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Text: Neil, you may begin.
We are pleased to kick off earnings season this quarter and glad that you could all join us.
During last quarter's call in late April, all indicators were setting up for a summer of strong leisure travel, and it appears that expectations were appropriately set.
We significantly outperformed our internal forecast for the second quarter on both top line and profitability metrics.
We saw increased demand portfoliowide this quarter and are expecting this trend to incrementally build through the second half of the year.
Property level cash flow sequentially improved from $3.8 million in April to $7.7 million in June.
In June, our 33 hotels generated 59% occupancy at an average daily rate of $220 and comparable GOP margins for the month came in at above 45%.
We are encouraged to see both ADR and GOP profitability metrics begin to approach 2019 levels, well before recovery in business transient and group gets underway in our gateway markets.
Gateway market occupancy will push RevPAR higher from here.
Achieving solid profitability and generating free cash flow a little over a year from the start of the worst crisis in this industry's history is testament to the quality of our hotels, the effectiveness of our cluster operating strategy and our mix of urban and resort markets.
These three advantages are our core pillars of growth for the early stages of this cycle.
Our operating leverage positions us for outsized growth in a stabilizing environment.
We began the second quarter on strong footing as our portfolio RevPAR in April exceeded $100 and was 10% higher than March, which had been elevated due to spring break travel and stimulus spending.
Absolute RevPAR ticked sequentially higher during the balance of the second quarter, growing to $116 in May and exceeding $130 in June, resulting in second quarter RevPAR of $116, more than 50% higher than the first quarter 2021.
Rate integrity was a common concern this time last year.
But compared to prior demand shocks such as the Great Financial Crisis, revenue managers have not sacrificed rate to put heads in beds during this recovery.
In this environment, we've been able to strategically drive rates across our portfolio.
Last quarter, our comparable portfolio ADR grew from $193 in April to $220 in June.
That's just 13% below June 2019 without the core business traveler in the marketplace.
In July, month-to-date, we are actualizing 2019 ADR levels.
Based on pricing power at our resorts and the return of the price elastic business traveler in the fall to boost demand at our urban clusters midweek, we believe elevated ADR will prove sustainable on a portfoliowide basis through the recovery.
Let's start to dig in with the two largest EBITDA-producing assets in our portfolio, the Cadillac Hotel and Beach Club on Miami Beach and Parrot Key Hotel & Villas in Key West.
They led the portfolio again this quarter on sustained demand to South Florida despite what is typically the start of reduced travel to the region.
Back in 2018, we reinvested approximately $74 million in major upgrades of these resorts, and they are now firmly on target to achieve our expected post-renovation ROIs.
At prior peak in 2015, the Cadillac and Parrot Key generated $9.5 million and $7.8 million in EBITDA, respectively.
This past quarter, the Parrot Key and Cadillac generated $3.8 million and $3.2 million in EBITDA, respectively, for the quarter.
And based on current projections, both hotels are expected to surpass prior peak and combine to exceed $20 million in EBITDA generation for the full year 2021.
As the lodging recovery continues to take shape across the next few years, we anticipate meaningful EBITDA contribution from these assets as they ramp toward stabilization.
The Parrot Key was our best-performing asset during the second quarter, generating 92% occupancy on a $454 average daily rate, resulting in a $416 RevPAR, which surpassed second quarter 2019's RevPAR by more than 80%.
The Keys have seen unprecedented demand year-to-date and the Parrot Key's performance has proven it is one of the most sought-after hotels in the marketplace.
Despite inclement weather from tropical storm Elsa deflecting demand a few weeks ago, performance in July remains in line with our forecast at the beginning of the month.
Performance on Miami Beach was similarly encouraging as the Cadillac surpassed 80% occupancy for the quarter on a $235 ADR, which drove 39% RevPAR growth versus the second quarter of 2019.
Demand trends for the third quarter remain robust at our three beach hotels as well as our more business-oriented Ritz-Carlton Coconut Grove, which is beginning to capture corporate business this summer across a variety of industries: financial services, defense, technology, healthcare and advertising, and broke through 2019 levels with 8.7% year-over-year RevPAR growth for the quarter.
Despite August and September being traditionally slower in South Florida, our portfolio is forecasted to meaningfully outperform those periods in 2019 on the heels of continued price-elastic leisure demand and growth from both business transient and group.
There are a number of events, festivals and conventions returning to Miami in the near future.
Miami Beach Pride in September, the South Beach Food & Wine Festival and Art Basel later in the fall and Formula One Grand Prix next year.
Beyond tourism, there remains significant corporate relocations and transportation-related infrastructure growth in the region, leading to robust near-term and long-term demand fundamentals for Miami that will be captured through this recovery.
Our drive-to resorts also continued their recent outperformance during the second quarter as the group generated weighted average occupancy of 72% and ADR growth of 23%, leading to weighted average RevPAR growth of 17% compared to the second quarter of 2019, further proving that the leisure traveler is not price sensitive for high-quality, well-located, differentiated hotels.
The Sanctuary Beach Resort continues to lead our resorts from a rate perspective as its $506 ADR and 82% occupancy resulted in 21% RevPAR growth versus the second quarter of 2019.
Our Hotel Milo down in Santa Barbara reports 77% occupancy at a $333 ADR, and a very similar 21% RevPAR growth versus prior year.
We anticipate these resorts, in addition to our Ambrose in Santa Monica, will continue to garner robust occupancies and rates in the third quarter as travelers flock to the California coast.
Back East, our Annapolis Waterfront Hotel occupies an irreplaceable position on the Chesapeake Bay.
And after a significant renovation of the hotel, we are driving rates and occupancy.
We recorded a 77% occupancy and an average daily rate of $294 last quarter, which led to 7% RevPAR growth over the period.
Annapolis in the summer is primarily leisure transient, but social and sports groups provide a strong base of business to kick off the season.
Looking further out toward the end of the third quarter, the hotel has several rebooked corporate and retreats that are helping to drive 15% ADR growth for Q3 versus 2019.
Our Marriott in Mystic, Connecticut is also on pace to achieve peak summer leisure demand from weddings, leisure travelers and rebooked corporate and government groups during the third and fourth quarter at a better pace than was anticipated.
Across the quarter, we saw cities and states reopen their local economies and remove restrictions for gatherings and experiences, enabling the surge that we are seeing in domestic leisure travel today.
This fall, we expect to see the next inflection in demand growth as large employers return to the office and encourage travel, and our cities begin to host conventions and major citywide events.
Gateway urban markets have been more impacted by the pandemic than any other segment and offer the longest runway for growth as we look forward to the next several years of the cycle.
With summer travel underway, demand across the portfolio continues to be heavily weighted on weekends versus weekdays, but weekdays have shown a noticeable increase compared to just 90 days ago.
Month-to-date results in July for our portfolio versus March show average weekday occupancy growth of more than 1,200 basis points, leading to RevPAR growth of approximately 55%.
Removing our resort markets, our urban cluster saw weekday RevPARs grow more than 100% over that same period, indicating our gateway cities remain attractive to all segments of the traveler.
When the higher-rated business traveler returns and replaces primarily leisure business, we would expect a meaningful increase in weekday ADRs.
During the second quarter, we began to see traditional business travelers return to our hotels from one and two night stays to corporate groups.
At the Philadelphia Westin, we saw transient business from many pharmaceutical companies, in addition to Accenture and Deloitte employees.
Our West tech-related businesses are beginning to return with corporate groups from both Google and Facebook booked at our Sunnyvale hotels during the third quarter.
McKinsey, JPMorgan, Goldman Sachs, IBM, General Dynamics and other traditional large accounts have become more active at several of our hotels in the portfolio.
While we are seeing early stages of business travel returning in each of our urban centers and expect continued improvements throughout the summer, we anticipate the next big leg up in the recovery to be after Labor Day when schools reopen in-person and employees return to the office.
Despite our hotels being primarily transient, we have seen an increase in group activity over the last few months across our portfolio.
The majority of the business has been through social groups and sports.
But as cities have reopened, larger events are occurring and being scheduled in our markets, resulting in increased group activity at our hotels.
Our luxury hotels have benefited from not only strong leisure business and social group but also the first signs of corporate group, small meetings and retreats.
The Ritz-Carlton Georgetown finished the quarter with nearly 72% occupancy at a $456 ADR. The Rittenhouse Hotel in Philadelphia also turned cash flow positive this quarter as ADR reached $478 with occupancy growing by more than 2,500 basis points versus the first quarter.
Many of our hotels are located near major universities and health systems, and these significant demand generators have mobilized and are leading to increased production and group bookings at many of our Boston, New York, Philadelphia and Washington, D.C. hotels in the third quarter.
Larger events are taking place in the third and fourth quarters across many of our markets, highlighted by healthcare-related conventions in Washington, D.C., boston and Philadelphia.
Otakon in August in Washington, D.C. and the Boston and New York City marathons in the fourth quarter.
The Javits Center in New York is slated to host a few larger citywides in August, including the New York Auto Show, but the major events in New York will return in September.
The U.S. Open for tennis, Fashion Week and the UN General Assembly.
And for the first time, Salesforce's Dreamforce event will occur across multiple cities, including New York.
Our New York City portfolio saw occupancies incrementally build throughout the balance of the quarter.
Visitation remains primarily transient, and this leisure demand should continue as Broadway reopens this fall and more events occur.
But as noted in other markets, first signs of corporate travel have emerged across the past few months, and we are encouraged by the return of our more traditional large corporate accounts in the market.
We are very well positioned with our locations in several high-growth submarkets.
We supported teams during the mayoral election race early in the quarter at our Hilton Garden Inn Midtown East and have since transitioned to JPMorgan as our top account.
Our Hyatt Union Square has seen a pickup in travelers from entertainment, media and technology: AT&T, Discovery and Apple.
And downtown at the Hampton Seaport and the Hilton Garden Inn Tribeca, business travel has increased from major financial services companies and GE, Blackstone.
Pockets of corporate strength have taken shape across the city.
And we believe they will continue to expand after Labor Day when schools fully return and more workers across all industries return to the office on a consistent schedule.
Conversations with our larger corporate accounts indicate that September is the month when the switch for business travel and in-person office work turns on.
And with our first-mover advantage of remaining open throughout the pandemic, our clustered sales effort in the marketplace should yield additional revenue opportunities.
Momentum is clearly building in New York, and our operating and data advantage can drive meaningful outperformance as supply remains significantly below pre-pandemic levels.
The lodging recovery is clearly underway.
Near-term results have exceeded expectations, and there is a long runway of value creation ahead.
During the first half of the year, we took swift action to rightsize our balance sheet and evenly reduced our exposure to our core markets by divesting of a lower-growth hotel in each market.
With few capital expenditures on the horizon over the next few years, we can focus on hotel operations to drive high absolute RevPAR on industry-leading margins, resulting in significant EBITDA and free cash flow growth in the coming years.
Results this past quarter illustrate the merits of this strategy and the growth profile of our unique portfolio.
We are looking forward to a continued recovery in earnings in what we anticipate to be the start of a long up cycle in lodging.
So my comments will focus on the demand improvement across our portfolio throughout the second quarter and its impact on our margins and cash flow before closing with an update on our balance sheet and outlook for the current quarter.
Demand fundamentals continue to improve from March over the balance of the second quarter and ultimately led to the company achieving corporate-level cash flow for the first time since the onset of the pandemic.
In what is typically our best quarter of the year with meaningful business travel, group and conference demand and the beginning of peak summer leisure travel boosting results, demand trends during the second quarter were still heavily weighted toward leisure.
RevPAR and occupancy were up meaningfully from the first quarter, but RevPAR was still down approximately 45% from the second quarter of 2019.
The strong demand at our leisure-oriented properties and weekend demand at our urban hotels allowed us to maintain our average daily rates, less than 18% below 2019, all without any meaningful business travel or group demand in the marketplace.
On the weekends from March to June, we were able to achieve ADR growth at our resorts approximating 13%, while our urban portfolio captured 46% increase in rates with occupancies up 1,000 basis points.
Incremental growth in occupancies, combined with our rate first strategy and expense savings initiatives, resulted in margin expansion and material cash flow generation at our hotels throughout the quarter.
During the second quarter, 24 of our 33 hotels broke even on the EBITDA line, a 71% increase versus the first quarter.
In June, each of our 33 operational hotels broke even on the GOP line, with 24 achieving EBITDA break-even levels, representing 79% of open hotels breaking even on EBITDA versus 58% in March.
We originally forecasted levels needed to break even at the corporate level, approximately 60% of occupancy with a 40% RevPAR decline from 2019.
Results from June cemented these projections as our comparable portfolio generated 59% occupancy with a 40% RevPAR decline.
And combined with our $7.7 million in property level earnings, resulted in $334,000 of positive corporate cash flow.
The asset management initiatives we implemented in 2020, in conjunction with our flexible operating model, showed early signs that our margin improvement goal following the pandemic is beginning to take shape, as GOP margins of 44% during the second quarter were 830 basis points higher than the first quarter and just 260 basis points below our second quarter 2019 GOP margin.
Based on current forecasts, we believe our third quarter GOP margins will actualize in line to slightly ahead of our third quarter 2019 GOP margins.
As RevPAR and out-of-room revenues increase in 2022 and beyond, our current operating model will yield much higher levels of GOP and allow us to amortize our fixed operating expenses as well as our property taxes and insurance expenses.
This provides us confidence in our ability to forecast post-pandemic EBITDA margin growth as our ability to drive ADR in tandem with applied expense savings initiatives should allow us to generate 150 to 250 basis points of sustainable long-term margin savings for the portfolio.
From a profitability perspective, our South Florida cluster led the portfolio again this quarter with 41% EBITDA margins, highlighted by our Parrot Key and Cadillac assets.
The Parrot Key and Cadillac finished the quarter with 58% and 43% EBITDA margins, respectively, both exceeding second quarter 2019 EBITDA margins by more than 2,000 basis points.
Robust results were also seen at our California and Washington, D.C. drive-to resorts as our Sanctuary Beach Resort and Hotel Milo generated a 49% and 38% EBITDA margin, respectively.
While outside D.C., a strong start to the summer travel season from a rate and occupancy perspective, coupled with proprietary operational initiatives we have implemented since acquiring the hotel in 2018, led to a 59% EBITDA margin at the Annapolis Waterfront Hotel, 1,200 basis points higher than the second quarter of 2019.
Our asset management strategy since the onset of the pandemic focused on driving margins through aggressive cost control.
This was done primarily through the reduction in labor, but we have also utilized various technology platforms at our hotels, such as mobile check-in and concierge services, guestroom energy management systems and water reuse systems to lower utility costs, and smartphone ordering systems at our food and beverage outlets.
We have been more nimble in this strategy at our independent hotels, which has resulted in significant margin savings versus our brand-oriented portfolio, as our independent and Autograph Collection hotels generated a weighted average 38% EBITDA margin for the second quarter.
Strong performance at our properties this quarter was not limited to just increased occupancies and our ability to push rate as we also saw substantial growth in our restaurant and bars.
At our Parrot Key, revenue generated from our outlets during the second quarter was 58% higher than the second quarter of 2019.
Meanwhile, up in Boston, our Envoy in the Seaport District saw meaningful revenue generation from its Lookout Rooftop and our newly installed taqueria pop-up Para Maria, both of which have been well received by guests and locals alike.
The Envoy boasts the premier rooftop in the city and its popularity helped the hotel achieve close to $2 million in revenues during -- in food and beverage revenues during the second quarter, $1 million of which was generated in June alone.
We expect our restaurant and bars and our outlets at The Envoy will remain popular during the peak summer months.
Based on strong demand at our resorts and increased travel to urban markets from the leisure traveler, our ability to strategically and effectively drive rates and a return of more consistent business travel on the horizon, we believe we are past the inflection point of corporate level cash burn and expect month-over-month positive cash flow for the remainder of 2021.
A few closing remarks on our balance sheet and outlook for the third quarter.
We ended the second quarter with $80.2 million in cash and cash equivalents and deposits.
As of July 1, we had approximately $46 million in capacity on our $250 million senior revolving line of credit, and $50 million of undrawn credit from the unsecured notes facility we placed with affiliates of Goldman Sachs Merchant Bank.
Additionally, we received approximately $1 million in business interruption proceeds in the second quarter from the impact of COVID-19 at several of our hotels.
Based on discussions with our insurance providers, we do not anticipate receiving additional recoveries for business interruption related to the pandemic.
During the second quarter, we successfully refinanced mortgage debt on four hotels: The Hilton Garden Inn Tribeca, Hyatt Union Square, Hilton Garden Inn 52nd Street and the Courtyard L.A. Westside.
As of June 30, 79% of our debt is fixed or swapped with our total debt weighted average interest rate of 4.48% and 3.1 years life to maturity.
We spent $2.6 million on capital projects last quarter, and we continue to limit our capex spend strictly to maintenance and life safety renovations.
During the first half of 2021, we spent $5.3 million on capital projects, and we anticipate our full year capex load to be roughly 40% below our 2020 spend.
We project very little disruption or capital spend for our portfolio across the next few years, which is materially beneficial from a cash flow perspective as the sustained surge in construction costs, freight rates, oil prices, and the continued tightening of the supply chain remain elevated.
Month-to-date in July, we have seen continued growth in our portfolio occupancy and revenues, with the majority of our portfolio in line to slightly ahead of our internal forecast.
The largest outperformance month-to-date in July has been our New York portfolio, which is currently trending up approximately 20% from June on occupancy growth, both on weekdays and weekends.
Month-to-date in July, we are up over 1,000 basis points in occupancy in our Manhattan portfolio, and our New York City Metro, which includes the Boroughs, White Plains and Mystic, are running close to 80% occupancy.
With our sights set on the recovery, which has already commenced, we remain laser-focused on operational performance of the portfolio and accretive opportunities that become available throughout the cycle.
So this concludes my portion of the call.
We're happy to address any questions that you may have at this time.

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not providing full-year 2021 guidance at this time.

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