Q2 2023 RLJ Lodging Trust Earnings Call
Welcome to the R. L. J lodging Trust's second quarter 2023 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
I'd now like turn the call over to Nikhil Bhalla, our L. J Senior Vice President Finance and Treasurer. Please go ahead.
Thank you operator.
Good morning, and welcome to our new logging trucks going 23 second quarter earnings call.
Days call Leslie Hale, our President and Chief Executive Officer will discuss key highlights for the quarter.
Sean Mahoney, our executive Vice President and Chief Financial Officer.
The company's financial results.
Tom Barnett, our Chief operating officer will be available for Q&A.
Forward looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results could differ materially from what had been communicated.
Factors that may impact the results of the company can be found in the company's thank you and other reports filed with U S.
The company undertakes no obligation to update forward looking statements.
Also as we discuss certain non-GAAP measures. It maybe helpful to review the reconciliations to GAAP located in our press release.
Finally, please refer to the schedule of supplemental information, which was posted to our website last night.
But it includes pro forma operating results current hotel portfolio.
I will now turn the call over to Leslie.
Thanks, Nikhil good morning, and thank you for joining us today.
Overall, we are pleased with our second quarter results, which were in line with our expectations, our urban market concentration allowed our revpar growth to exceed the industry for the second straight quarter.
With demand continuing to grow we remain constructive on the overall health of lodging fundamentals, which continue to unfold, but trends favorable for our portfolio.
The industry is benefiting from the strength in group and a continued recovery in business transient, which are disproportionately driving urban market and enabling them to outperform.
In addition to achieving year over year revpar growth above the industry, we delivered another quarter of solid execution on our key objectives, including <unk>.
Ramping our three 2022 conversion, which are exceeding 2019 level and are well ahead of our underwriting.
Executing on our conversions in New Orleans, and Houston announcing a new convergent in Nashville.
Billy repurchasing our shares and enhancing total shareholder return by increasing our quarterly dividend for the second time this year.
Our second quarter performance demonstrates the advantages of our urban concentration and the embedded growth within our portfolio as well as the optionality that our strong balance sheet provides us to execute on multiple capital allocation opportunities simultaneously.
With respect to our operating performance, our second quarter Revpar increased by four 5% over last year.
Beating the industry by 200 basis points year.
Year over year growth in demand and continued pricing power enabled us to drive a nearly 400 basis point increase in ADR.
Our revpar was 96% of 2019 level, representing a new high.
We achieved these solid results despite the impact of a writer strike and poor weather in California and Florida.
Our growth continues to be led by our urban market, which are being driven by strong group.
<unk> international and healthy urban leisure demand.
Revpar in our urban markets grew seven 7% over last year and achieved 2019 levels for the first time.
Representing an improvement of over 300 basis points from the first quarter.
We were pleased to see that our revpar growth over last year with balanced with occupancy increasing by 200 basis points and ADR increasing by 5%.
Notably our urban ADR exceeded 2019 level by 10% or more in most of our key urban markets.
The second quarter also benefited from our successful efforts to increase out of room spend grew revenue enhancement initiatives in areas, such as parking and F&B outlets.
These initiatives resulted in a robust 21% increase in our non rooms revenue this quarter and let our total revenues to grow by 7% ahead of last year and achieved 2019 level.
In terms of segmentation the positive momentum in business transient carried board throughout the second quarter.
Business transient demand continued to be led by SME and was bolstered by the ramp of a broad range of industries, such as aerospace automotive insurance healthcare and consulting.
Our BT revenues achieved 71% of 2019 level, which represented a 300 basis point improvement from the first quarter.
We were encouraged to see May and June achieved over 90% of total corporate room nights booked in 2019.
On a year over year basis, our business transient revenues increased by 12%, which was evenly split between occupancy and ADR growth.
Further evidence of our positive momentum in business transient demand.
<unk> and our weekday revpar, which increased by 6% over last year.
Our group segment benefited from increasing corporate demand for meetings and events a robust volume of self contained social groups and strong citywide events, such as Formula One in Miami and the Kentucky Derby in Louisville, which allowed our group performance to exceed our expectations for the quarter.
Our group revenues increased by 13% over last year, which was primarily driven by a 10% increase in ADR.
Group revenues achieved 103% of 2019 level.
400 basis point improvement from the first quarter with 80 or exceeding 2019 by 13%.
The forward momentum in our group demand as evidenced by our current group pace for the third quarter, which is tracking at 130% of 2019 level.
Our leisure segment was driven by the continued strength in urban leisure demand, which was partially offset by the expected moderation in our resorts, that's all normalization of demand.
Our strengthened urban leisure enabled our urban weaken revpar to increase by 4% over last year.
This robust growth, let our urban weekend revpar, so cheap a 500 basis point sequential improvement relative to 2019 from the first quarter.
Healthy leisure trends in our urban markets are being bolstered by the sustained leisure demand driven by both the hybrid work and flexibility and return of concert and entertainment events, such as the Taylor Swift tour, which benefited about a third of our markets during the quarter.
These trends flow to our bottom line with our portfolio, achieving EBITDA that was 3% higher than last year, and 93% of 2019 level, which represented a nearly 700 basis point improvement from the first quarter.
Profitability continues to benefit from our lean operating model with fewer ftes, allowing us to offset broader inflationary pressures on operating costs.
We achieved EBITDA margins of 34, 4%, which was only 130 basis points lower than last year as labor markets are normalized.
Moving to capital allocation.
We continue to make progress on multiple initiatives that are associated with significant embedded growth opportunities within our portfolio.
This quarter, we announced our third conversion for 2023 with our Nashville Hotel, joining Hilton tapestry collection.
Hotels ideal location close to Broadway was already poised to benefit from significant redevelopment and now as part of the tapestry collection. The hotel will be able to fully unlock the potential by immediately leveraging ecosystem. We will complete a comprehensive renovation next year to further position the hotel to capture increased mark.
Sure as a lifestyle boutique hotel.
Additionally, we advanced our two previously announced 2023 conversions in Houston and New Orleans.
Their transformational renovations will be completed by year end and will position these hotels to capture incremental ADR and their respective location.
We're also benefiting from the ramp of our conversions in Charleston, Monica and Mandalay Beach, which generated revpar growth that is nearly 50% over last year on average in aggregate EBITDA at these hotels with 20% above 2019 in the second quarter. We continued to expect our conversion to generate robust double.
Is it return, which will further advance our operating performance and any of the appreciation of.
Additionally, once again, we demonstrated the optionality that a strong balance sheet the board by pulling multiple capital allocation lever simultaneously.
This quarter, we repurchased $25 million of shares at attractive levels on a leverage neutral basis.
Our strong balance sheet and free cash flow profile also gave us the confidence to raise our quarterly dividend for the second time. This year, our third quarter dividend of 10 cents per share represents a 25% increase from the last quarter.
As we look for it or macro economic uncertainty remain we are optimistic that the industry can continue to achieve positive revpar growth through the remainder of the year despite tougher comps.
Relative to this backdrop, our portfolio is extremely well positioned given that urban leisure demand should remain strong driven by bleser trends in this new environment.
Business transient should continue to see positive trends for the remainder of the year.
Bus group trends should carry forward.
Confidence is bolstered by a strong citywide calendar in the second half of the year and many of our top mark.
Additionally, we are seeing robust in the year for the year booking activity with our group pace, reaching 97% of 2019.
200 basis point increase at the beginning of the quarter.
Improving inbound international demand should have an outsized benefit the urban markets and the continuing ramp of our recently completed conversions should provide incremental tailwind.
We believe that all of these trends should enable us to continue to outperform the industry as we demonstrated during the first half of this year.
Longer term, we are bullish on the outlook for lodging fundamentals in light of the increased importance of consumers are placing on travel combined with a multi year horizon from you to new supply.
Given our ability to capture this new normal these dynamics will be especially beneficial for our portfolio, which is uniquely positioned to drive outsized EBITDA growth given our concentration in urban markets, which have additional run room for significant growth.
Our high quality diversified portfolio that benefits from seven day, a week demand and is aligned with a new live work play environment.
The upside from our completed conversions and recent acquisition.
The execution of our incremental internal growth opportunities, including the completion of our next three conversions and our pipeline of future.
And our strong balance sheet and free cash flow profile provides the optionality that drive incremental internal and external growth.
We are encouraged with our strong relative positioning and multiple channels of growth.
Now I'll turn the call over to Sean.
Thanks Leslie.
Dart our comparable numbers include our 96 hotels falling throughout the second quarter our.
Our reported corporate adjusted EBITDA and <unk> include operating results from all sold and acquired hotel during <unk> ownership period.
We were pleased to report strong second quarter operating results, which were consistent with our expectation.
Second quarter Revpar grew four 5% above 2022, which was primarily the result of a three 8% increase in ADR and a 0.6% increase in occupancy.
Second quarter portfolio occupancy was 75, 1%, which was 91% of 2019 level.
Average daily rate was $204, achieving 107% of 2019 and.
And Revpar was $153, which was 96% in 2019.
Sequential improvement in our second quarter results were primarily driven by our urban market.
Whereby revpar exceeded 2022 by seven 7% and exceeded 2019 levels in most of our urban market.
There's new York at 104%.
Louisville at 118%.
San Diego at 102%.
Washington D C at 107%.
Tampa at 135%.
Indianapolis at 108%.
Pittsburgh at 109%.
Monthly Revpar exceeded 2022 for each month of the quarter and grew six 8% in April four.
4% in May and two 7% in June .
And achieved 97%, 96% and 96% of 2019 levels during April may and June respectively.
Our second quarter operating trends, let our portfolio to achieve hotel EBITDA of $122 $8 million and hotel EBITDA margin of 34, 4%.
Our margins were only 132 basis points lower than the comparable quarter of 2022, and only 202 basis points lower than the second quarter of 2019.
We were particularly pleased with our operating margin performance in light of the very difficult comp to the second quarter of 2022, where margins benefited from a combination of a rapid revenue recovery quarter in the same period with pandemic level. The hotel operating costs, which were still in the early stages of ramping.
Turning to the bottom line, our second quarter, adjusted EBITDA was $113 $8 million.
And adjusted <unk> per share with 56%.
Both of which were within our guidance ranges.
While demand remained strong during the second quarter.
Operating costs continued to normalize.
Underscoring the benefits of our portfolio construct and realization of our initiatives to redefine the operating cost model.
Total second quarter hotel operating costs, only 2% above 2019 levels, which is meaningfully below the aggregate core CPI growth rate in 2019 of approximately 15%.
There are many factors that influence the positive result with.
With the most significant contributors being a successful restructuring of many of our third party operating agreement.
And reductions in property taxes.
Both of which are expected to continue benefiting our operating costs.
Second quarter wages and benefits are.
Our most significant operating costs at approximately 40% of total cost.
Were still slightly below 2019 level.
During the second quarter, our hotels continue to operating with approximately 20% fewer FTE and pre COVID-19 demonstrating the flexibility of our labor model and the post COVID-19 environment.
Our portfolio remains better positioned for the current labor environment due to the need for fewer ftes, given our lean operating model.
While our footprint.
Limited F&B operation and longer length of stay.
We remain active in managing our balance sheet to create additional flexibility and further lower our cost of capital <unk>.
Including extending $425 million of debt the 'twenty 'twenty four.
As previously announced during the second quarter, we recast our $600 million corporate revolver.
And entered into a new $225 million term loan to refinance 2024 maturing term loan.
Our new corporate revolver has a term of four years to 2027 and include the extension option for an additional year.
The new $225 million term loan has in it.
Actual term of three years and includes two years of extension option for 2028.
The other key terms of the transaction included regaining pre COVID-19 pricing grid and.
And covenant modifications to increase flexibility.
The execution of these transaction is a testament to our strong lender relationship.
Favorable credit profile.
So far in 2020 three we have taken advantage of continuing interest rate volatility to proactively manage our interest rate risk by entering into a $450 million of new interest rate swap.
Today, our balance sheet is well positioned with an undrawn corporate revolver.
Our current weighted average maturity is approximately 3.5 years.
81 of our 96 hotels are unencumbered by debt.
Our weighted average interest rate is an attractive $3 nine 8%.
And 93% of debt is either fixed or hedged.
Turning to liquidity, we ended the quarter with approximately $477 million of unrestricted cash.
$600 million of availability on our corporate revolver and $2 $2 billion of debt.
With respect to capital allocation as well as Lee said, we remain committed to returning capital to shareholders through a combination of both share repurchases and dividends.
During the second quarter, our board approved a new one year $250 million share repurchase program, which provides us with a tool to take advantage of capital market volatility.
During the second quarter, we were active under our program and repurchased approximately two 5 million shares for $25 $5 million or an average price of $10 23 per share.
In total during 2023, we have repurchased approximately five 3 million shares for $54 $2 million at an average price of $10.22 per share, including one $3 million repurchased so far during the third quarter.
Turning to dividends our board recently authorized 25% increase of our quarterly dividend to <unk>.
<unk> per share starting with the third quarter.
It represents the third dividend increase since last summer.
Our dividend remains well covered and supported by our free cash flow.
We will continue making prudent capital allocation decision to position our portfolio to drive results during the entire lodging cycle, while monitoring the financing markets to identify additional opportunities to improve the latter half of our maturity.
Reduced our weighted average cost of debt and increase our overall balance sheet flexibility.
Turning to our outlook.
Based on our current view, we are providing third quarter guidance and anticipate a continuation of the current operating and macroeconomic environment.
For the third quarter, we expect comparable revpar between $137 and $143 comparable hotel EBITDA between $94 million and $104 million.
Corporate adjusted EBITDA between $85 million and $95 million and adjusted <unk> per diluted share between 37 and 44 of them.
Our outlook assumes no additional acquisitions dispositions refinancings or share repurchases.
Please refer to the supplemental information, which include comparable 2019, and 2022 quarterly and annual operating results for our 96 hotel portfolio.
Finally, we continue to estimate our O J capital expenditures will be in the range of $100 million to a $120 million during 2023.
Thank you and this concludes our prepared remarks.
Now open the line for Q&A.
Operator.
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, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue 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.
Our first question comes from Michael Bellisario with Baird. Please proceed with your question.
Thank you and good morning, everyone.
Hey, Mike.
First question for you just on the transient side can you maybe talk about the pickup that you saw them materialize throughout the second quarter and then also what you're seeing so far in <unk>, especially in the context of your guidance, assuming some slower year over year Revpar growth.
Third quarter.
Yeah, Mike I think on the AR on the transient pickup side I mean, as I sort of think about it on the on the B T. V. T is you know overall continuing to improve and we're seeing good momentum. So you recognize that it's gradual but it's been consistent when we look at or mid.
Weak trends or.
Our revpar was up 6% year over year, when we look at May and June our room nights were at 90% of 2019 levels and so we're seeing the momentum play itself out I think as we talked about them in our prepared remarks, our BT revenues are up at 70% of 2019 levels at 300.
Basis points of year over year, and overall revenues are I'm, sorry, it was quarter over quarter year over year, our revenues were up 12% and it's split between room nights and rate and so we're really encouraged by that pickup that we've seen.
You know N V T and as we look forward into the third quarter Theres, no holidays or anything that would give us concern that suggest that that trend can't continue is continues to be broad based with Smes continuing to lead but we are seeing the national accounts continues to make production.
You know for us and so we're encouraged by what we're seeing there I would also say on the transient side when I think about leisure.
Really a tale of two cities, we recognize that you know that leisure demand overall, the travel patterns are normalizing and that's obviously affected our resorts.
Now being down, but when we look at urban leisure.
Urban leisure remains strong our weekend Revpar in urban was up 4% as we as we talked about in our remarks.
And it's about 115% of 2019 levels and that's about a 500 basis point improvement quarter over quarter.
When we think about what's happening in the urban markets. We see last year, we saw urban weekend beans, really driven by social events. This year, we're seeing the venues that are still ramping. So it's beyond just you know concert, but generally the commercial venues are producing for us and that's attracting that live work play.
Environment. So I think from a transient perspective, we're seeing as we drill down on the data points I'm you know both business in an urban leisure continue to produce for us.
Thanks for that and then just one more for me maybe on the operating side can you just remind us or help us understand sort of the flexibility that you guys have.
Maybe what changes did you make during the second quarter or what changes can you make on the fly to adjust to a.
Different demand environments going forward. Thank you yeah.
Yeah, I would just I would just frame you know for you. We obviously feel very good you know about our margins.
Keep in mind that our Ftes last year, we're at about 75% of 2019 levels, we're running at about 80% today to just a you know that's obviously, having an impact but overall you know our operating model given the small footprint I'm you know given our length of stay that some of the things that Sean talked about it does allow.
I was just sort of pivot you know our FTE model as we move through a quarter as trend sort of unfold and I'll, let Tom give some commentary.
Yeah, Mike Good morning.
I would say, where we're finding synergies that we know we're gonna be sustainable is in the sales and marketing department food and beverage based on hours of operations and deliverables, we feel good about the staffing model that Leslie referred to on the FTE count that you know as occupancy rises that will maintain around an 85%.
FTE, which helps us because as you know wages and labor is up compared to 2019 levels based on you know the market rates that we have to pay to be able to attract talent and then lastly, I would say we are finding that the opportunity to you know a higher our own employees as increasing applicant flow is good.
Good we're feeling good about retention rates and we're seeing reduced turnover. So it's a healthier environment as we go into the summer time, because obviously, we're busy occupancies are good and employees are getting hours. So on an overall basis, we feel good about the environment to the workforce.
Like what I would say is one of things that allows us to pivot quickly as our split between.
Wage hourly wage salary employees versus Sally.
Salary employees until when you have.
A higher percentage of hourly you can pivot quickly and I think that our model for them to be able to do that.
Yeah.
Helpful. Thank you.
Our next question comes from Dori Kesten with Wells Fargo. Please proceed with your question.
Oh, Thanks, good morning on your renovated and converted hotels can you remind us what the rate spread was to the comp set prior to conversion and where you are today and where you would expect those to stabilize.
Yeah Dori. So you know when we when we talk about that pre Kurt.
Pre conversion generally speaking those are those hotels were running at roughly 90% of share against I guess, the comps that's relative to to where our portfolio ran which is 110% and dollar amount that was somewhere in there than there are in the 20 to $30.
Depreciation and what we've seen.
Since relative in 19, as those hotels post conversion or post reopening are outperforming that and gaining share and that share gain is is.
For me from a combination of incremental ADR, which is primarily driving it but we're also the out of room spend through the conversions is also going up.
A big driver of our ability to Ah at that those conversions and the other thing I would add to Dori is when we look at our comp sets. You know we now have more what we would call aspirational comp sets, where the market. We knew the rate was different in the market for some of the competitors that we weren't able to compete with and now that you're converting.
A curio or an independent and the capital that we're putting in there allows us to change the environment of where we're actually launching and product is fantastic to be able to compete at a much higher level. So that kind of changes the way, we think about where we're going and the underwriting really kind of looked at the current concept versus.
Where we are where we think we're going to end up.
Yes.
But and he can you talk about your current acquisition pipeline and if you'd expect to be a net buyer or seller this year.
Yeah, I would say you know George not much has really changed since our last.
Paul I think the transaction market in general continues to be constrained clearly you know the debt you know markets as well as rising interest rates are key factor that many brokers are actually advising their clients not to take things to market in this environment. The solid fundamentals that we are experiencing are encouraging potential sellers just a hole.
And so they've been really limited you know transactions you know on that side, you know given that the backdrop will be opportunistic you know, but you know we don't need to be programmatic, given our balance sheet strength and portfolio opposite position.
And I'd say that we're just looking at the current climate one thing I would say that has changed as we've started to have more conversations but its way too early to decide whether those conversations are going to translate into anything what I do know, though is that the reason why we're getting more calls and because we're an all cash buyer and you know that when the market does open up we're going to benefit from that.
But I would say right now that's the general transaction market buyer or seller is generally constrained.
Okay. Thank you.
Our next question comes from Bill Crow with Raymond James. Please proceed with your question.
Hey, good morning Leslie.
And Sean.
I wanted to go down a little bit of a different path, but let me follow up to <unk>.
<unk> question and ask you whether the environment in New York City is not good enough at this point to start thinking about the knick and the sale of the neck.
Yeah.
You know I think it's a great you know an interesting question Bill, but I think where we sit today in the capital markets. Its really constrains are the buying pool and so we would want to see.
That market improve but you know in general we think the way we positioned our portfolio today I think urban lifestyle, but then Nick given its key count It's limited F&B fits well within our within our portfolio are you know, having said that I think the general transaction market is still constrained for us looking at selling an asset of that quality given its iconic.
Asian.
And are you now works at our portfolio today.
Alright, I wanted to go out this leisure pass a little bit and I know, it's it's already come up but you do sound more optimistic than your peers.
Leisure and the same time, you said, you're seeing some normalization. So I'm trying to figure out exactly what it is that youre seeing that might be different than other people and I'm wondering whether you know.
The value proposition that your portfolio may offer geographic footprint.
Maybe it was the Taylor Swift.
Benefits.
I don't know if you can quantify for the second quarter, how much that helps you but.
You know what are you seeing any.
Any changes in the consumer.
Whether it's trading up trading down longer shorter stage changes to your booking window that you can see.
We're all trying to get a read on the consumer and demand here domestically.
Yes, Bill. Thanks for the question I really think it's sort of a couple of things I think first and foremost as I've mentioned before your urban venues are still ramping I think about it for a second and many of the conscious and things that are saying that we're seeing right now they didn't happen for two years and so there's a that's kind of rolling out.
Now and and we're seeing the benefit of that our hotels are typically located near these venues and our great pivots for that leisure that we've been talking about we really see that you know given the work from anywhere environment that are Thursdays are turning into checking nights and that the type.
[noise] of hotels that we have are able to pivot into a weekend experience off of a business play and so you know we think that we're benefiting from that in the urban and market and we think that that's a trend. That's here to stay we think the types of assets that we own are able to capture that I think it's playing out.
Within our within our portfolio and that's why we sort of call out urban urban leisure in terms of how it's how it's performing and I think that you know there's still room to grow on that we saw our revpar increased by 4% our rate was the primary driver of that with increasing by 4% you know, but we just haven't seen it.
Any softness on the week inside.
And I would add to Leslie his comments bill in regards to the booking window because I know you asked about that you know when we think about the booking window. You you look at a couple of different categories.
Categories of segmentation, one when you think about transient it's still a short term booking window. So when the consumer has optionality and has choice. They can take longer for instance, if you think about zero to seven nights prior to arrival, it's now at 58% versus 51% back in 2019.
So they're taking their time, because they still have that last minute, let's go attitude and the other thing I would say is on the group side. When we think about the booking window. It's still short term, but it is starting to elongate a little bit where we're starting to see booking pace getting more on the books further out but we're encouraged that the show.
<unk> term bookings and the small groups are still booking short term, which gives us pricing power even when we look at our crossover goals for 2024 at some of our larger full service hotels, we're way ahead.
In 24 versus 23, and that's what I was talking about the booking window and the consumer now putting a little bit more credence into bookings something further out and landing on a on a date and then when you think about our portfolio and the value. It really is because we have 50% suites to bill when you think about how we differentiate ourselves and.
That is very attractive in regards to a value buy and when it comes to the consumer you almost have two different hotels at a suite hotel during the week and weekend, you really have a much more family relationship and sports teams and you'll see that on the weekends, where a weekday you can act as a business transient hotels, so that seven day heart of demand.
Occasionally Leslie you talked about is critical for our portfolio to differentiate ourselves.
It's actually a color I appreciate it.
Our next question comes from Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, maybe one more leisure question looking at markers like key west or Miami. It seems like you took down ADR, but maintained occupancy and I've seen some other reports where there was the opposite where they tried to maintain rate and saw a big drop in occupancy. So I guess I'm curious what do you think the better.
Strategy isn't there and are you finding actually some price sensitivity.
I think in the leisure customer here.
Yeah, So if you're referring to Anthony quarter, two in key West we always have kind of draft. It off of the location that is a little bit more desire, but when you go to the back area of key west and the southernmost point, we've always had great value purchases and when the resorts were re.
Moving further ahead, we were able to draft off of that on the way back down we were able to kind of maintain our occupancy because we're a value buy and then not lose as much rate. When you look at key west can we have our doubletree suites as well as a Fairfield Inn that kind of goes left and right. When you go to mile by four mile on the case before.
You go to the southern more support on the water. So that was one strategy. We took there and we take quite a bit of government business, because there's still a significant amount of volume of that in per diem went up. So it was a good strategy to stay in that direction in the second market you mentioned I didn't hear your question on Miami, Miami Miami, Yeah. So.
In Miami, we were under a little bit of a renovation. We obviously had a significant first quarter result, but then we went under the knife in one of our hotels will be back in the shoulder months of fourth quarter and feel good about that and that's primarily or a hotel on the beach down there Cabana, our Hilton down there. So we will see a better result in the fourth quarter based on.
We had some rooms out and the second one sorry.
Sorry.
Oh, it was going to say Anthony this is sort of book in onto you know to Toms comments is is that.
Or are you know our resort markets are sort of true leisure markets, we saw lift, but we didn't rise as high and so you know the price point is still very attractive our resorts were down 4% and compare that to many of our peers are down much more substantial than that its a function of we had a more sustainable.
Anable increase you know on a relative basis to our to many of our peers I'm like John Hopkins, Yeah, That's I echo that likely I think that when you look at how our resorts are performed.
Man is right on top of last year and right on top of 2019. So you know when you juxtaposition, how our resorts are performing relative to some of the others the risk where our ADR has been outperforming it because we have not seen the rate degradation that I have seen through that high end right.
Business leave.
Leaving for other for other jurisdictions international outbound international being one of them one of the big drivers in the in the current quarter, whereas that's not that was not sort of our bread and butter you know over the last couple of years and sort of isn't likely isn't gonna be our bread and butter on a go forward basis. So I think we are resorts presented more.
Stable resort value proposition than maybe sort of some of the highs and lows that you're seeing elsewhere and just kind of goes to combining your question with with bills. Oh. This is really kind of goes to what we've been speaking to in terms of our portfolio being built to capture the new normal. It's a you know we're positioned in a seven day week demand.
It gets to be able to catch some of what's happening in urban markets and then the type of type of leisure resorts that we have you know can capture where we think our rates sort of settle out at you know overall, so we really think that our portfolio is built the capture of the new normal as we as we go forward.
Thanks, and maybe one on I guess Silicon Valley in San Francisco are now one of them.
Other peers.
Out there.
Patients for that market for the balance of the year what are you seeing in those markets.
Yeah, So what's interesting about San Francisco the back half as we stated earlier in the year was set up better from a CBD standpoint based on Moscone in city Wides.
Towards the end of the year versus 2022, so we're encouraged by what's happening in that market because CBD starts to compress since and spread out when you talk about Silicon Valley. If it had a little bit of a unique situation because they had so much project business last year, and that's probably why others might have adjust.
Their forecast, but I would say to you that you know we are in the middle of we just talked about Taylor Swift or in the middle of just had a concert this past weekend at Santa Clara a silicon Valley, we're starting to see offices come back to the occupancy rates are improving in regards to the accounts that are coming back. So we're starting to see a little bit more b T. So where.
We're feeling better about the back half than we are the first half as we have a tougher comp obviously versus <unk> 19 in 2022 and ask me what I was just sort of bolt on is that you know obviously you know we have a diversified footprint in northern California, and the non CBD is generally outpacing the CBD I think in this particular case what you saw is just as Tom mentioned.
There was some year over year comp issues relative to project business I think that's it that's it in a nutshell.
I guess I'm, a CBD I guess there was some commentary that you.
The back half was going to be worse than expected, but it sounds like youre not seeing that in that comment from any other peer may have been.
Property specific issue versus kind of a market is a market issue.
Sure.
Yeah, Anthony the city Wides are up meaningfully year over year and much closer to 19 and Theyre both in the third and the fourth quarter I think when you look at the types of hotels that we have in the CBD you know once a 400 Rosemary out there out of the 166 room courtyard.
We're not as reliant on on on you know the Big City Wides as other other larger hotels, maybe that are that have.
Specific issues.
They're dealing with and so I think our our footprint our size and sort of who our core customer gives us more.
More confidence around the back half of the year, maybe then you're hearing from others.
Alright, thank you.
Our next question comes from Gregory Miller with tourists. Please proceed with your question.
Hi, Thanks, good morning.
My first question is about service standards and guest satisfaction scores.
Yeah now that staffing is more fully in place I'm curious how guest satisfaction scores as manifested.
Between select service hotels in your full service hotels in recent months.
One type of hotel, scoring better from a service experience in light of all the operating changes.
That has been implemented in the hotel industry since 2020.
Thanks.
Good morning, Greg and it's a great question, because we're seeing and it's really important to be able to you know.
Have customers want to come back after you work, so hard to get them in the door and because of the ability to have more certain hours consistency of deliverable.
It has made a difference in regards to what's happening on the on the ground. When we think about employee satisfaction. We think about that first and then we know that we can drive guest satisfaction. So we've spent a lot of time, giving people tools and resources and making sure. They have certainty in their hours and that allows them to have good morale and build.
The type of environment, we wanted the asset and what we're seeing is the scores are going up both on select service and full service because hours of operations are more consistent where customers are coming in and have those expectations in there and they're getting what they're looking for the same thing on the housekeeping and cleaning you know I think we've come to a point, where we're still doing a.
Tidy clean if you will you know where we're going into the room and having that in I think Marriott and Hilton have all moved towards that in regards to more regular service, but the take rates still at a smaller percentage, but that's all contributing to what I would suggest.
The increase in guest service scores, both on full service and select.
Thanks, I appreciate that.
For my follow up and apologies if I missed this in the prepared remarks.
I wanted to ask about Florida.
Different context, yes, several Florida hotels, a few of them are close to convention centers and there have been news reports as groups canceling events in the state to do Florida State government legislation and actions.
Curious, if you've seen any material negative impact to group demand or future bookings.
Yeah, So when we think about our footprint.
One on I drive Greg in Orlando, and we have an embassy suites. It really doesn't participate in too many blocks because of its location compared to the convention center, but to your comment we haven't seen anything happened in the Orlando area. At this point in time that would make us think that there's not going to be the compression because the citywide has got a pretty nice calendar this year.
When you go further south.
You're looking at Miami as well as Fort Lauderdale Lauderdale is in the in the phase of expanding their convention center, we're actually pretty encouraged with what's going on down there with cruise is coming back and events that are going to be booking in future years. So just the opposite we have not seen anything that's been a negative storyline and.
Miami really doesn't produce conventions that that up.
Cause compression, we have a hotel at the beach and one of the airport and our occupancy has been pretty good in those locations.
So I havent really seen what you're looking for in regards to the commentary around legislation in Cancelation, yeah, and the only thing I would just add in if you look at our overall group pace for the year and what we're seeing across our portfolio, where we're not seeing any any degradation. There at what I would tell you Greg is that our group is on fire.
You know you know we were a HUD and 3% in 2019 levels of revenues for the second quarter were on pace for the third quarter at 103% our full years at 97% are in the year for the year, but only seven months into the year, we've already booked 80% of all what we book in the year for the year last year or in the quarter for the quarter pick up is 20.
Per cent, but we expect that pace to continue and a lot of this is being driven by that the small group, which is right in our sweet spot and what we're seeing is that corporate group represents about 50% of our small group. In addition, we have a lot of self contained group.
Roof, which is not being impacted you know, what's what Tom is referring to not being impacted by that that citywide any events are sort of happening along those lines. It benefits when city wise, there, but its not being impacted so.
Our group trends overall, just have been extraordinarily strong and then you know our largest group hotel is Tampa, Greg in Florida and for the third and fourth quarter were projected to be roughly 30% above 19 in both of those quarters and they are our strongest quarters of the year. So you know our Tampa Hotel.
Is that which is our largest group hotel and they want most proximate to the convention center is one of our strongest performing assets. So.
Great that's all very encouraging.
And I appreciate the details thanks.
Our next question comes from Chris Moore Ranke with Deutsche Bank. Please proceed with your question.
Hey, good morning, everyone.
Was hoping to go back to the Silicon Valley question I think Anthony brought up.
Yes, I know its six hotels, it's primarily select service, but I mean.
There was 60.
66% occupancy in Q2, I mean pretty big step down some of the lowest occupancy in the portfolio.
You guys sound pretty positive on that market I think others have a different view I mean, I don't think you can give us the EBITDA splits, but I mean can you tell us I mean are those hotels still profitable, but where they ran in the second quarter. Indeed, do you give any thought to lightening up in that in that market. If if things don't improve the way you think.
Yeah, well, what I would say you know overall I think that where we're balanced and optimistic overall on that you know northern California, where it sits from a standpoint of it being a you know strong economic base, where it sits within the tech as being a a a tech capital.
Happening from the venture capital perspective, and capital flows and what's happening AI long term, we are optimistic but we are very sober you know that northern California is is lagging and as you know in the near term, having said that we believe that the stat. The non CBD will perform better than the C. V. D. I think that's what you're hearing, but I want to make sure that you understand we are.
Alex about how it how it's how it's forming and again you know just think that you have to be patient in terms of what's happening in that in that particular market I think by and large I'm you know what we've seen on a year over year basis is that we had significant project business and that had an impact on a year over year basis.
And you know we are generating positive EBITDA on our northern California portfolio.
And and you know specific I think when you look at the second quarter in Silicon Valley, which is what was a difficult comp for us because of the project business that Tom talked about.
When you look at year to date numbers, it's still down, but it's only down 6% versus 16%. So I think you're you're you're looking at one of the more challenging quarters because of the comps because of that because of that project business and when you get into the fourth quarter. Chris you do have the football games in Santa Clara.
We were just awarded the Super Bowl in 2026, So I think people are still thinking about this market as a lagging market, but it has got some potential as offices continue to come back and campus has spent a lot of money unemployed retention and we're starting to see a return to that when do we think about office vacancies in.
And where people are starting to come back to work.
Okay.
Okay Fair enough I appreciate all the color.
Follow up questions.
You guys have done a lot of a lot of conversions branding you're pretty good at it a lot of experience when I look at the portfolio today you still have.
Certainly a handful probably closer to a dozen of hotels that I would say are affiliated with <unk>.
Good brand companies, but maybe in some of their western brands in some of those are in pretty nice urban or resort markets or are there things on your radar, obviously, you announced Nashville, but are there other things kind of beyond the Wyndham is as we look out a little further where you want to you want you want to go up brand or soft brand for.
One of the major but smaller brands.
Yeah, Chris that's a it's a great question I think a big component of our longer range story, what we've articulated is roughly 20% of our portfolio has optionality over the next call. It three to five years, because the franchise agreements that expire or some other lever that we can Paul.
I think what would the way we.
The way, we think about conversions and the way we've executed on the ones. We've done to date are making sure that we put the right brand on the right asset that's going to maximize value on a risk adjusted basis and I think the conversions, we've done to date and the ones. We've announced this year are examples of that but.
But in the future what we what we've announced publicly and we and we stand by it is that we have a couple of conversions per year for the next several years some of those or fit the bill that youre discussing which is in a brand family today, but probably have the opportunity either to go further up within the brand family or even switch.
Switch or go independent right you know based on what's the right thing for that particular asset but.
The two per year, we think is the right cadence you know for us to draw it out and to freedom is also influenced by you know how that you know how the levers present themselves. When I mean by that is when franchise agreements expire or what or what options are et cetera, but by.
To your point, we think it's a big part of our long term value creation.
And we appreciate the compliment around our ability.
The fact that what we've done has worked and that that should be part of our platform value.
Yeah.
Okay very helpful. Thanks.
Our next question comes from Tyler Bahari with Oppenheimer and company. Please proceed with your question.
Oh. Thank you good morning, a couple of questions for me first one on the capital allocation side of things I mean look I think as a management team you guys have really good track record.
Ari balance point on a lot of levers you have been pretty consistent in terms of your commentary and execution as well.
What more or thought at all about perhaps changing that I mean, maybe leaning in the different areas you know its nice to see the repurchase but not.
Not sure if you're still thinking about that all on a leveraged neutral basis or perhaps using the balance sheet capacity and liquidity you have.
We lean in a little bit more into one of these areas or the preference is to kind of remain remain balanced.
Kind of execute on multiple different fronts.
Yeah, Tyler first of all thanks for your comments I would generally say that you know our actions demonstrate that we're going to continue to be thoughtful and you know we continue to make sure that we're executing within the right Windows and you as you articulated it you know our balance sheet provides us the optionality to do more than one at the same time and so I think you know with our buybacks.
Continue to to use leverage neutral as a guide post it's not a hard line, but it is a guy polson and and I think it's served US well we've been thoughtful if you looked at where we thought at and we've continued to buy programmatically as opposed to you know at one point in time and its afford us the opportunity to not only execute on that end, but we've.
Obviously, you continue to invest internally with our announcement of of our Nashville transition and increase our dividend as well we recognize today that buybacks continue to be the most attractive you know, but we also want to be thoughtful and balanced as we kind of look out look for at the fundamentals as well as the economic backdrop and I think that's <unk>.
That discipline has served us well.
Okay.
And then just a follow up on the leisure.
Topic of discussion what kind of a good guide for resort markets and in Q3, I mean expecting that.
You are to accelerate further or perhaps be a little bit more stable with Q2, and then can you remind us your mix high level, what percentage of your screens in leisure.
Leisure versus corporate.
Okay.
Yeah, Tyler to start or our resort mix is roughly 14 or 15% of our of our of our portfolio and you know for the for the third quarter, we would expect.
Our resorts are you know as a subset to actually do a little better in the second quarter because of the ramp associated with a couple of our of our resorts in Mandalay.
As well as Santa Monica, where we will you know they are comping off of off periods, they're the heaviest renovation activity for both of those assets occurred in the back half of last year.
And the ramp is were in the first year at a ramp and so we expect that momentum to continue for both of those assets and that they you know they are meaningful drivers of our resorts. So I think on a net.
That basis, we think the resort the macro trends that are impacting resorts. We don't think we expect to be in line.
Quarter over quarter for the industry, but we believe that that are conversions will allow us to.
To outperform on the resort side.
Okay.
I mean, when you look at the trends in your entire portfolio transient I mean, what percentage would you guess is leisure versus versus corporate.
Yeah, I mean, historically, we were 80% transient 20% group and historically that split was 55% D T and 25% leisure, we'd probably think you know that that is about 50 50 today, because I believe you're in kind of whats being booked in your bar, it's hard to sort of separate but that's our that's our thought.
Tyler Tyler in terms of 50 50, right now in the breakdown.
About it we're back on the group mix side as we've talked earlier I think the encouraging thing as borrowers remaining at the highest level of our mix when we think about pricing power and what's happening that's important as we think about how people book retail has been kind of the winter are and when we look at 2023.
And I think also when we look about Thursday nights being coming checking night. That's also affecting that that mix of 50 50 right now okay. Great. All right. That's all from me I appreciate the detail. Thank you.
Our next question comes from Floris Van <unk> with Compass point. Please proceed with your question.
Yeah, I I must say that the questions have been pretty thorough so.
Just curious to see what maybe let's say if you can give a little bit of a.
The overview of what you think are the biggest risks right now that you're facing two to your outlook for the rest of this year.
You know I I, you know of course clearly.
Yeah.
Sort of overhang of recession has been pushed out but if that is wrong and you know and the economic backdrop.
You know erodes in some way that's going to affect all segments across but I would say you know today you know the holiday picture looks good for BT and nothing standing that way, but if P. T doesn't continue to ramp I mean that would be an obvious risks.
You know leisure you know we feel good about what's happening in urban leisure, but if that were to soften you know that would be you know have implications as well you know international has been emerging but if it doesn't continue to emerge that would you know me something to look at too in particular markets like New York and South, Florida. So I think it's really you know.
The economic backdrop and the implication that has on for demand to continue to ramp Theres No particular event risk that we're looking at today I think overall, we recognize that that leisure demand is normalizing, but overall fundamentals feels stable and the trends that we see today, there's nothing that we're seeing that should stop us from continuing to see those trends those though.
Those trends move forward.
Thanks, a lot that's it.
There are no further questions at this time I would now like to turn the floor back over to Leslie Hale for closing.
Thank you for joining us today, we're pleased with our performance and our portfolio is well positioned for ongoing solid execution, we hope that everybody enjoys their summer travels and contributes to the travel industry and we look forward to keeping you guys apprised on our progress and we will see many of you in the conferences in September .
Have a good summer everybody.
Okay.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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