CorePoint Lodging Inc. (CPLG) Q4 2020 Earnings Call Transcript

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CorePoint Lodging Inc. (CPLG)
Q4 2020 Earnings Call
Mar 11, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 CorePoint Lodging, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker, Becky Roseberry, SVP of Finance and Investor Relations.

Becky Roseberry -- Senior Vice President of Finance and Investor Relations

Good afternoon, and welcome to CorePoint Lodging's fourth quarter and full year 2020 earnings conference call. In a moment, we will have remarks from Keith Cline, our CEO and Dan Swanstrom, our CFO. Rob Song, our SVP of Investments and Howard Garfield, our CAO are also on the line with us.

Before we start, I would like to remind everyone that our remarks today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and forward-looking statements made today speak only to our expectations as of today. We do not undertake any duty to update forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.

For more details on some of these risks, please refer to the Risk Factors section of the Company's most recent annual report on Form 10-K as supplemented by the company's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 5, 2020. In today's remarks, we will refer to certain non-GAAP financial measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release, which is available on our website at corepoint.com.

Finally, for those listening to a replay of this call after March 11, 2021, we remind you that this presentation will not be updated, and it is possible that the information discussed will no longer be current.

With that, I will now turn the call over to Keith.

Keith A. Cline -- President and Chief Executive Officer

Thank you, Becky. Good afternoon everyone and welcome to our fourth quarter call.

We are pleased you could join us. Looking back at our earnings call a year-ago, days ahead of a nationwide shutdown, we outline several of our top initiatives for 2020. These included being able to respond aggressively to a rapidly evolving environment, ensuring that platform improvements were in place and executing on the next phase of our real estate strategy. While this global pandemic has provided unprecedented challenges to CorePoint as well as the lodging industry in the US and global economy, I am proud of the work that our corporate team and third-party manager accomplished related to guest safety, cost containment and cash preservation.

We are equally proud of the attractive multiples and sales proceeds were generating to pay down debt as part of the continued success of the non-core disposition program. Dan will get into more of those details later. Much of our communications throughout the year were focused on the improvement of our business since the peak impact of COVID and the subsequent waves as well as our success in managing through those periods, but we also delivered on other initiatives that will help us prepare for future beyond COVID.

Turning to operations. Our portfolio of select service hotels has continued to outperform the broader lodging market. As we're able to achieve property level breakeven for the fourth quarter which includes the seasonally low demand periods in November and December, given this low revenue period, our cash burn was $13 million in the fourth quarter, excluding capex. As we noted on our second quarter call, all of our hotels are fully open, which compares favorably to when we had 30 hotels that were temporarily not accepting transient guests. Since that time early in second quarter, we have experienced a marked improvement in operating results with significant RevPAR index outperformance and year-over-year RevPAR change for the fourth quarter that outperformed the broader industry.

We continue to see this relative outperformance most dramatically in our drive-to-destination markets, including those in Florida and California. Leisure travel currently represents over two-thirds of our bookings and weekends are outperforming weekdays. In addition to leisure, we're seeing some recovery in certain segments of corporate travel related to essential businesses, such as construction, transportation and project related businesses. As we noted on the third quarter call, our fourth and first quarters are historically part of our slower non-peak season. To that end, we have achieved comparable occupancy of 52%, 45% and 44% for October, November and December, respectively. For 2021, we're seeing positive momentum with comparable occupancy in January of 45%, increasing to 51% for February, which reflects significant leisure demand over the President's Day weekend. During that weekend, we also attained the highest ADR since Labor Day weekend. So far, this momentum is continuing into March.

While we are optimistic about this current trend as well as the continued rollout of the COVID vaccine and ease of restrictions enabling the opening of attractions and travel, we continue to be focused on cost control initiatives. As a reminder, these property level cost control initiatives include reduced staffing levels, elimination of all non-essential amenities, and the freezing of all spending at the hotels to only what is essential to run the hotel safely, while serving our guests during this challenging time.

A revised labor standard reflects a significant reduction in housekeeping hours, driven by lower occupancy, as well as reductions in areas such as breakfast, maintenance, van drivers and guest service associates to better manage our cost structure with a number of them sold. As demand increases, we will remain vigilant on cost containment, while adjusting property level costs to meet customer needs. As it relates to the system platform improvements under way with Wyndham, the implementation of the enhanced dynamic best available rate setting tool was required under the Wyndham settlement to be completed by the end of 2020. We are currently engaged in ongoing discussions with Wyndham regarding the rollout and final acceptance of this revenue tool replacement.

Lastly, I would like to provide some preliminary views on the impact of the extensive winter storm that hit Texas and surrounding states the week of February 14. We have 40 hotels located in the impacted area, with certain of these hotels experiencing minimal operational disruptions due to rolling power outages, water outages and minor damages caused by freezing temperatures. For these 40 hotels, occupancy increased approximately 800 basis points on a net basis during the time of the storm and we have seen a continued increase in demand from insurance, construction and storm remediation related businesses.

As you look ahead to 2021, it is realistic to expect it will take some time to see a full recovery in our business and the lodging sector in general. This environment is far different than the other demand shocks the industry faced resulting from the end of the tech bubble, 9/11, and the great financial crisis and has different leavers to bring back demand to pre-COVID levels. We are optimistic for the future, though, given the strong positioning of our geographically diverse portfolio, continuing vaccine deployment, forthcoming additional stimulus measures and our exposure to suburban drive to destination and interstate adjacent locations.

With that, I will turn the call over to our CFO, Dan Swanstrom. Dan?

Daniel E. Swanstrom -- Executive Vice President and Chief Financial Officer

Thank you, Keith, and good afternoon, everyone. I will start today by providing a brief review of the fourth quarter operating results and recent trends. I will also provide updates on our liquidity position, balance sheet, recent revolver loan amendment and non-core disposition strategy.

The comparable RevPAR decline of approximately 43% during the fourth quarter was driven by a 23% decrease in ADR and a 1,640 basis point decline in occupancy. As expected, the decrease in year-over-year revenues is primarily due to the significant reduction in room demand resulting from the impact of COVID-19 as well as the impact of sold hotels. While we achieved hotel level breakeven for the fourth quarter, our adjusted EBITDAre was negative $5 million. For the second half of 2020, from July through December, we achieved positive hotel level adjusted EBITDAre of $12 million and positive adjusted EBITDAre of $3 million.

Our portfolio of select service hotels, predominantly focused on the midscale segments is well-positioned to capture the current levels of transient room demand. Our portfolio footprint is mostly in suburban markets near multiple demand generators and we are benefiting from leisure and other guest demand for drive-to-destination and interstate adjacent hotels. These characteristics have proven to be favorable for the CorePoint portfolio relative to the broader industries operating performance.

As Keith mentioned, we are encouraged by the most recent operating trends. For the month of February 2021, preliminary operating metrics were in line with the months of September and October of 2020 with comparable occupancy of 51% and comparable RevPAR of $37, which represent meaningful increases from the months of November, December and January which have historically been part of our slower non-peak season and lower occupancy months for this portfolio.

From a liquidity perspective, our cash balance today is approximately $130 million, which excludes lender and other escrows of approximately $35 million. Our current liquidity reflects the repayment of $20 million of revolver debt since the end of the third quarter of 2020 and the cash burn during the seasonally low demand periods in November, December and January as well as CMBS debt reductions from asset sale proceeds. As we remain in a challenging lodging environment, our near-term priorities will continue to be focused on cost containment and capital preservation initiatives.

We have significantly scaled back all non-essential capital investments and expenditures with the exception of life safety or critical operational needs. For 2021, we currently expect our capital spend to be in the $15 million to $20 million range. We expect our cash corporate G&A expense in 2021 to be in the $17 million to $18 million range.

Now to our balance sheet. Since the beginning of 2020, we have paid down approximately $260 million of total debt outstanding. As of today, we have paid down our CMBS debt to $692 million through the continued use of net proceeds from asset sales and we have paid down our revolver balance drawn to $80 million using cash on balance sheet. Our current weighted average interest rate is approximately 3.3%. The next maturity date for our CMBS loan is in June 2021. However, we have borrower options to extend the maturity date for four successive terms of one-year each through June of 2025.

Subsequent to year-end, we were pleased to execute a loan amendment with our bank group that extends the maturity of the revolver to May 2022. The loan amendment does not contain a total net leverage or interest coverage financial covenant through the extended maturity date. As part of this amendment, we are required to repay $15 million of our revolver balance outstanding in $5 million per month increments starting in June 2021 through August 2021. In addition, if our unrestricted cash exceeds $100 million at the end of any month starting in September 2021, we will be required to repay an incremental $5 million per month capped at a maximum of $10 million in total incremental payments. This revolver amendment provides us additional and enhanced flexibility with respect to our balance sheet.

Turning to our disposition strategy, we continue to believe there is compelling strategic rationale for our non-core disposition program and for narrowing our focus to a go-forward core portfolio of 105 higher quality, higher growth potential assets that are primarily located in top 50 MSAs. During the fourth quarter, we closed on the sale of 11 hotels for total gross proceeds of approximately $48 million. Subsequent to year-end, we have closed on the sale of eight additional hotels for total gross proceeds of approximately $38 million. These $86 million of transactions were completed at attractive valuations, an average 2019 revenue multiple of approximately 2.5 times, 2019 hotel adjusted EBITDAre multiple of approximately 17 times and about 38,000 per key.

Since inception of our non-core disposition strategy, we have now completed the sale of 113 hotels for approximately $490 million in proceeds at highly attractive valuations resulting in the pay down of approximately $345 million of CMBS debt. We also have an additional 31 hotels under contract with qualified buyers that are expected to generate total gross proceeds of approximately $185 million. Based on the hotel sold to-date in 2021 and those under contract, we continue to have significant positive momentum in our non-core disposition strategy.

Combined with our priorities on cost containment and capital preservation designed to maintain liquidity throughout this pandemic, the successful execution of our non-core hotel disposition program continues to be a proven value creator for CorePoint.

With that, we will open the line for your questions. Operator?

Questions and Answers:

Operator

Thank you. And for our first question, we'll go to Chris Woronka of Deutsche Bank.

Chris Woronka -- Deutsche Bank -- Analyst

Hey, good afternoon guys. Thanks for the details. Hey, how are you?

Keith A. Cline -- President and Chief Executive Officer

Good.

Chris Woronka -- Deutsche Bank -- Analyst

I guess first question would be on the -- in the past, you guys have segmented the two, the non-core and core hotels into kind of two buckets. Can you kind of tell us how those performed during 2020 relative to your expectations and whether those non-core or I should say core hotels were still generating? Were they still generating the kind of performance you thought or was there some difference due to the COVID disruption?

Daniel E. Swanstrom -- Executive Vice President and Chief Financial Officer

Yeah. Hey Chris, this is Dan. Good afternoon. I guess a few takeaways on that question. One is that the core portfolio did have higher year-over-year RevPAR declines compared to the non-core. But that was in line with our expectations, given the higher chain scales and ADR price points that they compete at in some of their locations. However, the core portfolio continued in 2020 to continue to produce much stronger margins relative to the non-core, which has been a consistent theme going back over the last couple of years. And in fact, the core portfolio generated the lion share of the total positive 2020 hotel EBITDA of $22 million.

Chris Woronka -- Deutsche Bank -- Analyst

Okay. That's helpful. And then just going back to the January and February data points, I think you gave us on occupancy, which sounds like it averages out to 47% or 48%, which is about where you were in the fourth quarter. Were you roughly in the same place from a hotel EBITDA perspective in the first two months, which is, I guess, kind of breakeven?

Keith A. Cline -- President and Chief Executive Officer

Yeah, we hadn't disclosed any operating metrics around EBITDA performance at the beginning of the year. We'll provide a detailed update on that on our Q1 call. But you're right, I mean, our occupancy average is somewhere in the high 40s across Jan and Feb. And as we indicated on the call, we're continuing to see strength and occupancy as well as we move into the month of March. So though we're optimistic, but certainly encouraged by what we're seeing.

Chris Woronka -- Deutsche Bank -- Analyst

Okay, great. And then -- congratulations on the asset sales in 2020, I think, really good result compared to what we would have thought last March, and it certainly seems as if pricing held up really well. So I guess the question is going forward, I mean, is there an opportunity to -- do you see prices on these hotels you're selling stable? You see it maybe inching up a little bit?

Keith A. Cline -- President and Chief Executive Officer

I mean, if you think about the pricing that we've got over the entire program, as Dan mentioned, from the beginning of this program we sold 113 hotels at really attractive revenue multiples and even more attractive EBITDA multiples and we've pretty consistently performed at the upper end of the range that we had originally put out there, looking at the hotels that we sold even in Q4 of this year through today in Q1, the revenue multiples have been consistent with what we've seen over the entire program. Now there's a lot of things that bake into how those multiples are performing, including the availability of debt, what's going on with the small business association, etc. So, as Dan indicated, there's 31 hotels under contract for about -- estimate about $185 million in proceeds. And we would expect that the sale multiples that we've achieved thus far to be fairly consistent with what we're seeing on the deals that are coming in.

Chris Woronka -- Deutsche Bank -- Analyst

Okay, very helpful. And just to kind of clarify, Keith, are the buyers generally valuing those on the 2019 save revenue multiple or maybe a per key number or are they looking at some other metric whether it's fully baked recovery or alternative use or something else?

Keith A. Cline -- President and Chief Executive Officer

Well, it's interesting, right? So a lot of those things bake into how the negotiation occurs and every location can have some variety in terms of underwriting metrics from the buyers perspective. We focus on our kind of exit multiples based on 2019 to try to really preserve the value of the asset, right, in our mind in terms of how we're monetizing it. So certainly buyers are using a variety of things to underwrite how they believe the hotel could perform, not only in their hands, but also post-pandemic. We're simply focusing on the 2019 multiples to really make sure we're preserving value.

Chris Woronka -- Deutsche Bank -- Analyst

Okay. Yeah, very helpful. Makes sense. Very good. Thanks, guys.

Operator

All right. And there appear that there's no additional questions in the queue, Mr. Cline. I will turn it back to you for any closing remarks.

Keith A. Cline -- President and Chief Executive Officer

Great, thank you. And once again, thank everyone for participating today and thank you for your ongoing support of CorePoint Lodging. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 20 minutes

Call participants:

Becky Roseberry -- Senior Vice President of Finance and Investor Relations

Keith A. Cline -- President and Chief Executive Officer

Daniel E. Swanstrom -- Executive Vice President and Chief Financial Officer

Chris Woronka -- Deutsche Bank -- Analyst

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