Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew by 6% in Q2 2024 compared to Q2 2023.
- RevPAR increased by 6% to $104 in Q2 2024.
- ADR growth returned, finishing 2% above Q2 2023 levels.
- Completed property insurance renewal with a decrease in premiums, saving approximately $1.6 million annually.
- Significant progress on capital recycling program, with multiple property dispositions expected to strengthen liquidity and balance sheet.
Negative Points
- Operating environment remains challenging due to elevated costs and labor shortages, putting downward pressure on operating margins.
- NOI margin finished at 0.98 times Q2 2023, indicating a slight decline.
- Corporate segment demand has been inconsistent and has not recovered to anticipated levels.
- Normalized diluted FFO decreased to $0.1 per unit in Q2 2024 from $0.14 in Q2 2023.
- Ongoing dispute with hotel manager Aimbridge Hospitality, which could potentially impact operations and management stability.
Q & A Highlights
Q: With the asset sales and some of the refinancings, will you be able to pay down the $34 million due in December, and what are your thoughts on terming that out?
A: We plan to use a combination of asset sales and refinancing of loans to address the $34 million due in December. We have already made significant progress with sales announced, and we are in a good position to meet the extension requirements. Discussions with the banks are ongoing, and we expect to secure a multiyear facility.
Q: What interest rates do you expect for the refinancing?
A: It's a bit early to specify, but we are seeing spreads on CMBS around low three hundreds over the 5-year U.S. Treasury. The recent drop in U.S. Treasury rates is favorable for us, and we expect competitive rates for new financing.
Q: Can you clarify who the lenders are for the loans in special servicing?
A: The loans in special servicing are securitized loans, not specific to any single bank like Wells Fargo. These are managed by servicers, and we do not have direct loans with individual banks for these.
Q: Are there any near-term maturities for the loans in special servicing?
A: Most of these loans have maturities in 2026 or 2027. We plan to either sell the hotels to attract equity or refinance the loans when they come due.
Q: Can you provide more context on the ongoing dispute with Aimbridge Hospitality?
A: The dispute relates to Aimbridge's management failures, particularly in delivering margins and costs in line with budget. While we are pleased with top-line performance, we identified issues in day-to-day operations and are being proactive about addressing them.
Q: How does the dispute with Aimbridge impact the day-to-day guest experience at your hotels?
A: There is no impact on the day-to-day guest experience. The situation remains normal, and we continue to manage the business effectively.
Q: What are your plans for the proceeds from the recent asset sales?
A: The net proceeds from the asset sales will be used to pay down property-level debt and the revolving credit facility. This is part of our strategy to reduce debt and strengthen our balance sheet.
Q: How are you addressing the elevated operating expenses and labor shortages?
A: We are seeing cost and labor inflation decelerate and are focusing on cost control initiatives. We have reduced dependency on contract labor and are working on improving employee retention and procurement programs to find additional cost savings.
Q: What are your expectations for the remainder of 2024?
A: We remain optimistic about the remainder of the year. We are executing our strategic plan, which includes asset sales and loan refinancings, to strengthen our liquidity and balance sheet. We are well-positioned to benefit from an improving industry and macroeconomic environment.
Q: How are you managing your capital improvement program for 2024?
A: Our 2024 capital program includes approximately $5 million in property improvement plans and $9.5 million in FF&E capital improvements. We have completed renovations at one hotel and plan to start renovations at two or three additional hotels during the remainder of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
