CorePoint Lodging Inc. (NYSE: CPLG) (“CorePoint” or the “Company”),
a pure play select-service hotel owner strategically focused on the
midscale and upper-midscale segments, today reported operational
and financial results for the first quarter ended March 31, 2020.
First Quarter 2020 and Subsequent
Highlights
- Net loss of $21 million, or $0.37 loss per fully diluted
share
- Comparable RevPAR of $48.20, a decrease of 22.8% from the same
period in 2019 with 474 basis points of RevPAR Index market share
decline
- Adjusted EBITDAre of $10 million
- Adjusted FFO attributable to common stockholders of $4 million,
or $0.07 per fully diluted share
- In mid-March, the Company began taking aggressive steps at the
corporate and hotel level to control costs and preserve capital to
mitigate the ongoing operational and financial impact from the
COVID-19 pandemic. As previously disclosed, these initiatives
included drawing $110 million from its Revolving Credit Facility to
further enhance the Company’s cash liquidity position, suspending
its common stock dividend, temporarily suspending operations at
certain of its hotels and implementing cost containment initiatives
at all other hotels, deferring all non-essential capital
expenditures, and implementing various cost containment measures
with respect to corporate spending
- Sold 23 non-core hotels for a combined gross sales price of
approximately $100 million during the quarter
- Subsequent to quarter end, sold 3 non-core hotels for a
combined gross sales price of approximately $13 million, resulting
in a total of 26 non-core hotels sold during 2020 for a combined
gross sales price of $113 million and a total of 70 non-core hotels
sold since March 2019 for a combined gross sales price of $290
million
- An additional 26 hotels are under contract with qualified
buyers, expected to generate approximately $115 million of gross
proceeds, and expected to close by the end of 2020, subject to
market and other conditions
- Subsequent to quarter end, the Company amended its Revolving
Credit Facility to extend the maturity date to May 2021 and
eliminate its total net leverage and interest coverage financial
covenants through the extended maturity date
- First quarter dividend of $0.20 per share of common stock was
paid on April 15, 2020 to holders of record on March 31, 2020; as
previously disclosed, the Company expects that its common stock
dividend will remain suspended for the balance of 2020
“The challenging environment we began to experience late in the
first quarter from the global impact of COVID-19 has created
unprecedented disruption in the lodging sector,” noted Keith Cline,
President and Chief Executive Officer of CorePoint. “During this
period of disruption, we have worked with our third-party manager
to focus on the pursuit of alternative sources of hotel revenue,
and we initiated aggressive liquidity, capital preservation and
cost mitigation actions at both the property and corporate
level.”
“Certain of these measures resulted in temporarily suspending
operations at the peak of this period at 30 of our hotels in order
to minimize ongoing operating expenditures and to prioritize the
health and safety of our hotels’ guests and employees. Of the
original 30 hotels that were suspended, all have either resumed
accepting transient guests or expected to do so over the next
several weeks. Since hitting a low of 15% portfolio occupancy in
mid-April, we have experienced an acceleration to around 35%
portfolio occupancy to date in May.”
Mr. Cline added, “We believe our portfolio of select-service
hotels predominantly focused on the midscale segments is well
positioned to capture incremental transient room demand coming back
online, in particular leisure travel and the associated demand for
many of our drive-to destinations hotels. We are also
committed to creating value through a long-term, disciplined
execution of our non-core disposition strategy and made significant
progress with the sale of 23 non-core hotels during the first
quarter for gross proceeds of approximately $100 million.”
Selected Statistical and Financial
Data(Unaudited, $ in millions, except RevPAR and ADR)
|
Three Months Ended March 31, |
|
2020 |
|
2019 |
|
% Change |
Net loss |
$ |
(21 |
) |
|
$ |
(27 |
) |
|
22.2 |
% |
Total
revenues |
$ |
146 |
|
|
$ |
208 |
|
|
(29.8 |
%) |
|
|
|
|
|
|
Adjusted
EBITDAre |
$ |
10 |
|
|
$ |
43 |
|
|
(76.7 |
%) |
Adjusted FFO
attributable to common stockholders |
$ |
4 |
|
|
$ |
24 |
|
|
(83.3 |
%) |
|
|
|
|
|
|
Comparable Occupancy
(1) |
53.6 |
% |
|
65.7 |
% |
|
(1210) bps |
|
Comparable ADR
(1) |
$ |
89.92 |
|
|
$ |
95.14 |
|
|
(5.5 |
%) |
Comparable RevPAR
(1) |
$ |
48.20 |
|
|
$ |
62.46 |
|
|
(22.8 |
%) |
Comparable Hotel
Adjusted EBITDAre margin (1) |
12.1 |
% |
|
26.1 |
% |
|
(1400) bps |
|
____________________(1) Comparable Hotels includes 241 hotels of
the total 248 hotels owned as of March 31, 2020.
First Quarter 2020 Financial and Operating
Results
The Company reported net loss of $21 million, or $0.37 loss per
fully diluted share, for the quarter ended March 31, 2020, compared
to net loss of $27 million, or $0.47 loss per fully diluted share,
for the quarter ended March 31, 2019. Decreases in year-over-year
revenues were offset by gains on sales of real estate and lower
operating and other expenses.
Comparable RevPAR for the first quarter of 2020 decreased 22.8%
over the same period of 2019 with 474 basis points of RevPAR Index
market share decline. The decline in comparable RevPAR was
driven by a 5.5% decrease in comparable ADR and 1210 bps decrease
in comparable occupancy. The decline in occupancy was primarily
driven by a significant reduction in hotel demand in March 2020
resulting from the impact of COVID-19. Top performing markets
included Fort Myers, Florida, Tucson, Arizona, Fort Lauderdale,
Florida, and Miami, Florida.
Adjusted EBITDAre for the first quarter of 2020 was $10 million
as compared to $43 million for the same period in 2019. The
year-over-year decrease was primarily due to decreases in rooms
revenue, including due to the impact of sold hotels, revenue
disruption following the transition and integration of our hotels
onto the Wyndham platform in April 2019, and a reduction in room
demand due to the COVID-19 pandemic.
Operations Update and Measures to Mitigate Impact of
COVID-19
Due to the ongoing operational and financial impact from
COVID-19 and requirements from state and local government and
public health authorities, CorePoint, along with its third-party
manager, temporarily did not accept transient guests or most other
reservations at 30 of the Company’s 245 hotels in order to minimize
ongoing operating expenses and conserve cash. As of today, the
Company has resumed reduced operations at 10 of these 30 hotels and
expects the remaining 20 hotels to resume reduced operations over
the next several weeks. The remaining hotels are currently expected
to remain open at reduced operational capacity, however the Company
will continue to review each individual property based on local
circumstances and legal requirements.
In addition to temporarily suspending operations at certain
hotels, the Company implemented the following cost containment
measures to preserve liquidity:
- In mid-March, the Company with its third-party manager, began
to significantly reduce staffing levels, eliminate all
non-essential amenity offerings, minimize spending at all hotels
and close sections and/or floors at some hotels to maximize
efficiencies.
- CorePoint and its third-party manager are pursuing alternative
sources of hotel revenue, including from governmental authorities
and local organizations seeking temporary accommodations for groups
such as medical personnel, first responders and military personnel
as well as continuing to pursue corporate accounts related to
essential businesses.
- CorePoint is deferring all non-essential capital investments
and expenditures for 2020, with the exception of life safety or
critical operational needs.
- The Company expects that its common stock dividend will remain
suspended for the balance of 2020. CorePoint’s Board of
Directors will reassess at the end of the year the common dividend
amount, if any, that will be declared and paid for 2020.
- Related to board and executive compensation, CorePoint’s Board
of Directors will be paid their board fees for the remainder of
2020 in the form of deferred stock units and Mr. Cline has agreed
to take a portion of his compensation for the remainder of 2020 in
the form of restricted stock in lieu of cash. In addition,
the Company continues to implement cost containment measures with
respect to all other corporate spending.
Dispositions
Since CorePoint commenced its initial non-core disposition
program of 78 hotels in March 2019, 60 of these hotels have been
successfully sold for a combined gross sales price of approximately
$245 million and an additional 10 of these hotels are under
contract with qualified buyers, expected to generate approximately
$35 million of gross proceeds. The Company’s expanded
non-core disposition program includes an additional phase two group
of 132 hotels. Ten phase two hotels have been successfully sold for
a combined gross sales price of approximately $45 million and an
additional 16 phase two hotels are under contract with qualified
buyers, expected to generate approximately $80 million in gross
proceeds. There can be no assurance as to the timing of any future
sales or whether such sales will be completed at all. The company
is unable to forecast at this time whether there will be any impact
from COVID-19 on the timing of or gross proceeds from asset
sales.
Hotel Disposition Summary ($ in millions):
|
Phase 1 |
|
Phase 2 |
|
Total |
Total number of
non-core hotels: |
78 |
|
|
132 |
|
|
210 |
|
|
|
|
|
|
|
Full year
2019: |
|
|
|
|
|
Number of hotels sold |
43 |
|
|
1 |
|
|
44 |
|
Gross proceeds |
$ |
173 |
|
|
$ |
4 |
|
|
$ |
177 |
|
Portion of net proceeds used
to repay debt |
$ |
111 |
|
|
$ |
3 |
|
|
$ |
114 |
|
|
|
|
|
|
|
First quarter
2020: |
|
|
|
|
|
Number of hotels sold |
17 |
|
|
6 |
|
|
23 |
|
Gross proceeds |
$ |
72 |
|
|
$ |
28 |
|
|
$ |
100 |
|
Portion of net proceeds used
to repay debt |
$ |
37 |
|
|
$ |
13 |
|
|
$ |
50 |
|
|
|
|
|
|
|
Second quarter 2020
(to date): |
|
|
|
|
|
Number of hotels sold |
— |
|
|
3 |
|
|
3 |
|
Gross proceeds |
$ |
— |
|
|
$ |
13 |
|
|
$ |
13 |
|
Portion of net proceeds used
to repay debt |
$ |
— |
|
|
$ |
6 |
|
|
$ |
6 |
|
Capital Investments
The Company invested approximately $9 million in the first
quarter of 2020 in capital improvements. Excluding hurricane
restoration costs, the Company invested approximately $7 million in
capital improvements for the first quarter of 2020. As previously
disclosed, CorePoint is deferring all non-essential capital
investments and expenditures for the balance of 2020, with the
exception of life safety or critical operational needs, resulting
in an estimated reduction of total capital spending in the range of
approximately $25 million to $30 million.
Balance Sheet and Liquidity
As of March 31, 2020, the Company had total cash and cash
equivalents of $234 million, excluding lender escrows of
approximately $19 million.
As of March 31, 2020, the Company had total debt principal
outstanding of $981 million, which consisted of the following:
(Unaudited, $ in millions)
Debt |
|
Interest Rate |
|
Maturity Date |
|
Principal Balance Outstanding |
CMBS Loan (1)(2) |
|
L + 2.75% |
|
June 2025 |
|
$ |
871 |
|
Revolving Credit
Facility (3) |
|
L + 4.50% |
|
May 2021 |
|
110 |
|
Total |
|
|
|
|
|
$ |
981 |
|
____________________(1) Maturity date assumes the exercise of
all borrower extension options. Initial maturity date is June
2020, with borrower options to extend the initial maturity date for
five successive terms of one year each. In March 2020, the Company
provided notice to extend the CMBS Facility for one year upon
maturity. In connection with the extension, in April 2020,
the Company purchased a new interest rate cap with a termination
date of June 15, 2021. The Company believes it has met and will
meet all requirements to extend the CMBS Facility for one year from
the current maturity date. The CMBS loan is now 100% pre-payable
without penalty. Amount shown represents gross principal balance
outstanding.
(2) As noted in the Hotel Disposition Summary table above, the
Company used approximately $6 million of net proceeds from its
asset sales to reduce the principal balance outstanding to $865
million as of today.
(3) $150 million Revolving Credit Facility. Maturity date
assumes the exercise of all borrower extension options. The
Revolving Credit Facility was scheduled to mature on May 30, 2020,
with an election to extend the maturity for one additional year. In
connection with the amendment of the Revolving Credit Facility
following quarter end, the maturity of the Revolving Credit
Facility was extended to May 31, 2021, which maturity may be
accelerated if our CMBS Facility is not extended to a date no
earlier than such date on or prior to its stated maturity on June
9, 2020.
The Company was in compliance with its financial covenants under
its Revolving Credit Facility as of March 31, 2020. Such
financial covenants include a maximum total net leverage ratio
financial covenant of 6.9x and a minimum interest coverage ratio
financial covenant of 1.5x. Subsequent to quarter end, the
Company amended its Revolving Credit Facility to eliminate these
financial covenants tested through maturity of the Revolving Credit
Facility. The amendment extended the maturity of our
Revolving Credit Facility to May 31, 2021. As part of the
amendment process, the Company agreed to repay $25 million of the
$110 million outstanding ($5 million per month starting in August
2020) and comply with a minimum liquidity covenant of $60 million
(subject to certain dollar-for-dollar reductions in respect of 50%
of any amounts utilized to repay the Revolving Credit Facility,
other than the required repayment of $25
million). Additionally, the amendment also
includes a 50-basis point per annum increase in interest rate
spread, and restrictions on the Company’s ability to make common
dividend payments (except to the extent required to maintain REIT
status), make investments and to incur additional indebtedness
above certain levels, subject to certain exceptions. In connection
with the amendment of our Revolving Credit Facility, CorePoint
agreed to provide a guarantee of the obligations under the
Revolving Credit Facility.
Dividends
On March 12, 2020, our Board of Directors authorized and the
Company declared a cash dividend of $0.20 per share of common stock
with respect to the first quarter of 2020. The first quarter
dividend was paid on April 15, 2020 to stockholders of record as of
March 31, 2020. The Company expects that its common stock
dividend will remain suspended for the balance of 2020, resulting
in the preservation of approximately $11 million of cash per
quarter, or approximately $45 million on an annualized basis.
CorePoint’s Board of Directors will reassess at the end of
the year any additional common dividend amount that may
be declared and paid for 2020 in addition to the dividend paid
with respect to the first quarter of 2020. All future
dividends will be at the sole discretion of CorePoint’s Board of
Directors and will depend upon, among other things compliance with
debt covenants and maintenance of our REIT qualification.
Wyndham Settlement Update
As part of the previously disclosed settlement agreement (the
“Wyndham Settlement”), CorePoint continues to work closely with its
sole property manager, LQ Management L.L.C. (“LQM”), an affiliate
of Wyndham Hotels & Resorts, Inc. (“Wyndham”), to support its
reestablishment of the agreed upon revenue management software and
tools, call center technologies and the administration of corporate
and group bookings. The implementation work is underway and remains
on schedule to be completed by no later than the end of 2020.
Through the first quarter of 2020, CorePoint has received cash
payments totaling approximately $31 million from Wyndham, including
approximately $3 million received in the first quarter of 2020, in
accordance with the terms of the settlement. CorePoint expects to
receive the remaining approximately $6 million of settlement
payments from Wyndham by no later than June 2021.
For more information regarding the settlement, see the Company’s
Current Report on Form 8-K that was filed with the SEC on October
23, 2019.
Earnings Call and Webcast
The Company will host a quarterly conference call for investors
and other interested parties later today beginning at 5:00 p.m.
Eastern Time.
The call may be accessed by dialing (866) 300-4611, or (703)
736-7439 for international participants, and entering the passcode
6135247. Participants may also access the call via website by
visiting our investors website at www.corepoint.com/investors.
You are encouraged to dial into the call or link to the webcast at
least 15 minutes prior to the scheduled start time. The replay of
the call will be available from approximately 8:00 p.m.
Eastern Time on May 20, 2020 through 8:00 p.m.
Eastern Time on May 27, 2020. To access the replay, the
domestic dial-in number is (855) 859-2056, the international
dial-in number is (404) 537-3406, and the passcode is 6135247.
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements may include, but are not limited to,
statements related to the Company’s expectations regarding the
impact of the COVID-19 pandemic and the impact of any measures
taken to mitigate the impact of the pandemic, our expectations with
respect to our non-core property disposition strategy and with
respect to the Wyndham Settlement, as well as other statements
representing management’s beliefs about future events,
transactions, strategies, operations and financial results and
other non-historical statements. Such forward-looking statements
often contain words such as “assume,” “will,” “anticipate,”
“believe,” “predict,” “project,” “potential,” “contemplate,”
“plan,” “forecast,” “estimate,” “expect,” “intend,” “is targeting,”
“may,” “should,” “would,” “could,” “goal,” “seek,” “hope,” “aim,”
“continue” and other similar words or expressions or the negative
thereof or other variations thereon. Forward-looking statements are
made based upon management’s current expectations and beliefs and
are not guarantees of future performance. Such forward-looking
statements involve numerous assumptions, risks and uncertainties
that may cause actual results to differ materially from those
expressed or implied in any such statements. Our actual business,
financial condition or results of operations may differ materially
from those suggested by forward-looking statements as a result of
risks and uncertainties which include, among others: business,
financial and operating risks inherent to the lodging industry;
macroeconomic and other factors beyond our control, including
without limitation the effects of pandemics or outbreaks of
contagious disease; the geographic concentration of our hotels; our
inability to compete effectively; our concentration in the La
Quinta brand; our dependence on the performance of LQ Management
L.L.C. and other third-party hotel managers and franchisors;
covenants in our hotel management and franchise agreements that
limit or restrict the sale of our hotels; risks posed by our
disposition activities as well as our acquisition, redevelopment,
repositioning, renovation and re-branding activities; risks
resulting from significant investments in real estate; cyber
threats and the risk of data breaches or disruptions of technology
information systems; the growth of internet reservation channels;
disruptions to the functioning or transition of the reservation
systems, accounting systems or other technology programs for our
hotels, and other technology programs and system upgrades; risks
related to our spin-off from La Quinta and the merger of La
Quinta’s management and franchise business with Wyndham; and our
substantial indebtedness. Additional risks and uncertainties
include, among others, those risks and uncertainties described
under “Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2019 and in our Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2020, which is expected to
be filed on or about the date of this press release, as such
factors may be updated or superseded from time to time in our
periodic filings with the Securities and Exchange Commission. You
are urged to carefully consider all such factors and we note that
the COVID-19 pandemic may have the effect of heightening many of
the risks and uncertainties described. Although it is believed that
the expectations reflected in such forward-looking statements are
reasonable and are expressed in good faith, such expectations may
not prove to be correct and persons reading this communication are
therefore cautioned not to place undue reliance on these
forward-looking statements, which speak only to expectations as of
the date of this communication. We undertake no obligation to
publicly update or review any forward-looking statement, whether as
a result of new information, future developments or otherwise,
except as required by law. If we make any future public statements
or disclosures which modify or impact any of the forward-looking
statements contained in or accompanying this press release, such
statements or disclosures will be deemed to modify or supersede
such statements in this press release.
Non-GAAP Financial Measures
We refer to certain non-GAAP financial measures in this press
release including FFO, Adjusted FFO, Adjusted FFO per diluted
share, EBITDA, EBITDAre, Adjusted EBITDAre, Comparable Hotel
Adjusted EBITDAre, and Comparable Hotel Adjusted EBITDAre margin.
All such non-GAAP financial measures are unaudited. Please see the
tables to this press release for definitions of such non-GAAP
financial measures and reconciliations of such financial measures
to the most directly comparable financial measures calculated and
presented in accordance with accounting principles generally
accepted in the United States (“GAAP”) for historical periods.
About CorePoint
CorePoint Lodging Inc. (NYSE: CPLG) is the only pure-play
publicly traded U.S. lodging REIT strategically focused on the
ownership of midscale and upper-midscale select-service
hotels. CorePoint owns a geographically diverse portfolio in
attractive locations primarily in or near employment centers,
airports, and major travel thoroughfares. The portfolio consists of
La Quinta branded hotels. For more information, please visit
CorePoint’s website at www.corepoint.com.
Contact:
Becky RoseberrySVP -
Finance214-501-5535investorrelations@corepoint.com
CorePoint Lodging
Inc.Consolidated Balance Sheets
(Unaudited)($ in millions, except per share
amounts)
|
March 31, 2020 |
|
December 31, 2019 |
Assets: |
|
|
|
Real estate |
|
|
|
Land |
$ |
580 |
|
|
$ |
604 |
|
Buildings and improvements |
2,081 |
|
|
2,162 |
|
Furniture, fixtures, and other equipment |
328 |
|
|
347 |
|
Gross operating real estate |
2,989 |
|
|
3,113 |
|
Less accumulated depreciation |
(1,186 |
) |
|
(1,216 |
) |
Net operating real estate |
1,803 |
|
|
1,897 |
|
Construction in progress |
9 |
|
|
14 |
|
Total real estate, net |
1,812 |
|
|
1,911 |
|
|
|
|
|
Right of use assets |
21 |
|
|
21 |
|
Cash and cash equivalents |
234 |
|
|
101 |
|
Accounts receivable |
26 |
|
|
33 |
|
Other assets |
53 |
|
|
43 |
|
Total
Assets |
$ |
2,146 |
|
|
$ |
2,109 |
|
|
|
|
|
Liabilities and
Equity: |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
Debt, net |
$ |
979 |
|
|
$ |
915 |
|
Mandatorily redeemable preferred shares |
15 |
|
|
15 |
|
Accounts payable and accrued expenses |
77 |
|
|
82 |
|
Dividends payable |
11 |
|
|
11 |
|
Other liabilities |
50 |
|
|
43 |
|
Deferred tax liabilities |
7 |
|
|
6 |
|
Total
Liabilities |
1,139 |
|
|
1,072 |
|
Commitments and
contingencies |
|
|
|
Equity: |
|
|
|
Common stock, $0.01 par value per share; 1.0 billion shares
authorized; 58.1 million and 57.2 million shares issued and
outstanding as of March 31, 2020 and December 31, 2019,
respectively |
1 |
|
|
1 |
|
Additional paid-in-capital |
956 |
|
|
954 |
|
Retained earnings |
48 |
|
|
80 |
|
Noncontrolling interest |
2 |
|
|
2 |
|
Total
Equity |
1,007 |
|
|
1,037 |
|
Total Liabilities and
Equity |
$ |
2,146 |
|
|
$ |
2,109 |
|
CorePoint Lodging
Inc.Consolidated Statements of Operations
(Unaudited)(in millions, except per share
amounts)
|
Three Months Ended March 31, |
|
2020 |
|
2019 |
Revenues: |
|
|
|
Rooms |
$ |
143 |
|
|
$ |
204 |
|
Other |
3 |
|
|
4 |
|
Total Revenues |
146 |
|
|
208 |
|
Operating
Expenses: |
|
|
|
Rooms |
79 |
|
|
93 |
|
Other departmental and support |
24 |
|
|
31 |
|
Property tax, insurance and other |
16 |
|
|
17 |
|
Management and royalty fees |
14 |
|
|
21 |
|
Corporate general and administrative |
8 |
|
|
8 |
|
Depreciation and amortization |
40 |
|
|
44 |
|
Impairment loss |
2 |
|
|
— |
|
Gain on sales of real estate |
(23 |
) |
|
— |
|
Gain on casualty |
(2 |
) |
|
— |
|
Total Operating Expenses |
158 |
|
|
214 |
|
Operating Loss |
(12 |
) |
|
(6 |
) |
Other Income
(Expenses): |
|
|
|
Interest expense |
(14 |
) |
|
(18 |
) |
Other income, net |
3 |
|
|
2 |
|
Total Other Expenses |
(11 |
) |
|
(16 |
) |
Loss before income
taxes |
(23 |
) |
|
(22 |
) |
Income tax benefit (expense) |
2 |
|
|
(5 |
) |
Net loss |
$ |
(21 |
) |
|
$ |
(27 |
) |
|
|
|
|
Weighted average
common shares outstanding - basic and diluted |
56.5 |
|
|
58.6 |
|
|
|
|
|
Basic and diluted loss
per share |
$ |
(0.37 |
) |
|
$ |
(0.47 |
) |
|
|
|
|
RECONCILIATIONS
The tables below provide a reconciliation of Hotel Adjusted
EBITDAre, Adjusted EBITDAre, EBITDAre and EBITDA to net income
(loss), and a reconciliation of FFO and Adjusted FFO to net income
(loss). We believe this financial information provides
meaningful supplemental information because it represents how
management views the business and reviews our operating
performance. It is also used by management when publicly providing
the business outlook. See the definitions of “EBITDA,” “EBITDAre,”
“Adjusted EBITDAre,” “Comparable Hotel Adjusted EBITDAre,” “FFO”
and “Adjusted FFO,” for a further explanation of the use of these
measures.
“EBITDA.” Earnings before interest, income taxes,
depreciation and amortization (“EBITDA”) is a commonly used measure
in many REIT and non-REIT related industries. We believe EBITDA is
useful in evaluating our operating performance because it provides
an indication of our ability to incur and service debt, to satisfy
general operating expenses, and to make capital expenditures. We
calculate EBITDA excluding discontinued operations. EBITDA is
intended to be a supplemental non-GAAP financial measure that is
independent of a company’s capital structure.
“EBITDAre.” We present EBITDAre in accordance with
guidelines established by the National Association of Real Estate
Investment Trusts (“Nareit”). Nareit defines EBITDAre as
EBITDA adjusted for gains or losses on the disposition of
properties, impairments, and adjustments to reflect the entity’s
share of EBITDAre of unconsolidated affiliates. We believe EBITDAre
is a useful performance measure to help investors evaluate and
compare the results of our operations from period to period.
“Adjusted EBITDAre.” Adjusted EBITDAre is calculated as
EBITDAre adjusted for certain items, such as restructuring and
separation transaction expenses, acquisition transaction expenses,
stock-based compensation expense, severance expense, and other
items not indicative of ongoing operating performance. The Company
believes that EBITDAre and Adjusted EBITDAre provide useful
information to investors about it and its financial condition and
results of operations for the following reasons: (i) EBITDAre
and Adjusted EBITDAre are among the measures used by the Company’s
management to evaluate its operating performance and make
day-to-day operating decisions; and (ii) EBITDAre and Adjusted
EBITDAre are frequently used by securities analysts, investors,
lenders and other interested parties as a common performance
measure to compare results or estimate valuations across companies
in and apart from the Company’s industry sector.
EBITDA, EBITDAre and Adjusted EBITDAre are not recognized terms
under GAAP, have limitations as analytical tools and should not be
considered either in isolation or as a substitute for net income
(loss), cash flow or other methods of analyzing the Company’s
results as reported under GAAP. Some of these limitations are that
these measures:
- do not reflect changes in, or cash requirements for, the
Company’s working capital needs;
- do not reflect the Company’s interest expense, or the cash
requirements necessary to service interest or principal payments,
on its indebtedness;
- do not reflect the Company’s tax expense or the cash
requirements to pay its taxes;
- do not reflect historical cash expenditures or future
requirements for capital expenditures or contractual
commitments;
- EBITDAre and Adjusted EBITDAre do not include gains or losses
on the disposition of properties which may be material to our
operating performance and cash flow;
- do not reflect the impact on earnings or changes resulting from
matters that the Company considers not to be indicative of our
future operations, including but not limited to discontinued
operations, impairment, acquisition and disposition activities and
restructuring expenses;
- although depreciation, amortization and impairment are non-cash
charges, the assets being depreciated, amortized or impaired will
often have to be replaced, upgraded or repositioned in the future,
and EBITDA, EBITDAre and Adjusted EBITDAre do not reflect any cash
requirements for such replacements; and
- other companies in the Company’s industry may calculate EBITDA,
EBITDAre and Adjusted EBITDAre differently, limiting their
usefulness as comparative measures.
Because of these limitations, EBITDA, EBITDAre and Adjusted
EBITDAre should not be considered as a replacement to net income
(loss) presented in accordance with GAAP, discretionary cash
available to the Company to reinvest in the growth of its business
or as measures of cash that will be available to the Company to
meet its obligations.
“Comparable Hotel Adjusted EBITDAre” measures
property-level results at the Company’s Comparable hotels before
corporate-level expenses and is a key measure of a hotel’s
profitability. The Company presents Hotel Adjusted EBITDAre to help
the Company and its investors evaluate the ongoing operating
performance of the Company’s properties.
“Comparable Hotel Adjusted EBITDAre margin” represents the ratio
of Comparable Hotel Adjusted EBITDAre to total revenues.
Funds from operations (“FFO”) and “Adjusted FFO”. We present
Nareit FFO attributable to common stockholders and Nareit FFO per
diluted share (as defined below) as non-GAAP measures of our
performance. We calculate funds from operations (“FFO”)
attributable to common stockholders for a given operating period in
accordance with standards established by Nareit, as net income or
loss (calculated in accordance with GAAP), excluding depreciation
and amortization related to real estate, gains or losses on sales
of certain real estate assets, impairment write-downs of real
estate assets, discontinued operations, income taxes related to
sales of certain real estate assets, and the cumulative effect of
changes in accounting principles, plus adjustments for
unconsolidated joint ventures. Adjustments for unconsolidated joint
ventures are calculated to reflect our pro rata share of the FFO of
those entities on the same basis. Since real estate values
historically have risen or fallen with market conditions, many
industry investors have considered presentation of operating
results for real estate companies that use historical cost
accounting to be insufficient by themselves. For these reasons,
Nareit adopted the FFO metric in order to promote an industry wide
measure of REIT operating performance. We believe Nareit FFO
provides useful information to investors regarding our operating
performance and can facilitate comparisons of operating performance
between periods and between REITs. Our presentation may not be
comparable to FFO reported by other REITs that do not define the
terms in accordance with the current Nareit definition, or that
interpret the current Nareit definition differently than we do. We
calculate Nareit FFO per diluted share as our Nareit FFO divided by
the number of fully diluted shares outstanding during a given
operating period.
We also present Adjusted FFO attributable to common stockholders
when evaluating our performance because we believe that the
exclusion of certain additional items described below provides
useful supplemental information to investors regarding our ongoing
operating performance. Management historically has made the
adjustments detailed below in evaluating our performance and in our
annual budget process. We believe that the presentation of Adjusted
FFO provides useful supplemental information that is beneficial to
an investor’s complete understanding of our operating performance.
We adjust Nareit FFO attributable to common stockholders for the
following items, and refer to this measure as Adjusted FFO
attributable to common stockholders: transaction expense associated
with the potential disposition of or acquisition of real estate or
businesses; severance expense; share-based compensation expense;
litigation gains and losses outside the ordinary course of
business; amortization of deferred financing costs; reorganization
costs and separation transaction expenses; loss on early
extinguishment of debt; straight-line ground lease expense;
casualty losses; deferred tax expense; and other items that we
believe are not representative of our current or future operating
performance.
Nareit FFO attributable to common stockholders and Adjusted FFO
attributable to common stockholders have limitations as analytical
tools and should not be considered either in isolation or as a
substitute for net income (loss), cash flow or other methods of
analyzing our results as reported under GAAP. Nareit FFO is not an
indication of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to fund
dividends. Nareit FFO is also not a useful measure in
evaluating net asset value because impairments are taken into
account in determining net asset value but not in determining
Nareit FFO. Investors are cautioned that we may not recover
any impairment charges in the future. Accordingly, Nareit FFO
should be reviewed in connection with GAAP measurements. We
believe our presentation of Nareit FFO is in accordance with the
Nareit definition; however, our Nareit FFO may not be comparable to
amounts calculated by other REITs.
ADJUSTED EBITDAre NON-GAAP
RECONCILIATION(unaudited, in
millions)
|
Three Months Ended March 31, |
|
2020 |
|
2019 |
Net loss |
$ |
(21 |
) |
|
$ |
(27 |
) |
Interest expense |
14 |
|
|
18 |
|
Income tax (benefit) expense |
(2 |
) |
|
5 |
|
Depreciation and amortization |
40 |
|
|
44 |
|
EBITDA |
31 |
|
|
40 |
|
Impairment loss |
2 |
|
|
— |
|
Gain on sales of real estate |
(23 |
) |
|
— |
|
Gain on casualty |
(2 |
) |
|
— |
|
EBITDAre |
8 |
|
|
40 |
|
Equity-based compensation expense |
2 |
|
|
2 |
|
Spin-off and reorganization expenses |
— |
|
|
1 |
|
Other, net |
— |
|
|
— |
|
Adjusted
EBITDAre |
$ |
10 |
|
|
$ |
43 |
|
Additional information:
- Adjusted EBITDAre for the three months ended March 31, 2020 has
been adjusted to exclude business interruption insurance proceeds
of $2 million, collected and included as income in net loss.
Adjusted EBITDAre for the three months ended March 31, 2019 has
been adjusted to exclude business interruption insurance proceeds
of $1 million, collected and included as income in net loss.
- For the three months ended March 31, 2020, the Company sold 23
properties for a gross sales price of approximately $100
million. The resulting gain was $23 million. For the three
months ended March 31, 2019, the Company sold two hotels for gross
proceeds of $5 million. The GAAP reported gains on sale for all
periods, which are included in net loss, have been excluded in the
calculations of EBITDAre and Adjusted EBITDAre.
HOTEL ADJUSTED EBITDA AND TOTAL
REVENUESNON-GAAP
RECONCILIATION(unaudited, in
millions)
|
Three Months Ended March 31, 2020 |
|
Three Months Ended March 31, 2019 |
Adjusted EBITDAre |
$ |
10 |
|
|
$ |
43 |
|
Corporate general and administrative expenses
(1) |
5 |
|
|
5 |
|
Hotel Adjusted
EBITDAre |
15 |
|
|
48 |
|
Impact of non-comparable hotels(2) |
2 |
|
|
(2 |
) |
Comparable Hotel
Adjusted EBITDAre(3) |
$ |
17 |
|
|
$ |
46 |
|
|
Three Months Ended March 31, 2020 |
|
Three Months Ended March 31, 2019 |
Total Revenues |
$ |
146 |
|
|
$ |
208 |
|
Impact of
non-comparable hotels(2) |
(6 |
) |
|
(29 |
) |
Comparable Hotel
Revenues(3) |
$ |
140 |
|
|
$ |
179 |
|
____________________(1) Includes adjustments to exclude the
effects of corporate general and administrative costs.
(2) Includes the impact of hotels sold and the 7 properties with
casualty related displacements that are excluded from the
Comparable Hotels.
(3) Comparable Hotels includes 241 hotels of the total 248
hotels owned as of March 31, 2020.
PRO FORMA ADJUSTED FFO NON-GAAP
RECONCILIATION(unaudited, in
millions)
|
Three Months Ended March 31, |
|
2020 |
|
2019 |
Net loss |
$ |
(21 |
) |
|
$ |
(27 |
) |
Depreciation and amortization |
40 |
|
|
44 |
|
Impairment loss |
2 |
|
|
— |
|
Gain on sales of real estate |
(23 |
) |
|
— |
|
Gain on casualty |
(2 |
) |
|
— |
|
Nareit defined FFO
attributable to common stockholders |
(4 |
) |
|
17 |
|
Equity-based compensation expense |
2 |
|
|
2 |
|
Noncash income tax expense |
2 |
|
|
— |
|
Amortization expense of deferred financing costs |
4 |
|
|
4 |
|
Spin-Off and reorganization expenses |
— |
|
|
1 |
|
Other, net |
— |
|
|
— |
|
Adjusted FFO
attributable to common stockholders |
$ |
4 |
|
|
$ |
24 |
|
|
|
|
|
Weighted average
number of shares outstanding, diluted |
57.9 |
|
|
59.5 |
|
Adjusted funds from
operations per share, diluted |
$ |
0.07 |
|
|
$ |
0.40 |
|
____________________
Additional information:
- Adjusted FFO attributable to common stockholders for the three
months ended March 31, 2020 has been adjusted to exclude business
interruption insurance proceeds of $2 million, collected and
included in net loss. Adjusted FFO attributable to common
stockholders for the three months ended March 31, 2019 has
been adjusted to exclude business interruption insurance proceeds
of $1 million, collected and included as income in net loss.
- For the three months ended March 31, 2020, we sold 23
properties for a gross sales price of approximately $100
million. The resulting gain was $23 million. For the three
months ended March 31, 2019, we sold two hotels for gross proceeds
of $5 million. The GAAP reported gains on sale for all periods,
which are included in net loss, have been excluded in the
calculations of Adjusted FFO attributable to common
stockholders.
- Weighted average number of shares outstanding, diluted
presented above may differ from weighted average number of shares
outstanding, diluted presented for GAAP purposes when there is a
net loss and all potentially dilutive securities are
anti-dilutive.
CERTAIN DEFINED TERMS
Average daily rate (“ADR”) represents hotel room revenues
divided by total number of rooms rented in a given period. ADR
measures the average room price attained by a hotel or group of
hotels, and ADR trends provide useful information concerning
pricing policies and the nature of the guest base of a hotel or
group of hotels. Changes in room rates have an impact on overall
revenues and profitability.
“Occupancy” represents the total number of rooms rented in a
given period divided by the total number of rooms available at a
hotel or group of hotels. Occupancy measures the utilization of our
hotels’ available capacity, which may be affected from time to time
by our repositioning, property casualties and other activities.
Management uses occupancy to gauge demand at a specific hotel or
group of hotels in a given period. Occupancy levels also help us
determine achievable ADR levels as demand for hotel rooms increases
or decreases.
Revenue per available room (“RevPAR”) is defined as the product
of the ADR charged and the average daily occupancy achieved. RevPAR
does not include bad debt expense or other ancillary, non-room
revenues, such as food and beverage revenues or parking, telephone
or other guest service revenues generated by a hotel, which are not
significant for us.
RevPAR changes that are driven predominately by occupancy have
different implications for overall revenue levels and incremental
hotel operating profit than changes driven predominately by ADR.
For example, increases in occupancy at a hotel would lead to
increases in room and other revenues, as well as incremental
operating costs (including, but not limited to, housekeeping
services, utilities and room amenity costs). RevPAR increases due
to higher ADR, however, would generally not result in additional
operating costs, with the exception of those charged or incurred as
a percentage of revenue, such as management and royalty fees,
credit card fees and commissions. As a result, changes in RevPAR
driven by increases or decreases in ADR generally have a greater
effect on operating profitability at our hotels than changes in
RevPAR driven by occupancy levels. Due to seasonality in our
business, we review RevPAR by comparing current periods to budget
and period-over-period.
“RevPAR Index” measures a hotel’s fair market share of its
competitive set’s revenue per available room.
“Comparable Hotels” are defined as hotels that were
active and operating in our system for at least one full calendar
year as of the end of the applicable reporting period and were
active and operating as of January 1st of the previous
year. Comparable Hotels exclude: (i) hotels that sustained
substantial property damage or other business interruption; (ii)
hotels that are sold or classified as held for sale; or (iii)
hotels in which comparable results are otherwise not available.
Management uses Comparable Hotels as the basis upon which to
evaluate ADR, occupancy, and RevPAR. Management calculates
comparable ADR, Occupancy, and RevPAR using the same set of
Comparable Hotels as defined above. Further, we report variances in
comparable ADR, occupancy, and RevPAR between periods for the set
of Comparable Hotels existing at the reporting date versus the
results of the same set of hotels in the prior period. Of the
248 hotels in our portfolio as of March 31, 2020, 241 have been
classified as Comparable Hotels. When considering business
interruption in the context of our definition of Comparable Hotels,
any hotel that had completely or partially suspended operations on
a temporary basis at any point during the three months ended March
31, 2020, as a result of the COVID-19 pandemic, was considered to
be part of the definition of Comparable Hotels. Despite these
temporary suspensions of hotel operations, we believe that
including these hotels within ADR, Occupancy and RevPAR, reflects
the underlying results of our business for the three months ended
March 31, 2020.
HOTEL COUNT RECONCILIATION
|
Hotel Count |
As of December 31, 2018 |
315 |
|
Hotels sold |
(44 |
) |
As of December 31,
2019 |
271 |
|
Hotels sold(1) |
(23 |
) |
As of March 31,
2020(2) |
248 |
|
Hotels sold subsequent to
quarter end(3) |
(3 |
) |
As of May 20,
2020 |
245 |
|
|
|
Total hotels
sold |
70 |
|
_____________
(1) The Company sold 23 hotels, totaling 2,700 rooms. Of
these properties sold, two were located in San Antonio, Texas; two
were located in Houston, Texas; two were located in Austin, Texas,
two were located in Amarillo, Texas; and one in each of the
following locations: Augusta, Georgia; Clute, Texas; Pleasant
Prairie, Wisconsin; Midvale, Utah; Temple, Texas; Moon Township,
Pennsylvania; Roswell, Georgia; Omaha, Nebraska; Plattsburgh, New
York; Delafield, Wisconsin; Las Cruses, New Mexico; El Paso, Texas;
Champaign, Illinois; Lenexa, Kansas; and Canton, Michigan.
(2) Includes the 7 properties with casualty related
displacements that are excluded from the Comparable Hotels as of
March 31, 2020
(3) From March 31, 2020 through today, the Company sold 3
hotels, totaling 270 rooms. Of these properties sold, one was
located in each of the following locations: Macedonia, Ohio; New
Berlin, Wisconsin; and Oshkosh, Wisconsin.
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