Q4 2019 Earnings Call
Tells resorts incorporated fourth quarter and full year 2019 earnings Conference call Today's conference is being reported.
At this time I was sort of called over to Tito.
They've been vice President Investor Relations.
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Good morning welcome.
Welcome to hurt yourself.
For years.
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It's me [laughter].
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Now I'd like to Jeff's point [laughter]. Thank you table and thanks, everyone for joining us this morning.
Before I address our 2019 results in 2020 Guy.
Let's take a moment like Michael Blum, where he served as CFO.
We had significant accomplishments under this time here, that's why more drops and we wish him well he began to school well ahead of blocking from Morgan Stanley.
Angeles.
2019 was another highly productive year for host.
We successfully executed barge.
See capital allocation transactions and delivered a solid operational performance, which exceeded our adjusted EBITDA RFP and adjusted.
<unk> per diluted share expectations for the fourth quarter.
We capitalize most favorable market conditions. It's all 14 of our go lower total revpar higher capital expenditure hotels for $1.3 billion.
Burger upgrading the quality of our portfolio by Ari.
One hotel South Beach.
We don't want renovations as part of the Marriott transformational capital program.
He's asking in multiple value enhancing development projects across the portfolio.
We returned $1.1 billion shareholders through dividends and share repurchases well further strengthening our best in class investment grade balance sheet.
Finally, we delivered our strongest.
Total revpar in Revpar performance for 2018 in the fourth quarter.
Well cheating solid margins your child, and spike salary wage and benefit expense from [noise].
We exceeded the top end of our full year 2019, adjusted EBITDA R&D guidance range, primarily due to stronger than expected total rental growth and are not.
Josh.
Got a wash out total revpar.
90 basis points due to better than expected food and beverage as well with other revenues.
We will discuss our fourth quarter results in more detail later.
I would like not focused on the work he did those trends that impacted our 2018 operational performance and that are expected to date.
Thousands Marty as well.
First is the strong food and beverage and other revenue growth that we experienced in the quarter any year.
We delivered.
Total revpar growth that was 200 basis points higher they talk about raised about our gross or 160 basis points higher for the year.
Well you can batteries revenues grew largely because of what we're getting house fruit business, which typically has robot contribution ratios.
Other revenues were bolstered by miscellaneous increases, including higher call. It's Paul revenues.
Our solid total revpar growth speaks to our ability to grow revenues through multiple channels at our hotels.
Approximately 35% of our revenues, our food and beverage.
So meeting space spot and other amenities.
In an environment, where the industry is near peak occupancy with modest HDR growth our ability to grow revenues non dilutive sources, its 80 strike our portfolio.
Well, we expect continued total revpar growth in 2020, it's Craig Craig you should be roughly the same as revpar due to a tougher year over year comparison.
The second trend is a strong broke we've experienced and loyalty redemption revenues, which has supported our leisure demand.
Some of the increase is due to structural.
Changes that Marriott International has introduced a bottle volume reductions such as the opportunity to our greater reduction revenue through increased occupancy cheers.
Mary increased by 40 in early 2019, what's the rollout across all consumer touch points, including our property sales and marketing channels digital mobile Cobranded credit cards.
Additionally, the large was boosted by a multibillion dollar media campaign.
In late 2018, Mary I know its peak in hockey redemptions together.
Which should further supports our 2020 growth expectations.
Our redemption revenues have grown well in excess of the revenues outlined in the business case marry up made for Boggabri in 2019.
In the fourth quarter, we grew marry up Onboarding redemption revenues by nearly 22% prior comparable hotels.
24% for all our own Marriott hotels, with the Venetian Ritz, Carlton Naples, and Ritz Carlton Marina del Rey, achieving the highest redemption revenues in the portfolio.
Although redemption revenues were also faced tough comparisons this year I was ability to leverage Marriott's pot loyalty program is another key striving for our business.
The third trend is the continued acceleration and wage and benefit expense growth.
Wage and benefit expenses increased 370 basis points in the quarter and 290 basis points for the year on a year over year basis.
We were able to largely offset this expense growth through a variety of external and internal initiatives, which allowed us to achieve breakeven margins at what percent revpar growth in 2019.
Our external initiatives were driven by near time, Marriott Starwood merger synergies, which were largely realized in 2018.
Internal initiatives, we expect smaller incremental efficiencies in 2020 relative to last year.
Meanwhile, we expect wage and benefit expense broke <unk> increased by approximately 5% in 2020 over 2019, it's unemployment remained at all time lows in job job openings in the lodging sector reached record highs.
Our 2020 guidance for comparable hotel expenses. However is for two months to 3.5% growth per available room.
Primarily due to productivity gains, partially offsetting wage and benefit expense growth.
As a result, we expect breaking the margin at three and.
4% Revpar growth in 2020.
We will further detail the impact of wage and benefit expense growth on our 2020 EBITDA margins.
Here are three key takeaways on this issue.
We expect the rate a wage and benefit growth to peak in 2020.
Second we are continuing to work with our operators to adopt productivity enhancing technology that will decrease our operating cost over the long term.
Third our exposure to world class operators like Marriott in high leaves us relatively well position in a tight labor market given their best in class retention and low turnover.
Finally, we see prolong back or one certainly.
Certainty continued to negatively impact expectations, where are you asked nonresidential fixed investment, which has slowed materially from 6.4% in 2018% to 2.1% in 2018 and is now expected to grow like just 70 basis points in 2020.
[noise] Revpar is highly correlated with this metric, which is being impacted by trade in political uncertainty had an election year as well as by Corona box.
I should say increase nonresidential fixed investment would be a positive catalyst for the industry.
So it accelerates our expectations for business transient travel remains muted and our managers continue to focus on driving group and leisure business.
[laughter].
Moving on.
For group business in 2020, we are pleased to begin the year with total group revenue be 4.2% ahead of the same time last year as we benefit from a favorable citywide convention calendar 2020, with San Diego Miami Orlando in Washington, DC, All pacing ahead.
We had approximately 70, 725% of our group range on the books and our 150 basis points ahead of the same time last year.
So far we haven't experienced a material directly impact our business from Corona bars as Chinese travelers contributed approximately one at a high percentage of our room revenues.
I'd say the situation continues we'll call it prevailing uncertainty could put down further downward pressure on business transient revenues.
Additionally supply it continues to grow this year with a 2.3% increase expected across all skills on a net basis.
As a result.
We expect full year comparable constant dollar revpar growth to range between flat to up 1%.
We wouldn't know that the addition of the one hotel South Beach.
Our next only 10 basis points to our newly defined in 2024 year comparable revpar growth guidance as we own the hotel for nearly all of 2019.
We expect comparable EBITDA margins to be down 165 basis points at the low end and Dot 125 basis point at the high end of our guidance.
These assumptions result in 40 or forecasted adjusted EBITDA, RV, a $1.360 billion to $1.405 billion.
While the midpoint of our.
Of our 2020 total EBITDA guidance, we expect a 10% year over year decline.
Approximately 60%. This decline is attributable to 2019 asset sales and the quite a lot of comparable hotels due to renovations, notably our comparable hotel EBITDA.
Second declined by only two and I have to 5% year over year.
Finally, with much of the decline EBITDA mitigated by our stock repurchase program, we expected adjusted FFO per diluted share of $1.65 cents to one dollar and 71 cents.
Although margins are being impacted by accelerating wage and benefit cost growth. This year. It's important to note that comparable EBITDA margins have improved by 80 basis points from 22% in 2016 to approximately 29% last year.
We have total expense stroke study at less than 1.5%, but the last three years through a variety of external and internal initiatives.
As mentioned earlier wage and benefit cost growth is expected to peak this year and we're working with our operators to adopt productivity enhancing technology that we anticipate will decrease our operating costs over the long term.
[noise] shut in each of them area transformational capital program.
Two of the for renovations, we completed last year or not around America in New York Marriott downtown.
Already achieved meaningful Revpar index gains and are well positioned to accelerate EBITDA growth at stabilization.
The San Francisco, Marriott, Marquis and Santa Clara.
Were completed in the second half of 2019.
And while it's too early to measure improvement we have high expectations for these two properties.
We expect to win back between $180 million to $200 million in the program. This year. It's a complete renovations at the San Antonio River Center in Minneapolis marry that CE Center in the first one second quarter, respectively, and they JW Marriott Atlanta pockets in the fourth quarter.
We will also complete the second phases three phase renovations at both the New York Marriott, Marquis and the Orlando World that.
By the end of 2020.
This program will be 60% to 70% complete.
We're pleased to be completing these renovations and they low revpar growth environment, which minimizes the impact of the disruption and leaves us well position to achieve meaningful Revpar index game accelerate EBITDA growth at stabilization.
In addition to the Marriott transformational capital program. We are also implementing multiple value enhancing ROI projects across the portfolio.
We categorize you guys Roundup development operational projects and energy efficiency sustainability projects.
Ground up developments include developing a 165 key 85 Marriott.
Access surface parking at the Westin care in Scottsdale, and adding 19, new two bedroom luxury felt was at the end up.
Operational projects include adding meeting space as you know Lando World Center.
Hurting underutilized lobby space, we grab and go marketplaces repositioning that can be outlets and that you keep at several properties.
Additionally, we have multiple energy efficiency projects, which are an important part of our industry, leading corporate responsibility program include major systems overhauls, how easy retrofits and solar panels among others we.
We have historically achieved a high teens average cash on cash return on these ROI projects, we expect to grow this program going forward as an important piece of our capital allocation strategy.
We differentiate ourselves through extraordinary execution, which achieved probably the strongest escape and prioritizing our sustainability goals for these projects.
We have been recognized for our leadership in performance, our sustainability, earning our seventh consecutive Green star and overall global sector leaders designation as well as a five star rating from Gretzky. This year. We have also been named to the Dow Jones World Sustainably sustainability index for the first time.
And the North America sustainability index for the third time have won the Navy lodging resource leader in the Light award for types in the past five years and most recently have been named is GBP eight bucks per meeting our action against client change.
To conclude with capital allocation.
Let me briefly review our execution over the last few years within the context of our long term strategic vision for house.
Since 2018, we sold $3.3 billion, a relatively lower quality and lower total revpar assets in our portfolio.
We have invested $1.6 billion, it's why kind of cafes was 2019 total revpar was more than double that of the assets we sold.
All four about acquisitions are in excellent condition, but limited near term capital needs.
We achieved higher blended cap rates in EBITDA multiples on other acquisitions than on our disposition and have thereby minimizing solution to earnings was significantly upgrading the quality of our portfolio.
In addition, we have bought nearly $610 million some stocks since mid 2019 amounting to nearly 5% of our weighted average shares outstanding.
Finally, we have meaningfully strengthened our balance sheet by increasing our liquidity extending our debt maturities and lowering our borrowing costs.
Our asset recycling has reduced our capex intensity and improve the blended cap rate and long term and AG profile of our portfolio.
Share repurchases had been accretive to AFFO per diluted share.
In the enhanced flexibility by our balance sheet has provided us with greater optionality to create significant long term value for our shareholders.
Today, our flexibility and willingness to use the appropriate.
Nation toll whether its stock buybacks asset recycling development or redevelopment at the opportune time to create meaningful value for our shareholders is what that differentiates host for most of its lodging peers. We're clearly demonstrated our willingness to use these better value creation tolled.
Welcome 19, and we'll continue to do so in 2020.
Our long term strategic vision is to have iconic irreplaceable assets with high total Revpar and limited near term capex needs in key markets with strong and diverse demand generators.
Market conditions over the last couple years have enabled us to substantially we reposition our portfolio and an accelerated pace. We believe that apart from a small number of assets that we would like to eventually monetize our portfolio, it's where we want to be at this point any economic cycle.
With regard to acquisitions, while the barring any time, we will continue to evaluate assets that meet our strategic objectives.
Focusing on opportunities, where we can leverage our competitive advantage is such a deep owner broker and operator relationships our ability to do large transactions and our reputation for providing speed and certainty of closing and the flexibility of property taxes and structures to sellers.
Overall, we're very well positioned with a favorable citywide convention calendar supporting operational performance this year and balance sheet flexibility, providing us with greater optionality to create significant long term value for our shareholders with that I will turn call over to Brian.
Thank you Jim.
We delivered adjusted EBITDA, Ari up $355 million for the quarter and $1.534 billion for the year.
As mentioned, we exceeded the top end of our 2019 adjusted EBITDA already guidance, mainly due to strong revenue growth at our Noncomparable hotels.
Noncomparable total Revpar grew 940 basis points for the quarter, primarily due to a post renovation left at the San Francisco Marriott, Marquis and strong redemption revenues at the Ritz Carlton Naples.
For the fourth quarter comparable total Revpar grew 190 basis points, primarily due to higher food and beverage and other revenues.
While third quarter comparable Revpar declined 10 basis points.
It would've been flat if adjusted for the estimated 10 basis points of renovation disruption related to the Marriott transformational capital program.
During the quarter occupancy was unchanged, but 80 aren't decreased by 10 basis points, primarily due to the anticipated decline in group business driven by an unfavorable citywide convention calendar.
Transient revenue grew 270 basis points due to the growth in leisure demand, which more than offset the continued business transient weakness.
Oh, no business Crazy revenues for the fourth quarter were down 350 basis points driven by a room night decline of 340 basis point, we wouldn't note that the first quarter was the least affected by declines in business travel due to the favorable holiday shift in December.
Looking at individual market performance for the fourth quarter, our top five total revpar growth markets were.
Orlando, Florida Gulf Coast, Atlanta, Denver in Phoenix.
While New Orleans, Seattle, San Antonio, Northern Virginia, and Hawaii trailed the portfolio.
We think an important measure of our success in 29 team was our ability to deliver strong margin performance.
Comparable comparable EBITDA margins only declined 10 basis points for the quarter and five basis points for the full year in line with the midpoint of our full year 2019 guidance.
We believe this is an impressive performance as wage and benefit expense grew 370 basis points driven by hourly wage rate increases most notably in southern California.
Well, California was especially affected the unemployment rate in most of our markets was below the national average a 3.7%.
Driving significant increases in wage and benefit expense across the portfolio.
Moving onto the balance sheet.
We ended 2019 with 3.8 billion in total debt.
1.6 billion of unrestricted cash and 1.5 billion of available capacity under our credit facility revolver.
During 2019, we achieved several major financial milestones.
First we refinanced $1 billion, you term loans and expanded our revolving credit facility by $500 million to $1.5 billion.
Second we've achieved an upgrade of our corporate credit ready to Triple B minus from BB plus by S&P global ratings.
Bert we refinanced $650 million the senior notes by issuing the first green bond in the lodging industry with a coupon of 3.38% and yield to maturity of 3.467%.
These represent the lowest effective 10 year bond pricing and overall yield achieved in our history.
Lastly, we have minimal debt maturing until 2023 with a balance debt maturity schedule with no more than 70% of our debt as a percentage of enterprise value maturing in any given year.
In summary, we executed over $3 billion of refinancing, which resulted in extending our total weighted average debt maturity to 5.4 years, reducing our weighted average interest rate to 3.8%.
And while maintaining and then appropriately balance loading rate mix of 26%.
Finally in 29 team, we returned significant value to our shareholders with $482 million of stock repurchases as.
As well as a total cash dividend of 85 cents per share, which represents a yield of approximately 5% on our current stock price.
We also just announced the first quarter dividend of 20 cents per share.
Turning to the forecast, let me take a few minutes to detail the assumptions underlying our 2020 guidance.
As Jim mentioned, we expect our revenue performance to be driven by group and leisure transient business as a result of the city wide calendar growing economy and strong employment numbers.
While the U.S. economy continues an unprecedented growth cycle, we have been thoughtful about the impact of the global economy, and our own election cycle, which we believe continues to constrain the level of business investment.
Overall, we expect our performance to be stronger in the first half of 2020.
Due to the strength of our group booking pace and more difficult comps in the second half of the year.
We will also continued to benefit from owner's priority and operating profit guarantees related to the Marianne transformational capital program.
Our forecast includes a total of $16 million operating profit guarantees from Marriott.
Which nine mean is included in comparable hotel EBITDA.
Equally important we expect this more properties are completed we should begin to see an increase in each hotels, Revpar index, which should bolster overall EBITDA for the properties.
For modeling purposes, we expect adjusted EBITDA in the first quartile ranged from 26% 28% of our annual forecast.
Lastly, total shares currently outstanding or approximately 705 million, reflecting the additional shares repurchased in the first quarter.
In conclusion, we believe that host hotels and resorts is the premier launching the in the industry.
We have a high quality well diversified portfolio, whose consistent performance is driven by strong in house analytics and by working with the best operators in the business.
With the only investment grade balance sheet, among launching weeks, we're well positioned to continue to execute on our strategic vision to create long term value for our shareholders.
With that we will now be happy to take questions to ensure we have time to address questions from as many of you as possible. Please limit yourself to one question. Thank you.
If you would like to ask a question. Please signal by pressing star one telephone keypad, you're using a speaker phone. Please make sure. Your mute function is turned off two legs single to return equipment.
In a store one as a question please limit.
Yourself to only one question.
Oh.
[noise] first question comes from Anthony Powell Barclays.
Hi, good morning, everyone.
Good.
Morning, a question on your commentary about cost increases, peaking in 2020 I'm just curious why why would that be given kind of appointments still pretty low is it because of your own initiatives to increase from tivity and efficiency or do you think that underlying inflation may start to decline next year and beyond.
I am happy that the.
Our thereby reason that we're seeing five percentage increases and wages and benefits in 2020.
Really has to do with weight parity in certain markets.
It's not a.
The 5% number is not robot across the portfolio, but I'd say in markets like Orange County, California.
Used in Texas.
And we think that as we roll wage increases are bringing our associates I suppose how soon to parity that well see more normalized wage increases going forward.
Okay. Thank you.
And of course comes with Smedes Rose City.
Hi, Thanks, I just wanted to ask you on your decision to change the same store guidance.
So I know that it affected job for that no more newly acquired properties, but does it also change the timing from UN renovated properties will come back into the same store pool.
It does not meet up we had you know we suggest we thought about it.
And talk about it played a big entirely.
As I'm sure you're aware, there's really no consistency.
Ah Ah lodging REIT peer group with respect to how to handle.
Renovation projects and way renovations are deemed to be on cost and when they come back into the possible.
So we're still thinking about that you obviously had a number of projects this year either not pop as we price. We didn't think it was appropriate to make any changes with respect to the renovation.
Outside of a the definition at this point in time.
I think it's consistent though that we have three or four knockdown. It's to report acquisitions on a pro forma basis and everybody in.
The world of luxury.
Does that that's report acquisitions on a pro forma basis, and that's why from what has changed with respect to the wireless how south Beach and Oh, We will go back up in that way going forward.
Okay. Thanks.
If you find that your question has been answered you may removed yourself from the Q by pressing star too.
Your next question comes from Bill Crow Raymond James.
Thanks, Good morning, that's going to ask what are the have questions. How the question is is really focused on a follow up from Anthony on labor costs and just wondering how that's manifesting itself in your operations in other words are you seeing turnover dramatically higher.
As it is that it's fair to go back to the branch NASA for some flexibility in the brand standards when it comes to labor given given distressed.
Yeah Bill.
We're not being.
In order to amounts of turnover in fact, you know we benefit that part of the labor practice is up up two world class operators, who run most of our hotels Marriott in high they had very good retention rate.
They're very attractive organizations.
Oh for people to work at so it really.
Is that solely the result.
Wait Perry in certain markets that black received the large increases this year.
All right, but the real question is more strategic in nature.
And thinking about it from a capital allocation perspective, and even the share repurchase perspective, how would you do things differently if were [noise].
If you thought were kinda crafted this in the slow growth environment for for several years.
Oh.
Oh, you asked why the question that he said.
Again, it's something that we think about.
Not only from a capital allocation perspective, but also you know from a permit operation operations perspective.
You know we have.
That's true.
Pretty meaningful down cycles or.
I won't go back the arm that 11, but of course, we learned a lot.
Given what happened to our industry and the close 911 wells and then let's say it again in 2008 2009.
So I think if we were at pride ourselves in this.
Type of tepid, revpar growth environment or flat to negative revpar growth environment.
With resulting EBITDA declines.
We would they have a meaningful conversations with our operators.
Docking brand standards, and you know that need everything from.
Taking a look at a restaurant offerings and ours of operation.
To enroll guest amenities are too.
Yes, it may seem correct here flounder quite lobbies.
You know not that docket, we're not doing that today, we would really quick kiosk.
Okay.
Labor scheduling and technology. So I think that that's one of the first things that we would do.
If we farther south mirror business environment for an extended period of time.
On the capital allocation, but.
Our balance sheet is that a bit in better shape.
No we as we sit here today, we have $1.6 billion by restricted cash.
Okay.
If we were to go to three times leverage today, we could buy two and a half billion dollar cost of assets stood at $5 billion to $3 billion. That's it up.
If we think about the macro environment that we operate it today, we are being measured and our capital allocation decisions, we might see optionality that that our balance sheet.
Yesterday.
If wearing a slow growth environment.
Couple of things, we consider doing.
Michael include accelerating investment in our portfolio going forward, we have the ability to do that.
So that our assets are very well positioned when we see a reacceleration of revpar.
We might consider if our stock price comes under pressure on enhancing the buyback program.
And lastly, I think that if we are in this environment for an extended period of time.
You are likely to see some distress.
And and I hope how long are we're seeing is already in New York, There's been a number of articles written regarding the level of defaults in New York City going up and you are we'd like to position were raised with the balance sheet that we had the optionality and flexibility to fit as well.
The other and good times or at a top class.
Jim I appreciate the color. Thanks.
Thank you.
Our next question comes from Rich Hightower Evercore.
Hey, good morning, guys.
Hey, rich so like Bill I'm going to ask one question with two totally unrelated parts. So you're goes so really really quickly the for the first part just talk about maybe the thought process behind a relatively narrow range of a of top revpar guidance, you know 100 basis points from top to bottom and.
And so that's the first and then quickly just more on on the topic of cost controls are you seeing you know when we sit when we think about sort of more catastrophic you know weather events around the country around the world are you seeing a a tightening in insurance market, specifically and how do you sort of think about that with respect to your Florida.
Exposure and maybe some other other at risk areas. Thank you.
Got it.
Hi, great rich.
It's really based on our view.
They.
Great visibility that we have today with.
4.2% total group revenue pace.
In 70, 75% of our group on the books.
Yeah.
I would add that I didnt addressed this in my comments our group business is weighed more heavily towards the first half of the year and the second half in Europe, which gives us comfort and visibility I and we continue to see.
Strong leisure.
Leisure business transient leisure business, you know, we're not seeing anything frankly on the business transient side. So we were very comfortable with the reiki gate, primarily based on her visibility.
Your second question.
Well, it's related to cost controls.
Was it related to in shortstop, yeah, just just related to 'em insurance costs, specifically I'm thinking about your Florida, Your California exposure and you know is I guess, it's host you know in a position where your big enough to where you can self insure to some extent and so you see maybe a little less inflation in that particular cost category.
Now we don't you know we don't soften shore.
You know.
We are any position given that they the platform that we have that scale that we have a.
Oh across a very diversified.
Mark.
I'm sure we'll be going up.
This year.
The insurance renewals the car card midyear. So we would expect to see first Scott.
Increased in July going forward lapping I consider aside is about 10% of our total cost because they are so it's not that meaningful.
Okay. Thank you.
Our next question comes from Michael but so are you.
There.
Good morning, everyone.
Mike [noise].
Just on your development and redevelopment comments that you made in their prepared remarks is there room to do more here and then how do you think about returns on these types of projects and then the risk associated with doing more redevelopment and development projects at this point in the cycle.
Wow returns on.
Well the redevelopment projects.
Well I stabilization be double digit catherines cash, it's going to range from property the property or you know our returns on the and.
Oh, you know as a given they the costs associated with.
Wait it out.
We are developing individual Hawaii is likely to be part of the or into that range, whereas you know where in the process.
I'm moving forward with a water park at the Orlando World centered Marat, where we expect a very meaningful or cash or cash return. This result, putting that if any the in place and what that will allow us to do with shoulder and weekend.
Transit business so there.
There are attractive returns, we see that that in addition to buy.
Back our stock, which we view as incredibly inexpensive today.
That investing in our portfolio is a very good place to be allocating capital.
It is easier to underwrite. These returns are given our knowledge of the assets and the in house expertise that we had we have a best in class C. Both on the asset management side and on our site construction site wed years and years of experience doing.
Types project as.
Yes I.
That's going to pay you never have surprised but we had very few surprises when it comes to construction buckets entirely and.
We're very comfortable with our underwriting I'd just point out on the.
Matt a transformational capital program work, we're slightly under budget and the aggregate for all the deals that we have undertaken today and those are major products.
Got it and just fair to assume no that maybe versus 12 months ago. Your appetite for doing more redevelopment development is higher is that fair.
Okay.
I wouldn't say that I wasn't going to say any different right. I mean again, you know I talk about it before I mean, we have they optionality you get on our balance sheet to allocate capital.
And then a lot of different areas.
You know, whether it's within our portfolio, whether it's making acquisitions.
Our buying back shares.
That's helpful. Thank you.
Our next question comes from Great with Gregory Miller Suntrust Robinson Humphrey.
Good morning, Jim and Brian.
I'm on for Patter Scholes, Oh, just a quick question how sustainable do you see the dividend today.
Given the trajectory of Revpar margins this year and next yes as you.
I mentioned earlier about the balance sheet begun and never being not better shape.
Thanks.
We feel it was in the dividends based on.
Our forecast for this year and how we're looking out to 2021, it's sustainable at its current level.
If we werent take a consideration our.
Discretionary capex.
It's not our maintenance capex.
But our discretionary capex, our asset broke the record shows approximately 70%.
Great. Thanks, so much.
Okay.
Our next question comes from Neil Malkin.
Capital one securities.
Hey, guys good morning.
Correct.
I'm just going to ask one question with zero follow ups.
So I guess just relating to the political landscape in California.
You've seen the.
Oracle canceling the event in San Francisco moving to bake it.
Citing homelessness drug cetera.
You have split roll coming.
You know potentially or the end of this year, just I guess, what do you guys doing to combat these issues that seem to be.
Garnering more and more headlines are you guys.
Doing things with some other other peers.
Lobbyist et cetera, I just interested to know how you think about that area and your plans to navigate that going forward.
Well I'm sure you're with revenue over that.
Myself and others as opposed to start very ball and various trade associations I'm going off at your name.
How about officer of eight chalet a drop.
Involves age out a nation involved with DHL anyway.
We are keenly focused on these issues not only I suppose.
But in concert with.
Our constituent groups if those respective organizations. So when we think about split will its something that we we talk about that internally I hope, we talk about H.I. land they read tighter that there's.
A unanimous point of view about.
How that will be approach going forward from a lobby perspective.
And otherwise.
Okay.
I guess [laughter]. So in terms of like maybe San Francisco is I mean, it do you think theres more to come.
No. It in terms of people, leaving or anything like that would be helpful as well.
You know, we don't see any more of the horizon there.
[music].
Hey, Rick talked how I wanted to clarify something I said abided shorts I put it extra zero.
Hi, yes, but it's about it's 1% express is not a expenses.
Our next question comes from Sean Kelly Bank of America.
Hi, good morning, everyone.
Jim just wanted to clarify that maybe the I think it was in the remarks to an earlier question, but just makes tried I caught it correctly.
At least one of the Big Hotel operator brand operators, you did mention a little bit as positive activity on the sort of the demand or transient side over the last few weeks curious if you can corroborate anything you've seen in your hotels or you know anything that that stands out maybe on the on the transient corporate Todd.
<unk>, so that would be the deposit in on the cautious side you know I you gave the Chinese exposure on the current Harrison and that's really helpful. On but we have seen some evidence of some group cancellations anything that's impacted most hotels or sort of just discussion points in the industry on on group cancellations would be helpful.
Yeah sure oddly yet the business track inside Sean.
No. We just don't you can pick up.
This is transit.
And our long history is really driven by nonresidential fixes that.
And the uncertain macro environment that we're living it today.
It's driving nonresidential fixes that went down to a forecast of 70 basis points for.
2020 off of a high not high offset by 6.4% number in 2018.
So I think businesses are being very cautious or you know small businesses in particular are being cautious about spending money in this environment told we have more clarity on the election, and you know more clarity outgrow the virus.
I do think we still need clarity on trade policies I go we bought implemented a phase one deal with China Theres, a stage to deal with China it needs to happen and there's a there's uncertainty with respect to our trading partners in York today. So.
We're not seeing it on business trends I wish I could tell you that we work, but we're just not you know we are comfortable with the kids that are our our guidance based on our visibility which is weighted towards the first half the year.
We expect to see further pick up and leisure trends it going forward.
So corona bar.
You know we see.
Total impact topline revenues of about $1.5 million.
As we did here that there is one of the group Facebook cancelled they need and getting the.
San Francisco as it was about 14000 room night scheduled for the first week the Mark.
We really don't know why they cancel that meeting or you know there's some speculation that it was at the result of probably last but definitively I can't say, if that was that reason or or something else and we're not hearing anything else dispose huh.
Great. Thank you very much.
Our next question comes from already client.
Be about capital markets.
Thanks, So low to redemptions have been have been very healthy how sustainable do you believe those are what some some of that pent up demand post the merger and just customer essentially cash again I mean, maybe he can talk to the visibility you have there going forward.
Our loyalty.
Redemptions have been healthy as I mentioned.
In the fourth quarter.
We saw a unique will pick up at.
Three of our hotels in particular that Ritz Carlton Naples, Ritz Carlton Marina del Rey Anthony as well.
You know the.
The changes that were made to the.
Pricing structure, the tiered pricing structure, a occupancy levels to allow.
ER to allow the owners embedded in a greater weight and.
That had been structured under the old Frac program, we think are very sustainable going forward.
We saw meaningful pickup relative to the numbers that Mary.
Divided us out when they were making changes from bottom away.
Hey.
You know more than double that of the business cases, they provided to us.
And we expect to see additional pick up this year the other thing that happened.
And the latter part of 2013 was they rolled out or grow by he.
He or a tiered structure that we also think will.
Provide benefits city going forward.
Thank you.
Our next question comes from Chris Woronka Deutsche Bank.
Hey, good morning, guys.
Hey, Chris Jim Hey, Good morning, Jim was hoping to get your opinion on it you as we see the big brand companies kind of introduce more and more brands and soft brands and semi soft brands. What's your position on on whether those are.
Truly competitive with some of your.
I would say smaller kind of non big group box properties and you know what at what point do you think owners you know as it is it a something at the owners have to address with the brand companies.
You know my personal point of view on supply is supplying that I don't care, what kind of five years, it's getting enough around the edges that you know with problem ankle buyers as when we had.
The group houses and you've got a select service hotel that it's still to and yourself market. It clearly is going to lap or have some impact on you and.
You know.
The good news about our portfolios. It is well diversified up you know, we don't have any more than 10% of our EBITDA coming out of it wasn't market.
And.
You know, it's something that we talk about.
The brands all the time I mean, we are in a cost is a dialogue with that regarding impact all new development projects.
It said.
It should something that hosts and all other holders.
Our talking about and talking to the bright spot today.
Okay very helpful. Thanks, Jim.
Your next question comes from Wes Golladay RBC capital markets.
Hey, good morning, everyone. Just another question on business transient trends are you seemed much variance by region.
Got really Wes I, I'd say, it's fairly flat across the portfolio.
Okay. Thank you.
Our next question comes from Jim Sullivan.
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Thank you a quick question on the [noise].
The strength of the balance sheets.
As well as the appetite to buy back four shares.
I think in the prepared comments, Jim you mentioned that in terms of Optionality if shares come under pressure you could obviously buyback more stock.
I Wonder if you could help us understand.
What kind of flexibility you have in the or whatever metric you want to give debt to EBITDA. So obviously very helpful. In terms of where do you think you to go in that ratio.
In terms of buying back shares before you would be well maybe hesitate to go any further how much how much more debt to put on the balance sheets or to buy back shares before the investment grade rating becomes an issue.
Well I think this is a very hypothetical question, Ken but you know in theory.
I'm not suggesting for a moment that we would do this.
We we could borrow up to $2 billion.
And that would take us to three times leverage.
And that it's not anything that we're contemplating a at this stage of the cycle given the macro uncertainty exists in the world today.
Great. Thanks.
Our next question comes from Anthony Powell Barclays.
Hi, Thanks for let me get my entire have questions or just a.
A question on the mix of customers I think historically, we thought that it.
It was talking about two thirds business not grouping corporate frames the combined it seems like.
Randy I'm Corpus has been weak for a number of years, what's the update customer mix between group corporate transient leisure transient in your portfolio.
Total traffic was about 59%.
Anthony and all that 59%, roughly 60% business and 40% leisure.
Contracts about 5% in groups right around 36% to 37%.
Okay, great. Thank you.
This concludes todays queuing they push Oh, no, let's turn the call over to Jim resilient.
Oh.
Thank you for joining us on the call today are we really appreciate the opportunity to discuss our fourth quarter results and 2020 out with you.
Look forward to seeing U.S. Navy and talking within a few months to discuss our course first quarter results as well as provided you with more insight into how 2020 is progressing at a great day every was.
Thank you, ladies and gentlemen concludes todays teleconference. You may now disconnect.