Q2 2023 Host Hotels & Resorts Inc Earnings Call
Good afternoon, and welcome to the host hotels <unk> resorts second quarter 2023 earnings Conference call.
Today's conference is being recorded and at this time I would like to turn the call over to Jamie markets Senior Vice President of Investor Relations. You May go ahead.
Thank you and good afternoon, everyone before.
Before we begin please note that many of the comments made today are considered to be forward looking statements under federal Securities laws.
As described in our filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward looking statements.
In addition on today's call, we will discuss certain non-GAAP financial information such as up also.
Adjusted EBITDA RT and <unk>.
Comparable hotel level.
You can find this information together with reconciliations to the most directly comparable GAAP information in Yesterdays earnings press release and.
In our 8-K filed with the SEC.
And in the supplemental financial information on our website at host hotels Dot com.
With me on today's call are Jim <unk>, President and Chief Executive Officer.
Oh, Gosh, executive Vice President and Chief Financial Officer.
With that I would like to turn the call over to Jim.
Thank you, Jamie and thanks to everyone for joining us this afternoon.
During the second quarter, we delivered a comparable hotel revpar improvement of two 7%.
Third to the second quarter of 2022.
Our revpar performance for the quarter came in below our quarterly guidance, primarily as a result of moderating transient demand in San Francisco and Seattle, It at our resorts to a lesser extent.
Comparable hotel Revpar growth was three 8% during the quarter.
Underscoring the continued strength of out of room spend.
During the quarter, we delivered adjusted EBITDA of $446 million and adjusted <unk> per share up 53 sites.
Our second quarter comparable hotel EBITDA of $449 million was 9% below 2022, it was 9% above 2019.
Second quarter comparable hotel EBITDA margin of 32.7% exceeded 2019.
This marks the fifth consecutive quarter since the onset of the pandemic that we have achieved revpar revpar and comparable hotel EBITDA and margins ahead of 2019 levels.
Comparable hotel Revpar for July is expected to be approximately $209, which is 2.5% above July of 2022.
Our performance in the first half of the year.
Coupled with the macro economic backdrop in the second half.
See tightening our full year revpar growth guidance range to 7% to 9%.
Bringing the midpoint of our full year expected revpar growth to 8%.
At the midpoint of our guidance for full year 2023 comparable hotel EBITDA is forecasted to be approximately 9% above 2019.
As we look at the current macroeconomic picture. It is important to consider how our outlook has shifted over the past six months.
As the second quarter progressed, we started to see a moderation in volume at our hotels in San Francisco and Seattle.
Which were already affected by softer demand.
At the same time, many high end leisure travelers took the opportunity to travel internationally and we did not see a corresponding level of international inbound demand, which impacted volume at our resorts.
Against this backdrop, we were pleased to deliver a positive revpar in trip our growth for the quarter, especially given the high watermark of the second quarter of 2022.
We remain optimistic about the state of travel for several reasons.
First group business continues to improve.
During the quarter, we booked over 310000 group rooms for 2023 in total group revenue pace is now 4.2% ahead of the same tower in 2019.
From two 5% as of March 3.2% as of April .
The group booking window is continuing to extend and groups continue to spend more thing can track that.
Second business transient demand continued its gradual improvement during the second quarter.
Rates were up 10% to about 2022 and 2019.
And demand improved nearly 6% compared to the second quarter of 2022.
While demand is still down 19% compared to 2019, it improved 190 basis points from the first quarter.
Third leisure rates at our resorts remained well above 2019 levels. Despite some expected moderation in the second quarter for context transient rates at our resorts, where 61% above 2019 in the second quarter.
The increase from 54% in the first quarter.
Sports is.
As evidenced by the airline and TSA data, we expect international demand to be a tailwind going forward.
In June <unk>.
International outbound air travel route to 110% of pre pandemic levels, while international inbound was only 80% there.
This aligns with U S outbound summer flight bookings, which are up 27% year over year.
While corresponding inbound bookings were up only 3% according to race day.
It is our first summer since 2019, the U S travelers had enough lead time to plan, an unrestricted international vacation and we expect these trends will reverse over time.
Finally, and most importantly, we are not seeing evidence of a weakened consumer at our hotels.
Comparable hotel food and beverage spend was up 6% to last year.
Driven fairly evenly by banquets at outlets, indicating the strength of both group and transient customers.
This is particularly encouraging as outlet revenues grew 5% despite flat portfolio wide occupancy.
In fact, our resort outlet revenue per occupied room grew 5% in the second quarter compared to 2022.
And it was also the highest in host history at $196.
Other revenue also continued to grow with all line items up over last year, except for attrition and cancellation fees, which are moderating as expected.
Golf and Spa revenues remain robust with growth over their record highs of 2022, which we believe is further evidence of the leisure travelers desire and ability to spend unexperienced is.
In fact, we still had five resorts with transient rates of $1000 or more.
Notably the top three resorts were recent acquisitions underscoring the strength of our opportunistic capital allocation strategy.
Leading the pack was the lever ventana big surplus and nearly $1800 and a four seasons resort Orlando at Walt Disney World Resort at four seasons resort and residences Jackson hole, both at over $600.
Moving to our reconstruction efforts following hurricane E N.
In June we completed the final phase of the restoration work at the Hyatt Regency coconut point with the reopening of its waterpark and outdoor dining complex.
And last month, we reopened that they completely transformed Ritz Carlton Naples, which combined a comprehensive renovation of the existing resort with the addition of a new 74 key tower.
As part of the renovation, we expanded the guest room bathrooms to increase fixture Taos elevated design and functionality of the rooms, and combined standard guest rooms to create multi based suites.
We also enhanced the arrival experience with a re imagined lobby lobby bar.
The ROI development of the random real power added a net 24 additional keys increase this week count to 92 from 35 and added new pool Cabanas bungalows, a poolside F&B outlet with the bar and an expanded club lounge that eliminates that kept.
Passenger you can train on up sells.
In addition to the renovation and expansion a reconstruction efforts allowed us to opportunistically enhance the resiliency of the property by elevating critical equipment, improving drive flood proofing measures accelerating future building envelope waterproofing and replacing major equipment.
With more efficient machinery.
The transformation of the Ritz Carlton Naples has been extremely well received since the reopening and we are optimistic that the resort is set up to exceed our underwriting expectations.
As an example pays for the 2023 festive season is well above historical levels with the expanded suite inventory and new club level facility in high demand.
The new lobby Champagne bar has quickly become the place to see and be seen in Naples for both guests and locals.
We are extremely pleased with the transformation of this iconic resort and we are excited to see the results it delivers over the years to come.
In terms of insurance proceeds related to hurricane Ian.
To date, we have received $113 million of the expected potential insurance recovery of approximately $310 million to recover costs.
The proceeds have all been allocated to property damage thus far.
Turning to group.
Revenue exceeded 2022 by 4%.
Marking the fourth consecutive quarter Roop revenue exceeded 2019.
Definite group room nights on the books for 2023 increased to $3 7 million in the second quarter.
Which represents approximately 103% our comparable full year 2022, actual group room nights up from 94% as of the first quarter.
For full year 2023 group rate on the books is up 7% at the same time last year, a 30 basis point increase since the first quarter and.
In addition, total group revenue pace is up approximately 19% to the same time last year and up 4.2% to the same time 2019.
Looking ahead to 2024, we have $2 2 million definite group room nights on the books.
Total group revenue pace is up 13, 5% to the same time last year and up one 5% at the same time 2019.
We are encouraged by the ongoing strength of group as evidenced by accelerating booking activity London in booking windows in tentative room nights ahead of both last year in 2019.
Moving to portfolio reinvestment.
We completed comprehensive renovations at the final asset in the Marriott transformational capital program, the Washington, Marriott and Metro Center during the second quarter. The program, which began in 2018 included extensive guestroom and public area renovation at 16 assets and finished.
Under budget.
During the pandemic, we expanded our reinvestment strategy to include eight additional assets with required near term Capex, where we believe significant upside could be realized with transformational renovations.
To date, we have completed seven of those eight assets.
We believe these comprehensive renovations will enable us to continue to capture incremental market share above our targeted range of three to five points of Revpar index share gains and that is shaping up to be the case so far.
Looking at results to date.
Of the seven hotels that have stabilized post renovation operations. The average Revpar index share gain is eight eight points.
For the full year, our 2023 capital expenditure guidance range is $625 million to $725 million, which reflects approximately $240 million of investment for redevelopment repositioning and ROI projects.
As well as $125 million to $175 million for Hurricane restoration work.
Remaining projects include the completion of a transformational renovation of the Fairmont Kea Lani <unk>.
The repositioning renovation of the Hilton singer Island, and breaking ground on Venetian Canyon suites villas and the luxury condominium development at four seasons resort Orlando at Walt Disney World Resort.
More broadly we will continue to be strategic and opportunistic in our approach to driving EBITDA growth.
We have an investment grade balance sheet independent analytic capability, a diversified portfolio and the size scale and team to continue executing across economic cycles. We.
We are creating meaningful shareholder value over the past six years by improving the quality of our cash flow and we believe host is ideally positioned to outperform in the current macroeconomic environment.
With that I will turn the call over to Mr. Rob.
Thank you Jim and good afternoon, everyone.
Building on Jim's comments I will go into detail on our second quarter operations.
<unk> 2023 guidance and our balance sheet and dividend.
Starting with business mix overall transient revenue was up 80 basis points to the second quarter of 2022, driven by rate growth, which offset a slight decrease in demand.
Buttoning transient demand that drove the miss to Revpar guidance given.
Primarily by underperformance in San Francisco, and Seattle, and although at our resorts to a lesser extent.
But it's all in the second quarter saw a transient revenue down 8% over the all time high of the second quarter of 2022.
While transient rate at resorts was down year over year, it was still 61% above 2019.
It could be up 54% compared to 2019.
In fact keynesians revenue at our resorts in the second quarter compared to the first quarter. Despite the slight decrease in demand.
Business transient revenue was 16% above the second quarter of 2022 driven by a 10% rate increase.
They had also increased by nearly 6% above last year, given by our hotels in New York, Boston, and Washington D C.
Our downtown properties accounted for 65% of the biggest change in demand, which is in line with keeping that expense.
Small and medium sized businesses and can you get drive the recovery because I think the majority of any change in demand today.
Turning to group Luc.
Revenues were 4% above the second quarter of 2022 fully driven by Batesville.
The 1.1 million group room nights sold in the quarter was slightly ahead of both last year and the fourth quarter.
It aligns with 2019 and seasonal trends.
Washington D C Chicago, and Boston drove the little revenue growth compared to 2022.
With respect to group corporate group room revenue was up 9% in the second quarter, driven by nearly 6% rate growth.
As anticipated.
So you shouldn't group revenue was down almost 3% in the second quarter compared to last year as the second quarter of 2022 had elevated association groups volume driven by Rebooking for events that were canceled during the pandemic.
Social military education, religious and central or Smart group revenue was up 3% in the second quarter, driven by 2.5% wage growth.
Our 2024 total group revenue pace is above both 2022 and 2019 and we are encouraged by the city wide booking pace in New Orleans, San Diego, Seattle, and Washington D. C. All of which have citywide room nights meaningfully ahead of the same time last year.
Shifting gears to margin performance, our second quarter comparable hotel EBITDA margin came in at 32, 7%, which is 40 basis points better than the second quarter of 2019, but below the high watermark of the second quarter of 2022, when staffing at hotels lagged demand.
Total comparable expenses grew just seven 5% over 2019, while total comparable revenues were up seven 8%.
As expected attrition in cancellation revenue moderated from 'twenty to 'twenty two levels during the second quarter.
We are encouraged that comparable hotel EBITDA margin remains above 2019, despite elevated inflation over the past four years and occupancy is still eight points below 2019.
As Jim noted.
We tightened our full year comparable hotels revpar growth range to 7% to 9%.
The revpar midpoint of 8%.
100 basis points less than our prior midpoint.
But at the high end of the original guidance range, we provided in February .
We estimate that approximately 50 basis points of the mid point decline is attributable to second quarter results and the remaining 40 basis points is attributable to our updated outlook for the second half of the year.
Yeah.
While we have not yet seen signs of a macro economic driven slowdown our guidance range continues to contemplate at varying degrees of moderating growth in the second half of the year.
As a result, you would expect year over year comparable hotel Revpar percentage changes in the second half of the year to be flat to up low single digits, primarily driven by occupancy.
At the midpoint of our guidance, we would expect our comparable hotel EBITDA margin of 29, 9%, which is 40 basis points ahead of 2019 and full year adjusted EBITDA.
Oh $1.560 billion.
Keep in mind that the midpoint of our revised full year 2023, adjusted EBITDA guidance is still $100 million above the original guidance, we provided in February and down only $25 million from the guidance we provided in may.
We expect our operation with adults should roughly follow 2019 quarterly seasonal trend as provided on page 17 of our supplemental financial information.
As a reminder, the third quarter of the year is historically the weakest of the four quarters in terms of both nominal dollars and margin due to seasonal market and business mix shifts.
Our 2023 full year adjusted EBITDA guidance includes an expected $17 million contribution from Hyatt Regency, coconut point and the Ritz Carlton Naples, both of which are excluded from our comparable hotel results due to impacts from hurricane Ian.
As we have discussed previously the pre hurricane estimated contribution from these two hotels, including the new tower at Ritz Carlton Naples was expected to be an additional $71 million in 2023.
It is also important to note that we have not included any expected business interruption proceeds from hurricanes in our 2023 guidance.
As we have discussed over the past few quarters.
Year over year, we expect comparable hotel EBITDA margins to be down 210 basis points at the low end of our guidance to down 170 basis points at the high end.
You too.
<unk> staffing levels at our hotels higher utility and insurance expenses and lower attrition and cancellation fees.
We expect the biggest margin differential year over year to be in the second quarter with a narrowing margin spread in the second half of the year.
For these reasons we.
Did not believe 2022 as it presents a stabilized comparisons for margins.
Relative to 2019, which is more representative year for margin comparison.
We expect margins this year to be up 20 basis points at the low end of our guidance to up 60 basis points at the Hyatt, despite lagging occupancy and elevated inflation pressures over the past four years.
Our efforts to transform the portfolio and evolved the hotel operating model, enabling this margin expansion.
As we have discussed in the past it is particularly impressive when you consider that our forecasted total hotel expense CAGR from 2019 to 2023 is only one 6% versus the forecast of course D. P. I take out of 4% over the same period.
Turning to our balance sheet and liquidity position our weighted average maturity is four seven years at a weighted average interest rate of four 5%.
We have no significant maturities until April 2024.
We ended the second quarter at two two times leverage and we have $2 $5 billion of total available liquidity, which includes $213 million.
Knee reserves and full availability of our $1 5 billion credit facility.
In addition, during the second quarter, we achieved a milestone in our progress towards our renewable energy coal, resulting in a two and a half basis points reduction in the interest rate on the outstanding term loans under our sustainability linked credit facility.
We paid a quarterly cash dividend of 15 cents per share.
And increase of three cents or 25% over the prior quarter in July .
So we expect to maintain our quarterly dividend at a sustainable level, taking into consideration potential macroeconomic factors all future dividends are subject to approval by the Companys board of directors.
We remain optimistic on the future of our business and travel overall in any scenario, we believe our portfolio our balance sheet and our chemo well positioned to continue outperforming and we will continue to be strategic in the current macroeconomic environment.
Was that we would be happy to take your questions.
To ensure we have time to address as many questions as possible. Please limit yourself to one question.
Thank you.
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A confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the key and for <unk>.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
I would like to once again remind you.
And if possible limit yourself to one question.
One moment, please while we poll for questions.
Thank you.
Our first question is coming from Duane funding work with Evercore ISI. Your line is live.
Hey, Thank you.
I appreciate the macro stats.
Excuse me that you shared.
But do you have any way to track international inbound.
As a percent of your own portfolio, where does that stand now versus pre pandemic levels as a percentage of the mix.
Yeah, it's Duane.
Pre pandemic international inbound accounted for.
Roughly 10% of our room nights.
In quarter two of 2022, it was seven 8%.
And that is compared to a seven 4% in 2022 in the second quarter. So.
We feel that our international inbounds, a tailwind to our portfolio performance going forward.
In particular, if you saw in the month of June International inbound was only 80% of our.
Or where it was in June of 2019.
Outbound as we've talked about was 110% where it was in.
June of <unk>.
2019, so as the as the world starts to normalize and.
Hopefully as are we.
We can.
I'll sort out the.
Wait times in the U S which are.
400 days now on average and it's a real drag on international inbound.
As an example in Canada, you can get a visa from a country.
They require a visa.
We're traveling to Canada, and 55 days so.
That is a that's a big issue that we as an industry are dealing with through U S travel and through a H L. A as well.
The other.
Impediment at this point in time.
With respect to international inbound and our West Coast markets in particular is a <unk>.
From China.
B pre pandemic, we had 350 direct flights a week between the U S and China.
As it sits today, we have 24.
So.
You know, we're we're optimistic that over time things youre going to normalize and that we're going to see the return of the international travel, which will further bolster our performance.
Thanks, and then just just for my follow up on on B I on the on the business interruption.
As you think about growth into 'twenty 'twenty four you you'll have a natural recovery.
In Naples from the rich being back online my guess is that we'd begin to contribute a year on year in the fourth quarter, but from a growth perspective, what would be the ideal timing off or be I reimbursement to to hit.
Well.
I'll, let rob jump in on this but let me just kind of a pet.
Set the table with respect to how.
Our insurance program works.
We've collected $113 million.
All related to.
<unk> and physical damage repair, we have a $130 million receivable.
Outstanding and we won't start recognizing and business interruption proceeds until we collect the $130 million at a minimum.
Yeah, no and I understand the timing I'm honestly, that's why we don't have it in our forecast, it's very difficult to say, we're working with the insurance carriers right now in terms of determining how much that the iron Mountain is so the collection of it could be it could be certainly some amount in Q3 bleed into Q4 as well as in.
Two the following year, we actually got from Hurricane Ida If you recall our.
Which impact in New Orleans, Alaska, We just got a two.
$2 $7 million payment this quarter. So the timing is very difficult to gauge we fully expect as we said that we would be.
Paid out and it's certainly going to be a meaningful amount. The exact timing is very difficult to predict at this point in time.
Okay. Thank you.
Thank you. Our next question is coming from Ari Klein with BMO capital markets. Your line is life.
Thanks, and good afternoon with it within the second quarter with a June where you saw things not really play out.
Back then and then.
The magnitude of the implied impacted the second half Revpar in guidance I guess lessened the impact in Q2.
Here's some color on the underlying assumptions and is there something in there that maybe better than you originally expected.
Are you can you can you clarify that as it is this are you referring to the the our assumptions with respect to the second half of the year.
Yeah. The first part was just on when you started to see the weakness in the second quarter and the second part was yes, I think the revpar impact of 60 basis points.
No worse than expected in the second quarter and then another 40 basis points in the second half of the year. So just curious if you can give some more color on the second half and some of the underlying assumptions there.
They're in and how you expect that to play out there's anything better or worse.
Than you originally expected.
Sure so.
You know as we saw.
Performance weekend in the month of June and that's really when it.
We saw that the vast majority of the weakness occur.
We went back.
At the property level and really looked at the assumptions that were in the forecast with respect to.
Ramsey and pick up.
In the quarter for the quarter.
You may recall that we had.
Transient pick up as high as 28% in the quarter for the quarter and another quarter was at 20% well that didn't materialize.
For for the second quarter so.
As we have talked about.
Trends normalizing, we think that is a trend that is normalizing at this point in time.
And.
We were very I would say thoughtful and deliberate about.
How we expected the second half of the year to play out.
And we really washed out.
A meaningful amount of the transient pick up in the quarter for the quarter and that led to our revised forecast.
Is that helpful.
Yeah I appreciate the color and then just a.
Quick other question I think you have some seller financing coming up later this year.
And any update there on how you expect that to play out.
Yeah, sure, but we had.
The alone on the Sheraton Boston matured.
The maturity date was August at first a few days ago and the.
The borrower was in the process of.
We financed us out and maybe a little more time.
To do it so we enter into a and in agreement with.
With that borrower.
To provide for a 60 day extension.
And it also involved the.
The receipt of a 10% principal pay down on our alone.
Which was $16 $1 million and we have received that money.
And we restated the interest rate from six 5%.
212% so that loan is now due at the end of September .
But we materially improved our position on it and I am very confident.
The borrower is going to be able to get the financing done the nuance was a condo regime.
That they were pursuing on the property to effectuate their business plan. They were going to convert one tower. They are going to convert one tower two student housing and.
The other tower as a hotel when it was just taking a bit longer.
To effectuate effectuate, the the condo documents and delight to get it done with respect to the loan on the Marquis we have been in contact with the.
The the borrower and.
They are actively in the.
And the market are pursuing a refinance so we feel good that they're going to be able to get that deal done.
Great. Thanks for all the color.
Thank you. Our next question is coming from Anthony Powell with Barclays. Your line of sight.
Hi, Good afternoon, just one from me and I guess it can be episodic refinancing activity. We saw about a owner of a resort on Maui was able to get a a.
Hotel refinance with a cash out refi it at a high rate, but a good proceeds so do you think that kind of ability.
Women kind of a number of deals that come to market in terms of your ability to maybe do some larger acquisitions here.
You know I think it's a it really is very.
Monster specific market specific and hotel specific Anthony and you know the asset that you're referring to are in Maui.
<unk> had been on the market for sale Oh on more than one occasion, frankly, it's something that we obviously looked at that given our exposure on Maui in the assets that we own it wasn't something that we could get excited about.
And whenever they are cannot effectuate that a sale at the price that they wanted they were able to get the deal done now that's it that's a unique asset because it had as you know the resort market is extremely strong and it had really strong underlying cash flows strong performance it had undergone a renovation.
And.
You know it had the right equity capital behind it as well so.
There will be circumstances, like the Maui property, where sellers, where we'll be able to get an attractive refinance but there are also gonna be circumstances, where.
You know all those boxes arent check you know whether or not the asset is is not performing well whether or not it's been reinvested in whether or not it's in a market that a.
A lender would find attractive to to deploy capital to deploy money too. So I still believe that over time, given the fact that there have been so many assets that have not being reinvested in over the course of the pandemic and no owner slash borrowers are strapped for cash and they have to put.
Capital into their hotels that we may see opportunities as and.
Later in this year and into 2024.
Okay. Thank you.
Thank you. Our next question is coming from Smedes Rose with Citi. Your line of sight.
Hi, Thanks, I just wanted to ask you a little more about the weaker than expected transient business in San Francisco, and Seattle, and I think you know in San Francisco, maybe it's not all that surprising given kind of continued delays.
Delays in their recovery in a lot of sort of ugly headline issues around quality of life, but in Seattle If you.
Do you ascribe the weakness to just kind of more of sort of local economic issues, maybe to do with the tech industry or are you also starting to see.
You know a pullback from the patient because of sort of issues that that city might be having as well and it's that kind of become.
A drag longer term on the portfolio.
Okay.
It's what's Seattle, we actually saw improved so that was certainly not an issue with Seattle. It was just overall sort of anticipation of how much we could.
Pick up not only in the quarter for the quarter, but really in the month for the month. It was sort of we started seeing that trend shift a little bit at the end of may into into June so for us.
Seattle actually continues.
To be a relatively it was always a weaker market to begin with at the beginning of this year, but there is signs, especially when you look into 2024.
Citywide and just paid there is certainly a strength in the Seattle market moving forward. So this we attribute really to sort of short term.
Transient our transient pick up.
Overall, I mean, when you look at sort of Seattle, specifically, you're going to be T revenue grew.
<unk> absolutely year over year by about 5% and that was all rate driven by Amazon Our group room night in total revenue production also exceeded our internal forecast, but it really was BT driven it wasn't anything to do with.
Our group at all so overall really caught us off guard leisure driven versus BT driven.
Okay, and then can I just follow up on that when you have you reintroduced the Ritz Carlton and you talked about the $71 million I guess.
Walk through disruption when what sort of timeframe would you expect to recoup that is that something that will happen. All in 2023 or are you concerned that time.
Well I think this goes to the earlier question regarding the receipt or timing of business interruption proceeds and we haven't put it.
The B I in our forecast because we just don't know when we're going to receive it but you know I'm hopeful that starting really.
Through the course of 2020 for we should be able to close out.
Most if not all of the claims associated with Hurricane Ian and we do anticipate a very strong performance from both the risks and the.
The Hyatt Regency next year as well.
Okay. So do you think I mean, I went through I was asking about the business interruption and more just about recouping.
The EBITDA that was lost in getting back to getting that 71 million back just from operations do you think that for 2019.
No.
Barring a.
Macroeconomic meltdown that certainly happened throughout the course of 2024, I mean, its a seasonal property.
We're very pleased with the pace that we're seeing around passive which is really you know December January February in December January and then that the property really takes off and and that period of time in the first quarter. So.
There is incredible enthusiasm for the new offerings at the hotel at the resort in Naples.
It's a real unique property and we're very optimistic that it's going to perform very well and we should between those two assets over the course of 2020 for rebuild our $71 million that that we lost this year due to you.
Hey, Smedes I just want to clarify here. So you understand we are actually picking up combined for non comparable hotels, which includes coconut point Android in April 17 million and the adjusted EBITDA numbers, it's not in our hotel EBITDA, but it isn't our adjusted EBITDAR a that's what 2023, so the 'twenty 'twenty $471 million, which we're saying that.
Is that incremental to that $17 million, none of that $71 million is really in the 'twenty three number if that makes sense.
Okay. Thank you.
Thank you. Our next question is coming from David Katz with Jefferies. Your line is life.
Hi afternoon, everyone.
Thanks for taking my question.
I wanted to go back to the expense side, because it's come up a handful of times around the.
The cost of labor one is as a function of just being fully staffed on a comparable basis versus last year, but to the actual you know per person cost of it and whether that's going up and secondarily, we've talked before about the cost of insurance and I just wanted to get kind of.
They're there as well please.
Sure I think we had messaged before that our wage rate growth for this year, we expect it to be around 5% and that we are still holding to that and thus far when you look through our expenses, we've actually performed pretty well on our expenses and you can see that in our margin expansion.
Relative to 2019 for the second quarter as well as what we're expecting for the full year to the midpoint being 40 basis points.
So they they were wise are we still looks like a 5% rate growth we're seeing.
All the productivity improvement improvements we've made as a result of redefining our operating model still holding and certainly something that is sustainable which is driving the margin expansion to 2019.
As far as insurance goes we had baked into the forecast.
Approximately 50% premium increase or renewal was in June 1st we maintained our coverage and the limits that we had previously said no change to that.
The overall accident rate increase was about 38% and the premium increase like I said was close to 50%. So for the full year, which is already in our forecast and wasn't a forecast.
Sure the insurance expense is expected to go up.
40% year over year, which equates to approximately $61 million for 2023.
Thank you very much.
Thank you.
Our next question is coming from Michael Bellisario with Baird. Your line is life.
Thanks, Good afternoon, everyone.
Just one question for me on the group booking front can you provide some color just on what markets, you're seeing pick up momentum and there also any markets in the portfolio that were either software or you see softening or maybe just leveling off.
As you look out to the back half of the year and 24. Thank you.
Sure of course, specifically for 2024 as Jim mentioned, our group Oh total group revenue pace is ahead to 2019 by one 5% and just to remind you. When we were looking sort of in the in the end of last year, we were actually down double digits.
Revenue pace and that improved to down about four 4% to 19 in the fourth quarter and now it's actually positive. So we're seeing really positive activity and momentum when it comes to 'twenty 'twenty four pace.
Our specific portfolio, where we are.
Seeing pace, a very strong is our Atlanta, Chicago, New Orleans, Hum on New York, Phoenix, San Diego, and I've mentioned already a Seattle, and Washington, D C and that wraps with sort of the citywide.
Pace improvement as well, where we're seeing positive citywide better than 19 in it for New Orleans, San Diego, Seattle and D C.
Thanks Keith.
Our next question is coming from the crew with Raymond James Your line is nice.
Good afternoon gentlemen.
Just help me understand the leisure normalization, but we're all talking about because.
Put it in your remarks I took it that maybe rate is staying strong but demand is off.
From a pure this morning that said.
Our rate is down 10% in one of their markets, but demand is strong and I guess I'm trying to figure out what you're seeing out there.
Is it on the demand side is on the right side is it both.
Leisure normalization.
We had always anticipated and are forecasting that rate was going to back off a bit I mean, we we never believed that.
Rate was going to be sustainable relative to where it was in 2019 and certainly you know in 2000 <unk> second quarter 2022 was a an anomaly on many many fronts given omicron in Q1. So we assume rate was going to come down and it did I think our leisure rate came down about.
7%.
All in all that said it was still 61%.
Then.
Where it was in Q2 2019.
What we didn't anticipate and I don't think anybody anticipated. If you look at the the commentary of our travel related companies in general whether there you know the car rental companies or the airlines are was the desire by the U S consumer to.
Travel abroad and.
That is what where are we saw the softness in our leisure business because we didn't pick up the volume that we anticipated that we would I think our total leisure occupancy was down by one percentage point. So it was nothing meaningful by any stretch of the imagination. You know rates are still at record levels.
You know.
As you saw in the release tread par was up three 8%. So we're still seeing very healthy out of room spend whether it's at outlets or golf Spa and otherwise I mean, we had.
Our record our outlet.
For occupied room, I would think of 193 or $196 in the quarter. So.
You know I don't know if people are going to go to Europe .
Every quarter or if they're going to go to Europe in the second quarter of next year, but clearly this was a phenomenon that I think.
Everyone missed and you know.
We're very we're very comfortable with with how the resorts have performed in in general are certainly from a rate perspective.
The issue was really a a slowdown in volume.
If I could if I could just pursue that just a little bit more because you talked about this normalization and kind of the we call it the travel international travel and balanced.
But.
But it's been kind of three years of pent up demand. So it seems like that could continue for a while longer.
And I'm just curious.
And you probably don't have an answer but yours is better than mine or we could be talking about continued normalization.
Next year.
You know I I hope, we can get I, frankly, though I hope, we can get beyond talking about 2019 and 2022 and.
Say, okay, 2020, threes a year, we look at and it's in our new our new new benchmark and our new base Youre going going forward.
So you know normalization to occur in 2024, I, frankly think that that that's a tailwind to us and it really is a tailwind because of where international inbound performed in the second quarter and some of the issues, we talked about with respect to white from China and visa weight.
[noise] times and things of that nature, I mean, we just didn't see any pick up.
And ER.
In our resort properties or elsewhere frankly.
From the international inbound travel I mean.
We had 10% of our room nights in 2019.
We were seven 8%. So again I think it's a positive for us going forward and I think it's a positive for the industry going forward, we're certainly not seeing anyone.
Rain and the consumer is very healthy, we're not seeing them rain in their their spending.
Great. Thanks, Jim I appreciate it.
Sure Bill.
Thank you. Our next question is coming from Tyler Batori with Oppenheimer. Your line is life.
Good afternoon, and thank you I just want to stick on the leisure topic for a minute here. This is multipart question. There one other commentary relates to your resort properties I'm also interested in what Youre seeing urban leaders specifically on on the weekends, but that's following a similar trajectory in terms of a softness that you're experiencing on the resort side.
Yeah. This is kind of a follow up thinking about revenue management.
Man slows further from here at your resort properties or would you look to hold on to sort of occupancy.
And lower rates are or maybe you want to hold on to rate in your okay. Sacrificing some occupancy just trying to think through some of the some of the scenarios there.
Yeah, well I'll answer the second part of your question first and that's drive talk a talk to the first part regarding urban leisure.
You know.
That's a tricky question to answer without really.
Looking at the proper yield management strategies are you do you your flow.
A much greater percentage of ADR to the bottom line than you do a point of occupancy.
And I think one of the things that has been.
Really encouraging over the course of.
The last several years is the fact that generally across the board.
The properties had held rate and a rate integrity has has remained intact.
No there would have to be a real meaningful trade off I E a significant.
Pick up in occupancy before we would consider cutting right because once you cut rate it's difficult to go back the other direction and as I said you know we saw a 1% reduction in occupancy in Q2 and rate was still 60% above where it was in the second quarter of 2019 and it really.
It just flows through the bottom line and.
That's a meaningful impact on margin performance.
Yeah and on the on the leisure front when you're looking at the urban hotels are they actually were pretty consistent overall, we didn't see him.
At the same level of drop off as you are well in terms of the demand and we saw a little more consistent short term in the quarter for the quarter pick up with the exception, obviously of San Francisco and Seattle as as we mentioned.
But overall when you look at sort of a can.
Overall other market performance, we were actually up in rate six 3% and per our convention portfolio about five 1% over all.
For that and one resort was actually down about 4%. So definitely had a more stable performance, even when we looked at the holiday performance during the quarter.
Okay. Great. Appreciate it thank you jump out to you.
Thank you.
Our next question is coming from Chris where Ranke with Deutsche Bank. Your line is nice.
Hey, good afternoon, guys. Thanks for all the details so far.
Question was on the tail that you expect to get from the from the capital transformation program. I think you mentioned either that hotels are fully stabilized and youre getting the nine points.
Yeah, just how long does that last what about the other I guess eight or nine hotels and then.
Does that make you want to I think you mentioned there were two others that you you renovated that weren't in the original program does that make you Jim look want to look at it even more hotels and as other owners are dealing with issues and maybe not fully keeping up on their on their own capital.
The the the short answer to the second part of your question. Chris is we will continue to be opportunistic.
And where we see an opportunity to do a transformational renovation and I wanted to underline the word transformational because I think that is why we are seeing the outperformance that we're achieving and the recently renovated and stabilized properties.
We have that we have the balance sheet, we have the capital we had the the team internally to execute on those types of opportunities and we will certainly.
Look to deploy capital where.
Where we think we can achieve better than three to five points in yield index to answer your question with respect to how long does it last.
Well I I I suppose I I I I can tell you that it would last until the property looks hard and we have to renovate it again and that's probably you know you're talking seven years seven year cycle generally for a rooms renovation of seven to eight years roughly so we are really optimistic that that.
We were able to deploy the type of capital that we did into our properties over the course of the pandemic and we expect to see a future strong outperformance going forward.
Okay very helpful. Thanks, Jim.
Thank you. Our next question is coming from Robin Farley with UBS. Your line is nice.
Great. Thanks, just wanted to understand a little bit better than your guidance for second half margin you'd have said declines kind of moderating from Q2, but revpar or not necessarily.
Hmm.
So just just kind of wondering how you got comfortable because a lot of those factors you mentioned I I would think could still have tough comps in terms of labor cost and and cancellations.
Cancellation fees.
Just any color there you can give us.
Yeah, Robyn I mean, when you look at sort of our guidance and I'll speak to the EBITDA dollars perspective are we basically took it down what about $25 million as he mentioned in our prepared remarks, and we would attribute about $17 million really for the second quarter.
And about 8 million or 18 million for the second quarter, and then 7 million call. It out to the second half and the way when you look at some of the Revpar growth that we are assuming we effectively have looked at the short term pick up market by market and the expected in.
In the quarter for the quarter pickup and really scrub to that to get to the revpar growth.
Of low low single digit growth for the second half on the expense side.
Expense drivers are that we effectively flow through was all revenue driven so when you look at the second quarter as well the.
The relative drop in terms of margin to what we had guided to or more than 80% of all revenue driven so we feel very comfortable with all the expense growth that we have in there. The only thing we did moderate as also food and beverage revenue, which obviously I've.
Just given you know Q2 trends, we moderated that that flows through the food and beverage Department line as well as impacts margins. So we feel very comfortable in terms of our expense forecast.
For the second half.
Relative to the revenue growth that we have.
Okay, great. Thank you and then I don't know if I heard you guys mentioned, an expectation for corporate negotiated rate for next year.
No we did not that will not start until really later in August . So we will have more color as to.
What that will be shaping up like probably in on our third quarter call as we typically do.
Okay, great. Thank you.
Thank you so much our final question will be coming from Dori Kesten of Wells Fargo. Your line is life.
Thank you you mentioned at your hand washing out short term can pick up in the second half of the year, what what was your guidance it looks like the pick up was comparable to 2018.
What it would look like if it was in terms of the transient pickup being comparable to 2009 paint because we're obviously off from a BT perspective meaningfully were off by 20% group is pretty nice, but it also off so it's kind of difficult.
I'd say relative to 19 in terms of room night, because we are up in rate right. So I don't have exactly what that number would be if our rate was held exactly at 19 and you know we had the same amount of room nights in 19.
Okay. Okay. That's all I ask a second one.
Talking about the healthy out of them.
I think year to date and that's part of total revpar growth spread that out 200 basis points I'm, just trying to figure out.
What do you think that can happen here that would lead you to believe by year end.
And out of them spend growth should converge.
So when you look at where the food and beverage came in for the for the second quarter relative to 19. It was it was certainly lore and that was really being driven by sort of the type of groups that we actually got in second quarter and a lot of the rebuild things that took place during the pandemic that work.
And in Q2, when you look forward into Q3 and Q4 are as we mentioned earlier third quarter is a weak because group quarter, so food and beverage and banquet and.
It will be lower as well in Q3, but Q4 is a strong group quarter four for us and that's where we feel like food and beverage should perform well.
Well in the fourth fourth quarter, just based on the catering pace that we have and as a reminder, in banquet and catering.
Contribution was no matter if you looked at it was up 20% in Q1 that was up over 6% in Q2 as well so that we still have.
We still believe in the strength of banquet in AAV.
Going forward in the second half as well as the ultimate performance of our resorts, which by the way on a per occupied room basis was 46% above 2019.
Okay. Thanks.
Okay.
Thank you we have reached the end of our question and answer session. So I will now turn the call back over to Mr. Resilient for any closing comments he may have.
I'd like to thank everybody for joining us on our second quarter call. Today, we appreciate the opportunity to discuss our quarterly results with you.
We hope you enjoy the rest of your summer and we look forward to seeing many of you in person. This fall. Thanks again.
Thank you. This concludes today's call and you may disconnect. Your lines at this time, we thank you for your participation.