Q1 2021 Host Hotels & Resorts Inc Earnings Call
Good day, everyone and welcome to the host hotels and resorts first quarter 2021 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the call over to Central England, Senior Vice President of Investor Relations.
Please go ahead.
Thank you and good morning, everyone before we begin please note that many of the comments made today on this before looking statements under federal Securities laws and used car.
And all filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from danske.
And we announced obligation to publicly update or revise these forward looking statements.
In addition on today's call, we book costs non-GAAP financial information such as debt.
Adjusted EBITDA free cash spend and his whole life.
You can find this information together with the reconciliation and the most directly comparable GAAP information in Yesterdays earnings press release, and on 8-K filed with the SEC and and the supplemental financial information on our website and his Churchill Dot com.
13, today's call with me will be Jim was alien President and Chief Executive Officer, and thorough coach Executive Vice President and Chief Financial Officer Treasurer.
And now I'd like to turn the call is day to Jim.
Thank you Joe and thanks, everyone for joining us this morning.
Since our earnings call in February we have made excellent progress on operations and investments and achieve key milestones that we believe will accelerate our EBITDA recovery.
To begin with we significantly outperformed expectations for the first quarter, which recorded a GAAP net loss, but delivered positive adjusted EBITDA R E and hotel level profitability for the first time since the onset of the pandemic.
We grew first quarter total pro forma revenues by 50% sequentially.
And we're holding hotel level operating expense growth to only 15% quarter over quarter as our operators and successfully leverage the existing resources to meet a stronger than expected demand surge in March.
As a result, we delivered $21 million a positive hotel EBITDA for the quarter.
A significant improvement from the negative $62 million recorded in the fourth quarter on a pro forma basis.
In addition, we acquired the Hyatt Regency Austin.
Four seasons resorts Orlando at Walt Disney World Resorts, and nearly 300 acres of irreplaceable land adjacent to our Hyatt Regency and Maui streets.
Strategically investing approximately $800 million of capital at prices that are meaningfully below 2019 levels.
Following these transactions, we have and substantial one and a half billion dollars of total available liquidity, including $131 million of their pass any reserves.
Operations continue to improve.
With April Revpar expected to exceed March as the vaccine driven lodging recovery gains momentum.
Finally in addition to executing substantial strategic investments.
We continue to focus on redefining our hotel operating model and positioning our renovated properties to gain market share.
Key long term strategic objectives that we believe will position us to achieve best in class EBITDA growth through the lodging cycle.
Beginning with our latest acquisition the iconic and irreplaceable four seasons resort Orlando at Walt Disney World Resorts.
We completed this off market acquisition on April 30th for approximately $610 million $40 million less than the quite price quoted by real estate alerts.
The 444 room resort is located on 289 acres within Disney World, which is one of the world's most visited destination resorts.
For context, the magic Kingdom at Disneyworld and alone attracted nearly 21 million visitors in 2019, According to E Com and themed Entertainment Association data.
The draw on this one theme park at Disney World is on par with the approximately 23 million visitors that Boston and attracted in 2019 and close to $24 2 million visitors Miami true that year.
The four seasons resorts Orlando is the only fee simple and luxury resorts within Disney World, That's not owned by Disney.
And it provides complementary transported to Disney World and theme parks and its the only AAA five Diamond rated hotel and Central Florida.
Newly developed in 2014 this iconic resorts as a market leader with a 2019, Brett par index of over 215 and then.
And now host highest ranked property based on its 2019 revpar of $561 and total revpar of $923.
Moreover, it ranks fifth highest and our portfolio based on its 2019 EBITDA per key and 81 and a half thousand dollars.
As with all our strategic objectives, our capital allocation decisions are designed to grow our long term EBITDA.
And we expect this acquisition to elevate the EBITDA growth profile of the existing portfolio.
The four seasons resort Orlando achieved 90 per cent EBITDA growth from 2016 to 2019.
The hotel was profitable in March and the first quarter and we expect it to be profitable this year with our latest property forecast, indicating that the resort is likely to outperform our underwriting expectations for 2021.
In general the resort is well positioned to benefit from a surge and travel and leisure demand as the pandemic subsides and the 18 month celebration of Disney world's 50th anniversary begins in October.
We believe these demand catalysts will help the four seasons resort Orlando surpassed its 2019 EBITDA performance sooner than the rest of our portfolio.
Shifting to the Hyatt Regency Austin, we Opportunistically acquired this 448 room Sunbelt market hotel on March 15th for $161 million.
Acquired off market at a 10% cap rate and an 8.8 times multiple on 2019 EBITDA. The Hyatt Regency Austin purchase price represents a 20% to 25% discount to estimated pre COVID-19 pricing and a 40% discount to replacement cost the hotel was profitable.
On the first quarter of 2021, and it is expected to have outperformed our underwriting expectations into the second quarter.
Longer term, we expect the Hyatt regency Austin to exceed its 2019 EBITDA on a stabilized basis with profitability to be enhanced by complex and synergies incremental expense reductions productivity improvements and ROI investment opportunities.
Turning to our strategic acquisition of nearly 300 acres of land adjacent to the Hyatt Regency Maui.
We acquired the Royal kind of poly and kind of poly Cai golf courses for $28 million.
Approximately $95000, an acre, which represented a discount to pre COVID-19 balance.
We are evaluating numerous long term value enhancing opportunities for this land, which also provides the near term potential to generate synergies with the Hyatt Regency Maui.
To conclude on acquisitions, and we have successfully investing $800 million and the first four months of 2021 and meaningful discounts to 2019 pricing levels.
This is despite a highly competitive and investments landscape with an abundance of capital seeking hotel deals.
Our success is testament to the depth of our industry relationships and the strength of our reputation.
Which is based on decades of best in class execution.
We believe this isn't an opportune time to strategically grow our portfolios exposure to markets with high expected growth and two superior quality hotels.
These early cycle investments have historically provided years of elevated and EBITDA growth when time with a period of strong economic recovery.
Turning to operations business volumes grew and each month of the first quarter with March achieving a revpar of $84 10 sets, which was 115% higher than our December revpar of $39.
Moreover, we outperformed the industry luxury and upper upscale hotel Revpar performance and our markets by over two points and March.
Our leisure markets, such as Miami, Phoenix, and Hawaii, as well as some urban markets, including Washington D C, Northern Virginia, Atlanta, and Philadelphia outperformed the industry over the first quarter, our hotel EBITDA turned positive in March and allowing us to achieve 21 million.
A positive pro forma hotel EBITDA for the first quarter first quarter revenues were primarily driven by strong leisure demand for our resorts and hotels and the Sun belt markets and Hawaii as well as by special group business at several of our urban hotels.
As vaccine and deployment accelerated through the first quarter occupancy and our sunbelt markets and Hawaii Rose from an average of 20% and the first week of January the 57, 4% and the last week of March.
Compared to 2019 rate declines improved from negative $12 four per cent per the month of January and negative 6.5 per cent for March on a portfolio wide basis.
Strong leisure demand over spring break resulted in the portfolio, achieving a 12, 2% increase and transient rate over spring break 2019.
Eight resorts located in Miami, and Florida Gulf Coast, Jacksonville, Phoenix, and Maui delivered almost 24% ADR growth over 2019 per the first quarter with average occupancies of approximately 50%.
Overall, our luxury hotels have increased their revpar index by $23 one per cent over 2019, with the increase and market share driven by occupancy gains.
One hotel South Beach, and the Ritz Carlton Naples were notable outperformers in the quarter with Occupancies, ranging between 60, and 70 per cent and transient ADR above $1000.
As mentioned last quarter, our hotels, and Washington D. C benefited from government agency group demand around inauguration, making D. C. One of our highest performing debt markets based on sequential revpar growth.
Other urban hotels also benefited from special group business, which included film production crews and sports groups that collectively drove drove urban weekday occupancy eight five percentage points higher quarter over quarter.
In addition.
And uptake and leisure transient business transient and contract demand supported sequential revpar growth and multiple urban markets, including Chicago, Seattle, New York, Boston and Philadelphia.
In terms of business mix leisure drove 90 per cent of our first quarter transient room nights.
Our operators drove most of our leisure business through direct bookings, but loyalty redemptions, increasing 33% sequentially driven by our resort portfolio.
The much talked about pent up leisure demand as evidenced and current holiday travel trends, which reflect lengthening booking windows and progressively higher levels of demand.
For instance, at our Marriott managed leisure market hotels occupancy on the books improved by eight percentage points nine weeks out from memorial day, compared to where those hotels were nine weeks out from Presidents' day.
And my holiday travel trends for July 4th weekend are expected to progressively strengthened relative to memorial day, after which many of our hotels are likely to revert to pre pandemic cancellation policies for leisure bookings.
We expect some of our Sun belt markets, particularly in Florida and Phoenix.
Hold on occupancy, while what well rates weaken over the summer.
And Hawaii, our Maui resorts are demonstrating continued strength.
With occupancy and on the books ranging from the mid eighties to the low Ninety's for June and low to high Seventy's for July.
Remarkably June ADR and on the books, and Maui or nearly 28% higher compared to June 2019, while July a D. Rs are approximately 50% higher than July 2019.
Moreover, we have now completed the development of 19, new luxury two bedroom villas at the end of smiling.
And the villas already have 45% occupancy on the books and an ADR of $1700 for the remainder of the year and bookings continue to grow.
Moving on to group, we achieved 264000 group room nights and the first quarter with one highlight being a corporate group of over four and a half thousand room nights at the Orlando World Center Marriott.
The lead per this group came from last October's connect 2020 conference held at that hotel.
Which demonstrated how a group event of over 1000 and person attendees could be held safely.
We currently have one and a half million definite room nights on the books for full year 2021, with approximately a million of those and the second half of the year.
Cancellations remain above 2019 trends, but continue to decline week over week and.
Encouragingly, our Marriott managed properties book, the total of approximately 144000, new rooms across the second third and fourth quarters of 2021 with strong lead conversion rates compared to 2019.
Group room nights currently on the books represent approximately 11% of total available rooms, and the third quarter and 13% and the fourth quarter.
Booking momentum was strong and the first quarter with nearly 165000 and 154000, New group room nights booked for 2022, and 2023, respectively and.
Accordingly, our operators have continued to hold future group rates.
Compared to 2019 ADR for Deca net rooms on the books is flat in 2022, and one 5% higher in 2023.
Turning to business transient demand continues to make steady progress and first quarter bookings were 21% higher than the fourth quarter of 2020, driven by steady month over month progression.
Our hotels in San Francisco, San Jose accounted for approximately 30% of the sequential increase and room nights, while ADR rose, 17% or $26 over last quarter due to increases from high rate and markets, such as Miami, Florida Gulf Coast and Phoenix.
Most of the special corporate business and the quarter was driven by consulting project business and government accounts.
To conclude on operations there were 76 hotels open for the first quarter.
We reopened Hyatt Regency Capitol Hill, and day, one and we expect to reopen the Western Chicago River, North and the Aegis Rio de Janeiro later this month.
By the end of May we.
And we expect only the Sheraton Boston to remain under suspended operations.
Reflecting on the last 12 months, which have been the most difficult and host history.
I am proud of all that we've accomplished and excited by the clarity of our mission.
Which is to position the company to deliver best in class EBITDA growth through the new lodging cycle too.
To achieve that goal our three strategic objectives remain.
To redefine our operating model with our managers to position our renovated hotels to gain market share.
And to allocate our capital strategically through acquisitions as well as through development projects.
We have quantified the potential returns expected from these investments and the past and I am going to put all the numbers together for you now.
And redefining our operating model with our managers and we expect to generate $100 million to $150 million.
Central long term cost savings based on 2019 revenues.
From our goal of gaining three to five points a weighted index growth at the 16 Marriott transformational capital program hotels as well as five other hotels, where major renovations have been recently completed or underway, we expect to generate $21 million to $35 million of incremental E.
EBITDA overtime on a stabilized annual basis.
And finally from recently completed and ongoing ROI development projects, we expect to generate $25 million to $35 million of incremental EBITDA on a stabilized annual basis.
It typically takes renovation and development projects two to three years to stabilize as these projects are at different stages of renovation and development stabilization will occur over several years as a reminder, our recently completed and ongoing development projects include the graph.
And up development of the 165 key AC hotels, Scottsdale North and.
19, new luxury villas at the Andaz Maui.
Repositioning and expanding the Ritz Carlton Naples, and 60000 square feet of additional meeting space as well as and Aquatics Park at the Orlando World Center Marriott.
Our acquisitions of the four seasons resort in Orlando and the Hyatt Regency Austin provide us a pro forma 2019 hotels EBITDA base of $1.547 billion.
And it makes sense to think of 2019 as the base year.
The timing of a return to 2019 levels of hotel EBITDA remains highly uncertain, particularly given the unprecedented pandemic driven nature of the downturn the recovery net based spanned several years and our portfolio is likely to continue to evolve over that time.
However, our goal is for the initiatives and projects underlying our strategic objectives.
And the potential $145 million to $220 million of incremental EBITDA over time on a stabilized basis.
With the lodging industry supply demand fundamentals continuing to improve we remain focused on long term growth and on building a business that is stronger than it was in 2019.
We are pleased with our execution to date and so optimistic about our future as the pandemic recedes and travel continues to rebound.
With that I will now turn the call over to Sarath.
Thank you Jim and good morning, everyone building on Jim's comments I'll provide more color on how we achieve breakeven and the first quarter and how we expect the revenue and expense trends to evolve through the course of the year.
We achieved positive hotel EBITDA and.
Positive adjusted EBITDA range for the quarter due to three main drivers.
Other than expected increase and demand throughout the quarter, particularly in March.
Our managers' ability to sequentially increase average room rates by 18% and continued expense control at the property level.
As Jim covered the first the drivers and whose remarks I will focus on the third.
First quarter hotel level operating costs rose by only 2% compared to the fourth quarter of 2020. Despite an approximately 50% increase in total revenue over the same period.
As demand suddenly surged in March on.
Operators didn't have the time to adjust staffing and other controllable cost from contingency levels implemented since the onset of depend on it.
As a result, much variable expenses declined by 70% on total revenue decline of only 62% compared to March 2019.
Most of the resulting savings would you could cross utilizing hotel employees across various job functions.
For the first quarter variable expenses declined by 74% on total revenue declines of 70% compared to the fourth quarter of 2019.
In future quarters, we expect staffing and other controllable costs to adjust to more normalized levels as demand continues to grow.
Fixed expenses were 41% lower on the fourth quarter of 2019. This is a remarkable achievement considering that nearly 20% of the remaining fixed costs are below G. O. P. And consists mainly of expenses such as property taxes, and insurance, which don't change with business volume.
As part of our goal to redefine the operating model, both Hyatt and Marriott have restructured a number of above property shared service and allocated costs, which were historically completely fixed.
Additionally, we have worked with the brands to achieve greater flexibility to opt into shared services on an as needed basis.
Reducing our fixed costs.
Last quarter, we introduced the expense reduction ratio.
To measure that change and property level expenses again, the change in total revenue over a comparable pro forma time period and 2019.
The expense reduction ratio and the second through fourth quarters of 2020, what's fairly stable at <unk> eight that is for every 10% decline and hotels revenue hotel expenses declined 8%.
In the first quarter, our expense reduction ratio came in at eight for much higher than the six five to seven that we expected on our last call for full year, 2020, one and the highest achieved at any point during the recovery.
The outsized expense reduction ratio combined with ADR being down only 9% for the fourth quarter of 2019 enabled our portfolio to achieve positive hotel level EBITDA.
At 26, 6% occupancy much better than our previously estimated breakeven range of 35% to 45% with ADR down 15% to 30% compared to 2019.
Positive hotel EBITDA for the quarter resulted in positive adjusted EBITDA our EBITDA.
For the quarter for the first time since the onset of the pandemic.
So what are your hotels, representing 30% of total rooms within our portfolio achieved a breakeven or positive hotel EBITDA for the full first quarter.
And 38 hotels, representing 42% book rooms achieved positive hotel EBITDA and March <unk>.
Additional hotels achieved positive EBITDA, and Atlanta, and Texas markets, San Diego and L. A as well as Philadelphia and Hawaii. In fact, all four of our Hawaii hotels achieved a breakeven or positive hotel EBITDA and March.
And I, just mentioned and the first quarter revenue came back pretty quickly on expenses, which did grow commensurately, particularly in March.
Going forward, our operators are expected to increase staffing and controllable spending more in line with higher levels of demand.
In addition, other departmental and support expenses, such as sales and marketing as well as maintenance and other support costs will need to ramp up relative to the first quarter, while remaining well below 2019 levels.
And therefore on a full year basis, we continue to expect the expense reduction ratio to be closer to seven.
Shifting to our top line outlook, while we are not providing guidance at this time I would like to share how we're thinking about our top line trajectory for the rest of the year.
We expect Revpar to continue increasing sequentially throughout the year, but we expect growth to be driven by occupancy and the second and third quarters.
We think rates could sequentially decline as we move out of season, and some of our higher weighted leisure market.
Seasonality in tandem with a normal demand shift toward low rated markets could also lead to lower rates and the second and third quarters as we have seen historically.
Additionally rate could come under pressure and suspended hotels reopen and urban markets.
Moving to business mix, we think business transient will continue to make slow and steady progress during the year with the anticipated return to office late in the third quarter, driving a ramp up and business transient demand after labor day.
While we have benefited from non traditional group demand during the pandemic, we expect traditional groups corporate and association to begin ramping up meaningfully and the fourth quarter. Following the expected return to office after labor day.
Finally, we believe Liza will continue driving total revpar at our properties, particularly through the summer.
We expect our urban hotels to increasingly benefit from leisure demand growth as restrictions in those markets continue to lift and key demand drivers we opened.
As it relates to cash burn for the quarter on a cash burn excluding capital expenditures, which deducts corporate level expenses and interest payments decreased to $45 million or $138 million, including Capex.
These amounts are down meaningfully from the fourth quarter of 2020 driven by the strong fourth quarter operating performance.
We maintain a strong liquidity position with $1 $5 billion of cash including $141 million of assets.
He was there after adjusting for the four seasons Disney acquisition announced today.
And we have no debt maturities until 2023.
There is one accounting item I would like to bring to your attention.
Neither we nor our operators expect any furlough cools employee retention credits or timing adjustment for these items moving forward and.
Cobra benefits provided in accordance with the American rescue plan from April Force to September 30th.
Suite to the furloughed associates of our operators and are fully reimbursable for operators.
A credit against the accordingly payroll tax liability and therefore, there is ultimately no cost to the company, while providing cobra benefits and it will not have any P&L impact from the third quarter of this year.
To conclude we are very encouraged by the momentum of the lodging recovery, which has driven better than expected sequential revenue growth and resulted in positive fourth quarter Hotel EBITDA and adjusted EBITDA range.
We are seeing and queens demand across all parts of our business alongside strong rate integrity.
We view and expect an increase in expenses favorably to us that indicates business volume or ran.
<unk> back up to normal levels.
Combining that with a strong balance sheet and our focus on our three strategic objectives redefining the operating model gaining market share at our renovated hotels and strategically allocating capital. We believe we are well positioned to deliver best in class EBITDA growth that we expect will continue to be further augmented by external growth.
Throughout this lodging cycle.
And with that we will be happy to take any questions to ensure we have time to address questions from as many of you as possible. Please limit yourself to one question.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session.
And if I can ask a question. Please press star one on your telephone keypad at this time I'll come from.
And total indicate your line is and the question queue.
Try and move your question from the queue. Please press star two for participants using speaker equipment and they may be necessary to pick up your handset before pressing the star keys.
Once again that is star one to register our questions at this time.
Our first question is coming from Bill Crow of Raymond James. Please go ahead.
And good morning. Thanks.
Jim I hesitate to congratulate anybody given the state of the industry, but congratulations on it was much better than expected quarter.
I wanted to ask you question about about acquisitions.
It just it feels like three months ago four months ago. The bid ask spread on deals was fairly significant and there wasn't a lot of movement and it seems like that bid ask spread has narrowed dramatically and its not the seller and thats moving down and this is that the right way to think about what's going on with the transaction market is.
The buyers have got much more aggressive maybe much more confident outlook.
Yeah, Bill well. Thank you for the congratulations even though we have a ways to go to get back to 2019 levels of <unk>.
Revpar and EBITDA and exceed those levels, we really like the trajectory that we're on at this point in time, So I will I will take the congratulations and a tough environment.
With respect to acquisitions and you know.
I think we all agreed that let's call it a year ago.
We believed that there was going to be a lot of distress and the marketplace.
And I would I would point to our Hyatt Regency Austin acquisition as an asset that was under distress. The the ownership of the borrower and that deal was staring down a.
A UCC foreclosure.
Action that was going to occur at the beginning of April as you know, we bought the hotel and mid.
Mid March or thereabouts, and saved that borrower and paid off.
All of the debt associated with the hotel and acquired a really good asset and a significant discount to pre COVID-19 and valuations.
I think that a couple of things are happening now.
There is a lot of equity and the marketplace.
Tracy deals.
Good deals are going to price at a.
Close to where they would have priced.
And our 2019 are.
There's no question about it you know solid resorts like the four seasons, Disney which are truly iconic and irreplaceable assets.
And are going to are going to be fully fairly priced.
I am not seeing a generally a lot of distress and the marketplace today.
And for the better quality assets.
And we are not really.
Seeing a lot of distress across the system right now so I do think that there was a lot of capital out there I think as you compete more and auction processes.
Pricing is going to.
Are going to be aggressive however, you know we're coming out of the worst.
Downturn that we've ever experienced.
And the lodging industry and and.
And the pandemic induced recession and the United States.
And as well, we're turning the corner and we are firm believers that for the right assets.
At this stage of the cycle.
It's the time to acquire its the time to do to continue to shape the quality of the portfolio that.
And that we have.
We were fortunate that.
Coming into 2020 on a number of different metrics. The company had never been in better shape, we talk a lot about the balance sheet and the firepower that that's given us too.
And to deploy $800 million of capital today, and what we don't talk about a lot.
But I think it's really important debt debt investors understand it is our revpar metrics are as of January one and 2020 and our EBITDA per key performance as well as the fact that over the last several years over the last five years.
We have consistently tightened up margins.
Our year over year, we have margin improvement going forward. So we are just delighted with where we are and we hope that we're going to have the opportunity to acquire additional assets.
And early in this cycle, so that we can ride the economic waves.
Perfect. Thank you.
Thank you. Our next question is coming from Robin Farley of UBS. Please go ahead.
Great. Thanks, a question on a similar topic wishes just I'm looking at how and asset values have been and he said you know a lot of capital out there does that change your expectation about whether you would use I think you said you have 1.5 billion still remaining for acquisitions whether.
And you would actually be able to use that budget here and the next 12 months and then just a little sort of a hard question and I'm.
And I'm curious with the four seasons Orlando you talked about a lot of the acreage there is there opportunity to add anything there given its special location from the only thing that Disney owned.
And of monetize that acreage or are there limits on what else you might be able to add to that acreage.
Sure Robin.
With respect to deploying that remaining capital.
That we have the cash that's on the balance sheet, obviously, we have.
A some restrictions and connection with our bank waiver agreement today, we're looking forward to the time whenever we're going to come out of that the the waiver and amendment.
And as operations improve we're hoping that's going to be sooner rather than later.
You know, it's very difficult to hypothetically.
Hypothetically.
And he answered the question of whether or not we're gonna be investing additional capital because its really transaction specific.
And we are evaluating a number of opportunities now.
We've evaluated a number of opportunities over the course of this year that we let go.
Cause we didn't think they were the right fit per host.
And for one reason or another.
So we have the teams are back on the road I'm back on the road looking at assets, we have people on the road today as we speak looking at assets.
And we're hopeful that we're going to be able to get some additional capital smartly deployed with respect to the four seasons and Orlando.
And the resorts hits on roughly 289 acres.
And.
The short answer is that on the acreage that we have today, we do not see a current opportunity to redevelop any of that property.
It includes.
And if you haven't seen this property I encourage you to look on the website or better yet go visit it.
Because it is really a fantastic a truly iconic and irreplaceable assets.
It has an 18 hole golf course, it has 444 rooms, a 55000 square feet and meeting space and 13000 square foot Spa.
And it has a five acre waterpark and.
And tennis courts, and fixed food and beverage outlets. So while the 289 acres sounds like a lot of acreage and it is a.
It is being fully.
Fully utilized per day, and and a very a very efficient and a very.
Useful manner.
Okay, great. Thank you very much.
Thank you. Our next question is coming from Phil Malkin of capital One Securities. Please go ahead.
Yes.
Hey, everyone good morning, and.
Great quarter and slow clapping for you over here.
And <unk>.
My question is on the group's added and that's sort of the.
Big Mystery here that the biggest unknown and I think everything else is.
You know.
Well understood and leisure is going to be fantastic for you guys.
You know, Jim if you could or if you could put some color.
Or maybe what you're underwriting for for this year.
In terms of a group I think and and I think in the first quarter you were at about I don't know.
20, <unk> 25 per cent of 19 levels for group.
How do you see that.
Shaping up maybe over them through 'twenty, two and more specifically.
What are you underwriting for the fourth quarter of this year, you said things are coming back or you know you're more bullish on that quarter. I mean can you kind of just benchmark a couch.
What you see.
Has the.
Performance relative to 19, and the fourth quarter and more specifically.
And into 'twenty, two as well.
Sure.
I'll start and maybe I can perhaps rob chime in as well.
Or the second half of 2021, we have million group room nights on the books.
And we have and our Marriott Marriott.
Barry Atlantis properties.
We booked 144000, new room nights this year.
For two Q for the second quarter through the fourth quarter of the year.
And those 144000, new room nights about 70% of those were for the second half of the year.
So that million room nights that we have on the books for the second half of.
2021 equates to 50%.
The room.
Room nights, we had.
In 2019.
Same time and 2019 so.
And the split between.
The.
The bookings is really leaning fourth quarter, a little bit and not a lot.
And at 54% in the fourth quarter and.
The other thing I'd like to add is that we have a high degree of confidence that those books or are those groups are going to show up because our managers have just scrubbed all the bookings and.
To make certain that people arent, just hanging and theyre going to cancel at some point in time.
So it's.
It's not great, but it's good and the fact that a million room nights are still there and holding up.
Is is encouraging.
As we look out to 2022.
You know it it is.
And we have with about two 2 million room nights on the books and 2020 twos drop I think something like that and.
It is very dependent at this point and time on.
When restrictions are going to be lifted and key markets.
And just put some.
Backed around it.
Some of the markets and Chicago, I think just announced yesterday, when they're going to reopen.
California is expecting to fully reopen on June 15th Boston August 1st New York July 1st.
And I think that as markets reopen.
And that's that's the first thing that has to happen, but more importantly, what has to happen.
The business transient traveler to return.
And the.
And groups to start booking into next year, and a more meaningful way as well.
We have to continue to get our the pace of vaccines are out there.
Get to herd immunity and the country and very importantly, get our children and back to school.
And I think that.
And we're hopeful that that's all going to happen.
September analyst, Rob Gary anything you want to add on this point and the only.
Yeah, the only thing I would add cash.
In terms of booking activity.
So our properties booked 440000 room nights for the next three years. So that's 22 through 24 and to put that into perspective that 17% better than 2019 levels and we're certainly encouraged by the booking activity, that's taking place and hope that continues.
And as we go into the second and third quarters for future years as well.
Okay. Thank you guys.
Thank you. Our next question is coming from Thomas Allen of Morgan Stanley. Please go ahead.
And thank you on the four seasons Orlando acquisition, having stayed there on all agree that a really special property.
Just can you talk a little bit of more about where you see opportunities like do you see the opportunity to make changes to that property to grow EBITDA longer term and you bought it at a four point and 7% 2019 cap rate or a 16.8 times EBITDA multiple.
And you have a view on where stabilized returns all day. Thank you.
Sure Thomas we we do have a view, obviously and our underwriting.
We put a lot of thought into it as we do and every acquisition.
Let me start by saying that they've seen the type of hotel debt.
We have a lot of experience with and that we have and the past delivered a lot of value to our shareholders through our asset management and.
And enterprise analytics capabilities as.
As we look at this property.
Out of the box.
Profitable as we speak.
And we're optimistic that.
And the performance of the asset is going to exceed our underwriting expectations for 2000.
'twenty one for sure the way it's going on there are a lot of things, so robin and I will kind of tag team this a little bit and a moment, but.
As we look at what's happening and Disney and in the country.
We're very optimistic that we're going to see strong performance at this hotel going forward.
We believe that this property is in a position.
To perform.
Better from an EBITDA growth profile and the rest of our portfolio and to recover to 2019 levels of EBITDA and be on sooner than the rest of our portfolio does.
Additionally, and I'll, let Rob put some color on this we feel that the asset has multiple asset management and opportunities to advance margin and operational improvement.
One other point I'd like to make is that our October one.
But this year is the 50th anniversary of what Disney World.
The Magic Kingdom.
And Disney is planning and 18 months celebrations starting October one so we expect that we're going to see.
Incredible demand.
And.
Flowing from this hotel.
One of the things that we looked at is the performance of ultra luxury assets and if you look at ultra luxury assets over.
The last 20 years from 1990 to 2019 and those are defined as hotels with a revpar of $500 or greater the CAGR was six 2%. If you look at the top 25 markets over that timeframe. The CAGR was three 2%. So we think that there.
His incredible demand out there for this.
The resort is becoming a destination unto itself not only a a destination for people who want to stay to Disney, but you know a.
Vacation destination, given the amenities that are on our property and.
From some people that are they take their and their family to stay at the four seasons and the kids don't want to go to Magic Kingdom. So.
All good stuff as we see it going forward and I'll, let Rob talk a little bit about.
Some of the things we're looking at.
Yeah, So we like with any acquisition.
We have a best practices. They book that we will share with the property and then worked collaboratively with the management team to implement those best practices.
For example, we have a best in class.
Functional space management strategy to maximize revenue per available space. The meeting space that exists on property, we've obviously done a lot with.
On our existing luxury resorts in Florida, as well as across our portfolio. Additionally, given that this is a resort and it has a ton of ancillary income as well its going to be all about maximizing total revpar, which we again successfully done and implementing at whether it's the one south beach and most.
One of our recent acquisitions or it's sort of it's.
Naples, and Florida as well.
So a lot will be a lot of focus on total revpar and driving ancillary income.
And we will also work and the four seasons actually has a very experienced management team work with them to identify any operating model opportunities.
And we are successfully getting done across on luxury resorts and implement them.
As soon as possible so.
So we look forward to working with the team the other pieces, obviously, we're evaluating multiple ROI opportunities.
And particularly as it relates to our food and beverage, which we're excited on.
And to move forward on as well.
Thank you.
Thank you. Our next question is coming from Smedes Rose of Citi. Please go ahead.
Hi, Thanks, I just wanted to first of all just wanted to clarify something did you say you have 2 million group room nights on the books now for 2022.
Correct, yes, okay. So is that running at about a third of what you would've done and then and.
And 2019.
Or is it running at a higher pace and we're just trying to get a sense of you know.
What.
Central upside and be there.
Yeah, Yeah sure.
And.
Relative to the 19, when you think about it at this point and time, we would have about 60% on the books for the following year, we have approximately 45% on the books for 2020 two.
Okay. Okay, and then I just wanted to ask you you mentioned 100 per $115 million and cost savings and.
You've talked a lot about.
Being more efficient at the property level in order to achieve some of those savings.
And it has there been any more thought I guess coming out of the brands around the way the housekeeping.
And we'll be.
Executing going forward and is that another potential opportunity for significant savings or would you not expect to see any kind of meaningful changes and that and.
Cost item.
It is certainly an ongoing dialogue and it is going to be on a case by case basis, and as you can imagine and resort properties and it's gonna be somewhat different than with urban hotels.
And also business mix, it's also very dependent and so it's something that we are constantly we are having conversations.
With our managers to see how that brand standard, which will evolve as we get into more stabilized operations. So it's a continuing dialogue and it definitely is going to be on a market by market basis, but there certainly is opportunity to modify the housekeeping on relative to what it was pre pandemic.
Okay. Thank you.
Sure.
Thank you. Our next question is coming from Lucas hardware of Green Street. Please go ahead.
Thanks. Good morning can you talk a little bit more about the long term optionality with the 300 acres acquired and nalley.
Sure Lucas.
Again, you know 95000 and acre.
Currently being utilized for two golf courses.
And a couple of restaurants on that site.
It is immediately adjacent to the Hyatt Regency Maui.
And assets that we have just.
Completely repositioned it was a one of the assets that was under a.
On multi year repositioning program and when COVID-19 hit and.
We were able to go back to our general contractor.
And renegotiate the contract they should give you a context and accelerate the renovation and repositioning of that assets. So it was completed in November of.
Last year.
As opposed to a year later.
Plus or minus.
We see opportunities going forward subject to zoning and you know.
Doing a.
<unk> development and Maui takes time and there's a.
A long process, but we have experience with that given what we were able to do at the and us.
With the addition of our biller units.
And there are opportunities on that land to add rooms to the existing hotel to build another hotels to build the select serve hotels.
As we think about it.
And and use the Venetian and.
As the Blue.
Playbook and blueprint.
It took 27 holes of golf and.
Shrunk it to.
18 holes.
Those are things that we're going to think about going forward and Maui.
Great. Thank you.
Thank you. Our next question is coming from Chris Morocco of Deutsche Bank. Please go ahead.
Hey, good morning, guys I think back in the prepared comments you are you mentioned that as part of the long term EBITDA improvement plan, you're looking at 20% to 35 million coming from three to five points of index growth at some of your recently renovated Marriott hotels can you could you.
Kind of give us a sense for is that three to five points of index growth relative to 2019, our pre renovation and just where do you think that lift comes from is it from other Marriott properties on the market or is it from other brands just any additional details and you can give us on that would be terrific.
Yeah. It is a three.
Three to five points of yield index growth.
Relative to where the asset was performing pre renovation.
And the.
<unk>.
The assets that we're talking about are not only the 16 Marriott transformational capital program assets.
Other assets, where we are in.
Invested.
Roy money.
Such as the debt.
And the Dawn CS are and what we're.
We're gonna be doing at the Ritz and Naples, and other hotels across the portfolio.
Where does it come from it's tough to say, Chris and we think that the.
The.
And in the middle of the pandemic or one assets that we can point to that has really captured a lot of incremental market share as the Coronado Island resort and Spa and.
And San Diego.
I think the yield index gain for well over nine points at that hotel. So it's gonna be case by case, and you know I don't want to promise anything but.
As we are putting money and our hotels and renovating our properties and repositioning them and we're gonna have a distinct advantage business gets back to normal and I personally believe that we should be able to achieve more than three to five points of yield index growth because we're gonna be competing with hotels that havent been.
And renovate it.
And we're going to have to be renovated going forward.
And there's going to be incremental disruption.
Associated with those renovations when they do occur and it's gonna have to happen.
Sure.
And just going to be competing with a tired property.
So we are very fortunate to have had the ability to continue to invest and our assets over the course of 2020 and we're doing the same thing this year.
Going forward.
Okay very good thanks, Jim.
Okay.
Thank you. Our next question is coming from Ari Klein of BMO capital markets. Please go ahead.
Thank you.
And the ADR at resorts that had been incredibly strong towards the pandemic do you view this as the new normal and a run rate maybe moving forward you know I guess when you look ahead over the next year or two.
And this should be sustainable and that we build off of off of this year.
Yeah.
I don't know that it's going to be sustainable Larry I think that this year.
Was a unique point in time with our businesses closed and people working from home.
And people being in a position where they can work from anywhere.
As children get back into schools and it's on offices open and I think youre going to see.
And a return to business transient traveler and return on group business and.
And we are just.
And so very.
Fortunate that our resort portfolio and our.
Assets and the Sun belt I have.
Carried us through and a material way, we never thought that we would be profitable and the first quarter.
We had.
30 hotels that were profitable for the entire quarter and I don't know that we've talked about this before but we had 38 hotels, 42% of our rooms that were profitable for the month of March So do we think that.
We're going to continue to see this outsized performance.
I think for a.
For the near term.
The answer is yes, and when I say near term and we're talking about another year or so because there's so much pent up demand out there are there is so much money and savings there is six trillion dollars.
That.
And that individual's habit and their bank accounts per day.
They want to spend it.
And for sure they want experiences they're happy too.
They are happy to get on an airplane and go and one of the other interesting data points that we look at.
And is air capacity.
And surprisingly for Maui.
And our three resorts.
Gave you some numbers on how they are trending for June and July, which I don't think anybody would have believed and sitting here a year ago that we'd be seeing 80 to 80 to 90 per cent of occupancy and ADR up 28% and our three resorts on mountain.
It's the only market and the country.
The only area earmarked in the country being Maui that has more capacity right now.
And then.
It did and.
In 2019 air capacity from OE was up 4%. So for the near term I think youre going to see incredible pent up demand revenge travel we are seeing it.
And to continue.
Sustainable over the next three to five years, it's hard to say, but I doubt it.
At that point in time.
And we're really going to be able to.
Compress rates.
As we have group business and business transient business back on the hotels.
And I appreciate all the color.
Uh huh.
Thank you, we're showing time for one last question.
Our last question will be coming from here.
Please go ahead.
And.
Hi, Good afternoon, and you talked a lot about the strength and ultra luxury properties over the past several years at cycle.
Does that shift does that signal a shift for you to focus more on those properties and buying more of those or the cycle or would you prefer or even try to do more deals like the Austin property, which is moving discounted group convention hotels and.
And a kind of a rolling and market.
Okay.
Anthony I think that we are very open minded to investing and both types of assets.
We're comfortable with.
Hotels like Austin that fits the profile.
And of assets and me on today that we know how to effectively asset manage them.
As I've talked earlier on this call, we're very comfortable with and asset like the four seasons Orlando and it really it really comes down to what I said in my prepared remarks regarding improving EBITDA growth profile of the company, So that's where you're going to see us putting capital and.
And the assets are.
And where we feel that we can improve the overall EBIT growth profile.
As I mentioned on our fourth quarter call.
We're prepared to look beyond the top 25 markets.
We did that with Austin.
And we're continuing to do that today.
The demographic trends are changing and this nation.
And a lot of people and a lot of businesses are relocating too.
Our cities and Sun Belt States and.
We're gonna followed and demand.
So I think you can expect to see us.
And.
Mary.
Array on properties, so long as they are all going to improve the overall great growth profit growth profile and host.
Thank you.
Thank you ladies and gentlemen, this concludes the question and answer session time line.
I'd like to turn the floor back over to Mr. <unk> for closing comments.
Well everyone. Thank you for joining us on the call today.
Really appreciate the opportunity to discuss our first quarter results with you.
I look forward to talking with many of you over the coming weeks and Ah and.
At NAREIT in June.
And at a REIT world in person.
And at the Wynn Hotel and November.
Just ask and ask you to just do a couple of things if you haven't gotten vaccinated please get vaccinated.
Enjoy your summer travels and go out and visit some of our hotels lastly.
Be well and stay healthy thank you very much.
Ladies and gentlemen, thank you for your interest and hotels and resorts you may disconnect your lines and at this time and have a wonderful day.
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Yes.
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