Q4 2021 Xenia Hotels & Resorts Inc Earnings Call
<unk> 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 comments on this call are made only as of today March one 2022, and we undertake no obligation to publicly update any of these forward looking statements as actual events unfold you can find the reconciliation.
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 now portfolio information, we will be speaking about today is on a same property basis for 33 hotels subsequent to the sale of hotel Monaco, Chicago and January certain information is for currency property set reflecting 32.
Two hotels on our travelers call will be available on our website for 90 days I will now turn it over to Marcel to get started.
Thanks, Oliver and good afternoon. So all of you joining our call today.
We are pleased to be sharing our fourth quarter and full year 2021 results with you today as well as some recent developments that we believe to be very positive for our growth outlook over the next several years.
After a slow start to 2021 illustrates fundamentals gradually improve as the year progresses.
Particularly after a vaccine rollout of accelerated in the second quarter leisure demand increased significantly while corporate and group demand started recovering at a more moderate base.
Okay.
Despite the emergence of the Delta variant over to summer and the Omicron barium both Thanksgiving, we experienced an upward trend in occupancy throughout the year.
And the gap to 2019, Revpar diminish substantially as we finished out 2021.
Importantly, we were able to return to positive adjusted EBITDA already in March and we were able to maintain and grow this positive cash flow through the remainder of the year.
During the fourth quarter, we reported a net loss of $22 9 million.
Adjusted EBITDA <unk> and adjusted <unk> per share each remained positive at $48 9 million and 25% respectively.
We are pleased that 31 of our hotels and resorts achieved positive hotel EBITDA for the year.
Which translated to adjusted EBITDA of $108 1 million and adjusted <unk> per share of <unk> 28.
Our same property portfolio generated a hotel EBITDA margin of 27, 2% for the quarter as a result of our continued focus on cost controls by our operators.
And benefits from real estate tax reductions and cancellation fees.
Okay.
Our same property Revpar for the fourth quarter was only 17, 5% below the same period of 2019.
Representing another sequential improvements over the first three quarters of the year when.
When we experienced revpar declines of 63, 3% 38, 6% and 22, 9% in the first second and third quarter respectively.
Average rates remained a bright spot.
As our same property ADR increased seven 1% compared to the fourth quarter of 2019.
An impressive 25 of our hotels and resorts achieved ADR. So it surpassed those reached during the same quarter in 2019.
The fourth quarter was our strongest quarter of the year. Despite the typical seasonal slowdown in December and the early impacts on the auto chrome variance.
Okay.
The two highest ADR and Revpar months of 2021 were both in the fourth quarter with October being the strongest month of the year in November and not far behind.
Impressively ADR store every month during the second half of the year surpass those achieved during the same months in 2019.
The emergence of the <unk> variance and resulting spikes in positive COVID-19 case counts throughout the country.
But a typical seasonal decline in leisure travel cost.
Caused the slowdown in overall demand in January .
The corporate and group segments were most significantly impacted and we were confronted with a meaningful number of group cancellations and postponements.
As a result, our current same property portfolio Revpar in January was markedly lower than we experienced in December <unk>.
Revpar was approximately 37% below January 2019 Revpar.
This decline was substantially greater than the approximately 8% decline we achieved in December which was the smallest gap since beginning of the pandemic.
However, travel patterns have improved significantly over the past several weeks as case counts have fallen dramatically at evidence of multiple of the new variant, calling less severe illness, and lower percentages of hospitalizations and deaths.
Based on our preliminary estimates.
Revpar should be approximately $157.
Which represented approximately 19% declined versus a very strong February of 2019.
With ADR up approximately 6% over 2019 levels.
The projected revpar for amongst represented the highest absolute revpar since the onset of the pandemic.
With both occupancy and ADR, surpassing the levels achieved in October .
We are encouraged by these recent trends and our forward booking pace and are optimistic about a strong recovery as the year progresses.
We continue to be bullish on our growth prospects in the years ahead.
We believe that we have many strategic advantages, including our geographic footprint the quality of our assets and operators are strong balance sheet and a number of embedded growth opportunities.
Some of which we have highlighted during previous earnings calls and presentations.
We believe that we are in the early stages of a strong multiyear recovery for upper upscale and luxury hotels and resorts.
And then at that our company is positioned well to drive superior results.
While we are already benefiting from our geographic diversification and focus on sunbelt locations. During the earliest stage of the recovery.
We continue to have many opportunities for growth throughout our portfolio.
Particularly as corporate and group demand recovers as we expect it will.
We have continued our focus on identifying and executing internal growth opportunities as we have done in the past with projects such as the ones. We recently completed at park Hyatt <unk> and.
At Hyatt Regency Grand Cypress.
For 2022.
We're planning to substantially increase our capital expenditures over the reduced reduced levels of expense because we had in 2020 and 2021.
One we responded to the impact will depend on mix by emphasizing liquidity and cash preservation.
Barry will provide details on the most significant projects, we are intending to complete or sorry. This year in his remarks.
We also remain optimistic about the growth we expect to experience as a result of Hyatt Regency, Portland, reaching stabilization over the next several years.
It is essentially still a newly opened hotels.
I will now turn to the transaction activity, we have recently completed and the exciting announcement, we made this morning.
Okay.
In November we completed the previously announced sale of Meredith Charleston in West, Virginia and in January we completed the sale of hotel Monaco Chicago <unk>.
Transaction that we also announced before the end of the year.
Moving to dispositions, we exited two challenging markets with what we believe to be tough operating environments and difficult task to get back to prior peaks.
We were particularly pleased with the pricing added almost 17 times of 2019 EBITDA multiple we achieved on the opportunistic sale of hotel Monaco Chicago.
Which was one of only two hotels in our same property portfolio that has negative hotel EBITDA in 2021.
Over the past several quarters, we have consistently maintained that we will be opportunistic but patients as it related to potential acquisitions.
The announcements we made this morning regarding our agreement to acquire W. Nashville is reflective of our efforts. During this time as we were able to identify a potential acquisition that meets all of our investment criteria.
<unk> pricing, because we believe reflects an appropriate risk reward balance.
Okay.
We are extremely excited that we have been able to reach an agreement to acquire does outstanding hotel.
Nashville is one of the most dynamic growth markets in the country and has been a targeted investment market for us.
We were able to move decisively once we became aware of the opportunity to acquire the hotel.
Because of the strong balance sheet and liquidity, we achieved and maintained throughout.
Through our recent balance sheet activities.
We believe this acquisition hits the Bulls eye as it relates to our investment strategy.
Nashville is a high growth top 25 lodging market.
With significant and growing year round corporate and leisure demand.
We have extensive experience with marriott's managing some of our most significant assets.
And the hotels a fee simple luxury lifestyle hotel that has many truly unique attributes and that we believe is the best hotel in the market.
The hotel opened just a few months ago and is extremely well designed to be able to cater to any demand segments as evidenced by an outstanding guest feedback since October opening.
In our view this hotels in a class of its own in the national markets.
Particularly as it relates to its rooms, and suites product, it's food and beverage facilities et cetera.
Okay.
There are six food and beverage venues in the hotel, including two destination restaurants by renowned chef hydrocarbons Lee.
Additionally, the pool rooftop and outdoor entertainment dining and meeting areas are unrivaled in Nashville.
And while this almost $330 million acquisition is a large transaction for us.
We are comfortable with having this level of concentration and one of the strongest economic growth markets in the country.
Okay.
While supply additions in Nashville have been significant over the past decade.
And a number of projects will still be adequate supply over the next several years.
The market has been resilient and demand and Revpar growth has consistently outpaced supply growth.
One thing and one of the highest revpar CAGR of any of the top lodging markets.
We strongly believe that luxury demands in the Nashville, CBD West end Submarket.
We will continue to experience substantial growth in the years ahead.
And this unique luxury lifestyle hotel is the perfect embodiment of what the higher end leisure and corporate clientele will seek out as their destination of choice in the market.
As we highlighted in our release this morning.
We expect double your national to be one of the leading contributors in our portfolio in the years ahead.
With hotel EBITDA, reaching between $25 million to $30 million upon stabilization.
We are thrilled to be adding W to our stable of <unk> brands in our portfolio.
We have long had a deep relationship with Marriott and are looking forward to owning a flagship W Hotel in the U S.
As <unk> evolves and refresh of the brand.
So a significant capital investments being made in many existing and exciting new W hotels, opening and <unk> pipeline domestically and internationally.
We are optimistic about the future of the brand and the contribution that will make to what is an outstanding hotel from a physical and locational perspective.
With our asset management expertise and marriott's operating prowess and brand power.
We are excited about what lies ahead for W national under our ownership.
Barry will now provide additional details on our fourth quarter performance.
The operating trends and the status of our current and planned capital projects.
Yes.
Thank you Marcel and good afternoon, everyone.
The fourth quarter, our same property portfolio occupancy was 56, 4% and an average daily rate of $241 11.
Resulting revpar of $136.01.
The fourth quarter marked the best performing quarter in 2021 coming in at.
Seven 1% higher in ADR and $17, 5% below in Revpar compared to the fourth quarter in 2019.
A meeting every other quarter in 2021 in terms of occupancy ADR.
Margie.
Despite somewhat weaker than expected corporate and group business related to the Delta variant October November were both strong months with occupancy coming in at 58, 6% for each month.
Each second only to the July peak of 59, 2% for the year.
October achieved the highest ADR and revpar of any months in 2021 and $248 69 times.
$145 71, respectively.
Bolstered by five weekends, which allowed our hotels to capture additional leisure demand.
ADR in November was $238 five.
Resulting in Revpar of $139.45.
In December we began to see some expected moderation in occupancies during the month, driven primarily by seasonal declines.
However, despite these slowdowns.
<unk> achieved an ADR of $235 92.
Were $15, 2% higher than 2019 and.
Revpar of $122 99.
Just seven 8% below the same in 2019.
During the quarter, we had six hotels achieve occupancies above 75% primarily in hotels in our leisure focus and drive to markets such as key West Charleston, South Carolina savanna, Birmingham, and Napa, all of which continued to show substantial strength.
We also had 25 hotels, representing 70, 474% of the portfolio and achieved higher ADR in the fourth quarter of 2021, and they did in the fourth quarter of 2019.
We commend our hotels and asset management team on identifying and pursuing opportunities to drive ADR and take advantage of the consumer is willing to pay a premium for quality properties like ours that are <unk>.
Focus efforts on activating onsite amenities.
For the full year, we had five hotels achieve greater than 75% occupancy again, primarily at the same hotels in our leisure focus and drive to markets.
We also added 15 hotels achieve higher <unk> in 2021, as we did in 2019.
Group cancellations in the fourth quarter amounted to approximately $8 $5 million of rooms revenue, which had been on the books for the fourth quarter of 2021, primarily related to the Delta variant.
Recognized approximately $5 million in cancellation and attrition fees during the fourth quarter.
Ashish will discuss 2022 group pace and the impact of group cancellations as a result of the omicron variant on Q1 of 2022 in more detail shortly.
In terms of profit all 33 of our same property hotels achieved positive hotel EBITDA for the quarter with.
With 13 properties exceeding results compared to the fourth quarter 2019.
The 11 hotels achieve EBITDA margins greater than 30% for the quarter and 16 hotels generated EBITDA margins greater than 2019.
For the full year 16 hotels were able to generate EBITDA margins above 25% as a result of efficient cost controls and optimization of operations.
Okay.
Our properties in the respective management companies continues to do an excellent job in controlling margins.
For the fourth quarter Hotel EBITDA was $54 1 million a.
A decline of 17, 5% on a total revenue decline of 18, 5% compared to the fourth quarter of 2019.
Resulting in hotel EBITDA margin growth of 32 basis points to 27, 2%.
For the full year Hotel EBITDA declined 52, 3% on a total revenue declined 39%, resulting in a hotel EBITDA margin of 21, 7%.
Approximately 600 basis points from 2019.
Our hotels, thanks to the efforts of our operators continue to do an amazing job of controlling expenses, while ensuring a high quality of the guest experience.
In the fourth quarter <unk> expenses declined by over 18% compared to 2019.
Distributed expenses declined by 13, 7%.
For the full year these expenses declined by approximately 35%.
Undistributed expenses declined by approximately 26%.
Within the undistributed expenses, while the Greens declines, we're seeing in AMG and sales and marketing.
<unk> expenses declined by approximately seven 6% for the year related in part to lower occupancy levels.
Also as a result of our hotels have become more efficient in their use of electricity and natural gas expect rate increases in many markets.
Our operators continue their work in refining service models and staffing levels for the fourth quarter total employee compensation as reported by our operators has declined by 21, 5% and for the full year by 36, 7%.
We currently estimate the wage rates across the portfolio. It's on our operators budgets will increase by approximately 5% in 2022 versus 2021.
Leisure business continues to be strong throughout the portfolio with increased booking windows for our most popular drive to destinations and resorts throughout the first and second quarter.
Despite significant success in the leisure segment.
The occupancies for the year of our three largest resorts Park Hyatt <unk> Hyatt Regency, Scottsdale, and Hyatt Regency Grand Cypress and between 35% to 56% occupancy, leaving room for significant upside of these hotels as high rated and banquet intensive group business returns to these properties in 2022 and beyond.
Despite the seasonally slow and omicron impaired levels of business travel our portfolio experienced in January and early February we're now seeing significant pickup in corporate volume accounts.
This travel has notably picked up in recent weeks as evidenced by increases in occupancy level on Monday, Tuesday, and Wednesday nights as well as transient business on the books for March.
I will end my remarks today with a review of our completed an upcoming major capital expenditure projects.
During the fourth quarter and year ended December 31, 2021, the company invested $12 $7 million and $31 8 million respectively.
In the fourth quarter, we completed the restaurant and lobby renovation at the Ritz Carlton Pentagon City, which was completed in mid October and the development of the Regency Court, a new 5300 square foot outdoor social venue at Hyatt Regency, Scottsdale, who was completed in late November .
During the fourth quarter, we made substantial progress on the renovation of the restaurant larvae and guest rooms, and Waldorf Astoria Atlanta Buckhead.
The restaurant allowed to open in mid February and we anticipate that the Guestroom project will be completed later this month.
In 2022, we estimate spending approximately $95 million on.
On capital expenditure projects.
Continue to be excited about two major projects, which we accelerated to take advantage of current business conditions.
Primarily take place in 2022.
First is a comprehensive renovation of ma'am Bohemian hotel in Orlando, including Guestrooms with substantial tub to shower conversions restaurant and bar lobby rooftop pool area and meeting space.
It will commence in the second quarter of 2022 and is expected to be completed in phases, including in the second quarter of 2023.
The second is a comprehensive renovation of the Kimpton Canary Hotel in Santa Barbara, including Guestrooms restaurant, and bar rooftop lobby and meeting space, which recently commenced and is expected to also be completed in phases, including the first quarter of 2023.
In 2022, we also plan to renovate the meeting space and convert existing lobby bar to a Starbucks outlet Fairmont Pittsburgh.
Renovate the meeting spaces at Marriott, Dallas, downtown and Royal Palms resort and Spa.
Complete bathroom renovations at Marriott Woodlands waterway Hotel and Convention Center.
Renovate the premium suites at the Ritz Carlton Denver, including the addition of three new guests from Keith and commence planning and design for a comprehensive renovation in hotel Monaco in Salt Lake City.
In addition, we plan to commence work on a significant upgrade to the spa and wellness components at Park Hyatt <unk>, along with the comprehensive renovation of existing golf course features which were deferred during the initial renovation, but for which we now have even stronger conviction given the positioning and performance of the property.
Finally, we continue to focus on numerous building infrastructure projects to enhance building resiliency and extend the useful life of our physical structures. In addition to focusing on a number of environmentally sustainable projects throughout our portfolio.
With that I will turn the call over to Ashish.
Thanks, Barry I will provide an update on our balance sheet and our high level outlook for 2022.
Our balance sheet continues to be strong with no debt maturities until 2024 significant liquidity.
Nearly all dot currently at swapped for a fixed swap to fixed or fixed interest rates.
And strong banking relationships.
In a good position to take advantage of opportunities such as the W. National.
Our liquidity inclusive of available cash and our line of credit is currently approximately $950 million.
In January we paid off the $65 million mortgage loan on the Ritz Carlton Pentagon city, thereby lowering our cost of debt to sub 5%.
Looking ahead, we intend to acquire W. Nashville with cash on hand.
As we get farther into the year and depending on other opportunities, we could access the equity or debt markets to raise additional capital or continue to evolve our balance sheet.
Similarly, as business rebounds, and after exiting the covenant waiver period, we could consider other tools to drive shareholder return.
A quarterly dividend or share repurchase under our existing board authorization.
As to our high level outlook for the year, we have a positive view based on the demand trends in booking activity that we're seeing.
The transient demand Gary mentioned strengthening corporate transient trends.
Turning to group demand.
Our pace information is as of the end of January for our current same property Sac.
At that time room revenue pace for 2022 was down 27%.
Versus where we were in January of 2019.
For the full year for.
For the first quarter decline is greater than 40% for the second and third quarters, we are pacing down about 20% and for the fourth quarter, we're pacing down about 10%.
Focusing on just room rates for the full year of 2022 are pacing up about 4%.
So the second half specifically group room rates are pacing ahead by over 90%.
As more current group trends group activity.
Remainder of this year continues to pick up.
Our hotels continue to see near term bookings and we have picked up over half the group revenue that canceled for the first quarter of 2022 with most of that re booking concentrated in the second quarter of 2022 and lesser amounts in the second half of 'twenty two into 'twenty three.
Between the cancellation income and re bookings, we expect to recapture most of the profits from the group cancellations due to the AMA on variant.
One thing to keep in mind in terms of comparing 2022 to 2019 is that between the start of 2019 and now we sold eight assets, which contributed nearly $55 million of hotel EBITDA. In 2019. This information is further broken out by quarter in the historical current same property tables and our <unk>.
Earnings release schedules.
Moving ahead, while we are not yet ready to provide 2022 earnings guidance. We wanted to provide some thoughts on the cadence of earnings as well as some estimates for items that are more under our control.
As to the cadence of earnings can we expect in 2022 in terms of hotel EBITDA.
We expect hotel EBITDA, leading by quarter to be as follows.
First quarter about 20%.
Third quarter about 25% and each of the second and fourth quarters, just under 30%.
Calculating is our current estimate and assumes no change in economic conditions or additional variance with COVID-19.
Turning to estimates for certain expense items as the cash G&A expense, we expect it to be approximately $22 million.
Increased to last year reflects higher wage and benefit costs and the lapping of the payroll tax credits.
As the interest expense, we expect it to be approximately $77 million, which is a decrease of over 5% to last year, reflecting changes in our balance sheet towards that for the last year.
Cash the capital expenditures, we expect them to be approximately $95 million to cover the projects that Barry.
Just.
On W. Nashville, assuming the purchase closes by the end of the first quarter, we expect to generate between 13% and $15 million of hotel EBITDA during our ownership period in 2022 as the hotel ramps up.
To wrap up each quarter of 2021 showed strengthening trends across our portfolio. We finished 2021 on a high note. Despite the emergence of COVID-19 variance.
As compared to other high end portfolios, we outperformed last year due to our favorable market and asset mix.
We expect that momentum to continue this year as the recovery in fundamentals continues.
Our properties are affiliated with some of the best brands and managers are in good condition and have the product offerings and amenities to perhaps travelers are currently seeking.
In addition, our properties located in central Sunbelt markets, such as Houston, Orlando, Phoenix, Atlanta, and San Diego are still well behind peak levels of Revpar and earnings. So there is significant room for earnings growth at corporate and group demand recovers and augments leisure demand.
In addition to our asset profile the strength of the balance sheet and our transactional expertise gives us confidence that we can be active participants in the multiyear lodging up cycle, which we believe is just getting started.
And with that I will turn the call back over to our operator, Alex for our Q&A session.
Thank you we will now proceed with the Q&A if you'd like to ask a question that you compress star one on your telephone keypad. If you would like to withdraw your question that you can press star two please ensure you're on me to the likely when asking your question.
Our first question for today comes from David Katz of Jefferies. David Your line is now open.
Good afternoon, everyone. Thanks for taking my questions.
I apologize if I missed it but with respect to this Nashville Hotel was this a marketed deal.
Deal and I'm curious what commentary you might have about.
What marketed deals are looking like these days.
And you know, what where how you would sort of maybe one to 10 or qualitatively gauge the competition.
For marketed deals.
Yeah. Thanks good.
Afternoon.
This was actually not a broadly marketed deal.
Was not listed with a broker.
So that's what you would call traditional you with all of them off market deal, which is certainly what we.
We do know that there were certain other professional buyers that were looking at the transaction.
And from that standpoint.
Probably it was a competitive process with a very limited group of potential buyers that were looking at it.
I talked to my in my prepared remarks, a little bit about us being able to.
Just to jump in with a lot of conviction around this particular opportunity was available plus the reason why we have to cope with this transaction that wasn't really being very decisive being able to move quickly.
<unk> got a deal that would yield on this what we believe are phenomenal wholesale.
And does that.
Look at it and it looks like.
Okay.
Alright, Alright, sorry, David just had a question kind of what the process for marketed properties list.
It's always the same obviously still a very competitive process. When you are looking at deals that are being <unk>.
Brokered.
And we felt very fortunate to actually find an opportunity like this where we can really separate ourselves from the pack by being as the size of Elizabeth were on this transaction.
Alright.
Understood and so when we look at a hotel like this.
Okay.
Is there what.
What is their value that you can add to it over time from an operating perspective or.
Is this just positioning and a terrific market with a brand new asset.
You know the tide sort of carries it's valuable.
Yeah, Great question I think it's a combination of both certainly we do think we are.
Along with the comments of ops in.
In the release this morning about the positioning of Nashville was a market that we really believe that there is a fundamental shift.
Going on in the country as far as what are the most dynamic markets on where do you want to be for the long term. So from that perspective. We think this is kind of a bull's eye location for us where we want to be investment for long term.
We certainly also are very excited about the fact that it's a property that is managed by by brands, but we have a very very long relationship with a very deep relationship with and where we can basically get in somewhat at the ground level.
And asset manage really coming from the start on this on this asset with with Marriott.
And we believe there's a lot that we can bring to the table through our expertise that will help us property, even more successful over time.
Understood.
Give somebody else to chance and come back correct. Thank you very much.
Thanks.
Thank you next.
Our next question comes from Bill Crow of Raymond James.
Your line is now open.
Sorry, Bill Im not receiving any Oh, Jacob and show you're on mute. Please.
Sorry, I'm still not receiving any okay. If you could read Rollins.
Yep Yep can you hear me now apologize go ahead.
Yeah, Okay, great. Thanks, a lot.
Start with you the $5 billion of cancellation that is received in the fourth quarter.
What would the margins have been had that business actually showed up.
Yeah.
While the cancellation fee income was about $2 $5 million more than the fourth quarter of 19.
So it did benefit margins by over 100 basis points I mean, it's hard to give you an exact number of what it would have been at the business shown up but.
That gives you a sense of what the impact was in the fourth quarter.
Interestingly for the full year cancellation and attrition fees were not that much ahead of where they were in 2019.
$5 here. So it was just sort of the timing of when the government's cancellation and attrition fees comparator.
19.
And how much have you or do you anticipate collecting in the first quarter and cancellation fees and I assume that's in your quarterly cadence that you talked about.
Yeah, it wouldn't be.
Nearly as much as that I mean, I don't have a good estimate for that at this point, but.
On a lower number I think what you.
You saw in the fourth quarter is frankly cancellation fees that came in from AMR crime, but probably some leftover cancellations is from delta as well. So that's what drove the number and the timing last year I think that will moderate as we go into this year.
Yeah, Okay, if I could just ask on the on the.
W.
Acquisition.
How are you how are you how are you all get comfortable with the W brand.
Because clearly it has been working with a lot of us have had questions about over the last.
10 plus years.
So if you could answer that and how are you.
Think about permanently financing.
The acquisition.
Yeah I'll take the first part of that question Bill.
From our perspective first and foremost we look at this physical asset location in Brooklyn.
If you look at what this hotel is it could be really many things from kind of a luxury lifestyle perspective.
We think Thats <unk>.
Even without W. Setting Lasalle and it's just a phenomenal asset that will drive a lot of demand on top of that we do think that W. Is really additive to this asset, particularly with some will be refreshing and evolving that Marriott is currently doing with the brand if you look at.
I think a thoughtful of Nevada, a little bit on my comments. If you look at the amount of money that's going into certain W assets right now with the hurricane refresh.
There is very significant capital investments going into some of those assets. There certainly are still.
Some assets that need to be brought up to the next generation, but there also are some really phenomenal assets in the U S. This hotel only helps to elevate the W brand here in the U S. It is a flagship hotel really when you think about what <unk> is going to be going forward.
And if you see some of the hotels that have opened up internationally as well on what Marriott is doing with the brand overall on a global perspective, I think that there is a lot of positive momentum there because we're going to be benefiting from.
On the finance question.
So as we mentioned our plan is to fund this all cash.
And while I think this would be an attractive candidate for our secured financing at some point I'm not sure that we're necessarily ready to commit to doing anything like that right now I mean as you look at our balance sheet.
A few years ago, we had.
Eight hotels that secured financing on them now we have four we've certainly been active participants on the public debt side in terms of high yield money that we've raised and frankly are pleased with that tool that we can continue to utilize so I think my comments were about generally raising equity or debt.
Capital in the future I think that that applies here.
As well, but we don't have any specific plans with regard to this outside of this transaction.
At this point.
Alright, Thank you I appreciate it.
Thank you.
Next question comes from Austin, <unk> Schmidt of Keybanc Austin. Your line is now open.
Great Thanks, and good afternoon.
Just going back and revisiting the acquisition certainly makes sense from a lot of.
It checks a lot of boxes. So I guess, just how do you get comfortable with the price per key and while I know it just recently opened.
I suspect some portion of the construction cost might've been baked pre pandemic. So curious about your thoughts how it stacks up.
The price tag versus your estimate of replacement cost today.
And then can you also just speak to how conservatively you underwrote to get to that sort of mid 8% yield.
At the midpoint.
Sure. Thanks Austin.
From a price per key perspective with <unk>.
I only recognize US 48 national market is it's a number that's higher than what youre seeing recently into the markets, but as you also know there are so much positive momentum going on as end markets.
So much economic growth in the market Thats.
Quite convinced that we will not be the highest score expertise transactions for a very long time in the market.
There are certain other things that are happening there that I think will be close to where we are on this Brexit.
One thing to really remember about this asset to lose that volume 346 hotel rooms here or you're buying a very significant income stream coming off of the F&B facilities.
And very high margin type of revenue that's coming in for those facilities because of lot of while the beverage primarily cognition as well. So when you think about kind of all in what you are buying here you are buying a very attractive cash flow stream that is coming from all those different venues going forward.
We obviously this is not something.
We're we just decided payments, let's invest in Nashville, right now we've looked at the markets for a number of years, we've underwritten a good number of assets in the markets markets. So this is really kind of a culmination of of looking at various assets here for a very long time and we are extremely comfortable that we are in our mind buying the best hotel in those markets that's going to have the best.
<unk>.
Operational upside going forward.
As it relates to cost.
Comparing it to a development cost there is also a project that has taken.
Long number of years to actually come together.
So.
Even thinking about whats potential developer profit has been made on this deal.
Construction costs have gone up very substantially over the last few years as you know are continuing to grow very substantially.
You think about basis that they may have had with the landlords would be very very different today.
So there are just a lot of things mechanical kind of any kind of a.
Spots.
When you look for virus development cost versus value, we feel from a value perspective. This hotels, absolutely worth us, especially when you look at not only where it sits in the markets, but if you also compare it to the basis for hotels and other.
Achieving tough to call our market similar markets because they are not that many markets that are seeing the growth of the national screening Canadian compared to some of those other markets, but feel really good about being here and what the risk reward is of this there's investments versus why we couldnt industrial and smaller hotels.
And I'll just add one thing which is.
We've talked to you a lot over the last few quarters about kind of being patient and waiting for the right acquisition opportunity.
This really is that as we looked at it because if if we didn't buy this hotel at this level someone else would have a potential of that even more for it.
That is probably the one hotel that we've looked at in the last two years that if we would have seen one of our peers come out with an announcement on this we would have been very disappointed I'm jealous as opposed to water <unk>. So we feel really good about where we are with this asset and what it's going to do cross Gulf forward.
Yeah.
Yes, that's very helpful and then Joe so when it comes to the underwritten yield in the mid <unk> I guess, we're in this.
Transitional period of hotel demand with a backdrop of high inflation, it's been beneficial to ADR and margins.
And these are these potential operating efficiencies coming out of the pandemic did get discussed by.
Many in the industry. So can you just give us a sense of what you're kind of underwrote towards from an ADR margin perspective.
Is it kind of the new paradigm or were you a little bit more conservative I guess to get to the range of outcomes for hotel EBITDA.
Yes, that's a great question and I'll answer your question specifically as it relates to some of the underwriting that we did on those.
What I also want to point out is this.
You brought up and the way you asked your question you brought up the fact that we're kind of in this new environment in the new paradigm kind of post COVID-19 .
That is another element that we just really like about this hotels as much as everyone loves leisure demands business wholesale is going to absolutely benefited very strongly from the leisure demand that exists in Nashville that is real.
Really very strong in that market, but it also will cater very well to both group.
And corporate demand that comes into that market. So.
In our mind, you guys kind of the best of all worlds because you own a great urban hotel, but it's in some ways you can kind of view it as the urban resort, particularly with Humanities with this hotel as.
When you think about <unk>.
All the spaces and volatile all all the outdoor space from a dining perspective from a media perspective. The pool area is something that is absolutely unrivaled and in the natural area. So we think it really plays very well to once the current consumer is looking for especially when you think about the leisure traveler that is looking for for this type of asset.
We think that this from that standpoint.
We view it as a safer and better beds than if we were going somewhere and we're supposed to 100% driven by leisure and we're essentially buying a kind of a peak of marketable some of those vessels.
As it relates to how we underwrote a specifically I'll just tell you kind of where we are when we get to stabilization, we expect us to be over $300 and revpar upon stabilization.
And we expect the mix between food and beverage revenue and roof revenue can be fairly balanced. So we think that the food and beverage revenues going to be somewhere in the same ZIP code as what the room tractors will be.
And on the margin side, where we're underwriting assumed about the low <unk> margin.
Which compares to our portfolio that was at about 28% going into into <unk>. As we think this will be a little bit better.
And.
We also really like the EBITDA per key to this hotel and our underwriting will be throwing off so that's going to be more than double the EBITDA per key that we had in our portfolio coming into Covid. So we think that this is very.
Three accretive from a lot of different different.
Different standpoints.
That's a lot of great detail. Thank you.
Thank you.
Our next question comes from Michael Bellisario of Bad Michael Your line is now open.
Thanks, Good afternoon, everyone.
Sorry, one more follow up on the transaction.
I know you Havent closed the Nashville deal, yet, but maybe going forward how are you thinking about.
Capital allocation in terms of maybe increased desire to sell another property partially backs on what.
What youre buying now just any updated thoughts on buy versus sell on a go forward basis would be helpful.
Okay.
Got it thanks, Thanks, Michael.
We at.
We've talked about this you hear me basically stay the same thing every every quarter on this.
We're always going to be looking to upgrade the portfolio over time, and we're constantly kind of analyzing potential additional dispositions, especially when we're making having to make some decisions about additional capital investments that we might have to make additional assets I wouldn't say that this acquisition is necessarily going to change that.
We look at some of those potential dispositions, but you could certainly expect those to continue to be.
To look at those additional capital investments pretty critically and see if there are some some opportunities to maybe harvest some value first time some assets.
But I think they're going to be more around the margin probably some smaller assets in our portfolio today spend that we're looking at that in the short term.
As opposed to any kind of meaningful seismic shifts.
That are happening because of this.
Scott.
Okay.
Got it that's helpful. And then just switching gears, maybe one for Barry.
Hyatt recently, they announced the category changes for a lot of the hotels.
Two of your three highest EBITDA producing hotels last year are moving up one category can you help us understand.
What that means for demand EBITDA trend in sort of.
Royalty redemptions in bookings at.
At those hotels this year compared to if those change that just hadn't occurred on the loyalty front.
Yeah sure I mean, as you know the brands move these things around a lot year to year I think we were pretty pleased with that.
Two properties has actually gone up category Grand Cypress in key west because each of those is kind of what's kind of the leader in their market and we're quite frankly in our view under priced on a redemption basis. So along with those increased redemption levels are based redemption level moves up as well that's not although that's not really where.
In our mind kind of the upside comes next year next year the upside.
We got it in key West this year, a lot given the high occupancy, but grand Cypress sooner and a relatively low occupancy and we redeemed a lot of rooms at the base rate and we're already seeing in February and March many many nights, but we're getting to the higher stair step levels, where we get redemptions based on a percentage of of ADR. So there were certainly no negatives.
From our perspective from from highest moves and there were even some behind the scenes things related to.
Just because of the significant rate increases <unk> year over year or year over 2019, given the renovation, where we will have a higher face redemption rate there as well so.
All positive from our perspective.
Okay.
And when you when you talk about the rates being higher is that simply just a function of <unk>.
<unk> 22, so far being just much better that once your 'twenty one given we were still ramping up that or do you expect that to be true throughout the year, but the other three quarters.
Okay.
If you look at.
Grand Cypress kind of running in the mid fifties last year, we did not have a lot of compression dates we will have a lot more compression units this year and thats, what im referring to is that we've seen in.
February and March and we continue to see that as we did last year and hydro <unk> Scottsdale.
Got it helpful. Thank you.
Thank you as a reminder, if you'd like to ask a question star one on your telephone keypad.
Our next question comes from Thomas Allen of Morgan Stanley .
Thomas Your line is now open.
Thank you.
Two more questions on Nashville, the first.
When do you expect to get to the $25 million to $30 million of stabilize EBITDA. The second Q1 any other properties that are about half half room revenue versus other revenue and Kevin.
How do you think about underwriting and those kinds of asset choices others. Thanks.
Oh, Yes, I mean, obviously stabilization is the way we look at that as probably in the kind of three three to four years out.
Could happen a little quicker, but thats the way we underwrote it.
So.
As it relates to our properties that have kind of a similar mix.
Okay.
Now Royal Palms for example, obviously, a smaller resource, but thats a little bit less on the room side actually than it is on the food and beverage side.
So that's one example.
When you think about it you can look at it from two sides. I mean, obviously you want to make sure you stay relevant on the F&B side and that's to make sure that thats a good sustainable cash flow model, but thats not necessarily through different from the room side, because as you well know, it's a capital intensive business, maybe fall behind with our room product youre going to ultimately have to make additional investment in that.
As it relates to the F&B, it's really evolves.
<unk> locations one of your facilities are relevant as RNA in the marketplace and we think that these particular venues are the most relevant they possibly could be in a location like Nashville.
So part of when you think about the price per key for example, I mean, it's obviously very different from looking at doing a select service deals that are getting done at 500000, Skus and all you're getting is this kind of the room product I mean, we we have a better rooms products than than virtually anything of that market and we have the most relevant F&B venues there that we think.
Really when you kind of add that altogether, you're really not just buying rooms. At 968 can you really by a very substantial revenue stream from both sides that we think is very very helpful.
And helps you actually failure rooms. The fact that you have these really relevant F&B venues, helping you to fill those rooms. The fact that you have the best pool in the market helps you fill the rooms. The fact that you have the best for the rest of the rooftop and that market overall elements why people are going to want to stay at this hotel what are they are there for Peter or what are therefore for any kind of corporates corporate risk.
Okay.
Thanks, and then just a follow up one word Alex about a month ago, one of the key themes with the brands really wanted to start Joe Forest brand standards, and like brand or brand requirement.
All of that stuff again.
Where do you think we are in that trajectory.
Where do we think where do you think we're going how do you feel about kind of the threads diamond implementation right now.
Hey, Tom This is Barry.
I think obviously from their perspective, they want to have a more unified product. It's certainly from there, but I think one of the ways to.
For them to deal with some of the challenges that they've had on the guest satisfaction side.
So I think they are certainly all looking at how to best role.
Still determined what the standards are and how best to roll them out, but I think it's going to be.
Longer than shorter at least in terms of the way, we think about the business and I think as it relates to our portfolio I think we're not terribly afraid or concerned about what those might be as we've talked about for a long time, we've been very aggressive in getting our facilities and operations back as claw.
As we can to pre pandemic levels, even in cases, where we're running lower occupancies that having restaurants open where appropriate I think has certainly been the right thing to do and I think that shows in Q4 for example in <unk>.
Our significant food and beverage revenues I think when you think about it from the from.
From the brands perspective, I think they certainly are taking and will take.
As they develop the standards are much more reasonable and balanced approach, perhaps than they had before and I think they will end up with more flexible approaches in terms of.
Every full service brand X hotel has to be open for lunch I think owners are going to be able to continue the dialogue that they have every brand is welcome to the owners of participated in over the last two years now in terms of helping guide them towards those decisions.
Okay.
Thank you.
Thank you our final question for today comes from Tyler <unk> from Janney Tyler Your line is now open.
Hi, Good afternoon. This is Jonathan on for Tyler. Thanks for taking our questions first one for me and I know, it's maybe difficult to segment everything else, but the right strength in the quarter is that all coming from leisure or is there some corporate or group and they're impacting positively or negatively and can you provide any color on your.
For rates as we move through 'twenty two.
Sure.
Let's say, let's talk about Q4 of 2021, and obviously leisure was still a significant piece for us, particularly in December , but I think part of that part of the.
The story that maybe has not been told as well for us and we believe across the industry as well was there was a lot of very good quality group business in October and November well some of it got lost due to delta to the business that we did have in our hotels was very high quality group business.
And right and in terms of banquet spend per occupied room, so that was definitely a.
And again volume volume corporate was where the weakness was both in terms of kind of demand as well as in terms of rate.
Talking about 2022.
<unk> touched on in his remarks kind of.
Breaking group booking pace in particular strengthening group right looking at the latter half of 2022 compared to <unk>.
2018 going into 2019.
But again, where we sit today in terms of.
The near term transit demand, we feel very good about March and now even into April in terms of what we're seeing in terms of both <unk>.
Continued strength in leisure demand as well as some notable pick up in terms of.
Corporate demand as well.
Okay.
Okay very helpful. And then maybe for Mark So I'm curious if the Capex guide, which is essentially back to pre pandemic levels.
Is that a vote of confidence in the pace of recovery. This year wanting to position the portfolio for the recovery or is there just some catch up.
Capex sitting there how do you feel comfortable addressing now.
In a really solid liquidity position.
Okay.
Yeah, it's not it's not so much catch up but it's again, it's more kind of the first the first part of your question, which is we obviously do have confidence in the recovery, where we are right now.
We certainly scaled back our spend a loss in 2000 22021, and then if I can.
You mentioned that in my comments, we obviously, we're very focused on.
Preserving cash preserving liquidity to increase in liquidity.
We certainly have more confidence around where things are going and how things are recovering off. So there certainly are a few things very highlighted where we pushed us back a little bit from prior years, but a lot of where to spend really is on on the <unk>.
Five of renovations, where we think we're going to drive some real ROI and particularly the two bear wants to Larry mentioned to us.
Orlando and Santa Barbara.
Those are two projects that we have very high hopes for how we can spend that money on this now to be really well positioned as the recovery really takes hold.
Okay.
Great. Thank you for all the color that's all for me.
Thank you we have no further questions, let's stay so I will hand, it back to chairman and CEO Marseille boss for any closing remarks.
Thank you thanks, everyone for joining us today I know, it's been a it's been a long earnings season for many of US. So we're excited clearly above where we are with the company.
Normally the fourth quarter.
We are extremely excited about 1 billion national acquisition.
And we're excited about what this year is going to bring for us. So we look forward to continuing our dialogue and.
I'm speaking to you as the year progresses.
Okay.
Thank you for joining today's call you may now disconnect.
Yeah.
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