Q3 2021 Pebblebrook Hotel Trust Earnings Call
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Greetings and welcome to the Palo broke hotel trusts third quarter earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If you would like to ask a question. Please press star one on your telephone keypad, if anyone should require.
Operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Raymond Martz Chief Financial Officer. Thank you Sir Please go ahead.
Well, thank you Donna and good morning, everyone welcome to our third quarter 2021 earn earnings call and webcast. Joining me today is Jon Bortz, our chairman and Chief Executive Officer.
Before we start a quick reminder, that many of our comments today are considered forward looking statements under federal Securities laws. These statements are subject to numerous risks and uncertainties are described in our SEC filings future results could differ materially from those implied by our comments forward.
Forward looking statements that we make are effective only for <unk>.
October 29, 2021, and we undertake no duty to update them later will discuss non-GAAP financial measures. During today's call. We provide reconciliations of these non-GAAP financial measures on our website at several of our hotels dot com, okay. So onto the highlights of the third quarter.
The third quarter marks another important milestone in our recovery from the pandemic, we generated $21 4 million of adjusted funds from operations, which was the first quarter since the pandemic every produced positive episode and represents considerable progress from Q2, when we had negative <unk> $15 6 million in Q1 with net.
$55 7 million.
Third quarter hotel adjusted EBITDA climbed robustly from the second quarter as well and were driven by significant increases in same property Revpar and same property total revenues while at the same time costs were well controlled.
Same property hotel EBITDA rose by 136% to $66 6 million from Q2's, $28 3 million.
The sequential growth was driven by robust leisure travel improving group and transient business travel and an ability to push pricing higher particularly at our resort properties.
Same property room revenues rose a substantial 51% from the second quarter and same property ADR rose, 10% from Q2 and for the first time exceeded the comparable quarter in 2019 in this case by three 8%.
Same property total revenues also rose an impressive 47, 2% from the second quarter with healthy food and beverage and other ancillary spend growing faster than occupancy.
Total group room nights ADR and revenues also grew from Q2 to Q3 with room nights and revenues more than doubling which was which is a very favorable sign for the return of corporate group demand.
The third quarter started strong July revpar improved to down just 31% compared with July 2019, clearly better than june's minus 51, 6% comparison to 2019.
These demand throughout our portfolio at our resorts and urban hotels increased significantly from June.
Was robust and generally not price sensitive.
The strengthened demand continues through mid August until a surge in COVID-19 cases from the Delta variant cause a pause in the recovery.
From mid August through mid September we experienced a rise in cancellations and near term business travel primarily group for August September and October and softer near term booking demand as well as well as higher attrition with many corporate groups, who did hold their meetings over this period.
As a result of the seasonal slowdown in leisure travel and business men that did not pick up the slack Saint.
Same property Revpar weekend compared to 2019 for August which was down 39, 4% and also then September which was also down 43, 4% September was also negatively impacted by the Jewish holidays, which both fell in the first half of September.
Fortunately as a trend of new Covid cases began declining in mid timber and had been falling for six weeks now booking trends began to reaccelerate in mid September and this improving trend has continued into October.
Both transient and group business demand has picked up with volumes exceeding levels earlier in the year before the delta variant and associated restrictions were imposed.
Corporate transient is returning led by small and medium sized businesses as well as larger companies, including those in banking consulting life Sciences Medical Entertainment and music segments among others Big.
Big ticket has also begun to travel remained slower in its recovery.
For us the most significant improvements in business demand had been in Boston, Los Angeles, Philadelphia and San Diego.
Slower to recover markets continue to be San Francisco, Washington, D C and Chicago, which seems to be three to four months behind the faster recovering cities.
Leisure demand.
Gains healthy heading into the fall and upcoming holiday season, which should be very good and our positive expectations are consistent with the strong advanced holiday demand the airlines are reporting.
However, we do expect a normal seasonal slowdown in business travel levels in late November and December.
Because of these improving trends in business travel demand in particular October is performing better than September we're now forecasting revpar to be down between 37, and 38% to October 2019, and October occupancy for our portfolio should hit or come very close to the occupancy level achieved in July this.
This is not something we would've expected a month ago, which really demonstrates how quickly demand trends can reaccelerate and improve with health concerns related to the pandemic declined were moderate.
Considering how strong October is traditionally for business travel we find this performance a strong indicator of the reacceleration in the travel recovery, especially for business travel for.
For the fourth quarter, we expect same property Revpar and total revenue to be down between 38% and 42% compared with the comparable period in 2019.
Now back to our third quarter performance.
Same property revenues of $239 2 million were off 36, 3% versus the same period. In 2019. This is a significant improvement from the second quarter. When same property revenues were down 57, 8% versus 2019 and continue to progress in the first quarter, which was 74, 7% below Q1 2019.
Our strongest performance came from our resorts for our original eight resorts and Jekyll Island Club resort for August and September revenues exceeded Q3, and 19 by nine 8% driven by a whopping 57, 1% ADR premium to Q3, 2019, which was more than offset more than offset occupancy that was down just.
22, 5%.
Our resort Occupancies would've been higher but for their rooms renovation at southern most resort and the exterior work on the golf tower building at look higher.
At our urban hotels same property revenues were off 51% to Q3 2019, driven by same property revenue declines of 54%.
This illustrates convincing improvement at our urban hotels in the quarter compared with the second quarter. When same property revenues were down 68, 6% from Q2 2019 and same property Revpar was down 69, 7%.
ADR at our urban hotels also improved quarter to quarter from last quarter's minus 26, 1% compared to 20 Q3 19 to down just 10, 8% in the third quarter 2019.
Drilling down further on our hotel operating results our same property resorts generated $34 6 million of EBITDA up 45, 4% versus 2019.
Our hotel EBITDA margins were 41, 5% compared with 31, 4% in Q3, and 19 over 1000 basis points better.
While some of this is a result of some continuing unfilled position much of it is due to the significant benefit of a 57, 1% or $156 rate premium in ADR to 2019 as.
As well as higher prices for non room revenues and our new operating model is that all of our properties, including our resorts.
Our urban hotels generated $29 9 million of EBITDA in Q3 down 72% versus Q3 dollars 19. This is substantially better than Q2, when our same property EBITDA was just $2 7 million.
Operating expenses at the hotel level were well controlled and in addition to their room rate improvements versus last year, we took price increases throughout all non room revenue items same property hotel expenses were down in Q3 by 29, 5% representing 81% of the 36%.
Of total same property revenue declines excluding fixed cost hotel expenses were down by 32, 7% or 90% of the rate of decline of same property revenues.
We continue to have many unfilled positions at our hotels, we made very significant progress in the quarter filling open positions.
And the cost savings for 2019 represent a superb effort by our property and asset management teams working together to follow up on our new property operating models that are delivering significant efficiencies and productivity gains.
At the corporate level after corporate G&A, we generated $55 3 million of adjusted EBITDA in the third quarter. This is a significant increase from the $17 1 million of adjusted EBITDA in Q2, and the negative $25 million of adjusted EBITDA for Q1.
Shifting to our capital improvement program earlier. This week, we completed a $15 million comprehensive guestroom renovation of.
Of our southern most beach resort in key West the last of our resorts to be fully renovated or do we redeveloped and repositioned.
And we continue to make progress with our $25 million transformation of hotel Vitale to one hotel San Francisco.
We've experienced some delays due to constraints in the supply chain and receiving <unk> items. So we now expect this renovation to be completed in the first quarter compared to last quarter's expectation at the end of 2021.
For all of 2021, we anticipate investing reinvesting a total of $80 million to $90 million in the portfolio, which is in line with our prior annual estimate.
Moving to our investment activities, we continue to be active reallocating capital in the portfolio.
On September nine we sold Villa Florence, San Francisco in Union square for $87 5 million.
Since Q1 2020, we have sold seven assets generating 664 million of proceeds.
January September 23rd we completed the acquisition of the 369 room Margaritaville Beach resort for $270 million and just last week, we purchased the 19 room Avalon bed and breakfast in the 12 room Dybala gardens, and <unk> for a combined $20 million.
We will be incorporating these two properties into the overall operations of our southern most beach resort and we expect significant operating synergies as a result.
By providing guests of these two guest houses with access to the higher service levels and amenities of the existing D&B is at southern most and are overall resort, we expect to be able to drive rates dramatically higher than the prior owner.
As a result, we anticipate generating an 8% to 12% cash on cash return on this investment after a 4% capital reserve on a forward 12 month basis.
Well, obviously narrow this range down as we get deeper into the operations of these properties as part of southern most.
As a reminder year to date, we have acquired two resorts as well as two bedroom breakfast guest houses for a combined 384 million of proceeds.
Turning to our balance sheet and liquidity, we have approximately $807 million of liquidity. After completing our recent property transactions, including a roughly $163 million of cash on hand, and $644 million available on our unsecured credit facility. We also currently have approximately $210 million a reinvestment proceeds available under our.
Current bank arrangements.
We are proud of the tremendous progress we've made fortifying our balance sheet, reducing near term debt maturities and lowering our cost of capital through our various preferred refinancings and convertible notes offerings. While also increasing our liquidity this positions us to take advantage of additional new investment opportunity as it becomes available and with that I would now like to turn the call over to John John.
Thanks, Ray and good morning, everyone.
So I thought I'd focus on what we're currently seeing in our business. How we think the rest of this year is likely to play out.
Our current expectations for 2022.
I'll delve a little deeper into the performance of some of our existing properties and markets as well as discuss the capital reallocation decisions. We've made in the last 18 months.
As Ray said, we're certainly very encouraged by the Reacceleration of the recovery we've seen in the last six weeks, particularly as it relates to business travel and group demand.
While leisure demands recovery started early and has grown to robust levels. We all know that getting back to 2019 levels for us requires further recovery in business travel as.
As we stated last quarter, we believe we should get back to 2019 EBITDA levels.
Before we get to 2019, Revpar and we expect to consistently hit or exceed 2019 ADR levels before we get back to 2019 Revpar.
We're very encouraged by the performance of rates.
In both the industry and our portfolio.
We of course are aided by our concentration and drive to resorts.
And as Ray said, we're achieving <unk> at our resorts that are dramatically higher than 2019 levels.
Some of this is due to a lack of competitive alternatives like cruises or traveling abroad.
Or even vacationing in cities.
Some of this premium has to do with repositioning our.
Resort adr's to higher levels and a willingness on the part of the consumer to buy up to suites and view rooms and alike.
And about a third of the premium is due to the transformational redevelopment projects. We undertook in the last few years at our resorts, where we substantially reposition them higher in quality and as a result higher ADR as are being achieved generating attractive returns on our redevelopment investments.
Yeah.
So we believe that a substantial portion of these higher rates at our resorts will be permanent most of these higher rates will last at least for the next two or three years and some portion may turn out to be transitory.
In the third quarter, we estimate we gained over $50 alone.
Just an ADR share versus the competitive market properties with that number accelerating substantially from the second quarter.
Some of the rate premium at our resorts that historically accommodated significant group will likely be reduced is that group returns. However that group will come with significant F&B and other profitable revenues that should more than offset any reduction in our rate premiums.
In the third quarter, our resorts achieved nine 8% higher total revenues in Q3 and 19, even without that group.
Room revenues were up 21, 9% and EBITDA was higher by 45, 4% or $10 $8 million.
This rate with rate up so substantially 57, 1% and occupancy down by 22, 5%.
EBITDA margin hit 41, 5% for our original eight resorts and Jack All Island Club Resort, which was included in August and September.
This is an increase of 1018 basis points from Q3 dollars 19.
EBITDA per key for our resorts for the third quarter alone grew to $17000.
On a run rate basis, including Jackal and Marguerite of El Hollywood Beach resort for the entire quarter same property EBITDA for the 10 resorts of $45 million was $13 $9 million higher than Q3 2019.
For all of 2021, we're now forecasting our eight original resorts to achieve $2 $5 million more EBITDA than they earned in 2019, despite being $8 million lower than the first quarter of this year.
Including Jackup Island, and Marguerite of El Hollywood, which are both now forecasted to end 2021 above 2019 levels. We're forecasting our run rate resort EBITDA to be $6 million to $7 million higher than 2019.
At $115 million to $116 million in total.
Roughly $46700 per key.
And that's despite the 10 resort portfolio being $10 $8 million lower in Q1 versus 2019.
So that compares to $86 $7 million in 2019 for the original eight resorts.
These numbers do not include the <unk>, we just acquired in key west.
Both Jackup and Margarita Bill are also running well above our initial underwriting when we priced those properties for purchase.
With Jekyll ahead by over $2 million and Margarita Bill ahead by over $5 million.
These forecasts jackup would be a seven 4% cap rate on 2021, NOI and Margarita Bill would be a 6.25% cap rate on 2021 NOI.
And both properties look to be up substantially in Q1 2022.
Based upon business and rates already on the books.
We also saw a significant improvement in performance in the third quarter at our urban hotels with Occupancies rates and Revpar, all rising substantially as compared to the second quarter.
While some of this improvement can be attributed to meaningful growth in leisure travel, particularly in our urban markets that are drawing significant leisure travel such as San Diego, Los Angeles and Boston.
Much of the improvement is clearly related to the slow, but continuing recovery in business travel both group and transient.
In the second quarter of this year.
Room nights achieved amounted to just 13% of comparable 2019 levels in our portfolio.
But that improved substantially to 34% in the third quarter and based on business on the books and current cancellation and attrition trends.
We expect it to exceed 40% in the fourth quarter.
In the first quarter of 2022.
Group room nights on the books are currently at 62% of Q1 19 rooms on the books at the <unk>.
Same time in 2018 and ADR is currently ahead by 14%.
For the year group revenue pace on the books for 2022 is at 69% of the same time in 2018 for 2019 with ADR ahead by 6%.
Of course, what shows up versus what get cancer gets canceled will all depend upon what is happening with the virus.
But we're very encouraged about where we are for 2022, especially the significant rate lift that is on the books.
Well I mentioned the performances of both Jekyll Island, and Margarita Bill I thought I'd provide a little bit more detail.
Both resorts had terrific third quarters.
We were able to influence the performance of Jekyll Island in the quarter due to our acquisition on July 22.
But we can't take any credit for Margaritaville performance in Q3 due to our late September acquisition.
In Q3, Jekyll Island grew Revpar by 35% over Q3, 2019 with ADR increasing by 23%.
Or $58.
At Margarita Bill Revpar climbed 47% in Q3 versus 2019.
With ADR, increasing a robust 60% or $136.
Margaritaville as EBITDA in Q3 increased 131% over Q3 dollars 19.
Up from $2 1 million to $4 $8 million with EBITDA margin up 1300 basis points.
Jekyll Island third quarter EBITDA was up 125% over Q3 dollars 19.
Or $2 $5 million versus $1 $1 million with EBITDA margin also up 1300 basis points.
In both cases these are extraordinary numbers, but ones, we expect to substantially exceed as we implement all of our operational changes over the course of the next year, even before any of the capital improvements that we're planning.
We're confident that both of these acquisitions will turn out to be fantastic long term investments. In addition to them being a huge positive uplift to our EBITDA and cash flow in the short to intermediate term.
As we swapped properties.
In fact in slower recovering markets for properties and faster recovery markets that also have significant upside from both operational improvements and capital investments.
With the third quarter sale of Villa Florence in San Francisco since the pandemic began we sold two older properties in San Francisco and one in New York City, along with some rooftop antennas and the historic Union station Nashville for a total of $333 million.
And we've acquired two resorts in the southeast and two small <unk> in key west for a total of $384 million.
We're very excited about these swaps and the upside from the new acquisitions.
Not only did these transactions reduce our urban concentration and increase our resort concentration.
But these trades of San Francisco, New York, and Nashville for Hollywood, Florida, Key West and the Golden Isles of Georgia increase our leisure mix and reduce our business customer mix.
While it might look like we're focused on increasing our resort exposure as discussed many times in the past.
We remain opportunistic investors overall utilizing risk adjusted return forecasts.
And underwriting to determined both sales and acquisitions.
And how others value properties, and what others are willing to pay definitely impacts where and what we ultimately acquire.
Since value is a key component of our risk adjusted return investing approach.
In that vein over the last few months, we spent significant time evaluating the current values of our existing hotels and total portfolio.
As a reminder, the value ranges, we determined for each hotel are based upon the transaction market for similar properties in similar condition with similar opportunities and similar similar locations in the same markets.
They're also based upon whether management and flag are available.
The property is encumbered by those contractual arrangements.
With a more active transaction market in the last three to four months, we feel there's enough real market transaction information to now establish true tradable market values.
And while these values will potentially move significantly.
And quickly in the next couple of years, we feel comfortable again publishing our overall gross and net asset values for our portfolio.
These numbers are included in the updated investment presentation, we filed yesterday.
We believe that our current net asset value is in the range of $30 per share at the low end to.
To $35 per share at the high end.
$32 50 at the midpoint.
And we're happy to discuss this in more detail in the Q&A or in separate conversations over the next few weeks.
I thought I also touch on the current labor situation and update you on our current assessment of the ongoing margin opportunity in our portfolio as a result of the implementation of new operating models at all of our properties in.
In the last six to eight weeks, we believe that the labor situation throughout our portfolio has improved significantly.
As expected as kids went back to school more people got vaccinated childcare became more available and enhanced federal unemployment benefits expired, we've seen more of our prior hotel associates coming back to work and with lots of hard work. Our property teams have also found more.
Qualified candidates interested and willing to fill open positions.
As a result, our properties have made significant progress in filling critical open positions and many of our properties are in good shape now with a more active pipeline for further hiring.
In addition, it seems the H <unk> visa program is back up and running and we expect significant numbers of H to be qualified workers.
To aid our seasonal properties like La Playa that have historically utilized this program and Jackal Island, where we will be using the program for the first time beginning later this year or early next year.
We also believe those current labor pressures, we're still experiencing will lessen over time as more workers come back to the labor force as the spread of the virus and cases decrease over time.
In general we've not had to increase wages, but we have made some adjustments here and there.
This has been mostly at our resorts that are in markets, where either we're no longer where we wanted or needed to be in the market competitively.
Or where we've repositioned our properties higher through renovations and Redevelopments and we want to attract the best of the talent in the market to provide the highest level of service to match our higher rates.
Fortunately our properties are generally at the higher end of their markets and are in a position to not only pay more as necessary, but attract high quality talent more easily.
Because of the quality of our properties and the ability for associates to earn more money through not just wages and benefits, but higher tips and other gratuities.
As you well know, we've all been expiring increasing levels of supply chain disruptions, including higher cost for many commodities like food and beverages, but also operating supplies and some of our services.
We've been able to successfully implement some very significant price increases throughout our portfolio for items, such as food and beverage offerings, both in our outlets and through banquets and catering as well as charges for parking event venues audio visual equipment and services resort.
And urban amenity fees spot treatments club dues and for other recreational activities.
These increases have ranged from 5% at the low end to as high as 25% at the high end.
15% is about average throughout the portfolio.
We have experienced little to no pushback on pricing increases so far.
It seems both the leisure customer and business customer are in great financial shape.
With plenty of discretionary income or high profits and with prices increasing for all sorts of goods and services.
Our customers have been accepting of the increases.
This pricing flexibility and customer acceptance should allow us to continue to be able to grow our pre pandemic margins by 100 to 200 basis points.
Upon the restructured operating models developed during the pandemic.
Which utilize more cross training more efficient labor scheduling tools and more technology.
Many efforts to continue our never ending effort to increase productivity and become a more efficient and profitable business.
In addition, curator has now completed over 60 preferred vendor arrangements with our preferred group of individual product and service providers in our industry.
As we continue to implement these arrangements throughout our portfolio. We're further reducing our overall cost of operations as we take advantage of the economies of scale being achieved by curator.
And we expect this number of arrangements to increase to over 80% before the end of the year with further opportunities for savings as a result.
And as we get much closer to 2022 were focused strategically on the year being a very strong recovery year overall group.
Group should be very healthy as we believe theres a great deal of pent up demand.
We also think leisure will continue to be robust with pent up demand for vacations and getaways, while outbound international travel probably remains more limited.
And we're very encouraged by the decision to reopen our country in the next couple of weeks.
International travelers and visitors.
We believe there is significant pent up inbound demand that will aid, both our resorts and our urban markets.
Certainly the reports from the airlines about ticket sales to international inbound customers are very encouraging.
Taken together this means we don't expect rate discounting in 2022.
Again this is with the obvious caveat that we get to relatively normal behavior by the end of this year and it remains relatively normal next year.
As it relates to the few remaining redevelopment projects, we deferred due to the pandemic, we're continuing to complete plans and permitting and will likely pull the trigger on these remaining few remaining projects as soon as the approvals are complete and it's the right time of year to commence them.
All of our Redevelopments and transformations, including the large number in the last few years.
And all of the current and upcoming projects will provide very significant upside for our portfolio over the next few years as the recovery rolls forward.
We're already achieving these returns that our reposition resorts.
Where demand is in many cases already recovered MP.
Importantly, the vast majority of the dollars for these projects has already been invested but.
But the benefits have for the most part not yet been achieved but should be as demand recovers.
And finally as demonstrated by our acquisitions to date, we believe we have significant competitive advantages and pursuing new investment opportunities as they arise.
These include our ability to operate our properties more efficiently than the vast majority of buyers. The additional cost savings from the economies of scale generated by curator, our unique strength and redevelopments transformations and.
An independent or small brand lifestyle hotels are vast number of operator relationships.
And our high profile and very positive reputation in the industry.
And we look forward to many more opportunities to come.
So with that we'd now like to move to the Q&A portion.
Our call Hey, Donna you May now proceed.
Thank you the floor is now open for questions.
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The interest of time, we do ask that you. Please limit yourself to one question and one follow up again that is star one to register a question at this time. Our first question is coming from Dori Kesten of Wells Fargo. Please go ahead.
Thanks, Good morning, everyone.
I appreciate the top line guide for Q4, but I'm just trying to think through how incremental labor will hit the bottom line so and.
Can you put the margins from July to September that you saw in the whole story.
I believe in 2009.
<unk> margins contracted about 600 basis points.
Q3 Q4.
Sure.
It's a lot of difficult assumptions here, because we're also pretty.
A pretty good handle obviously in October.
Monthly through here November and December we're going to.
See how that looks like the demand historically as you know as we get until delay the holiday season.
After mid mid November business travel tends to slow down and shut down through the end of the year.
This year, but we think it'll be very similar we expect will be strong the resort side.
But you should expect.
Margins over overall.
First of all while the portfolio is a little different than prior years, we have a larger reserve component that's one.
But it is ultimately won't come down to overall the demand and we're not focused just on margins. We're focused on how do we get the profit per key.
But you should expect that October should be.
Better than September.
Remember its probably on a profit side.
Most of it to the kind of September area range in December but likely December is usually always softer than November even with our current portfolio and dori I guess the way.
Look we we don't if we had a good feel for above margins head. They underwrote. The Bottomline operating result, we would have provided that.
That guidance, but.
We don't really have a great view on that at this point.
We don't know how many more people will get hired in the next couple of months as we as as we continue to fill open positions.
But one of the things you could use.
Take a look at the total revenue declined from month to month.
On the way up I think we were probably averaging about 50%.
Additional revenue flowing to the bottom line in the seasonal slowdown, particularly as we as we continue to add staffing, it's probably more like 75%.
<unk> of the decline.
The decline in revenue will help hit bottom line margin so.
<unk>.
That's a reasonable guess it could.
It could be off by as much as a third.
So I.
I'm, just letting you know it and provide a contingency that it's hard to forecast at this point in time.
Got you.
Can you walk through what you're seeing being marketed for sale or off market.
Ardmore City Center hotels are coming to market in the near term.
The person in the prior waiting towards more of a resort.
Yeah. So.
I guess, it's all relative so.
The activity on the resort side has brought out a lot more resorts.
Lots of resort areas.
We weren't familiar with just like Jekyll Island.
In Georgia.
There are.
There are additional properties in the cities now coming to market.
It continues to be a slower.
Set of offerings and Theres, probably a more limited number out there and as you know we sold we saw.
Sold a few properties in urban markets over the course of the last six months. So I think part of the benefit of.
Our offerings were that there was limited product in those markets.
And certainly our properties reviewed pretty.
Pretty favorably.
Okay. Thanks.
Same story.
Thank you. Our next question is coming from Smedes Rose of Citi. Please go ahead.
Yes.
Okay.
Hi, Thanks.
You asked me.
Hi, Good morning, I wanted to ask you keep.
Two quick questions first of all are you seeing any difference between your branded hotel performance versus the non branded and unbranded that's a small smaller keeps that.
Maybe just some thoughts around that and then could you also just.
Maybe you can give a little more detail about how you're seeing that recovery.
In San Francisco, and how you think that market could kind of perform over the next several quarters.
Sure.
Over the course of the recovery.
Our recovery has been led.
By our independent lifestyle properties.
And some of our branded lifestyle properties and.
Not surprisingly some of the larger.
Branded properties like our western wear a little slower to recover.
The independent properties have a lot more appeal to the leisure guest which has been as we've as we all know the driving force behind the major part of the recovery. So far so it shouldnt be surprising at all that.
That that's occurred.
I think as it relates to San Francisco.
It's just slower to recover.
The Big Tech companies have been slower to return to office.
We all see that micro data that's put out by.
Some of the companies that.
That provides.
The security and.
Check in services at office buildings and so it's.
It's definitely been slower to recover in that market. The good news is it has been recovering the case loads.
In San Francisco are the lowest in the country Fran.
Frankly, and so we do expect.
Particularly with international travel.
Opening up again to see.
Both some leisure and business travel recovery pickup, but but San Francisco like Chicago and.
D C have struggled without conventions.
Major conventions in the market and without the major part of the corporate recovery in the case of San Francisco, and Chicago and in DC, the federal government, which hasn't come back to their offices yet.
Okay. Thank you.
Thank you. Our next question is coming from rich Hightower of Evercore. Please go ahead.
Hey, good morning, guys. Thanks for all the detail in the prepared comments.
I wanted to drill down on the NAV analysis for a minute here so.
Maybe just give us a sense of <unk>.
Obviously EBITDA at the resorts is surpassing 2019 levels. It looks like the Navy here is geared towards 2019 actuals across the board. So what's the chance what's the probability let's say that some of your your urban markets are sort of non resort hotels don't get back to that level of perform.
<unk> for the foreseeable future and then secondly does it even matter.
Our buyers underwriting that either way, whether whether we believe it or not.
And then on the cap rate side.
With depressed income levels, obviously cap rates don't mean, a whole lot going in but is there sort of an IRR target that these would suggest.
Buyers are underwriting to over a longer period of time. Thanks.
Yes so.
I'm glad you asked this question because.
It sort of gets to the heart of how we how we underwrite. These values. These are not theoretical values, we didn't use cap rates to come up with.
These values, we used market transactions that are occurring and so what it tells you is.
How.
We don't know all the variables by other buyers are using when we look at buying.
We're looking at forward cash flows.
Unlike properties that have long term leases.
Where cap rates are sort of the <unk>.
<unk> are the dominant methodology is not the case and in the kind of assets that we that.
That we own and buy and sell in and so it really is based upon the buyer view of future cash flows theyre required IRR ours.
When we buy we look at we look at five year cash on cash we look at fifth year cash on cash we look at discount to replacement cost, which.
Has an impact on risk in the market, we look at other risks in the market, whether it be legislative whether it be union, whether it be brand or encumbrance.
That impacts control and value and we suspect other buyers are looking at similar items.
So these are numbers not driven by cap rates, but driven by.
How folks are our underwriting in the market and not just <unk>.
It's not <unk>.
19 is as you pointed out and we've said our resorts are performing well above.
2019 levels.
We've done our best debt kind of estimating the value improvements in those assets.
But it's a hard thing to do I mean, I'll give you. An example, rich I mean la Playa in Naples.
Is going to do 50% more EBITDA.
In 2021.
Then in 2019.
Now, we've put significant money into that asset repositioning it up.
So how somebody would underwrite.
How much of the improvement is permanent maybe all of it is maybe maybe only a portion is it'll vary by buyer and sort of their view on what the what the cyclical and secular trends are for the business there, but that property is doing it without.
The substantial group business that it normally has and the and the profitability generated by that so.
And then we've sold I don't know $6 million of nonrefundable.
Memberships at the Beach club, there and we've averaged about two to $2 5 million of net revenue from the Beach club that's not in these numbers so.
Again, how does somebody value that we take our best shot we try to factor all of these things and it's not just looking at 19, it's looking at how it's recovering.
It's looking at how.
Buyers are expecting these markets and these properties to recover and Theyre all going to be wrong, we're all going to be wrong in one direction or the other right. So it's.
It's a much more complicated.
<unk> and the cap rates are just a result of all of those factors.
Right and I guess, and we put them and we put them against 19 numbers just just because those are the only stable numbers.
We kind of put them against 2021 resort numbers as an example.
To show you some of the differences, but it was just it was just simpler to do the whole portfolio.
That way.
Either way either way the 30 to 35 doesn't necessarily represent a liquidation value that pebbled ROIC would be comfortable with in reality spot in time today I mean, it's just kind of a helpful. Guideposts I think more than anything is that is that accurate.
It's definitely a spot in time.
And these numbers have gone up substantially in the last six months not not surprisingly.
Our own internal calculations.
But we didn't feel like we had enough.
Transactions actual transactions in the market.
To feel comfortable putting these numbers out publicly so so theyre going to continue to move.
Based upon performance and how the recoveries play out and how buyer perspectives change.
On the market and how much product becomes available on the market. There's just a lot of variables, obviously that can impact values alright, thanks, Sean I'll hop back in the queue.
Sure.
Thank you. Our next question is coming from Shaun Kelley of Bank of America. Please go ahead.
Hey, good morning, everyone.
John array.
You did give some colors throughout but hoping you could just drill a little deeper on.
The midweek occupancy improvement that youre seeing throughout the portfolio so far in October yes.
Yes, I think you said the occupancy is already back to July type levels sounds encouraging, but can you just give us a little bit more color on markets and industries that might be driving that and a little bit of the behavior you're seeing there.
Sure. So I mean, we've all seen the improvement in a lot of the micro data and I know bofa.
<unk> publishes a lot of it.
And and in some cases actually accumulate some of it as well.
But if we look at October as an example for weekdays.
Through through October 24th.
Portfolio for weekdays is running at 57% and a rate of $249. So.
That would compare to September weekdays as an example that ran 43, 3% for the full month at a rate of $2 44, So again continuing improvement in both rate and occupancy and if you go back to July which was the peak.
<unk>.
So far in the recovery, we ran weekdays, we ran just under 53% and at a 261 right, which obviously was the draw.
Dramatically.
Impacted by the much higher resort resort rate for weekdays.
Ran $424 four our resorts.
And for our urban properties ran $218 for.
For weekdays in July so far.
For urban weekdays.
In October month to date, we're running at $235. So you can see that's up from the $2 18 in July and.
Represents.
Continuing progress we've made.
<unk>.
On rates and as business travel has come back so I would I would say from an industry perspective, Sean I mean, it's it's.
Its fairly <unk>.
Comprehensive across the board.
We get reports weekly with a lot of comments from our teams we asked them to provide comments about which of their corporate accounts.
Our returning even if it's one or two or three rooms.
And then track that over the course of months and we've just seen a lot more a lot more of the typical corporate names in each of our markets a lot more of our major accounts, albeit at much lower volumes, but but definitely traveling a lot of volume from consulting which has come back.
Project business around the country medical pharmaceutical.
Bio life and life biomedical.
Biomedical and life Sciences.
La is benefiting from entertainment production music concert starting back up.
Music group's comdata to law and practice before they go out on tour as an example.
And so they come and their teams say four.
For weeks at a time before they go out on tour fashion is returning commercials being made I mean, it's.
Where we haven't seen it is just volume out of a lot of the larger accounts, which would include financial services, albeit a lot of those are on the road again all of our banks and our line 18 of them are all traveling again.
Even though they're not back at the office yet so.
That divergence is a positive.
While we do think back to the office will influence it because we think if you're in your office you are likely to have guests come visit you and invite people to come visit you but.
But it's definitely they have definitely been disconnected so.
In a positive way.
Great and maybe just as my follow up there's been some increasing delineation in the industry between small corporate and corporate where we're starting to see.
I think small and medium size enterprises.
Getting back to normal a little bit faster than maybe there's fortune 500.
Largest corporate account clients.
Any way you can either break that down size wise for your portfolio like you.
Do you know your exposure to maybe like larger scale corporates versus a more mixed bag or or for the industry. If you've ever see anything interesting there just sort of a high level question because we are getting this one increasingly.
Yes.
I would direct you to the brands, who might have better information I mean, frankly again, when you think about it I would guess of our business.
Of our business travel demand, our transient business travel demand.
I would guess.
60, or 70% of it at least.
Comes through non corporate account channels.
So those are being made through the GDS system through Otas.
And in other channels.
Direct on our websites.
And.
They may or may not provide a corporate name they may or may not be there for business.
We've always said, we just don't have.
The best tracking data, we know what comes through our corporate accounts, but our corporate accounts are a small percentage of our overall business travel.
And frankly.
When you have citywide conventions it gets even more blurred because a lot of people that stay in the convention blocks. They just book directly with hotels.
That comes through as transit for us, but the demand driver is group. It's a convention, it's a big conference. So.
I wish I could provide you better information on that but I'd say anecdotally.
<unk>.
80% of our business right now is probably small and medium business travelers.
As the larger corporations have been slower to recover their volume from pre pandemic times.
Great. Thank you very much.
Thank you. Our next question is coming from Gregory Miller of Truth Securities. Please go ahead.
Good morning, Mike.
My first question is on hourly staffing trends at your hotels.
I appreciate labor models may be quite varied across the portfolio.
And there may be structural reasons, why youre not seeing as much wage growth.
One high level figure from the Bureau of Labor Statistics noted about a 13% year to date increase in hourly earnings for non supervisory roles in hospitality.
But if I understood your commentary this morning.
Not seeing these hourly wage increases in general perhaps excluding the resorts.
Taking a narrow view for housekeeper for example, rough.
Roughly how much higher is an average wage today versus earlier this year and your resorts versus your corporate focused hotels, if youre willing to share.
Yes.
I would share it if I had that information, but but but I don't have that information specifically.
I would say this Greg just to think about it in a broader context.
If you don't mind, its probably the best I can do but.
In urban markets.
Well, we what we've done is we've followed what we typically do which is we.
We follow either our union contracts, where we're union does have specific increases each year already negotiated in many cases those are obviously.
A multiyear intermediate term contracts.
They have generally been anywhere from 3% to 4% a year.
In terms of the wage size and of cities. The rest of the properties that are non union and those markets typically follow so.
We would have had those increases for the most part last year. Its possible. There were properties that ended up being closed last year.
And they didn't take those increases so when we came back this year.
Maybe we went up 6% earlier in the year because it was a two year process, where we went up 3% the market moved last year and then we caught up in July with another increase so we're really just following the markets keep in mind the urban markets for.
For the for the vast majority of the cities that we're in are way above where.
Either minimum wage legislation is or.
No.
We hear about Amazon and Costco.
Walmart or Starbucks, taking substantial increases, but they're generally way below where our housekeepers are in our.
Our properties so.
The city is just arent getting impacted by that Bureau of labor data, which I don't think Brexit down between a city.
And our suburban or secondary or tertiary market.
And Greg just to add on that the wage pressures that we're seeing in the way your challenges are more in the suburban markets in the resort markets and urban urban had been less of a challenge with our lease crude demand is at a different level than the resorts resorts that have been.
Suburban markets more pressure and that's also where.
Folks like Amazon and Walmart are also hitting more too because thats a good job in suburban a resort market well its where the wages are lower so.
So it's really the.
Its really the secondary markets.
Some of the resort markets and.
Key west has been always been a challenging market and.
We've had some increases there I guess, they've probably been anywhere from 5% to 10%.
And then we've had.
We've had some of the third party contractors, we use for housekeeping in the keys.
Go out of business.
Yeah.
<unk>, saying, we're paying their taxes to the federal government. So.
They've got put out of business and and so we've had a retention bonuses in place for new hires six months out we might pay 250 or $500. We've had referral bonuses frankly.
And frankly, that's fairly common practice, but but some have increased from 250 to $500 because the best.
The best channel for hiring our People's friends and family frankly.
And these hourly positions and.
The other thing to think about is at our properties that have successful outlets food and beverage and banqueting catering.
We're able to pull people from other properties that don't have the same volumes are the same pricing because those people make more money at our properties and in our outlets than they do.
At another property and so I do think theres going to be some bifurcation and the ability to hire and the ability to pay and people to earn higher wages and benefits.
Versus in some of these markets between higher quality properties and lower rated properties.
Thanks Rolla the in place there and I also struggle with getting to a market level perspective.
I don't think Pls does it so that's all very very helpful.
My follow up is related to what Youre, just discussing there's a bit of a consumer behavior and customer service question.
While not specific tier hotels across the service industry when emerging theme as of late is that consumers are paying the same or more for services, but the service quality is getting worse and PR had a piece of this recently, calling the concept skimp inflation.
Yes, I can see ramifications for pad in several ways. The one that comes to mind is consumers paying up for hotels, where there is superior service now where that bifurcation that you were just talking about may be applicable.
And maybe that applies a pad where consumers pay up for your hotels, but for other hotels, whether consumers are expect expecting less service, maybe they are more likely to pay.
Less so I am curious if you have any opinions about this topic or until he off base here.
No.
Thank you are you are on base, but I would and we've talked about this in the past I don't think it's just service I think it's the quality of the product as well.
And so as we've talked about in the past.
In in the recovering part of the cycles, our assets tend to gain share, which there which they are doing now, particularly on the rate side.
You can always hold occupancy you just have to lower your rates.
Track people, who are price sensitive.
So as we've said, we're seeing our rate our rate gains being substantial particularly at the properties that that we've repositioned, but really throughout the portfolio and part of that is and we track I mean, it's just one measure, but we track our tripadvisor.
Rankings.
Traveller rankings and while we've been gaining over the course of the entire year within our portfolio, we're up from pre pandemic levels and were up from the beginning of the year.
So we do think that translates into two.
Better performance and properties that are unable to either higher quality talent.
Or enough talent.
Or maintain their properties tend to get into a vicious circle of losing share not generating enough cash flow to improve their properties.
We're pay their people or have enough people so.
I do think there is theres a lot to it and it's why we are why we're highly sensitive to the kind of service.
We provide we've opened restaurants in facilities, where we may be losing money on the restaurant right now.
But it's important to gaining that.
<unk>.
The visitor and the rates.
We're charging on the room side.
Yeah.
Great. Thanks, John really appreciate all the insights.
And if we could hold questions to just one so we can finish before the weekend.
I mean, we're happy to stay but we're just concerned that some of our listeners may have.
May depart.
Quickly, so and I'll try to make my answers a little more concise so.
I was just asking is no questions.
No.
Next question is coming from Michael Bellisario of Baird. Please go ahead.
Hey, guys good morning.
Good morning, Mike.
Two part question, but kind of goes hand in hand, one answer.
If you go back to risks just first kind of fundamentally what are the bigger picture risks that you're focused on as you look out over the next 12 plus months virus aside and then kind of part b to that is what about on the real estate side and in that transaction side in end markets. As you think about reallocating capital where the risks there.
Yes so.
There is plan theres plenty of risks out there other than just the virus there always have been in our industry.
I think the sort of bigger macro risk.
Think about we were not too concerned about today, but.
It potentially could go down that road as if inflation is not transitory whatever.
<unk> means meaning I guess my view would be if it gets built into permanent expectations of increases and you get into that cycle of response.
Increase response.
Then the fed has to jam the breaks on and we have.
Recession, or we have a significant slowdown.
And not the length of recovery that would be more typical.
To prior cycles, so that's how.
The bigger risk we worry about we don't generally worry about inflation, we actually think it helps our space and as we've indicated in our comments.
Right now the customer is extremely well off.
And pretty insensitive to price increases right now and so.
We're taking those.
Where it's appropriate.
I think on on the micro side it's.
Dealing with the more typical risks that we had pre pandemic.
That's quality of life in cities, the homeless issue safety, which is big.
Become a bigger issue in many cities, including cities that didn't have a pre pandemic issue.
Or at least to the same extent because when people arent around in cities.
They tend to become.
A little bit more active in negative ways.
Just more opportunity for a crime and so with the combination of that with the sensitivity to policing in the manner of policing.
Two of those have not interacted well in some places and so.
That's a risk we're trying to understand as we move forward how long does it take I mean, we went through this and in some other cities like New York, where.
They got to a point, where the electorate rose up elected people who were focused on those key issues and.
We're beginning to see that in some cities, but we think some of the recoveries may take a little longer.
Because a lot of travel including conventions are is discretionary so.
That's a risk that we look at.
Interestingly there their folks on the buyer side, who look at Union risks don't want to buy Union properties, but we kind of look at it the other way the risk is getting unionized in a market.
If if.
If a particular property hasnt kept up which ours do from a wage and benefit perspective, but when we look at buying we need to understand.
Is there exposure either is there a significant wage and benefit increases that need to take place.
To get to union wages in those markets.
Which are appropriate or.
So to us the risk is greater either it's either financial which you need to build in or if you don't build it in and then that's a risk that you're going to carry forward in.
In that market so.
We're we don't have a problem with.
Union properties the Union.
Paying people fair wages, and providing full benefits, which we do in the industry, but we have to understand when we buy properties what others have been doing.
Yeah.
Got it helpful. Thank you.
Thank you. Our next question is coming from Bill Crow of Raymond James. Please go ahead with your question.
Hey, good morning.
On your scripted remarks, but I'd say 35 minutes. So it's not fair to blame all the all the questions here, but I will ask you I'll ask you one on San Francisco.
We would expect that to lead to fewer questions. So.
Yeah.
Okay.
Evidently that's a wrong premise and that's okay. We've done 90 calls and it's always been the same so and bill was that your question, yes. It was.
Thanks Bill.
That was the statement yes.
Kind of what they were pre pandemic. If you look at Vegas, it seems to be really thriving here and you look at San Francisco.
What arguably the worst market in the country or one of the worst.
And I'm just.
Wondering whether we just have kind of gone back to where we were in this.
This decline in San Francisco promo.
Eventually in BD perspective.
Continues.
The interim we've lost.
Number of.
Companies to other markets in Texas in particular, so just your thoughts on the future there and maybe how much you're willing to.
She knew to allocate from a percentage of portfolio basis to San Francisco.
Yes, so I mean.
I think betting against San Francisco on the long term would be a mistake.
We think.
The underlying fundamentals that have made that city grades still exist.
It's not just the weather and the geography, and the attractiveness of the city and the surrounding area.
But the it's the attractiveness of the economic base that generates.
So many new businesses, so much economic growth.
So many new jobs, so much more office demand.
And and provides so many reasons for travel so.
I don't I don't think thats going to change a lot of that base.
Comes from the universities that comes from that.
The clusters that are already there that it comes from venture huge amounts of venture capital that flow into that area. I mean, you look at biomet biomedical and bioscience that are exploding.
In the San Francisco Bay area.
And while there are other markets where that is.
While that's happening it's a fairly limited number in San Francisco would be in the top four for sure.
In the U S. So.
We don't think that changes we're pleased with.
Some of the near term changes adopted by the government. There is another $1 billion a year for two years going for.
Homeless theres more dollars for the police force.
Four.
We're maintaining the count and the police force. So so bringing on people for those who have retired or left the force not all markets are doing that there is another $300 million a year for the next two years for mental health and dealing with those issues. So we think the government is coming around to addressing the issues.
And frankly, we think San Francisco is a great long term market, it's just going to struggle in the short term until we get past this virus and businesses all come back to work.
People.
Which has already been happening move back.
To San Francisco from their parents' houses.
And.
You can see the continuing growth I mean, if you look at the numbers for the companies that have gone public or been bought by us back in the Bay area.
And it's not even close it's like 70% of it of what's happened in the entire country in the last year. So.
I wouldn't bet I wouldn't bet against San Francisco, and we're not going to bet against San Francisco.
But we do look at relative risk and return and.
We've sold a couple of assets in San Francisco will likely sell a few more.
And we'll really reallocate that capital to markets that we think.
Have have more attractive risk return opportunity.
Thanks, guys.
Okay. Thanks Bill.
Thank you. Our next question is coming from Ari Klein of BMO capital markets. Please go ahead.
Thanks, maybe just following up on that.
Any update.
Written or NOI higher iron 2021 I imagine the underlying cap rate probably haven't changed that much from where they were in 2019.
I guess first is that a fair way to think about it and then if that is the case, what if anything does that imply that the expected durability of the strength that you're seeing there at least in the eyes of investors do you think there is room for further cap rate compression.
Yes so.
All good questions and all I wish I had.
Great answers too.
Because it's it's.
Complicated and some of it is is.
As a bit on knowing but.
I would say.
There's no doubt that.
Our resorts would all things being equal I think would trade at lower cap rates today than they did pre pandemic.
Because I think there's a view that there is less risk in resorts and more risk in urban at the very least in the near term.
I mean, you are buying an asset thats delivering cash yield versus some urban properties that if they are delivering cash yield or smaller.
And so even that gets factored in to valuations I think the part about and frankly.
The investment brokerage community.
Has a premise for the hotel industry overall, which probably would be amplified in resorts, which is.
Yields have come down in all other product categories.
Industrials down to 4% cap rates or less.
Certainly residential down to sub for cap rates.
Health care.
Down.
As well so other product care categories also coming down so their argument would be.
If you will cap rates and really cap rates are a result.
You don't have stabilized income in many cases, so again, we're back to forecast forward numbers cap rates seem to be more relevant in other categories, where the changes from year to year are much smaller.
And are driven by existing contracts or leases.
Is very very different so you have a wider view of valuation.
Assumptions and Thats, what makes some market so interesting and when we get bids on properties. It can be a fairly wide range, which is probably a little bit different than what you might see in other categories. So there is no doubt resorts would trade at lower cap rates, but on what numbers.
And what people believe in terms of the.
The stability of the existing numbers I mean, we think our resorts are going to do significantly better next year as an example, and we already see that in the first half numbers that are on the books and we already see that with group coming back at our properties that also cater to group.
So we're going to run much higher revenue numbers and in many cases much higher <unk> than we did in this year, where the rate growth really didn't get humming until late in the second quarter into the third quarter. So sorry, it's again, it's a longer answer, but and I don't know that its.
That there is a right answer to it already but.
But it's the way, we we would think about it.
I'll also add that we've.
Also renovated redeveloped several of our resorts recently, so if youre looking at where the values were at 19 and cap rates. There in comparative there's a change you have to take into consideration for example at <unk> del Mar the renovation we completed here.
Recent may southern most in La Playa, we've invested capital there.
Mission Bay in San Diego, we flagged at Hilton and made it independent invested capital there.
At Skamania, we added some more treehouses and other amenities and Theres a lot of other factors going on in there, which should continue to grow the value of those properties.
Really redone all the resorts and southern most was it was the last one so they've all been they've all been fully renovated and redeveloped and repositioned in many cases.
In the last three or four years.
Got it appreciate all the color.
Thanks Ryan.
Coming from Anthony Powell of Barclays. Please go ahead.
Hi, Good morning, just a question on the recovery of our business transient and you mentioned you needed to get that back to get back to you to be able to 19 EBITDA levels, but.
The exact percentage of recovery needed change given all the strength <unk> seen in leisure both in the resorts and urban properties.
It kind of getting back to maybe 95% and 90% do you need to get back to a lower number if you hold on to stem. These resort.
Urban leisure gains you've gotten this year and next year.
Yes. It is.
Good question Anthony.
Yes.
I hope our comment wasn't misinterpret it we don't need to get back to the same exact levels. We were at from a volume perspective.
For the for some of those reasons that you provided one.
Is the strength of the resorts to I think ADR.
Are likely to to run.
Iran above 19, very quickly and in many cases blow past 19 levels and.
And even a transitory inflationary environment.
Three we've changed our models and how we operate these properties and so we expect to get back.
As we said to bottom line EBITDA numbers before even we get back to the same revenue levels, let alone the same volume.
And so no doubt.
This segment that'll be.
Flowers to recovery is going to be the business travel side.
And.
And more likely probably a little bit more on the group side than the transient side.
In terms of timing, but we do think there's a lot of pent up demand there and it may happen a lot quicker than what people think again with the proviso being what happens with the virus and to people begin to behave normally end.
With the vast majority of the population vaccinated.
Thank you.
Okay.
Thank you. Our next question is coming from Floris Van <unk> of Compass point. Please go ahead.
Hey, Thanks, guys for taking my question.
Hi, My question is.
Sort of related to the <unk>, but maybe if you could touch upon.
16% of your assets still have Marriott management.
How are you incorporating that in your.
What is the upside potential what's the timing of that.
Those contracts when they can be become independent or non Marriott managed.
Maybe and also if you could talk about the.
How are you capturing things like Paradise point potentially.
Switching to a margaritaville.
Is that is that captured in your NAV or not and and and curator.
Z collection are those those presumably are not part of your any day.
Calculation as well if you can maybe just touch upon some of those things I know, it's a multifaceted question, but.
Just curious to get your thoughts.
So so far as the specific ones you mentioned so expiring.
Aspiring Marriott contracts, we have a couple of them the westin.
Michigan Avenue.
In the end of 2026.
The the.
The Westin Copley in Boston.
In the end of 2028.
Both of those are old contracts.
And have management fees that are dramatically above the market.
But we have not factored that in at all in our valuations.
We have not factored in curator.
To our valuation and you know no line for curator.
Our NAV as well.
Corporate <unk> and.
We've not factored in any of the future conversions or.
Opportunities within the portfolio like Paradise point to Margaritaville.
In the portfolio. So none of that is taken into account.
Do think.
We we tend to be pretty conservative with our in AAV.
The market historically still doesn't believe us.
Even when we sell billions of dollars within.
Within the value ranges that we've provided but.
Perhaps it's again, if the company is getting valued on cash flow.
And it doesn't matter.
That's understandable and how our business is valued but if the management teams willing to sell and reap those values than you would think it might be taken into account to a greater extent, but not for me to comment on the stock price, but more sorry, just trying to answer your question about the evaluation of the.
<unk>.
Thanks, Sean.
Thank you our last question today is coming from Chris Sterling of Green Street. Please go ahead.
Hi, good morning.
John you touched on it on that last answer, but you know going back to that estimate and the obvious discount there between your share price and your internal estimate of value.
It does beg the question why not look to sell assets more aggressively and try to take advantage of that disconnect. So just curious to maybe better understand how you're thinking about that.
Sure so.
So when we look at valuations and we look at whether we sell or buy there's a lot of things we have to take into account.
Long term strategy of the company.
Some of the opportunities that.
Yes.
Floris, even asked about in terms of how much opportunity is there and.
In the individual assets to drive growth in cash flow and value.
And.
And you need to have.
Place to put those investment dollars.
Many of our properties, we've owned for a while or that we acquired from Lasalle, which were owned for significant period also have tax issues.
That we have to take into account.
Within those decisions and we also are in a business where.
Some of these properties.
You won't ever see again.
The market in terms of availability, so it's not like trading in and out of stocks and I know thats, not what youre, what youre, suggesting.
At all but.
It is it is harder to.
Yeah.
To trade these assets versus looking at them on a long term basis, but we have sold significantly in the past.
And when when that disconnect has lasted.
And that may very well be the case as we move forward.
Fair enough thanks for the thoughts.
Thanks, Chris.
At this time I'd like to turn the floor back over to Mr. Bortz for closing comments.
Well.
Well, thanks, Thanks, very much John and thanks, everybody for participating.
As much as we joke about it we appreciate your questions and the thoughtfulness of them.
We look forward to updating you again.
And next year, and we will continue to provide our monthly updates in the meantime.
Hope everybody has a nice holiday thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may does.
Connect your lines at this time and enjoy the rest of your day.
Right.
Dan.
No.
Yes.
Dan.
Yeah.
Sure.
Okay.
Yes.
Thanks, Dan.
Yes.
Thank you.
Great.
Sure.
Yes.
Okay.
Yes.
Dragging me down.
Yes.
Great.
Yeah.
Dan.
Okay.
Thanks.
Yes.
Graham.
And now.
Thanks, Dan.