can peg to replacement cost. Our markets and locations are core and cash flows will return in the coming years.

Difficult times like these demonstrates the breadth and depth of our team here at Hersha. This is our 21st year in the public markets. Jay, Ash and I have had the privilege of leading a phenomenal and ever evolving team in navigating three cycles and nearly a dozen major demand shocks together. I want to thank all of our team members in the field and in our offices for the extraordinary efforts they have made and the character they have demonstrated across the last two months. We have a tremendous appreciation for all essential workers that are on the front lines battling this pandemic and consider our desk agents and housekeepers, serving these heroes, not only essential but exceptional themselves. They teach us the courage is even more contagious than fear.

Despite the uncertain road ahead for hotel, travel, we remain diligent in our execution of cost containment, revenue generation and accretive asset management to derive incremental margin growth to our hotel real estate. Time will tell them we can see a more robust resumption in travel to all markets and hotel segments. And when that time comes, all of our loyal and new guests can rest assured that our properties will remain at the highest standards of cleanliness, appropriate distancing and most importantly, hospitality.

With that, let me turn it over to Ash to discuss in more detail, our cost containment initiatives, balance sheet, dividends and guidance.

Ashish R. Parikh -- Chief Financial Officer

Right. Thanks, Neil, and good morning, everyone. As previously discussed, we were pursuing several strategic initiatives earlier this year to drive continuing ramp up at our focused investments from the past few years. These assets were performing above expectations until the pandemic abruptly arrived. Launching the lodging industry into the worst crisis we've faced since the great depression. Within a matter of days, our actions were singularly focused on the one priority above all else ahead of what we expect it to be broad and extreme distressed for the lodging ministry, which is liquidity.

I'll focus the majority of my time today and the actions we've taken to-date to shore up our liquidity and to ensure that we're operating in a manner that minimizes our burn rate and allows us the flexibility to make it through this pandemic and come out stronger on the other side. As the COVID-19 impact became more apparent in early March, we immediately began discussions with our bank group to amend our credit facility, the first lodging team to perform this necessary action. Our bank group was supportive of our efforts, as we were able to access an additional $100 million of our credit facility at no additional interest spread on the revolver or on any of the term loans within the credit facility.

Additionally, we received a full financial covenant holiday for five quarters with the next covenant test on June 30th, 2021. As the year progresses and more U.S. markets emerge from closure edicts and lockdown, we'll continue to pursue other avenues to shore up our liquidity. We remain encouraged with the breadth and scope of our recent capital markets activity. Even in this early stage of the pandemic, access to capital remains extremely attractive and supportive to companies such as Hersha, who has inherently valuable assets and outsized growth trajectory can be projected as economic fundamentals recover. Amending our credit facility was the top priority interaction plan to shore up liquidity for our portfolio. But we also initiated additional cost saving measures to conserve our cash balance.

Neil mentioned that reductions in above property staffing will result in an estimated 25% SG&A expense savings on an annualized basis for 2020. After extensive discussions with our Board of Trustees, we felt it would be in the best interest of the company's liquidity preservation plan to suspend the common and preferred dividends until we have a clearer picture on the reacceleration of more stable demand fundamentals for the lodging industry. The suspension of our 2020 dividends will yield $72.5 million in savings and all the preferred dividends will accrue without interest. We have a variety of options at our disposal to generate additional liquidity to make our outstanding preferred distributions hold, including additional asset sales, but we have no current plans to reinstate our preferred dividend distributions for the remainder of 2020.

The last major corporate level adjustment to boost our liquidity was to readjust our capital expenditures for 2020. Following our analysis in capital deferral plans, we expect to realize savings in the $10 million to $15 million range from our original forecast for 2020. The majority of this year's renovations were completed in the first quarter and we're focusing any remaining capital projects on essential life safety related improvement and maintaining our high standards at our properties through the balance of the year. After the holistic renovations we undertook over the last few years, our portfolio is in great shape and sets up for a significant reduction in capital expenditures over the next few years.

We're planning to defer the majority of our renovations to 2022 at the earliest and we'll continue to do minimal capex the next few years. In conjunction with these above property liquidity boosting measures, we also made changes to the current operating strategy across each of our portfolio hotels. We've discussed on past calls that our unique alignment with our independent management company allows us to adjust our staffing and operating model in real time. This relationship has proven to be critical during this period and the benefits of this model will be demonstrated even more clearly through the recovery phase. We currently have 21 hotels closed with a remaining open hotels operating on a skeleton crew, which has resulted in an 80% reduction in our on-property labor force, leading to $60 million of operational expense savings that we will recognize beginning in the second quarter.

So the hotels that remained open, we have significantly shrunk the properties by shutting down floors and much of the public and amenities space where possible, to streamline operations and limit utility expense output. In coordination with our EarthView sustainability team, we've been executing our new strategies to reduce utility costs through operational and energy saving initiatives, and these strategies in conjunction with less floor usage at our hotels has led to significant expense savings in the 40% to 50% range for the portfolio, which we will realize across the remainder of the year. In addition to headcount and utility reductions at our properties, we've also lowered various hotel operating expenses by eliminating high cost ancillary services, all non-critical expenses and shuttering all restaurants and bars at hotels that remain in operation.

In conjunction with our newly implemented rest assured program, we've altered our housekeeping services to minimize guestroom touchpoints. We believe this best practice will result in a deeper comfort level for our guests, knowing only necessary and requested services have been performed in their rooms during their stay. I've outlined the action plans we've undertaken successfully in the short amount of time, since the virus overran our economic wellbeing. We believe that the actions we have taken significantly minimized our burn rate. Based on current forecast in the current travel ban environment, with occupancies hovering close to 10% and including all hotel operating expenses, corporate SG&A and debt service expenses, our monthly cash burn rate is close to $11 million.

As we get through the balance of the year with shelter-in-place measures being lifted in our markets, we should begin to see a reemergence of economic stability and the return of the corporate and leisure transient travel segment leading occupancy levels to grow incrementally, which will have a materially positive impact to our monthly cash burn. Until that time, we will remain acutely focused on driving incremental revenue through unique opportunities, implementing the aforementioned expense mitigation initiatives and fine tuning asset management strategies that will significantly improve our industry-leading EBITDA margins, when our high quality real estate portfolio is back to full operation. We look forward to updating you on our next earnings call on the state of our portfolio.

Let me finish with our guidance plans before opening up to your questions. With the current unpredictable state of the lodging industry, due to the COVID-19 pandemic, we have suspended our 2020 guidance. We are at the very early stages of any type of resumption in reopening the economy and with travel bans and shelter-in-place orders affecting the majority of the country, we believe it would be imprudent at this time to offer guidance for our portfolio and company performance for the year. We would anticipate resuming guidance when we are able to obtain further clarity on lodging demand and booking trends in our markets and we look forward to providing our outlooks to the investment community when there is resumption in more orderly travel patterns.

So that concludes my portion of the call. We can now proceed the question-and-answer session, with Jay, Neil and I are happy to address any questions that you may have. Operator.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Michael Bellisario with Baird. Please proceed with your question.

Michael Bellisario -- Baird -- Analyst

Good morning, everyone.

Neil H. Shah -- President and Chief Operating Officer

Good morning, Mike.

Ashish R. Parikh -- Chief Financial Officer

Good morning.

Michael Bellisario -- Baird -- Analyst

First question, just on liquidity, maybe based on your kind of baseline assumptions right now, we're assuming that 10% occupancy level kind of continues. How much of that $100 million of line of credit capacity do you think you might have to draw between now when your end and then as you think about other potential sources of capital, what are the next options you're thinking about today, as the asset sales that are pending don't get done?

Ashish R. Parikh -- Chief Financial Officer

Yes, Michael. We -- right now in the travel ban scenario, we've estimated about $11 million of cash burn. We think that's a reasonable assumption for the second quarter. That's sort of the industry projections for where we should be. We do think that with our operating model, we can reduce that cash burn pretty significantly, even if we get to the 30% to 40% occupancy range, we start getting into the 50s and 60 and we started getting closer to the break even range. So it's really hard for us to guide onto the burn rate, because we're really -- we're just not sure, all their travel patterns and where occupancies kept. But it doesn't take a lot for us to minimize that burn rate through the year.

Michael Bellisario -- Baird -- Analyst

And you think, -- if I heard that correctly, you think 50% is maybe the break even for your corporate level breakeven.

Ashish R. Parikh -- Chief Financial Officer

It's probably 55% to 60%, maybe at corporate level breakeven, I think at the property level you can breakeven even closer to 40%, 45% of the select-service assets.

Neil H. Shah -- President and Chief Operating Officer

And Mike, just to confirm, like -- we feel like our -- we have clearly without any asset sales about 12 months of liquidity in today's environment and with the asset sales about 24 months.

Michael Bellisario -- Baird -- Analyst

Are you having -- are you thinking about any other potential assets sales today or any other assets on the market? Are you having conversations about properties that might be easier to sell than the ones that are currently under contracts?

Neil H. Shah -- President and Chief Operating Officer

I would consider, hard to say easier or harder, but generally, I think smaller assets are easier to sell and assets that -- and investment opportunities that don't require kind of traditional capital markets kind of executions are more likely to get done today. So frankly, I think the four that we have under contract were probably the most likely to get done in an environment generally. But since we have hard deposits on these four, that is where most of our effort and focuses is, is expecting those to close. We continue to always consider inbound inquiries for other hotels in the portfolio and we've had conversations with a lot of investors.

But you've seen the math, Mike. It's a buyer today for kind of a traditional institutional grade hotel asset needs a pretty high return to justify making an investment. There's no debt market that's -- that they can use to support their investments or they're thinking of it as an unlevered deal without any clarity on when operating losses stop. they're -- they consider most investors, they consider pretty long drag on operating losses. And so, when the math generally comes out to where you hear buyers or private equity talking about interest in deals, is that kind of 11% to 12% kind of cap rates on 2019 kind of performance?

I don't think there is many sellers at that level. And frankly, we're very close and have a lot of close friendships with a lot of the leaders of lot of the major private equity firms. And quite frankly, I don't even know how confident they are that they can call capital for hotel investments today. So I don't think we're in a period right now where we are counting on asset sales to change the capital structure of this portfolio, we're grateful for having a very good relationship with our lenders and for getting this additional liquidity that gives us a clear and long bridge to get to an -- to the other side, where we may sell more hotels in the future. But I think it's unlikely to sell more than the four hotels we have under agreement right now in 2020.

Michael Bellisario -- Baird -- Analyst

That's helpful. Thank you.

Operator

Our next question will come from Bill Crow from Raymond James. Please proceed with your question.

Bill Crow -- Raymond James -- Analyst

Hey, good morning guys. Appreciate all the commentary. The question for you on the -- as you look forward to June of next year and the new covenant tests, some of those tests are based on a trailing four quarter or trailing 12 months analysis that it's going to be awfully difficult at this point to pass. And I'm just wondering, as you think about that event, does that really preclude you from doing anything with either the preferred or the common until after June of next year?

Ashish R. Parikh -- Chief Financial Officer

Hey, Bill. You know what we're looking at finally is, probably a scenario in the early part of next year or late this year where -- it's similar to what we're seeing the banks offering on single asset deals where you're looking at covenant tests in 2021 and beyond really being more of a blend, kind of a trailing one to two quarters of 2021, and then some type of annualized quarterly metrics, either on 2021 or even going back to 2019. I think all the lending community understands, you really cannot use any one quarter in 2020, maybe quarter four, but until then, it's just not going to be -- it's not going to be something that anybody can pass, right?

So we would view it as -- we would undertake these discussions later this year, early first quarter of next year to recast our price facility to really redo the whole thing. And after that point, we'll look at additional asset sales or we'll continue to look at asset sales throughout the year, as Neil mentioned, in next year. But I don't see us waiting until June to redo the credit facility.

Bill Crow -- Raymond James -- Analyst

All right. Do you think you've seen the last of your hotel closures or do you think that for example in New York where you've benefited from kind of a hopefully short-term demand boost from first responders, that there's a chance that the market slows further and you decide to shutter additional hotels?

Neil H. Shah -- President and Chief Operating Officer

Bill, at this stage, as described in our comments, we have a very flexible structure so we can shut and open as needed. But right now we do not expect to shut any additional hotels. The hotels in New York City for example, that are benefiting from the increased occupancy are all limited service hotels. So even if they weren't at 45% occupancy, but they were at 10% to 15% occupancy, like they were the -- in middle of March or late March, they still make sense to operate because they limit our Cash burn.

Our New York City portfolio, the hotels that we have closed in New York are the Hyatt Union Square and the Duane Street Hotel right now, which are a little bit different business models. But the other hotels were all kind of limited service and so we wouldn't expect to close any others. We do -- to your point though, Bill, we are cautious and are not taking too much comfort in the occupancy levels in New York. We do think that there could be a -- that they could drop before they increase again, then it's -- but we don't think we would have to shut any additional hotels at this stage.

Bill Crow -- Raymond James -- Analyst

Okay. That's it for me for now. Thank you.

Operator

Our next question will come from O'conner [Phonetic] with Jefferies. Please proceed with your question.

O'conner -- Jefferies -- Analyst

Hi. Good morning, all. I'm tagging in for David. I'm just curious, we covered the time share space and when we're dealing indications of advanced bookings for the second half of 2020, I know the business models aren't comparable. But I'm just curious if you're seeing any life over the last week or two, particularly related to your resort locations, if there's any indications of life in the second half.

Neil H. Shah -- President and Chief Operating Officer

Absolutely. We've -- I mean it's still early, but we've had some good results already at our resorts on the West Coast here on the East Coast, not yet, but we do have bookings. We don't include that in our script because we still don't consider any forward bookings to be particularly reliable because they can all be canceled and it's really dependent on travel bans and all of these cities. But in Miami Beach and in the Northeast, there are still significant concerns around when the market is going to open up, so we're probably looking toward the third quarter for that kind of leisure pickup on the East Coast. But on the West Coast we're starting to see some real demand already. So yes, I think we can provide some -- I think a lot of hotel owners will be able to demonstrate some pickup in demand in the coming month or two.

O'conner -- Jefferies -- Analyst

Got it. And then a follow-up question would be on the that you guys have implemented, how much of that or how much do you anticipate as more successfully permanent going forward in 2021 and beyond and implications for margins going forward?

Neil H. Shah -- President and Chief Operating Officer

It's a great question and that's really how we think about orphans in this period of the cycle right now. We're -- we have mentioned before that we're really proud of the breadth and depth of our team, but we've been able to organize in offense and defensive teams. And where we see offense, it's not really about investments yet, but it is about structurally creating a better business model. And we do see opportunities in a leaner operating models in the future, we see opportunities to provide different levels of servicing, we see opportunities with our brand partners to bring down some costs and some expenses on that side. And we do think that in the early periods of this new cycle, we could gain -- where our target is to find 300 basis points to 500 basis points of new GOP for hotels and major markets. And at this stage, we feel pretty confident about it. Let's see when the demand really picks up, whether we'll be able to hold onto it.

O'conner -- Jefferies -- Analyst

Thanks very much.

Operator

Our next question will come from Matt Boone of B. Riley FBR. Please proceed with your question.

Matt Boone -- B. Riley FBR -- Analyst

Hey guys, good morning. I'm on for a Bryan. Just kind of going off that last question, are there any other cost saving initiatives that you are currently considering outside of what's already been put in place?

Neil H. Shah -- President and Chief Operating Officer

We're doing it, Matt. This is like -- this is what we do every day, like there's -- we're finding cost savings in a lot of areas, it just, it's hard to kind of detail them but there's opportunity all over. Yes, I mean, as of this point when we're working in this low and occupancy environment, it's about you're going to -- you kind of pulled a lot of triggers already. Everything from housekeeping limited, primarily to check out. So there's no interim housekeeping services, hotels that offered complimentary breakfast, all of those programs have been changed from -- to more of a boxed or a bagged breakfast program. When it comes to guest service and delivery in this kind of an environment, we're really focused on de-cluttering rooms.

And so there has been a reduction in some of the nominal costs for all of the items you would have in the room that are somewhat non-essential and limiting amenities as well. So these are some of the bigger areas, I think automation will -- I think we'll see a continued focus on automation and leveraging that in order to contain costs even as demand reemerges here across the coming months. A little early for that, we haven't implemented anything but have been looking very closely at check-in automation in other areas. So it's an opportunity to relook at the whole model from a zero base. And we're underwriting each and every hotel at varying levels of occupancy to find new programmatic approaches and new models that we hope will be durable.

Matt Boone -- B. Riley FBR -- Analyst

Got it. Thanks. That's helpful. And then you mentioned that you can reopen your hotels with very little lead time. Can you provide a little bit, I guess more specific granular detail around how quickly you can actually get those hotels open and going once you decide to resume normal operations?

Neil H. Shah -- President and Chief Operating Officer

Obviously, it will depend on asset by asset, but I'd say five to seven days. It could be less frankly because we have, even though we're shuttered, but if a hotel is shuttered and it's like four blocks away from an existing hotel like Hyatt Union Square, we still have our engineers and our -- and some of our operators from the other hotels still checking into those hotels. They're still clean, they're still -- HVAC is running. So these aren't mothballed by any means. So these are just suspended operations for the time being.

Matt Boone -- B. Riley FBR -- Analyst

Thank you.

Operator

Our next question will come from Tyler Batory of Janney Capital Markets. Please proceed with your question.

Tyler Batory -- Janney Capital Markets -- Analyst

Yes. Thanks. Good morning. Just a question for you on the capex side of things, could you just remind us a little bit more, what sort of projects you were able to push off? And then if there's going to be any sort of catch up on capex spending next year or in 2022?

Ashish R. Parikh -- Chief Financial Officer

Sure. Tyler, most of our capex that we were just beginning to complete the 2020 has already been done. We have a few -- couple of projects, one in Annapolis, one in Cambridge that'll finished by -- in the next 15 days. And really the rest of the year, we're looking at doing maintenance capex, anything that comes up like -- anything that's for our safety related.

For next year, anything that we had planned, we're probably looking at four to five capital projects next year. A few PIPs on the West Coast, just standard seven-year PIPs, one in New York, maybe if there was -- maybe one or two others. Those have all been indefinitely suspended. None of those were large ROI type of capital expenditures. They were all really brand mandated seven year refreshes. So we would anticipate that at the earliest. Some of those happen in 2022, some may even get pushed for another year after that. We would anticipate 2021 capex to be definitely under $20 million for next year.

Tyler Batory -- Janney Capital Markets -- Analyst

Okay, great. That's very helpful. And then this is a follow-up question. Any general thoughts in terms of potential occupancy limit at your hotels, I mean, what are you hearing on the ground in terms of potential limits that might be instituted by local governments and how might you manage some of those?

Neil H. Shah -- President and Chief Operating Officer

We haven't -- there's been guidance bandied about, but there's been nothing specific. In Pennsylvania for instance, I'll give you -- for instance, here in large spaces, occupancy limits have been decreased by 50% for the time being and that is until some of the restrictions are lifted. So if your ballroom capacities and things are somewhat limited right now, but in somewhat of a moot point because there's no demand necessarily for those kinds of spaces anyways. We haven't seen any mandated restrictions on hotel occupancy.

Internally, we've been talking with the operators because right now we're in such a low demand environment is to give a one to two day rest period on rooms after they've been checked, one to three day rest period on rooms after they've been checked out. But there's been sort of contradictory guidance. I think we'll continue to kind of watch and wait. But right now in a low demand environment, we're able to -- in order to impose on ourselves relatively strong restrictions without necessarily impacting the business models. But we'll see as things go on, I think it's going to be incumbent on the industry and that's why we've been very focused on our rest assured program in order to assure the public around the health and safety.

And so I think if our programs are thought out and put in place early, which we plan to roll ours out on June one at all of the REIT hotels is something that's very visible and highly communicated. I think that will serve hopefully to pre-empt any misinformed official restrictions on use of our property. But it's unclear. It's unclear right now. Just anecdotally I'll share, we did have an RFP on the meeting in the fall and one of the things that they required was that the ballroom space for the functions for this large group would afford 35 square feet per person attending the meeting. But that was one RFP and it's certainly not driven by anything official.

Tyler Batory -- Janney Capital Markets -- Analyst

Okay. Appreciate that detail. That's all for me. Thank you.

Operator

[Operator Instructions] Our next question will come from Dori Kesten of Wells Fargo. Please proceed with your question.

Dori Kesten -- Wells Fargo -- Analyst

Good morning, guys. Just to be clear, the pending asset sales you're expecting them to go through in Q3 at the agreed upon pricing. Is that correct?

Neil H. Shah -- President and Chief Operating Officer

Yes, that's our expectation currently, Dori. As you know, it's a very uncertain time. So if right now is that the existing pricing and we'll see when what happens in the third quarter if they asked for an extension again or whether they asked for some kind of price reduction or anything like that, will start to judge and assess it at that time. But right now, we've extended without any change in purchase price and we continue to retain the hard deposits.

Dori Kesten -- Wells Fargo -- Analyst

Okay. The proceeds go to pay down the line, is that correct...

Neil H. Shah -- President and Chief Operating Officer

No, we'll use it to pay down the line.

Dori Kesten -- Wells Fargo -- Analyst

Okay. Thank you.

Operator

All right. Our next question will come from Aryeh Klein with BMO. Please proceed with your question.

Aryeh Klein -- BMO -- Analyst

Thanks. Just following up in an earlier question, as you reopened hotels, can you talk to some of the costs involved there? And then do you need to balance some of those against the potential risks that -- maybe COVID-19 returns later this year? How do you weight it too?

Neil H. Shah -- President and Chief Operating Officer

You -- such a tough, I was going to say carefully, but I know that might not be sufficient, but unfortunately that's what it is. You stay close to the ground, stay close to the environment, see what guests and employees are feeling. And that's why we've been very cautious about it so far. And we'll just have to see how the environment develops. We don't believe that kind of this phased in process, maybe this goes to the point a little bit. You hear about, well, by May 9, these markets are going to open by May 16, these kinds of businesses will open in May 27. We're not taking a lot of -- we're not building a lot of kind of confidence around that. We're really think it takes a full lift of these kinds of travel bans for there to be sufficient and new kind of demand. And so we are being highly cautious right now in case there is a spike in the curve again. But we'll have to wait and see.

Aryeh Klein -- BMO -- Analyst

Okay. And then just on the group business, appreciate that it's not a big part of your business, but how are you seeing that trend in the second half of the year and most of what was on the calendar been canceled at this point? Are you seeing any events rescheduled for then if you can talk to that a little bit?

Neil H. Shah -- President and Chief Operating Officer

I mean, the vast majority of them are rescheduled but will they hold, there's still uncertainty around that. But nearly all of the things that were canceled were just rebooked to a different date at the very least to avoid cancellation fees for the buyer. But also likely because they do expect to have the meeting at some point so will they get moved again from September and October? They could but we think there are some social group events like weddings and things. They might be smaller, but they have to happen. So we do expect to have some group business across the coming months. It's just going to be smaller and not -- and we'll just be handled a little bit differently than in the past.

Aryeh Klein -- BMO -- Analyst

Got it. Thanks for that.

Operator

Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

Neil H. Shah -- President and Chief Operating Officer

With no more questions, we'll just take a moment to thank everyone for their time on a very busy earnings morning. If we can answer any further questions, please feel free to call us. We're all here in the office in Philadelphia. We'll speak to you soon.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Greg Costa -- Manager of Investor Relations

Neil H. Shah -- President and Chief Operating Officer

Ashish R. Parikh -- Chief Financial Officer

Michael Bellisario -- Baird -- Analyst

Bill Crow -- Raymond James -- Analyst

O'conner -- Jefferies -- Analyst

Matt Boone -- B. Riley FBR -- Analyst

Tyler Batory -- Janney Capital Markets -- Analyst

Dori Kesten -- Wells Fargo -- Analyst

Aryeh Klein -- BMO -- Analyst

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