Q3 2019 Earnings Call
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one only touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded.
I would now back to turn the conference over to Lisa Raimi, Vice President Finance. Please go ahead.
Thank you Andrew.
Afternoon, everyone and welcome to the third quarter 2019 earnings call and webcast for Xenia hotels, <unk> resorts I'm here with myself, our chairman and Chief Executive Officer, very well, our president and Chief operating officer, and a T. Shah our Chief Financial Officer.
Well again with an overview of our third quarter results in highlights variable with additional details on our results of all the discussion of our capital expenditure projects attitudes will conclude our remarks with a discussion of our current balance sheet, our revised 2019 outlook.
Well then open the call for today.
We get started let me remind everyone that certain statements made on this call or not historical facts are considered forward looking statement.
Hey, guys are subject to numerous risks and uncertainties as described in our annual report on Form 10-K , and other I could see filings, which can cause our actual results could differ materially from those expressed or implied by our common.
Looking statements in the earnings release that we issued earlier this morning, along with the cars on this call are made only as of today October 31st 2019, and we undertake no obligation to publicly update any of these forward looking statements is actually I told you.
You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release.
An archive of this call will be available on our website for 90 days with that I'll turn it over to Marseille to get started.
Thanks, Good afternoon, everyone.
The U.S. lodging industry has continued to see muted growth in revenues with third quarter Revpar up only 0.7%.
The upper upscale and luxury segment outpaced the overall in the street Spike Lee with Revpar growth of 1.1% and 1.3% respectively for the quarter.
Against this backdrop, our portfolio experienced a solid quarter.
Particularly as it relates to win for ever use.
Same property portfolio Revpar increased two and a half per cent compared to last year. During the first core that's occupancy increased 140 basis points and 80, our increased 0.6%.
Our results were primarily driven by strong performance in July and August with Revpar, approximately 4% for each month outperforming our expectations for the summer months.
So remember what's the most significant contributor to third quarter results.
And as we had been anticipating proved to be more challenging than July and August .
We had long identified meaningful group demand shortfalls in September .
And while tragic production for the month was substantial and encouraging.
<unk> decreased by 0.8% as a result, this relative lack of group demand.
Unfortunately hurricane Dorian also negatively impacted results at September that's we experienced a significant number of cancellations at our hotels <unk> resorts in the southeast during and after Labor day weekend.
Although Ruth revenues increased at a relatively healthy pace into third quarter.
Sure falling group demand and the mouse models number and the impact of Dorian contribute up to challenges on the food and beverage side.
We have particularly strong catering demand in the third quarter of 20 aging.
It did not repeat this year.
As a result, our same property food and beverage revenues decreased by 1% for the quarter, which limited our third quarter growth in total revenues to 1.6%.
For the quarter, our adjusted EBITDAR eat well $62.6 million and our adjusted FFO per share was 47 cents.
Increases of 3.4% and 2.2% respectively.
As I mentioned hurricane Dorian disrupted operations at seven of our hotels <unk> resorts during the quarter, including our properties in key West Orlando Savannah, Charleston, South Carolina.
We estimate that the negative impact to adjusted EBITDA, sorry was approximately 500000 doors.
I would do not anticipate recovering any of this last inkatha pro business interruption insurance.
We remain diligent and successful in controlling expenses across the portfolio.
Our operators continue to find efficiencies, particularly in the rooms, and food and beverage departments.
As a result same property property EBITDA margins for the border declined by only 16 basis points on our same property revenue growth of 1.6%.
We believe there's an excellent results in an environment, where it increase in labor cost and fixed expenses, including real estate taxes and insurance continue to put pressure on operating Marcus.
Our portfolio's performance on a year to date basis has a strong.
As our same property Revpar increased 2.6% pretty ended the third quarter.
Our total portfolio portfolio, Revpar, which as a reminder measures our portfolio results on an as on basis was 4.7% higher than last year for third quarter.
Due impart to the improvement in quality of our portfolio through to transact has to work completed in 2018.
Year to date same property EBITDA margin has improved 39 basis points.
With rooms expense essentially flat to last year on 2.6% rooms revenue growth.
That's food and beverage expense up only zero by 6% on 1.7% of SMB revenue growth.
While our performance as it relates to margin improvement over the past few years has been outstanding.
Operating environment continues to be challenging and we anticipate that they will become increasingly difficult to maintain margins. It revpar growth, though not accelerate from current levels.
While we're pleased with our third quarter and year to date results. The U.S. lodging industry is experiencing headwinds, resulting from supply increases pockets of weakness in demand as well as labor and other cost pressures and our portfolio is not immune from those factors.
I teach will how long outline our expectations for the remainder of a year and how to current environment. This impacting our fourth quarter forecast later during the call.
Our overall strategy of owning uniquely positioned luxury and upper upscale hotels in a variety of to top 25 lodging markets. Thank you lever destinations.
James to prove itself in our result.
We're seeing outperformance across our portfolio relative to the markets.
And a quarter and year to date.
Including a gateway markets, such a San Francisco and several of our Sunbelt markets, such as Dallas, Houston, Phoenix and Orlando.
These markets offer diverse demand generators for the group leisure and corporate transient segments, enabling us to successfully optimized mix at our properties.
In addition to the quality of our hotels and the diversification of our portfolio across a variety of highly attractive larger markets. We can see into believed that our affiliation with some of the strongest brands in the industry. It's a competitive advantage for a company.
We have aligned ourselves with top lodging brand companies, such as Mary Allen highest which offer strong revenue generation channels and loyal loyalty program programs that could prove to be particularly valuable during times of slowing demand.
We believe our portfolio generally well position following our significant capital expenditures in 2017 and 2080.
And we continue to see positive result, as these hotels and resorts gained market share against their competitive sets.
On a year to date basis, we have been able to increase our portfolios market share by over 300 basis points.
A result that reflects both renovation improvements at our newly refreshed assets as well a successful revenue strategies implemented a buyer operating teams throughout the portfolio.
We continue to look for ways to unlock additional value across our portfolio I believe our portfolio continues to provide opportunities for targeted ROI projects.
Regarding our most significant capital improvement projects, we're looking forward to reaping the benefits from our soon to be completed new ballroom at Hyatt Regency Grad Cyprus.
Particularly after we complete renovation of the existing meeting stays at 2020.
We also remain excited about the revenue growth opportunities after the transformational renovation of <unk>.
This project is progressing very well as very well described in detail shortly.
Additionally, our significant acquisition activity over the past several years containers to afford opportunities for growth as we integrate the properties into our asset management platform.
Ultimately all these factors at play than our favorite into current logging environments, and we believe have positioned us well for future growth.
Now turning to the topic of potential future transactions.
As you know we have a history of being active on the transaction front.
As such we are continually evaluating potential acquisitions and dispositions. That's good further improve the overall quality and growth profile of our portfolio and create long term shareholder value.
Finding appropriate acquisition targets and executing transactions require significant effort and dedication.
We have a track record and expertise at a second to none in our industry and we remain hopeful we will be able to acquire assets into quarters ahead that have unique and just what characteristics and growth potential.
However, we will remain disciplined and the execution of our investment strategy as weird attempt to identify appealing acquisition opportunities in today's competitive transaction market.
As it relates to dispositions the majority of our sales in recent years, having both properties what significant near term capital requirements, where we did not projecting an appropriate return on this additional investments.
We have also sold properties that we didn't help you with long term strategic assets based on eater property locations where to quality levels. All these assets.
While we have significantly improved our portfolio because several years a few properties that fit a similar profile could be one source of the disposition activity for us in the future home.
We also believes that opportunities may exist to take advantage of disparities and public and private market valuations of high quality lodging assets and this could be an additional avenue, we may selectively pursue on the disposition side.
However, we will continue to exhibit discipline as we evaluate all of our potential capital allocation decisions.
We also remain cognizant of the significant time and efforts that are required to build a portfolio the scope and quality as ours.
We continue to believe strongly in the long term growth prospects for a company and believe we have tailored our portfolio to be able to outperform during times of reduced the industry demand as well as in a more robust growth environment.
Everyone I'll discuss our portfolio third quarter performance in more detail.
<unk>, an update on our capital expenditure activities.
Thank you Mark So as a reminder, all of the portfolio information I'll be speaking about was reported on the same property basis, the 40 hotels on the quarter right.
As Michael mentioned, our third quarter results were in line with the overall expectations for the quarter.
Same property Revpar was up 2.5% for the quarter, but both occupancy and 80 or increasing 140 basis points in 0.6% respectively.
Group revenue was up approximately 1.8% compared to last year, well transiting contract business was up approximately 2.7%.
Overall weekdays were quite a bit stronger than weekends, particularly in September as a result of the disruption we experienced over labor day weekend.
Despite the current lodging backdrop, we continue to see strength across many of them markets in our portfolio.
Looking at Revpar growth in our top 10, EBITDA contributing markets Dallas is up 15.2%.
Phoenix up, 8.2%, Houston up, 6.5% and Orlando up 6.3%.
Dallas benefited year over year from the renovation at the Marat Dallas downtown during the third quarter last year, we had strong in house group, it's very much else.
In the Phoenix market, both hybrid you see Scottsdale unwell palms saw strength and transient business. The production up at both properties as a result to successful marketing promotions as you've worked with hotels refined topline strategies during our second summer of ownership.
I used to performance was attributable to strengthen our western properties in the Galleria, which had been gaining significant market share has a solid group base has enabled the team to yield higher transient rates. The comprehensive renovation of these properties.
We also the outperformance Orlando properties, particularly relative to the overall market, which is actually down in revpar for the quarter.
We just see grant Cypress, which benefited from the lapping of the Guestroom renovation last year.
You mean Orlando each showed strength in July and August , which more than offset the hurricane joint related challenges and next to me that softer group bookings in September .
Our two hotels in Boston were collectively up 5.3% in a quarter, despite increasing supply in the market.
Presidents in Cambridge led the way it was strong corporate demand throughout the quarter Hotel Commonwealth hosted several quality groups, which helped overcome the impact of a lackluster red Sox season compared to last year.
Our Napa hotels also saw revpar growth of 3.7% driven primarily by Marriott Napa Valley, which benefited from strong group based in August .
San Francisco area, our hotel in San Francisco Airport, Revpar, 2.3%, despite weak citywide compression.
This hotel continues to benefit from unique demand channel specific submarkets, leaving it less dependent on compression in downtown.
The worst performing to our top 10 markets were Santa Clara down, 4.9%, San Diego down, 1.3% and Atlanta slightly down at negative 0.4%.
Hi, receipts, Santa Clara struggled from accommodation of new supply in the market, including new select service higher product as well the slowdown in demand due in part to modest disruption from the comprehensive lobbying first for renovation.
Decreased convention activity in the San Diego market resulted in significant competition for transient business, principally it on dot San Diego, which suffered from weaker than expected 80, our performance.
In Atlanta strength that Renaissance Atlanta, Waverly was offset by softer than expected performance. The Waldorf Astoria Atlanta bucket has the hotel continues to struggle following its transition for Mandarin Oriental.
We continue to work with hotel in helping to ensure the REIT strategies are in place.
So going forward.
Outside of our top 10 markets other top performing markets include Birmingham, where the ground for human Mountain Brook was up 10.5%.
Boston up 10.2% in Charleston, South Carolina up 9%.
Well, we experienced strengthen third quarter on the room side food and beverage revenue was down 1% due to less banquet and catering business as result of softer group business largely in September as well as several restaurants are undergoing renovations during the quarter.
Other revenue however grew 5.1% as result of increases in resort destination amenity fees and cancellation and attrition income.
As Marcel discussed we continue to be pleased with our margin performance in the third quarter and year to date.
As was the case last quarter rooms margin was a highlight the rooms expense actually down 0.5% as our operators continue to be extremely diligent and controlling expenses our hotels.
Food and beverage operating margins were also strong despite a decline in food and beverage revenue for the quarter.
Distribute expenses were not as well control were up 4%, because LNG sales and marketing and repairs and maintenance crew at higher rates due to seasonal costs.
Moving to our renovations and capital projects during the quarter, we spent approximately $26 million third quarter on capex, bringing our total $63 million as of September thirtyth.
During the quarter, we completed several projects, including renovations of because he doesn't suites at Hyatt Regency Scottsdale renovation of the Salvador spot Royal Palm.
The renovation of daily grille restaurant, a western Gallery Houston.
The final phase of the means based renovation of Marriott woodlands as walls renovation of the restaurant and creation of a new Regency club as part of a complete route renovation of the lobby level at hybrid you see Santa Claire.
Looking to I really see Grand Cyprus, we continued to be excited about all the progress the resort.
Border reaping the benefits of the capital spend at the property since our acquisition.
During the quarter, we completed a renovation of hemingway's resorts signature restaurant.
We are nearing completion on our biggest capital probably to be year. The construction of the new 25000 square foot ballroom long pre function and ancillary space the resort.
We anticipate completion of the new facility by the end of November with the first group booked in early December .
At this point group pace is up nearly 30% for 2020 affecting the hotels ability to book this new space, even prior to its completion and the strong reception at this facility by the meeting planner community.
We look forward to renovating existing spaces the hotel in the summer of 2020.
The planning budgeting and designed for park I'll be RF continued during the quarter. We're on track to begin both the Guestroom a meeting space renovations in mid November , but the remainder of the project, including public spaces food and beverage outlive Spa pool areas landscape again, the golf course to beginning stages throughout the fourth quarter of 2019, and the first quarter of 2020.
As a reminder, the complete renovation of this important the property grounds is expected to cost between 50 and $60 million.
We are confident this investment will create a completely transformed resort.
Appeal to a wide variety of group in leisure guests.
[noise] ballpark, how you probably are well certainly be our largest capital project. In 2020. We also look forward to starting a few smaller yet important projects in Q4 2019 will conclude in the first quarter of 2020.
Specifically, meaning space renovations of Ritz, Carlton Pentagon city, West to Noakes, Fairmont, Dallas and on Dol sedan.
The summer of 2020 will be transforming the Waldorf Astoria, Atlanta bucket restaurant over the summer.
Executing a significant guestroom renovation Marriott woodlands as well.
And now I will turn the call over Georgia.
Thanks, Barry I'll discuss two topics. This afternoon first I'll discuss our balance sheet, and then I will turn to our outlook.
Our balance sheet continues to be strong our debt has a weighted average turned immaturity of just over four years.
Our debt maturities over the next two years are quite manageable, we have a 190 million dollar.
<unk> million dollars of debt maturing that includes an unsecured term loan and one small mortgage loan.
Approximately 80% of our debt is fixed rate that based on origination or hedging and 20% is variable rate debt.
We have a good mix of secured and unsecured debt as well and overall 31 of our 40 properties are unencumbered property level debt. This provides us significant flexibility.
Our net debt to adjusted EBITDA ratio was 3.4 times at the end of the third quarter as a reminder, since our listing in 2015, our leverage ratio is ranged from the low three times range to low four times range.
At quarter end, our weighted average interest rate was 3.74%.
As to liquidity at the ended the third quarter, we had approximately $115 million and unrestricted cash.
In addition to that we have an undrawn 500 million dollar credit facility.
During the third quarter, we completed one debt modification, we lowered the borrowing cost on our 125 million dollar unsecured term loan that matures in September of 2024 with the reduction in pricing. The current annual interest rate on that loan is 3.27%.
Now turning to our outlook for the full year.
Our guidance is largely the same as it was a quarter ago. You'll note that we have narrowed the range is consistent with our approach at this time in prior years.
We currently anticipate same property full year revpar to be up between one and a half and 2%.
We now expect 2019, adjusted EBITDA are easy to be between 295 and $301 million again, the midpoint is the same compare to prior guidance.
While our overall 2019 adjusted EBITDA are you forecast hasn't changed the guidance includes a few items worthy of a call out as follows.
First we outperformed our expectations by $1 million in the third quarter.
Second we expect <unk> expense to be approximately $1 million lower than our prior estimate due to a lower bonus accrual and some open positions.
Third our guidance reflects as booking by year end B $2 million property tax settlement for several years of appeals for property that we have sold.
[noise] offsetting these three items is our forecast for hotel EBITDA for the fourth quarter.
Relative to our prior guidance, we expect lower non rooms revenue.
And more margin decline.
We are hopeful that our results actualized better than this but our basing our guidance on recent trends.
So net net no change to adjusted EBITDA, our guidance for the full year.
Turning to adjusted FFO, we expect to earn between 243 and $249 million.
On a per share basis. This reflects $2 and 12 to $2, an 18 cents of adjusted FFO per share.
This is based on a full year count of 114.4 million shares or units, which is unchanged from last quarter.
Also unchanged our forecast for interest expense and income tax expense.
As to our outlook for 2020, we're early in the process of reviewing initial hotel operating budgets.
One data point does our overall group revenue pace, which is up 3.5%.
<unk> increase is driven by Hyatt Regency Grand Cyprus.
Excluding Hyatt Regency Grand Cyprus, our overall group revenue pace is approximately flat.
As a reminder, our group mix is about 35% of our overall mix.
And as of the end of the third quarter has covered 2020 group revenue was definitely.
In conclusion, we are pleased with our performance in the third quarter and year to date, we've tracked at or above our internal expectations over the last several quarters.
As we look ahead, we expect the next several months to be more challenging from both the demand and margin perspective.
Overall, we continue to believe the company is well positioned for the future.
Terms of internal growth opportunities to strengthen the balance sheet and the capabilities of the team.
That concludes our prepared remarks at this time, Andrew will take our first question.
We will now begin the question and answer session to ask a question you made press Star then one on your Touchtone phone. If you are using these speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would love to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from David Katz of Jefferies. Please go ahead.
Hi afternoon, everyone I.
Hi, so.
I appreciate all the big commentary and I, just really wanted to go back to the Oh comments made about.
<unk> deal environment are there you know.
Oh, the economy slowing and we obviously get to she revpar, but if you could elaborate just a bit on what you're looking at or what kinds of things you're seeing out there that you know shape your view about what the landscape looks like next 12 month.
Well I think in general Davis, I mean, obviously, we're looking at load the same kind of economic indicators that that you're seeing out there.
And what were really seeing throughout the portfolio frankly is it's really a story of 40 different assets and a large number of different markets within our portfolio that don't necessarily old behave homogeneous leave from week to week on most of them. All so what we saw in the last quarter and what we focus on in our comments.
And in our release this morning, and steps, we have some softness and particularly in September the delayed it to a group demand, but we were actually quite pleased with the way to that friendship came in during the quarter and backfill some of that shortfall. So I know that's you know you've heard from from maybe some water, sometimes about maybe a little bit more concerned about the transient be sportswear.
You just look back on the one quarter. We just had we actually were quite pleased with what the transient demand that came in the one thing that we were always concerned about coming into the year was was it where you kind of a short fall on the group size a in the mall September and October and even though we've been able to backfill some of the other than that actually I've seen some growth.
And pace towards the end of the year or something that was hard to fill in and was a little bit more surprising and in September frankly, because on October Oh God. There was always on expectation that's the timing of the Jewish holidays was going to put some pressure on that and Unfortunately September didnt quite make up for that and as you saw in.
In the results kinda throughout the industry.
Thank you for that and then one other question if I may I I know the consolidation.
You know a particularly around Marriott.
As you know Ben I guess I call it a less than straight path.
<unk> is that you know past starting to straighten out and you know we have also seen some consolidation that's gone on on the management company side, which was a bit less public but it.
Are there any dynamics worth discussing around that side of the business, where they can either help or you know show up and how you're operating performance turns out.
Hi, David Yes, I think so I, certainly where we're starting to see and I think we credit at some of the transient NFL. We've had this year to the strength of mass program that representing half of our rooms in the portfolio and certainly we think that they are attracting a loyal guests is utilizing.
Our properties more including our specific although as we've talked about before we had some pretty intentional strategies around making sure that are Marianne properties are.
The best properties within their given markets and we think we've attracted more business from.
Legacy SPG gasoline, we've lost to legacy SPG hotels, that's one two we're certainly seeing some benefit this year from some of the program service fees and other shifts in cost at nights put in place and I think that that is reflected in in a portion of what we've been able to do as a company in terms of.
Maintaining and in some cases in other quarters.
Proven margin as it relates to the third party managers, we have a relatively small stable Oh third party managers that we've worked with for a long time and are not have not yet been impacted really at all by any of the consolidation in the third party managers.
Got it thank you very much appreciate it.
The next question comes from Austin Wurschmidt of Keybanc capital markets. Please go ahead.
Hi, good afternoon, everybody or so I wanted to touch on on your comments on disposition.
Specifically you mentioned that.
Looking at opportunities to capitalize on the disparity between public and private market valuations.
Which was a little bit of a pivot or maybe just incremental to your prior comments.
Surrounding sales and I'm sure. We all saw the news as it relates to kind of the kimpton portfolio, but I was really hoping that you could tell us how you wait wait a different disposition buckets, you know the lower or the lower ROI.
Moving forward versus noncore and then just opportunistic in kind of the current fundamental backdrop.
Oh sure claw. So that's as I'm sure you know it helps us I'm sure you've heard from us before.
You know it's really are.
Cost on that we really only talk about transaction that that Africa or tenants that are transactions, that's a fit our actual as opposed to eat or.
May or may not be working on so it's all just globally talk a little bit about our view of dispositions I also did and so my prepared comments, which is the majority of what you're seeing from us assess morford incidents that one buckets, which has been a selling assets that we really don't think are great strategic fits for as long term and and in many cases or.
So have have very significant capex needs and to short term that just make it a type of investment that we don't feels appropriate for us to make doesn't mean that we also haven't looked in the past and we'll continue to look at potential operate opportunities to potentially selling assets, if we feel that.
It is a good value creation tool for us and creates good long term shareholder value for us. So I wouldn't say, that's you know any kind of pivot from the way that we're looking at the portfolio, but to the extent we would see you know we would have some dispositions that fall into that bucket.
Really be driven by the fact that we think that there's more value to the harvest says potentially from assets than owning those assets longer term.
But we are very much cognizant off and I mentioned this in my prepared remarks remarks to off of the fact that it's it's hard to build the Tigers portfolio that we own. We all are very high quality portfolio doing transactions, there's not a as easy as straight on straightforward as you may think sometime so it's it is something that we're very cognizant of and we believe.
Normally that we have a great portfolio that we build overtime that has some some really good long term growth prospects going up.
I appreciate the thoughts there and you want to characterize demand softness is being limited to pockets of demand. There's just wonder if you could put a little bit of a finer point on that if that relates specifically to business mix than what you've seen in terms of kind of some group softness here in the near term versus transient or if it's more markets. Besides.
Okay.
Oh, it gets back a little bit to my answer to the earlier question, which is.
It's it's really hard to things that stuff would have very broad brush a and then the ground environments. You know, we see markets, where where group demand has been very healthy can we see markets, where corporate transient demand has been very healthy.
There are still some different.
Different dynamics at play in different markets sometime so that's why it's Ah that's why wouldn't say that we're seeing kind of an overall softness in a particular category because as I as I mentioned earlier, particularly when we looked at September were very pleased with our production on the transient side to offset some of that weakness on the Oh the group size.
So it's it's that's why I'm really referring to kind of some softness in some pockets of demand.
More so than that there is anything really for specific as it relates to one segment.
Okay that makes sense. Thank you.
The next question comes from Arete Klein of BMO capital markets. Please go ahead.
Thanks, Justin.
Following up on the last question you alluded to the stronger transit demand performance in the quarter can you maybe talk a little bit about how that has that how that performed they ah so far this quarter.
And then maybe you can elaborate a little bit on from the challenges you're seeing at the Waldorf in Atlanta, and what's going on there.
They are a it's a tees. Thanks for the question. So as to the first question. You know we don't really have full data on transient for this month, we will say I will say that October revpar is that we expected to be down approximately 3.5%.
And the other piece I mentioned with regard to transient is if you look at our transient pace.
It's actually positive for the next 90 days.
And while group pace is is negative it's less negative than it was 90 days ago. So you know those are those are both positive indicators relative to 90 days ago <unk> the one area.
And this does tied back to some of the prior questions is the non rooms or the SMB spend which does have a pretty big impact in our portfolio given the mix of group business that we have and it has a pretty big impact on margins. So those are the things that we really I'm kind of pointed towards in the prepared comments is.
That's affecting our outlook I'm clearly, it's not revpar, because our revpar guidance unchanged, but.
It's more that non rooms revenue and its impact on margin that's led to our view that fourth quarter.
As expected to be weaker by several million dollars relative to what we thought a quarter ago.
And then Barry perhaps you could talk a little bit about Oh, okay. Yeah sure. So at the Waldorf Astoria, Atlanta bucket, it's really just about a slower transition and ramp up and what we had expected.
I think we start with some of the highest and Mandarin customer.
Does not currently saying it don't tell them, but for other competitors that were that are more recently renovated.
And Hilton has been slower in filling backfilling that with the anticipated very high and corporate group as we thought would take its place not surprising that would have taken that would take a year for that to ramp up and we're just now approaching the 11 month Mark in our ownership of the asset.
So I personally surprised and I think and those are really the two issues and we're working hard on them with management team. There every day, so a lot of confidence in the Waldorf brand, we want a confident in a physical facility itself and I certainly think we will oh.
Make that property move in the direction, we always thought we would it's just taking a little longer I think we until the anticipated.
Got it thanks to the color.
The next question comes from Michael Bellisario of Baird. Please go ahead.
Thanks, Good afternoon, everyone.
Afternoon.
Where are you on the.
Correct.
4 million dollar.
Hi change.
There is at the right now.
That is the right now if you're breaking up a little bit said didn't fully here that question, but if it's the question is at $4 million that implied change in the fourth quarter that that is the number.
Okay. Thank you.
And then just.
Back to the opportunistic dispositions that comment you made a Marcel can you maybe a couple of quantify how why do you think that's spread is today between public and private market valuations that you referenced.
Well I.
I'd hate to put any kind of five point on that frankly, I think that's you were probably not the only people where you have heard just found that we do believe that there's a disparity to some extent between private market valuations for the public market valuations you want to come so two assets that have a lot of goods grow.
Those are good quality characteristics of related to it so as I as I said before.
If if and when there are transactions for us to this cost I mean, we will move obviously pizza.
And then just how much of your motivation here on on the opportunistic front. It is really because you're seeing more opportunities to buy side versus last quarter I didn't I didnt catch you say that pipeline.
And like you said, a the last couple of burden.
Well in general I'd say that the pipeline.
Hasn't changed that much it might have improved a little bit just from a the potential number of transactions that are out there. Its still early to say wetter weather does that spreads in the bid ask between buyers and sellers waterbeds compressed a little bit.
I would say that there's probably a few more opportunities that were seeing in the pipeline, but I wouldn't say, there's a real sea change there.
Thank you.
The next question comes from Thomas Allen of Morgan Stanley . Please go ahead.
I'm sorry, you said seven the fourth quarter or are you feeling any impact from the California wildfires.
Thus far we've seen no no.
No impact we've had a couple of properties that have lost power for a couple of hours and in the current environment, where the fires are pretty good it relates to our.
Nap assets, where actually the beneficiaries of some albeit low rated.
Displace business and Ah relocation of residents from from Sonoma.
But nothing Andrew.
All right, so nothing material to call out for the quarter.
Right.
But at the.
Okay, and then and then just as we kind of as I did the quick math I kind of implies fourth quarter Revpar guidance down to to flat I mean, that's just a simple averages at a fair comment and is there a way to kind of bifurcate. Some of the different pieces are affecting a bike the holiday shift and anything else to call out.
Yeah.
Yeah, I mean that that number is is right down to the flat.
As to.
Bifurcated get beyond that I'm I'm not sure that we can do that you know I would say that's that reflects you know oh and various factors combined.
[noise], including what I've mentioned before the fact that obviously October is more challenge because of the timing of the Jewish holidays, a piece, obviously referred to that as well when he spoke about.
The preliminary that's another where we think off or what coming.
I think one of your peers that are the Jewish holiday show for like a 50 basis point impact on the fourth quarter is that the terrorists or do you think.
Really hard to say I don't think we have said we have a real fine estimate on that right now UBS certainly there was impactful on the groups I guess as expected.
And that's what costs yeah. The whole in October group bookings stuff that we knew it was going to be exists.
Okay. Thank you.
The next question comes from Bryan Maher B. Riley FBR. Please go ahead.
Yes, Good Act.
Marcellus well down little bit more on your potential acquisitions. It sounded like your talent might lead one to believe that there's something every offering maybe in a few months and I guess, you know hypothetically and you may consider dispositions, whether it's in or other things.
Does it rely in Europe .
Wanting to do a disposition in order to find that acquisition capital recycle more you've had so much availability that it's purely upright glass opportunity.
Sure.
Well well once again I mean, obviously to the extended or is there anything real to talk about who we would happily do so but it does and so as I will tell you that in general as you know our philosophy has always been that's transactions are doing transactions as Franco This company.
And we've been very comfortable doing both acquisitions and dispositions in various parts of the cycle.
Our strategy has not been can necessarily a build up a big war chest for the time when.
That's potentially there could be a lot of great opportunities out there because you just have a it's hard to.
Fairly forecasted of will absolutely happened so in our minds. We're always focused on is how do we create a portfolio that has a better growth profile going forward. How do we create a portfolio that has it overall better quality level that is able to withstand so potential downturns that doesn't make everybody off the upcoming so from that perspective.
Sure, we're always looking and we're always looking at building a pipeline of potential actionable acquisition opportunities. So I wouldn't say that's that any of that doesn't necessarily changed over the last few months and as we look at overall capital allocation. We're obviously looking at all the tools that we have available a teach mentioned the strength of our balance sheet any mentioned the fact that.
We have a cash on the balance sheet, we have a fully on drawn 500 million, though a lot of credits. So I wouldn't that I really wouldn't be necessarily tying anything together on the acquisition or disposition side that is really being a proactive potentially on both sides to the extent that we find opportunities to create shareholder value.
Yeah, I would just add you know generally our view is and you've seen this in our behavior I mean, we bought and sold.
It's you know these are difficult things to match fund. So your <unk>, we're trying to be active on both sides.
To create value and to move the portfolio.
And you know that the deals whether the acquisitions or dispositions need to stand on their own in terms of value. We believe we can generate [noise].
It is necessarily want to another.
Okay, and then maybe a question for barrier or <unk>, you know on labor costs are you seeing any moderation on the pressures that you know most lodging companies have seen over the past two years.
We're definitely seeing any moderation and certainly although we've been able to.
Maintain our our total payroll and benefits about at about 2% growth year to date.
I think it's fair to expect that that will not be.
Reduced it would likely increase in 2020.
Okay. Thank you.
The next question comes from Bill Crow Raymond James. Please go ahead.
Great. Thanks.
<unk>.
Question on the Oh, the acquisition front because.
It seems like we've seen no change in cap rates are just field.
But the risk seems to have gone out on up a little bit no based on the economic outlooks.
Why are we not at a point where.
The uncertainties outweigh the opportunity to we've done a short term basis or at least until cap rates were to kind of offset.
No. It's a good good question Bill and General I think.
Again as one of these things, where it's kind of hard to talk about and abstracts and hard to talk to general about what's out there in the landscape I think youve to your point you've seen some some transactions happening recently that have been still a pretty pretty robust multiples on a very low cap rate. So there clearly is a a view and those type of transactions that's the law.
Long term benefits on long term upside and some of those transactions are outweighing, maybe a shorter term risks that exist in those and those potential transactions. So you know to the extent of we would be and then the weighted we're underwriting deals is obviously, we're looking at at both were looking that's a short term risks and they're also looking at what is an asset gonna do longer term what.
Kind of value kind of drive for you in a portfolio.
I think that's that's probably a little too early to say are we seeing an impact on cap rates or will we start seeing an EMV impact on cap rates from maybe a little bit more uncertainty that's in the market I think in general there has been a fair amount of uncertainty in the markets.
And I think they're still has been enough.
And off capital that has been as remain interested in transactions to still create a pretty robust transaction market out there.
And and we've talked about this before I mean overall the financing market remains very robust so you're not seeing a lot of sellers to feel like they need to just you know cell and and and really start driving up cap rates. As a result of that's because there is that alternative just being able to finance assets.
Thank you very attractively at very low rates on a pretty good proceeds.
Yes.
Thanks, Barry I'm on the Waldorf in a in Buckhead must remind me if there was any performance guarantee or key money or anything that hill provided to help you get through this transition.
We did not disclose anything in that in that regard, Norway really any bar a historic transactions.
But what are our interests with them are very clearly aligned to try to drive performance and the asset.
But there still out there there is no there is no guarantee theres no. There is no income guarantee in place about property.
Okay.
All right and then lastly, a team you mentioned that a 50% of 2020.
This was definitely.
Does that compare to a year ago over two years ago. What we're should you be at this point I'm in the year.
Yeah, it's about the same a bill its was generally consistent and that's you know that's where we should be that's what you know where we think is appropriate you know will still book in quite a bit of business between now and year end. So we'll start the year with.
Now posted two thirds of our group business on the books. So from that perspective, we're you know we're tracking well now again, it's 35% of the business overall this group's others. There's obviously a lot of uncertainty in the remainder of the business, but at least from a you know from where we sit today.
Our.
Able to book in roughly at similar levels.
Versus last year and you are too.
That's it for me thanks.
Thank you.
The next question comes from story constant of Wells Fargo. Please go ahead.
I think when you guys think of 'em renovations in 2019 in 2020 would you expect them to serve as a net headwind or tailwind Revpar next year.
Well this year, obviously, our renovation if I go significantly below where were last year and we've talked about last year being closer to about 100 basis points and this year.
We had about 20 basis points, we we don't have a large number of projects that are up coming next year.
But we do have to very significant renovation, Doug we're doing it offy, our that you're well aware off and then we have a rooms renovation schedule. That's an Arab live on some couple of the other things at various spoken about so it's a little earlier to put a real you know number two that's where we're really in the early process as a teacher refer to off.
Reviewing budgets, we're trying to as we always do limits the disruption as much as possible.
Clearly obvious areas of Probert property, where we will see a good amount of disruption but.
The other hands. It's also performing obviously at a level, where we think there's very significant growth that should be coming out of it after that we do some of these renovations. So a little early to put a real number two it dori boats are probably a little bit greater don't where we are this year and clearly something we'll talk about some than export.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Marcel Verbaas for any closing remarks.
Thanks, Andrew Thanks, everyone for joining us today, especially on my Halloween afternoon, I hope everyone has a as a grades the evening Tonight and doesn't gets booked out too much by what's your here on any calls over the next few weeks a and we also look forward to seeing seeing most of you adds a the neighborhood conference here.
In about 10 days, so thanks, again, well, we'll stick there will certainly next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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