Q4 2019 Earnings Call
Greetings welcome to Apple hospitality, <unk> fourth quarter of full year 2019 earnings call.
This I'm all participants on the listen only mode. They question and answers that she will follow the formal presentation. If any what's your car operator assistance during the conference. Please press star zero under telephone Keypad. Please note. This conference is being recorded I will now turn the conference over to your host Kelly Clark Vice President Investor Relations. Thank you.
You may begin.
Thank you and good morning, we welcome you to Apple hospitality read fourth quarter and full year 2019 earnings call on this the 26 day of February 2020.
Today's call will be based on the fourth quarter and full year 2019 earnings release, and form 10-K, which were distributed and filed yesterday afternoon.
As a reminder, today's call will contain forward looking statements as defined by federal securities laws, including statements regarding future operating results.
These statements involve known and unknown risks and other factors, which may cause actual results performance or achievements at apple hospitality to be materially different from future results performance or achievements expressed or implied by such forward looking statements.
Participants should carefully review, our financial statements and the notes there too as well as the risk factors described an Apple hospitality is 2019 form 10-K, and other filings with the FCC.
Any forward looking statement that Apple hospitality makes speaks only as of today and the company undertakes no obligation to publicly update or revise any forward looking statements except as required by law.
In addition, certain non-GAAP measures of performance such as EBITDA EBITDA Ari adjusted EBITDA, Ari adjusted Hotel, EBITDA and FFO and modified FFO will be discussed during this call.
We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the FCC.
A copy of the earnings release or additional information about the company. Please visit Apple hospitality read dotcom.
This morning, just a night, our chief Executive Officer, and lifts Perkins Senior Vice President corporate strategy and reporting will provide an overview of our results for the fourth quarter and full year 2019, as well as an outlook for the sector and for the company.
Following the overview, we will open the call for Q1 day at this time. It is my pleasure to turn the call over to our CEO Justin night.
Thank you Kelly.
Good morning, and thank you for joining us.
Before I get started as we've discussed previously.
I am carry and Krissy gathright plans to retire from the current ops or roles with a company during the first quarter.
We are close to finalizing plans for the reallocation and transition at their responsibilities and anticipate making it announcement in the coming weeks.
I'd like to take this opportunity to recognize both of them for their significant contributions to the Apple read companies over the years.
Let's see Gathright was the company's first employee and it's been an integral part of the development of our strategy and our team.
She is one of the brightest and most talented people I know and it's been a tremendous pleasure to work with her over the past 20 years.
Chris who joined our board of directors last year and I'm grateful that she will continue to be every four resource to us in that capacity.
For industry knowledge and understanding of our business or invaluable.
Brian This spend with the company for nearly as long and has been intimately involved in the shaping up our business.
His dedication to the success of our company our shareholders and our team has been absolutely incredible over the years and he will be mess.
Upon stepping down from its current officer positions, but I will continue but the company and advisory capacity to ensure a smooth transition.
I'm joined on today's call by lives Perkins.
This began her career in public accounting and joined the Aperek companies as an asset manager in 2006.
For the past six years. This has worked closely with me on corporate strategy I spent a significant amount of time on the road in meetings with many of you.
I am grateful to list and the incredibly talented and committed Apple hospitality team members and the leadership of our senior managers, who have worked together through multiple economic cycles industry evolution and corporate transition.
We are fortunate to have a 10 year group of employees that are intelligent experience and passionate about driving industry, leading results and maximizing value for our shareholders.
Yeah that with our management companies our team continued to work diligently and 2019 to maximize profitability.
And our portfolio of high quality rooms focused hotels produce results in line with our expectations for both the fourth quarter and the full year, despite challenging year over year storm and disaster related comps new supply and continued wage pressure in many of our markets.
During the fourth quarter HDR decreased 1.2%, partially offset by 0.3% increase in occupancy, resulting in a comparable hotels revpar declined a 0.9%.
Revpar for the full year was essentially flat with 80 are up 0.2% and occupancy down 0.1% slightly better than the midpoint of our revised 2019 guidance.
Summarizing some of our results for the quarter and the full year total revenue was $290 million and $1.3 billion.
Adjusted EBITDA, R&D was $86 million and $429 million and modified FFO per share was 32 cents and a dollarssixty three respectively.
Full year 2019, DNA expense was $36 million, representing a year over year increase due primarily to senior management transition costs and outperformance of the company's relative shareholder return metrics, which are component for the company's incentive plans.
With topline growth muted and continued cost pressures, we experienced modest declines in operating margins.
Comparable hotels adjusted Hotel EBITDA margin was 33% for the quarter and 37% for the full year.
Slightly down year over year, 130 basis points for the quarter and 60 basis points for the full year. These margins continued to be among the strongest in our industry and I commend our team for their diligent efforts to maximize the profitability of our assets in a challenging operating environment.
We finished the year with $1.3 billion of total outstanding indebtedness and.
Current combined weighted average interest rate of approximately 3.6% and weighted average debt maturities.
Five years.
Undrawn capacity on our unsecured credit facilities as of December 30, Onest was approximately $374 million.
We have just 3.1 times net debt to EBITDA no significant maturities over the next three years and a relatively young portfolio. We are in a position to be patient flexible and opportunistic as we work to capitalize on dislocations that may occur in the market.
During 2019, we purchased approximately 300000 shares under our share repurchase program at an average price of $14. A 92 cents per share for a total purchase price of approximately $4.3 million as of December 30, Onest 2019, approximately $360 million remained available.
Were purchased under our share repurchase program.
As I've highlighted on past calls we intend to use this program opportunistically.
Let me see potential to create meaningful long term value for our shareholders as a result of dislocations in the public market.
Since the beginning of 2019, we have sold 12 hotels for a combined total of approximately $135 million.
Also in December 2019, we entered into a contract for the sale of our 230 room Springhill suites by Marat in Boise, Idaho for a gross sales price of $32 million.
This sale is expected to be completed in the first quarter 2020, and the company anticipates recognizing a gain upon completion of the sale.
We believe that current interest in high quality rooms focused assets combined with strong debt markets will continue to create opportunities for selective dispositions from our portfolio in the coming year.
These proceeds will be used impart to fund the acquisition of construction projects, which we currently have under contract but may also be used the opportunity to Opportunistically fund share repurchases or targeted acquisitions of existing assets that enhance the growth profile and value of our larger portfolio.
We acquired three hotels in 2019 for a combined total of approximately $59 million, our current acquisitions pipeline as approximately $209 million with projects in Cape Canaveral, Florida, Tempe, Arizona, Madison, Wisconsin, and Denver, Colorado.
During 2019, we invested approximately $79 million and capital expenditures. These investments in our hotels add to their operational stability and hope to ensure the long term competitive competitiveness of our portfolio.
We plan to invest between $80 million and $90 million in 2020 with major renovations at between 25 in 30 hotels, including our full service Merit in Richmond, Virginia, where renovation began in the fourth quarter of last year and our full service Merit in Houston, Texas.
Our experience in House project managers worked closely with our asset managers third party operators and the brands to deliver cost effective high impact results, while minimizing property level disruption.
We are committed to enhancing incorporating sustainability opportunities into our investment and asset management strategies minimizing our environmental impact.
The hotels, we own our efficient by design and we seek to build upon the sufficiency by investing in proven sustainability practices when renovated our hotels and and portfolio wide initiatives that enhance asset value, while also improving environmental performance.
Projects include a variety of equipment upgrades and replacement that reduce energy and water consumption and improved waste management.
At the end of the fourth quarter, approximately 64% of our hotels have one or more upper mid scale upscale and or upper upscale new construction projects underway within a five mile radius, which represents a decrease of 150 basis points from what we reported at the end of the third quarter.
While we're pleased to see a slight decrease and construction starts we anticipate that new supply will continue to be a challenge for us in a number of our markets during the coming year.
This combined with expectations for slowing GDP growth potential volatility associated with an election year and ongoing concerns surrounding the impact of the Corona virus Act as a counterbalance to continued low unemployment strong consumer confidence and other positive indicators of overall economic health.
Taking into consideration these broad economic factors as well as an expectation for continued property level cost pressures, we're cautious in our near term expectations for performance growth.
Our operational outlook for 2020 includes the following.
Net income between $134 million at $161 million comparable hotels, revpar between negative 2% and zero.
Comparable hotels adjusted hotel EBITDA margin between 34.5% and 35.5% and adjusted EBITDA R&D between $394 million and $414 million.
Over our 20 year history in the lodging industry. The operate companies have owned over 400 hotels and through our ownership and transaction experience. We have fine tune to strategy for hotel ownership that mitigates volatility provides consistency in operations and produces value for our investors throughout real estate in economic cycles.
Our mission is and has always been to provide our investors, but it's attractive dividends and appreciation in the value of their underlying investment over time.
Over the past year, we paid $1.20 per share or a total of approximately $269 million and dividends.
Based on our February 20 at closing price of $15.12. This represents a 7.9% yield.
Operations continue to be healthy for our portfolio and despite uncertainty in the near term macroeconomic environment, we remain confident with the strength of our portfolio and the flexibility of our balance sheet, we are well positioned to maximize shareholder value over the long term.
As one of the largest owners of Marriott and Hilton branded hotels with a concentration upscale rooms focus sector of the lodging industry and our team has unparalleled to access the performance data.
We benefit from visibility across different markets brands and managers and utilize the information to implement the most efficient and effective practices across our portfolio, which along with purchasing scale reduce operating costs and lead to our strong operating margins.
Our team works collaboratively with our third party managers to maximize the performance of each asset and to ensure that we are well positioned to compete effectively in our markets.
It's now my pleasure to turn the call over to Liz who will provide additional detail regarding performance across our portfolio and the industry overall.
Thank you Justin and Hello, everyone. It's a pleasure to be with you. This morning as anticipated the fourth quarter of 2019 proved to be RMS challenging quarter of the year with tougher comparisons related to non repeat business from the 2018, Boston area gas explosion and decreased disaster recovery business.
Even with an estimated 100 basis point net impact from these headwinds in the quarter. Our performance was in line with industry results for our chain scale.
Well, our North Carolina East market was negatively impacted by Hurricane force comp quarter over quarter, Panama City benefited from an easier comp with rooms out of service last year as well as continued benefit from recovery business related to hurricane, Michael, particularly within Panama City proper and closer to 10 DTL Air Force base.
San Diego's weaker convention calendar in the fourth quarter drove revpar declines for the market in our hotels, particularly our downtown properties with our suburban hotels outperforming the broader San Diego market.
Our Nashville hotels, and the market as a whole are starting to see impact from new supply. Despite continued demand growth, which is putting pressure on rate and our full service Richmond Marianne began at significant room renovation and October displacing revenue some of which we captured fire courtyard and resident then.
Markets that produced strong topline results in the quarter included Phoenix, often Orlando, Birmingham, and Washington DC.
For the full year the industry continued to see outperformance outside of the top 25 market benefiting our geographically diverse portfolio.
While demand growth continues to be strongest in the upscale and upper mid scale chain scale supply growth. In these chain scales has also been elevated resulting in flight revpar declines for the year.
As Justin mentioned, our Revpar results were in line with our expectations with over 50% of our EBITDA coming from markets outside the top 25.
In 2019, we benefited from disaster recovery business, and our North Carolina, East, Florida, Panhandle, and Anchorage market.
Phoenix, Norfolk, Virginia Beach, Washington, DC, Huntsville, and Birmingham were also among our top performing market.
Weaker markets for the year included Nashville, Seattle, Miami, Houston and Boston.
While we see very performance across market based on supply and demand dynamics, we continued to see our transient revenue grow with the decline in group both for the quarter and year to date.
No the Richmond, Marriott's group production for the year and our fourth quarter renovation impacted our overall results this group and transient trends for our portfolio with broad based.
As you know in 2019, we invested an additional internal resources to work with our operators to enhance our overall revenue strategy and sharing that revenue management sales and digital teams are working collaboratively and proactively to drive the optimal mix depending on the individual market conditions.
Our teams remains strategically focused on increasing group and negotiated based business to maximize topline performance and supply impacted market.
The the hotel industry remains strong reporting record highs with respect to rooms available rooms sold average daily rate and Revpar in 2019.
With the backdrop of floaty slowing GDP growth and supply increases topline growth for the industry has been flat to modestly positive putting additional pressure on operating margin.
While challenging continued cost control on the part of our operators assisted by our asset management team helped us to produce comparable hotel EBITDA margins of 33.4% and 36.7% for the quarter end the year, respectively again in line with our expectation.
With payroll as the largest component of our hotel operating expenses, we remain intently focused with our managers on minimizing increases and labor costs largely related to a low unemployment environment, which drives increased competition for quality workers.
While fourth quarter costs were slightly higher due in part to benefits and bonus adjustments our same store payroll expenses increased 4.2% on a per occupied room basis for the full year.
Our automated labor management systems have helped us to proactively increase productivity and reduced overtime where possible.
However, these productivity efforts are balance by efforts to offer competitive wages fill open positions effectively and monetary employee satisfaction in order to minimize turnover increased guest satisfaction and maximize our overall result.
Comparable hotel utility expenses declined approximately 3% for the year potentially creating a tough comp for 2020.
Comparable property taxes increased 2% in 2019, which met with many localities reassessing property values.
We continue to appeal tax assessments in an effort to mitigate these increases were possible.
We began the renovation of our full service Marriott and Richmond, Virginia at the beginning of the fourth quarter with the convention calendar down in 2019, we have been able to absorb a good portion of the rooms displacement at our courtyard and residents in.
Dr Group production in the market coupled with displacement from our renovation at this hotel negatively impacted our food and beverage revenues for the quarter and full year.
The roof portion of the renovation is expected to be completed by the end of the first quarter of this year with the transformed lobby area and expanded rebranded and enhanced food and beverage outlet scheduled to be completed by the end of the second quarter.
Great pace is up 7% for 2020 and the outlook for rich for this healthy with paced with pace for 2021 and 2022 even stronger.
With food and beverage outlet under renovation for the first half of 2020, we expect FNB revenues at this hotel to decline for the year. However, the outlook is strong for the second half of the year.
We have increased focus on other income we were able to increase same store parking pantry and lay cancellation revenue for the year, bringing our annual growth to approximately 10%, which contributed 25 basis points to margin.
While we realize much of the growth and lay cancellation fees year over year, we will remain diligent and monitoring our charging and collection of these fees and we believe there to be additional opportunity with parking and pantry income.
As a reminder, we adopted the new accounting lease standard on January Onest of 2019, which resulted in reclassification of four operating leases that are now classified as finance leases under the new standard.
The net impact of this change was an approximate 50 basis points increase to hotel EBITDA margins, both for the quarter and the full year.
Subsequent to yearend, we converted our Renaissance hotel in New York to an independent boutique hotel.
The antennas that conversion is to provide greater long term flexibility with the operations of the property.
We anticipate we won Curt total conversion costs of approximately $1 million and experienced operational disruption as the management team works to replace business that came through the Marriott brand channel.
January Revpar for this hotel was down over 30% and while we expect to the first quarter to be the most challenging the full year impact to comparable Revpar guidance is approximately 40 basis points.
Looking ahead to 2020, we expect broad supply and demand dynamics to create challenges for us and many of our markets. Despite continued continued strength in the overall economy.
We anticipate the first quarter to be the weakest in the year end comment at the low end of our guidance range.
Following the first quarter, we anticipate improvement as we move throughout the year.
Comparable Revpar declined 30 basis points in January for the entire portfolio with total revenue slightly positive.
The near term operating environment will be disrupted by continued expense pressure, especially with respect to labor. However, forever 20 years, Apple hospitality has intentionally positioned its portfolio to mitigate market and industry level risks to provide our investors with attractive dividends and appreciation in the value of their underlying investment through.
All economic cycles, while maximizing operating results and driving long term value.
With consistent reinvestment in our hotels, a disciplined approach to capital allocation and a low leveraged balance sheet. We're confident that we are well positioned to meaningfully increased shareholder value over the long term.
Thank you for joining us this morning, and we will now open the call for questions.
Thank you.
If you would like to ask a question. Please press star, one and new telephone keypad.
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Participants using speaker equipment and may be necessary to pick up your headset before pressing the star is huge.
Our first question is from Neil Malkin with capital One Securities. Please proceed.
Hey, guys good morning.
Thanks.
Appreciate the color on the Renaissance.
Going independent impact.
Could you give the same or what you estimate will be the impact to revpar due to the.
Renovations at your two Marriott's your two full service area in 2020.
Good morning Me Aldus's lists.
I think for the Richmond, Maryann will find is that the first quarter and negative impact will be offset in large part by the Q4.
That we experience from the negative drag in 2019 at the Richmond Marianne.
And for the Houston Marriott, we're just beginning the renovation this year and because it's in Houston, the impact will be less meaningful aerosol.
Okay, Great and then other one for me is.
Just regarding Corona virus, obviously, you guys aren't super concentrated.
To the coast, but just given the.
Diverse nature geographically of your portfolio have you been able or have your property manager has been able to.
Discern any trends.
In terms of markets that.
Potentially are impacted.
By current a virus demand or cancellations and what if any kind of.
Impact or conservatism have you baked into your guidance.
Related to current affairs.
I'll start with the the last part of the question and Thats.
Our guidance includes our best guess at this point in time has to do.
The impact from the current a virus on our portfolio. You you began to your question by highlighting I think rightfully.
They were benefited relative to our peers from lower concentration in gateway.
And top 25 markets, which we anticipate we'll see the bulk of the impact.
That being said, we do anticipate that there will be some halo.
The impact as.
Impacting voluntary travel.
And we will have some markets, where we see specific impact we were notified yesterday.
The Dell.
As of March producer for a portion of our Austin assets.
You know is putting a temporary freeze on inbound travel from China to their facility, which will have some impact our portfolio, but again.
At this point on a relative basis and to some extent on absolute basis.
We anticipate that.
The Corona virus will be less impactful to us than our peers.
And.
Potentially to than national averages.
Okay. Thank you guys.
Thank you. Thank you.
Our next question is from Anthony Powell with Barclays. Please proceed.
Hi, good morning, everyone.
Just a question on top 25 performance versus all of the markets you mentioned before that you benefited.
Through through last year from the outperformance of the all the markets. However, we've seen.
In recent months top 20, biomarkers through a bit better. So how do you expect those two segments performed this year.
Hi, Thanks, sorry, and was can jump in on this but but.
In part the outperformance of the top 25 markets was the result of calendar shifts as we rounded out the last for the year.
As we look at business trends.
Which are the most impactful to our business.
Business transient trends as we rounded out the last year. The last part of last year, we were relatively stable.
Yes business to business transient and overall just transient for our portfolio was stable in Q4.
I think.
We saw a decline in was group as we look forward.
This is for the portfolio more broad based top 25 and outside of top 25, I think we're seeing.
Pace per group increase.
Which I think will help us overall as we try to revenue manage and maximize the remaining inventory that we have available.
Got it another topic I didn't notice a sales and marketing expense increase I guess I was partly due to some of the group initiatives.
Yes, you seem a piece increase but when do you expect that to really revpar on revenue numbers.
The later than 2020 2021.
Not for US group is relatively short booking windows relatively short terms, so we should see benefit and.
To our group numbers.
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Actualize as we move throughout the year I don't think that Theres, a long lead time for many of our group bookings.
Again, and I think.
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You know, while we have seen January, especially the first couple of weeks of January maybe a little bit softer. We say this every year transient group business transient it's hard to judge in January and February for our portfolio. It's the weakest time for business transient.
We typically wait to make any sort of drop broad conclusions on trends until we get further in the quarter.
But I think that the group pace, it's a positive and indicative of our ability to capitalize on that transient as an actual assets.
Got it and maybe one more for me how to customer acquisition cost trend in the quarter we've heard.
Growth in both OTG costs and loyalty cost from some of the other operators. So what have you seen and in that area of the business.
We can continue to see.
Positive shift from OTA data brand Dot com from a channel perspective, and brand Dot com as our lowest customer acquisition cost channel. So I think we continue to see see that trend, where we have the ability to yields out OTI a business.
Where we're benefiting from that.
Overall I think.
That as we are looking to.
Really deploy our sales expenses and our sales initiatives strategically we will increase some of our more tactical E Commerce and.
E Commerce initiatives.
I think that you'll see that we are we're increasing there, but we're trying to be strategic and find ways, where we can reduce sales expenses.
Where we can reduce sales expenses to offset that and and responsive loyalty portion of your question.
The trends that we're seeing are not dissimilar to the trends that some of our peers as seen with one exception being that.
Our hotels tend to be hotels, where loyalty members I go to earn points rather than reading, Brian and so to the extent our peers are speaking to redemption and thanks for that would have a much lower impact on us but.
We have seen.
Loyalty members increased as a percent of the total guesstimate our hotels in there there are some incremental costs associated with that.
Over the long run because again our brand channels are the lowest cost channels still for our hotels, we see that as a positive and then offset in part to significant supply growth within the major change.
Okay, great. Thank you.
Yes.
Our next question is from Austin, Wurschmidt with Keybanc capital markets. Please proceed.
Hi, good morning, everybody.
So with the highlighted strategy Remy management strategies of proactively layering in more group and sort of base business.
What does group pace look like over the next day 30 to 60 days.
And then I'm also curious what you underwrote for.
Group revenue in 2020, and what that could mean for growth in outer ring spend as well on a year over year basis.
I think the as we approach the year, we and we went into budgeting for 2020, we looked at each market in each hotel on a case by case basis and as.
There was additional supply impact or as we may have seen business transient.
More stable I may be there wasnt, a significant amount of growth we wanted to layer on additional based business.
So that that's always our approach as we go into the new year, I think with group softening for our portfolio broadly for.
The full year 2019, we wanted to putting additional focus on that we're seeing in our pace numbers.
That is that it's improving and and we are actualizing on that strategy.
To what extent, it's it's too early I think to say.
But we definitely incorporated that as part of our strategy as we looked into 2020 Andas was highlighted our group business books.
Sure short great Ito within a few weeks often of the actuals today.
And so even on the group side for US looking 60, 90 days out becomes a little bit less informative in terms of additional income that we would receive from groups.
Again for our hotels.
Excluding hotels like the rich from our outwear.
Restaurant revenues and other catering revenues are more significant percentage of total business.
Our groups.
Some incremental SMB spend.
But again not nearly as significant in terms of incremental revenue for us as it is for some of our full service fares.
Okay.
Primary benefit for us really as compressing the hotel.
Putting us in a better position too.
Revenue manage the remaining rooms.
And as you're thinking about other income and SMB.
Income for 2020.
Just just take note again of my comments around the Richmond, Marianne we will have signet significant S&P displacement in the first half of the year with improvement in the latter half.
So how does that kind of balance overall, which is kind of what I'm looking at because FNB certainly was a source of.
The negative growth I believe for the full year last year. So does that pick back up or do we kind of flatten out this year for the full year again, I think we'll still have a negative impact from the Richmond Marianne overall, okay got it. Thank you that that's helpful.
And then Justin you referenced the dividend yield at nearly 8%.
Fundamentals remain remain challenging you're expecting pressure on revpar and margins. This year. So how comfortable are you in the board with the current level as a dividend.
Yard.
Somewhat unique among our peers and that we pay a monthly dividends and so were given the opportunity on a monthly basis to assess.
The sustainability of viability of our dividends on a very regular basis with our board of directors.
Given the strength of our current yield and the more challenging operating environment. It has been a topic of conversation that said our dividend coverage last year.
Remains strong we were.
Depending on how you calculate has made another couple of different ways that people like to look at it but we were in the mid nine mid eightys to low nine views low ninetys being including actual capex spend for the year.
Given the environment, we anticipate that that coverage percentage would go up.
In the coming here and we'll continue to watch it as the year materializes.
Based on where we are trading this morning.
We're we're pushing a 9% yield which is incredibly attractive we're fortunate to have ownership in assets that produced a tremendous amount of cash and enable us.
Yes to pay a strong dividend.
Throughout cycles.
So is it fair to say that again, depending how you calculated some of the elevated capex is pushing up that coverage level.
This year.
And specifically at our full service hotels so.
I highlighted.
Capex projections for this year being between Neviah $90 million approximately $15 million a vast is associated with renovations that our three full service hotels. The bulk of that is being spent as a richer America.
Which is the largest of our hotels.
Involves the renovation involves a meaningful lobby renovation and renovations to the food and beverage outlets.
And.
Is an end of franchise.
Pip related renovation.
So we're doing major renovations in the bathrooms, and others, which we think we'll physician that hotel incredibly well on a go forward basis.
In the near term our elevating our total capex spend.
Understood. Thank you for the time thanks.
Our next question is from Tyler with Hillary with Janney Montgomery Scott. Please proceed.
Hi, good morning, Thanks for taking my questions.
Wondering if you can segment now trends that you've seen in the corporate side of things worse leisure curious how those segments performed in the fourth quarter and then also if you could talk shows year to date as well that would be helpful.
So I alluded to this a little bit early in the earlier question I think Q4, what we saw between weekday and weekend was more.
Stability in business transient.
As we sort of triangulate, our our overall transient numbers and negotiated business as we went into the first part of the year.
The first couple of weeks, we did see less growth in weekday as you move throughout January and have moved into February that stabilized a little bit.
And I think.
We will watch closely as we move throughout the quarter again.
We've had this trend happening in previous years, and it's just a little bit early to draw a broad conclusion.
For the full year 2019.
Our business transient with positive.
Okay, Great and then just a follow up I'm not sure. If you mentioned that earlier what are your budgeting for combined wage and benefit increases in 2021, another any other areas of cost inflation, but are notable that we should factor into our models.
As we looked at guidance, we assumed a 4% to 5% CPR increase for labor total labor.
And that would be the largest.
The areas.
Of expense increase over the coming here.
The bulk of the remaining.
Expenses, we assumed with increase roughly at a rate of inflation.
We will see is as long as highlighted in his remarks potentially.
An increase in utility expenses, which have been.
Though for a number of years now.
That's one that we're watching in particular will will continue to see pressure on.
Insurance costs and on property taxes, but as a percent of total expenditures those are relatively small.
Relative to labor.
Okay, Great. That's all for me. Thank you. Thank you.
Our next question is from Michael Abella Sorrow with Robert W. Baird <unk> Company. Please proceed.
Good morning, everyone morning.
Just want to go back to the dividend comment you made in clarify one thing or let you clarify one thing you said, it's bad topic of conversation with the board can you clarify the dividends Ben discussed can you discuss on a monthly basis are you talked about cutting the dividend.
The dividend coverage as a continual a portion of our review with our board of our current operations I highlighted in my earlier remarks that we view our dividend payouts as a significant piece of the total value equation for our investors.
We have continue to have roughly 40% of our investors as retail.
And dividends for that represents.
Meaningful piece of the total return that they anticipate from us.
We're fortunate as I highlighted to BNN asset class or sub class that generates incredibly high margins.
And have been able to maintain.
Maintain the dividends through economic cycles in the past.
We are comfortable with where we are currently but we are monitoring and our ability to maintain our dividend really depends on us performing as we anticipate we will for the coming here.
Got it that's helpful. Thank you for clarifying and then just.
One other follow up on Capex $80 million to $90 million range for this year, what would that looked like if you weren't doing Houston in Richmond.
Well I highlighted in response to an earlier question. The total capex spend for the three hotels in this calendar year is roughly $15 million the bulk of that so over $10 million. So that is associated with the Richmont Marat <unk>.
We will be beginning a renovation.
In the latter part of the year in Houston, which will will span over into the first part of the following year.
And likely during the same.
At our hotel in New York, but because.
Richard Marotta is the largest of our hotels because.
We're renovated in addition to the rooms, a significant portion of the public areas and because it's in Endo franchise Pip from Marat, that's the most substantial single property renovation.
That weve incurred today.
Got it thanks, I must admit that 15 million dollar number earlier and then just lastly on on asset sales. It doesn't sound like you're two inclined to accelerate the pace at least maybe versus the comments you provided on last quarter's call, but two part question I guess one is at the right read of your selective comment you made in the prepared.
Our remarks, and then the second part is what would you need to see.
In the fundamental in an environment or the transaction environment free to move faster on that front today.
I would say and I appreciate you asking the question to clarify.
So by selective we do not means.
But we will be less aggressive in pursuing dispositions in fact.
Delta highlight and.
Again I appreciate your mute opportunity clarify that the environment remains strong.
For potential sale of assets by selective.
Really I have highlighted on past calls.
Investors in today's environment seem to be more interested in individual assets that may do in larger portfolios and the most likely nature.
Disposition.
Of our dispositions as we roll through the year, we'll be in individual.
Transactions for one or a small group of properties.
With buyers, who see value in those individual assets.
Got it. Thanks, then just one last one more housekeeping Ret Renaissance New York, You mentioned about 40 basis point Revpar impact, but in guidance, what's the embedded number for margins and then adjusted EBITDA as well.
So for guidance, we mentioned the 40 basis points on the topline I think for EBITDA others.
Margin impact there is probably 2025 to 30 basis points impact.
Thank you.
Thank you.
As reminder to star one on your telephone keypad, if he would like to ask a question. Our next question is from Matt Boone with B. Riley FBR. Please proceed.
Hey, good morning misses on that on for Brian.
Just a quick one can you share which your top 25 markets are currently seeing the most supply pressure on where you expect as a trend for the balance of the year.
[laughter] of our top markets, we continue to see pressure in a number of them.
Nashville, historically as I've.
As seen the greatest year over year growth.
We anticipate that that will slow and actually interest land I didnt have an opportunity to make this comment earlier.
We believe that in terms of percentage growth.
Many of our markets Pete.
This past year for the year before.
And our expectation for 2020.
I mean is that they will be less as a percentage.
The bulk of our market.
Than they have in times past on the challenge for US really is that given the number of openings. We had a number of our market in 2019, we anticipate.
We will experience a bit of a headwind as those assets ramp.
But really Nashville, and Dallas is a market with relatively low barriers to entry we continue to see.
Meaningful growth there.
Miami and a number of our South Florida markets have also seen a significant amount of supply growth.
Thank you.
Q.
We now have a follow up question from Anthony Powell of Barclays. Please proceed.
Hi, just a few more of the dividend.
I know you mentioned that people look at payout ratio of allotted for wave how to you on the board will get payout ratios and how do you.
Do you look at normalized Capex and just what's in your view your current period ratio and how do you.
And are you comfortable that over the medium term.
But as I hope I highlighted earlier, we look at as a number of different ways with the forward we look at it.
On an absolute basis, so given real capex spend within any given year and then we look at it on a normalized basis as well.
For this year and this past year.
The delta between those has been.
You know.
5% to 7%.
I highlighted this year, we have somewhat elevated capex because of the on the renovations at our our three full service hotel right.
That's so as I look to next year, you should have less Capex and you also have the ramp up of newly acquired.
New build hotel so theoretically.
Obviously theoretically coverage should.
Go up.
I guess without regard to same store EBITDA, which I guess will probably continue to see pressure but.
Absent.
Same for EBITDA climbing your coverage should improve next year given the.
We have been hotels and more capex is that fair.
Thats Fair you included a number of caveats and in your question. So I think given those yes that would be fair.
Got it okay, and just one more if you could theoretically have to reduce your dividend not saying that you will but if you had to.
Would it be kind of a gradual decrease based on taxable income or would you.
Yes, I'll try to set some level that you that you can maintain beyond that.
I think this probably isn't the best.
Got it be theorizing back I would.
But I want to be fair answer. Your question, we have historically placed premium in our analysis on maintaining consistency in our dividends in our dividend payout over time.
And I think.
Our first effort will be to manage our business in a way that we can maintain and then should we make adjustments.
Based on.
A longer term view of our business them and what we expect.
To be reasonable coverage over a long term.
Alright, thanks for that I appreciate it.
Thank you.
Yeah I read some of our question answer session I would like to turn the conference back over to Justin night for closing comments.
Thank you we really appreciate everybody joining us this morning, and hope as always that as you travel you've taken opportunity to stay with us at one of our hotels.
Thank you. This does conclude today's conference you may disconnect your lines of the Simon. Thank you for your participation.