American Hotel Income Properties REIT LP (HOTUN) Earnings Call Transcript & Summary

Good morning, and welcome to American Hotel Income Properties REIT LP's first quarter results conference call. [Operator Instructions] I will now turn the call over to Kelly Iwata, Director of Finance. You may begin your call.

Thank you, operator. Good morning, everyone, and thank you for joining us for our first quarter 2021 results conference call. Discussing AHIP's performance today are Jonathan Korol, Chief Executive Officer; Bruce Pittet, Chief Operating Officer; and Anne Yu, Interim Chief Financial Officer. The following discussion will include forward-looking statements as required by securities regulators in Canada. Comments that are not a statement of fact, including projections of future earnings, revenue, income and FFO, are considered forward-looking and involve risks and uncertainties. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our MD&A for the 3 months ended March 31, 2021, our other Canadian securities filings available on SEDAR and on our website at ahipreit.com. AHIP does not undertake to update or revise any forward-looking statements to reflect new events or circumstances, except as required by law. Listeners are urged to review the full discussion of risk factors on AHIP's annual information form dated March 15, 2021, which has been filed on SEDAR at www.sedar.com. Our first quarter results were made available yesterday afternoon. We encourage you to review our earnings release, MD&A and financial statements, which are available on our website as well as on SEDAR. On this call, we will discuss certain non-IFRS financial measures, including NOI, hotel EBITDA, FFO and AFFO. For the definition of these non-IFRS financial measures to the most directly comparable IFRS financial measure and a reconciliation between the two, please refer to our MD&A. All figures discussed on today's call are in U.S. dollars, unless otherwise indicated. I would like to remind everyone that this call being recorded today, May 13, 2021, and a replay of this call will be available on our website. Jonathan will begin today's call with an overview of operational and financial highlights, followed by Bruce who will provide an update on hotel operations. Lastly, Anne will highlight key financial results. I'll now turn the call over to Jonathan Korol, Chief Executive Officer.

Thank you, Kelly, and thank you, everyone, for joining us today for our first quarter financial results conference call. I'm going to begin by highlighting our results in the first quarter of 2021 and the various dynamics currently at play in the hotel industry environment. After that, I'll hand it over to Bruce and Anne to provide more details on the company's operational and financial performance in the first quarter. The month of March 2021 marked 1 year since the global pandemic began to impact the U.S. hospitality industry. The last 12 months have reinforced our belief in the Premium Branded select service hotel business model. During this time frame, AHIP's top line performance has surpassed industry averages while generating operating margins that have exceeded our peers. For every month since April 2020, AHIP has generated positive hotel EBITDA across the portfolio. Since June 2020, all of our hotels have been open for business. Our Q1 performance saw us achieve our strongest operating results since the pandemic began. Every month brought sequential improvements in occupancy and rate, with March generating monthly occupancy that exceeded 60% for the first time in the last 12 months, ending the month at almost 70%. This trend continued into April when we saw our first month where average daily rate exceeded $100, allowing us to generate RevPAR above $70 for the first time since the pandemic began. Vaccination rates across the U.S. have been rising rapidly since they initially began in December. This, coupled with declining COVID-19 infection rates in many of our portfolio states, has had positive effects on the U.S. economy and travel demand in particular. In addition, the U.S. stimulus bill passed in mid-March brought a boost to U.S. consumer activity and travel. We expect these dynamics to continue. There has been strong leisure demand across the portfolio, highlighted by exceptional performance at many of our leisure-oriented Florida and Texas hotels. Spring break across the U.S. in March brought increased demand in the Sun Belt states. We are encouraged that these higher demand patterns have brought meaningful increases to average daily rate. Rate increases of over 13% between January and April have allowed us to flow more revenue to the bottom line. Going forward, as we witness continued top line improvements, our teams are working hard to ensure that we maximize the permanence of the cost savings and operational efficiencies that we have achieved during the pandemic. In February, winter storms brought extreme cold temperatures to the Southern U.S. Eight of our properties in Texas and Oklahoma experienced business disruption to varying degrees, in most cases, caused by pipe breaks. Our frontline teams performed incredibly well under adverse conditions, ensuring that guests-seeking shelter were able to be accommodated. We are happy to report that operations have returned to normal with no long-term effects to the properties. We continue to take a cautiously optimistic approach to our property operations. Although we are seeing a strong correlation between vaccination rates and traffic to our hotels, we still encounter some local and state restrictions related to the pandemic. Until business travel rebounds in a meaningful way, we will be challenged to return to 2019 rate levels. Another challenge we are currently facing is our ability to attract and retain labor for certain positions. There are several dynamics at work in the U.S. labor market that contribute to that particular challenge, which Bruce will speak about later on. As we discussed during our Q4 earnings call, we completed a $50 million preferred share in warrant private placement with BentallGreenOak and Highgate Capital that closed in late January. Concurrent with the closing of this investment, we also completed amendments to our $225 million corporate credit facility with our lending syndicate. As a result, we've received waivers for key financial covenants through the end of 2021 and modified covenants through the end of 2022. Cash proceeds from the preferred equity investment, coupled with the amendment to our corporate credit facility, allowed us to enhance our liquidity and reduce our debt. The remaining cash from this investment, coupled with projected cash flow over the coming months, provide us with the financial flexibility needed in an operating environment that remains unpredictable. Today, following our preferred share private placement and debt paydown, we have approximately $40 million of available liquidity, comprised of both unrestricted cash and revolver capacity. And with those recent highlights, I'll now turn the call over to Bruce to discuss first quarter hotel operations. Anne will then highlight key first quarter financial metrics. Bruce?

Thank you, Jonathan, and good morning, everyone. The first quarter began as a continuation of the lower demand seasonality that we typically see in Q4 and in early Q1. That changed around President's Day weekend in mid-February when demand patterns began an upward trajectory that has not subsided. Although we typically see sequential monthly improvement as we distance ourselves from the colder winter months, the percentage revenue increases between January and March were more significant than most years. March RevPAR of $68.13 represented a 46% increase over January RevPAR of $46.52. As a whole, Q1 RevPAR of $57.01 exceeded Q4 2020 RevPAR by over 20%, pointing to meaningful signs of recovery for AHIP's portfolio. The macro driver of the demand increase across the portfolio has been the rapid dissemination of vaccines throughout the United States. At the beginning of the year, less than 2% of the U.S. population have been vaccinated with 1 dose of the COVID vaccine. Three months later, almost 30% of the population had been vaccinated at least once. Today, counting those who have been exposed to the virus, well over half of the U.S. population has some form of protection against the virus. Total occupancy for our 78 hotels in the first quarter averaged 60.2%. On a monthly basis through the quarter, January occupancy was 51.2%; February occupancy was 59.9%; and March, which saw a major breakthrough in demand due to spring break traffic in the Sun Belt, finished at 69.4% for the month. As Jonathan alluded to earlier, March was the first month where the portfolio exceeded 60% occupancy since the pandemic began, almost reaching 70% occupancy milestone as well. Our booking window continues to improve from the early days of the pandemic. However, the window is still within 7 days of arrival and closer to 10 days of -- for extended-stay bookings, providing limited visibility of forward booking trends. Although revenue increases have been primarily driven by occupancy increases, we are encouraged by the rate we have seen every month since the beginning of the year. Average daily rate increased from $90.81 in January to $98.22 in March, representing an 8.2% increase during the quarter. Jonathan hinted at our April results, which confirmed that the jump in demand across the portfolio in March was not single event-driven but rather another step towards recovery from pandemic lows. Rate growth continued into April where we finished the month with an average daily rate of $103.15, our highest monthly rate since the pandemic began. This, coupled with occupancy of 68.6%, delivered RevPAR of $70.77 in April, $2.64 higher than March RevPAR. Early indications for May signal that the upward trend will continue. The leisure segment continues to be the dominant driver of demand across our portfolio. Within this segment, youth sports and project work are catalysts for demand growth. We are seeing some initial signs of improvement in the corporate and group segment, but this significantly lags behind leisure demand. The corporate and group bookings we have tended to see in Q1 are coming from small- and midsized companies. In general, larger corporate clients continue to have stricter travel policies with many offices still closed. We anticipate demand in these segments to improve in the back half of 2021. Weekends continue to outpace midweek occupancy as a result of the strong leisure segment demand and limited corporate travel. Friday and Saturday nights have continued to be the peak demand nights through the pandemic period, and the portfolio is currently seeing occupancies in the high 70s to mid-80% ranges on weekends in March and April. Given this significant demand, our revenue management teams are building strategies that focus on weekend rate optimization. In the first quarter, construction, medical and project-driven business continued to be a viable source of demand in many markets. In February, hotels secured renovation and construction business in Texas and other parts of the country due to the Polar Vortex weather-driven event. Many homeowners were displaced from their homes due to the lack of electricity or running water, and they found refuge in our hotels for the week. The government segment, including National Guard bookings, continues to be active across many regions of the U.S. While mostly related to vaccine distribution and administration, AHIP hotels in Cincinnati, Midland Texas and the New Jersey hotels secured National Guard business in the quarter. Unrelated to the vaccine, our hotels in Baltimore with proximity to Washington, D.C. secured government business, leading up to the inauguration of the new administration. Geographically by state, 3 of our top 5 performing occupancy markets during the first quarter were in the Sun Belt. Two of these markets, Texas and Florida, represent our 2 largest geographic property concentrations by state. Our 10 hotels in Texas averaged 74.7% occupancy for the quarter while almost reaching $100 average daily rate. Our 12 hotels in Florida did hit $100 ADR in the quarter while slightly eclipsing 75% occupancy levels on average. Another state where AHIP has meaningful presence, New Jersey, saw ADR of almost $102 while achieving occupancy of 68.5%. Two markets, in particular, had a very strong Q1. Our 3 properties in Ocala, Florida delivered exceptional results with occupancy and rate of 80.1% and $110.09, respectively. San Angelo, Texas where we have 2 properties was able to achieve occupancy of 84.9% at a rate of $120.39 for the quarter. On the flip side, 4 of our 6 properties in the Pittsburgh region as well as 4 hotels in Oklahoma City area lagged portfolio averages by a significant margin. Overall, we saw broad-based occupancy strength across many regions in the first quarter. In fact, of the 22 states where AHIP has hotel properties, all but 4 exceeded 50% occupancy for the quarter. Those states, Iowa, Oklahoma, Ohio and Kentucky, collectively represent 17% of the portfolio by key count. Our 78 hotels continue to outperform their respective comp sets with a RevPAR index of 122.6, up from 120.5 during the fourth quarter. Our extended stay properties once again lead this performance. The efforts of our hotel manager in implementing cost-containment initiatives continue to result in margin growth across the portfolio in Q1. Operating efficiency gains contributed to Q1 GOP margins of 42.4% compared to 35.7% in Q4 of 2020 and 36.6% in Q1 of 2020. From a hotel EBITDA perspective, margins of 29.1% in Q1 compared favorably to 21.8% in Q4 of 2020 and 26% in Q1 of 2020. Several factors have contributed to this margin growth: improving average daily rates, relaxed brand standards and cost-containment initiatives put in place at the beginning of the pandemic in response to lower demand. Currently, the portfolio was operating at 51% of pre-COVID staffing levels. This is up from 48% in Q4. We would expect this percentage to marginally increase as we normalize at higher demand levels, in particular, for our Embassy Suites properties. However, we anticipate that some of the savings we are currently seeing will become permanent, providing for a leaner and more efficient operating model. Our hotels continue to operate with relaxed brand standards, a new reality across our industry since the onset of the pandemic. We expect to add some costs back into our operations starting in late Q2 and Q3 of this year, particularly around complementary services. Breakfast and evening receptions were required by the brand. As a complementary services comparative, in Q1, our comp services costs were in the $1.80 CPOR range. In 2019, our comp services cost was in the $3.80 CPOR range. Similar to staffing levels, we do not anticipate a return to 2019 brand standards and believe that we will glean a leaner operating model going forward. It's too early in the recovery to provide specific margin guidance. As discussed on our last call, our ability to recruit employees will be challenged as the economy recovers. Many factors contribute to this dynamic, including the ongoing availability of government assistance, increased competition in the labor market for employees and, in some instances, employee reticence to return to work while the pandemic is ongoing. We are seeing some procurement issues, in particular, for linen and FF&E, furniture, fixtures and equipment, which we suspect will improve as the global economy recovers and the supply chains normalize. Our capital spend in Q1 was focused on emergency requests related to life safety and asset preservation. We had no new capital renovation projects in the first quarter and expect PIP projects will be limited in 2021 and dependent on the financial recovery of our business. As business conditions normalize, we are beginning to have discussions with our brand partners regarding our properties and long-term renovation pipelines. As a reminder, approximately 80% of our guest rooms were built or renovated over the past 5 years. Taking into account renovations, the average adjusted age of the AHIP portfolio is 4.8 years. And with that update on our hotel operations, I'll now turn the call over to Anne to highlight key financial and capital metrics for the quarter. Anne?

Thank you, Bruce. Good morning, everyone. The last 3 months' operating performance has brought confidence that sustained business recovery is underway. As we have since the pandemic began, we continue to focus our efforts on protecting our balance sheet and maximizing liquidity. We believe that our collective efforts are reaping rewards as cash generated from hotel operations, along with our preferred equity raise, have allowed us to pay down debt and significantly reduce our payables since the beginning of the year. For the 3 months ended March 31, 2021, revenues decreased by $15.1 million to $46.7 million as compared to $61.9 million for the same period last year. Q1 2021 reflected a full quarter of pandemic-impacted results as compared to 2020 when the pandemic was first declared in March. Q1 of last year also incorporated an extra day of revenues in a leap year, which translated to approximately $1 million to the top line. RevPAR decreased 19.5% to $57.01, primarily driven by ADR decrease of 16.8% to $94.70 as occupancy only declined by 3.2% to 60.2% for the first quarter of 2021. Despite the 24.5% decline in revenues in the quarter, NOI only decreased by 16.1%, and NOI margins increased from 28.9% in Q1 2020 to 32.1% in Q1 2021. Loss and comprehensive loss for the quarter was $14 million compared to a loss and comprehensive loss of $12.6 million for the same quarter last year. Diluted loss per unit for the quarter was $0.18 compared to $0.16 in 2020. Funds from operations was negative $2 million or negative $0.03 per diluted unit after deducting the net income attributable to noncontrolling interest of $689,000, which is a new item this quarter in connection with the preferred stock issued in January. Two nonrecurring items caused FFO to go from breakeven to negative $2 million or negative $0.03 per unit: the first, approximately $1.3 million in nonrecurring financing charges related to interest and penalties; and the second, $1 million in nonrecurring general and administrative charges related to employee severance costs. In terms of liquidity metrics, in Q1 2021, we obtained an additional $5 million in government-guaranteed loans, which may be forgivable if certain conditions are met. The total amount of such loans received in 2020 and 2021 was approximately $15 million. AHIP did not recognize any additional impairment charges in the quarter. AHIP's discussions with loan servicers on the 2 underperforming noncore assets in Pittsburgh that we discussed on the Q4 earnings call are ongoing with respect to a modification of the terms of these loans. As at March 31, 2021, AHIP had total available liquidity of approximately $60 million with an additional $31 million of restricted cash held in various reserves with the loan servicers. This was compared to March 31, 2020, when AHIP had total available liquidity of only $20 million. Subsequent to quarter end, we continued with our efforts to clear significant outstanding liabilities. We repaid the deferred purchase price of approximately $16.2 million, including accrued interest, to the vendor on AHIP's acquisition of the 12 Premium Branded hotels in December 2019, thereby, fully discharging this liability. Today, following our preferred equity raise and debt paydown, we have approximately $40 million of available liquidity comprised of both unrestricted cash and revolver capacity. With these financial highlights, I will turn the call back to Jonathan for some closing remarks. Jonathan?

Thank you, Anne. Over the last 12 months, we've witnessed the incredible commitment, kindness and courage from the frontline hotel teams responsible for greeting the guests that frequent our properties on a daily basis. We've also seen our regional management teams, shepherded by our external manager, adjust the operations in a very unpredictable demand environment. The resulting performance of our portfolio speaks to the diligence and pride that they take in their work. We are very grateful for their collective efforts. As announced, Chris Cameron, our Chief Investment Officer, will be departing AHIP at the end of May. Chris has a long track record of service to AHIP, and we are grateful for his time here, and wish him all the best in his future endeavors. After withstanding the challenges of the last 4 quarters, I am very excited about the opportunities that lie ahead for our business. The strength of our Premium Branded suburban select-service hotel portfolio has shone through over this past year. As we look ahead, we will continue to focus on our key priorities. Operationally, we will maintain our attention on cost containment and margin enhancement, so that as rate growth accelerates, we optimize flow-through to our bottom line. We will continue to protect the balance sheet near term and deleverage over time. We will pursue accretive opportunities to deploy capital in our existing portfolio and through new acquisitions. Our end goal remains to drive total return for our unitholders through unit price appreciation as well as reinstating our unitholder cash distribution at a sustainable level and at the appropriate time. So with that overview of our first quarter and recent initiatives, we'll now open the call to questions from analysts. Operator?

[Operator Instructions] Your first question comes from the line of Mark Rothschild with Canaccord.

In regard to the distribution -- and you kind of just alluded to it before, and also in earlier comments, it said that there still is a lot of uncertainty regarding where margins will stabilize and the cost and recovery. Can you just update us maybe on what metrics you need to see? And what are the steps that would take before we could see the distribution reinstated, just so we should know what to look for?

Sure. So it's a great question. And we understand the value of the distribution to our investors. And just from a macro standpoint, we believe the -- we understand the importance of reinstating a more meaningful dividend as operations continue to improve. One of the things to focus on as we look at the metrics related to cash flow, the driver of that is our recent amendment to our revolver, which has a covenant waiver period, which ends in -- at the end of 2021. And according to the recent amendment, there's a restriction, so long as we're in covenant waiver that we can't reinstate the distribution. But if 2021 was to meaningfully improve and we were able to come out of covenant waiver earlier than December 31, we would be able to reinstate the distribution. And of course, that is a Board decision, and the Board would weigh all factors.

So would it be reasonable to say that you expect that by this time next year, though, that there will most likely be a distribution?

If we were to continue on our current trajectory, Mark, certainly, that would be -- that's what the models would tell us. But like I said before, this is ultimately a Board decision, and the Board would weigh several factors in totality.

Okay. Great. And on a separate point, you've brought in 2 sophisticated investors to partner up with you with this -- with the preferred capital. Can you just talk about what benefits this brings to AHIP, maybe that you've seen already or that you expect to come in the future?

Sure. And yes, we've -- since closing on the transaction at the end of January, we had 2 Board meetings already. And these are -- these folks are also part of our Investment Committee, Governance Committee, and we have a chance to interact with them on a daily basis. These are 2 investors, both in hospitality and real estate that are -- that have quite a broad reach across the United States and provide some really meaningful information and feedback on the state of the market and what they're seeing, both from counterparties on acquisitions but also in the debt markets. And also bring with them a view on our business, on our operations and a validation in that respect. So all those factors contributed to why we chose them ultimately to -- as the investor in our company, and those have played out exactly, and if not better, than what we had hoped for.

Your next question comes from the line of Lorne Kalmar with TD Securities.

So just going back to your comments about May continuing to improve. Do you guys have any numbers on occupancy and ADR thus far?

Yes. Lorne, it's Bruce. Yes. So through May 11, so a couple of days ago, we don't have last night's results yet. Occupancies at 66.7% through the first 11 days, and our ADR is at $107.23.

Oh, that's good. You're seeing the ADR keep climbing. Okay. And I guess, there was a few kind of groups you mentioned that are sort of, I guess, supporting the occupancy, the National Guard and some construction projects. Do you guys expect there to be a drop-off in demand from those groups and corresponding drop-off in occupancy? Or do you think it kind of nets out to 0 as this progresses? Or do you see a net improvement going forward?

Yes. I don't think there's going to be a drop-back just for what it's worth. I think at a minimum, it will stay at the kind of the current rate that we're seeing, if not grow some. I think there continues to be pent-up demand, not just for leisure travel but for some of the construction and project work that we seem to be seeing kind of across the states we operate in.

Okay. And then I think you guys mentioned capital recycling in the MD&A. I was wondering what the intentions were for that. And just as an extension, maybe where do you guys want to try and get leveraged to by the end of the year?

It's pretty difficult to model that right now, Lorne, just with the variance in the operating environment. Certainly, we know where we want to be in the intermediate to long term, and that's more in line with our peer group average. But it would be difficult at this point to get a -- to provide a metric for year-end.

Okay. And then maybe just lastly, are you guys seeing anything on the acquisition front? Is there any -- if the right opportunity came along, would you guys be willing to execute? Or is that -- you guys are still kind of focused on stabilizing the operations?

No, we're in the market to track acquisitions. And for the right opportunity, we would find a way to get a transaction done. There has been -- just as an industry metric, Q1 transaction volume was down 52% year-over-year nationally. But in the last month or so, there's been a meaningful increase to the number of broker deals in the market. And by our count right now, there's over 100 deals in the select service space alone. So we -- there's activity out there. And we need to be part of -- we need to be underwriting those deals to understand where values are but also mining them for a potential opportunistic purchase.

Your next question comes from the line of Matt Logan with RBC Capital Markets.

Jon, when we think about the recovery, I know it's hard to pin down the exact details. But could you talk a little bit about how you expect the shape of the recovery to progress? Like said differently, do you expect like a big surge in demand in the back half of this year as vaccines rollout and your momentum continues? Or do you think that eventually, we kind of reach a point where the initial surge is over and there's a long drawn-out tail to the recovery?

Well, the -- this recovery is different than what you would have seen after the global financial crisis in early 2000, and that is single event-driven, and there's a tremendous amount of pent-up demand out there when consumers, as we've seen in Q1 with disposable income wanting to spend on travel. So unlike what we would typically see, which would be a stepwise recovery, the dynamics shaping up for Q3, Q4, i.e., the return of the business traveler, could entail something much more than a stepwise recovery, i.e., more of a V-shaped recovery on the demand side. So that's, as you know, very difficult to model. As you look at our full-service peers and what they're saying with respect to corporate and group business, they're having inbound calls from meeting planners for corporate business in Q3, Q4. And like we said in our past call, that's kind of when we expect,really demand to leap and, therefore, create some compression in some of these markets that we're -- that we are in, thereby, allowing us to pick up rate even more than what we're seeing right now.

So thematically, would you hope to be approximating 2019 levels next year or the year after?

Well, we would hope to be approximating 2019 levels in the next 12 months. But realistically, the -- depending on who you speak to and whether it be CBRE or STR or HVS, most are modeling 2023 as the return of 2019 levels. But that is, like I said, extremely difficult to model at this time.

Got it. Certainly still a lot of variables. Maybe just changing gears a little bit. When you think about the mix of demand for your business in terms of leisure versus corporate, could you tell us where that was in 2019? Where that is currently? And if you think that mix shift will go back to the way it was or if we could see more demand from leisure travel going forward?

Matt, it's Bruce. I'll take that question. I think, in many ways, what's happened is we've kind of flipped the demand. So we were probably more in the 60% to 70% corporate demand range and with the remainder being leisure in 2019 or prior. And I would suggest to you today, we're more like 60% or 70% leisure with the remainder being kind of corporate and group-oriented business. So although we have seen some corporate business kind of coming back into our hotels, I would tell you that it's been quite slow. I do expect there will be a day when our peak days return to Tuesdays and Wednesdays away from Fridays and Saturdays, right, which is really that corporate, group-driven business. So when that's going to happen, I'm not too sure. I am optimistic that as we get into the back half of 2022, that life will feel a little bit more like it did pre-pandemic as far as the demand coming into our hotels. The other thing about corporate business, just that I think is worth commenting on, is that's typically higher-rated business for us. So as it comes back into the hotels, I think that's going to have a beneficial impact on the rate that we see.

Good color, Bruce. And maybe last one for me, just in terms of the transaction market. I know you're monitoring it closely. Could you give us a sense for the -- where you're seeing pricing for nondistressed assets, I mean, relative to kind of pre-pandemic levels?

Sure. We can tell you where the ask is and -- because a lot of these transactions haven't consummated yet. If you look at the transactions that have been done in Q1, there were a lot of kind of lender-controlled dispositions. But as we enter Q2, there'll be more arms-length, non-lender-involved buy/sells. And so the ask right now from the -- on the deals that we've been tracking are -- and everybody's price into 2019 levels are in the 8.5% cap range on 2019 NOI. And buyers, there's about a 15% to 20% bid-ask spread, but that's changing pretty dramatically in favor of the sellers. So it's becoming -- quickly becoming a sellers' market. And there's a lot of capital on the sidelines waiting to pounce.

If it does, indeed, become a sellers' market, would you be open to selling any assets to reduce leverage?

We're always contemplating that just because it's a sound policy with respect to asset management. We don't have any currently that we're actively engaged on, but we certainly do get inquiries from time to time.

Your next question comes from the line of Joanne Chen with BMO Capital Markets.

Just wanted to check on the acquisition front. Obviously, things are picking up. Just within on the [indiscernible] right now, what would you say your overall capacity would be for -- within your threshold for acquisitions, if you were to undertake any?

Sorry, you cut a little bit there, Joanne, do you mind?

Oh, sorry about that. Your just -- as your balance sheet stands right now and kind of your thinking over the near term, with respect to undertaking acquisitions, like what would you say your capacity is right now?

Sure. Well, looking at the -- our cash balances right now, it's limited in what we could do. I can tell you that the debt markets are opening up quickly. But we see acquisitions as a way to reequitize our portfolio. So if we did so in the next 12 months, it would be simply by either transacting with a vendor that would take equity in our units or perhaps by bringing in a strategic investor and issuing equity directly to them on an acquisition. So those are some of the structures that we're contemplating. Certainly, we'd like to be in a position where we reinstate the distribution and we can issue equity in the open markets. But in this environment, with some of the attractiveness of the deals that we're looking at, we have to look at creative ways to be able to fund acquisitions in the next 9 to 12 months.

Okay. Got it. That's helpful. And maybe just going back on the ADR. Obviously, it's been -- it's nice to see that swift recovery. But -- and just going back to your previous comment with respect to kind of the corporate clients coming back, should we be expecting kind of an acceleration in the back half when business travel do, in fact, resume?

Joanne, it's Bruce. So I think it's fair to think that we'll see greater ADR recovery as that corporate customer returns to the business. It's going to be contingent on how quickly they come back, right? And what kind of compression we start to see across our portfolio. But I do think we'll see greater growth with the corporate customer back in the market.

Have you been seeing some -- a little bit of a recovery in the last month or so?

Yes, we have. It hasn't been substantial. Like over the last 2 or 3 months, there are a few markers that we see in the business that are showing some positive signs. So negotiated rate segment is something that's improving on a month-over-month basis. And those negotiated rates are typically with corporate clients as well. GDS bookings, global distribution systems, again, typically more a business or corporate customer using that stream to book hotel rooms, we're seeing. And then I would also just tell you, anecdotally, our meeting room revenue from just booking our meeting rooms across our portfolio has been increasing over the last 3 or 4 months. So it's not always attached to guest rooms, but we certainly have more local businesses that are booking our meeting rooms for day meetings or meetings over a couple of days. So we see more revenue from meeting room book rentals as well as actually some F&B revenue. Still, the F&B revenue is still far from where it was. But we see that as a positive sign of that guest type returning to the hotels.

Got it. That's helpful. And just one last one for me. I know you said there's a lot of moving pieces, obviously, still in this recovery process. You didn't want to really give guidance with respect to -- on the margin front. But I would imagine with demand coming back up, that we should continue to see a slow improvement in margin, obviously, above the 2020 levels. But would it so likely be below 2019 levels for 2021?

Yes. No. Joanne, I think we're going to see -- well, so 2 -- kind of 2 questions or your 2 comments. I think we're going to continue to see margin improvement as we move forward, certainly, compared to 2020. And in fact, what we're seeing is some margin improvement over 2019 at this point because of the relaxed brand standards and around complementary services and housekeeping-type services. So we're anticipating we're going to see some margin growth on an ongoing basis when we look back at 2019.

Your next question comes from the line of Tal Woolley with National Bank Finance.

Just to maybe put a finer point on. I mean, this portfolio, sort of as it exists right now was sort of only in that like as it was constructed, like just for a moment right before the pandemic hit, like with the final transaction to get sort of the portfolio to where it is today. And so we've been talking a lot about like trying to get -- making a lot of references back to 2019. I guess like what I'm asking, though, is when I look at like some of the operating metrics, it's like we don't really have a lot of history with the portfolio as it is. And so what are the target ADR, target occupancy you think you ultimately can get with the current portfolio of the hotels?

Yes. Well, it's Bruce. You're absolutely right, we didn't really get to see the full benefit of the assets we acquired right back in December of '19. We -- those are newer assets, more extend -- 8 of the 12 are extended stay, which are -- which run at higher margins. So you're absolutely correct on that point. And we clearly improved the quality of our portfolio with that acquisition. With regards to target ADRs, that's a difficult question to answer today because there's been so many dynamics that have been impacting regions and our portfolio as a whole. I would hope that by the end of the year or maybe this time next year that we can have a much more educated comment around where we see ADRs and RevPARs for this portfolio stabilizing. But it's pretty tough to tell right now in the absence of that group segment really that isn't in the market these days. So I think we honestly need a little bit more time before we can get you a solid answer on that.

Okay. So you -- if you can't give us a solid answer, then I would assume then, if you're looking to take on more strategic equity or something like that, you are going to need to have an answer to that question, no?

With respect to our guidelines for the next 12 months or the next 24 months?

Well, no, you had said in an earlier question that you would maybe look to raise more equity with a strategic investor to go buy stuff. I'm assuming you need to have answers to those questions about sort of where your long-term targets are in order to bring in more equity.

Yes. I mean we've -- we successfully did our paraphrase in January based on the current dynamics. I think with -- as we -- with each week that goes on, Tal, we have a greater visibility to what we think our new kind of 78-hotel portfolio will pro forma at in the next 24 months. And certainly, that's the challenge in this environment right now. And that really, frankly, nobody has the -- knows with 100% certainty.

Okay. And then if performance normalizes in the way that you think it might, what does the debt-to-EBITDA ratio for this company look like coming out of that?

Yes. Again, Tal, that's a pretty difficult question to answer right now. I think you asked me a variance on this -- the same question in March, which is directionally where we're headed. And based on 2019 EBITDA levels, the peer group's median is around 5x. There's a broad range around that. But directionally, that's where we want to be heading. And all of our efforts with respect to acquisitions and how we finance new deals, how we refinance existing deals will all be pointed towards that target.

And there are no further questions at this time.

Great. Well, thank you, again, everyone, for joining us on our call today, and we look forward to speaking with you in August when we report our second quarter 2021 results.

This concludes today's conference call. You may now disconnect.