Q3 2022 Host Hotels & Resorts Inc Earnings Call
Good morning, and welcome to the host hotels <unk> resorts third quarter 2022 earnings conference call.
Today's conference is being recorded.
At this time I would like to turn the call over to Jamie Marcus Senior Vice President of Investor Relations.
Thank you and good morning, everyone.
Before we begin please note that many of the comments made today are considered to be forward looking statements under federal Securities law.
As described in our filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed.
And we are not obligated to publicly update or revise these forward looking statements.
In addition on today's call, we will discuss certain non-GAAP financial information such as <unk> adjusted EBITDA R E and hotel level for Salt.
You can find this information together with reconciliations to the most directly comparable GAAP information.
Yesterdays earnings press release and.
In our 8-K filed with the SEC and in the supplemental financial information on our website at host hotels Dot com.
With me on today's call will be Jim <unk>, President and Chief Executive Officer, and Sarah Gosh, Executive Vice President and Chief Financial Officer.
With that I would like to turn the call over to Jim.
Thank you, Jamie and thanks to everyone for joining us this morning.
We delivered strong performance during the third quarter setting a number of milestones in the recovery.
Total food and beverage and group revenues exceeded 2019 for the first time since the onset of the pandemic.
Our EBITDA margin was 250 basis points better than 2019.
During the third quarter, our adjusted EBITDAR was $328 million and our adjusted <unk> per share was 38 cents.
Are all owned hotel EBITDA of $341 million in the third quarter was 15% above 2019, driven by continued rate striped elevated out of room revenues and tight expense controls.
All owned hotel revenues in the third quarter increased four 9% over the third quarter of 2019, while all owned hotel operating expenses were up only one 2%.
All of our owned hotel Revpar for the third quarter was $192, a one 4% improvement over the third quarter of 2019.
As a reminder, this is now the second consecutive quarter Revpar has exceeded 2019 levels since the onset of the pandemic.
While macroeconomic concerns continue to dominate the headlines we are not seeing any signs of weakness in our business.
Contrast to 2008, the banking system is in good shape leverage levels are reasonable and consumers still have $1 seven trillion dollars of extra savings with the majority concentrated in the top income brackets, which gives us confidence to recovery in the lodging industry is.
<unk>.
And a poll released by the global business Travel Association last month.
Majority of companies indicated that they are not they travel specifically due to economic concerns and 78% of the participants expect volumes to increase in 2023.
Insistent with normal seasonality and shifting business and marketing mix, we expect fourth quarter nominal revpar to be slightly above that of the third quarter as well as above the fourth quarter of 2019.
Our recent acquisitions continued to contribute to our outperformance and are substantially ahead of our underwriting expectations.
Our updated expectations for full year 2022, EBITDA from our seven 2021 hotel acquisitions.
As expected to be approximately 100% above our underwriting expectations already putting us better than our targeted stabilization range of 10 to 12 times EBITDA.
Subsequent to quarter end, we acquired the four seasons resort and residences Jackson hole.
125 room luxury resort in Jackson hole, Wyoming were approximately $315 million.
The acquisition price represents a 13 six times EBITDA multiple or a six 6% cap rate on 2022 estimated results.
It is expected to be one of our top three assets based on full year 2022 results with an estimated revpar up $855.
Part of $1430 and EBITDA per key of $185000.
Other improving the quality of our portfolio.
The resort is one of only a handful of luxury ski in ski out resorts in the United States.
It sits on six three acres and Tito village just steps from the gondola at the base of the Jackson Hole Mountain resort.
The top rated ski destinations in the country.
The resort is located 20 minutes from downtown Jackson within close proximity to Grand Teton and Yellowstone National Parks are unique feature making it a year round destination, where future supply is expected to be severely restricted.
The resort has 125 oversized rooms, and suites that average approximately 650 square feet with gas fireplaces balconies and dramatic views of the surrounding mountains and valleys.
The property also features an additional 44 private residences, which are not part of our ownership ranging in size from 1700 to 3700 square feet.
Of the 44 residences 30 currently participate in a rental program through the resort.
From 2014 through 2018, the resort had a revpar CAGR of five 8% significantly outperforming the ultra luxury set which had a revpar CAGR of four 3% over the same time period.
The resort, which opened in 2003 underwent a comprehensive guestroom renovation in 2022 and no disruptive capital expenditures are expected in the near term.
Since 2015 $15 million or $120000 per key.
Been invested in the property.
In addition, the Jackson hole airport is undergoing a $65 million renovation and expansion, which is scheduled to be complete at the end of this year.
Since 2021 nonstop flights from six cities have been added to better accommodate year round demand shrinking shoulder seasons, and increasing visitor growth.
As is typically the case, we took a conservative approach when underwriting this asset and we believe there is performance upside beyond 2022.
As I just mentioned earlier this year the resort underwent a comprehensive guestroom renovation. The Jackson hole Airport was closed for approximately three months.
Continuing to grow year round occupancy to historical levels and repositioning the food and beverage outlets and the public spaces. We expect the resort to stabilize at approximately 11% to 13 times EBITDA in the 2026 to 2028 timeframe.
With built in winter and summer demand generators, a lack of competition and no new supply on the horizon. We believe the four seasons Jackson hole is positioned to outperform over the long term.
On the dispositions front during the third quarter, we sold the 254 key Chicago Marriott suites diners grow for $16 million. The hotel was expected and the $15 million of investment over the next five years.
Looking back on our transaction activity since 2018, we have acquired $3 $5 billion of assets and a $13 seven times EBITDA multiple and disposed of four $9 billion of assets and a 17 times EBITDA multiple including 954 million.
The estimated rewards on capital expenditures.
Comparing all owned hotels 2019 results for our current portfolio to 2017, we have increased the revpar of our assets by 12%.
EBITDA per key by 26% EBITDA margins by 190 basis points and avoided considerable business disruption associated with capital projects.
Turning to third quarter operations are all owned hotel revenue was up nearly 5% to the third quarter of 2019, driven by 16% rate growth, we estimate that hurricane impacted our third quarter revpar growth by 40 basis points and all.
Our owned hotel EBITDA by $3 million when compared to the third quarter of 2019.
The majority of the impact came from Hyatt Regency, coconut point and the risk Carlton Naples.
We expect fourth quarter revpar growth to be negatively impacted by 250 basis points and adjusted EBIT of our RV to be impacted $17 million.
Despite a brief loss of commercial power and damage to the property surrounds pools and amenities.
Hyatt Regency coconut point remain open to first responders.
The hotel is expected to reopen to gas in mid November and we expect a water park to reopen in the second quarter of 2023.
The Ritz Carlton Naples Beach is expected to remain closed for the remainder of the year and into 2023.
A phase reopening strategies being evaluated and we will provide additional information when it is available.
From an insurance perspective, our deductible is limited to $15 million and we expect to collect business interruption insurance. So it is still too early estimate when we will receive those payments.
Turning back to third quarter results.
Transient revenue was up 2% compared to third quarter of 2019.
<unk> was up 25%.
Growth continues to be driven by our sunbelt in Hawaii properties, which achieved double digit rate growth over 2019 for the sixth consecutive quarter.
Our resort properties continue to outperform with transient revenue up more than 30% of third quarter of 2018, driven by 64% transient rate growth at our 16 resorts.
We have four resource with transient rates above $1000 for the quarter and this marks the second consecutive quarter, where our newly acquired Elisa Ventana bits are achieved transient rates above $2000.
Our urban and downtown hotels saw continued progress with 2% transient demand growth over the second quarter and rates more than 8% above the third quarter of 2019.
Turning to group.
Business continued to surge back at our hotels during the third quarter group.
Group revenue was up over 3% in the third quarter of 2019 for the first time driven by 6% rate growth.
In the third quarter, our hotels sold 991000 group rooms.
Two 6% behind the third quarter of 2018, and we continue to be encouraged by net booking activity in the quarter for the quarter.
For the full year 2022, we currently have $3 7 million definite group room nights on the books and increase of 200000 room nights from the second quarter.
This represents approximately 82% of 2019 actual group room nights up from 80% last quarter.
Group rate on the books for 2022 is up 6% to third quarter of 2019.
90 basis point increase over last quarter.
Total group revenue pace for the remainder of 2022 is down 70 basis points at the same time in 2019.
As we look forward to 2023, we currently have $2 6 million definite group room nights on the books and increase of 400000 room nights since last quarter.
Total group revenue pace is not only five 8% driven by radar on the bulks being up over 6% to 2019.
We expect the short term nature of group bookings to continue over the near term and are encouraged by the large base we have on the books already.
So Rob will get into more detail on business mix markets and our balance sheet in a few minutes and.
In addition to delivering operational improvements we continue to execute on our three strategic objectives, all of which are aimed at elevating the EBIT growth profile of our portfolio.
As a reminder, our objectives include redefining the hotel operating model with our managers.
Winning market share at hotels from comprehensive renovations and strategically allocating capital to development ROI projects.
We are targeting a range of $147 million to $222 million of.
Mental stabilized EBITDA on an annual basis from the initiatives and projects underlying our three strategic objectives.
We continue to make progress on the Marriott transformational capital program as we believe these renovations will allow us to capture incremental market share.
At the <unk> Marriott bucket, which has a revpar index share gain of $13 two points on a trailing 12 month basis compared to its pre renovation index Trey.
Trailing 12 months.
<unk> rates are up 11% over 2019 and banquet revenue per group room night has increased by over 6%.
In addition to the positive momentum we are seeing at the J W. Marry up bucket, we have seen a revpar index share gain of a 11 seven points at our New York Marriott downtown on a trailing 12 month basis compared to its pre renovation index and a seven six point gain at the risk curve.
Okay.
All far exceeding our targeted range of three to five points of Revpar index gains renovated assets.
In addition.
<unk> to the 16 Marriott transformational capital program assets.
Eight hotels, where we have completed or are in the process of completing comprehensive renovations.
This includes the dog phase are located in St. Pete Beach, Florida.
The renovated resort was a phenomenal performer for us with a revpar index share gains of 12 eight points over as pre renovation outage.
In closing.
Macroeconomic concerns continue to play out.
Believe our capital allocation efforts over the past few years.
Fortress balance sheet leave us very well positioned to navigate any challenges that might lie ahead.
We have worked with our managers to redefine the operating model meaningfully reinvested in our assets and maintained a strong investment grade balance sheet, we will continue to be patient and opportunistic as we position our portfolio for outperformance.
With that I will now turn the call over to Sarath.
Thank you Jim and good morning, everyone building.
Building on Jim's comments I will go into detail on our third quarter operations full year guidance and our balance sheet.
Starting with top line performance, we continue to drive the Revpar upside, especially at our Sunbelt and Hawaiian hotels, where rate was up more than 25% to the third quarter of 2019.
Rates at our open in downtown hotels surpassed 2019 levels for the first time since the onset of the pandemic.
With rate, 4% above the third quarter of 2019.
Turning to business mix overall transient revenue was up 2% over the third quarter of 2019, given by 25% rate growth.
Holidays throughout the quarter and into October continue to recover from an occupancy perspective with Columbus, the achieving the highest holiday occupancy post pandemic.
Urban and Valentines holiday occupancy growth outpaced sunbelt, and Hawaiian markets with especially strong demand growth in Chicago, New York, and Washington D C.
Business banking revenue was down 22% for the third quarter of 2019, but volumes improved 300 basis points over last quarter, driven by our hotels in New York, Washington, DC, Boston and Seattle.
Business transient rooms sold reached a new quarterly high and the recovery in August set a new monthly high watermark with more than 120000 rooms sold beating the prior record set in June .
In September overall business transient rooms sold was slightly ahead of August when comparing to 2019, driven by our urban and downtown hotels and encouragingly business transient rates were up three 1% to the third quarter of 2019.
Looking specifically at recent business transient trends in urban and downtown markets rooms sold were just 10% below 2019 in September driven by San Francisco, and Denver, which exceeded 2019 levels, While New York was just 3% below 2019.
Turning to group.
This quarter marks the first time that revenue has surpassed 2019 levels for group business overall.
In addition, corporate and Association group revenue surpassed 1019 levels.
Marking three positive milestones for our portfolio and the recovery.
In the quarter group total revenues, including out of room spend was 5% above the third quarter of 2019, driven by a 6% increase in rate.
In the quarter for the quarter group rooms sold were up 20% over the third quarter of 2019.
Group room revenue and Sunbelt and Hawaiian market was up 13% driven by rates and room nights sold were above 2019 levels for the first time post pandemic.
At our newly renovated New York Marriott Marquis Group room nights were up 36% for the third quarter of 2019 as group demand return and the transform property has been very well received.
For New year's Eve weekend, our hotels in New York already have 62% occupancy on the books at an average rate of $610 an improvement of 219% compared to 2019.
Corporate group revenue exceeded the third quarter of 2019 by 70 basis points, driven by a 9% improvement in rates.
Our hotels and resorts in New York's Maui, Orlando, Phoenix, and Washington D. C contributed to the revenue outperformance.
Association Group revenue was up 20 basis points to the third quarter of 2019, driven by 4% rate growth.
Diego hotels drove most of the improvement benefiting from 11th citywide conferences.
Our Chicago hotels also benefited from multiple city wide groups during the third quarter.
Wrapping up on group with social military education, religious and fraternal or Smurf groups revenue was up 14% compared to the third quarter of 2019, driven by a 20% increase in rooms sold at our urban and downtown hotels.
Shifting gears to expenses.
All owned hotel expenses were up one 2% to the third quarter of 2019.
Slight increase to expenses was driven by higher utilities and property insurance, despite wages and benefits savings, which were down one 4% to the third quarter of 2019.
As expected the staffing lag we faced early in the recovery began to ease in the third quarter and our managers believes there are near desired staffing levels for current business volumes.
Wrapping up on expenses, we continue to expect our annual wage and benefit rate inflation for 2021 to 2022 to be in the 4% to 5% range.
Taking our strong top line and expense controls together, our third quarter. All owned hotel EBITDA margin came in at 28, 7%, which is 250 basis points better than the third quarter of 2019.
It is important to note that we received the business interruption proceeds from the false Pud project at the Orlando World Center, Marriott and the third quarter, which benefited our margin by approximately 60 basis points.
For the second quarter in a row margins were higher than 2019 across all operating departments driven by strong rates and increased the out of room revenues on the top line combined with expense efficiencies.
As it relates to our efforts to redefine the operating model, both wages and benefit expenses and above property costs remained below 2019 levels.
To date, our operators have achieved approximately 70% of the $100 million to $150 million that is expected to come from potential long term cost savings based on 2019, all owned hotel revenues.
Moving onto our outlook for 2022, we have updated our full year guidance ranges.
Taking into account the impacts from Hurricane Ian we expect full year 2022, all owned Revpar for our portfolio to be between 193 to $195 or down 375% to down to 75% to full year 2019.
Which implies that our fourth quarter revpar will be slightly above the fourth quarter of 2019.
This full year Revpar range implies an adjusted EBITDA.
Of $1.470 billion to $1.500 billion and in all owned hotel EBITDA margin of 31, 6% to 31, 9%.
It is worth noting that are all owned hotel metrics do not include the four seasons Jackson hole.
For reference we estimate that hurricane Ian negatively impacted our full year revpar range by 70 basis points.
Our revpar range by 80 basis points, our adjusted EBITDA by $20 million.
And are all hotel EBITDA margin by 10 basis points.
Despite the impacts of the hurricane the midpoint of our updated full year guidance ranges are still slightly above our 2019, all owned hotel results as presented on pages 28, and 29 of our supplemental financial information.
These estimated ranges are driven by continued rate strength across our portfolio a strong festive season, and the continued recovery in demand.
Additional guidance details can be found in the reconciliations of our third quarter 2022 earnings release.
Turning to our balance sheet and liquidity position our weighted average maturity is four eight years at a weighted average interest rate of four 1% and we have no significant maturities until 2024.
As of today's call, we have $2 $2 billion in total available liquidity.
Includes $187 million up.
As Anthony reserves and full availability of our $1 5 billion credit facility.
Adjusting for the four seasons Jackson hole acquisition and using the midpoint of our full year 2022, EBITDA guidance of $1.480 billion. We would expect our year end 2022 net leverage to be at two four times, which is unchanged from the third quarter.
Wrapping up in October we paid a quarterly cash dividend of <unk> 12 per share.
All future dividends are subject to approval by the company's board of directors.
We expect to be able to maintain our quarterly dividend at a sustainable level taking into consideration potential macroeconomic factors.
As we consider future dividends, we intend to revert to a pre pandemic announcement cadence.
As a reminder, our fourth quarter dividend announcement with typically come in mid December to.
To conclude we believe our portfolio our balance sheet and our team are well positioned to continue outperforming and we will continue to be strategic in the current macroeconomic environment.
With that we would be happy to take your questions.
To ensure we have time to address as many questions as possible. Please limit yourself to one question.
Ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone at this time.
We do ask Manuel posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
First question is coming from Neil Malkin from capital One Securities. Your line is live.
Thank you thanks, everyone. Good morning.
Yes, Jim.
My question is related to potential.
Opportunities to <unk>.
Put your balance sheet to work over 2023, I guess or the next 12 to 18 months.
You've cited elevated <unk> maturities.
Obviously, the brands Zairy Internet reinstating pips.
A lot of that debt market dislocation on attractive terms as well so.
It would seem like someone in your position with the balance sheet you guys have in liquidity would be.
Prime to take advantage of potential distress can you can you just talk about.
How you see that shaping up what opportunities could.
Could look like next year. Thanks.
Sure Neal happy to share a little bit of color with you on how we think the market might evolve going forward.
You correctly point out that we are in a unique position given the strength of our balance sheet being the only investment grade lodging REIT and finishing this year.
Based on our guidance to the midpoint at two four times leverage puts us in a very unique position.
I really believe that the fact that we were an all cash buyer.
Gave us a competitive advantage in.
We're seasons Jackson hole acquisition, so we were able to move fast.
Able to continue to work off of our relationships with our owners.
And others in the industry and.
Take take that deal down.
The closing period of less than 30 days from the time that we signed.
The U S.
So puts us in a unique position as we look out into 2023 and 'twenty four.
There's really a couple of different areas that I think.
Acquisition opportunities may present themselves.
MBS market for full service hotel maturities in 2023 is north of $7 billion.
The <unk> market for hotel maturities full service hotel maturities in 2024 is over $10 billion.
What we're seeing already.
Our inbound calls from owners of hotels, who have loans coming due over the next year to two years.
Reaching out on a direct basis to see if we might have any interest in buying their property because.
It's going to be very difficult to refinance.
Your loan at par.
Just put capital waiting for the assets that have been started from a Pip perspective, and you are correct in saying that the brands are now starting to reinstate pips I think they were very lenient as where a lot of lenders during the pandemic, but we're clearly through that period of time.
And we're seeing a lot of pressure not only in the MBS market, but from the brand companies.
And also from the banks.
The banks I think are going.
Going to be taking a bit more of a firmer position.
And not kick the can down the road.
We get into 'twenty three 'twenty four so we are delighted to be position, where we are we certainly intend to use the balance sheet. We will continue to be very disciplined in our capital allocation decisions.
Underrated deal, we underwrite it in a in a very conservative manner, and I think I mentioned in my remarks that our seven hotel acquisitions that we completed last year have beat our pro forma underwriting by 100% and we're.
We're excited.
Kerry that ball forward and look forward to the opportunities that may present themselves.
Thank you. Your next question is coming from Smedes Rose from Citi. Your line is live.
Alright. Thanks.
Jim I was wondering if you could just talk a little bit about the four seasons acquisition in Jackson hole on the pricing side.
Do you feel like that kind of level at $13 six times EBITDA is at a discount to where it might have been a couple of years ago or to these kinds of assets should not really be.
Be that much fluctuation in pricing in your view and then maybe I don't know if you can comment there.
And there are another 12 or so.
Hotels that were in the strategic portfolio considerably.
<unk> continued to look to sell those whats kind of your interest level there.
Sure Smedes, let me talk about the process a little bit that brought us the four seasons. They they brought three hotels to market.
There has been public announcement regarding the four seasons trone.
I don't believe I'm in a position to really talk about the other assets given that we signed a confidentiality agreement.
Suffice it to say that we underwrote all three of the properties that were brought to market and.
We just couldnt get our arms around pricing for the other two assets.
And that's why we pursued the four seasons Jackson hole with respect to Jackson hole in particular.
Asset typically would trade.
<unk>.
A multiple that's 15 times EBITDA at or north of it.
EBITDA is elevated and it's had a really terrific run.
The pandemic, it's been discovered by a lot of people, it's a really unique iconic and irreplaceable hotel right at the steps steps.
Steps away from the gondola at Jackson hole.
Then the metrics that we purchased at arm were $13 six times and a six six cap rate on 2022 results.
A couple of things that I think are really relevant when you talk about pricing on this asset.
Are the following.
I mentioned that the.
Jackson Hole airport is undergoing a renovation and expansion with actually closed for three months this past summer.
So that.
Demand into the resort.
Lee.
The property underwent a complete guestroom and bathroom renovation, which caused significant business disruption. So as we look at it.
We believe that too.
2022 performance was actually muted and as that.
Our hotel renovation and expansion wraps up by the end of this year.
We feel that our hotels and resorts can get back to historical levels of occupancy, which is the property is really unique because it is a four season resort.
Four seasons property, but its a four seasons resort that happens to be a ski resort as well with proximity to Grand Teton and Yellowstone National Parks, It's really a unique asset.
We're delighted to own it.
See some asset management opportunities.
Two to create additional value as we typically do when we underwrite a deal and.
We'll see where it goes out going forward for us with respect to the other 12 properties.
TBD, whether or not or when they bring those assets to market.
Again, given our balance sheet and given our relationship and given our performance on this transaction. We think we are really in a strong position to be a buyer of choice for some of these other assets.
<unk> got some terrific properties left like the Ritz Carlton Laguna.
Rich Carlton half Moon Bay.
They have a number of other four seasons properties, including the four seasons in Austin at four seasons in Palo Alto.
So.
I think there are sellers.
I think we are given our balance sheet our strength our relationship I think we are the buyer of choice.
Thank you.
Thank you. Your next question is coming from Shaun Kelley from Bank of America. Your line is live.
Hi, good morning, everyone.
Jim It's Rob just trying to kind of gauge the the.
A sequential pattern in the recovery here, we're seeing a little bit more bifurcation across the space a little bit just as we get into the more mature phase of.
Of the recovery and the bounce back in incorporating groups. So if youre going to have a boil down your outlook for the fourth quarter or just overall trends when we think about leisure.
Group in BT, Theyre, a little bit better for you sequentially in <unk> relative to <unk> and if so what's kind of driving that.
Give us a little bit of color on what youre able to see out over the next couple of months.
Hey, John so.
I'll start by saying like when you look at our fourth quarter our guidance.
Even once you take out the negative impact of Ian we actually raised the guidance Revpar by 25 bps and this is to the midpoint, obviously and adjusted EBITDA by $7 5 million. So obviously when you look at sort of our expectations for fourth quarter.
We continue to be optimistic in terms of all segments of demand.
B P perspective, there hasnt been sequential improvement month over month, and when you look at specifically September for urban downtown hotels, BT was down just 10%.
Which is really encouraging in San Francisco and Denver, as we men Shenandoah in the prepared remarks was actually above 19 level. The New York was just shy of.
A 3% to 19.
And these are rates are holding strong the holiday season is looking really good Thanksgiving is pacing really well with total revenue was actually up 5% with rates up close to 40%. The same holds true for Christmas rates are up 40%.
The only thing on the group side for Q4 to keep in mind, when you think about absolute room room night.
Is a couple of things.
The Jewish holidays, both Jewish holidays.
I fell in September .
In 19, whereas that was split for 2022 one.
Number one in October so that's and obviously have a negative impact for Q4, and so as the midterm elections, which are also going to have somewhat of a negative impact in terms of absolute room nights, but rate is pacing ahead.
<unk>.
Picked up meaningful amount of.
Our group room nights for.
Not only in the quarter for the quarter for Q3, but booked about 129000 room nights for Q4, which is 10% above 2019. So all in all I'm still very positive trajectory have competent and hence we raise our overall guidance despite the impact of yen.
Thank you very much for that and then just as a follow up sorry. If you just go a layer deeper on you talked about the sort of the BT magnitude, improving and getting close and a number of markets yeah, any thoughts or any color you can provide on sort of large corporate activity relative to small we are getting into.
Negotiated rate season, and I believe that that's going to be you know I think Mary I talked about it earlier today being up double digits.
But just can you give us a little bit color on just how they're behaving are you seeing small and medium end to your channel partners delivering more demanded small medium channels than than large corporates are just how people are acting on the ground a little bit.
Sure.
Through the course of the year assay, we have been seeing more uptake awful large corporate groups coming in it started off with more small medium sized and we saw a decent pickup of large what.
We are overall in terms of just tailwind for next year.
People can still remaining is sort of the large associations and citywide business and frankly with.
With the large associations, they all have a governing board, which meets the determine which city they'll hold their events at which hotels the OPEC and a lot of those decisions are going to be made.
Over the next two months. So we expect booking activity on those large association to lead to pick up in the fourth quarter of 'twenty three but overall through the course of the year, we've actually seen.
An uptick in more large larger groups out to what we saw in the beginning of the year, which was more small medium sized groups and frankly the rate is holding.
Rates.
The rates for next year, that's up over 6%, what we have on the books of R. R.
Definitely group room nights that we have on the books.
And on special corporate negotiations that really is still in progress and we had said earlier and so the Madison companies, we expect to end up in sort of the high single digits. Once it's all said and done.
Thank you very much.
Thank you. Your next question is coming from Duane <unk> from Evercore. Your line is live.
Hey, Thank you.
I'm wondering if you could just provide some perspective on how you evaluate capital allocation you know what what is the process or the metrics you use.
To balance you know how to how do we think about incremental share repurchase for versus investing in your own existing properties versus opportunistic asset purchases.
Sure Duane.
We are in a unique position to.
You have the balance sheet that allows us to allocate capital.
And a number of different areas.
As we look at the potential acquisition of an asset like the four seasons Jackson hole.
That property of that nature is not going to.
Come to market on a on a regular basis I really feel that if we hadn't acquired that asset it was likely to be acquired by somebody who.
With likely never sell that hotel so.
Capital allocation decisions.
Are made based on.
Elevating the EBIT growth profile of the portfolio.
Returning capital to shareholders when we think that's appropriate.
And at a moment in time.
This asset was available now and Thats why we liked it too to make the acquisition. So we are going to continue to be prudent in our capital allocation decisions. We're going to look at what we think is the best use of our funds.
As you know we have.
<unk> been very forthright in investing in our portfolio.
From 2020 through 2022, we will have deployed $1 $5 billion of capital.
Our existing assets.
We will have fully repositioned 24.
Properties 16, and the Marriott transformational capital program plus an additional eight that are really outperforming our expectations and creating long term shareholder value, which is really our overriding objective as we think about capital allocation. The revpar gains that we are seeing.
Are generally approaching double digit if not higher and that puts us in a position to outperform the competition and we think that is a really.
<unk> use of capital going forward.
Not to say, if we don't see opportunities down the road.
To continue to use our balance sheet.
We won't be in the market buying back shares.
So.
As I said on the second quarter call. We think this is it trying to be patient to see what comes down the road.
And as we can see today.
A lot of dislocation occurring given the fed meeting yesterday, and what's happening with the pound versus the U S. Dollar so.
We're all in a very good position going forward.
Like the you know the EBITDA multiple on the four season shacks, a whole as well.
At $13 six times for luxury resort.
That we feel is going to outperform going forward and we'll bring that into a stabilized EBITDA multiple of 11% to 13 times over the next several years. So that's how we think about it and you know it's not we don't.
We don't put peanut butter on a piece of toast when we're thinking about how we deploy capital but.
But we look at all the opportunities are available for us.
I appreciate those thoughts Jim and if I could just ask a follow up on on Florida.
You know not not the first time, we've seen storm activity or hurricane activity can you talk about.
Maybe holiday bookings or is it the strength of a peak leisure bookings in Florida.
Ex the Gulf Coast.
And are you seeing perhaps any benefit in properties ex southwest Florida.
This disruption.
Well.
He actually.
We're in a position to move some business from the Ritz Carlton Naples to our four seasons resort Orlando.
Right after.
The hurricane hit we moved to a very.
Sizable wedding group.
For that property.
Rich Carlton Golf Lodge, which was not affected by Ian.
It has been running full out their groups that we had at the beach resort that we moved over there. So that property has really picked up business.
Thanks, Rob can perhaps get into a little bit.
Detail around what we're seeing for the holidays, because it's very strong.
Across the board and.
And then the Naples property is going to remain closed.
Through the balance of this year that 2023, and we're looking at various stage reopening options. When we have more information, we will certainly share that with the with everyone. Coconut point is going to be back in business in the next week or so.
And the only part of that property that is up.
Still in a state of disrepair, Waterpark really which we hope to have back online by.
By April so.
We are fortunate that this happens but.
It's it's the business that we're in and we're very well prepared to.
To manage through the process and to move business to our other resorts.
Didn't suffer any damage with that I'll, let Rob talk a little bit about holiday bookings.
Yeah, there's definitely compression that's happening in the overall, Florida market.
Specifically in any specific market within Florida, but just overall, we are seeing that compression up there what I will say is the business.
Well, we are seeing is you know.
Room nights certainly have picked up in the last couple of weeks, but what's so interesting is that the rates have really gone through the roof.
Well, it's the 19 like I mentioned for our overall portfolio that rate is north of 40% were seeing similar trends of Florida as well.
Thank you.
Thank you. Your next question is coming from Chris where Ranke from Deutsche Bank. Your line is live.
Hey, guys. Good morning, Thanks for all the detail so far.
Yeah, we talked a lot about the impressive room rate growth rate that we're.
Continuing to see.
I haven't heard as much about kind of the ancillary pricing on some of the group business like the catering and things like that and where I'm going with it is I'm trying to kind of triangulate.
Looking ahead.
You've made a lot of progress on margins across the hotels, but next year as we get a heavier group group mix versus this year do you think you have moved margins and prices up enough on the <unk>.
Some of the ancillary groups stuff to kind of offset the impact of cleaning more rooms as occupancy presumably goes higher next year.
Oh, absolutely I think let me start off by saying that banquet and catering business has been very strong for the third quarter. We were up 6% in 2019 on an absolute basis and when you look at it on a per group room night basis, we were up eight 7%. So clearly the folks that are coming into our hotels.
Roofs that are coming in are spending significantly more.
And what's been great is when you look at the food costs in the beverage costs across our portfolio. It is actually better than what it was in 2019. So certainly our managers along closely work with asset managers as well are adjusting menu pricing on a real time basis to really adjust for any inflationary pressure.
<unk>.
So overall, that's how we've been able to as I mentioned in my prepared remarks.
How we've been able to really drive margin performance across all departments and we feel very confident that the measures that we have in place in the long term initiatives that we have worked through over the past.
12 to 18 months are sustainable and do you know.
We definitely are.
Looking at margin expansion going into next year relative to 19.
Yes. Thanks, Suraj. So just a quick quick follow up on that if I can.
You.
When you talk about some of the group.
Revenues are you talking more on pricing increases or is there a way to kind of look at is the take rate or attachment similar or higher than it was on 2019 as well.
It's a it's a both.
Take take rate definitely is higher our groups are definitely spending more than they did and pricing has.
Adjusted as well, but I would say, it's not just a function of pricing certainly we are seeing groups asking for more and frankly buying more pre.
Premium shelf.
Menu items as well as you know premium sort of shell bar options as well that's what they are what they are picking so it's both.
Great. Thanks very much.
Thank you. Your next question is coming from Ari Klein from BMO. Your line is live.
Thanks.
You've made ultra high end properties, our clear focus.
And there are certainly plenty of concerns around the macro and luxury hadn't historically done well in a recession is there any nuance within high end luxury resorts.
That they had differently than the rest of the luxury.
Luxury resorts have consistently outperformed our ultra luxury resorts sorry have consistently outperformed.
Luxury and every other property type.
Overtime. So as an example, as we looked at the four seasons resort Jackson hole.
Looking at the performance of that property from 2014 2019, it had a five 8% Revpar CAGR.
The ultra luxury resort generally had a revpar CAGR during that same timeframe.
Four three.
Four 3% so clearly.
Ultra luxury outperforms and this asset in particular outperforms the.
The ultra luxury set so as.
As we.
We evaluate it back in 2018, the one hotel South Beach first when we first really dug into how ultra luxury.
Performs and how it's performed over time, and we look back as far as 1992 today at a different time frames to see how these assets.
Pulled up during downturns during recessions the only thing I would point out as we sit today is that the one seven trillion dollars.
<unk>.
Excess savings Thats still in the system, 80% of that are in that savings amount is in the upper income brackets. So we're certainly not seeing any pullback on.
Ultra luxury performance.
And I expect that to.
Going forward, it's going to hold up very well, if we were to suffer any sort of slowdown.
What are the assets that we acquired last year.
Which is the four seasons resort Orlando.
At Walt Disney World.
We bought that.
As said I think it was a $16 eight times EBITDA multiple on <unk>.
2019 performance, it's going to finish this year eight times EBITDA multiple on our purchase price. So I think actually is further testament to how ultra luxury is performing the same thing has happened with ventana.
That's going to finish the year at eight times, EBITDA and not see any slowdown.
In booking transit zero resistance.
To ADR growth.
Thanks, and then just.
Rob can you just talk to the remaining 30% are redefining the operating model and maybe the timing around that.
Sure, that's a sort of still evolving.
Mentioned on previous calls part of it is just evolving brand standards and we continue to work with our managers.
Identify brand standards that we can completely eliminate or modify some of it just frankly, just takes a little more time and especially as business comes back to normalcy and you have more of the frequent guests coming back to the hotels.
You just have a better sample set to make those determinations as to what brand standards make sense on a sports.
When we stabilize perspective.
Other piece, which will take a little more time, we are have a lot of proof of concepts and pilots going on at our hotels is just looking at various technology that can drive productivity.
<unk> just overall efficiencies at the hotel whether.
Whether it's incremental.
Revenue or whether it's just reducing expenses all kinds of different sort of pick.
Technologies that we can leverage frankly, that's sort of your test hardware underpinnings to it and you do multiple pilots and see what works best and then you sort of roll it out across the portfolio. So I would say youre looking at probably next 12.
12 to 18 months.
Some of this and in some cases, some technology that probably you know.
Probably 20 months out before we can really roll it out across our portfolio.
Thank you.
Thank you. Your next question is coming from Jay Kornreich from S. M. B C. Your line is live.
Thank you good morning, I guess, taking the flip side of the acquisition conversation as many companies are bulking up the balance sheet and going on the defensive ahead of the possible recession.
Given the uncertainty of the Macroeconomy, what would you need to see to take a more defensive stance and hold acquisitions into Harper more capital to the balance sheet.
Let me start by saying Jay that at this point in time, we're not seeing any signs of weakness in any of our segments leisure group and business transient and that that is not only through the balance of this year, but that's as we look out into.
2023, now of course, we don't have budgets yet for 2023.
Not giving guidance for 2023 at this point in time, but we feel that we're really set up quite well.
<unk> continued to perform.
Outperform as we move into 2023.
We started to see.
Transient ballpark, what we started to see a real impact in the job market. We started to see corporate groups are not.
Bookings are canceling.
We would become.
More defensive now that said I think we're in a terrific position sitting here today at two four times leverage.
We truly have a portrait balance sheet, we don't have any maturities until 2024 and the maturity that we have is a $400 million bond issue in 2020 for that.
Being investment grade.
We're always going to have access to debt markets granted it might be a little more expensive than.
The current pricing, but we're going to be able to to do what we need to do.
<unk> portfolio with the exception I think of two assets is fully unencumbered.
So having been too <unk>.
Been through slowdowns in downturns in the past.
We keep a keen eye on.
Business demand generators, and if we see things starting to turn US out then we will get.
A little more conservative and defensive.
Okay. Thanks for that color and then just as a follow up if you're on the topic of raising capital are there any other assets you highlighted that you'd like to dispose off our markets you'd like to have less exposure to.
Well, we continuously look at what actions, we can take to elevate the EBIT growth profile of host.
And in the context of.
You know the Jackson hole deal.
That does give us an opportunity to effectuate, a reverse like kind exchange.
If we can put a portfolio together and get fair value.
To do that in this market.
It's likely we would have to provide seller financing.
And then we'd be prepared to do that with the right sponsor and on the right terms.
The assets that we disposed of have really gone a long way towards helping us to elevate the EBITDA gross profile of the company.
Even EBIT last year, just to summarize between 2018 and 2022, we bought three $5 billion of assets and a $13 seven times EBITDA multiple and we disposed of $4 $9 billion at 17 times EBITDA multiple and that takes into account close to $1 billion.
And avoided capex.
And it also allowed us to not suffer the attentive business disruption that would occur with that so that is.
Where we would go going forward and.
You know if we can get the right pricing and we have the right sponsor.
Prior to transact additional asset sales over the next.
Six months to a year and a half or so.
Okay. That's very helpful. Thanks very much.
Thank you. Your next question is coming from David Katz from Jefferies. Your line is live.
Hi, Good morning, everyone. Thanks for taking my question you covered a lot of ground, but I wonder if you could just circle back and comment on appetite views perspectives on urban assets.
And you know various sort of ranges of cities.
<unk> leisure slash resort type assets, and how youre thinking about those categories.
Okay.
David It really comes down to pricing and growth.
And if we feel that.
We can buy an urban asset at the right price.
And that it's going to.
Perform.
In a manner, that's going to have to elevate the EBIT growth profile the company taking into account capital considerations and renovations and.
All other items associated with owning a hotel with buying a hotel then.
Yeah.
I would say it in a broad sense, there's really no market that has a red line drawn through it today.
We are going to continue to be really thoughtful about geographic diversification and you know outside of Maui Oahu.
And where we have 12% of our EBITDA coming out of both of those markets. There is no.
One single market in the country, where we have more than 10% of our EBITDA coming out of today in 2022.
The two I believe that at 10% of our Orlando and San Diego two terrific market.
As we think about allocating capital.
I think it's important that we maintain a very geographically diverse portfolio and that we put capital in places, where we're going to be able to generate outsized returns.
Just that simple thank you very much.
Thank you to be respectful of other calls that's all the time, we have for today I'll now hand, the conference back to Jim <unk> for closing remarks. Please go ahead.
Well I'd like to thank everyone for joining us on our call today.
We truly appreciate the opportunity to discuss our quarterly results with you.
I hope you enjoy the holiday season, and I look forward to seeing many of you at NAREIT in a few weeks. Thank you for your continued support.
Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.