Q3 2019 Earnings Call
Greetings and welcome to the park hotels and resorts third quarter 2019 earnings Conference call.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it's now my pleasure to introduce your host in Washington, Senior Vice President corporate strategies.
Thank you Mr. Watchman you may begin thank you operator, and welcome everyone to the park hotels and resorts third quarter 2019 earnings call before we begin I would like to remind everyone that many of the comments made today are considered forward looking statements under federal Securities law.
As described in our filings with the FCC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we're not obligated to publicly update or revise these forward looking statements.
Actual future performance outcomes and results may differ materially from those expressed in forward looking statements.
Please refer to the documents filed by park with the FCC specifically the most recent reports on Form 10-K , and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward looking statements. In addition on todays call we will discuss certain non-GAAP .
<unk>, such as that FFO and adjusted EBITDA you can find this information together with reconciliations to the most directly comparable GAAP financial measure in yesterday's earnings release as well as in our 8-K filed with the FCC and the supplemental information available on our website at Teekay hotels and resorts.
Dotcom.
This morning, Tom Baltimore, our chairman and Chief Executive Officer will provide an update on the Chesapeake acquisition and integration review of our third quarter 2019 operating results a summary of our capital recycling efforts and finally, an update on 2019 earnings guidance, Sean Dillard, though.
Chief Financial Officer will provide further detail on our third quarter financial results and additional color on our earnings guidance, Rob Tanenbaum, Our executive Vice President of asset management will be joining for Q1 day.
Following our prepared remarks, we will open the call up for questions. Please note that most operational results focused on the legacy park portfolio due to the fact that we only own the Chesapeake assets for 13 days in the quarter with that I would like to turn the call over to Tom.
Thank you ma'am.
And welcome everyone.
The third quarter was a transformative quarter park.
Less than three years after launching the company.
We successfully executed on our long term strategic plan.
By completing the acquisition of Chesapeake Lodging Trust a.
A 2.5 billion dollar transaction.
That accelerates our progress towards achieving several long term goals.
First.
Bolting on Chesapeake to the park platform provides instant Brant, operator and geographic diversity.
Second.
It improves the overall quality of our portfolio.
Third.
It enhances our scale.
Providing us with a larger platform to enact asset management initiatives and best practices.
While also diversifying our earnings space.
And for the acquisition helps to increase our portfolio wide growth rate.
Giving us more levers to pull for asset specific growth strategies.
Overall, when factoring in Chesapeake strong group calendar.
Coupled with the the 8 million of net operating synergies we underwrote.
We expect chesapeakes portfolio to add approximately 80 basis points to overall revpar growth in 2020.
Despite softer industry wide trends, we believe park is very well positioned to take advantage of several identified opportunities within the Chesapeake portfolio to create value.
And outperform on a relative basis, while reaping the benefits of scale.
Liquidity and value accretion over the long term.
I remind listeners that park has established a solid track record of executing.
On our strategic goals as evidenced by the superior margin growth delivered over the last two years, while generating among the sectors highest total return.
Including returning over 2.1 billion up capital to shareholders since spinning out of Hilton in January 2017.
By applying a similar asset management playbook to Chesapeake we.
We expect to unlock significant embedded value within that portfolio.
As we move through the remainder of this year and into 2020.
We're cognizant of the ever changing macro backdrop, but.
But we're also confident in our ability to execute on our strategic plan and create relative value.
With that.
Our key priorities include the following.
Completing a seamless integration of the Chesapeake acquisition.
And realizing the underwritten EBITDA synergies.
And the Chesapeake hotels.
Continuing to sell approximately.
550 million of noncore assets with those transactions in various stages of the sales process.
Deleveraging the balance sheet to four times.
With significant progress to be made over the next one or two quarters.
Evaluating and executing on stock buyback plan.
Which the board previously authorized at 300 million.
And finally.
Protecting the dividend.
Which currently stands at a very attractive 8% yield.
Regarding the Chesapeake integration.
Our asset management team is conducted extensive property reviews.
Across all 18 Chesapeake hotels.
Which.
We remain confident in the value creation opportunities we identified during our underwriting.
Our proven ability from the legacy portfolio to drive incremental revenues.
Remix the mix of demand.
Group up.
And simply look at operations with a different limbs gives us conviction that we can generate our stated 24 million of incremental EBITDA in 2020.
Inclusive of $17 million DNA savings.
An opportunity that we believe exist in spite of a low growth revpar environment.
Turning to our capital recycling efforts.
We remain laser focused on continuing to sell noncore hotels to reduce leverage.
And improve the overall quality of our portfolio.
Accordingly, we have earmarks six noncore hotels for sale.
We're total expected proceeds of approximately 550 million.
All of which approximately 300 million is currently under contract.
Gross multiples north of 16 times.
Those hotels include the Conrad Dublin.
Hilton San Paulo, the Ace Hotel, Los Angeles and.
In addition, we are actively marketing a legacy Park hotel and two non core Chesapeake hotels.
The aggregate proceeds expected to be approximately 250 million or higher.
Demand for these hotels is very strong.
And we have witness very little if any pullback in pricing.
Overall, we continue to evaluate additional noncore asset sales over time.
With excess proceeds potentially use for stock buybacks.
Especially if the stock continues to trade at a material discount versus street and Davies.
In private market valuations.
Now, let's recap our operating results for the legacy park portfolio during the quarter.
Although also provide some high level commentary.
On Chesapeakes Q3 performance I remind.
Investors that we own the assets for just 13 days in the third quarter.
We have been laser focused on our legacy portfolio throughout the Chesapeake transaction.
We're pleased with our relative outperformance this quarter.
The economic backdrop proved to be more challenging than we had expected.
As global growth slowed dramatically since the second quarter.
Our business confidence in the US was mired by ongoing trade war, and geopolitical concerns, which negatively impacted business investment.
And slow decision, making.
But despite the headwinds parks portfolio was well positioned with comparable revpar for our legacy park portfolio, increasing 1.9%.
While total revpar growth topped 4.9% during the quarter.
Results were driven by solid group contribution coupled with strong performance in both Hawaii and New Orleans.
Overall, we grew share across our portfolio by 350 basis points.
Outperformed the Smith travel top 25 markets by 230 basis points.
No small feat in today's choppy economic climate.
We're also particularly proud of our ability to grow margins in this low revpar high labor cost environment.
Comparable hotel adjusted EBITDA margin increased 20 basis points.
To 28.1% in the quarter.
Aided by our continued success and focusing on high margin ancillary revenues and group related food and beverage revenues.
Food and beverage revenues were up 12.3% during the quarter driven by strong banquet and catering revenues, which topped 20% growth.
Looking at our mix of business for the quarter.
Group revenues increased 20.7%.
Build equally by corporate and convention or related demand.
With New York San Francisco.
New Orleans.
Chicago and Waikoloa, all generating at least double digit increases in group revenues for the quarter.
In terms of transient, we're particularly pleased with our performance in Hawaii, which continues to generate solid leisure demand.
That said overall transient demand was weaker than expected across several of our core markets would transient revenues declining 4.8% in the quarter.
Or 12.9 million for parks legacy portfolio.
Briefly on Chesapeakes third quarter performance Revpar declined 1.9%.
Driven by softer transient demand in San Francisco as well as weaker fundamentals in Miami.
And San Diego.
Looking forward, our fourth quarter group pace, which now includes Chesapeake.
Moderates a bit to 4.1%.
Taking full year group pace to approximately 7%.
Despite softer group performance in markets, such as New Orleans and Chicago.
San Francisco, we'll have another very strong quarter group pace up 34%, well, both Boston and Florida, well, both top double digit increases in group pace.
For 2020 overall group pace is currently flat.
Although we stand to benefit from the 11% group.
Pace generated by Chesapeakes core portfolio.
Markets generating double digit gains next year include New York.
Boston.
San Diego.
Miami.
Before to keys and Denver.
This however is offset by year over year declines projected in San Francisco Convention related business.
If you were to exclude San Francisco 2020 group pace, but increased by 280 basis points to 2.4% for.
For the combined portfolio at this time.
Turning to our core markets.
Why was there a bright spot for our portfolio.
The main standout was the Hilton Waikoloa village.
Which posted a nearly 62% increase in revpar during the quarter as a property benefited from a multi week.
Near resort group buyout, coupled with easier year over year comps.
Following last year's volcanic activity on the island.
Outlook for the Big Island is favorable as demand appears to have more than recovered.
And southwest Airlines expansion to Hawaii continues with new direct flights to Kona expected to begin in early 2020.
Over in Waikiki, our Hilton Hawaiian village Hotel had a solid quarter.
Revpar up 3.3% driven by healthy transient demand with the hotel, achieving a quarterly occupancy of over 95%, including posting its strongest August on record.
Moving on to some of our other markets third quarter was a strong group quarter for both San Francisco in New York.
Although both markets witness greater than expected transient softness.
Due to our strong group base, our two legacy Park, San Francisco assets outperform the San Francisco market Street tracked by 410 basis points.
The Hilton New York Midtown also outperformed the Midtown West Times square track.
By 330 basis points.
In Florida.
Revpar declined by 6% across our portfolio of six hotels.
Although much of this decline was anticipated due to the renovation displacement at our reach key west conversion.
And our rooms renovation at the Hilton Bonnet Creek.
As we noted on prior calls a full renovation and brand conversion is underway at the reach.
With the hotel closed as of August Onest.
With an expected opening date beginning December the first.
At Bonnet Creek, the rooms renovation at the Hilton head of 620 basis point impact on Revpar performance during the quarter.
For the property.
If you were to back out the Florida renovation displacement from overall results.
Parks comparable revpar growth for the third quarter.
I would be 60 basis points higher to 2.5%.
Florida was also negatively impacted.
By Hurricane Dorian.
Which placed a drag on both key west and Orlando with a total negative impact of approximately 1.3 million or approximately 10 basis points for the comparable portfolio revpar for the quarter.
Turning to our outlook for the remainder of the year.
Which now includes the 18 hotels, we acquired from Chesapeake. We continue to expect strong results out of several of our key markets, including Hawaii.
San Francisco.
Orlando.
In Denver with Revpar growth north of 5% expected in the fourth quarter for these markets.
Aggregate.
Offsetting these gains however will be continued weakness on the business transient side, which will weigh on New York City.
Chicago, and New Orleans, three markets, which are forecasted to experienced revpar declines during the fourth quarter.
On a combined basis, we expect Q4 revpar to be approximately flat year over year.
In 2019, Revpar guidance, which includes Chesapeake for the fourth quarter only.
We are lowering our full year range by 125 basis points at the midpoint to 1% to 2%.
With Chesapeake accounting for a 20 basis point drag on performance.
Sean will provide additional details on our updated guidance.
For turning the call over to Sean I want to reemphasize.
We are confident about the expected value creation within the Chesapeake portfolio.
And firmly believe that our aggressive asset management initiatives will help to continue to drive meaningful results over the long term.
As we look to next year parks improved platform of high quality, Chesapeake hotels, and reduced exposure to secondary markets positions the company for superior growth.
Despite external headwinds, which may impact the overall lodging industry.
Our team remains focused on executing our internal growth strategies.
Which create a point of relative advantage for park.
With that I'll now turn the call over to Sean.
Thank you Tom.
Looking at our results for the third quarter, we reported total hotel revenue of $650 million and adjusted EBITDA of $180 million adjusted FFO was $140 million or 68 cents per diluted share.
Turning to our core operating metrics, which exclude Chesapeake that comparable park portfolio produced revpar of $184 or an increase of 1.9% compared to the third quarter of 2018.
Our occupancy for the quarter was flat at 83.7%, while our average daily rate was $219 up 1.9% year over year.
These top line trends resulted in hotel adjusted EBITDA of $172 million for our comparable portfolio.
While our comparable hotel adjusted EBITDA margin was 28.1%, which has a 20 basis point improvement over the prior year.
In addition to the Choppiness Tom discussed earlier third quarter results were negatively impacted by 28% increase in insurance premiums.
Overall expense growth for the full year 2019 is expected to remain around 3%.
Further indicative of our ability to control expense growth despite industry wide wage pressures in rising property tax and insurance costs.
With respect to adding performance, we continue to drive mid to upper single digit growth in ancillary income, including resort fees and parking revenues, while as Tom noted food and beverage revenues increased by 12% this quarter.
Further on guidance, we are adjusting our 2019 earnings guidance to include the Chesapeake acquisition, which closed on September 18th.
Accordingly, we are increasing our full year adjusted EBITDA guidance by $30 million at the midpoint to new range of $768 million to $788 million, while our new AFFO per share range moderate slightly to $2.80 to 2090 cents per share given some of the weakness.
Our seeing across several of our core markets.
Additionally, we are reducing our full year comp margin guidance by 60 basis points at the midpoint to a new range of negative 50 to negative 20 basis points, driven primarily by weaker than expected demand trends, while chesapeakes Q4 inclusion accounts for a 20 basis point drag on margins overall.
Turning to the balance sheet, we ended the third quarter with a pro forma trailing 12 month net debt to adjusted EBITDA ratio of 4.4 times.
While our fixed charge coverage ratio is also very healthy 4.4 times.
Anticipate achieving our low four times target range for net leverage by mid 2020, when factoring in plant debt reductions stemming from the asset sales Tom discussed earlier.
With respect to the dividend on October 15th we paid our third quarter cash dividend at 45 cents per share.
While our fourth quarter given in remains subject to board approval. We currently expect a dividend to range between 50, and 60 cents per share inclusive of a top off component of between five and 15 cents per share.
Which translates to a greater than 8% yield.
Despite the above average yield is our intent to protect the dividend and continue our track record of returning capital to shareholders over the last three years Park has returned over $2.1 billion a capital in the form of dividends and stock repurchases the highest in the industry.
That concludes our prepared remarks at this point operator, we'd like to open up the questions.
In the interest of time, we're asking all participants to limit their response to one question and one follow up.
Operator may we had the first question please.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad a confirmation tunnel indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before precedents Starkey. Our first question comes from the line of Gregory Miller with Suntrust Robinson Humphrey. Please proceed with your question.
Thank you very much good morning.
Greg card at June Fine I'm online for Patrick Scholes.
First question is a high level question on revenue management strategy.
Chesapeake and our view historically had very high occupancy, which can be commendable in many respects. However, there could be some opportunities from year end to mix shift.
To push in overall higher rated customer, perhaps with some occupancy loss, but you may be able to drive both revpar and then therefore profit growth.
Assuming that these assumptions are reasonable how material do you view this incremental revenue opportunity and especially in today's low revpar growth environment.
And so it's.
Great question, breaking certainly one that we studies intently and.
Rob Tanenbaum, an agreement on the great asset management team.
No I met with all the operators will now be getting budgeting process. Since you think about one of the fundamental tenants that we talked about after we announced a deal.
And again in my prepared remarks, we talked about the 80 basis points and sort of incremental growth.
Thank you.
You step back.
Think about those categories, there or operational initiatives.
Grouping up Remoxy mix.
Those are very favorable convention calendar, particularly on the assets from Chesapeake There were bolting on Chicago San Diego.
Boston and do you see Denver in Miami.
There's also the renovation tailwind that we're going to see coming from checkers.
Hotel Indigo.
Diego Seattle in the high end Mission Bay. In addition, sort of revenue management strategies, So all of that.
And one.
I want to isolate on your question I also want to point out there's a lot of working talk the news process and our underwriting so weve reaffirmed the underwriting.
We're confident that you can achieve that upside of which removes mix is a component of that.
Rob anything you want to add incrementally to that shares Greg delay just.
One of our hotels were looking only got volatile early October and gap. This past week, we were able to grow share over 28% potential obviously mockingjay, 2%, while growing the rate over 37%. So just an example of what we see available to US is again only one week letting working in partnership with our hotel bookings we believe this.
Opportunities portfolio.
Great. Thanks, very much for all the color.
And this is edge as quick follow up question, we've gotten a number of questions from investors asking about any demand impact in the California markets from the various suppliers.
Is are you seeing any of that in your hotels and if so is there any impact reflected in guidance.
No. It's minimal the doubletree Sonoma had was I think about 22 miles away.
We picked up some incremental demand, but it's certainly not significant for our portfolio.
Okay, great. Thanks very much.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning, everyone.
And.
Hi, Steve.
A question on 2020, you mentioned your group pace was about flat.
Given the kind of weaker transient environment, what does that imply for overall, because revpar growth potential next year.
Your initiatives I reflect remixing, the mix, resulting growth next year or as a kind of flat more of an appropriate assumption.
No. It's a great question and then I think reality I would probably hide behind right now I think the rhetoric that both.
The Hilton and Marriott of provider that can kind of zero to one or zero to two range I would say that I would certainly expect wherever we land with guidance that the part would be on the higher end of that range given the incremental growth that we expect obviously as part of the Chesapeake bolt on one.
As I mentioned, there are a series of initiatives and there's a natural benefit obviously given their convention footprints.
Given also the slide becomes also the room renovation tailwind in a number of asset so.
Now asking today, I think thats zero to two range seems reasonable.
As we think about group I would not read too much into those numbers.
To step back and remind listeners that we thank our internal growth strategies of both recycling capital, where we got a lot of success ROI projects, improving margins and grouping up is really an all weather strategy and it will work for whatever phase we are.
In the lodging cycle, so as we look to 2020.
We are cautiously optimistic that we are obviously.
Late cycle. We don't think were end of cycle, we don't think work on the verge or recession in our view based on the data as we interpret it at this point.
I still think that park is relevant so well compared to a relatively outperform our peers.
Got it thanks, Anna and in San Francisco, the transit demand environment seems to have gotten incrementally worse with starting this summer maybe a bit more worse than that could mean the nation at an average it could be to.
Technology company issues homeless.
Issues and press around that.
Do you agree with that and what can you do the kind of mitigate some of those challenges. If that you are indeed seeing more transient weakness in that market.
Yeah, I would say if you step back and thinking about San Francisco, we all that into your thinking is about 1.2 million citywides.
I don't know where it actually ended up in terms of.
Actual demand probably inside of that would be our our best guess at this point and if you think about sort of third quarter for us.
We ended up obviously, a 1.9, we really entered the quarter thinking than we were going to be north of 4%.
Expected, obviously, given the group based that we have both in San Francisco and New York, We did see slight falloff in on the group side more New York, New York, We thought we'd be around 65% and sell down to about 47% plus or minus but it was really a fall off on the transients side.
Candidly, it's a business is being.
More cautious more careful.
Business confidence has certainly been.
Softened and clearly business investment I think is probably a bigger issue entities involved not only an impact here in San Francisco, but in other key urban markets as well. So we're we're still bullish on San Francisco the.
Huge present that we have there the barriers to entry the job growth, we think long term and certainly a market that we want to continue to invest in growing.
Are there some social challenges in San Francisco among other markets absolutely.
We believe that the leaders there in San Francisco or are aware of it in that are working in good shape with other business leaders in that region, particularly on the lodging side.
Citywides in conventions are huge part the economic growth from that city, we know they understand that and we know that they're working on plans to address.
Great. Thank you.
Our next question comes from the line of Rich Hightower with Evercore ISI. Please proceed with your question.
Good morning. Thanks.
Good morning, Good morning, Tom So one I'd go back to some of the comments on the dividend policy and just.
Try to think through maybe some of the mechanics. There. So so historically this has invested job easily of the spin out from Hilton, but historically.
Mark is run at a.
Pretty higher than average.
Payout ratio relative to free cash flow and I'm, just trying to square up the idea of.
You know kind of maintaining.
A relatively high payout ratio I know that you get to reset the basis in the Chesapeake assets, but you've got some asset sales going against that and.
And then thinking about where buybacks enter into the capital allocation equation to just trying to think through all of those moving parts in terms of the the stability of the dividend and whether that is even a goal that you.
Really matters to investors in terms of dividend policy Park.
Lot of sub issues. The original let me let me be focused on a couple of things as I said in our prepared remarks priority number one is integrating the Chesapeake portfolio at the end of the day Weve two of those assets were up 20 were already sold as you know we're marketing another three so at the end today, we end up with about 50.
The core assets.
This is not a difficult assignments seems to be able to bolt on when those 15 assets were eliminating obviously the gionee. So we feel very confident robin team already down in front on.
Next is to sell the non core assets to get to shore up the balance sheet.
Which we are making great progress I also remind listeners again that we've already sold 18 assets. When there were a lot of a naysayers. We do think that we could sell these were very complicated 11 of those 80.
The national asset South African two in Germany, Amsterdam, several in the UK.
Very complicated joint venture in Dublin that we now have under contract.
And asset in Brazil, So we've continued to execute and do everything that we said we would do so again, you know grapes tends to be Silva noncore assets reduce leverage those are the priorities. We're confident as both Sean and I said in our prepared remarks that we can get that down to four times.
We will look opportunistically.
If there is excess cash.
Particularly given the huge discount so any view that were trading.
We think it's a prudent apple.
Capital allocation slated to be looking at that.
And then protected dividend part of that dividends you know that.
Hi.
Hey out today in part in terms of the yields driven by by the discount that were trading.
Chesapeake gives us optionality by bolting on and obviously that that allowed us to increase the basis. So we do have more flexibility. There, we think return of capital, including a healthy dividends and important tenant park and something that we'll manage now.
Has to come in a little will certainly.
Address that.
Based on how we performed based on our outlook for 2020 were confident that we should be able to maintain.
Okay.
That's helpful.
Maybe switching gears for a second so you guys are inheriting three wwes, a with the Chesapeake portfolio and I'm just curious for your take on what Marriott is trying to do in terms of revamping that brand.
It's a great question rich and I, we've had discussions early discussions with the married I think the biggest signals Marriott buying Union square and pending north of 200 million for that asset and saying publicly that they want to continue to.
Reinvigorate that brand I know the w.'s doing incredibly well internationally.
Certainly.
You'd have a refreshed in a re launch if you will I know, they're committed to that we plan to meet with them.
Learn what their vision is and are excited about the three w.'s that we have and see that again, it's incremental upside for this portfolio. I'd also add when you think about W.. It's a 20 year old Brandon's, it's been short I think a little bit of refreshes in order I'm also confident that achieving Marriott is submitted throughout in fun.
This I also think that there are near term opportunities wwes that we have particularly Chicago have underperformed.
We see that as an opportunity that even.
Before the upgrade the new plan the new vision through.
It was implemented we certainly have opportunities here in the near term for.
For improved performance.
Okay, great. Thanks.
Our next question comes from line of David Katz with Jefferies. Please proceed with your question.
David Hi, good morning, everyone.
Hi.
I wanted to go back to some of your opening remarks, Tom <unk>, where you made reference.
To sort of or aggressive asset management I don't want to put you put adjectives around it but you talked about asset management strategies.
To drive value here I'd love some more detail around you know what kinds of strategies those are and what kinds of levers you're thinking about pulling on the asset management side.
David Let me give you an overall view on things that so again reinforcing comment that I made earlier, then Rob can give you a little more granular.
We we believe passionately and this is important for listeners.
That is that our internal growth strategies again, a recycling capital.
ROI projects, improving margins and grouping of user strategies that work in any phase of the lodging cycle and we have demonstrated mused first respond on filled in the rollout of naysayers, who didnt believe that we could sell a lot of noncore assets, we sold them sold them efficiently at very attractive pricing.
We're going to continue to do that as we both from one.
Chesapeake or a number of ROI projects that are underway converting argonne in Santa Barbara.
From a doubletree, we're getting tremendous upside and lift from that we closed the reach which will reopen here in another 30 days.
Susan in less than 30 days.
Reverse and we're working hard to achieve that we think we're expect we're going to get listed here.
On the margin.
The first year out of the boxes that we improved margins.
12 on half million dollars incremental there.
47 basis points in year, two we picked up another 60 basis.
Incremental margin.
So these are things that we're passionate about moving up we think.
The real strength to our success in ours.
Our benefit about performance. It's been also the grouping up in fact, we were able to move the needle over the last few years.
Concentrated decisions that we made and then we're going to continue using that same playbook with Chesapeake and the other today, we'll end up with 15 assets will be business sold two Chesapeake sold two and we're going to be selling another three this is not a difficult execution.
Our team focuses in delivers like we've done in the past in terms of some of the more granular on the revenue side, Bob will give you a little bit of flavor of that.
Hi, David Yeah in terms it.
I was talking about reducing licensees drive rate.
Really reduces the Verde not tell team allows us to drive incremental revenues.
Higher weighted gas the beauty so some very specific examples.
Offering premium room types, we found a one hotel is 26 rooms available to us.
Recategorized another hotel, we had a tower rounds that can be further monetize given that he has not been net realized at this point, we dig up selling it at the time to checking really gives us.
Opportunities, we go forward here and even through.
Correct.
Youre right the province, excuse me and we really believe this specific plans to increase our flow through and small changes in hours of operation you have to fit the customer needs, but looking at altering our menus, we're increasing our menu pricing.
Maximizing paid parking enhancing our retail show me opportunities within each individual hotel, but we feel what we found that so far as at the partnership with these property, it's really been low Haijun. We're very excited when we asked coming going forward.
Thank you for that and if I may as my follow up.
After the noncore sales are done right and the portfolio as we see it today is quote unquote set.
What opportunities are holes or.
Might there be in the portfolio either from you know a brand or change scale perspective, or geography perspective, you know would you.
It's about trying to fill it at that point.
So great question.
I'd answer this way when you're thinking about the portfolio now bolting on Chesapeake, We got 66 assets. Our top 10 will account for about 56% of an EBITDA. Our top 42 assets will account for about 90%. I will also include 11 joint ventures that will be down.
10 joint ventures. After we completed the sale of Dublin My point, David is that.
I said these strategies that we talked about recycling capital never ends. So we will continue to work to sell noncore assets and really.
Shrink the footprint to those core assets that we want to haul I don't think there'll be any huge gaps in markets that will be missing we will continue to look for assets of scale.
We are strong believers obviously in both the.
Hilton and Marriott family of brands as well as high as you think there very formidable player and we will look opportunistically to continue to grow.
We won't have the pressing need.
For an M&A unless something were present itself and we were very attractive we want to bolt on the Chesapeake portfolio you integrate this execute earn our stripes and continue to prove ourselves like we did before market doesn't seem to give us credit for that today, but we get it no we've got to earning.
And we we except that challenge and we'll be working our tails off to deliver.
We concur thanks very much.
Our next question comes from the line of Smedes Rose with Citi. Please proceed with your question.
Hi, Thanks.
What I see.
Morning, I just wanted to ask on your on your outlook for the year. So obviously, we come back into the fourth fourth quarter implications could could you talk a little bit about what your expectations are for the legacy park portfolio versus what the contribution from Chesapeake is expected to be in the fourth quarter.
Sure spaces, Sean you only kind of talked about and in our release kind of flattish quarter overall combined and really immediate it's for park legacy is trying to.
Pretty much zerella, maybe little bit better Tom do you want to kind of but 10 around a number and chesapeakes, probably kind of down a little less than 1% Yale. It's again, it's only contribute 20% the portfolio. So in the end, it's kind of a rounding error and it's really just a flash quarter for the combined portfolio on the Revpar sense.
So it seems like a couple of.
A couple points I agree with everything as Sean said, but.
If you think about fourth quarter, we've got combining Chesapeake group is up about.
4.11%, what we're seeing on the transients side is probably.
Down, 3% plus or minus as we must sort of 90 days out.
And again, a lot of that coming in softer San Francisco Chicago, New York those are the big though we still see growth, obviously again and San Francisco on the group side and we're going to have a strong because were up 34% as we think about transients. We continue to see that softening right now hence the reason that we've.
Said flat.
The fourth quarter.
Okay, and then I just wanted to ask as well you mentioned about 550 million if asset sales do you have the ballpark of kind of how much EBITDA would be associated with those sales and total yeah. It's approximately 40 35 to 40 million.
35 to 40 million, Okay, and I guess some of that is already in your updated guidance.
Yes, no we are including in our guidance all of the assets that we own all 66 at this time or an interest in.
So we will adjust to the extent that any asset sales are.
Our completed the only one that likely Dublin should close.
This month and that incremental from the fourth quarter is going to be a million million, an AD dollars plus or minus so it's not significant.
Alright, thanks picks up.
Our next question comes on the line a bill Crow with Raymond James. Please proceed with your question.
Bill Good morning, Good morning, Tom.
We all like to focus on the topline and I appreciate the zero to two kind of embrace you gave for next year. What do you see from the expense side can you do better than 3% growth next year.
That's a great question Bill and elegant look I don't want I, certainly don't want to be held to the zero. The two I think directionally based on where we sit right now seems reasonable we'll be watching all of the macro signals and we'll see how the fourth quarter unfolds, particularly on the transients side I want to.
The way our team.
Our management team, our finance team and also working in conjunction with a large partner Hilton and others I think keeping the expense growth in 3% given this low road.
Revpar environment I think is.
Is impressive we're going to continue to work on tails off to continue to be able to maintain that can we come inside of that perhaps on the margin.
But I'd tell you if we can we can achieve that 3% that's pretty doggone. Good in this environment.
When you historically the revpar of.
I want to half percent plus or minus to be able to breakeven on a on a margin standpoint.
Yeah.
Yes, there's pressure on the labor side as you know, but we sort of renegotiated a lot of those contracts that were smaller set for the vast majority owned portfolio insurance.
And then property taxes continued to be a wildcard.
These municipalities want to continue to Overtax.
Commercial property owners and I don't see that going away.
Yeah I appreciate that if I could just follow up on San Francisco, beating a dead horse here, but.
You indicated to the group pace for next year is down pretty sharply.
But you also talked about deterioration in the in the transient side. So do you see that market is negative next year from Revpar perspective, George maybe your portfolio just positioned.
Differently than the market overall more more exposure you have no. We don't we don't see had negative at all look you're still looking approximately.
Million.
Room nights, plus or minus certainly down from the 1.2, although I don't think for 1.2 was realized as I said earlier, so I think that San Francisco is going to be a strong market.
Be a strong is where we're going to end up this year.
Probably not I mean, we're.
We're.
6% to 8% is probably where we end the year, which is pretty strong, but I would certainly see a low single digits next year in San Francisco.
Great. That's it from me thank you.
Okay.
Our next question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Hey, good morning, guys.
Morning.
The you know your three biggest market Samaras, San Francisco, Hawaii Orlando.
You know.
Lot of exposure, there and in a lot of ways can.
Significantly swing how [noise].
Quarter, a year goes I was wondering if maybe you can give just a.
I don't know what kind of level of detail, but how you're thinking about those three markets as we head into next year.
Just given some of the Boeing issues or some of the renovations in Orlando, a any kind of help on that will be great. Just again, because it's such a large percentage of your.
In Hawaii.
Yeah first as we've talked about Hawaii, I mean, I think last quarter is an indication.
On the wind village again running 95% occupancy.
Do you think about southwest southwest is reallocating and moving a lot of their equipment.
From various markets on the east coast to focus largely in the Bay area and Hawaii and you think about demand. We expected that's only going to continue to grow and we are well positioned to benefit from that like a low as you know will be given back you incremental 500, plus rooms on the balance of that so we'll.
Wind up with 600, I think the EBITDA, Sean can correct me, but I think the EBITDA impact peers Fox and at least 15 million.
Yeah, if memory serves me correctly, there, but look we are we're well positioned in the why love.
Positioning they're excited about the growth opportunities there.
Obviously, we will not only expect to have the kind of buyout.
Multi we buy out that we had this year Waikoloa that hotel will no longer will also not be a comp hotel next year. So it won't be impacting from that standpoint.
San Francisco remain bullish.
We'll end up with.
Focusing on just speaking about 4200 rooms love our position area in Orlando, where were making a big bet. There they're looking at visitation now approaching close to 75 million in growing in that direction.
Bonnet Creek, we think is world class.
We're going to be expanding the meeting space they are both.
Hilton and then we're going to be upgrading that to insignia and of course, the Waldorf, we'll be adding incremental.
10000 square foot volume there as well.
Over the next two years so.
Those do you think about.
West Coast, and Florida, and that's about 67% of our EBITDA there on lot of markets, including why in San Francisco San Diego.
Orlando Miami in key West So one of the benefits of again of the Chesapeake bolt on one is that we get both brand and operated diversification, but the geographic footprint. It lessens our exposure. So we go why from 24% down to about 20%. So again another reason.
And why this transaction.
Intermediate and long term makes sense for for the park platform.
Appreciate that [noise].
Last one from me.
You know just given that the the recent trade tariff rhetoric has actually been incrementally positive.
What do you think about the fact that eat you know things could still remain weak for.
The business.
Traveler business demand just given that next year.
It's an election year, maybe companies can to continued to wait and see what the.
Environment looks like post election, and and then also comment about you know Marriott and higher Hilton Revpar guidance.
Well, what I guess, what gives you confidence that you'll be on that higher end considering you're in the coastal a larger markets, where you have the most impact from international travel demand and elevated supply.
Well, there's a number of embedded questions here, let me, let me try to address both international pick about international inbound I think it's down about 1% plus or minus.
79 million gun remained flat if you look at some of the recent reports, we're now forecasting that growth rate increase possibly at about 2.2% compound annual growth rate of for the next five years, plus or minus taking this up north of 90.
Billion. If you look at our portfolio, we to international are down about a percentage and a half. So if the trade war, if that issue subsides and reducing that.
That uncertainty, we think that helps from the international standpoint.
Inbound and that will address I think part of the issue what we're seeing both for.
Urban markets in the top 25 market. So we see that as a test positive anything that that can be done to remove uncertainty improving business confidence and getting men and women leaders to start to invest in yet the biggest concern that I have is really around business investment spending icon.
Relation between.
Run demand in nonresidential fixed investment spending and if we can see that turn its been negative the last two quarters. If we can see that improves I think that will be are really positive catalyst for so back to the comment of why why part well Park has outperformed again this quarter, even though it's 1.9% when you look at.
I can see far better than most of our Peters certainly far better than Smith travel when we bolt on Chesapeake because it said earlier.
In the call we're confident in the 80 incremental basis points and that's across our entire portfolio part of that's some of the revenue initiatives that Rob walk through a lot of that is favorable convention calendar, we've gotten ran knows that.
Chesapeake a number of assets are under renovation. This year, we think they end the year at 1%. This year that sets US up now is the new owner for incremental benefit in 2020 as we move forward.
Thank you.
Okay.
Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.
Chris.
Hey, good morning, Tom.
So what was over to dive into a little bit on on the margin front on the Chesapeake portfolio and the question is kind of you know he has there been any kind of margin disruption. This year associated with the what's transition, which I know is very recent and have you is there any potential disruption contemplated in your kind of March.
On an uplift guidance next year as you begin to initiate the are implemented some of these initiatives, which you never know right there could be pushed back from some customers I mean, how how well level conviction do you have in that and that margin uplift for 20.
We have a great Jones conviction on our underwriting, which we have reaffirmed obviously, an incremental 24 million 17 million about as and remind listeners is the elimination of gionee by bolting on those 18 soon to be 15 assets from from Chesapeake. So in the high degree of confidence from that standpoint, we also.
I don't anticipate a lot of disruption from renovations and adjusting portfolio. They had a number of renovations underway in 2019 again, we see that as a tailwind as we move forward.
As Rob in the team.
Continue to dig in of course that are going to be some pluses and minuses of will continue to evaluate management companies and we'll make the prudent decisions will be thoughtful.
But we we are confident I can't.
I can't say that strongly enough.
But in the underwriting we know that we have to execute we have to deliver we've got to earn our stripes and we except that challenge and we're working hard to demonstrate that in coming quarters.
Okay Fair enough and then just wanted to pivot over a couple of the Chesapeake assets.
I noted the W. Lakeshore head at one time, not not too long ago been been considered for alternative use and then.
He Miami I think.
There's no Chesapeake it always thought to maybe there was another option for for branding at.
At the tribute hotel or maybe just an update on your thoughts on both of those hotels up I again is that back to my my earlier comment in terms in the part playbook.
Recycling capital ROI opportunities improving margins and grouping up we think those are strategies that you use that any phase in the lodging cycle and we will look at their own alternative uses of that is a large W. W will make sure you're referring to assess that but we think right now.
Focus on operational initiatives and I don't disagree long haul.
That was down 14%.
The third quarter, we're confident that we can improve that performance as we headed in 2020 Dawn, we think its bulls eye real estate mute Beach.
Before we can talk about branding we need to we need to write the ship today and we're working hard to do that.
Okay very good thanks, Tom.
Our next question comes from the line of Robin Farley with UBI. Yes. Please proceed with your question.
Hi, This is Jay gone for Robyn I, just wanted to ask with your continued focus on grouping up.
What's group mix for the combined portfolio right now.
And I guess, how does that compare to Chesapeake group, Max and what kind of upside do you see from the Chesapeake assets and the combined portfolio going forward.
Yeah.
The combined shauna grab that in the second park is about 30 to 31, approximately and Chesapeake is about 20% group.
We've set a goal to move at 150 to 200 basis points of the weighted average of those two probably another 20, 728% group across the entire portfolio as we bolt on Chesapeake.
Okay. That's helpful. Thank you and then as far as the transient weakness can you kind of parse that out between leisure and business transient.
If you look at third quarter, obviously, we were down 4.8% and and both were comparable I think one down four points for at least for side of in business down 4.9.
As we think now in that 3% I'd say more weighted towards the business trends are going to what we're seeing right now fourth quarter.
Great. Thank you.
This concludes our Accuen recession, I like to turn the call back to management for closing comments.
Really appreciated the opportunity to visit with you today and look forward to see many of you next we got it may read.
Same travels.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.