Q3 2021 RLJ Lodging Trust Earnings Call
Welcome to the R. L P lodging trust's third quarter 2021 earnings conference call.
A reminder, all participants are in a listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions, but if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I would now like to turn the call over to mckeel dollar or else Who's Vice President and Treasurer.
Our corporate strategy and Investor Relations. Please go ahead.
Thank you operator.
Good morning, and welcome to <unk> lodging Trust's 2021 third quarter earnings call.
On today's call Leslie Hale our press.
And Chief Executive Officer will discuss key highlights for the quarter.
Sean Mahoney, our executive Vice President and Chief Financial Officer will discuss the company's financial results.
Tom Bartlett, our executive Vice President of asset management will be available for Q&A.
Forward looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results could differ materially from what had been communicated.
<unk> that may impact the results of the company can be found in the company's 10-Q and other reports filed with SEC.
The company undertakes no obligation to update forward looking statements.
Also as we discuss certain non-GAAP measures. It maybe helpful to review the reconciliations to GAAP located in our press release from last night.
I'll now turn the call over to Leslie.
Thanks, Nikhil good morning, everyone and thank you for joining us today.
We hope that many of you are back in the office and for those of you with children. We hope that he transitioned back to school has been smooth this fall.
We were pleased that the recovery of the lodging fundamentals continue during the third quarter. Despite some choppiness caused by the Delta Maryann from mid August or early September.
Though the industry's revpar growth was primarily driven by leisure demand improvement in business travel and group trends also contributed which was evident in the quarter over quarter pace of growth of both the urban and top 25 markets relative to the overall industry.
We are encouraged that these positive trends have continued through October.
During the quarter the composition of our portfolio allowed us to capture these improving trends, which drove our strong performance.
With the backdrop of the lodging recovery gaining momentum we executed on multiple strategic initiatives.
Since our last call. We have continued to actively recycle proceeds from noncore dispositions into high quality acquisitions.
We further enhanced our already solid balance sheet by raising an additional $500 million of high yield bonds and repaid the 6%. So of course senior notes, while further ladder, our debt maturities and increasing our acquisition capacity under our credit agreement.
And we continue to advance on our internal growth catalysts.
These efforts have further enhance our portfolio and creating incremental balance sheet flexibility positioning us to leverage multiple channels of growth to drive outperformance throughout the entire cycle.
With respect to our operating performance our open hotels achieved 63, 8% occupancy during the third quarter, which was a 310 basis point increase over the second quarter.
Achieving 79% of 2019 levels.
July recorded the strongest occupancy of the pandemic, while August and September moderated due to a combination of normal seasonality and the impact of a delta variant.
We were encouraged with our ability to maintain rate during the quarter.
Our portfolio achieved an ADR of $160, which represented nearly 90% of 2019 levels we.
We were also able to demonstrate pricing power with over 25% of our portfolio exceeding 2000 1980 or.
Which gives us optimism that consumers can absorb increased pricing when demand normalizes.
The continuation of strong leisure demand drove our weekend occupancy to 76, 8%, which was a 280 basis point increase over the prior quarter and our weekend ADR improved by nearly 12%.
Given the elevated leisure to man our resort hotels achieved revpar that was 114% of 2019 levels with ADR exceeding 2019 levels by 20%.
Additionally, a number of our drive to Mark to see 2019, Revpar, such as Charleston, in South, Florida, which achieved 130% and 117% respectively.
We were also encouraged by the sequential improvement taking hold in both business transient and group.
As an indicator of improving business travel momentum our weekday occupancy grew to 58, 5% during the third quarter.
A 320 basis point increase from the prior quarter.
Our urban hotels also benefited from this trend achieving 76% of 2019 occupancy, resulting in a 400 basis point improvement over the second quarter.
Overall, we were pleased to see our business transient revenues improved by 44% since the last quarter led by markets, such as Atlanta, L a and Boston.
The growth of our group revenues was the strongest of all of our segments, increasing by 54% since the second quarter with room nights improving by 34%.
We benefited from continuing improvements in small social groups, such as weddings and sports teams, which are attracted to our product type.
The pace of recovery is another positive sign given the significant momentum in our business transient and group revenues, which recovered to 43% and 46% of 2019 levels, respectively, nearly doubling from the prior quarter.
Overall, our portfolio is well positioned as evidenced by our third quarter market share gain of 340 basis points, which highlights the competitive strength of our high quality portfolio.
Our topline grew by 21%, while our relentless focus on managing costs allowed our hotel EBITDA to grow by 37% demonstrating the benefits of our lean operating model.
Now relative to capital allocation, we continue to be very active recycling capital and advancing on our internal growth catalysts.
Since late last year, we have sold several non core assets and are currently under contract to sell the doubletree metropolitan which is subject to a significant nonrefundable buyer deposits. We look forward to providing additional details after this transaction closes.
Including this transaction, we will have sold eight noncore assets at a highly accretive multiple of over 22 times 2019 EBITDA.
Yeah.
We are on track this year to Accretively recycle over $200 million of proceeds generated from noncore asset sale into three high quality acquisitions and markets positioned to outperform throughout this cycle.
In August we acquired the Hampton Inn, and suites, Midtown Atlanta, which is already outperforming our underwriting.
We recently closed on the AC hotel by Marriott Boston downtown.
This hotel recently opened in 2018 and is located within the ink block development in Boston highly desirable South end neighborhood.
Boston is a growing hub of the life sciences industry and the AC sits in an a plus location that are central to the surrounding office and laboratory development.
This was an off market transaction and was acquired at a discount to pre COVID-19 values and replacement costs.
We are also under contract to acquire a recently constructed hotel located within the heart of the upscale Cherry Creek Submarket of Denver.
We're excited to enter into this highly sought after and difficult to enter submarket of Denver and look forward to providing additional details. After this acquisition closes.
Each of these acquisitions are consistent with our strategy of acquiring premium branded rooms oriented hotels located within the heart of demand in high growth markets.
Each of these hotels will also generate revpar and margins, which are accretive to our current portfolio and are expected to enhance our growth profile.
By match funding these acquisitions with proceeds from noncore assets sold at a substantially higher multiple we have locked in significant value.
In addition to driving our external growth, we are continuing to make meaningful progress towards unlocking our unique and compelling internal growth catalysts, which we continue to expect to generate $23 million to $28 million in incremental EBITDA.
We remain on track to relaunch, our three conversions in Santa Monica, Mandalay Beach, and Charleston in 2022.
Italy Beach renovation is in full swing.
Santa Monica in Charleston, We've completed the model room design, and we'll be starting to use renovation shortly.
We have made significant strides towards driving multiple channels of growth with our capital recycling and internal growth initiatives further strengthening our ability to drive EBITDA growth that is above and beyond the cycle recovery.
Our balance sheet continues to be a competitive advantage and allows us to execute on our internal growth catalysts and acquisition pipeline while remaining disciplined.
Looking ahead, we are encouraged by the moderating Covid cases, and a generally positive economic backdrop supported by a strong consumer and rising corporate profits, but also acknowledged concerns around inflation.
That said for the fourth quarter, we expect leisure to follow normal seasonality patterns, but remain healthy given the continuing flexibility and hybrid work environment.
We also believe that the reopening of our borders international travel will provide incremental tailwind for urban markets.
We expect business transient to continue to gradually improve through the remainder of the year as offices reopen.
We also anticipate continued improvement in small social group bookings, which is supported by the fact that our group pace for the fourth quarter improved by 28% since our last call and we booked close to 25% of our forecasted fourth quarter group revenues during the third quarter.
We are already seeing these positive trends in October strong performance.
As we look out to 2022 we expect a meaningful step forward for the industry with leisure continuing to be strong while group and business transient accelerate as office reopening has gained traction these positive trends should especially benefit urban markets, which should also see tailwind from increased international travel.
These trends combined with the right discipline, our industry has maintained and the operational efficiencies achieved during the pandemic give us cause to be optimistic about the potential margin improvement that our industry can achieve as a recovery advances.
With respect to the improving backdrop and the broadening of the recovery to urban in key gateway markets, we remain well positioned given our favorable portfolio composition the ramp up of our recent acquisitions and the unlocking of $23 million to $28 million of incremental EBITDA from our embedded catalysts.
We believe that all of these factors have positioned us to outperform throughout the entirety of this cycle and will drive significant long term shareholder value.
I will now turn the call over to Sean Sean.
Thanks, Leslie we were generally pleased with our third quarter results. Despite the impact of the Delta variance.
The third quarter results meaningfully accelerated from the second quarter.
And I've been strong so far during the fourth quarter.
Pro forma numbers for our 97 hotels include the acquisition of the Hampton Inn, and suites, Atlanta, Midtown and exclude the sales of the three noncore hotels in Hammond, Indiana, which were sold during the quarter.
Additionally, our pro forma numbers have not been adjusted to reflect the acquisition of the AC Hotel Boston downtown since this transaction closed after the end of the quarter and will be incorporated into our pro forma numbers starting in the fourth quarter.
Our reported corporate adjusted EBITDA and F. F. O include operating results from all sold hotels.
<unk> acquired hotel during <unk> ownership period.
Our third quarter portfolio occupancy of 61, 5% represented a three nine percentage point improvement from the second quarter.
Our portfolio's third quarter occupancy exceeded 75% of 2019 and was impacted by both normal seasonality and the Delta variant.
Occupancy hit a pandemic peak of 66, 3% in July.
With August and September, finishing at 64% and 57, 7% respectively.
These results were better than we expected as our portfolio continued to capture demand in the current environment.
Strong summer travel demand provided our hotel operators with the ability to yield rates.
Noting an average daily rate growing over 12% from the second quarter to $160 during the third quarter.
Our leisure markets, such as key West Charleston in Miami generated 80 ours in excess of 2019 by 47%, 31% and 31% respectively.
The improving operating trends during the third quarter led our entire portfolio to achieve hotel EBITDA of $67 $4 million.
Which improved to over 60% of 2019 levels.
We are encouraged with our ability to report strong operating margin of 28, 8%, which were only 280 basis points behind the comparable period of 2019 does.
Despite revenues being 33% below 2019.
Our recent margin performance provides us with confidence that our portfolio should be able to generate margins above 2019, when revenues return to pre pandemic levels.
During the third quarter 95 of our 97 hotels were open.
The Doubletree Metropolitan New York remains closed and the hotel Indigo in New Orleans is also temporary closed as a result of damage from Hurricane Ida.
During the third quarter, our open hotels achieved occupancy of 63, 8%.
Average daily rate of $160 and.
And generated $70 million of hotel EBITDA.
Representing a 30% improvement from the second quarter.
We are encouraged that the post delta momentum that started during the second half of September has continued into the fourth quarter.
During October which is expected to be the strongest month of the quarter.
Our portfolio is forecasted to generate occupancy of approximately 64% and ADR of approximately a $166.
Each will result in 11% Revpar growth from September <unk>.
Importantly October ADR is forecasted to represent the highest ADR since the start of the pandemic, providing evidence that higher rated customers are returning.
Turning to the bottom line, our third quarter, adjusted EBITDA was $60 $1 million, an increase of $16 $6 million or approximately 38% from the second quarter.
Third quarter adjusted <unk> per share was <unk> 17 cents.
An increase of 10 cents from the second quarter.
As Leslie mentioned, while third quarter demand was strong throughout the quarter, we remain vigilant in maintaining cost containment initiatives that are appropriate for the current environment.
Underscoring our continued focus our third quarter total operating costs remained more than 30% below the comparable period of 2019.
With all that being said we are continuing to monitor the current labor challenges and are focused on implementing best practices to remain competitive in our local markets.
On a relative basis, our portfolio is better positioned to operate in this environment.
Fewer ftes required in our hotels, given our lean operating model and smaller footprints with limited F&B operations.
Overall, we expect the tight labor environment to persist near term. Although we are encouraged by early success in attracting applicants and filling open positions.
We've been very active managing the balance sheet to create additional flexibility and further lower our cost of capital during 2021.
These activities include.
He is the $1 billion through two high yield bond offerings that were both oversubscribed with annual coupons of 375% for the five year bonds.
And 4% for the eight year bonds, which represented the tightest pricing as ever for a non investment grade lodging REIT.
Use these proceeds to repay 2022 and 2023 maturing debt.
And fully redeemed our $475 million, 6%, though of course senior debt.
Which was our most expensive debt.
Extended the maturity date of a $100 million term loan from January 2022 to June 2024.
I did a one year extension option on $225 million of our 2023 maturing term loans.
And amended our corporate credit agreement to extend covenant waivers through the first quarter of 2020 to incur.
Increase our acquisition capacity to $450 million and add flexibility to retain certain proceeds for general corporate purposes.
The execution of these 2021 transaction is a testament to our strong lender relationships and favorable credit profile.
These initiatives resulted in the expansion of our weighted average maturity to four and a half years and reduction of our weighted average interest rate by approximately 50 basis points.
Turning to liquidity, we ended the quarter with approximately $625 million of unrestricted cash.
$400 million of availability on our corporate revolver.
Two $4 billion of debt.
And no debt maturities until 2023.
We continue to maintain significant flexibility on our balance sheet.
Currently a 100% of our debt is fixed or hedged and 83 of our 97 hotels are unencumbered.
Yeah.
As we expected our portfolio generated positive corporate cash flow during the third quarter.
We are on track to generate positive operating cash flow for the full year 2021 based on the actual year to date results and assuming the current trends in lodging fundamentals continue.
We maintain a disciplined approach to managing our balance sheet.
Even as fundamentals are improving we remain focused on maintaining adequate liquidity, while making prudent capital allocation decisions to position our portfolio to drive outperformance during the recovery and beyond.
We remain among the best position lodging Reits to take advantage of ROI investments and external growth opportunities, which we demonstrated through our recent acquisition.
Additionally, we are continuing to prioritize high value revenue enhancement projects.
Our margin expansion initiatives and our three 2022 conversion.
We continue to estimate our O J funded capital expenditures will be between $75 million and $85 million during 2021.
In closing our O J remains well positioned with a flexible balance sheet ample.
Ample liquidity lean operating model and a transient oriented portfolio with many embedded catalysts.
We will continue to monitor the financing markets to identify additional opportunities to improve the ladder our maturities.
Reduce our weighted average cost of debt.
And increase our overall balance sheet flexibility.
Thank you and this concludes our prepared remarks, we will now open up the line for Q&A operator.
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Our first question comes from the line of Michael Bellisario with Baird. Please proceed with your question.
Thanks, and good morning, everyone.
Good morning.
Let me just first question on the net.
What are the conditions to closing and getting that deal done.
Yeah.
Mike just feels is subject to normal customary closing conditions.
Buyer has a sizable deposit.
And so it's just normal and customary closing conditions.
Any financing contingency for the buyer.
No.
Okay.
And then.
A question for Tom.
Dig into the customer mix that you guys saw across the portfolio in October.
Maybe can you provide to me, that's where we're at with BT Wherewith group versus 2019 levels were.
Where have you seen oh, ta and discount nights trending recently.
Yeah, Hey, Michael.
So here's what we see in October the continuation of leisure as a strong demand generator was present in October which was similar to what we stated in Q3.
Group.
Again started to become a little bit more of the mix as regards to what we're seeing is the growth from Q2 to Q3 and that continued into October. So we benefited quite a bit from small groups. As we stated in the in the release as well as sports and weddings, and then you're seeing a lot of sporting activities, where we're picky.
Up group business going into the fourth quarter with October being the strongest of the three months and then B T continued sequential improvement.
We're seeing that Mexican continue to rise and we're enjoying the average rate that comes with that for instance, small and regional corporate accounts have been pretty significant in Q3 and now we're starting to see the national corporate accounts start to pick up speed and see the average rates coming along with that so we're seeing that in markets like silica.
On Valley, Atlanta, Boston and.
Los Angeles, where we're seeing quite a bit of a national corporate accounts start to travel as well.
That's helpful. Thank you.
Thank you. Our next question comes from the line of Austin Wonder, where Schmidt with Keybanc capital markets. Please proceed with your question.
Great and good morning, everyone.
Are you banking on that so for the October ADR and Revpar can you compare those versus 19 for US and then you know is there.
Vinci level, you've historically had more leverage to drive rate more meaningfully by yielding out lower rated business versus just benefiting from you know.
The the buildup in BT in the rate that comes along with that.
Sure So I'll start and then I'll.
I'll turn it over to Tom to provide some detail so relative to 2019 levels our rate was down about 14% and occupancy was down roughly 25% and.
And so both of those were sequential improvements from from September on a on a trend wise perspective.
But that's that's where we were in October relative to.
To 2019.
And then on your second part of the question in regards to ADR and some initiatives that we're focused on to make sure that we're driving the average rate through this recovery is the benefit of the revenue management systems is allowing us to really lean in with an example of that is we got about 32% of our portfolio.
Leo that's Hilton and for instance.
Often we have what's called continuous pricing now, which allows you to change pricing more often three times as much as you used to.
Which is also getting us more confidence where you can set it and trust. It. So that's one of the angles on the <unk> side. The other thing that I would say is a good setup for 2022 is all the brands are really moving towards negotiating dynamic pricing, which is all about setting your write off of bar retail versus fixed.
So as we go through the RFP process not only in Q4 as we're negotiating for 2022, you've got a rollover of rates from 2020 to 21 and now to 2022, which allows us to have rate integrity out of the gate and then in the dynamic pricing you'll have the opportunity to set your bar rates and then float off of that versus a fixed debt.
Count, which could be anywhere from 10% to 25% and lastly on the group side, we're seeing rate levels at two not 2019 prices for 2022 versus 2019 and rate continues to grow in Q3, and Q4 with group, where we're getting closer to 90% of rate levels. So we're incur.
<unk> by what's happening from a rate integrity standpoint, and leaning in on the revenue management systems. When it comes to transient to give us some sustainable ADR growth.
Yeah, that's really interesting thanks for the thoughts Tom and then Leslie you know with the sale of the Doubletree met pending I'm in New York, where does that leave you as far as target exposure within the New York City market and are you comfortable with sort of the current positioning in the market from a product product type and Submarket perspective.
And then separately how should we think about pricing upon deal closing off of 19 or should we kind of look back a little bit further given.
The performance of that market, leading up to the pandemic.
Yeah, I would say that that often overall with the disposition of D. C met we have generally rightsize, our exposure to them too to new York to less than 3% of our.
EBITDA for 2019.
Yeah, we recognized and acknowledged that you know New York is going to be slower to recover but you have to really look at it on an asset by asset basis, a submarket perspective, Theres no broad strokes you can take on New York, We think that the Nic, which is an iconic asset in an iconic location as leisure centric.
A different cash flow profile, the upper east side Marriott has its own demand generators being right next to the hospital. So we think that those two assets.
Make a decent footprint relative to New York and sub 3%. We think is the right size.
In terms of an evaluation of what I would say is that you should expect the valuations would be in.
In line with trades for similar assets of age cost structure and capital needs.
For for this asset, but it's really just giving us a on a disposition for DT, it's really given us the ability to be to do accretive recycling. If you look at the acquisitions that we're doing they are accretive on a growth on margin the quality of the use of the asset and all of that is giving us the ability to drive above cycle growth in EBITDA and so.
We feel very good about the trade and what it's allowing us to do.
Very helpful. Thank you very much.
Thank you. Our next question comes from the line of Dori Kesten with Wells Fargo. Please proceed with your question.
Hi, Thanks, good morning.
Your margins are getting pretty close to 19 levels. Despite revpar, meaning about 30% below them can you give us an update on your view on where margins may be able to settle out on 19 revenue.
Yeah.
Yeah, Yeah, so Dorothy the conventional wisdom for the industry is that it's somewhere in the 100 to 200 basis points of margin.
Expansion because of the Covid synergies, we continue to believe that our O J is well positioned to be to be within that range and so we're comfortable with that and I think what we've seen on the.
The early indications of our ability to get to the margins, even with being 30 plus percent below 2019 levels gives us confidence around that conviction.
The other.
The other factor around around around margins as it is about.
The cost structure that we're that we're implementing and we've gone over that.
In the past with respect to housekeeping after you know limited F&B.
As well as the.
The ability to to complex all of those things we continue to remain confident.
Our are alive and well in this environment, yes, I mean, when I went to sort of add on to that is that I mean generally you know are our peers and ourselves are sort of talking about 102 hundred basis points and they've been talking about the categories in which Sean covered F&B housekeeping clustering. It really is going to boil down to who's got a portfolio and a mix that's going.
To allow it to be sticky and who can train their customer and we think our portfolio was in line for that if you think about the fact that we've got you know the chain scales that we are in which allow us to train our customer and you think about our Hilton exposure, where hilton that sort of committed to the opt in structure and you think about our length of stay do you think about our fixed foodservice model all of those things give us a higher probably.
You are being able to achieve those efficiencies that the industry has been talking about and the.
Seattle onto the add on is around our margin enhancement projects that we talked about earlier in the summer, where we have 50 basis points of incremental margin on top of the industry.
With respect to a lot of the initiatives that we outlined earlier in the summer on contract renegotiations et cetera, which are which are unique to our L. J and tangible and so I think that's the other part is that there's industry plus what we've done in the portfolio.
Okay.
Can you remind me what your exposure is to international demand.
Historically international across our portfolio with sub 3% is up to 2% to 3% across our portfolio now obviously that would be higher in a San Francisco, New York and Miami.
In South Florida.
Thank you.
Okay.
Thank you. Our next question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Hey, everyone. Good morning.
Good morning quick question, Hey, Hey.
Are you just going back to the met for a second.
They don't know how much you can.
Say, but you know the fact that you're selling to.
Relatively soon and given the fact that you know everything everyone is aware of the issues, playing New York, even before Covid.
And I can't imagine that.
You know.
Breaking it was.
Great and.
You know if that's the case.
What is that you know kind of I'll say about your view on the.
Manhattan or that sort of sub market over the next.
Two to three years.
Given the need to transact now versus maybe when prices ADR as margins have recovered somewhat.
So studio first of all you know we have been very thoughtful on the process that we've run in and obviously because we haven't closed yet are limited on how we can sort of describe it what I would say is that our team has been very good at identifying buyers and maximizing value.
Obviously with in light of the context in which we sort of sit in here today.
You know what I you know what I would say is it that.
We are selling this asset is is there's no read through on the balance of our Oh rounds of our assets and are in the market.
What I would say is that this was an asset based on its age its cost structure and its capital needs that make it different relative to the assets that we will continue to hold within within this market as I mentioned before in a prior question.
The Nic is an iconic asset it's in a kind of like location. Its cash flow profile is fundamentally different and so there's no read through from our perspective from this trade. This is really giving us the ability to recycle out of this asset into very accretive acquisitions.
And you know, allowing us to drive above cycle EBITDA growth as a result of repositioning that that EBITDA, Yeah, and then the other part of this is part of a broader strategy around repositioning the portfolio as Leslie mentioned and to be able to do it accretively I mean fruit for US. This is a critical component of our ability to fund.
To self fund our acquisitions.
At a very accretive way so.
We will there where we're selling at is over 10 times.
Turns higher than where we are buying out today, both on an apples to apples basis, and so we believe that that ability to very accretively and effectively fund our to our acquisition.
Initiatives with dispositions, while improving our portfolio quality, while improving our metrics and while improving our growth profile.
Is a and preserving our existing dry powder that we have for acquisitions because it's self funded is a critical part of how we're reshaping the portfolio for growth throughout the cycle.
Yeah.
Yeah. Okay. Just I guess really quick is the reason that the timing and related to the covenant waiver positioning in other words would you have maybe been a little bit different in how you approach that if you hadn't had to be.
Be compliant in terms of.
Liquidity restrictions from the you know.
From the wafers.
So what I would say the timing of this was this was a it was in line with the exploration of the management agreement and the franchise agreement meal and so again this has to do with them you know us being thoughtful about our process and timing it relative to the expiration of those two agreements was important to us.
Yes, it does.
And that was the driver of the timing of the the timing it was not influenced by where we stood on a on the covenant waivers.
Great. Thank you so much everyone for me is actually more about the acquisition.
So obviously in 19, you sold a lot of your portfolio really really focused it.
Improving the quality et cetera.
But that also gave you a very large cash balance.
And another way to say that is a lot of earnings potential from EBITDA growth potential and so you know I think you've done a great job of laying out and highlighting the internal levers you can pull but maybe could you talk about the things that you're seeing it sounds like it's heating up a little bit but.
The acquisition front.
Over the next call it 12 months.
If you see yourselves being more.
Aggressive in the market, particularly.
I imagine you'll exit waivers over the next quarter or two.
So talk about that and then potentially looking at some portfolio opportunities to kind of put up the bulk of that cash.
To work thanks.
So you are right, we did come into the pandemic with meaningful amount of cash and that has given us the ability to look at both internal and external growth opportunities what I would say no. If your question is one if you sort of step back for a minute you know we have a better line of sight to the recovery and there's generally consensus.
Around that we started to see more deal flow come to the market and it's and it's increasing across all product type.
There continues to be a lot of capital chasing deals.
But with more deals coming to market. You know that has started to sort of balance out we've seen the sellers moved from motivated sellers to more opportunistic sellers and that's starting to emerge and we think that's going to create a multiyear buying window.
You know a lot of deals are being bid out that's not where we focus that you know we focus on off market deals.
We focus on the asset burst and then leverage our relationships to get to the asset and that's giving us access to the deals that you've seen us close on I think that Atlanta, and Boston, our great. Examples of that Cherry Creek, which we alluded to is going to be in line in terms of the quality of the asset the youth of the asset and the sub market.
Consistent with the growth profile that we're looking at so our team is going to continue to be disciplined.
Around those things.
And making sure that the deals are accretive on all fronts.
<unk> to our operating metrics accretive to us from a returns perspective, as well and so while we do have the capacity and there is incremental deal flow.
From our perspective, we're going to remain disciplined about how we deploy that.
And then the second part of your question with respect to the line of credit.
And in the waivers once again, knowing what you know.
Because of our strong vendor relationships as well as our liquidity.
The limitations around our acquisitions have not really inhibited our ability to execute our.
Our plan the way that the that the credit agreements work is that it's a net acquisition number within the $450 million and so net net if we execute everything that we've talked about today, we would start at zero and so we still have that that full capacity and so that they're getting in or out of the covenant waivers as not really influencing our ability to.
Executed now we do believe.
Our expectations is that you know when we first measure or covenants, which is gonna be the second quarter of 2022 that we should be in a good position to take it out of the covenant waiver period.
But that is not.
Inhibiting our ability to execute our plan.
Okay. Thank you guys I appreciate all the insight.
Thank you. Our next question comes from the line of Gregory Miller with true Securities. Please proceed with your question.
Good morning.
My first question.
Staffing.
Could you provide roughly how close you are to normalize staffing levels.
Corporate focused hotels versus your leisure focused hotels.
What what I would say Greg is that overall in our portfolio, we're running at about 55% of our 2019 labor and that's on 64 60 kind of call. It 64% occupancy at our hotels that have been that have had the highest occupancy would have been the leisure hotels were running about 75.
Five.
Plus or minus a percent of 2019 levels, but we really think that that demonstrates because those hotels are running above 2019 occupancy.
With lower staffing really demonstrates our ability to confirm and have confidence that we're not going back to 2019 levels I know theres a lot of discussion around wage pressure et cetera, we still think there's opportunity for efficiency related to labor as a result of not going back to 2019 levels.
Thanks.
My other question is.
Related to what's going on in cold weather markets today, and we're seeing some data indicating.
Some strengthening of holiday bookings in cold weather markets I'm not sure if it's related to pricing and in warm weather markets over the holidays or just a.
Leisure demand behavioral shifts back to the northern markets in the urban markets.
Concentration. So curious if you could provide any initial impressions on how Thanksgiving and the December holiday bookings or pricing power is progressing and some of the cold weather markets relative to pre pandemic levels.
And perhaps anything you might be able to share about.
The Knickerbocker package pricing for new years versus 2019.
Hey, Greg, It's Tom and first of all I'm in Upstate New York, New Yorker, So I know a lot about cold weather markets.
What I would say is what's interesting is if you think about the consumer and what they're interested in doing the they haven't been able to get together.
You know last year with Thanksgiving holidays, and larger crowds and so we do think that's actually creating a surge in bookings and certainly we're seeing that on shopping weekends as well for instance, Leslie mentioned, Boston as well as New York and I'll give you some some some little bit of detail around that.
With the Thanksgiving parade being back it's driving significant demand in New York When you think about shopping weekends not only in Chicago as well as in New York, We have minimum length of stay restrictions because leisure is booking further out because they are concerned about availability. So that's encouraging where we can drive pricing power and then to your to your last question.
About new year's Eve, we are seeing the highest average rates that we have even compared to 19 in pryor.
For the net for instance, as you know the next rooftop actually overlooks the ball drop so we're in a prime real estate to be able to drive rate and demand is coming in at better levels on the average rate side in similar pace levels from the past. So I would say that the cold weather markets are going to fare well with the holidays and the future.
Bookings that we're seeing on the transient leisure side is.
What's going to drive that yeah, and this is really showing up in our urban stats.
Greg.
Seeing our our urban rate growth has been the strongest rate growth. So far this year. Our ADR has grown and this is this is through current data a little under 70%.
From the beginning of the year and that's outpaced the entire portfolio by approximately 2000 basis points and so we're seeing strength in our ability to drive rate in these urban markets and all of the leading markets markets like Boston or up 160% from yearend, New York's up 150% Austin is up 120%. So we're seeing in these urban area.
He has the ability to drive rate.
Within our portfolio and I think cold weather as you know two of the three that I mentioned are in cold weather climates.
Yeah.
Thank you all I appreciate the detail.
Thank you. Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, This is Sam on for Anthony So we've seen strong pricing on the leisure segment. This year, how do you approach pricing business transient and group next year are you more focused on filling rooms or do you think you can push rate in those segments.
So on the on the BT pricing couple of things that are.
We're considering one is.
As we talked about earlier about dynamic pricing, we think that that's a benefit for all the markets and when you start to see that one star in retail go up your floating off of that versus fixed pricing. So I think that that's a strong move to have more than 60% of your accounts on dynamic pricing versus in the past it might have been.
50% the second thing that I would say for the fixed pricing is you have most of the brands are all trying to roll over those rates from 2020 to 2022. So in the past recoveries you were discounting rates to try to get back to those levels now with the rollover that allows you to position yourself when they start to travel at a better.
Plateau, if you will coming out of that floor versus in the past and on the <unk> side. We are seeing that already is starting to come in at higher levels in Q3, and Q4 going into 2021, So there's no.
Inability to try to continue to see that in 2022.
On the group side, we're already at 2019 levels based on our booking pace of what we're seeing and we're seeing that in small groups, let alone when citywide compression dates and things start to come back we know that that's going to give us additional power on pricing to be able to see the combination between group and transient and the effects when both of those.
Traveling and lastly, leisure, we do think theres, some sustainability on leisure and some of it some of the markets the COO.
Consumer has been obviously very had a pent up demand, but there's also the opportunity to realize that with inflation and pricing people are looking to go and travel again and domestic as well as international coming back we think that there's going to be pricing power around that as well.
Great. Thank you so much very helpful.
Thank you. Our next question comes from the line of territory with Janney Montgomery Scott. Please proceed with your question.
Hey, good morning, everyone. This is Jonathan on for Tyler Thanks for taking our questions.
Just one from me wanted to follow up on the labor side.
What kind of guest feedback are you hearing you think you'll need to add labor amenities.
I mean are you still providing ample services in this lower occupancy environment.
Yeah. So what I would say is consumers are obviously are very interested in getting a good experience and want to come back after receiving that what we've noticed is with the new re imagine deliverables, both in food and beverage and housekeeping opt in there is no gradual changes take.
Place for instance, as you know Hot breakfast was launched by Marriott Hilton is getting back in to providing that at all of the select service and full service properties. So we're re imagining what we're providing now one of the things that Leslie mentioned was the construct of our portfolio, it's a little easier to accept when it's free and it's in the rate what that.
Deliverable is going to be and so adjusting that offer and having a reduction of those items is actually providing still a great value and what I would call. It is high quality versus high quantity. So we're getting pretty good acceptance levels in regards to what the customers coming back and that's primarily been leisure as BT is starting to arrive again there.
<unk> of the fact that breakfast is there as you remember in 2020. It was more of a bag breakfast as we were going through those tough times. So we are getting back to normal levels, but a re imagined food and beverage experience on the housekeeping front I would say that the take rate is increasing but it's still at historic lows.
Tight and or excuse me the tidy and the light clean is being accepted and the efficiencies that we're getting benefit from from a consumer having to go into the room just to take out the trash give them additional and or make the bed is still being well received in comparison to not cleaning at all and so I think that thats.
Educating the customer to understand that that's the new way in regards to it's an opt in versus an opt out and lastly, because of our portfolio with our length of stay and 50% suites. We already have a built in extended stay where it is five plus nights for many of our hotels, so that customers already prepared for that project business, where that expectation is it's kind of the second.
Home, while they are staying on a long term project and so so far I think our guest satisfaction scores are enabling us to say that there is momentum and improving based on the re imagine model that we're rolling out at the property level.
Yeah, I mean, all of Tom's comments really sort of encapsulate what I was talking about earlier in the sense of our portfolio mix, allowing us to really sort of captured some of the efficiencies because of the ability to kind of retrain our customer.
Yeah.
Okay, great. Thank you Tom I appreciate all the detail there and then kind of a follow up on the transactions and a bigger strategic question here you've done the two transactions and Atlanta, and Boston is that broadly a sign of confidence in the recovery in those urban markets and maybe a shift in thinking in the portfolio composition or is it more of a byproduct of where price.
And it remains rational and where youre finding the best value.
No I mean, these acquisitions are kind of right in the middle of the fairway in terms of how we're positioning our portfolio. These.
These are great examples of what we want to want our portfolio to comprise up its young assets high quality premium branded we've shown that we can do hard brands versus lifestyle brands their rooms oriented with 80, 580% of our revenues coming from rooms, they're transient centric with very small meeting space.
And so we think that.
Michelle greater conviction in terms of what we have historically by buying what we're looking to sort of position our portfolio at today.
Yeah.
Okay, great. Thank you for all the color that's all for me.
Thank you. Our next question comes from the line of Chris <unk> with Deutsche Bank. Please proceed with your question.
Hey, good morning, everyone.
And about the sorry, the repositioning as Youre working on I know you've got three.
<unk> you have either started or about starts soon for.
For the other and I think you said that those are going to be minimally disruptive to operations for the other five or six that are that are still to come.
It's gonna be seen kind of scope or there's still going to be very limited in terms of their disruption and then is there any do.
Do you have to do we have any concerns about rising costs on labor or materials for those upcoming repositioning.
Yes, I think on the.
Yeah.
Affirm your initial comments around the 2022 conversions. We are we are on track for those by the end of 'twenty, two and we are well underway on Mandalay beach and about to get underway on Charleston, and Santa Monica.
On the future conversions.
We what we said is that we will likely launch a couple per year for the for the next several years.
I think from a from a conversion to scope et cetera, theyre going to be.
Comparable scopes to what we've done thus far.
We're gonna be asset specific it's gonna be brand specific et.
Et cetera, but our view around the value creation is that is that there's.
We'll have significant ROI associated with the conversions, otherwise, we wouldn't allocate capital to them and so I think from a cadence perspective, it's going to be a couple of year and it's going to be.
High quality core hotels that we believe there's a theme around being able to capture incremental rate through a brand conversion will likely be the driver of incremental conversions as well with respect to concerns around construction costs labor costs et cetera, which are real in the marketplace today.
When we when we provided the range the range is up there.
Of the budgets that we provided the market. We obviously provided a range for a reason we baked in.
A lot of those a lot.
All those factors into those ranges.
And what was still at the time of challenging both labor as well as materials.
Environment.
Okay, great and just a follow up to that.
The Cherry Creek Cherry Creek acquisition Thats under contract is that going to require any capital over the near term.
No. It's a it's a very young recently built asset.
Okay.
Good thanks, everyone.
Yes.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Ms Hale for any.
Final comments.
Great. Thank you everybody for joining us today, we do look forward to talking to you. Some of you guys next week at NAREIT for those of you who we won't see we wish you a happy holiday as you move into the holiday season. Thank you everybody.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.