Q2 2021 Host Hotels & Resorts Inc Earnings Call
[music].
Good morning, and welcome to the host hotels and resorts second quarter 2021earnings conference call today's call is being recorded.
At this time of let's turn the call over to Jamie market Senior Vice President of Investor Relations. Jamie. Please go ahead.
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.
As described in our filings with the SEC. These statements are subject to numerous risks and uncertainties that could 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 the <unk> adjusted EBITDA, Ari and hotel Lubbock result.
You can find this information together with reconciliations to the most directly comparable GAAP information.
In Yesterdays earnings press release.
And our 8-K filed with the of P C and in the supplemental financial information on our website at host hotels Dot com.
Participating in todays call with me will be Jim Rizzoli of President and Chief Executive Officer, and sort of gross executive Vice President and Chief Financial Officer and Treasurer.
And now I'd like to turn the call over to Jim.
Thank you, Jamie and thanks to everyone for joining us this morning.
The same goes the trend is your friend and.
And that has certainly been the case for a host and the broader lodging sector since the first quarter.
While we are paying close attention to the delta there, yet and the potential impacts of our business.
We are very pleased with the performance of our portfolio.
We are seeing increased demand across all business segments as market restrictions lift and the lodging recovery gains momentum.
TSA passenger throughput trends have accelerated since memorial day and are currently about 80% of 2019 levels compared to 60% and April.
Leisure demand remains resilient and group and business transient volumes continued to trend and the right direction.
We significantly outperformed expectations and meaningfully beat consensus estimates on all metrics and the second quarter of.
Revpar increased 55% over the first quarter.
We delivered positive adjusted EBIT of our E of $110 million pro forma hotel EBITDA of $126 million and adjusted <unk> per Boe per share of 12 sets.
Each of these metrics saw a meaningful sequential increases over the first quarter.
For the second quarter pro forma revenues increased 54 per cent over the first quarter, while hotel level operating expenses grew by only <unk> 32 per cent the.
Increase in revenues was driven by stronger than anticipated demand.
<unk> expense savings from redefining of the operating model and slower than expected and hiring and sunbelt market.
These factors led to a 400 per cent increase and pro forma hotel EBITDA and the second quarter versus the first quarter.
We are continuing to see green shoots across all aspects of the bar business as the lodging recovery gains momentum.
As a result, we are pleased to announce that as of August 1st of all of our properties are open and operating with the exception of our latest acquisition the <unk>.
<unk> hotels, Alessandra, which I'll discuss in more detail shortly.
In tandem with the operational recovery, we are continuing to increase the expected EBITDA growth profile of our portfolio and improve the quality of our assets by executing on our 3 strategic objectives, which are to redefine the hotel operating model gaining.
Gaining market share of renovated hotels and strategically allocate capital.
As it relates to our capital allocation strategy, we closed on 2 more off market acquisitions since our last call in May.
And the Bakers Cay resort and key Largo and of former hotels Alessandra of luxury downtown hotels, and Houston and Central business District.
Along with our previously announced acquisitions. These 2 hotels, bringing our 2021 year to date acquisitions. The 1 point of $1 billion and a 13.8 times EBITDA multiple which is based on 2019 EBITDA of projected normalized operations and the case of.
Bakers Kay and the former hotels Alessandra.
After taking into account. These 2 acquisitions, we have $1.3 billion of total available liquidity, including $139 million of F. F in the reserves.
As a reminder, we discuss the acquisition of 2 hotels and 2 golf courses on Maui on our first quarter earnings call.
We purchased the 448 room, Hyatt Regency, Austin per $161 million or $359000 per key and a 10% cap rate and 8.8 times multiple on 2019, NOI and EBITDA respectively.
We also purchased the 444 key core sees those resorts Orlando at Walt Disney World Resorts for $610 million or $1.4 million per key and a 4.7% cap rate and 16.8 times EBITDA multiple on 2019.
O y and EBITDA, respectively.
We expect this iconic and irreplaceable resort the stabilized between 12, and 14 times EBITDA and the 2023 and 2025 timeframe.
We also acquired the Royal kind of poly and kind of Polycom and golf courses and Maui for $28 million.
All 3 of these acquisitions are performing meaningfully ahead of our underwriting expectations.
As of June the Hyatt Regency us and is $4.1 million higher than our 4 year 2021, EBITDA forecast and the 4 seasons resort Orlando is $11.7 million higher and.
Additionally, the golf courses have and the expected cash on cash return of <unk>.
Approximately 11% for the calendar year of 2021.
Turning to our most recent acquisitions first the Bakers Cay resort key Largo, a beachfront property and our first asset and the Florida keys.
Close on this off market acquisition on July 1 or $200 million.
The very long standing relationship with the seller.
The resort was attractively priced at an estimated 6.2% cap rate and $14.5 times EBITDA multiple on 2021 and forecast.
While the property was closed for much of 2019 as it went through and extended renovation. This 2021 forecast performance would ranked eighth in our 2019 pro forma portfolio on both Revpar and EBITDA per key.
Through opportunities, we have identified to organically grow EBITDA at the property, we expect it to stabilize at approximately 13 times EBITDA between 2023 and 2025 the.
200 room resort and Hilton's Curio, a collection is located on 13 acres of irreplaceable beachfront land on key Largo Gulf Coast the.
The resorts is in excellent condition after reopening and 2019, following a complete renovation totaling $63 million or $315000 per room.
We are thrilled to have a presence in key Largo as it benefits from the favorable supply demand dynamics of the keys, while still being close the mainland Florida.
The resort is about an hour's drive from the Miami Airport and is within a 5 hour drive grew over $22 million, Florida residents.
This proximity to the mainland also allows for greater access to labor relative to the keys that are further south.
The Florida keys are highly desirable from an owner's perspective, given the unique supply and demand dynamics and the market.
The rate of growth ordinance ensures the new hotel rooms, and it only be added if they replace existing entitled dwelling units, which has led to a 4% supply increase and the keys from 2000 and for 2019 versus 25 per cent for the U S. According to STR.
That in turn has led the keys consistently having leading upper upscale revpar and revpar growth of <unk>.
Detailed and the Bakers K presentation on our website.
Moving on to our most recent acquisition the former hotel of Alessandra, a luxury downtown and hotel and Houston and Central business District.
We Opportunistically acquired this 223 room hotels grew $65 million or $291000 per room on July 2nd prior to a schedule of the foreclosure auction.
Our ability to source and close on this the stress off market acquisition is.
Truly a testament to the host deep industry relationships strong balance sheet and.
And our ability to close reliably and quickly.
Having recently opened in October 2017. This hotel is in excellent condition, and we expect little to no capital to be invested and the near term.
At $65 million, we purchase the hotels for an approximate 30% discount to its $90 million development cost.
The hotel is currently closed and it's all of the unencumbered by brand and management.
We have engaged hei to operate this hotel with a nationally recognized brand reservation system and loyalty program, thereby maximizing its attractiveness the business transient and leisure guests.
All of this hotels had not reached stabilization in 2019 based on our forecast for normalized operations, which assumes a new manager brand and operations in line with the 2019 operations of comparable Houston properties. The price would represent a 9.6% cap rate.
And <unk> and 9.2 times EBITDA multiple.
Additionally, we have identified a number of opportunities to explore with our new operator, which we believe will increase the EBIT and growth profile of this hotel.
We have deep knowledge of the Houston market, given our existing ownership of 4 hotels and the city of <unk>.
<unk> Hotel Alessandra as part of the Green Street mixed use development and the center of downtown Houston, which has the second largest concentration of public companies and the U S, including 24 of Fortune 500 companies.
In addition, Houston is the number 2 U S metropolitan area by job growth. According to the Bureau of Labor Statistics, and the CBD grew revpar by 10% from 2016 to 2019.
In total we have invested $1.1 billion and early type of acquisitions, thus far and 2021 and a $13.8 times EBITDA multiple.
This compares favorably to the $3.5 billion of assets, we disposed of at a blended 17 times EBITDA multiple between 2018 and 2020.
We continue to believe this is an opportune time to improve the quality of our portfolio by investing in markets with high expected growth.
And our early cycle of investments have historically provided of years of elevated EBIT growth alongside periods of strong economic recovery.
Moving on to the operations. We are excited to announce that we have reopened and the 3 remaining hotels that had previously suspended operations.
The EBIT Rio de Janeiro opened on May 10th and the Western and River North opened on May 19th.
The Sheraton Boston and reopened on August 1st well ahead of our expectations due to an increase in group business demand.
With the exception of our newly acquired.
Acquired hotels in Houston, which we expect to open later this year.
Portfolio is now fully open and ready to take advantage of the next large of the cycle.
Looking at second quarter operations, the recovery momentum continued to play out driven once again by robust rates and our resort market as leisure demand was stronger than anticipated after the spring holidays.
Folio of wide pro forma revpar sequentially improved each month, and we ended the second quarter with Revpar just shy of $100.
The room Revpar came in at over $111, representing a 25% increase over March and.
And preliminary July Revpar is expected to be and the mid $130 range.
Portfolio of hotel level EBITDA has remained positive in each month since March with 52 hotels delivering positive even in the second quarter, representing 56% of rooms, and increase from 31 hotels, representing 31% of rooms achieved and the.
First quarter of 'twenty 1.
We were particularly encouraged that June was the first month that are non resort portfolio also realized positive hotel EBITDA.
And by our properties and San Diego, San Antonio and New Orleans.
As markets have lifted restrictions the <unk>.
<unk> has also improved at our urban hotels.
Transient room nights, and New York, New Orleans, San Francisco, and Chicago grew significantly from the first quarter to the second quarter.
And with New York up over 200% and.
Importantly, both room nights and rates have increased steadily each month since March.
Leisure market weekly occupancy ended at 62% the last week and June a 3 percentage point increase over the end of the first quarter.
And in downtown market weekly occupancy recovery continues to be promising finishing the quarter at 43% up 15 percentage points from the beginning of the quarter with ADR up over 10% quarter over quarter.
Turning to business mix pent up leisure demand at our resorts has spilled over into the summer months and kidney continues to lead the operational recovery.
And the second quarter, both rate and revenue and all of our resorts not only exceeded our first quarter results, but also surpassed 2019 levels.
Resort revenue increased approximately $50 million over 2019, driven by 35000 more room nights sold with a remarkable $95 increase and rate.
And is particularly noteworthy and substantial room night increases have historically resulted and rate erosion.
And the second quarter 11 of our resorts had rates more than 25% above the second quarter of 2019.
Transitioning the group demand our hotels sold nearly 344000 group room nights and the second quarter of 29% to first quarter.
And as a result group revenue was up 39% over the first quarter, which includes an 8% rate improvement.
Group demand and the second quarter was mostly concentrated and sunbelt markets, Although Boston and Denver were also contributors we were encouraged to see meaningful month over month growth and both corporate and Association group business.
Looking forward.
We currently have $1.2 million group rooms booked and the second half of the year, which is up approximately 20% since our last earnings call of.
Of the roughly 200000 net group room nights booked and the second quarter from the second half of 2021, we are encouraged that over 2 thirds of them were booked and Houston, Boston, New York and Denver.
Net booking activity for 2022 also improved each month and the second quarter, resulting in 213000 room nights booked.
Our managers remain focus on holding future group rates of ADR on the books is slightly higher than the same period and 2019.
We now have $2.4 million definite group room nights on the books, which represents 50% of 2019 actual group room nights for.
For comparison and the second quarter of 2019.
Definite group room nights on the books for 2020, where 60% of 2019 actuals.
Our group bookings for 2023 or Echo Inc. A very similar story.
As of the second quarter, our net booking activity for 2023 total 109000 rooms.
Which sequentially increased each month in the quarter in.
In addition, our average rate on the books of slightly above levels for the same time and 2019.
Finishing with business transient we remain encouraged by the sequential growth, we're seeing and this segment.
Special corporate rooms sold and the second quarter were up over 100% compared to the first quarter, driven by growth and Denver, Texas, California, and New York and Atlanta.
We are also seeing booking activity come back from traditional top accounts, which include a mix of financial government and consulting companies.
We continue to believe that business transient demand will evolve post labor day, let's go back and session and the return to office for many companies.
We are pleased to have shown a monthly average growth rate of nearly 30% and business transient room nights and revenues since January of this year.
As I wrap up my comments I would like to reiterate the incremental EBITDA, we expect to achieve as we emerge from the pandemic into a new lodging cycle.
Our acquisitions year to date and provide us and estimated pro forma 2019 hotels EBIT of base of $1 billion $570 million.
While it makes sense to think of 2019 as the base year. The timing of the returned to 2019 levels of the hotel EBITDA remains highly uncertain, particularly given the unprecedented pandemic driven nature of the downturn.
The recovery may spanned several years and our portfolio is likely to continue to evolve over that time.
In addition, we expect $145 million to $220 million of annual incremental EBITDA on a stabilized basis overtime coming from 3 strategic directives.
First.
Redefining the operating model with our managers, which is expected to generate $100 million to $150 million of potential potential long term expense savings based on our 2019 revenues. We have taken initial steps towards 50% to 60% of these savings to date.
Second gaining and expected 3 to 5 points of weighted Revpar index growth at the 16 Marriott transformational capital program hotels as well as 5 other hotels, where major renovations have recently been completed or are underway.
Part of the Marriott program during the second quarter, we completed the Ritz Carlton Amelia Island, and we will complete the multiyear transformation of the New York Marriott, Marquis and 2 weeks.
We expect to complete approximately 85% of the Marriott transformational capital program by year end the.
The 5 other major renovations have expected completion dates through 2023.
We expect these repositioning to generate $21 million to $35 million of annual incremental EBITDA on a stabilized basis over time.
And finally, we expect to generate $25 million to $35 million of annual incremental EBITDA on a stabilized basis from recently completed and ongoing ROI of development projects with expected completion dates by the end of 2022.
The renovation and development projects typically take 2 to 3 years to stabilize after completion and as these projects are of different stages of the process stabilization will occur over several years.
During the quarter, we completed the development of a new water park at the Ritz, Carlton and golf resort, Naples, and additional villas at the Andaz Maui at Wailea resort.
The 19, 2 bedroom luxury villas achieved occupancy of 73% and the first full month of operations at an average rate of over $600. This compares favorably to our underwriting assumptions of mid 30% of occupancy and an average rate of over <unk> hundred dollars for the full year.
<unk> 2021.
To conclude my remarks, we are very encouraged by the operational recovery, we are seeing at our hotels and the cross the lodging industry as demand accelerates and.
While we continue to monitor the potential impacts of the Delta area, and we remain optimistic and well positioned to execute on our long term goal of increasing the EBITDA growth profile and improving the quality of our portfolio.
With that I will now turn the call over to Sarath. Thank you Jim.
Everyone building on Jim's comments I will go into detail on second quarter cash flow on.
Operating expenses and our view on revenue and expense trends for the back half of 2021.
During the second quarter, we generated positive cash flow from operations for the first time since the onset of the pandemic.
Starting with the pro forma hotel EBITDA of $126 million.
And backing out $65 million.
The majority of which is made up of interest and corporate overhead we generated $61 million of cash during the quarter.
If you take into account our ongoing capital expenditure program, which totaled $87 million for the second quarter and includes all ROI project maintenance Capex and the Marriott transformational capital program on net cash outflow was only $26 million.
In addition, we maintained our strong liquidity position with $1.3 billion of cash, including $139 million of ethics and he was the after adjusting for our 2 hotel acquisitions and July and we have no debt maturities until October 2023.
Moving on to expenses.
Total operating costs and the second quarter rose by only 32% compared to the fourth quarter. Despite a 54 per cent increase and total revenue.
The beginning in March we proactively increased rate and our leisure markets given the demand surge and benefited from outsized out of room and.
That said the slow pace of hiring by our operators caused operating expenses to remain unsustainably, low, which we do not expect the continuum.
Variable expenses were down 59% relative to a total revenue decline of 54% when compared to the second quarter of 2019.
These figures had kept pace with each other through February but since March.
And you have come back faster than variable expenses.
We expect the gap to narrow as we progress through 2021 and hiring increases to levels more in line with demand.
Fixed expenses, including wages and benefits were 32% lower than the second quarter of 2019, and 18% higher than last quarter.
Hotel operating costs, such a contract services maintenance and utility costs were the driver of this modest quarter over quarter increase and some traditionally fixed expenses came back with increased business volume.
And as it relates to above property shared service expenses.
Both Marriott and Hyatt continued to provide cross relief and flexibility for services.
Areas of savings on the second quarter include above property sales and marketing revenue management and I keep costs.
As a reminder, we introduced the expense reduction ratio of several quarters ago to measure the change and property level expenses against the change and total revenue over a comparable pro forma time period in 2019.
During the second quarter on expense reduction ratio came in at <unk>.
8.4 which means that for every 10% decline and hotel revenue compared to pro forma second quarter of 2019, there was an 8.4% reduction and expenses.
For reference in the second quarter of 2021 total operating expenses were down 46% versus 2019 on revenues down 54%.
And this is the second quarter and a row that our expense reduction ratio came in much higher than our anticipated range of 6.5 to 7 O.
While the positive for profitability. This level of expense reduction is not sustainable on the long run and it reflects the hiring challenges our operators are facing and certain markets.
Our ratio and the second quarter also reflects better than expected ADR as well as tight expense control by the operator had.
Had our rate been closer to our forecast and hiring ramped up as expected we estimate that our second quarter expense reduction ratio would have been <unk> 72.
As we think about the second half of 2021, we are anticipating and expense reduction ratio and the 0.75 to 8 O range.
This partly reflects the rate decline and the third quarter driven by a shift in the mix of business as properties ramp up operations.
In addition expense levels are anticipated to be more normalized and hiring continues.
Ramping up and the labor challenged market.
Moving to our top line outlook, we are still unable to provide guidance at this time that said the.
And the second quarter, we expect strong momentum and our topline growth trajectory and the second half of the year as business transient and group volume increase.
We continue to expect occupancy gains to drive revpar increases over the second half of the year.
As a reminder, we expect that the rate will decline and the third quarter. The 4 ticking back up in the fourth quarter as the extended peak season, we have benefited from and our high rate of diesel market shifts towards lower rated market.
We are still expecting steady increases in business transient and group demand with more pronounced increases the beginning after labor day in conjunction with the return to office for many companies.
We expect this to primarily benefit the corporate and Association group business.
And on a global business Travel Association survey in July.
63% of companies plan to resume domestic business travel and the next 1 to 3 months, which is up 35 points from the March survey.
We continue to expect leisure travel to drive total revpar at our properties, particularly as key demand drivers returned to normal operations and urban markets.
Finally during the quarter, we Opportunistically issued 7.8 million shares of common stock through our at the market program and approximately $18 per share, resulting in total net proceeds of $138 million.
We have $460 million of remaining issuance capacity under our ATM program, but we want to emphasize that our $1.3 billion cash balance is sizable and the trajectory of cash from operations is expected to continue to increase.
With that and mine, we will continue to be opportunistic with respect of our future issuances.
To conclude.
We are very pleased with the progression of the lodging recovery and the milestones we have achieved over the past few quarters.
We continue to see increasing demand across all parts of our business at a faster pace than we expected and we remain optimistic that this lodging recovery will continue to gain momentum through the course of 2021.
Given our strong balance sheet remains very well positioned to execute on our goal of increasing the EBITDA growth profile and improving the quality of our portfolio, particularly given the strong recovery that is underway.
We continue to make significant progress on the redefining the operating model with our managers and increasing market share and renovated assets and strategically allocating capital.
With that we would be happy to take any questions to ensure we have time to address the questions from as many of you as possible. Please limit yourself to 1 question.
Thank you and I became the up your question and answer session, if you'd like to be placed and the question queue. Please press star 1 on your telephone keypad of confirmation tone will indicate your line is and the question queue. You May press star 2 if he'd like to remove your question from the queue for participants using speaker equipment.
And then maybe the sort of the pickup your handset before pressing star 1.
1 moment, please while we poll for questions and as a reminder, we ask you. Please ask 1 question the return to the queue. Our first question today is coming from Smedes Rose from Citi. Your line is now live.
Hi, Thanks.
Hi, My 1 question would just be could you talk a little bit more about the decision to issue shares on your on your ATM relative I think to your own guidance around.
Net asset value and what looks like to be fairly strong of a strong liquidity position.
Already going into this.
Sure Smedes healthy to do that.
We.
Always are looking at opportunistic ways to raise capital.
And deploy capital in the 2.
The areas that are going to enhance the EBIT growth profile of the port.
And we know going forward and.
And we think about values.
Valuation and.
You know and a and a b, which we don't talk about we've never published it and we.
And what type of buyer today.
Our NAV changes that are at a point in time and it moves.
Based on the facts and circumstances and conditions and we're in a very volatile environment.
And we thought it was at.
And opportune time to raise and.
And some cash and not a lot of.
And given the acquisition pipeline and that's out there.
And we were looking at.
Bakers K at the time and some other deals at the time and so we just felt it was prudent to raise some equity around those acquisitions and as a terribly clear weather and a lot of money and the.
And we do have ample liquidity on the balance sheet today.
And the.
We'll see where the future takes us.
The next question today is coming from Neil Malkin from capital 1 Securities. Your line is and our lives.
Thank you good morning, guys.
My question is about acquisitions.
The acquisitions kind of what you were talking about a second ago can.
Can you just talk about.
And what the pipeline looks like in terms of.
How are you underwriting more deals and you were 30.60 days ago and <unk>.
The specific focus of.
You now have that you prefer and the current environment.
And.
And just kind of give us a sense for what your capacity is right now under the the waivers kind of a change of given your cash flow position. So do you sort of talk about that that'd be great.
Sure Neal.
I will tell you it's it's the.
It is a really very much a variable pipeline today.
And those come into the pipeline well reevaluate them and.
Make the decision on whether or not to pursue something.
And.
You know, it's hard to say really where we were at 30 to 60 days ago.
Today going forward.
It can change it can change and the in a matter of the day.
As we think about the types of acquisitions that we're interested in.
You know the.
And I think of if you look at where we've acquired to date and.
And kick off on 'twenty, 1 and 1 point of $1 billion.
2 of the assets.
We'd really fall into the opportunistic caddy.
Category as of.
And we've talked about in February on the call.
You know with with the objective of moving beyond the typical markets that we were prepared to invest and we were.
Really casting a wider debt.
And the wider that allows us to do 2 really great opportunistic distressed deals 1 being the Hyatt Regency and Austin.
Well that we bought it roughly of 25% discount.
On the pre pandemic values and then the hotel and Alessandra of which we've just recently closed on.
And at 30% is kind of to a true development costs of the hotel was just completed just completed construction and opening of 2017. So of course, we will continue to look for more opportunities along those lines and.
And you know.
And I think the 1 of the big stories of of the pandemic are.
That has played out is that there hasn't been as much distress out there of everyone factor was going to be as you know there were a lot of price raise to go buy distressed and hospitality assets and.
Just kind of mid that much trading.
And the discuss market the other.
Of the piece of it is and you know what.
We're continuing to look and resorts.
And complex the assets that we have real weekend and add a lot of out of your 2 and if you look at the the past performance of that.
And some of the properties that we had purchased like the 1 hotel South Beach are the performance of bad assets been off the charts.
And from a supply perspective.
<unk> and big box hotels have of our supply growth of of any asset class and hospitality. So we'll continue to.
Look at those deals as well lastly, and I haven't seen it yet, but I expect that we may be seeing and.
And because of kind of the market and some of the urban markets and it.
And as things continue to open up there and and they and.
And we get back to rate sensitive.
And more visibility with respect to underwriting I think you'll see some of those assets trade and by no means are we right and wrong the major urban markets. So.
I would tell you that generally we don't have a red line through any market today and and the domestic United States that is and we're not interested and going offshore.
At this point in time and.
And Uh huh.
You know, it's a it's a wide wide swap and we still continue to believe that.
We are at the beginning of <unk>.
The cycle.
We feel that we're at the beginning of and economic cycle, where you have some bumps of the road here.
And today in particular with the some of the areas of reports and we're out there of the hiring.
The report are the jobs report that was published this morning, but we.
And we feel we had a good run ahead of us. So we're interested in deploying capital smartly and accretively and to better.
And our shareholders.
Yeah.
Thank you next question is coming from Bill Crow from Raymond James Your line is and a lot.
Hey, good morning, Jim.
Yeah, and if theres tremendous the bid for assets out there and the pricing that we've seen on the per key basis has been off the charts.
Is this just a good time for host of sit back and read the.
<unk> its portfolio and the <unk>.
The rest of quality up and down on the portfolio and.
And I'm just curious about any current or proposed plans to sell maybe a large number of assets in order to narrow the quality of focus.
The old same goes here prepared by the time to sell right.
And.
We've been fortunate that we've been able to deploy 1 point of $1 billion.
Through roughly the first half of this year.
Concurrently with that.
We are thinking about and disposing of assets.
And that maybe don't pick the long term profile of our portfolio and lots of if there's anything wrong with.
With these assets.
You know there there are certain hotels that are the there are a host of credit going forward. So of course world, We'll test the market. It would be followed if we didn't.
And we're going to do the prudent thing and we will see.
If there is a bit out there that we feel make sense for us.
And we would take the the capital that we raise our free.
Asset the disc.
Positions and.
Redeploy that either into our existing portfolios true additional ROI projects or additional acquisitions and more fit of iron long term gross profit growth profile and.
And hence the overall EBITDA growth profile of the portfolio.
Yeah.
Thank you next question is coming from Anthony Powell from Barclays. Your line is that a lot.
Hi, Good morning, just a question on on the second half and you actually I'm pretty confident that youre going to see.
The transient and group come back and are there isn't a worry and a market that and say July and maybe kind of the peak revpar.
For the year of giving you know a lot of leisure travel holiday fourth of July and that you could see some bumps in the road in October and November with Delta variance and whatnot just a.
Maybe go on to why you're confident that you can.
So you could see continued sequential revpar increases through the rest of the year given all of the uncertainty.
Yeah, Let me I'll start on the same thing and I'll, let Rob jump in as well.
On the group side.
Let me talk about group the answer on contango.
We've got a lot of feedback there.
I'll talk about group and what we.
We.
What we said on the call today is that.
We picked up 200000 definite group room nights for the second half of the year and the second quarter. That's that's the 20% pop over where we were when we spoke with you after the first quarter.
The earnings release, so we now have $1.2 million group room nights.
On the book on.
On the books for the second quarter, which is greater than 50% of.
Where we were in 2019 and so we continue to be encouraged.
Because of the fact that it's a sequential increase and group.
Group room night bookings.
And.
Over 2 thirds of the group room nights that were booked in the second quarter were.
And we're split out of money.
Several markets. So there wasn't any 1 and work the concentration just to give you a little color.
And we picked up 53000 room nights, Boston, and 23000 of Phoenix and 19000 and.
And New York, and Denver also had ups and the quarter so that gives us.
A lot of encouragement that the the group's definitely wanted to get back out and they want to the there. So no question about it.
No.
Convention centers of reopening and our key markets.
And you know I think the the trend on the on group is very healthy.
Rob I'll and I'll, let Rob chat a little bit about what we're seeing out of business transient front because that's another segment of that obviously you know this is playing out exactly as we all thought it were at the end of it.
It depends on the leisure first.
Robust leisure travel robust leasing and had followed by D T and the group. So when you talk a little bit about BT as well.
Oh sure on Hey, Anthony on the Btu funds I mean, Jim mentioned in his prepared remarks of how we've seen sequential improvement.
Since the beginning of this year every single month, and that's actually true the third week of July it's effectively a 30% increase and B T room night every month. So when you look at Q2 versus Q1, it was effectively over 100% of increase in V. P and what's the actually encouraging on the BT that's on the total portfolio.
On a third of that increase is and is being driven by urban market. So when we see sort of on our Q.
Q2 numbers and I'll put some numbers around the fact of 1 of our portfolio. We had about 150000 room nights and the offer that you know of 43000 room nights is.
From our urban hotels.
As we think about and how we progressed through from Q.
Q3, the few for second half of the year of.
Obviously, you know it.
Still lower than 2019 levels, but we would expect by the time, we get to the fourth quarter to get to about 50% to 55% of <unk>.
The levels relative to on 19.
Thank you Peter specifically of special corporate I guess the clarify.
But to the point on the rate.
I do want to say that we have at least the 2 earlier than we would see sequential decline in the rate, even though you would see sequential improvement in Revpar and that holds true I mean, you saw that happen in the second quarter.
We were down quarter over quarter in rate, we would expect that to continue into Q3, and then Q4, we would expect that rate to be more similar to Q2 based on the information we have available today. So why are we will see revpar improvement sequentially and we will see of.
The rate decline and we expect a rate decline and the third quarter.
Thank you. Your next question is coming from Christopher <unk> from main Street. Your line is that of life.
Thanks, Good morning, everyone.
Piggybacking off Bill's earlier question is it safe to say that the international portfolio. It doesn't fit the longer term strategy of the company and if so could you maybe discuss the level of investor appetite might be for those hotels.
Hi, Chris and you look at.
The international exposure I don't have the exact EBITDA per.
<unk> contribution.
Coming out of Brazil, and 2019 out of the survivor of.
Anyone else on the team can dig that up.
We had 3 hotels and Brazil, and the biggest 1 being the J W and Mary I Ah in Rio and Copacabana Beach, and then 2 small of core properties.
Which what I would consider quote international assets those are the only true international assets, we had the other 2.
And our based in Canada, 1 is a Marriott and Calgary and the other is the.
Maryann, and Toronto, and eat and 7 years, So I don't I don't pay 1 and all of those assets with 1 brush.
And I think at some point in time, we will.
So the assets in Brazil and.
There's always face a lot of challenges today.
But if you look at it and the context of.
The EBITDA contribution.
And.
Our investment relative to the whole stack of private value. It's it's really quite frankly de minimis.
The next question today is coming from Ari Klein from BMO capital markets. Your line is that of life.
Thank you just following up on the on the business trend and question as far as far as that recovery is concerned and you obviously see momentum.
But how dependent and that recovery on.
The business travel on the returns of off it.
Obviously, you see some companies push out a little bit can can they be independent of 1 another and then.
Has your thinking changed in any way just that piece of recovery and September October.
Yeah, absolutely I think they certainly can be independent of 1 of them and frankly, we're seeing that right now where a lot of the of offices. They havent opened yet, but the bulk of actually traveling on business already whether it's the a.
B T or attending conferences and so we're certainly seeing that we are no exception of at host as well. We are all offices are opening and post labor day, and particularly but we have all been already on the road and going out to conferences and that is true up of lot of the financial services companies.
Out there so I do think there and sort of you know not tied to each other and then certainly.
We expect the beat the momentum to continue on the other thing I'll point out is a lot of companies on.
A lot of it.
Large accounts, they don't need the high level of approval anymore from the department head or the CEO and some cases to travel and that has been lifted the travel has become much easier for a lot of because of all the top accounts and we're certainly seeing that and the numbers as well and a lot of these have not actually opened up the offices.
The next question is coming from rich Hightower from Evercore ISI. Your line is now live.
Hey, good morning, guys.
Thanks for taking the question we've covered a lot of a lot of ground already but I wanted to circle back to the ATM issuance.
Question and and the question around NAV and I'm, not obviously looking for post estimate of its NAV, but more and more of a question on methodology and how you think about cost of equity and an environment where stock prices are volatile.
EBITDA and NOI are obviously not anywhere near back to of the stabilized level. So how should we think about it I mean is it a function of <unk>.
Street NAV is is it a function of a longer term IRR analysis internally is it a private market assessment of of what every asset and the portfolio of trade for and how do we think about methodology you know given the moving parts right now.
We we look at multiple metrics frankly, when we are looking at anything and all of it it's not just isolated whether it's the cap that model or and on IRR.
Multiple metrics and as you can appreciate right now Jim pointed out when you're in a volatile environment and frankly, it's really of day to day exercise and depending on what we think the forecast looks like on the only for the balance of the year, but really from a long term perspective, we always try and take a long term view to see what makes the most sense.
And what our cost of equity would be but especially and of all kind of environment, it's very difficult to pinpoint.
NAV at any given point in time.
Yeah.
Thank you. The next question is coming from David Katz from Jefferies. Your line is now live.
Hi, Good morning, everyone. Thanks for taking my question and I just wanted to go back to the.
On the.
Labour issue, which I know you commented on a little bit.
And make sure that what I'm hearing is the notion of labor does.
<unk> increasingly expense then.
As of the strategy to match and wrapping up the labor with demand.
Or is there some mechanisms for trying to mitigate some of the higher cost debt I think have been kind of broadly discussed and.
And recognize what are the strategies around that.
Yeah the.
The issue around labor is.
Really and it really varies from market market by market.
We have seen the greatest level of staffing challenges are in the markets where demand quickly return.
You know touch of South, Florida, Atlanta Tech.
Texas, and and Phoenix and <unk>.
We're in constant dialogue with our operators on them.
The hiring process and they are.
Really keen on dedicating the resources that are necessary.
2 of them to ramp up hiring and we're seeing a slight increase and African flow over the last 4 weeks or so 4 of 5 weeks and we.
We pinpoint that to we believe that debt is due to the fact that.
The supplemental unemployment benefits are have run out of ore will be running out and about 25 States and you know come September 6.
The mental and.
Unemployment benefit expires and across the nation. So.
I mean, I already labor and it's tougher to find and the sunbelt.
Right.
You know the per year.
The management labor and travel and trade the more in the northern markets right now so as.
As we think about it.
No.
We're not.
And really overly.
Overly concerned about wage inflation of drops and share some numbers on.
Where we are with respect to $15 wage across our portfolio. This is something we've looked at it's just something we think about.
And you know or as you can see from what we've been able to accomplish the day.
We have a keen focus on expense control and cost controls. So I'll turn it over the cerrado to talk a little bit about the wage scale and our hotels.
Yeah for our entire portfolio as it stands right now over 80% of our poor.
Portfolio is paying its the hourly employees.
$15 of greater and.
I would say, it's about it was less than 9% of our portfolio debt.
And that's paying $14 of less so very small portion of our portfolio of actually.
Below $14.
Thank you next question is coming from Robin Farley from UBS. Your line is now live.
Oh, great, Thanks, and I know.
And you've.
You talked a bit already about how do you think about asset values, but just kind of circling back to you of that kind of 2 billion dollar budget for acquisitions can and you've done some capital market activity to negotiate that and your I guess, the 1.1 billion and to that and do you anticipate needing to.
Big changes or do some of the capital market's activity to be able to go above that 2.
2 billion. Thanks.
I think there are couple of pieces to your question Robin and the number 1 and it is.
You know we have the ability under our existing credit waiver agreement to acquire $2 billion of assets.
And.
Subject to our and maintaining $600 billion of liquidity and the company.
That's point number 1 and the second piece of it is that and.
We do have some flexibility on asset sales and.
And then to take that capital and.
And redeploy it into other acquisitions going forward.
And I think a share opportunity correctly here because it's been a while since we talked about the waiver.
But if it's like kind exchanges, we have a lot of flexibility to do that going forward and then we have another bucket on it.
Of that debt.
It just allows us to to to recycle capital.
So we have a lot of flexibility under the existing credit waiver agreement.
To continue to acquire asset sales, if we sort of ourselves into position, where there were really truly attractive acquisition opportunities out there and we needed to get more flexibility.
And given our long standing relationship with our Bank group.
We would have no problem going back and debt.
And having the channel with them and.
And and and getting an amendment to the existing waiver and.
And that's in place today.
Yeah.
Thank you. Our final question today is coming from Michael Bellisario from Baird. Your line is now live.
Thanks, and good morning, everyone.
But and it should kind of a follow up on that last question first of all but maybe kind of along those same lines of them. What's your latest thought on opting out of the covenant relief period early and then maybe when do you think you might be and compliance with your bond covenants. So that you wouldn't be able to take on incremental debt at some point.
Yeah, I mean, if you recall, we were of course expecting that we wouldn't break even and until the second half of this year, we'll obviously broken even on much.
And earlier than that so the expectation I'm, assuming the trajectory of the recovery remains the same and we see the the positive trends we have seen thus far through the first half of the year, we would certainly be able to get out of from you know.
The the waiver sooner rather than later, that's the only the expectation obviously, we're not providing guidance, there's still uncertainty, but if the trajectory goes the way. It is we we should be able to get out of it sooner.
Thank you we've reached the end of our question and answer session I'd like to turn the floor back over to Jim free further closing comments.
And I'd like to thank everyone for joining us on the call. Today are we all went through and if the opportunity to discuss our quarterly results with you.
I look forward to seeing everybody at the NAREIT and November and ER.
And we get back on the road and look forward to.
2 of getting some of the ideal roadshows on on the books and our in person meetings.
Okay.
<unk> and the lodging industry continues to open up so enjoy the rest of the summer day.
And stay healthy and.
Thank you for your continued support.
Think of that does conclude today's teleconference and webcast. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.