Q3 2023 Pebblebrook Hotel Trust Earnings Call
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Speaker 2: transcript
Speaker 2: Greetings and welcome to the Pebble Brook Hotel Trust 3rd Quarter Earnings Call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Co-President and Chief Financial Officer. Thank you. You may begin.
Greetings and welcome to the Pebble broke hotel trusts third quarter earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Reminder, this conference is being recorded.
It is now my pleasure to introduce your host Raymond Martz co President and Chief Financial Officer. Thank you you may begin.
Speaker 3: transcript
Speaker 3: Thank you, Donna. And good morning, everyone. Welcome to our third quarter 2023 earnings call and webcast. Joining me today is John Bortz, our Chairman and Chief Executive Officer, and Tom Fisher, our Co-President and Chief Investment Officer.
Thank you Donna and good morning, everyone welcome to our third quarter 2023 earnings call and webcast joining.
Joining me today is Jon Bortz, our chairman and Chief Executive Officer, and Tom Fischer, Our co President and Chief Investment Officer.
Speaker 3: transcript
Speaker 4: But before we start, a reminder that today's comments are effective only today, October 27, 2023, and our comments may include forward looking statements under federal securities laws. Actual results could differ materially from our comments. Please refer to our latest SEC filings for detailed discussion of potential risk factors and a website for reconciliation of non- GAAP financial measures referred to during our call. Now let's turn our attention to our two, three results.
But before we start a reminder, today's comments are effective only today October 27, and our comments may include forward looking statements under federal Securities laws actual results could differ materially from our comments. Please refer to our latest SEC filings for detailed discussion of potential risk factors in our website are reconciliations of non-GAAP financial measure.
Refer to during our call.
Turning our attention to our Q3 results.
Speaker 3: transcript
Speaker 5: We are pleased to report that despite two negative weather events and continuing entertainment industry strikes in LA, we were able to achieve same property hotel Ibadah, adjusted Ibadah, and adjusted FFO at the top end of our outlook due to a continued recovery in corporate group and trained into man across many of our urban markets and solved cost controls and gradually moderating expense environment.
We are pleased to report that despite two negative weather events, continuing entertainment industry strikes in L. A we were able to achieve same property hotel EBITDA adjusted EBITDA and adjusted <unk> at the top end of our outlook due to a continued recovery in corporate group and transient demand across many of our urban markets and solid cost controls.
Moderating expense environment.
Speaker 3: transcript
Speaker 6: Washington, D.C. led the rebound, the hotel occupancy surging in an impressive 13.68% and a rap part increasing 21.4%.
Washington D. C led the rebound the hotel occupancy surging, an impressive 13 points, 68% and Revpar, increasing 21, 4%.
Speaker 3: transcript
Speaker 7: This was closely followed by San Francisco's climbed over 10 occupancy points 72%, with a rap part up 13.1%. And Los Angeles, for occupancy improved nearly six points to a healthy 78%, with a rap part growing 5%.
This was closely followed by San Francisco climbed over 10 occupancy points, 72%.
Revpar up 13, 1%.
Los Angeles, Rockman see improved nearly six points to a healthy 78% with revpar growing 5%.
Speaker 3: transcript
Speaker 8: And significantly weekday occupancies at urban hotels, a good bell weather, business travel demand, rose to a solid 75.4 percent up from 72.3 percent in the prior year quarter and a meaningful recovery over less.
Significantly weekday occupancies at our urban hotels are good bellwether business travel demand rose to a solid 75, 4% up from 72, 3% in the prior year quarter and a meaningful recoveries over last year.
Speaker 3: transcript
Speaker 9: Our urban properties also gained from our surgeons and leisure travel, particularly during this summer, both should buy concerts and other leisure cultural events.
Our urban properties also gained from a resurgence in leisure travel, particularly during the summer bolstered by concerts and other leisure cultural events.
Speaker 3: transcript
Speaker 10: Constantly, weekend, urban, occupancies elevated to an impressive 82.3%. Almost surpassing our weekend, Resort Occupancy of 83.9%, which itself nearly two points higher than the prior year quarter.
Consequently weekend urban Occupancies elevated to an impressive 82, 3%.
Almost surpassing our weekend resort occupancy of 83, 9%, which itself nearly two points higher than the prior year quarter.
Speaker 3: transcript
Speaker 11: As a result, RAPAR at urban hotels increased by 3% compared to last year's third quarter.
As a result, revpar at our urban hotels increased by 3% compared to last year's third quarter.
Speaker 3: transcript
Speaker 12: This improvement helped the offset moderating room rates and demand for suite and premium room upgrades, particularly in the leisure segment at our resort.
This improvement helped to offset moderating room rates and demand for sweet and premium room upgrades, particularly in the leisure segment at our resorts.
Speaker 3: transcript
Speaker 13: Zorat rep harbors down 10.2% with occupancy flat.
Jordan Revpar was down 10, 2% Black Sea flat.
Speaker 3: transcript
Speaker 14: Resort rates continue to be on average about 40% or $111 higher than those in 2019.
Presort rates continued to be on average about 40% or $111 higher than those in 2019.
Speaker 3: transcript
Speaker 15: the resorts board the brunt of the two weather attacks, to their results would have been better otherwise. But when that's negative.
The resorts borne the brunt of the two whether it's tax so there were solid results would've been better otherwise.
That's negative.
Speaker 3: transcript
Speaker 16: For the quarter, we recorded a marginal increase of 0.2% for staining property toler rep.
For the quarter, we recorded a marginal increase of <unk>, 2% for same property total revpar.
Speaker 3: transcript
Speaker 17: While room revenue gets by 1%, non-room revenue rose by 3%, that's terrible to the benefit of recovering eye-concy levels. A persisting trend across our portfolio, along with continued healthy, out of room spend, fire gas.
While room revenue dipped by 1% non room revenue rose by 3% attributable to the benefit of recovering occupancy levels, a persistent trend across our portfolio along with continued healthy out of room spend by our guests.
Speaker 3: transcript
Speaker 18: The third quarter was not without its challenges though. First, two name-starts and virtually affected demand on both coasts, triggering cancellations and contailing bookings from mid-August through mid-September in several key markets.
The third quarter was not without its challenges, though first to named storms adversely affected demand on both coasts triggering cancellations curtailing bookings from mid August through mid September in several key markets.
Speaker 3: transcript
Speaker 19: That's left an approximate 90-base point to climb in our RELF bar growth and shave the next-minute 2.5-line off our same property, ReBedon.
This led to an approximate 90 basis point decline in our Revpar growth.
Saved an estimated $2 5 million off our same property EBITDA.
Speaker 3: transcript
Speaker 20: Second, West Los Angeles Procreas continue to build the impact of their writers and actress strikes, which have notably dampened demand.
Second West Los Angeles properties continued to feel the impact of the writers and actors strikes, which have notably dampened demand from the entertainment sector.
Speaker 3: transcript
Speaker 21: We estimate this cause a 30 basis point to climb and repart in the quarter in a 0.5 million dollar decrease in same property EBITDA.
We estimate this caused a 30 basis point decline in Revpar in the quarter and a zero point $5 million decrease in same property EBITDA.
Speaker 3: transcript
Speaker 22: While the riders have recently settled, the continuing access strike is expected that curtail demand in the LA marketing Q4, which we have estimated and reflected in our Q4 out.
While there are writers that recently settled the continuing to actually strike is expected to curtail demand in the LNG market in Q4, which we have estimated and reflected in our Q4 outlook.
Speaker 3: transcript
Speaker 23: Finally, the completion of the redevelopment of Stolen Marble and DeMarter Redeveloped, any of you go gas-mamp quarter, coupled with extensive renovations at the guest house that its other most, resulted in an approximate 45-basit point impact to repart and a $1.4 million reduction in same-property EBITDA.
Finally, the completion of the redevelopment of store into a margaritaville San Diego Gaslamp quarter, coupled with extensive renovations at the guest houses at southernmost resulting in approximately 45 basis point impact Revpar and a $1 $4 million reduction in same property EBITDA.
Speaker 3: transcript
Speaker 24: These renovation-related disruptions are largely anticipated and aligned with our original Q3 outlook.
These renovation related disruptions.
Largely anticipated and aligned with our original Q3 outlook.
Outlook.
Speaker 3: transcript
Speaker 25: Despite these heralds and one-off weather events, overall portfolio occupancy continued its upward trajectory, fishing in the quarter at a healthy 75.4% and increase of 2.5 points over year-to-year.
Despite these hurdles and one off weather events overall portfolio occupancy continued its upward trajectory, finishing the quarter at a healthy 75, 4% an increase of two five points over the year over year.
Yeah.
Speaker 3: transcript
Speaker 26: Our same property EBITEM at 114.3 million hit the upper end of our Q3 outlook. With EBITEM margins at 29.4%, also at the top end of our expectations.
Our same property EBITDA at $114 3 million hit the upper end of our Q3 outlook with EBITDA margins at 29, 4% also at the top end of our expectations.
Speaker 3: transcript
Speaker 27: These positive achievements were aided by prudent cost management strategies across all operating departments, as well as successful reductions in property taxes at several of our properties.
These positive achievements raided by prudent cost management.
He's across all operating departments as well as successful reductions in property taxes at several of our properties.
Speaker 3: transcript
Speaker 28: Overall, wage rate preptors and other operating costs have notably eased as the year progressed and have compared with the significant strains witnessed throughout 2022.
Overall wage rate pressures and other operating costs have notably ease as the year progressed.
With the significant strains witnessed throughout 2022.
Speaker 3: transcript
Speaker 29: The year-of-year growth rate in our total hotel operating expenses, excluding property taxes, as a client from 27.8% in Q1, the 10.2% in Q2, the 5.4% in Q3.
The year over year growth rate in our total hotel operating expenses.
Property taxes declined from 27, 8% in Q1 to 10, 2% in Q2 to five 4% in Q3.
Speaker 3: transcript
Speaker 30: And then I proc by the room bases, they have declined from 7% in Q1 to 5.3% in Q2, and down to 1.8% in Q3.
And on a per occupied room basis. They have declined from 7% in Q1 to five 3% in Q2 and down to one 8% in Q3.
Speaker 3: transcript
Speaker 31: We provided these numbers excluding property taxes since they may vary materially on an unpredictable basis as we are successful in winning reduced assessments and making multi-year true-ups, but these growth rates would have been even lower if we included property taxes.
We provide these numbers excluding property taxes since they make very materially on a predictable basis.
That's why we're winning reduced assessments and making multiyear true ups, but these growth rates would have been even lower if we included property taxes.
Speaker 3: transcript
Speaker 32: We expect further easing the growth of more normal course operating expenses, meaning exclusion, noise from things like property tax tariffs or property insurance in the fourth quarter. As we are lapping the success we've had re-staffing in the last four months of last year.
We expect further easing in the growth of more normal course operating expenses, excluding the noise from things like property tax true ups or property insurance in the fourth quarter. As we are lapping the success, we've had re staffing and the last four months of last year.
Speaker 3: transcript
Energy expense growth also moderated to 10.7% in Q3 down from the nearly 14% spike experience in the first half of the year. This reduction in the growth rate results primarily from our significant investments in energy and water conservation across the portfolio and some moderation in energy rates. However, we continue to have energy contracts we locked in several years ago that will roll over at significantly higher percentage increase.
Energy expense growth also moderated to 10, 7% in Q3 down from the nearly 14% spike experienced in the first half of the year.
This reduction in the growth rate results, primarily from our significant investments in energy and water conservation across the portfolio and some moderation in energy rates.
However, we continue to have energy contracts, we locked in several years ago now a rollover at significantly higher percentage increases.
Speaker 3: transcript
As a result, this will keep our energy cost rate growth rate from a moderating in the next 12 to 18 months.
As a result, this will keep our energy costs, great growth rate from a moderating in the next 12 to 18 months.
Speaker 3: transcript
Insurance costs were also a headwind, increasing 34.4% over the prior year quarter.
Insurance costs were also a headwind increasing 34, 4% over the prior year quarter.
Speaker 3: transcript
on a monthly break down the rep are in July by point five percent August saw one point one percent decline probably due to proper storm hillary glanfall in August twentyth resulting in cancellations and reduced bookings that are seventeen hotels in city of Los Angeles
On a monthly breakdown the Revpar in July did five 5% August so a one 1% decline probably due to tropical storm Hillary which made landfall in August 20th resulted in cancellations and reduced bookings that are 17 hotels in San Diego Los Angeles September.
Speaker 3: transcript
September Rappaport ended down 1.7 percent, partly due to Hurricane Idalia, which made landfall on August 30th, which increased cancellations and negatively impacted bookings at our six resorts in the southeast.
September Rep par ended down one 7%, partly due to hurricane Italia, which made landfall on August 30th which increased cancellations negatively impact bookings at our six resorts in the South East.
Speaker 3: transcript
Our justice, EBITDA and FFL benefited from business interruption proceeds of 10.9 million for Latoya, slightly exceeding our forecasted 10.5 million.
Our adjusted EBITDA and <unk> benefited from business interruption proceeds of $10 9 million for the Playa slightly exceeding our forecasted $10 5 million.
Speaker 3: transcript
Lower and expected, GNA and also contribute to our positive variances versus our outlet.
Lower than expected G&A and also also contribute to our positive variances versus our outlook.
Speaker 3: transcript
During the third quarter, we deployed 33.1 million in capital investments across our portfolio with a significant portion related to two major redevelopments. The newly transformed Margarit-Devil San Diego Gas Mamp, which occurred on August 15th, and the $12.5 million redevelopment and substantial repositioning of the four guest houses, comprising 50 guest rooms in Sweden at Southernmost Resort in Key West.
During the third quarter, we deployed $33 1 million in capital investments across our portfolio with a significant portion related to two major redevelopment the newly transformed Margaret Redeveloped, San Diego Gaslamp, which occurred on August 15th and the $12 $5 million redevelopment and substantial repositioning of the four it gets.
This comprises 50 guestrooms and suites at southernmost resort in key west.
Speaker 3: transcript
Renovations of the guest houses at Southern most are on track for completion in November . The public space renovations that are scheduled to commence in November with completion expected in early Q2.
Renovations of the guest houses at southern most are on track for completion in November.
Public space renovations at Estancia La Jolla are scheduled to commence in November with completion expected in early Q2.
Speaker 3: transcript
This marks the final phase of a 15 month long comprehensive redevelopment and repositionable to Sansa, which began with a full get-from renovation.
This marks the final phase of a 15 month long comprehensive redevelopment and repositioning of bluestone, Estancia, which began with a full guestroom renovation.
Speaker 3: transcript
And our last major redevelopment project for 2023 involves the sweeping transformation of Newport Harbor Island Resort, which is set to commence on November 13th, with the closure of this project.
And our last major redevelopment project for 2023 involves the sweeping transformation of Newport Harbor Island resort, which is set to commence on November 13th with the closure of this property.
Speaker 3: transcript
We aim to complete this redevelopment in Q2 next year before the resource is pieced in.
We aim to complete this redevelopment in Q2 next year before the resource peak season.
Speaker 3: transcript
We remain on track to invest $145, $155, $9 in the portfolio for the year. And we're pleased to report that the bulk of revenue disruptions and overall investment dollars associated with our strategic capital redevelopment projects are in your room here. We remain bullish about the substantial upside that these reposition properties would generate in both market share and cashflow in the foreseeable future.
We remain on track to invest $145 million to $155 million in the portfolio for the year and we're pleased to report that the bulk of revenue disruptions and overall investment dollars associated with our strategic capital redevelopment projects are in.
<unk>.
We remain bullish about the substantial upside these repositioned properties will generate both market share and cash flow in the foreseeable future.
Speaker 3: transcript
Gifting focus to apply beach club resort and club in Naples, substantial strides continue to be made in the resort's ongoing repair and infreherencement.
Shifting focus to apply a beach club resort and club enables substantial strides continue to be made in the resorts ongoing repair and refurbishment.
Speaker 3: transcript
The 40 room bait tower and 70 room golf tower, which encompasses the resort's key amenities like the lobby, restaurant and club, are substantially complete and full operational. The supply is beginning to look like a-
The 40 room day tower, and 70 room golf tower, which encompasses the resort's claim any of these like the lobby restaurant and club are substantially complete and full operational.
Supply is beginning to look like an upscale resort again.
Speaker 3: transcript
Rebuilding work on the 79 room beach houses now well along with clear and end and site.
Rebuilding work under 79 room Beach House.
It is now well along with clear end in sight.
Speaker 3: transcript
We currently are forecasting this final portion of this resort to be substantially complete and reopened in the first quarter next year. This represents a delay from our prior year-end estimate due primarily to delays in permitting with the county.
We currently are forecasting this final portion of this resort to be substantially complete and reopened in the first quarter next year.
This represents a delay from our prior year end estimate due primarily to delays in permitting with the county.
Speaker 3: transcript
Impressively, despite the absence of a full-fled, resort experience, and the inevitable noise and disruption from very visible, ongoing constructs.
Impressively, despite the absence of a full fledged resort experience and the inevitable noise and disruption from very visible ongoing construction. The 110 Guestrooms currently available across the two operational towers achieved a notable 50% occupancy rate and average daily rate of $389 during the third quarter.
Speaker 3: transcript
110 guest rooms currently available across the two operational towers. She's a notable 50% occupancy rate and average daily rate is $389 during the 30 quarter.
Speaker 3: transcript
It seems the slowest period and is striking 60% uptake over 2019 rate.
It seasonally slowest periods and is striking 60% uptick over 2019 rates.
Speaker 3: transcript
For context, it's important to note that before the devastation brought by Hurricane Ian, we project the La Playa to contribute over $4 million in EBITDA for Q3, as opposed to the $0.2 million loss it actually incurred.
For context, it's important to note that before the devastation wrought by Hurricane and we project that we'll apply it to contribute over $4 million in EBITDA for Q3 as opposed to the point $2 million loss it actually incurred.
Speaker 3: transcript
that underscored the impact the loss of the resort having on our financial results.
This underscores the impact the loss of the resort and our financial results and as a reminder, we currently exclude rupiah from our same property operating results.
Speaker 3: transcript
And as a reminder, we currently exclude La Playa from our same property operating.
Speaker 3: transcript
Regarding our Q4 outlook, we have not incorporated any additional business interruption or BI proceeds related to Q3 loss.
Regarding our Q4 outlook, we have not incorporated any additional business interruption or bi proceeds related to Q3 losses.
Speaker 3: transcript
And so, except for a reply, we anticipate that BI proceeds for lost income from about Q3 and Q4. The current year will occur in 2024. As of the end of the third quarter, we have recorded approximately 33 million BI related 25 million BI.
<unk> and apply it we anticipate that <unk> proceeds for lost income for both Q3 and Q4 the current year will occur in 2024.
As of the end of the third quarter, we recorded approximately $33 million in <unk> related revenues.
Speaker 3: transcript
As part of our strategic capital reallocation strategy, we've entered into a contract to sell Hotel Zoe Fishman's Wharf for $16.5 million with a sale targeted for completion in Q4.
As part of our strategic capital reallocation strategy, we've entered into a contract to sell a hotel Zoe Fisherman's wharf for $65 million.
Sales targeted for completion in Q4.
Speaker 3: transcript
Assuming a successful closing, this will bring our total asset sales for the year to six properties, generating $300.8 million in gross proceeds year-to-date.
Assuming the successful closing and this will bring our total asset sales for the year to six properties generating $300 8 million in gross proceeds year to date.
Speaker 3: transcript
All divested properties have been urban properties in line with our overarching strategy to rebalance the leisure and business segments of our portfolio for optimal long-term risk-adjusted returns. John will speak more about this.
All divested properties have been urban properties in line with our overarching strategy to rebalance the leisure and business segments of our portfolio for optimal long term risk adjusted returns.
John will speak more about this strategy in his remarks.
Speaker 3: transcript
And on the capital allocation front, we did not purchase any common shares during Q3. However, we reduced our total debt and increased our cash position, while replacing a $161.5 million loan secured by a Margaritaville, Highway Beach Resort with a new secure loan of $140 million.
I know on the capital allocation front, we did not purchase any common shares during Q3, however, we reduced our total debt and increased our cash position, while replacing the $161 5 million loan secured by a Margaritaville Hollywood Beach resort with a new secured loan of $140 million.
Speaker 3: transcript
This loan carries a three-year term, extendable by two one-year options, with a rate fixed at 7% for these during four-plus years.
This loan carries a three year term extendable by two one year options with its fixed rate fixed at 7% to the asterias is doing four plus years.
Speaker 3: transcript
Regarding our balance sheet and liquidity position, we have over $829 million of liquidity comprised of $191.6 million in cash and $637 million available on our unsecured line.
Regarding our balance sheet and liquidity position, we have over $829 million of liquidity comprised of $191 $6 million in cash and $637 million available on our unsecured lines.
Speaker 3: transcript
The weighted average cost of our debt is 4.4%, with 78% of it currently with fixed rates and 92% unsecured.
The weighted average cost of our debt is four 4% with 78% of it currently with fixed rate and 92% unsecured.
Speaker 3: transcript
are increasing cash reserves in out-to-cured crevicellity augmented by additional asset sales, provides for more than sufficient liquidity to navigate our upcoming demoturities over the next 12 to 24 months.
Our increasing cash reserves and unsecured credit facility augmented by additional asset sales provide us with more than sufficient liquidity to navigate our upcoming debt maturities over the next 12 to 24 months.
Speaker 3: transcript
And with that comprehensive update, I'd like to turn the call over to John . John .
Now with that comprehensive update I'd like to turn the call over to John John.
Speaker 4: transcript
Thanks Ray. I'd like to touch on three topics this morning. First are observations on industry trends.
Thanks Ray.
Like to touch on three topics. This morning first our observations on industry trends.
Speaker 4: transcript
Second, I intend to discuss our ongoing strategic capital allocation program and our continuing pivot from a heavy urban and business travel-focused investment company to a more balanced portfolio, more evenly split between business and leisure, and between urban and resort. And then third, I'll talk about our outlook for the fourth quarter.
I intend to discuss our ongoing strategic capital allocation program and are continuing to pivot from a heavy urban and business travel focused investment company.
To a more balanced portfolio more evenly split between business and leisure and between urban and resort and then third I'll talk about our outlook for the fourth quarter.
Speaker 4: transcript
In terms of industry trends, it's fair to say the industry has seen a flattening out of the recovery in demand on an overall basis.
In terms of industry trends, it's fair to say the industry has seen a flattening out of the recovery in demand on an overall basis.
Speaker 4: transcript
In fact, the industry was unable to successfully absorb even the smallest amount of supply growth in Q3. With overall industry occupancy declining, I'll be it slightly, in every month in Q3. A trend that continues.
In fact, the industry was unable to successfully absorb even the smallest amount of supply growth in Q3 with overall industry occupancy declining, albeit slightly in every month in Q3 of.
A trend that continues from Q2.
Speaker 4: transcript
We were surprised that this trend did not reverse in Q3.
We were surprised that this trend did not reverse in Q3.
Speaker 4: transcript
However, revenge travel related to outbound international and cruising this year seems to have overwhelmed improving demand in business travel and international inbound travel.
However, revenge travel related to outbound international and cruising this year same store I'm overwhelmed improving demand and business travel and international inbound travelers.
Speaker 4: transcript
We believe business travel, both group and transient, continues to gradually recover.
We believe business travel both group and transient continues to gradually recover.
Speaker 4: transcript
Leisure, on the other hand, has declined slightly as international outbound travel and cruising rebounded to above pre-pandemic levels.
Leisure on the other hand has declined slightly as the international outbound travel and cruising rebounded to above pre pandemic levels in.
Speaker 4: transcript
and international inbound travel, especially leisure, has only gradually returned.
In international inbound travel, especially leisure is the only gradually returned.
Speaker 4: transcript
The leisure softness has primarily been reflected at resort.
The leisure softness was primarily been reflected at resorts.
Speaker 4: transcript
while urban weekend occupancies have continued to recover.
While urban weekend Occupancies have continued to recover.
Speaker 4: transcript
We believe next year leisure will normalize at higher levels of domestic travel.
We believe next year leisure will normalize at higher levels of domestic travel.
Speaker 4: transcript
We laugh this revenge travel and international inbound continues its gradual recovery.
As we lap this revenge travel and international inbound continues its gradual recovery.
Speaker 4: transcript
The resurgence in business travel we've seen is evident by the improving occupancies in the urban and top 25 markets, specifically...
The resurgence in business travel, we've seen as evidenced by the improving occupancies in the urban and top 25 markets specifically during weekdays.
Speaker 4: transcript
This trend is particularly strong in the luxury and upper upscale segments. Hotels which are predominantly located in major cities.
This trend is particularly strong in our luxury and upper upscale segments hotels, which are predominantly located in major cities.
Speaker 4: transcript
The SDR data for Q3 shows a consistent softening of occumancies at the mid to lower end.
The STR data for Q3 shows a consistent softening of Occupancies at the mid to lower end of the spectrum.
Speaker 4: transcript
We've not seen any evidence of trading down in the industry.
We've not seen any evidence of trading down in the industry.
Operator: Greetings and welcome to the Pebblebrook Hotel Trust third quarter earnings call. At this time all participants are on a listen only mode. A brief question and answer session will follow the formal presentation.
Speaker 4: transcript
In fact, the SDR numbers show the weakest demand and worst performing properties are at the bottom end of the quality and price spectrum.
In fact, the STR numbers show the weakest demand and worst performing properties are at the bottom end of the quality and price spectrum.
Speaker 4: transcript
the economy hotel category for forming the world.
With the economy hotel categories performing the worst.
Operator: If anyone's require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker 4: transcript
Geographically, in general, the previously slower-to-recover markets, such as Chicago, San Francisco, Washington, D.C., and New York, are now experiencing stronger demand growth, and the earlier-to-recover markets, such as Miami, Kampa, Orlando, and Atlanta, are witnessing weaker demand.
Geographically in general the previously slower to recover markets, such as Chicago, San Francisco, Washington, D. C and New York are now experiencing stronger demand growth and the earlier to recover markets, such as Miami, Tampa, Orlando and Atlanta.
Raymond Martz: It is now my pleasure to introduce your host, Raymond Martz, co-president and chief financial officer. Thank you, you may begin. Thank you, Donna and good morning, everyone. Welcome to our third quarter, 2023 earnings call and webcast. Joining me today is Jon Bortz, our chairman and chief executive officer and Tom Fisher, our co-president and chief investment officer. But before we start, a reminder that today's comments are effective only today, October 27, 2023, and our comments may include forward-looking statements under federal securities laws.
Anna are witnessing weaker demand growth the.
Speaker 4: transcript
The top 25 markets continue to see increasing demand and occupancy.
The top 25 markets continue to see increasing demand in occupancies while.
Speaker 4: transcript
While other markets continue to see declining demand, and not...
While other markets continue to see declining demand and occupancies.
Speaker 4: transcript
Amidst this industry-wide stabilization of demand, ADRs in Q3 also displayed a moderating growth rate.
Amidst this industry wide stabilization of demand <unk>.
Raymond Martz: Actual results could differ materially from our comments. Please refer to our latest SEC filings for detailed discussion of potential risk factors and a website for reconciliation of non-gap financial measures referred to during our call. Now, let's turn our attention to our key three results. We are pleased to report that despite two negative weather events and continuing entertainment industry strikes in LA, we were able to achieve same property hotel EBITDA, adjusted EBITDA and adjusted FFO and the top end of our outlook due to a continued recovery in corporate group intrinsic demand across many of our urban markets and solved cost controls in a gradually moderating expense environment.
<unk> in Q3 also displayed a moderating growth rate.
Speaker 4: transcript
Though ADRs in September and so far in October have bumped up from the low points in July and August .
So ADR in September and so far in October.
Bumped up from the low points in July and August.
None of these trends come as a surprise and.
Speaker 4: transcript
We don't expect much change in these industry trends for the rest of the year. However, we do expect a modest boost in October's performance due to the favorable calendar of the Jewish holidays this year falling completely in September .
And we don't expect much change in these industry trends for the rest of the year.
However, we do expect a modest boost in October performance due to the favorable calendar of the Jewish holidays. This year following completely in September.
Speaker 4: transcript
Of course, given the Fed's efforts to bring down inflation and slow the growth of the economy, we shouldn't be surprised if we see a slowdown or recession sometime in the next 12 months.
Of course, given the fed's efforts to bring down inflation and slow the growth of the economy.
Raymond Martz: Washington, D.C, led the rebound, the hotel occupancy surging an impressive 13.68% and a rap part increasing 21.4%. This was closely followed by San Francisco climbed over 10 occupancy points 72%, with a rap part up 13.1% in Los Angeles where occupancy improved nearly six points to a healthy 78% with a rap significantly weekday occupancies at our urban hotels, a good bellweather business travel demand rose to a solid 75.4% up from 72.3% in the prior year quarter and a meaningful recovery over last year.
We shouldnt be surprised if we see a slowdown or recession sometime in the next 12 months.
Speaker 4: transcript
Now I'd like to move on to a brief discussion of our capital investment strategies and our overall pivot to a more evenly balanced business and leisure demand.
Now I'd like to move on to a brief discussion of our capital investment strategies and our overall pivot to a more evenly balanced business and leisure demand mix.
Speaker 4: transcript
Our reduction in urban property has been going on since 2016 when we began to sell out of New York.
A reduction in urban properties. So it's been going on since 2016, when we began to sell out of New York.
Speaker 4: transcript
Prior to the little South Transaction in late 2018, we sold a total of seven properties for gross proceeds of $592 million. And all of them were urban.
Prior to the Lasalle transaction in late 2018, we sold a total of seven properties for gross proceeds of $592 million and all of them were urban.
Speaker 4: transcript
Acquiring LaSalle added six unique resorts, all with significant repositioning upsides.
Acquiring Lasalle added six unique resorts, all with significant repositioning upsides.
Raymond Martz: Our urban properties also gained from our resurgence in leisure travel particularly during the summer both should buy concerts and other leisure cultural events. Consequently, weekend urban occupancies elevated to an impressive 82.3%, almost surpassing our weekend resort occupancy of 83.9%, which itself nearly two points higher than the prior year quarter. As a result, rap part at our urban hotels increased by 3%, compared to last year's third quarter. This improvement helped the offset moderating room rates and demand for sweet and premium room upgrades, particularly in the leisure segment at our resorts.
Speaker 4: transcript
Simultaneously with the corporate transaction, we also dispose of five of the sales urban properties for total gross proceeds of $821 million. Since then, we've sold 20...
Simultaneously with the corporate transaction, we also disposed of five Lasalle urban properties for total gross proceeds of $821 million.
Since then we've sold 24 additional properties.
Speaker 4: transcript
including the upcoming sale of Hotel Zoe in San Francisco.
Including the upcoming sale of hotel Zoe in San Francisco.
All our urban.
Speaker 4: transcript
generating gross proceeds of an additional $1.725 billion.
Generating gross proceeds of an additional $1 $75 billion.
Speaker 4: transcript
In total, we sold 36 urban properties since 2016 for over 3.4, I'm sorry, for over 3.1 billion dollars.
In total we sold 36 urban properties since 2016 for over three four I'm sorry for over $3 1 billion.
Raymond Martz: Resort rep part was down 10.2% with occupancy flat. Resort rates continued to be on average about 40% or $111 higher than those in 2019. The resorts bore the brunt of the two weather impacts so their results would have been better otherwise. That's negative. For the quarter, we recorded a marginal increase of 0.2% for staying property to the repart. While a room revenue get by 1%, non-room revenue rose by 3%, that's true to both to the benefit of recovering occupancy levels, a persisting trend across our portfolio, along with continued to help eat out of room spend to fire guests.
Speaker 4: transcript
In 2021 and 2022, we acquired five leisure-focused resort properties and two guest houses in Key West, which were added to Southernmost Resort for a total of $822 million.
In 2021 and 2022 we acquired five leisure focused resort properties and two guesthouses and key west which were added to the southernmost resort for a total of $822 million.
Speaker 4: transcript
Jekyll Island, Espantia, LaHoya, Newport Harbor Island, and the two guest houses have an R undergoing extensive upgrades, repositioning and operator changes that will drive significant upside going forward.
Jekyll Island, Estancia, La Jolla, Newport Harbor Island, and the two guest houses have and are undergoing extensive upgrades repositioning and operator changes that will drive significant upside going forward.
Speaker 4: transcript
This is on top of the very substantial investments in our other resorts, including Scamania Lodge, Shamanad, Mission Bay Resort, the marker Key West, Southernmost Resort, Low Bears Del Mar, and Laplaya Enable.
This is on top of the very substantial investments in our other resorts, including Skamania Lodge.
Raymond Martz: The third quarter was not without its challenges, though. First, two name storms and virtually affected demand on both coasts, triggering cancellations and curtailing bookings from mid-August through mid-September in several key markets. This led to an approximate 90-based point to Klein in our repart growth and shaved an estimated 2.5 million off our same property rebid up. Second, West Los Angeles property has continued to feel the impact of the writers and actress strikes, which have notably dampened demand from the entertainment sector.
Mission Bay resort, the marker key west Southern most resort low barriers del Mar and La Playa and Naples.
Speaker 4: transcript
And we believe all of these resorts, due to the investments we've made in upgrading them and remarchingizing them, will continue to gain market share, thereby enhancing cash flow.
And we believe all of these resorts due to the investments we've made in upgrading them and re merchandising them, we'll continue to gain market share, thereby enhancing cash flow.
Speaker 4: transcript
So from 2016 to today, we went from two resorts to 13 resorts.
So from 2016 to today, we went from two resorts to 13 resorts.
Speaker 4: transcript
which also helps us increase the laser mix within our portfolio.
Which also helped us increase the leisure mix within our portfolio.
Raymond Martz: We estimate this caused a 30-based point to Klein and repart in the quarter in a 0.5-million-dollar decrease in same property rebid up. While the writers have recently settled, the continuing actress strike is expected to curtail demand in the LA market in Q4, which we have estimated and reflected in our Q4 outlook. Finally, the completion of the redevelopment of Stone Marble in DeMarg to redevelop any of your gas name quarter, coupled with extensive renovations at the guest house that its other most resulted in an approximate 45-based point impact repart and a 1.4-million-dollar reduction in same property rebid up.
Today, we believe the business leisure max in our portfolio is roughly 50-50.
Today, we believe the business leisure mix at our portfolio, it's roughly 50 50 in.
Speaker 4: transcript
And assuming we sell additional urban properties over the next couple of years, we expect a leisure portion to edge.
And assuming we sell additional urban properties over the next couple of years.
We expect the leisure portion to edge slightly higher we.
Speaker 4: transcript
We don't think it will move a lot. As many of the urban properties we've sold or are selling, such as those in San Francisco, Portland, Seattle, and Washington, D.C., have a strong leisure mix as these markets are very attractive to leisure travelers.
We don't think it will move a lot as many of the urban properties, we have sold or are selling such as those in San Francisco, Portland, Seattle, and Washington D C.
Have a strong leisure mix as these markets are very attractive to leisure travelers.
Moreover, most of the resorts we've been acquiring have very large business group components.
Moreover, most of the resorts, we've been acquiring have very large business group components.
Raymond Martz: These renovations-related disruptions are largely anticipated and aligned with our original Q3 outlook. Despite these hurdles and one-off weather events, overall portfolio occupancy continued its upper trajectory, finishing the quarter at a healthy 75.4% and increase of 2.5 points over year-to-year. Our same property ebidum at 114.3 million hit the upper end of our Q3 outlook, with ebidum margins at 29.4% also at the top end of our expectations. These positive achievements, rated by prudent cost management strategies across all operating departments, as well as successful reductions in property taxes at several of our properties.
Speaker 4: transcript
while their business and corporate transient mix tends to be more limited.
All their business in corporate transient mix tends to be more limited.
Speaker 4: transcript
This helps explain the actual increase in our group mix overall in our portfolio as this pivot has continued.
This helps explain the actual increase in our group mix overall in our portfolio as this pivot has continued.
Speaker 4: transcript
We believe this roughly 50-50 next between business and leisure will serve us well in the years to come. As we believe the slowest to recover segment will continue to be business transit travel, and we believe this Secular Trends favorite leisure travel as well as group, particularly group in resort locations with significant outdoor meeting and event space and numerous amenities, activities, and experience.
We believe this roughly 50 50 mix between business and leisure will serve us well in the years to come as we believe the slowest to recover segment will continue to be business transient travel and we believe the secular trends favor of leisure travel as well as group, particularly group in resort locations with significant outdoor meeting.
And events space and numerous <unk>.
Many of these activities and experiences.
Speaker 4: transcript
As we move forward, we continue to focus on taking advantage of the public private arbitrage opportunity that exists today.
As we move forward, we continue to focus on taking advantage of the public private arbitrage opportunity that exists today.
Raymond Martz: Overall, wage rate pressures and other operating costs have notably eased as the year progressed, as compared with the significant strains witnessed throughout 2022. The year-of-year growth rate in our total hotel operating expenses, including property taxes, has declined from 27.8% in Q1, the 10.2% in Q2, the 5.4% in Q3. In an 7% in Q1, the 5.3% in Q2, and down to 1.8% in Q3. We provided these numbers excluding property taxes, since they may vary materially on an unpredictable basis, as we are successful on winning reduced assessments and making multi-year tariffs.
Speaker 4: transcript
We're selling urban properties in slower-to-recover markets with lower cash flows and within our individual property, NAV ranges. And then using those proceeds to reduce our net debt and repurchase our common and preferred shares at very significant discounts to the NAV of the company.
We're selling urban properties in slower to recover markets with lower cash flows and within our individual property AAV ranges and then using those proceeds to reduce our net debt and repurchase our common and preferred shares at very significant discounts to the N. A view of the company.
Speaker 4: transcript
Since the pandemic began, we've sold 14 properties, including the upcoming sale of Hotel Zoe in San Francisco for gross proceeds of $881.8 million.
Since the pandemic began we've sold 14 properties, including the upcoming sale of hotel Zoe in San Francisco for.
For gross proceeds of $881 $8 million at.
Speaker 4: transcript
at an average trailing 12 month NOI cap rate of 0.5% and a trailing 12 month even on multiple of 105.8 times.
At an average trailing 12 month NOI cap rate of 0.5%.
And a trailing 12 month EBITDA multiple of 105.
Raymond Martz: But these growth rates would have been even lower if we included property taxes. We expect further easing the growth of more normal course operating expenses, meaning excluding the noise from things like property tax tariffs or property insurance in the fourth quarter, as we are lapping the success we've had with staffing in the last four months of last year. Energy expense growth also moderated to 10.7% in Q3 down from the nearly 14% spike experience in the first half of the year.
<unk> eight times.
Speaker 4: transcript
We've generally sold our lowest quality properties in the slowest recovering urban markets. Now some proving the quality and growth prospects of our remaining portfolio.
We've generally sold our lowest quality properties in the slowest recovering urban markets.
Thus, improving the quality and growth prospects of our remaining portfolio.
Speaker 4: transcript
We sold five properties in San Francisco, two in Portland, two in Seattle, one in Nashville, one in New York, one in Coral Gables, one in Philadelphia, and a small retail property in Chicago.
We've sold five properties in San Francisco, two in Portland, two in Seattle, One in Nashville, One in New York, one in Coral gables, one in Philadelphia, and a small retail property in Chicago.
Raymond Martz: This reduction in the growth rate results primarily from our significant investments in energy and water conservation across the portfolio and some moderation in energy rates. However, we continue to have energy contracts we locked in several years ago that were rolled over at significantly higher percentage increases. As a result, this will keep our energy costs rate from a moderating in the next 12-day team months. Insurance costs were also ahead when increasing 34.4% over the prior year quarter.
Speaker 4: transcript
We believe strongly that taking advantage of the significant financial arbitrage opportunity.
We believe strongly that taking advantage of the significant financial arbitrage opportunity.
Speaker 4: transcript
which is being funded by the sales of urban properties in slower-to-cover markets at attractive relative pricing is by far our best capital investment strategy.
Which is being funded by the sales of urban properties and slower to recover markets at attractive relative pricing is by far our best capital investment strategy.
Speaker 4: transcript
The opportunity available in the past year, including right now, represents a far better value creation opportunity for our shareholders than either using all of the proceeds to pay down our debt, which we believe is at a modest level or holding cash to take advantage of undefined opportunities in the acquisition market at an undefined time in the future.
The opportunity available in the past year, including right now represents a far better value creation opportunity for our shareholders than either using all of the proceeds to pay down our debt, which we believe is at a modest level or holding cash to take advantage of undefined opportunities in the acquisition market.
Raymond Martz: On a monthly break down, the Rev. July did 5.5%, August saw 1.1% decline, probably due to tropical storm Hillary, which made landfall in August 20th, resulting in cancellations and reduced bookings that are 17 hotels in St. Diego, Los Angeles. September rep part ended down 1.7%, partly due to Hurricane Adalia, which made landfall on August 30th, which increased cancellations and negatively impact bookings at our six resorts in the southeast. Our adjusted EBITDA and FFL benefited from business and eruption proceeds of 10.9 million for Latoya, slightly exceeding our forecasted 10.5 million.
<unk> had an undefined time in the future.
Speaker 4: transcript
We just don't believe any opportunities in the future will be more attractive or available to bigger discount than buying our current properties at a 25% to 30% discount to their estimated current gross values.
We just don't believe any opportunities in the future will be more attractive or available at a bigger discount than buying our current properties at a 25% to 30% discount to their estimated current gross values at a 50% plus discount to the overall value of the company.
Speaker 4: transcript
and a 50% plus discount to the overall value of the company.
Now, let me turn to a review of the near term.
Speaker 4: transcript
As we look at the fourth quarter, October started out well with healthy business and leisure travel.
As we look at the fourth quarter October has started out well with healthy business and leisure travel.
Speaker 4: transcript
October is also benefiting from both Jewish holidays falling into September this year versus them being split between September and October last year. This of course helps the
October is also benefiting from both Jewish holidays falling into September this year versus that being split between September and October last year.
Raymond Martz: Lower and expected, GNA and also also contribute to our positive variances versus our outlook. During the third quarter, we deployed 33.1 million in capital investments across our portfolio, with a significant portion related to two major redevelopments, the newly transformed Margarit-Devil San Diego gas ramp, which occurred on August 15th, and the $12.5 million redevelopment and substantial repositioning of the four guesthouses comprising 50 guestrooms in Sweden at Southernmost Resort in Key West. Renovations of the guesthouses at Southernmost are on track for completion in November.
This of course helps the performance of the entire industry.
Speaker 4: transcript
In addition, we have some favorable convention calendars in the fourth quarter in San Diego, San Francisco, Washington, D.C., and Boston, which benefit a significant portion of...
In addition, we have some favorable convention calendars in the fourth quarter in San Diego, San Francisco, Washington, D C, and Boston, which benefit a significant portion of our portfolio.
Speaker 4: transcript
This is Avidin in the year over year place for our fourth quarter, which shows robust growth in both group and transit business.
This is evident in the year over year pace for our fourth quarter, which shows robust growth in both group and transient business specifically.
Speaker 4: transcript
Specifically compared to a year ago, we have a 9.6% increase in room nights on the books at a 2.9% higher ADR resulting in total revenues on the books substantially higher up 12.8%.
Specifically compared to a year ago, we have a nine 6% increase in room nights on the books at a two 9% higher ADR, resulting in total revenues on the books substantially higher up 12, 8%.
Raymond Martz: The public space renovations at Estonth de La Jolla are scheduled to commence in November, with completion expected in early Q2. This marks the final phase of a 15 month long comprehensive redevelopment and repositioning of the San Diego, which began with a full guestroom renovation. And our last major redevelopment project for 2023 involves the sweeping transformation of Newport Harbor Island Resort, which is set to commence on November 13th with the closure of this property.
Speaker 4: transcript
breaking it down further our group business on the books is particularly strong with a healthy ten point three percent year over year increase in room night
Breaking it down further our group business on the books is particularly strong with a healthy 10, 3% year over year increase in room nights.
Speaker 4: transcript
very strong 7.5% increase in group ADR and 18.6% growth in total group revenue.
Very strong seven 5% increase in group ADR and.
And 18, 6% growth in total group revenue.
Raymond Martz: We aim to complete this redevelopment in Q2 next year before the Resort's peak season. We remain on track to invest $145 to $155.9 in the portfolio for the year, and we're pleased to report that the bulk of revenue disruptions and overall investment dollars associated with our strategic capital redevelopment projects are in your room here. We remain bullish about the substantial upside these reposition properties would generate in both market share and cashflow in the foreseeable future.
Speaker 4: transcript
Transjan is not as strong, but is still very favorable with room nights and revenues of 9.1% and rates flat year over year.
Transient is not as strong, but it's still very favorable with room nights and revenues up nine 1% and rates flat year over year.
Speaker 4: transcript
as a notification about how our page may ultimately translate into our performance. We need only to look at
As a note of caution.
How our pace may ultimately translate into our performance we.
We need only to look at this past quarter.
Speaker 4: transcript
We had a great pace advantage going into the third quarter, so we experienced the deficit and pickup in the quarter for the quarter.
We had a great pace advantage going into the third quarter, while we experienced the deficit and pick up in the quarter for the quarter.
Speaker 4: transcript
We feel comfortable in saying that we believe this doesn't represent a slowdown in business activity, but in normalization and booking pattern.
We feel comfortable in saying that we believe this doesn't represent a slowdown in business activity.
Raymond Martz: 15th focus will apply beach club resort and club in Naples. Substantial strides continue to be made in the resorts on-going repair and refurbishment. The 40 room bay tower and 70 room golf tower, which encompasses resorts key amenities like the lobby, restaurant and club are substantially complete and full operational. Supply is beginning to look like an upscale resort again. Rebuilding work on the 79-room beach houses now well along with clear and end and sight.
But a normalization in booking patterns.
Speaker 4: transcript
We believe that more business is being put on the books further out.
We believe that more business is being put on the books further out.
Speaker 4: transcript
Consistent with more normal pre-pandemic pattern.
Consistent with more normal pre pandemic patterns.
Speaker 4: transcript
As business and leisure customers have increasingly felt more confident looking further out as their comfort level grows, with pandemic-related concerns increasingly in the rearview mirror.
As business and leisure customers have increasingly felt more confident.
Looking further out as their comfort level grows.
With pandemic related concerns increasingly in the rearview mirror.
Speaker 4: transcript
Q3 we booked almost $10 million or 8.2% less in room revenues.
In Q3, we booked almost $10 million or eight 2% less than room revenues.
Raymond Martz: We currently are forecasting this file portion of this resort to be substantially complete and reopened in the first quarter next year. This represents the delay from our prior year end estimate to do primarily the delays in permitting with the county. Impressively, despite the absence of a full-fled resort experience and the inevitable noise and disruption from very visible ongoing construction, the 110 guest rooms currently available across the two operational towers achieved a notable 50% occupancy rate and average daily rate is $389 during the third quarter.
Speaker 4: transcript
the third quarter, then we did a year ago. So our 5.5% revenue advantage turned into a 1% deficit by the time the quarter ended.
For the third quarter than we did a year ago. So our five 5% revenue advantage turned into a 1% deficit by the time the quarter ended.
Speaker 4: transcript
We expected this normalization of booking patterns as the evidence bar are down to plus 1% outlook.
We expect this normalization of booking patterns as evidenced by our down two to plus 1% outlook. While we didn't forecast was the impact from the negative weather patterns.
Speaker 4: transcript
What we didn't forecast was the impact from a negative weather pass.
Speaker 4: transcript
So while we're very pleased and encouraged by the fact we're on this $14 million ahead of the room to revenue that was on the books for the fourth quarter at the same time last year.
So while we're very pleased and encouraged by the fact, we're almost $14 million ahead of the rooms revenue that was on the books for the fourth quarter at the same time last year.
Raymond Martz: It sees my slowest periods and is striking 60% uptake over 2019 rates. For context, it's important to note that before the devastation drop by Hurricane Inn, we project the Lopaya to contribute over $4 million in EBIT for Q3 as opposed to the $2 million loss it actually incurred. This underscores the impact of the loss of the resort having on our financial results. And as a reminder, we currently exclude Lopaya from our same property operating results.
Speaker 4: transcript
We expect a significant reduction in the pace advantage over the course of the quarter.
We expect a significant reduction in the pace advantage over the course of the quarter.
Speaker 4: transcript
As a result, our outlook for Q4 rep part versus last year is forecasting growth ranging from 1 to 4%.
As a result, our outlook for Q4 Revpar versus last year is forecasting growth ranging from 1% to 4%.
Speaker 4: transcript
certainly compares favorably to our Q3 actual results.
Which certainly compares favorably to our Q3 actual results.
Speaker 4: transcript
As test in the case all year, we expect the bulk of this growth will be driven by increased eye frequency.
As has been the case all year, we expect the bulk of this growth will be driven by increased occupancy.
Speaker 4: transcript
Our outlook for total revenues for Q4 is for growth of about 1.5 to 4.5 percent, or approximately 50 basis points higher than our outlook for ROOMS revenue growth. That completes our prepared remarks. We'd now like to turn to your questions.
Our outlook for total revenues for Q4 is for growth of about one five to four 5%.
Raymond Martz: Regarding our Q4 outlook, we have not incorporated any additional business interruption or BI proceeds related to Q3 losses. Instead, for Lopaya, we anticipate that BI proceeds for loss income from about Q3 and Q4 the current year will occur in 2024. As of the end of the third quarter, we recorded approximately 33 million in BI related revenues. As part of our strategic capital reallocation strategy, we went into a contract to sell hotel Zoe Fisherman's War for $60.5 with a sale targeted for completion in Q4.
Approximately 50 basis points higher than our outlook for rooms revenue growth.
So that completes our prepared remarks.
Now I'd like to turn to turn to your questions.
Donna you May now proceed with the Q&A.
Speaker 2: transcript
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tunnel indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.
Thank you. The floor is now opened for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
Confirmation tone will indicate 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 the handset before pressing the star key we do ask that you. Please limit yourself to one question again Thats Star One to register a question at this time. The first question today is coming from George.
Raymond Martz: Assuming successful closing, this will bring our toll asset sales for the year, the six properties generating $300.8 million in gross proceeds year to date. All diverse properties have been urban properties in line with our overarching strategy to rebounds the leisure and business segments of our portfolio for optimal long-term risk adjusted returns. John would speak more about this strategy in his remarks. And on the capital allocation front, we did not purchase any common shares during Q3.
Speaker 2: transcript
We do ask that you please limit yourself to one question. Again, that's star 1 to register a question at this time.
Speaker 2: transcript
The first question today is coming from Dorrie Kestin, Elf Wells Fargo. Please go ahead.
<unk> of Wells Fargo. Please go ahead.
Speaker 5: transcript
Thanks, good morning. I think the operating expenses, if you hold cold to the side, energy tax of insurance is in the 3-4% range for Q4. Do you think that's fair as a run rate for the medium term?
Thanks, Good morning, and I think operating expenses, if you will hold through the site energy taxes and insurance isn't the 3% to 4% range for Q4 do you do you think that's fair as a run rate for the medium term.
Raymond Martz: However, we reduced our total debt and increased our cash position of replacing a 161.5 million dollar loan secured by our Margaritaville Highway Beach Resort with a new secure loan of $149. This loan carries a three-year term extendable by two one-year options, with its rate fixed at 7% for the ensuing four-plus years. Regarding our balance sheet and liquidity position, we have over 829 million of liquidity, a prize of $191.6 million in cash, and 6 earned a $37 million available on our on-secure line. The weighted average cost of our debt is 4.4%, with 78% of it currently with fixed rates, and 92% on-secure.
Speaker 4: transcript
Yeah, I mean, I think that's certainly in the ballpark and obviously the more volume we do, either in occupancy or food and beverage or other revenue activities, but they'll be expenses that are tied to that and we'll see growth in expenses at a higher level, but as a baseline for sort of a stabilized operation, I think that's reasonable.
Hey, Dori.
Yeah, I mean, I think that's that's that's certainly in the ballpark and obviously the more the more.
More volume, we do either in occupancy or food and beverage or other revenue activities.
But there'll be expenses that are tied to that and we'll see.
Growth in expenses at a higher level, but as a baseline for sort of a stabilized operation I think thats reasonable.
Speaker 5: transcript
Okay, and just just within that, would you would you expect your total rev part to continue the outpace rev part?
Okay, and just just within that would you would you expect your total revpar to continue outpace revpar.
Yes.
Raymond Martz: Our increasing cash reserves in on-secured credit facility, augmented by additional asset sales, provides for more than additional liquidity to navigate our upcoming debt maturities over the next 12 to 24 months, and with that comprehensive update I'll turn the call over to Jon.
Speaker 4: transcript
Yeah, we think, and in particular, we think as group, as group continues to recover, that volume will be apparent in our food and beverage revenues and many of our other revenues. And that should also help with the margins on the FMB site. Yeah.
Yeah, we think and in particular, we think his group as group continues to recover.
You know that.
That volume.
It will be apparent in our food and beverage revenues that are in many of our other revenues.
Jon Bortz: Jon. Thanks Ray.
And that should also help with the margins on the F&B side.
Jon Bortz: I'd like to touch on three topics this morning. First are observations on industry trends. Second, I intend to discuss our ongoing strategic capital allocation program and our continuing pivot from a heavy urban and business travel focused investment company to a more balanced portfolio, more evenly split between business and leisure and between urban and resort. And then third, I'll talk about our outlook to the fourth quarter. In terms of industry trends, it's fair to say the industry has seen a flattening out of the recovery and demand on an overall basis.
Okay got it thank you.
Speaker 2: transcript
Thank you. The next question is coming from Bill Crow, of Raymond James. Please go ahead.
Thank you. The next question is coming from Bill Crow with Raymond James. Please go ahead.
Speaker 4: transcript
Good morning. John , hopefully you can hear me better than I can hear you. Yeah. Sorry about that. Talk to about.
Hey, good morning.
John Hopefully you can hear me better than that confuse you.
Sorry about that I talked about.
Speaker 6: transcript
group for next year in the outlook and which markets might be the better markets, which ones might be the worst.
Group for next year, and the outlook and which markets might be.
Better markets, which ones might be the worst markets.
Speaker 4: transcript
Sure. So currently our pace for group for next year is positive. Let me see if I can pull it up here.
Sure. So currently our pace.
For group for next year.
Is is.
Jon Bortz: In fact, the industry was unable to successfully absorb even the smallest amount of supply growth in Q3. With overall industry occupancy declining I'll be slightly in every month in Q3. The trend that continues from Q2. We were surprised that this trend did not reverse in Q3. However, the revenge travel related to outbound international and cruising this year seems to have overwhelmed improving demand and business travel and international inbound travelers. We believe business travel both group and transient continues to gradually recover.
As positive let me see if I can pull it up here.
Okay.
Speaker 4: transcript
So we're currently sitting at a revenue-paced advantage of about 14.4%.
So we're.
We're currently sitting.
At a revenue pace advantage of about 14, 4%.
Speaker 4: transcript
That is about 10 and a half percent for group.
That is about 10, 5% for group.
Speaker 4: transcript
Thomas, 30% for transient. Again, those are small numbers in terms of how much transient's on the book.
It's almost 30% per transient again that those are small numbers in terms of how much transient on the books.
Speaker 4: transcript
So the percentages should be ignored. But in total, we're up 12.2% in room nights, 1.9% in ADR, 14.4% in total pace. Group is up 8.7% in room nights.
So the percentages should be ignored, but in total we're up 12, 2% in room nights, one, 9% and ADR 14, 4% in total pace.
Jon Bortz: Leisure on the other hand has declined slightly as international outbound travel and cruising rebounded to above pre-pandemic levels. And international inbound travel especially leisure has only gradually returned. The leisure softness has primarily been reflected at resorts while urban weekend occupancies have continued to recover. We believe next year leisure will normalize at higher levels of domestic travel as we lap this revenge travel and international inbound continues its gradual recovery. The resurgence in business travel we've seen is evident by the improving occupancies in the urban and top 25 markets, specifically during weekdays.
Group is up eight 7% in room nights, one 7% in rate and revenue on the books is up 10, 5% year over year the.
Speaker 4: transcript
1.7% in rate and revenue on the books is up 10.5% year over year. The stronger markets next year.
The stronger markets next year.
Speaker 4: transcript
include Chicago, San Diego, and Washington DC. Boston will be probably
Include Chicago.
San Diego and Washington D C.
Boston will be probably flat.
Speaker 4: transcript
on a year-over-year basis, but actually at a very high level for this year. And then we see San Francisco, which is up in the first half of the year, will be down substantially in the second half of the year with some of the cancellations that occurred over the last 12 months.
On a year over year basis, but actually set a very high level for this year.
And then we see San Francisco, which is up in the first half of the year will be down substantially in the second half of the year with some of the cancels cancellations that occurred over the last 12 months.
Jon Bortz: This trend is particularly strong in the luxury and upper upscale segments, hotels which are predominantly located in major cities. The SDR data for Q3 shows a consistent softening of occupancies at the mid to lower end of the spectrum. We've not seen any evidence of trading down in the industry. In fact, the SDR numbers show the weakest demand and worst performing properties are at the bottom end of the quality and price spectrum with the economy hotel category performing the worst.
Speaker 3: transcript
So that's, I think, how they generally break out within our portfolio. And then Bill, just a little bit of a color on the convention calendar is the 24. In DC, the from nights on the books 24 versus 23 is up about 32%. San Diego is up about 17%. Chicago is up 13%. And Boston and LA are flatish. And I was going to say, you know, thermosist goes down, mostly second half of 24.
So.
That's I think how they generally break out within our portfolio.
Bill just a little color on the convention calendars for 'twenty four.
In D C. The room nights on the books 24 versus 23 is up about 32%.
San Diego is up about 17%.
Chicago is up 13%.
Boston L a or flattish.
It was we know San Francisco is down.
Mostly in the second half of 'twenty four.
Speaker 6: transcript
Yeah, thank you. I just wanted to follow up on the question that Dory asked earlier about the expense normalization. I know she cut out property, taxes, insurance, and energy.
Thank you.
I just wanted to follow up on the question the door. He asked earlier about the expense normalization.
Jon Bortz: Geographically, in general, the previously slower-to-recover markets such as Chicago, San Francisco, Washington, D.C., and New York are now experiencing stronger demand growth and the earlier-to-recover markets such as Miami, Kappa, Orlando, and Atlanta are witnessing weaker demand growth. The top 25 markets continue to see increasing demand and occupancies while other markets continue to see declining demand and occupancy, in the United States. Amidst this industry-wide stabilization of demand, ADRs in Q3 also displayed a moderating growth rate, though ADRs in September and so far in October have bumped up from the low points in July and August.
If she cut out.
Property taxes insurance and energy, but.
Speaker 6: transcript
you know, that's kind of like cutting up food and food and housing and in CPI. So where's expense growth? Where do you think it's going to be next year? Are we looking at another year of about 5% expense growth? And I guess the question I keep getting from investors is at what what weight does 3% growth growth translate into growing margins and EBITDA?
That's kind of like.
No.
And Cps.
Whereas expense growth, where do you think it's going to be next year are we looking at another year full of 5%.
Hence growth in I guess the question I keep getting from investors is at what point does 3% revpar growth translate into growing margins and EBITDA.
Speaker 4: transcript
Well, you should ask them what their predictions are for inflation. Because...
Well you should ask them what their predictions are for inflation because.
Speaker 4: transcript
That that's really what's driving the increases in the industry that we see. I think the the.
That's really what's driving.
The increases in the industry.
We see.
I think.
Jon Bortz: None of these trends come as a surprise, and we don't expect much change in these industry trends for the rest of the year. However, we do expect a modest boost in October's performance due to the favorable calendar of the US holidays this year, while in completely in September.
The.
Speaker 4: transcript
The intent of cutting out those three categories was not to say they're not important. It was because they tend to be more volatile on a year-over-year basis, particularly property taxes.
The intent of cutting out those three categories was not to say they are not important.
Because they tend to be more volatile on a year over year basis.
Particularly property taxes, which are.
Speaker 4: transcript
Our volatile not because of volatility on the part of cities raising the tax rates, but because we tend to be unsatisfied with the initial.
Our volatile not because of volatility on the part of cities raising the tax rates, but because we tend to be.
Jon Bortz: Of course, given the Fed's efforts to bring down inflation and slow the growth of the economy, we shouldn't be surprised if we see a slowdown or a recession sometime in the next 12 months.
And satisfied with the initial assays.
Speaker 4: transcript
That's been that we get because the cities are trying to keep as much revenue as they can as you and I have talked about before
Assessments that we get because the cities are trying to keep as much revenue as they can as you and I have talked about before and as a result of that it takes US 12345 years in some cases to fight through the process to get.
Jon Bortz: Now I'd like to move on to a brief discussion of our capital investment strategies, and our overall pivot to a more evenly balanced business and leisure demand mix. Our reduction in urban properties has been going on since 2016, when we began to sell out of New York. Prior to the little sales transaction in late 2018, we sold a total of seven properties for gross proceeds of $592 million, and all of them were urban.
Speaker 4: transcript
And as a result of that, it takes us one, two, three, four, five years in some cases to fight through the process to get.
Speaker 4: transcript
successful appeals and reduced assessments. And when that happens, tends to have a multi-year effect on property taxes for those properties in terms of true up. Because we're accruing them at the levels generally that we get the bills at. And then we have reductions when we get those bills reduced. And so because of how long...
Successful appeals and reduce the SaaS mints and when that happens tends to have a multiyear effect on property taxes for those properties in terms of true up because we're accruing them at the levels generally that we get the bills that and then we have.
Jon Bortz: Requiring with sale added six unique resource, all with significant repositioning upside. Simultaneously with the corporate transaction, we also disposed of five of the sales urban properties for total gross proceeds of $821 million. Since then, we've sold 24 additional properties, including the upcoming sale of Hotel Zoe in San Francisco, all urban generating gross proceeds of an additional $1.725 billion. In total, we sold 36 urban properties since 2016 for over $3.1 billion. In 2021 and 2022, we acquired five leisure focused resort properties and two guest houses in Key West, which were added to Southernmost Resort for a total of $822 million.
<unk> when we get those bills are reduced.
And so because of how long. It takes we also generally don't know and it's hard to forecast when those things are going to occur. So as it relates to that one when we look at next year Bill It will be <unk>.
Speaker 4: transcript
We also generally don't know, and it's hard to forecast when those things are gonna occur. So as it relates to that one, when we look at next year bill, it'll be
Speaker 4: transcript
likely a headwind for us from a quote expense growth perspective because we're going to be coming off three quarters, the first three quarters of this year, where property taxes actually declined in our portfolio significantly because of reductions we got and true ups.
Likely a headwind for us from a quote expense growth perspective.
Because we're going to be coming off three quarters. The first three quarters of this year were property taxes actually declined in our portfolio are significantly because of reductions, we got and true ups that we got so it doesn't represent.
Speaker 4: transcript
that we got. So it doesn't represent a run rate because it's being impacted by these true ups.
Our run rate.
Because it's being impacted by these true ups.
Speaker 4: transcript
Now, we hope we'll get some true ups next year. We don't know when those processes will be successful.
We hope we will get some true ups next year.
We don't know when those processes will be successful.
Speaker 4: transcript
And we expect to get true ups over the next three or four years, frankly, from these pandemic years.
And we expect to get true ups over the next three or four years frankly from these pandemic years.
Jon Bortz: Jekyll Island, Espantia, La Jolla, Newport Harbor Island, and the two guest houses have and are undergoing extensive upgrades, repositioning and operator changes that will drive significant upside going forward. This is on top of the very substantial investments in our other resorts, including Scamania Lodge, Shamanad, Mission Bay Resort, the Marker Key West, Southernmost Resort, Low Bears, Del Mar, and Laplaya Enables. And we believe all of these resorts due to the investments we've made in upgrading them and remartingizing them, will continue to gain market share thereby enhancing cash flow.
Speaker 4: transcript
when the assessments didn't come down. But as we all know, the values have come down dramatically.
When the assessments didn't come down, but as we all know the values have come down dramatically. So.
Speaker 4: transcript
We'll have to come up with those numbers as a related to the run rate on the property taxes and look at what percentage impact that'll have on the overall revenues. But it'll have some, you know, it's going to have some impact on an overall basis.
Well, we'll have to.
Come up with those numbers as it relates to the run rate on the property taxes and look at what percentage impact that'll have on the overall revenues.
But it'll have some you know it's going to have some impact on an overall basis.
Speaker 3: transcript
Ray, I mean, you can speak to that. Yeah, but, Bill, we know insurance. The good news is that we pretty much know what the cost is going to be here for next couple of quarters because...
Insurance Ray I mean, you can speak to that Bill we know insurance. The good news is we pretty much know who the cost is going to be over the next couple of quarters, because as part of our renewal in June 1st.
Speaker 3: transcript
part of our renewal in June 1st that those rates did increase. So if the next couple of quarters to the second quarter, we know we're continuing to have this as a headwind and we'll have to see what happens at the renewal. Now, if you look back to what happened after Katrina, same thing happened where the race got jacked up, the year following with Katrina, it stayed elevated for two years. It was a pretty benign storm environment and then they started declining double digit rates for a number of years.
Jon Bortz: So from 2016 to today, we went from two resorts to 13 resorts, which also helped us increase the leisure mix within our Portfolio. Today, we believe the business leisure mix in our portfolio is roughly 50-50, and assuming we sell additional urban properties over the next couple of years, we expect the leisure portion to add slightly higher. We don't think it will move a lot. As many of the urban properties we've sold or are selling, such as those in San Francisco, Portland, Seattle, and Washington, D.C., have a strong leisure mix as these markets are very attracted to the leisure travelers.
That those rates did increase over the next couple of quarters through the second quarter. We now we're continuing to have this as a headwind and it will have to see what happens at the renewal.
Look back to what happened after Katrina same thing happen, where the rates got jacked up the year. Following Katrina that stayed elevated for two years. It was a pretty benign storm environment and then they started declining double digit rates for a number of years, we referred the Goodyear is by the way.
Speaker 3: transcript
We refer to the good years, by the way, as opposed to insurance carriers. So, we'll have to see what happens this year, typically, proper insurance, unlike other expenses tend to go up and down. So, we could be looking, you know, a year from now, proper insurance being lower than it is now, unlike things like wages and other costs that tend to be stickier and stay up there.
As opposed to our insurance carrier, so well have to see what happens. This year are typically on a property insurance. Unlike other expenses tends to go up and down.
So we could be looking a year from now property insurance being lower than it is now.
Jon Bortz: Moreover, most of the resorts we've been acquiring have very large business group components, while their business and corporate transient mix tends to be more limited. This helps explain the actual increase in our group mix overall in our portfolio, as this pivot has continued. We believe this roughly 50-50 mix between business and leisure will serve us well in the years to come, as we believe the slowest to recover segment will continue to be business transit travel, and we believe the specular trends favor leisure travel as well as group, particularly group in resort locations with significant outdoor meeting and events based and numerous amenities, activities, and experiences.
Things like wages and other costs tend to be stickier and stay up there.
Speaker 6: transcript
Okay. All right. But it sounds like when you put it all together, it's likely that margins are probably going to have a tough time being flat next year, just with all these fed months.
Okay.
Alright, but it sounds like when you put it altogether, it's likely that margins are probably going to have a tough time being flat next year, just with all of these statements.
Speaker 4: transcript
Maybe I'm maybe I'm misunderstood, but that would be my takeaway. Yeah, I think I think that's it depends what revenue growth we see we, you know, we're gonna need to see, you know, 4% plus revenue growth. I think to.
Maybe.
Maybe I misunderstood, but that would be my takeaway.
I think I think that's it.
It depends what revenue growth we see.
Going to need to see 4% plus revenue growth I think to to get to flat margins next year.
Speaker 4: transcript
to get to flat margins next year. And we're gonna need to be higher than that. Now we have some tailwinds related to the fact that we had a significant disruption this year and lost revenues and that'll help.
And we're going to need to be higher than that now we have some tailwind related to the fact that we had significant disruption this year and lost revenues and that'll help.
Jon Bortz: As we move forward, we continue to focus on taking advantage of a public-private arbitrage opportunity that exists today. We're selling urban properties in slower-to-recover markets with lower cash flows and within our individual property, NAV ranges, and then using those proceeds to reduce our net debt and repurchase our common and preferred shares at very significant discounts to the NAV of the company. Since the pandemic began, we've sold 14 properties, including the upcoming sale of Hotel Zoe in San Francisco, for gross proceeds of $881.8 million at an average trailing 12-month NOI cap rate of 0.5%, and a trailing 12-month EBITDA multiple of 105.8 times.
Speaker 4: transcript
provided tailwind for that growth right next year. And then it'll depend upon, you know, how much share we gain next year through the investments we've made, and then of course what the macro environment looks like. Yeah, okay, thanks for the time.
Ill provide a tailwind for that growth rate next year and then it will depend upon.
How much share we gain next year through the investments we've made and then of course, what the macro environment looks like.
Yes, okay. Thanks for the time appreciate it.
Bill.
Speaker 2: transcript
Thank you. The next question is coming from Flores Van Dykem of Compass Point. Please go ahead.
Thank you. The next question is coming from Floris Van <unk> of Compass point. Please go ahead.
Speaker 4: transcript
Thanks. Good morning, guys. I appreciate taking my question. So I know we can get bogged down in the minutia of insurance and importance aspect and same thing with the property taxes. But as I'm just just thinking about this.
Hi, Thanks, Good morning, guys.
I appreciate taking my question.
So.
I know, we can get bogged down in the minutiae of insurance and you know, it's an important aspect and same thing with the property taxes, but as I'm just thinking about this.
Bigger picture.
Speaker 4: transcript
You guys have invested nearly 300 million of
You guys have.
Invested nearly 300 million of revenue enhancing investment capital into your portfolio to upgrades and enhance your portfolio over the last couple of years.
Speaker 7: transcript
revenue-enhancing investment capital into your portfolio to upgrade and enhance your portfolio over the last couple of years.
Jon Bortz: We've generally sold our lowest-quality properties in the slowest-recovering urban markets, not some proving-the-quality growth prospects of our remaining portfolio. We've sold five properties in San Francisco, two in Portland, two in Seattle, one in Nashville, one in New York, one in Coral Gables, one in Philadelphia, and a small retail property in Chicago. We believe strongly that taking advantage of the significant financial arbitrage opportunity, which is being funded by the sales of urban properties in slower-to-recover markets at attractive, relative pricing, is by far our best capital investment strategy.
Speaker 7: transcript
A big chunk of that has actually been invested since last year. You haven't had the benefits of any of that, and you've had the detraction of 12 to 13 million of renovation disruption this year in terms of EBITDA.
There have been obviously.
And it's a big chunk of that has actually been invested since since last year.
You haven't had the benefits of any of that and you've had the detraction of call it $12 million to $13 million of renovation disruption this year in terms of EBITDA.
Speaker 7: transcript
Again, what I'm trying to get at is to get a run rate for adjusted EBITDA going forward.
Again, what I'm trying to get at is to get our run rates for adjusted EBITDA.
Ah going forwards.
Speaker 7: transcript
that should be significantly, you know, despite all these concerns about margins, et cetera. You should theoretically have call it
That should be significantly.
Despite all these concerns about.
Jon Bortz: The opportunity available in the past year, including right now, represents a far better value creation opportunity for our shareholders than either using all of the proceeds to pay down our debt, which we believe is at a modest level or holding cash to take advantage of undefined opportunities in the acquisition market at an undefined time in the future. We just don't believe any opportunities in the future will be more attractive or available in a bigger discount than buying our current properties at a 25-30% discount to their estimated current gross values, and a 50% plus discount to the overall value of the company.
Margins et cetera, you should theoretically have college.
Speaker 7: transcript
30 to 40 maybe even 50 million higher EBITDA than what you had this year if I just do the math on the capital that you've invested in your portfolio and next year sort of being a first full year.
30 to 40, maybe even $50 million higher EBITDA than what you had this year if I just do the math on the capital that you've invested in your portfolio and next year sort of being a first.
Full year of <unk>.
Speaker 7: transcript
Stabilized or clean earnings if you will maybe if you can talk a little bit about you know, the you know The the run rate of earnings power of your portfolio going forward
Stabilized or clean earnings if you will maybe if you can talk a little bit about.
You know that.
The run rate of our earnings power of your portfolio going forward.
Speaker 4: transcript
Yeah, I mean, I think that's what we've tried to lay out in our investor presentation and some of our prior calls for us that there's significant upside. Now, some of that...
Yes, I mean I think that.
That's what we've tried to lay out in our investor presentation, and some of our prior calls Floris that theres significant upside now some of that.
Jon Bortz: Now let me turn to our view of the near term. As we look at the fourth quarter, October started out well with healthy business and leisure travel. October is also benefiting from both Jewish holidays falling into September this year versus them being split between September and October last year. This of course helps the performance of the entire industry. In addition, we have some favorable convention calendars in the fourth quarter in San Diego, San Francisco, Washington, D.C., and Boston, which benefit a significant portion of our portfolio.
Speaker 4: transcript
you know, some of the share gains from the investments we've made.
Some of the share gains from the investments we've made.
Speaker 4: transcript
have occurred. But others, as we've shown in the investor presentation with the bridge that we have, are in the future. That'll be next year, that'll be the year after that, and probably some in the year after that. These major repositioning tend to take
Have occurred.
But others as we've shown in the Investor presentation with the bridge that we have.
Or in the future that.
That'll be next year that will be the year after that will be the year after that and probably some in the year after that.
These major repositioning tend to take three to four years and they we gained share more quickly and in good years and strong years and it and otherwise takes longer if the environment is is flatter. So there is significant upside from the investments. We've made the dollars are out the door.
Speaker 4: transcript
three to four years and we gain share more quickly in good years and strong years and otherwise takes longer if the environment is flatter.
Jon Bortz: This is evident in the year-over-year pace for our fourth quarter, which shows robust growth in both group and trans and business. Specifically, compared to a year ago, we have a 9.6% increase in room nights on the books at a 2.9% higher ADR, resulting in total revenues on the books substantially higher, up 12.8%. Breaking it down further, our group business on the books is particularly strong, with a healthy 10.3% year-over-year increase in room nights, a very strong 7.5% increase in group ADR.
Speaker 4: transcript
There's significant upside from the investments we've made. The dollars are out the door. We've, we, that impacts our balance sheet, obviously. And, and that's the, the good part is the investments have already been made.
We've.
That impacts our balance sheet obviously.
And that's the good part is the investments have already been made and as you say that the investment side the return side.
Speaker 4: transcript
And as you say, the investment side, the return side, is still to come. And...
Is still to come and so.
Jon Bortz: And 18.6% growth in total revenue. Trans and is not as strong, but is still very favorable with room nights and revenues up 9.1% and rates flat year-over-year. As a note of caution about how our pace may ultimately translate into our performance, we need only to look at this past quarter. We had a great pace advantage going into the third quarter, so we experienced a deficit and pickup in the quarter for the quarter.
Speaker 4: transcript
It's hard for us to lay out exactly what that looks like from a timing perspective. And we haven't even started our process with our property teams about what next year looks like. But we do have a good pace going into next year. We're encouraged that the macro side, as at least
It's hard for us to lay out exactly.
You know what that looks like from a timing perspective, and we haven't even started our process with our property teams about what next year looks like.
But we do have a good pace going into next year.
We're encouraged that the macro side is at least any slowdown has been deferred if you know who knows maybe it gets eliminated, but I think more likely deferred or softer.
Speaker 4: transcript
and he slowed down, it's been deferred. It, you know, who knows, maybe it gets eliminated, but I think more likely deferred or softer.
Speaker 4: transcript
So you can tell we're a little cautious given the macro environment.
Where you can tell we're a little cautious given the macro environment, but when we when we get through this this overhang of of when's, the recession coming or when is the slowdown is going to be here.
Speaker 4: transcript
But when we get through this overhang of wins the recession coming or wins the slowdown, we're going to be here.
Jon Bortz: We feel comfortable in saying that we believe this doesn't represent a slowdown in business activity, but in normalization and booking patterns. We believe that more businesses being put on the books further out, consistent with more normal, pre-pandemic patterns. As business and leisure customers have increasingly felt more confident, booking further out as their comfort level grows, with pandemic-related concerns increasingly in their rear-view mirror. In Q3, we booked on us $10 million or 8.2% less in room revenues, the third quarter than we did a year ago.
Speaker 4: transcript
I think we're gonna be more confident about the timing of when we're gonna see the significant returns from those dollars that have been invested. But definitely next year, we have the tailwind of not having all that disruption within the portfolio. And John , if I...
I think we're going to be more confident about the timing of when we're going to see this significant returns from those dollars that had been invested but definitely next year, we have the tailwind of not having all of that disruption within the portfolio.
And John if I can maybe just follow up on that Tim.
Speaker 7: transcript
Typically, the returns that you would expect to get from this revenue enhancing cap-backs would be minimum of 10%. I mean, what historically, what's the range been in terms of that, the returns on that investment on the stabilized base?
Typically the returns that you would expect to get from this revenue enhancing capex would be minimum of 10% I mean, what what historically, what's the range been in terms of that the returns on that investment on a stabilized basis.
Jon Bortz: So our 5.5% revenue advantage turned into a 1% deficit by the time the quarter ended. We expected this normalization of booking patterns as evidence prior down to plus 1% outlook, what we didn't forecast was the impact from a negative weather patterns. So while we're very pleased and encouraged by the fact we're almost $14 million ahead of the room revenue that was on the books for the fourth quarter at the same time last year, we expect a significant reduction in the pace advantage over the course of the quarter.
Speaker 4: transcript
On a stabilized basis, we tend to get to 10-plus, depending upon the extensiveness of the redevelopment. Generally, the larger the redevelopment, the higher the returns on those. And look, it's not perfect in terms of every property.
On a stabilized basis, we tend to we tend to get to 10, plus depending upon the extensiveness of the of the redevelopment.
Generally the larger the redevelopment the higher the returns.
On those and look at it it's not perfect in terms of every property.
Speaker 4: transcript
some end up being lower, some end up being higher, some of that gets impacted by the market and competition, et cetera, but we've averaged out at 10 plus.
Some end up being lower Sunday, some end up being higher.
Some of that gets impacted by the market and competition et cetera, but we've averaged out at 10 plus.
Thanks.
Jon Bortz: As a result, our outlook for Q4 rep part versus last year is forecasting growth ranging from 1% to 4%, which certainly compares favorably to our Q3 actual results. As has been the case all year, we expect the bulk of this growth will be driven by increased occupancy. Our outlook for total revenues for Q4 is for growth of about 1.5 to 4.5% or approximately 50 basis points higher than our outlook for rooms revenue growth.
Speaker 2: transcript
Thank you. The next question is coming from Ari Klein of BMO Capital Markets. Please go ahead.
Thank you. The next question is coming from Ari Klein of BMO capital markets. Please go ahead.
Speaker 8: transcript
Thank you, and good morning. Maybe just following up on the expense questions, when you look across portfolio, are you still seeing course cost savings opportunities out there that's given all the streamlining that's already been done since COVID? And then just on the insurance side, aside from the rate increases, has your coverage changed in any kind of meaningful way? So on your first...
Thank you Dan and good morning.
Maybe just following up on the expense question.
Across the portfolio are you still seeing quite a cost savings opportunity out there given all the streamlining that has already been done since.
Since Covid and then just on the insurance side aside from the rate increases has your have your coverage changed in any kind of a more meaningful way.
So on your first question Ari.
Speaker 4: transcript
You know, the effort to be more efficient is continuous. I've been in the business, in the hotel business, since 1984.
Yeah.
The effort to be more efficient as it is continuous.
I've been in the business in the hotel business since 1984.
Operator: So that you may now proceed with the Q&A. Thank you.
Speaker 4: transcript
and over the course of that lengthy period.
Over the course of that lengthy period.
Operator: The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tunnel indicate your line is in the question queue.
Speaker 4: transcript
We've continued to find efficiencies every year.
Operator: You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.
We've continued to find efficiencies every year.
Speaker 4: transcript
within our portfolio, and I think the industry generally has as well.
Within.
Operator: You do ask that you please limit yourself to one question. Again, that's star one to register a question at this time.
Within our portfolio and I think the industry generally has as well.
Speaker 4: transcript
You know, we operate these properties with far fewer people today than we did 10 years ago and way, way fewer than 15 or 20 years ago. And we think that's going to continue as technology continues to develop as the industry begins to...
We operate these properties with far fewer people today than we did 10 years ago and way way fewer than 15 or 20 years ago, and we think that's going to continue.
Dori Kesten: The first question today is coming from Dori Kesten, Elf Wells Fargo. Please go ahead. Thanks, good morning. I think the operating expenses, if you hold hold to the side, energy taxes and insurance is in the 3 to 4% range for Q4. Do you think that's fair as a run rate for the medium term? Hey, Dori. Yeah, I mean, I think that's certainly in the ballpark. Obviously, the more volume we do, either in occupancy or food and beverage or other revenue activities, but they'll be expenses that are tied to that and we'll see growth in expenses at a higher level.
As technology continues to develop as the industry begins to adopt.
Speaker 7: transcript
uses that come out from from AI.
Users that come out from from AI.
Speaker 7: transcript
So I got that in there, AI, AI, AI.
See I got that in their AI AI AI.
Speaker 7: transcript
But we do think there's opportunities in a number of areas, and yes, it's a continuous effort within the portfolio. Curator, which has 100 hotels today, has over 100 vendor partner agreements, master service agreements, which have also helped to bring down our costs in our portfolio by millions and millions of dollars on an annual basis.
But we do think there's opportunities in a number of areas and yes. It.
It's a continuous effort within the portfolio.
<unk>.
Which has 100 hotels today has over 100 vendor partner agreements Master service agreements, which have also helped to bring down our costs and our portfolio by millions and millions of dollars on an annual basis.
Dori Kesten: But as a baseline for sort of a stabilized operation, I think that's reasonable. Okay, and just within that, would you expect your total rev part to continue to outpace rev part? Yes. Yeah, we think, and in particular, we think as group continues to recover, you know, that volume will be apparent in our food and beverage revenues and many of our other revenues. And that should also help with the margins on the FMB site. Okay, got it.
Speaker 4: transcript
They continue to pursue additional contracts.
They continue to pursue additional contracts reducing costs on a per unit basis, new technologies, the curator team Reeves.
Speaker 7: transcript
reducing costs on a per-unit basis, new technologies, the curator team reviews new technologies almost on a daily basis.
Dori Kesten: Thank you.
Our reviews.
New technologies almost on a daily basis.
Speaker 7: transcript
Many of them are geared to reducing costs.
Many of them are are geared to reducing costs.
Speaker 7: transcript
We see a lot of technologies related to reducing energy costs over the long term. Water usage in particular is seeing a lot of focus within the technology industry.
We see a lot of technologies related to reducing energy costs over the long term water usage.
In particular is seeing a lot of focus.
Within within the technology industry and.
Speaker 7: transcript
you know we'll see adoption of that over time uh... as those become uh... more widespread and and available so we do think efficiencies are going to continue and again if you go back and look historically
We will see adoption of that over time.
Bill Crow: The next question is coming from Bill Crowe of Raymond James. Please go ahead. Good morning. John, hopefully you can hear me better than I can hear you. Yeah, sorry about that. You talked about group for next year and the outlook in which markets might be the better markets, which ones might be the worst markets? Sure. So currently our pace for group for next year is positive. Let me see if I can pull it up here.
As those become more widespread and available. So we do think efficiencies are going to continue and again, if you go back and look historically at.
Speaker 7: transcript
at the La Sal margins, at the La Sal margins, all the way back to the late 1990s. You know what you'll see is gradual improvement in those margins over the long time.
At the Lasalle at our margins at the Lasalle margins all the way back to the late 19 nineties.
What youll see is gradual improvement in those margins.
Over the long time, and obviously they are cyclical they go up and down and we tend to get more costs eliminated when things are difficult and I would say, we're still in an environment, which has its challenges.
Speaker 7: transcript
And obviously they're cyclical, they go up and down and we tend to get more costs eliminated when things are difficult. And I would say we're still in an environment which has its challenges because of inflation. So we continue to focus on...
Bill Crow: So we're currently sitting at a revenue pace advantage of about 14.4%. That is about 10.5% for group. Thomas 30% per transient. Again, those are small numbers in terms of how much trangence on the books, so the percentages should be ignored. But in total, we're up 12.2% in Room Nights, 1.9% in ADR, 14.4% in total pace. Group is up 8.7% in Room Nights, 1.7% in Rate and Revenue on the books is up 10.5% in year-over-year.
Because of inflation so.
We continue to focus on reducing costs.
Speaker 3: transcript
And then already on the second part of your question on the insurance coverage, we have the same amount of overall property coverage today than we did last year. So it's $500 million, which takes a lot of storms and different events. Here and there we'll have the higher deductibles at some different parts of the layers of the insurance structure. It looks like it's a quill of different programs that are in there, but overall, we just have a amount of coverage.
And then on the <unk>.
Second part of your question on the insurance coverage.
We have the same amount of overall property coverage today than we did.
Last year, so it's $500 million, which takes a lot of <unk>.
Storms in a different events.
Here and there will have the higher deductibles that some different parts of the layers of the insurance structure. It looks like it's a quilt of different programs that are in there, but overall with the same amount of coverage.
Speaker 3: transcript
that we did before. So I think that speaks to the benefit we had is compared to if you're a smaller owner of operator with the relationships and insurance carrier side, when push comes to shove in markets like this, the carriers that you have relationships with they'll stick with you. So we're able to maintain those levels of coverage probably more than if you were a smaller owner or didn't have the long-term relationships that we had.
That we did before so I think that speaks to the benefit we had.
As compared to a fewer smaller owner operator.
With the relationships and the insurance carrier side when push comes to shell in markets like this.
Bill Crow: The stronger markets next year include Chicago, San Diego, and Washington, D.C., Boston will be probably flat on a year-over-year basis, but actually at a very high level for this year. And then we see San Francisco, which is up in the first half of the year, will be down substantially in the second half of the year with some of the cancellations that occurred over the last 12 months. So that's, I think, how they generally break out within our portfolio.
The carriers that you have relationships, where they will stick with you. So we were able to maintain those levels of coverage probably more than if you were a smaller owner or didn't have the long term relationships that we had.
Speaker 3: transcript
But look, overall insurance market goes up and down. The property market is tough, the GL market's better, cyber's going to look better, so there's varying phases. Right now we're going through a rough patch here on the property side. But as history has showed, we go through a period where there's less storms and then it comes back down because a lot more carriers will come back to the space.
But look overall insurance market it goes up and down.
The property market is topped the GL market is better cyber has got a little better. So there's varying phases right now we're going through a rough patch here in the property side, but as history has shown we go through a period, where there's less storms and then it comes back down because a lot more carriers will come back to the space.
Got it thank you.
Speaker 2: transcript
Thank you. The next question is coming from Smithrose of City. Please go ahead.
Thank you. The next question is coming from Smedes Rose with Citi. Please go ahead.
Speaker 9: transcript
Hi, thanks. So John , in addition to AI, you need to be able to work in a Zempek in Europe and your heart.
Bill Crow: And then Bill, just a little color on the convention calendars for 24. In D.C., the Room Nights on the books 24 versus 23 is up about 32%. San Diego is up about 17%. Chicago is up 13%, and Boston and LA are flatish. And I always remember San Francisco is down. I'm mostly in the second half of 24.
Hi, Thanks.
John In addition to AI, you need to be able to work in as amtech and euro in your remark.
Speaker 9: transcript
Wait, you talked about corporately not personally, right? I think he's saying something. Thanks, Nate. All right, operator, can we move to the next book? No, I'm just kidding. Go ahead, Nate. I just wanted to just ask you a little bit about what you're seeing on the transaction market.
[laughter] way.
Harper Lee not personally right I think he is saying.
Thanks Smedes.
[laughter] alright, operator can we move to the next no I'm just kidding.
Bill Crow: Yeah, thank you. I just wanted to follow up on the question that Dory asked earlier about the expense normalization. And if she cut out property, taxes, insurance, and energy, but you know, that's kind of like cutting up food and housing in CPI. So where is expense growth? Where do you think it's going to be next year? Are we looking at another year of followed 5% expense growth? And I guess the question I keep getting from investors is at what point does 3% road-par growth translate into growing margins and EBITDA?
Go ahead.
I just I wanted to just ask you a little bit about kind.
What you're seeing on the transaction market. It looks like you have two more properties on the market and certainly in the media there's been more than that.
Speaker 9: transcript
more properties on the market and certainly in the media, there's been more than that that it's been popping up. But just, we've all seen what's happened with interest rates and just kind of curious, if it still deals under 100 million or easier to get done or what are you sort of seeing in terms of the ability to turn back?
But just you know we bought seen what's happened with interest rates and just kind of curious is it still.
Deals under 100 million are easier to get done or kind of what are you. What are you sort of seeing in terms of.
With each new transaction in this market.
Speaker 10: transcript
Hey Smeeds, it's Tom. That's obviously a great question. I think it continues to be kind of a bifurcated market in terms of those assets that have cash flows, and then those assets, for example, like the ones we're selling, maybe those assets that are in recovery market.
Yeah, Hey, Smedes, it's Tom.
That's obviously a great question I think it continues to be kind of a bifurcated market.
In terms of.
Bill Crow: Well, you should ask them what their predictions are for inflation because that's really what's driving the increases in the industry that we see. I think the intent of cutting out those three categories was not to say they're not important. It was because they tend to be more volatile on a year-over-year basis, particularly property taxes, which are volatile not because of volatility on the part of cities raising the tax rates, but because we tend to be unsatisfied with the initial assessments that we get because the cities are trying to keep as much revenue as they can as you and I have talked about before.
Those assets that have cash flows and then those assets for example, like the ones, where Sallie Mae began recover those.
Those assets that are in recovery markets.
Speaker 10: transcript
So I would say overall the transaction market is
So I would say overall the transaction market is really challenging.
Speaker 10: transcript
pretty challenging. I would say that the deals and the things that we're selling, obviously the things that are trading are below $100 million. That continues to be the trend. I think deals are taking longer. I would tell you that at the end of the day, our perspective is there's a lot of strong interest. We're seeing a lot of interest. We're just trying to translate that into conviction.
I would say that the deals and the things that we're selling obviously the things that are trading are below a $100 million that continues to be the trend.
Bill Crow: And as a result of that, it takes us 1, 2, 3, 4, 5 years in some cases to fight through the process to get successful appeals and reduce assessments. And when that happens, tends to have a multi-year effect on property taxes for those properties in terms of true up, because we're accruing them at the levels generally that we get the bills at and then we have reductions when we get those bills reduced.
I think deals are taking longer I would tell you that at the end of the day. Our perspective is there's a lot of strong interest where.
Seeing a lot of we're seeing a lot of interest, but just trying to translate that into conviction.
Speaker 10: transcript
In terms of the investors given the fact of the macro market So I think that there's still some headwinds there I think the higher for longer narrative from the Fed's not necessarily helping on the financing side, but you will see Some deals that you know with high cash flow the CNBS market is open You'll see some deals north of 100 million that will trade but again, they have some some again high cash flow, etc
In terms of the investors given the fact of the macro market.
So I think that there is still some headwinds there I think the higher for longer narrative from the fed's not necessarily helping on the financing side, but you will see.
Some deals that with high cash flow the MBS market is open.
Youll see some deals north of 100 million that will trade, but again they have some again high cash flow et cetera.
Speaker 10: transcript
I do think that in some of these recovery markets, we're transitioning not necessarily from a return basis, but we're looking, the investors are looking at a price per key and they're looking at it from the perspective of if they believe in a market, they want to get in early in a cycle because the price per key is compelling, especially relative to replacement costs, and also given the backdrop of very limited supply and a number of these markets moving forward.
Do think that in some of these recovery markets, we're transitioning not necessarily from a return basis, but we're looking the investors are looking at a price per key and they're looking at it from the perspective of if they believe in our market. They want to get in early in a cycle because the price per key is compelling, especially relative to replacement.
Cost and also given the backdrop of very limited supply and a number of these markets moving forward.
Bill Crow: And so because of how things are going to occur. So as it relates to that one, when we look at next year bill, it'll be likely a headwind for us from a, quote, expense growth perspective because we're going to be coming off three quarters, the first three quarters of this year, where property taxes actually declined in our portfolio significantly because of reductions we got and true up to that we got. So it doesn't represent a run rate because it's being impacted by these true ups.
Okay. Thank you appreciate it.
Speaker 2: transcript
Thank you. The next question is coming from Dwayne Feningworth of Evercore ISI. Please go ahead.
Thank you. The next question is coming from Duane <unk> of Evercore ISI. Please go ahead.
Speaker 11: transcript
Hey, good morning. Thanks. I wonder, just to follow up, if you could talk a little bit about your outlook for asset sales into 2024. Of course, you know, it'll depend upon the environment and depend upon conditions. But like in your ideal optimal scenario, you know, how many assets would we be talking about and how would you be thinking about shaping the portfolio?
Hey, good morning. Thanks.
I Wonder just a follow up if you could talk a little bit about your outlook for asset sales into 2024.
Of course, you know it'll depend upon the environment and depend upon conditions, but like in your ideal optimal scenario.
How many assets would we be talking about in and how would you be thinking about shaping the portfolio.
Bill Crow: Now we hope we'll get some true ups next year. We don't know when those processes will be successful. And we expect to get true ups over the next three or four years, frankly, from these pandemic years when the assessments didn't come down, but as we all know, the values have come down dramatically. So We'll have to come up with those numbers as they're related to the run rate on the property taxes and look at what percentage impact they'll have on the overall revenues, but it'll have some, you know, it's going to have some impact on an overall basis.
Speaker 7: transcript
Yeah, so from a strategic perspective, I think it'll, ideally, it's going to be depends what happens with the trading of our stock and the relative value opportunity between
Yes, so from a strategic perspective, I think it will.
Ideally, it's gonna be depends what happens with that.
The trading of our stock and the relative value opportunity between.
Speaker 7: transcript
the public market and the private market. I think we've said before, we were asked, you know, how many of your 47 properties would you sell given the arbitrage opportunity to take advantage of it? And I think I've said 47.
The public market and the private market I think we've said before we were asked how many of your 47 properties would you sell.
Given the arbitrage opportunity to take advantage of it and I think I've said 47.
Speaker 7: transcript
So we wouldn't sit here and say we have a sales target for next year of...
So.
We wouldn't sit here and say we have a sales target for next year.
Speaker 7: transcript
five properties and 300 million or anything like that. We don't really work that way. We don't need to sell any of these properties. We feel like we've transitioned the portfolio to a more favorable leisure business mix as I talked about. So it's really gonna be opportunistic and that'll be driven by not just the overall macro. Obviously it'll be driven by the debt markets. It'll be driven by...
Five properties and 300 million or anything like that we don't really work that way, we don't need to sell any of these properties, we feel like we've transitioned the portfolio to a more favorable.
Bill Crow: Insurance, Ray, I mean you can speak to that. Bill, we know insurance. The good news is we pretty much know what the cost is going to be here for next couple of quarters because as part of our renewal in June 1st that those rates did increase. So if the next couple of quarters to the second quarter, we know we're continue to have this as a headwind and we'll have to see what happens at the renewal.
Leisure business mix as I talked about so it's really going to be opportunistic.
And that'll be driven by not just the overall macro obviously there'll be driven by.
Bill Crow: Now if you look back to what happened after Katrina, same thing happened where the race got jacked up the year following Katrina at state elevated for two years. It was a pretty benign storm environment and then they started declining double digit rates for a number of years. We were for the good years, by the way, as opposed to insurance carriers. So we'll have to see what happens this year, typically, property insurance unlike other expenses tend to go up and down.
The debt markets it'll be driven by.
What what the view of investors is related to the future of both of those.
Speaker 7: transcript
The view of investors is related to the future of both of those. But I think we're where.
But I think we're where we see.
Speaker 7: transcript
The opportunity for fairly significant value improvement is as interest rates come down, we get past this macro view. We have an environment, as we've said, of in our markets, cities, resort markets, probably four years to five years of very, very nominal supply growth.
The opportunity for fairly significant value improvement is as interest rates come down we get past this macro view.
Bill Crow: So we could be looking, you know, a year from now, property insurance being lower than it is now unlike things like wages and other costs that tend to be stickier and stay up there. Okay, all right, but it sounds like when you when you put all together, it's likely that margins are probably going to have a tough time being flat extra just with all these dead ones. Maybe I'm maybe I'm misunderstood, but that would be my takeaway.
We have an environment as we've said of in our markets cities resort markets, probably four years to five years of very very nominal supply growth and.
Speaker 7: transcript
and that's going to lead, assuming we have a good macro environment, it's going to lead to pretty strong repart growth, and that will ultimately get built into buyers underwriting.
And that's going to lead assuming we have a good macro environment, it's going to lead to pretty strong revpar growth.
And that will ultimately get built into buyers underwriting fair.
Bill Crow: Yeah, I think I think that depends what revenue growth we see, we, you know, we're going to need to see, you know, 4% plus revenue growth, I think to to get to flat margins next year. And we're going to need to be higher than that. Now, we have some tailwinds related to the fact that we had a significant disruption this year and lost revenues and that'll help provide a tailwind for that growth rate next year.
Speaker 4: transcript
fairly early on as we start to see an acceleration in the growth rate.
Fairly early on as we start to see an acceleration in the growth rate of Revpar.
Speaker 7: transcript
So it's really gonna depend upon how that market plays out, how the macro environment plays out, and then the relative value opportunity between what we can sell for on any given day and where our stock's trading, the opportunity to buy that back and create value for the shareholder.
So it's really going to depend upon how that market plays out.
How the macro environment plays out and then the relative value opportunity between what we can sell for on any given day and where our stock is trading and the opportunity to buy that back and create value for the shareholders.
Bill Crow: And then it'll depend upon, you know, how much share we gain next year through the investments we've made, and then, of course, what the macro environment looks like. Yeah, okay, thanks for the time. Appreciate it. Yep. Thank you.
Speaker 11: transcript
Thanks for those thoughts, John . And maybe just take a rightful shot on Laplaya. When you think about the timing of getting that asset completely repositioned and completely renovated and launched, do you think you have enough time to catch the heart of the season in the first quarter? Or is it a little bit laid? And it would be more about kind of the second half of 2024. Thanks for taking the question.
Thanks for those.
Thoughts John and maybe just take a rifle shot on an la Playa.
When you think about the timing of getting that asset.
Clearly.
<unk> repositioned and completely renovated and launched.
Floris Dijkum: The next question is coming from Florida. Stand back and let's come to this point. Please go ahead. Thanks. Good morning, guys. I appreciate taking my question. So I know we can get bogged down in the minutiae of ensuring Senate, you know, it's an importance, you know, aspect and same thing with the property taxes. But as I'm just thinking about this bigger picture, you guys have invested nearly 300 million of revenue enhancing investment capital into your portfolio to upgrade and enhance your portfolio over the last couple of years.
Do you think you have enough time to catch the heart of the season and in the first quarter or is it a little bit late and it would be more about kind of the second half of 'twenty 'twenty four thanks for taking the questions.
Speaker 7: transcript
Well, we're working really hard to catch the season.
Sure well, we're working really hard to catch the season.
Speaker 7: transcript
And there's an intense effort at the construction and project management level to get this project done and open. Of course, the one unknown continues to be how quickly we can get the county to respond.
And are there is there is an intense effort.
At the at the construction and project management level.
To get this project done and open of course, the one unknown continues to be how quickly we can get the county to respond and I think we're down to one last permitting approval, though we'll have obviously continuous inspections and in there you may lose days.
Speaker 7: transcript
And I think we're down to one last permitting approval, though we'll have obviously continuous inspections.
Floris Dijkum: There have been obviously, you know, and a big chunk of that has actually been invested since since last year. You haven't had the benefits of any of that and you've had the detraction of call it 12 to 13 million of renovation disruption this year in terms of EBITDA. Again, what I'm trying to get at is to get a run rate for adjusted EBITDA going forward that should be significantly, you know, despite all these concerns about margins, et cetera.
Speaker 7: transcript
And there you may lose days, but you're not going to lose weeks. Right now we're losing weeks waiting on a permit.
But youre not going to lose weeks right now, where we're losing weeks waiting on a permit.
Speaker 7: transcript
But I think from a ramp up perspective,
But I think from a from a ramp up perspective.
Speaker 7: transcript
I mean, we've been trying to ramp up. We have a lot more money going into sales and marketing efforts. We have a pretty good group booking pace right now for the property. We have had unfortunately moved from business out of January that we can't accommodate without having the beach house building. But going into the prime season of
I mean, we've been trying to ramp up we have a lot more money going into two sales and marketing efforts, we have a pretty good group booking pace right now for.
For the property.
We have had to unfortunately move some business out of January that we can accommodate without having the <unk> building.
Floris Dijkum: You should theoretically have call it. 30 to 40, maybe even 50 million higher EBITDA than what you had this year, if I just do the math on the capital that you've invested in your portfolio, and next year sort of being a first full year of stabilizer, clean earnings, if you will. Maybe if you can talk a little bit about the run rates of earnings power of your portfolio going forward. Yeah, I mean, I think that's what we've tried to lay out in our investor presentation and some of our prior calls for us that there's significant upside.
But but going into the prime season of really Presidents' day on.
Speaker 7: transcript
really president stay on uh... we're starting to to build a pretty good base and the nice thing is we have a lot of people want to come back to napal's who who haven't come in vacation there for a couple of years and a lot of the business tends to be annual because they have family in the marketplace so
We're starting to build a pretty good base and the nice thing is we have a lot of people want to come back to Naples, who having common vacation there for a couple of years and a lot of the business tends to be annual because they have family in the marketplace. So.
Speaker 7: transcript
We're hoping we don't miss the season. We don't control everything as it relates to the reconstruction of that beach house building, but we're getting pretty close now and we're feeling better.
We're hoping we don't Miss the season, we don't control everything as it relates to.
The reconstruction of that Beach House building, but.
We're getting pretty close now and we're feeling better.
Okay. Thank you.
Speaker 2: transcript
Thank you. The next question is coming from Anthony Powell of Barclays. Please go ahead.
Thank you. The next question is coming from Anthony Powell of Barclays. Please go ahead.
Floris Dijkum: Now, some of that, you know, some of the share gains from the investments we've made have occurred, but others as we've shown in the investor presentation with the bridge that we have, you know, are in the future. You know, that'll be next year, that'll be the year after, that'll be the year after that and probably some in the year after that. These major repositions tend to take three to four years, and they, we gain share more quickly and in good years and strong years, and otherwise takes longer if the environment is, is flatter.
Yeah.
Speaker 12: transcript
Good morning. Question on cash flow for next year and the year after.
Good morning.
Question on cash flow for next year in year out there.
Speaker 12: transcript
In terms of your cat-backs, where do you think your cat-backs can go? Next year you're going to be finished up a lot of these projects. It also, the dividend, you know, you have some NLL this year, you have an impairment, so I'm curious.
In terms of your Capex when do you think your Capex spend could go next year and getting you finished up a lot of these projects and also on the dividend.
Yes, Nols this year you have an impairment so I'm curious.
Speaker 12: transcript
have that NOLs to uh they may not pay a dividend next year as a
And you have enough Nols to meaning not pay a dividend next year as even as Revpar Bruce.
Speaker 3: transcript
Sure, so it's on the on the CapEx, as you know, we talked about this where we were investing about $150 million this year to the property. We were expecting $24 million. That number should be $100 million or less. We just haven't even started our budgeting process with our teams, and we'll go through that.
Sure.
On the Capex as you know we've talked about this where we're investing about $150 million. This year to the property. We would expect in 'twenty for that number should be $100 million or less.
Floris Dijkum: So there's significant upside from the investments we've made, the dollars are out the door. We've, we, that impacts our balance sheet, obviously, and that's the good part is the investments have already been made. And as you say, the, the investment side, the return side is still to come. And so, it's hard for us to lay out exactly, you know, what that looks like from a timing perspective. And we haven't even started our process with our property teams about what next year looks like.
Really haven't even started our budgeting process with their teams and we'll go through that but it should be substantially less next year and then training at a low level for a number of years, but for if we ever decide or get approval on.
Speaker 3: transcript
So it's potentially last next year and then trying at a low level for a number of years. But for if we ever decide or get approval on, say Paradise Point in San Diego for that conversion there. But overall as we come out before, the major renovations that are portfolio have been made. Therefore, the amount of CAPEX we're going to need going forward would be much less and we've had last couple of years. So we should assume that for 24 and
Paradise point in San Diego for that conversion there, but overall as we commented before the major renovations on our portfolio have been made there.
Therefore, the amount of Capex, we're going to need going forward will be much less than we've had last couple of years. So we should assume that for 24 and beyond.
Speaker 3: transcript
And then regarding the dividend, yes, we still have an NOL that we could certainly burn through. And also, as we make progress on sales, it's good for the cash and take advantage of the public-private arbitrage on that. But as a result, for example, for ZOE, the completion of that sale, we will incur a tax loss, which we can add into our NOLs.
Floris Dijkum: But we do have a good pace going into next year. We're encouraged that the macro side as at least any slowdown has been deferred. It, you know, who knows maybe it gets eliminated, but I think more likely deferred or softer. So we're, you can tell we're a little cautious given the macro environment. But when we, when we get through this, this overhang of, of, of when's the recession coming or when is the slowdown going to be here.
And then regarding the dividend.
Yes, we still have an NOL that we could burn through and also as we made progress on sales.
Floris Dijkum: I think we're going to be more confident about the timing of when we're going to see the significant returns from those dollars that have been invested. But definitely next year we, we have the tailwind of not having all that disruption within the portfolio.
It's good for the cash and take advantage of the public private arbitrage on that but as a result for example for Brazil.
The completion of that sale, we will incur a tax loss, which we can add into our Nols. So.
Speaker 3: transcript
So for most likely, we would have, don't have a need in 24 to increase the dividend to, for taxable income purposes, we may choose to otherwise, but you should not assume that in 24, we have to increase the dividend. Beyond that, we'll have to see what the role plays out, what the macro is, and in additional sales that we complete.
For most likely we would have don't have a need in 'twenty four to increase the dividend too.
Taxable income purposes, we may choose to otherwise, but you should not assume that in 'twenty. Four we we have to increase the dividend beyond that we'll have to see what the world plays out with the macro is in an additional sales that we complete.
Alright, thank you.
Speaker 2: transcript
Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead.
Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead.
Floris Dijkum: And John, if I can maybe just follow up on that typically the returns that you would expect to get from this revenue enhancing catbacks would be minimum of 10%. I mean, what, what historically what's the range been in in in terms of that? The returns on that investment on a stabilized basis. You know, on a stabilized basis, we tend to, we tend to get to 10 plus depending upon the extensiveness of the other redevelopment.
Thanks, Good morning, everyone.
Good morning, good morning.
Speaker 13: transcript
John , just on the top line, he just walked us through the putt and takes. Compared to last year, I know there were a lot of moving people.
John just on the top line can you just walk us through the puts and takes compared to last year I know there.
A lot of moving pieces last year, you mentioned the convention calendar is being.
Speaker 13: transcript
stronger this year, but did you maybe remind us of the good and bad in both periods to kind of help us get a better feel for what the underlying kind of true run rate is in the fourth quarter.
Stronger this year, but can you maybe remind us of the good and bad in both periods to kind of help us get a better feel for what the underlying kind of true run rate is in the fourth quarter.
Floris Dijkum: It, you know, generally the larger the redevelopment, the higher the returns on those. And look, it, it, it's not perfect in terms of every property. Some end up being lower. Some end up being higher. Some of that gets impacted by the market and competition. Et cetera, but we've averaged out at 10 plus.
Speaker 7: transcript
So we did have a couple of renovations last year that started, I think, November , December , which had a fairly mild amount of...
So we had we did have a couple of renovations last year that started I think November December which had a fairly mild amount of.
Floris Dijkum: Thanks. Thank you.
Speaker 7: transcript
of impact. I don't recall it being great. I mean we can
Of impact I don't recall, it being right I mean, we can.
Speaker 7: transcript
We can get back to you with what that number was, but I would think it was relatively small, you know, $1 to $2 million or something, perhaps, perhaps, might not even have been that much.
We can get back to you with what that number was but.
I think it was relatively small.
$1 million to $2 million or something perhaps perhaps might not even have been that much.
Aryeh Klein: The next question is coming from Aryeh Klein of BMO, Capital Markets. Please go ahead. Thank you, and good morning. Maybe just following up on the expense questions. When you look across portfolio, are you still seeing course cost savings opportunities out there? They're not giving all the streamlining that's already been done since COVID. And then just on the insurance side, aside from the rate increases, has your coverage changed in any kind of meaningful way?
Speaker 7: transcript
So, it's pretty clean on the revenue side, the expense side.
So.
It's pretty clean on on on the revenue side the expense side.
Speaker 7: transcript
The biggest negative impact is we had a nice true up.
The biggest.
A negative impact as we had a we had a nice true up.
Speaker 7: transcript
in property taxes of over $3 million in Q4 last year. Without any expected through up this year in Q4, that will show an increase in, quote, expenses if you will for property tax.
In property taxes of over $3 million.
In Q4 last year and so that.
Without any expected true up this year in Q4.
Aryeh Klein: So on your first question, Aryeh, the effort to be more efficient is continuous. I've been in the business in the hotel business since 1984. And over the course of that lengthy period, we've continued to find efficiencies every year within our portfolio. And I think the industry generally has as well. We operate these properties with far fewer people today than we did 10 years ago, and way, way fewer than 15 or 20 years ago.
That that will show.
An increase in <unk> expenses, if you will.
For a.
For property taxes.
Speaker 3: transcript
Outside of that, I don't think there's any major item on the revenue side. For last year, no, nothing that's notable. And we did comment about this earlier, but fourth quarter of this year, in terms of the pluses here, very good commission calendar in San Francisco, it's about four times what it was for last year.
Outside of that I don't I don't.
Theres any any major item on the revenue side.
For last year no no nothing Thats notable.
Did comment about this earlier, but fourth quarter of this year in terms of the.
Pluses here very good convention calendar in San Francisco, It's about four times, what it was fourth quarter last year.
Speaker 3: transcript
San Diego, the convention center room nights are almost more than double what it was last year. And in Boston, it's also double what it was last year. The only market that, and D.C. is also up, the only convention market that was down year over year is Chicago. So the fourth quarter, we have, and one reason why we have the group pace going in is very favorable. And we're starting out, so those are the positives this year, less anomalies last year, at least on the revenue side.
San Diego The Convention Center room nights are almost more than double what it was last year at.
And in Boston has also doubled what it was last year they were really only in a market that.
Aryeh Klein: And we think that's going to continue as technology continues to develop as the industry begins to adopt uses that come out from AI. See, I got that in there, AI, AI. But we do think there's opportunities in a number of areas. And yes, it's a continuous effort within the portfolio. Curator, which has 100 hotels today, has over 100 vendor partner agreements, master service agreements, which have also helped to bring down our costs in our portfolio by millions and millions of dollars on an annual basis.
It is also up the only convention market that was down year over year is Chicago, So the fourth quarter we have.
One reason why we have the group pace going in is very favorable.
And we're starting out so those are the positives this year less.
Last year at least on the revenue side, Hey, Mike the one the one other thing is.
Speaker 7: transcript
Speaker 7: transcript
related to the playa, which is not in our reporting numbers, but obviously is in our numbers overall. I think the playa was negative, it's finally negative in Q4.
Related to La Playa, which is not in our reporting numbers, but obviously is in our numbers overall I think we'll apply here was was negative.
Slightly negative in Q4.
And and.
Speaker 7: transcript
and there was some impact in Key West. And La Playa in Q4 this year should be $2 million to $3 million positive.
And there was some impacting in key west.
And la Playa in Q4, this year should be two.
Aryeh Klein: They continue to pursue additional contracts, reducing costs on a per unit basis, new technologies that the curator team reviews, new technologies almost on a daily basis. Many of them are geared to reducing costs. We see a lot of technologies related to reducing energy costs over the long term water usage in particular is seeing a lot of focus within the technology industry. And we'll see adoption of that over time as those become more widespread and available.
$2 million to $3 million positive.
Speaker 13: transcript
Got it. That's up. I mean, just along the same lines, just I pulled you last year, had a big shortfall on the bottom line.
Got it that's helpful. And then just along the same lines just unfortunate because last year you had a big shortfall on the bottom line.
Speaker 13: transcript
maybe we're all just on our side here, bad at modeling for a few this year, but there's been a lot of portfolio changes. Is it just post pandemic changes and demand patterns or there's something else for going on in the fourth quarter that's causing profitability, profitability to be lower than we sort of all remember.
And maybe we're all just on our side here data modeling <unk> edition, but.
Yes, there's been a lot of portfolio changes it will just post pandemic changes in demand patterns or theres something else structural going on in the fourth quarter, that's causing profitability profitability to be lower than we sort of all remember it to be.
Speaker 7: transcript
Well, the thing that happens in Q1 and Q4 is, you know,
Well.
Thing that happens in Q1 and Q4 is.
<unk>.
Speaker 7: transcript
When you lose volume, obviously your fixed costs, you know, are still there, and so it tends to have a worse flow compared to, you know, more normal volumes pre-pandemic, and so there tends to be.
When you when you lose volume.
Obviously your fixed costs.
Are still there and so it tends to have a worst flow.
Aryeh Klein: So we do think efficiencies are going to continue. And again, if you go back and look historically at our margins, at the LaSalle margins all the way back to the late 1990s, what you'll see is gradual improvement in those margins over the long time. And obviously they're cyclical. They go up and down and we tend to get more costs eliminated when things are difficult. And I would say we're still in an environment which has its challenges because of inflation.
Compared to a more normal volumes.
Pre pandemic.
And.
And so there tends to be.
Speaker 7: transcript
less ability to absorb that shortfall in one and four, whereas in Q and two, you have a lot more volume, you have a lot more occupancy, you've got higher rates in those quarters, and it's a little easier to absorb that flow, that shortfall from pre-pandemic and volume than you can in one and four. I don't think it has much to do with a change in the portfolio on an overall base.
Less ability to absorb that that shortfall in one in four we're whereas in Q2, you have a lot more volume you have a lot more occupancy you've got higher rates.
In those quarters, and it's a little easier to absorb that flow.
That shortfall from pre pandemic and volume then you can have one in four I don't I don't think it has much to do with a change in the portfolio.
Aryeh Klein: So we continue to focus on reducing costs, and then Aryeh, on the second part of your question on the insurance coverage, we have the same amount of overall property coverage today than we did last year, so it's $500 million which takes a lot of storms and different events. Here and there we'll have the higher deductibles at some different parts of the layers of the insurance structure, it looks like it's a quill of different programs that are in there, but overall the same amount of coverage that we did before, so I think that speaks to the benefit we had is compared to if you're a smaller owner of operator with the relationships in the insurance carrier side, when push comes to shove in markets like this, the carriers that you have relationships with they'll stick with you, so we're able to maintain those levels of coverage probably more than if you are a smaller owner or didn't have the long term relationships that we had.
On an overall basis, yes, and Mike also just remind again on the <unk>.
Speaker 3: transcript
Yeah, and Mike also just to remind again on the energy, property taxes and property insurance, those three items alone.
Energy property taxes and property insurance those three items alone caused about 160 basis point impact to margins in the quarter.
Speaker 3: transcript
caused about 160 basis point impact to margins in the quarter, which was not an impact from last year, and that's harder to forecast. That's not related necessarily to hotel operating operations.
Which was not an impact from last year and that is harder to forecast that's not related necessarily to hotel operating operations. So the good news is there's less pressure on the labor side, So thats less of a headwind there than it has been but these three items.
Speaker 3: transcript
The good news is there's less pressure on the labor side, so that's less of a headwind there than it has been. But these three items, these are items that, we're not in play last year. We didn't have property insurance increases going up 50, 60%.
Or items that.
We're not in play last year, we didn't have property insurance creases going up 50%, 60%.
Speaker 3: transcript
you know, last year and then, as John noted, some of the unusual timing of property taxes and we know what's going on in the energy market.
Last year, and then as John noted some of the unusual timing of property taxes, and we know what's going on in energy market. So those three items that have a big component of it you look at our guide of down 100 basis points plus.
Speaker 3: transcript
So those three items that have a big component of it, you look at our guide of down 100 basis points plus, that reflects 100 basis points headwinds from those three items.
It reflects a 100 basis points.
And the headwinds from those three items.
Aryeh Klein: But look, overall insurance market, it goes up and down, the property market is tough, the GL market is better, the cyber is going to look better, so there's varying phases. Right now we're going through a rough patch here on the property side, but as history has showed, we go through a period where there's less storms and then it comes back down because a lot more carriers will come back to the space.
Helpful. Thank you.
Speaker 2: transcript
Thank you. The next question is coming from Greg Remiller of Truest Securities. Please go ahead.
Thank you. The next question is coming from Gregory Miller of <unk> Securities. Please go ahead.
Speaker 14: transcript
Thanks, good morning. This question is about your two W hotels, as Mariette is nearing completion of the W Renovation in New York.
Aryeh Klein: Got it, thank you.
Thanks, Good morning.
This question is about your two W. Hotels as Marriott is nearing completion of a W renovation and New York's Union square and to my understanding that hotels are flagship.
Smedes Rose: Thank you, the next question is coming from Smithrose of City, please go ahead. Hi, thanks. Now I'm just kidding.
For the new direction of the brand.
Speaker 14: transcript
Do you anticipate any major operating changes or any forced renovations to your Boston or Los Angeles?
Do you anticipate any major operating changes or any forced renovations to your Boston or Los Angeles properties to meet the brand standards.
No.
Okay.
[laughter] okay.
Speaker 14: transcript
I can't argue with that. And then just since others are asking you, second question, the last one as well. This one is about the so-called hidden.
And argue with that.
And then just since others are asking your second question the last one as well.
Thomas Fisher: Go ahead to me. I wanted to just ask you a little bit about what you're seeing on the transaction market, it looks like you have two more properties on the market and certainly in the media, there's been more than that that it's been popping up. But just, you know, we've all seen what's happened with interest rates and, you know, just kind of curious, you know, if it's still, you know, deals under 100 million or easier to get done or kind of what are you, what are you sort of seeing in terms of the ability to turn back in this market?
This one is about the so called hidden fees.
Speaker 14: transcript
Have you noticed any changes to booking trends for hotels that are already presenting the total hotel charge early in the booking process relative to hotels and alternative accommodations in the same market that I've yet to present total?
Have you noticed any changes to booking trends for hotels that are already presenting so total hotel charge early in the booking process relative to hotels and alternative accommodations in the same market that have yet to present total hotel charges.
Speaker 7: transcript
You know, that's a really good question, Greg. And, you know, the answer is we haven't seen anything anecdotally.
That's a really good question Greg.
And the answer is we we haven't seen anything.
Thomas Fisher: Hey, it's me. It's Tom. That's obviously a great question. I think it continues to be kind of a bifurcated market in terms of those assets that have cash flows and then those assets, for example, like the ones we're selling maybe in recovery, those assets that are in recovery markets. So I would say overall the transaction market is pretty challenging. I would say that the deals and the things that we're selling, obviously, the things that are trading are below 100 million dollars that continues to be the trend.
Anecdotally.
Speaker 7: transcript
It's probably a better question for Maryott.
It's probably a better question for Marriott since they've been the one who is completely switched over and have some time period now to do some data measurement to see whether they're losing share or not.
Speaker 7: transcript
since they've been the one who've completely switched over and have some
Speaker 7: transcript
time period now to do some data measurement to see whether they're losing share or not. We've not seen it with our Marriots, but I can't tell you we dug into the detail into minutia to see.
<unk> not seen it with our marriott's, but I can't tell you we've dug into.
The detail into minutiae this sea.
Speaker 7: transcript
If there's been change in share within our Marriott properties, what might it be related to?
If there has been change in share within our Marriott properties, what might it be related to.
Thomas Fisher: I think deals are taking longer. I would tell you that at the end of the day, our perspective is there's a lot of strong interest. We're seeing a lot of interest. We're just trying to translate that into conviction in terms of the investors given the fact of the macro market. So I think that there's still some headwinds there. I think the higher for longer narrative from the Fed's not necessarily helping on the financing side.
Speaker 7: transcript
So, I mean, obviously the whole industry is gonna go there. We as an industry at the association level, which includes owners, operators, and the brands are supporting legislation that does incorporate all charges.
So I mean, obviously the whole industry is going to go there we as an industry at the association level at which includes owners operators and.
And the brands are supporting legislation that.
That does.
Incorporate all charges.
Speaker 7: transcript
interestingly, accept government charges into the upfront.
Interestingly, except government charges.
Into.
Front.
Speaker 7: transcript
into the upfront rate and that's the way searches would occur, but that would apply across all kinds of lodging accommodations and that's really been the focus of the industry to make sure it's a level playing field. I think we have, the thing that we've seen and I think it's been helpful and will really over, will eliminate any long-term impact.
Into the upfront right.
Thomas Fisher: But you will see some deals that, you know, with high cash flow, the CNBS market is open. You'll see some deals north of 100 million that will trade, but again, they have some again high cash flow, etc. I do think that in some of these recovery markets, we're transitioning not necessarily from a return basis, but we're looking, the investors are looking at a price per key and they're looking at it from the perspective of if they believe in a market, they want to get in early in a cycle because the price per key is compelling, especially relative to replacement cost. And also given the backdrop of very limited supply in a number of these markets moves.
And thats the way searches would occur but that would apply across all kinds of lodging accommodations and that's really been the focus of the industry to make sure it's a level playing field.
I think we have the <unk>.
Thing that we've seen and I think it's it's been helpful and will really over.
Eliminate any any long term impact is.
Speaker 4: transcript
The whether you call it a destination fee or a resort fee or an urban amenity fee.
The the whether you call it a destination fee or a resort fee or an urban amenity fee.
Speaker 4: transcript
It's been adopted by most properties within the urban and resort markets. Certainly the major cities have adopted it, so I don't think from a competitive standpoint ultimately it's going to make a difference.
It's been adopted by most properties within.
Thomas Fisher: Thank you for coming forward. Okay, thank you. I appreciate it. Thank you.
The urban and resort markets and certainly the major cities have adopted it. So I don't think from a competitive standpoint, ultimately it's going to make a difference.
Duane Pfennigwerth: The next question is coming from Duane Pfennigwerth of Evercore ISI. Please go ahead. Hey, good morning. Thanks.
Speaker 4: transcript
you know by the nature of your question, certainly possible it could make some minor difference in the near-term way of whether we're not everybody's doing it. But I think in the short, in short order over the next 12 months, I think you probably see it adopted everywhere.
By the nature of your question certainly possible it could make some minor difference in the near term whether or not everybody is doing it but I think in the short in short order over the next 12 months I think you'll probably see it adopted everywhere.
Jon Bortz: I wonder just to follow up, if you could talk a little bit about your outlook for asset sales into 2024, of course, you know, it'll depend upon the environment and depend upon conditions, but like in your ideal optimal scenario, you know, how many assets would we be talking about and how would you be thinking about shaping the portfolio? Yeah, so from a strategic perspective, I think it'll, ideally, it's going to be depends what happens with the trading of our stock and the relative value opportunity between the public market and the private market.
And it's already required in California.
Required for <unk>.
Speaker 4: transcript
Next year I forget whether it went in the ear or kicks in but it's
Next year I forget whether when in the year kicks in but it's I think it's pretty early.
Speaker 14: transcript
Yeah, I was thinking about that one as well. I appreciate it, John .
Yes.
I was thinking about that one as well I appreciate it John.
Yep.
Speaker 2: transcript
Thank you. Our final question today is coming from Chris Starling of Green Street. Please go ahead.
Thank you. Our final question today is coming from Chris <unk> of Green Street. Please go ahead.
Speaker 13: transcript
Thanks, good morning. Joan, going back to the discussion around dispositions, Boston and Washington DC stand out to NIA's markets where you've kept your portfolio fairly intact since COVID at least. Maybe I'm reading too much into it, but just curious to understand how you're thinking about the long-term prospects for those cities relative to some of the other urban markets where you've sold.
Thanks, Good morning.
John going back to the discussion around dispositions, Boston and Washington D. C stand out to me is markets, where you've kept your portfolio fairly intact since COVID-19 at least maybe I'm reading too much into it but just curious to understand how youre thinking about the long term prospects for those cities relative to some of the other urban markets, where you've sold out of.
Jon Bortz: I think we've said before, we were asked, you know, how many of your 47 properties would you sell it, given the arbitrage opportunity to take advantage of it, and I think I've said 47. So we wouldn't sit here and say we have a sales target for next year of five properties and 300 million or anything like that. We don't really work that way. We don't need to sell any of these properties.
Speaker 7: transcript
Yeah, I mean, I think of those two markets, we probably feel better from a long-term perspective about Boston than we do about DC.
Yeah, I mean I think.
Those two.
Of those two markets, we probably feel better from a long term perspective.
About Boston than we do about DC.
Speaker 7: transcript
We just think DC will take. DC has more...
We just think DC I'll take DC is more.
Jon Bortz: We feel like we've transitioned the portfolio to a more favorable leisure business next as I talked about. So it's really going to be opportunistic and that'll be driven by not just the overall macro. Obviously, it will be driven by the debt markets. It'll be driven by what the view of investors is related to the future of both of those. But I think where we see that the opportunity for fairly significant value improvement is as interest rates come down, we get past this macro view.
Speaker 7: transcript
of the same, some of the same issues that the West Coast cities have, where I was Boston for a number of reasons doesn't really seem to have those in a significant way. We also,
The same.
Some of the same issues that the west coast cities have whereas Boston for.
For a number of reasons.
Doesn't really seem to have those in a significant way.
We also.
<unk>.
Speaker 7: transcript
We like the fact that most people have gone back to work in Boston and in DC for whatever reason, the federal government can't seem to get people to come back to the office. So it's just gonna take longer in DC. I would also say our...
We like the fact that most people have gone back to work in Boston and in D. C for whatever reason the federal government can't seem to get people to come back to the office.
So, it's just going to take longer in D C.
I would also say our.
Speaker 7: transcript
The other way to think about it is.
The other way to think about it.
Is.
Speaker 4: transcript
Look, we have a pretty small position in DC today. We sold quite a number of properties when we bought the South out of that market. So, and we were never a big investor in DC at Pebblebrook. So, we're gonna carry a much smaller position in DC in all likelihood anyway, than what we carry in Boston with.
Jon Bortz: We have an environment as we've said of in our markets, cities, resort markets, probably four years to five years of very, very nominal supply growth. And that's going to lead, assuming we have a good macro environment, it's going to lead to pretty strong repart growth. And that will ultimately get built into buyers underwriting fairly early on as we start to see an acceleration in the growth rate of repart. So it's really going to depend upon how that marketplace out, how the macro environment plays out, and then the relative value opportunity between what we can sell for on any given day, and where our stocks trading, the opportunity to buy that back and create value for the shareholders.
Look we have a pretty small position in D C. Today.
We sold quite a number of properties when we bought will sell out of that market. So and we were never a big investor in D C.
And Pavel broke so.
To carry a much smaller position in D. C. In all likelihood any way than what we carry in Boston, which while maybe the number of properties that are similar the sizes are quite dramatically different.
Speaker 4: transcript
Well, maybe the number of properties is similar. The sizes are quite dramatically different as are the EBITDA.
As are the EBITDA numbers so.
Speaker 4: transcript
So we're big fans of Boston, we're big fans of San Diego and LA. We believe in San Francisco, but we've been reducing our position there. And there's some other markets obviously that we've been.
So we're big fans of Boston, we're big fans of San Diego and L. A.
We believe in San Francisco, but we've been reducing our position there.
And there are some other markets, obviously that we've been.
Reducing our position.
Speaker 15: transcript
Okay, that's helpful. And then just one quick one related to the entertainment strikes in Los Angeles, historically when you've seen those strikes come to an end, how quickly does business?
Okay. That's helpful. And then just one quick one related to the entertainment strikes in Los Angeles, historically, when you've seen those strikes come to an end how quickly does business pick back up.
Jon Bortz: Thanks for those thoughts, John, and maybe just take a rightful shot on Laplaya. When you think about the timing of getting that asset completely repositioned and completely renovated and launched, do you think you have enough time to catch the heart of the season in the first quarter? Or is it a little bit late and it would be more about kind of the second half of 2024? Thanks for taking the question. Well, we're working really hard to catch the season.
Speaker 7: transcript
It depends on the time of year. So, they're quite a number of productions that are just, they would start the next day. The studios and the production companies have their plans in place. But the deeper we get,
It depends on the time of year. So that there are quite a number of productions that are that are just.
They would start the next day.
<unk>.
The studios and the production companies have have their plans in place.
But the deeper we get into the fourth quarter.
Speaker 7: transcript
The entertainment industry tends to shut down a good bit between Thanksgiving and the second week in January just through its culture.
Jon Bortz: And there's an intense effort at the construction and project management level to get this project done and open. Of course, the one unknown continues to be how quickly we can get the county to respond. And I think we're down to one last permitting approval, though we'll have obviously continuous inspections. And there you may lose days, but you're not going to lose weeks. Right now we're losing weeks waiting on a permit. But I think from a ramp up perspective, I mean, we've been trying to ramp up.
The entertainment industry tends to shut down a good bit between Thanksgiving and the second week in January just through its culture.
Speaker 4: transcript
And so whether they they they buck that trend and do a lot more than they normally do to get things done or in in in the work so they can have a season in the in the spring next year.
And so whether they say they buck that trend and do a lot more than they normally do to get things done or.
In the work so they can have.
Our season in the in the spring next year.
Speaker 4: transcript
not not sure I don't I don't have enough insight into that but
Not sure I don't I don't have enough insight into that but.
Speaker 4: transcript
Historically, you know, they're pretty anxious to get those productions going. It's just if this runs much further and deeper into November , I'm not sure we're gonna see a whole lot get done in the last four to six weeks of the quarter.
Historically, they're pretty anxious to get those productions going it's just if this runs much further and deeper into November.
I'm not sure we're going to see a whole lot get done.
Jon Bortz: We have a lot more money going into sales and marketing efforts. We have a pretty good group booking pace right now for the property. We have had, unfortunately, moved from business out of January that we can't accommodate without having the beach house building. But going into the prime season of really president's day on, we're starting to build a pretty good base. And the nice thing is we have a lot of people want to come back to Naples who have in common vacation there for a couple of years.
In the last four to six weeks of the quarter.
Yeah.
Alright, Thats very helpful. I appreciate the time.
Yes. Thank you thanks, Chris.
Speaker 2: transcript
Thank you at this time. I'd like to turn the floor back over to Mr. Boards for closing.
Jon Bortz: And a lot of the business tends to be annual because they have family in the marketplace. So we're hoping we don't miss the season. We don't control everything as it relates to the reconstruction of that beach house building. But we're getting pretty close now. And we're feeling better.
Thank you at this time I would like to turn the floor back over to Mr. Bortz for closing comments.
Speaker 7: transcript
Well, thanks everybody for participating and hats off to Jimmy Buffett. I'm sure he's having a cheeseburger in paradise somewhere right now. We'll talk to you next year.
Well, thanks, everybody for for participating and.
Jon Bortz: Okay. Thank you.
Hats off to Jimmy Buffett I'm sure he's having a cheeseburger in Paradise somewhere right now we will talk to you next year.
Speaker 2: transcript
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your line or log off the webcast at this time and enjoy the rest of your day.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines.
Cash at this time and enjoy the rest of your day.
Speaker 1: transcript
The never seven way BR. Characters 3: we your same again, manu. When what F every PR back.
Okay.
Okay.
Yes.
Todd.
Okay.
Yes.
Anthony.
Great.
Anthony Powell: The next question is coming from Anthony Powell of Farclays. Please go ahead.
Karen.
Sure.
Okay.
Great.
Anthony Powell: Good morning. The question on gets cash low for next year and you're after. In terms of your catbacks, where do you think your catbacks that can go next year, give you finished up a lot of these projects. It also, the dividend, you know, you have some NOLs this year. You have an impairment. So I'm curious if you have enough NOLs to maybe not pay a dividend next year as even as rep or bruise.
Sure.
Okay.
Yes.
Sure.
Okay.
Okay.
Okay.
Yes.
Thank you.
Okay.
Anthony Powell: Sure. So it's on the catbacks. As you know, we talked about this where we were investing about 150 million this year to the property. We were expecting 24. That number should be 100 million or less. We're going, we just, we're not even start a budgeting process with our teams and we'll go through that. But it should be substantially less next year. And then trying at a low level for a number of years, but for if we ever decide or get approval on, say, Paradise Point and San Diego for that conversion there.
Thank you.
Okay.
Sure.
<unk>.
Yeah.
Okay.
Okay.
Yes.
Yeah.
Yeah.
Okay.
Anthony Powell: But overall, as we've come out before, the major renovations that are portfolio have been made. Therefore, the amount of catbacks we're going to need going forward would be much less and we've had last couple of years. So we should assume that for 24 and beyond. And then regarding the dividend, yes, we still have an NOL that we could certainly burn through. And also as we make progress on sales, it's good for the cash and take advantage of the public private arbitrage on that.
Right.
Okay.
Okay.
Okay.
Okay.
Anthony Powell: But as a result, for example, for, for, for, so we completion of that cell, we will incur a tax loss, which we can add into our NOLs. So for, for most likely, we would have, don't have a need in 24 to increase the dividend to, for tax willing purposes, we may choose to otherwise. But you should not assume that in 24, we, we have to increase the dividend. Beyond that, we'll have to see what the world plays out with the macro is and in additional sales that we complete.
Anthony Powell: Thank you.
Okay.
Okay.
Yes.
Yes.
Brian.
Okay.
Yes.
Yes.
Yeah.
Hi, Matt.
Yeah.
Okay.
Okay.
Michael Bellisario: The next question is coming from Michael Bellisario. Affaired. Please go ahead. Thanks. Good morning, everyone. Good morning.
Michael Bellisario: John, just on the top line, can you just walk us through the putt and takes compared to last year? I know there are a lot of moving pieces last year. You mentioned the convention calendar is being stronger this year, but could you maybe remind us of the good and bad in both periods to kind of help us get about[inaudible] of portfolio changes. There's been a lot of portfolio changes. [inaudible] Well, the thing that happens in Q1 and Q4 is when you lose volume, obviously your fixed costs are still there, and so it tends to have a worse flow compared to more normal volumes pre-pandemic.
Okay.
Yes.
Okay.
Speaker 1: transcript
The never seven way bring lot charriages is three we your same again, manu say: when what man F? St be, we Ma every, every PR be.
Okay.
Okay.
John.
Okay.
Yeah.
Yeah.
Nathan.
Yes.
Mimi.
Great.
Eric.
Great.
Sure.
Okay.
Yeah.
Thank you.
Okay.
Thank you.
Okay.
Okay.
Okay.
Thanks.
<unk>.
Yes.
Okay.
Yes.
Yes.
Yes.
Thanks.
Yes.
Winter.
Okay.
Yes.
Okay.
Yes.
Okay.
Yes.
And then.
Yes.
Yes.
Okay.
Okay.
Okay.
Brian.
Okay.
Paul.
Okay.
Yes.
Okay.
Okay.
Okay.
Yes.
Okay.
Speaker 1: transcript
The seven way: bring Lo carriages is 3, we F F same again. Reason manu, when I get, what an F? Pr be we every, every PR back.
Okay.
Yes.
Todd.
Okay.
Michael Bellisario: And so there tends to be less ability to absorb that shortfall in 1 and 4, whereas in Q2 you have a lot more volume, you have a lot more occupancy, you've got higher rates in those quarters, and it's a little easier to absorb that flow, that shortfall from pre-pandemic in volume than you can in 1 and 4. I don't think it has much to do with a change in the portfolio on an overall basis.
<unk>.
Okay.
Yeah.
<unk>.
Okay.
Great.
Yes.
Okay.
Great.
Sure.
Okay.
Yes.
Thank you.
Okay.
Thank you.
Thank you.
Thank you.
<unk>.
Sure.
Okay.
Yes.
Yes.
Michael Bellisario: Yeah, and Mike also just to remind again on the energy, property taxes, and property insurance, those three items alone caused about 160 basis point impact to margins in the quarter, which was not an impact from last year, and that's harder to forecast. That's not related necessarily to hotel operating operations, so the good news is there's less pressure on the labor side, so that's less of a headwind there than it has been.
Winter.
Yes.
Okay.
Sure.
No.
Michael Bellisario: But these three items, these are items that we're not going to play last year. We didn't have property insurance creases going up 50-60% last year, and then John noted some of the unusual timing of property taxes, and we know it's going on an energy market. So those three items that have a big component of you look at our guide of down 100 basis points plus that reflects 100 basis points headwinds from those three items. Thank you.
Yeah.
Michael Bellisario: Thank you.
Yes.
Awesome.
Right.
Okay.
Okay.
Gregory Miller: The next question is coming from Gregory Miller of Truist Securities. Please go ahead. Thanks. Good morning. This question is about your two W Hotels, as Merit is nearing completion of the W Renovation in New York City and Square, and to my understanding using other towels of flagship for the new direction of the brand.
Okay.
Right.
Great.
Yes.
Okay.
Gregory Miller: Do you anticipate any major operating changes or any forced renovations to your Boston or Los Angeles properties to meet new brand standards? No. Okay. Can't argue with that.
Okay.
Gregory Miller: And then just a sense that there's a asking a second question last one as well. This one is about the so-called hidden fees. Have you noticed any changes to booking trends for hotels that are already presenting the total hotel charge early in the booking process relative to hotels and alternative accommodations in the state market that I've yet to present total hotel charges? You know, that's a really good question, Greg, and the answer is we haven't seen anything anecdotally.
Gregory Miller: It's probably a better question for Marriott since they've been the one who've completely switched over and have some time period now to do some data measurement to see whether they're losing share or not. We've not seen it with our Marriott, but I can't tell you we've dug into the detail and to minutia to see if there's been change and share within our Marriott properties, you know, what might it be related to.
Gregory Miller: So, I mean, obviously the whole industry is going to go there. We as an industry at the association level, which includes owners, operators and the brands are supporting legislation that that does incorporate all charges, just interestingly accept government charges into the upfront rate and that's the way searches would occur, but that would apply across all kinds of lodging accommodations and that's really been the focus of the industry to make sure it's a level playing field.
Gregory Miller: I think we have, the thing that we've seen and I think it's been helpful and we'll really over, we'll eliminate any long-term impact is the weather, you call it a destination fee or a resort fee or urban amenity fee, it's been adopted by most properties within the urban and resort markets, certainly the major cities have adopted it, so I don't think from a competitive standpoint ultimately it's going to make a difference, you know by the nature of your question, certainly possible it could make some minor difference in the near-term way whether or not everybody's doing it, but I think in this short, in short order over the next 12 months I think you probably see it adopted everywhere and it's already required in California, I mean it'll be required for next year, I forget whether it went in the year it gets in, but I think it's pretty early. Yeah, I was thinking about that one as well, I appreciate John. Yep.
Gregory Miller: Thank you our final question today is coming from Chris Starling of Green Street, please go ahead. Thanks, good morning. John, going back to the discussion around this position, Boston and Washington DC stand out to Nia's markets where you've kept your portfolio fairly intact since COVID at least, maybe I'm reading too much into it, but just curious to understand how you're thinking about the long-term prospects for those cities relative to some of the other urban markets where you've sold out of.
Gregory Miller: Yeah, I mean I think of those two markets we probably feel better from a long-term perspective about Boston than we do about DC, we just think DC, DC has more of the same, some of the same issues that the West Coast cities have where has Boston for a number of reasons doesn't really seem to have those in a significant way. We also, we like the fact that most people have gone back to work in Boston and in DC for whatever reason the federal government can't seem to get people to come back to the office.
Gregory Miller: So it's just going to take longer in DC. I would also say the other way to think about it is, look, we have a pretty small position in DC today, we sold quite a number of properties when we bought the South out of that market. And we were never a big investor in DC at Pebblebrook. So we're going to carry a much smaller position in DC in all likelihood anyway than what we carry in Boston, well maybe the number of properties is similar, the sizes are quite dramatically different as are the EBITOT numbers.
Gregory Miller: So we're big fans of Boston, we're big fans of San Diego and L.A. We believe in San Francisco, but we've been reducing our position there. And there's some other markets obviously that we've been reducing our position.
Jon Bortz: Okay, that's helpful. And then just one quick one related to the entertainment strikes in Los Angeles. Historically, when you've seen those strikes come to an end, how quickly does business take back up? It depends on the time of year. So that they're quite a number of productions that are that are just right, they would start the next day. The studios and the production companies have their plans in place. But the deeper we get into the fourth quarter, the entertainment industry tends to shut down a good bit between Thanksgiving and the second week in January, just through its culture.
Jon Bortz: And so whether they buck that trend and do a lot more than they normally do to get things done or in the work so they can have a season in the spring next year. Not sure, I don't have enough insight into that, but historically, you know, they're pretty anxious to get those productions going. It's just if this runs much further and deeper into November, I'm not sure we're going to see a whole lot get done in the last four to six weeks of the quarter. All right, it's very helpful. Appreciate the time. Yep, thank you. Thank you.
Jon Bortz: At this time, I'd like to turn the floor back over to Mr. Borts for closing. Well, thanks everybody for for participating and you know, hats off to Jimmy Buffett. I'm sure he's having a cheeseburger in paradise somewhere right now.
Operator: We'll talk to you next year. Ladies and gentlemen, thank you for your participation.
Operator: This concludes today's event. You may disconnect your monitor. Walk off the webcast at this time and enjoy the rest of your day. Thank you very much.
Operator: I swear to myself Hey, who's in way? Well, I've been eating sunflower seeds, I'm drinking lots of carriages, I'm soaking up a race, but it's not I'd have these wonderful drinks, some kind of sent you a treat, not zucchini, fettuccine for your wheat, put a big warm burn and a huge tongue of meat, cheeseburger and paradise, tap on all dribbles and cut your fly, not too particular, not to criticize, not yourself, cheeseburger and paradise, heard about the old time killer of men, they eat the same thing again and again, warm their embrace, they said good race or death, well they remind me of the menu at a holiday, and how to change the letters these days, when I'm in for I get what I need, not just a famous or bananas or daffories, but that a miracle creation all which I've been, cheeseburger and paradise, mini rare with musters these nights, and on orders that hunt young flies under sun, cheeseburger and paradise, I like mine with letters, that's the meta, hot 57 and french fries and theta, big kosher, pickle and a cold wrap, they will, good God almighty, which way do I steer from all, cheeseburger and paradise, making the best of every virtue in life, worth every damn better, fast for five to get up, cheeseburger and paradise, cheeseburger and paradise, cheeseburger and paradise, I like mine with letters, that's the meta, hot 57 and french fries and theta, big kosher, pickle and a cold wrap, they will, good God almighty, which way do I steer?
Operator: I like mine with letters, that's the meta, hot 57 and french fries and theta, big kosher, pickle and a cold wrap, they will, good God almighty, mini rare with musters these nights, and on orders that hunt young flies under sun, cheeseburger and paradise, they eat the same thing again and again, warm their embrace, they say good race or death, well they remind me of the menu at a holiday, and how to change the letters these days, when I'm in front I get what I need, not just my fans or bananas or daffories, but that American creation all which I feed, cheeseburger and paradise, mini rare with musters these nights, and on orders that hunt young flies under sun, cheeseburger and paradise, I like mine with letters, that's the meta, hot 57 and french fries and theta, big kosher, pickle and a cold wrap, they will, good God almighty, which way do I steer?
Operator: I like mine with letters, that's the meta, hot 57 and french fries and theta, big kosher, pickle and a cold wrap, they say good race or death, they say good race or death, I like mine with letters, that's the meta, hot 57 and french fries and theta, big kosher, pickle and a cold wrap, they will, good God almighty,