Image source: The Motley Fool.
Extended Stay America Inc (STAY)
Q1Â 2020 Earnings Call
May 9, 2020, 8:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Extended Stay America First Quarter Earnings Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Robert Ballew, Investor Relations. Please go ahead.
Rob Ballew -- ice President of Investor Relations
Good morning, and welcome to Extended Stay America's First Quarter 2020 Conference Call. Both the first quarter earnings release and accompanying presentation are available on the Investor Relations portion of our website, at esa.com, which you can access directly at www.aboutstay.com. The accompanying presentation adds supplemental data on recent trends and comparison to recent industry segment results. Joining me on the call this morning is Bruce Haase, Chief Executive Officer; and Brian Nicholson, Chief Financial Officer. After prepared remarks by Bruce and Brian, there will be a question-and-answer session. Before we begin, I'd like to remind you that some of our discussions today will contain forward-looking statements, including a discussion of our 2020 outlook for certain items and expectations regarding the COVID-19 pandemic. Actual results may differ materially from those indicated in the forward-looking statements. Forward-looking statements made today speak only as of today. The factors that could cause actual results to differ from those implied by the forward-looking statements are discussed in our Form 10-K filed with the SEC on February 26, 2020, and in our Form 10-Q filed yesterday evening with the SEC. In addition, on today's call, we will reference certain non-GAAP measures. More information regarding these non-GAAP measures, including reconciliation of those comparable GAAP measures are included in the earnings release and Form 10-Q filed yesterday evening with the SEC. Additionally, we also refer to RevPAR index, which refers to a percentage score calculated by comparing RevPAR on a comparable systemwide basis to an aggregate RevPAR of a group of competing hotels, generally in the same market-based on a weighted average of individual property results.
With that, I will turn it over to Bruce.
Bruce N. Haase -- Chief Executive Officer, President and director
Thanks, Rob, and good morning, everyone. It's certainly been a challenging two months for our country, our industry and our company. And thanks to the hard work and creativity of our nearly 8,000 employees and franchisee partners, every single extended stay America hotel has remained open through the COVID-19 pandemic and we have maintained relatively healthy occupancy levels across the system. As such, we have not had to enact widespread staff reduction or furloughs as so many others in our industry have been forced to do so. We believe the continuity of both our business and our leadership teams across the country will serve us well as we continue to navigate what continues to be a very uncertain environment, and equally importantly, as we position the company for recovery. There is one thing that I hope this crisis has demonstrated to the investment community, it is this: Extended Stay America and our business model is far different from the standard transient lodging brands. We believe that our performance through this pandemic has demonstrated what we believe to be a distinct, and often unappreciated, source of shareholder value: our business model. Not only is that true now, but it will also be true when we return to a more normal economic environment. Extended Stay America's value-creation strategy is designed to fully harness the unique advantages of our business model and our highly profitable mix in the lodging industry.
Our lean property staffing levels, coupled with demand drivers that are steadier in times of distress and also grow during periods of business expansion, is unique in the industry. And the net result is a business that produces strong cash flows across a wide range of economic conditions. The full continuity of our business during the pandemic enables us not only to continue to work every day to outperform but also to manage for the long term. We remain focused on implementing the strategies necessary to position Extended Stay America for improved performance as the nation recovers. Throughout the pandemic, our first priority and our great responsibility has been to do everything possible to keep our staff and our guests safe and healthy. Our foundational corporate value is to put people first. This core value has guided our decision making as we seek to keep everyone safe while we continue to operate the business and maintain nearly full employment levels. Our hotel associates are truly on the front lines. We've asked a great deal of them, and they've really delivered. We developed new operating procedures, enhanced cleaning protocols and modified our amenities to ensure that our guests and our staff remain safe. And we further modified our labor model to adapt to a lower occupancy environment at some of our properties.
Since the pandemic hit in mid-March, there have only been a couple of weeks when our brandwide occupancy dipped below 60%.We are certainly not immune from the impact of the suppressed demand environment, but we compare very favorably to an overall industry occupancy levels of 20% during the same time period. We believe that our occupancy levels and RevPAR performance relative to the industry and our concepts clearly demonstrates the resiliency of our business model under highly distressed market conditions. Since the pandemic hit in earnest in mid-March and through the end of April, overall industry RevPAR declined by approximately 80%. RevPAR for the mid-scale and economy segments declined by 65% and 45%, respectively. By contrast, Extended Stay America reported a brandwide RevPAR decline of 35% during the same time period. Our performance is equally as impressive when compared to our local comp sets. Our comparable systemwide RevPAR index for the first quarter increased by 12% to a record 107. In the month of March, our RevPAR index increased by 32% to a very strong 122. And as March progressed, each week saw aggressively higher RevPAR ex scores. In April, our preliminary results versus our competitive sets show our index for the month was over 150. While this index score highlights the company's strong operating efforts and our more resilient business model in the face of COVID-19 compared to broader lodging industry, scores of its magnitude are highly unusual, and the company's index score will certainly moderate as the U.S. economy recovers.
Our first quarter 2020 earnings presentation posted on our IR website has more recent results for ESA compared to the industry and compared to other mid-priced extended stay hotels. We are not surprised by this outperformance. As we said during our last earnings call in late February, Extended Stay America is very different from traditional transient brands, and those differences have never been more apparent than they are today. We serve guests with different needs. Our product and our business model are uniquely suited to extended-stay guests. And our sales and marketing engine is focused on delivering guests to our properties that are working on long-term projects, guests in search of temporary housing and guests that are navigating through life's transitions. And as demand drivers change, we have the ability to adapt to the environment and ccess different customer segments through our expertise in extended stay revenue management and local sales. Working in partnership with our property level operating teams across the system, our field sales and revenue management teams leverage extensive local market knowledge to deliver guests with extended stay accommodation needs to our properties. Success in the extended stay business is often a very local effort, and we have put boots on the ground again.
Our product and our core customer base, of course, is also well suited to the current environment. Our hotels are generally located in suburban and highway locations, which are convenient for customers that drive rather than fly. We have virtually no exposure to traditional group business segment that is essentially evaporated and may take a very long time to recover. Every one of our suites has a full kitchen, which is, of course, essential in an environment where you can't dine out. And we've even increased our free Wi-Fi speeds to allow guests to more effectively work remotely or complete school projects from the comfort of their room. Of course, despite our continued strong relative RevPAR performance, we are not immune to a weak revenue environment, and we've taken prudent steps to trim expenses. Our variable labor model naturally reduces labor hours in this environment, particularly as our customer mix has shifted in favor of long-term guests with less housekeeping requirements. Across the brand, we have temporarily removed our grab-and-go breakfast and implemented every-other-week housekeeping rather than a weekly service for our long-term guests. These brand wide actions both reduce costs and provide for a safer environment on property for our staff and guests. In addition, for those hotels and markets that have been particularly hard hit, we've tightened our labor model for hotels operating with occupancy levels below 50% and tightened once again to a handful of hotels that are operating below 35%.
These actions have resulted in a temporary furlough of approximately 2% of our field associates, the majority of which were part time. We have not furloughed or severed any of our field-based management, and we believe the continuity of our business and the continuity of our management teams is a significant competitive advantage. At our Charlotte support center, we have reduced operating expenses in 2020 by approximately $10 million, including a temporary 20% reduction in salaries for our senior management team and a 20% reduction in retainer fees for our Boards of Directors. These overhead reductions are quite modest in comparison to the actions taken by our industry peers. However, we continue to operate at 100% of our properties across the country. And while it was prudent to calibrate our corporate spending to reflect the current environment, it's important to emphasize that we do not expect any of these reductions to impact our ability to compete once travel restrictions abate. Not all these reductions impact our capacity to execute our longer-term objectives. In fact, we have continued to upgrade talent and fill critical positions that will help us navigate the current crisis, position us for recovery and execute our long-term plans.
During these uncertain times, we're also served by our strong balance sheet. We ended the quarter with more than $700 million in cash on our balance sheet after we fully drew our revolvers as a cautionary measure in March. Our debt is long-dated, with no significant maturities until 2024 and our covenant package is light. We have trimmed nonguest-facing capital expenditures and further deferred significant renovation investment to further preserve liquidity. Brian will provide further details on our liquidity position and the financial impact of COVID-19 on our balance sheet in just a few minutes. As I noted earlier, our distinct business model is not only a source of shareholder value in times of distress, but also a source of value creation during better times. Since the world changed two months ago, I've been asked by investors if my perspective has changed in our longer-term business strategy that I first described during our February earnings call. In fact, the current environment has served to solidify my confidence in our future direction and our ability to create value for shareholders. As you may recall in February, I highlighted four pillars for shareholder value creation in the coming years: first, we have a strong opportunity to improve core operations and drive more extended stay demand into our hotels.
This will truly maximize the value of our core business and leverage our expertise in the extended stay segment; second, despite the recent dislocation in the financial markets, we have a valuable real estate portfolio, and we'll continue to seek accretive asset sale transactions, particularly for certain assets that can yield a higher value through alternative uses; third, we are in the process of implementing an asset-light brand growth strategy focused on franchise development; and finally, while our immediate priority is to ensure adequate liquidity, the strong cash flow generation characteristics of this business have not changed, and neither has our commitment to appropriately return excess cash flow to our investors. I'll now turn to each of these initiatives into more detail. First, we are squarely focused on improving the operating performance of our assets, and we have multiple levers that we are pulling to achieve this goal. If anything, the COVID-19 pandemic has accelerated our transition to a true extended stay brand. As I highlighted earlier, every area of the company is now focused on driving extended stay demand and serving customers that are a good match for our product and our operating model. One of the few benefits of our current circumstances is that the pandemic has added urgency to the entire organization to achieve this transition.
To that effect, nearly 80% of our recent revenue is now coming from various extended stay customer segments compared to approximately 63% pre COVID-19. From a sales and marketing perspective, we have a number of initiatives under way to enhance our proprietary distribution channels to deliver the right customers to our properties. Our sales and marketing objective is simple: no brand or system in the country will be better at generating extended stay business than Extended Stay America. In addition to delivering the right customers to our properties, we're also making strong progress on improving the guest experience. We've done simple things, like enhancing our Wi-Fi speed and ensuring that each room is inspected for quality by the general manager before a new guest checks in. And as soon as travel restrictions abate, we're ready to launch a comprehensive quality assurance program to increase the consistency of our product and to ensure that we deliver what is most important to our guests. And we're, of course, cognizant that the world has changed, and customers will now demand a higher level of assurance to both the property and the room that they're checking into will be healthy and clean. We are taking further steps now to formalize our enhanced cleaning procedures and brand this program to clearly communicate this ongoing commitment to our guests. The second pillar of our value-creation strategy is to curate our real estate portfolio.
We believe there are multiple opportunities to realize value from our portfolio at highly attractive multiples. And while the current environment makes transactions more challenging, we're still working toward completing several sales this year at very accretive prices, and we have a pipeline of additional opportunities. Importantly, all transactions we are now considering are with counterparties that have nonlodging leases to the properties and continued access to capital. We'll keep you posted on our progress throughout the year. Third, we are committed to growing the Extended Stay America brand to an asset-light franchising strategy. We are working through the remainder of our on-balance-sheet corporate development program this year, and we expect to open seven to eight new properties during 2020, with the remainder opening in 2021. We have successfully delivered our prototype, our newly built Extended Stay America hotel on time and on budget and achieved early operating results, confirming our underwriting projections. Having successfully proven the new prototype, we are turning our attention to franchise growth. I believe the performance of our brand during this pandemic will highlight the value of our franchise offering. While the debt markets for new hotel development are currently disrupted, we believe this will be temporary, and we will have a strong competitive advantage as a franchisor of extended stay product in the coming years. The final pillar is strong capital returns for our investors.
While those returns in 2020 will not meet our prior expectations as we strive to preserve liquidity during this time of immense uncertainty, once the business environment normalizes, we remain committed to returning excess capital to shareholders. We plan on hosting an Investor Day in early summer to discuss our long-term strategy in more detail. The effects of the pandemic, its unknown duration and unanticipated levels of senior management attention to direct pandemic issues have delayed our plans. Once we gain some better visibility into the near-term environment, we look forward to the opportunity to host an Investor Day and provide further details on our long-term plans. I'd like to wrap up on a cautiously optimistic note. Occupancy has increased in the last three weeks, and we are hopeful that as the country begins to reopen, that business will slowly return to normal. Lower oil prices, we believe, will also help boost demand for our hotels as our guests typically drive to our location. Companies will also be looking to economize on a travel expense. And we have limited business from oil production locations. We also recall that ESA was able to reach prior peak occupancy from the Great Recession of 2008 and 2010. Lots of the industry an additional five years to reach its prior peak occupancy levels. And we believe that we are now in a best financial position with a more experienced hotel management team. Although this pandemic poses significant risk to ESA, the industry and our country, I'm confident that we'll continue to be successful in navigating this environment and ultimately, we'll be a stronger company once we come through it.
I'll now turn the call over to Brian to discuss our first quarter financial results, our balance sheet and provide more details on the impact of COVID-19.
Brian Nicholson -- Chief Financial Officer
Thank you, Bruce. After a strong start to the year through February, RevPAR slowed throughout the month of March as the COVID-19 crisis deepened, with the sharpest drops from the prior week coming immediately following various stay-at-home orders by states. Comparable systemwide RevPAR during the first quarter of 2020 declined 5.8% compared to the first quarter of 2019 after being up approximately 2.6% through February. The decline in RevPAR was driven by a 6.5% decrease in rate, partially offset by a 60 basis point increase in occupancy. Our extended stay business significantly outperformed, with revenue from guests staying week or longer increasing approximately 3%, while our transient revenue declined 17% in the first quarter. Overall, our RevPAR index increased 12% to 107 in the quarter. In the month of March, our extended stay business declined approximately 5%, primarily from guests staying seven to 29 nights, while our transient 1- to 6-night business declined 41.8%. The strong showing from our core extended stay guests allowed us to increase our RevPAR index in March by 32% to approximately 122. Our preliminary April comparable systemwide RevPAR declined approximately 35%, with occupancy holding just above 60%. The first two weeks of April represented the weakest occupancy levels during this pandemic to this point, and we have seen improvement since then, with last week's occupancy running approximately 65%.Our preliminary RevPAR index in April increased to 155, a more than 60% increase over April 2019.
The biggest declines in our revenue in the first quarter came from a drop in OTA guests, which fell 16%, nearly all of this in March. We also saw declines in revenue from property direct and from the global distribution system. Partially offsetting those declines were increased revenue from our website, extendedstayamerica.com, and our call center as we drove increased revenue from our core extended stay guests. Hotel operating margin declined 440 basis points in the first quarter to 45.7%. The decrease in hotel operating margin was driven by decreased comparable systemwide RevPAR, increased payroll expenses, increased maintenance expense and an increase in allowance for non guest nonpayment, partially offset by lower reservation expense due to a decrease in OTA business. In total, comparable company hotel property expense increased 3.6% from the first quarter of 2019 but declined 2.4% during the month of March. Corporate overhead expense, excluding share-based compensation and transaction costs, increased $2 million to $22.8 million during the first quarter. Overhead expense for the quarter included approximately $1 million in leadership transition expense. Adjusted EBITDA in the first quarter was $97.7 million compared to $116.3 million in the same period in 2019. The decline in adjusted EBITDA was primarily driven by the decline in comparable systemwide RevPAR and increased property labor expense.
Interest expense during the quarter increased by $3.1 million to $32.7 million due to increased debt outstanding, partially offset by a lower LIBOR rate. Income taxes during the first quarter declined $5.0 million to $1.1 million driven by lower pre-tax income. Income taxes for the full year 2020 will be heavily dependent on the company's earnings for the end of the year. Due to the recently passed CARES Act, the company's total taxes for the full year could range from a large refund potentially as high as tens of millions of dollars to a very modest amount of taxes owed. If the C corporation has a loss in 2020, we expect to be able to carry back a portion of Federal taxes paid in the prior five years and apply higher prior year rates to any such carrybacks. At ESH Hospitality, the CARES Act creates significantly more depreciation deductions, with the potential to reduce our REIT's pre-tax income. Due to the wide range of potential outcomes for taxes in 2020, we will not be providing an estimated range of 2020 tax liability at this time. Adjusted FFO per diluted paired share declined 13.9% in the first quarter to $0.31 compared to $0.36 in the same period in 2019. The decline was driven by a decline in comparable systemwide RevPAR and an increase in property level labor expense, partially offset by a decline in income tax expense and reduced diluted paired shares outstanding. Net income during the first quarter decreased 72.4% to $7.8 million.
The decrease in net income was driven by a decline in comparable system wide RevPAR, an increase in comparable hotel operating expenses, increased depreciation expense and interest expense, partially offset by a decrease in income tax expense. Adjusted paired share income per diluted paired share in the first quarter decreased to $0.07 per diluted paired share from $0.16 in the same period as last year. The decrease during the quarter was primarily due to the same aforementioned items for adjusted FFO. Out of an abundance of caution, the company drew down its $50 million revolver at Extended Stay America, Inc. and its $350 million revolver at ESH Hospitality, Inc. in the middle of March. Our total debt outstanding at the end of the first quarter was approximately $3.1 billion, while our cash balance totaled approximately $725 million, including $15 million in restricted cash. Due to the draws on our revolvers, we currently expect our full year interest expense to fall within a range of $135 million to $145 million. We have no significant maturities until September of 2024, and our debt is covenant light. We've stress tested our balance sheet under a wide variety of scenarios and believe we have ample liquidity to withstand an extended period of sharply reduced aggregate lodging demand. And we will continue to take measures to shore up our balance sheet. We've reached an agreement to amend the company's the corporation's $50 million credit facility and to suspend the quarterly tested leverage covenant from Q2 2020 through Q1 2021.
For the second quarter of 2021 through the fourth quarter of 2021, the leverage covenant calculation will be modified to use annualized consolidated EBITDA as opposed to trailing 12-month EBITDA. The amendment also allows for the corporation to borrow up to $150 million from ESH REIT through an intercompany loan facility. During the four-quarter waiver period, the company has agreed to maintain minimum liquidity of $150 million and to limit share repurchases and dividend payments from the corporation. Improving our liquidity and balance sheet is one of the company's highest priorities, including taking advantage of appropriately applicable provisions of the CARES Act and other relief legislation, reviewing expense and payment terms and decreasing our capital outlays. Capital expenditures in the first quarter totaled $54.6 million, including $8.9 million for renovation capital and $20 million for development and land acquisition costs. Previously, we had guided $210 million to $240 million in capital expenditures for 2020. Our updated expectation for capital expenditures is now a range of $160 million to $190 million, a decrease of $50 million at the midpoint. This updated expectation includes a reduction in nonguest-facing capital expenditures, a reduction in renovation capex and a slight reduction in new build construction.
As most of our new build hotels were well under way and the recently completed new hotels are performing well despite the difficult environment, we will continue as planned with the opening of the majority of the new hotel sites. As a reminder, after we complete these hotels in process in the first half of 2021, we expect to grow unit count predominantly, if not exclusively, through franchise growth rather than from on balance sheet development. Our total pipeline stood at 73 hotels at the end of the first quarter as we opened one hotel and a franchisee converted one hotel. Additionally, first new build franchise hotel opened in Virginia this week, and the company opened another new hotel last week just outside of Hilton Head, South Carolina. We do not expect the pipeline to begin to increase again until the financing market improves and general RevPAR levels begin to increase, but we remain active in discussions with current and potential franchisees. Yesterday, the Board of ESH Hospitality, Inc. declared a cash dividend of $0.01 per paired share, payable on June 4, 2020, to shareholders of record as of May 21, 2020. Due to the sharp declines in revenues and the uncertainty as to the length and the severity of this crisis, management of the Boards have made the extremely tough decision to temporarily reduce our dividend in order to preserve liquidity and to preserve optionality at such time as the operating environment improves. ESH Hospitality will continue to ensure it meets its REIT requirements, including distribution to shareholders of at least 90% of its pre-tax income.
Once business trends are more normalized, the Boards will again review the company's dividend. We intend for capital returns to shareholders and debt holders to remain a very important part of the ESA story. During the first quarter, we repurchased 2.2 million paired shares for approximately $31 million. The company has not repurchased any paired shares since the first half of February and does not intend to repurchase any paired shares until the business environment has somewhat normalized. Our current total outstanding remaining authorization for paired share repurchase is $101.1 million. Due to the uncertain nature of the current environment, we are unable to provide updated guidance on most operating metrics for 2020. As I mentioned a few minutes ago, we've experienced year-over-year declines in weekly comparable systemwide RevPAR the last three weeks in the low- to mid-30% range, moderately higher than the first half of April. And occupancy, which had fallen to the highest 50% in early April, has increased to over 65% in recent days. RevPAR year-to-date is down approximately 14% as of yesterday.
Operator, let's now go to questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] And we can take our first question from Harry Curtis of Instinet. Please go ahead.
Harry Curtis -- Instinet -- Analyst
Good morning, everybody. My first question is related to daily cash burn, if you could give us a sense of what that is running now? And is that fully loaded? Does that also include capex expense?
Bruce N. Haase -- Chief Executive Officer, President and director
Harry, it's Bruce. Thanks for your question. I'll give you some sort of general guidance for liquidity, and then turn it over to Brian to give some more details. But first of all, obviously, we are thanks to our finance staff and see good forward planning, we're in very good shape liquidity-wise. We're not in the market for any rescue bond offerings or anything like that. We did fully draw down in our revolvers in March with about $725 million in cash on our balance sheet as we sit here today. We have won, obviously, a number of liquidity scenarios. We spent a lot of time on stress testing the balance sheet and our cash flows. And we feel like we're at a very in a good position. We have ample liquidity if current conditions persist for a very long period of time at our current investment in capex or the run rates. So we feel really good about it. But I'll turn it over to Brian, and he will give you some more details on exactly what the numbers are.
Brian Nicholson -- Chief Financial Officer
Very good morning. Harry, yes, obviously, the cash burn, you and especially trying to project the cash burn, you have to make some assumptions about RevPAR and where it's going. And while we have seen sequential improvement in REVPAR each of the last several weeks, if you just use April's level of RevPAR as a baseline, with our current staffing, our current levels of overhead and our current capex plans, which I think, as you know, include plans to continue ground-up development until roughly a year from today. With all of those plans in place, we have enough cash to last till about four years. Obviously, if we saw April levels of RevPAR persist for some period of time or if we saw the improvement stop and begin to slide back toward what we saw earlier in April, we do have the ability to pull some levers on some capex, on some overhead and some other items. And so we believe we could get pretty close to cash burn neutral if needs be.
Harry Curtis -- Instinet -- Analyst
So would that imply a burn rate of around $15 million a month?
Brian Nicholson -- Chief Financial Officer
Yes, that's right. Yes. Obviously, our interest payments are due twice per year, and so it is a little lumpy. But on an annualized basis, that's about right.
Harry Curtis -- Instinet -- Analyst
Okay. It's good to do the math right. Bruce, second question, you guys talked about your customer mix changing into a more traditional extended stay customer. I'm not sure I have been doing this a while, I'm not sure what that means, and I'm guessing it's less of a mix of transient. But who are these customers? Where are they coming from? Maybe a little bit of color on your where the customer base is going?
Bruce N. Haase -- Chief Executive Officer, President and director
Sure. Happy to do so. Obviously, when the pandemic hit, we were sitting at roughly 40%, $45% of our business through transient customers in terms of room nights. That evaporated quickly. I into for all the other transit plans. We felt I think we acted very, very quickly to really pivot toward our core extended stay customers, when we saw that happening. There are multiple levers that we can pull in terms of finding extended stay customers. And even within our extended stay mix, we did see declines in corporate customers. Train trips got postponed, white collar, IT professionals who aren't traveling anymore. So a lot of the corporate extended stay business evaporated as well. So what we found was when we started to lean into pockets of demand that we saw that were strong and new pockets of demand that we saw emerging, we made some very early moves to reincent all of our field sales, revenue management and operations teams on the goal of delivering extended stay and customers to our hotels. And everyone's really pulled together to do that. So even with the corporate reductions we've seen in some project work to be up quite a lot, construction has been very strong. Warehousing and distribution has been very strong. Hospital and medical business has been very strong. And we've really seen some share shifting from transit hotels because of the fact that we have kitchens. I think that, that's going to be a big differentiator going forward. We are probably not going to return to a normal environment anytime soon. And the fact that the customer can really control good stay experience by staying with us, primarily through the kitchen the kitchen offering, I think it's going to be a real big differentiator going forward. So we've gotten a lot of new accounts. And we're bullish on the sustainability of these customer segments, in addition to some of the residential business that we've been able to tap into service as well.
Operator
And we can now take our next question from David Katz with Jefferies. Please go ahead.
David Katz -- Jefferies -- Analyst
Hi, Good morning and thank you for taking my question. Two questions, Bruce, and I guess, one and one follow-up per the rules, which is with respect to franchising, one of the ways to accelerate that can be to bring in a little larger institutional franchisees or larger scale bunches rather than one or two at a time. If you could talk about what efforts you may have under way to do that, that would be helpful.
Bruce N. Haase -- Chief Executive Officer, President and director
Sure. Yes. I appreciate the question. It's been my experience before in running franchise development in the extended stay world is that this business, while it certainly does attract the ones pop franchisees. There's also strong institutional interest in the assets and the cash flows that these assets generate. We have had a lot of luck with that in the past that is obviously, we have a number of franchisees that buy our properties, that have committed to development commitments going forward, which we feel pretty good about. We believe, and I believe, that we have a unique value proposition as a franchisor. As I said before, there's no one else in the industry that's solely focused on extended stay. There's nobody else in the business that has a distribution engine that is solely focused on delivering extended stay customers. Obviously, financing is tough in the hotel business right now. We're continuing to invest in franchise development, with franchise services. We have an active pipeline of discussions. I think it's fair to say our expectations in terms of realizing new hotels coming out of the ground is probably a little bit deferred from really very early February, but I think the performance that we've put on the table is going to be very very attractive to the franchise community. And then financing comes back and activity comes back, I think we're going to be sort of first in the line, we're positioning ourselves so that we will be able to do so. But I think you are correct. This business is different in terms of development than traditional transient hotels. It's very well suited to institutional ownership, and that will be a big focus for us going forward.
David Katz -- Jefferies -- Analyst
Okay. And as my follow up, it's noticeable, obviously, to all of us, even though that there have been a couple of meaningful shareholders entering the mix. And I'm not going to ask any questions that you can't answer or address. But it's certainly noticeable when the world's largest real estate owner enters and other highly credentialed shareholders become participants. The question is, are you engaging with them as a resource? And is there anything qualitatively that you can share that is available to you, now that they're part of your shareholder base? And is that something you expect to utilize going forward?
Bruce N. Haase -- Chief Executive Officer, President and director
Sure. Thanks for the question. Yes, appreciate it. Obviously, as you know, really can't comment on individual shareholders. We are, I think, a very transparent management team. Rob, Brian, myself and the others are open to having discussions with shareholders at all times. We will treat the prominent shareholders the same way with the same deference and the same transparency of shareholders. And we expect to have follow-up conversations with each of those prominent shareholders after the call as well as with the other shareholders.
Brian Nicholson -- Chief Financial Officer
Yes, David, I just wanted to comment on that. You know Rob, you know me, we really do strive to make ourselves available to shareholders. And frankly, any shareholder who has a good idea, we value that.
Bruce N. Haase -- Chief Executive Officer, President and director
Absolutely.
David Katz -- Jefferies -- Analyst
I appreciate that. Nice quarter. Thank you very much.
Operator
And we can now take our next question from Chris Woronka of Deutsche Bank. Please go ahead.
Chris Woronka -- Deutsche Bank -- Analyst
Hey, good morning guys. And hope that your whole team there is staying well. I wanted to ask you, and I think you've talked a little bit about this in the past, but of your longer term business, let's just say, the 30-plus nights, how much of that business can you really kind of lock in for more than a month? Can you maybe give us the terms of some of those, I don't want to call them leases, but the rentals? I mean, how many are for 60 nights or 90 nights or longer? Can you give us any sense of that?
Bruce N. Haase -- Chief Executive Officer, President and director
Yes. I think a lot of people are new, so it's a bit of a hard and a question you asked by looking through our booking channels. We have two long-term rates that we offer: one is sort of a retail 30-night rate. We've seen strong growth in that rate plan over the last few months compared to last year; and then we have a discounted prepaid rate, which where we stay for 60 nights but pay upfront for 30, and we've seen exponential growth in that rate plan. So those retail that discounted rate plan, that's more residential in nature and some of it is corporate, but a great deal of it's residential in nature. And that's something that we've obviously tried to put our foot on the gas pedal of in terms of growing those segments over the last couple of weeks. But that's a good base of business to have. When times will get better and there's more higher rate of business than we look to transition out of some of that business but for the now, it's a great base to head.
Chris Woronka -- Deutsche Bank -- Analyst
Okay. Appreciate that, Bruce. And then you touched on in the last question, I guess, but really wanted to kind of ask about conversion opportunities. Obviously, there's a lot of owners who are evaluating options right now. And granted there's not a ton of hotels out there that have the full kitchens, but to what extent would you guys be willing to kind of lean into incentives to maybe help some of these franchisees convert over to the brand and negotiating with other...
Bruce N. Haase -- Chief Executive Officer, President and director
Yes. I think you're right. I mean, there is we've had a number of conversion opportunities from competitor brands. We have a couple of that are in the works right now. It's interesting that liquidated damages in the industry are generally based upon the trailing royalty. So as revenues go down, liquidated damages will be going down for some of our competitors, which might make it more enticing to for them to transfer over. But you're right, I mean unlike the transient universe, there is a small universe of properties that are appropriate for our brand. We are looking at that. I think it will be an incremental opportunity. Franchise development in terms of really growing the Extended Stay America brand and our footprint and our brand equity, I think we'll be more reliant on and new build development that will come down the road there. But in the inference, we'll certainly look at providing reasonable levels of incentives to entice owners that decide that they want to make a change.
Chris Woronka -- Deutsche Bank -- Analyst
Very good. Thanks, Bruce.
Bruce N. Haase -- Chief Executive Officer, President and director
Thank you.
Operator
And we can now take our next question from Anthony Powell of Barclays. Please go ahead.
Anthony Powell -- Barclays -- Analyst
Hi, good morning everyone. Question on the hotels that are doing the best versus that the ones we're seeing obviously below 30%. What characteristics of those hotels are doing the worst? And where are they located? Or get to the target? And are those hotels launch on holds where are they going to be sold or rebranded for now?
Bruce N. Haase -- Chief Executive Officer, President and director
Yes. I'm sorry, just to paraphrase your question, looking at the characteristics of the hotels that are doing the worse than those that are doing the best?
Anthony Powell -- Barclays -- Analyst
Exactly, yes.
Bruce N. Haase -- Chief Executive Officer, President and director
Yes. We have largely, when we have a hotel in a very transient oriented market or in a market, whether it's the significant COVID activity and restrictions on travel, restrictions on gap that our essential travelers have any of them. We see some tough sledding. South Florida, Miami is a good example of such a market at the transient market, and there's been significant restrictions on travel in that market. On the other hand, we have some hotels that are operating nearly 100% full. I visited one outside of Baltimore last week. Those are markets that are in good extended stay market, those are markets where the local sales, operations and revenue management teams have gone out in the town business, construction business, hospital business. Again, it's very market specific. And I think one of the good things about our business is that extended stay is a very local business, and you need sort of boots on the ground to be able to go out and find that extended stay business. And we've really aligned our management tools in the field to go out and find the business. And where there is business, they've been very successful in doing so. So we have quite a number of properties that are actually in the 80%, 90% occupancy range right now, which we're very pleased about. In terms of individual markets, I'll let Brian give us give you some more details on the fact of what we're seeing.
Brian Nicholson -- Chief Financial Officer
Yes. Thanks, Bruce. Anthony, I guess the as you might expect, some of the changes in activity at our hotels and those hotels that Bruce mentioned that were a little more transient in nature to start with are in some more urban coastal markets that have been just generally more affected by the pandemic. And so since the beginning of March, we saw the biggest drop offs in the Bay Area, in South Florida, in D.C. and in Greater New York. Since early April, South Florida and the Greater New York City area had come back really strongly as well as LA. The Bay Area and D.C. are not coming back as quickly. I would say that they remain fairly soft. But I think soft is a relative term. But I think we mentioned in the materials that we distributed we have more hotels with greater than 80% occupancy than we do hotels with occupancy below 50%. We actually have more hotels with occupancy above 90% than we do below 40% right now. So given the current situation, even our soft hotels are not as soft as others. And certainly, we have other hotels that are pretty close to firing in all cylinders.
Anthony Powell -- Barclays -- Analyst
Got it. And I guess in those hotels like in New York and the Bay Area, those are really high EBITDA for a hotel against market, so you would want to keep those long term even if there's some short-term payment there given that you would withdraw it?
Bruce N. Haase -- Chief Executive Officer, President and director
There are high RevPAR markets for sure. And there we have seen mostly have much like our franchisees and the rest of the country, the Midwest has been better than the Southeast and New York or California.
Anthony Powell -- Barclays -- Analyst
Got it. And just one more on the dividend. So I think you mentioned that your RevPAR is down 14% year-to-date. If you do see improvement, that suggest that you will have to pay out some taxable income on the REIT side. When do you think you'll be able to kind of get more clarity on the dividend payments for the rest of the year? Is that year-end? Is that next quarter? What's the timing there?
Brian Nicholson -- Chief Financial Officer
Yes, Anthony, I'm not going to answer your question directly, but I'm going to give you some more color that I hope would be helpful simply because we're just we're not in a position now to stake out any ground on exactly where we expect operational performance to be when. On the dividend, we made the, frankly, fairly painful decision to suspend the dividend out of the C corp and reduce the REIT's dividend to $0.01. This is a decision that we are going to be revisiting frequently. We will look at it at least quarterly. We will probably be talking about it a lot more often than that with our Boards. But basically, the main reasons that we temporarily suspended the dividends, first, given the unknown duration of this thing, given the fact that there's still uncertainty about general lodging performance and the impact that it will have on us, we just figured that retaining as much liquidity as we can at this stage is the prudent thing to do. Second, keep in mind that we have traditionally paid a dividend out of the REIT, which goes not only directly to shareholders, but also to our C corp and becomes essentially the primary source of cash for the top of dividend that comes from the C corp to the extent that the REIT dividend is reduced, that also reduces the C corp's after tax availability of cash and so maintaining the dividend becomes even more expensive.
Also, with the CARES Act, one of the big components of the cares act is related to tax policy, and so we have the ability to accelerate depreciation within the C corp. We would like to minimize our tax liability at the C corp. If possible, we would like to be able to carry back an NOL because we can do that at the higher tax rates that applied beginning in 2015. We think that, that's advantageous to the cash position of the company and therefore, to shareholders. And so a lower REIT dividend flowing to the C corp during calendar 2020 puts us in the best position relative to tax policy and those components of the CARES Act. There are a number of things that may affect the dollar amount of our dividend in addition to financial performance. We've referenced the fact that we have asset sale processes in place. Those potential buyers generally are not looking at these as hotel properties and so the higher and better use that they have in mind is still applicable. Therefore, we think that there is a very good chance that we can drive these things to closure. And if we do that, that will certainly have an impact on the dividend. We will have to dividend out that taxable income that results from those gains. Hope that's helpful.
Anthony Powell -- Barclays -- Analyst
It is. Thank you.
Operator
And we can now take our next question from Chad Beynon of Macquarie Investment. Please go ahead.
Chad Beynon -- Macquarie Investment -- Analyst
Hi, good morning. Thanks for taking my question. And glad to hear that you're safe and well. Brian, understanding that you guys aren't giving guidance, I know on prior calls, ahead of when there were just general recession fears, you talked about some sensitivities around RevPAR to EBITDA. Do those still hold up? Or has the business model changed a little bit in these past, I guess, four or five months, that it's not as applicable?
Brian Nicholson -- Chief Financial Officer
Yes, Chad, great question. I would say that it has changed a little bit on the margin because we are taking steps primarily driven by a desire to keep our employees and our guests as safe as we can, but steps that have essentially a side consequence of reducing some of our operating expense at hotel level. We've eliminated our grab-and-go breakfast because that is a high-touch area. It's just not feasibly not really feasible to get in and rub down the lever on a coffee dispenser often enough with a Clorox slide to make sure that you're safe there. So we have suspended the grab-and-go breakfast and the coffee from our lobbies. That reduces our operating expense. Our room expense take rate similarly is down as we have shifted to more of a true extended stay guest. They tend not to consume as much of the soaps and shampoos. They want to use their own brand. And so those all represent cost savings. We had, had some offsets and some incremental PPE expense. We are providing gloves, masks, sneeze guards, that sort of thing at property level to try to keep our employees as safe as we can. We've also moved to for extended stay guests to housekeeping every two weeks versus every week, and this just minimizes touch points and interactions, if you will, between our employees and guests. All of that serves to decrease marginally the marginal operating cost of occupancy. And so the EBITDA impact for each percentage decrease in RevPAR has actually gone down a bit since the discussions we've had about that previously.
Chad Beynon -- Macquarie Investment -- Analyst
That's great. And then on continued capex, particularly the renovation capital, what type of a lift on, I guess, RevPAR or, I guess, reduction in the decline are you expecting? Or maybe a better way to ask it is, are you still expecting returns that would warrant spending the money right now? Obviously, most of your competitors and other companies have kind of suspended capex. Your business model is a little bit different. But can you just kind of talk about expectations on the capital that you're spending in the near term?
Bruce N. Haase -- Chief Executive Officer, President and director
Yes. This is Bruce. I'll give you some general comments and then ask Brian to give some more detail. It's really difficult to fair it out sort of the impact of our prior renovation spending point performance. In the Charlotte market, we've spent quite a bit of renovation capital, Charlotte's been extraordinarily strong. I'm not sure how much that is but in the Charlotte market versus our renovation. We also spent a good balance of our capital in renovating in the Bay Area, and we've had poor results. So it's really hard right now to kind of fair it out what that help might be. But in general, we have halted our renovation program. We do have some hotels in South Florida that we had expected to renovate this year that were in process because of all the dynamics of that market and difficulty getting permits and so forth, that is probably going to be delayed substantially this year. But beyond that, our renovation program is on hold. I think I communicated it on the last call that we're going to spend some time and really dig into how we can spend our capital more intelligently to give the current results and the kind of uplift that we want to see. And we're working on that right now. So when we come out of this, I think we'll be in a position to have a renovation program that that we can share with you and share with our franchisees that will deliver the kind of results, and the kind of ROI and the kind of monetization potential that we want. But I don't see that certainly won't be happening this year. It may not be happening until late 2021. Brian?
Brian Nicholson -- Chief Financial Officer
Yes. Chad, I think as you've likely noticed, our renovation expectation renovation spend expectation for this year at the midpoint, it's come down about $10 million. The as Bruce mentioned, there is some renovation work that had been done prior to the COVID outbreak or renovation work that at least was far enough in flight that we weren't going to stop it when the COVID outbreak started. And then in South Florida, in the lower season this summer, we had some projects that were planned, where we've already ordered the custom millwork and have a lot of the supplies in place to do those renovations. We will proceed with those as best we can. And it actually makes a lot of sense because occupancy is marginally lower than we had planned on it being during this time period. And so it's just a little easier to get into those rooms and get the renovations done. To the expect that you can get inspected and permitted and etc., inspections, especially in certain counties in Florida, are challenging because just the pace of that work is not what it was pre-COVID. But as Bruce mentioned, when that work is done, we're basically suspending renovations until we get a better sense for what we can expect out of them. And certainly, what we the pace of recovery that we see and the evolution of demand that we see as we come out of this as a country will have an impact on our renovation plans going forward.
Chad Beynon -- Macquarie Investment -- Analyst
Okay. Thank you very much. Appreciate it.
Operator
We can now take our next final question from Smedes Rose of Citi. Please go ahead.
Smedes Rose -- Citi -- Analyst
Hi, thanks. I just had a quick question on labor costs. We've seen a lot of initiatives from brands, including yourselves. You talked about more intensive cleaning. Could you just talk about the cost of that? I know you said you're not cleaning as much, but for the cleaning you're doing, is it taking longer from a labor cost perspective? Or maybe with different supplies that are needed, could you just talk about what anything that might change on the cost side?
Brian Nicholson -- Chief Financial Officer
Yes. Smedes, just to provide a little bit of color, there are some moving parts here. We're not cleaning rooms as often as we had been before. We are cleaning common areas more often and more aggressively than we had before. So we have processes in place for the lobbies, for the front desk, for the elevators and elevator buttons, etc., to get in and much more aggressively clean those areas than we had before. So just to give you a sense of sort of what that's been like in April. In April, where our revenue was down roughly 1/3, we saw reservation and travel agent costs come down more or less in line with overall revenue. We saw some other variable costs come down like that. Labor cost was down only about 6% year-over-year in April, part of that driven by wage. We're still seeing more wage pressures than I would have expected given our levels of unemployment, but I think that's related to some unemployment compensation subsidization that's going on until July. It's still relatively attractive for hourly workers to remain unemployed as opposed to seek employment while that unemployment compensation subsidization is in place. But we did see a reduction in labor costs despite the fact that we're doing much more aggressive cleaning in all of our common areas.
Smedes Rose -- Citi -- Analyst
Okay. I guess I'm just wondering, the cost to clean a room like just sort of net-net, does it go up or go down from here in a post-COVID world?
Brian Nicholson -- Chief Financial Officer
Yes. Good question. It may go up very, very marginally. There are some things that we're doing to handle the linens in the room that are beyond what would have been our standard process before. Our employees are are taking care to avoid exposure with gloves with other PPE. We're bagging that material before it goes to be washed. Where it's possible, we are essentially letting the room selling for 24 hours so that there is less exposure or at least less potential risk associated with exposure to surfaces as our employees clean rooms. But generally speaking, the things that you do to clean a room haven't changed materially. The way that we handle those processes are maybe a little bit more careful and take a little bit more time than they did before, but it's not that we're suddenly wiping down surfaces that weren't wiped down before. They used to be wiped down before.
Smedes Rose -- Citi -- Analyst
All right. I appreciate it. Thank you.
Operator
This concludes today's question-and-answer session. I would now like to turn the call back to Mr. Bruce Haase for any additional or closing remarks.
Bruce N. Haase -- Chief Executive Officer, President and director
Okay. Well, I just like to thank everyone for your time and your interest. I'll end on a positive note. The company ran at 67% occupancy last night, so we think that is a real testament to the resilience of our business model. We continue to see absolute RevPAR dollars increase over the last few weeks, so we're pleased to see that early signs of inspirations here. But I think we're also realistic. I think it's clear becoming increasingly clear to all of us that we're not going to go back to a pre-COVID environment anytime soon. Life has really changed, and that means travel habits will change. And I think the good news is that I really think Extended Stay America was built for this environment. When we talk to consumers in the coming months, we're going to talk about three things: we're going to provide you a clean and healthy room; and everybody else is doing that, but we've been doing it continuously through this pandemic, and we have some good experience here; we're going to communicate to consumers that they can control their stay, and our kitchens are a big, big differentiating factor. As I said, we're seeing some share shift from transient hotels because we have kitchens because that gives travelers additional comfort; and finally, we're going to be a great value. It's going to be a tough economy for a lot of people, particularly our travelers for a long time. We're going to provide a great value. So clean and healthy room, control your stay with the kitchen and will provide a great value. And I think that's really a good formula in this environment. So we appreciate your time, and we look forward to any follow-up questions over the coming days. Stay safe, and have a great day, everyone.
Operator
[Operator Closing Remarks]
Duration: 67 minutes
Call participants:
Rob Ballew -- ice President of Investor Relations
Bruce N. Haase -- Chief Executive Officer, President and director
Brian Nicholson -- Chief Financial Officer
Harry Curtis -- Instinet -- Analyst
David Katz -- Jefferies -- Analyst
Chris Woronka -- Deutsche Bank -- Analyst
Anthony Powell -- Barclays -- Analyst
Chad Beynon -- Macquarie Investment -- Analyst
Smedes Rose -- Citi -- Analyst
