Q4 2019 Earnings Call
[music].
Greetings and welcome to the Pebblebrook Hotel Trust fourth quarter and yearend earnings Conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
Anyone to require operator assistance during the conference. Please press star zero under telephone keypad. As a reminder, this conference is being recorded.
Now my pleasure to introduce your host Ray Martz Chief Financial Officer. Thank you you may begin.
Thank you daughter dumb and good morning, everyone. Thank you for joining US today with me this morning, as Jon Bortz, our chairman and Chief Executive Officer.
Before we started quick reminder, that many of our comments today are considered forward looking statements under federal Securities laws. These statements are subject to numerous risks and uncertainties as described in our 10-K for 2019 at or other as you see filings and future results could differ materially from those implied by our comments today for the constraints that we need today are effective only as of two.
Today February 21st 2020, and we undertake no duty to update them. Later, you can find our FCC reports that earnings release, which contain reconciliations of the non-GAAP financial measures. We use on our website, that's held worker Telx dot com.
Okay, 20, I T marked our tendency or as a public company and ones that we wanted to take a moment the thank our shareholders as well as our hotel and financial partners for their strong support over last 10 years not only have we achieved a lot or last 10 years, we successfully moved the ball forward in many areas in 2019, following our corporate acquisition in late 2000.
18, and on an operating basis, we outperformed the industry for the year in 2019 total same property revpar increased by 1.9% adjusted EBITDA increased 87.8% and adjusted EPS of <unk> per share increased by 7.3% to $2.63 per share all the way.
Which were ahead of our expectations.
Since November 2018, we also completed 1.33 billion of asset sales comprising 13 hotels at very attractive valuations with another 331 million up sales expected to be treated later this quarter.
We also successfully completed 12, operator in brand transitions and invested 162.8 million of capital into our hotels, putting us in great position to continue to outperform.
Following the 5.1 billion corporate acquisition that we completed in November 2018, we successfully integrated the two portfolios, including all I tea business intelligence, and accounting systems and corporate employees and we combined our offices into one location in September all but no disruption.
During 2019, we also announced our first Formulize, Yes, you report highlighting the benefits are more than $13 million of environmentally focused capital investments across the portfolio over the last several years that helped the overall environment in our local communities. This is a lot or hotel portfolio to reduce greenhouse gas emissions by 24%.
Energy intensity by 12% and water intensity and usage by 5%, even with increasing occupancy levels across our portfolio. Our entire team is probably the great work, we've done any additional environmental and social responsibility opportunities we identified for the future.
Turning to the highlights of our fourth quarter same property total revpar increased 2.8% exceeding our outlook in same property Revpar increased 2%, which was at the top end of our zero to 2% outlook. It outperformed the industry is 0.7% increase and the urban markets, 0.3% decline.
Adjusted EBITDA came in at a 100.1 billion, beating the top end of our outlook by 1.9 billion.
Adjusted EPS all per share finished at 54 cents per share exceeding our outlook of 49 cents to 52 cents per share.
Our better than expected performance during the fourth quarter was driven primarily by healthy business and leisure travel demand strengthen as a quarter progressed reversing the trend that we saw during the third quarter, which wasn't courage and.
For our markets, San Francisco, South, Florida, Philadelphia, Chicago were our strongest markets.
Our weaker markets, we're in a quarter were San Diego due to a softer convention calendar compared with the prior year, along with Seattle, and Portland, which was mostly due to supply increases.
In terms of multi Revpar, we saw a 2.7% decline in October is 7% increase in November with the help of the very healthy convention calendar in San Francisco and a strong 4% increase in December.
In the quarter, our San Francisco hotels generated revpar increase of 13.5%, which achieved growth rates well above the San Francisco market tracks gain of 10.5%.
San Francisco benefited from a strong convention calendar as well as a shifted dreamforce into November this year from September last year.
Our key west hotels generated revpar increase of 7.1%, which was above the key west market tracked gain of 6.6%.
Naples resort produced a revpar increase of 9.9%.
Our Chicago hotels grew revpar, 3.3% far outpacing the Chicago CBD these decline of 2.2%.
Our underperforming markets, where the ones, we expected our Seattle hotels experienced a 2.8% revpar declined due to a 7.5% increasing supply even with a 9.2% demand increase in the market. That's you know downtime track had a 2% decline so struggling to absorb the 1200 room Convention hotel added to the market in late 2018.
Yeah.
Our poorly hotels experienced a 2.7% revpar declined in the quarter slightly better than the 3.7% decline the Portland downtime track, which was impacted by 4.1% increase supply increase that more than offset a strong 3.4% increase in demand.
Our San Diego hotels experienced an 8.1% revpar decline better than the San Diego market tried to kind of 10.4%, even with our Westin and embassy suites.
Her renovation at the city had a week convention calendar compared with the prior year.
Our portfolio on a relative basis outperformed our comparable combined STR market tracks generating a revpar increased 2% versus 0.7% for the market tracks.
We also had approximately 55 basis points of negative impact your revpar from renovations during the quarter, plus 125 basis points of negative impact from the hotels that recently transitioned to new management companies.
This combined 180 basis point impact your Revpar in the fourth quarter was largely in our forecast and serves the underlying to potential future outperformance of our hotels, our hotels gain approximately 100 basis points on market share for the quarter again. This demonstrates significant success from our prior redevelopment even with the disruption running from renovations man.
Andrew transitions across the portfolio.
For the year, we gained approximately 60 basis points, our penetration on a portfolio basis. Despite a 125 basis points of negative impact from renovations brand manager transitions and other market specific events during the year.
This outperformance versus our markets is driven mainly by the ramp up of our recently renovated hotels and continued implementation of our best practices and other initiatives all of which allowed us to outperform the urban markets. During 2019 by over 100 basis points and we expect to this trend of outperformance will continue into 2020 and beyond.
As a reminder, our fourth quarter Revpar and hotel EBIT result, our same property for our ownership period and include all the hotels, we owned as of December 30, Onest 2019, except for the Topaz, which was sold in November and the Dod been hotel, which was closed on November 17th from major renovation redevelopment as expected.
To reopen in the second quarter.
Overall for the quarter transient revenue, which makes up about 74% of our total portfolio room revenues declined 1% compares to the prior year transient HDR declined by 2.2% in the quarter declines in transient demand were partly driven by our hotels in downtown San Diego, where we started the renovations at western gas plant and embassy suites.
Tim.
Positive note group revenues increased 9.4% in the quarter room nights, rising, 6.4% and HDR increasing by 2.7%.
This was primarily due to a healthy convention calendar in San Francisco.
Fourth quarter same property hotel EBITDA was 109 million exceeding the top end of our outlook by 1.2 million and a 1.4% increase over the prior year periods. Adjusted EBITDA was 100.1 billion exceeding the top end of our out by 1.9 billion due to the better than expected hotel EBITDA growth combined with savings and corporate Jay.
<unk> expenses.
Adjusted FFO per share was 54 cents per share above our outlook range, a 49 cents. The 52 cents per share due to the adjusted EBITDA beat and interest expense savings.
As we'd like to 2020, our revpar outlook for the portfolio assumes a range of down 1% to up 1%, which is also where we believe the U.S. hotel industry will perform in 2020, however, other than what we've already experienced incorporated. This is not include any material impact from the Corona virus, which at this time is unknowable and not.
Able to be forecasted.
Our 2028 same property Revpar outlook incorporates approximately 90 basis points of estimated negative impact from our 2020 renovations and plant manager and brand transitions, which is slightly less than our estimate of 110 basis points of impact from both factors in 2019.
We expect the first quarter to be the weakest quarter on a year over year Revpar basis, with a decrease of 1% to 4% the largest impact from renovations and operator transitions forecasted at 265 basis points in the quarter.
Our portfolio experience same property revpar growth of 0.7% in January despite substantial renovation impact and we're on target for a 6% to 7% Revpar decline in February mainly due to renovation disruptions as well as a weaker convention calendar in San Francisco compared to a record breaking quarter in San Francisco last year.
Shifting now to our capital reinvestment programs. During 2019, we invested 162.8 million in our portfolio completing major renovations at several hotels, including W. Boston Mondrian, Los Angeles, Sofitel, Philadelphia Skamania Lodge.
For 2020, we anticipate investing an additional 165 to 185 million just slightly higher than last year and it includes eight major redevelopment John will provide detailed in the scoping. These renovations and transformations later in the call.
Turning to our balance sheet, assuming the 331 million up sales or the Intercon buckhead and so battelle DC or completed later this quarter and assuming net proceeds are used to reduce debt our debt to EBITDA ratio should be around 4.4 times, our debt to enterprise ratio will be around 29% and our fixed charge ratio will be about threep.
Times, our weighted average cost of debt is 3.5% with 77% of fixed interest rates.
Finally based on our current share price so $24, a 64 cents, we trade and applied 7.6% NOI cap rate based on 2019 actual results, which is at 35% plus discount to the implied midpoint of our Abby. We also provide a healthy 6.2% definitely.
And with that I would now like to turn call over to John to provide more insight on the new Pebblebrook Hotel address John.
Thanks Ray.
As Ray noted the fourth quarter turned out better than we expected.
The rate a demand growth improved from the third quarter in both business and leisure transient.
Even with the challenging October.
We also saw some improvement in 80, our growth in the last two months of the year, which we also just saw in the STR industry results for January.
Perhaps eliminating or reducing trade tensions and uncertainties was the trigger for increased confidence and the improvements in the last three months.
Unfortunately, with the emergence of the Corona virus and its impact on travel.
We won't know whether this was the beginning of a positive trend or just a few good months.
For 2019.
Industry Revpar growth softened from the year before.
Ending the year just below the low end of our original industry outlook of 1% to 3%.
But as we forecasted the urban and top 25 markets continued to underperform the industry.
In the case of 2019, the urban market segment underperformed by the 100 basis points, we had estimated at the beginning of the year.
The top 25 markets underperformed by 110 basis points.
Supply growth for the industry remained constant at 2% growth.
While supply in the urban markets increased 3.2%.
Representing the primary reason for the underperformance of the urban markets.
For Pebblebrook for the year, our revpar growth significantly outperformed the urban markets as we originally expected and we outperformed the industry by 30 basis points, which was a little better than our forecasts.
The successful ramp up of numerous properties that we've read developed over the last few years was a key factor in this outperformance.
With the exception of the unpredictable impact from the evolving Corona virus situation.
We expect to continue to outperform the urban markets and perform in line or better than the industry due to the benefits from the major redevelopment projects, we completed last year and those are underway now.
This is reflected in our outlook for 2020.
We believe industry Revpar is likely to range between down 1% and up 1%.
With urban underperforming by around 100 basis points.
For Pebblebrook, we believe our same property Revpar growth will again outperform urban by 100 basis points and perform in line with the industry.
All of these outlooks exclude any impact from the Corona virus.
We also expect same property non room revenues to grow about 100 basis points higher than our same property revpar.
Also keep in mind that room revenue should grow about 110 basis points higher than revpar in the first quarter due to the extra day from leap year, and about 27 basis points higher for the year.
Our same property Revpar and room revenue outlooks also take into account 90 basis points of impact from renovations and operator and brand transitions.
As of the beginning of February overall revenue on the books from group and transient for the year is supportive of our outlook and pacing ahead by 1.1%.
With room nights up 1.7%.
An 80 are pacing down slightly at minus 0.6%.
Group pace is slightly down, but it's up excluding San Francisco, which has a tough comparison to last year's record year.
Boston, Chicago, South, Florida, Philadelphia Outlay, and Portland are all currently pacing nicely ahead of last year's revenue on the books for the year.
In arriving at our same property EBITDA outlook, we're forecasting same property expenses the increase in a range of 2.2% at the low end to 3.2% at the high end and 2.7% at the midpoint.
These modest increases are achieved due to the success of our portfolio wide initiatives and implementation of our best practices and their despite content combined wage and benefit increases.
In the 4% to 5% range and continuing higher then inflationary increases in customer acquisition costs, including loyalty costs insurance real estate taxes and technology.
As a result, we're forecasting same property EBITDA to decline between 2.8% and 5.6% with the midpoint at minus 4.2%.
This coincides with same property room revenue and revpar growth rates of 0.3% and zero at the midpoint respectively.
Same property expenses growing at 2.7% at the midpoint.
Now I'd like to turn our focus to the four areas, where we're going to create value for our shareholders.
In the years ahead, regardless of the economic environment.
Those four areas being our major hotel and resort Redevelopments and transformations.
The completion of our strategic disposition plan.
Our portfolio wide initiatives and branding.
As we explained last quarter, we identified 16 properties within the acquired portfolio that we determine what benefit from substantial investment through repositioning them to a higher competitive level, improving the guest experience and driving very attractive returns.
With our most recent announcements we've now disclose the vast majority of the operator and brand changes, we determine where needed to position our properties to maximize performance following redevelopment.
The vast majority of these have occurred and are now behind us with less disruptive transitional performance and better overall performance ahead of us.
To date of the 16 major projects, we discussed last quarter.
We've commenced are completed construction on eight of them.
The Donovan hotel.
Which will become the seventh hotel in the on officials he collection.
Following the completion of its $25 million repositioning and Thats reopening in that second quarter. This year as the Reimagine hotels Xena.
Mason and rock, which will join the luxury Viceroy collection. Following an 8 million dollar upgrade which is expected to be completed by mid year 2020.
The first phase of the $23 million repositioning of the 162 key viceroy Santa Monica to be completed by the end of the second fourth quarter. This consists of $10.5 million in phase one to reinvigorate this properties reputation as one of the most iconic.
Luxury lifestyle hotels.
In the highly supply constrained Santa Monica market.
Well do it through a complete redo of all of its public areas inside and out as well as creating value by adding seven keys.
We also have the $12.5 million repositioning of lower park in West Hollywood through a comprehensive renovation of this entire all suite hotel.
With completion scheduled by the end of Q2.
The repositioning of Sean Manav resort and Spa in Santa Cruz following the completion of a $9 million upgrading of the properties vast indoor and outdoor public areas and meeting and event venues with completion early in the second quarter.
The $11 million second and last phase of an overall $32 million redevelopment of the former Hilton San Diego resort.
Which is being reinvented as an independent luxury resort under its new name San Diego Mission Bay resort.
The property has already been renamed and we expect to finish the properties transformation by the middle of the second quarter.
5 million dollar luxury repositioning.
The 96 remark are key west which is now complete.
And finally, a 12 million dollar transformation of the 189 room Villa Florence to commence in the third quarter with completion late in the fourth quarter at which time the hotel will be renamed and re concept it as the Bayberry San Francisco.
Combined these eight major redevelopments represent an investment of $93 million with a forecasted increase in EBITDA upon stabilization of over $10 million.
All of these projects should be complete this year with ramp up beginning next year.
The remaining aid projects all of which constitute 2021 completions.
Includes a $37 million redevelopment of San Diego Paradise point resort into a Margaritaville Island resort.
The just announced $25 million repositioning and reinvention.
Hotel Vitale in San Francisco.
As the eco conscious luxury one hotel San Francisco.
That John Travolta, and Olivia Newton, John we're winding for in our hold music.
The repositioning of the already luxurious low bears del Mar through a 10 million dollar investment to drive higher rates and higher food and beverage profitability.
A $20 million redevelopment of the southernmost resorting key west.
Which is similar to our repositioning project at Laplaya that has been so successful.
The $20 million recreation of marker San Francisco as our eighth unofficial see collection hotel.
Our just announced transformation of hotel Solamar.
So a margaritaville resort hotel through a $20 million redevelopment.
A $5 million redevelopment and re concept thing.
Grafted on Sunset in West Hollywood.
And finally, a $20 million redevelopment of an as yet unannounced property in the portfolio.
These 820 21 projects.
Coupled with a $12 million second phase of the repositioning of Viceroy Santa Monica.
Some of which are scheduled to commence in this year's fourth quarter.
Total $169 million of investment.
And are currently forecasted to deliver an EBITDA yield of 10% or more in total upon stabilization in 2023 or 2024.
All told we're currently forecasting that these 16 major repositioning projects will represent a total investment of just over $262 million with an expected 10% EBITDA yield on investment in total upon stabilization.
Next I'd like to turn to make a few comments about the progress on our strategic disposition plan.
As you're aware, we recently announced the contract to sell the Intercontinental Buckhead and Sophie tell Washington, DC for $331 million.
The buyer the two hotels has significant hard money down.
And assuming the sale closes.
We will have sold 15 hotels for a total of $1.664 billion at a combined and NOI cap rate of 5.6%.
And a combined EBITDA multiple of 15.3 times 2018 operating numbers.
All since we closed on our corporate acquisition at the end of November 2018.
Our sales metrics are clean and do not add in required capital by the buyers, even though most of the property sold need very significant capital.
Of these sales to or from the Pebblebrook legacy portfolio and 13 or from the acquired portfolio.
The annual NOI cap rate on the $1.4 billion to $6 billion.
Acquired properties sold or being sold.
Equals, 5.4% and the EBITDA multiple equals 15.8 times.
As a reminder, we acquired the entire company with all corporate and property transaction costs at a 5.9% and our white cap rate.
So our sales of these less desirable properties have certainly been accretive to value.
Our total disposition target for 2020 is $375 million, including the two properties currently under contract.
We continue to work through preparing retail for sale from potentially four hotels for gross proceeds of up to $150 million.
Hi, legally separating the retail from the hotel portion prior to offering the real estate for sale.
We expect these sales to occur at various times over the course of the next 24 months or so.
And while it's likely that there will be a few additional hotel sales over the course of the next 12 to 24 months.
Our outlook for this year does not include any further hotel sales.
Beyond those already announced.
Next I want to provide a quick update on our progress on our portfolio wide initiatives.
These are really important.
We continue to make significant progress on maximizing the opportunity to re contract many products and services that we and our operators purchase within our portfolio.
We've now contracted for over $7 million of annual run rate savings within the portfolio.
And have identified another $3 million of savings that should get finalized in the next two quarters.
This would bring us to our $10 million of targeted annualized savings a little earlier than the end of the year, which was our original forecast.
But we're not stopping there.
We believe there are significant additional savings that we can achieve through portfolio wide initiatives and our team will continue to work towards these additional savings.
In addition to the $10 million of annualized savings either already contracted for in process or identified.
Theres approximately $3 million of annualized savings in process.
From the creation of seven separate pods involving sick 16 different hotels utilizing the same operator in the same market in many cases within a block or too.
Over half of these additional potting and portfolio wide initiative savings are reflected in our 2020 outlook with the remaining portion expected to benefit 2021.
These $13 million of total annual savings should create over $200 million or real estate value for our portfolio through the improved bottom line performance of our hotels.
This opportunity to create value was made possible by the significant economies of scale, we achieved through the portfolio acquisition and our creative and relentless efforts to reap the value of all of the benefits available from creating the largest owner of lifestyle hotels and resorts.
In the United States.
Finally, I want to briefly touch on the branding opportunities with our port within our portfolio and the potential to create significant value from branding in the longer term.
As we previously discussed we've been working on bringing all of the Z hotels that were separately developed by us over the last seven years.
Under our proprietary experience all brand called the unofficial Zeke collection.
We recently completed our branding work with an expert third party branding from for the on officials the collection and we'll spend the better part of this year rolling out the brand to the existing portfolio of seven Z hotels, including hotels in China, which will open in the second quarter in Washington DC.
Yes.
Coinciding with the opening of hotels Xena, we're planning to launch our unofficially collection website.
Which will explain and demonstrate the brands ethos and the individual personalities of each of the Z hotels.
After marker San Francisco is fully renovated and becomes the eighth hotel on the collection.
Well connected with the rest of the disease as well as of the collections website.
This will allow us to begin to connect all of these hotels together in the eyes of the customer as well, let's start to gain recognition of this unique experience show brand out there in the hotel industry.
In addition, we've begun work on a second proprietary brand that will be broader and scale and ultimately incorporate the artificial see collection as part of it.
This broader brand will initially be created by incorporating all of the completely independent and unencumbered lifestyle hotels and resorts in our portfolio.
Which today totaled 26 hotels and resorts.
This includes our Z collection hotels.
We believe this base of unique lifestyle experience, all hotels and resorts.
Ill call clustered between the four and four and a half star quality levels is rare outside of the major brands.
And offers a very significant opportunity down the road to create substantial value for pebblebrook shareholders.
We look forward to providing you with more information on our plans and our progress throughout the year.
To wrap up.
We believe that regardless of the economic environment, we find ourselves in over the next few years.
We have a significant number of substantial organic value creation opportunities within our new combined company that we've identified and we're actively executing on.
Not only our most of these opportunities unique to pebblebrook.
But they fall squarely within our core expertise.
Having successfully executed on these types of value creation opportunities over the last 20 years.
So that completes our remarks.
Got it we'd be pleased to answer whatever questions that are collars might have.
Thank you. The floor is now open for question. If you would like to ask a question. Please press star one on your telephone keypad at this time.
And John would indicate your line is in the question Q.
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All participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys.
In the interest to time, we do after you. Please limit yourself to one question and one follow up.
Once again that is star one to register questions at this time.
Our first question is coming from rich Hightower at Evercore ISI. Please go ahead.
Morning, guys.
Good morning, Rich rich.
I just wanted to dig in quickly to to the inflection point in corporate transient.
Described and others have described going from November through the early part of January and.
John I know you mentioned, maybe some trade war headlines and Brexit resolution, maybe contributed to that but.
It was was there anything maybe more tangible that you guys saw uncertain hotels are in certain markets that you can really ascribed to sort of the pickup there and given that your predominantly a transient portfolio. Do you think you guys would be in a position to see if that is indeed, a trend once we kind of get out of maybe some of the corona virus impact.
In the near term would you guys bina positions sort of call that earlier than most do you think.
Well.
It's a good question I don't know that our portfolio is big and broad enough across the us to that to be the ones who can call. It.
But but we do analyze in detail the industry data that Smith travel puts out and particularly focus on the week day weekend.
Business and the occupancy levels on a year over year basis and.
In addition to the more shorter term positive pickup trends we saw.
Over that three month period from November through January.
When you look through and focus on the weekday business.
Across the industry I mean, you clearly see an improvement overall.
After October in business transient.
You had demand up in November.
2.7, or 2.8% you had demand for for weekday business in December up in the 118 Onenine range and then in January and even got a little stronger and I think January was is probably a cleaner comparison month.
When when you think about November and December and and the probably benefits that were received in the industry from the holiday shifts, which fell better but occupancy weekday in January with was up a 0.9%, which means weekday demand was up close to 3%.
And and so Thats clearly.
An acceleration again, maybe some of that was due to better weather.
And fewer impacts from weather and what might traditionally be a weather impacted month in January but.
Clearly there was a positive trend.
Positive results going on in January.
Okay. That's a that's helpful and maybe just on the.
Asset disposition side of things no in the past Youve.
You mentioned that private equity and high net worth to think of tended to be the predominant buyer pools for what you guys have been selling so most of that's been one off assets for the most part where do you peg demand for maybe portfolio trades among that same group at this point in time, if you had any insight there.
Yes, that's a little tougher because we don't really have we didn't really have any portfolios out on the market.
And we don't see many other than our in the select service side out in the market, but but one of things that was interesting about the sale of the intercontinental on the so tell.
Is we have those actually listed separately and they were being sold separately on on a different task and we had an institutional buyer come in who at an interest in both who actually indicated they had a much stronger interest in both than they had in any into in either of the individual properties.
Meaning that they were more focused on getting more capital out to high quality assets in good markets.
Then just getting it out on a piecemeal basis and they ultimately preempted the process. So.
That's a that's one anecdotal piece of information, but it's certainly indicates that up what we believe which is for good quality assets in good markets Theres a lot of capital out there.
Perfect. Thank John.
Thanks Rich.
Thank you. Our next question is coming from Smedes Rose of Citi. Please go ahead.
I just wanted to ask you.
My questions right your projects I guess the.
Hope of investment increases into 2021, so just in terms of.
I guess more sort of pronounced are stabilized earnings growth thats more of a 2022.
Event, given I think we'll have the disruption in 2021 with these projects as well.
Yes means we would expect a similar level of disruption in 2021.
Again give or take a couple of million dollars as is the case as we're forecasting for this year.
Which is all of about $1 million different than last year. So.
All should continue to be about the same and the total investment dollars.
Should be about the same as well next year, even though the number for the projects looks higher.
Some of those projects start in the fourth quarter of this year have a little bit of impact which is built into our numbers.
And of course, if theres a lot of free.
Start dollars that go out related to.
Not only soft costs, but deposits.
And orders for four FF any well in advance of when they would be.
Installed in the 2021 project so.
We think it's pretty smooth between 1920 and 21 in total dollars out again give or take 10 or $20 million and disruption, but yes stabilization.
And the and the largest amount of on on impacted ramp up would occur in 2022.
Okay, and then just wanted to ask you on another call.
Comment that 2020 would be kind of seen as the year for peak wage and benefit increases and I'm. Just wondering do you see that as well or or do you have any thoughts around that.
Okay.
They might have some specific if certain circumstances within their portfolio I think it's hard to it's hard to gauge.
Interesting that we noted 4% to 5% increase in that combined wage and benefit.
Thats our forecast for this year.
Being mitigated.
It elsewhere, particularly through our efforts, but it comes off a base of increases that are generally in the 2.5% to 3% range for much of or or the majority of the portfolio.
The difference is is that benefits are going up at 5% to 7%.
You are seeing some minimum wage increases that continue to clip clip along and in in numerous cities and states.
Which again only impacts a small portion of our employees and often it's the tipped employees. There is not something specifically provided in the legislation that's different as there has been historically for tipped employees and then a few markets, where the wage and benefit combo.
So.
Is driven by the contractual union increases, which have fallen again in the four.
To add most 5% annual range and then a few markets like a Nashville, where there's so much new supply being added with new supply.
Driving up wages and benefit rates start rates.
Because of their need to hire folks in a in a very.
Tightly constrained labor market. So you put that together and thats, how we get to that for.
To 5% range, it's hard to know whether those are going to abate.
Moving forward it really depends upon what goes on in the economy.
Okay.
Right. Thank you very much.
Thanks Smedes.
Thank you. Our next question is coming from decline of BMO capital markets. Please go ahead.
Thanks.
There's been a number of management transitions over the last year. So are you comfortable with where you're at right now or do you think theres still more to comment and how do you think that headwind involves maybe over next year. So.
Yes, so that already the ones that we have planned.
Our mostly complete.
So we have we have a transition that'll that'll take place at the Tali as it becomes the one and we have.
The folks who manage the one hotels the Starwood Hotel group.
I will comment and managed that so we have that transition we have a future. We have a few brand transitions if you will.
Within the portfolio.
We probably felt most of that impact or it's built into our numbers for this year and then.
It's always possible I mean, we if we have performance that we just are unsatisfied with on a on an ongoing basis and we don't think and operator can turn things around for really structural reasons.
Related to their organization.
Well, we'll make changes in the future, but in terms of what's planned.
For the most part through.
The major impact and in fact this year the impact we believe is less than than what it was last year and we think that will decline again.
Next year.
Okay, and then on the branding sideways with the unofficial the.
How would you expect that to ultimately translate into performance at those hotels and is there any incremental investments that are muted as that rebranding or for branding kind of ramp.
Yes. So there there is some incremental investment we're going to make.
In the in the portfolio too.
You know make what was the individually created hotels into hotels that all share the those.
That we've determined is what's underlying the unofficial see collection. So we've already we've already gone through the properties with.
Our designers and project managers will have some work.
Relatively minor through the portfolio, we havent scope doubt the full amount of the investment, but I would say at most in the portfolio. It's it's a couple of million dollars in total.
Spread about six of the six of the existing hotels.
So so pretty minor and and ultimately I think.
Connecting them in the eyes of the customer will begin to bring a little bit of business across the portfolio.
That we don't see today and a little bit of business.
Particularly from the group side, where we have some really unique meeting an event venues within the portfolio and I think.
Providing them as a group.
And showing them all together is going to be stronger than than showing them individually. So I think ultimately it's going to lead to to more business and cross business, but but I don't want to overstated.
Our brand of seven or brand of eight isn't going to drive a lot of business outside of what each of the property teams is going to drive by themselves.
Great. Thank you.
Thank you. Our next question is coming from Anthony Powell of Barclays. Please go ahead.
Hi, good morning, guys.
Cornering focused more on somebody's brand kind of announcement the commentary first on.
On loyalty costs, you mentioned before that Youre seeing growing loyalty crop cost in the portfolio.
It seems like you're not seeing kind of any kind of Revpar index benefit.
How is how the benefit of loyalty program change over time, and do you see them as less valuable that you did before.
Yes, I think.
What we've been seeing and you hear this from the brand companies as that they've.
I have fairly dramatic increases and the number of of.
Members of their loyalty programs and.
If you think about that if you're in many cases. These are people, who stay one or two times a year.
Who booked through other channels, perhaps or or book direct but never joined the program and with an aggressive push to get him to join.
What it means as we've taken we've taken business that we weren't paying the loyalty percentage on which might be 4% to 5% and weve turned it into business that we're now paying loyalty costs on so generally speaking through our portfolio, we're seeing an increase in a number of customers.
As a percentage of our total business of our major branded properties that are loyalty members, which means we pay more into the program and I think we've we commented last year.
I would say for the most part maybe we were just on Lucky we lost a lot of redemption business, that's clearly gone to others.
Primarily.
Starwood.
Business that went over to Marriott properties, because there were more choices for what had been Amar limited inventory of Starwood properties. So.
And then if you think about what the other benefit of these branding.
These loyalty big brand loyalty programs.
If you take a customer who is paying full price.
Once or twice a year and they joined and now they get a 3% to 5% discount depending on the day. We're also having an impact on our average aer. So they are positives that offset some of this stuff, but on the distribution cost side.
We and most everyone in the industry have been seeing significant increases in customer acquisition costs at a much faster pace.
Than inflation, so I know I'm not here to say, they're not valuable programs. All were stating is that the costs have been going up much faster than inflation. We don't think we're getting it back in revenue at this point.
Got it thanks and on your commentary on have a larger independent.
Lifestyle brand I believe with 26 hotels.
Obviously, there have been a lot of land transactions over the past few years, but I'd be tenant to involve management as well I'm guessing vis larger brand would not have all management given you have third party managers.
Could you talk can you just talk through what kind of value creation.
Good result from this kind of larger brand effort, you're now pursuing.
Yes, so I think.
Again, we don't want to get ahead of ourselves and and promise something that that.
Doesn't turn out to two.
Result, but I.
I think it's giving us optionality in a number of areas one I think a brand of 26.
Versus a brand of eight begins to provide some value across the brand ultimately too.
Each of the properties in the brand.
I think the second thing it does is it it.
It provides.
As we make acquisitions.
Another opportunity to grow that brand and third there there potentially as opportunity based upon the scale of that entity.
To bring others in whether it's through license arrangements or.
Through affiliations ultimately to grow that brand and so.
What ultimate value there is to that would ultimately get determined by others. If at some point, we decided it was something we wanted to monetize but.
I do think if you think about.
The major brand companies across the world.
Their growth is all about unit growth and in order to get more unit growth overtime. They are going to need more brands and the brands that are generally more difficult for them to grow and create on their own.
Our the kind of is the kind of brands that were talking about creating whether it's still ones that have uniqueness across the portfolio and.
And so we do think ultimately Sarah will be significant value for the brand.
Scale.
And the creative nature of them of the collection.
As opposed to just some management fees that in many cases often go away. After these acquisitions occur.
Right.
All very interesting thank you.
Thanks Anthony.
Thank you. Our next question is coming from Shaun Kelley of Bank of America Merrill Lynch. Please go ahead.
Thanks, Good morning, everyone.
John that loyalty commentary was interesting that was one of my question to the other thing I had was just to look at.
The the urban side has continued to be sort of a little bit of a different supply curve then.
What we see across the nation broadly and you guys.
From a prior experience in these markets have pretty good insight on what that supply curve looks like so the two part question is one on kind of any sense of.
Peak activity just either as thanks.
Get delayed or construction costs move off across the broader urban set and then on so kind of how does that trend.
Broadly and then probably more importantly for Pebblebrook portfolio as you look out to kind of 20 122, any any sight line that I think the number you called out was 3.2% that that number starts to come down.
Yes, good good question Sean.
We actually think we're at the peak.
Urban at this point edits.
Yes.
It's it's on the way down.
And and so for us when we look at.
What we think well what we think supply growth will be next year on a weighted average basis in our portfolio.
We see that pretty close to two.
Per sad versus the 3.2 at ran last year and for us likely to run in the 3% range. This year and also.
In that range for the industry. So.
We do think it's beginning to peak.
It's it'll be on the way down as we go across this year.
There are obviously has been a significant stretching out of the time it takes to build and deliver.
And during that period, we've seen a decline in urban starts and so while you can look at what's under construction frankly for the whole industry and see it inching up over the last.
18 months the deliveries.
Our have really Pete and there's more under construction only because it's taking longer for our property to go from beginning to completion and.
Because starts have declined and we expect that to accelerate because what we've seen obviously over the last three to four years as we've seen no increase in bottom lines on average in the industry, but we've seen 20% to 30% or more increases in cost to deliver.
Through the increase in development costs and so the yield.
The ability to deliver an attractive yield has gone down dramatically on new development and.
And so.
We think it's turned.
We think we're going to see it next year in our portfolio, we think that disadvantage of of additional supply growth in the urban markets.
Disappears by next year.
And then begins to look even more attractive than the industry, where you're seeing more development in the suburban markets now than than in the in the urban markets and Sean also add to that construction financing is also getting more difficult to.
To obtain and it's really being more provided by these more local banks rather than larger banks and although if it's a convention center hotel, that's a different story, but look in New York numerous defaults are already starting to rise on on loans and action put a lot of big paused for a lot of construction lenders out there we're thinking about.
Issuing a new new commitment when you see those headlines of defaults rising that puts a pause and helps to beat the supply growth and I do think gets the its demands players that are going to be taking the hits, where they thought they had a comfortable position.
Ultimately with with 20 or 25% equity.
Above them and I think.
The challenges in a number of these markets like in New York like a Chicago, where where you're operating leverage is really driving down your bottom lines as as revenue as at best flat, if not declining with expenses going up I think youre going to be reading more and more about folks.
Taking pretty big hits in the in the Mezz positions.
Again, not necessarily the construction lenders, who maybe have been down in the 45% to 50% area.
Of cost, but but it's the capital above that.
That's at risk.
Thank you very much.
Very good color and I guess, the the follow up would just be.
When specifically did you see that starts number peak and I'm sure that kind of a time series data point was that sometime in.
Within the last year in last couple of months, just that's a helpful data point.
Rick really back in 18.
Back in 18, Okay. So you're already seeing some of the lag to deliver that that kind of two and half years should is what puts you out to kind of next year.
Correct.
Great. Thank you very much.
Yes.
Thank you. Our next question is coming from Bill Crow with Raymond James. Please go ahead.
Good morning.
John a couple of questions. The first one does the.
To get all the Repositionings done by.
The next year.
About your view towards 2021 or more maybe 2022.
Nope Doesnt say a thing about it it basically says.
There are significant attractive returns from these investments.
The best place to allocate capital today.
And the sooner we get them done.
A quick or we get those returns and in a number of cases.
These are properties that that need to be redeveloped, and if we don't put the capital and they're going to continue to lose share.
Okay.
Rebranding John why is the sole amar better as a margaritaville, but it is as you collection.
Yes.
And on the Vitale.
I've known you for a long time and I don't think you've ever had a big desire to have.
Five diamonds are stars are lucky charms or whatever they are feels like this is this more luxury then you have.
Previously.
Experience.
Sure so as it relates to Margaritaville I think we've we feel like the.
The theres more power to that brand in San Diego based upon the customer base that is convention and leisure.
Then as the collection, which is much stronger would be much stronger with corporate business.
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Which you see more in the other markets, where the Z collections and so.
A market, where we're lacking that base of.
Major corporate accounts.
Probably isn't the best place for Us He collection, so margaritaville really filled the void for that leisure customer and the convention go or who is looking for that sort of chilled resort type experience in a downtown location as it relates to to the.
One I think the.
Fascinating thing about one is it's a five diamond product and the eye of the customer a luxury product in the eye of the customer.
But the cost base of operations is for its a lot like the W. Except I would say.
You know, it's being executed extremely well today and.
It's it's very successful with the customer base and so.
We have other properties like that where we provide a five diamond.
Physical experience, but up for diamond level of services, but we get five diamond rates and one would fall into that category.
Alright, and then just a housekeeping question.
Given the pending sale of the Intercon assume that's taken out of your.
First quarter Revpar growth guidance, what would it be if it was in given the.
The lapping the Super Bowl.
I don't know, we can get back to you on that bill.
Right.
Thanks, guys.
Actually.
Alright. Thanks.
Do you have.
So bill just a follow up so.
Intercon if if we included that for January and February it's about 3.39 to 3.1 million EBITDA.
In March is about 1.7.
Yes, I don't think Thats, what he was looking for though he's looking for Revpar impact.
In terms of impact to earnings.
Next question.
Thank you. Our next question is coming from Michael Bellisario of Robert W. Baird. Please go ahead.
Good morning, everyone.
Morning.
Just on the Marriott Starwood disruption that you guys experience last year have of all those issues been resolved in your eyes, and then kind of whats the step up that you're embedding in 2020 guidance.
Yes.
Many of them of have resolved one way.
Or another.
I think as it relates to the group sales issues I think we're in pretty good shape everywhere, except for San Diego, where we continue to have.
Issues.
With group sales.
We're we're very far behind this year.
And.
I know Marriott is working furiously to improve the performance of that.
That cluster sales group and I don't think were alone in that group.
Experiencing issues.
I think as it relates to redemptions.
Unfortunately, I think we just got to the shaft.
At the end of the day that.
Our properties or disadvantaged by the combination marriotts done a very good job working with our teams.
To replace that business with other business, but that redemption business is not going to come back.
It's it's it's now subject to different customer behavior, because the customers have more choices. So I think.
I think we're we're pretty much behind us with most of it other than the San Diego Group sales issue, which I think is is on fourth Fortunately going to disadvantage our property this year.
In that market for for the better part of the year.
That's helpful. Thank you.
Thank you. Our next question is coming from Jim Sullivan of BT.
Please go ahead.
Thank you.
Just a follow up on your discussion about branding.
So one thing this interesting and going through your most recent presentation.
His how much higher the EBITDA margin is for the Z collection.
Than the rest of the portfolio.
I guess it helps to be in San Francisco.
And.
As you expand the collection into new markets.
Im just curious whether that differential in EBITDA margin, it's been running I think it at 40% for says like 32 for the portfolio.
How you view that differential going forward do we expect that spread to moderate and is it because it is at the San Francisco the share of the Z collection of the striving led or is it everything else that you've been talking about.
Yes, I mean, I'd love to be a great sales pitch to say.
All we have to do as turn something into a Z and it goes from 32% to 40%.
Unfortunately that I, we couldn't make that case.
I think theres some benefit three of them are sold together by viceroy their market. It together I think thats a good indication of the benefit of of connecting them together thats zealous that and Zeppelin.
There are also all within about five blocks of each other.
In the Union square Soma market I.
I think some of the benefit is this specific too.
Those properties.
It two or three of them don't have food and beverage operated by US there by their third third party independent restaurants, and and they also do the banquet, but but I think part of it is related to how we've approached.
The food and beverage at those properties in terms of creating unique venues that drive a lot more food and beverage.
Drive a lot more event business.
That.
At the restaurant can be successful.
Very successful with that help and which we get significant room rental revenues our room rental at this tiny little those hotels zealous, which has to board rooms and a restaurant.
With a patio was over $800000 last year.
And so the ability to drive that through the creation of unique spaces, whether their disease or others.
But but they are spus in many cases, they are a part of the those of the Z collection and where we do think there is a competitive opportunity. So theres some of each Jim at the end of the day.
That is the result of the benefit some of it as property specific some of it is specific to what the those is for for the Z collection and and some of it is the market being San Francisco being a better market.
And some of it of course, you mentioned you know the clustering the ability to cluster operations to some extent so as we see the you expand into DC and of course, you've opened the as a collection in.
In Portland, the Zagg soon we assume there's going to be as rigs up there.
Just curious whether whether we would it whether you anticipate clustering Morrissey collection assets in these in these markets as you enter them as that is that part I mean, there's certainly a customer focus that you mentioned earlier, but as that also part of the strategic plan for expanding the brand.
Yes.
Okay.
And then finally from me you've talked about the issues with the west and brand over a couple of years and I know there was a prior question the talked about whether you thought you were through the million dollar through the worst of it.
Looking at sort of the portfolio in the end of the though the CAGR is on the EBITDA and up say a trailing three year basis I don't think I think the Westin, Michigan Avenue is probably the the weakest asset can you just talked to us about your plans for that asset.
To what extent you think you can you are going to be able to reverse that today.
Yes, so it's a very complicated asset I think I think the.
The challenges there have have more to do with.
The dynamics of the market the location of the property and and where it's historically has how its.
It's created at segmentation and and driven its business I think its location as one of the furthest hotels away from the convention centers.
It has progressive Lee been.
An increasing problem and.
The replacement of that business is really the key to the success of that property and how to drive other business there and that's what we've been working with Marriott on in terms of of improving the performance. It also was disadvantaged by.
The the Marriott Starwood.
Merger and and the the removal of the sales teams from the property and into a cluster there we think thats doing much better today, but.
Perhaps not quite as well as it would have had the team still been at the property.
And then finally.
We ultimately have some flexibility here with overall real estate use with a management agreement that's up I think the end of 26.
And and so we're we're putting a lot of time and effort working with third parties.
On what are the creative alternatives what are the alternative uses if any for this property versus what it what it is today, whether it's in hotels and maybe it's dual branding.
Which can be easily done because of the way the physical property works or are there alternate uses that might be better and then finally, we have a.
While small amount of retail it's very it's very high priced high rent retail.
On North Michigan Avenue that.
Ultimately we're looking at.
Separating that out and selling that separately.
Okay, and then quickly a final question for me in terms of terms of the balance sheet.
Asset sale proceeds of being used to reduce debt.
Lower coupon debt as opposed to higher coupon preferred.
And if you could just talk about how you guys are prioritizing the use of proceeds and whats your target is now for.
For net debt.
Sure well, we'll look at each of the options and depending on what our view. The world is so we have two series a preferred that are redeemable. We have also debt that we can pay down.
We're getting our our long term targeted for leverage is in the diva ratio in the forward afford a quarter level.
So the sales of these.
Intercon and so I would tell that put us as Doug noted, we noting the call around four four times somewhere in that range now.
So we'll evaluate what's the best use another use of proceeds in addition to reduce in some leverage could also be stock buybacks. So we'll also look at each of those.
But we'll be opportunistic.
Looking at it and.
Well as made progress here in the sales.
Okay. Good thank you.
Thank you. Our next question is coming from Neil Malkin of capital One Securities. Please go ahead.
Hey, Thanks, guys calls gone on for a while I'm just going to do two questions like you asked.
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So the last.
Blue of dispositions as really been focused are concentrated in the DC market.
Just wondering if there's a reason or rationale behind that.
If it.
Is it tell of kind of your view of that market and then.
Or does it have to do with particular buyer sets the have just been very active.
There.
Yes, so it definitely has to do with our long term view of the market.
I mean, we still are a fan of the market longer term, but we've wanted to reduce.
Our our our share of our portfolio in that market and.
And so that's that's where you've seen quite a few of.
The dispositions within the portfolio, you're also seeing us completely redevelop it.
Two properties in the markets. So we do continue to believe in the market, we think theres opportunity and particularly for certain types of assets, but we also think that it's probably a little bit more of a slow grower over.
Over the next five or 10 years than perhaps some of the other markets were focused on.
Yes, I imagine, it's a supply issue.
So then that's part of it yeah yeah.
The last one I have is.
When you're you're obviously, putting a lot of capital to work over the next 24 month add maybe if you could just run through sort of.
How are you.
Comfort in those returns or yield that the 10%.
Like because if you think about it the hotels that are proximate to that hotel if their rates aren't really going up.
It's hard for you to say okay.
80 hours are going up like 8% or whatever.
Is it is it that you are comfortable with the corporate meeting planners and there's such a large contributor to that or are there increases such a large amount that the potential minimal lift from the leisure customer.
Averages it out there.
If you could just kind of go over that because it doesnt involve a fair amount of rents just given the large amount of capital you're putting to work. So what gives you comfort.
In those trend those returns so so Neil I mean, we've we've been doing this for almost 20 years and so one of the things that gives us comfort is.
Is our experience in analyzing the market analyzing the customer base of the market and and understanding if we make investments and we do certain things to improve the properties that we can create a product that will drive in many cases, a whole new set of customers.
To come to the hotel, so if you're taking up a property, that's three and a half diamonds and you're making it a four or four and a half diamond property in most cases, we have to go out and find all new customers, whether it's meeting meetings, whether its transient whether its leisure whether its business and our comfort.
Comes from understanding the market overall, who would our new competitors be in the market. It's not right. It's not about raising the rate on the customers you have today, it's about saying look were going up in many cases abandon the customers that we have today, we're going to go find the customers who are paying these kinds of.
Yes.
For this higher quality product with higher quality services than what's been provided in the past so.
So we go through and we look at the market. We look at those competitive sets. We look at the performance of their rates and their occupants season, there revpar ours and we say this is where we think we can get too.
In total we can be competitive because we're creating a competitive product in a competitive location.
And if we get those revenues and we get this food and beverage revenue.
Because of the creative nature of the product, we're providing than we can we can deliver the returns that warrant those capital investments and that's pretty much the process that we go through its very scientific.
At the end of the day.
And ill also we provide historically all of our hotel EBIT as by property.
Since our period of ownership in case it back to 2010.
So you can look their data zephyrs ethanol a lot of these redevelopment we've done we'll be vessel meaningful amounts of capital and how we repositioning the properties and what the how its benefit the bottom line through the track record Theyre looking at too.
Appreciate that thanks, guys.
Thank you. Our next question is coming from Gregory Miller of Suntrust Robinson Humphrey. Please go ahead.
Good morning, John Ray.
I am curious about what's going to happen to the Australian develop Florence.
Do you have more serious question on San Francisco for you.
I figured us on might ask about the decision to forego living to moving its open World Conference from San Francisco to Las Vegas.
At least through 2022, so I'll take the lead on asking the question.
You haven't vocal half half Eurs on earnings calls about defending the San Francisco market and I'm curious, how you interpret oracle's decision and what they claimed as expensive rooms, and horse for street conditions and deciding to move to Las Vegas.
Sure so.
Obviously, we.
We know what we've read.
And what they stated which was those two reasons you just mentioned.
It's hard to take issue with the street condition comment.
Demand and I think the city.
Is moving in the right direction, but I think they have a long way to go.
To to make a dramatic impact on improving that.
Theres also a lot of self help going on within the market.
In the in the business improvement districts, where.
We have a lot of together the businesses are banded together and are providing cleaning services and security services et cetera.
In and around our neighborhoods, but I think the.
We're right, where I might take some issue.
I don't think San Francisco.
And particularly for the Oracle Conference I don't really think they have unusually high hotel rates and I know that the hotel community.
Has been working with Oracle on rates over the last few years. So.
I mean, you can go to just about any other market other than Las Vegas.
Any of the major markets and the convention rates for for convention that size are pretty similar across the across the country. So I.
I do take issue with that I also think there's perhaps and I'd be speculating here, but.
This is this is a citywide conference that has had declining participation over the last five years and.
Competing with and ever expanding Salesforce conference and Vmware conference both of which are in the fall both of which draw similar participants exhibitors.
And attendees and and so perhaps part of the decision, making even though they didn't say it.
Was because they need a new venue, they're not doing well competitively.
With two other competing conferences. So there's a lot of work to do in San Francisco related to the cleanup of the city the understanding of many about how important it is for for local businesses to be successful.
There is more collaboration that's needed by government with the business community that is working very hard to create.
Better conditions in the city and.
Perhaps the Oracle move is a bit of a slap in the face that.
Maybe at wakes and people up and.
Maybe they'll need to be another slap in the phase before.
Folks really.
Really wake up so.
Hard for us to to know but.
The city's very successful because it's a it draws a lot of people.
There's a lot of attendees and these associations.
They depend on the revenue and so you can move your conference for whatever reason you one bit of people don't want to go to the city that you're having it in you're not going to make as much money.
Thanks, Thanks for the excellent insight there.
I want to ask a quick follow up question on hotels Arena.
This is how is likely to have some very clear thematics and potentially politics.
What I read and I'm curious, how you came to the decision of creating.
Sina automatic and related only as a future Z could a hotel like this or other disease and it becoming their own sub brands in other markets.
Right, so far I could potentially see this concept for xena taking off elsewhere.
Yes so.
To be clear there is no political statement being made what.
The narrative is not an activist message the narrative is a celebration.
Of of the success of women the empowerment of win and women the quality of women and the fight for those things.
To achieve what should come naturally.
Over.
Centuries.
Around the world and so.
And it's not a political message.
It's not a movement, that's not really what we're.
What we're geared at but we are about celebrating and and we think it's time to celebrate those things and really look at things in a in a positive way.
And doing it in DC hard to think of a better place to to launch it and.
Could there be other hotels within the Z collection that have a similar narrative.
Theres certainly could be.
Thanks, I appreciate the clarification on that.
Our retail will be answers to questions.
Okay. Thanks, Greg.
Your next question is coming from Wes Golladay of RBC capital markets. Please go ahead.
Good morning, guys looking at the Corona virus has this changed the way you do the revenue management, and then you mentioned guidance being not including the Corona virus, but do you have you put in known cancellations such as Facebook in there.
Yes of course, we have.
We've estimated while we think that impact.
Is going to be in the first quarter and specifically in March.
And we and we built in other cancellations that.
Our for later periods.
During the year of which have which we've had some so so all of that is is built in.
Of course, we are changing the way, we're making modifications to the way we revenue manage were.
We're over selling more in our hotels with the expectation that they're more cancellations that theres more attrition.
There's more competition on on a near term basis near arrival. So so yes, we are making lots of different changes.
And have been for.
For the better part of a month now within our portfolio.
Okay, and then you do have guidance from 82 million dollar gains of dispositions will there have to be a special dividend or can you mitigate that.
So we'll be evaluating that between the two sales.
The taxable gain between Intercon instead hotel is over about 160 million.
So.
Access of a dollar share so we'll evaluate we have a means to.
Look at variety of deduction, and so forth necessary the year transpires, but.
Fairly good chance that had some type of special dividend could be needed.
But we'll see as of year progresses.
Okay, and then one quick follow up to Neal's earlier question looking about the potential returns. When you do these big Redevelopments are you trying to get lost share recapture the loss Revpar index are you looking to move the hotels into a higher comps.
For that.
As a broad generalization.
As a broad generalization, we're moving we're moving that hotels into a higher set.
Okay. Thanks, a lot guys.
Yes. Thanks.
Thank you were showing time for one last question today. Our last question will be coming from Lukas Hartwich of Green Street Advisors. Please go ahead.
Thanks, I just have one in terms of your dispositions and this is probably a mix, but how our buyer is approaching these acquisitions are they planning on making major changes in terms of capital spend or operator or the viewing these more as stabilized assets.
Well I think it.
Theres that there is a wide range as you as you indicated I can I can give you a few of them I would say in many cases.
Well.
There is significant capital going in so.
In some cases it involves changing the brand and operator, so the liaison.
Becoming a yotel.
Pat or Potter not sure exactly what.
What it is becoming.
We have I think the Topaz was sold its becoming a select service hotel with it with a lot of work being done to add.
Subdivide the suites to make a lot more keys, there's some properties that were sold with kimpton as operator, where kimptons.
Been kept in as a property in Boston that was sold.
With a piece of land next to it where they are adding 77 keys.
And public areas to the property and we understand renovating the existing tower.
Obviously, the intercon in the Sophie tell.
Those are long term encumbered from a brand that operator perspective. So there are no changes being made.
To those too so it's a pretty diverse.
Set of outcomes Luke is at the end of the day I think the important part is outside of those two.
The intercon in the Sophie tell the flexibility of being completely unencumbered.
Provides a broader base of buyers.
Deeper base of buyers.
And more strategic buyers and as provided higher multiples and lower cap rate, so higher value for those assets because of the flexibility.
Great. Thank you.
Thanks, very much Lucas.
Thank you at this time I'd like to turn the floor back over to Mr. boards for closing comments.
Well if anybody is still there.
Thanks, very much for participating we look forward to updating you in April and for many of you. We look forward to seeing you at Raymond James in the city conferences and the Wells Fargo Conference over the next month.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and have a wonderful day.
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