Q2 2019 Earnings Call
Greetings and welcome to the Apple Hospitality REIT second quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Kelly Clarke Vice President Investor Relations. Thank you you may begin.
Thank you and good morning, we welcome you to Apple Hospitality REIT second quarter 2019 earnings call on this the six day of August 2019.
Today's call will be based on the second quarter 2019 earnings release, and Form 10-Q , which were distributed and filed yesterday afternoon.
As a reminder, todays call will contain forward looking statements as defined by federal securities laws, including statements regarding future operating results.
These statements involve known and unknown risks and other factors, which may cause actual results performance or achievements of apple hospitality to be materially different from future results performance or achievements expressed or implied by such forward looking statements.
Participants should carefully review, our financial statements and the notes there too as well as the risk factors described in Apple hospitality, <unk> 2018 Form 10-K , and other filings with the SEC.
Any forward looking statement that Apple hospitality makes speaks only as of today and the company undertakes no obligation to publicly update or revise any forward looking statements except as required by law.
In addition, certain non-GAAP measures of performance such as EBITDA EBITDA Ari adjusted EBITDA adjusted Hotel EBITDA FFO and modified FFO will be discussed during this call.
We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the SEC.
For a copy of the earnings release or additional information about the company. Please visit Apple hospitality reach dotcom.
This morning, Justin Knight, our Chief Executive Officer.
Krissy Gathright, our chief operating officer, and Rachel Rosman, our Chief Financial Officer will provide an overview of our results for the second quarter 2019, as well as an outlook for the sector and for the company.
Following the overview, we will open the call for Q and a day at this time. It is my pleasure to turn the call over to our CEO Justin Knight.
Thank you Kelly.
Good morning, and thank you for joining us today.
Before we get into the results for the quarter I would like to take a moment to introduce everyone to Rachel Rothman and we welcome to CA Fo.
On July Onest.
We are pleased to have her join us and we know that her extensive experience within the hotel industry and among the financial community will complement our existing team.
I'm incredibly proud of our entire team and their dedication to our shareholders the industry our community our management teams the associates at our hotels and our gas.
We have built Tonight NAMIC organization over the past 20 years and look forward to what we can achieve in the next 20.
During the second quarter of this year performance across our portfolio of hotels was steady.
Through portfolio optimization, we were able to increase actual revpar, 1.1% and comparable hotels Revpar was essentially flat at a nominal decline of 5.1% better than our expectations communicated on our last call, which contemplated revpar at the lower end of the full year outlook.
Comparable hbr for the quarter increased 8.5% offset by 50 basis points of occupancy declines.
Adjusted EBITDA was down 3% for the quarter and 2% year to date.
Comparable hotels adjusted Hotel EBITDA margin was 39.6% for the quarter and 37.9% year to date down 40 basis points and 30 basis points respectively.
We are now more than halfway through the year and 2019 is unfolding largely as we had expected.
Our relatively young geographically diverse portfolio of branded market, leading rooms focused hotels combined with our in house expertise flexible management contract structure and diligent collaboration with our third party managers have enabled us to help mitigate the impacts of the supply growth as well as property level cost pressures in labor property taxes and insurance.
Last quarter, we updated our full year 2019 guidance to reflect our performance during the quarter and the adoption of the new lease accounting standard.
This quarter, we are tightening the ranges on our full year operating guidance without adjusting the mid point to reflect performance during the second quarter and anticipated operations during the second half of the year.
We have not seen a meaningful shift in the industry trends.
As they relate to our portfolio and we believe the demand will remain steady through the remainder of the year offsetting continued supply growth in many of our markets.
At the end of the second quarter, approximately 69% of our properties had one or more upper mid scale upscale or upper upscale new construction projects underway within a five mile radius.
Which represents an uptick of 260 basis points from what we reported at the end of the first quarter.
Despite growth in projects under construction actual deliveries in our markets have remained relatively stable supporting our assertion that a portion of the pipeline growth is attributable to projects taking longer to reach completion.
Although the new supply presents challenges our portfolio has continued to produce strong results a testament to the strength of our brands are consistent reinvestment.
Our locations within markets and the quality of our onsite management teams, which we are confident will uniquely position us to remain competitive over the long term.
We remained selective as we consider new acquisitions and dispositions.
While we see more opportunities to underwrite high quality existing select service hotels than we did a year ago strong pricing for those assets relative to implied public market valuations and to replacement costs, which are also elevated combined with continued supply growth and the likelihood for increased volatility in the headlines around the 2020 election cycle have made it more difficult for us to find deals that satisfy our underwriting criteria.
These same dynamics make potential sales more attractive for us.
We continue to explore potential dispositions opportunities through both brokered transactions and in response to reverse inquiries.
Yep financing appears readily available for buyers of both individual hotels and small portfolios, which supports dispositions efforts.
As we continue to evaluate all capital allocation options our balance sheet is among the strongest in the industry and allows us tremendous flexibility to pursue opportunities now and in the future.
Our net debt to EBITDA at the end of the second quarter 2019 stood at 3.2 times three turns better than our select service peers.
We currently have seven hotels under contract for acquisition for a total expected purchase price of $216 million.
We highlighted five of the hotels under contract on previous calls all of which are under construction, including the Hyatt place and Hyatt House in Tempe, Arizona.
The Hampton Inn, <unk> suites, and home to suites, and Cape Canaveral, Florida.
And the courtyard in Denver, Colorado.
In July we entered into a purchase contract for our Hilton Garden Inn to be built in downtown Madison next to the University of Wisconsin Madison.
For approximately $50 million.
This expected 176 room non prototypical urban asset will have a 250 space parking deck generous meeting and pre function space and other amenities to offer visitors to the hotel the university and surrounding businesses.
We expect the hotel will be completed in late 2020 or early 2021.
We look forward to entering the vibrant growing downtown Madison market and increase in our geographic diversity with this acquisition.
Also in July we entered into a contract for the potential purchase of an existing independently owned and operated 55 room boutique hotel in downtown Richmond, Virginia.
The hotel is located in the Shopko slip area of Richmond, four blocks from our headquarters and a block from our core Garden residence Inn hotels.
The purchase price is approximately $7 million and we anticipate that after renovating and repositioning the hotel, we will be well below replacement value.
We plan to operate the hotel as an independent property and we will leverage our operational expertise to structure the services and amenities to be consistent with our rooms focused portfolio.
The acquisition is a unique low risk opportunity to gain additional insight into what drives consumer preferences loyalty and guest satisfaction independent and boutique hotels.
Within the comfort of a market that we know well.
We remain committed to proactively evaluating and responding to industry trends and this potential acquisition is an attractive opportunity to learn new things and use our scale and expertise to leverage those takeaways to improve the appeal and performance of our branded portfolio and inform our interactions within the broader scope of our industry influence.
Much of Apple hospitality success over the years has been predicated on our teams active and informed involvement in brand in industry councils and advisory boards.
We appreciate these opportunities and take pride in the fact that collectively we sit on more than 30 councils and advisory boards.
It is through our active participation that our voices is owners and stewards of capital in the hospitality industry are heard and in collaboration with our brand and industry partners, we helped shape the direction and future of the hospitality industry.
Given our strategy the types of assets, we own the diversity of our markets our asset management platform, our consistent reinvestment and the strength of our balance sheet. We believe we are positioned to maximize profitability and enhance shareholder value throughout the economic cycle.
In an up cycle and can be harder to see the benefits of portfolio optimization through disciplined reinvestment effective capital recycling and skilful brand geographical and chain scale selections.
However, it is precisely in times like these when Revpar growth is tepid that are lower volatility rooms focus business model broad geographic diversification and modest leverage position us to drive more visible outperformance.
Apple hospitality strategy of combining premier brands and locations with above average demand drivers together with best in class third party managers.
And our 20 years of asset management and business analytics experience continues to drive above peer average results.
It's now my pleasure to turn the call over to Crissy for additional color on our results for the quarter.
Thank you.
As Jeff mentioned, our comparable Revpar growth for the quarter and year to date was essentially flat as continued moderate demand growth was balanced with moderate supply increases across our markets.
As expected due to the shift in the fourth of July holiday and an extra Sunday, our monthly Revpar growth in June was the weakest of the quarter.
Conversely, we expect that our July revpar growth will be the strongest month of the third quarter.
Neutralizing for the calendar impact.
June and July combined had a revpar growth of around 1%.
We are pleased to see that through the last full week of July .
Our July revpar growth exceeded upscale and overall industry results.
We are also pleased that our corporate negotiated segment mix increased moderately in the quarter and year to date.
With the favorable calendar shift and easier storm related comparisons.
We expect a modest improvement in our third quarter revenue growth from the year to date trend.
We anticipate that the fourth quarter will be the most challenging with tougher comparisons related to non repeat business from the Boston area gas explosion.
And natural disasters in the prior year.
As for individual market performance, given our broad geographically diversified portfolio.
There were only two markets with an EBITDA contribution above 5% for the quarter.
Los Angeles and San Diego.
Excluding the Santa Clarita Hampton Inn Hotel, which was under renovation during the quarter.
Both of those markets had approximately 3% revpar growth.
Above our portfolio average.
The Phoenix market continues to perform well with healthy demand both business and leisure.
Exceeding increases in new supply.
We are also benefiting from the ramp of our downtown Hampton Inn, and suites, which opened in the second quarter of last year.
The outlook for this market is expected to be positive for the foreseeable future.
Our North Carolina, East and Florida Panhandle markets continue to benefit from higher year storm recovery business, which should dissipate in the third quarter for the former.
But we will continue through year end for the latter.
Quite healthy demand, our Austin, Chicago, Dallas, Nashville, and Seattle markets have been challenged by the absorption of new supply.
Our Austin market outlook is improving especially in the Parmer Lane area.
We're apples leasing additional space in preparation for its new $1 billion campus targeted to open in 2021.
Our Seattle Lake Union Submarket is expected to benefit long term from the convention center expansion and from increasing business demand generators, including Google and Apple ongoing campus expansions adjacent to our hotel.
Moving to other revenue our non room revenue grew 3% in the second quarter.
As this is a decline in food and beverage revenue and the increase in other revenue moderated during the quarter from the year to date trend.
Turning to profitability commendable cost control on the part of our operators assisted by our asset management team helped to produce a strong comparable hotel EBITDA margin of 39.6% during the quarter.
Representing a modest 40 basis point decline from the previous year.
In line with our guidance expectations same store total payroll increased 4% practice had room.
Controllable operating expenses, excluding payroll increased less than 1% per occupied room.
We are excited to share that our newly hired head of revenue strategy has been working in tandem with our asset management and business intelligence team.
Develop even more robust revenue reporting and management tools.
That will enable us to more easily identify and proactively act on pricing.
Segment and channel mix management opportunities.
We are also performing an in depth benchmarking analysis of the above property revenue support team.
Collaboratively working with our operators to improve upon identified opportunity area, while sharing best practices to enhance performance across our portfolio as always.
I will now turn the call over to Rachel to provide additional detail on our financial results.
Thank you Christie and good morning, everyone before we turn to the outlook for 2019, and an update on our balance sheet I would like to take a moment to thank Brian for his mentorship and are certainly big shoes to fill and thanks, Justin The board and my colleagues here at Apple hospitality for welcoming me to the team.
There are many of you on this call today that I've known in various capacity throughout my career in lodging.
Or is the sell side analyst.
And for those of you that I have yet to me I look forward to working with you.
As a former analyst for nearly 20 years I always wondered if the perception the investment community had have a management team.
Were consistent with how they actually work day to day.
Although it's early in my journey with Apple hospitality and pleased to say that the special balance of warm and diligence.
And positivity and discipline that always made Apple hospitality stand out to me as an analyst is real.
It's palpable and it's pervasive throughout the organization.
I'm excited to be here and it is an honor to be a part of the team.
As Justin mentioned, we are narrowing our full year revpar comparable hotels adjusted hotel EBITDA margin percent in comparable hotel EBITDA outlook, while maintaining our mid points as compared to the beginning of the year.
We now expect our full year 2019 comparable revpar growth to be in a range of plus or minus 75 basis points.
A narrowing of 25 basis points at both the top and the bottom end.
Correspondingly, we are narrowing our comparable hotel adjusted EBITDA margin percentage by 20 basis points at both the low and the high end.
The property level, the narrowing of our Revpar and margin ranges at the effective narrowing our adjusted EBITDA range by $2 million.
At both the low and the high end.
The mid point, our revised full year guidance range implies revpar in the second half of 2019, roughly flat with last year.
And an approximate 100 basis point decline in hotel margins to the back half of the year.
On an adjusted EBITDA basis, after taking into consideration corporate DNA.
We are narrowing our guidance to a revised range of $425 million to $441 million.
The $2 million reduction at the midpoint.
We have highlighted in the past a core underpinning of our board's approach to executive compensation is unwavering commitment to the alignment between the goals of our shareholders and our management team.
Full 50% of the executive teams incentive based compensation is tied to absolute and relative total shareholder return.
Year to date, our shares have outperformed our peers on a relative basis.
Assuming this outperformance holds and combined with the recent leadership realignment within our organization. We anticipate our 2019 Gionee will continue to outpace our prior year run rate.
As we have highlighted in the past.
With our efficient operating platform. Our total gene is roughly 60 basis points of enterprise value.
And 2.5% of revenue.
Putting both metrics at the low end of our peers.
Our team is continually evaluating opportunities to enhance the competitive positioning of our property.
And drive incremental return on our investment.
Through consistent reinvestment in our hotels, we maintain competitive positioning within our markets.
And help mitigate the impact is competing new supply.
During the first half of the year the company reinvested approximately $33 million in our hotels, including the completions of extensive property improvement plans and our Hampton hotels in Atlanta and Memphis.
These hotels are well located and strong performers and will benefit from the reinvestment in each of their markets continues to draw increased demand from demographic shifts and citywide investments in amenities and attraction.
We plan to spend an additional $45 million to $55 million during the remainder of 2019.
Which income includes the beginning of the renovation at our full service Marriott enrichment.
We expect the pacing of our remaining capex spend to be somewhat backend loaded as we have traditionally capitalized on the seasonally slower fourth quarter period to accelerate our renovations in an effort to minimize disruption.
The remaining scope includes starting renovation projects and 20 hotel.
Through July of this year, we have returned over $150 million to shareholders in the form of dividends and as of Friday's closing price our dividend represented 7.9% yield.
As of June Thirtyth 2019, we had approximately 1.4 billion of total outstanding indebtedness with a current combined weighted average interest rate of approximately 3.8%.
For the remainder of 2019.
Excluding unamortized debt issuance cost and fair value adjustments total outstanding indebtedness is comprised of approximately $462 million in property level debt secured by 29 hotels and 928 million outstanding on our unsecured credit facility.
The undrawn capacity on our unsecured credit facilities at June Thirtyth 2019 was approximately $232 million.
Our total debt to capitalization at June Thirtyth, 2019 was approximately 28%, which provides us with the financial flexibility.
To fund capital requirements and pursue strategic opportunities in the marketplace.
The weighted average debt maturities are five years and the weighted average maturity of our effectively fixed debt is four years at a weighted average interest rate of 4%.
We believe we continue to operate effectively against our strategy and that over the long term, we are well positioned to meaningfully increase shareholder value.
Thank you for joining us this morning, and we will now open the call for questions.
Thank you we will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, Hello, everyone. Good morning.
Hi, good morning.
Morning ritual welcome.
Good to hear from you.
Thank you Anthony Likewise.
Yes.
A question on the guess transient demand.
A lot of the other we've talked about.
Sharp slowing in transient demand on the corporate side in June in July .
Seems like you haven't seen that magnitude of a slowdown could you maybe go into why that would be for your portal portfolio.
Good morning, Anthony Thank you.
That's a great question and actually.
And as I've talked about in my comments that.
Throughout the year, we've seen.
See you even with flat revpar growth our growth is actually come from transient demand the transient has been better than the group.
I mean for us transient demand is up approximately 1%.
Group for VR select service hotels is typically.
Our social oriented SMERF type group and while that demand is actually out there.
We have to be a little bit more strategic about capturing that demand with the increased new supply. So one of the initiatives that we've really been working on is working with our new director of revenue strategy and with our asset management team really on focusing with the management company.
To layer in some additional group and as a result in June we actually saw our group mix was the highest level at 16% of our room nights. So we were pleased with that and looking forward our group looks a little bit better as we move into the third quarter.
With that also allows us to do is to.
To focus on being able to drive some additional rate on the transient side.
And if you look at the industry results. Most recently, what we've seen in June as well as in July month to date to actually the transient Revpar is up in June it was off of about 440 basis points, where group was down.
Group Revpar was down 2% in the running 28 transient revpar was slightly down at 30 basis points on a day everyday basis.
With versus group Revpar was down 2.5%.
As we can as per us with select service hotels of course, our booking window, we have limited visibility, but as we look out at our.
Transient pace and then in the next month of what we saw in June and the next month, we see consistency with our corporate customer.
And as well as with our transient sale.
One of the other pieces that I think that might play into that is that if you remember from last year. The first part of the year.
The suburban hotels in particular had a more of a negative comp related to hurricanes from the year before as well as the impact of new supply as we are moving into the latter part of the year.
There's there's a bit of a lifting of that negative comp and actually if you look at urban versus suburban performance in June and July you're seeing.
Urban actually trail suburban a bet so in a more favorable comp.
Eric at our portfolio tends to be is well is more suburban and another factor that we think also plays into that is that with with our mix. The stronger dollar has less of an impact.
The impact both in terms of.
Yeah.
International demand coming in but then also for the leisure traveler.
He would protect yields potentially choose destinations in the United States that because their dollar can go further overseas they might choose to go overseas.
So those would be the reasons that I think that we're seeing a little bit of a different story relative to some of the there some of our peers.
Got it thank you and just on on brands, I guess going even more into the urban suburban.
Question here.
Maryann Mafia seems to be getting a lot of traction and Hilton in Atlanta, and Washington, I guess upscale lifestyle brand.
Well these type of brands and I guess more urban markets be appealing to you over over given to you over the long run.
Hey, you know definitely weve been heavily involved with both Marriott and Hilton as they've looked at expanding that brand portfolios, especially into the lifestyle area.
And we're continually looking at an underwriting new brands within that space I think.
Yes, there is a bit of a difference between moxy and and some of the other lifestyle brands within the Marriott brand family and the lifestyle brands that Hilton intends to launch, making moxy, a little bit more of a niche play for particular urban markets.
But that said.
We think the new concepts.
We'll have broad appeal.
Address.
Some changes in consumer preferences, and certainly are interested.
In potentially adding those.
In the future.
All right great. Thank you.
Thank you.
Our next question comes from the line of Michael Bellisario with Robert W. Baird. Please proceed with your question.
Good morning, everyone.
Good morning.
And because then buyback any stock in the quarter was there any particular reason for that.
All right I think.
You saw us more aggressive than a number of our peers early as we.
Look to redeploy proceeds from sale into share repurchases I think.
As we discussed in our last call we are more apt to buy shares and our assets at this point utilizing proceeds from sale than we are to lever our balance sheet, but I think given.
The recent pullback in our stock price, it's reasonable to assume that we would view.
That we would see value.
Given current pricing and that share repurchases would be more attractive to us.
Got it that's helpful. Maybe just kind of on the same topic can you give us your updated view on.
Buybacks versus acquisitions.
Versus new development deals or take out deals and.
Anything changed with your prioritization over the last 90 days or so.
Hi. This is a very good question I think as I mentioned in my prepared remarks.
Pricing for existing assets by March.
<unk> continues to be very strong in fact in most cases.
We found it to be to exceed pricing on a relative basis for new build assets.
I think relative to.
Well it relative to two existing assets we see.
Newbuilds as being a better opportunity for this for US at this point in time and given the recent pullback and our shares.
We view.
We view share repurchases at least.
On equal footing.
With those particular types of projects.
Great. That's helpful. And then just lastly on the development deal in Madison.
Versus your prior development deals I know you had previously partnered with the developer developer you found the site you pick the brand.
Is that how the Madison deal came about and are you seeing any shifting kind of how you're sourcing those deals.
So so the Madison project is with a developer that has built for us in the past.
And actually.
So built for us the Phoenix asset.
Is building the two higher properties in Arizona.
And.
Our Colorado asset for us that the downtown Denver assets.
So is the relationship we have with the group.
Is one where they find sites for us we find sites for them, but I've been a group that we found can produce quality assets for us.
Per key price that that.
Enables us to continue to underwrite deals.
And in an environment, where we've seen construction costs.
Rising.
That's helpful. That's all from me. Thank you.
Thank you.
Our next question comes from the line of Austin Wurschmidt with Keybanc. Please proceed with your question.
Hi, Good morning, everybody just curious just given your comments on dispositions being more attractive I guess as you think about the you know.
Best uses either share buybacks or acquisitions, how should we think about the volume of assets your marketing or in negotiations on today.
I appreciate the question we have highlighted in the past that were opportunistic as we look at dispositions I think.
The total volume will depend on the continued strength of that market.
I highlighted in my remarks that we continue to see.
Significant interest I think in large part fueled by the availability of attractive financing for existing assets, especially of the quality that we have.
I think given the recent pullback in our stock and continued strength.
In the market.
For assets of the type that we have.
Assuming that continues to hold you should expect us to be more active in that space or.
Expect us to continue to be active in that space.
But but again.
We're fortunate in that our portfolio.
Is high quality and and fully consistent with our overarching strategy and so.
Our desire to pursue that type of transaction is wholly dependent on on pricing within the marketplace, which today is very good but we all know that those those dynamics can change over time.
Certainly should should we view I guess dispositions as sort of a leading indicator towards the.
Volume of of perhaps share buybacks to the extent that the stock stays around current levels.
I think it would be indicative, but as we showed last year in the fourth quarter.
When we have clear line of sight to a potential disposition.
Which you may or may not know about it.
Particular point in time, we're willing to to move with share repurchases in advance of that knowing that that.
We will have an ability to.
So essentially utilizing our balance sheet and then.
Paying that down with proceeds from sale.
Okay. That's helpful. And then you mentioned the acquisition of the small independent hotel as a means to kind of gaining additional insights.
Into the independent hotel business, but how should we think about your willingness I guess to jump further into the boot, both boutique hotel business or or your view.
Toward premium branded assets today.
Well I think you should continue to view.
Us as.
A company heavily focused on premium branded assets, we continue to see significant value in that space.
And this 55.
Unit or room hotel should not be viewed as a departure from our overarching strategy.
We have a unique opportunity in this particular market.
Where we own the full service Marriott have two very high quality select service hotels.
And now.
Soon to have this small boutique hotel.
To really gain additional insights, which will we believe help us to to manage our business more effectively.
As you know the brands have signaled on there are shifts in consumer preferences, which are causing brands to to look at ways. They can quantify.
You know that the product and services that they provide consumers.
In ways that that.
Address.
Or make them more local or or.
Appeal to to changing consumer preferences.
This hotel provides us with a very unique low risk opportunity to.
Explore some of those opportunities outside of the confines of brand.
Mandated.
Structures.
And then to take those learnings.
And use them as we interact with brands and as we manage our broader portfolio.
Overtime, we may decide that that's something that's interesting to us on a larger scale.
But in the near term.
You shouldn't expect us to meaningfully change our strategy, we continue to see ownership of high quality select service.
Branded hotels as being.
The best use of our capital and the way to generate the highest returns for our investors.
Okay. That's helpful. And then just last one around supply you did discuss a pickup in the construction pipeline.
But the fact that that actual deliveries have remained fairly stable I guess do you expect that the pipeline will remain stable, but could remain elevated for a longer period Lynn than you previously expected given that recent pickup.
In new construction.
Yes.
We anticipated that that.
New construction starts would peak.
Before now.
We signaled as much and in fact, what we saw was.
Couldn't new construction starts beginning to decline.
To be completed which is mitigating somewhat the impact of new construction.
On our existing portfolio.
But we don't anticipate.
That we will reach the peak.
Yes in the in the near term.
Okay. Thanks for the time today.
Thank you appreciate it.
Our next question comes from the line of Neil Malkin with capital. One. Please proceed with your question.
Hey, guys good morning.
Good morning.
So I think just to start with the revenue our operating optimization you talked about can you maybe talk about.
Some of those initiatives newer current that are starting to bear fruit and then.
I was reading about an academy, operator, who has dynamic pricing almost by the minute or hour based on things like flight patterns things like that are you looking at those types of things and again to see if you could speak to some of the optimization strategies. You are currently looking at that'd be great.
Good morning, Neel so for the second part of your question. We are working in tandem with brands and their revenue management teams as well as their corporate strategy team on looking at opportunities to.
To continue to improve the revenue management systems that they have.
We talked about in the past.
They can they are looking to optimize the system, even further to even move closer to.
A more personalized pricing atrophy atrophy based pricing, which will give us more opportunities to upsell and drive additional rate and to continue to preference direct channels, where we have the highest profit profitability. So we.
We will continue to work with the brands on that for our own internal team. We are really excited about some of the initiatives that we have in place I spoke a little bit in the call and then prepared remarks about being able to go in and really work with our manage our management teams and they're about property revenue management revenue strategy team and drill down on where that there's areas of opportunity.
A couple of areas that we're really focused on number one is we have.
Improved our forecast model appropriately and really looking at the data that we get from the brands on booking position and comparing that individually to the individual management companies and have been able to help them better optimize their motto, which not only helps with revenue strategy because they can more proactively identify opportunities, but it also helps from a labor management standpoint from that are forecasting four of occupancy.
We're also and I mentioned little earlier targeting.
With the additional supply for the group business is absolutely out there but.
The Ria what we saw is that some of our management companies weren't as dynamic as we would like to see so we're helping them put tools in place.
To more dynamically price first and make sure that they are going out and having.
Really solid understanding of the group business that's in the market.
Using those what I would call old school tools of going and.
Shopping their comp set but also use that youd leveraging.
New tools or.
Different reports that you show there competitive share versus the comp set in group or.
Utilizing see that or just all the different.
New tools that are available to target group and then adjust.
Rates as needed to be more competitive.
And also to adjust booking goals and then make sure that they have good accountability plans and programs in place to make sure that our sales teams out in the field are really driving the mix that we want on the ancillary income we continue to push for that we have.
I've seen some really strong increases in parking revenue is as well as late cancellation revenue that a late cancellation revenue is starting to moderate somewhat because we had a strong push at the beginning part of last year and so we're starting to lap lap comps there, but were still up on a same store basis.
We have 11%.
In Asia overall, other income which includes lease cancellation revenue in parking revenue.
One other area that we're working on is premium room up sales excuse me upsells and essentially that is.
By putting some upgraded amenities and in certain room types, we are having some quite a bit of success and being able to drive 20 to $40 more per night.
And really working on incentive programs with the management companies to to follow through with that there's more to come but those are just some of the things that we're currently working on and.
We'll be excited to tell you more in the future.
I appreciate the detail there. Thank you.
I guess going back to one of the first question asked about business transient trends would you say that or I think you had to guess the reason why you are fairing relatively better is that the potentially the type of business coming to your hotels versus maybe some of the of your peers, who are more on the coast just given the nature of the demand or businesses that cater to or again do you think it's more of a sort of suburban flush comp issue that that.
Driving that outperformance I would say, there's a couple of things first and I don't we're seeing healthy demand across the majority of our markets. So increases in demand we have very few.
Markets that actually that have declines in demand year over year. So the individual market performance is highly correlated to the supply relative to demand market. So thats. The first piece. So if that gap is closing and we're doing a better job absorbing supply.
Then we're doing a better job also being able to layer on that corporate business Theres.
There is more opportunity to do that I do think that there is a.
There.
On the individual markets, we end markets all throughout the country and on in each of those markets. There are.
Different.
Business demand generators, but what I can say is is that in looking across the markets and.
Looking at the drivers of the markets that we're seeing.
Business increases in multiple different segments in some segments or are some industries are a little bit.
More flat than others, but.
One of the areas, where we are seeing.
Decent.
Growth year over year is consulting type business accounting type business project type business, and I will say that for select service hotels.
That takes the select service and extended stay hotels those services.
When those companies are coming in and working with larger companies. These days tend to like to stay in.
Same select service hotels, but I do believe that you do need to look at each individual market what's there.
International mix, what it whenever they are so supplies.
Demand drivers.
You.
There's also government and military spending that where you're seeing being healthy in certain markets that we have as well but.
We might have a stronger concentration and relative to the.
National average.
Okay.
Thanks, and then last one for me.
I know you talked a fair bit about dispositions you had a portfolio about 16 assets youre going to sell to someone.
I think something like seven or nine were sold so that leaves the other I guess more or less half.
Is that something that's on the forefront or something that.
More eminent in closing.
Any thoughts on that and then in terms of just I guess your mix of interest for single asset there is portfolio.
I'm. So I highlighted earlier that that were very opportunistic and the way we view dispositions.
You know that the original portfolio was put together in response to reverse inquiry.
So there wasn't a particular magic around the assets that we selected for that portfolio.
That said.
I also highlighted that we continue to see strong interest in the types of assets that we own.
And we are having conversations.
Hey, you know both with potential portfolio buyers and buyers of individual assets related to.
Assets within our portfolio.
We're fortunate in that we have the.
Ability to act upon we win.
When we see pricing has been advantageous in both instances.
Thanks, guys.
Thank you.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Bryan Maher with B. Riley FBR. Please proceed with your question.
Good morning, guys and Rachel welcome aboard I'm sure. It will be a great addition to the team.
Quick question on and then most of my questions have been answered this morning, but I wanted to get a little color on this new supply if you could share with US who is behind the development of the competitive product that you're seeing is the one off owners is it private equity is it spec and at the end of the day is there any opportunity for you guys to take that out.
Some of that product out.
Via purchases, if the product doesn't work out to the developers expectations.
Yeah, I can speak to it I'm Chrissie feel free to add but.
Really.
We're seeing and you might imagine based on the total volume of New development, we're seeing all of the groups that you mentioned.
As as participants in new supply growth.
Interestingly.
We've seen a pullback in terms of volume from groups that have been.
Historically large developers of assets so a pullback.
Bye.
Owner operators, who have been in the business.
For several decades.
We're seeing increased participation on the development side.
By groups, who have less tenure in this space.
But not exclusively.
You know a pipeline only reaches peak.
When you have participants.
A variety of different places.
You know acting on new development projects.
And also just to add to that you have strong brands using Hilton as an example.
You got to have the existing operators that have had a lot of success lift hilton's brands and see.
Loyalty contribution may bring and say has launched a new brands recently and.
So those are continuing to ramp.
Say again.
Although we haven't invested and true because it's not in our chain scale home too is another brand that is solid and performing very well and there is opportunity to.
Develop that in markets.
As we continue to see some of that I think Tim and Thats an important point.
The brands have as saved launch new product offerings.
Taking into consideration rising construction costs and structured new offerings such that they they can be produced at a lower cost.
And you know that the traditional hotels smaller rooms smaller common areas.
Things assort, which.
Make them attractive even in an environment, where we're seeing rising costs.
Okay, Great and then just to make sure I get this right on that the boutique hotel that you bought in Richmond.
Did you share how much you are going to spend to renovate that that property.
So a point of clarification, we have the project.
Under contract right now so we're in currently in diligence and we have not yet disclosed how much we intend to spend.
On renovations, okay and to be clear. This is kind of an experiment for you in your own backyard in a market that you are comfortable in to kind of get your hands around the whole boutique asset and kind of how it operates has there been any thought of adding anybody to the staff. There that has a background in maybe boutique wheat.
Work, you know from a pebblebrook or lasalle or submit to you like that.
Or is it still too early for that and how long do you think it'll take for you to either get comfortable or not comfortable pursuing more in the boutique area. So a lot of a lot of good questions. There I think that I think it's important to clarify.
This is a unique opportunity and one of the advantages. In addition to that the entry per key price and where we think we will be in terms of total investment in the product.
And the fact that it's in our backyard.
We are uniquely positioned to leverage.
An operating company that manages three other hotels for us in markets in ways that we think will help this property.
To drive very strong bottom line results I highlighted in my earlier remarks.
It's a block it's actually a little less than a block away from our courtyard residence Inn and.
Less than 10 box, probably from our full service Marriott.
We have an opportunity with this particular hotel to use cost or sales.
To to potentially share laundry and others.
Other management services with that those companies, which which will uniquely position us.
To ensure that this property is profitable.
I think.
Yes, we have in this particular market gained additional insights which have helped to support our underlying investment.
Thesis.
By owning the full service retirement, Marianne so having real time comparisons from an operating standpoint between that.
And our courtyard in resin sand in the same market has been incredibly valuable for us and it's informed both our investment decisions and in March part our asset management.
Activities, we see this.
As an opportunity to further enhance our understanding and our efforts related to our larger portfolio, whether or not we decide to proceed.
With.
Unbranded.
Boutique hotels.
Thats.
At this point.
Not imminent.
And I'd say.
Not not even at this point is highly likely though.
It's important to understand that we're always looking at the changing landscape of our industry and looking to ensure.
That we're ahead of trends, it's also important to understand because you highlighted.
The potential for hiring talent.
From companies that have pursued the lifestyle space in a slightly different way than than our intent.
It is around this particular assets.
I highlighted in my earlier remarks, it is our intent.
To run from an operational standpoint, this hotel similar to the way we run our rooms focus like service product.
So.
You should assume as we're running this hotel that we will look to.
An operating model much more similar to a courtyard.
Then two at kimpton or or other hotels, that's going to have significantly more robust food and beverage operations and things that sort.
Really what we're wanting to experiment with here.
Is an opportunity to uniquely position our product.
Within a market to have.
Appealing to fill the gap within that market, while still leveraging an operating model, which has proven to produce stronger margins.
Than any of the other operating margin models that weve explored with in the hospitality space and as Justin mentioned it gives us the opportunity, which we're excited about the eagles assess some different initiatives right in our backyard without having to fit within that country.
Confines of brand standards, whether it be technology type initiatives or some additional product offerings. We're looking forward to doing that and then being able to walk right down the street and kind of see the results first hand.
Great. Thanks, that's helpful.
Thanks.
Our next question comes from the line of Dori testing with Wells Fargo. Please proceed with your question.
Good morning, guys and welcome Rachel.
Thank you Laurie good morning.
Well what percentage of your hotels are non pretty typical and what do you see the benefits.
Of those being.
So right now right now just under half probably dependent on on how you define non prototypical of our assets.
So.
And it's interesting the advantages of prototype.
Our generally.
Construction and operating efficiencies.
That brands put a lot of work and effort into designing.
Product.
We know that based on identified consumer needs and desired operating efficiencies.
And so historically, we have pursued more prototypical product.
Especially in markets outside of major urban areas.
Where we may be somewhat limited in the rate that we can generate.
And we've been able to to produce incredibly strong results with that type of asset.
As our portfolio.
Has become slightly more urban as we continue to enter into a higher density suburban markets.
In we've found that by stretching away from prototype so taking what's best about the prototype, but customizing for the local market.
There were a April .
In markets that will support it to garner additional rate.
Which.
You know layered on top of an operating model.
For rooms focus like service product, which is incredibly efficient generates even stronger bottom line results.
And that has been.
Incredibly attractive to us I think looking long term.
Nonproductive glass assets allow us slightly greater flexibility as we look at.
Future renovations and things of that sort and.
We were able to in many instances.
Leverage our understanding of the product.
And markets to build product.
That is uniquely positioned to have a sustainable competitive advantage so whether that's.
Pushing.
Beyond prototypical specs for fitness centers and markets, where we see that as being.
A particularly important demand driver or.
Adding rooftop bars.
In some of our markets, where we think that we can generate incremental revenue and create.
Higher perceived value for the product overall.
You know thats, where were really pushing beyond prototype and.
Finding incremental value.
Okay. Thank you.
Thank you. Thank you.
We have no further questions at this time Mr. night I would now like to turn the floor back over to you for closing comments.
Thank you.
We recognize that for many of you. It's a very busy morning, and we appreciate you taking time to join US we hope as always though as you travel you will take an opportunity to stay with us at one of our hotels have a great day look forward to talk to you soon.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.