RLJ Lodging Trust

NYSE:RLJ

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, and welcome to the RLJ Lodging Trust First Quarter 2020 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask question. [Operator Instructions]

I would now like to turn the call over to Nikhil Bhalla, RLJ's Vice President and Treasurer of Corporate Strategy and Investor Relations. Please go ahead.

[Nikhil Bhalla]

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust 2020 first quarter earnings call. On today's call, Leslie Hale, our President and Chief Executive Officer will discuss key highlights for the quarter; Sean Mahoney, our Executive Vice President and Chief Financial Officer will discuss the company's financial results; Tom Bardenett, our Executive Vice President of Asset Management will be available for Q&A.

Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what had been communicated. Factors that may impact the results of the company can be found in the company's 10-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release from last night.

I will now turn the call over to Leslie.

[Leslie Hale, President & Chief Executive Officer]

Thanks, Nikhil. Good morning, everyone, and thank you for joining us. We sincerely hope that everyone is in good health and doing well in light of these unprecedented times.

As you all know, since our last call, our industry has been significantly impacted by COVID-19, which resulted in the near evaporation of lodging demand, and led to a 51.9% decline in industry RevPAR during March. Looking forward, we expect the second quarter to be the worst quarter of the year with April experiencing the most significant RevPAR decline.

With respect to our portfolio, while we started the year strong and were ahead of budget in January and February, COVID-19 dramatically impacted our operating results in March.

All of our markets were impacted by the combination of a shutdown in airline, travel, group meeting restrictions, citywide cancellations, and the enactment of stay-at-home ordinances. During the first quarter, our RevPAR decline of 24.5% was primarily driven by a 61.8% decline in March.

As the pandemic began to unfold, we proactively mobilized all of our resources, first and foremost, to safeguard the safety and well-being of our associates and guests; next to determine what steps we needed to undertake along with all of our operating partners to mitigate the operational impact; and then, we moved to ensure that we have significant liquidity to weather this crisis.

From a liquidity standpoint, we started the year in a position of strength, following the successful execution of our non-core asset disposition strategy last year. This great work executed by our team not only improved our portfolio, but also strengthened our balance sheet.

We ended the year with nearly $900 million of unrestricted cash and low leverage at 3.1 times. As a result, we are well positioned to navigate an extended period of uncertainty and pivot to reopening our hotels even in a low occupancy environment.

At the onset of this crisis, there were several key steps we took to respond operationally. As demand started to fall in early March, working with our operators, we immediately implemented aggressive cost containment initiatives, including reducing staffing levels, closing F&B outlets, eliminating all non-essential services, freezing non-essential purchases, and closing floors to reduce room inventory.

As the operating environment became more difficult, we developed a framework to assess whether our hotels could continue to operate with extremely low occupancies. In developing this framework, we worked with our operating partners to determine staffing levels and built a bottoms-up cost model for each hotel reflecting a low to no occupancy environment.

We then, made the prudent decision to suspend operations at hotels, where a lack of demand or high carrying costs would result in the operating shortfall exceeding the cost of the spending operations. We currently have suspended operations at 57 hotels, with the remaining 46 hotels operating at low occupancies with minimal staffing, no F&B, and only essential operations, all of which is intended to minimize operating shortfalls.

In conjunction with our operational response, we took additional steps to preserve and bolster our liquidity. We reduced our 2020 capital expenditures by over 80%. We have limited capital spending to either endpoint projects nearing completion or emergency life safety projects.

While we continue to believe that many of our projects represent an attractive embedded opportunity in our portfolio, we will revisit these projects when we have improved clarity. We took a hard look at our corporate G&A and reduced costs through renegotiating service contracts, eliminating travel-related expenses and adjusting staffing-related costs. We will continue to monitor this changing environment and respond accordingly with additional measures as appropriate.

Additionally, our Board of Trustees reduced our quarterly common dividend to $0.01 per share, which represents an annualized cash saving of approximately $200 million. And finally, we drew down $400 million on our $600 million line of credit to further shore up our balance sheet due to the ongoing uncertainty around the duration of this crisis. All of these actions improved our liquidity and minimized our cash burn.

Having gotten our arms around our liquidity and having comfort with our financial position, we are now focused on developing a thoughtful framework to reopen our hotels in a socially and financially responsible manner. As the stay-at-home ordinances are lifted, we are carefully evaluating our decision to reopen hotels, which will correlate to both the timing of businesses reopening and a sequencing of the return of lodging demand.

Unlike prior recoveries, we do not believe that demand will necessarily follow traditional patterns in the recovery phase as consumer behavior adjusts to the new normal. We anticipate that the primary lodging demand segments will ramp up at a highly staggered pace.

We believe that initially there will be some pent-up leisure demand as stay-in-place orders are lifted which should benefit our hotels in drive-to markets such as South Florida, Southern California, Charleston, and New Orleans. There are some early indications that leisure demand is picking up in states where restrictions have already been lifted.

We expect airline travel to ramp slowly as the economy reopens with domestic travel recovering first followed by international. We expect to see incremental demand at some of our hotels as air traffic ramps. Although we anticipate some segments of corporate demand to come back sooner, we believe that overall corporate demand will see a more gradual recovery. In reopening our hotels, we will consider the pace of corporate demand on a hotel-by-hotel and market-by-market basis.

Finally, we expect the group segment to be the last to recover. Prior to COVID-19 our contribution from group was less than 20%. Clearly, how demand ultimately builds will be influenced by the trends in the number of COVID-19 cases and the development of a medical solution.

With the backdrop of a gradual demand ramp, our reopening framework will take a number of factors into account. We will prioritize reopening hotels where operating shortfalls can either be reduced or eliminated in a low occupancy environment which is initially likely to consist of our select service hotels.

We will also pay close attention to the nature and quality of demand initially opening hotels that stand to benefit from leisure demand in drive-to markets while avoiding reopening hotels where seasonality does not permit a sustained ramp-up in occupancy.

Additionally, where we own multiple hotels in a cluster, we will sequence the openings with a return of demand while keeping overhead costs low. Operationally, we will be vigilant about maintaining a low-cost model until demand normalizes. Additionally, in light of rapidly evolving health, safety, and cleanliness standards, our asset management team is working diligently with our operating and brand partners to address the operational adjustments around cleanliness and hotel staffing levels.

We are not yet prepared to speculate as to the timing or the strength of a recovery. However, we recognize that any form of recovery will likely be slow to build. That said, we are encouraged by what we believe is a relative position of strength for RLJ. Our confidence draws from our lean operating model, the construct and geographic diversification of our portfolio, our strong liquidity position, and the embedded value creation opportunities within our portfolio.

As the reopening of the economy unfolds, our portfolio is well positioned. We own select service and compact full-service hotels, which generally have smaller footprints are less complex and require lower occupancy to breakeven as compared to a traditional full-service hotel. Our lower cost operating model should allow us to return to profitability more quickly. We also expect the transient segment, which in 2019 represented over 80% of our revenues to be the first segment to ramp up, when demand returns.

Overall, we believe our lean operating model combined with a sizable liquidity of $1.2 billion and flexible balance sheet, provides us a relative advantage during the current environment and ultimately in a recovery.

And finally, the key milestones we achieved last year, including asset sales, refinancings and the Wyndham termination created the opportunity to unlock the embedded value in our portfolio. Although, we have paused our ROI initiatives and the Wyndham conversions, I would like to emphasize that we continue to maintain a high conviction that these opportunities represent key growth catalysts and a source of embedded value creation for us long term.

Now, before I turn the call over to Sean, I would like to say that, our hearts and our minds are with those who have been directly affected by this pandemic. I also want to recognize our associates on the front lines many of whom have been directly affected but who continue to help us navigate through this crisis. And finally, I want to say, how proud I am of the efforts of our corporate associates. I could not have asked for a more dedicated team.

I will now turn the call over to Sean for a more detailed review of our financial results and he will provide an update on our liquidity position and color on our recent discussions with our lenders. Sean?

[Sean Mahoney]

Thanks, Leslie. As Leslie discussed, our portfolio was performing ahead of budget expectations in both January and February. COVID-19 began to impact lodging demand in early March and accelerated each week through mid-April. Although, we will continue to monitor trends in hotel fundamentals, we currently lack visibility on the timing and cadence of returning to pre-COVID-19 lodging demand. While we are confident that lodging demand will ultimately return to pre-crisis levels we remain cautious about near-term lodging fundamentals.

Turning to the numbers, although we have 57 suspended hotels, we will continue to include all 103 hotels within our reported RevPAR results. Our first quarter RevPAR contraction of 24.5%, was driven by the combination of a 15.5 percentage point decrease in occupancy and a 5.1% decrease in average daily rate. RevPAR performance was uneven throughout the quarter with 0.4% growth in January followed by RevPAR contraction of 2.8% and 61.8% in February and March respectively.

Second quarter RevPAR is expected to significantly decline as more than half of our portfolio is likely to remain suspended with the balance operating in an extremely low demand environment. As an example of current operating trends, our April RevPAR contracted by over 95%.

April occupancy was 16.4% and ADR was $108 for our 46 open hotels, which compares to 83.1% and $184 last year. The demand at our hotels that remain open is primarily associated with medical professionals, government and displaced residents. Despite the challenging operating environment, our operating model is proving relatively resilient as our portfolio gained approximately 240 basis points of market share, during a difficult first quarter.

Turning to the bottom line. Our first quarter pro forma hotel EBITDA and adjusted EBITDA were $51 million and $41.4 million respectively and adjusted FFO per share was $0.10.

As Leslie mentioned, we were very quick to respond to COVID-19 and swiftly implemented aggressive cost containment initiatives. Together with our lean and flexible operating cost structure, our first quarter operating cost declined 9.8% with a significant cost containment initiative being implemented during the month of March.

Despite these initiatives being rolled out midmonth we reduced our March operating costs by approximately 34% versus budget. Excluding the impact of an accrual of benefits for furloughed employees, we reduced March operating costs by over 41%. As you would expect, our team remains focused on cost containment initiatives to minimize operating shortfalls in the current environment.

Our second quarter cost containment initiatives will eliminate over 75% of variable hotel expenses resulting in the elimination of approximately two-thirds of total hotel operating expenses.

Turning to liquidity, we entered the year with strong liquidity including holding approximately $900 million of cash and an undrawn line of credit. That being said, we took quick and decisive action when it became clear that COVID-19 was going to create an unprecedented shock to lodging demand.

From a balance sheet perspective, our initial efforts were focused on ensuring that RLJ had adequate liquidity to withstand a protracted period of disruption. To that end, we temporarily suspended the capital allocation initiatives that we highlighted last quarter including share repurchases, senior notes redemption, ROI initiatives, and the Wyndham conversions.

Additionally, we completed a comprehensive review of our monthly cash burn which consisted of assessing variable and fixed hotel operating costs and corporate level expenses.

The assessment of the variable hotel operating costs included all of our 103 hotels whether suspended or operated with low demand. In the current operating environment, all of our hotels are expected to generate monthly operating shortfalls with hotels that remain open generating shortfalls that are more than 40% lower than suspended hotels.

Inclusive of both suspended and open hotels, we estimate that our average monthly variable operating costs assuming current occupancy levels will be approximately $140000 per hotel. The cost for individual hotels will differ by hotel type, location, and other factors. The average monthly variable cost was approximately $110,000 at our focused service hotels and $190,000 at our full-service hotels.

Overall, based on our portfolio's lean operating model our hotel's variable costs are expected to be substantially lower than portfolios comprised of traditional full-service hotels. We then layered in our hotel fixed costs on top of these variable costs with property taxes and insurance making up the majority of these fixed costs.

Additionally, we incorporated the following assumptions for our corporate level outflows; quarterly common dividend of $0.01 per share, maintain existing quarterly preferred dividend, continue funding debt service, and corporate G&A at a reduced level.

In total, our monthly cash burn for the remainder of the year is expected to range between $25 million and $35 million excluding RLJ-funded capital expenditures which are estimated to be $50 million for the remainder of the year. Our actual monthly cash burn will be influenced by many factors including the time our portfolio is either suspended or open with low occupancy.

Our monthly cash burn is expected to be towards the low end of the range if the economy opens at the start of the third quarter and the high end of the range assumes all of our hotels are suspended through the end of the year. Regardless, we expect to end the year with significant liquidity and remain well positioned to withstand a protracted period of limited hotel demand.

Turning to our fortress balance sheet, we ended the quarter with $2.6 billion of debt, approximately $1.2 billion of unrestricted cash, no debt maturities until 2022 and net debt-to-EBITDA of 3.9 times.

We continue to maintain significant flexibility on our balance sheet. As of the end of the quarter, approximately 84% of our debt is fixed or hedged and 84 of our 103 hotels are unencumbered.

Finally, I want to provide an update on our debt covenants. To start no financial covenants are designed to withstand the impact that COVID-19 is having on the lodging business. That being said, our senior notes are covenant light and we currently are in compliance and expect to remain in compliance under the note indenture.

However, our unsecured line of credit and term loans include several financial covenants that are tested each quarter. Like all lodging REITs, we proactively reached out to our lenders to pursue a temporary waiver of these financial covenants. We place great value on our lender relationships and have historically aligned with lenders who are focused on long-term strategic relationships. These discussions are ongoing. While we remain confident that we will obtain a covenant waiver, we can provide no assurances until final documentation is complete.

Before opening the call for Q&A, I wanted to affirm that despite all of the uncertainty facing our industry, RLJ remains well-positioned with a flexible balance sheet, ample liquidity, lean operating model and a transient-oriented portfolio with embedded catalysts.

Thank you and this concludes our prepared remarks. We will now open the lines for Q&A. Operator?

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

[Austin Wurschmidt, KeyBanc Capital Markets]

Hi, good morning everybody. I was just curious, how you're balancing the thought of preserving your liquidity versus maybe being opportunistic if something presents itself, for example, repurchasing some of the preferreds. And I was just curious if you expect that the restrictions from the amended credit agreement would preclude you from taking such action or either with the preferreds or with any steps toward the 6% unsecured bonds you have outstanding as we approach midyear.

[Leslie Hale, President & Chief Executive Officer]

Okay. So Austin, first of all, good morning. What I would say, just to make it clear that our number one priority today is to preserve liquidity and absence of having visibility. This is a complicated environment. We don't know how long this demand shock is actually going to last and what the new normal is going to look like.

But having said that, once we do have some visibility, we are going to be very thoughtful and disciplined around capital allocation. We'll evaluate all the capital allocation opportunities that are available to us on a relative basis and determine where we want to deploy capital.

I think the good thing is that we already have the capital on hand, which allows us to be nimble and to take advantage of any opportunities that present themselves when we have visibility.

And as it relates to our covenants, I'll let Sean jump in here, but there are some things that we want to be thoughtful around related to the covenant release that we'll receive.

[Sean Mahoney]

Sure. Thanks Leslie. I mean, first and foremost, Austin, the value creation opportunities that we identified earlier in the year are all on pause as we mentioned in the prepared remarks as we rethink understanding what the sort of new normal is going to be on a go-forward basis.

But specifically around things like share repurchases, refinancing, the FelCor bonds et cetera, we have ongoing discussions with the lenders. I'm not going to get into the details of that other than there's a market out there for restrictions on cash outflows as you would expect. We are in the middle of those discussions right now, so I can't really give you any granularity around those discussions. But just know that as we think about value creation, one of the things that we're certainly going to look at on a go-forward basis is what is the relative value creation specifically on the FelCor bonds, which was wide three months ago or two months ago where the markets have shifted, it actually looks relatively attractive today at that 6%. And so that is an opportunity that likely will be deferred based on the credit markets coming back on that.

[Austin Wurschmidt, KeyBanc Capital Markets]

Hey. That's helpful. And then, I guess, with leisure being the primary source of demand that everybody has been discussing, just curious what that implies from an ADR perspective and how we should think about rates across the portfolio?

[Tom Bardenett, Executive Vice President, Asset Management]

Austin, this is Tom Bardenett. So, what's interesting about what's happening is as we watched what was occurring at the late March period, it was all -- rate levels were open. So, for instance, what demand is there today is obviously medical business, extended stay occupancy, crew business, and what we're starting to see with the restrictions lifted is the premium rates will come back, but they'll come back slowly, for instance corporations with national and local discount rates, retail rates.

But with the leisure market that you mentioned obviously, those are discretionary income opportunities and they will build gradually as we look at average rate over time, but we do think that what we're going to be doing is we're not going to be discounting rates, we're just going to open up the value levels, and then we're not yielding as much obviously at these low occupancy levels at this current juncture. So average rate will gradually lift as we start to get premium business back and able to yield again, but in the current environment all value levels are open.

[Leslie Hale, President & Chief Executive Officer]

And the other thing that I would just generally add about leisure, Austin as you mentioned benefiting from the drive-to, our portfolio is well-positioned to benefit from that. We expect Charleston, South Florida, New Orleans, Southern California, Tampa, all of those markets in an environment where you're just trying to bring down your cash burn, our exposure is well-positioned. As I mentioned in my prepared remarks, 80% of our portfolio is transient-oriented, 45% of that historically has been leisure-oriented and we expect over 35% of our markets to benefit from drive-to, and you have to think about drive-to slightly differently today.

We're seeing benefits in Austin, which is a market that we wouldn't have normally considered a drive-to benefit sharing market, but it is benefit sharing -- benefiting right now. And additionally, if we look at our portfolio, we've got about 10% of our assets that are considered resorts. So, we think as an early mover on demand from leisure that our portfolio is well-positioned to benefit.

[Austin Wurschmidt, KeyBanc Capital Markets]

That's really helpful color. And then can you just clarify what amount is the extended-stay business in the portfolio?

[Leslie Hale, President & Chief Executive Officer]

Well, it's about 50%.

[Tom Bardenett, Executive Vice President, Asset Management]

Yes. When you look at the category that we have, we have obviously residents in Homewood Suites, Hyatt Houses. We would actually put the Embassy Suites in that category as well. So, when people are looking at the consumer behavior, we think the two-base suite, the extra room is going to be critical as we start to ramp up. And we expect many of the hotels that we kept open were because they were extended stay with longer-term business in the assets at this time.

[Leslie Hale, President & Chief Executive Officer]

Yes. And just to sort of – sure, go ahead Austin.

[Austin Wurschmidt, KeyBanc Capital Markets]

I was just curious what the breakout was with and without the Embassy Suites maybe.

[Tom Bardenett, Executive Vice President, Asset Management]

We have 21 Embassy Suites, so a little bit less than 50% of the portfolio would be extended stay then.

[Sean Mahoney]

Yes. So, Austin just to jump in roughly at -- and I'm talking numbers before the impact, roughly 25% of our EBITDA historically came from the Embassy Suites brand. And so, when you…

[Leslie Hale, President & Chief Executive Officer]

Back that out...

[Sean Mahoney]

Back that out

[Leslie Hale, President & Chief Executive Officer]

About -- yes. But to build on to Tom Bardenett's point, though we do think that as consumers spend less time in a public space of hotels and more time in their rooms, we think that the suite product that we have across our portfolio including the Embassy Suites is going to be beneficiary and that's why the 50% is going to be important.

As we think about the various segments of demand, we know that business traveler is going to be highly staggered, but we think that small business travelers as well as vendors and consultants who need to travel because it's core to their business, our product is going to be more attractive to them on a variety of fronts. And so, we do think that that's going to be helpful again allowing us to benefit early as the various demand segments ramp up.

[Austin Wurschmidt, KeyBanc Capital Markets]

That’s really helpful. Thank you all for the time.

[Operator]

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

[Michael Bellisario, Baird]

Good morning, everyone. I just wanted to dig a little deeper on that last question. I think you mentioned 80-20 transient group split. Can you kind of give us your best estimate of business versus leisure within that transient breakout? And then what are the different kind of rate categories discounted kind of just a more fulsome breakdown of the transient side of the business and who the customer was pre COVID?

[Leslie Hale, President & Chief Executive Officer]

Yes. I would say historically Mike our breakdown on transit was 45% leisure and 55% business and Tom will give you some more color on the other segments.

[Tom Bardenett, Executive Vice President, Asset Management]

Yes. So when you look within the transient category we would roughly average about 20% to 25% depending upon which asset and locations for the national negotiated rates the local negotiated rates as we look at the AT&Ts, the IBMs, Oracle, Amazon that type of business. Retail was also in the 20s.

So when you look at the premium categories, those were your top two premium categories. And then to Leslie's point on leisure sometimes you have leisure that comes in at retail and sometimes you have leisure that comes in to discounts whether it's AAA, AARP or the variety of opportunities that the brands give us where they market the discount category.

So hopefully that gives you a little basis on the transient side. On the group side within the 20% the thing that we are encouraged about is when we look at group within the RLJ portfolio about 40% of that business is kind of the smurf business, the smaller groups, the volleyball teams, the groups that don't have to have the large convention space or the meeting space.

In fact most of our full-service hotels they average around 10,000 square feet. And so we think we're going to be primed to be able to be in a market where we can get the type of groups that are a little bit smaller in nature versus having to rely on the large citywides or the large meeting space environments that will be slower to ramp up. So hopefully that helps you a little bit on the percentages.

[Leslie Hale, President & Chief Executive Officer]

And Mike just the point that Tom is making on the small groups and the smurf type business is relevant because while we all know that group is going to lag whenever it comes back the types of group that are come back first or your small business group your social group which our portfolio was built for and is largely concentrated that's the type of group that we do.

So again I think when you look across leisure when you look across business transient and you look across group however the recovery unfolds we think that our portfolio is well positioned to ramp.

[Michael Bellisario, Baird]

That's very helpful. And then one for Sean, can you just remind us how many CMBS loans you have? Where you are in the process of discussing or having discussions with servicers or lenders there? And then what the opportunities for potential forbearance might be for you on that end?

[Sean Mahoney]

Sure. Thanks Mike. So we are current on of all of our CMBS debt. So we have the $200 million loan that we originated last year which was a stand-alone CMBS and then we also inherited 4 CMBS loans from the FelCor acquisition. We are not engaged in active discussions with any of the servicers in that because we're paying -- we are current on our debt service.

[Michael Bellisario, Baird]

Thanks helpful. Thank you.

[Operator]

Thank you. Our next question comes from the line of Wesley Golladay with RBC Capital Markets. Please proceed with your question.

[Wesley Golladay, RBC Capital Markets]

Hey good morning everyone. I just want to dig into the -- starting and closing hotels. Is there a large cost to restart? What is the time to reopen a hotel? And if you were to have to reclose it, how much would that cost? And so -- and if there is a large cost would you have to have like a big buffer between the profitability or less cash burn to decide to reopen the hotel?

[Leslie Hale, President & Chief Executive Officer]

So Wes, we were pretty thoughtful about how we approached our suspension of hotels. And in fact the FTE count at a suspended hotel is very similar to that one that's open. The only difference really is the housekeeping component of it. And as a result of that, that really allows us to ramp back open a hotel if we need to within two to three days.

From a framework perspective in terms of how we're thinking about what we need to do and see in order to reopen a hotel, we need to make sure that if we open a hotel that it's either going to breakeven or that it's going to reduce the burn rate. We think a baseline occupancy that we need at a select service hotel is anywhere from 5% to 10% and on a full-service hotel is 10% to 15% and it needs to be sustainable.

We're trying to avoid the concept of opening and then closing. So we're not -- let's just take for example in a leisure market, we obviously are having memorial we can come -- coming soon. And although, we're tracking that we're not going to open hotels simply for that weekend than the turnaround and have that demand burn off and have to shut the hotel. So we're not doing that.

We're looking at how is a state opening, but we're also looking at the theater states around that to make sure those are opening as well, because that's going to be impact on the demand.

And then we're also looking at the forward booking -- sorry, forward reservation. So even though a hotel was suspended, we have dates out in the future that it's open and we can see whether or not we're seeing any pickup on reservations. So, a combination of that is helping us sort of think through how to -- when to open a hotel, but we are trying to see if we have sustainable occupancies at the levels that I articulated. And that will allow us to open hotels within two to three days when we do that. Our lean operating model wouldn't incur any incremental cost as a result of closing hotel or opening it. Sean wants to add a point.

[Sean Mahoney]

And just to bolt-on to Leslie's comment, Wes, it's not going to be a binary open close decision with respect to when demand comes back, because we expect demand to come back and ramp relatively slowly. And so as -- on our remobilization plan, you would expect us to bring back the labor in to match the level of demand coming back into the hotel.

So it's not going to be you bring everybody back immediately. It's going to bring back the labor pool to the extent that there's demand there to support it. And so I think you would expect us as well as others as we ramp to be able to match that labor with the ramping revenue.

[Wesley Golladay, RBC Capital Markets]

Okay. And then looking at the 57 hotels that are closed, just trying to get like maybe a distribution of how many of the hotels are in that longer lead time going to take a while to open more group focused air travel seasonality? Is there many of the 57 in that tail?

[Leslie Hale, President & Chief Executive Officer]

So I would say the one thing about the 57 to keep in mind is that there's about 15 or 17 assets that are part of clusters, Wes. And so as I mentioned in my prepared remarks that those assets were likely to be slow to ramp, because let's take Houston for example, we have three assets on one pad, there would be no reason to open the two other assets until you got back to a normal level of occupancy. So those assets will be long lead items that stay out for a while.

And then, obviously, you can look at it on a market-by-market basis like, New York would be slow to reopen, parts of San Francisco will be slow to reopen given the big boxes and sizes there and need more occupancy to make it -- to make the breakeven or to reduce the burn rate there.

From our perspective, we would expect -- we have 46 assets open today, we would expect the next wave of assets to open would be in Southern California, New Orleans, South Florida obviously benefiting from the leisure demand side.

[Wesley Golladay, RBC Capital Markets]

Thank you very much.

[Operator]

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

[Anthony Powell, Barclays]

Hi, good morning everyone. Question on the Wyndham projects. I understand that the ROI portion is delayed, but what about conversions? A lot of these hotels are in leisure markets. So would it make sense to convert them to an interim brand well before you actually do the ROI portion of it?

[Leslie Hale, President & Chief Executive Officer]

It's a great question Anthony. All of those projects are largely delayed as well. While our view on the value creation opportunity still remains, and in fact we actually have more connection on that, look, the Wyndham assets were bull's eye real estate that remain bull's eye real estate. And so we are going to try to move forward when that -- with those projects when it makes sense.

The only thing that's changed is the timing. What we would generally like to -- or generally expect is to take advantage of the soft occupancy that we have today and to be able to time the conversions when demand fully comes back. The reality is as you recall, we said that our goal was to try to have two of those conversions completed in 2021. That was our original timing, that may slip a little bit. But again, overall demand for the overall industry is going to take a while to come back. So ultimately we think that the way we'll stagger the projects will align with when industry gets back to a normal basis on average.

[Anthony Powell, Barclays]

Got it. So just to be clear you expect to keep these as Wyndham-branded properties for basically the time being for the next year or so? Is that fair?

[Leslie Hale, President & Chief Executive Officer]

Yes. They will remain Wyndhams until we convert them fully.

[Anthony Powell, Barclays]

Got it. Okay. And one more for me. Just in terms of brand standards and operating cost models other brands have talked a lot about reducing cost and increasing efficiency across the board. What are you looking for in that process? What's the biggest opportunities for you as an owner to kind of maybe permanently generate some better economics for yourselves here?

[Leslie Hale, President & Chief Executive Officer]

Look, I think, Anthony a lot of that is sort of to be determined. There's a lot of discussions that are going on with the brands and I applaud the brands for having that discussion. I think we all recognize that there's a unique moment in time right now to adjust the model and those discussions are being had. Whether it's on brand standards or shared services, those things are to be determined.

But we would expect to benefit from the adjustments in housekeeping, which will ultimately be a wash, as you clean less rooms during the stay, but increase the amount of time you spend cleaning between stays. But also, there's going to be an increased cleaning within the public spaces. We think there's going to be reduced F&B hours, so we'll see that within our portfolio and job sharing and less contract labor.

I think, for us, specifically, our smaller public spaces where we -- as we move into a more high-touch cleaning environment, it's going to be more efficient to clean our types of lobbies than it is for traditional full-service lobbies, right? We have less elevators, we have less escalators and things of that nature, where there's going to be a tremendous amount of extra cleaning, we should have less costs associated on a relative basis.

Additionally, as adjustments are being made to the F&B standards, we think that our Embassy Suites, which, again, represent 25% of our portfolio, will benefit as we move away from the higher cost structure of a -- what's the word I'm looking for, on the F&B side, the…

[Sean Mahoney]

Buffets?

[Leslie Hale, President & Chief Executive Officer]

The buffet, there you go. Thank you. Thank you. Yes. As we move away from the buffet structure and I think that's really going to benefit our Embassy Suites and we're going to see some reduced costs, hopefully, around that. All of this is still to be determined. But we think that, overall, the industry is going to see some impact and our portfolio specifically will see some incremental benefit.

[Anthony Powell, Barclays]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

[Chris Woronka, Deutsche Bank]

Hey. Good morning, everybody. I wanted to circle back on the Wyndham portfolio. And my question is, I noticed in the first quarter, those hotels performed relatively in line with the rest of the portfolio. And I know first quarter is no longer a good indicator, but would you expect that relative performance continue, or do you see a reason why they might decouple from that in this environment?

[Tom Bardenett, Executive Vice President, Asset Management]

So when you look at the Wyndham portfolio segmentation, obviously, the brand needs to rely a little bit more on OTAs, crew business, some of the business that actually has allowed those hotels to remain open. And to Leslie's point about bull's eye real estate, many of those are in leisure markets, as we have San Diego, Santa Monica, you look at Philly in the Historic District, those are locations that are in leisure markets.

In addition to that, we had two in medical markets, in Boston as well as Houston. So that's been a benefit through this unique time that we're located next to Mass General. And then obviously MD Anderson and all the business that comes into Houston that's related to Medical. So we feel like the segmentation at the current levels is appropriate to be able to remain open. And then, it'll obviously ramp depending upon where we see business demand come in.

A lot of the Wyndhams too do not have significant meeting space, comparatively in regards to other full-service hotels. So we think they're ripe for conversions to other brands as we get into that. And then, we'll start to see more premium business that we talked about on the retail national corporate and local corporate, based on the other brands having a little bit more familiarity with those type of accounts on a long-term basis.

[Chris Woronka, Deutsche Bank]

Okay. Very helpful. Thanks, Tom. And a follow-up question on New York. Is it possible to kind of just get your world view on how the city is ultimately going to recover? And what that means for the Knick. And I know it's still a very fluid situation, but do you have any longer-term thoughts about how it might unfold?

[Leslie Hale, President & Chief Executive Officer]

Look, I think, that it's too early to sort of see how any markets kind of particularly unfold. What we do know today is that New York was a challenged market even before COVID-19 and is more challenged today. Look, I think, New York is a great city, with a rich history, but it's going to have to overcome the stigma associated with being a hotspot. And I have no idea how long that's going to take, or what it's going to take from a psychology of that to change.

We do think that New York will benefit ultimately, as some rooms come out of the system, if they don't -- if some hotels don't open back up and we think that it will benefit from a reduced inventory of Airbnb. I think, long term, we believe in New York and we believe in our assets in New York. But it's still too early to say how any one particular market is going to perform.

[Chris Woronka, Deutsche Bank]

Okay. Fair enough. Thank you.

[Operator]

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

[Tyler Batory, Janney Capital Markets]

Hey. Good morning. Thanks for taking my questions. Just a few questions on, the new normal, what do you think the competitive environment looks like, as we move past some of this? I mean some of your peers have talked about operating their full-service hotel more like select service hotels. So, do you think that could pressure you maybe make it tougher to differentiate?

And then, additionally, just to ask the rate question a little bit differently. Once demand starts to normalize do you think we could see a race to bottom on rate, or do you think the environment could be more rational?

[Leslie Hale, President & Chief Executive Officer]

Yeah. Look Tyler, I find it interesting that our peers and say they would operate their hotels more like, select service. I haven't heard that. But I find it interesting. I think it has always been our mentality to operate all of our hotels, whether it's select or compact full-service, as select service hotels. And so, we welcome the challenge, if somebody who wants to do that.

I think as it relates to your question around rate. I think that Tom framed it before the rate degradation we've seen, wasn't a result of people racing to the bottom. It was a result of what demand was available, right? And so I think, in the short to medium-term, we're going to have to open up channels, that we would normally yield out, because that's -- we have to rely on whatever demand is available.

I think the reality of it is that, I appreciate that a lot of people are focused on rate. And how much is going to grow. From our perspective, we're focused on just reducing our burn rate. So, whatever we -- heads and beds that we can get to bring down that burn rate, is what we're focused on. And so I think you're going to see more of that channels, as opposed to drop of rate on that. Tom you want to add something?

[Tom Bardenett, Executive Vice President, Asset Management]

Yeah. Two things I would add too. And that is, if you think about two organizations that are large and that will impact rate in the future. One is, Global Business Travel Association. Typically that event takes place in August. And it now has moved to November.

So rate negotiations for 2021 will move to the back end of 2020, which we think is positive for the industry, knowing that, as corporations start to ramp up start to put people back to offices, start to travel again. It'll be a little bit more normal process in the November timeframe versus in the summertime when the rates start to get negotiated for future years.

And the second group is the PCMA which is the professional management, all the meeting planners that book group business. And so, when you look at the out years and you look at the postponements that were cancelled this year that moved to 2021 or 2022, rates weren't renegotiated in those contracts.

Because obviously, deposits were held opportunities to be able to rebook that business were discussed. And so we think those two key categories also could potentially lift up rate when they start to rebook. And so I just want to add that to Leslie's point.

[Tyler Batory, Janney Capital Markets]

Okay. That's very helpful. I appreciate that detail. And then, the second question I had is just housekeeping, on CapEx. I think you said $50 million of spending the rest of the year. So, how long beyond 2020 do you think you can maintain such low levels of CapEx spend? And, could there be any catch-up spending outside of the project CapEx, in 2021 or 2022?

[Leslie Hale, President & Chief Executive Officer]

Yeah. I would say -- I wouldn't call it sort of catch-up. I mean what we're going to do is just roll our campaigns, out a year, right? And so, we will move back to a normal level of renovation campaign when the environment presents itself to be able to do that. I think that our balance sheet will allow us to be able to sustain a normal level of CapEx. And when we have visibility relative to how the recovery is going to unfold.

[Sean Mahoney]

Yeah. And to bolt-on to Leslie, I just wanted to reaffirm, Tyler that, a big part of our story was reallocating capital from our slower growth assets that we disposed of in 2019 and reinvesting into our portfolio, which will include CapEx. But we think it's going to have high ROI. The Wyndhams are a subset of that. And there are other space reconfigurations and other initiatives that are paused today.

But as Leslie mentioned in her remarks, our expectation is that, we will pick this back up, in the future, because we're going to believe that the returns associated with that -- with those projects continue. One theme that we talked about before, COVID-19 hit was a lot of these projects were not dependent on the cycle. And so I think, as we step back and think about the value creation from a lot of these projects, Wyndham being the largest of all those. We still believe that it's not likely dependent. The shape of the recovery is going to influence timing and sequencing, but we feel good that that capital is going to have to go in the portfolio. That's why we're sitting on the liquidity that we sat on, because we've already raised that capital as part of the disposition program in 2019. But you would expect us in 2021, 2022 to be able to accretively deploy that capital in our portfolio.

[Tyler Batory, Janney Capital Markets]

Okay. Very helpful. Thank you.

[Operator]

Thank you. Our next question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.

[Neil Malkin, Capital One Securities]

Hey, guys. Good morning. So first question just given what's going on the disparity between some sunbelt versus coastal markets in terms of opening time lines, the variety of political climates and if you look in California you see things like potential Prop 13 repeals things like that. And then, if you adjust or overlay that with the idea that in all likelihood supply for the industry is going to be heavily reduced for the next probably three to five years. Do you think about potentially reallocating or where you allocate incrementally will be maybe not so focused in the California market and maybe more of the sun belt markets?

[Sean Mahoney]

Yeah, Neil listen as we – part of the initiatives that we put in place in 2019 was to reallocate into the market and geographic locations that we felt comfortable about not only for 2019 and 2020, but long term. I think the examples that you're mentioning are all true, but all relatively short-term in nature. I think as we step back and look at and where our geographic concentration is today, we like our South Florida exposure. We like our California exposure. And we like our – frankly, we have a bunch in the sun belt as well.

I think – as we think about deploying on acquisitions, which were – which we still need to get through COVID-19 before really focusing on acquisitions in any meaningful way. But certainly, the new normal will factor in to our thoughts around geographic reallocation within our portfolio. But our footprint today – we have a portfolio for a reason, which is we like to have a diverse geographic dispersion and we're comfortable with our footprint today.

[Neil Malkin, Capital One Securities]

Okay. I appreciate that. Other one for me is, have you seen a pickup or I guess maybe stabilization in occupancy or future bookings? From the middle of April till now the travel data looks like it kind of bottomed out in mid-April. And although, it's still at very low levels it's more than doubled from the anemic levels it was in mid-April. So just kind of wondering, how that's translating into what you're seeing at the property level.

[Tom Bardenett, Executive Vice President, Asset Management]

Yeah. Neil, this is Tom. In regards to bookings, we are seeing bookings at our hotels that are remaining open that are exceeding inflation. So there is a positive sign. We are seeing week-to-week that even if you look at TSA with travel it went down under $100,000 from $2 million to $2.5 million on a daily basis. Now it's above $200,000 for the last four days. When you look at our portfolio what we've seen is hotels that are looking to open up again, we're actually starting to see demand happen based on restrictions being lifted. Now, we're in phase one, so we need restaurants, and locations, and offices to open up with us to be able to have that sustainability that we're talking about earlier that Leslie brought up. But we do think, there's signs of opportunities as we kept our hotels open in the system for future reservation. And just to give you an indication, we have seen some business demand that has occurred from even corporate. When we saw campuses potentially opening up 50% of their offices in Denver, we got some business from Oracle and CenturyLink. We got some business in LAX at Chevron, 30 to 35 rooms working on refinery work. So there is business out there above and beyond what you typically have heard which is crew rooms and medical business and things related to COVID-19.

And then lastly, I would say that what's interesting in the future, there's a different type of group that might come with this environment too. And that's -- in universities we've had business in Pittsburgh that we had with the university; we're looking to potentially house more of that business because of social distancing with campuses coming back. And even in NOLA, we're looking at a couple of opportunities with Xavier in two-lane for the fall semester. So, we're navigating opportunities and understanding where demand is going to come from and knowing that you have to book business that's different in 2020 to get ready for 2021.

And the last example that I would give is in our hotel in Mandalay ran 18%. That's a great opportunity because of the beaches in California. There's only two hotels that are on the beaches and that's Del Coronado as well as us in Mandalay. We're at 56% month-to-date. So, we do see as the restrictions are lifted, people will travel and that pent-up demand will occur. It's just how fast and the swing in where it's going to happen, but that's what we're paying attention on the demand 360 and future bookings to get ready for that.

[Neil Malkin, Capital One Securities]

Okay. Great. And then I guess just maybe following up on that. I don't think you mentioned it before, but can you give us some context on what agency looked like in mid-April and then what it looked like now, or maybe, what the occupancy averaged in April versus what it looks like now?

[Leslie Hale, President & Chief Executive Officer]

So, Sean gave our April occupancy. Do you want to reiterate that?

[Sean Mahoney]

Yes. Neil. So our April occupancy was roughly 15%, 15% or 16% for the -- for our hotels that remained open. So, portfolio-wide it was call it, 7% to 8%. We've seen occupancy start to tick up a little bit into May and -- but it's obviously coming off very, very low numbers. I think our portfolio demand is tracking into May what we're seeing in the broader industry. But it's still -- it's early days of the recovery and it's coming off a very, very low leverage.

[Neil Malkin, Capital One Securities]

Got you. Thank you.

[Operator]

Thank you. Ladies and gentlemen, we've reached the conclusion of our Q&A session. I would like to turn it back to Leslie Hale for closing comments.

[Leslie Hale, President & Chief Executive Officer]

Thank you, guys for joining us today. It goes without saying that these are unprecedented times. However, based on the swift actions that we've taken, we believe that we're well positioned to not only weather this environment, but also to be one of the early beneficiaries of any form of recovery. On behalf of the entire RLJ team, I want to convey that we wish everybody remains safe and healthy and we hope that everyone takes care. Look forward to seeing you in the future.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.