Q4 2022 Host Hotels & Resorts Inc Earnings Call
Good morning, and welcome to the host hotels and resorts.
Fourth quarter 2022 earnings conference call.
Today's conference is being recorded.
At this time I would like to turn the call over to Jamie markets.
Senior Vice President of Investor Relations.
Thank you and good morning.
Before we begin please note.
But many of the comments made today are considered to be forward looking statements under federal Securities law.
As described in our filings.
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 thing.
In addition.
On today's call, we will discuss certain non-GAAP financial information such as F. F. L X.
Adjusted EBITDA Ari.
Hotel level results.
You can find this information together with reconciliation to the most directly comparable GAAP information in Yesterdays earnings press release.
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 are Jim <unk>, President and Chief Executive Officer, and Sara Gosh, Executive Vice President and Chief Financial Officer.
With that I would like to turn the call over to Jim.
Okay.
Thank you, Jamie and thanks to everyone for joining us this morning.
We ended the year with strong operating improvements across our portfolio driven by continued rate strength.
The full year 2022, we delivered adjusted EBITDAR or E $1.498 billion, all owned hotel EBITDA of $1.573 billion in all owned hotel revpar of $196, which help.
To achieve the high end of our full year 2022 guidance range.
During the fourth quarter, we delivered adjusted EBITDAR, our E M $364 million and adjusted <unk> per share up 44 cents.
Are all owned hotel EBITDA of $373 million in the fourth quarter was 5% above 2019.
Driven by rate strength out of room revenues and expense efficiencies, resulting from operating improvements.
All owned hotel Revpar for the fourth quarter was approximately $197, a 60 basis point improvement over the fourth quarter of 2019.
As a reminder, fourth quarter operations were impacted by hurricane in yet Revpar, all owned hotel EBITDA and EBITDA margins exceeded 2019 levels for the third consecutive quarter since the onset of the pandemic.
<unk> hotel revenues in the fourth quarter were up one 1% over the fourth quarter of 2019, while all owned hotel operating expenses were down 40 basis points.
In addition to delivering strong operating improvements over the course of 2022, we continued to be recognized as a global leader in corporate responsibility.
While we work toward achieving our 2025, environmental and social targets. We introduced our 2050 vision of becoming a net positive company, which are detailed in our 2022 corporate responsibility report.
We now have a total of 10 LEED certified properties, including three LEED gold hotels across our corporate headquarters. In addition, we were named to the Dow Jones Sustainability Index World, which recognizes global sustainability leaders across all industries for the fourth consecutive year.
And we were included in the DJ outside North America for the sixth consecutive year.
Additionally, we were once again included among the world's most sustainable companies in S&P's global sustainability yearbook, and named one of America's most responsible companies by Newsweek.
Subsequent to quarter end, we amended and restated our existing $2 5 billion dollar credit facility to further enhance the strength and flexibility of our balance sheet.
The Green the agreement reflects no increase in pricing and incorporates our industry, leading commitment to ESG by adding incentives linked to port portfolio sustainability initiatives, including Green building certifications and renewable energy consumption.
On the capital allocation front during the fourth quarter, we repurchased one 7 billion shares at an average price of $15 93 per share for our common share repurchase program, bringing our total repurchases for the quarter to $27 million.
We have approximately $973 million of remaining capacity under the repurchase program.
While macroeconomic headwinds continued to dominate the headlines we remain optimistic about the state of travel for several reasons.
First although leisure rates are moderating they remained well above 2019 levels.
Our contacts transient rates at our resorts were 52% above 2019 in the fourth quarter compared to 64% in the third quarter.
Second in the fourth quarter, we booked 400000 group rooms for 2023, and total group revenue pace is down only 70 basis points at the same time 2019.
Third while business transient demand has been uneven revenue driven by this segment improved 440 basis points compared to 2019 on a quarterly sequential basis.
<unk> and medium sized businesses are driving the business transient recovery and they represent a larger share of our corporate demand today.
According to American Express global business travel transactions by this segment reached 80% of pre pandemic levels in the third quarter.
Our recent acquisitions continue to contribute to our outperformance and are substantially ahead of our underwriting expectations.
Based on full year 2022 results.
EBITDA from the seven hotels, we acquired in 2021 put us at the bottom end of our targeted range of 10 to 12 times EBITDA well ahead of our planned stabilization period.
Looking back on our transaction activity since 2018.
We have acquired $3 $5 billion of assets at a $13 seven times EBITDA multiple and disposed of $4.9 billion of assets and a 17 times EBITDA multiple including $954 million of estimated four guide capital expenditures.
It is worth noting that this quarter, we moved the 2017 comparison of our all owned hotel results from 2019 to 2022.
Our 2022 results reflect more normalized operations.
Comparing all owned hotel 2022 results for our current portfolio to 2017, we have increased our revpar by assets by 9% Revpar by 15% the EBITDA per key by 31% and avoided considerable business disruption associated with cap.
Little projects.
Moving back to fourth quarter operations and sturdy when they hurricane update we estimate that hurricane in impacted our fourth quarter Revpar growth by 220 basis points, our adjusted EBITDA by $15 million and are all owned hotel EBITDA margin by 40 basis points.
On a full year basis that translates to in all of our owned hotel Revpar impact of 60 basis points and all of our owned hotel EBITDA impact of $18 million and at all of our owned hotel EBITDA margin impact of 10 basis points.
As a reminder.
The Hyatt Regency coconut point opened in November and we expect to reopen the remaining pool facilities and water Park in June the.
The Ritz Carlton Naples remains closed and we are targeting a phased reopening strategy beginning this summer.
Construction at the Ritz Carlton will enhance the resilience of the property by elevating critical equipment, introducing drive flood proofing measures and replacing major equipment with more efficient machinery.
In addition, while the hotel is closed.
We're avoiding future disruption by executing planned capital projects that would have otherwise impacted operations.
While we are still evaluating the total financial impacts of the storm. We currently estimate the total property damage and remediation costs for all impacted properties in Florida.
Between $200 million and $220 million.
We are insured for $325 million per named windstorm, with a $15 million deductible, resulting in potential insurance recovery of approximately $310 million for covered cost.
Based on our current reopening plans for Ritz Carlton Naples, we believe our insurance coverage is sufficient to cover substantially all of the property damage as well as a near term loss of business. Thus far this year, we have received approximately $50 million of insurance proceeds related to our clients.
Continuing with fourth quarter results.
Transient revenue was up 60 basis points compared to the fourth quarter of 2019 with strong rate increases, making up for the volume shortfall, resulting from lower business transient demand.
Cancellations during the holidays colder weather in Florida, and Hurricane displacement at Hyatt coconut point and Ritz Carlton Naples Rev.
Revenue growth was driven by Orlando, Phoenix, and Hawaii, which offset declines in San Francisco and the Florida Gulf Coast.
Our resort properties continue to outperform with 13% transient rate growth over 2021.
In the fourth quarter, we had six resorts with transient rates about $1000 led by the four seasons Jackson hole at over $2200 and the four seasons Orlando at close to $2000.
Turning to group. This is the second consecutive quarter group revenue exceeded 2019.
By 10% rate growth.
In the fourth quarter, our hotel sold 954000 group rooms, bringing our total group room nights sold for 2022 to $3 8 million, which represents approximately 84% of 2019 actual group room nights.
Total group revenue for 2022 was down just 11% to 2019 at.
6% rate growth in banquet contribution helped to offset lower demand.
For 2023, we currently have $2 9 million definite group room nights on the books, which represents 80% of full year 2022 group room nights. This.
This compares to 71% on the books at the same time last year for 2022, representing a nine point improvement.
Group rate on the books for 2023 is up nearly 6% to the same time last year.
A 140 basis point increase since the third quarter.
In addition group revenue pace is up approximately 17% at the same time last year.
We are very encouraged by the large group base, we have on the books, particularly given short term booking trends.
So Rob will discuss more operational detail in our 2023 outlook in a few minutes.
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.
Gaining market share at our hotels through comprehensive renovations and strategically allocating capital to development ROI projects.
As it relates to our first strategic objective is important to note that we have achieved the bulk of the $100 million to $115 million of expense savings associated with redefining the operating model.
In order to achieve the high end of the range, we will need to get back to 2019 business volumes and as of the fourth quarter occupancy was still 10 points below the fourth quarter of 2019.
Turning to portfolio of reinvestment, our 2023 capital expenditure guidance range is $600 million to $725 million.
Which reflects approximately $275 million of investment for redevelopment repositioning and ROI projects the.
The projects include a transformational renovation of the Fairmont Kea Lani the fifth.
They can't Canyon suites further expansion and completing construction.
At the tower expansion guest room renovation and lobby transformation at Ritz, Carlton Naples, which was delayed by hurricane Ian.
To date, we have completed 14 out of 16 assets and our Marriott transformational capital program.
And we will complete the San Diego Marriott Marquis by the end of this month.
The final property, the Washington Marriott at Metro Center is underway and we expect it to be completed in May.
It is worth noting that actual 2022 capital expenditures came in at the low end of our guidance range as such the midpoint of our 2023 range is $160 million higher than last year.
Which is driven by carryover capital and an estimated $100 million to $125 million of capital expenditures related to hurricane restoration work, which we expect to be reimbursed by insurance claims.
To conclude my remarks, we are extremely proud of the results we achieved in 2022.
We are confident that the quality of our portfolio our ability to reinvest in our assets and our fortress balance sheet will allow us to continue our strong performance in 2023.
With that I will now turn the call over to Sarath.
Thank you Jim and good morning, everyone Bill.
Building on Jim's comments I will go into detail on our fourth quarter operations full year of 2023 items and our balance sheet.
Starting with business mix overall transient revenue was up 60 basis points for the fourth quarter of 2019, driven by 22% rate growth. Thanks.
Thanks, Kevin and the festive season saw Revpar growth of five 6% over 2019, respectively, driven by rate growth of over 30% for both periods.
Despite impacts from flight cancellations and cold weather in Florida during the festive season occupancy continued to increase sequentially each holiday.
Looking ahead holidays in the first quarter of 2023 are shaping up well.
Martin Luther King Junior weekend achieved the revenue that was 22% above last year driven by occupancy.
Good day and spring break both have revenue pace ahead of 2022.
Business transient revenue was down 18% to the fourth quarter of 2019, driven by 2% rate growth.
This is a meaningful improvement from the start of 2022 when business transient revenue was down 48% for the fourth quarter of 2019.
As we have discussed previously properties are targeting high single digit business transient rate growth in 2023.
During the fourth quarter business transient demand was in line with pre pandemic monthly seasonality and was driven by San Francisco, Washington, D C and New York with New York suggests 5% behind 2019.
Turning to group. This once the second quarter. The revenue has surpassed 2019 levels.
Group room revenues were 2% above the fourth quarter of 2019, driven by 10% rate growth.
While the overall group room demand was down 8% to 2019 properties in New York and Phoenix achieved group demand above 2019 levels.
The short term booking trends continued with in the quarter for the quarter group rooms sold up 21% over the fourth quarter of 2019.
The majority of the rooms booked well in Washington D C, San Diego, San Francisco, and New York.
Corporate group revenue was up 6% in the quarter, surpassing 2019 for the second quarter in a row driven by a 14% rate increase.
Outperformance was driven by hotels in Orlando, Phoenix, Maui, New York and New Orleans.
All three months in the quarter had corporate group revenue ahead of 2019, driven by rate and revenue was up substantially at both convention and resort properties.
Association group revenue was down 16% in the fourth quarter compared to 2019, despite wage growth of over 7%.
The revenue decline was driven by volume losses in San Francisco, Boston, and New Orleans, However, San Diego, New York, and Phoenix had Association group demand ahead of 2019 levels.
While association revenue was down in the fourth quarter, we saw meaningful pickup in booking activity.
For future years in the month of December .
Additionally rates compared to 2019 improved sequentially each month in the quarter from up 2% in October two up 15% in December .
Wrapping up on group with social military educational religious and for tunnel or smooth group's revenue was up 29% over 2019, driven equally by a 14% increase in rooms sold and a 13% increase in rate.
<unk> teams and weddings drove increases in Washington, D C, Los Angeles, and New Orleans.
Shifting gears to margins and expenses, our fourth quarter all owned hotel EBITDA margin came in at 29, 5%, which is 110 basis points better than the fourth quarter of 2019.
We attribute the margin expansion to strong rates and increase out of whom revenues combined with operating model expense efficiencies. Despite the fact that hurricane Ian negatively impacted margins by 40 basis points in the fourth quarter.
As expected the margin gap to 2019 narrowed relative to prior quarters due to continued inflationary pressures and a more normalized staffing levels at our hotels.
Our efforts to redefine the operating model continue to yield positive results, even with occupancy still meaningfully below 2019 levels and elevated pressure on wage rates, which ended the year up 5% on a year over year basis.
As detailed in our earnings release moving forward, we will seize presentation of all owned hotel results and return to a comparable presentation for our hotel level results.
We believe this will provide investors with a better understanding of underlying growth trends for our current portfolio without impacts from properties that experienced closures lasting one month or longer due to renovations or property damage.
We have removed Hyatt regency, coconut point, and the Ritz Carlton Naples from a comparable operations.
Full year 2023 forecast due to closures caused by Hurricanes Ian.
Turning to our outlook for 2023.
Macro economic headwinds and the potential economic slowdown are competing with the lodging recovery.
That said, we continue to be optimistic about the future of travel.
Our performance this year will depend on our ability to maintain high rated business at our resorts and the continued improvement of group business transient and international inbound travel.
Given the significant macroeconomic uncertainty in the second half of 2023, we have provided a wider guidance range than normal which assumed a slowdown in the second half of the year.
The low end contemplates a severe slowdown while the high end assumes a milder one.
For the first quarter, we expect revpar growth to be between 24, and 27% as a result of easier comparisons due to OMA con, which is expected to bolster full year growth.
For the remaining three quarters, we expect year over year Revpar changes to be down low single digits at the low end of our guidance range to up low single digits at the high end of our range.
Looking ahead to recent trends preliminary January comparable hotel Revpar is expected to be approximately $184, a 67% increase over January 2022, and 3.5% increase over January 2019.
Taken together for the full year, we anticipate comparable revpar growth of between 2% and 8% over 2022.
Differently staffing levels up closer to stable.
And hotel operating costs are expected to increase in comparison to 2022.
As a result, we expect comparable EBITDA margins to be down 360 basis points year over year at the low end of our guidance to down 210 basis points at the high end.
Though we expect comparable hotel EBITDA margins to be down year over year, we expect margins in 2023 to be only slightly down to 2019, despite lagging occupancy and four years of inflationary pressures.
This reflects our efforts to transform the portfolio and evolve the hotel operating model.
It is particularly impressive when you consider that our total expense CAGR since 2019, it was only 1.1% versus the core C. P. I CAGR.
<unk>, 4.1%.
The margin decline year over year is driven by closer to stable staffing levels at our hotels higher utility and insurance expenses, lower attrition and cancellation fees, which totaled approximately $100 million in 2022 and occupancy below 2019 levels.
As we noted throughout last year 2022 margins were not sustainable, particularly when you consider the limited services provided at many of our hotels in the first half of the year.
Staffing lag and the elevated unfortunately pressures.
At the midpoint of our guidance range, we anticipate comparable revpar growth of 5% compared to 2022, our comparable hotel EBITDA margin of 29%.
And full year, adjusted EBITDA of $1 billion $460 million.
Our 2023 full year adjusted EBITDA includes an expected $11 million contribution from Hyatt coconut point and the Ritz Carlton Naples.
Which are excluded from our comparable hotel set.
The pre hurricane estimated contribution from these two hotels, including the new tower at Naples was expected to be an additional $71 million in 2023.
It is important to note that we have not included the business interruption proceeds from hurricane Ian in our 2023 guidance.
In 2023, we expect wage rates to increase 5%.
In the aggregate from 2019 through 2023, we expect wage rates and utilities to increase 20% and insurance to increase approximately 100%.
In 2023, we also expect attrition and cancellation fees to revert to historical levels.
For context in 2019 wages and benefits comprised approximately 50% of our total comparable expenses.
Utilities and insurance comprised approximately 5% of.
Pushing in cancellation fees were $50 million and occupancy is still 10 points below 2019 as of the fourth quarter of 2022.
Turning to our balance sheet and liquidity position our weighted average maturity is five two years at a weighted average interest rate of four 4% and we have no significant maturities until April 2024.
As of today's call, we have $2 $4 billion in total available liquidity, which includes $200 million of <unk> reserves and full availability of our one 5 billion dollar credit facility.
We ended 2022 at two four times net leverage and since our last call both S&P and Fitch have revised our issuer outlooks to positive from stable.
Wrapping up in January we paid a quarterly cash dividend of 32 per share, which included a 20 cent specialty.
Special dividend.
The board of directors authorized a regular quarterly cash dividend of <unk> 12.
On our common stock to be paid on April 17, 2023 to stockholders of record as of March 31 2023.
All future dividends are subject to approval by the Companys Board of directors, though we expect to be able to.
To maintain our quarterly dividend at a sustainable level, taking into consideration potential macroeconomic factors.
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 and 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.
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One moment, while we poll for questions.
Thank you.
Our first question is coming from Smedes Rose with Citigroup. Please go ahead.
Hi, good morning.
I. Appreciate you guys are providing a range for the year that incorporates.
A wide range of macroeconomic outlook just curious what are you specifically seeing in your business if anything that would suggest a slowdown.
In the back half of the year are there on the group side or what sort of visibility you have.
Good morning Smedes.
At this point in time, we're not seeing any signs of weakness in any business segment.
You know our group.
Pes is performing exceptionally well I mean 2022.
We ended up I think with $3 8 million group room nights on the debt.
At the end of the year, which was 84% of two.
2019 actual rate was up 6% for 2019.
2023, we're very encouraged about how group is set up.
We have $2 9 million definite room nights on the books.
400000 room night increase since quarter three.
That equates to 80% of 2022 actual room nights.
At the same time last year, we were at 71%. So we picked up nine point.
And the other really encouraging thing is that total group revenue pace is up I think 17% at the same time last year. So group is really set up well. If you go back in and look at how we're set up relative to two.
2019.
We're only down 70 basis points and total revenue pace stope.
The short term nature of the bookings.
Specced it to continue.
And as a result of this solid base that we have on the books we're encouraged.
With that how group will likely perform this year so.
No no indication of any slow down there I think your other question was related to business transient.
We continue to see improvements in BP.
I think he is going to evolve over time.
BT room nights were down.
In quarter, four I think about 20% to quarter four of 2019.
But we saw a pickup in bookings from Q2, Q3 and by about 500 basis points. So.
Business transient revenue was down 18%.
We do too.
Improvement in rate again, but up from where we were in Q3 so.
You know special corporate debt the encouraging piece on the business transient side as we expect to see high single digit rate increases that is going to hold.
In January very strong months for business transient demand. It was the best in the month for the month pick up by.
By our top accounts so.
No signs of weakness in business transient front at all and one thing I would point out I think <unk> mentioned in his comments it very encouraging that New York City is only 5% below where it was in two.
2019 so.
No signs of weakness.
We felt it was prudent to give a range given the uncertainty on the macro economic front that exist today.
Thank you. Our next question is coming from Anthony Powell with Barclays. Please go ahead.
Hi, good morning.
Follow up to that to that prior question I mean, if you were to build a bottoms up guidance range for <unk>.
<unk> through <unk>, I guess, how many percentage points would you be adding to that midpoint and what does that mean or imply rather for.
Theoretical margin.
Decline this year, given what the potential higher revpar.
Hey, Anthony.
So let me start off by saying sort of what I said in my prepared remarks, as the second half of the year for us and our guidance assumes some sort of a slowdown whether it's at the low end, which would be a severe slowdown or the high end, which is a mile flow down and our midpoint is effectively a moderate slowdown or the way we're thinking about it when you.
Look at our guidance as the second half.
I'll go through each segment from a group perspective, we are assuming that the second half with only see about half the group room night pickup.
In the year for the year compared to 2022 and as you may recall, a 2022 had meaningful in the year for the year pickup and as I said in my prepared remarks in the fourth quarter alone, we had 21% more pickup in the month in the quarter for the quarter. So in other words. The anticipation is if there is a slowdown you would.
Have left in the year for the year pickup that's on the group side the rates, obviously and the groups that are locked in so that's a positive.
On the transient side, we expect that second half to be somewhat.
Flattish, so with leisure rates being slightly up driven by our downtown convention hotels, but our resort somewhat flat to maybe slightly down depending on the market. So overall transient.
And occupancy to be about flattish for the second half and so when you really think about our guidance for the full year, our occupancy ends up being up a couple of points and rate effectively flattish and again all of this is tied to the midpoint.
When you think about sort of our margin performance a corner by corner reality is the distribution of EBITDA that we saw in 2019 is going to be very what we are expecting very similar in 2023.
I'd say in.
In 19, we.
We had I think it was about 27% or so of our EBITDA came from Q1 about 29 from Q2.
20% from Q3 and 24% from Q4.
Similar sort of a cadence is what we're expecting from 2023.
Thank you our.
Our next question is coming from David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone. Thanks for.
Thanks for taking my question, Jim I wanted to go back to something you touched on your comment and just make sure. We're clear about it you talked about some of the hotels you bought.
That.
Or I think you said currently run rating about 10 or 12 times.
EBITDA based on sort of what you paid.
Could you just go back to those circumstances.
Talk about if we found ourselves at a 2019 normalized environment, where those multiples or cap rates would be.
Well, we don't expect to get back to 2019 levels of rate or performance at these properties David.
We are very confident that the.
The rates that the hotels are able to charge today are.
For the most part sustainable there might be a little bit of a pullback.
But we did message when we bought each property what the EBITDA multiple was based on our 2019 numbers and.
And what the cap rate was and I can't tell you how pleased we are with the performance.
Of these properties over the last several years. So we feel very confident that we're gonna be able do.
Maintain close to maintain the current rates that we're getting today.
Subject to there being a you know a very.
The severe downturn.
Affecting the consumer we're just not seeing it today.
Thank you. Our next question is coming from Chris Sterling with Green Street. Please go ahead.
Thank you and good morning.
Can you provide an update on 23 group pace caught across some of your larger group focused market. So thinking specifically about San Francisco, New York Orlando and then maybe are there any other data points that might be helpful is long.
Sure. So in terms of our group pace for our some of our larger markets what are trending really well and I would say like effectively.
Well, we have on the books.
For 2023, 50% over 50% of our from.
Markets, which are San Diego Orlando D C, San Antonio and San Francisco, So whatever we have on the books for 2023, almost 50% off on those those markets and when we were looking at sort of citywide data.
We are about 80% of 2019 levels as it relates to the citywide and the market that are above that threshold or <unk>.
Boston San Antonio.
San Diego Atlanta.
At Atlanta, Chicago, and the ones, which are sort of below that threshold are yup, Philadelphia, Seattle, and certainly San Francisco and I would say a new Orleans.
Thank you. Our next question is coming from Chris Ranke with Deutsche Bank. Please go ahead.
Hey, good morning, guys.
Jim it's a bit of a hypothetical question, but obviously, there's a lot of talk about getting back to.
Prior peak occupancy levels, but still having a lot of occupancy to recover with group and a little bit of corporate but you know that with the mix effect that may come at the expense of Brent. So the question would be.
Is there and I know you don't solve for any one metric.
Is it reasonable to think that some of the more price sensitive business.
Peak business things like that.
You have your operators essentially.
We keep that out of the of the business as we go forward and that we are structurally lower ark, but but higher rate is that a decent way to think about it.
I am Chris.
Chris I say, it a little differently.
It's easy to buy occupancy in certain markets at certain hotels, we don't think that's the right revenue management strategy.
We believe that you know.
Given the flow through you get to EBITDAR from rate increases relative to occupancy increases, which as you know.
80% of for 60 per cent per rate, 40% per occupancy.
You know every dollar and rate is worth more money.
We continue to see occupancy evolve.
But we're going to continue to hold rate.
At high levels and up and in and continue to increase rates I think were encouraged in particular by our group rate that we've been able to achieve that's locked in with definite on the books.
Sequentially quarter over quarter and for 2023 are looking pretty positive for us.
As well as the growth in our <unk>.
In business transient rate.
As well so you know the.
Total group revenue pace for 2023 is up 17% at the same time last year, so and down only 70 basis points to 2019, that's very encouraging to us so.
That's the strategy that we intend to.
Employ going forward and.
We are in.
In paper as a general statement of cutting rates by occupancy.
Thank you. Our next question is coming from Duane surfing worth trying spending worth with Evercore ISI. Please go ahead.
Hey, thanks.
If we go back in time to the structural margin improvement commentary you know your view of the world maybe back in Q3 of last year.
What has been the biggest change or biggest surprise since that time, obviously Naples has some lingering impact but for example.
Has the fill rate on open position surprised you since the fall and then maybe just as a follow up while I have you has has your forward visibility.
In Q2, Q changed year over year, maybe you could contrast, where you stand today on onto Q versus this time last year and what the rates on those forward bookings look like thank you for taking the questions.
Sure. So I'll start with the second half of your question first.
In terms of rates we.
We are positively.
We feel very good about some of the rates into Q2 and the rest of the year, what we have on the books and as Jim mentioned, our group rate is up 6%, we expect business transient rates to be up in the high single digits.
In terms of actual demand. It is still very short term booking and that goes to my remarks of sort of the short term pickup that we're expecting a we saw in the fourth quarter meaningful in the quarter for the quarter pickup that seems to continue so while we do have a meaningful amount of group on the books.
We are still expecting a significant amount of pick up in the fourth quarter for the fourth quarter and the same thing in the second quarter.
So from a visibility standpoint, I wouldn't say, it's incremental maybe a slightly more incremental relative to fourth quarter.
As it relates to our.
Our operating model changes, what I do want to point out as we have said you know the $100 million to $150 million of savings relative to 2019 those expense savings we have achieved the bulk of those savings and frankly the the.
The balance of it is really going to be driven by occupancy coming back we are still as Jim mentioned 10 points off of 2019.
From an occupancy perspective, and I would say with every point of occupancy gain that would equate to roughly 30 to 40 bps of margin gain so that is pretty meaningful when you think about it. So if we get back to sort of 19 occupancy levels Youre looking at anywhere from 300 to 400 basis points of margin improvement and.
One of the things I would like to highlight is when you look at our expenses specifically to a 100 to 150 and you compare that really to 2019, our F&B revenues are down.
For 2023 to the midpoint relative to the 19, one 5%, but our expenses are actually down 2%. So it shows that all the operating model changes and a big piece of it was in food and beverage has made a huge difference.
Marketing expense relative to 19.
For 2023 again to the midpoint will be less down less than 1%. So again, when you're comparing sort of the margin performance to 19. It really tells the story and like I said will be only slightly down at the midpoint and of course at the higher end of the guidance, we'd actually be about 2019.
Thank you.
Thank you. Our next question is coming from Ari Klein with BMO. Please go ahead.
Thanks, and maybe following up on the margin question whats the wherewithal to cut expenses.
The macro is a little bit more difficult than you anticipate.
<unk> given some of the labor challenges that we've had over the last couple of years.
I'm, sorry, I wasn't here.
Apologies.
So I'm, assuming you're talking about what.
If any sort of wage pullback.
Pull back we're going to have if there is a slowdown in the second half and the reality is I think we now have a playbook going through COVID-19 as to what would need to happen. If there is a slowdown and that is really a playbook department by department. So we feel very confident that if there is a slowdown the changes that we would actually.
Have to make.
If we are in that situation and whether that's a modifying hours of operations or.
Driving.
Efficiencies in any single Department cell.
We are going to be well prepared for that.
Got it and then just on the balance sheet can you update us on your priorities and how youre thinking about acquisitions dispositions and underwriting in an admittedly more on certain macro.
Sure.
As we sit here today we.
Are in a very strong position and.
And given the balance sheet that we have.
We will be well positioned regardless of what happens over the course of the year.
As you see from our Capex guidance. This year, we're going to continue to invest in our portfolio.
Just for point of reference.
Over the course of 2020 through 2022, we invested $1 5 billion in our assets, which is really a distinguishing factor that sets us apart from other lodging Reits, we're well positioned to outperform going forward.
And we will continue to pursue ROI projects.
Such as a complete transformation of the Fairmont Kea Lani and an expansion at the Canyon suites.
At the Venetian.
And are the completion of our.
Repositioning a new tower at the Ritz Carlton Naples so.
We will continue to look for opportunities to deploy capital in our assets.
Those underwrite generally too.
Low to mid <unk> cash on cash returns unlevered cash on cash returns. So we think that's a very good place to put capital on the acquisition front.
You know there are a number of properties.
In the market right now.
That we are evaluating I would just say that the the bid ask spread hasn't.
Come to the middle yet so for the near term, we're not anticipating maybe when I say near term I'm talking about the next 60 to 90 days.
Not anticipating.
Acquiring any assets that could change.
Point out that the four seasons Jackson hole was roughly a 30 day process for us which puts us in.
And a really strong position because we are the only.
Player out there they can can really do a meaningful transaction all cash.
As we sit back and look at how the year might evolve Ari.
You know we're tracking all the C M B S loan maturities for 2023 and 2024.
We will see.
If certain owners are in a.
A position, where they're going to have to sell the asset.
Just given the current interest rate environment relative to where the environment was when they put their current debt financing in place and the fact that there are asset is likely to.
Need a significant capex because they haven't been able to invest over the course of the pandemic.
And.
I think you could see us.
As the year evolves, assuming distressed presents itself.
Investing across our markets that are different than markets that we invested in in 2021 and 2022.
Thank you <unk>.
Next question is coming from Robin Farley with UBS. Please go ahead.
Great. Thanks, I was actually can ask you about your acquisition plans and I think you answered most of that question already but I'm kind of intrigued by your last comment about investing in different markets than you did in the last two years.
Just wondering if that means more sort of bigger than rather than resort markets.
Kind of what that might mean, and then if I could just ask a clarification. When you were talking about your revenue pace group revenue pacing down about 72.
2019.
Right. It sounds like it's up high single digits. So number of group nights are you anticipating being down around that.
High single digit rate relative to 19 or do you not.
Just curious what you're factoring into guidance in terms of.
When group do.
Do you think might make a full recovery in terms of room nights.
Transient later thanks.
Sure Robin I'll take the.
Part of your question related to the investment market.
You know I think as you think about how we have been deploying capital over the last six years or so everything we've done has been to elevate the EBIT growth profile of the company and.
When I when I say that we're going to be.
And mind, it and look at other markets.
No.
It's it's really transaction dependent and whether or not we think we can create value and what we can do with the underlying EBIT growth of that asset.
Going forward. So I said differently I don't think there's a market in the country that has a red line through it sub.
Subject to all of the underwriting criteria that we employ when we evaluate a particular hotel.
So Rob you want to touch base on the group.
Sure Robin on the group side, Yes, you're right.
Actively on the group room nights were P thing of that sort of the high single digits.
Below 2019, the expectation right now.
At the mid point again is that we would get to about around 90% of our group room night.
Levels are relative to 19.
But of course, I remember like I said that assumes that we only pick up effectively half the amount of group room nights in the year for the year for the second half.
Okay, great. Thanks very much.
Thank you.
Once again, if there are any remaining questions or comments. Please press star one on your phone at this time.
Thank you. Our next question is coming from Jay Kornreich with F N B C.
Please go ahead.
Thank you good morning.
It looks like 2023 outlook you provided excludes any contribution from the hurricane impacted hotels I believe you mentioned, a $71 million EBIT shortfall I'm curious as we see those assets coming back on line throughout 2023, if that provides an upside opportunity to the guidance range and if there's anything else you have your eye on the sides of possible.
The recession that could surprise to the upside or downside.
A downside.
Well, Jay I think it's important to.
Really highlight that the.
The assets are affected by Hurricane M. We are anticipated to generate $82 million in EBITDA in 2023, we have $11 million in our guidance.
To the mid point.
So there's the $71 million GAAP that is purely related to her.
Hurricane disruption.
We have not assumed.
Any business interruption proceeds.
Our guidance is.
So if.
If we were to get a business interruption proceeds over the course of 2023.
That is upside.
Going forward. So we think that that is likely to occur later in 2023 and into 2024, but I do want to point out that.
$71 million is a significant amount of EBITDA that is.
It's going to impact one year.
This year, because we're very.
I'm excited about the performance of the Ritz Carlton.
For full year 2020 for the property will be completely transformed the new tower.
But we'll be open we've added 24 rooms didn't materially increase this week count about asset and made a number of other enhancements so.
The one Europe disruption from Hurricane Ian has cost us.
Has cost us a significant amount.
For 2023.
Thanks, maybe just to clarify that the $11 million that you expect in 2023.
That would be looked at as a conservative estimate or is that not what you expect even as both hotels open up.
In the year.
I think it's what we expect at this point in time.
Okay. Thank you very much.
Thank you. Our next question is coming from Floris Van <unk> with Compass point. Please go ahead.
Thanks for taking my question.
A little bit of a mixed message here, obviously you've got.
Group pace our heads are.
Very strong results last last last quarter.
If I look revpar expectations in the first quarter are up call. It 24 to 27 call it 25%.
Pretty pretty strong yet your even with if we were to include your business interruption insurance, which again you have that insurance, presumably youre going to get that.
That 71 million of missing EBITDA from <unk>.
From Naples, Youre looking at flat.
EBITDA growth based on your consensus can you maybe provide any sort of historical context, where occupancy in your portfolio.
<unk> is trending higher.
On a longer term basis, and you're you're you're right and your margins are down or your EBITDA is going down.
Sorry, you're asking if a historically if you have seen occupancy go up and margins go down I think the way to think about it Florida says.
I have said relative to 19 right.
We actually if we see occupancy go up.
We would absolutely expect margin performance to improve from where the occupancy stands as of today I think that's where the upside is the reality is we don't have visibility into the second half of the year. Therefore, our assumptions are.
I think reasonable at this time or with the data that we have available.
Right now and when you look at the top end of the guidance.
Actually it's the margins are up relative to 2019.
So it really depends on where things shape up for the second half.
And what kind of in the year or the year pickup we see in group and then you have to remember business investment so.
Nonresidential fixed investment you're looking at only 70 basis points of growth for the year. So you know what what we can expect it's very difficult to predict at this point for the second half.
Our guidance range is based on the best available data we have today.
Yeah Florent.
One.
One thing I would add is.
Over the course of 2022.
For the second and third quarter call, we were very clear.
That the margin performance we were seeing.
It was not sustainable.
And it wasn't sustainable for a lot of reasons, we were not at optimal staffing levels are we had a number of hotels.
Hotels were full services were not being offered to customers restaurants were closed club lounges were close.
And.
We feel that the proper comparison for margins is.
2019.
And you know in.
In 2019 levels even.
10 basis points were only down 57 basis points in margin and just to reiterate.
You know we have has seen a 4.1% inflation CAGR, a CPI CAGR and our expenses have only gone up one 1%. So we actually feel that we're positioned very well and as Rob pointed out.
Every point in occupancy that we get is going to equate to 30 to 40 basis points of margin improvement.
Thanks, Jim.
Thank you.
With an eye on the time I will hand, it back to Mr facility or for any closing comments you wish to make.
Thank you very much I would like to thank everyone for joining us on our fourth quarter call. Today. We appreciate the opportunity to discuss our quarterly results with you and we look forward to meeting with many of you in the coming weeks and months.
For your continued support and have a great day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation.
Thanks, John .