Q4 2023 Pebblebrook Hotel Trust Earnings Call
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Speaker Change: Ladies and gentlemen, thank you for your patience and please remain on the line today's Pebble Brook Hotel Trust's conference, we'll be starting shortly again, we do thank you for your patience and ask that you. Please remain on the line today's conference will be starting shortly.
Operator: Today's conference will be starting shortly. I'm coming up, I won't go up the slope, got to let it show I'm coming up, I won't go up the slope, got to let it show I'm coming up, I won't go up the slope, got to let it show, I'm coming out I'm coming, I'm coming out I'm coming out I'm coming out I'm coming out I won't go out the door Got to let it show I'm coming out I won't go out the door Got to let it show There's a new me coming out And I just have to live And I wanna give I'm completely positive I think this time around I am gonna do it Like you never knew it Oh, I'll make it through The time has come for me to break, Greetings and welcome to the Pebblebrook Hotel Trust Fourth Quarter Earnings Call. At this time, all participants are on a listen-only mode.
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Operator: 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. Thank you, Donna. And good morning, everyone.
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Raymond D. Martz: Welcome to our fourth 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 for only February 22nd, 2024. Our comments include forward-looking statements under the federal securities laws, and actual results could differ materially from our comments.
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Speaker Change: Greetings and welcome to the Pebble book Hotel trusts fourth quarter earnings call. At this time, all participants are in a listen only mode.
Speaker Change: 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.
Raymond D. Martz: Please refer to our latest SEC findings for a detailed discussion of potential risk factors and our website for reconciliations of non-GAAP financial measures referred to during this call. In 2023, our portfolio continued to recover from the negative impact of the pandemic. This is a testament to the dedication, innovation, and resilience of our hotel teams and operating partners. Their exceptional contributions were instrumental in propelling our portfolio's growth and recovery in 2023, and we thank them for their support and hard work. We are delighted to report favorable operating and financial results for 2023. Our adjusted EBITDA reached $356.4 million, exceeding the top end of our ALWC by $6.5 million in the fourth quarter. Adjusted EBITDA increased to $63.3 million.
Speaker Change: It is now my pleasure to introduce your host Raymond Martz co President and Chief Financial Officer. Thank you. Please go ahead.
Raymond D. Martz: Thank you Donna.
Raymond D. Martz: Good morning, everyone welcome to our fourth quarter 23 earnings call and webcast. Joining me today is Jon Bortz, our chairman and Chief Executive Officer, and Tom Fischer, Our co President and Chief Investment Officer.
Raymond D. Martz: But before we start a reminder, that today's comments are effective only February 22024. Our comments 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 our website for reconciliations of non-GAAP financial measure.
Raymond D. Martz: Refer to during this call.
Raymond D. Martz: And then 2023, our portfolio continued to recover from the negative impact of the pandemic. This is a testament to the dedication innovation and resilience of our hotel teams and operating partners. Their exceptional contributions were instrumental in propelling our portfolio's growth and recovery in 2023, and we thank them for their support.
Raymond D. Martz: Our adjusted funds from operations per share also surpassed our outlook, ending the year at $1.60 per share, with the fourth quarter at $0.21, beating the top end of our Q4 outlook by $0.07 per share. This better-than-expected performance in the fourth quarter was fueled by our urban hotels, which continue to experience a healthy recovery in corporate transient and group demand, including from improving convention calendars and recovering leisure travel in the cities, driven by concerts and sporting events. San Francisco, Washington, D.C., Boston, and Los Angeles led our urban strength.
Raymond D. Martz: And hard work.
Raymond D. Martz: We are delighted to report favorable operating and financial results for 2023, our adjusted EBITDA reached $356 4 million exceeding the top end of our outlook by $6 5 million in the fourth quarter as adjusted EBITDA increased to $63 3 million.
Raymond D. Martz: Our adjusted funds from operations per share also surpassed our outlook and even a year and a $1 60 per share for the fourth quarter at 21 <unk>.
Raymond D. Martz: Beating the top end of our Q4 outlook by <unk> <unk> per share.
Raymond D. Martz: This better than expected performance in the fourth quarter was fueled by our urban hotels, which continued to experience a healthy recovery in corporate transient and group demand, including from improving convention calendars and recovering leisure travel in the cities driven by concerts and sporting events.
Raymond D. Martz: San Francisco, Washington, D C, Boston and Los Angeles led our urban strength.
Raymond D. Martz: Focusing on our 2023 hotel operating results, occupancy rates increased 4.6 occupancy points to 67.7%. However, this level is still well below our pre-pandemic occupancy of 81% in 2019 and our peak occupancy of 85% in 2016. This gap highlights our portfolio's significant remaining growth potential, particularly at our urban properties, which are on a promising recovery path. In 2023, our urban hotel will achieve an occupancy rate of 68.4%, marking a 5.5 percentage point increase from the previous year, yet is still 15 percentage points below the 2019 level. Washington, D.C. led the recovery with a significant 15-point rise to 64%, up from 49% in 2022. San Francisco also showed substantial improvement, with occupancy climbing 61% from 47% in 2022.
Raymond D. Martz: Focusing on our 2023 hotel operating results I can see rates increased $4 six occupancy points to 67, 7%.
Raymond D. Martz: However, this level is still well below our pre pandemic occupancy of 81% in 2019, and our peak occupancy of 85% in 2016.
Raymond D. Martz: This GAAP highlights our portfolio has significant remaining growth potential, particularly at our urban properties, which are under promising recovery path.
Raymond D. Martz: In 2023 urban urban hotels achieved an occupancy rate of 68, 4%, marking a five five percentage point increase from the previous year, Yeah, There's still 15 percentage points below 2019 levels.
Raymond D. Martz: Washington D C led to recovery, but significant 15 point rise to 64% up from 49% in 2022.
Raymond D. Martz: San Francisco also showed substantial improvement with occupancy climbing 61% from 47% in 2022.
Raymond D. Martz: Our Los Angeles portfolio also managed to achieve significant occupancy growth in 2023, increasing from 64% to 73%, despite facing challenges from entertainment industry strikes and adverse weather conditions that significantly affected demand. Our Boston portfolio, our largest urban market by EBITDA, achieved 78% occupancy, similar to last year, and Boston represents the market with the highest occupancy levels in our urban markets, yet it remains well below the 88% level achieved in 2019. During the fourth quarter at our urban hotels, weekday occupancy rates rose by 4 percentage points to 64%, while weekend occupancies increased by more than two percentage points to 69%. This demonstrates that the uptick in demand was powered by both business and leisure travel.
Raymond D. Martz: Our west Los Angeles portfolio also managed to achieve significant occupancy growth in 'twenty, three increasing from 64% to 73%.
Raymond D. Martz: Despite facing challenges from entertainment industry stripes, and adverse weather conditions that significantly affect the demand.
Raymond D. Martz: Our Boston portfolio, our largest urban market by EBITDA achieved 78% occupancy similar to last year and Boston represents the market with the highest occupancy levels in our urban markets yet it remains well below the 88% level achieved in 2019.
Raymond D. Martz: During the fourth quarter at our urban hotels weekday occupancy rates rose by four percentage points to 64% while weekend occupancy has increased by more than two percentage points to 69%.
Raymond D. Martz: This demonstrates that the uptick in demand with powered by both business and leisure travel.
Raymond D. Martz: These are positive indicators heading into 2024. For 2023, our resorts maintained their strong performance, with occupancy rates rising by approximately 2 percentage points to 65.8 percent, despite the negative impact of significant disruptive redevelopments at Estancia, La Jolla, Jekyll Island Club Resort, and Southernmost Resort Key West during the year. Like our urban hotels, our resorts also had a substantial opportunity to regain lost occupancy from 2019. Occupancy achieved 74.4% in 2019, 8.5 points above 2023. In the fourth quarter, our resorts benefited from increased business group demand, as evidenced by the one percentage point rise in weekday resort occupancies over the comparable prior year period, and weekend resort rates surged by 7 points to 74.6 percent, highlighting the enduring appeal of leisure travel and the attractiveness of our redeveloped and repositioned resorts.
Raymond D. Martz: These are positive indicators heading into 2024.
Raymond D. Martz: For 2023, our resorts maintained their strong performance with occupancy rates rising by approximately two percentage points to 65, 8%. Despite the negative impact of significant disruptive redevelopments at Estancia, La Jolla, Jekyll Island club resort and southernmost resort key west during the year.
Raymond D. Martz: Like our urban hotels are resorts I've also have substantial opportunity to regain lost occupancy from 2019 as occupancy achieved 74, 4% in 2019, they didn't have points about 2023.
Raymond D. Martz: In the fourth quarter, our resorts benefited from increased business group demand as evidenced by the one percentage point of ryzen weekday resort occupancies over the comparable prior year period.
Raymond D. Martz: And weekend resort rates surged by seven points to 74, 6% highlighting the enduring appeal of leisure travel and the attractiveness of our Redeveloped and repositioned resorts.
Raymond D. Martz: Despite a 9.3% decrease in average rates during 2023, there was a trend towards rate stabilization with a more modest 4.9% decline in the fourth quarter. Even with this normalization, our resort room rates in 2023 remain 40% or $108 higher on average than in 2019. Across the portfolio, same property REPR for 2023, so our 4.2% year-over-year increase, while the same property total REPR grew by 5.9%, indicated continued strong non-room revenue growth along with substantial occupancy improvements. This progress was achieved despite an approximate 113 basis point negative impact from renovation, showcasing our portfolio's robustness and potential for future growth. Our urban properties experienced a significant uplift in 2023, with a 9.3% increase in REP PAR and an 11.3% rise in total REP PAR. Our resort REPR declined by 6.5% from 2022, but total REPR decreased by just 2.8%, as healthy non-room spending and occupancy gains helped mitigate the room rate decline. For Q4, total rent part increased by 5.7%, with our urban properties realizing an 8.8% gain and our resorts flattish with a 0.4% decline.
Raymond D. Martz: Despite a nine 3% decrease in average rates. During 2023, there was a trend towards rate stabilization with a more modest four 9% decline in the fourth quarter.
Raymond D. Martz: Even with this normalization or resort room rates in 2023 remains 40% or $108 higher on average than in 2019.
Raymond D. Martz: Across the portfolio same property Revpar for 2023, so our four 2% increased year over year increase while at the same property total revpar grew by five 9%, indicating continued strong non room revenue growth along substantial occupancy improvements.
Raymond D. Martz: This progress was achieved despite an approximate 113 basis point negative impact from renovations showcasing our portfolio's robustness and potential for future growth.
Raymond D. Martz: Our urban properties experienced a significant uplift in 2023 with a nine 3% increase in Revpar and an 11, 3% rise in total revpar.
Raymond D. Martz: Our resort Revpar declined by six 5% from 2022, but total revpar decreased by just two 8% as healthy non room spending and occupancy gains helped mitigate the room rate decline.
Raymond D. Martz: For Q4 total revpar increased by five 7% with our urban properties, realizing an eight 8% gain in our resorts flattish with a 0.4% decline.
Raymond D. Martz: For 2023, same property EBITDA came in at $350.9 million, with Q4 at $66.6 million, exceeding the top end of our outlook by $3.6 million. Thanks again for Better Than Estimated, Urban Demand Recovery, and Q4. During 2023, our Hotel Ibida experienced several challenges that impacted our performance, including renovation disruptions, which we estimated had a negative impact of $12.7 million. Additionally, severe adverse weather events and the L.A. writer's and actor's strikes contributed to an estimated negative $3.5 million impact. However, these negative effects were significantly offset by approximately $12 million worth of real estate tax credits and general liability insurance savings. Consequently, the net negative impact of these one-time items on Hotel Ibida totaled approximately $5.5 million.
Raymond D. Martz: For 2023 same property EBITDA came in at $359 million with Q4 at $56 6 million exceeding the top end of our outlook by $3 6 million. Thanks, again to better than expected urban demand recovery in Q4.
Raymond D. Martz: During 2023, our hotel EBITDA experienced several challenges that impacted our performance, including renovation disruptions, which we estimated had a negative impact of $12 7 million.
Raymond D. Martz: Additionally, severe adverse weather events in the L. A writers and actors strikes contribute to an estimated negative $3 $5 million impact. However, these negative effects were significantly offset by approximately $12 million worth of real estate tax credits and general liability insurance savings.
Raymond D. Martz: Consequently, the net negative impact of these onetime items on hotel EBITDA totaled approximately $5 5 million.
Raymond D. Martz: We expect significant additional real estate tax credits as we achieve successful tax assessment appeals over the next few years. However, the timing is hard to forecast, so we have not included any in our 2024 outlook. Hotel operating expenses were effectively managed in Q4, with combined departmental and undistributed expenses up just 5.2% versus the 5.8% total revenue increase, and on a per-occupied-room basis, they decreased by 0.3%.
Raymond D. Martz: We expect significant additional real estate tax credits as we achieved successful tax assessment and appeal is over the next few years. However, the timing is hard to forecast. So we have not included any in our 2020 for outlook.
Raymond D. Martz: Hotel operating expenses were effectively managed in Q4 with combined departmental and undistributed expenses up just five 2% versus a five 8% total revenue increase.
Raymond D. Martz: On a per occupied room basis decreased by 3%.
Raymond D. Martz: Same property EBITDA margins came in at 21.1%, which were flat last year. Our Q4 margins would have increased 122 basis points more if not for the prior year real estate tax credits that benefited EBITDA and EBITDA margins. Overall, the year-over-year growth rate in our total hotel operating expenses, excluding property taxes, has declined maturely over the year, from 27.8% in Q1 to 10.2% in Q2, to 5.4% in Q3, and then 5% in Q4, all while growing occupancy significantly and other revenues like food and beverage even more significantly. This highlights our success in mitigating cost pressures across the portfolio, and our teams are proud to have achieved these positive results. Year-over-year, we continue to see an overall reduction in inflationary headwinds.
Raymond D. Martz: Same property EBITDA margins came in at 21, 1%, which were flat to last year. Our Q4 margins would have increased 122 basis points more if not for the prior year real estate tax credits that benefited EBITDA and EBITDA margins.
Raymond D. Martz: Overall year over year growth rate in our total hotel operating expenses, excluding property taxes, and a decline materially over the year from 27% 27, 8% up in Q1 to 10, 2% in Q2.
Raymond D. Martz: To five 4% in Q3, and then 5% in Q4, all while growing occupancy can significantly and other revenues like food and beverage even more significantly.
Raymond D. Martz: This highlights our success in mitigating cost pressures across the portfolio and our teams are proud to achieve these positive results.
Raymond D. Martz: Year over year, we continue to see an overall reduction in inflationary headwinds wage rate pressures.
Raymond D. Martz: Wage rate pressures have reduced materially year-over-year, while our properties remain appropriately stocked. And in 2023, we invested $152 million in our portfolio, which was primarily focused across six major redevelopment projects, including Margaritaville-San Diego Gas Lamp, Hilton Gas Lamp, Estancia La Jolla, Jekyll Island Club Resort, Southernmost Key West, and Newport Harbor Island Resort. Looking ahead to 2024, we are poised to complete three pivotal projects, the comprehensive $49 million transformation and upscaling of Newport Harbor Island Resort, the $26 million luxury reposition of Estancia, La Jolla Hotel and Spa, and the $20 million first phase of the additional alternative lodging, camping units, cabins, villas, and infrastructure at Scimedia Lodge.
Raymond D. Martz: Reduced materially year over year, while our properties remain appropriately start.
Raymond D. Martz: And in 2023, we invested $152 million into our portfolio, which was primarily focus across six major redevelopment projects, including Margaritaville, San Diego Gaslamp Hilton Gaslamp, San Diego La Jolla, Jekyll Island Club resort Southern most key west and.
Raymond D. Martz: In Newport Harbor Harbor Island resort.
Raymond D. Martz: Looking ahead to 2024, we have posted complete three pivotal product projects bigger.
Raymond D. Martz: Comprehensive $49 million transformation, and upscaling of Newport Harbor Island resort.
Raymond D. Martz: The $26 million luxury repositioning estancia, La Jolla hotel and Spa and a $20 million first phase of the additional alternative lodging clamping units cabins village and infrastructure at Skamania Lodge.
Raymond D. Martz: We anticipate completing all of these projects in the second quarter, marking a significant milestone in our comprehensive $540 million multi-year strategic capital reinvestment program. It's important to note that the vast majority of returns on these recent investments have not yet been realized, but we anticipate significant improvements in market share and cash flow as these ramp up and stabilize. And as Diana Ross so beautifully sang in our opening song today, our properties are coming out in 2024. These major redevelopment disruptions are behind us, and the benefits of these major investment dollars are yet to come. Also, our CapEx requirements are set to decrease markedly to between $85 and $90 million in 2024. Shifting focus to La Playa Beach Resort and Club in Naples, we're happy to report that the restoration of the 79-room beach house and pool complex is expected to be substantially complete in the next week or two. This is the last of the rebuilding efforts following the extensive damage from Hurricane Inn. The resort and club look great, and it's better than ever.
Raymond D. Martz: We anticipate completing all of these projects in the second quarter, marking a significant milestone in our comprehensive $540 million multi year strategic capital reinvestment program.
Raymond D. Martz: It's important to note that the vast majority of these returns on these recent investments have not yet been realized.
Raymond D. Martz: We anticipate significant improvements in market share and cash flow as they ramp up and stabilize.
Raymond D. Martz: And as Diana Ross, so beautifully staying at our opening song today, our properties are coming out in 2020 for these major redevelopment disruptions are behind us and the benefits of the major investment dollars are to come.
Raymond D. Martz: So our capex requirements are set to decrease markedly to between 85 and $90 million in 2024.
Raymond D. Martz: Shifting focus to La <unk> Beach resort and club and Naples, We're happy to report that the restoration of the 79 room Beach House and pool complex is expected to be substantially complete next week or two.
Raymond D. Martz: This is the last of the rebuilding efforts following the extensive damage from hurricane in.
Raymond D. Martz: The resort and club with great and it's better than ever we're poised to ramp up quickly whenever stored product.
Raymond D. Martz: We're poised to ramp up quickly with our restored product. As noted in last night's earnings release, we anticipate recognizing $11 million in business interruption proceeds in 2024 from multiplier's lost income for the second half of 2023 and early 2024. This has been incorporated into our 2024 outlook. This BI will impact adjusted EBITDA and adjusted FFO, but not same property EBITDA. This compares to the $33 million of B
Raymond D. Martz: As noted in last Night's earnings release, we anticipate recognizing $11 million in business interruption proceeds in 2024 from applies lost income for the second half of 2023 in early 2024. This has been incorporated into our 24 outlook.
Raymond D. Martz: The B I will impact adjusted EBITDA and adjusted at the BOE, but not same property EBITDA. This compares to the $33 million of B I recognized in 2023.
Raymond D. Martz: Our disposition strategy in 2023 was successfully executed with seven property sales generating over $330 million in gross proceeds.
Raymond D. Martz: recognized in 2023. Our disposition strategy in 2023 was successfully executed, with seven property sales generating over $330 million in gross proceeds. The aggregate sales proceeds reflected a 20.2 times EBITDA multiple and a 4.2% NOI cap rate. Proceeds from our property sales were used to pay down over $179 million in debt and for accretive repurchases of common and preferred shares. From the start of 2023 through the end of January 2024, we repurchased approximately 6.8 million common shares at an average price of $14.07, including over 318,000 common shares recently purchased in January at an average price of $15.69. We also purchased 2 million shares of our Series H Preferred Equity shares at an average price of $15.90 per share, which is a 36% discount to the par value of this series.
Raymond D. Martz: I forget sales proceeds reflected a 22 times EBITDA multiple and a four 2% NOI cap rate.
Raymond D. Martz: Proceeds from our property sales were used to pay down over $179 million in dead for accretive repurchases of common and preferred shares.
Raymond D. Martz: From the start of 2023 through the end of January 2024.
Raymond D. Martz: <unk> repurchased approximately $6 8 million common shares at an average price of $14 seven.
Raymond D. Martz: Including over 318000 common shares recently purchased in January at an average price of $15 69.
Raymond D. Martz: We also purchased 2 million shares of our series H preferred equity shares at an average price of $15 90 per share, which is a 36% discount to the par value of the series with 1 million shares repurchase at the end of 2022 at $16.
Raymond D. Martz: A 30% discount as a discount par.
Raymond D. Martz: Par value and $1 million shares with me purchase in Q4, 23 at $15, 79% to 37% discount.
Raymond D. Martz: Following our debt pay downs any extension of 317 at $357 million of bank term loans out to 2028, our next meaningful debt maturity is a $410 million bank term loan maturing in October 2025.
Raymond D. Martz: With 1 million shares repurchased at the end of 2022, that's $16, a 30% discount to par value. And 1 million of these shares were recently purchased in Q4'23 at $15.79, a 37% discount. Following our debt paydowns and the extension of $357 million of bank term loans out to 2028, our next meaningful debt maturity is a $410 million bank term loan maturing in October 2025. You should anticipate that this maturity will be reduced and addressed from free cash flow and potentially proceeds from additional property sales, additional debt market activities, or from our $650 million undrawn, unsecured credit facility. And with that comprehensive update, I'd like to turn the call over to Jon. Thanks, Ray. Thanks. And good morning, everybody.
Raymond D. Martz: You should anticipate that this maturity will be reduced and address it from free cash flow and potentially proceeds from additional property sales additional debt market activities or from our $650 million undrawn unsecured credit facility.
Raymond D. Martz: And with that comprehensive update I'd like to turn the call over to John John.
John: Thanks Ray.
John: And good morning, everybody.
John: I'm going to focus my comments on two topics first what we've seen in the industry. Most recently and what we expect for this year in terms of the industry performance and second how that translates into the assumptions behind our companys outlook for Q1 and for full year 2024.
John: As to the hotel industry I believe the industry's reported performance in the second half of 2023, and so far in 2024, clearly evidences a softening in overall demand primarily in the mid to lower segments.
John: Perhaps indicating financial sensitivities in the middle to lower socio economic demand segments.
Raymond D. Martz: Likely resulting from the impacts of inflation.
Raymond D. Martz: The reduction or elimination of extra savings from pandemic era government transfer payments.
Raymond D. Martz: And the dramatic increase in consumer credit rates.
Raymond D. Martz: Perhaps it's just difficult comps for the middle to lower price point hotels as others have suggested.
Jon E. Bortz: I'm going to focus my comments on two topics. First, what we've seen in the industry most recently and what we expect for this year in terms of industry performance, and second, how that translates into the assumptions behind our company's outlook for Q1 and for full year 2024. As for the hotel industry, I believe the industry's reported performance in the second half of 2023 and so far in 2024 clearly evidences a softening in overall demand, primarily in the mid to lower segments, perhaps indicating financial sensitivities in the middle to lower socioeconomic demand segments, likely resulting from the impacts of inflation. The reduction or elimination of extra savings from pandemic era government transfer payments and the dramatic increase in consumer credit rates.
Raymond D. Martz: But total industry demand hasn't exceeded restricted supply growth since March of last year, and it's been negative seven out of the last 10 months.
Raymond D. Martz: Yeah.
Raymond D. Martz: This weaker overall industry performance has occurred at the same time that convention group business transient, particularly larger corporations and international inbound travel all continued to recover and while leisure travel remains healthy.
Raymond D. Martz: The top 25 markets have outperformed the other markets by a wide margin.
Raymond D. Martz: And the urban markets, which have previously been slower to recover have performed by far the best.
Raymond D. Martz: And while the softening demand has been almost completely focused on the mid to lower segments. So far we're not so nave to think that there can't be an impact in the higher segments at some point.
Raymond D. Martz: We're humble and we recognize we've never been through a pandemic and recovery before let alone one where the fed continues to work aggressively to slow down the economy to bring inflation down to its target.
Raymond D. Martz: So far so good as the economy has held up and everyone who wants a job seems to have one.
Jon E. Bortz: Perhaps it's just difficult comps for the middle to lower price point hotels, as others have suggested. But total industry demand hasn't exceeded restricted supply growth since March of last year, and it's been negative 7 out of the last 10 months. This weaker overall industry performance has occurred at the same time that convention, group, business transient, particularly larger corporations, and international inbound travel all continue to recover, and While Leisure Travel Remains Healthy. The top 25 markets have outperformed the other markets by a wide margin, and the urban markets, which have previously been slower to recover, have performed by far the best.
Raymond D. Martz: Yet we remain wary, though still cautiously optimistic about 2024.
Raymond D. Martz: It's extremely difficult to forecast how these conflicting economic waves will impact each other as we move forward in 2024.
Raymond D. Martz: Just as it was in 2023.
Raymond D. Martz: All we can do is plan for different scenarios and monitor all of the macro and micro indicators very closely.
Raymond D. Martz: And we'll let you know when we see the trends changing.
Raymond D. Martz: As a result of this ongoing uncertainty we plan to continue to provide monthly operating updates.
Raymond D. Martz: Given the weak overall trends over the last 10 months, including January and also for February So far this year, we expect industry Revpar for 2024 to be flat to up 2%.
Raymond D. Martz: This forecast also assumes.
Raymond D. Martz: Our so called soft landing for the economy.
Raymond D. Martz: We believe the fed will remain diligent and its inflation lowering mission this year.
Raymond D. Martz: And with expectations for rate cuts recently pushed later into the year with fewer overall cuts now expected, we believe forecast by the institutional prognosticators in our industry now seem a little optimistic at least they do to us.
Jon E. Bortz: And while this softening demand has been almost completely focused on the mid to lower segments so far, we're not so naive to think that there can't be an impact in the higher segments at some point. We're humble, and we recognize we've never been through a pandemic and recovery before, let alone one where the Fed continues to work aggressively to slow down the economy to bring inflation down to its target. So far, so good, as the economy has held up, and everyone who wants a job seems to have one.
Raymond D. Martz: We do believe that business travel both group and transient along with international inbound travel will continue to recover and these demand segments will continue to benefit the upper upscale segment and the urban markets, primarily and thus the top 25 markets versus the weaker other markets.
Raymond D. Martz: I also want to point out that overall industry performance in 2023, and so far in 2024 has substantially benefited from the very strong performance of Las Vegas.
Jon E. Bortz: Yet we remain wary, though still cautiously optimistic about 2024. It's extremely difficult to forecast how these conflicting economic waves will impact each other as we move forward in 2024, just as it was in 2023. All we can do is plan for different scenarios and monitor all of the macro and micro indicators very closely, and we'll let you know when we see the trends changing. As a result of this ongoing uncertainty, we plan to continue to provide monthly operating updates. Given the overall trends over the last 10 months, including January and also for February so far this year, we expect industry REF PAR for 2024 to be flat to up 2%. This forecast also assumes... a so-called soft landing for the economy. We believe the Fed will remain diligent in its inflation-lowering mission this year, and with expectations for rate cuts recently pushed later into the year with fewer overall cuts now expected.
Raymond D. Martz: Large volatile and influential market affecting the total industry numbers.
Raymond D. Martz: Excluding Las Vegas, the rest of the industry's performance was softer in 2023 and by our calculations that weaker performance equated to 48 basis points or just shy of one 5%.
Raymond D. Martz: And remember the public lodging Reits and other institutional lodging investors generally don't own in Las Vegas.
Raymond D. Martz: We would urge S T R to publish industry numbers on a weekly monthly and annual basis that excludes Las Vegas. So we can all get a clearer picture of the overall industry in which we live and invest.
Raymond D. Martz: Las Vegas until recently was never included in the industry data and reports. So this is a new issue.
Raymond D. Martz: Given our forecast for the industry's performance for 2024, we expect to do substantially better than the industry, given our 60% or so concentration in major urban markets, including slower to recover markets, which have been accelerating.
Jon E. Bortz: We believe forecasts by the institutional prognosticators in our industry now seem a little optimistic, at least they do to us. However, we do believe that business travel, both group and transient, along with international inbound travel, will continue to recover, and these demand segments will continue to benefit the upper upscale segment and the urban markets primarily, and thus the top 25 markets versus the weaker other markets. I also want to point out that overall industry performance in 2023 and so far in 2024 has substantially benefited from the very strong performance of Las Vegas, a large, volatile, and influential market affecting the total industry numbers. Excluding Las Vegas, the rest of the industry's performance was softer in 2023, and by our calculations, that weaker performance equated to 48 basis points, or just shy of 1.5%. And remember, the public lodging REITs and other institutional lodging investors generally don't own in Las Vegas. We would urge STR to publish industry numbers on a weekly, monthly, and annual basis that excludes Las Vegas.
Raymond D. Martz: And we expect to do better due to the lack of material disruption from renovations and repositioning is in 'twenty four.
Raymond D. Martz: Which will soon be complete and from gaining revpar share from them from our many completed major repositioning and redevelopments over the last several years.
Raymond D. Martz: Given our industry outlook for Revpar growth of zero to 2%, we're forecasting our same property revpar to increase 200 basis points more so in the range of 2% to 4%.
Raymond D. Martz: We expect most or all of it will come in occupancy gains.
Raymond D. Martz: We're forecasting that our total same property revenue will increase in the range of three to four 6% and as a reminder, the play is not included in our same property numbers for 2023 or 'twenty 'twenty four.
Raymond D. Martz: However, if we were to include at the Playa would add about 50 basis points of Revpar growth to our outlook.
Raymond D. Martz: Encouragingly our group pace is looking good for 24.
Raymond D. Martz: As of the beginning of February group room night pace for this year was apparent was ahead of the same time last year by 12, 5%.
Raymond D. Martz: With ADR pacing, 2% ahead of last year for a total group revenue pace advantage of 14, 7%.
Raymond D. Martz: Transient room nights are also pacing ahead of twenty-three by nine 4% with rate lower by one 9%.
Raymond D. Martz: Total group and transient pays for 24 was ahead by 11% in room nights and total revenues with ADR flat year over year as we continue to recover significant occupancy.
Jon E. Bortz: So we can all get a clear picture of the overall industry in which we live and invest. Las Vegas, until recently, was never included in industry data and reports, so this is a new issue. Given our forecast for the industry's performance for 2024, we expect to do substantially better than the industry, given our 60% or so concentration in major urban markets, including slower-to-recover markets, which have been accelerating. And we expect to do better due to the lack of material disruption from renovations and repositionings in 24, which will soon be complete, and from gaining RevPAR share from our many completed major repositionings and re Given our industry outlook for REVPAR growth of 0 to 2 percent, we're forecasting our same property REVPAR to increase by 200 basis points more, so in the range of 2 to 4 percent.
Raymond D. Martz: While total pace is strong we caution that booking trends have lengthened and continued to normalize. So these percentages will naturally decline.
Raymond D. Martz: As more business is put on the books.
Raymond D. Martz: Not surprisingly our urban pace are stronger than our resort pace, but both are significantly ahead of last year.
Raymond D. Martz: Right now Q3 has the strongest pace advantage followed by Q4 than Q2, and then Q1.
Raymond D. Martz: We expect group will represent roughly 28 or 29% of our overall mix.
Raymond D. Martz: Which is up slightly from last year.
Raymond D. Martz: Given a slower Q1 pace our forecast for Q1 is for our same property revpar to be flat to up 2% with total same property revenues higher by 0.8% to two 8%.
Raymond D. Martz: Whether on the West coast and in South, Florida has not been favorable so far this year, particularly in February so even as we gained ground from not having much comparative negative impact from our major renovations and Redevelopments in Q1, our resorts have suffered from softer leisure demand due to the weather.
Jon E. Bortz: We expect most or all of it to come from occupancy gains. We're forecasting that our total same-property revenue will increase in the range of 3 to 4.6 percent. And as a reminder, La Playa is not included in the same property numbers for 2023 or 2024. However, if we were to include it, it would add about 50 basis points of RevPAR growth to our outlook. Encouragingly, our group pace is looking good for 24.
Raymond D. Martz: While January Revpar growth increased a healthy five 1%.
Raymond D. Martz: February is on track to be roughly flat.
Raymond D. Martz: Unfortunately, Mark just performance will be negatively impacted by the last week of the month due to the earlier arrival of the Easter holiday this year.
Raymond D. Martz: But April on the other hand should benefit from this shift.
Raymond D. Martz: For 2024, we expect same property total revenue growth to exceed same property revpar growth as it did in 'twenty three due to strong food and beverage and other revenue growth.
Jon E. Bortz: As of the beginning of February, group room night pace for this year was ahead of the same time last year by 12.5 percent, with ADR pacing 2% ahead of last year for a total group revenue pace advantage of 14.7%. Transient room nights are also pacing ahead of 23 by 9.4%, with rates lower by 1.9%. Total Group and Transient Pays for 24 was ahead by 11% in room nights and total revenues, with ADR flat year-over-year as we continue to recover significant occupancy. While the overall pace is strong, we caution that booking trends have lengthened and continued to normalize. So these percentages will naturally decline as more business is put on the books. Not surprisingly, our urban pace is stronger than our resort pace, but both are significantly ahead of last year. Right now, Q3 has the strongest pace advantage, followed by Q4, then Q2, and then Q1.
Raymond D. Martz: Some of which is a result of the continuing recovery in group and some as a result of the significant re merchandising we've done it. So many of our properties, where we've added more meeting space event venues and bar outlets improved some of our outdoor event and restaurant venues to increase the length of their outdoor.
Raymond D. Martz: Operating seasons.
Raymond D. Martz: And reconfigured and re concept in restaurants.
Raymond D. Martz: To focus on increasing banquet, and catering business and driving higher revenues and profits.
Raymond D. Martz: For the year, we're forecasting same property expense growth in the range of four 7% at the low end of our total revenue growth range to five 3% at the higher end of the range.
Raymond D. Martz: However, if we exclude the impact of $9 million of real estate tax credits in 2023.
Raymond D. Martz: To get a better view of the underlying expense growth rate.
Raymond D. Martz: It's about 100 basis points, lower implying an increase of three 8% to four 3%.
Raymond D. Martz: Keep in mind that all of our Revpar growth will likely come from occupancy growth.
Raymond D. Martz: In food and beverage growth should outpace revpar growth due to increases in group business and total occupancy.
Jon E. Bortz: We expect the group will represent roughly 28 or 29% of our overall mix, which is up slightly from last year. Given a slower Q1 pace, our forecast for Q1 is for our same property REVPAR to be flat to up 2%, with total same property revenues higher by 0.8% to 2.8%. Weather on the West Coast and in South Florida has not been favorable so far this year, particularly in February, so even as we gain ground from not having much comparative negative impact from our major renovations and redevelopments in Q1, our resorts have suffered from softer leisure demand due to the weather. While January REF part growth increased a healthy 5.1 percent, February is on track to be roughly flat. Unfortunately, March's performance will be negatively impacted by the last week of the month due to the earlier arrival of the Easter holiday this year.
Raymond D. Martz: Both of which come with significant marginal expenses.
Raymond D. Martz: Our expense growth assumptions are based on an expectation that combined wages and benefits will increase in the 4% range give or take.
Raymond D. Martz: Most other expenses will increase at a lower rate.
Raymond D. Martz: Energy and insurance will grow at a much faster rate.
Raymond D. Martz: And real estate taxes will show a much greater increase due to the $9 million of tax true ups in 'twenty two 'twenty three.
Raymond D. Martz: We expect the combination of lip highest operating performance and B I accruals will likely be roughly equal between 2020, three and 'twenty 'twenty four.
Raymond D. Martz: So no big headwind as we had previously feared.
Raymond D. Martz: We're extremely excited about the pending full completion of reopening of La Playa Beach resort and the rebuild property looks fantastic.
Raymond D. Martz: We'll be having a tour of both la Playa and in on fifth and Naples for investors and sell side analysts.
Raymond D. Martz: On the Wednesday afternoon, following cities REIT conference in Hollywood, Florida, So feel free to let us know if you'd like to join us as we will be transporting folks from the diplomat.
Jon E. Bortz: But April, on the other hand, should benefit from this shift. For 2024, we expect same property total revenue growth to exceed same property REV PAR growth as it did in 23 due to strong food and beverage and other revenue growth. Some of this is a result of the continuing recovery in the group, and some as a result of the significant re-merchandising we've done at so many of our properties, where we've added more meeting space, event venues, and bar outlets, improved some of our outdoor event and restaurant venues to increase the length of their outdoor operating season, and Reconfigured and Reconfigured Restaurants to focus on increasing the banquet and catering business and driving higher For the year, we're forecasting same property expense growth in the range of 4.7% at the low end of our total revenue growth range to 5.3% at the higher end of the range.
Raymond D. Martz: Apply was on track to deliver the highest EBITDA in our portfolio in 2022 before the hurricane hit so it's quite important to our future growth.
Raymond D. Martz: Not only are we excited about law applies the operations getting back to normal but we're also very excited about the significant upside throughout our portfolio. Following our half a billion dollar plus investment program over the last few years.
Raymond D. Martz: Whenever we get over this macroeconomic hill related to the fed's efforts to drive down inflation to its 2% target we expect.
Raymond D. Martz: To experience a significant upside in our markets over a multiyear period that will be powered by little to no supply growth growth in our markets.
Raymond D. Martz: Economic growth drives up travel demand.
Raymond D. Martz: If we look back to the beginning of the last cycle and you can see these results in our investor presentation.
Jon E. Bortz: However, if we exclude the impact of $9 million of real estate tax credits in 2023, to get a better view of the underlying expense growth rate, it's about 100 basis points lower, implying an increase of 3.8% to 4.3%. Keep in mind that all of our REV PAR growth will likely come from occupancy growth, and food and beverage growth should outpace RevPAR growth due to increases in group business and total occupancy, both of which come with significant marginal expenses. Our expense growth assumptions are based on an expectation that combined wages and benefits will increase in the 4% range, give or take. Most other expenses will increase at a lower rate,
Raymond D. Martz: Total EBITDA for today's current portfolio doubled between 2010 and 2015.
Raymond D. Martz: So in this next cycle.
Raymond D. Martz: We expect urban and resort supply will be more restricted and slower to be added than in the last cycle.
Raymond D. Martz: We also believe demand will grow in a healthy and profitable way due to strong economic growth driven by significant technological and medical developments.
Raymond D. Martz: Mass of onshoring effort in various industries.
Raymond D. Martz: Growth coming from the Green energy transition.
Raymond D. Martz: And positive secular trends related to travel.
Raymond D. Martz: These positive fundamentals in totality.
Raymond D. Martz: With a moderating inflation outlook and significant benefits from the completion of our strategic redevelopment program should lead to very strong bottom line performance for us over an extended number of years.
Jon E. Bortz: Energy and insurance will grow at a much faster rate, and real estate taxes will show a much greater increase due to the $9 million of tax true-ups in 2023. We expect a combination of LaPaya's operating performance and BI accruals will likely be roughly equal between 2023 and 2024. So, no big headwind, as we had previously feared. We're extremely excited about the pending full completion and reopening of La Playa Beach Resort, and the rebuilt property looks fantastic.
Raymond D. Martz: We just need to get over this macro hump.
Raymond D. Martz: That completes our remarks, we'd be now we'd now be.
Speaker Change: Happy to answer your question so.
Speaker Change: Donna you May proceed with the Q&A.
Donna: Thank you ladies and gentlemen, 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.
Donna: 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 keys.
Jon E. Bortz: We'll be having a tour of both La Playa and Inn on 5th in Naples for investors and sell-side analysts on the Wednesday afternoon following Citi's re-conference in Hollywood, Florida. So feel free to let us know if you'd like to join us, as we'll be transporting folks from the Diplomat. Applio was on track to deliver the highest EBITDA in our portfolio in 2022 before the hurricane hit, so it's quite important to our future growth. Not only are we excited about La Playa's operations getting back to normal, but we're also very excited about the significant upside throughout our portfolio following our half a billion-plus investment program over the last few years. Whenever we get over this macroeconomic hill related to the Fed's efforts to drive down inflation to its 2% target, we expect to experience a significant upside in our markets over a multi-year period that will be powered by little to no supply growth in our markets, while economic growth drives up travel demand. If we look back to the beginning of the last cycle, and you can see these results in our investor presentation, Total EBITDA for today's current portfolio doubled between 2010 and 2015.
Donna: You asked in order to allow as many questions as possible that you. Please limit yourself to one question.
Donna: The first question today is coming from Duane any words of Evercore ISI. Please go ahead.
Duane: Hey, thanks for the time.
Duane: Just on Oh, I'll repeat the question and I know you, maybe you're a little bit less levered to it but on on the group segment do you do you lean on group differently than you did a pre pandemic given changes in underlying seasonality in Maine, and maybe John just broadly.
Duane: How would you characterize the setup entering 'twenty 'twenty four from a visibility perspective, how does this forecasting environment feel versus a quote unquote normal time pre pandemic.
John: So I think the question of do we lean on group differently.
Duane: This year versus last year or or even pre pandemic I'd.
Speaker Change: I'd say, it's really driven by each individual properties situation and what's going on in those particular markets. So you know give give San Francisco.
Jon E. Bortz: So, in this next cycle, we expect urban and resort supply to be more restricted and slower to be added than in the last cycle. We also believe demand will grow in a healthy and profitable way due to strong economic growth driven by significant technological and medical developments. A massive on-shoring effort in various industries, growth coming from the green energy transition, and positive secular trends related to travel. These positive fundamentals, in totality, coupled with a moderating inflation outlook and significant benefits from the completion of our Strategic Redevelopment Program, should lead to very strong bottom-line performance for us over an extended number of years. We just need to get over this macro hump.
Duane: Look at that as an example, with with a softer convention calendar this year.
Duane: We're leaning on all the other segments, including in House group more so than we would in a year, where we have a significantly greater convention activity.
Duane: In a market where the convention activity is up strongly like a market in San Diego, We may lean on group, a little bit less than we have in prior years and try to drive those transient customer rates.
Duane: So we can take advantage of the compression.
Duane: The greater number of compression days in that market. So I don't think Theres any general philosophy.
Operator: That concludes our remarks. We'd now be happy to answer your questions, so Donna, you may proceed with the Q&A. Thank you. Ladies and gentlemen, the floor is now open to questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.
Speaker Change: That's different.
Speaker Change: In 'twenty, four, but but each market and each property will behave a little bit differently.
Speaker Change: And then your question about setup I.
Duane: I mean right now because group paces is so far ahead I think the set up is pretty good I mean, we expect to pick up another point and mix.
Operator: You may press star two if you would like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. We do ask that, in order to allow as many questions as possible, that you please limit yourself to one question. The first question today is from Dwayne Fenningworth of Evercore ISI. Please go ahead.
Duane: <unk> group in the portfolio because of the strength of convention and our in House group strength that we have compared to last year.
Duane: And I think as.
Duane: As we get into the year, you know what what is the unknowable and and the part that's hard to predict is what is short term group going to look like both in the month for the month in the quarter for the quarter. I mean, we have probably less group on the books than perhaps other companies I don't know.
Dwayne Fenningworth: Hey, thanks for the time. Just on, I'll repeat the question. And I know you're maybe a little bit less levered to it.
Duane: Others, we had about 60%.
Jon E. Bortz: But on the group segment, do you lean on groups differently than you did pre-pandemic given changes in underlying, seasonality, and maybe Jon just broadly, how would you characterize the setup entering 2024 from a visibility perspective? How does this forecasting environment feel versus, you know, quote-unquote normal time pre-pandemic? So... I think the question of, do we lean on groups differently this year versus last year or or even pre-pandemic. I'd say it's really driven by each individual property's situation and what's going on in those particular markets. So give San Francisco, let's look at that as an example, with a softer convention calendar this year. We're leaning on all the other segments, including in-house groups, more so than we would in a year where we have significantly greater convention activity. In a market where the convention activity is up strongly, like a market in San Diego, we may lean on groups a little bit less than we have in prior years and try to drive those transient customer rates so we can take advantage of the compression, the greater number of compression days in that market. And then your question about set up. I mean, right now, because the group pace is so far ahead, I think the setup is pretty good.
Duane: 62% of R.
Duane: Our our forecasted group on the books heading into the beginning of February.
Duane: And that's a little bit better than last year as evidenced by the pace. So.
Duane: I think the setup is good for the year.
Duane: It's hard to forecast because as we normalize these trends and how much of this group was compared to last year was it because it was put on the books further out and therefore as we saw in some months last year you know the short term pickup was softer than the year before so.
Duane: That's what makes it hard to forecast.
Speaker Change: I appreciate the thoughts thank you.
Speaker Change: Thanks Duane.
Speaker Change: Thank you. The next question is coming from Smedes Rose of Citi. Please go ahead.
Smedes Rose: Hi, Thank you.
Smedes Rose: I just wanted to ask a little bit maybe just what you're seeing on the transaction side of the market. It seems like that market, a little bit challenging, but coming out of Alex there was a lot of talk about how this year would improve significantly.
Smedes Rose: And maybe how you're thinking about potentially moving forward with additional asset sales or are you fairly happy with where the portfolio is now.
Speaker Change: Oh go ahead page maintenance Tom Fischer.
Tom Fischer: I would agree with you that I think b.
Tom Fischer: Sentiment coming out of the outlet conference was pretty positive I kind of look at it from that perspective that I think 2024 may be a transition year, where last year. There was a lot of interest of lack of lack.
Smedes Rose: That conviction this year I think it's probably transitioning to a lot of interest.
Smedes Rose: Building convention and I think part of that is given the fact that I think investors think that that the worst is behind them in terms of that.
Smedes Rose: That cost and that they can actually underwrite assets and underwrite debt cost and hopefully improving debt costs from that perspective. So I think overall I think it's become.
Jon E. Bortz: I mean, we expect to pick up another point and mix of groups in the portfolio because of the strength of convention and our in-house group strength that we have compared to last year. And I think as we get into the year, what is the unknowable and the part that's hard to predict is what the short-term group is going to look like both in the month, for the month, in the quarter, for the quarter. I mean, we probably have a smaller group on the books than perhaps other companies. I don't know others like them.
Smedes Rose: The market is getting better, but it's getting better from a financing front for cash flowing yield assets with strong sponsorship and so I think you'll continue to see a gravitation towards some smaller deals which was kind of predominant in 2023 and also those deals that.
Smedes Rose: Or are those assets that are in markets that have recovered as opposed to those markets that are.
Smedes Rose: Laggard markets are still in recovery, because I think both of them lenders perspective, and investors' perspective, it's all about cash flow and debt yield today.
Jon E. Bortz: We had about 60 percent, 62 percent of our forecasted group on the books heading into the beginning of February, and that's a little bit better than last year, as evidenced by the pace. So I think the setup is good for the year. It's hard to forecast because as we normalize these trends and how much of this group was compared to last year, was it because it was put on the books further out? And therefore, as we saw in some months last year, the short-term pickup was softer than the year before. So that's what makes it hard to forecast. I appreciate the thoughts. Thank you. Thanks for joining us.
Smedes Rose: And then I think as it relates to our portfolio I think we're happy with what we've done but we continue to look at and we would engage in opportunities. If it makes sense for us for additional dispositions and I think that the interest in dispositions.
Smedes Rose: It's really strictly related to them.
Smedes Rose: Being able to generate proceeds that allow us to buy our stock back at such a large discount so to the extent that the.
Smedes Rose: The public private arbitrage opportunity goes away.
Smedes Rose: I think our interest in selling assets.
Smedes Rose: Generally goes away.
Speaker Change: Okay. Thank you very much.
Smedes Rose: Thank you. The next question is coming from Smedes Rose of Citi. Please go ahead.
Speaker Change: Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead.
Tom Fisher: Hi, thank you. I just wanted to ask a little bit, maybe just what you're seeing on the transaction side of the market. It seems like that market's been a little bit challenging, but coming out of Alice, there was a lot of talk about how this year would improve significantly. Maybe you're thinking about potentially moving forward with additional asset sales, or are you fairly happy with where the portfolio is now? Hey Smedes, it's Tom Fisher.
Michael Bellisario: Good morning, everyone.
Michael Bellisario: Morning.
Michael Bellisario: John just first quick question on Capex and returns are you seeing any change in sort of the ramp up of performance post renovation post repositioning and then for the projects that have been completed already is there any updated view on timing of the timeline of when you think those projects will reach stabilized returns.
Tom Fisher: I would agree with you that I think the sentiment coming out of the ALICE conference was pretty positive. I kind of look at it from the perspective that I think 2024 may be a transition year, where last year there was a lot of interest but a lack of conviction. This year I think it's probably transitioning to a lot of interest. Building Conviction, and I think part of that is given the fact that I think investors think that the worst is behind them in terms of debt costs and that they can actually underwrite assets and underwrite debt costs, hopefully improving debt costs from that perspective. So I think overall, I think it's become.
Michael Bellisario: Or.
Michael Bellisario: So well.
Michael Bellisario: Well the biggest thing.
Michael Bellisario: In fact, two to the ramp up was in the pandemic.
Michael Bellisario: Not not surprisingly for projects that were completed right before the pandemic hit there were some completed during.
Michael Bellisario: Quite a number of completed during the pandemic.
Michael Bellisario: And a few that have now been completed sort of if we're in the post pandemic period.
Michael Bellisario: In this post pandemic period in general, it's probably anywhere from three to five years to ramp to full stabilization and it really depends upon what what are the structural changes.
Michael Bellisario:
Michael Bellisario: <unk> positioned flagged properties. So we're we're not so take the Hilton Gaslamp as a good example.
Tom Fisher: The market's getting better, but it's getting better from a financing front for cash flow and yield assets with strong sponsors. And so I think you'll continue to see a gravitation toward some smaller deals, which was kind of predominant in 2023. And also those deals that are those assets that are in markets that have recovered, as opposed to those markets that are laggard markets still in recovery, because I think both from a lenders' perspective and an investors' perspective, it's all about cash flow and debt yield. And then, as it relates to our portfolio, I think we're happy with what we've done, but we continue to look at, and we would engage in opportunities if it makes sense And I think that the interest in dispositions is really strictly related to being able to generate proceeds that allow us to buy our stock back at such a large discount. So to the extent that the public-private arbitrage opportunity goes away, I think our interest in selling assets generally goes away. Thank you very much.
Michael Bellisario: It's you know one of the best locations, if not the best location in downtown San Diego all around.
Michael Bellisario: It it hadn't had capital that was in the it was in the Lasalle portfolio and hadn't had capital invested for.
Michael Bellisario: Almost 15 years, and and we did an exhaustive repositioning of that property.
Michael Bellisario: And it has some unique aspects, including you know.
Michael Bellisario: I don't know, it's 30, some 20, some sweets and loss in.
Michael Bellisario: In a separate building from the main building that will ramp much quicker.
Michael Bellisario: And we're already seeing that here in the first quarter, even that'll ramp much quicker than <unk>.
Michael Bellisario: Where we are we take a property like.
Michael Bellisario: Jekyll Island, and we've repositioned it higher.
Michael Bellisario: It's an independent property and it'll just take longer but ultimately.
Michael Bellisario: The repositioning should should end up at significantly higher stabilized returns.
Michael Bellisario: Because of the fact that it doesn't have an ADR sort of implied cap by its customer base like a branded property would so they tend to take longer on the independents side in general and Ah and and they're much quicker on the branded side. The other thing that impacted obviously.
Michael Bellisario: Thank you. The next question is coming from Michael Bellisario of Baird. Please go ahead. Good morning, everyone.
Jon E. Bortz: Morning Jon, just a quick question on CapEx and returns. Are you seeing any change in sort of the ramp-up of performance, post renovation, post repositioning, and then for the projects that have been completed already? Is there any updated view on timing or the timeline of when you think those projects will reach stabilized returns? Or, so.
Michael Bellisario: <unk> is.
Michael Bellisario: The strength of the market, it's it's a lot easier to gain share in San Diego with the solar <unk> conversion to Margaritaville in a market that is strong where demand is increasing and everybody's not fighting over a sort of stable demand level in a market. So in a market like.
Michael Bellisario: That we would expect that to ramp more quickly.
Michael Bellisario: In the market.
Jon E. Bortz: Well, the biggest impact to the ramp-up was the pandemic, not surprisingly. For projects that were completed right before the pandemic hit, there were some completed during, quite a number completed during the pandemic, and a few that have now been completed, sort of, if we're in the post-pandemic period, in this post-pandemic period. In general, it's probably anywhere from three to five years to ramp to full stabilization, and it really depends upon what the structural changes are, um, repositioned flagged properties. So where we're not, so take the Hilton Gas Lamp as a good example. It's, you know, one of the best locations, if not the best location in downtown San Diego all around.
Michael Bellisario: So in general that's the that's what I would tell you I don't I, obviously, some things that were done years.
Michael Bellisario: One or two years before the pandemic they may not get to our share gains and those double digit returns, but they should get to you know mid single digit if not higher on a cash on cash basis. So.
Michael Bellisario: The newer deals with demand already ramping up should should see higher returns.
Speaker Change: Got it. Thank you and then just one quick housekeeping item just on the real estate taxes, I think you mentioned $12 million of real estate credits last year as a one time item, but then when you were talking about margins you mentioned $9 million of impact can you square those two for us. Thanks.
Jon E. Bortz: It hadn't had capital that was in the LaSalle portfolio and hadn't had capital invested for almost 15 years, and we did an exhaustive repositioning of that property. And it has some unique aspects, including, you know, I don't know, 30-some, 20-some suites and lofts in a separate building from the main building. That will ramp up much quicker, and we're already seeing that here in the first quarter even. That will ramp much quicker than where we take a property like, you know, Jekyll Island, and we reposition it higher; it's an independent property, and it'll just take longer, but ultimately, the repositioning should end up at significantly higher stabilized returns because of the fact that it doesn't have an ADR sort of implied cap by its customer base like a branded property would.
Speaker Change: Yeah, There was G L and Theres G O and the $12 million.
Speaker Change: That was mentioned in the script, but you might have just missed it.
Speaker Change: Combining the two but really focus on are the.
Michael Bellisario: The real estate tax credits of $9 million and that we would suggest pulling that out to try and get the run rate in your models because that's more of a run rate because the credits tend to be lumpy and it could represent multiple years. So by taking that out which is what we discussed on the call that that reduces our.
Michael Bellisario: Run rate of operating expenses by about 100 basis points lower than what was provided in the 2020 for outlook.
Speaker Change: And Mike I think to our to the to the other comments we made.
Speaker Change: We feel pretty positive about significant future.
Michael Bellisario: Assessment reductions and true ups.
Michael Bellisario: Primarily on the in the West Coast markets, maybe to a lesser extent on the east coast.
Michael Bellisario: And in a market like D C. But it just takes time and part of the reason sometimes the credits.
Jon E. Bortz: So they tend to take longer on the independent side in general, and they're much quicker on the branded side. The other thing that impacts it, obviously, is the strength of the market. It's a lot easier to gain share in San Diego with Solimar's conversion to Margaritaville in a market that's strong, where demand is increasing, and everybody's not fighting over a sort of stable demand level in a market. So in a market like that, we would expect that to ramp up more quickly in the market. So in general, that's what I would tell you. Obviously, some things that were done one or two years before the pandemic may not get to our share gains and those double-digit returns, but they should get to mid-single-digit if not higher on a cash-on-cash basis. The newer deals, with demand already ramping up, should see higher returns. I got it.
Michael Bellisario: Tend to be large is it's a multi year true up of an assessment that we over accrued and overpaid.
Michael Bellisario: Until we achieve the success in the assessment and clearly we know values went down dramatically in a number of the markets on the west coast.
Michael Bellisario: And it's just it's a lengthy process designed.
Michael Bellisario: To stack the deck in the and the government's favour so being persistent ultimately pays off.
Speaker Change: Understood. Thank you.
Michael Bellisario: Thank you. The next question is coming from Bill Crow of Raymond James. Please go ahead.
Bill Crow: Hey, good morning, all.
Bill Crow: Two quick questions for me.
Bill Crow: John you talked about your expectation that the inbound outbound travel.
Bill Crow: International travel deficit will narrow and I'm curious whether that applies to inbound travel from Asia, as well, which seems like it will be much more impactful to the west coast markets.
Raymond D. Martz: Thank you. And just one quick housekeeping item on the real estate taxes. I think you mentioned $12 million in real estate credits last year as a one-time item, but then when you were talking about margins, you mentioned $9 million in impact. Can you square those two for us?
John: Yeah, Bill I actually we do think it does and if you. If you look at the data I think what it shows is.
Speaker Change: You have a significant increase in Asia inbound it's coming from.
Raymond D. Martz: Thanks. Yeah, there was GL, and there was GL in the $12 million that was mentioned in the script, but you might have just missed it. Yeah, it was combined of the two, but I didn't really focus on it or the real estate tax credits of $9 million, and we would suggest pulling that out to try to get the run rate in your models, because that's more of a run rate because the credits tend to be lumpy and could represent multiple years. So by taking that out, which is what we discussed in the call, that reduces our run rate of operating expenses by about 100 basis points lower than what was provided in the 2024 outlook. And Mike, in addition to the other comments we made, we feel pretty positive about significant future assessment reductions and true ups, primarily in the West Coast markets, maybe to a lesser extent on the East Coast, in a market like DC. But it just takes time, and part of the reason sometimes the credits... tend to be large is it's a multi-year true-up of an assessment that we over-accrued and overpaid until we achieve success in the assessment.
Speaker Change: Korea, it's coming from.
Speaker Change: India.
Speaker Change: And it's coming from Japan, and and those are those are all three markets, where later to begin their recovery as compared to the markets in Europe.
Bill Crow: And a market like India. Many are forecasting will ultimately replace.
Bill Crow: China from a size perspective, given the growth and in the economic base and the popular the large population in India, and obviously the better relationship.
Bill Crow: The U S has with with the with India versus.
Bill Crow: With China, we have seen significant increase in China, It's just off a very low base right now so while it used to be you know clearly in the top five.
Bill Crow: It's not there right now, but the other markets seem to be.
Bill Crow: Picking up much of the slack, but not all of the slack.
Speaker Change: No. That's helpful. Just given all the changes to your portfolio or I know the order of importance or contribution to EBITDA.
Bill Crow: And clearly, we know values went down dramatically in a number of the markets on the West Coast, and it's just a lengthy process designed to stack the deck in the government's favor. So being persistent ultimately pays off. Thank you. Thank you. The next question is coming from Bill Crow of Raymond James. Please go ahead. Hey, good morning, all.
Speaker Change: Has changed pretty dramatically over the last couple of years key West is now I think a top five market I think it would be looked at Florida, you're four assets, there and maybe throw jekyll and Georgia into that.
Speaker Change: It seems like a lot of exposure to hurricane prone markets or are you.
Jon E. Bortz: Two quick questions for me. John, you talked about your expectation that the inbound, outbound travel, and international travel deficit will narrow. I'm curious whether that applies to inbound travel from Asia as well, which seems like it will be much more impactful to the West Coast market. Yeah, Bill, actually, we do think it does, and if you look at the data, I think what it shows is that you have a significant increase in inbound travel from Asia. It's coming from Korea.
Speaker Change: Comfortable with the exposure.
Speaker Change: You have to that region.
Speaker Change: We are comfortable.
Speaker Change: It's interesting as we as we analyze weather impacts.
Speaker Change: Impacts and weather risk.
Speaker Change: On a corporate basis through looking at you know the individual properties. What we find is there's there just are weather risks everywhere theyre just different kinds.
Jon E. Bortz: It's coming from India and it's coming from Japan. And those are all three markets. We're later to begin the recovery as compared to the markets in Europe. And a market like India, many are forecasting will ultimately replace China from a size perspective, given the growth in the economic base and the large population in India, and obviously the better relationship the U.S. has with India versus China. We have seen a significant increase in India. It's just off a very low base right now, so while it used to be clearly in the top five, it's not there right now.
Speaker Change: And some get more media attention than than others, but you know heavy rains and flooding on the east coast in the Midwest.
Speaker Change: <unk> have been pretty consistent over the last few years compared to where they used to be.
Speaker Change: Fires on the West coast, although being helped the last year and this year with the heavy rains, but heavy rains on the west coast.
Speaker Change: Is there risk from those we had a tropical storm warning in southern California, We Havent had an 85 years.
Jon E. Bortz: The other markets seem to be picking up much of the slack, but not all of the slack. That's helpful. John, given all the changes to your portfolio, I know the order of importance or contribution to EBITDA has changed pretty dramatically over the last couple of years. Key West is now, I think, a top five market. I think if you looked at Florida, your four assets there, and maybe throw Jekyll and Georgia into that, it seems like a lot of exposure to hurricane-prone markets. Are you comfortable with the exposure that you have to that region? We are. It's interesting as we analyze weather impacts and weather risks on a corporate basis through looking at, you know, individual properties. What we find is they're just our weather risks everywhere. They're just different kinds.
Speaker Change: We have.
Speaker Change: We had an earthquake in Washington D C.
Speaker Change: There just seemed to be.
Speaker Change: Whether risk everywhere.
Speaker Change: And so we're comfortable with what we have in Florida.
Speaker Change: We think we bought the right properties in Florida, I think the rebuilding of La Playa will help.
Speaker Change: Mitigate any future damage based upon the way it's been rebuilt in the effort to.
Speaker Change: Mitigate.
Speaker Change: Through strengthening.
Speaker Change: The real estate, but.
Speaker Change: I'd say today, yes, where we're comfortable with with where we stand in Florida.
Jon E. Bortz: And some get more media attention than others, but, you know, heavy rains and flooding on the East Coast and in the Midwest have been pretty consistent over the last few years compared to where they used to be. Fires on the West Coast, although being helped last year and this year with the heavy rains, but heavy rains on the West Coast, there's risk from those. We had a tropical storm warning in Southern California that we haven't had in 85 years.
Speaker Change: Okay.
Speaker Change: I'll yield the floor. Thanks.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is coming from Dori Kesten of Wells Fargo. Please go ahead.
Dori Kesten: Thank you wind down your ROI projects mid year, what's a good run rate for Capex and how long would you expect to be able to maintain at those lower levels.
Dori Kesten: Well, we we've we've significantly redeveloped and and comprehensive comprehensively renovated you know the vast majority of the portfolio.
Jon E. Bortz: We have had an earthquake in Washington, D.C. There just seem to be weather risks everywhere. And so we're comfortable with what we have in Florida. We think we bought the right properties in Florida. I think the rebuilding of La Playa will help mitigate any future damage based on the way it's been rebuilt and the effort to mitigate through strengthening the real estate. But I'd say today, yes, we're comfortable with where we stand in Florida. I'll yield the floor to you, thanks.
Dori Kesten: We think the run rates likely in the $50 million to $60 million range on an annual basis.
Dori Kesten: Our non major project capital in our 2024 plan.
Dori Kesten: <unk> is about $40 million.
Dori Kesten: And and so that's a little lower given.
Dori Kesten: The number of projects that have been redone more recently.
Dori Kesten: We also have been deferring some smaller ROI projects to retain.
Dory Keston: Thank you. The next question is coming from Dory Keston of Wells Fargo. Please go ahead.
Dori Kesten: Capital in order to use some of that capital.
Dori Kesten: Back our stock at such a big discount because the returns are higher. So we do think those will ramp up a little bit over time from where this year's other capital is being invested in and what the total number is but yeah for the next few years outside of whenever we decide to we're able to proceed.
Jon E. Bortz: If you wind down your ROI projects mid-year, what's a good run rate for CapEx, and how long would you expect to be able to maintain it at those lower levels? Well, we've significantly redeveloped and comprehensively renovated, you know, the vast majority of the portfolio. We think the run rate's likely to be in the $50-$60 million range on an annual basis. Our non-major project capital in our 2024 plan is about $40 million, and so that's a little lower given the number of projects that have been redone more recently. We also have been delaying some smaller ROI projects to retain capital in order to use some of that capital to buy back our stock at such a big discount because the returns are higher. So we do think those will ramp up a little bit over time from where this year's other capital is being invested and what the total number is.
Dori Kesten: With the conversion of Paradise point, a Margarita Bill we think the capital is is gonna be should be in that 50 $60 million range.
Dori Kesten: Okay and you have you have you said what your expectation is for the EBITDA trajectory of vault.
Dori Kesten: Over the next several years.
Speaker Change: We haven't we.
Dori Kesten: As it relates to this year.
Dori Kesten: And that's hard enough to forecast.
Dori Kesten: A re ramp from again from being from being closed.
Dori Kesten: We're looking at about $22 million of EBITDA give or take as our outlook for this.
Jon E. Bortz: But yeah, for the next few years, outside of whenever we decide to – we're able to proceed with the conversion of Paradise Point to Margaritaville, we think the capital is going to be – should be in that $50, $60 million range. Okay, and have you said what your expectation is for the EBITDA trajectory that will apply over the next several years? We haven't.
Dori Kesten: This year that would be in excess of where we were in 19, but well behind the 30, what was it 35 million we were headed for.
Dori Kesten: And in 2022 before the hurricane hit at the end of September.
Dori Kesten: Okay.
Dori Kesten: Okay.
Dori Kesten: And I guess by you have an expectation of when you should get.
Dori Kesten: Get back to that 35 four.
Dori Kesten: We are well that'll depend a lot on the market depends on how other properties.
Dori Kesten: Price and perform in that market.
Dori Kesten: And but the good news, we think it's you know whether it gets back there in general resorts are our resorts are not at the 22 levels they've come off a little bit from there we would expect Naples to to apply to probably do the same thing if it were running stabilized.
Jon E. Bortz: As it relates to this year, and that's hard enough to forecast, you know, a re-ramp from, again, being closed. We're looking at about $22 million of EBITDA, give or take, as our outlook for this year. That would be in excess of where we were in 2019, but well behind the $35 million we were headed for in 2022 before the hurricane hit at the end of September. And I guess by then, you have an expectation of when you should get back to that 35, or not?
Dori Kesten: Today, but maybe in the next two years.
Dori Kesten: There's there's a.
Dori Kesten: Certainly a possibility we can get back to the same level or nearby.
Jon E. Bortz: We, well, that'll depend a lot on the market, depends on how other properties price and perform in that market. And, but the good news, we think it's, you know, whether it gets back there. In general, resorts are, our resorts are not at the 22 levels, they've come off a little bit. From there, we would expect Naples to apply to probably do the same thing if it were running. Stabilized today, but maybe in the next two years, there's certainly a possibility we can get back to the same level or nearby. Yeah, Dory. When you look back to Irma when that hit South Florida, Naples came back as a market quicker than Key West did, as just an indication, which is the different demand drivers and customer base in So that's another way to do it.
Speaker Change: Yeah, when you look back to <unk>.
Speaker Change: When that hits, a south Florida, Naples came back as a market quicker than key West did is just an indication which has a different demand drivers and customer base in Naples versus key west. So that's another way you know a lot more annual returnees because of the base population there.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. The next question is coming from Jay Kornreich of Wedbush Securities. Please go ahead.
Jay Kornreich: Hi, good morning.
Jay Kornreich: In the fourth quarter, you generally saw a rebound in the urban markets and I believe you commented on the occupancy gap to 2019 closing a 15%. So I'm just curious if this rebound is coming more from is this transient customers our group customers.
Jon E. Bortz: A lot more annual returnees because of the base population. Okay, thank you. Thank you. The next question is coming from Jay Kornreich of Woodbush Securities. Please go ahead. Hi, good morning.
Jay Kornreich: How much growth you're proceeding your urban markets in 24 versus 2023.
Jay Kornreich: Yeah.
Jay Kornreich: So actually the rebounds coming from from.
Jay Kornreich: Three segments, it's coming from B T corporations are getting back to the office.
Jay Kornreich: In the fourth quarter, you generally saw a rebound in the urban market. I believe you commented on the occupancy gap to 2019, so I'm just curious if this rebound is coming from Transient Customers or Group Customers, on how much growth you foresee in your urban markets in 24 versus. Yeah, so actually the rebounds are coming from three segments. It's coming from BT.
Jay Kornreich: Youre seeing obviously significant growth in activity around AI, which is headquartered in San Francisco.
Jay Kornreich: The group side.
Jay Kornreich: Is recovering as well, we're going to have a down year on a convention basis in 'twenty four from prior year cancellations when things were maybe viewed.
Jon E. Bortz: Corporations are getting back to the office. You're seeing obviously significant growth and activity around AI, which is headquartered in San Francisco. The group side is recovering as well. We're gonna have a down year on a convention basis in 24 from prior year cancellations when things were maybe viewed a little more challenging from a quality of life perspective, but that's improved dramatically. I'd say at or better than pre-pandemic levels in terms of quality of life and continuing advances in the politics there.
Jay Kornreich: A little more challenging.
Jay Kornreich: From a quality of life perspective, but that's improved dramatically I'd say at or better than pre pandemic levels in terms of quality of life and continuing advances in the politics there.
Jon E. Bortz: So group has been improving, including in-house group. And leisure is coming back to the market, both from a domestic perspective and from an international inbound perspective. And I'd say the market segment probably furthest behind continues to be that international inbound, because a lot of it came from China, in particular, given the population base in San Francisco and the attractiveness of that city from an Asian perspective. It's really all the segments.
Jay Kornreich: So group has been improving including in House group and leisure is coming back to the market both from a domestic perspective and from an international inbound perspective.
Jay Kornreich: And I'd say the the market segment, probably furthest behind continues to be that international inbound because a lot of it came from.
Jay Kornreich: China in particular.
Jay Kornreich: Given the population base in San Francisco.
Jay Kornreich: And the attractiveness of that city from from an Asia perspective so.
Jay Kornreich: It's really all the segments, we do expect to continue it to continue in 2024 in all segments, except for the drop in convention and we think these other segments should do well to offset that drop in convention and hopefully we continue to have an up year on a revpar basis in San Francisco.
Jon E. Bortz: We do expect it to continue in 2024 in all segments except for the drop in conventions, and we think these other segments should do well to offset that drop in conventions. And hopefully, we will continue to have an up year on a REVPAR basis in San Francisco.
Jon E. Bortz: But we do think Urban will lead the pack on a REVPAR basis, our portfolio again in 2024. And Jay, as it relates to San Francisco, I know there's a lot of talk about the convention calendar in 24 versus 23, which is down, but that's primarily in the fourth quarter.
Jay Kornreich: But we do think urban will lead the pack on a revpar basis, our portfolio again.
Jay Kornreich: In 2024.
Jay Kornreich: As it relates to San Francisco, when I know, there's a lot of talk about the convention calendar in 24 versus 23, which is down and that's primarily in the fourth quarter actually the first half of 'twenty four is up year over year.
Tom Fisher: Actually, the first half of 24 is up year over year. But what is also up is not really captured in the numbers are all the self-contained groups, which are groups like JP Morgan that happened in January. That's a self-contained group. It's not a convention number.
Jay Kornreich: But what it is all too often it's not really capture the numbers are all the self contained groups.
Jay Kornreich: Those are groups like J P. Morgan that happened in January that's been self contained group, it's not a convention numbers. So that's up year over year. So that that part actually is as I'm coming back as the other between group is coming back to the city. So when you look at that you'd look at those two components not just the convention demand and you probably hear that from folks like hosts.
Tom Fisher: So that's up year over year. So that part actually is coming back as the other BT group is coming back to the city. So when you look at that, you should look at those two components, not just the convention demand. And you probably hear that from folks like Host who own the big Marriott marquee in town. Yeah, absolutely. Okay, I'll hold it there. Thank you very much for that.
Jay Kornreich: Two who own the big Marriott Marquis in town.
Speaker Change: Yeah, absolutely okay.
Speaker Change: I'll hold it there. Thank you very much for that time.
Jay Kornreich: Thanks.
Jay Kornreich: Thank you. The next question is coming from Danny Assad of Bank of America. Please go ahead.
Danny Assad: Hi, good morning, everybody.
Danny Assad: Hi, John and Ray can you just.
Danny Assad: If we were looking specifically to the Boston market.
Danny Asad: Thank you. The next question is coming from Danny Asad of Bank of America. Please go ahead. Hi, good morning, everybody.
Danny Assad: I called that out in your prepared remarks, but can you help us break down those 10 points of occupancy gap relative to 2019 in Boston what is it that had yet to recover maybe break it down for us by day of week and then you know what will drive the incremental you know occupancy points in Boston from here I'm, just kind of wondering if youre seeing that flatten out.
Raymond D. Martz: Jon or Ray, can you just, if we're looking specifically at the Boston market, you kind of called that out in your prepared remarks, but can you help us break down those 10 points of occupancy gap relative to 2019 in Boston? What is it that they get to recover? Maybe break it down for us by, you know, day of the week and then, you know, what will drive the incremental occupancy points in Boston from here? I'm just kind of wondering if you're seeing that flatten out or kind of how that trends. Sure. I mean, I can give you some general comments. We can follow up with some detail as to the specific segmentation with Boston, but we don't happen to have it handy right now.
Danny Assad: Or kind of how that trend has been going.
Speaker Change: Sure I mean, I can give you some general comments, we can follow up with some detail as to this as to the specific segmentation with Boston, we don't happen to have it handy right here, but in general I'd say, it's in it's in two segments primarily.
Speaker Change: It's in our BT <unk>.
Speaker Change: Particularly on the large corporate side include.
Speaker Change: Including consulting and financial.
Speaker Change: Probably down the most in that market those are continuing to recover.
Speaker Change: You hear probably similar comments about that from the major brands not only for Boston, but across the country, but it is a big component in that market.
Raymond D. Martz: But in general, I'd say it's in two segments primarily. It's in BT, particularly on the large corporate side, including consulting and financial services, which are probably down the most in that market. Those are continuing to recover. You probably hear similar comments about that from the major brands, not only in Boston but across the country. But it's a big component in that market, so that's what's down, along with some other groups. The convention, the major convention, is actually running similar to some of its strongest years in the past. Where it is down is at the Heinz Convention Center, and that's because, if you recall, there was this hubbub about the prior governor wanting to shut down Heinz and sell it for other uses, and that sort of potential conversion idea has now passed.
Speaker Change: That's that's what's down along with some group.
Speaker Change: The convention the major convention is actually running.
Speaker Change: Similar to some of its strongest years in the past.
Speaker Change: Where convention is down.
Speaker Change: Is at the Hynes Convention center and that's because if you recall there was this hubbub about the prior governor wanting to shutdown Heinz and sell it.
Speaker Change: For other uses and that that sort of.
Speaker Change: Potential conversion idea has now passed.
Speaker Change: The the Hynes Convention center is actively.
Speaker Change: Pursuing new business.
Speaker Change: And.
Speaker Change: <unk>, which will help drive, particularly the back bay to even higher levels, particularly in our portfolio with the.
Speaker Change: The western which is attached the convention center.
Raymond D. Martz: The Heinz Convention Center is actively pursuing new business, which will help drive the back bay to even higher levels, particularly in our portfolio, the Westin, which is attached to the Convention Center, as well as the Revere and the W, which are nearby. So, they're also planning to do needed renovations over the next few years as they rebuild the group base there. So our in-house group at Weston, as an example, is still down a little bit from where we were in 19, and we have that to gain back. And I think that's indicative, based upon Marriott's position in the market, it's indicative of other property opportunities as well. So it's really those two segments. I think Leisure's been pretty strong. There's probably still some inbound international to go, but it's not a large component. Thank you. The next question is coming from Gregory Miller of Truist Securities. Please go ahead.
Speaker Change: As well as the Revere and the W which are nearby.
Speaker Change: So and and they are also planning to do.
Speaker Change: Needed renovations.
Speaker Change: Over the next few years as they rebuild the that group base there so.
Speaker Change: Our in House group at Weston as an example, still down a little bit from where we were in 19.
Speaker Change: And we have that to gain back and I think thats indicative based upon marriott's position in the market.
Speaker Change: It's indicative of other property opportunities as well so it's really those two segments I think leisure.
Speaker Change: Been pretty strong theres, probably still some inbound international to go but it's not a large component.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you. The next question is coming from Gregory Miller of <unk> Securities. Please go ahead.
Gregory J. Miller: Thank you very much. I'm hoping you can provide some context on the NAV revision; how are you releasing the February relative to November given the estimated value decline? Yeah, so Greg, we look at the gross enterprise value change; it went down about $200 million from our last update, and about half of that, $100 million, is from property sales. That's the sale of Zobey in San Francisco and some retail space in Chicago. And then the other half, the $100 million, that's reflective of the asset-by-asset value estimates that we do internally here based upon what we're seeing in the market. Tom's very close to the transactions and other parts in each market to understand where that is, taking into consideration the debt markets and so forth.
Gregory J. Miller: Thank you very much I'm, hoping that you could provide some context on the any revisions.
Speaker Change: Hmm.
Gregory J. Miller: For February relative to November given estimated value declines for most of your markets. Thanks.
Gregory J. Miller: Yeah, So Greg as we look at the gross enterprise value change it went down about $200 million for.
Greg: From our last update in about half of that $100 million.
Gregory J. Miller: From property sales.
Gregory J. Miller: Adobe in San Francisco in a retail some retail space in Chicago and then the other half of $100 million, that's reflective of the asset by asset value of estimates that we do internally here.
Gregory J. Miller: Based upon what we're seeing in the market you know times are very close to the transactions.
Gregory J. Miller: Other PARP in each market to understand where that is taken to consideration the debt markets and so forth. So that's how we adjusted the $200 million decline. So again half of it was from asset sales half of it was the change in value and then the balance of it is just a really a.
Raymond D. Martz: So that's how we adjusted for the $200 million decline. So again, half of it was from asset sales, and half of it was the change in value. And then the balance of it is just a reflection of the debt paydowns and then the buying of the preferred at a big discount, changing that for the NAV. So overall, the NAV change moved a dollar, but a big portion of that was really just the timing there and some of the adjustments there with the values.
Gregory J. Miller: And a reflection of the debt Paydowns and then.
Gregory J. Miller: Buying the preferred at a big discount changing that for the NAV. So overall, the nev change move to dollar.
Gregory J. Miller: But a big portion of that was really.
Gregory J. Miller: Just the timing there and some of them.
Gregory J. Miller: Adjustments, there, where the values and Greg I think when you when you look at where the values were down it was primarily markets that were slower to recover.
Jon E. Bortz: And Greg, I think when you look at where the values were down, it was primarily the markets that were slower to recover, where the debt markets were having a bigger impact on values because those markets lack strong yield, and many of the buyers are primarily all equity buyers. So I think as the yields, as the operations continue to recover, and yields continue to grow, not only will the values go up because of that, but they'll go up because of the sort of lack of yield penalty being imposed on values by the debt side. And that'll help transactions in general. I appreciate it. Thank you both.
Gregory J. Miller: Where the debt markets are.
Gregory J. Miller: Our having a bigger impact on on values because those markets lacked.
Gregory J. Miller: Those markets lack strong yield and many of the buyers are primarily all equity buyers. So.
Gregory J. Miller: I think as that as the yields as the operations continued to recover.
Gregory J. Miller: And yields continue to grow not only will the values go up because of that but they'll go up because of sort of the.
Gregory J. Miller: The the lack of yield penalty.
Gregory J. Miller: Being imposed on values by the debt side.
Gregory J. Miller: And that will help transactions in general.
Speaker Change: Okay I appreciate it thank you both.
Flores Van Dykem: Thank you. The next question is coming from Flores Van Dykem of Compass Point. Please go ahead.
Speaker Change: Thank you. The next question is coming from Floris, but they come of Compass point. Please go ahead.
Raymond D. Martz: Hey, thanks. Thanks for taking my question, guys. You guys still have this, you know, giant gap in profitability, particularly in your urban markets. I calculate something like $96 million shortfall relative to 2019 levels. Maybe Ray, I mean. I know you've invested in your portfolio, and you're going to get some return on that capital. Is there a risk in this cycle that your urban markets will never fully get back to 2019? Or how do you see that playing out over the next two to three years? Well, there are a couple of factors.
Hey, Thanks, Thanks for taking my question guys.
Floris: You guys still have days.
Floris: Joining gap in profitability, particularly in your urban markets.
Floris: Calculate something like 96 million shortfall relative to 2019 levels.
Floris: Hi.
Floris: Maybe ray I mean.
I know you've invested in your portfolio, you're going to get some return on that capital budget.
Speaker Change: Is there a risk this cycle that your urban markets never fully get back to 2019 or how do you see that playing out over the next two to three years.
Ray: Well well.
Ray: A couple of factors one is as we indicated before well continue to track how and monitor how the changes in business transient business group both are going in a good direction.
Raymond D. Martz: One is, as we indicated before, we'll continue to track how and monitor how the changes in business trends and business groups are both going in a good direction. So that's on both sides, and that's about the growth of REPPAR this year. So that's positive there.
Ray: So that's on both sides and that's about the growth of Revpar This year.
Ray: So that's a positive there and so that's one two is you know the international inbound component isn't impact you look at that side, we still have $10 million less international inbound travelers than what we had pre COVID-19 and then international inbound travelers tend to go to a lot of the coastal markets of gateway markets, which are the markets, we own and so unfortunate.
Raymond D. Martz: The two are, you know, the international inbound component is an impact. You look at that side, we still have, you know, 10 million fewer international inbound travelers than we had pre-COVID. And the international inbound travelers tend to go to a lot of coastal markets, the gateway markets, which are the markets we own in. So unfortunately, we did a lot of markets that we are in, the urban markets we're in, we're in these markets that, you know, did go down the most following the pandemic, but they do have most of the biggest growth levels coming back now. So it'll go on in different periods.
Ray: We did a lot of markets that we are the urban markets. We're in we're in those markets that did go down the most following the pandemic, but it does have most of the the biggest growth level is coming back now so it'll it'll go in different periods are markets like Boston have rebounded quicker.
Ray: Variety just because the nature of the industries in Boston There've been benefiting from the trends of Europe European travel there more than the West coast urban markets are getting penalized because they rely more on Europe as an example.
Ray: But also you have allowed to the industries and in Boston or more coming back to the office, there's more travel industries, they're doing there and we don't on the tech side little bit slower on the west coast. So yeah. So overall, we are confident over the next several years in some markets will get back to pre COVID-19 levels sooner than others like Boston and San Diego some that will take.
Raymond D. Martz: You know, markets like Boston have rebounded quicker, variety, just because the nature of the industries, you know, in Boston, they're benefiting from the trans-European travel there more than the West Coast urban markets are getting penalized because they rely more on Europe, as an example. But also, you have a lot of industries in Boston are more coming back to the office; there's more travel industries they're doing there. And we know the tech side's a little bit slower on the West Coast. So, overall, we are confident over the next several years that some markets will get back to pre-COVID-19 levels sooner than others, like Boston and San Diego. Some will take longer.
Ray: Longer but overall, we've seen how travel does.
Ray: Follow GDP over the long term.
Ray: We're just right now in a period now from the pandemic, there's a lot of distortions in the market.
Ray: But as these normalize but with all these demand factors, we think it does get does get better.
Speaker Change: But maybe if I can.
Speaker Change: That's largely what the one.
Speaker Change: The one thing I'd add is you know are there are there markets like San Francisco and Portland do.
Speaker Change: Do we think the bottom lines are going to get back to where we were in 19 and in the next two or three years probably not.
Tom Fisher: But overall, we've seen how travel does follow GDP over the long term. We're just right now in a period now from the pandemic, and there are a lot of distortions in the market. But as these normalize with all these demand factors, we think it does get better. Maybe if I can... Lars, the one thing I'd add is, you know, are there markets like San Francisco and Portland where we think the bottom lines are going to get back to where we were in 2019 in the next two or three years? Probably not.
Speaker Change: That would be that would be a very unrealistic.
Speaker Change: Well, we will we dramatically narrow that $96 million EBITDA difference.
Speaker Change: Over the next two to three years, Yeah. We think we will from a combination of those kinds of markets recovering with significant operating leverage in them, obviously and the stronger markets like Boston and San Diego as an example, exceeding 19 levels.
Speaker Change: With with strong operating leverage as well so.
Speaker Change: And all of them with occupancy opportunities obviously to regain.
Tom Fisher: I think that would be very unrealistic. Will we dramatically narrow that $96 million EBITDA difference over the next two to three years? Yeah, we think we will see a combination of those kinds of markets recovering with significant operating leverage in them, obviously, and the stronger markets like Boston and San Diego, as an example, exceeding 19 levels with strong operating leverage as well. So, and all of them with occupancy opportunities, obviously, to recover. Thanks, Tom.
Okay. Thanks, Don.
Don: That leads me to maybe the the connected question here in terms of occupancy upside I think you mentioned on your prepared remarks that you have about it.
Don: <unk> percent GAAP and your urban markets I think it's 13% of your overall portfolio, where do you you clearly express some some you know some positive sentiment towards Boston and San Diego in particular.
Tom Fisher: Actually, that leads me to maybe the connected question here in terms of occupancy upside. I think you mentioned in your prepared remarks that you have about a 15% gap in your urban markets; I think it's 13% in your overall portfolio. Where do you clearly express some, you know, some positive sentiment towards Boston and San Diego in particular?
Don: Do you think that's a to get back to you know 19.
Don: 19 levels, you don't necessarily need to get older occupancy back because of the ADR growth, but you think youre going to get back in terms of occupancy.
Don: In Boston in markets like San Diego as well back to the 2019 levels.
Don: Over the next year or two.
Speaker Change: I think I don't know if we'll get there in the next year or two but I think we'll narrow that difference pretty substantially and those kinds of markets and in fact, we may not want to get there and we may want to press more on the right button.
Tom Fisher: Do you think that to get back to, you know, 19 levels, you don't necessarily need to get all of that occupancy back because of the ADR growth, but do you think you're going to get back, in terms of occupancy, in Boston and markets like San Diego as well, to 2019 levels over the next year or two? I think, I don't know if we'll get there in the next year or two, but I think we'll narrow that difference pretty substantially in those kinds of markets. And in fact, we may not want to get there; we may want to press more on the rate button in those markets and change the mix within the house. You know, running 88% in a market like Boston is doable, but we'd rather run 85, frankly, and sometimes you have to take occupancy. You can't get it in rate, but yes, I think we'll narrow them dramatically, but do we think we're going to get there? I mean, tell me what the economic world's going to be like over the next two or three years.
Speaker Change: In in those markets and change the mix within the house.
Speaker Change: And you know running 88%.
Speaker Change: In a market like Boston.
It's doable, but we'd rather run 85 frankly.
Speaker Change: And and you know sometimes you have to take the occupancy you can't get it in rate but.
Speaker Change: Yes, I think we'll narrow them dramatically, but do we do we think we're going to get there I mean tell me what the economic World is gonna be also over the next two or three years because.
Speaker Change: I think if we get past this hill this year.
Speaker Change: Think we're in really good condition to drive both occupancy and rate.
Speaker Change: Thanks, John that's it for me.
Speaker Change: Thank you. Our final question today is coming from Chris Sterling of Green Street. Please go ahead.
Chris Sterling: Perhaps it better be a good one year there clean up here.
Chris Sterling: Well, thanks, I'll hopefully so.
Chris Sterling: Well I I don't know.
Chris Sterling: I wanted to go back to the discussion around you any of the estimate.
Chris Sterling: Just wondering you know it's lower values in some of these urban markets are.
Tom Fisher: I think if we get past this hill this year, I think we're in really good condition to drive both occupancy and rates. Thanks, Shaun. That's it.
Chris Sterling: Are they does that make you more likely to hold some of these assets rather than to sell it depressed values, especially as you're expecting you know some fundamental upside in the near term. So just wondering how you're thinking about that.
Chris Darling: Thank you. Our final question today is coming from Chris Darling of Green Street. Please go ahead. Chris, it better be a good one.
Chris Sterling: I think I think selling in those markets wood wood.
Jon E. Bortz: You're the clean-up here. Well, thanks, and hopefully so. I want to go back to the discussion around your NAV estimate. I'm just wondering, if lower values in some of these urban markets make you more likely to hold some of these assets rather than sell them to press values, especially as you're expecting some fundamental upside in the near term?
Chris Sterling: Would likely bring our growth rate down a little bit on a marginal basis, but the investment of the proceeds from them into.
Chris Sterling: The rest of our portfolio through buying back our stock as long as that remains.
Chris Sterling: Ceding attractive.
I think it does still makes sense.
Chris Sterling: As as you know I mean, the public markets tend to.
Jon E. Bortz: So just wondering how you're thinking about that. I think selling in those markets would likely bring our growth rate down a little bit on a marginal basis, but the investment of the proceeds from them into the rest of our portfolio through buying back our stock as long as that remains exceedingly attractive, I think it does still make sense.
Chris Sterling: Not look three or four years out as it relates to the lodging rates or frankly most companies.
Chris Sterling: Values not.
Chris Sterling: It's not the popular.
Chris Sterling: Form of investing it's really growth.
Chris Sterling: And while that would impact our growth rate a little bit I don't I don't think at the margin, it's just as attractive to hold.
Jon E. Bortz: As you know, I mean, the public markets tend to not look three or four years out as it relates to lodging rates or, frankly, most companies. Value is not the popular form of investing; it's really growth. And while that would impact our growth rate a little bit, I don't think, at the margin, it's as attractive to hold as it is to sell and buy our stock. I mean, where we've been selling has generally been the slower to recover markets and the lower quality assets in those markets. So we've been improving the overall quality of the portfolio, and at the same time, we've been buying the remaining part of the portfolio back at a big discount. But I don't think it would change our view of where we've been focused. All right, that's helpful to hear. And then we have just one more for you on Skamania.
Chris Sterling: As it is to sell and buy our stock back I mean, we're we've been selling has generally been the slower to recover markets and the lower quality assets in those markets.
Chris Sterling: So we've been improving the overall quality of the portfolio at the same time, we've been buying the remaining part of the portfolio back at a big discount so I.
Chris Sterling: I don't think it would change our view of where we've been focused.
Speaker Change: Alright, that's helpful to hear and then just one more for you on Skamania I'm just hoping you can elaborate on what exactly is being done with the initial 20 million dollar investment and then as you densify that property over time with these you know alternative lodging units I'm just curious to understand if there is upside in.
Speaker Change: Terms of operational efficiencies that you can realize.
Speaker Change: Sure. So we have we have.
Jon E. Bortz: Just hoping you can elaborate on what exactly is being done with the initial $20 million investment. And then, as you densify that property over time with these, you know, alternative lodging units, I'm just curious to understand if there's an upside in terms of operational efficiency. So we have, we have. Skamania sits on 208.
Speaker Change: Skamania sits on 200 acres.
Speaker Change: We had a golf course that took up about 100 acres and we.
Speaker Change: We closed it.
Speaker Change: Several years ago, and we rebuilt a on at a nine hole part three.
Speaker Change: In a sustainable way and an 18 hole putting course.
Speaker Change: Adjacent to it.
Jon E. Bortz: We had a golf course that took up about a hundred acres. We closed it several years ago, and we rebuilt it on it a 9-hole par 3 in a sustainable way and an 18-hole putting course, uh... adjacent to it, uh... and then we freed up, I think about 70 acres of it, along with the additional land we had for future development. This $20 million investment went for a $2.5 million pavilion that we built adjacent to the 18-hole putting course for events and some for weddings.
Speaker Change: And then we freed up.
Speaker Change: Think about 70 acres of it along with the additional land we had for future development.
Speaker Change: <unk>.
Speaker Change: This this a $20 million investment went for.
Speaker Change: Two and a half million dollars.
Speaker Change: Pavilion that we build adjacent to the 18th hole, putting course for events.
Speaker Change: And some for weddings.
Speaker Change: We added three more treehouses to the six we already had so we now have nine and we're experimenting with some additional new alternative products, where we're completing five luxury glamping units.
Jon E. Bortz: We added three more treehouses to the six we already had, so we now have nine. And we're experimenting with some additional new alternative products. We're completing five luxury glamping units on a portion of the property. We're adding a three-bedroom villa, and we're adding two two-bedroom cabins. And those will have a longer length of stay, perhaps weekly, in some cases, perhaps monthly, whereas the tree houses are much more nightly, like the rest of the lodge.
Speaker Change: On on a portion of the property, we're adding a three bedroom villa and we're adding two two bedroom cabins and those will have longer length of stay perhaps weekly and in some cases, perhaps monthly, whereas the tree houses are much more nightly like the rest of the large and then an order at this point.
Speaker Change: To really do it right we've.
Speaker Change: We brought through the property or at least through a portion of the property, which would we brought through utilities road and infrastructure. So.
Jon E. Bortz: And then in order, at this point, to really do it right, we've brought in utilities, roads, and infrastructure, so gas, electricity, water, sewer, and roads for access to about a third of the excess acres. So we can build significantly a greater number of alternative lodging units. We're looking at things like a luxury RV park; we're looking at a farmhouse inn with vineyards and fruit fields. I mean, there's a bunch of different things we're looking at, but right now, we're just experimenting with, you know, what does the customer have an interest in in this market and what are they willing to pay for that? And so it's similar to what we did with the original couple of tree houses that we built. Will there be, are there operating efficiencies? Yeah, they're significant. I mean, we're not adding anything other than hourlies at this point in time as we add these additional units.
Speaker Change: Gas electricity water sewer.
Speaker Change: And Ann Rhoads for access.
Speaker Change: To about a third of the of the excess acres. So.
Speaker Change: We can build significantly greater number of alternative lodging units, we're looking at things like.
Speaker Change: Our luxury RV.
Speaker Change: Park, we're looking at farmhouse in.
Speaker Change: With vineyards and and and fruit fields I mean, there's a there's a bunch of different things, we're looking at but right. Now we're just experimenting with you know what does the customer have an interest in in this market and what are they willing.
Speaker Change: And what are they willing to pay for that and so it's similar to what we did with the original couple of trade houses that we built will there are their operating efficiencies yeah. There there's significant I mean, we're not adding.
Speaker Change: Anything other than our lease.
Speaker Change: At this point in time as we add these additional units.
Jon E. Bortz: If we add a different concept, like a farmhouse or something, you know, we may or may not use the same team at the property, but ultimately, a lot of the expansion of the units... And these units run two times or more of what the average lodge rate is, so they're significantly more profitable on a per key basis, or per-bedroom basis, as it relates to the cabins and the villas. So there's a lot of operating leverage for these additional units, but right now, it's not a huge number of units. It's really sort of a test case.
Speaker Change: If we add a different concept like a farmhouse in or something you know we may or may not use the same team at the property, but ultimately a lot of the expansion of the units and these units run two times or more of what the average large rate is.
Speaker Change: So there is significantly more profitable on a per key basis.
Or a per bedroom basis as it relates to the cabins in the Villa So theres a lot of operating leverage for these additional units, but right now it's not a huge number of units is really sort of a test sort of a test case.
Tom Fisher: And Chris, just to give you some sense of the development of that, of Skamania, and we love it because of all the additional amenities we can add, so it's more than just a lodge, there's a lot of things to do there. When we acquired that hotel, they had about $4.4 million of EBITDA. It ended at $23 and almost $13 million of EBITDA.
Speaker Change: And Chris just to give you some sense of that development of that.
Speaker Change: Skamania, we love it because all of the additional amenities, we can add so it's more than just a large is a lot of things to do there. When we acquired that hotel that had about $4 4 million of EBITDA. It ended 23.
Speaker Change: And almost $13 million of EBITDA and the Occupancies are still below where we were pre pandemic. So just to show you the by adding all these additional services do we think it's maxed out no there's plenty of growth opportunities there and with the additional units we can add between a glamping into other alternatives.
Tom Fisher: And the occupancies are still below where we were pre-pandemic, so just to show you that by adding all these additional services, do we think it's maxed out? No, there's plenty of growth opportunities there.
Chris Darling: And with additional units we can have between the glamping and other alternatives for this, we think there's a lot more growth in there. So it's been a great investment for us, and we look forward to that. All right, well, thanks. Sounds like a lot of interesting things over time there.
Speaker Change: For this we think there's a lot more growth in there so.
Speaker Change: Been a great investment for us and we look forward to that.
Speaker Change: Alright, well, thanks sounds like a lot of interesting things over time, there. So I appreciate it.
Speaker Change: Yeah. Thank you Chris.
Chris Sterling: Thank you at this time I'd like to turn the floor back over to Mr. Bortz for closing comments.
Jon E. Bortz: So appreciate, Yep. Thank you, Chris. Thank you. At this time, I'd like to turn the floor back over to Mr. Bortz for closing comments. Well thanks everybody for participating. We'll see many of you down in Florida. We hope you can join us for our Naples tour and otherwise we'll be in touch with you in April again to report first quarter results. Thank you very much. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day. I'm coming out I'm coming, I'm coming out I'm coming out I'm coming out I'm coming out I won't go out the door Got to let it show I'm coming out I won't go out the door Got to let it show There's a new me coming out And I just have to live And I wanna give I'm completely positive I think this time around I am gonna do it Like you never knew it Oh, I'll make it through The time has come for me to break out of the shell I have to shout that I am coming out I'm coming out I won't go out the door Got to let it show I'm coming out I'm coming out I won't go out the door Got to let it show I've got to show the world All that I wanna be And all my abilities There's so much more to me Somehow I'll have to make them Just understand I got it well in hand And oh, how I plan I'm straight in love There is no need to fear And I just feel so good Every time I hear I'm coming out I won't go out the door Got to let it show I'm coming out I won't go out
Bortz: Well, thanks, everybody for participating.
Bortz: We'll see you many of you down in Florida, We hope you can join us for our Naples tour.
Jon E. Bortz: Otherwise, we'll we'll be in touch with you in April again to report first quarter results.
Jon E. Bortz: Thank you very much.
Speaker Change: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the web cast at this time and enjoy the rest of your day.
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