Q4 2022 Xenia Hotels & Resorts Inc Earnings Call
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Good afternoon. Thank you for attending today's Xenia hotels, <unk> Resorts, Inc. Q4, 2022 earnings Conference call. My name is to EMEA and I will be your moderator for today.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad. It is now my pleasure to pass the conference over to your host Amanda Bryant VP of Finance. Please proceed.
Thank you Tamara good afternoon, and welcome to Xenia hotels, <unk> resorts fourth quarter 2022 earnings call and webcast I'm here with more silver box, our chairman and Chief Executive Officer, Barry Bloom, Our President and Chief operating Officer is a teashop, our executive Vice President and Chief Financial Officer Marcel.
We'll begin with a discussion on our performance and recent investment activity Barry will follow with more detail on operating trends and capital expenditure projects.
<unk> will conclude our remarks on our balance sheet and outlook for 2023, we will then open the call for Q&A before we get started let me remind everyone that certain statements made on this call are not historical facts are considered forward looking statements. These statements are subject to numerous risks and uncertainties are described in <unk> annual report on form 10.
K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments forward looking statements in the earnings release issued this morning, along with the comments on this call are made only as of today March one 2023, and we undertake no obligation to publicly update any of these.
Forward looking statements as actual events unfold you can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release and earnings supplemental which is available on the Investor Relations section of our website the fourth quarter property level portfolio information, we will be speaking about.
Today is on a same property basis for 30 hotels. This excludes Hyatt Regency, Portland, Oregon Convention Center and W. Nashville, an archive of this call will be made available on our website for 90 days I will now turn it over to Marcel to get started.
Thank you Amanda and good afternoon to all of you joining our call.
Following a slow start to 2022 as the overall environment very significantly impacted all demand segments industry fundamentals and our portfolio's performance improved meaningfully as the year progressed.
Leisure and group demand strengthened significantly in the second quarter and this was followed by a steady recovery in business transient demand during the third and fourth quarters.
Our 2022 the results substantially exceeded the expectations, we had at the beginning of the year.
Our fourth quarter results allowed us to finish out the year near the high end of the guidance. We provided after the third quarter for net income adjusted EBITDAR and adjusted <unk> per share.
Same property portfolio Revpar for full year 2020 to declines of five 1% relative to 2019.
Driven by a double digit increase in average daily rate growth.
Notably the rest of our gas in 2019 narrows as occupancy improves over the course of the year and ADR growth remains strong.
On a same property basis, 2022 hotel EBITDA of $256 $4 million with roughly 3% below 2019 levels.
Margins were 40 basis points higher as compared to 2019.
In 2022, all 30 of our same property hotels achieved positive hotel EBITDA.
However, only 12 of our hotels and resorts generated EBITDA in excess of 2019 levels.
Morning, our belief that we still have considerable recovery potential across a majority of our portfolio.
Okay.
This was particularly evident in six of our larger corporate and group focused hotels.
Namely Marriott, San Francisco Airport, Hyatt Regency, Santa Clara <unk>.
Dallas hotels, and our two western and the Houston Galleria markets.
As these hotels were collectively over $30 million behind in terms of hotel EBITDA in 2022 as compared to 2019.
Now turning to our fourth quarter results, we reported net income of $35 3 million.
Adjusted EBITDA rate of $64 $6 million and adjusted <unk> per share or <unk> 41.
Yeah.
Our same property revpar for the fourth quarter increased <unk>, 6% as compared to 2019.
Representing the second quarter of positive growth relative to 2019 since the onset of the pandemic.
Average rate growth remained very strong.
With a 15% increase compared to the fourth quarter of 2019.
Which offset about nine points lower occupancy.
Margins improved 17 basis points compared to 2019, despite continued inflationary pressures, particularly in labor and utilities.
Okay.
We continued to successfully execute our long term corporate strategy in 2022.
Through transaction activity, we improved the overall quality and anticipated growth profile of our portfolio.
We acquired W. Natural early in the year, we're roughly $328 million.
And we sold three hotels for an aggregate sale price of $133 $5 million, including Bohemian Hotel celebration and hotel Monaco Denver in the fourth quarter.
Collectively our 2022 dispositions prepared at extremely attractive valuation multiples.
Had a challenging transaction market in the second half of the year.
On a blended basis the aggregate sales price of the three dispositions reflected a weighted average multiple of $15 four times 2019 Hotel EBITDA.
The sale price for the two properties, we sold in the fourth quarter represented a combined $17 one times multiple on the hotel EBITDA generated during the trailing 12 month period ended September 30.
These valuations were particularly attractive in light of alternative uses for our capital.
Okay.
W. Nashville continues to wrap up in its first full year of operations.
And Marriott at several important learnings over the year.
Including the seasonality of international markets, the optimal mix of group and transient business.
Great strategy.
And food and beverage optimization and positioning.
Although the results during our first nine months of ownership were below our expectations. We are confident these learnings will benefit us going forward and.
And we remain optimistic that the hotel, we will achieve our expected to stabilize profitability in the years ahead.
Okay.
Meanwhile, we are encouraged by the results we achieved in 2022 at our other most recent acquisition Hyatt Regency Portland at the Oregon Convention Center.
During its first full calendar year of operations.
Despite an extremely difficult operating environments in a market that was slow to reopen.
As EBITDA masked our initial underwriting for first full year of operations helped.
Helped by an excellent job by Hyatt managing costs.
We are optimistic that an improved events calendar and encourage and group pace.
The result of steady EBITDA increases in the next two years.
We expect that both W. Nashville, and Hyatt Regency, Portland will be significant drivers for our future portfolio EBITDA growth.
Over the year, we balanced that range of capital allocation priorities.
<unk>, returning capital to shareholders through share repurchases and reinstating a 10 cents per share quarterly dividend.
Yeah.
Additionally, we further fortified our balance sheet and now have no debt maturities until 2025.
The people, who will discuss our balance sheet activities in greater detail shortly.
Okay.
And during the year, we also invested in several important internal ROI projects at key properties and complete the planning work for several upcoming projects that we expect to generate meaningful earnings growth in the years ahead.
Okay.
While Barry will provide details on these various projects in his remarks, I would like to highlight one large and exciting projects.
We are expecting to complete over the next two years.
In early February we announced plans to invest approximately $110 million and a complete transformation and expansion of the 491 room heightened REIT Hyatt Regency, Scottsdale resort and Spa Gainey Ranch.
Yes.
The investment is intended to maximize value of our high performing assets and a strategically important markets by.
By optimizing its ability to capture premium rated group and leisure transient business.
Entities, most effectively with other luxury resorts in the Phoenix Scottsdale markets.
Upon completion, which we currently expect to occur in late 2024.
The property will be rebranded as a grand Hyatt resorts.
With an additional five keys.
The substantial increase in meeting and event space.
Significantly upgraded and exciting new food and beverage offerings.
The revamped pool complex in a substantially enhanced room product.
Yeah.
While the resort generated record EBITDA in 2022, as a result of extremely strong both global and domestic leisure demand.
We believe that this investment will allow the property to optimize its long term mix of group and transient demand.
Maintain and improve its ability to drive premium rates.
Upon stabilization, we expect the property to generate 60% high Revpar and a near doubling of hotel EBITDA from pre pandemic stabilized levels.
Effectively closing the performance gap with the property's competitive set.
<unk> also experienced meaningful capital investment in recent years.
While this transformative renovation will cost short term short term cash flow disruption to our high performing asset in our portfolio.
We strongly believe this project is both attractive thrown RLI perspective.
As well as appropriate lead times to drive long term profit growth and value appreciation and an important market for our company.
Okay.
He has had a long and successful relationship with highest which underscores our confidence in our ability to generate attractive risk adjusted returns in Scottsdale.
This includes two recent successful ROI business at Park Hyatt <unk>.
And at Hyatt Regency Grand Cypress.
Both properties have achieved significant improvement in earnings and market share for in our capital investment after acquiring these outstanding resorts in 2018 in 2017, respectively.
Following the acquisition of Park Hyatt <unk> in late 2018, or approximately $58 million of additional capital investments has resulted in a more than doubling of the property's EBITDA and a meaningful increase in Revpar index.
While we already reached our projected stabilized EBITDA range of 2022.
Despite the lingering impact of Covid, particularly on group business.
We see substantial opportunity for further gains in the coming years.
Great growth has been particularly impressive, but we believe that improved group business will allow us to drive occupancy and further optimize the demand mix in the years ahead.
Okay.
And at Hyatt Regency Grand Cypress.
<unk> acquisition capital investment of approximately $45 million.
Included renovation and expansion of the meeting space as long as a targeted renovation of all guest rooms.
The property performed extremely well through the pandemic, increasing its EBITDA by approximately 50% between 2018 and 2022.
And continuing to gain market share.
However, it's still very much in the early <unk> when it comes to optimizing group business and reaping the full benefits of the expanded and upgraded big space.
We expect a 25000 square foot Ballroom addition will allow us to unlock significant growth in the years ahead as Orlando remains a very attractive market for group business and the property is well positioned to take market share.
Okay.
Similarly to the two resorts such as highlighted we acquired Hyatt Regency Scottsdale at a very attractive basis in 2017.
Our projected capital investments, we will raise our basis in the resort to approximately $680000 per key.
We believe that this basis remains extremely attractive for a luxury resort in the Scottsdale markets, especially when compared to recent transactions for comparable assets and current replacement costs.
Yeah.
To conclude my remarks, we are extremely proud of our performance and strategic actions taken over the past several years.
We navigated through a very challenging period for the lodging industry.
Yes, we emerged with a higher quality portfolio and a better expected growth profile supported by a conservative capital structure and.
And ample liquidity.
We are optimistic looking ahead to 2000 22023 and beyond despite a continued cloudy outlook for the general economy, especially as we look towards the second half of the year.
We believe our efforts during the pandemic and Andy early phases of the recovery that positions us well to remain opportunistic as it relates to potential acquisitions and other potential ROI opportunities that.
There could be additional drivers of earnings growth in the years ahead.
And we expect that the stabilization of our recent acquisitions the recovery potential of our turbine group and business transient focused hotels.
And a further growth opportunities for our recently renovated properties will be meaningful internal EBITDA growth drivers.
With that I will turn the call over to Barry who will provide additional details on our fourth quarter performance and our capital expenditure projects.
Thank you Michelle and good afternoon, everyone.
For the full year 2022, or 30 same property portfolio Revpar was $166 eight.
Based on occupancy of 63, 9% and average daily rate of $259 92.
As Marcel noted in his remarks same property portfolio Revpar decreased five 1% as compared to 2019.
This decrease reflects nearly 13 points lower occupancy, which was partially offset by 38% increase in advocating rate as compared to full year 2019.
Our properties, achieving strongest revpar growth as compared to 2019 included height included Hyatt centric key west Hawkeye Tahira.
On pumps, and Bohemian sedan, all of which benefited from robust leisure demand throughout the year.
Conversely, the revpar declines compared to 2019.
We're experienced at Madison Square important Henry UC, Santa Clara at Hotel, Palomar, Philadelphia, which are more dependent on business transient and group demand.
For the fourth quarter from 30 same property portfolio Revpar was $166 87.
Based on occupancy of 64, 1% and an average daily rate of $260 19.
Same property portfolio Revpar increased <unk>, 6% in the quarter as compared to the same period in 2019.
For the fourth quarter.
The same property, we leaders and laggards were the same for the full year, we know that each the lighter hotels achieved significant growth in Q4.
In 2022 over Q4 of 2021, suggesting that recovery is well underway.
As expected results in the fourth quarter varied across the months given the timing of holidays and the usual seasonal mix shifts Saint.
Same property Revpar in October and November declined <unk>, 1%, and 4%, respectively as compared to 2019, while December effort increased two 6% compared to 2019.
Overall business in the fourth quarter reflected the transition in our business from what has been primarily leisure demand over the past few quarters to a more traditional mix of leisure corporate transient and group demand.
Midweek occupancy has continued to improve particularly in October we had several recent midweek occupancy above 80%.
October trends followed a similar pattern September this was driven by a decrease in occupancy consistent with expected seasonal patterns in business transient and group generally coincide with a marked increase in return of office and business travel.
Overall October occupancy of 79% was a post COVID-19 record relative to 2019 with occupancy down less than $10.
Rent growth remained robust in the quarter average unit at our same property portfolio of 15% as compared to 2019.
Of our 30 same property hotels, all but five achieved higher average unit reached in the fourth quarter of 2022 and they did in the fourth quarter of 2019.
We are optimistic regarding corporate and group rates, particularly as we achieve higher midweek occupancies in a number of our urban markets, including Santa Clara San Francisco, Houston, and Dallas on Tuesday, and Wednesday nights, providing significant rate compression opportunities.
Our managers anticipate further improvements in corporate transient business fundamentals I expect negotiated corporate rates increased in the high single digit percentage range. This year.
Similar to prior quarters, we saw continued rate strengthen our resorts and our drive to leisure markets.
With average Ana reached for the quarter compared to 2019 are more than 30% in our properties in Arizona key West NASA and San Diego.
Turning to group in the quarter, our group business benefited from solid in the quarter for the quarter, Bill bookings and double digit rate growth, resulting in group rooms revenue exceeding fourth quarter of 2019 levels by over 5%.
Our performance reflected healthy demand from corporate groups.
<unk>, our larger group oriented hotels in Orlando, Scottsdale, and San Diego.
Our full year 2022 group rooms revenue ended about 9% lower than 2019.
Looking ahead to 2023 with group revenue pace is currently about 21% in 2022.
And group rates for 2020 to reflect the high single digit increase over 2022.
Now turning to expenses and profit fourth quarter same property hotel EBITDA was $65 4 million and.
An increase of three 3% on a total revenue increase of two 7% compared to the fourth quarter of 2019, resulting in 17 basis points of margin improvement.
This modest growth in hotel EBITDA margins for the quarter was primarily impacted by a continuation of higher labor and utility costs.
On a full year basis hotel EBITDA margin increased 40 basis points relative to 2019 reflects primarily the outsized increase we achieved in the second quarter of 2022.
With respect to labor and as we discussed in the third quarter, our operator successfully a staff up to meet the strong recovery in demand where necessary.
In general our fully recovered hotels were operating in FTE staffing levels between 90, and 95% of pre pandemic levels, while hotels, where there's still substantial opportunity for recovery property FTE staffing levels between 60%, 70% and prevention.
Now turning to Capex during the fourth quarter and over the full year invested $29 7 million and $74 million and portfolio improvements respecting.
This compares to our initial expectation of approximately $95 million in total capital spending for the year as a number of projects had portions of their spend delayed into 2023.
During 2022, some of the significant renovation projects in our portfolio included and Kimpton catering Santa Barbara we completed a comprehensive renovation of public spaces, including the meeting space lobby restaurant bar and rooftop.
We also began a comprehensive guestroom renovation in the fourth quarter, which is expected to be completed in the second quarter 2023.
And Grand Bohemian Hotel Orlando, we conducted a comprehensive renovation of public spaces, including meeting space lobby restaurant bar, Starbucks and accretion of the roof top bar, we expect to be completed in the first quarter of 2023.
The comprehensive renovation of the guestrooms, including substantial tub to shower conversions will commence in the second quarter.
At Park Hyatt AVR, we refurbished the nearly 30 year old golf course, including replacement progressed bunkers irrigation hedging control's current patents encouraging all of which will result in significant reduction in water use.
We are also well underway with the implementation of a combined heat and power system, which should substantially lower our utility costs.
In the fourth quarter, we began work on a significant upgrade to the resort and spa and wellness amenities, which will be branded as a miracle weapon balanced spot upon completion late in the second quarter of 2023.
And Waldorf Astoria, Atlanta, Buckhead earlier in the year, we completed the guestroom renovation, including all soft goods and a restaurant and lobby renovation, including re contracting of the restaurant and bar.
At the Marriott woodlands in Houston, we completed a full bathroom renovation of all guest rooms, including conversion tubs showers, 75% of the Guestrooms.
And Marriott Dallas downtown Royal Palms, and Fairmont, Pittsburgh renovated meeting and pre function space and Fairmont Pittsburgh added a licensed Starbucks outlet Noah.
At the Ritz Carlton Denver, we're continuing to work on the renovation and reconfiguration of suites, which will result in three additional key upon completion this quarter.
I think Kimpton Hotel Monaco Salt Lake City, we continued planning work on a comprehensive renovation of meeting space restaurant bar and Guestrooms and is expected to commence in the second quarter of 2023.
Including the ongoing projects I just mentioned in 2023, we expect to spend approximately $130 million to $150 million on capital expenditure projects. The most significant of which is a transformation upbringing Daiichi Scottsdale as discussed earlier by myself.
This phase project is expected to commence in the second quarter of this year with completion expected late next year when the property will be upgraded to the Grand Hyatt brand.
We are excited about the work greenhouse project management teams completed over the past several years and are even more excited byproducts that we have underway in various stages of planning with that I will turn the call over to Ashish.
Thanks Barry.
This afternoon, our balance sheet and guidance.
First on our balance sheet, we further strengthened it in January by extending our debt maturities and we now have no debt maturities until the second half of 2025.
We thank our long standing bank partners for their continued support.
In addition, our base of unencumbered assets has grown.
Out of our 32 hotels 29 did not have property level debt, which reflects an additional source of capital or.
Our liquidity is strong with an undrawn $450 million revolver and approximately $300 million of cash.
At year end, our leverage ratio was approximately four five times trailing 12 months net debt to EBITDA, which is inside of our long term target of sub five times leverage.
Turning to return of capital since last fall, we've repurchased about two 5% of our outstanding shares at an average price of about $14 50 per share.
Over $150 million of remaining capacity under our current board repurchase authorization.
We continue to view share repurchases as a favorable capital allocation tool given that we still trade at about a 30% discount to our average external NAV estimate which is about $21 per share.
In addition, we declared a <unk> 10 per share dividend in the fourth quarter are.
Our effective annual yield is.
About 275% based on our current share price.
Now turning to my second topic, our full year guidance, we provided in this morning's release as the recovery continues we are encouraged by strengthening group and business transient demand. We expect full year 32 hotel revpar to increase approximately 6% at the midpoint to about $173.
That is inclusive of 200 basis points of room revenue displacement due to renovations at.
As the quarterly cadence, we expect Revpar growth in the mid 20% range in the first quarter driven by occupancy gains during the second.
Second half, we expect flattish revpar relative to last year due to tougher comps as the year progresses as well as the impact of renovations.
For the full year, we expect adjusted EBITDA to be about flat to last year.
While we anticipate growth from our new hotels W. Nashville, and Hyatt Regency, Portland, as they continue ramping up as.
As well as solid top line growth and many of our other urban and group hotels. These gains are expected to be offset by three items relative to last year to three items are number one lower cancellation and attrition fees number two the dispositions that we made last year and number three renovations.
These three items represent.
And a nearly $30 million EBITDA headwind when comparing to last year.
As the seasonality and adjusted EBITDA are expected for this year, we expect to earn about 60% in the first half and about 40% in the second half.
Turning ahead to adjusted <unk> for the full year, we expect to earn $1 48 per share at the midpoint.
It was approximately 4% behind last year due to both higher interest expense and higher income tax expense.
In conclusion, we continue to be optimistic about the recovery. The long term outlook is promising as demand continues to improve while the number of new hotels being built in the U S continues to decline.
We expect the rate of new supply growth to continue to fall and hit historic lows.
With demand growth that should result in strong pricing power for hotel owners.
<unk> continues to be well positioned with a high quality well located asset base and multiple levels levers for growth.
We expect the capital expenditure projects that we've discussed today to lead to a favorable setup for years to come and.
And our balance sheet is flexible and strong which will allow us to take advantage of opportunities that are likely to unfold in the years ahead.
That concludes our prepared remarks with that we'll turn the call back over to EMEA.
For our Q&A session.
Yes.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason at all or you would like to move that question. Please press star followed by two again to ask a question. Please press star one as a quick reminder, if youre using a speakerphone. Please remember to pick up your hand.
Before asking your question.
Our first question comes from Bill Crow with Raymond James You May proceed.
Hey, good morning, or good afternoon Marcia.
Marshall This is Michael for your question.
This might be a tough question to answer because of the seasonality.
It's really hard to get at.
You think that you've got to tell you that that business transient demand.
<unk>.
<unk> today with where it was in June or September of last year, where do you think theres been a little bit of erosion of the <unk>.
Underlying demand because of the macro concerns.
Yeah.
Hi, Good afternoon, Bill on the business transient side, particularly because I think when you when you were asking specifically about.
We've actually been seeing good improving on that.
As we've talked about when we started seeing some strengthening going into particularly later in the third quarter and going into the fourth quarter.
Certainly some of the recent trends that we're seeing on midweek occupancy is pretty promising so we're actually seeing a little bit more of a traditional <unk>.
<unk> when you look at day of the week type of occupancy.
And we're certainly seeing a little bit more strengthening and mid week. So.
What are you comparing it to the months that you were talking about last year I think we're actually seeing some some decent improvement there.
Okay.
And I guess, thank you in the second half of that question I guess is what you're seeing on the leisure front because.
Currently there are concerns out there about the pace of demand in some markets like the keys.
In some other markets that were so good for for the last couple of years.
You can highlight what youre seeing out there on the leisure side.
And Bill this is Barry.
On the leisure side as we are definitely seeing a continuation of strong demand even in markets like the keys. We are seeing in some markets, we're seeing a little bit of softening on the rate side in months that truly outperformed. So for example January was a relatively softer months in the keys historically.
Compared to February over the last couple of years, we've seen January be almost as strong as February in terms of ability to drive rate. So we saw a little softness in February but then we saw that kind of bounce back.
In February .
Again.
Because we were back to traditionally high demand levels there.
Sure.
Yes.
Thanks, and then one real quick follow up ill yield.
Before but.
Is hyatt, providing any sort of financial.
Incentive.
Either the <unk> era.
Renovation or the Scottsdale project.
No.
Specifically clearly when you think about what's happening there.
We talked about the fact that we're going to see some disruption there in the short term no.
As you can imagine that property has been performing very well so high it's certainly it was making.
Some some some good incentive management fees for example at the property.
They are from an economic standpoint, they are definitely participating from San stats that clearly we will see an impact to their short term management fees at the property.
And going forward, obviously, our basis and also increases which will set a higher higher base for incentive management fees going forward. So that's one way that we really look at it to say there.
There is an economic impact to Hyatt here, we've clearly been working with them very closely over the last.
And I would really 12 18 months to.
To look at this project and say what is the right level of investment that we want to make here.
And we're very excited about the plan, we've come up with and how we think this property will be positioned going forward.
Great. Thanks, Paul I appreciate it.
Yes.
Thank you.
Okay.
Thank you. The next question comes from Austin <unk> with Keybanc you May proceed.
Great. Thanks, and good afternoon, everyone.
I was just curious going back to the Hyatt Regency Scottsdale.
Renovation, which was the decision to pursue this.
Branding opportunity here kind of a post COVID-19 opportunity or something that you guys have been evaluating for some time and as you look broadly across the portfolio clearly <unk> had successes on the renovation front are there any other sort of.
More comprehensive renovation opportunities across any other properties that you'd highlight.
Thanks Austin.
Yes.
That's a great question and it's something that we've been working off for a long time frankly.
We had all the property since 2017.
So we've had good <unk> in <unk> with a really understand the property and where we thought the opportunities might be and we for a long time talked about the opportunity to increase the meeting space there.
It gives us a real opportunity.
To optimize the mix there get more group business being able to compress higher rates on the leisure side. So it is something that we have been considering going into COVID-19 for sure I'd call. It overall didn't necessarily change that what we have seen obviously is that post COVID-19 domestic leisure demand is extremely strong so.
It makes it a little bit harder from a short term disruption standpoint, but we absolutely look at business side, we want to be able to sustain and grow the cash flows at this property, we think that doing this.
Clearly we were coming up on the time, where we have to do a renovation of the property anyway. It was time to do the cyclical renovation the room product in us getting getting a little longer in the tooth.
Property overall, Hasnt really had a comprehensive renovation in a long time so.
And we felt that this is the absolute right thing to do so really brings us to the next level.
Yes, it's obviously something that focused on quite a bit in my remarks, but it's a market that we are extremely familiar which we've owned this property for a good number of years.
When we were at <unk> hotels and resorts, we actually owns two of the luxury hotels that are under our competitive peer set for this hotel.
As a matter of fact developed maltose hotels during that time. So it's a market that I would say, we probably know more about <unk> than any other market almost in our portfolio. So we're highly confident about what we think is the right thing to do with this asset and positioning us well for the future.
That's helpful detail and then how much of a $110 million I think of total spend do you expect to hit in <unk> 23 versus 24.
And assuming a similar economic backdrop would you expect there would be more or less disruption from this asset.
Next year.
It's about roughly.
Roughly about half and half in defense.
There is more work that's really guest on kind of next year.
As it relates to the room product in those type of things.
B.
And obviously you spent some money on pronghorn deposits and those kind of things. So it is probably roughly about half and half between this year and next year.
Certainly it's a little early to talk about exactly what's what the disruption is going to look like for next year.
One of the reasons why we're doing it over this 18 month timeframe is that again, we really worked on this over the last 12 to 18 months to look at what's the right now, but it's the right project to do here.
We got very excited by the various components that we're doing here and B, how do we staged as appropriately so kind of.
Both the disruption that we're dealing with.
And obviously wanted to get this project done as quickly as we possibly can.
Without upsetting the operations too much. So again, it's a little early to talk about next year's disruption, but there's a good amount of disruption in this year, just because of the fact that.
We're going to start working on the meeting space, which is largely limiting hi, its ability to really put a lot of group business on the books for the second half of this year.
The pool complex that will be.
Going is kind of the first part of the year, which obviously is going to impact some of the leisure experience at the hotel.
So the good thing is it's a seasonal market right.
So part of how we're looking at the the rooms renovation that will primarily occur in next year is that going to stay tuned and appropriate way to try to limit as much as possible disruptions during the busy season and have more disruption taking place during the summer when clearly the overall Phoenix market as a lower occupancy.
That's helpful and just last one for me I guess within the context of your Revpar growth guidance.
How did you think about or what's assumed I guess for some of the markets that have lagged in the recovery.
Since the onset of the pandemic and the Bay area, you talked about kind of Portland. Its first full year of operation how do we think about sort of that subset of hotels growing again within sort of the.
Overall guidance range that you outlined.
Yes, I mean, that's a good question I mean, its definitely above that range.
It varies quite a bit based on market.
The two acquisitions.
<unk> that we made.
More recently, <unk>, Nashville, and Hyatt Regency, Portland, we expect to see outsized growth there and then.
Some of the markets that have been the slowest to recover so, namely SFO Santa Clara.
We expect to see stronger growth, there and really that's been being offset by the renovation disruption that we've talked about as well as more moderate levels of growth.
Or no growth in some of the more leisure oriented assets.
Okay.
That's great. Thanks for the time everybody.
Thanks, Okay.
Thank you. The following question comes from David Katz with Jefferies. You May proceed.
Hi, everyone. Thanks for taking my question.
I just wanted to go back I know you made some introductory comments, but.
Are there any data points or any anything you can point to.
As we progress into this year I mean, the biggest challenge.
I assume we're all having us.
Trying to get a sense for what the back half of this year could look like can you just talk about that and I know you've touched on it but just to revisit what youre baking into your back half.
Guidance.
Yeah sure I mean as I mentioned.
In terms of top line for Revpar back half, we're assuming it's flat.
Next year and the reason is a renovations and be that how tough the comps are so.
So that's kind of how we're thinking about the back half and.
The.
And sort of a similar.
No.
Level of I guess <unk>.
Impact based on if you look at adjusted EBITDAR Hotel EBITDA. So that's kind of how were thinking about back half of the year.
Which is also part of the reason obviously.
We have a little bit wider range from guidance historically.
There clearly is a little bit more uncertainty about the second half of the year, particularly.
And again because this is.
For comfortable with this range that we've provided this morning certainly.
<unk> talked about our argument of guiding how we're looking at the balance of the year.
Yes, I mean that was kind of the thrust of my question is is.
Is the flat revpar assuming.
Some kind of modest.
Economic slowdown is that kind of where the base case sits what what what is the underlying base case for that flat.
Well, it's really sort of a similar level to what where the economy is right now we have not really modeled in a slowdown.
It's really more a function of the comparison and then the renovations, which do have a significant impact in the second half of the year. The first one.
Got it okay. That's exactly what I was after thank you very much.
Alright.
Thank you. Our next question comes from Michael Bellisario with Baird. Please proceed.
Thanks, and good afternoon, everyone.
I just said.
A couple more on Scottsdale, maybe tying together the renovation and potential acquisitions.
Scott, There's obviously a lot of dollar a lot of disruption as maybe your decision there to pull the trigger now.
Ticket and not all of them, but maybe the lack of product acquisition opportunities you're seeing at present.
Well, the one that doesn't rule out VR and they clearly have a good amount of dry powder still available based on liquidity that is each outlines that if we see attractive opportunities on the acquisition side that we can absolutely still execute on those.
And something like Scottsdale is really done with a really long term view and as I pointed out its something thats.
Vince has come about over the last couple of months obviously.
So thats some significant ROI projects, where a few few earnings calls.
During that during the course of last year and this was obviously a very significant one that we've been working on for a long time, so I wouldn't necessarily again like I said, one doesn't preclude the other but we certainly look at this as a very attractive use of our capital.
Given alternative uses of our capital and especially in today's environment. Clearly, we are not seeing a lot of relief.
Citing an attractive acquisition opportunities. So we're we're happy being patient on that side like what I've indicated really over the last couple of earnings calls as well I mean that Hasnt changed March we aren't seeing a great deep pool of potential attractive acquisition targets for us and we're obviously continuing to look for those are still off to.
Mystic.
We get deeper into the year that there might be some more opportunities on that side.
Yes.
Okay.
Okay.
Got it and then I don't think you gave it but what might have been the incremental I guess, maybe the base case renovation cost.
For for kind of a typical cyclical renovation of that property, you're trying to think about what the incremental.
Bill.
Cost is for the renovation that youre doing there.
Yes.
It's hard for me to give you an exact number on that because.
It can be such a wide range right I mean, if you just say look we're just going to do a very basic room renovation is that really the right thing to do as opposed to also touching common spaces.
Restaurants meeting space and all those type of aspects. So we believe that I mean, clearly there is a true additional costs as it relates to the expansion of the meeting space, which we think is a very important components of this overall project.
I'll set are slowly a true additional costs. There clearly is some additional cost as it relates to go into the standards of a grant high though for what it currently is with the Hyatt regency, but when we looked at those alternatives, we really looked at it across a really wide range wide spectrum.
Level of cost and with what we thought it would do for us on the return side. So it became pretty obvious and clear to us that going down this path and being able to.
Yes.
Get the luxury branding through Grand Hyatt is doing all the things that we're planning to do especially on the food and beverage side.
Creates much more interesting and exciting opportunities and get higher more spread of projects and products to sell and get us the right appropriate returns on.
Yeah.
Got it fair enough and then just last one from me for <unk> can you quantify that $30 million year over year headwind maybe for each of the three buckets you gave asset sales cancellation fees.
Renovation disruption.
Yes, so asset sales of $6 million, we put them in the release.
Cancellation and attrition fees last year, we earned 18 million typical run rate would be closer to nine so that's about a $9 million headwind and then the balance is the renovation disruption.
Which is a $15 million that we called out in the release as well so that.
That together gets you to the $30 million.
And there's obviously a number of renovation projects in there over and above Scottsdale, which we've obviously focused on quite a bit but we do have a rooms renovation at grand Bohemian Orlando.
Congratulation guys scenarios have Barbara.
<unk> comprehensive renovations were doing monetize salt Lake. So those are kind of the bigger projects that are <unk>.
Rolling up.
Construction loans.
Got it thank you.
Thank you. The next question comes from Ari Klein with BMO. Your line is open.
Thanks.
Maybe just on the W. Nashville, yet you have a few more months under your belt here and EBITDA came in at the adjusted expectation of $12 million. How are you thinking about that asset.
This year and kind of what your expectations are.
Hey, Harry it's Barry Thanks for the question.
I would say that each month were kind of incrementally seeing.
More and more progress toward what the goals are obviously, we're happy to have hit our revised number but I think made a lot of confidence in that.
What we're looking at for this year is continuing what we've done historically, which is looking at it.
Really.
Changing the mix of the hotel. So it's more group focused let me spend a lot of time and effort focused with the Marriott team on how to best position the hotel by by season, and it's a different hotel in January and February than it is in <unk>.
April and May to different hotel on Weeknights and does on weekends and really we've done a lot of time and focus on that.
We've done some <unk> some re energizing with the food and beverage team and the focus on food and beverage and really focus rather than overall really dig in and focused outlet by outlet on.
Where the opportunities are flex.
What's worked what hasn't worked and how does each outlet get positioned as the best outlet kind of within its class within the local market.
Got it thanks, and then maybe just on the expense.
Can you talk about how you're thinking about margin this year.
Martha I think you've always been a little hesitant to provide long term savings target, but is there anything on that front from a long term savings standpoint, where you think you still think there's some opportunity.
Yes.
I'll go back to what I've said about this before.
We're always very hesitant about that because it was extremely unclear at that point, what's critical inflationary pressures you were going to be dealing with where you have your mix of business was really going to change from what it was pre COVID-19.
The second question, obviously is a lots of things with it. So that's why we were always hazardous waste.
We did not believe you can just look at a statically I'd say, hey, we're going to be X basis points higher and I think that's proven to be the case. So I think we were appropriately hesitant to do so.
I think if you look back you can just look at the last few quarters right I mean, we.
We were up 17 basis points in the fourth quarter.
Relatively minor revpar increases over 19.
Yes.
Charles you're obviously thats, we are controlling cost fairly well to be able to actually increase your margin a little bit even when you see virtually no revpar growth.
And for most of US can remember does those before COVID-19.
The year is leading into the Gulf and we were having similar issues, obviously, where it was harder to drive revpar and drive rates, which made it very difficult to continue to move margins up.
So the fact that we're still seeing some margin improvement I think is a testament to how we are able to control costs and how we are able to run the hotels, a little bit more efficiently.
Well, it's clearly there continue to be pressure and we've talked about those we've talked about the labor cost increases we've talked about utility cost increases and.
Right.
Built in our.
Our expectation as it relates to those into the guidance that <unk> went through.
Yes, I mean, just more and more specifically.
Items utilities real estate taxes.
And insurance those three are a 50 basis point headwind for us and in 2023 relative to last year, and then the cancellation and attrition fees that I talked about are pretty significant headwind as well.
Nearly 100 basis points and then obviously, we've got the renovation disruption. So we do expect margins to contract over the course of the full year.
It's included in our in our guidance that we gave.
Thanks for the color.
Okay.
Okay.
Thank you.
Our next question comes from Tyler <unk> with Oppenheimer You May proceed.
Hello. Good afternoon. This is Jonathan on for Tyler Thanks for taking our questions I wanted to follow up on the transaction discussion. So I think you said you were optimistic it would improve but I am curious if you could provide additional color there sort of a house view on the acquisition environment as we move throughout the year.
Yes sure.
Obviously like I said, we we continue to.
Bill or pipeline look at the pipeline and see what's out there.
Just continues to be fairly shallow his or her life of assets that we think would be strategic fits for us and that would be the growth drivers for our specialists and our pricing expectation that still is out there. We do think that as we get deeper into the year that I just might be more proud of that comes to market and I think that's absolutely. The view that most of the brokerage community has too.
Most of the communication that we have with the brokerage community.
There seems to be somewhat a consistent view of the fact that.
The market isn't terribly deep right now with that there is an expectation on some more product coming to market as we get into the second half of the year. Some of that is obviously going to be driven by what's the overall economic climate is what is the interest rate environment look like.
There certainly will be a number of.
Owners that are looking at refinancing situations, where they may just say look at.
It might be an attractive time to potentially sell an asset as opposed to having to refinance at significantly higher rates than where it is currently flat.
So that's really our view as well at this point that we think there should be in an environment coming up that will be more conducive to more product being out there are seven more choice and more of an ability.
To look at what's really attractive to us and will be additive to our portfolio.
Very helpful. Thank you for the color there and then given your guys. Its strong liquidity position and strong balance sheet are there any markets or locations that you don't currently have exposure to that you'd like to get more exposure to or anything that would make sense at this point.
Well, we're going to remain.
Obviously, we're going to stick to our strategy as far as what works well for us and clearly we've had more for more of a focus on some of the location that I don't see that changing over time I think we like those markets from a long term perspective, we like the overall.
Market dynamics.
There are still some markets that were not in there are some markets, where we are where we could still increase our exposure to some extent, but we've always been hesitant.
So to really call out specific markets, because we want to be opportunistic and we wanted to look at assets that we think are good potential fit for our portfolio without really kind of.
Putting ourselves too much in a box of any specific market that we're targeting.
No.
Again, it goes back to hopefully having a greater opportunity set that allows us to look at a low with wider range of markets and that gives us gives us a chance to say okay. This is a market that we feel really confident about where we like the current dynamics.
And again that could be a market, where we're not could be a market, where we are right, where we have some exposure.
Clearly there are a few markets, where we have a lot of exposure already so it's unlikely.
We will expand the dose but we.
We like having the kind of geographic diversity the way that we've that we've always had throughout our history.
Very helpful. I appreciate all the color that's all for me.
Thank you we have a follow up from Bill Crow with Raymond James You May proceed.
Yes, thanks for letting me jump back in a quick question on that.
<unk>.
Grand Hyatt upgrade given the amount of capital that Youll have that asked if you had any protection from Hyatt.
We'll hold that introduced the park Hyatt enter that market.
Okay.
Well, we obviously bill as you know, we don't want to get too specific as it relates to any kind of particulars on some of the agreements that we have in place with our operators.
If you think about what is that.
Let me, let me answer it in a little bit different way because I think.
Okay.
Thanks part of your question is also as it relates to.
What is the right positioning for the resort in and of itself right.
We clearly looked at.
We think there is an opportunity to a branded hotel, we think of can play better and its luxury competitor set by going with a brand that has live with more cachet and as appropriate for a luxury resort.
And felt that Grand Hyatt as the rebranding here for a number of reasons I mean, the size of the resort.
As opposed to park highest and are generally a little bit more intimately lowered smaller.
Having done this kind of size this kind of meeting space.
I want to attract the right kind of customers that were looking for having to type of expense structure in place that we want to have in place with this asset and as you know, we've obviously have a wide range of assets, including within the Hyatt brand, where we do it at the park Hyatt <unk>, which is smaller from a rooms growth perspective.
Where it's more appropriate to have debt brands than here and the Grand Hyatt brand is something that.
There's obviously a mix of those assets throughout their portfolio too.
Obviously, a few more in our urban focus if you think about the resort locations that Grand Hyatt House, both domestically and internationally do you really have to think more about like.
And Thats when the outstanding resort in Hawaii. For example, it is a grant high resort that is probably a approach typical luxury resort, it's more around <unk>.
Thinking about it in that context, and why we think rent hydrus right branding for this asset.
Okay.
It feels like that's a market where hawkeye it would be.
It would be a good fit.
Really what spurred my question.
Alright terrific. Thank you.
Thank you.
Thank you Dan.
There are no further questions at this time I will now pass it back over to Marcel robust for closing remarks.
Thanks Neil.
Thank you all for joining the call today.
We.
We always appreciate the questions and look forward to updating you again next quarter.
Okay.
This concludes the conference call. Thank you for your participation you may now disconnect your lines.