Q3 2022 Hersha Hospitality Trust Earnings Call
Our decision to hold the next tranche of dispositions into 2022 allowed us to benefit from the increased hotel cash flows in the first half of the year as market valuations approached our internal NAV.
We sold our seven hotel urban select service portfolio to a single buyer in the first half of the year.
And then transacted on the Pan Pacific Seattle, and the hotel Milo with two different investors through the summer and early fall.
In each case, the high quality of our hotels and the improving cash flow profile allowed us to transact at or near our internal NAV for the assets.
Sales proceeds from this year.
Coupled with the continued operational ramp up and cash flow generated by our portfolio gave our board of trustees confidence to reinstate our common dividend to begin returning capital to our shareholders as.
As noted last quarter, our board continues to monitor and evaluate market conditions and if in the best interest of the company intends to declare a special cash dividend to holders of common shares in limited partnership units in the fourth quarter of 2022.
In closing I would like to reiterate the substantial impact of our corporate initiatives. The board and management team has remained committed to maximizing shareholder value and we remain flexible and opportunistic in our approach our strategies have allowed us to significantly improve our leverage profile reduced the wait.
Average cost of debt in a period of rising interest rates reinstate our dividend and buildup substantial cash reserves without diluting shareholders and while refining our portfolio.
Exceptional locations in the most valuable markets in the nation.
Purchase coastal luxury and lifestyle portfolio and our purpose built New York City cluster are extremely well positioned to continue driving significant cash flow and with few capital expenditures on the horizon. We can continue to focus on hotel operations to drive high absolute revpar on industry, leading margins generating significant EBITDA.
And free cash flow growth in the coming years.
As we've previously noted the valuations at which we have transacted. This year highlight the significant disparity between the public and private valuations of our portfolio. We believe the significant cash flow generation and low leverage profile will drive the closure of this valuation gap, while we continue to return capital to our investors via dividends.
With that let me turn it over to ash to discuss in more detail on our financial performance and outlook, including a deeper dive into our credit facility and portfolio profitability.
Yes.
Great Thanks, Neil and good.
Good morning, everyone. So my comments will focus on the impact of our strategic initiatives on our balance sheet metrics.
Interest expense savings and our debt maturities as well as the performance across the portfolio third quarter progressed and its impact on our margins and cash flow before closing with an update on our outlook for the fourth quarter and October results.
As Neil mentioned, the sales of hotel, Milo, Santa Barbara and Pan Pacific Seattle closed earlier. This month yesterday, we completed the sale of the courtyard Sunnyvale.
The last of the urban select service assets. These closed sales and the pending disposition of the gateway FK have materially improved our balance sheet financial flexibility as we close out 2022.
Concurrent with the close of the first tranche of the urban select service disposition. The company entered into a new $500 million credit facility on August 4th.
The facility consists of a $400 million term loan of which approximately $23 million has been paid down.
From the sale of the Pan Pacific and an Undrawn $100 million revolving line of credit.
The facility bears interest at two 5% over the applicable adjusted terms sulfur.
And the $500 million credit facility matures in August of 24, and has 112 month extension option, which will result in an extended maturity to August 2025.
The company exercised an existing swap to hedge $300 million of this new term loan at a fixed rate of 393%.
As of the close of the third quarter, approximately 72% of the company's outstanding debt is either fixed or hedged through various derivative instrument.
<unk> the rising interest rate environment, the company's third quarter weighted average interest rate of approximately 438% across all of our borrowings was down from nearly four 7% prior to the refinancing with a weighted average life to maturity of approximately two and a half years.
We've utilized.
Our loan extension on the only mortgage maturing this year on the Hilton Garden Inn, Midtown East in New York, and we have no significant maturities due until 2024 at which time a handful of our individual property level mortgages come due.
And based on the improving cash flow and profitability at all of these properties.
We envision no issue extending these loans in a favorable fashion.
As we move into the fourth quarter, we maintain a significant amount of financial and operational flexibility.
The projected cash balance exceeding $225 million and a $100 million Undrawn line of credit.
With this level of cash on hand, we may also consider paying down or paying off some of our floating rate debt either from the term loan or property level mortgages in 2023.
With a reduced debt load and significant cash flow from the portfolio. We are on track to bring our net debt to EBITDA to four times or below as it was our prior stated goal and projected stabilized lower into 2023.
With that I will transition to our performance in the quarter. The company has 26 comparable hotel portfolio achieved revpar that was slightly above 2019 level. The first quarter to surpass 2019 performance since the beginning of the pandemic.
As we progressed through the quarter, we saw increased midweek demand driven by business travel this demand accelerated in September as non resort weekday ADR increased nearly 27% from August to September .
Approximately $325.
Exceeding our non resort weekend ADR for the month.
As Neil mentioned each of the portfolio has demonstrated significant pricing power in the third quarter as all but one market experienced double digit ADR growth from 2019.
These robust pricing conditions in tandem with our continued focus on efficient operations and strategic asset management initiatives resulted in another quarter of very strong profitability as the comparable hotel portfolio generated just under $31 million in EBITDA and.
An increase of eight 4% to third quarter 2019.
This was reflected in our margins as our comparable hotel EBITDA margin of 32% was 249 basis points higher than third quarter 2019.
Despite ongoing recovery still taking place in the business transient small group and international travel segment, our non resort portfolio was able to achieve 71 basis points of EBITDA margin growth in the third quarter.
In Boston, the envoy inbox or grew EBITDA margin by 327, and 153 basis points respectively.
While the boxers EBITDA of just under 750000 with six 2% greater than the third quarter of 2019.
Washington D C. Our Ritz Carlton Georgetown generated 848 basis points of EBITDA margin growth for the quarter.
The urban luxury segment continues to show resilience into the fourth quarter.
Our New York portfolio generated nearly $10 million in EBITDA, and 180 basis points of EBITDA margin growth in the third quarter.
Multiple assets in the portfolio are more profitable than pre pandemic levels. This past quarter Hyatt Union square generated over $2 million and EBITDA, 4% greater than 2019, with 495 basis points of margin growth to nearly 35%.
New Hotel Brooklyn recorded just below a $1 million of EBITDA for the quarter a gain of over 10% for 2019.
EBITDA margin of nearly 51% was up 558 basis points to 2019.
In White Plains, our Hyatt house generated EBITDA of approximately $1 $5 million or 25% increase to 2019 with EBITDA margins of 44, 7% an increase of 346 basis points.
We were encouraged with the strong performance and continued profitability of our resort markets in the third quarter in total our resort portfolio generated over $11 million of EBITDA for the quarter.
With EBITDA margins, just under 31% an increase of 704 basis points to 2019.
The strong performance has accelerated into October .
With our resorts expected to generate over $5 million of EBITDA in the month alone with EBITDA margins above 35%.
Over 1000 basis points higher than 2019.
In total and in the fourth quarter, our entire resort portfolio is on pace to exceed EBITDA production.
The fourth quarter of the record setting 2021.
We are encouraged by our month to date figures in October our comparable portfolio ADR and Revpar is currently trending approximately 20% and 8% respectively above October 2019, with the majority of the outperformance in our urban.
Non resort properties.
Looking ahead to the fourth quarter, almost all of our non resort markets will produce the fourth quarter of 2019, and Revpar and profitability.
As you may have seen in our recent earnings release with the closure of the majority of our dispositions and refinancings, along with a more stable outlook, we reinstated financial guidance for the fourth quarter.
We estimate our fourth quarter revpar to be between 217 in $227 and adjusted EBITDA.
To be between 28 to $31 2 million.
On a comparable base portfolio basis, we are forecasting EBITDA margins to grow by 200 to 300 basis points to be between 33% 34%.
We are also forecasting that our fourth quarter adjusted <unk> will be between $14 9 million and $17 9 million or <unk> 32.
<unk> 39 per share.
Executing our strategic dispositions has allowed us to right size, our balance sheet with ample amount of cash on hand, and with no meaningful maturities or capital projects required in the near term we remain focused on operational performance our streamlined portfolio is already outpacing prepay.
<unk> profitability and we project further cash flow growth as we pivot to a more normal operating environment than we have witnessed over the past three years and with a significant reduction in our interest expense going forward.
This should continue to drive our leverage profile, lower allowing us to be more strategic and entrepreneurial as we continue to unlock the value of our portfolio and maximize shareholder value.
So this concludes my portion of the call and operator, we're happy to address any additional questions.
That the participants may have.
As a reminder, if you'd like to register in order. Your question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by two and please ensure you are muted when speaking.
Our first question comes from Michael Bellisario of Baird. Michael. Please go ahead.
Thanks, Good morning, everyone.
Good morning, Mike.
Just wanted to go back to the fourth quarter guidance.
Thanks for the commentary on October .
Can you maybe help us understand and I guess, maybe what's embedded in the <unk> outlook for <unk>.
November and December , particularly on the top line relative to 2019 levels.
And then where you are seeing.
Particular pockets of strength around the holidays in those two months.
Sure let me start.
So as I mentioned for October <unk>.
Seeing rates that are.
Little over 20% above 2019 overall revpar that is.
Around 40% above 2019, occupancies for the comparable portfolio are.
Just a little on <unk>.
Around 1000 basis points lower.
In 2019, so with that mix shift we are seeing very very healthy EBITDA trends in October as we look into November and December .
Because we would expect you start seeing.
That the results aren't going to be as strong from a top line in November and December October is the best month of the quarter, but we're still seeing very healthy growth.
Both in our urban markets as well as we see continued strong growth and forward bookings at our resort properties.
I would expect that base.
Based on our forward guidance our top lines.
Be in the mid single digit growth rates for both November and December .
For the comparable portfolio.
Probably slightly below October , but still somewhere in that 5% to 7% range.
Got it that's helpful and then.
Maybe a clarification there on the comparable.
Comparable 2019 metrics you talked about $194 Revpar for 2019, I assume that's not comparable to the guidance you gave because the guidance is for 23 hotels, where the 194 as for 'twenty six correct.
Yes that is correct our guidance is for the comparable portfolio of 23 hotels.
Got it that's helpful and then last one for me just.
For neon.
Corporate negotiated rates.
What youre hearing from HHS and kind of what expectations are for your properties as you look out to 2023 on the business transient side.
Okay.
I think we're still in the middle of kind of operating plans and budgets and the finalization of Rfps.
Like the kind of irregularity of that calendar has been disrupted through the pandemic and is starting to find its kind of normal footing than normal ground, but it's still a little bit early to comment on on next year's pricing, but what we have seen across the last several months has been a significant meaningful pickup in large corp.
But demand in each of our urban gateway markets it's been.
I think we started talking about it probably in the second quarter that were starting to see the return of pharma and consulting and technology and mass in New York and Boston It was a little slower to return to Seattle, Washington, Philadelphia.
But by October we are now seeing that really.
Hitting on all cylinders, where we're getting very strong.
Locally negotiated rate.
Utilization is still a question for next year at what level, but rates have been at higher than 19 levels and for the fourth quarter in New York in most of our urban markets.
We are expecting more LNR contribution locally negotiated rate corporate contribution than we did in the fourth quarter of 2019.
So it is very robust the trend is strong.
But still just a little bit early to comment on 'twenty three.
Fair enough. Thank you.
Our next question comes from Dori Captain of Wells Fargo. Please go ahead.
Thanks, Good morning.
The first quarter you provided some guidance.
Can you just tell us what the relationship between your monthly budget versus actual results have been of late.
<unk> tightened.
Yes, sure absolutely so I think that.
After the first quarter of this year in the first quarter. As you remember was just so affected by omicron and continued shutdowns for from Covid and other other issues, we have been tracking very close to our internal budget on a portfolio wide basis for the second quarter.
And for the third quarter.
As you noted lots of activity in the portfolio very difficult to provide guidance when we have.
Most of our entire debt stack being refinanced as well as all of the disposition activity.
With the closing of almost all of these assets now.
Only have gate JFK remaining.
We're looking at closing in the next few days.
On that asset along with just continuing is continuing to track very close to our internal financial forecast. We thought it was an appropriate time to reinstate guidance.
Okay.
And then you're more leisure heavy market.
Right that's trended over the last few months when you look out to the Thanksgiving period.
Okay.
For Thanksgiving and new year's.
In South, Florida, very strong Miami Beach Coconut Grove.
Parrot key all showing pace are pacing well ahead.
For the fourth quarter versus 21 as well as versus.
19 by a huge margin Miami Beach, and coconut Grove are clearly the.
Are the big Outperformers, there as we look on a day by day basis, I think we're probably a little more vulnerable to a deceleration in kind of.
Revpar growth in Paris.
Parrot key in key west.
Just as.
A little bit more of a dedicated.
Resort destination versus Miami Beach, which has events.
An emerging kind of commercial base convention calendars, and just a multiplicity and diversity of demand that is allowing for continued.
Rate and occupancy growth.
As we look around the rest of our resort portfolio, which <unk>.
<unk> the Annapolis waterfront hotel I'd mentioned, some things in our prepared remarks, but.
Patient is very strong going into fourth quarter and into.
The new year those are seasonally low periods for the hotel, but we're looking to perform better than we have for the last several years.
On in.
Other parts of our resort portfolio on the West coast were continuing to see very strong and sanctuary very strong.
Our pace for our outlook for the next several months.
On occupancy it is.
Probably we're at kind of up.
Very even level of pace to pre pandemic levels.
So.
So the resorts are generally holding up very well and particularly Miami Beach in Miami.
<unk>.
But the big story is really the urban recovery and Thats, where were seeing the leaps and bounds kind of growth.
Okay. Thank you.
Our next question comes from <unk>, <unk> of BMO capital markets or the loan issues.
Thanks.
You mentioned the flexibility the financial flexibility that you have how are you thinking about the potential to maybe be acquisitive and balancing that with potentially paying down some debt and then what do you think from a hotel pricing standpoint, given the recent movement alright.
Yeah.
Yes.
I can get started.
I think the transactions market has clearly been significantly impacted by the credit market Despite hotels performing.
Better week over week month over month, the trailing 12, improving every day.
There has been no.
Nearly kind of like a really major stopped to transactions across this summer.
That said there are still transactions happening.
We've demonstrated we were able to transact on these two assets without any kind of discount or any other kind of.
Acknowledgements of where the world does that.
There is a view.
Among investors that for special unique opportunities.
It's worth.
Kind of over <unk> deals, but but it's the few and far between I think we will hear about across the next few months, we will hear about several other luxury resorts trading at very attractive kind of $1 million plus a key in some cases 2 million plus a key but they are exceptional very unique.
Assets that.
<unk>.
That are getting done, but the more kind of en masse transactions market.
More commodity oriented assets or assets that have.
Cash kind of disruptive value add kinds of opportunities those are all kind of stopped right now the financing market.
We'll see when it improves and I think that will be the kind of big next.
Catalyst for the transactions market improve but there are there are.
It's been slow.
Is the main point.
As we look at acquisition opportunities to your question, we're still not seeing a major change in sellers' expectations on prices.
I think.
Two just how I started that performance continues to get better month over month, so unless there is a forced seller for some reason.
A debt maturity.
Our swap our cap extinguishment, a major renovation required.
We're not seeing a lot of sellers reduce their pricing expectations. So in that environment without a major change in pricing, we are not seeing anything attractive enough to really lean in on the acquisitions front.
We do have the financial flexibility to pay down debt too.
To pay down preferreds, if that made economic sense.
We have the ability to to increase our dividends.
And we have the ability to keep more cash on hand for a very uncertain environment and so we feel very good about our.
In this highly uncertain environment, it's good to have flexibility.
And to not be in a.
And in a rush to do anything and so I think we've delivered on a lot of asset sales, we've reduced debt to a level that.
Our leverage profile is very attractive and and at this stage for the next quarter or two we're just going to focus on the internal portfolio and driving cash flow.
Thanks, and then just there's been a lot of progress on the margin financing of that second 40 basis points higher in the quarter. How are you thinking about that next year, where the results will presumably be driven more by occupancy rather than rate.
Yes.
When we look out into 2003 or even one thing we have to remember is just how much of this portfolio was impacted in the first half of the year.
Our New York portfolio was running 40% for the first quarter.
Much lower rates most of our business markets really didn't start turning the corner until may or June of this year and we're still somewhat disrupted so.
We think that.
What we're seeing in the third quarter fourth quarter is just very strong pricing power.
Our staffing levels.
Around 75% to 80%, which.
Could probably go a little bit higher as occupancy grows but with that kind of pricing.
Still don't think that we will be it will.
We will be pushing to pre pandemic occupancies in 2023 or 24, we like the mix shift the way it is.
A lot of room for margin growth going into 'twenty three.
Got it thanks for the color.
Our next question comes from Tyler battery of Oppenheimer, So I'll, let alone that yours.
Good morning, this is Jonathan on for Tayo.
Thanks for taking our questions.
First one for me.
One is a follow up to the last question, but understanding you guys have been giving guidance required can.
Can you help us walk through your thinking on the year.
Sure Hi level, what could accelerate further or potentially decelerate from the trend lines that we've seen in.
The third quarter, and so far in fourth quarter.
Just overall, how you see things moving through the year again at a high level.
When he gets serviced.
Yes, good morning, Jonathan I think as we look into 2023, I mean, we will be providing guidance in February when we do our.
Fourth quarter call I think as we sit here today, we see that the first half of the year.
And especially the first quarter, we're going to see significant outsize growth to 2022.
We're <unk>.
Very affected in our urban markets.
With omicron and just travel disruptions.
<unk> said its going to be occupancy rate kind of across the board in all of our markets I would envision that we get a little bit more normalized comparable outlook for the third and fourth quarters of next year.
And.
But at the same time, we are probably expecting still expecting significant growth in our urban portfolio luxury portfolio and in our resort markets I think it's going to be.
Still healthier trends from an ADR perspective than 2022, but we wouldn't see the type of growth that we would envision at urban non resort properties.
Yes.
Thank you for all the color and then switching gears a multipart question on the common dividends.
Additional details you can share there in terms of what factors were contributing to that decision why do you think that level is appropriate and I'm also interested in your perspective on potential payout ratios going forward as well.
How do you think about the right payout ratio over the right level.
Entertainment today versus pre Covid, given all the movement in the portfolio over the last year.
Yes.
Sure.
The decision to reinstate the dividend it was partly due to.
As you've seen in our quarterly release, we generated about $170 million of taxable gains from the sales that would go up.
Somewhat from the sales of hotel Milo and the others for the fourth quarter. So in order to be in compliance with our <unk>.
REIT tests, we will be.
We did have to pay a dividend for this year, we thought that starting a quarterly made sense as we are seeing significant cash flow growth from all of our disposition of our refinancing efforts as well.
But as Neil had mentioned, we do plan to pay a special dividend. This year. The range that we had quoted before of between 25 and <unk> 50 a quarter.
Bill holds until the board makes any other decisions.
In the fourth quarter, we do think it'll be closer to the high end of that range at this time.
But that would be a decision that the board makes based on our fourth quarter outlook at the time as well as our 'twenty 'twenty three outlook in mid December .
Going forward our payout ratios.
Will.
We will adjust them, but it will probably if you think about our EBITDA forecast <unk> forecast for this year.
Our payout ratios there'll be very low kind of it I.
I think they would come in around 20% or so I think they would be higher going forward, but we just need to see a little bit more.
Stable operating environment to really start talking about raising the quarterly dividend.
Got it understood. Thank you for all the detail that's all from me.
Okay.
Our next question comes from Bryan Maher of B Riley Securities Brian . Please go ahead.
Good morning, maybe.
Maybe picking up a little bit of questioning on the transaction market and some big picture stuff. Clearly you guys have made some great progress on selling assets and delevering, but what is too small of a REIT.
We're getting smaller now it doesn't seem like youre going to be able to go on offense anytime.
Real soon.
What are you thinking about the portfolio size over the next couple of years and maybe any thoughts on divesting the west coast and just focusing on Miami to Boston can you give us some big picture thoughts on where this portfolio is growing.
Sure Brian .
Brian I think across the pandemic.
Sure.
Strategic plan, if you will our goals and our strategy was very much aligned on.
On creating.
Liquidity.
Creasing financial flexibility and.
And doing so in a way that wouldnt impair long term value for this portfolio.
And so we've leaned in a highly disrupted environment, where we are trading at at different times across this last couple of years, we've traded at.
70%, 80% discounts to NAV, where it may be back to 30%, 40% discounts now or but really meaningful discounts in that environment.
It was it seemed clear as day that the lowest cost of capital is to sell your most stabilized.
Hotels, the hotels that you have concerns about growing at the same rate as.
The the best hotels in your portfolio.
Hotels that have capital requirements that will not only disrupt cash flows but creates some uncertainty about their long term.
Value creation opportunity and so we were able to in 'twenty one.
20 to sell hotels that we felt.
We're effectively.
Non core to our.
Sure our portfolio and we've been able to do that we're now at a point where.
We have a healthy leverage profile, we have cash on hand, and we have the ability to be opportunistic both on the buy side as well as on the sell side.
Yes.
We are today and perhaps.
Another level of kind of peak uncertainty in the world again.
I think we all hope that that will normalize.
Normalized across the next couple of quarters and.
And help us all kind of decide on strategic direction moving forward at that point, but right now we're still in a period of great uncertainty. So we're not ready to.
To have a strict plan on what our portfolio is going to look like.
We've talked over what you've seen us sell has been.
Hotels that that required capital requirements or werent truly differentiated.
And where we are today in our portfolio if you see our positions in each of our markets. They are.
Our are lumpy.
Luxury and lifestyle hotels that are kind of best in class and have been able to drive.
Significant ADR growth because they are on trend for where today's market is.
We've mentioned that New York City remains a market that we have a outsized exposure to now thats going to serve us very well in.
In the third it did in the third quarter. It will in the fourth quarter and I think its performance versus Q1 and Q2, just the comps for those markets are going to be so significant are so easy I think we have a really good tailwind in New York I think thats a market that we are we will be open minded and opera.
<unk> and selling assets as the market pricing returns there.
I think that's the only place I would I would say Brian that were.
Still listening to inbound offers actively but we think it's still a couple of quarters away for that recovery.
And and we feel comfortable with where the company is at right. Now you said, how small is small I think you can't make that call in the middle of an environment like this I think across the last two to three years, we've reduced our SG&A by nearly I think 2025% versus pre pandemic levels. So we've right sized.
That side of the house as we've sold about 30%, 35% of our pre pandemic EBITDA.
And so were you can't make it in lock step all the time, but but I think we've done a good job of aligning the organization with.
The scale of the company and I'll leave it at that Brian .
Thanks, I appreciate those comments.
Our next question comes from Bill Crow of Raymond James. Please go ahead.
Hey, good morning, guys. Congratulations on all the hard work achieved over the last quarter.
We are too.
Question, if you just simply to bucket your portfolio into two which which is effectively what you.
You've done in the street is doing it and you think about the.
South Florida.
Portfolio.
You think it's.
You think it's possible that ADR could be flat or negative next year, given the difficult comps that we have.
This year and last year.
Bill.
If you divide it as if you divide it like you're suggesting right now kind of like South Florida versus the northeast.
We don't think so because in south Florida, like our South Florida portfolio includes Miami Beach, and Coconut Grove, which we believe has.
Have <unk>.
Positive.
Pricing power and occupancy growth ahead in 'twenty three.
Based on convention calendars based on pace based on.
Group interest as well as this emerging commercial sector.
In the marketplace.
We're we feel a little bit more sensitive is a kind of is more of a pure resort market like.
Key west.
But even in key west as we go into fourth and first quarter and fourth first and second quarter, which is kind of peak periods for for this marketplace right now we are pacing very well on.
Particularly on ADR, well ahead, but on occupancy as well so right now I think.
That vulnerability I think lies for kind of pure resorts, which we don't have that many of really.
Because if you think of Annapolis waterfront. It has a mix of demand generators, the mystic Marriott Hotel and Spa in Connecticut has a mix of demand generators, but if you take like key west and sanctuary on Monterey I think the vulnerability there is seasonally slow periods, that's where.
Maybe we benefited from the work from home dynamic and people were occupying these hotels at times that.
Their bosses hope they were elsewhere.
But that's why we did it.
But so so for us if you divide it that way, it's really south Florida is still a market that we're expecting strong performance in the coming year.
That's helpful.
I can't really think of it is.
Oh, no I'm sorry.
Go ahead.
No I was just going to say hey, we have we often divide the portfolio kind of urban resort.
And.
And that would just broaden it beyond Miami and <unk>.
<unk> West.
But as I just mentioned, we do expect resorts to moderate.
But 60% 70% of our portfolio is urban.
And Q1, and Q2 was highly disrupted by Amazon. So we're going to have 1500, maybe even 2000 basis points of occupancy growth across those quarters.
And so that's what gives us some good confidence going into next year, it's because of what our portfolio looks like.
Yes.
I think one of the questions that Brian threw in there that I'm not sure. It got answered, but I have the same question, which I think youre down to one asset or two assets on the west coast now.
Sales.
Is there a reason to keep one asset.
Given your focus on G&A reductions and things like that.
Does it make sense to have one asset on the west coast.
If we get that we have two assets, we have the Santa Monica Ambrose and we have the sanctuary Beach resort in Monterey.
And.
And I would I don't think.
We're not in a.
In our particular rush, because it's so hard to kind of operate them or oversee them.
And so it will really be like our other assets in our portfolio can we achieve.
By selling it today.
That would be more of the driver than the state of California or the distance of it.
But we are we're always opportunistic, but it's really based on pricing more than based.
Based on geography right now.
Okay.
Alright, I appreciate it thanks.
Yes.
Our next question comes from Chris <unk> of Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for all the details so far I guess I just wanted to ask about the hurricane impact in so far as.
You mentioned I think Q4 impacting both key west Miami I guess, we thought maybe some of that key west just shifts over to Miami is that not what you guys are expecting.
You mean from like the hurricane in impact or yes, so that people with reservations in key west might just move over to <unk>, which doesn't have.
Sure.
Yes, Unfortunately like when the Hurricane was coming no one knew what was going to happen and so there was fear that it was going to hit Miami and key west.
So we had a major group canceling not cancellations in the middle of their their experience at the coconut Grove.
Spent two days, but then they they last midway through.
Folks in key west that had bookings in key west canceled if they had them for late September early October .
They were just pushing it pushing off travel.
We thought maybe we will get a little bit of benefit from after the hurricane happier. Once it was clear it is not coming to Miami key west it's going to the West coast of Florida that we would get some demand that was planning to go to the west coast would come to the East coast.
And we did get like little bits and bobs, there, but it wasn't that significant at the Ritz Carlton Coconut Grove I think we're still getting that like because the rich Naples is closed right now and there's so much impact in the west coast, we're getting a lot of group, but it's not that significant.
So I think it was just first couple of weeks, we lost 500 $700000 from Hurricane impact did we get anything back the rest of the month, probably a little bit here and there, but not much but we're grateful that.
We werent impacted by the hurricane physically and disruption and.
And kind of customers being very fearful of the market and things. So we are we feel good about it but but it did have an impact Chris.
Okay Fair enough and then.
Second question is.
You've talked a lot about recovery really started to ramp up more in Europe markets, which kind of makes sense. If we look at urban rates versus resort rates, both comparable to 19.
And then you guys have more little bit more select service urban than maybe some of your peers, but are you.
There doesn't seem to be an expectation that urban guests gets up 40% rate right is that is that an affordability issue for some is it a mix issue just trying to maybe put some some boundaries around how good urban rates can get when they when they peak out whether that's next year or some other time.
Mhm.
Yes, I think that's fair, Chris we're looking at rate growth in the fourth quarter as I mentioned October is up 20% ADR for the months, but that is still.
It's still double digits in the urban markets, but it's like over 25% in the resort markets.
We don't have a view that our urban properties will be up in ADR, 30%, 40% in the next in the next year I think that's what we've been seeing in the resort properties since the beginning of this pandemic.
We do think that theres going to be healthy ADR growth into next year, but no.
We're not forecasting 30, 40% type of growth rate.
Do see you'll have months easily up 10 to 20, 25%, even sometimes but it's but I think it's yes, it's lower double digit kind of growth like 10% to 15% kind of ADR growth.
And for our portfolio. It is you brought up a good point are New York City portfolio.
Is still primarily select service the exceptions, there the Hyatt Union square and the New Hotel Brooklyn.
The experience in these major cities is very different in urban markets like the luxury and lifestyle is able to.
Very meaningful ADR growth, so kind of over 20%. If you look at a rich Georgetown or the envoy Boston or the Hyatt Union square those hotels can drive very meaningful ADR growth because they are capturing this leisure trend.
That is out there.
<unk>.
And so it is different market by market for us but.
But youre right its not the same level of growth, but still very meaningful.
Yes, yes for sure Okay very helpful. Thanks, guys.
Okay.
Our next question comes from Anthony Powell of Barclays. Anthony. Please go ahead.
Hi, Good morning, maybe a follow up on the urban great question.
What will it be compression like squamous.
You can see rate growth this year without any compression.
We define so.
Do you really need compression to come back next year year after to really get urban rates up to those kind of light levels, we're seeing in the resort side.
Yes.
I think that it's just a different dynamic right like we are still running.
<unk> hundred 70 <unk> type.
Type of rates and a lot of these markets in September October and.
And we're getting healthy rate growth, but.
To envision like New York for US traditionally ran between 90, 495% occupancy.
Once you get past January or February .
And then we still couldn't get rate growth in a market like New York because of just new supply different rate strategies people kind of employing this heads in beds, Patrick and I think the entire industry has just moved away from that and looked at it as <unk>.
We'd rather take a little bit lower occupancy I don't need to run, 95% I don't need to run 100%.
My cost of increase through the pandemic and I'm just going to be more.
Vigilant on keeping rates high.
Don't know if we could look at that and say, but theyre going to be 40% higher or 30% higher the way resort tour.
So I still think we will see healthy trends I just think the mix shift is going to be a lot different going forward, which is going to drive.
Kind of <unk> type of flow throughs on Revpar growth.
Because youre just going to have.
Less occupancy higher rates are much better margins.
So it is going to lead to significant cash flow without seeing 30% rate growth.
Okay. Thanks, and then maybe one more I mean, you talked you just talked about we got some lifestyle luxury doing a bit better than the markets. Another one of your peers that the same thing.
Are you starting to see that may be reflected in the transaction environment or do you expect to expect to see that in <unk>.
<unk> play a role here, our brand more or less effective in driving this trend or is it really just all about location.
Hotel reputation.
Sure.
I do think it's more about hotel and reputation and location.
The size and experience levels is also a very big driver of it.
And and I think it is a.
It's a benefit of kind of leisure demand or maybe may bleser demand like this kind of new environment for folks that have the flexibility to wear to work. They also have the ability to choose well.
They choose where they want to stay and where we're going to have their small group meeting or their retreat and so that has been a key driver in our portfolio and it's something that we've been working on frankly for even well before the pandemic and moving our portfolio to more of an experience oriented more luxury luxury driven.
And selling our more commoditized hotels.
It is coming true.
In the transactions environment.
It's we're still not seeing that many urban transactions I think what we started seeing first was urban transactions like with cash flow was the kind of.
Beginning part of 'twenty two late 'twenty, one you'll start to see deals like that.
Our urban select portfolio had cash flow it could provide positive leverage.
And that was something that kind of got.
Major investors.
Motivated to do something in an urban market. When there was still so much uncertainty around work from home and around safety and <unk>.
And conditions in cities.
I would expect that in the coming year, we will start to see.
More transactions in the luxury and lifestyle space I think it's they're cash flow comes a little bit later, but then when it comes it can really come fast and that's what we're experiencing right now.
The transactions that you're kind of <unk>.
Implied in one of the other questions there.
<unk>.
I think there are a few trades that will be announced that are.
More resort oriented, but there are some that are a little bit closer to some cities in.
There are luxury hotels trading at.
At very big value. So I think we're getting closer to that I think you also need the international buyer to come back for some of those kinds of transactions and we are hearing more and more European Asian, and middle Eastern investors shopping.
We're talking about shopping.
For U S Hotel real estate.
So not yet Anthony but it's but we expect next year that could be a that's where we may see some some.
<unk> transactions.
Thank you.
We have no further questions on the phone line, so I'll hand back for any closing remarks.
No with no more questions, we'll just take a moment to thank all of you for your time this morning.
All of us youre going to be here in the office and available to answer any other questions that you might have.
But thank you for your time today.
This concludes today's call. Thank you for joining you may now disconnect your lines.