Q4 2019 Earnings Call
The conference operator, welcome to the RLJ Lodging Trust fourth quarter 2019 earnings Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
If anyone should require operator systems during the conference. Please press star zero on your telephone keypad I would now like to turn the conference over to the keel Salah RLJ, Vice President Treasurer corporate strategy and Investor Relations. Please go ahead.
Thank you operator.
Good morning, and welcome to RLJ Lodging Trust 2019.
Quarter and you're in earnings call.
On today's call that detail, our president and Chief Executive Officer.
Got ski highlights for the quarter and the year.
Sean Mahoney, our executive Vice President and Chief Financial Officer will discuss the company's operational and financial results and guidance.
Tom Bardenett, our executive Vice President of passive management, there will be available for acuity.
Forward looking statements made on this call a subject to numerous risks and uncertainty that may lead the company's actual results could differ materially from what had been communicated.
Factors that may impact the results of the company can be found in the company's 10-K and other reports filed with the FCC.
The company undertakes no obligation to update forward looking statements.
Also as we discuss certain non-GAAP measures.
It may be helpful to review.
Reconciliations to GAAP located in our press release from last night.
I'll now turn the call over too loudly.
Thanks. Thank you good morning, everyone and thank you for joining.
My own measures 2019, with another transformative year for RLJ as we execute on Oh plan, we had laid out we shape our portfolio enhance our operating metrics improve our goal.
We successfully achieved all of our key priorities for the year.
No we exceeded our expectations. We also completed them ahead of schedule.
I'm pleased to report that we sold 47 hotels over $720 million, including two legacy football tell located in Myrtle Beach, and 45 legacy RLJ hotels in five separate transactions.
We further strengthened our fortress balance sheet by improving our debt maturity covenant profile well ending the year.
Net debt to EBITDA ratio of 3.1 time.
And we've created we repurchased $78 million stock.
Operationally in 2019, we demonstrate the strength and quality of a refi portfolio by achieving 0.7% Revpar growth, which was in line with a broader industry. Additionally, we ended the year with an absolute revpar of $145, which was 8% higher no I didn't $34 that we reported in 2018 well maybe.
Painting are attractive margin profile.
We're especially pleased with the progress for operational initiative, which is reflected in a relative strength of our margin for sure.
With the successful execution of about 2019 objectives.
We have moved closer to achieving our long term vision of Onea portfolio that not only drive strong operating results, but also drive any the appreciation overtime.
Our efforts last year, which were largely focused on unveiling the underlining quality of our portfolio noncore asset sales.
Overall strategic benefits.
We enhanced our portfolio as evidenced by a higher absolute revpar and improves concentration of growth oriented markets and elevate it well.
We created significant investment capacity and finally, we identified unique tangible catalyst embedded in our portfolio that are expected to generate both near term returns and multiyear growth, which will drive long term value creation.
Our portfolio transformation will enable us to perform in line with the industry in the near term.
All the execution of our growth initiatives and embedded catalyst will drive long term outperformance.
Following the strong execution of our 2019 disposition program, we do not expect to sell any hotels this year.
As we enter 2020 with a strong balance sheet.
Carefully proof portfolio, we're focused on redeploying capital activate catalyst.
This year, we're focused on five key areas.
First.
Maximizing operational performance in the current lodging environment.
Second executing ROI initiatives.
Third finalizing the plan for the Wyndham conversion programming.
For redeeming, the so called bonds, which have a 6% coupon.
And finally remaining active what our share repurchase program.
We are well positioned to execute on these initiatives given our in house expertise significant capacity.
We've already made progress on a number of these priorities.
In terms of our ROI initiatives.
Throughout this year.
We anticipate investing up to $50 million, among a number of projects, including space reconfiguration brand conversion and operational opportunities.
We are pursuing several space reconfiguration projects, such as a conversion underutilized meeting space new rooms in Emeryville, which is currently underway and also the addition of news in Atlanta in San Jose.
Concurrently, we will execute a number of energy projects across our portfolio continue our operational initiatives, including parking and renegotiating favorable terms on expiring management agreements.
Late this year, we will begin the conversion of the embassy suites Manly Beach.
Which is expected to join it was curious collection and 2021.
We are targeting a minimum of low double digit unlevered returns on these investments.
And we're already seeing positive results from the ROI program, which is projected to contribute $3 million to $4 million EBITDA. This year.
As it relates to the when the repositioning.
We remain excited by the high quality rebranding opportunities available in a currently an active negotiations with multiple brands.
We're prioritizing repositioning the Wyndham, Santa Monica, and the Mills health and Charleston, which we expect to complete by mid 2021.
Additionally, we anticipate repositioning to more Wyndham properties by the end of next year.
We will provide updates throughout the year as we make progress.
In early June we plan to call ordering $75 million felcor above it.
We will optimize the arbitrage between a coupon incurring interest rate, which will generate significant interest expense savings and simplify our balance sheet.
Finally, we continue to be you share repurchases is a highly accretive tool to return capital to our investors.
Year to date, we repurchased approximately $24.5 million of shares.
For the full year, we expect share repurchases at levels similar to 2019 subject to market conditions.
Now turning to our operating performance.
With our reshaped portfolio. We're pleased that we achieved 0.7% revpar growth in 2019, which was ahead of our expectations.
Our portfolio performed in line with the industry, well outperforming our local competitive sets as well as the urban and top 25 markets.
During the fourth quarter, our Revpar declined 5.5%, what's it's driven by the holiday shift early in the core and approximately 115 basis points from renovation disruption.
With respect to Archie markets during the quarter.
Louisville once again, our top performer revpar growth of 21.8%. Despite one of our two hotels being under renovation.
In particular, the Marriott Louisville downtown exceeded our expectations as the hotel continued to benefit from strong innovation ramp.
Looking ahead, our 2020 group pace at the Marriott Louisville is.
Just because it seems as though for strong performance again this year.
Our DC market cheap revpar about a 4.6% during the fourth quarter, despite having one hotels under renovation.
Our hotels benefited from strong transient demand and compression created by several events such as the Marine Corps Marathon in the World series.
In 2020, DC market is poised strong performance given the strength of the city wide, especially in the second half a year.
Our Austin hotels, which are all now located within the CBD achieved robust fourth quarter revpar growth of 4.3%.
Our hotels benefited from a strong university of Texas football schedule and the Formula One race.
As we move into 2020, a combination of fewer citywide.
A non legislative here and it will be supply will drive moderating bucket performance.
Moving to Denver.
Our hotels achieved healthy revpar growth of 3.2% driven by strong demand.
So dispositions improve our geographic footprint in Denver relative to demand generators. However, 2020, citywides are weak which is expected to result in soft performance in Denver.
Our largest market of northern California, she revpar by <unk>, 0.5% during the fourth quarter.
We see strong revpar growth of 6.2% and our San Francisco hotels, which was largely offset by Psol business transient trends in Silicon Valley in late quarter renovations at three of our hotels.
In 2020, we expect revpar to be constrained due to a combination of fewer citywide in incremental impact from the Corona virus.
In Chicago, although fourth quarter Citywides were thought.
Our hotels outperformed the market was flat Revpar then if any from some long term project business during the quarter.
Chicago Citywides are expected to be strong and 2020, especially during the first half of the year.
Among our soft markets this quarter, New York in South, Florida experienced declines partially due to the Jewish holiday shifts or Houston in southern California experienced incremental weakness was softer city wide.
In 2020 weeks, but southern California benefited from stronger Citywides in South, Florida benefit from the Super Bowl.
In New York in Houston, However, we expect me to trends to continue.
During the fourth quarter number or other bargain Tampa, Orlando, and Charleston achieved outstanding Revpar growth of 20.4%, 9% and 6.4%, respectively, which underscores the benefit of our geographic footprint.
Looking ahead to 2020.
Although the economy is predicted to expand at a moderate pace in the U.S. consumer is expected to remain healthy recent trends in business investment or concerning.
Additionally, uncertainty relative to the impact of the caught a virus will create an incremental drag to both global and U.S. economic growth.
We believe that these factors will result in a continuation of the current local lodging demand environment, especially in urban in top 25 markets, which also place you supply lack of pricing power in a tight labor market.
Taking all these factors into account, we spent the urban and top 25 markets to once again underperformed a broader industry. This year.
Now with respect to RLJ is footprint in 2020.
We believe a soft business spending well continue to be significant headwind to lodging demand in our markets. This year.
We also expect spread citywides in markets, such as DC, Boston Chicago in Miami, the offset by difficult comps in markets, such as Northern California, Louisville in Austin after a robust repertoire in 2019 and soccer City Wides itself have school in Atlanta.
Overall, we expect our portfolio to perform in line with the urban and top 25 markets.
Despite top line headwind returns for our why initiatives, we have a positive impact on our bottom line and will contribute to our relative margin performance.
In an otherwise choppy environment, our portfolio is uniquely positioned with tangible catalyst to create shareholder value regardless of where we are in the lodging cycle.
It's reservoir balance sheet enables us to be nimble and allows us to pursue multiple value creation opportunities simultaneously.
Finally today, we have a curated portfolio of rooms oriented hi, Mark in hotel that is well positioned for long term outperformance.
I will now I'll turn the call over to Sean for more detailed review, our financial highlights and guidance.
Uh huh.
Thanks, largely before discussing our fourth quarter results. Please note the following.
Our fourth quarter and full year operating results include our 103 owned hotels as of December 31st.
And exclude the often south portfolio, which was sold during the quarter.
And our reported corporate adjusted EBITDA and FFO only include operating results from sold hotels during RLJ ownership period.
With this out of the way, let's move on to review the corridor.
Our fourth quarter Revpar contraction of 0.5%.
It was driven by a 1.2% decrease in average daily rate.
Partially offset by a 0.7 percentage point increase in occupancy.
Monthly Revpar results were on even during the quarter with Revpar contracting 3.5% in October.
Followed by Revpar growth of 1.5% and 1.4%.
Remember in December respectively.
Our October results were impacted by the timing of the Jewish holidays, which negatively impacted the group segment.
The October Revpar decline was mostly offset by strong November and December leisure demand, which drove the revpar growth in these month.
We were generally pleased with the corridor as we were able to maintain market share. Despite a 115 basis points of renovation disruption during the quarter.
Total revenue growth group, 0.7% during the quarter, which outpaced revpar due to a 5.3% increase in food and beverage revenues and a 10.5% increase in other departmental revenues, which was driven by the continued success of parking and other.
Revenue initiatives.
From a segmentation standpoint, our fourth quarter benefited from over 2% growth in leisure transient revenues.
Which was offset by a low single digit decline in business transient.
As we expected grew revenues declined approximately 2% during the quarter.
Which was primarily driven by the Jewish holiday impact on October.
That said our group segment only represented approximately 18% a fourth quarter revenues.
Finally, we continued our strategy of Backfilling business transient with contract during the quarter.
Which increased in the mid single digits.
Turning to the bottom line, our fourth quarter pro forma hotel EBITDA was $102.6 million and $450.7 million for the year.
In terms of our operating margins.
We were pleased that our asset management cost containment initiatives limited the increase in fourth quarter operating cost to 2.4%.
Which led to our hotel EBITDA margin contracting by only 119 basis points.
The industry continues to operate with the headwind of rising wages and benefits due to a tight labor market and low unemployment.
Our fourth quarter wages and benefits, which represent approximately 40% of our hotel operating costs increased 3.8%.
Our team remains focused on cost containment initiatives.
And it's continuing to implement best practices to manage productivity.
Turnover and labor cost and this fall and put him in environment.
Our fourth quarter operating results translated into adjusted EBITDA of $96.3 million and adjusted FFO per share a 41 cents.
For the year, we delivered adjusted EBITDA of $462.5 million and adjusted FFO per share of $2.03.
Turning to our fortress balance sheet.
We ended the quarter with $2.2 billion at that.
Approximately point $9 billion about unrestricted cash.
Net debt to EBITDA of 3.1 times.
We continue to maintain significant flexibility on our balance sheet.
As of the ended the quarter approximately 100% apart that is fixed or hedged and 84 of our 103 hotels are unencumbered.
Representing approximately 80% of EBITDA.
As previously announced we refinanced our 600 million dollar corporate revolver, and a 400 million dollar term loan during the fourth quarter.
These transactions extended our maturities.
Increased our flexibility and reduced our borrowing costs.
During 2020, we will continue to monitor the financing markets to identify additional opportunities to improve the laddering of our maturities.
Reduce our weighted average cost of debt.
And increase our overall balance sheet flexibility.
Our 2019 capital program was concentrated in hotels end markets within our portfolio with outsized growth potential.
In total our 2019 renovations resulted in approximately 65 basis points of renovation disruption.
As we looked at 2020, we expect to invest to between 90 million and a $110 million on renovations and up to $50 million on the ROI initiatives that lives we discussed.
We expect our 2020 renovation disruption will be in line with 29 team.
Which is incorporated into our 2020 guidance assumptions.
Now with respect to our share repurchase program. During 2019, we repurchased approximately 4.6 million shares for approximately $78 million at an average price of approximately $17 per share.
So far in 2020, we've been active under our share repurchase program could take advantage of share price volatility.
And have repurchased approximately 1.5 million shares at an average price of approximately $16.15 per share.
Our board recently authorized a new 250 million dollar share repurchase program.
Additionally, we continue to view dividends as an important component of the total return we seek to provide investors.
We expect to continue returning capital to our shareholders through share repurchases and dividends.
As we have demonstrated we will continue to remain highly disciplined as we deploy capital.
I'd like we said, we have a range of highly accretive alternatives to pursue including share repurchases multiple brand conversions and high impact ROI opportunities.
We remain committed to continuously evaluate capital allocation alternatives based on changes to market conditions and their relative value of each capital allocation alternative.
Now turning to our 2020 outlook.
While we remain cautious on the overall macro environment.
We expect our portfolio to perform in line with urban and top 25 M. assays.
Which will be impacted by continuing soft business transient demand.
We anticipate that the strength in markets with strong 2020, citywides will be offset by markets with weeks Citywides.
Additionally, our 2020 guidance does not assume that we refinanced at $475 million senior bonds or repurchase any incremental shares as both will be influenced by market forces at the time of execution.
I would also like to provide additional color on our 2020 cost assumptions.
We expect total 2020 hotel costs to increase between 3% and 3.5%.
Which is higher than our 2019 growth rate of 2.2%.
The combination of the economy being at full ATA employment.
And ongoing economic growth continues to pressure labor costs, and our 2020 guidance assumes wages and benefits to increase between 3.5 and 4.5%.
Also our guidance incorporates insurance premium and property tax increases with a combined impact of approximately 65 basis points of the implied hundred 55 basis points decline in hotel EBITDA margins at midpoint.
As it relates to the Wyndham guarantee our guidance assumes that we record the same level with guaranteed during 2020 as we recognized in 2019.
For 2020.
We expect.
Revpar growth to range between negative, 1.5% and positive 0.5%.
Hotel EBITDA margins in the range of 29.4% to 31% representing a decrease of approximately 155 basis points at the midpoint from 2019.
Consolidated hotel EBITDA to be between $413 million to $443 million.
Adjusted EBITDA to be between $378 million and $408 million.
And adjusted FFO per diluted share to be between $1.62 and $1.77.
Our 2020 outlook also assumes no additional acquisitions or dispositions.
Finally, we are continuing to monitor the potential impact of the Corona virus.
However at this time our guidance does not include any impact given the difficulty in quantifying the impact at this time.
To assist in modeling our seasonality. Please note and the first quarter, we expect hotel EBITDA to be between 89 million and $94 million and corporate adjusted EBITDA to be between $83 million and $88 million.
Please refer to the supplemental information, which we posted on our website last evening and includes pro forma results for our 103 hotel portfolio over the past four quarters.
Thank you and this concludes our prepared remarks, we'll now open the lines procure Wednesday.
Operator.
Thank you at this time, we will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. They confirmation total indicate your line isn't the question Q you May press Star too if you would like to move your question from the Q for participants using speaker claim in it may be necessary to pick up your handset before.
Question to start keys.
Once again that star one to register questions at this time.
First question today is coming from Austin Wurschmidt of Keybanc capital markets. Please go ahead.
Hi, good morning, everybody.
First just a little bit of clarification is a three to 4 million of contribution from the ROI initiatives related to investments you did last year and and if so shack and I'd be curious how much contribution you expect this calendar year from the 50 million you're targeting to spend this year.
Sure Austin, the $3 million to $4 million is what we expect to benefit in calendar year 2020 from our ROI initiatives. That's a combination of the lapping effect of initiatives that we put in place.
And 29 team as well as the partially or impact that we're going to get from the 2020 initiatives.
Got it that makes sense and is how much of that is already captured I guess in your revpar growth forecast or maybe you know asked a little bit of a different way is what do you expect sort of a pro forma same store revenue growth number to look like in 2020.
The Austin a lot of those ROI initiatives that we put in place last year, a where things like renegotiating, our parking agreements and operational type initiatives that are not really revpar centric and so I wouldn't you really can't parse out the revpar impact because it's de Minimis I'm on the ROI.
A lot of that is a it was us capturing lower costs on those initiatives as well as are our green initiatives as well, which were a chart reflected in and our utility costs.
Got it that's helpful. Thank you for that and then recognizing you don't tend to use all the existing dry powder immediately, but what what's a reasonable timeframe that we should expect you to redeploy the capital.
Austin I mean, we've talked about is you know on the ROI as we expect employ $100 million to $200 million at $15 million grants that a couple of years. We've also are looking at you know a run rate on our.
On our normal capex it at about $100 million. This year that seems consistent with last year as well and then we will have some incremental I'm on the conversions that we would bake in it and say you know that's set to be determined number but I would see this over at two to three year period.
That's helpful and then our acquisitions on the table today.
So we never say never but we recognize what were you know the current cost of capital is that the bars little bit higher for acquisitions, but you know your acquisition team continues to underwrite and ever put a pencil down because you never know when opportunity were present itself.
Recognize that you know on buybacks are very attractive given the current volatility today, we recognize that buying back the bonds or re redeeming the bonds is immediate impact as well as the our allies and so we're clear about from a prioritization perspective, but we never say never about acquisition.
That seems to make sense. Thank you.
Thank you. Our next question is coming from Chris we're not gonna have to reach a bank. Please go ahead.
Hey, good morning, everyone.
I was hoping a and I know you all of 'em, you've done a lot of capex over the last several years, but could we get a maybe a big picture overview. If we if we look at kind of the embassy core Yordan residents and portfolios, which are your three biggest with the current portfolio where are you kind of stand on overall.
Capital needs for those given that I know there was brands of all our all in various stages of new prototypes and such.
Sure. Thanks, Chris I think I'll start with that on a lot of our disposition activity was centered around hotels that frankly, there was a lot of the deferred capital what those assets that we couldn't justify allocating capital those either those markets auto specific assets and so a lot of Ah. So.
You know a lot of that you know what I'll call a brand reconditioning work that you the referenced we handled as far as with our disposition program, but when you look at the initiatives within our portfolio Embassy suites. You know is a big chunk of arc of our capital over this year last year unlikely over the next.
A year or so as we invest into that and to the re imagining of that brand, which were super support evolved and hilton's done great work there.
But the $90 million to $100 million of Capex. This year on slide $9 million to $110 million is a we would consider a normal run rate capital and so all the work within.
Each each one of those brands is really just a subset of that $90 million to $110 million and so that's what we spent roughly last year. That's a 2020 and that's a normal run rate for our portfolio.
Okay. That's helpful. Just on the on the Wyndham portfolio I think you said two two repositionings by mid 2021 to by the end of 2021, leaving for I mean.
Should we not that we model that separately, but I mean, where do you think the performance of kind of the.
Before that are not going to be done where does that fall between now and when would you actually come up with though with a plan for those is that something that's.
Potential drag or how do you underwrite does.
Well I mean, there's a couple of moving pieces to that keep in mind, you know that we did we see the termination payment from wind I'm never amortizing over the next few years and so that will function as a yield support for our portfolio as we make as we oh renovate the assets. Additionally, we are talking to brands about possibly converting some of the ASP.
Before they are actually renovated and so it's hard for us to give you an exact perspective on that but what we say that we are looking for ways off that that when the termination payment burns off and the actual conversion.
Okay very good thanks.
Thank you. Our next question is coming from Wes Golladay RBC capital markets. Please go ahead.
Hey, good morning, everyone just want to look at the ROI projects can you talk about your payback period on the energy investments and how many keys you want to after the hotel portfolio. This year.
Sure Wes.
For the for the energy initiatives that and obviously varies by project, but generally speaking, we underwrite up to anywhere from two and a half to three and a half year payback period for those things like water flow and energy consumption projects are quicker things like in room, thermal thermostats or or or a little bit longer.
On that with respect to the number of keys, you know, we're adding 23 keys to the Emeryville Hotel, a and then we're adding about 10 keys in Buckhead and 16 keys and San Jose that's the projects that we've identified I'm. Obviously, you know as you would expect.
As to continue to try to uncover incremental ROI is you know, adding keys is a is a critical subset of that but that's what we've identified today.
Okay, and then looking at the balance sheet, you have a lot of cash and you did call out refinancing potentially the of the former felcor bonds at about 6% or would this be a delayed draw and then just why not use cash on the balance sheet right now to pay that off.
Sure it's a great question.
Within our term loan facilities, we have a delay draw option.
Within the existing facility and so.
Out of Crystal ball, what the world's going to look like June 1st, but certainly one of the options that we have is too.
I used to utilize the delay draw feature on it are on our existing facility, but it's something that it's certainly on the table, but however, we execute that it's that's ultimately we're gonna baked in big into our guidance when we when we announced that transaction, but to ensure a all those options are on the table right now as we evaluate the right execution for that.
Transaction.
Got it thank you.
Thank you were next question is coming from Gregory Miller of Suntrust Robinson Humphrey. Please go ahead.
Hi, good morning, everyone as being on the color, where there are a number of New York City Hotel owners that are defaulting on the mortgages.
To the point that a few are reportedly closing.
Given that environment or are there hotels competitive two year to year in New York City hotels that are in trouble and RF closed and I can these default trends actually work in your favor traps from market share gains.
Sure Greg I'm listen we've been reading the same reports on that that that you have I think New York City as a market you know our assets are well positioned right, where and when Midtown and times, where risk respectively for the majority of our of our New York City concentration.
When you look at those Submarkets were not seeing a lot of hotels exit the system and so we're not seeing a lot of benefit you know I think our view as we said on the prepared remarks is a 2020 will continue to be a challenging year within New York, a when you look out in a longer horizon supply does Wayne I'm, starting next year in the following year and so.
We are cautiously optimistic that if that continues and demand trend continues to be strong, which it has been in New York that there is a light if he had a tall for New York, but 2020 is gonna be a challenge.
Okay. Thanks, and just one other question on my end outs, that's for the Wyndham hotels I'm curious if there's any advantage today to perhaps holding out on signing new management or franchise contracts given what could be a slowdown in U.S. development deals for some of the C. Corp.'s.
Similarly have you seen perspective deal terms, becoming more favorable save versus your expectations a few months ago.
I don't I don't think theres any need to hold out. This is bulls eye real estate that all the brands are very attractive to as I mentioned in my prepared remarks. We're in active negotiations were excited by the opportunities that are being presented to us and we're making great progress and so you know it doesn't go chases we are starting to see.
The terms and you know, they're very attractive relative to what we're saying because of the real estate is driving it seven steps with Santa Monica appear in the heart of Charleston doesn't matter what the development cycle is it's bulls eye real estate.
Yeah, it's awesome, Okay I can agree a few more so thanks very much the questions.
Thank you. Our next question is coming from Anthony Powell of Barclays. Please go ahead.
Well good morning.
Focusing on a new York and sorry, if I missed this in the prepared remarks I wasn't on the call earlier, but yeah, the knicks seem to show.
Show year over year times, EBITDA, how's that that hotel ramping versus your expectations and what's the update on the timeline for a potential sale there.
Anthony I'll.
Take the second part.
Person and then Tom will comment on the Knick itself, we were very successful when I get physician program last year, we don't see tremendous amount of capacity, that's allowing us execute on our initiatives. This year and so with our strong execution I'm you know, we're gonna be can patient with a net as we've mentioned before it's who they iconic asset in a in a irreplaceable locations.
We believe in New York long term and given our great execution and dispositions I'm you know, we don't look at selling any more assets. This year and that includes the Nick.
Anthony Anthony I would say that a we're very pleased with the performance in fact, the knick outperformance the New York market in the first six months.
Back six <unk> back say ended the six months was a little softer, but we continue to ramp up by growing share by about 4.5% grew revpar last year, and we continue to see us having the right place when it comes the business transient in that marketplace in times square, where we're growing that segment, which is critical for our average rate to continue to.
To escalate.
Got it thanks.
I don't know plan Rifai the Felcor bonds later this year.
You know what does it has come down a lot, which is good or does it make sense for you to.
Maybe you mean Wi Fi with a bit more debt then the foreign as maybe on a 500 million and and use the proceeds to buyback more shares given where share trading right now.
Yeah, I mean I'm you know great question, a you know we're sitting on a tremendous amount of capacity today and so be incremental proceeds you know I think aren't gonna taxes are can I help or hurt us from buying back stock I mean, we've we we are sitting in a very enviable position today of having enough capacity with which we can deploy.
On a on caught on <unk> initiative that we so pleased as we sit here today. So I'm you know I think our decision on how much to refinance is going to be a function of kind of what the arbitrage is between the 6% or where the market is as well as what our our outlook is but for capital needs over the next two to three years is likely.
We mentioned on things like ROI initiatives, our Capex I share purchase activity Wyndham conversions et cetera.
Got it and the 250, a buyback authorization is that that a signal that you want to do just 250 or just whats kind of the commentary on the magnitude and timing of the buybacks over the next year. So.
Yeah, I mean, it you know Anthony we've always said that order of magnitude would be a function of you know where the where the price is trading at relative to the volatility a and current outlook. So you would expect it to be you know more active today, obviously, where things are at you know when I said in my prepared remarks is that week.
That are levels to be similar to next year, I'm, sorry to last year, rather and that besides the programs as a typical size of the program obviously market conditions continue to be this volatile you'll see more active than just a bolt on to that Anthony we had a share purchase program that was $250 million that expires on the 29 to pad and.
We just renewed with essentially an identical share repurchase program and so.
There is no signaling bite out of mouth.
Thank you.
Thank you. Our next question is coming from Neil Malkin of capital One Securities. Please go ahead.
Hey, guys good morning.
I'm wondering if you could just maybe talk about the different economics or acquisition costs are not revpar. However, you want to look at it between.
I guess booking through brand dot com or the hotel web site.
It is our loyalty gas during the same thing versus I know Ta a booking.
Yeah sure Neil This is Tom So we're very well heeled when it comes to the support that we get from the brands. If you think about what's going on right now.
The big brands that we have most of our product we've got about 34.4% of our portfolio with Hilton, 43% portfolio for a Marriott and they continue to grow brand loyalty program. So lot of the occupancy that's coming through the brand Dot com side is very attractive in regards to the the cost related to compared to.
The OTI a size obviously the percentage Inc. a you know that you pay on the OTI aprs sites or more like higher us excuse me single double digits, and there's a lot less fees and regret relationship. When you book through the brand Dotcom site. So we're spending a lot of our opportunity and a with the brand spoken sign E Commerce.
And making sure people are going to the brands sites in fact, the brand loyalty program for what it's worth Theres a lot of sign ups that happened at the das there's a try or over and over again to make sure you're converting from the from the OTI a site. So it's it's a much healthier profitable location to drive business and with the acquisition of new members, both from Marriott and Hilton there now.
Over 100 to 113 million members. So you have a significant amount of draw to those locations.
When you think about the group side, obviously the brands have been working with US and brought down from the group Commission from 10% to 7% in regards to group acquisition for many of the meeting planner sites a into the Helms breast goes the folks that book the larger city wide events and so there that cost is also coming down compared to the OTA. So when we look.
Get where we spend our marketing dollars on what we're trying to attract we obviously would like to have no commissions first and foremost, but we do understand the importance of you know attaching yourself to the pipe and the brand loyalty programs really give us that opportunity to do that.
Oh, Yeah, I guess in another way of kind of understanding or are you more oh are you happy or it's a net benefit to trade and Oh Gee.
Relative to a.
Oil team member, who get you know the lower HDR and whatever associated fee you pay into that brand system related to that.
Yeah Neel this is Sean it listen we are supportive of you know all things being equal we like having a I guess come in through brand Dot com. The overall cost to secure that Ah that that revenue was less than it would be fearnow T.A. I'm the commissions as a part of it but there are other fat.
After that influence us as well and I think when you look at what the trends have been others report published on recently on a on the brands and how they continue to steal share and they've increased during 2019, the amount of bookings that have shifted to brand dot com and so you know we are super supportive.
Have a of that continuing because its if it benefits are both top and bottom line through lower commissions, but also I'd be more predictable business et cetera. So a you know if you if it from a preference standpoint, we prefer brand dotcom booked business.
Okay, Great and then I guess the other thing for me, obviously, you're not a big group house, but I just given the current a virus uncertainty in terms of like the West coast.
Are you seeing.
Incremental or increase in companies or a large events pushing or cancelling and then if so are you.
Going through with the cancellation fee attrition fee or because of the circumstance or you sort of forgiving that just a tip to build goodwill.
Yeah. We you know we are seeing you know some cancellations keep in mind, we only have sort of 68 60 to 90 day window of visibility here, we have seen some cancellations on the west coast and they're often times, where we're having discussions with those individuals about rebooking and utilizing the cancellation from.
Isn't that is a as a way to sort of segue into that conversation as as Sean mentioned, it's not in our guidance I'm in terms of the impact because we are talking about them in terms of Rebooking I think the really vigorous she was not necessarily what we're seeing in our properties, but it's really seeing what's happening in the broader market and the lack of compression that's going to occur as a result of people not showing up to larger.
Or events for example.
Alright, Thank you guys.
Thank you. Our next question is coming from Michael Bellisario of Baird. Please go ahead.
Good morning, everyone.
Good morning.
Just a couple of questions back on the the Wyndham portfolio I guess for specifically on the two 2020 projects are you guys, assuming any top or bottom line disruption in your guidance for this year.
Oh, no work that we're doing what the Wyndham portfolio is going to be a soft costs, driven Mike and so that's not going to have any disruption impact this year well the hard cost is going to be spent next year.
Got it and then just for these two first projects fair to assume it at least on a gross basis.
Net of any brand key money that these two hotels are gonna be the highest cost of the rebranding projects that you guys do go forward with.
No I wouldn't make that assumption and what I would say to you is is that you know until we have too early to sort of make that assumption because one we need to finalize the selection to once we get the the other pip will negotiate that and so understanding the brand the selection and I'm, sorry, the brand and the and the scope of work is going to.
Dictate that but now I would also say no just looking at these two assets on a relative basis.
Got it and then just lastly, more high level, just can you remind us that you're underwriting on these deals and how you're thinking about the top and bottom line lift overtime and how long you think it it takes to get to those stabilize numbers that you're projecting.
Sure. Mike are you know with respect to the entire portfolio or you know, we think theres 20 points of share gains relative to these hotels upon getting rebranded from me from from Wyndham and so we expect that to happen over the next three years and so the way we've underwritten it is.
Is that by the end of a of 2022, which would have at the end of the guaranteed period, we would have expected to grow or to grow back to where we otherwise would've been with the guarantee we also as low as we mentioned have the $35 million termination payment boats will act as yield support against the renovation disruption as we.
As we renovate piece hotels over the next three years, but our view is that back 20 points of share trends what translates roughly at the top line.
Hi, Tech 30, plus million dollars of incremental revenue and anywhere from 10 to 12 of incremental profit just purely based on like margins to our existing portfolio.
Very helpful. Thank you.
Thank you. Our next question is coming from Bill Crow Raymond James. Please go ahead.
Hey, good morning.
With the lack of room revenues, a industrywide everybody's looking to non rooms revenue to drive.
Help support margins.
I, just how many of your hotels or.
George and fees amenity fees or resort fees or what are going to call. It then what's your thought process is.
2020 is first to that number both number hotels, you might add to that to that program and how much you might increase annual fee itself.
Sure Bill we have five hotels that are charging facility and our resort fees today, a guy if that's in key West Orlando in New York, We are within our 2020 guidance. We assume that there is no incremental hotels that move into the charge resort fees year over year, we are expecting increases.
Of the resort fee within the hotels that we do charge the fees.
But we are not a underwriting at least for 2020 be addition of any a of any new fees within there within the portfolio.
Sean is that just a competitive issue within those markets is that a brent.
Prohibitive issue.
I do not have more.
You know charging more fees across your portfolio.
I mean, it's primarily a function of the kind of hotels that we own I'm. You know we are not a resort driven portfolio as you know I'm, which is where are the I'd, where they were the greatest opportunity is to charge. These fees. So that's probably the biggest impediment. We will continue to look in where it's within our portfolio and try to.
Ladies to add the fees, but we when you look at B. I had the opportunity set within our portfolio, which is our portfolio type is not.
Yes, it's not a resort type portfolio, where these fees or more and more common.
Okay. All right. Thanks, that's it for me.
Thank you at this time I'd like to turn the floor back over to tell for closing comments.
Like to thank you all for joining us today as we've discussed we're very pleased with the successful completion of our repositioning will just set us up with a number of unique value creation opportunities along with the capacity to pursue them. If we look forward to providing you guys an update as we make progress. Thank you guys.
Ladies and gentlemen, thank you for your participation. This concludes todays event you may disconnect your lines or lock up the webcast at this time, thank you and have a wonderful day.
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