Hotel officials discussed how and why they reached a decision to close their properties and when was the optimal time to reopen them during second quarter performance updates.
REPORT FROM THE U.S.—In the second quarter, hotel executives made tough decisions whether to temporarily close their hotels or reduce offerings and staffing to keep their properties open.
Here are some highlights from Q2 2020 earnings transcripts about closings, reopenings and portfolio strategies.
Geoff Ballotti, president and CEO, Wyndham Hotels & Resorts
“Today, over 99% of our 6,300 domestic hotels are open and while we are seeing some plateauing in the harder hit larger markets like Florida, Texas and California, we are seeing continued occupancy improvement in the smaller markets like Colorado Springs, Lake Michigan and the Texas Gulf Coast. …
“Moving to other parts of the globe, all of our international regions are experiencing occupancy improvement. In Asia-Pacific, where 93% of our system is now open, occupancy is now running over 60% in China. In Canada, 98% of our system is open and occupancy is now in the 40s; and in the Europe, Middle East and Africa region where two-thirds of our system is open, occupancy is running over 30%.
“Latin America remains our most challenged region with around 100 hotels still closed and occupancy levels at less than 30%. We finished the quarter with 813,000 rooms, which was flat to prior year. Despite our franchise sales and operations teams being sequestered at home and unable to travel for most of the quarter, we nevertheless opened 5,700 rooms. …
“The 5,700 opens … roughly 2,000 of those were conversion and if I just look at the way it picked up, in terms of our opens domestically we had 100 in April, 400 in May and 2,000 we mentioned in June. 85% of those were conversion rooms and so many of them opened in the same quarter. I mean, we were able to open over a dozen hotels in the quarter that were picked up in the quarter in brands like Days Inn and Super 8 and Baymont and Travel Lodge and Trademark.
“It was encouraging domestically, and it was also encouraging to see the pick-up internationally. We had great same quarter selling opens and so many of those were conversions. We went similarly from a couple of (hundred) to 1,000 to 2,500 in June. Our teams are back up there domestically and internationally. They are traveling again, and we think we have a big conversion opportunity ahead.”
Pat Pacious, president and CEO, Choice Hotels International
“One in 4 midscale hotels in the U.S. is a Choice Hotels brand. Our upper-midscale and midscale brands represent (two thirds) of our total domestic portfolio. Comfort's $2.5 billion systemwide renovation has positioned our flagship brand extremely well to weather this storm, attracting both travelers and hotel developers looking for a trusted brand to deliver proven value. … Comfort now represents over (one-fourth) of our total domestic pipeline, which will fuel revenue intense growth for years to come.
“Between the onset of the pandemic in mid-March through the end of the second quarter, our portfolio of 414 extended-stay hotels grew 8% year-over-year and achieved average occupancy rates of 66%, nearly double the industry average. Leading the way was our WoodSpring Suites brand with an average occupancy rate of 69% in the second quarter, leading the overall industry by nearly 36 percentage points. WoodSpring Suites occupancy levels have remained above 70% since mid-May and in the last week of July, returned to occupancy rates consistent with 2019 levels.
“Our typical franchisee is an owner-operator with one hotel financed with low overall debt levels and a flexible operating model that allows owners to scale back staffing and service levels to reduce expenses, critical elements during down cycles. Even in April, amid the worst week of the crisis in the industry, over 90% of our domestic hotels remained open, demonstrating the tenacity and resilience of our ownership base. Today, we're proud to say that nearly 100% of our domestic hotels are open. In addition, we continued to see increased openings in our international portfolio, where 96% of our hotels are open and operating as of the end of July.”
Leslie Hale, president and CEO, RLJ Lodging Trust
“In light of this challenging background, we executed on a number of critical priorities. First, we remain focused on managing our liquidity and minimizing hotel operating shortfalls to reduce our burn rate. Second, we successfully opened hotels in a socially and financially responsible manner, including 21 hotels within the second quarter, and 15 hotels so far in the third quarter.”
James Risoleo, president and CEO, Host Hotels & Resorts
“Starting with operations, our second quarter expense reductions and revenue growth were driven by exceptionally agile asset management and the swift reaction of our world class operators. As lodging demand (reached) record lows in April, we worked with our operators to suspend operations at 35 hotels, reduce hotel fixed costs by approximately 50% and reduce overall hotel operating costs by 72% year over year.
“Cost savings were primarily driven by steep reductions in wage-and-benefit expenses, and the fixed portion of above property allocated costs, as well as by suspending most brand standards and contributions to hotel FF&E reserve accounts.
“At operational hotels, our managers have significantly scaled down operations by closing guestroom floors and meeting spaces.”
Chris Nassetta,* president and CEO, Hilton
“Approximately 20% of our system-wide properties had temporarily suspended operations at some point in the first half of the year. Today, nearly 80% of those hotels have reopened, including all of our hotels in China and the majority of our hotels in the United States. In Europe, we are seeing steady progress on reopenings as restrictions ease and demand gradually return. Today, more than 96% of our system-wide hotels are open and operating.
“From a development perspective, activity was disrupted given the broader macro challenges, yet we were still able to add 7,000 rooms to our system and achieved 4.8% net unit growth versus the same period last year. Monthly openings increased sequentially throughout the quarter and in June, openings in the Americas were nearly 15% higher than last year. Additionally, we continue to be encouraged by conversion opportunities, which should help mitigate the impact of construction delays. For the full year, we expect net unit growth to be in the 3.5% to 4% range.”
Jon Bortz, chairman, president and CEO, Pebblebrook Hotel Trust
“Unfortunately, due to the recent growth and the spread of the virus and the rollback of some of the state and city reopenings, the gradual recovery in travel and hotel occupancies seem to have flattened out over the last few weeks, though we have continued to see some week-to-week improvements within our portfolio as newly opened hotels ramp up their share of market demand. We now have 24 hotels open, marking a significant increase from the end of March when we had just eight hotels open. We expect to open another five hotels in August, assuming we don't experience any further setbacks from cities reversing their reopening phases.”
Bill Hornbuckle, president and CEO, MGM Resorts International
“In the second quarter we opened nine domestic properties and we have subsequently reopened five more. … Domestic properties that opened in the second quarter generated positive (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) faster than expected and we saw significant growth in our domestic margins driven by optimizing our business to serve higher quality customers given the pent-up demand, primarily in our casino market side, leveraging our MGM 2020 plan and operating model work to manage costs and discipline. And we remain selective and keeping lower margin amenities closed.”
Arne Sorenson, president and CEO, Marriott International
“Many of our hotels that were temporarily closed due to COVID-19 have now reopened. Today, 9% of our global properties remain closed compared to more than 25% in April. Since April occupancy levels have increased each month in every region around the world, albeit at varying rates. Global occupancy in July hit 31% for all hotels, increasing 19 percentage points from April.”
Mark Brugger, president and CEO, DiamondRock Hospitality
“We're looking every day at the demand channels and government policies, the restriction of self-quarantine in New York City and some other markets. (This) certainly hampers the ability to reopen the hotels. So we're looking every week. The tricky part is going to get as we move into the fall, if you can't justify opening it in the fall it's traditionally weak anyway in December, January, February and in some of these Northeast markets.
“And so then you kind of get caught and it doesn’t make sense to lose less to keep them closed a little longer, but it's a week-by-week evaluation. We haven't made a firm call as yet because really the demand channels we're looking at every day. And summer will be dependent on what are our neighbors do to the extent the other large hotels decided to stay closed, it may actually justify us opening. If 50% about the large boxes are closed for the balance of the year, there might be enough demand to justify opening our hotel. So it’s fluid, and we are constantly looking at the data and we really want to be data-driven. … Obviously we've had good success in reopening 12 hotels from the lowest point here and we're optimistic we're going to be able to get hotels (reopened). And we certainly want to get them opening and get people back to work. But we got to look at where the demand channels are and make sure it makes sense for our shareholders.”
Marcel Verbaas, president and CEO, Xenia Hotels & Resorts
“After suspending operations in March and April at 31 of our 39 hotels and resorts, we began the process of recommencing operations at temporarily shuttered hotels in mid-May. After thoroughly analyzing expected cash flows and staffing models, we further reopened five of our smaller drive-to leisure-oriented hotels and resorts. As we anticipated that leisure demand in markets where restrictions were being lifted would likely be the first segment to return at a meaningful level.
“In June, we recommenced operations at an additional 13 hotels with eight more hotels having reopened thus far in July. Our 35th hotel is scheduled to open (31 July) and we currently anticipate that the four remaining properties in our portfolio will recommence operations before the end of the year.
“We currently have no plans to resuspend operations at any of our hotels and resorts. Our reopening analysis and planning has been based on establishing expense structures, which permit the properties to operate at very low occupancy levels and limit losses compared to the levels experienced, while being closed.
“Month to date through 25 July, our open properties achieved an average occupancy of nearly 25% consistent with the level that we saw in June for our properties that were open at that time and significantly above the levels where it would be prudent to consider re-suspending operations at any of these properties.”
John Arabia, president and CEO, Sunstone Hotel Investors
“Of our 19 hotels, four have remained in operations for the duration of the pandemic, including the Embassy Suites La Jolla, Renaissance LAX, Renaissance Long Beach and Boston Park Plaza. Six hotels that had suspended operations have recently reopened, including Oceans Edge in early June and five other hotels in early to mid-July, leaving us today with 10 of our 19 hotels in operation and currently welcoming guests.”
“We're all trying to reopen, some of us around the same time, but we've been pretty pleasantly surprised that once we've reopened hotels in markets where we have been monitoring that demand was coming in, that we've reopened at occupancy levels kind of in the mid-teens in general for several of those—for most of the hotels that we just recently reopened, which is a level where we can improve upon our current cash burn.”
Neil Shah, president and COO, Hersha Hospitality Trust
“The lion's share of the 27 hotels that were opened in April and May consisted of our limited-service drive-to resort offerings that were able to drive rate and occupancy, exceeding our internal forecasts. Early April is when we saw the trough for our open portfolio, bottoming out around 19% occupancy, but incrementally growing through the balance of the quarter, ending June at 39% occupancy.
“Most of the 27 hotels that remained open throughout the pandemic and the seven hotels that have opened since 1 June are able to run with the marginally sized staff, allowing for lower breakeven levels and the ability to generate gross operating profit with occupancies around 25% to 30% or a 60% to 70% RevPAR decline for EBITDA level breakeven at properties.
“Our focused-service portfolio, whether branded or independent offer significantly more flexibility as it relates to staffing levels and job-sharing opportunities, minimizing costs and ultimately allowing us to either profitably maintain operations or reopen assets more expeditiously.
“We expect to have substantially all of our hotels operating by the end of September and now more than ever, our ability to stay nimble and leverage our flexible operating model and close connection with our independent franchise operator allows us to reopen and operate our hotels in a cost efficient manner. It gives us the opportunity to reduce our cash burn rates and breakeven levels meaningfully and sets up our portfolio to generate cash flow as we navigate this recovery.”
Keith Cline, president and CEO, CorePoint Lodging
“As it relates to operations, all of our 230 hotels are now fully open. This compares favorably to our peak of 30 hotels that were temporarily not accepting transient guests. During our first quarter earnings call in May, we shared early second quarter operating insights. Since that time, we have experienced a marked improvement in operating results as evidenced by significant reduction in our monthly cash-burn rate, RevPAR index share outperformance and the year-over-year RevPAR change for the second quarter that outperformed the broader industry.”
*Editor’s note: Hotel News Now is a division of STR, a CoStar Group company. Chris Nassetta serves on CoStar Group’s Board of Directors.