© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings and welcome to the 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.
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 supplements 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 to the Company’s business and financial conditions 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 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 statements 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.
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 all those who have been directly affected by the coronavirus. I would like to express my sincere gratitude to all first responders, healthcare workers, and everyone on the frontlines 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 it's 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 in 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 has 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 associations to navigate the current environment, maintain a sound liquidity position, effectively adapt our business and safeguard long-term value for our shareholders.
As occupancy levels for our hotels began to decline in March, we moved quickly to adjust the staffing model at our hotels and reduced 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 the operating models in response to the crisis.
We dramatically reduced food and beverage spend, eliminated housekeeping during stay overs, 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 generators 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 locations. In line with industry expectations, we believe that leisure transient demand will be the first to return with drive to destinations among the first to benefit. We are already implementing enhanced sanitation protocols that will help to ensure our hotels 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 level of sanitation and safety of 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 in Carolina Beach temporarily closed following a local government mandate prohibiting short-term lodging in the area. So we have consolidated operations in markets where we own multiple hotels in order to drive incremental cost savings. Besides an 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 recognized 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 Bryan Perry and Krissy Gathright voluntarily deferred receipt of payment under their separation agreements, which would have otherwise been paid out in the second quarter. Combined with anticipated reductions and 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're 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 31, 2020, the Company invested approximately $24 million in capital expenditures and anticipates 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 trusted developers to invest in new non-prototypical high quality assets. And prior to 2020, we entered into contracts with a potential purchase of three additional hotels for a combined total expected purchase price of approximately [$113] [ph] million, including a dual-branded Hyatt House and Hyatt Place in Tempe, Arizona, and 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 Courtyard by Marriott in Denver, Colorado, which has not yet begun construction.
During the first three months of 2020, we purchase 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 that 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 structured 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 work with established regional and national operators using innovative contracts that align management and ownership interest and preserve flexibility to sell assets and unencumbered.
We're 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 models have historically led to outperformance during periods of economic difficulty.
With the majority of our portfolio located in 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.
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 brand, our banking team 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 the health and well-being of our teams and guests so that we are well positioned both during this crisis and for a strong recovery as travel resume.
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 comps. 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 has declined from approximately 76% for the month of February to 41% for the month of March.
Occupancy levels 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 towards the end of April and into May, the improvement has been partially offset by declines in rates, largely the results of changes in the mix of business at our hotels. We believe that the modest but notable increase in occupancy we're beginning to see as a result of the ongoing sales efforts of our asset management and hotel management team coupled with the inherent benefits of the assets we are invested in.
With broad geographic diversification and a high concentration of extended stay and sweet properties, we are well positioned to provide accommodations to a variety of groups and individuals on the frontlines of this pandemic, including military, traveling nurses, health care 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 was 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 strengths are located in Manassas and 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 accounts.
Our portfolio is 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 recovery and we have begun to see early signs of this stay-at-home orders are lifted in various states throughout the southeast.
The day after reopening following the government and post-closure as 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 rates. With our broad footprint, low exposure to gateway cities, minimal dependence on inbound international business and almost 80% of our rooms outside of urban locations, we expect to benefit from continued react 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 of 2019, driven by the steep and 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 a savings of approximately 9% for the quarter compared to last year. As Justin mentioned, our low cost operating models have allowed the Company hotels to remain open. So, we have intentionally consolidated operations and occupancy to a single building in markets where we own multiple hotels in order to gain incremental efficiencies.
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 models 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 works 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, bench-marking 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 portfolios to improve productivity at our hotels.
These systems provide our property managers with a valuable tool and framework for managing staffing and various occupancy levels, and will allow us real time access to monitor individual property performance, and benchmark labor models as demand return. With labor being the most significant operating expense, staffing reductions are anticipated to produce approximately 65% to 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 to changes in demand, we have multiple levers we can pull to ensure maximum property level efficiency.
In March, we were through 2020 guidance and respond to deterioration 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 model 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 $18 million, assuming occupancy levels of between 15% and 20%.
We expect property level break even 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 in 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've suspended monthly distributions postpones non-essential capital improvement projects terminated the written trading plan under a share repurchase program, and our chairman CEO and Board of Directors voluntarily took project reduction in their compensation.
We have always believed that maintaining a strong balance sheet would provide us stability during periods of economic difficulty and flexibility to act opportunistically. We entered the current downturn with 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, the 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 agreements and anticipation that the severe impact of COVID-19 on the economy, the lodging industry and our business would potentially result in noncompliance.
We anticipate entering into an amendment to each of our credit facilities that would 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 requirements and restrictions on the amount of the Company's distributions capital expenditures, share repurchases and acquisitions among other items during the permanent relief 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 has broad consumer appeal, and we believe we're well positioned to benefit and outperformed as travel resume.
We will now open the call for questions.
[Operator Instructions] Our first question comes from the line of Neil Malkin with Capital One Securities.
First off, you guys are one of the largest owner of select services in the country and I know you guys sit on a lot of the brand committees or boards of the largest brands as well. 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 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 has kind of shifted back in favor of owners? And maybe talk about any permanent changes that you see happening to the operating model going forward?
Thanks and I'll take a stab at it and Liz can fill in if she'd like an addition. Both of us sit on advisory boards within Hilton and Marriott. To date, both companies and again, we only own one Hyatt, but Hyatt has been equally good. But both Hilton and Marriott have actively engaged with owners in dialogue related to how we deal with the current pandemic and the nuances associated with it and how we look at modeling our business for the future. I think there's heightened sensitivity to say, the need to make some near-term adjustments in order to ensure the safety of our guest and associates.
But there's 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 and with fresh eyes, and I'd say that the conversations have been productive. So, there's been a tremendous openness on their side to hear the feedback and commentary from the ownership community. And I think there was a sentiment, that's potentially with consolidation on the brand side and significant pipeline growth with both Hilton and Marriott that the pendulum had shifted away from ownership.
Generally speaking, our relationship has been viewed from our perspective as collaborative always. And we've seen both of our major partners as 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's a lot of attention being paid to those issues that are most important, both now and as we move into an environment where guests begin returning en masse to our hotels.
And, Neil, the second part of your question about what you thought might stick long-term. I think that that's 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 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.
Thanks. I appreciate your commentary. You've 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, how do you explain or what do you think that that drop is attributable to? Is it because, you guys essentially all your hotels were open whereas a lot of those full service more coastal focused players shut a majority or all of their -- almost all of their hotels. Was just more of just taking OTAs you think that'd be less of an issue given the brand's nature, any thoughts or commentary on that? And maybe how your select-service model kind of ebbs and flows with lower demand and with OpEx changes, things like that?
Liz commented in her prepared remarks that the majority of the shift we saw, as we rounded out the month of March, was really the result in changes in business mix. So, a move away from transient both business and leisure towards the negotiated business, which is generally discounted business. And given the low occupancy level, the bulk of the business in our hotels as we round out March and 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 we've highlighted in Carolina Beach example is, in those markets where we're seeing a leisure, transient return we're seeing an ability to get in push rates as occupancies get closer to sell out or are we just kind of higher ranges.
But as we look forward, in the near term the decrease in rates has been largely 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 guests in many of our markets, and they need to make adjustments to rate in order to build back base occupancy. But what we've seen to-date is largely a mix of business related and the other is more expectation for the future.
Last one for me if I could, you talked about your balance sheet being very strong and leading to opportunities should they present themselves ostensibly. This would lead to you guys being more active or 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 assets?
It's a great question. And, you know 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 in 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 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 recovery, there will be an increase in the number of opportunities that would be attractive to us. Our first preference though is 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 until we get to that point, I think it's fair to say that we would be conservative in pursuing optional uses of cash.
Thank you. Our next question comes from Austin Wurschmidt with KeyBanc. Please proceed with your question.
If you could help us understand the difference between, a hotel suspending operations versus kind of a clustering strategy that you guys have pursued, and kind of quantify what that the benefit is where you're staying open to maybe not physically accepting, yes, and if that's just provides another source of demand, I guess generator or marketing, I guess benefit to some extent. Could you just help us understand that dynamic a little bit?
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’ve made for those assets that are in markets by themselves. So, we have 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 salespeople have the capacity to do laundry and clean in turn rooms, provide food service and things of that sort, which is a major differentiator and I think has going to be a huge advantage. As we looked at what we anticipated to be 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 costs to stay open versus closed was immaterial, given a desire on our part, to maintain sufficient staff in the assets to ensure that you didn't have a water leak or a system breakdown because long-term damage to the assets. On average, that means having 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 own multiple hotels, and we have some occupancy, we've been able to gain incremental benefits from a cost standpoint, by concentrating the guest in a single hotel asset. And then in some markets that's very easy, where we earn dual branded asset or two hotels that are immediately across the parking lot from each other. That the nuances that reservation systems are open for all hotels, and they're accepting guests. We're just concentrating the guests in one hotel so that we can better service them and serve them more efficiently.
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 that we have across our portfolio, the decision to completely close a reservation system and closed the hotel versus keep it open and keep momentum going, and keep the asset protected and maintained.
The benefits outweigh the costs were, 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 sales efforts and things of the sort, the difference in cost was fairly minimal. And again, the benefits far outweighs, far outweighs that.
That's helpful. Could you break out what the recent week occupancy detail is between your extended stay and suites products which is over half of the portfolio? And then what it is for sort of a balance of the portfolio?
I would say that extended stay 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've consolidated operations we've consolidated into extended stay property by and large. And so, that that helps that two or three hotels occupancy your reservations and one.
But again that, that type of product is definitely well suited for the type of business that that we're getting at the moment, with many retail and restaurants closed across the country with social distancing with extended say, business being really what's in markets right now, that specific product is a huge advantage for us.
The sweet products and extended stay product and other select-service are operating a little more similarly, although the bigger footprints and having microwave and things like that and other sweet products certainly is benefiting, but the big differential is the extended stay properties.
That's very helpful. And then just last, I was curious, did 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?
Yes, in the quarter, we incurred just over a $1.5 million in one-time for low costs related to transition, which we would not anticipate would recur.
At least at this point.
Our next question comes from Bryan Maher with B. Riley FBR.
When it comes to the waivers that you're hoping to get completed. I think you mentioned it and maybe this is a better question for Liz distribution restrictions, and I'm assuming that would be on the dividends. Is that kind of an all or nothing restriction? Or is there going to be some formula in there that you could take in at a later date, maybe in the first half of 2021, or at some lower level?
I'll think broadly, but, because we don't have anything officially completed, 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 dividends, but I wouldn't imagine that we would be able to, during the waiver period, pay out that distribution beyond that.
And then when we think about your ability to drive rate, as markets start to reopen, and I suspect is the full service has helped competitors in your market start to reopen their specific hotels. My guess is that rate competitions going to be pretty intense. How are you guys thinking about focusing on marketing for the next one to two quarters via the brands, via the internet, via your sales managers, how are you planning to address that?
I'd say yes to all…
All the above.
Liz highlighted the fact that we've reaching sales staff at the property levels. Our management companies have also retained sales staff and are actively doing direct sales efforts folks looking for business in the near-term and courting potential clients for future business. I think we have signaled over the past several calls, a move within our company towards for online marketing, and we'll continue those efforts as well. Especially to the extent, we feel we can attract to leisure customers for 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 come out of more challenging economic periods, such as hotels have had an exceptional value proposition for a variety of guests both leisure and business and appeal to a very broad group. We've signal that our position within the flat service spectrum is particularly advantageous, being kind of at a midpoint where, during periods of economic prosperity, people trade off in center assets. And during periods of economic difficulties, they have a tendency to trade down which has enabled us to maintain stronger occupancy throughout cycles. We anticipate that will continue and we'll be aided in part by what we anticipate to be a significant reduction in new supply over the next several years.
And it just lasts for me. I think you mentioned the Carolina Beach hotel last weekend were sold out and I think instead of $200 rate. As we sit here kind of real-time and kind of mid delay May and people antsy to get out, what are you guys seeing coming in the bookings for similar type assets that you might hold it? Is it just something that's giving you optimism as we approached June and July? Or was that kind of a one off?
I think as far as looking position goes, it's last minute. And so it would to stretch into June and July would be maybe a little bit premature. But we are starting to see, even if I just look at what actualized in the past week, we are starting to see especially in the Southeast, in North Carolina, South Carolina, even Atlanta and some Florida markets where occupancy -- weekend occupancy is taking up.
And so that's encouraged -- that's encouraging. I think across the country as restrictions are loosened, I think that people, who are willing to travel will and they will get out. And so I think there may be more drive driving traffic than, people getting on airplanes. But by and large weekend business, I think into Memorial Day and beyond, particularly in the Southeast where we're feeling a little bit encouraged.
Thank you. Our next question comes from Anthony Powell Barclays. Please proceed with your question.
Following up on that question, in some of these markets where you're seeing reopening, are you seeing any weekday business return? Or is it still social really to see that kind of business for our corporate travelers from that?
I think the notable difference is the uptick in the weekends. 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. It's project business, recovery business, medical, traveling nurses, things of the sort. And so, I wouldn't say that we're seeing really an uptick in BT at this point.
What was the occupancy as of week ended May 16th, if you have it?
We have not shared that but it is, as we mentioned in the prepared remarks, we had several days that were higher than the week ending May 9.
Okay.
But then we're still trending more positively.
Different topics to the Courtyard Denver, what drove the decision to not go forward with that acquisition? Did the developer, I guess, delay the project. And then, what's your kind of overall commentary on how developers using the environment now? Are you seeing cancellations, more owners financing? What's kind of the overall environment there?
So, the Denver project specifically, we had been working with the developer for a significant period of time. So that developers, the same developer, that's building the Tempe assets and the Madison assets 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 things. Because that project had not yet started, we had some additional flexibility to cancel.
And we worked with the developer to essentially put that project on hold until the market stabilizes, and we have a better sense for more costly, long term. I think, as we interact with others in the industry, broadly speaking, financing for new development projects is as difficult as we ever seen it to come by. And for the most part, developers are waiting right now, in anticipation that the costs will eventually come down. And they're also waiting to see where markets settle.
So 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 markets and restrictions that are being put in place relative to work crews, 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 expectation is that developers generally speaking will be sitting on the sidelines for a period of time until markets begin to stabilize and they're better able to underwrite, both the costs and expected profitability of individual projects.
Do you expect to kind of a permanent change in how these deals are financed? Do you expect developers just have to put up more equity? Could it kind of more of a longer-term headwind to hotel development generally as a result of this event?
We have, yes 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. And our expectation is that in the early phases of recovery, consistent with the past few cycles that we've been through, it will be more difficult for developers, especially new hotel developers, so chain financing. Construction -- new construction tends to be viewed by lenders as higher risk because you have market risk and development risk. And our expectation is that in the near term, vendors will be much more focused on working through nuances of deals they already have and less focus on signing up new deals.
Thank you. Our next question comes from the line of Michael Bellisario of Baird. Please proceed with your question.
Just on that same topic, can we drill into the Madison deal? Maybe where is that project in terms of development timeline? And then I think you mentioned at 21 delivery but should we be thinking about it as early 21 delivery or late 21 delivery kind of balance the potential cash outflow you might have in the near term?
That particular project was earlier in development when the pandemic hit. There were also nuances associated with the sites that had push potential delivery towards the very end of this year, even prior to the pandemic. Our current expectations are that it would be delivered to the very end of the first quarter or beginning of the second quarter. And again, Madison is one of those markets that it seems slightly tighter restrictions as well, which is adding to the potential delays there.
So, is it fair to assume you're going to move forward with that project irrespective of the environments mainly because you don't have the same elements like you did for the Denver deal?
That's correct. The remaining development deals that we have under contract have specific performance language and absent an end-of-the-world situation where we became insolvent as a company, it's our expectation that we would close on those assets.
And then just thinking about the sources of capital, I know you have a large cash balance today, but the plan was to always sell hotels, the lower growth non-core properties to fund these deals. How are you balancing 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 3 to 6 months from now?
For year-to-date, we're perfectly balanced with the or nearly perfectly balanced with the first quarter sales funding, essentially the 8th project. We're continuing to receive inbound inquiries. I think there's 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 towards capital allocation.
And it's still, in our view, long-term debt that we will pull it up funding are development deals with disposition proceeds. So the timing of those trades may not perfectly align. 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.
And then just lastly, maybe a high level commentary on your management company, you have a handful of more regional local focus 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 the impact that might have on property performance, near-term or intermediate term?
Absolutely. And really, first, we, as you might imagine, in nearly constant dialogue with our various management company partners, we have 20 management companies, we work with. A portion of them are national and 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 costs 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, they're in amazingly good spirits. And generally, our conversations around longevity and financial status have been very positive. Internally, we've developed contingency plans, in the unlikely event that that any of them, became solvent 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 the extent we had a need, and we have management companies coming to us and telling us that they're in a bad position.
We were not as a company able to take advantage of government aid in the form of PPP loans. A number of our management companies were able to take advantage of the government programs, which has also helped to stabilize them in the current environment and enable them at the corporate level to retain employees as they might otherwise have to furlough.
Our next question comes from Tyler Batory with Janney Capital Markets. Please proceed with your question.
Questions just in terms of CapEx spending right now, I mean, your pretty minimal levels and 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 is a little bit higher heading into this crisis? And maybe it's an opportunity for you to take some market share?
So, the easy answer is the first and that's the average ages is approximately 14 years. We monitor effective age as well and coming into the crisis, effective age meaning time since filter last renovated was four years for our portfolio. As you highlighted, we've significantly reduced the number of major renovations that we anticipate completing this year, cutting essentially 20 major renovations, which were anticipated to happen in the summer and towards the back half of the year.
That said, we also in many markets are running very low occupancy. And so in the near-term, the wear and tear on those assets is not what it would ordinarily be which will help from a preservation standpoint, but not in a way that we want to continue long-term, obviously. We've been very strategic and acquiring assets that are well positioned within their individual markets that have advantages either from a location standpoint for a build out in terms of actual amenities, and most cases have both advantages.
We've continued 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 guests provides a great signal to local accounts especially that we are a long-term partner willing to work with them. And we think we'll provide us with a meaningful advantage as we begin a more robust recovery.
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 guests or markets that you can sort of be more vacation oriented similar to that Carolina Beach Courtyard for example?
Interesting question, I think, from a drive-to standpoint we, in 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, 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 we do have a strong presence.
I think one of the things to think through too 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 us. So, I think that's a big differentiator as well as the makeup of extended stay.
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.
Thank you. We really appreciate everybody joining 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.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.