Q3 2021 Xenia Hotels & Resorts Inc Earnings Call
Tightness will begin Daniel Please go ahead.
Thank you operator, good afternoon, and welcome to the Xenia hotels, <unk> resorts third quarter 2021 earnings call and webcast I'm here with Marcel very box, our chairman and Chief Executive Officer, Barry Bloom, Our President and Chief operating officer, and the keys shock, our executive Vice President and Chief Financial Officer.
Marcel will begin with discussion on industry fundamentals, our quarterly performance and an update on our portfolio strategy.
<unk> will follow with more details about our operating results recent operating trends and status of our capital expenditure projects and <unk> will conclude our remarks with an update on our balance sheet. We will then open the call for Q&A before we get started let me remind everyone that certain statements made on this call are not historical facts and our COO.
Consider forward looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments forward looking statements in the earnings release that we issued this morning.
Along with the comments on this call are made only as of today November 2nd 2021, and we undertake no obligation to publicly update any of these forward looking statements as actual events unfold.
You can find a reconciliation of our non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release, the property level information our executive team will be speaking about today is reported on a same property basis for 34 hotels, which excludes the Hyatt Regency Portland, an archive of this call.
Will be available on our website for 90 days I will now turn it over to Marcel to get started.
Thanks, Danielle and good afternoon, all of you joining our call today.
You as long as it continues on its path to recovery in the third quarter increased Goldman Sachs.
And continued strong leisure demand drove the highest buffeting the industry has experienced since the beginning of the pandemic.
Sure.
U S revpar for the third quarter of 2021 decreased by only four 8% compared to 2019.
Comprised of an approximate six point decrease in occupancy and three 8% increase in ADR.
Good luck to rental for upscale segments of like lower tier chain scales in terms of the recovery through 2019 occupancy levels.
An experienced occupancy declines of minus eight eight points 20 points, respectively compared to the third quarter of 2019.
However, fluctuate ADR increased 15, 9% and upper upscale ADR increased 4%.
The rate increase in the luxury segment have been impressive and a positive signs we are starting to see as it relates to business transient and group demand certainly gives us cause for optimism for a robust recovery and the certainties, where our portfolio is positioned.
Yeah.
Similar to the rest of the lodging industry, our portfolio faced some headwinds because the third quarter progressed due to a resurgence of COVID-19 today for some of the Delta variance the seasonal decline in leisure demand and a tougher tougher comparison to 2019 in September do you see it.
The timing of the Jewish holidays.
Given this backdrop, we were pleased with the 12% sequential improvement in our same property revpar over the second quarter.
Especially since the third quarter has historically been our portfolio of softness due to seasonality within our top markets.
We were also happy to see the Revpar declines compared to the same quarter in 2019 continued to moderate.
And yet despite cancellations that were likely linked to the emergence of the delta bearings.
Strength in group demand appeared to increase our support of progress.
This practice continued into the early part of the fourth quarter.
With weekday demand continuing with this granted.
During the third quarter, we recorded a net loss of $22 2 million.
However, adjusted EBITDA <unk> and <unk>.
Adjusted <unk> per share each remained positive at $35 4 million and 13, respectively.
Our year to date adjusted EBITDA SFO also turned positive as a result of our third quarter performance.
We were particularly encouraged to 33 of our hotels and resorts achieved positive hotel EBITDA during the quarter.
Our same property portfolio generated hotel EBITDA margin of 23, 8% for the quarter as.
As a result of our continued focus on cost controls and aided by flow through from cancellation fees recognized during the quarter as well as the shift in revenue mix at our properties, which reflects a higher contribution from rooms revenue than historical averages.
Yeah.
Our same property Revpar for the third quarter was $123 and so it makes sense.
Which represents a 23, 1% decline for the third quarter of 2019.
The substantial improvement from the 64, 3% and 38, 7% declines in the first and second quarter.
Okay.
Our managers did an excellent job maintaining greatest degree, which resulted in same property ADR of $224 54 for the quarter of six 5% increase compared to the third quarter of 2019.
An impressive 24 of our hotels and resorts achieved ADR. So perhaps those reached during the same quarter in 2019.
While the quarter started off strong demand levels began to moderate somewhat in mid August through mid September.
By the second half of August the Delta variant was driving an increase in Covid cases, particularly in the Sunbelt region, where a significant number of our hotels and resorts are located.
However, despite group cancellations impacting our portfolio occupancy for the third quarter finished at 55, 1% a high watermark since the beginning of the pandemic.
Okay.
September ADR was the highest we have achieved this year continuing the trend of every month in the quarter, surpassing the average rates for the same months in 2019.
Business transient demand levels began to accelerate mid market as evidenced in our improving weekday occupancies and these continued to improve during the month of October.
Okay.
Based on preliminary data are estimated occupancy for October was approximately 58% and ADR was approximately $245.
The resulting revpar of approximately $143 substantially exceeds our July revpar.
Further highlighting the continued strength in leisure demand and improving business and that's both on the trends in the group side.
Okay.
While October has provided a promising start to the fourth quarter.
We believe our portfolio of recovery will truly accelerate as business transient and corporate group demand approach normalized levels.
While we are seeing improvement in these segments. We believe this will be a gradual process, particularly as we enter the seasonally weaker months that lie ahead.
Yeah.
The recent resurgence of Covid appears to be behind us at the moment.
But we remain cautious about the potential future resurgence during the winter.
Particularly in colder climates dates.
However, leisure demand has remained strong and has consistently exceeded our expectations over the past several months.
We expect this strength to continue as we enter the holiday season.
Okay.
We believe our strategy of owning a geographically diverse portfolio of high quality luxury and upper upscale hotels and resorts continues to show its value.
The sequential improvement in our portfolio's performance quarter over quarter is reflective of the benefits of our longstanding focus on investing in some bells and drive to leisure locations.
The desirability of our hotels and resorts to various demand segments.
Our higher concentration of luxury assets with their segment comprising 30% of our portfolio.
Is also proving to be helpful. As Revpar are these properties increased by approximately 30% over the second quarter.
Okay.
Our portfolio was able to maintain healthy margins this quarter and generated positive adjusted SFO. Each month as we have been able to do since March of this year.
The management teams at our hotels were able to flex operations to align with fluctuating demand levels.
This quick and nimble response with the result of the lessons learned over the last 18 months as our managers have rebuilt operations from the ground up.
It is a testament to the success of our strategy of partnering with the best in class brands and managers.
We continue to believe there are meaningful embedded growth opportunities within our portfolio.
While we primarily measured pace of our portfolio of recovery in comparison to 2019 performance Hotel EBITDA was approximately half of our properties. These prior to this time.
As a result, we anticipate incrementally greater growth opportunities in the years ahead for a number of our properties and our top 10, EBITDA producing markets such as Houston and Orlando.
As well as in some of our smaller markets.
Additionally, we will continue to be optimistic about three of our previously highlighted properties. This could create a significant incremental hotel EBITDA over 2019.
Alright, Hyatt <unk> Hyatt Regency Grand Cypress, and Hyatt Regency Portland.
While occupancy at Park Hyatt <unk> continues to build and will not stabilize until group business does return to a more meaningful way.
The resort achieved some remarkable result at several metrics during the third quarter.
ADR at $558 30 for the quarter was nearly double what it was in the same period of 2019.
Driving an almost 30% increase in revpar.
Additionally, the resort's hotel EBITDA margin was more than 800 basis points higher than the third quarter of 2019.
These results give us great confidence with the expectations, we had when we acquired and renovated the resource will be met or exceeded in the years ahead.
At Hyatt Regency Grand Cypress, we continue to be optimistic about the long term benefits of the additional ballroom, we created at this resort.
While group business overall is recovering gradually.
<unk> thousand 22 group booking phase with this property remains promising.
At the end of the third quarter Hyatt Regency Grand Cypress ranked number one in our portfolio.
The room nights and revenue on the books for 2022.
And it is not far behind as group pace for 2019 at the same time in 2018.
Okay.
We remain confident that the additional ballroom will drive the incremental revenue we projected as group business continues its recovery in the quarters and years ahead.
Okay.
Hydrogen C Portland lagged the rest of our portfolio as the business environment in Portland, and the state of Oregon remains challenged.
With this hotel only haven't been opened for a limited period in early 2020, we are truly building the business as opposed to looking to recover to prior levels.
With this hotel are intended to be group focus we are dependent on group business in the state or region recovering before we will approach stabilization.
In the meantime, we are pleased with the management team has been successful in attracting leisure and business transient demand.
At levels that continue to support our decision to reopen the hotel at the end of May.
Okay.
We are also encouraged that the hotel has over 50000 group room nights on the books for 2022.
Which represents the second highest number of group room nights in our portfolio.
Yeah.
While there obviously continues to be some uncertainties about these groups actualizing. This group base does demonstrate the appeal of that property has to groups and meeting planners alike.
Okay.
I will now turn briefly to the transaction landscape.
We have not seen a significant shift over the past few months as it relates to the quantity and quality of acquisition opportunities in the market.
I spoke last quarter about our ability and willingness to remain patient as it relates to potential acquisitions, and then we believe that more and better opportunities are likely to surface as the recovery progresses.
Yeah.
We continue to evaluate a pipeline of potential transactions.
But we will remain disciplined as we analyze and pursue potential additions to the portfolio.
To enhance our growth prospects.
Meanwhile, we remain focused on internal growth opportunities through asset management optimization, and various ROI projects within our existing hotels and resorts, which in many cases are still relatively recent additions to our portfolio.
Okay.
Very well and I'll provide additional details on our third quarter performance recent operating trends and the status of our current capital projects.
Yeah.
Thank you Marcel and good afternoon, everyone.
For the quarter, our portfolio occupancy was 55, 1% and average daily rate of $224 50 poor results.
Resulting in Revpar of $123 70.
As a reminder, revpar in the third quarter of 2020 was $42 nine.
In the third quarter of 2019 was $160 79.
The sequential improvement quarter over quarter, given the headwinds faced in the last few months gives us optimism about the trajectory of our portfolio's recovery.
July was a particularly strong month with occupancy, reaching 59, 1% a new high for 2021, and an ADR of $224 23.
Which represented a nine 3% increase to 2019.
<unk> benefited from the fourth of July holiday, and five weekends, which averaged 72, 4% for the months allowed our hotels to capture additional leisure demand.
Yeah.
We had seven hotels that achieved occupancies over 80% from July primarily hotels in our leisure focus and drive to markets, such as Charleston, South Carolina savanna, Birmingham key West Santa Barbara and Napa, all of which continue to show substantial strength.
We also had 12 hotels has exceeded the July 2019, ADR by over 20%.
In August we began to see some moderation in occupancy during the month due to the seasonal decline at the beginning of the new school year and the spread of the Delta variance across the Sunbelt region.
As a result August occupancy dropped seven points from July to 52, 1% and an ADR of $218 12.
On August 29th Hurricane item made landfall in New Orleans, Louisiana as a category four storm on Loews, New Orleans hotel incurred property damage from the storm. We believe we will exceed our maximum deductible from this loss of approximately $4 million.
In addition to our property damage insurance claims and are currently evaluating our ability to recover proceeds for lost profits under our policies, which we would expect to settle in 2022.
Moving to September while we saw a boost in leisure transient demand over labor day weekend was slightly below occupancies reached over the memorial day weekend.
Heading into the quarter, we had anticipated a pickup in business transient and corporate demand following the holiday.
While we experienced an increase in weekday occupancy Midland with somewhat muted due to the resurgence of Covid cases, and a further push back and return to office timeline for many large employers.
Also had a tougher comparison in 2019 due to the timing of the Jewish holidays.
September occupancy improved by two percentage points over August to 54, 1% and ADR rebounded as well increasing 6% from August to $231 in 2006.
Group cancellations in the quarter, which Marshall mentioned managed for approximately $5 $4 million of rooms revenue, which had been on the books for the third quarter of 2021.
And an additional $7 8 million for the fourth quarter of 2021.
We recognized $3 $5 million in cancellation and attrition fees during the third quarter.
I will discuss 2022 group pace in more detail shortly.
We saw strong growth across many of the markets in our portfolio in terms of average daily rates.
<unk> to the third quarter of 2019, we experienced ADR growth in several of our top 10, EBITDA contributing markets, including San Diego up 64, 2% Phoenix at 39, 9% Atlanta up 13, 8% Orlando up 10, 7% and Houston up eight 3%.
In the third quarter, we had an impressive 24 individual hotels and resorts surpassed <unk> achieved in 2019, including all time record highs at Andaz, Napa and park Hyatt <unk> resort and Spa.
In terms of profit.
Of our 45 hotels achieve positive hotel EBITDA for the quarter, the 13 properties exceeding results compared to the third quarter of 2019.
Nine hotels achieve EBITDA margins greater than 30% for the quarter and 22 hotels generated EBITDA margins greater than 2019 is by lower than expected labor costs, and real estate taxes and cancellation and attrition income.
Departmental expenses declined 31, 3% in the third quarter compared to 2019, which candidly exceeded the 25, 6% decline in revenues, our undistributed expenses of considered to be largely fixed in nature declined by 19, 7% led by significant declines in administrative and general and sales and marketing expense.
Yes.
Total payroll and employee benefits expenses declined by 32, 4%.
In terms of labor, our hotels don't many positions open due to the shortage of applicants in the market.
However, our operators made significant headway this quarter in filling key property level management and line operating positions.
Okay.
I wanted to spend the next few minutes sharing recent operating trends, we have witnessed over the past quarter.
We pay occupancies in the third quarter continued to trend upward and exceeded those achieved in the second quarter by approximately $4 seven occupancy points. Most significant gains were achieved on Tuesday nights indicative of the increase in corporate transient demand.
We continue to experience additional gains in weekday occupancy in October.
In terms of corporate transient booking trends, we've yet to see a meaningful increase in volume from Fortune 500 companies. However, there continues to be stronger growth from smaller national corporate accounts as well as local corporate accounts, whose volume is improving each month.
Corporate transient business from large volume accounts grew approximately 16% from Q2 to Q3.
On our last earnings call, we shared the leisure booking windows had lengthened over the summer months. We are now seeing similar trend shaping up for the last few months of the year is by the upcoming holiday season.
This lengthening of the booking window to continue to allow our hotels to drive even further rate increases will be solved at the tail end of summer.
Based on the Friday, and Saturday Occupancies, our portfolio experienced in October, including achieving two of our five highest occupancy nights this year.
Grizzlies demand remains healthy and strong as we had anticipated heading into the fall.
As a reminder, approximately 30% of historical rooms revenue was driven by group business, which encompasses corporate association and social groups.
The third quarter group represented approximately 20% of rooms revenue.
Group pace for the remainder of 2021 was negatively impacted on a significant number of cancellations from the search from the resurgence of Covid cases in August.
Okay.
At the end of September group revenue pace for 2022 was down approximately 31% compared with our position at the end of September 2018 for 2019 with rate up approximately 3%.
Group revenue on the books for 2022 continues to increase steadily was up 27% at the end of September and comparisons where we stood at the end of June with most of the increase falling into the second and third quarters 2022.
In my remarks today with a few updates on capital projects in progress for the year.
In the third quarter, we spent $7 $3 million.
We continue to estimate spending approximately $49 million on capital expenditures for the full year.
Okay.
The restaurant and lobby renovation at the Ritz Carlton Pentagon City was completed in October.
This restaurant has been well received and we are pleased with how the look and feel of the restaurant and lobby integrates with the meeting space, we renovated last year.
We believe these improvements will position the hotel for continued success.
Okay.
The development of the Regency Court, a new outdoor social venue and our auditors discussed in resort and spa with delayed primarily due to weather related issues and is expected to be completed in mid November.
This significant increase of the hotels outdoor meeting space has already generated considerable interest for incremental social and corporate events.
The restaurant lobbies guestroom renovations at Waldorf Astoria, Atlanta, Buckhead unusually underway.
Next to be completed in the first quarter of 2022.
We believe this comprehensive renovation will secure the property's position as the preeminent luxury hotel in the Buckhead market.
Last quarter, we announced the plans for comprehensive renovations for Grand Bohemian Hotel, Orlando and the Kimpton carry hotel, Santa Barbara both of which will encompass renovations of each hotel's guestrooms restaurant and bar lobby rooftop pool area and meeting space we.
We are pleased with the early design efforts these projects, which will create a lighter and more contemporary look and feel for each property.
Work on these two projects is expected to begin in the first quarter of 2022 with estimated completion dates in the first quarter of 2023.
These projects are being completed in phases to minimize guest experienced disruption and financial impact.
With that I will turn the call over to Ashish.
Thank you Barry I will provide an update on our balance sheet. Our balance sheet continues to be strong with no debt maturities until 2024 over 1 billion in liquidity and strong banking relationships.
We're in a good position to take advantage of opportunities.
We continue to believe that our business will be cash flow or <unk> positive going forward.
And as we look ahead, we expect our properties will continue to pivot to capture what demand is present with a focus on controlling expenses.
As we look further out we believe our assets are well positioned as the rate of new supply growth decline.
Properties in markets, such as Houston, Orlando, and Atlanta are expected to see lower levels of new competitive supply growth.
Our portfolio consists of well located higher end properties that we expect to continue to recover well, particularly in corporate transient and group demand recovers.
And with that we will turn the call back over to Juan for a Q&A session.
Okay.
If you would like to ask a question. Please press the star followed by one on your telephone keypad now if you turn your mind. Please press the star followed but you might two for those joining us online.
Icon when preparing a question. Please ensure your mute locally.
Our first question comes from David Katz from Jefferies. Please David Your line is now open.
Hi, everyone. Good afternoon. Thanks for taking my question and for all the information.
Earlier on Marshalls, you indicated that there is a pipeline of opportunities out there and.
To the degree you can I'd love to.
Just have you elaborate on that a little bit.
The focus on the.
Sunbelt area has been.
Pretty productive so far and fortuitous.
Any geographic or size or cap rates perspective would be helpful. On what might work in this environment.
Hi, good afternoon, David.
No like I said on our situation.
As it relates to our pipeline today is probably not too different from where we saw it last quarter as I mentioned in my remarks, as well, so where we're looking at a number of opportunities.
Certainly underwrite underwritten.
A number of opportunities here in the last quarter or so.
But.
I really feel like.
The pipeline is still.
In a relatively limited compared to where we think it will be in the quarters and years ahead.
I mentioned last quarter that we felt that.
And our expectation is that seller seller side on some of these assets were still a little bit beyond where we were comfortable now.
Stretching to get deals done and didn't really feel the need to go that far, particularly given the internal opportunities that we still have in our portfolio with some of the assets that we bought coming into this.
So.
Im not sure that I can give you a whole lot more color than that except for to say that look we continue to underwrite assets, but haven't really found the type of deal on asset that we think is a great strategic fit for us at a price that we're very we're comfortable transacting and yes.
To your point as far as it relates to kind of our focus.
Now, we can say had to look at.
And what has worked well for US obviously, we have a very significant sunbelt.
Presence of markets, where we aren't in yet that we'd like to get in overtime, but as time has to be right on the asset as severe as to get into those markets and there are certain markets, where we have some presence where we wouldn't mind either upgrading our presence over time or increasing our footprint a little bit so.
Largely we are clear.
Clear to stick with the strategy that you've seen from us over the past few years that are as it relates to any new opportunities that we will pursue.
Alright, and if I can appreciate that if I could follow that up or are there.
Or are there areas somewhere in the board and I guess I can't imagine you might name them in this forum, but areas, where you would consider lightening up.
Where you may be a little heavier.
Yeah.
No not particularly.
As you know, we've always been pretty careful about not getting overexposed today any particular market.
Which is really kind of set us apart a little bit from our peers, whereas certainly over the last few years, where some of our peers were pretty heavily into certain markets.
Our philosophy has always been to be a little bit more diverse in the markets that we play in.
Historically as kind of the top level, where we were comfortable will be in a market with somewhere in the 10% type of range, we're a little bit higher in a couple of markets just because of.
Some dispositions that we've done over the past few years, but we think that this will balance out again over time. So there's no particular market, where we say at this point this is where we'd like to license load or anything like that.
We're pretty comfortable with where the portfolio stands right now as you know and we've talked about there's a loss will always continue to look for opportunities to <unk>.
Strengthen our portfolio and upgrade the portfolio overtime, so, particularly when we absolutely fair Capex savings coming up on some assets will although it is very in depth wholesale analysis to see what makes sense to potentially sell an asset or two.
While we fine tune our portfolio. So we're happy with where we stand that certainly you can expect us to add on.
On the margin.
Sell some assets over time.
I would like to focus would be a little bit more on the acquisition side here in the short and that takes time.
That's perfect and if I may ask one additional question, which is about labor and the cost thereof, I think theres little disagreement that it is an issue I think where theres more debate is how long.
It lasts and I would welcome your opinion on that as well.
Hey, David It's Barry.
I think it's really hard to gauge how long that last mile. Certainly we continue to encourage our managers and they they have put in place their own programs to really make sure that either hiring quality labor fees or hiring the right amounts of it so that theyre not ahead of where business levels are.
And see I think really try to ensure that.
They are painting a market competitive wage I think.
If when or how that changes of course, I think is really hard to determine because we are still in a still in the thick of it and be certainly looking forward to.
Generating higher Occupancies, which will acquire the near mid term on more employees.
Understood. Thank you very much.
Okay. Thank you so much. Our next question comes from Bill Crow from Raymond James Financial Relief Bill go ahead.
Yes, thanks, good afternoon guys.
Is it fair I was trying to trying to read through your comments earlier, Marcel about kind of the upcoming calendar.
Click about historical leisure trends.
Where we are in business transient.
Further consider kind of January February are going to be pretty weak.
As we stand today is that is that kind of the way you're thinking about them.
We roll through the next few quarters.
I wouldn't necessarily say that bill because we noticed that in our portfolio. We do have some seasonality that helps us a little bit in first quarter, two as you know, especially in markets like Phoenix Orlando.
Those are historically some stronger.
Stronger months from a seasonal perspective on the leisure side, particularly.
It's more a matter of kind of looking at the next couple of bumps up saying no you guys post post Thanksgiving, where youre already starting to see a little bit of a let down generally on business travel and group travel.
And thats more from the seasonally weaker months that I've talked about and in a normal situation, particularly in the fourth quarter, where October is generally very strong. The first half of it is November remained strong.
And then after that obviously in the business are starting to pay off a little bit.
We're certainly hoping for that some of these back office.
Trends will improve a little bit where we're starting to hopefully see some more people getting back in the office, which will spur some more.
So business travel kind of going through those months coming up.
I would also I guess looking into next year does the first quarter is a little bit weaker for us from a price perspective than the rest of the year.
And I think some of that was also still impacted with some of the cancellation of some very talked about.
As Covid was so it was kind of rearing its head of low with Morgan.
But we're hopeful going into <unk> based on the trends, we're seeing on the leisure side.
We're very hopeful that that will continue through the holiday season that provide some strength from us thus far.
And speaking of the group cancellations I think.
Barry mentioned, maybe $3 million to $5 million of.
Term fees collected for pet should take cancellation and attrition fees collected.
I'm just curious.
What that looks like for the fourth quarter.
It's a little too early to think about that because there is still accounts out there that could still actualized versus not in the way the revenues per quarter is when they actually don't attend a program. So it's.
Really too early to put a number of any kind of.
<unk> at this point.
So the majority would not necessarily be in October it could be November December as well.
Okay.
Yes.
Yes.
Okay. That's it thank you.
Thank you. Our next question comes from Bryan Maher from B Riley Securities. Please go ahead your.
Your line is now open.
Thank you very much.
Maybe a question for Barry.
You did so much has been talked about with labor cost and labor shortage.
We've noticed a pretty meaningful uptick in your food and beverage revenue and I'm curious as to what.
What youre experiencing on food and beverage costs the impact on margins and then secondarily on other supply if you're finding any problems getting stuff like towels and other supply through the supply chain that we keep hearing so much.
Yes really good.
Good on point question, we've certainly been talking about.
Year over over an extended period of time, I guess kind of taking a little bit in order.
Food and beverage staffing other than culinary has actually not been not been a challenge as we ramped up in part because in most markets.
Banquet servers are often on call and work on multiple properties and they seem to be quite available given the amount of.
Business the hotels were generating at this point, so thats kind of one item food costs, we've actually although costs are higher than they might have been by a few hundred basis points, they've been pretty stable in our portfolio each month through this past quarter.
I think and I think as it relates to kind of get supplies move X towels or or other operating supplies. I think this is one of the cases, where affiliation with the biggest brands has been really helpful and many of their relationship with the vendor who has been very helpful. In that they're kind of at the front of the line for getting supplies, we had a couple of months.
Back in Q2, where we had a couple of hotels that some challenges with sheets for example, but that really kind of went away in the third quarter and again as we've seen kind of the bigger brand hotels get to the front of the line for supplies I think hotels have gotten a little smarter and more educated about thinking about when they're going to need those kind of supplies and making sure they get the orders in.
Earlier used to be kind of order a week or two out that's changed there is a longer lead time on those but we are seeing.
Relative success, we're hanging metrology successful new hotels in inability to acquire or whatever kind of physical goods baby.
Okay. Thank you for that just one question on the Grand Bohemian.
Joe had.
And probably still has quite a bit of character to it and so I was interested in your comment on having a more lighter contemporary look and feel to it first of all can you quantify roughly how much money youre going to be spending on that renovation and how much are you going to kind of characterize it for lack of a better word.
Yes.
On the cost will probably have a better handle and talk about that as we head into <unk>.
Q1 of next year, so we'd like to hold off on that for now, particularly as we're kind of working through.
A lot of a lot of the design and working on adding and subtracting components from our value engineering perspective. So appreciate some flexibility I think Richard everything we're doing with with any of the hotels is really in keeping with the character of the hotel in the market. There is some actually some deep.
My.
Grand Bohemians that is.
Culturally related in that.
A major part of the design team effort has been to make sure that that's retained wall, creating a look that's different quite frankly than the hotel at 20 years ago. There has certainly been an evolution hotel design and part of our feedback over time has been that as the dark colors and.
<unk>.
Perhaps by some and some overarching nature of the property.
Ed.
People perceive as detractors in the current environment and those are some of the things we're trying to solve a design team to create that pressure a lighter load.
Okay. Thank you.
Thank you for again the next question will come from our claim from BMO capital markets. Please <unk>. Your line is now open.
Thank you.
Maybe following up on that can be caught have you started here Pat.
Any of those along in the form of higher menu prices or other ancillary items like parking.
To customers or are you still holding up on that.
Yeah, no absolutely, we have and Thats been probably our asset management team and our portfolio initiatives teams.
<unk> efforts through the last few months has really been looking at how do we make sure that we're taking advantage of.
The reverse side of inflationary costs that we're paying in the hotels and I think as inflation to come part of the <unk>.
Common vernacular.
In the U S that people are expecting to pay more for most things and we don't have a single hotel. It hasnt gone through adjusted pricing I'll tell you is we've spent the last few weeks kicking off the 2022 budget season, and the asset management team and I had been out of the hotels. That's a major part of the dialogue, which is if costs are going up X revenue needs.
Go up by Y because we need to not only.
Maintain our profit margins, but where we can improve them and we think we view it as something of a unique moment in time, while people all inflation has on People's tongues and while they are seeing it in the grocery stores and in the gas stations and in the retail auto market.
And it's a real opportunity for us to move revenues as costs increase as well.
Okay got it and then on the business transient improvement trends, you're starting you're starting to see mid week can you give us a sense of current market standpoint, which one. Thank you again, best and which ones are lagging and then.
How much business transient or is typically those large corporate accounts that are a little bit slow to recover here.
So answering the first part it's really been pretty consistent across the portfolio. There are very few hotels. We can point to that are that are lagging and in fact, the hotels that then you might view as a little more corporate so if you think about our hotels in Houston, and Dallas and San Francisco Bay area, There, we're actually seeing.
The biggest increase in those right now and of course, they had the longest broom hit most of them to run because they hadn't been.
As a successful in filling weekday nights with leisure business and some of the other markets that we're in so I think that.
That addresses.
That piece and then.
Help me with the other part of your question or if you would.
Just Don how much of that business transient. It's typically those large corporate accounts that maybe had been a little bit slower to recover.
Yeah. So the.
The way, we've accumulate that data over time, it's a little different a little difficult to look back and see kind of what that has been we look more on kind of across the portfolio on an account by account basis, and how they're growing over time and looking in particular at the big four accounting firms and the large consulting firms in the fortune 500 names and.
They are down significantly from where they were I think <unk> certainly saying.
More than more than 50% are probably less than 80%, but I'm, saying that add on an account by account basis that may not translate to the.
Since those on an aggregate basis.
Okay.
Got it thank you.
Thank you. The next question comes from Austin <unk> from Keybanc capital. Please <unk>. Your line is now open.
Yeah. Thanks, I'm not sure. If this is what our EBITDA was just getting at and I may have missed it but can you put some detail you mentioned group I guess is 20% versus 30% historically, what's sort of the leisure <unk> mix today.
Versus historical levels.
Yes, it's really hard to.
It's always been a little hard to just turn that because obviously, we don't know.
No one's space upfront, whether they're for business or leisure and there is no no doubt in the portfolio we've seen this.
Concept of leisure really kind of looking different than it has historically, where Sunday nights are almost as good as as Monday nights and Thursday nights would become.
A real Sweet Knight did substantially better than it has been historically on a relative basis to Tuesday Wednesday. So we know we have a lot of guests who are making combined space and we've seen that average length of stay in the corporate segment increased significantly.
And then in fact that it's increased so Lexington is a question of the data, but I think it really is as is corporate customers that are extending their stays into and onto weekends and meeting and having families meet them or we're spending extra time in a market, but to really to really break that down precisely right now between business and leisure I think is.
Isn't really a difficult thing to do.
Got it no. That's helpful. And then can you just provide some additional detail in the ADR trends month to month versus 19 inch certainly moderated since July and I assume that.
The leisure component trailing off a bit.
Some portion of that but is there anything else thats going on sort of under the hood.
Or can you give us a sense what you know.
Where that corporate rate is trending.
Maybe versus pre pandemic to help us better understand.
As we think going forward from here, what what the ADR trends could look like.
Yes, I think when you kind of work your way through the quarter and then particularly as you work your way through October what Youre seeing is really a change in mix.
Where there is significantly more corporate demand and that demand I think we've had great fortune with the leisure guests throughout the industry and certainly in our portfolio, where that gets just gotten accustomed and trained to if they want to stay in their first choice hotels, they need to pay them a pretty good rate to do it in the hotels have not.
Sorted too.
Significant price lowering and discounting to where they may have in prior cycles I would suggest that I think as we look at the data across our portfolio corporate rates are generally flat to where they work in 2019, so again.
We've seen I think some pretty eye.
I think Thats also again reflective of not a race to the bottom and corporate rates and in fact, a lot more accounts that have moved from static rates, 2% discounts off of bar, which is also helpful. Because obviously each individual hotel controls bar on a day to day and week to week basis. So I think what you're seeing in that trend is really just mix of.
Business versus leisure and business travel is increasing.
I would add then.
You didn't mention it but I would I'd add group into that as well and the group rates.
Alright, thank you, particularly through.
Certain months of the year because of the volume of food and beverage business that you win because it's directly negotiated are often some of the lower actual rates hotels achieved so you'll also see that mixed in to this blended rate as well and again he is recovering.
Pace as well.
No that's helpful detail as always very and just kind of piggybacking off the last one just on the leisure side, what's sort of your house view on the sustainability of pricing power amongst leisure customers over the next 12 to 24 months.
Yes.
I don't have the way the house view on over 12 months to 24 months, we certainly feel good about where what we're seeing in the 90 day forward bookings on leisure, which take us through to the holiday season, and obviously feel pretty good about that.
I think.
I think there is certainly a view that we have.
In many cases broken through to new and higher ground quite frankly higher ground than we would've expected or national would have gotten to but I think there is a lot to be said for a retraining of the consumer that this type of hotel costs. This amount of money and then youre not seeing as you probably know only in the luxury and upper upscale segments, but youre seeing it in the.
In the select service properties, as well, where they've really gotten some pricing power with leisure and I think that as if and as we stay in kind of this.
New found inflationary environment I think people are expecting to pay more and I don't see any reason to think that that.
Necessarily changed materially going forward.
I appreciate the time thank you.
Thank you and the next question comes from Michael Bellisario from Baird. Please Mike Okay.
Thanks, Good afternoon, everyone.
Barry I have another question for you also on F&B, but what I focus on revenues. It looks like F&B revenues I think they were down about 15 more points than revenues on a two year basis, how much of that is due to a group lagging versus because some of your restaurants and outlets are still closed.
How do you think about the ramp up.
The F&B revenues aside from group over the next 12 to 24 months.
Yes, it's interesting.
Our portfolio of assisted and almost all of the decline is banquets related we I think we've talked about before we've made great efforts in our hotels to make sure that we have food and beverage outlets open and operating in our resorts.
Our outlet food and beverage revenues have set set all time records.
Literally every every week, maybe not every day, but certainly every week and months through the summer months in terms of.
Leisure guests being very Catherine resort buying a lot of beverages to pool, having more yield on property.
It's been a really favorable trends. So we think and our data tells us that the real gap is on the banquet side and as group business recovers and we're actually seeing really good results in banquets on a per.
Per occupied group room basis, and our catering and events people are telling us and the numbers are showing us that they are doing a really good job of <unk>.
Capturing Banco business that more groups when they come to properties right now, we're saying on property as opposed to doing more off property events, which is great for the hotels that are also buying the same or better quality.
Quality and cost many used and they had been buying pre pandemic and that that has gotten even better as the group business shifted more from that Smirky type business, and we're adding more and more traditional.
Higher caliber corporate fleet business.
Yeah.
Got it that's helpful.
It may be certainly asked for but I thought I'd give it to anyone.
Okay. That's helpful. And then second part of the question maybe.
John Thank you, but just your longer term outlook on margins.
That changed at all and when do you think the branch formalize their brand standards for 2022 and beyond.
Yeah.
Mike I think it's been interesting to see that and we're still certainly waiting to see what the brands.
We want to ensure happens in terms of housekeeping. We continue do a lot of experimenting within our portfolio in many of our hotels as you can imagine given our profile with the brands.
There are serving as data is for a lot of the things. They are trying in terms of light touch housekeeping and how effective is that and and how and what the house can be so I think it's just too early to really think about what margins look like overall as we as we get to stabilization I think certainly we've.
Proven we can operate with.
Fewer bodies in the business and those hotels can run well, but I do think we're going to see over time, we will see.
Additional staff and we're not going to have we're not going to have the labor the low labor costs, we've necessarily run, particularly in Q2 of this year with hotels were significantly understaffed and that we've got to at some point.
Get to a place where we are reversing the downward trends everyone's seeing although its really stabilized now but at much much lower guest satisfaction scores, which I think are directly related to both labor the amount of labor in hotels and the amount of services the hotels were.
Hiding to guests and those are obviously the trade offs and what makes it hard to know where that shakes out on cost relative to revenue.
Got it and then just last one for me on the transaction front.
For you Marcel just in terms of the deals that you've looked at you haven't done are the ones you've passed on it is it simply because you can't get to the pricing level that the seller wants or is it because maybe you're more turned off by certain qualitative factors like location urban versus resort or other aspects of a particular.
Deal.
Yeah.
It's really a combination right and then you start off with kind of looking at what's out there in the market and seeing what we think.
It's something that we think is really additive to the portfolio and something that helps our portfolio from a growth perspective than somebody that might work for someone else is isn't going to work for us just because of the us.
What the makeup of our portfolio currently is already so certainly there is there is products out there. There is no question about that.
Theres, an awful lot of product out there that are kind of rises to the quality level that we that we want to have in our portfolio and as we want to grow with.
So that's the first component.
Origin location placement for that anytime where assets out there that fit.
Our portfolio well acknowledged and then when you kind of drill down in Uganda, with a relatively small pool of potential assets that you can really do.
<unk> well for us and we just haven't found that deal where we felt like the pricing really matches.
Our outlook of cash flow in both the short term and where it can grow.
Certainly we've been on a few things.
Just because someone obviously wanted to get more aggressive on a deal than we do.
So that goes back to my comments about us being willing to be to be patient and stay really disciplined in the way that we're looking at deals.
As you know we have plenty of.
Plenty of history, and a very significant track record as a company when it comes to doing deals in any part of the cycle. So I don't worry that we're not going to find things kind of asked what are progressing.
But where we're kind of like I said, we're remaining patients we're remaining disciplined.
And.
We are pretty comfortable with where we are with our current portfolio.
And hopeful that we'll be able to find some things here over the next couple of quarters that makes sense for us.
Yes.
Understood. Thanks for all the detail.
Okay.
Thank you Mike has the next question comes from Thomas Allen from Morgan Stanley.
Your line is now open.
Thanks.
Just a couple more questions on the cost side, you talked about lower than expected real estate taxes can you just help us think about the trajectory of that line for the next.
The next few years and quarters.
Yes sure. Thanks for the question.
Property taxes are coming in a little bit lighter than they did for St.
Property portfolio. If you go back to last year, and the year before theyre down roughly 10%.
So I think Thats a.
A good rule of thumb to use now within that line on our income statement is also insurance costs and insurance costs are up.
15% to 20%, so there's a little bit of offset there but.
That's why that line has come down.
Yeah.
We expect that to continue this year, we're a little bit too early to know what that looks like next year, but obviously, we've been pretty aggressive.
Trying to.
Okay, Yes.
Estimates.
Thanks.
Okay expenses lower for us going forward.
Yes.
Okay.
Okay.
So our real estate and property taxes, usually it sounds like the larger like two thirds of that line or is it.
What's the kind of waiting in the line historically.
There are two thirds or even a little bit more than that that's correct.
Alright, and then I think I heard.
You're right that payroll expenses are down 32%, I mean, any sense evercore and a more normalized environment, where we think we can keep payroll expenses down versus 2019 level.
Yes, I think it's really hard because you've got a confluence of both.
Again, not knowing kind of where staffing levels ultimately shake out and if and.
And when kind of the actual wage rates.
Flattened is really hard to put a number to that today.
Okay.
Oh It was worth a shot thank you.
Thank you Thomas our next question comes from Tyler Batori from gaining co Murray as Scott <unk> warhead.
Good afternoon. This is Jonathan on for Tyler. Thanks for taking my questions first one for you today I wanted to follow up on the labor and marketing discussion can you provide some additional color on the guest feedback here Gary.
Do you think you'll need to add labor to meet their needs in the near term or are you still providing ample surfaces.
Owner occupancy environment.
Well I think it's something that in our portfolio our management companies have been keenly attuned to the asset management and working with us on making sure that we're providing the right levels of service I think you certainly saw higher levels of dissatisfaction across the industry with housekeeping services over the summer when where and how.
We're still kind of sorting out what the right level of service was when <unk> got.
Three or four people in a guestroom and resort type environment. So I think thats certainly.
The challenge I think.
The labor markets have opened up a little bit I think the hotel has been successful in bringing back our people into the more guests touch position so think about.
Front desk think about restaurants servers things like that that have been a little easier to fill the housekeeping and culinary positions.
Okay very helpful. And then can you remind us how much exposure to the portfolio has the international travel and how much of an additional tailwind.
Could the reopening of international travel into the U S due to the portfolio.
Yes.
When we looked at it last we were.
Sub 10% for sure across the portfolio as you know we don't have a lot of significant major market gateway exposure. We do have added some of our hotels some international crew business and some of that is in place today, but do we expect to grow as well. We also look forward to the reopening of.
Yes.
In particular, the European and South American markets to Orlando and or high risk at Grand Cypress has been successful at times and capture some of that business management strategy in place extra after that business, particularly from the U K as that market opens up.
Okay.
Okay, great. Thank you Carla Covid, that's all for me.
Thank you Tyler we currently have no club with Tim I would like to hand over to <unk> for.
For any closing comments.
Go ahead.
Thanks, Thanks, everyone for joining us today and thanks for all the great questions.
We look forward to talking to talking to you and seeing many of you over the next few weeks at the various conferences and look forward to talking to everyone again next quarter. Thank you.
This concludes today's call. Thank you for joining you may now disconnect your lines.