Hotel Brands Take Drastic, Immediate Steps to Curb Spending & Preserve Liquidity
In a conference call with investors on March 19, Arne Sorenson said that the COVID-19 pandemic is “the most significant event to impact our business, including the 12 month period following 9/11 and the financial crisis of 2009.”
To that end, Marriott is joining other brands in implementing swift and far reaching cost cutting measures to help owners and franchisees in addition to the brand itself. Marriott will be delaying all regular cycle renovations due in 2020 for one year and delaying all FF&E reserve funding for six months. It will also be putting all initiatives on hold and suspending all brand audits for the time being. It is also working closely with owners to close hotels on a temporary basis.
“While owners are responsible for maintaining adequate levels of working capital we are working to ease their burden,” Sorenson noted.
CFO Leeny Oberg also discussed how the brand is working to cut costs for hotel owners. Since marketing funds and loyalty charge outs vary with hotel revenue, Marriott is working to reduce the costs associated with running these programs by hundreds of millions of dollars to better align those costs with expected revenue reduction.
Additionally, at the corporate level, Marriott will be suspending the salary for Mr. Marriott and Arne Sorenson for the balance of 2020, reducing salaries for the senior executive team by 50%, hiring only for essential positions, implementing temporary leaves in North America as well as shortened workweeks around the world, and pulling back on all non-essential spending. Oberg estimates the cost cutting measures now in place will reduce G&A costs by $140M. The company also reviewed all investment spending and decided it could eliminate or defer one-third of the $700-800M it had originally anticipated in 2020.
Marriott, of course, isn’t the only brand to be implementing such measures.
Keith Barr, Chief Executive Officer, IHG, said in a recent press release: “Demand for hotels is currently at the lowest levels we’ve ever seen. IHG has a robust business model and the measures we are announcing today to reduce costs and preserve cash give us the capacity to manage the business through this unique environment and to support our owners during this incredibly difficult time. These were not easy choices and we are mindful of the impact these decisions will have on our colleagues and shareholders. However, we believe that these are essential to ensuring that we come out of this as strong as we possibly can and ready to capitalize on what remains an industry with excellent long-term growth potential.”
To that end, IHG said it is challenging all discretionary costs and reducing salary and incentives, including substantial decreases for Board and Executive Committee members. These measures will result in a reduction of up to $150m in fee business costs. Similar actions, along with a reduction in marketing spend, are being taken across the System Fund in response to expected lower assessment fee receipts. In addition, to support IHG owners and manage their cash flows, the company said it has launched a comprehensive package of measures including delaying renovations and relaxing brand standards.
Marriott Vacations Worldwide also announced its plans to shutter rental properties as well as all of its North America sales centers. Additionally, the company's executive leadership team is taking a 50% salary reduction; all new hires, with the exception of mission-critical needs, have been frozen; the company is implementing furloughs and reduced work hours; the company is deferring its employee 401(k) match; the company has developed plans that could reduce investment on capital expenditures and inventory by up to $240 million if necessary; and the company has suspended share repurchases under its share repurchase plan.
"We expect that we can make the changes needed so that we can run the business at close to cash flow neutral until the business returns to a more normal level," said Stephen P. Weisz, president and chief executive officer. "Thanks to the resilience of our business model and the extremely difficult decisions we are making, I firmly believe that we will come through this an even stronger company."
Meanwhile, Pebblebrook Hotel Trust has already suspended operations at 28 locations with the rest of its properties (26 locations) anticipated to suspend operations by March 30. To conserve funds ($50M) it will postpone all non-essential capital investments other than completing the 2020 major projects which have been underway for many months, are purchased and are nearing completion in most cases and should be complete in the next month or two, assuming construction work is allowed to continue or restart as ordered by the local public authorities. It will conserve even more money by reducing its regular quarterly common dividend per share to one penny, conserving $50 million of cash per calendar quarter. It also drew down $643 million on its $650 million unsecured credit facility out of an abundance of caution to ensure that the Company has sufficient liquidity and funds to meet its ongoing operating needs for a sustained period.
Similar to other brands, Pebblbrook's CEO will forego his salary for the remainder of the year; the CIO and CFO have volunteered to take a 30% reduction in salary for the remainder of the year. Additionally, the company has enacted significant cost-saving measures and reductions, including corporate-wide employee salary reductions, forfeiture of cash bonuses in lieu of shares and forfeitures of restricted stock awards. In addition, the company is also implementing a comprehensive cost reduction plan for corporate operating expenses. The company anticipates these extensive reductions in executive officer, trustee and employee compensation, and other cost-cutting measures will reduce corporate G&A expenses by approximately $7 million for 2020.
“Our thoughts are with the more than 8,000 hardworking hotel employees and their families across our portfolio through this challenging period, and we expect these furloughs will be temporary," said Jon E. Bortz, Chairman, President, and Chief Executive Officer. "In the coming weeks, we and our hotel operating partners will be working on our plans to reopen and ramp up our hotels and resorts as soon as conditions improve, and we look forward to welcoming back our property associates at that time. Our seasoned executive team has been through numerous crises, and as a result, we have quickly taken decisive steps to enhance the Company’s liquidity and reduce our cash expenditures as we manage through an unprecedented and frankly unimaginable decline in hotel travel demand due to the COVID-19 pandemic and the actions of our governments and society to contain it and limit its toll.”
Marcus Hotels & Resorts®, a division of The Marcus Corporation, is temporarily closing a select number of properties across its portfolio. This decision includes the Hilton Milwaukee City Center; Saint Kate – The Arts Hotel in Milwaukee; Grand Geneva Resort & Spa in Wisconsin; The Skirvin Hilton Hotel in Oklahoma; and The Lincoln Marriott Cornhusker Hotel in Nebraska. The Saint Kate – The Arts Hotel will close tomorrow and the remainder of the hotels will be closed over the course of this week.
"The safety and well-being of our guests and associates is our number one priority,” said Michael R. Evans, President of Marcus Hotels & Resorts. “During these difficult times, our leadership team is meeting daily to monitor the situation, and we will continue to explore every option to help our associates, our guests and our properties. Our sincere hope is that these closures will not be for an extended period of time and that our dedicated teams will all be back together again very soon and welcoming guests to our hotels."
During these temporary closures, most of the associates at the affected hotels will be temporarily laid-off and the company will provide temporary compensation to affected associates based on their length of service, as well as the continuation during the period of the temporary lay-off of health insurance coverage for those associates currently enrolled.
As part of its strategic plan to navigate through the financial downturn caused by the COVID-19 pandemic, the Board of Directors and top executives at Wynn Resorts have agreed to forego between 33% and 100% of their salary for the remainder of 2020 in exchange for shares of Wynn stock. The Company's CEO, Matt Maddox, agreed to forego 100% of his salary in exchange for shares for the remainder of the year. The cash savings arising from the executive salary reductions will be used to offset ongoing employee payroll and other expenses. The company announced last week it would pay all of its employees, including their average tips, after it closed its resorts in Boston and Las Vegas to help reduce community spread of the virus.
In a press release statement, Hyatt announced that it will not only be suspending hotel operations but will be enacting furloughs, as well as pay and work reductions that will impact all Hyatt corporate colleagues across its global regions, across all levels and responsibilities, from April 1 to May 31.
The company emphasized that Hyatt corporate colleagues’ eligibility for healthcare and other benefits will not change, and colleagues may also file for unemployment benefits during this period. For colleagues on a Hyatt healthcare plan who have been furloughed, Hyatt is actively taking steps to protect and fund benefit coverage (including employee benefit premiums) for up to two months. Temporarily furloughed colleagues will be eligible for unemployment benefits and will be encouraged to use PTO days to cover pay during the furlough period.
Hyatt is also in the process of setting up a global Hyatt Care Fund, which will be seeded by 100 percent of Hyatt leadership team’s salary reductions as an initial contribution. Both President & CEO Mark Hoplamazian and Chairman of the Board Tom Pritzker are forgoing 100 percent of their salaries, and Hyatt’s Senior Leadership Team is taking a salary cut of 50 percent through the end of May. The proceeds of this fund will be distributed to those colleagues with the most pressing financial needs due to loss of income.
Hilton announced that it would also take drastic measures to curb spending and preserve liquidity, including: President and CEO Christopher Nassetta will forgo his salary for the remainder of 2020; the Executive Committee will take a pay cut of 50 percent for the duration of the crisis; beginning April 4, many of Hilton’s corporate Team Members will have reduced schedules or be furloughed for up to 90 days. (During this time, these Team Members will maintain their health benefits and subject to local regulations, will also be eligible for unemployment benefits); corporate team Members who are not furloughed will have their pay reduced by up to 20 percent for the duration of the crisis; Hilton will eliminate non-essential expenses, including capital expenditures; and the company will suspend all share buybacks and suspend the payment of dividends – other than those previously declared.
Chatham Lodging Trust, a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels and premium-branded, select-service hotels and owns 134 hotels wholly or through joint ventures, said it too has taken aggressive actions to mitigate the operating and financial impact of the COVID-19 (coronavirus) pandemic.
Some of those steps include:
- Suspended its monthly dividend, preserving approximately $5.3 million per month and approximately $64 million on an annual basis.
- Reduced its 2020 capital expenditures budget by approximately $10 million or 45 percent.
- Drew down cash on its unsecured credit facility, increasing its cash liquidity position to approximately $55 million.
- Chatham also owns twelve unencumbered hotels available as collateral to source additional liquidity
- Temporarily reduced compensation for its executive officers. Fisher and Dennis Craven, executive vice president and chief operating officer, have both volunteered to reduce their salaries by 50 percent. Jeremy Wegner, chief financial officer, has volunteered to reduce his salary by 25 percent.
- Lessened compensation for its Board of Trustees, who voluntarily agreed to temporarily reduce their proposed 2020 base compensation by approximately 25 percent.
“The hotel industry is in the midst of unprecedented disruption due to the extreme severity of the COVID-19 pandemic, and occupancy across the hotel industry has plummeted to levels never before experienced,” commented Jeffrey H. Fisher, Chatham’s president and chief executive officer. “Our hotels are no different, but contrary to other hotel companies that are closing the majority of their hotels, our hotels are faring a bit better with occupancy over the last week of 19 percent across our portfolio. Thankfully, we have been able to provide accommodations to our nation’s military, infrastructure related workers, first responders and critical medical workers dedicated to ending this pandemic. Unfortunately, our hotels also have had to lay-off, furlough or significantly reduce hours for thousands of team members over the last few weeks. Conditions may change that warrant closing certain locations, but as of today, all hotels are open.
“As we have previously stated, our best-in-class operating platform with Island Hospitality gives us the tools to act more expeditiously than others which has a meaningful impact on the top- and bottom-line. This also enables us to generate the highest operating margins of all lodging REITs and to remain open at historically low occupancy levels,” Fisher concluded.
MGM Resorts International said it closed all U.S. properties on March 16. It -- like so many others - has also experienced very high group/event cancellations. While consolidated net income attributable to MGM Resorts was approximately $1.3 billion for the first two months of 2020, up significantly from approximately $27 million for the first two months of 2019, the company has since incurred substantial operating losses in March and the Company does not expect to see a material improvement until more is known regarding the duration and severity of the pandemic, including when the Company's properties can re-open to the public.
MGM Resorts is also making swift decisions to significantly reduce expenses to protect its financial position. It estimates that 60-70% of its domestic property level operating expenses are variable and is undertaking a thorough review to significantly minimize these costs, such as the implementation of hiring freezes, furloughs and other headcount reductions. The company is also actively reviewing its fixed property level operating expenses and corporate expenses to identify opportunities to further drive expense reductions. In addition, the Company is evaluating all capital spend projects and expects to defer at least 33% of planned 2020 domestic capital expenditures.
MGM said it believes its strong liquidity position, valuable unencumbered assets and aggressive cost reduction initiatives will enable it to fund its current obligations for the foreseeable future. While it is unable to predict when the properties will re-open, the company continues to believe that it will be able to weather this downturn and ultimately rebound from the impacts of the current crisis.
"At MGM Resorts, we are committed to doing our part to mitigate the spread of COVID-19, including the closure of our properties across the United States," said Bill Hornbuckle, Acting CEO and President of MGM Resorts. "While this will undoubtedly have a significant negative effect on our business in the near term, we are well-positioned to emerge from the current crisis in light of our strong liquidity position and valuable asset portfolio. With the continued execution of the MGM 2020 plan, as well as the implementation of aggressive cost savings initiatives, we believe the Company will be able to manage its expenses while navigating this unprecedented event. We are currently making very difficult decisions but believe these will be in the best interest of the Company long term."