Good day and welcome to the Host Hotels & Resorts Incorporated Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, I would like to turn the call over to Tejal Engman, Vice President of Investor Relations. Tejal, please go ahead.

Thank you and good morning, everyone. Before we begin, please note that none of the comments made today are considered to be forward-looking statements under Federal Securities Law. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDAre and comparable hotel results. You can find this information, together with reconciliations to the most directly comparable GAAP information, in today's earnings press release, in our 8-K filed with the SEC and in the supplemental financial information on our website at hosthotels.com. Participating in today's call with me will be Jim Risoleo, President and Chief Executive Officer; Brian Macnamara, Principal Financial Officer and Controller; and Sourav Ghosh, Executive Vice President Strategy and Analytics. And now, I'd like to turn the call over to Jim.

Thank you, Tejal and thanks for joining us this morning. We hope that you and your families are safe and healthy, and we extend our deep condolences for those affected by COVID-19. The lodging sector is navigating an unprecedented challenge that is expected to be at least twice as severe as the Great Recession. After a strong January and February, U.S. RevPAR posted its deepest decline on record and is expected to further deteriorate in April according to STR data. Although we couldn't have anticipated the outbreak of a global pandemic, Host is well positioned to withstand the magnitude of its impact due to years of prudent capital allocation that emphasized maximizing balance sheet capacity and liquidity towards the end of the cycle. Today, we not only expect to persevere through this crisis, we fully expect to emerge with a stronger operating model, the highest quality portfolio in the company's history, and the ability to capitalize on future opportunities to create value for all our stakeholders. This morning, I will address our liquidity and cash flow position, key business segment trends, and our revised capital plan. Brian will discuss our first quarter performance and provide our forecast for April. We began this year with the lowest leverage in the company's history at 1.6x net debt to adjusted EBITDA. There are no near-term debt maturities, $1.6 billion of cash on hand, a fully unencumbered consolidated portfolio, and a strong investment-grade balance sheet. We drew down our $1.5 billion credit facility revolver in mid-March and ended April with approximately $2.7 billion of cash including FF&E reserves after paying approximately $140 million in first quarter dividends which were declared in February. At quarter end, our leverage ratio as defined in our credit facility was at 2x, our interest coverage ratio was at 6.8x, and our fixed charge coverage ratio was at 4.6x, all of which are well within the limits specified in our credit facility covenants. We expect to remain in compliance with all our credit facility covenants through the second quarter and are currently in discussions with our supportive bank lending group to secure greater flexibility on our covenant requirements. Moving on to expenses, we and our operators responded to the precipitous decline in revenues in March and April by implementing portfolio-wide cost reduction initiatives that are unprecedented in their magnitude. These include reducing the fixed portion of our property allocated costs by as much as two-thirds, suspending contributions for hotels' FF&E escrow accounts, suspending most brand standards, and unfortunately, furloughing up to 80% of the hotel workforce. As of yesterday, operations at 35 of our 80 consolidated hotels, representing 43% of our total room count are suspended. We work with our operators to determine whether to suspend operations at our hotels based on the properties' ability to generate revenues that are greater than the incremental cost associated with remaining open. If the hotel is expected to achieve this incremental threshold, it remains open. Our preference is to leave hotels open as long as it is financially justifiable to do so because we believe an operational property is better positioned to capture demand when it begins to recover. Our scale within several markets such as New York, Washington DC, San Diego, Los Angeles, Orange County, and Chicago has helped us generate operational efficiencies and to further benefit from consolidating low levels of demand at multiple properties into the hotels that remain operational in that market. For example, we have gained operational efficiencies in Washington DC, with the leadership of the JW Marriott overseeing the Washington Marriott Metro Center in the Westin Georgetown. The same has been achieved in New York and other markets. Demand consolidation is benefiting our hotels in Los Angeles, San Antonio, and San Diego, where we are able to consolidate demand into one property in each of those markets. For the hotels that remain open, our managers have significantly scaled down operations by closing guest room floors and meeting spaces and suspending food and beverage outlet operations. Due to timing, we expect to see the full benefit of these operating expense reductions in April when total hotel operating expenses are expected to be 70% to 75% lower than our initial forecast from February. At the corporate level, we expect to further conserve cash by reducing our capital expenditures by $100 million to $125 million and our corporate expenses by 10% to 15%. Finally, we expect to either suspend our second quarter dividend or cut it to $0.01 a share, which is a reduction of approximately $140 million compared to our prior $0.20 per share quarterly dividend. As a result of these anticipated cash savings initiatives and a worst-case scenario where all of our hotels are effectively closed through the end of 2020 and the dividend remains suspended or reduced, our monthly cash outflow would average $120 million to $140 million per month, reflecting average hotel-level expenses of $70 million to $80 million a month, as well as estimated capital expenditures, interest payments, and general corporate overhead. Importantly, in this worst-case scenario, we would end 2020 with approximately $1.65 billion of cash, including the FF&E reserve, leaving us with ample liquidity to support operations as the economy recovers. Moving on to group and transient business trends, through May 4, we have lost an estimated $1.3 billion of expected 2020 revenues. This represents approximately $630 million of total group revenues known to date and $660 million of total transient revenues forecasted for the first half of the year. Approximately 90% of our total group revenue cancellations have been for the first half of the year, with over 60% in the second quarter alone. Of the approximately 10% of total group revenue cancellations in the second half, less than 3% are for the fourth quarter, while the low levels of cancellations for the fourth quarter are encouraging. We believe that the near-term pace of group and transient business remains uncertain until the consumer feels comfortable traveling again. Our operators have revoked approximately 12% of our total 2020 loss group revenues with the majority revoked for the second half of 2020. Although we expect a significant portion of our total group revenues to be lost due to timing, as they were driven by a favorable 2020 citywide convention calendar, a majority of our group customers have expressed a desire to rebook at our properties. Finally, we have collected $32 million in cancellation fees to date, with $10 million recognized in the first quarter. Shifting to 2021 total group revenue pace, we began this year with 2.3 million definite rooms on the books for 2021 and the pace was nearly 3% ahead of the same time last year. Although 2021 group booking activity is half of what it was last year, our total group revenue pace is now flat. We believe group demand will return over time with decision makers on the sidelines and in a wait-and-see mode; we believe the pace of recovery in both group and business transient will depend on customers feeling safe to travel. Markets with stronger group demand for 2021 are San Antonio, San Diego, Seattle, Los Angeles, and Chicago, whereas New York, Orlando, San Francisco, San Jose, Denver, and Boston currently have pace opportunities. Given the current uncertainty, pace by market could change considerably in the weeks and months to come. We continue to believe in the long-term viability of the group business while the association business model relies upon generating income from large group meetings. A more intangible reality is that most group meetings allow members within an industry to connect with and learn from each other while building relationships and trust in a manner that we don't think is possible to replicate digitally. In the long run, we believe using group volumes to compress supply and generate productive yield management will remain a cornerstone of the lodging business. That said, we are positioning ourselves for the recovery to be led by drive-to-leisure destinations. As observed in China and other parts of Asia that are several weeks ahead of the United States, the recovery thus far has been led by domestic leisure stays and drive-to destinations. With renovations recently completed and construction planned within the next 12 months, over 70% of our portfolio in our strongest drive-to-leisure markets will be fully refreshed. Specifically, our hotels in Phoenix, San Diego, Orange County, San Antonio, and Florida, which represent over 13,000 keys or nearly 30% of our total portfolio, are very well positioned to capture a recovery in drive-to-leisure demand. We continue to prioritize the health and safety of our employees and guests. Most of our hotels are managed by large brands known for reliably delivering consistent service and standards. These brands are now raising their cleanliness standards to even higher levels with new protocols to address the current circumstances. We believe branded hotels, communication around, and execution of rigorous cleaning standards will resonate well with customers. Moreover, we expect the strength of their loyalty programs to be a strong driver of demand to our properties. Turning to our supply outlook, while it will take several quarters before we have a complete understanding of the change in hotel supply growth, we have reduced our internal net supply expectations for 2020 in half based on broad assumptions surrounding project delays or announcements, and existing hotel closures. We now expect supply growth of roughly 1% in 2020, with average growth over the next three years remaining below the long-term historical trend. Moreover, we believe there is a high probability that several projects that have not yet begun construction will be cancelled or significantly delayed. Although no one knows the timing or shape of the recovery, we are hopeful that occupancy declines may have stabilized and found a bottom in April. We frequently get asked what level of occupancy will allow us to breakeven at the hotel level. As you may imagine, providing a number is difficult as it varies greatly by property, requires ADR assumptions, and is likely to change on a monthly basis. We have conducted analyses based on a single month of operations in the current environment with significant expense reductions remaining in effect. In that scenario, assuming ADRs decline 15% to 30% on a year-over-year basis, we would expect to see hotel breakeven at 35% to 45% portfolio occupancy. Our enterprise analytics and asset management teams are working closely with our operators to strengthen a long-term hotel operating model with near-term goals of achieving breakeven and generating higher profitability at lower levels of occupancy. In the 2009 recession, several operating expense line items were significantly reduced and continued to improve through the cycle. While we expect our hotels to incur new expenses, particularly those related to new cleanliness standards, downturns compel owners and operators to reevaluate brand standards, programs, and above-property expenses. This can result in long-term savings and a healthier hotel operating model that better serves customers' changing needs. Turning to CapEx, we have reduced our 2020 capital expenditures by $100 million to $125 million, which represents an approximately 50% reduction to the portion of the CapEx budget that was already spent, underway, or committed. Approximately 85% of our CapEx savings are derived from eliminating non-essential renewal and replacement CapEx spend, with the remainder coming from suspended ROI projects. We continue to plan on spending $180 million to $200 million on the Marriott transformational capital program and now expect to see $20 million in operating profit guarantees this year. It makes sense for us to complete these renovations for several reasons. First, we benefit from $20 million of operating profit guarantees without experiencing commensurate revenue disruption given the current unprecedented low RevPAR environment. Second, we expect the renovations to position us to achieve meaningful RevPAR gains through the cycle, particularly as most hotel owners are compelled to cut back on renovations due to liquidity constraints. Third, construction bids are coming in below budget and market pricing is expected to decline by at least 6% to 10%, which provides us the opportunity to buy out construction at lower prices. In addition to all of this, as the performance of these properties returns, we will receive enhanced owners' priority on this investment, which will reduce the incentive management fees we pay Marriott. As part of this year's Marriott transformational capital program, we have completed renovations at the San Antonio River Center Marriott and we will finish the Minneapolis City Center Marriott in just a few weeks. Later this year, we plan to complete the JW Marriott and expect to start the Ritz Carlton Amelia Island, which is scheduled to complete in the first quarter of 2021. Finally, we will complete the second phases at both New York Marriott Marquis and the Orlando World Center Marriott, which are scheduled to complete in the third and fourth quarter of 2021 respectively. Combined with the properties completed as part of last year's capital program, including Coronado Island Marriott Resort and Spa, New York Marriott Downtown, San Francisco Marriott Marquis, and Santa Clara Marriott, the Marriott transformational capital program is expected to be nearly 70% complete by the end of 2020. While the program consists of a mix of group and leisure dominant hotels, and markets, these transformational renovations are expected to have a useful life of 7 to 10 years and will help our property gain market share and outperform through the next cycle. While our revised CapEx plan shows that projects will largely be completed as scheduled, COVID-19 has impacted our ability to implement renovations as supply chains have been disrupted, and certain state and local orders have deemed construction non-essential. We will continue to provide quarterly updates on our capital plan for the year. As I reflect on leading Host over the last few years, and now through this crisis, it is gratifying to know that our prudent and disciplined capital allocation strategy towards the end of the cycle has served our stakeholders well. In 2018 and 2019, we sold $3.3 billion of our relatively lower-quality and lower total RevPAR assets at the top of the market. Additionally, we capitalized on the favorable debt capital markets last year, taking advantage of over $3 billion in refinancing, which extended our debt maturities and reduced our borrowing cost at an opportune time. We also acquired $1.6 billion worth of high-quality assets, bought back $629 million of stock, and invested in developing and redeveloping parts of our portfolio. We deployed each of these value creation tools in a disciplined manner, not knowing when the cycle would end, but understanding that balance sheet strength and capacity would be paramount importance when it did. Today, as we enter a new logic cycle, we feel hopeful about our future where the threat of this pandemic has passed. In the meantime, we are taking the opportunity that this crisis provides to further stress-test our operating model and to learn how to generate higher levels of profitability at lower levels of occupancy. We are excited to be entering a new cycle with the highest quality portfolio of iconic and irreplaceable assets in the company's history and likely in the lodging industry. When demand recovers, we believe that the quality of our assets, many of which will be newly renovated, will be a true differentiator that will help us gain RevPAR index share and outperform the industry. We continue to believe in the strength of both geographic and demand diversity through the cycle. Geographic diversity will serve us through an uneven recovery of various states and markets and their lockdowns at different times. Demand diversity will help us drive optimal revenue management and pricing through the cycle. Finally, we expect our relative balance sheet strength to continue to be a differentiator that will provide us greater flexibility to capitalize on future long-term value creation opportunities that meet our strategic objectives. With that, I will turn the call over to Brian.

Thank you, Jim. Good morning, everyone. Prior to the spread of the pandemic in the United States, business was off to a strong start in 2020. For the total portfolio in January and February, RevPAR was up 220 basis points driven by a 120 basis point increase in occupancy. Total RevPAR was up 490 basis points for the same period. As a result, at that point in the quarter, we were ahead of last year by approximately $20 million. March, however, experienced a 65% decline in RevPAR, driven by a 52% drop in occupancy. We lost 730,000 room nights due to shelter-in-place orders and widespread changes in business travel policies. March room revenues declined by $200 million year-over-year and drove our first quarter RevPAR decline of 23.3% as occupancy fell 17% year-over-year. Our first quarter results include a $43 million wage and benefit expense associated with moves to suspend operations and the necessary changes to hotel-level staffing. These costs include an $8 million cash payment to hotel employees in March and a $35 million accrual for furlough benefits in April and May. If our operators extend those benefits for the approximately 80% of the workforce that is currently furloughed, we would expect the carrying costs for those employees beyond May to average $15 million to $17 million per month for the entire portfolio. As Jim mentioned, we have worked closely with our operators to reduce operating expenses and expect to realize that 70% to 75% reduction in hotel-level operating expenses in April compared to our initial forecast. As a reminder, our initial forecast in February implied that hotel-level expenses at the midpoint would be approximately $3.8 billion for the full year. On the revenue front, we expect total RevPAR for April will decline by 90% to 95%, reflecting the extremely low occupancies in most markets. Demand in April has largely been restricted to medical professionals and airline crews. For example, The Sheraton New York Times Square and the New York Marriott Marquis achieved occupancies close to 50% in April, primarily driven by medical and first responder business. Being two of the largest hotels in the city to remain open has provided the Sheraton and the Marquis with a great opportunity to capture this business. With New York City thankfully continuing to make progress from earlier peak infection levels, this business is expected to taper off in early to mid-May. By the end of March, we had suspended operations at 13 properties. As occupancies continued to decline through April, we suspended operations at an additional 22 properties, bringing the total number of suspensions to 35. A typical staffing model for properties that have suspended includes a management team of 5 to 7 associates working as scheduled that has been reduced anywhere from 20% to 40%. Further, there is management oversight of the security department, and in certain circumstances, properties have layered in additional sales and event department management to assist with the rescheduling and planning of future group business. Hourly positions are generally limited to a single associate per shift in the engineering and security departments. Properties that are operational will generally have the same base management coverage as suspended properties as well as minimal rooms management, though again, working at significantly reduced hours. Typically, these managers are covering both the housekeeping department and front desk as well as actively working shifts in one of those departments. Hourly positions in addition to the security and engineering positions previously mentioned may include housekeeper shifts based on occupancy and front desk coverage. In very limited cases where food service is provided, one chef or kitchen shift would be added to prepare a limited to-go menu. Although visibility remains limited, we do not anticipate additional suspensions at this time. Timing with regard to reopening the 35 hotels where operations are currently suspended, however, remains unclear. Our reopening criteria are based on the timing of state and local authorities and the pace of our bookings and revenue growth projections. We are working with our operators to determine how costs can be managed through the impending recovery such that we can achieve breakeven levels as quickly as possible, with the goal of generating higher levels of profitability at lower levels of occupancy over time. Shifting to market performance, our top-performing markets in the first quarter were all in negative territory, although they outperformed the STR upper-tier segment in their respective markets. Top-performing markets include Phoenix, San Francisco, New Orleans, Atlanta, Miami, San Diego, New York, and the Florida Gulf Coast. The underperformers were San Antonio, Maui/Oahu, Jacksonville, Orange County, Denver, Northern Virginia, Washington DC, Seattle, and Houston. The majority of the $630 million of total group revenue loss that Jim mentioned has been driven by six markets: San Diego, New York, Orlando, Phoenix, San Francisco, and Boston. However, we have experienced cancellations across the portfolio with 24 markets showing greater than $5 million in total group revenue cancellations. We are not providing any 2020 guidance at this time. Our lack of visibility regarding the depth and duration of the pandemic, the timing of the reopening of individual states and localities, and the expected operating restrictions for businesses, as well as individual company travel restrictions, is simply too uncertain at this time. I would note that in prior recessions, peak-to-trough declines in hotel-level EBITDA have been roughly twice as large as the peak-to-trough declines in RevPAR. Although this 2 to 1 ratio should have deteriorated considerably in a near-zero revenue environment, we believe it will continue to hold true for our portfolio due to our significant success in reducing fixed costs at the property level. Our confidence in our ability to not only persevere through this crisis, but to drive value for stakeholders is based on the strength of our investment-grade balance sheet. We have significant liquidity to withstand the worst-case scenario of a complete shutdown of our entire portfolio until the end of 2021, subject to our success in obtaining covenant waivers for our COVID-impacted facilities. Moreover, we have no significant debt maturities until 2023 and have approximately $2.7 billion of available cash as of April 30. Finally, the company has access to other sources of liquidity, including secured debt, asset sales, and capital market transactions. To be clear, the company has no need to tap into additional sources of liquidity, but I mention them to provide reassurance that we do not expect liquidity to be an issue for Host. Today, more than ever, we believe that Host Hotels & Resorts is the premier lodging REIT in the industry. We have a high-quality, well-diversified portfolio whose consistent performance is driven by strong in-house analytics and by working with the best operators in the business. With the only investment-grade balance sheet among lodging REITs, we are well-positioned to deal with this crisis and to continue to execute our strategic vision to create long-term value for our shareholders. Thank you. And with that, we will now be happy to take questions. To ensure we have time to address questions from as many of you as possible, please limit yourself to one question.

Thank you. Our first question today is coming from Anthony Powell from Barclays. Your line is now live.

Yes. I'm well in New York. Things are okay here, getting better. Just a question on your credit facility amendment that you're seeking. A lot of the other amendments that have come with restrictions on dividends, buybacks, and acquisitions. How do you ensure that you maintain flexibility to take advantage of opportunities and your balance sheet strength even as you secure amendments to your facility to give you more comfort around your covenants?

Sure. We made a conscious decision to let some time pass before we fully engaged with our bank lending group, which I'm glad has been incredibly supportive. We have long-standing relationships with all of the lenders in our credit facility, some going back 25 years since the time Host was formed. So we're in a really unique position because as you heard today, we have the runway in a very worst-case scenario to take us through 2021 from a liquidity perspective. We do have access to multiple sources of capital should we need it, which we don't believe we're going to need. We'll only need it to play offense at the time when opportunities present themselves and we can see greater visibility going forward. So as we're having conversations with the bank group, we're keeping into consideration maximum optionality and the flexibility to put us in a position to play offense going forward. We feel really good about the fact that we're going to be in compliance with all of our credit facility covenants through at least the second quarter. I would expect in the next several weeks, we will be in a position to announce publicly through a press release and an 8-K what the amendments to that credit facility will look like.

Just a clarification, I believe you said, you expect 2 to 1 RevPAR and EBITDA decline at this time. I think STR had a 50% RevPAR decline assumption for this year. Does that mean you expect you’d rather be at zero this year? Is that environment with bottoms down or is that too simplistic to see?

Yes. If you take STR data that would be a correct assumption.

Thank you. Our next question is coming from Michael Bellisario from Baird. Your line is now live.

Just thinking on that same topic of playing offense. One, what are you cueing off of to make that decision? And then how are you thinking about the different ways to ultimately create long-term value today, or at least when those opportunities present themselves?

Mike, we are in a unique position given the strength of the company and the fact that we came into the year at 1.6x debt to EBITDA with $1.6 billion of cash on the balance sheet. We are truly in a position to persevere through this downturn through this pandemic and come out the other side in a position to play offense. Now when does that happen? I think right now it's very premature at this point in time. I don't think you're going to see us or anybody else in a position to acquire hotels until we have greater visibility on how the U.S. economy is going to perform and how it's going to recover. I think everyone is in agreement today that we are in a recession. We just don't know the depth of the recession, nor do we know the duration of the recession. There are numerous conversations occurring between hotel owners and lenders today with respect to waivers and interest forbearance. It's a question of how that's all going to play out and where the opportunities are going to be. I think it's a little too soon to know. But when we have visibility and when we start seeing opportunities come to market, we will be in a position to take advantage of those opportunities. We're talking to our bank group about giving us some optionality to acquire hotels as we move forward. Obviously, the hotels are going to have to be a strategic fit for us. They’re going to have to be priced appropriately and have the potential for us to believe that we're going to be able to create shareholder value, or we will continue to be disciplined in our approach to capital allocation. We think it served us very well toward the end of this cycle and given us an opportunity to play offense.

Thank you. Our next question is coming from Rich Hightower from Evercore. Your line is now live.

So Jim, I want to go back to the breakeven occupancy calculation. I think you guys said that it includes an assumption for 15% to 30% declines in ADR. I'd like to maybe hear your opinion on the art of pricing a hotel room, coming out of COVID, given that everything is at a standstill and starting from scratch. How do you anchor the customer's expectation to that sort of a rate starting from zero base, and what do you think the progression for ADR might be over the next few years, kind of in that framework?

We are having daily conversations with our operators about reinventing the revenue management model, which we believe is still very relevant today. Our main focus will be on maintaining rate integrity rather than allowing rate degradation. It's challenging in a low RevPAR and low occupancy environment. For example, in April, our portfolio had an occupancy rate of around 13%, slightly over 12%. We achieved an average daily rate of $135, which may not seem impressive, but considering many hotels, excluding New York, are operating at low single-digit occupancies, maintaining that rate is commendable from our viewpoint. When we consider breakeven occupancy and ADR, it really varies from hotel to hotel and will fluctuate as occupancy and demand rise and expenses come back into play. The figures we shared regarding occupancy and ADR declines are based on the currently low level of expenses we're facing. As those expenses rise, we'll need to balance the incremental expenses at the properties with potential occupancy and ADR increases.

Yes. That's helpful, Jim. I will hop back to the queue. Thanks.

Thank you. Our next question today is coming from Smedes Rose from Citi. Your line is now live.

I just wanted to ask kind of bigger picture. I picked up on Rich's question. I think coming into this, typically, labor costs for a typical hotel have been kind of in the 40% to 45% range. Assuming we return to some kind of more normal business environment, where do you think that number can go to? It seems like there are going to be a lot of thoughts around maybe not cleaning hotel rooms when guests are using them, but there might be more cleaning outside of the rooms. Where do you think that could just move to, or do you think it just kind of stays the same after everything has been reallocated?

I'll start. I'll give you a couple of thoughts here, but I'm going to ask Sourav to jump in on this one. I can tell you this: We view this opportunity that this crisis presents as a chance to truly redefine the hotel operating model. There are going to be incremental costs associated with cleaning and sanitizing, and we think that that is going to be critically important. It's always been essential to the traveling consumer to know what they're getting when they check into a hotel room, and the fact that the majority of our properties are managed by Marriott and Hyatt gives us great comfort because they are at the top when it comes to cleaning and sanitizing standards, and their outreach to consumers has been meaningful and will continue to be meaningful. We think this is truly a distinguishing factor relative to the independent hotel operator because customers are going to be comfortable staying in a Marriott or Hyatt managed hotel knowing that it will be sanitized and clean. Safety is paramount today. We talked just a minute ago about ADR, and I can tell you based on some focus groups that have taken place, customers don’t really care as much about ADR as they care about their personal safety. So we believe that through brand standards with respect to cleanliness and cleaning, along with being affiliated with the best loyalty program in the space, is going to give us a true competitive advantage as we come out of this pandemic. I will let Sourav give you a bit more color on how we're thinking about the hotel operating model.

Hi, Smedes. I want to start off by saying that our managers are truly committed to taking costs out versus putting costs back in. And where the opportunity really exists is going to be in sort of three broad buckets. One is going to be the reduction of above-property costs. Second is that the brands are really focusing on brand standards and figuring out which brand standards are archaic and can be either eliminated completely or modified. And the third is really adapting to the changing customer preferences, particularly leveraging technology. So think about whether we really need the front desk as we know it today with the touchless technology that does exist. So that's the three broad buckets I would put it into. The incremental costs associated with cleaning, we believe should be offset by an improvement in productivity.

Thank you. Next question today is coming from David Katz from Jefferies. Your line is now live.

Hi, good morning, everyone. Good to hear everyone's voices. Thanks for taking my question and for all the information. I wanted to ask about group business; we are wondering and endeavoring to research around groups that may be postponing or rebooking later in the interest of avoiding a cancellation fee and/or sort of kicking the can down the road a bit. This may be more of a qualitative question relying on your experienced intuition, but I just wonder what you think about that.

David, we think as a management team and then in consultation with our operators that if we agree with the premise that we're going to see a return of the leisure customer first, primarily led by drive-to destinations, then we'll see a return of the business transient customer. And lastly, we'll see a return of group business. We feel that group business is not likely to start meaningfully coming back to hotels until May 2021. At this point in time, a) we talked just a minute ago about the need for cleanliness and confidence in consumer safety. That's going to be paramount. I would say that until we have a vaccine, it's not likely you'll see group volumes come back in any meaningful way.

Thank you. Our next question is coming from Robin Farley from UBS. Your line is now live.

Great, thanks. Most of my questions have been addressed already about potential M&A. I guess one question I had, you made a comment in the introductory remarks about, I think you said group for next year being flat or pacing flat or something. I guess I just wanted to get a sense of how much are you seeing people holding off on booking new group for 2021? So in other words, maybe you are still flat with the prior year, but how does that pace look, in terms of, are people holding off on next year already? Thanks.

Yes. Robin, I think that our pace, our numbers came down a bit year-over-year in terms of group booking pace, but I believe we said that we have 2.3 million room nights on the books for next year, which is about flat relative to where we were at the same time last year. So, people are still booking. I think it really goes to the uncertainty surrounding the scope and depth of the crisis. We think group is a very viable part of the hotel business going forward. Associations have to have group meetings to survive. It's part of how they make money. The intangible is the fact that group meetings are very important for interaction and building relationships and trust among the people that participate in group meetings. We don't believe that this can be replaced digitally; it's just not going to happen over a Zoom call. So, we feel that group business is going to continue to be a viable part of our business. I know Sourav has something he wanted to add.

I would just add, looking out to the future 2022 to 2023, our total group pace is still pretty strong at positive 2.5%.

Thank you. Our next question today is coming from Bill Crow from Raymond James. Your line is now live.

Jim, I think you mentioned you collected $22 million or $32 million of cancellation fees split between the first quarter and the second quarter. I'm just curious about that because it seems awfully tough to recoup cancellation fees, especially in the second quarter, given the lockdown and restrictions on meetings. Can you give us some commentary on that?

Yes. Bill, the cancellation fees that we collected were collected early in the year, early in the pandemic, and we collected $30 million in total, recognizing $10 million in the first quarter. I would not expect that you're going to see that cadence to continue as we move forward. So we're more interested in working with our customers, many of whom are long-term customers, and we want to maintain those relationships and encourage them to rebook their business at our properties.

Thank you. Our next question is coming from Chris Woronka from Deutsche Bank. Your line is now live.

I want to ask you a little bit of a longer-term question. I know you guys have made a lot of progress over the years with food and beverage efficiency and getting margins up. So the question is, as we look out three to five years, do you think it's going to become, I don't know whether it's necessary or ideal, to maybe have smaller food and beverage operations. I know that you needed it in a lot of your convention hotels, but in a lot of the other hotels, it seems like there's always a cap on profitability. So, do you think that's something you'll be considering during this downturn, and that it will look different coming out?

Absolutely. We are having conversations already with our operators regarding the need for three meals a day in many of our hotels. We're discussing the possibility of eliminating breakfast buffets in the restaurants and maybe only opening the restaurants for breakfast. If this is an opportunity to rewrite brand standards going forward, you're spot on that this is something we’re thinking about and talking about.

Thank you. The next question is coming from Shaun Kelley from Bank of America. Your line is now live.

Jim, I wanted to discuss your recent opportunistic sales of non-core assets, which you mentioned in your prepared remarks. You've been quite successful in this area over the past few years. Is there anything left in that category that you feel needs attention? I understand that the timing may not be ideal, but could you share your comfort level with the current state of the go-forward portfolio? Additionally, regarding that group of hotels, if there are any that no longer fit the profile moving forward, do you see a need to reopen in the current environment? How do you approach the idea of long-term closures and the potential obsolescence of some of those non-core assets?

Sure, Shaun. I’ve said over time that we are very comfortable with the composition of the portfolio we have today. Our sales are always opportunistic; we will sell a hotel when we feel that the price we’re receiving exceeds our hold value, which we do on a regular basis for each property in the portfolio. So, we’ll continue to be opportunistic in the future. Today, there’s no need for us to sell any properties, and in this environment where we think pricing would be very challenging, we’d much rather be an acquirer and take this opportunity to add to the portfolio that we have today to continue to upgrade the quality through acquisitions as opposed to sales. So the short answer is, we’ll be opportunistic when the time is right.

Thank you. The next question is coming from Thomas Allen from Morgan Stanley. Your line is now live.

You talked earlier about more optimism around drive-to resort markets. There’s some positive data out of STR earlier this week. Are you seeing any increased bookings for your resorts? Any data points you can give?

Sure, Tom. That is a green shoot that we saw in May. We feel that occupancy hit a bottom in April. As Brian mentioned in his comments, the business that we booked in April was really related to medical and airline crews and some first responder business in certain other hotels, as well as National Guard business. However, in two of our drive-to properties in particular, we’re seeing very good booking numbers for Memorial Day weekend at the Ritz Carlton Amelia Island. We expect occupancy to be around 60% over Memorial Day weekend. At the Don CeSar in St. Petersburg Beach, another terrific resort property, we expect to see occupancy in the 50s as we sit here today. And hopefully, those numbers will continue to grow. We’re also seeing solid booking activity in June and July. In June, we’re seeing booking activity in the 13% to 15% range, and in July, it’s significantly higher. So let’s keep our fingers crossed and hope that business continues to grow.

Thank you. Our next question today is coming from Steve Brunner from RBC Capital Markets. Your line is now live.

So I know you guys stated that you don't have specifics on the timing of reopening by specific markets. But if you guys had some sort of high-level estimate, you were going to make I guess an educated guess, which market do you guys see opening first?

It's a tough question to answer because 14 of the top 20 markets still have restrictions in place regarding when people can get back to business as normal. So we just don’t know. What I can tell you is that, as we’ve discussed, and everyone believes, that drive-to leisure demand is going to be the first part of the business to return. We have over 13,000 rooms in drive-to markets today. Those markets include Florida, San Antonio, Phoenix, Chicago for the summer; Los Angeles, Orange County, and San Diego. We are closely following when restrictions are lifted. We would hope that those hotels in all the markets that I just mentioned will be some of the first to reopen. But at this point in time, it’s difficult to put a date on when that’s going to happen because it’s out of our control.

Thank you. We've reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Thank you all for joining us on the call today. We appreciate the opportunity to discuss our first quarter results with you and we look forward to virtually seeing you at NAREIT and talking with you in a few months to discuss our second quarter results. Have a great day everyone and stay safe. We will all get through this pandemic and look forward to seeing you in person soon.