Pebblebrook Hotel Trust Q2 FY2020 Earnings Call

Greetings and welcome to the Pebblebrook Hotel Trust Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Chief Financial Officer. Thank you. Please go ahead.

Thank you, Donna, and good morning, everyone. Welcome to our second quarter 2020 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, a quick reminder that many of our comments today are considered forward-looking statements under federal securities laws. And these statements are subject to numerous risks and uncertainties, as described in our 10-K for 2019 and our other SEC filings. Future results could differ materially from those implied by our comments today. The forward-looking statements that we make today are effective only as of today, July 31, 2020, and we undertake no duty to update them later. You can find our SEC reports and our earnings release, which contain reconciliations of the non-GAAP financial measures we use, on our website at pebblebrookhotels.com. So the second quarter was clearly the most challenging in the history of the hotel business due to the pandemic and the government restrictions put in place to try to slow the spread of the virus and protect the health of the general public. On a positive note, hotel and travel demand clearly bottomed in mid-April and slowly and consistently improved during the second quarter. The demand is primarily from leisure, with a smattering of business travel beginning to appear. Unfortunately, due to the recent growth and spread of the virus and the rollback of some of the state and city reopenings, the gradual recovery in travel and hotel occupancy seems to have flattened out over the last few weeks, though we have continued to see some week-to-week improvements within our portfolio as newly opened hotels ramp up their share of market demand. We now have 24 hotels open, marking a significant increase from the end of March when we had just 8 hotels open. We expect to open another 5 hotels in August, assuming we don't experience any further setbacks from cities reversing their reopening phases. As a result of these hotel reopenings and improving leisure travel demand, our monthly hotel cash burn for May and June averaged about $10.5 million, which is $6 million better at the midpoint than the $15 million to $18 million average monthly cash hotel burn that we estimated during the first quarter call, which represented our worst-case scenario and assumed all of our hotels were closed. Our combined hotel and corporate level average monthly cash burn for May and June was $22.5 million, which includes all interest and dividend payments. This is down $5 million at the midpoint from our $25 million to $30 million monthly average cash burn we estimated on our first quarter call. Based on the 24 hotels that are currently open, we estimate our hotel cash burn for July to be $9 million to $12 million, and our combined total cash burn to be $19 million to $24 million. Our focus continues to be on reducing our cash burn and returning to profitability. For the second quarter, which represents the first full quarter impact since the pandemic started, total revenues of $22.3 million were 94.5% below the prior year period, with total hotel level expenses of $63.1 million, which were reduced by 75.7% from the prior year second quarter. Excluding fixed operating expenses, such as property taxes, insurance and ground rent, operating expenses were cut by 84.5%. We can feel as good as we can about these relative operating results in what has been the most challenging quarter we've ever experienced. Our hotel teams did a great job reducing operating expenses at both the suspended hotels and the opened hotels. For what it's worth, and evidencing the slow gradual improvement during the quarter in operating performance, albeit at previously unimaginably low levels, our portfolio generated $3.5 million of revenue in April with 8 hotels opened, $5.6 million in May with 9 hotels opened, and $13.2 million in June with 16 hotels opened, with some opening just a few days before the end of June. For the second quarter, same-property hotel EBITDA was negative $40.8 million compared with positive $146.9 million in the prior year period; incredible. Same-property hotel EBITDA was a negative $17.4 million in April, which was the low point in the quarter, and improved to negative $12.7 million in May and negative $10.6 million in June. July's hotel EBITDA should show an incremental improvement from June. Our 8 resorts, which have been the bright spot in our portfolio due to their obvious appeal to leisure demand and their drive-to locations, generated a positive $1.3 million of hotel EBITDA in June following operating losses in April and May. EBITDA for the resort should be higher in July and August, assuming governmental restrictions don't become more severe. Average daily rates at our resorts during June were up over last year by 18.5%, with weekly occupancies climbing to 46.4% for the most recent week ending last Sunday. As a reminder, leisure transient across our portfolio has historically accounted for about 40% of our demand, with business transient at 35% and group at 25%. Our adjusted EBITDA was negative $50.2 million compared with a positive $151.6 million in the prior year period. Last year's numbers include $7.5 million of EBITDA from hotels we have since sold. Our current quarter also reflects $3.8 million of one-time charges associated with furloughing hotel-level employees and suspending hotel operations. Adjusted FFO declined to a negative $0.58 per share compared to a positive $0.85 per share for the prior year period. In the quarter, we invested $39.5 million of capital into our portfolio with a vast majority related to our renovation and redevelopment projects. These transformational projects include redeveloping the Donovan Hotel into Hotel Zena, Washington, D.C.; Mason & Rook into Viceroy Hotel Washington, D.C.; a dramatic upgrade of Chaminade Resort into a luxury resort; the comprehensive redevelopment of Le Parc in West Hollywood; and the previous Hilton San Diego Resort's $32 million transformation into the luxurious and independent San Diego Mission Bay Resort. We currently expect to invest an additional $35 million to $40 million over the balance of the year, primarily to complete this year's major redevelopment projects. With this year's completed renovations, 40 of our 53 hotels have been redeveloped or renovated over the last 5 years, which highlights the excellent condition of our portfolio. This will provide us with a competitive advantage in this downturn compared with other hotels that either haven't recently been renovated or have owners who don't have the access to reinvestment capital. As you saw earlier this week, we completed the sale of Union Station Nashville for $56 million, which equates to approximately $448,000 per room. There was also $6 million to $7 million of infrastructure repairs required and another $3 million for prior PIP requirements when we purchased the hotel, none of which would have generated any improvement in performance. We're delighted with the sale given the current environment. Year-to-date, we've completed $387 million of property sales, which significantly enhances our liquidity. Since the closing of our corporate acquisition in November 2018, we've completed 16 property sales as part of our strategic re-disposition plan, totaling $1.7 billion at a 5.8% cap rate. This highlights the desirability of our individual hotels and our ability to transact in challenging markets. Moreover, the proceeds from these sales were used to eliminate the debt taken out to complete the LaSalle acquisition and to further enhance our corporate liquidity. Turning to our balance sheet. At the end of June, we had $2.5 billion of debt, 100% of which is unsecured, and at an effective interest rate of 3.7%. This equates to a net debt to depreciated book value of approximately 37%, and less than 30% of our estimated cost of the replacement cost of our hotel portfolio. We had $253 million available on our $650 million unsecured credit facility and $352.8 million of cash-on-hand, which implies total liquidity of $606 million for our ongoing operating and capital investment needs, which should carry us far into 2021 and beyond, depending on the pace of recovery and assuming we don't complete any additional asset sales or raise new debt. These numbers do not include the net proceeds from the just-completed $56 million sale of Union Station Nashville, which was transacted on Wednesday. All of our assets are unsecured, and we have the enhanced flexibility of securing additional debt proceeds for liquidity through property-level financings in the future, if needed. Overall, we're in good shape with our debt maturities, which is $50 million of debt maturing in November 2021, which is our next debt maturity, and no meaningful debt maturities into November 2022. We successfully completed our waiver agreements with our banks on June 29. This waiver period continues until the second quarter of 2021, and we will have a relaxed debt covenant period until the third quarter of 2022. Additionally, we can make opportunistic acquisitions and other investments during the waiver period. And with that, I would now like to turn the call over to Jon to talk about the quarter.

Thanks, Ray. So I thought I'd start by repeating many of our key observations and thoughts from last quarter's comments, since they generally continue to be relevant today. Those comments really help explain the level of uncertainty our industry and, frankly, all travel-related industries are unfortunately having to deal with now and in the near future, and our best guess as to how the hotel business would progress in this pandemic. We started with the obvious. These are unprecedented times. Travel demand has never before been effectively eliminated at the same time all around the world. Unknown was how long the impact would last, how much damage it would cause the economy, and what impact it would have over the long-term on travel, human behavior, and the lodging business. So our conclusion was to focus our efforts on protecting the business under the assumption that the negative impact would last for a significant period of time. So plan for the worst, do everything we can to achieve the best. We expected that the recovery would be dictated by the virus and the world's ability to mitigate it, so predictions would be extremely difficult. But we thought that disruption would be significant for most demand segments for the better part of the year. We believed the second quarter would be the worst quarter, with April being the worst month, and that the third and fourth quarters would provide a slow but positive improvement. Leisure transient should be the first to recover, then business transient, then small groups, then larger groups and city-wide. We believed group would be the hardest hit, and most of it would not likely return anytime this year without an effective health solution. In fact, we indicated that we counseled our property teams to assume that none of the group business on the books would materialize, and they should plan and staff accordingly. We were uncertain when government restrictions on gatherings would moderate. Most state and local governments indicated that large gatherings would likely require significant health advances before being allowed. Even if allowed, how willing would individuals be to congregate in large groups with physical distancing and other requirements like masks and testing? We also expected companies to be very cautious with travel, eliminating most of the demand from business, and small businesses, service providers, vendors, consultants, and others where travel is more critical to their businesses, might be the exception. We were convinced that international travel would be minimal for the rest of the year. Domestic leisure travel would be the one segment likely to return, albeit only at modest levels, and we expected the resorts to be the biggest beneficiaries, particularly drive-to resorts. We also expected to reopen our properties one at a time based on demand and only when they could be operated to lose less money than if they were to remain closed. We said and did this because we thought demand would recover very slowly, and we believed there was no strategic reason to hurry to reopen our hotels or maintain substantial staff, sales, or otherwise. Hotel operations would be substantially different with enhanced cleaning protocols to protect our hotel associates and guests, and an industry-wide certification would be developed; the cost of these protocols would be covered by reductions in services and amenities, including the elimination of in-room housekeeping during a guest's stay and new staffing models. We expected more cross-training, job-sharing, and shift work by managers, and food and beverage would be simplified to reduce costs. These preceding observations seem as relevant today as they were 3 months ago. While significant uncertainty continues to exist, what has become clearer is that we should not expect any dramatic improvement in travel or the hotel business until our society is either more willing to make those relatively minor personal sacrifices necessary to mitigate the contagion or our global society is successful in developing treatment options to substantially mitigate health outcomes or health care solutions that our population is willing to participate in. That is to say, even if there is an effective vaccine developed, the vast majority of people must be willing to be vaccinated and do so as often as needed. We are, however, very encouraged by the pace and number of potential vaccines being developed and tested and the early results that have been disclosed thus far. I thought I'd also provide you with some key operating data based on the last couple of months, including July, or at least provide what we think is important and some perspective based on that data. First and stating the obvious, June is not really indicative of any kind of stabilized performance in the midst of this pandemic since most of our hotels that reopened did so either at the end of May or early in June or even the end of June. But what we can take away from June is that leisure travel did return modestly despite many government-imposed restrictions, and our resorts did pick up occupancy pretty quickly, as was the case with some of our urban properties as well. We can see that the improvement in our total room revenues for June, which more than tripled from May. As we look at July, and we have preliminary information for most of the month at this point, total room revenues are looking at increasing another 60% plus from June. These numbers are still way below last year, obviously, but yet they're still encouraging. In total, we look to go from being down over 92% in room revenues compared to June last year to down approximately 87% in July versus last year. For the 23 hotels open in July, excluding the one that opened just last Friday, we're currently estimating occupancy at 28% or just a tad above with a $239 ADR, give or take. Resorts are driving our numbers for our open hotels. Resort occupancy should be around 45% for July for the 8 resorts open at an ADR of roughly $315, which is 15% or so higher than last year's ADR in July. These are really good numbers, all things considered. By comparison, our urban hotels should end around 20% occupancy or a little better at an ADR of around $175, which is not a bad average rate considering such a low occupancy level. What's even more encouraging to us are the dramatically improved efficiencies of our property operations, with all new operating models at each property, created to address these much lower demand and occupancy levels. This was literally a true zero-based budgeting effort between our asset management team and our operators. For July, we're currently estimating that our 23 open hotels, which I said should average at 28% occupancy level, will run somewhere between breakeven EBITDA and a loss of $1 million. As we open more hotels, and as the currently open properties ramp up from reopening, we expect our hotel EBITDA performance to improve. As it relates to the timing of additional reopenings, what we said last quarter continues to be our guide. We will reopen our hotels only as demand dictates and only when we can lose less money open than by remaining closed. That is very hard to forecast beyond a couple of weeks away at this point. We are currently planning to open another 5 hotels over the next 2 weeks, including the large, 803-room Westin Copley in Boston. Our focus is to lower our cash burn as the markets allow and ultimately return to profitability. We expect this to be a slow and gradual process. Regardless, we're doing everything we can to accelerate this process, including hunting for additional contract business, like airline crews, which we previously wouldn't have taken due to lower rates. We have had some luck in that area, which should help reduce our cash burn as airline travel further recovers. We've also pursued and just successfully executed 2 separate large contracts for 2 different hotels in Boston with 2 different colleges to house a significant number of students for the fall semester, which begins next month. Combined, these 2 contracts represent over 70,000 room nights and should reduce our cash burn at these properties by over $1.5 million a month through the end of 2020 on a combined basis, allowing both properties to achieve either breakeven or positive EBITDA at least for the last 4 months of the year. These contracts could potentially be extended into the winter semester. We continue to pursue other nontraditional business for our hotels. Over the next few years, we expect our hotels to outperform their markets, similar to what they did last year and early this year before the pandemic struck. Being able to dip down and compete with lower price point hotels and be successful with contract business only happens because our hotels are of high-quality and in good locations and in very good condition. Generally, our hotels are in better condition than most of our competitors in our markets. As Ray said, 40 out of 53 of our properties have undergone major renovations, redevelopments, or transformations in just the last 5 years, 9 in just the past few months and 10 more in 2018. This will be a big advantage over the next few years. Many of our private sector competitors are likely to lack the capital to maintain their hotels in the years to come, widening the advantage we already have. We expect hotel conditions will dictate customer preferences. We also expect our lifestyle hotels to outperform in the recovery because of their experiential focus for customers, particularly leisure travelers looking for something that lowers the stress and anxiety that many now feel about travel. We already see this with the hotels we have opened. Our resorts are all independent and lifestyle-focused and compete extremely effectively in their markets. They are also far less expensive to operate. Our urban hotels that are open are doing well competitively, including our hotels in West L.A. and Downtown San Diego, some of which are all suites and residentially oriented, such as Montrose, Le Parc, Chamberlain, and Embassy Suites. Others have high style and significant personalities, such as Palomar and Solamar, allowing them to offer more personalized services to our guests. They seem to be attractive to guests because of their smaller-sized footprints and smaller public areas, which allow travelers to feel safer in our properties. Perhaps even more importantly, our smaller-sized lifestyle hotels, both independent and with major lifestyle brands like luxury collection and W, are generally more attractive to transient customers, particularly leisure travelers. They historically have needed less group business to be successful. Our independent lifestyle hotels are also much more able to quickly adapt to new customer preferences. They are more flexible in their operations and support lower fixed and variable costs in a low occupancy environment, which is what we expect for at least the rest of this year. As we look forward at the potential upside from the crisis, we also expect significant opportunities over the next few years to acquire properties in distress due to a large number of cash-strapped and over-leveraged owners and many properties that will go back to lenders. Our team has been through 2 prior crisis-driven opportunistic periods, including the creation of Pebblebrook in late 2009 during the tail end of the great recession. Following that crisis, we were able to fairly quickly and aggressively assemble a unique portfolio of high-quality hotels and resorts at very attractive prices that also had substantial upside opportunities. Given our ability to operate our properties more efficiently than the vast majority of owners and buyers, our unique strength in redevelopments and our transformation capabilities, and our high-profile and positive reputation in the industry, we believe we'll have significant competitive advantages as opportunities arise over the next few years. Finally, it's safe to say we all find ourselves in uncharted territory, with an almost complete lack of clarity about how the future will play out. We continue to be confident that our senior management team's experience, reputation, foresight, creativity, work ethic, track record, all supported by an incredible team, combined with strong liquidity and a fantastic portfolio, will allow us to not only grind through the current challenge but thrive during the recovery and the next upcycle. With that, we'd now like to move on to your questions. Donna, you may proceed with the Q&A.

[Operator Instructions] Our first question is coming from Rich Hightower of Evercore.

So a question on cash burn. In terms of working capital and managing payables and receivables, how does that factor into the cash burn analysis? Would you say that any changes that took place within those categories over the last few months are sustainable through year-end? Or how should we think about that?

Yes. So generally, what we're trying to isolate when we provide our cash burn is to look at what's really the true cash inflow and outflow at the hotel level. We're not trying to create a cash flow statement. Items like property taxes that are lumpy, we're not trying to factor that. We're trying to even that out in terms of what the current run rate is based on all those ins and outs and drawing down those numbers. So we're not incorporating benefits of drawing down our accounts receivable as an example. That's actually benefited us over the last 90 days, as you saw our ARs come down, but that was not reflected in our cash burn estimates. So we're trying to look at it really on a cash inflow and outflow basis, on a sustainable going-forward basis. What’s happening on the hotel side? What’s happening at the corporate level?

Okay. Got it. So it's more of an accrual-based analysis than picking from the cash flow statement, that sort of thing?

I would say it's more of a hybrid. So on those lumpier things, like property taxes and insurance, yes, that's more accrual. But on the hotel operating side, down through GOP, it's really on the cash coming in and out.

And Rich, in terms of working capital, for the most part, it washes out or it might even be a little favorable. Without much group business, you don’t build much accounts receivable. With most of your transient being paid at the time of the transaction, it’s not problematic from that perspective that your buildup negatively impacts your cash flow.

Okay. Got it. That's helpful. For my second one here, in terms of furloughed employees, are you able to tell us what percentage of those have become permanent layoffs in the past 90 days? As we think about reopening hotels and staffing up, are there any difficulties that might come from attrition in the workforce in that sense?

Yes. I think as it relates to ramping back up, we've had some challenges with bringing people back given the generous nature of the combined unemployment insurance benefits, coupled with the challenges that some people have with either child care or generational issues at home with family members at home that might be at risk. We've had to work down the list in many cases, where some folks may decline to come back. But we've been able to staff our needs pretty much throughout the portfolio. We do see some people who decline to come back or prefer to return later if we can provide that flexibility.

Our next question is coming from Smedes Rose of Citi.

I wanted to ask you about the cost structure that you're putting in place now. Assuming some of these cost reductions will be permanent as business recovers, do you have a sense of maybe what the overall change in margin would be once we return to normal revenue levels?

It's a really good question, Smedes, and frankly, not one that we're able to answer. I can speak more anecdotally, but there's no doubt that -- and I don't know what normal is, but it’s going to be 3, 4, 5 years out in all likelihood. There's no doubt that these properties will be operated with fewer people, particularly managers and, in some cases, hourly employees, where we can take advantage of technology, and customer wants will dictate that. I also think food and beverage operations will be more efficient. When we come back and we recover group business, the food programs will likely be different; they’ll be more efficient and probably with lower labor, particularly in the kitchen. As a result, margins should be better in that department as well.

You mentioned the reopening of the Copley. I think of that as kind of a group asset compared to some of your others. So I was wondering what you’re seeing that’s driving your decision to reopen that hotel at this point?

Sure. We just signed a contract with Northeastern University for 50,000 rooms between the end of mid-August and mid-December. This contract shrinks our hotel from 800 rooms to 350 rooms. What remains also becomes a more profitable opportunity than previously. The other piece of it is Northeastern will actually be having classes utilizing meeting space that they'll compensate us for. So that's the only business that would have allowed us to reopen that hotel in a financially more attractive manner than staying closed.

Our next question is coming from Neil Malkin of Capital One Securities.

Switching gears a bit, you discussed the ability to make business interruption claims for hotels given the government-mandated shutdowns. Any updates on that, particularly concerning agreements or proceeds to help offset losses during those shutdowns?

Sure. Neil, as you know, these matters are complex, and they won't be easy to work through. The insurance companies are certainly not going to make it easy. We're evaluating our options from multiple angles, and as we make progress, we’ll have dialogue as needed. Just so you manage your expectations, whatever resolution there is will likely not be quick, especially if there’s any opportunity there. These issues can take years to resolve. We have a solid insurance policy and excellent coverage, and we'll evaluate that further. If there's an opportunity, we'll pursue that, and we’ll keep you apprised of any material updates.

I know that in some of your hotels, even if they're not open or you don't plan on opening, you do forward bookings to test the waters. Are you anticipating that you could potentially open more than 5 hotels based on that initial demand?

Sure, Neil. Interestingly, when we go back to April, the idea was to open if we could lose less money. So how do we gauge that? We wanted to ensure the business was on the books. What we've learned over the last 3 months is that the transient business—pretty much all business right now—is effectively 98% short term. We have some resorts that may go out 4 weeks, maybe 6 weeks, but then it really tapers off, especially in urban properties. We're determining that we need to look at the market and our relevant competitors. So far, everything we've opened has ramped up to a level that has reduced our burn and gotten us to where we want to be share-wise. We think there's a possibility to open additional properties in August and will continue to monitor our properties in the market.

Thank you. You were discussing additional potential openings in August.

Yes, I think the one caution I would provide is we do not anticipate any substantial improvement in business travel or overall travel during the rest of the year. We think it is unrealistic, especially with the resurgence of cases, deaths, and hospitalizations, particularly compared to other locations around the world. Businesses aren't likely to change their travel policies anytime soon without significant improvements. All of our business-driven group engagements are either canceled or postponed until next year.

Our next question is coming from Shaun Kelley of Bank of America.

I want to follow up on your last comment regarding sequential recovery and overall travel demand. Can you talk about some of the different factors you’re seeing around seasonality? You also mentioned that school calendars can greatly affect this as well. How are you thinking about those aspects as it could impact travel after this recent surge?

Yes. There are concerns about seasonality. Traditionally, leisure strength is stronger during the summer. But I think the transition to fall won't be as severe due to many school districts not returning physically, instead opting for virtual classes; the majority of people won't be returning to their offices after Labor Day. I think there will be more flexibility and people will likely continue to feel cooped up. Weekends may see increased strength, while weekdays may not see as pronounced a seasonal drop as before. Some of that decline might be offset by some improvement in non-major corporate business travel. People we manage are starting to travel again, which will likely continue into fall, depending on virus conditions.

That’s helpful. Could you provide some insight into the rate environment in urban hotels that you’ve opened and the supply side in Pebblebrook’s markets? Are you seeing more openings or closures?

We’re seeing a slow reopening of some hotels in urban markets. Many property reopening dates have had to push back. Some properties that have not reopened in areas like New York and Chicago are struggling to find a reason to open. Conversely, properties with strong student business, like in Boston, could pull some supply out of the market. The weather will positively impact markets like San Diego, L.A. as they continue to see demand due to warmer weather and leisure opportunities.

Our next question is coming from Michael Bellisario of Baird.

Looking at your resort portfolio stats, it appears weekend ADR has dropped over the last 2 weekends. Anything to read into that in terms of mix shift?

It’s a mix shift, but it’s more of a property mix shift. We’ve ramped up properties like Skamania and Chaminade that don’t have the same rates as L’Auberge and Paradise Point. However, bottom line numbers are improving. We’re projecting to go from approximately $1.3 million in EBITDA in our resorts in June to closer to $3.5 million in July.

Could you provide an update on San Francisco regarding the legislation recently passed and how that impacts your plans to reopen hotels?

San Francisco remains in a Phase that has yet to allow tourism and leisure to return. We're not opening any hotels until they do, nor will we until we see some demand return. The recent legislation related to cleaning will not impact our reopening strategies.

Our next question is coming from Anthony Powell of Barclays.

I’m seeing more permanent closures in New York and other cities. Are there any markets where you might benefit in the long run from closures?

Closures will help in any market they occur in. The closures arise from challenging economics. These closures are significant and could represent opportunities for us to capture demand in less competitive environments once the recovery begins. With many properties less able to reopen economically, we would stand to benefit in all markets if these closures continue.

Can you give me details regarding how groups are rebooking?

There is so much clouding our numbers right now. Some cancelled bookings have been rebooked 3 or 4 times already. Until there’s real control over the contagion, we cannot quote any numbers because they are misleading. We’re still booking business for next year, although we’re starting to see cancellations from the first quarter of next year.

What are you recommending to policymakers and the public to better control the pandemic?

We’ve been advocating for our Safe Stay program requiring guests to wear masks in the public areas inside our properties. People should also socially distance themselves and avoid major gatherings. We’re trying to promote safety and common sense across the board.

Our next question comes from Lukas Hartwich of Green Street Advisors.

Can you provide an update on the potential long-term impact of technologies like Zoom and Slack on business transient travel?

Yes, it’s a continuing trend, and notably, it’s not going to replace the need for in-person meetings. I do believe that utilization of technology may increase in the future, but human interaction is a crucial element of business, and businesses will often choose to meet face-to-face whenever possible.

Do you have views on additional financial support from government?

I do expect support will come through various channels. We do think unemployment insurance at some level will be extended. We believe the PPP program will probably get extended for industries with significant revenue drops. We also continue discussions with treasury regarding changes to the Main Street lending program to better suit the needs of the real estate industry. There should be additional support for us in several legislative areas.

Our next question is coming from Gregory Miller of SunTrust Robinson Humphrey.

Following up on your remarks regarding travel safety, what should travel-related companies do differently to improve perceived safety within the travel experience?

Companies in the travel space should band together to present a consistent health and safety message across the industry. This consistency can instill greater confidence in customers about their travel experience. Airlines should clearly communicate their cleaning protocols and mask requirements to ensure passengers know what to expect.

How long do you expect property management to engage in traditional hourly functions?

I believe GMs will become more involved. While more decisions will be made corporately, the general operating model will shift to rely on their expertise more for guest satisfaction. Some may leave the industry due to this shift, but many will find the result satisfying once we return to normal.

Our last question today is coming from Patrick Lobe of Goldman Sachs.

Has your thought process around the right leverage levels evolved during this period, especially in terms of pursuing acquisitions on the backside of the recovery?

Yes, leverage levels will likely become more restrictive as the terms will tighten and costs may go up. Capital availability typically shifts in cycles, so liquidity and excess capital need to be a focus area, especially going into this next phase.

With regard to liquidity, public REITs with more liquidity are in a better position. Even REITs with low leverage are dealing with revenue issues, so liquidity should be a critical focus going forward.

We might consider investing in CMBS loans but only if we expect we can gain control of those assets. Our expertise lies in asset management, redevelopment, and capital allocation. Simply relying on that financial instrument is not what we specialize in.

Thank you very much.

At this time, I’d like to turn the floor back over to Mr. Bortz for closing comments.

Thanks, Donna. For anyone still with us, apologies for the lengthy call, but we wanted to answer all questions thoroughly. Thank you for participating, and have a great rest of your summer. We look forward to updating you again in late October.

Thank you, ladies and gentlemen, for your participation. You may disconnect your lines at this time, and have a wonderful day.