Q4 2020 Host Hotels & Resorts Inc Earnings Call
Good day, and welcome to the wholesale towels and resorts fourth quarter 'twenty and 'twenty earnings Conference call. Today's conference is being recorded at this time I would like to turn the call over to tangible and senior Vice President of Investor Relations.
Thank you and good morning, everyone.
Before we begin please note that many of the comments made today are considered to be forward looking statements under federal securities laws and.
Described in our filings with the SEC. These statements are subject to numerous risks and uncertainties cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward looking statements.
In addition on today's call, we will discuss certain non-GAAP financial information such as interest and adjusted.
Adjusted EBITDA rate cash spend and his high level results you can find this information together with reconciliations to most directly comparable GAAP information and Yesterdays earnings press release, and our 8-K filed with the SEC.
And then the supplementary financial information on our website and his Churchill Dot com.
Plus it's basically and today's call with me will be gymnast of all your questions and Chief Executive Officer, and served as executive Vice President and Chief Financial Officer and Treasurer.
And now I'd like to turn the call over to Jim.
Thank you.
Hey, Joe and thanks, everyone for joining us this morning.
I'd like to start by expressing my heartfelt condolences to earn his family and to our friends at Marriott.
And have known already for 25 years and found them to be one of the most authentic engaging and carrying leaders and the lodging space.
Visionary.
Peter loving husband, and father, and and respected colleague and friend Ernie will be deeply missed and is leaving a lasting legacy within our industry and all the lives he is touch.
Post has emerged from the most challenging year and lodging history as a stronger.
And every company.
And with robust long term growth prospects.
Our hotels have streamlined their operating models and minimize the operating expense growth from second quarter lows.
While accelerating revpar from $9 and April to approximately $42 in January.
As a result.
<unk>, we have cut our hotel level operating loss by more than half.
From $163 million and the second quarter to $75 million and the fourth.
We have also achieved breakeven or positive hotel level operating profit at 20 hotels representing 20.
Per cent of our rooms, and the fourth quarter, a sharp increase from 14 hotels and 13% of our rooms and the third quarter.
Additionally, we've invested in and our long term growth.
And enhance our ability to gain and retain market share by continuing to upgrade and several.
Four began and hotels and delivering the new AC hotels Scottsville north.
Moreover, we've entered 2021 with $2 5 billion of total available liquidity.
Our investment grade balance sheet has been further strengthened by opportunistic asset.
C net and land sales at free COVID-19, valuations and debt refinancing that has pushed our earliest maturity to late 2023.
Last week, we announced a best in class second amendment to our credit agreement, which provides us greater flexibility to acquire hotels early.
And the sooner the lodging cycle.
With the highest quality portfolio and the company's history and a balance sheet that allows us to capitalize on external growth opportunities.
We are very well positioned to elevate our EBIT growth profile through the vaccine driven recovery.
My comments.
And they will focus on top line trends ROI projects, and our latest views and transaction markets and acquisition opportunities Sarah will deter our hotels operating expense control and the improvement and and outlook for cash burn and hotel EBITDA.
He will also.
And scenarios, the additional flexibility and Optionality created by the second amendment to our credit agreement.
Starting with group booking trends, we saw a marked increase and group booking activity for our Marriott managed hotels and January.
Our hotels booked approximately 101.
And group room nights for 2021, a 32% increase over January of 2019.
January typically being a slow months for group booking activity and.
In addition, our hotels had an impressive lead to booking conversion rate of 22% compare to.
Approximately 16% and January 2019.
While there are several types of groups being booked we are pleased to see bookings for incentive meetings, which have returned after a hiatus and 2020.
We also saw improved future group booking activity.
January with approximately 73000 and future group room nights booked for beyond 2021, representing a 42% increase to January of 2019.
Through this January we had approximately one 6 million definite room nights on.
On the books for full year 2021.
Approximately 1 million of these occur and the second half of the year and are fairly evenly split between the third and fourth quarters.
Our bookings are largely continuing to hold.
The group's materialize or second half.
2021 group business will have recovered to almost 50% of second half 2019 levels based on definite group room nights on the books.
While group pace is less meaningful today as most meeting planners remain on the sidelines. We are encouraged by our total group revenue pace.
<unk> for the latter half of 2021.
Pes and the second half of 2021 is down only about 25% compared to the same time last year versus the first half being 84% lower than last year.
This could improve.
With additional and.
For the year group booking activity, assuming state and local restrictions are relaxed and attendees become more comfortable with travel.
Staying with group, we believe that the location and quality of our hotels as well as our longstanding sales relationships with key travel managers.
And the year really positions them to gain market share when group demand returns to urban markets.
For example.
And the demand from government agency groups surged around inauguration our D. C hotels ran occupancies of 81% and 78% on the.
And prior and the day of inauguration, respectively, and we temporarily reopened a Hyatt regency Capitol Hill to capitalize on this demand.
For those days are hotels, Occupancies were 13, and 11 percentage points higher than other luxury and upper upscale hotels.
The date and the D C Metro region.
Moreover, we achieved and ADR than on average was $26 higher each day for the three days of January 19th to 'twenty and 'twenty one.
Our hotels significantly outperformed other luxury and upper upscale hotels.
Wells that are coveted downtown locations ability to accommodate large groups and their 30 year relationships with key government agencies.
At the end of the third quarter, we had approximately 118000 definite room nights on the books for the fourth quarter, which would have represented a seventh.
Due to the <unk> sequential decline.
However, our hotels were able to drive 38000 in the quarter for the quarter bookings for a total of 156000 group room nights and the fourth quarter, representing a 23% sequential increase over the third quarter.
Additionally.
First fourth quarter group bookings delivered a 12, 3% higher average rate and third quarter 2020.
Helped by this short term group demand that was driven by small to mid sized corporate accounts and smurf groups.
Rebooking.
Seven as a percentage of cancellations continued to increase with approximately 24% of cancellations at our Marriott managed properties now rebooked and a funnel of tentative bookings that would take the total rebook to almost 37%.
And the fourth quarter and full year.
Booking <unk> thousand 20, we collected approximately $11 $5 million and $52 million of group attrition and cancellation fees, respectively, and expect to collect and additional 12% to $14 million and full year 2021.
Moving on to leisure.
Year trends leisure demand remains concentrated and sunbelt markets and key leisure destinations such as Hawaii as most city and metro destinations remain in various stages of restrictions.
As with group over the inauguration in D C.
We find that the low quake low.
These are true and quality of our resorts has enabled them to significantly gain market share.
And the fourth quarter or 16 resorts gained 17, 8% Revpar index share relative to their comp sets.
This was driven by eight 1%.
Better occupancy and 9% better rate compared to their Revpar index scores and the fourth quarter of 2019.
Moreover, we have gained 30% Revpar index share and Phoenix, nearly 26% and the Florida Gulf Coast 14, 4% and Miami.
Acacia and nearly 12% and Maui.
And our wahoo.
Our hotels outperformed their peers and capturing leisure demand.
Our most recent acquisition the one hotel South Beach continues to be and outstanding performer. Despite the pandemic.
The hotel.
Achieved 90% occupancy at a nearly $2000 rate on new year's Eve and has just finished Presidents' day weekend with occupancy averaging nearly 90% from Friday through Sunday with a blended ADR of approximately <unk> hundred $30, which.
Since a nearly 4% year over year increase.
Encouragingly leisure Revpar performance too.
Continues to improve over holiday weekends for example, and our Marriott managed hotels.
<unk> improved by 60% three weeks out.
<unk> President's day compare to where those hotels, we're three weeks away from Columbus day.
In addition.
We have observed and lengthening of the booking window and the Florida Gulf Coast, Miami and in Hawaii, where travelers are getting more comfortable with the testing requirements and process.
And from with upcoming leisure holidays over spring break and Easter, we expect leisure occupancy to continue to improve.
Driven by our Sunbelt markets and Hawaii.
For the second half of the year transient revenues at our three Maui hotels are pacing, 11% higher compare.
2019.
While total revenues are pacing almost 20% higher.
And the fourth quarter, we grew leisure room nights by 62000 or by 13.
6% over the third quarter.
Our sunbelt markets and 31, 6%.
<unk> C and the first week of the quarter and progressed at 33, 5% throughout the quarter with growth driven by Miami, The Florida Gulf Coast, Phoenix and San Antonio.
Moreover, our loyalty redemption, and the fourth quarter was 25% higher than the third quarter and represented.
Presented the highest rewards demand since the start and the pandemic.
Resort properties accounted for 65% of the growth and loyalty redemption room nights, driven by Phoenix, The Florida Gulf Coast.
E and Orlando.
Moving on to business transient.
Occupancy demand remains low but has improved by 13% sequentially in the fourth quarter, which was the strongest quarter since the pandemic impacted travels.
Cities that drove most of the increase over the third quarter were San Antonio Houston and Philadelphia.
As with.
With group business.
And this transient demand continues to be driven by smaller organizations rather than by large corporate accounts, whose decisions remain on the sidelines is partly due to liability risks that we expect will fade as vaccine deployment accelerates.
Shifting.
The two portfolio Reinvestments, let me begin by saying that our ability to continue to invest and our portfolio is a competitive advantage that we expect will favorably position host to gain market share and deliver superior revenue and EBIT growth through this lodging recovery.
Three to five points, so weighted index growth at our renovated hotels in 2019 would have translated into roughly 38% to $63 million of incremental revenues and 21% to $34 million of incremental EBITDA on a stabilized annualized basis.
In addition to this we expect our ROI projects to materially enhance the underlying value of our real estate.
Last year, we completed extensive resort renovation and repositioning at the Hyatt Regency, Maui resort and the Dawn sales are and St. Pete's Beach.
Within the Marriott transformational capital program, we plan on completing the Ritz Carlton Amelia Island and March this year. Following several notable completions such as the J W and Marriott Atlanta, Buckhead, among others and 2020 and the San Francisco Marriott, Marquis Santa Clara Marriott.
New York Marriott downtown and Coronado Island, Marriott resort and Spa in 2019.
We continue to invest and the Marriott transformational capital program as well as and other ROI projects, we're trying to combined basis represent nearly 71%.
2021 capital spend.
Moreover, nearly 85% are of our investment and the Marriott program is expected to be complete by year end 2021.
And the entire program should be substantially completed by year end 2022.
Of our being completed seven of the Marriott program renovations through year end 2020, we expect to complete an additional four hotels in 2021.
Thereby transforming 11 of the 16 hotels that make up the program.
We expect to benefit from $16 million of operating.
And it guarantees from Marriott and 2021 without experiencing commencement commensurate revenue disruption given the current low revpar environment.
In addition, we expect to deliver 19, new two bedroom two bedroom luxury villas at the Andaz.
Sitting proudly and while they are resort and April this year.
11 existing villas and achieved a revpar of approximately <unk> hundred dollars and 2019 and.
And while they exhibit strong demand throughout the year and normal years recent demand for village has more than tripled from pre pandemic.
Asthma.
ADR is for these pillars ran at almost $3700 and night and December and at $2400 a night and January.
We already have 300 room nights on the books for the new villas with a transient rate of 19, $890 a night and the.
Level has only just begun marketing them.
Although the Villa expansion wasn't part of our original underwriting when we acquired the hotel and 2018.
We are currently exceeding our project underwriting assumptions for 2021 on both rate and occupancy.
The hotel, we are excited to announce the repositioning and expansion and one of our top performing hotels, the Ritz Carlton Naples.
Where we see an opportunity to create meaningful value while also transforming the resorts to meet today's luxury standards.
A new tower and reconfiguration within the existing hotels.
<unk> will increase the suite count at the risks from less than 8% of total inventory to almost 20% or 92 keys.
While adding 24 keys overall.
And 2019, the resorts 35 suites achieved revpar of approximately $800.
And almost double the overall revpar of the resort and.
And our highly sought after by the hotels loyal customer base.
Additionally, and expanded club lounge will eliminate the size constraints on upsells, which generated an annualized ADR premium and excess of 220.
In 2019.
Business interruption estimates continue to be low due to the impact of COVID-19 on occupancy.
Which also makes this an opportune time to renovate the guest rooms and to make ROI generating upgrades to the resorts pools pool bar and restaurant.
The project will commence in May 2021, and is expected to be complete and December 2022.
And stabilization in 2023, we expect this project to generate nearly 10 and $5 million of incremental annualized EBITDA.
Which represents.
And $8, a 12% cash on cash return on the incremental investment based on our underwriting.
Finally on acquisitions and the first weeks of 2021, we have seen a marked increase and the number of attractive hotels coming to market.
Presented I'm looking at just a handful of deals and the fourth quarter of 2020, we now have a solid pipeline of interesting and actionable opportunities to evaluate.
And many instances the hotels, we're looking at are owned by private owners, who have been contemplating liquidity events for some time.
While we expect to face strong competition for acquisitions, we are very well positioned due to our deep relationships and our ability to move quickly from large equity investments with cash and provide tax advantaged alternatives to sellers.
This management team has a strong capital allocation track.
Having acquired $1 $6 billion of assets and sold $3 $3 billion of assets and favorable multiples and 2018 and 2019.
The biggest shift and our acquisition strategy is our consideration of markets beyond the top 25.
Five IBM Watson.
Our recently developed predictive analytics model.
<unk> over $1 million this discrete structured variables and Leverages natural language processing insights from over 3 million unstructured data sources to forecast revpar growth by market.
Record, we use this proprietary topline and predictive model and our research based expectations for hotel operating expense growth by market to narrow down the markets that are likely to outperform the revenue and EBIT growth profile of our existing footprint.
While we believe this is an opportune.
And in time to deploy capital as we are at the beginning of the lodging cycle and appear to be heading into a period of strong economic recovery.
Emphasize that we are not looking to acquire for acquisition sake.
We are optimistic about finding opportunities that will truly elevate the EBIT growth.
Profile of our existing portfolio.
To conclude we are very encouraged the vaccine deployment and the United States has gained momentum with over 55 million doses administered already and one 7 million new doses being administered each day according to CDC.
<unk> data and.
The Washington Post recently reported the United States has purchased enough supplies to vaccinate, all American adopt adults, making the vaccine driven and recovery more certain today than it has been since the pandemic began.
Mckinsey estimates that the U S may achieve hurting.
The city by the third and fourth quarter and that a transition to normalcy as possible as early as the second quarter of 2021 eight.
<unk> aided by the spring weather and the vaccination of the highest risk population.
Should this scenario materialize, we expect to be able to achieve positive.
Positive hotel EBITDA at some point and the second half of the year and.
And to continue to benefit from a rebound and travel as the pandemic recedes.
With that I will turn the call over to store off.
Thank you Jim good morning, everyone.
Following the revenue related green.
Green shoots Jim detailed on group bookings and transient demand I would like to give you a better sense of how we expect property level expenses to trend relative to revenues this year.
Since the start of the pandemic, we have worked closely with our property managers to aggressively limit cost and evolve the operating model to adjust for the business.
Business environment.
And the fourth quarter, excluding seven property level expenses were approximately 65% lower compared to the fourth quarter of 2019.
Including wage and benefit cost variable expenses were roughly 82% lower year over year broadly in line with Revpar declines of 79.
Nine 7%, while fixed expenses were approximately 47% lower.
Variable expense reductions have consistently been in line with overall revenue declines through the downturn.
Fixed expenses that are somewhat associated with business volumes, such as maintenance marketing and utility costs.
A dramatic reduction in the second quarter and have slowly increase as the business improved through the back half of the year.
Brand programs and services, such as about property sales offices, and Nike has seen material reduction and our operators have restructured their shared services organization.
Finally.
<unk> cost below the gross operating profit like which include passive and insurance and our traditionally completely fixed saw modest reductions in the fourth quarter due to one time credits such as operating profit guarantees associated with the Marriott transformational capital program.
As a result of our property and brand management.
And the team's efforts to ensure that cost growth remains in line with slowly improving revenues, a quarterly expense reduction ratio, which measures the year over year decline and property level expenses divided by the year over year decline and total revenues was fairly stable at approximately.
Limitless 0.8 in the second third and fourth quarters.
This means that for every 1% decline and year over year total revenue all hotels reduced year over year expenses by <unk>, 8%.
The question now is what does this ratio look like as revenues.
<unk> and 'twenty and 'twenty one.
We have always expected to reach a plateau, where the ratio deteriorates and services and standard returned to the middle of the revenue recovery.
Although we still expect this to be the case.
And it's 2021 is the transition year, our hotels are striving to achieve and expense reduction ratio.
Show of between 0.65, and 0.7 throughout the year as measured by property level expense and total revenue declines relative to 2019.
Moving onto hotel level operating losses, we improved our quarter over quarter results by 23% mainly by increasing.
<unk> revenues, while keeping hotel expenses relatively stable.
Most of the increase in expenses.
Associated with the five hotels that we reopened and the fourth quarter as well as great greater business volumes overall.
Our hotel level operating loss average $25 million per month, and the fourth quarter.
Down from approximately $32 million and the third quarter and.
Including the 15 and $23 million of employee retention credit our managers received in 'twenty and 'twenty under the cares Act and passed on to us and the fourth and third quarters, respectively.
Excluding these one time credits.
Our monthly hotel level operating losses, and the fourth quarter average approximately $30 million and.
And were better than the $40 million of hotel level operating losses, we outlined on our third quarter call, primarily due to revenues being approximately 35% higher on a sequential basis.
And the fourth quarter.
We expect first quarter hotel operations to be broadly commensurate with the fourth quarter of 'twenty and 'twenty as further improvement and fundamentals, maybe offset by leisure demand being seasonally weaker and the fourth quarter than the fourth quarter, which benefited from strong ADR and.
Occupancy is in the days, leading up to and including New year's Eve.
We therefore expect and average hotel level operating loss of approximately 30% to $35 million a month not including any onetime credits are hotels me received and the first quarter.
Adjusting for interest payments and corporate G&A.
We expect monthly cash burn from operations to range between approximately $49 million to $54 million.
With regards to our outlook it remains challenging to forecast precisely when we will achieve hotel level, EBITDA breakeven and profitability and the second half of 'twenty and 'twenty one as much it depends.
On the success of vaccine administration, and the continued easing of state and local restrictions.
Following the first quarter, we expect a gradual sequential improvement and revpar.
We anticipate this to be occupancy driven and the second and third quarters, when 80 or may sequentially decline at.
Suspended luxury and upper upscale hotels reopen.
Our research indicates that operations at approximately 13, 5% of luxury and upper upscale hotels and our.
Top 25 markets are currently suspended and likely to reopen have low occupancy during the second and third quarters of this year.
Turning to the 20 hotels that have achieved breakeven or positive hotel EBITDA and the fourth quarter.
Breakeven and generally has been achieved in the 35% to 45% occupancy range with ADR is down and the approximately 15% to 30% range compared to 2019, which is in line with.
And the estimates we first provided in April.
Assuming the inclusion of corporate level expenses for interest and corporate G&A, we would breakeven at occupancy levels of approximately 45% and 60% at the same ADR decline levels of 15% to 30%.
Moving onto the balance sheet.
The second amendment to our credit agreement has increased our acquisition and capacity to $2 billion using existing liquidity with a minimum liquidity requirement of $600 million.
The capacity May include $500 million of proceeds from asset sales that would otherwise have been required to repay debt.
As long as we use the proceeds to acquire assets that are unencumbered by debt.
In addition, we have retained our ability to redeploy $750 million of asset sales proceeds into acquisition. We have a 10 31 exchange process, while extending our leverage covenant relief period through the second.
Quarter of 'twenty, and 'twenty, two and our leverage Covenant you think period for the third quarter of 'twenty three.
And doing so we have created pushing for in our and told recovery as well as capacity to accommodate external growth opportunities.
There are a couple of additional items I would like to bring to your attention.
First we recorded an income tax benefit of $220 million in 'twenty and 'twenty due to the net operating loss incurred by our Trs and.
The result of legislation enacted by the cares Act. This net operating loss may be carried back up to five years in order to procure a refund of previously.
Paid federal corporate income taxes.
We anticipate that our Trs will incur and net operating loss in 'twenty and 'twenty one.
And that we will continue to report a corresponding tax benefit in the first quarter of 'twenty and 'twenty one.
Second we have included schedules with historical pro forma hotel metrics and a fourth.
'twenty and 'twenty supplemental the metrics include quarterly Revpar occupancy ADR revs.
Revenues EBITA and adjusted EBITA E going back eight quarters to the first quarter of 2019, and we plan on updating this scheduled quarterly.
To conclude.
Core focus and three strategic objectives continue to be to redefine the operating model gain market share and strategically allocate capital.
Overtime, we expect to recover to 2019 levels of Revpar with cost that maybe 100 $250 million lower than they were in.
Our team on a nominal basis with a portfolio, that's gaining market share and outperforming its comp set.
And our position to have robust revenue and EBITDA growth that we expect will be further augmented by external growth opportunities.
And with that we will be happy to take any questions.
2009 to ensure we have time to address questions from as many of you as possible. Please limit yourself to one question.
And I decided we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question.
You May press Star and two if you would like to remove your question from the queue from participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One of them and be pleased when we poll for questions.
And our first question is from.
And keeps me Theres rooms with Citi. Please proceed with your question.
Oh, Hi, good morning, Jim I wanted to follow up on your commentary around the pipeline of called and interesting and actionable properties and and that sounds like a quite a bit of a change from your last call and I was just.
And if you could talk about what's causing them more opportunities to come to light for you and maybe you could just kind of touch on how youre thinking about underwriting.
Those properties.
And to move forward.
Sure Smedes happy to address your question.
I think what has changed.
Kind of wondering.
Is the simple.
Back that out.
A lot of owners of hotels.
Who.
We're holding a range of properties to market.
I have now started as we have message today.
Same to see light at the end of the tunnel here I you know I think that you can tell from our commentary and from our release that.
No.
And we feel.
Confident that assuming the vaccine continues to.
<unk> be rolled out and you know there isn't any.
And he does.
Disruption due to new areas being pounds, which it doesn't appear to be today anyway.
It's a the beginning of a new cycles and.
And there are a lot of buyers who sat on the sides sidelines Ah.
And to wait for.
The time when there.
There might be more buyer interest.
And we're starting to see that now and in the pipeline is truly meaningfully.
And it between the fourth quarter and the early part of this that of.
Of this year.
And so.
And when I say, they're actionable opportunities are these and many instances or private owners.
Who.
Have wanted to monetize their investment for one reason or another.
Modestly along the lines of distress there's not.
Not much distress out there.
But we are seeing.
And you know.
Owners, who.
This is the time.
And.
This is the time to to to take these assets to market.
I don't think that there is a lot of just.
Not that you know price and.
Price analysis occurring based on the conversations we're having these are people, who really want to sell their hotels now.
We are in a really unique position.
Given the fact that we have $2 $5 billion of cash.
And we have the ability.
And b acquire up to $2 billion of assets out of existing liquidity.
And subject to maintaining $600 million of liquidity are inside the company.
That gives us the ability to go out and buy hotels and and old cash basis.
Without the need.
<unk>.
To obtain.
Obtained debt.
Financing.
Which is a distinguishing factor for us and we have very strong deep relationships, having been in this industry for over 30 years.
And a.
Very solid reputation.
And you to move quickly.
And to get deals done.
Other thing I think that is bringing people to market. Today is the fact that the debt markets are opening up so we expect that there's going to be competition from private equity firms. There's no question about it.
But.
We're happy to have that competition.
And I think that.
The net.
Print for the fourth quarter.
And what we've been able to accomplish on margins and a very challenging environment.
It gives us a high degree of confidence that between our enterprise analytics group.
And our asset managers.
And that that.
And that we can find ways to create value.
Even in the environment that we're in today, so we're confident and.
I don't know how many deals we're going to get done, but we do believe that we're at the beginning of the cycle.
And we.
We came into 2020.
And the best best shape.
The company has ever been in because in large part we believed going into 19 that we were heading into the end of the lodging cycle.
And.
We were prudent and our capital allocation strategy and I think it's going to pay off for us because it's giving us the opportunity to acquire hotels.
Yeah.
And as the economy reopens and as the.
And as the lodging cycle will begin to note.
Great I appreciate the detail. Thank you.
Sure.
And our next question is from Robin Farley with UBS. Please proceed with your question.
Great. Thank you.
And Jim I was interested and your comment about looking outside of the top 25 markets now when you. When you think about acquisition, but that's still the urban or are you thinking more resort and and that's kind of part of the same question I'm just wondering if and when you talk about IBM Watson is there some risk with them with that.
Points that are.
And I would think these data points are going to continue that are really driven by temporary dynamics and that.
That we know will be temporary and the things that will change, but it wouldn't necessarily.
Be obvious to a machine predicting based on data points from the last two years.
So I guess, just thinking about that with markets, you're looking at thanks and let.
Let me, let me start by addressing IBM Watson Robyn, it's a it's a powerful tool for us it does give us an opportunity to.
Evaluate markets are true.
Through predictive analytics as I mentioned.
And I will say that it's one tool that we use are you know we are still substituting where we would never substitute IBM Watson for our judgment on what we see happening and markets and.
So it takes into account and a lot of data I mean, we have always looked at structured.
And we continue to do that.
IBM Watson looks and unstructured data and yes, the world has changed but I think that the unstructured data is out there and we're very fortunate to have a tool like IBM Watson to capture that data. Additionally.
And you know as we think about markets.
We are looking at markets, where we believe that.
We can acquire hotels that will allow us to.
So EBITDA at a higher level than our existing portfolio.
Data and assets. So in addition to looking at top line.
We will be studying and detail the expense profile of each hotel and because it's it's it's critical that yes, you have strong revenue management and.
And you have the ability to.
Uh huh.
To sell your property, but it doesn't do you a lot of good if you don't have the flow through so.
Controlling expenses is absolutely critical to how we look.
Look at properties going forward I will tell you that one of the reasons we're looking at.
Markets outside the top 25.
And today is because we think that expense growth at least for the near term.
And is likely to be higher and major urban markets.
As we come out of this just given cost pressures at the urban markets are.
Are facing today so far.
Further to answer your question.
Resorts.
I think our resorts stories is incredible.
And you look at the statistics are the Revpar index shares we've been able to achieve.
On the 16 resort properties, we have and if you look at specific resort markets like Miami, the Gulf Coast of Florida and finishing.
<unk>.
We couldnt be more pleased with how our resorts have.
And perform so yes, there'll be at the top of the list, but I would tell you more importantly, it's going to be assets, where there are.
Multiple demand drivers. So we are going to continue to look for properties.
<unk>, where there is a mix of business transient leisure transient and group, we are strong believers and having diversity of demand.
And giving us the ability to pivot from one type of demand to the other depending on market conditions.
Okay, great. Thank you very much.
Our next question is from Neil Malkin with capital One Securities. Please proceed with your question.
Hey, good morning, everyone.
And Jim I think it's a good idea to generally avoid avoid the markets where you had that Roe.
And with Union pressure, you know, making it unprofitable to operate.
Mike.
My question for you is on Hawaii, It's a big part of your portfolio.
And maybe I think it's you're either one or two largest market.
And I think that was actually one of the saving graces or at least relative to our XP.
Expectations.
ADR was very high.
You know, even though occupancy was around sort of your portfolio average.
And.
Can you just give an update on and sort of how you see.
Hawaii, playing out in terms of.
Demands and sort of pent up demand and then maybe what the Asian travel.
You know kind of store your timeline looks like.
So that market as well.
Sure Neal.
We are our EBITDA and Hawaii is concentrated and three terrific hotels located on Maui.
The visitation to Maui is driven by domestic U S travel, it's really not driven by Asian travel.
Asian travel is.
Heads to Oahu, and the Big Island and Hawaii.
Predominantly non.
That on Maui and so.
<unk>.
The.
And the ability that we have had on.
On Maui to hold rate.
And to see our.
Rate pacings and total revenue pace up 11%.
And the back half of 2021, I think speaks loudly to the desirability of.
Of Maui.
And our resorts in particular, so we actually.
Figured out how to navigate the.
The testing requirements and are the other requirements of the state of Hawaii had put in place and took a family vacation to Maui over.
Over Christmas.
And you know.
Even though occupancy lease where very low ADR.
And <unk> were very high.
So I think that we're going to going to consider continue to see.
Maui and Hawaii travel increase.
Particularly as the vaccine and gets.
Uh huh.
And what's apparent to US is that there is incredible pent up demand out there, particularly on the leisure side.
And the.
The amount of money that has been saved as a result of the of the various restrictions and lockdowns.
And the fact that people aren't going to the office.
And they're not commuting and they're not going out to lunch and people aren't going out to dinner.
<unk> is a pretty incredible so.
We will.
Continue to see Hawaii grow.
Over time and you know.
The other data point that is just very very encouraging is what we're seeing with respect to villa bookings at the and US are the fact that we had a $3700 ADR during the month of December.
For the villas and how we're getting and.
Bubble demand on our 19, new villas that aren't even complete.
So we're bullish on Hawaii and.
You know, we think that leisure is going to really continue to carry the day as we are.
C business transient and group.
Evolve.
Thank you.
Yeah.
Our next question is from Michael.
And this area with Baird. Please proceed with your question.
Good morning, everyone.
And Jimmy and you're getting a lot of and then.
And just a question for you and on the leisure side, you gave a lot of detail specifically on leisure heavy markets and they're doing so well maybe you can gain on the other side and the coin and what's the update what are you seeing and your coastal urban markets. Both from our group and transient perspective, and then you mentioned the sequential BT uptick.
Is that occurring and in any of these more impacted gateway markets.
Yeah.
Yeah.
I'll take part of it is someone asked Rob to also provide some commentary on it.
As well so not surprisingly you know the.
The the urban market.
<unk> are still in a very.
Various stages of restrictions.
As an example in California.
Still have certainly in Los Angeles County, I don't know about San Francisco, but in a L. A county.
Yeah.
And indoor dining as store close so you have the you have the ability.
Outside of the restaurants gyms are closed.
You know.
The other amenities like hair salons nail salons are open but.
With 25% capacity.
New York as an example.
And you know Broadway's closed.
As you know they've opened up indoor dining so and.
Until we see services returned to normal and.
And we're hearing that broadly could open up soon.
But until we see services returned to normal.
I don't think youre going to see a lot of demand and the coastal markets. So.
Rob you want to touch a little bit on BP trends.
Yeah, Sharon on the BD front I'm not as much demand as you would expect right now and the coastal urban.
Markets, we are seeing some demand as it relates to our consultants, so the Deloitte and pwc that the world and as well as some project teams and that are certainly going to these markets as well, obviously from government and government contract business as well.
And so you know and the end of the day when you think about.
The office is really need to open up and the companies and to get comfortable with their.
Folks traveling on business and when that does happen and I'm, that's when travel B T travel really come back and a meaningful way and as Jim mentioned, just given the cadence of the recovery that we're seeing with the vaccine.
You know administration across the U S does that pose as really well and we are optimistic that recovery going to occur sooner rather than later I would mention just one thing on the group front is we did do future bookings of about 73000 room nights from 2022 and beyond and the encouraging sign there is 30.
Percentage of that 73000 room nights was made up of Boston, New York and Seattle. So those are again, obviously, Alberta markets and that's an encouraging sign for the future.
And Mike and the other thing I would add here and this will.
Yeah.
Impact.
<unk> the urban markets.
We've had conversations with our managers.
Obviously around a lot of <unk>.
<unk>, but in.
And in particular, when we're talking about BT.
We are of the opinion that we might see 50% to 60.
The percentage of corporate travel returning by quarter for this year.
So that's an encouraging sign for us the other encouraging sign is that.
Most special corporate accounts have held rates flat in 2021 versus 2020.
And if you recall 2020 was flat to 2019, so that's a very encouraging sign that corporate accounts aren't pushing back on rate when they are negotiating so you know.
There are a lot of green shoots out there.
And again not to not to keep talking about the vaccine, but it's all dependent on.
And the country getting vaccinated and us achieving herd immunity and offices opening up and people getting back on the road.
Right.
Alright, thanks for the follow up.
Okay.
Yeah.
And our next question is from Shaun Kelley with Bank of America. Please proceed with your.
Yes.
Hi, Good morning, everyone I wanted to dig in for a moment on one of our US Rob's comments, just talking about the flow through kind of coming out of this crisis and so I. Appreciate you kind of trying to put that in and determined that I think will understand it the analysts.
I just wanted to sort of reframe it a little bit I think.
What you said was you could expect for this year something like.
65 to 70 cents on the dollar of Revpar of like let's call. It revenue flowing through to the bottom line. So one is just to clarify my and my thinking about that correctly and then two if I am.
If we go back and look you know I believe the flow through rate let's go.
Back to like 2009 2010.
And at least as an industry. There were they were decently lower than that and I believe what happened was occupancy hadn't fully recovered yet and so it took a little longer to hit those really high flow throughs. Because first you are filling up you know theres more variable expense attached to that and then it's really the rate portion.
And of the equation that drives the higher flow throughs.
But is that going to be is that equation can be a little different this go round and or could you see higher flow through.
And as rate actually starts to come back as well. So just maybe help us break that down a little bit.
Sure thing, let me just give it.
And then given example puts the numbers into perspective.
And you just take the Smith travel numbers for 2021.
And they're estimating revpar down 56, well weird thing with its expense ratio.
And let's take the midpoint of what we are saying between the 0.65 and the 0.7 that's point.
Six seven and five.
If you take the 0.6 75 and multiply that by the 56%. While we are saying is that expenses would reduce by 37, 8%. That's what we are saying is you know them.
The midpoint in 2021, we have not seen that from the last downturn, where we went and had a ratio of as high.
Hi.
Eight.
It got as high as six nine back in 2009 relative to the peak and is that with every subsequent you're obviously that ratio going down as expenses are coming back. So this time around and definitely more incremental expenses are being taken out.
And so you would expect better flow through to your point and ADR starts coming back and a meaningful way and the quicker the revenues come back the better flow through will be because you would also be.
Having the benefit of expense is not growing at.
And inflation over multiple years, so the sooner revenues come back to better.
Better flow through is going to be the quicker you would have margin extension of that makes sense.
It does thank you very much.
Yes.
And our next question is from Luke.
Lucas Heart, which we.
Green Street. Please proceed with your question.
Thanks good.
And I wonder.
Lines.
Hey, Jim.
Along the lines of the Ecu Hotel development, and and that's niche and land sale I'm. Just curious if there are more opportunities and the portfolio to unlock hidden value that maybe aren't apparent to.
And in terms of.
Morning closer that we get.
Sure.
There are Lucas and we are.
We are very thoughtful about.
<unk>.
Having conversations with respect to value.
Value enhancement opportunities until.
And the scope of our projects are.
Permitted.
And.
And our.
Our designs and our underwritten.
<unk>.
And that is one of the reasons why we were really happy to share with you.
Today.
So that's what we're doing and our Ritz Carlton and Naples.
So the ability to truly create.
We believe based on our underwriting.
Is a 12% cash on cash return.
On that.
Value enhancement opportunity addition.
And in addition to really truly increasing the underlying value of that hotel.
Through the the repositioning of.
And the addition of suites and.
And the refresh of the guest rooms and the bathrooms.
And a luxury resort is.
It's very.
Additionally to us and we are working on a number of additional opportunities.
To either add rooms at properties, where we think it makes sense.
And to take excess parcel of land.
And where it makes sense and develop a select service hotel.
Return on it.
So the short answer is you'll be hearing a lot more from us over the course of time as we.
Moves through the entitlement process and as we complete our design and costing and underwriting and Uh huh.
We have a whole team and design and construction.
Who who is on this.
And a unique unique position us as a company because we have and integrated.
Workforce.
With design and construction asset management and.
Enterprise analytics investments.
And the light within the company.
And to do this sort of work so we're.
And we're excited about it it's a core.
Key focus for us.
We think that.
Okay.
Many times.
Youre in a better place to invest and your own assets there.
And then you are.
Company make acquisitions.
That's not saying and I was not the time to make acquisitions. It is but we're going to continue to invest and our properties as well.
Makes sense. Thank you.
Yeah.
Oh.
Alright.
Our next question is from Anthony Powell with Barclays.
Please proceed with your question.
Hi, Hello, everyone.
A question on I guess competition from transit from four transactions.
Seems like the the resort and sunbelt opportunity seems to be very popular right now do you see.
More comprehensive or those hotels versus maybe recovery plays and urban markets and and how do you think cap rates are going.
And the trend between.
And a sunbelt resort urban group and at urban and against Smiths range at hotels, and how do you.
View cap rate going in and as a as part of your underwriting as.
As you look to buy hotels the cycle.
And Anthony I think that it's.
Chad.
Cap rates are.
One metric of the underwriting obviously.
By and large are.
There arent many hotels out there today.
And I would deem to be stabilized our operating that have stabilized operating models as we're looking at.
We obviously look back at 2019.
And get a sense of how the asset would have traded at that point in time with the cap rate might've been back then.
And apply that to the.
And the pricing expectations that a seller has.
Hum.
And you know it's just that.
It is a it's all over the board today. So you know we're seeing certain assets that are going to trade at a discount to.
Pre COVID-19 pricing.
We're seeing assets, they're going to trade at.
Pre COVID-19 pricing and.
So cap rate is one metric that we're looking at but we're also looking at how quickly we think we can.
And.
Stabilize the asset with the EBIT growth will be.
With that either and multiple is going to look like with the discounts to replacement.
Replacement cost is.
No supply demand factors in any given market.
It's just a number of different things today, and there's not one way that you're going to underwrite a hotel and this environment I would tell you that it's you know if you think about a bar so its multiple legs on the store and you know it's.
Cap rate is one.
And multiples another.
Replacement cost is as yet another and you know demand trends in any given market. So.
There is not one way to do it we're taking into account a lot of different things and our underwriting model.
Got it and then and what about competition do you think.
And there will be easier to maybe by urban.
Hotels. This time around and then then the resort properties that are that are popular right now.
And I think it's it's too soon to say that's a you know.
Clearly the urban markets are going to recover.
You know it it's just a question.
And when the restrictions are lifted when people get back to work.
You know when international travel starts coming back into the U S. So I would not write off the urban markets, but.
They're they're they're going to recover a little slower than the resorts.
And.
And and certain other markets just given the.
The dynamic that I referred to.
Right. Thank you.
And we have reached the end of our question and answer session and I will now turn the call over to CEO Jim resilience.
And for closing remarks.
Yes.
Well. Thank you all for joining us on the call today.
And we really appreciate the opportunity to discuss our fourth quarter results with you.
And we look forward to talking with you over the coming weeks and months hopefully in person.
Please stay healthy and positive and have a great day.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.