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Apple Hospitality REIT Inc (NYSE:APLE)
Q1 2020 Earnings Call
May 19, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to be Apple Hospitality REIT, First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kelly Clarke, Vice President, Investor Relations. Thank you. You may begin.

Kelly Clarke -- Vice President, Investor Relations

Thank you and good morning. We welcome you to Apple Hospitality REIT's first quarter 2020 earnings call, on this, the 19th day of May 2020. Today's call will be based on the first quarter 2020 earnings release Form 10-Q and COVID-19 supplement, which were distributed and filed yesterday afternoon.

As a reminder, today's call will contain forward-looking statements as defined by federal securities laws, including statements regarding future operating results and the impact of the company's business and financial condition from and measures being taken in response to COVID-19.

These statements involve known and unknown risks and other factors, which may cause actual results, performance or achievements of Apple Hospitality to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality's Annual Report on Form 10-K for the year ended December 31, 2019, quarterly report on Form 10-Q for the quarter ended March 31, 2020 and other filings with the SEC.

Any forward-looking statement that Apple Hospitality makes speaks only as of today and the company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

In addition, certain non-GAAP measures of performance, such as EBITDA, EBITDAre, adjusted EBITDAre, adjusted hotel EBITDA, FFO, and modified FFO will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release supplemental or additional information about the company, please visit applehospitalityreit.com.

This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins our Chief Financial Officer will provide an overview of our results for the first quarter of 2020, as well as an outlook for the sector and for the company. Following the overview, we will open the call for Q&A.

At this time, it is my pleasure to turn the call over to our CEO, Justin Knight.

Justin Knight -- President and Chief Executive Officer

Thank you, Kelly. Good morning everyone and thank you for joining us today. I sincerely hope that each of you and your loved ones are staying safe and healthy during these challenging times. My heart goes out to those who have been directly affected by the coronavirus, and I would like to express my sincere gratitude to all first responders, healthcare workers and everyone on the front lines of this pandemic.

With travel restrictions and stay-at-home orders in place across most of our nation since mid-March COVID-19 has disrupted every aspect of our daily lives and has been particularly challenging for the hotel industry. The pandemic and efforts to mitigate it have dramatically reduced both business and leisure demand and required us to make meaningful changes to the way we operate. Our efforts to preserve our business and ensure our ability to thrive in future years have required us to make difficult decisions that affect our corporate employees, our shareholders and the associates at our hotels.

It is incredibly difficult for us to come to terms with the number of hotel associates that have been furloughed or laid off across our portfolio and the entire hotel industry, as a result of the abrupt changes in demand caused by COVID-19. While we do not yet know how long the current situation will last, we look forward to a time when we can resume more normal operations and add back staff at our hotels as the environment improves.

Through February, RevPAR for our portfolio was essentially flat, despite challenging year-over-year comps. Occupancies began to drop beginning the second week of March and by month end had settled between 15% and 16%. While we began to see modest improvement in occupancies in the second half of April, we expect the current health and economic crisis to materially impact our business through the remainder of the year.

Since the onset of the pandemic, our team members have been diligently working in collaboration with our brands, management companies, banking teams and the industry association to navigate the current environment, maintain a sound liquidity position effectively adapt our business and safeguard long-term value for our shareholders. As the occupancy levels for our hotels began to decline in March, we moved quickly to adjust the staffing model at our hotels and reduce other operating expenses in an effort to preserve cash and minimize near term losses.

Working with our management companies, we established minimum staffing levels for our hotels, reducing staffing by 70% to 75% on average. With our brands allowing flexibility to adjust operating models and response to the crisis, we dramatically reduce food and beverage spend, eliminated housekeeping during stayovers and worked with vendors to suspend or meaningfully reduce the cost of services. Utilizing energy management systems installed over the past several years, we were able to monitor energy usage in real-time to achieve reductions in utility costs, while ensuring settings that protect and preserve our assets.

Together with our third-party management companies, we have enhanced our sales efforts by focusing on demand generates related to COVID-19 specific opportunities in certain markets and identifying other sectors that may have lodging needs including construction, manufacturing, government and maintenance industries.

Our management teams are also working with existing customers to move business to later in the year. As local governments begin to loosen restrictions, we expect the pace and recovery across our markets to vary.

Our portfolio is diversified across 87 markets with the majority of our hotels located in drive-to location. In line with industry expectations, we believe that these are transient demand will be the first return, with drive to destinations among the first to benefit. We are already implementing enhanced sanitation protocols that will help to ensure our hotels to meet evolving customer expectations. We are deeply committed to the overall health and wellbeing of all hotel associates and guests and we'll continue to work closely with the brands and our management companies to provide the highest levels of sanitation and safety in our hotels.

Our diversified portfolio of rooms focused hotels is uniquely positioned to effectively adapt to changing market conditions. To date, only one of our hotels, our Courtyard and Carolina Beach temporarily closed following a local government mandate prohibiting in short-term lodging in the area. But we have consolidated operations in markets where we own multiple hotels and also drive incremental cost savings. The size and efficient design of our hotels along with employees who have been cross-trained in multiple functional areas have enabled us to effectively serve our guests with minimal staff present at each hotel.

In conjunction with our operational response we implemented a variety of cost containment initiatives at the corporate level to preserve and bolster liquidity. We made the difficult decision to suspend monthly distributions beginning with our April distribution. We recognize the importance of our monthly distributions to our shareholders. While we do not yet know how long the current situation will last. We are working diligently to ensure that we will be well-positioned as the economy recovers and operating environment improves.

In March our Executive Chairman, Board of Directors and I all voluntarily reduced our compensation for the year, and Brian Perry and Krissy Gathright voluntarily defer receipt of payment under their separation agreements, which would have otherwise been paid out in the second quarter. Combined with anticipated reductions in payouts under our executive incentive program and other G&A costs, we anticipate a reduction of corporate expenses of approximately 25% for the year as compared to our February 2020 forecast and approximately 30% as compared to 2019.

Our brand partners have been exceptional to work with throughout this crisis. With the easing of brand renovation requirements, we were able to postpone all non-essential capital improvement projects for the year. Focusing the remaining spend on asset protection projects and other needs as they arise.

During the three months ended March 3, 2020, the company invested approximately $24 million in capital expenditures and anticipate spending an additional $10 million to $15 million during the remainder of 2020 approximately $50 million less than originally planned.

Prior to the onset of COVID-19, our team had been focused on value creation through thoughtful capital allocation and during the first quarter, we sold our SpringHill Suites in Sanford, Florida and SpringHill Suites in Boise, Idaho for a total combined gross sales price of approximately $45 million. And the company recognized a gain on sale of approximately $9 million.

In April, we closed on the dual branded Hampton Inn & Suites and Home2 Suites in Cape Canaveral, Florida, a development project which we had contracted for in 2018. The purchase price was approximately $47 million, which was funded by $25 million of cash on hand and a note with the developer for approximately $22 million that is payable in 2021. Part of our strategy has been to partner with trust developers to invest in new non-prototypical or high quality assets and prior to 2020, we entered into contracts for the potential purchase of three additional hotels for a combined total expected purchase price of approximately $130 million, including a dual branded Hyatt House and Hyatt Place in Tempe, Arizona and a Hilton Garden Inn in Madison, Wisconsin. Assuming all conditions to closing are met, we anticipate acquiring the Tempe hotels during the second half of this year and the Madison hotel in 2021. Subsequent to the end of the first quarter, we terminated the contract for the purchase of our Courtyard by Marriott in Denver, Colorado, which has not yet begun construction.

During the first three months of 2020 we purchased under our share repurchase program approximately 1.5 million common shares at a weighted-average market purchase price of approximately $9.42 per share, for an aggregate purchase price of approximately $14.3 million.

In March, as economic conditions worsened, we terminated the written trading plan under our share repurchase program. We have always maintained a conservative capital structure to provide stability for the company during periods of economic volatility and the flexibility to respond to changes in the operating environment.

In April, we began discussions with our lenders to secure a temporary waiver of certain debt covenants in anticipation of the deteriorating operating performance during the second quarter could potentially result in non-compliance. While we have not yet finalized documentation, we anticipate obtaining covenant waivers with certain minimum liquidity and use of liquidity restrictions in line with those announced by our peers. We are grateful for the strong relationships that we have with our lenders and for their willingness to work with us to make adjustments necessary in the current environment.

Apple Hospitality was intentionally structure to weather challenging times and produce attractive returns during periods of economic prosperity. Over our 20-year history in the lodging industry we have strengthened and refined our ownership strategy and we are confident we are well-positioned to successfully manage these unprecedented times and excel as our nation and our economy recover. We own rooms-focused properties with best-in-class brands that have historically produced industry-leading operating margins. We will establish regional and national operators using innovative contracts the line management and ownership interest and preserve flexibility to sell assets -- unencumbered.

We are broadly diversified across markets to reduce volatility and provide the portfolio exposure to a variety of industries and demand generators. We have reinvested in our assets to maintain competitive position across our markets. And we have maintained a conservative approach to capital allocation and a strong balance sheet. As we begin the process of recovery, our portfolio is exceptionally well-positioned. Our hotels have proven appeal with the broadest group of potential customers. The association with top brands and the strong value proposition of the upscale select service model have historically led to outperformance during periods of economic difficulty.

With the majority of our portfolio located and drive to markets outside of major urban city centers and low dependence on large group business. We believe our portfolio will be among the first to see benefit from loosening government restrictions and the early stages of an economic recovery. It is during an unprecedented time like this that I'm especially grateful for the strong relationships we have fostered throughout the hotel industry and the depth of our team at Apple Hospitality. We have a track record of creating value during challenging economic periods and I'm confident that we will emerge from the current crisis well-positioned to outperform.

It is now my pleasure to turn the call over to Liz.

Liz Perkins -- Senior Vice President and Chief Financial Officer

Thank you, Justin. And thank you everyone for joining us this morning. These are incredibly challenging times for our industry. I want to take this opportunity to thank our team at Apple Hospitality, the operators at our hotels and management companies, the brands, our banking teams and our industry colleagues.

Together, we have been working diligently to explore and implement initiatives to minimize costs, operate efficiently, strengthen our liquidity position and safeguard to health and well-being of our teams and GAAP, so that we are well-positioned both during this crisis and for a strong recovery as travel resumes.

During the first two months of the year, operations were generally in line with our expectations with Comparable Hotels RevPAR trending around the midpoint of our recently withdrawn 2020 guidance range, despite headwinds from previously discussed year-over-year comp. As efforts to mitigate the spread of COVID-19 including travel restrictions and stay at home orders were implemented across the country and our market, average occupancy for our portfolio declined from approximately 76% for the month of February to 41% for the month of March. Occupancy level settled at around 16% during the last week of March and stayed around that level until mid-April. Although, we started to see a slight improvement in occupancy toward the end of April and into May the improvement has been partially offset by declines in rates, largely and the results of changes in the mix of business at our hotels.

We believe that the modest but notable increase in occupancy, we are beginning to see as a result of the ongoing sales efforts of our asset management and hotel management teams, coupled with the inherent benefit of the assets we are invested in. With broad geographic diversification and a high concentration of extended stay and suite properties, we are well-positioned to provide accommodation to variety of groups and individuals on the front lines of this pandemic, including military, traveling nurses, healthcare professionals and first responders. Although this negotiated business has contributed to our decrease in ADR as compared to last year is bolstering our occupancy. For the week ended May 9th, portfolio occupancy was 24% with daily occupancies occasionally in the upper 20s in the most recent week. The immediate impact of COVID-19 in March with broad-based and by mid-April 59% of our hotels were running less than 15% occupancy.

Since that time, we have begun to see improvement with over 40% of our properties at 25% occupancy or greater, and 15% of our properties over 50% occupancy for the week ending May 9th. Some of our hotels, where we're seeing particular strength are located in Manassas in Suffolk, Virginia, Macon, Georgia, Miami and Anchorage with demand ranging from construction, military, airline crew, disaster recovery and even some minimal demand for more traditional corporate account.

Our portfolio of well-maintained, broadly diversified select service hotels are not only well-suited to accommodate first responders and current travelers, but also to serve the demand that is expected to return over the next phase of the recovery. Domestic leisure demand is expected to lead the recover and we have begun to see early signs of this at stay at home orders are lifted in various states throughout the Southeast. The day after reopening following the government imposed closure Justin mentioned, our Carolina Beach Courtyard ran 70% occupancy at $170 average daily rate. And just this past weekend was sold out at over $200 average daily rate. With our broad footprint more exposure to gateway cities, minimal dependent on inbound international business and almost 80% of our rooms outside of urban locations, we expect to benefit from continued relaxing of restrictions over the coming months.

Turning to the bottom line, our first quarter Comparable Hotels adjusted hotel EBITDA and adjusted EBITDAre were $63 million and $54 million respectively and modified FFO per share was $0.17, all meaningfully down from the first quarter 2019, driven by the steep an abrupt RevPAR declines in March.

Although the environment changed seemingly overnight, our team acted quickly and purposely to reduce same-store total hotel expenses by approximately 31% for the month of March, resulting in savings of approximately 9% for the quarter compared to last year.

As Justin mentioned, our low-cost operating model has allowed for the company's hotels to remain open, though we have intentionally consolidated operations and occupancy to a single building in markets where we own multiple hotels in order to gain incremental efficiency.

As of May 15th, 71 of our hotels were involved in these market clusters with occupancy consolidated from 38 hotels. Our select service rooms-focused model gives us the flexibility to operate with minimal staff when necessary and positions us to quickly adapt to changing market conditions.

As occupancy began to deteriorate, our asset management team worked with our management companies to quickly establish minimum staffing levels for our hotels and initiate other cost savings initiatives. We are now working with each of our managers to establish labor models appropriate for the various occupancy levels that will ensue over the recovery, benchmarking those models across our portfolio to ensure we are thoughtfully optimizing results as we move forward.

In 2017, we implemented labor management systems across the majority of our portfolio to improve productivity at our hotels. These systems provide our property managers with a valuable tool and framework for managing staffing at C level and will allow us real-time access to monitor individual property performance and benchmark labor models as demand returns.

With labor being the most significant operating expense, staffing reductions are anticipated to produce approximately 70% savings in total payroll on average at low occupancy hotels. Our team has also worked to reduce other operating expenses by renegotiating national contracts and eliminating unnecessary services. With these cost elimination and reduction strategies as well as our ability to quickly flex staffing models to adjust the changes in demand, we have multiple levers, we can pull to ensure maximum property level efficiency.

In March, we withdrew 2020 guidance in respond to deteriorating market conditions and uncertainty related to the depth and duration of the current crisis. While April numbers are not final and the current operating environment and model is still evolving with these operational adjustments. We estimate our monthly cash burn rate including property level expenses, corporate G&A, property taxes, insurance and debt service will be approximately $80 million [Phonetic] assuming occupancy levels of between 15% and 20%.

We expect property level breakeven occupancy for our portfolio to be between 30% and 35% and to be able to cover corporate costs including debt service at occupancy levels between 40% and 45%, depending on average daily rate. While being immediately committed to minimizing operating losses, we also focused on our balance sheet and an effort to increase readily available liquidity drew down the remaining availability under our $425 million revolving credit facility and had available cash of approximately $437 million as of March 31, 2020.

As Justin mentioned to further preserve capital, we suspended monthly distributions postponed non-essential capital improvement projects, terminated the written trading plan under our share repurchase program and our Chairman, CEO and Board of Directors voluntarily tough reductions in their compensation. We have always believed that maintaining a strong balance sheet will provide us the stability during periods of economic difficulty and flexibility to act opportunistically. We entered the current downturn with net and net debt to EBITDA of approximately 3.1 times. As of March 31, 2020, we had approximately $1.8 billion of total debt outstanding, with a current combined weighted average interest rate of approximately 3.3% and unrestricted cash of $437 million. Excluding unamortized debt issuance costs and fair value adjustments, the company's total outstanding indebtedness is comprised of approximately $500 million in property level debt, secured by 31 hotels, and approximately $1.3 billion outstanding on our unsecured credit facilities.

At March 31, 2020 the company's total debt to total capitalization net of cash was approximately 40% and weighted average debt maturities were five years with no maturities for the remainder of 2020 and $32 million net of reserves maturing in 2021. Despite our track record of strategic commitment to a conservative capital structure and although at March 31, 2020, we were in compliance with the covenants under our credit facilities. We began discussions with our lenders to secure temporary waivers of each of the covenants under our agreement in anticipation of a severe impact of COVID-19 on the economy, the lodging industry and our business would potentially result in non-compliance.

We anticipate entering into an amendment to each of our credit facilities that will provide relief from the covenants for a period of four quarters, beginning with the quarter ending June 30, 2020. The terms of the proposed amendments are expected to include minimum liquidity requirement and restrictions on the amount of the company's distributions capital expenditures, share repurchases and acquisitions, among other items during the covenant release period.

Throughout our history in the lodging industry we have fostered strong relationships with our lenders and we are grateful for their support, while we cannot provide assurances. We feel confident. We will secure the flexibility necessary to weather the current crisis.

Before opening the call for Q&A, I would like to again thank all of our colleagues and stakeholders. We have received an outpouring of support broadly and specifically for many of you and we appreciate you greatly.

While these are unprecedented and challenging times, I am proud to be part of Apple Hospitality and this wonderful industry. The commitment -- to our associates, guests and the community is inspiring and our teams have worked swiftly, tirelessly and effectively to manage the current environment. Our well-maintained, young geographically diversified rooms-focused portfolio had broad consumer appeal, and we believe we are well-positioned to benefit and outperform as travel resumes.

We will now open the call to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.

Neil Malkin -- Capital One Securities. -- Analyst

Hey. Good morning, guys.

Justin Knight -- President and Chief Executive Officer

Good morning.

Liz Perkins -- Senior Vice President and Chief Financial Officer

Good morning.

Neil Malkin -- Capital One Securities. -- Analyst

Thanks for taking the questions. I appreciate your commentary as well. First off, you guys are one of the largest owners in select service in the country. And I know you guys sit in a lot of the brand committees or boards of the largest brands as well. I'm wondering if you could just talk about sort of how you see the relationship between the brands and the owners evolving over the next 6 months to 12 months. Some of your peers have generally commented on that. Just given your wide reach with several select service brands, you probably had some good view on that. So, how do you kind of see that playing out and do you think the pendulum kind of shift back in favor of owners. And, maybe talk about any permanent changes that you see happening to the operating model going forward?

Justin Knight -- President and Chief Executive Officer

Thanks. And I'll take a stab at it and Liz can fill in if she'd like in addition, both of us are on Advisory Boards within Hilton and Marriott. To date both, both companies, and again we only own one Hyatt, but Hyatt has been equally good, but both helping the Marriott have actively engaged with the owners. In dialog related to how we deal with the current pandemic. And you know that the nuances associated with it and how we look at modeling our business for the future. I think there is heightened sensitivity to say the need to make near term adjustments in order to ensure the safety of our guests and associates. But there is also I think increased recognition of a need to look at our business model in order to ensure long-term profitability. And so, in those conversations, we're looking at everything envy you know with fresh eyes and I'd say that the conversations have been productive. So there has been a tremendous openness on their side to hear. And the feedback and commentary from the ownership community and I think there was a sentiment that said potentially with consolidation on the brand side and significant pipeline growth with both helping them at that -- the pendulum had shift -- shifted away from ownership, generally speaking, our relationship has been viewed from our perspective as collaborative, always and we have seen, we've seen both of our major partners working with us to achieve the common goal of long-term profitability. So, I'd say, there are a lot of things in flux right now. So, there is a lot of attention being paid to those issues that are most important, both now and as we move into environment where guests began returning and mass to our hotel.

Liz Perkins -- Senior Vice President and Chief Financial Officer

And Neil, the second part of your question about what you thought might take long-term I think that, that still yet to be determined. It's obvious in the near term that guests have different expectations and needs and how long that persist or what that looks like going forward from a long-term perspective, those are the conversations that we're having with the various brands to help figure out. What's the best model for today, but what does that look like going forward to. And so those are active conversations. I think that as far as the balance of power goes there regardless of who might have a slight advantage of any -- at any one point in time it's mutually beneficial that we get this right for everybody. We want to be relevant with guests. We want the brands to be successful, but in order to do that we have to make money as well. So, I think that getting this right, will be a balance between the brands and ownership.

Neil Malkin -- Capital One Securities. -- Analyst

Thanks. Appreciate your commentary. You talked about rates being impacted in the first -- in March and April, some of your full-scale peers use more of an occupancy less of a rate. I'm wondering if you know how do you explain or what do you think that drop is attributable to, is it because you guys essentially but all your hotels were open, whereas a lot of those full service more coastal focused players shut majority or all of their almost all of their hotels, was it more of just taking OTAs. You think they'd be less of an issue, just given the brand nature and any thoughts or commentary on that and maybe how your select service model, kind of ebbs and flows with lower demand and with FX changes things like that?

Justin Knight -- President and Chief Executive Officer

Liz commented in her prepared remarks, that the majority of the shift we saw as we rounded out the month of March. It's really the result in changes in business mix, so a move away from transient plus business and leisure toward the negotiated business, which is generally discounted business and given the low occupancy levels. The bulk of the business in our hotels as we rounded out March and began April fit into that category, with a significant amount of first responders, National Guard business of that type. In addition to other business clients what we've seen and highlighted, the Carolina Beach example is in those markets where we seen leisure transient return. We're seeing an ability to again push rate as occupancies get closer to sell out or reach kind of higher ranges, but as we look forward, you know, in the near term the decrease in ratings marginally attributable to the mix of business. I think our expectation is that as we begin to ramp occupancy at least in the early stages, markets will be incredibly competitive and we're working with our management companies to ensure that we're maximizing rates wherever possible, recognizing that we will still be competing for a smaller number of guest in many of our markets and they need to make adjustments to rate in order to build that base occupancy. But what we've seen to date is largely mix of business related and the other is our expectation of the future.

Neil Malkin -- Capital One Securities. -- Analyst

Got it. Last one for me, if I could? You talk about your balance sheet being very strong, and leading to opportunities should they present themselves, you know, ostensibly. This would lead to you guys being more active are looking at more things in the near term. Do you think you're going to have more success or more interest in stabilized assets or newer, more recently constructed asset?

Justin Knight -- President and Chief Executive Officer

It's a great question and I think we have the luxury of being able to look back on two earlier cycles where we were active participants in the market as the market recovered. In both instances, we were successful in acquiring existing assets at discounts to their long-term value. But at the same time locking and pricing on development fields, which would be delivered in future years, which enabled us to essentially ensure that as values increase we were acquiring assets at attractive pricing. Now this cycle is radically different than past cycles and may play out differently, but our expectation is that in the early phases of the recovery there will be an increase in the number of opportunities that would be attractive to us. Our first preference though is just getting back to cash positive, right. So, I think it would be reasonable for us to assume that while we are eager to pursue opportunities from a capital allocation standpoint, which would drive shareholder value. Our number one priority at this point is getting back to a position where we're producing positive cash flow from operations and you know and until we get to that point. I think it's fair to anticipate that we would be conservative in pursuing optional uses of cash.

Neil Malkin -- Capital One Securities. -- Analyst

Thank you, guys.

Justin Knight -- President and Chief Executive Officer

Thank you.Thank you. Our next question comes from Austin Wurschmidt with KeyBanc. Please proceed with your question.

Austin Wurschmidt -- KeyBanc -- Analyst

Hi. Good morning, everybody.

Justin Knight -- President and Chief Executive Officer

Good morning.

Austin Wurschmidt -- KeyBanc -- Analyst

Just if you could help us understand the difference between a hotel suspending operations versus kind of the clustering strategy that you guys have pursued and kind of quantify what that the benefit is where you're staying open, but maybe not physically accepting. Yes. And if that's just provides another source of demand I guess generator you know or marketing I guess benefit to some extent. Could you just help us understand that dynamic a little bit?

Justin Knight -- President and Chief Executive Officer

Absolutely. And I'll take a stab again and Liz can correct me where necessary. But really I think it's important to look first at the decisions we made for those assets that are in markets by themselves. So we had universally decided to keep our hotels open. We went through a very detailed analysis to come to that conclusion. And at the end of the day, the reality is one of the benefits of the select service model is that our assets can be operated with very little staff. Our staff is cross-trained our managers, our sales people have the capacity to do laundry and clean internal rooms, provide foodservice and things of that sort, which is a major differentiator and I think has proven to be a huge advantage. As we looked at for we anticipate it to be and the duration of at least the most challenging portion of the current pandemic we assess each of our properties individually and decided that the difference in cost to stay open versus close was immaterial. Given desire on our part to maintain sufficient staff in the asset to ensure that you didn't have a water leak or a system breakdown that cause long term damage to the asset. On average that means have a one to two people on property at any point in time. And what we found is that, that was sufficient staff to essentially operate the hotel at minimal occupancy levels. So then moving beyond that in markets where we have multiple hotels and we have some occupancy, we've been able to gain incremental benefit by from a cost standpoint by concentrating the guests in a single hotel asset. And in some markets that's very easy where we own a dual branded asset or two hotels that are immediately across the parking lot from each other. You know, that the nuances that reservation systems are open for all hotels and they are accepting guests. We are just concentrating the guests in one hotel, so that we can -- we can better service them, and service them more efficiently.

Liz Perkins -- Senior Vice President and Chief Financial Officer

I think another benefit is that we continue to have, as Justin mentioned the reservation systems open, but we also continue to retain managers. And in most cases a salesperson, so 80% to 90% of our hotels have retained some sort of sales effort and so the momentum that we have as we come out of this, we think will be an advantage across the portfolio whether consolidated or not. And so, in an effort to keep sort of the high performing talent and managers that we have across our portfolio. The decision to completely close the reservation system, and close the hotel versus keep it open, and keep momentum going and keep the asset protected and maintained. The benefits outweighed the cost where as Justin mentioned given our model, unless we thought that this was going to last for an extended period of time and we would make further labor cuts and really just bring in security and not be as focused on asset protection or and sales efforts and things of the sort. The difference in cost was fairly minimal, and again the benefits far outweighed, far outweigh that.

Austin Wurschmidt -- KeyBanc -- Analyst

That's helpful. Could you break out what the recent week occupancy detail is between your extended stay in suites product, which is over half of the portfolio and then what it is for sort of the balance of the portfolio?

Liz Perkins -- Senior Vice President and Chief Financial Officer

I would say that extended day whether, whether it's the current week or even the trend for the past four weeks has been a 20 point occupancy premium. Now keep in mind, we have -- where we consolidated operations we consolidated into extended stay property by and large, and so that helps that you know two or three hotels occupancy or reservations and one, but again that, that type of product is definitely well-suited for the type of business that and that we're getting at the moment with many, many retail and restaurants closed across the country where social distancing with extended stay, business being really what in markets right now that specific product is as a huge advantage for us. The suite products and extended stay product and other select service are operating a little more similarly, although the bigger footprints and having microwaves and things like that and other suite products certainly is benefiting, but the big differential is the extended stay property.

Austin Wurschmidt -- KeyBanc -- Analyst

No, that's very helpful. And then, just lastly, I was curious if you guys -- did you incur any sort of one-time severance or furlough cost that you don't expect on a go forward basis that you could try for us?

Justin Knight -- President and Chief Executive Officer

Yes. In the quarter, we incurred, just over $1.5 million in one-time for a low-cost related to transition, which we would not anticipate with you know recur.

Liz Perkins -- Senior Vice President and Chief Financial Officer

At least at this point.

Austin Wurschmidt -- KeyBanc -- Analyst

Okay. Thank you. Appreciate the time.

Operator

Thank you. Our next question comes from Bryan Maher, B. Riley FBR. Please proceed with your question.

Bryan Maher -- Analyst

Good morning, Justin and Liz. Thanks for taking my questions. When it comes to the waivers that you're hoping to get completed. I think you mentioned maybe this is a better question for Liz. Distribution restrictions and I'm assuming that would be on the dividend. Is that kind of an all or nothing restriction or is there going to be some formula in there that you could kick in at a later date, maybe in the first half of 2021, we're at some lower level?

Justin Knight -- President and Chief Executive Officer

I'll speak broadly, but because we don't have anything officially completed I'll I won't be able to speak too much to it, but in general, our lenders, definitely understand our REIT status and that we need to pay out 90% of our taxable income. So, I think that there will be some flexibility at a point in time where we're making money and would need to pay a dividend, but I wouldn't imagine that we would be able to during the waiver period pay outside distributions beyond that.

Bryan Maher -- Analyst

Okay. And then when we think about your ability to drive rate as markets start to reopen and I suspect as the full service hotels competitors in your markets, start to reopen their specific hotels. My guess is that rate, competition is going to be pretty intense. How are you guys thinking about focusing on marketing for the next one two quarters as it via the brands, via the Internet and via your sales managers? How are you planning to address that?

Justin Knight -- President and Chief Executive Officer

I'd say yes to all of the...

Liz Perkins -- Senior Vice President and Chief Financial Officer

All of the above.

Justin Knight -- President and Chief Executive Officer

Liz, highlighted the fact that we've retain sales staff at the property level, our management companies have also retain sales staff and are actively doing direct sales efforts both looking for business in the near term and supporting potential clients for future business. I think we had signaled over the past several calls and move within our company toward more online marketing and we will continue those efforts as well, and especially to the extent we feel we can attract leisure customers to our hotels which many of our locations are ideally positioned for that, but I think it's fair to assume that we will be leveraging all available sales channels as we build back occupancy. One of the advantages we've had historically as we've come out of more challenging economic period and as luxurious hotels have an exceptional value propositions, for a variety of guests both leisure and business and appeal to a very broad group. We've signaled that our position within the select service spectrum is particularly advantageous being kind of at a midpoint where during periods of economic prosperity people trade up into our asset and during periods of economic difficulty. They have a tendency to trade down, which has enabled us to maintain stronger occupancy throughout cycles. We anticipate that will continue and will be aided in part by what we anticipate to be a significant reduction in supply over the next several years.

Bryan Maher -- Analyst

Great. And then just last for me. I think you mentioned the Carolina Beach Hotel last week and was sold out. And I think you said $200 rate. As we sit here kind of real-time and kind of mid-to-late May and people empty [Phonetic] to get out. What are you guys seeing coming in the bookings for a similar type assets that you might hold, is it something that's giving you optimism as we approach June and July or was that kind of a one-off?

Liz Perkins -- Senior Vice President and Chief Financial Officer

I think as far as booking position goes it's last minute and so to stretch into June and July be maybe a little bit premature, but we are starting to see, but if I just look at what actualized in the past week, we are starting to see, especially in the Southeast in North Carolina and South Carolina even Atlanta in some Florida markets where occupancy -- weekend occupancy is ticking up, and so that's encouraging. I think, across the country as restrictions are loosened. I think that people who are willing to travel well and they will get out and so I think there may be more drive, drive in traffic then people getting on airplanes. But by and large weekend business I think into Memorial Day and beyond, particularly in the Southeast we're feeling a little bit encouraged.

Bryan Maher -- Analyst

Great. Thank you. That's all for me.

Justin Knight -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.

Anthony Powell -- Barclays -- Analyst

Hello, good morning everyone.

Justin Knight -- President and Chief Executive Officer

Good morning.

Anthony Powell -- Barclays -- Analyst

Good morning. Following up on that question and some of these markets where you see reopening. Are you seeing any weekday business return or is it still, still some early to see that kind of business traveler and corporate traveler from that?

Liz Perkins -- Senior Vice President and Chief Financial Officer

I think the notable -- notable difference is so the uptick on the weekend. In those markets it's not to say we don't have some base business, but it's still from sort of the sectors we mentioned in our opening remarks. So its project business, recovery business, medical, traveling, nurses things of the sort. So, I wouldn't say that we're seeing really an uptick in BT at this point.

Anthony Powell -- Barclays -- Analyst

Got it. What was the occupancy as of weekend that may seem to be had?

Liz Perkins -- Senior Vice President and Chief Financial Officer

We have not shared that, but it is, as we mentioned in the prepared remarks, we had several days that we're in higher than the week ending May 9th.

Anthony Powell -- Barclays -- Analyst

Got it. Okay.

Liz Perkins -- Senior Vice President and Chief Financial Officer

We'll definitely [Speech Overlap] trending more positively.

Anthony Powell -- Barclays -- Analyst

Got it, OK. Different topic to the Courtyard, Denver what drove the decision to not go forward with that acquisition to be developer I guess the way the project. And what's your kind of overall commentary on how developers will see at the environment now. Are you seeing cancellations, more onerous financing, what's kind of the overall environment there?

Justin Knight -- President and Chief Executive Officer

So the Denver project specifically, we have been working with the developer for a significant period of time, so that developers, the same developer that's building the asset and the Madison asset for us. There had been complications in that project and we were continuing to work through nuances associated with that. Adjusting room count because of the amount of land available shrinking and other thing, because that project had not yet started, we had some additional flexibility to cancel and we've worked with the developer to essentially put that project on hold until the market stabilizes and we have a better sense for where cost will be long-term. I think as we interact with others in the industry broadly speaking financing for new development projects is as difficult as we've ever seen it to come by. And for the most part developers are waiting right now in anticipation that the cost will eventually come down and they're also waiting to see where markets settle to better understand what deals will make sense in the new environment. I think we are seeing some slowing in projects that are already under construction depending on specific market and restrictions that are being put in place relative to work root [Phonetic] but also related to delivery of products from out of the country. But on a go-forward basis, so I think it will take longer for deals that are under construction to be delivered. But the bigger impact for us will be that our expectations that said, developers, generally speaking we'll be sitting on the sidelines for a period of time until markets begin to stabilize and they are better able to underwrite book, the cost and expected profitability of individual projects.

Anthony Powell -- Barclays -- Analyst

All right. Do you expect the kind of a permanent change in how these deals are financed? Do you expect to options have to put more equity could be kind of more of a longer-term headwind to hotel development generally as a result of this?

Justin Knight -- President and Chief Executive Officer

You know, right. We have yet and we've been in this business for 20 years to see anything in the way of permanent change, but we have seen extended periods of time where it's more difficult to obtain financing. Our expectation is that in the early phases of recovery and OK consistent with the past two cycles that we've been through it will be more difficult for developers especially new hotel developers to obtain financing, construction, new construction, hence reviewed by lenders as higher risk, because you have market risk and development risk and our expectation is that in the near term lenders will be much more focused on working through -- working through nuances of guilt they already have and less focused on signing up new deals.

Anthony Powell -- Barclays -- Analyst

Got it. Thank you.

Justin Knight -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Michael Bellisario of Baird. Please proceed with your question.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Good morning, everyone.

Justin Knight -- President and Chief Executive Officer

Good morning, Michael.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Just on that same topic, can we drill into the Madison deal, maybe where is that project in terms of development timeline. And I think you mentioned a 2021 delivery. But should we be thinking about it as a early 2021 delivery or late 2021 delivery is trying to balance that potential cash outflow you might have in the near term?

Justin Knight -- President and Chief Executive Officer

That particular project was earlier in development when you know the pandemic hit. There were also nuances associated with the site that had pushed potential delivery toward the very end of this year even prior to the pandemic. Our current expectations are that it would be delivered very end of the first quarter or beginning of the second quarter. And again Madison is one of those market that it seem slightly tighter restrictions well, which is adding to the potential delays there.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Got it. Fair to assume you're going to move forward with that project irrespective of the environment, mainly because you don't have the same outs like you did for the Denver deal?

Justin Knight -- President and Chief Executive Officer

That's correct. The remaining development deals that we have under contract have specific performance language and absent and end of the world situation where we became insolvent as a company, it's our expectation that we would -- we would close on those assets.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Got it. And then just thinking about the sources of capital, I know you have a large cash balance today, but the plan was always sell hotels, the lower growth non-core properties to fund these deals. How are you balancing those the sources and uses going forward given that the transaction market is pretty much at a standstill today and probably likely to be at a standstill three, six months from now?

Justin Knight -- President and Chief Executive Officer

For year-to-date we're perfectly balanced, but they are nearly perfectly balanced, but they said first quarter sales funding essentially the project. We continue to receive inbound inquiries. I think there is renewed interest in the hospitality space. Pricing isn't where we needed to be and I think it will take a while for the market to settle out. We take a long-term view toward capital allocation and it's still in our view, long term that you will, we'll end up funding the development deals with disposition proceeds. So the timing of those trades been up perfectly aligned you know way I think looking at what we currently have under contract and in our expected burn rate on a go-forward basis. We feel very comfortable that we can manage our commitments and maintain the operations and the integrity of our company.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Got it. That's helpful and then just lastly, maybe high level commentary on your management companies. You have a handful of more regional local focused operators. Can you give us an update on the health of your third-party managers and then just if there are any weaker ones any conversations you've had about maybe transition and then impact that might have on property performance near-term or intermediate term?

Justin Knight -- President and Chief Executive Officer

Absolutely. And really first, you know, I --we've, as you might imagine been in nearly constant dialog with our various management company partners. We have 20 management companies we work with. A portion of them are national, a portion of them are regional. We've been incredibly impressed with their ability to react quickly to the changes in the current environment and to effectively reduce cost dramatically across the board, both in terms of property level expenditures and corporate allocations so we get for various services from them. As we've interacted with them and amazingly good spirits and generally our conversation around longevity and financial status have been, have been very positive. Internally had developed contingency plans and the unlikely events that any of them became [Indecipherable] because of the duration of the current crisis. But the reality is we have four of our management companies coming to us and telling us they would love an opportunity to take on additional management contracts to extent. We had a need, then we have management companies coming to us and telling us that they're in a bad position, you know, where we were not as a company, able to take advantage of government in the form of PPP loan. A number of our management companies were able to take advantage of the government programs which has also helped in order to stabilize them in the current environment and enable them at the corporate level to retain employees that, that they might have otherwise had to furlough.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Got it. That's helpful. Thank you.

Justin Knight -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Tyler Batory with Janney Capital Markets. Please proceed with your question.

Tyler Batory -- Analyst

Thank you. Good morning.

Justin Knight -- President and Chief Executive Officer

Good morning.

Liz Perkins -- Senior Vice President and Chief Financial Officer

Good morning.

Tyler Batory -- Analyst

Hope everyone is doing well. I appreciate all the commentary thus far. A question just -- in terms of CapEx spending right now, I mean, you're pretty minimal levels and yeah I imagine the competition in your markets are doing the same. Can you remind us the average age of your portfolio. And is it possible that the quality of your properties compared to the competition you know a little bit higher heading into this crisis, and maybe it's an opportunity for you to take some market share?

Justin Knight -- President and Chief Executive Officer

So, the easy answer is the first and that's the average age is approximately 40 years. We monitor effective age as well and coming into the crisis effective age meaning time since build our last renovated is four years for our portfolio. As you highlighted, we've significantly reduced the number of major renovations that we anticipate completing the share cutting essentially 20 major renovations, which were anticipated to happen in the summer and toward the back half of the year. That said, we also in many markets are running very low occupancy and so in the near term to wear and tear on those assets is not what it would ordinarily be which will help from our preservation standpoint, but not in a way that we want to continue long term obviously. We've been very strategic in acquiring assets that are well-positioned within their individual markets that have advantages, either from a location standpoint for and build out in terms of actual amenities and in most cases have both advantages. We've continue to refine our portfolio through selective acquisitions and dispositions and feel really that we're exceptionally well-positioned so because of the properties we have. But as I highlighted in response to an earlier question, because of the management teams that we have on property to gain market share as we recover. The fact that we've remained open and servicing guest provides a great signal to local accounts especially that we are a long-term partner willing to work with them and we think will provide us with a meaningful advantages. We begin a more robust recovery.

Michael Bellisario -- Robert W. Baird & Company -- Analyst

Okay, perfect. And then what percentage of your mix or your room count are located in markets that you think should appeal to the leisure transient drive to guest or markets that you can tell there be more vacation oriented similar to that Carolina Beach Courtyard for example?

Liz Perkins -- Senior Vice President and Chief Financial Officer

Interesting question. I think from a drive to standpoint, we and thinking about, I mean, most of our markets have a component of local negotiated business or inbound somewhat leisure weekend business. So, I think many of our markets will appeal just from a drive to and leisure standpoint. Now, to what degree will depend on the leisure attractions. I think you know, we certainly don't have a large percentage of our portfolio that has direct access to beaches, but we do have some. And we have a lot of Florida markets and a lot of California markets and access to beaches here in Virginia, South Carolina and North Carolina. So I think -- I think we do have a strong presence. I think one of the things to think through to is just the urban versus suburban mix of our portfolio. We have seen strong outperformance relative basis I guess with our suburban versus urban portfolio and the industry has seen the same thing, suburban having the highest absolute occupancy for both the industry and so I think that's a big differentiator as well as the makeup of extended stay

Tyler Batory -- Analyst

Okay. That's all from me. Thank you.

Justin Knight -- President and Chief Executive Officer

Thank you.

Operator

Thank you. There are no further questions at this time. So I'd like to pass the floor back over to Mr. Knight for any additional closing comments.

Justin Knight -- President and Chief Executive Officer

Thank you. We really appreciate everybody who joined us this morning. I've highlighted in the past, but I'll do it again today. To the extent you are traveling and we hope that you are or will shortly. We hope you take the opportunity to stay with us at one of our hotels. Be safe, be well. We look forward to talking to you again shortly.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Kelly Clarke -- Vice President, Investor Relations

Justin Knight -- President and Chief Executive Officer

Liz Perkins -- Senior Vice President and Chief Financial Officer

Bryan Maher -- Analyst

Tyler Batory -- Analyst

Neil Malkin -- Capital One Securities. -- Analyst

Austin Wurschmidt -- KeyBanc -- Analyst

Anthony Powell -- Barclays -- Analyst

Michael Bellisario -- Robert W. Baird & Company -- Analyst

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