Q3 2024 Xenia Hotels & Resorts Inc Earnings Call
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Thank you.
Lydia: Hello everyone and welcome to Xenia Hotels and Resorts third quarter 2024 earnings conference call. My name is Lydia and I'll be your operator today.
Lydia: After our prepared remarks, there will be an opportunity for you to ask some questions. If you'd like to queue up, you can do so by pressing star followed by 1 on your telephone keypad. I'll now hand you over to Aldo Martinez, Manager Finance, to begin. Please go ahead.
Aldo Martinez: Thank you, Lydia, and welcome to Zinnia Hotels and Resorts third quarter 2024 earnings call-in webcast. I'm here with Marcel Verbaas, our Chair and Chief Executive Officer, Barry Bloom, our President and Chief Operating Officer, and Atish Shah, our Executive Vice President and Chief Financial Officer.
Marcel will begin with a discussion on our performance.
Barry will follow with more details on Operating Trends and Capital Expenditure Projects.
Lydia: And Atish will conclude today's remarks with commentary on our balance sheet and outlook. We will then open the call for Q&A.
Speaker Change: Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements.
Speaker Change: Forward-looking statements in the earnings release that we issued yesterday afternoon, along with the comments on this call, are made only as of today, November 7th, 2024. We undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.
You can find the reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in our third quarter earnings release, which is available on our investor relations section of our website.
Speaker Change: The property level information we will be speaking about today is on a same property basis for all 31 hotels, unless specified otherwise.
Speaker Change: An archive of this call will be available on our website for 90 days. I will now turn it over to Marcel to get started.
Marcel: Thanks, Aldo, and good morning to everyone joining our call today.
Marcel: Before discussing our third quarter results, I would like to first acknowledge the extraordinary efforts of our project management team.
Marcel: As we achieved an extremely important company milestone last week with the upbranding of the former Hyatt Dream Seat Scottsdale through the spectacular Grand Hyatt Scottsdale Resort.
Marcel: In addition to the pool complex and its food and beverage amenities that were completed earlier in the year, we have now also completed the renovation of the guest rooms, the spa, the existing meeting space, the lobby, the Grand Vista lobby bar, and the newly created signature restaurants.
Marcel: These exciting new restaurants include Mesa Central, a Southwestern-themed free meal restaurant,
Tiki Taka, a global small plate concept including a sushi bar, and the resort's premier restaurant, La Zazana, an upscale modern Italian steak and seafood concept, all in collaboration with celebrity chef Richard Blais.
Marcel: The resort officially was rebranded as Grand Hyatt Scottsdale Resort on November 1st, and we are excited about the future of this outstanding property and one of the most appealing resort locations in the country.
Marcel: Now turning to our financial results. For the third quarter of 2024, the company had a net loss of $7.1 million.
Marcel: Adjusted EBIT IRA was $44.3 million and adjusted FFO per share was $0.25.
Marcel: Results came in below our expectations for the quarter as a number of factors negatively impacted the portfolio during the quarter.
Marcel: Leave Your Demand continues to normalize, and although Hurricanes Debbie, Francine, and Helene did not cause significant damage at any of our properties,
Speaker Change: They did negatively impact demand at most of our properties in the Southeast in August and September.
Speaker Change: The combination of overall software leisure demand and the hurricane impact at our hotels in the Southeast were largely responsible for the rectifier declines we experienced at our hotels in San Diego, Nashville, New Orleans, Key West, Napa, Savannah, and Charleston.
Speaker Change: Additionally, renovation disruption during the quarter, specifically in Scottsdale, was greater than we previously projected.
Speaker Change: Same property REFVAR for our 31 hotel portfolio increased by 1.5% for the quarter, while REFVAR increased by 1.1% when excluding Scottsdale.
Same property occupancy increased by 320 basis points.
while ADR decreased by 3.3%.
Speaker Change: GraphR growth was driven by continued strong results at our recently renovated Grand Bohemian Hotel Orlando, Canary Hotel Santa Barbara, and Hotel Monaco Salt Lake City.
Speaker Change: Additionally, our three Houston hotels, our Atlanta properties, and our Ritz-Carlton's in Pentagon City and Denver outperformed the remainder of our portfolio in the third quarter.
Thank you very much. Thank you. Thank you. Thank you.
Speaker Change: As we have discussed in prior earnings calls, we expected Scottsdale performance to become a tailwind during the third quarter, and this partially materialized as our two resorts in the Phoenix-Scottsdale market achieved a combined 11.1% REF bar increase compared to the same period last year.
Speaker Change: This increase was lower than we previously projected, since the impact of the Grand Hyatt renovation was greater than anticipated during the quarter.
Speaker Change: Having now completed the components that most negatively impacted the guest experience through the month of October, we expect to see significant year-over-year ref bar gains in Scottsdale in the months ahead.
Speaker Change: On a same-property basis, third-quarter same-property hotel EBITDA of $48.1 million was 6.3% below 2023 levels.
and Hotel Ibida Margin decreased to 100 basis points.
Speaker Change: Excluding Scottsdale, third quarter hotel EBITDA decreased 3.4% and hotel EBITDA margin decreased by 144 basis points.
Speaker Change: In a continuation of what our portfolio experienced in the second quarter, expense pressures, although they are moderating a bit,
Speaker Change: and the increase in occupancy coupled with the ADR decrease drove the margin decline for the third quarter in comparison to last year.
Speaker Change: Consistent with demand trends over the last few quarters, group and corporate transient demands remained relative bright spots during the quarter.
Speaker Change: Same property group room revenues excluding Scottsdale increased 3.8% as compared to the third quarter last year.
and Midway Corporate Transient Occupancy continued its positive momentum.
Speaker Change: Turning to our capital expenditure projects, we now project that we will spend between $130 and $140 million on property improvements during the year.
Speaker Change: An increase of 5 million dollars compared to our prior estimate.
Speaker Change: This is a result of the timing of payments, as well as an increase in smaller projects executed at the property level that we now expect to be completed by the end of this year.
Speaker Change: We continue to expect to spend $70 to $75 million on the Scottsdale renovation in 2024.
Speaker Change: We still anticipate substantial completion of the project, including the ballroom and pre-function space expansion, by the end of this year, with just some exterior work that is not expected to impact the guest experience remaining to be completed in early 2025.
Speaker Change: Now that most of the major components of the transformative renovation have been completed, and the property has officially relaunched as Grand Hyatt Scottsdale Resort,
The overall guest experience has been significantly enhanced.
Speaker Change: The construction of the new ballroom and pre-function space is progressing as planned without negatively impacting the overall operations and feel of the resort.
Speaker Change: We are continuing to expect that the resort will be able to host groups in this outstanding new space in January.
Speaker Change: We experienced greater disruption during the third quarter than previously estimated, as a result of the lobby and restaurants not being accessible to guests during the quarter.
Speaker Change: Additionally, the opening of the new signature restaurants and bars was delayed until November, which not only impacted food and beverage revenues, but also the overall guest experience and the official launch under a new brand.
Speaker Change: As a result, we have increased our estimate of renovation disruption on our adjusted EVA diary in 2024 by $3 million.
Speaker Change: We are thrilled that we have completed the majority of the project at this time.
Speaker Change: and while the financial results will be ramping up over the next several quarters.
Speaker Change: This phenomenal upgraded resort is expected to be a significant driver for our company's earnings growth over the next few years.
The End
Speaker Change: Referring to the transaction activity, we previously disclosed that we sold the Lorient Hotel and Spa in Alexandria, Virginia for a sale price of $30 million in early July.
Speaker Change: As a reminder, this prize represented a very attractive 21.3 times multiple on the Hotel Ibida for the 12 months ended May 31st, 2024.
Speaker Change: We are continuing to analyze potential additions to the portfolio, as well as any dispositions that we believe will enhance our earnings growth profile in the years ahead.
Speaker Change: We are not anticipating any changes to the portfolio composition for the balance of this year. And as we look ahead to 2025, we will continue to patiently evaluate these opportunities in conjunction with our prudent balance sheet management and review of internal ROI opportunities.
Speaker Change: As we announced in our release yesterday, we have taken another significant step to further solidify our balance sheet and create additional flexibility for the company by upsizing and extending our corporate credit facility.
Speaker Change: While Atish will provide more detail during his remarks, I would like to take this opportunity to thank our lender group for their continued support of our company's long-term strategy.
Speaker Change: As we near the end of 2024, we have reduced our guidance for a full year just EBITRE as compared to our forecast after our second quarter results.
Speaker Change: This is reflective of both our actual 3rd quarter results and our reduced outlook for the 4th quarter.
Speaker Change: Our fourth quarter outlook has moderated as a result of the impact of Hurricane Milton on our properties in Orlando in October, recent demand trends, and the approximate one-month delay in the relaunch of Grand Hyatt Scottsville.
Speaker Change: Atish will provide additional detail on our updated guidance during his remarks.
Speaker Change: Despite the negative impacts on October results that I've just mentioned,
Speaker Change: We estimate the same property rent bar increase by approximately 4% in October, as compared to the same period in 2023.
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Speaker Change: When excluding Grand Hyatt Scottsdale Resort, we estimate that the October REF bar was up approximately 3.4% compared to last year.
Speaker Change: These RFRA increases reflect an acceleration compared to results in the third quarter.
albeit not to the level we previously projected.
Speaker Change: While uncertainty exists regarding the overall economic environment and lodging industry results in the short term,
Speaker Change: We continue to have an optimistic view regarding our portfolio performance in the years ahead.
Speaker Change: We are excited that the bulk of the transformative Scottsdale project is behind us and continue to expect to reap the benefits of this substantial project for years to come.
Speaker Change: Additionally, we believe that our high-quality portfolio is well-positioned to outperform in the years ahead, given its diversified locations, strong brand affiliations, and quality of its room products and amenities.
Speaker Change: I will now turn the call over to Barry to provide more details on our operating results and capital projects.
Thank you, Marcel. And good morning, everyone.
Barry Bloom: For the third quarter, our 31 same property portfolio REVBAR was $161.20, based on occupancy of 67%, at an average daily rate of $240.72, an increase of 1.5% as compared to the third quarter in 2023.
Barry Bloom: Excluding Grand Hyatt Scottsdale Resort, third quarter rent par was $168.48, an increase of 1.1% as compared to 2023, which reflected 2.9 points of occupancy gain and a decline of approximately 3.1% in average daily rate.
Speaker Change: As Marcel indicated in his remarks, the same property leaders in terms of red bar growth in the quarter included our hotels that underwent comprehensive renovations in 2023.
Barry Bloom: Grand Bohemian Orlando up 85%, Monaco Salt Lake City up 33%, and Kempton Canary Santa Barbara, which was completed earlier in 2023, up 10%.
Barry Bloom: Grant Hyatt Scottsdale REVPAR was up 64% compared to the third quarter of last year as we begin to lap the challenging renovation disruption we experienced over the last 17 months.
Barry Bloom: Several of our hotels, including those in Houston, Orlando, Key West, Savannah, Charleston, and New Orleans, were impacted by a number of hurricanes which occurred throughout the quarter.
Barry Bloom: Including Hurricane Milton in October, we estimate that collectively EBITDA was impacted by approximately $2 million related to a combination of net lost revenues, increased operating expenses, and expenses related to cleanup and repair. We do not anticipate any insurance recovery from these storms.
Barry Bloom: Red Park grew significantly compared to the third quarter of last year at our three hotels in Houston, collectively of 18.4% and at several of our luxury hotels including Ritz-Carlton Denver of 7.5%, Waldorf Astoria Buckhead of 6.8%, and Ritz-Carlton Pentagon City of 5.2%.
Barry Bloom: The growth in these markets is a result of clearly improving business transient and group demand we continue to see across the portfolio.
Barry Bloom: Properties that experience REPR weakness compared to the third quarter of 2023 included Lowe's New Orleans, Hyatt Regency Grand Cypress, and several of our smaller leisure-oriented properties in Savannah, Key West, and Napa.
Barry Bloom: Looking at each month of the quarter, and excluding Grand Hyatt Scottsdale Resort, July rent was $168.46, up 2.2% to July 2023.
Speaker Change: August RIPPAR was $160.13, up 2.2% compared to August 2023, and September RIPPAR was $177.11, down 0.9% compared to September 2023.
All right.
Speaker Change: We continue to be optimistic about the recovery in corporate demand as we continue to achieve higher midweek occupancies across the portfolio, where even during the traditionally softer third quarter, portfolio occupancies of approximately 75 percent were achieved midweek, representing an increase of nearly five occupancy points compared to the third quarter of 2023.
Speaker Change: We note that compared to the 3rd quarter of 2019, for our portfolio excluding W. Nashville, High Regency Portland, and Grand Hyatt Scottsdale, 3rd quarter daily occupancies trailed 2019 by less than 8 occupancy points mid-week, a sequential improvement compared to the 2nd quarter. Friday and Saturday night occupancies trailed 2019 by less than 5 occupancy points.
Speaker Change: While this gap continues to be somewhat disappointing, our continually improving performance in our corporate transient and corporate group-driven hotels gives us confidence that we still have significant growth ahead as our hotels continue to close this gap.
Speaker Change: Group business continues to be a bright spot across the portfolio, where the reversion of pre-pandemic patterns continues. For the third quarter, excluding Grand Heights Scottsdale Resort, group room revenues were up nearly 4% as compared to the third quarter of last year. This growth was split relatively evenly, with room nights and average rate each up just under 2%.
Speaker Change: We see a continued trend in our mix of group business, with association group business now recovering at a stronger pace than corporate group business, and more bookings for future years than the current year, which Atish will highlight in his remarks.
Speaker Change: Now, turning to expenses and profit. Third quarter, same property, Hotel Ibiza, was $48.1 million, a decrease of 6.3% on a total revenue increase of 2.9% compared to the third quarter of 2023, resulting in 200 basis points of margin decline.
Speaker Change: excluding Grand Hyatt Scottsdale Resort, Hotel Ibiza was $52.2 million, a decrease of 3.4% on a total revenue increase of 2.8% resulting in margin decline of 144 basis points.
Speaker Change: This decline in hotel EBITDA margin for the quarter was the result of several factors.
Speaker Change: Excluding Grand Hyatt Scottsdale Resort, rooms department costs increased nearly 6% over the third quarter of last year, primarily as a result of continued occupancy growth.
Speaker Change: However, this equated to just a 1.4% increase in expenses on a per-occupied-room basis and a sequential decline from last quarter as our hotels are continuing to adapt to a higher occupancy, lower ADR operating environment.
Speaker Change: Food and beverage revenue grew by nearly 5% during the quarter as banquet and AV revenues achieved double-digit increases while outlet revenues were generally flat.
Speaker Change: Food costs and wages each increased approximately 6% compared to last year resulting in a 15 basis point decline in overall food and beverage margin.
Speaker Change: Cancellation and nutrition revenues declined 14% compared to last year, returning to more normalized levels, which also impacted margins.
In the continuation of a positive trend, other operating departments
including parking, spa, and golf revenues were up over 6%.
Speaker Change: In the undistributed departments, A&G expenses were well controlled and energy expenses declined, while sales and marketing and property operations expenses grew significantly as properties continue to restaff these areas to pre-COVID levels.
Speaker Change: According to CapEx, during the third quarter, we invested $46.9 million in portfolio improvements, bringing our year-to-date total to $116.2 million.
Speaker Change: As Marcel discussed, we have completed our most significant work on the transformative renovation and upbranding of the former Hyatt Regency Scottsdale Resort and Spa Ganey Ranch, which is now the Grand Hyatt Scottsdale Resort.
Speaker Change: We are on schedule to complete the construction of the ballroom expansion by the end of 2024, and several building façade and infrastructure projects will be completed in early 2025.
Speaker Change: We continue to be incredibly optimistic about how the hotel will perform post-renovation. The initial response from both leisure and group guests has only affirmed our confidence in our expected outcome from this substantial investment.
Speaker Change: We are seeing future group business being booked at meaningfully higher rates than the hotel has achieved historically, with the average daily rate for group bookings for 2025 up over 35% from 2019 and ahead of our internal performance.
Speaker Change: We are particularly excited about group revenues for the second through fourth quarters of next year, where group revenues already exceed 2019 levels, and as production for 2025 continues to increase significantly each month.
Speaker Change: Much of this is the direct result of the expansion of the larger Arizona Ballroom, which will allow the hotel to retain existing group customers, as well as attract new group customers who otherwise could not be accommodated at the resort. And the spectacular guest experiences being created throughout the resort, the guests are now able to see and experience.
Speaker Change: Initial response and feedback from the luxury travel agent community, a key component of the hotel's refined business plan, has also been very strong as this channel views the property as a completely new addition to the Scottsdale market that they are excited to introduce to their clients.
Speaker Change: The property is hosting numerous familiarization trips for these critical booking agents, and again, the response to the virtually new facility and amenities has been tremendous.
Speaker Change: Renovations are now complete at two of our Texas hotels where we performed work during the seasonally slow summer months, including renovation of the lobby and restaurant, relocation of the fitness facility, addition of concierge lounge, and upgrading the heavenly beds at the Westin Oats Houston, and the renovation of the lobby and upgrading the heavenly beds at the Westin Galleria Houston.
Speaker Change: Work is now underway for a comprehensive renovation of the lobby and restaurant and creation of an M-Club at Marriott Woodlands Waterway early next year.
Speaker Change: In addition, we continue to make select upgrades to the guest rooms at several of our largest assets, including High Regency Santa Clara, Merritt SFO, and Renaissance Waverly in Atlanta. These projects are being phased around occupancy in order to minimize disruption.
Speaker Change: We are also continuing with approximately $20 million of infrastructure and sustainability projects this year, including significant HVAC upgrades at Onda San Diego, Fairmont Dallas, Merritt SFO, Hyatt Regency Santa Clara, Renaissance Waverly, and the Ritz-Carlton Denver.
Speaker Change: We are incredibly excited to be nearing the completion of the Grand Hyatt Scottsdale Resort renovation, as well as all the other work that has been accomplished this year, and are confident that each will contribute to future growth in the portfolio. With that, I will turn the call over to Atish.
Atish Shah: Thanks Barry. I will provide an update on our balance sheet and discuss our guidance.
Atish Shah: As to our balance sheet earlier this week, we extended and upsized our corporate credit facility, thereby increasing our flexibility and resources.
Atish Shah: More specifically, we extended the maturity date on our facility to November 2028.
And we upsized our facility by over 20%.
Atish Shah: The capacity on our revolving line of credit increased from $450 million back to $500 million.
Our revolver continues to be fully available.
Atish Shah: As to our bank term loan, the capacity increased from $225 million to $325 million. The current outstanding balance is $225 million.
Atish Shah: The pricing on our facility is unchanged. The terms improved slightly. All of our existing banks supported the transaction and we added one new bank to the syndicate.
Atish Shah: Overall we are pleased with the outcome of this facility recast and grateful to our bank group for their support.
Speaker Change: Now turning to our 2024 guidance, we have adjusted our full year outlook downward to reflect a variety of factors over both the 3rd and 4th quarters.
Speaker Change: As to adjusted EBIT.RE, we have lowered the midpoint by $11 million to $238 million.
The breakout of this change is as follows.
We estimate the impact from hurricanes is about $2 million.
Speaker Change: We estimate the impact of renovation-related revenue displacement at Scottsdale is about $3 million.
Speaker Change: And we estimate the remainder is attributed to several factors, including a slower fourth quarter ramp at Grand Hyatt Scottsdale, softer leisure demand across the portfolio,
Speaker Change: and continued pressure on margins due to expense growth and the mix of occupancy versus ADR.
Speaker Change: As to the $11 million variance by quarter, about $5 million relates to the third quarter and $6 million relates to the fourth quarter.
Speaker Change: From a RevPAR perspective, we've lowered our expectation for RevPAR growth by 125 basis points to 1.75% at the midpoint.
Speaker Change: excluding Grand High and Scottsdale, we have lowered our expectations for Red Park growth by 50 basis points to 3.25% at the midpoint.
Speaker Change: As to our adjusted FFO per diluted share guidance, we have reduced it by 10 cents.
We now expect FFO per share of $1.58.
Speaker Change: The other elements of our guidance have shifted slightly since we last reported. Our full-year capital expenditure guidance has increased by $5 million at the midpoint.
Cash, G&A, Expense
has declined by $1 million to $23 million.
Shifting ahead to current trends and initial thoughts for 2025.
Speaker Change: As we look ahead to November and December, our group revenue pace is up over 10%, and our transient revenue pace is up over 6%.
Speaker Change: We still expect a significant lift from Grand Hyatt Scottsdale as the property was a big headwind to overall REV PAR in November and December of last year.
Speaker Change: We estimate that the impact was about 475 basis points to overall REV PAR in November and December of last year.
Speaker Change: As we look farther ahead, group business for 2025 continues to look quite strong.
Speaker Change: The group revenue pace info that we are providing is as of the third quarter.
Speaker Change: As is typical this far in advance, about half of our expected 2025 group revenue is currently on the books.
Speaker Change: group revenue pace is up nearly 20% excluding Grand Hyatt Scottsdale group revenue pace is up in the mid-teens percentage range.
Speaker Change: Before I wrap up, I'll add that we continue to be well positioned for opportunities to evolve the portfolio in the years ahead.
Speaker Change: The early indicators on Scottsdale are positive, and we expect the resort to deliver on our stabilized target in the low $40 million Hotel Ibiza range over time.
We continue to feel good about the new supply picture.
Speaker Change: And based on our operators assessment, a continued recovery in demand, particularly from larger corporate clients, group customers, and international inbound travelers.
Speaker Change: And with that, we will turn the call back over to Lydia to begin our Q&A session.
Lydia: Thank you Atish. Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. In the interest of time we kindly ask that you limit yourself to one question.
Speaker Change: Our first question comes from Dory Keston with Wells Fargo. Your line is open, please go ahead.
Thanks, good morning. We appreciate the details on group pace.
Speaker Change: for, I guess, for Scottsdale and for the remainder of the portfolio. Are you able to provide a little bit more, I guess, guidelines on how the hotel may ramp over the next few years? Rate-wise, it looks like you're drafting your peers for the first few months, but that spread lessens pretty considerably by mid-25.
Speaker Change: I'm sorry, can you just repeat that last part, Dory? I didn't quite get what you were saying as far as, you know, going into 25.
Speaker Change: Sure, I was just asking if you can provide a little bit more detail on the pace of how you get below 40 million EBITDA range and then I was just noticing it looks like your rates kind of coming out of the gate or drafting your immediate peers but they lessen pretty considerably by the time you get to mid 25.
Speaker Change: Yeah, so, okay. Thanks. I appreciate that, Dirk. Thanks for clarification.
Speaker Change: So, you know, Barry pointed out in his remarks that as we get, you know, a little deeper into next year, that we're pretty optimistic about what we're seeing so far, given that
Speaker Change: When you look at the combination of Q2 through Q4 that we're already kind of at the group revenue pace that we were in 19 for 20. So if you think about it, it's going to take a few years, obviously, to stabilize here. So to kind of answer your question on that, it's going to take.
You know...
Speaker Change: A few years to kind of get to that low $40 million range, but it's highly encouraging to us that we're seeing already from Q2 through Q4 this this
Speaker Change: There's a number that really equates to what we're seeing in 19 or 20 now part of that is and Barry pointed out that What is really encouraging is that the rates are significantly higher than where we were obviously in 19
and a part of that is.
Speaker Change: you could say is general inflation, but we are definitely seeing an ability to book at higher rates.
and...
Speaker Change: We always expected that it was going to take a little bit of time.
for the meeting planners.
Speaker Change: to actually see the finished product and be able to really get a feel for what the resort is like and start building some momentum there. So I think what you were referring to is some of the rates that you're seeing kind of
Speaker Change: you know for the resort as as the year goes along and clearly we always expected that coming out of the gates with it was obviously a little bit slower ramp up in the first quarter or two and then really kind of getting some traction as we get deeper into the year.
Okay, thank you.
Speaker Change: Our next question comes from David Kapp with Jefferies. Please go ahead.
Speaker Change: Unfortunately we're not getting any audio so we'll move to our next question which is Michael Bellisario with Baird. Please go ahead.
Thanks, good morning everyone.
Good morning.
I have...
Speaker Change: Two questions. I'll ask them together. The first one is just sort of a follow-up. On Scottsdale, the $3 million EBITDA impact, does that mean the entire ramp-up, as you look out, is maybe $3 million behind? And that $25 million would be $3 million less than what you would have thought it maybe would have done?
Speaker Change: a quarter ago and maybe just help us frame the ramp up expectations there today.
Speaker Change: rate and occupancy mix, right? It's not, it's less about the absolute level of like-for-like expense growth. Thanks.
Speaker Change: Yeah, thanks Mike. I'll take the first part and Atish, feel free to jump in there as well and Barry will answer the second part of your question, your second question.
Speaker Change: That's probably what Lydia said. We're more than happy to take two questions from you on this, Mike.
So, you know, the first part.
Speaker Change: Eric, we pointed out there was a delay of about a month in the completion of some of the components.
Speaker Change: particularly as it related to the restaurants and bar, which clearly the $3 million additional disruption we're talking about is really kind of spread through both the third quarter when we saw more disruption than we had previously projected because of the fact that
So much of the resort was inaccessible to guests.
and just created more disruption than we had previously anticipated.
Speaker Change: And then the additional parts of the $3 million is really because of what happened in October and the fact that we weren't ready to go fully at the beginning of the quarter, as opposed to now getting into November.
Speaker Change: after having completed these facilities that they're kind of opening here, you know, through November.
Speaker Change: So that cost the additional $3 million of disruption. Now what that also did cost, obviously,
is that.
Speaker Change: Since we were kind of ready to hit the ground running a little bit later than anticipated,
Speaker Change: We're clearly ramping up a little bit slower in the fourth quarter than we previously thought we would, because we thought we were going to be able to, again, have these facilities open in October, which is clearly a strong month, generally, in the Phoenix, Scottsdale market. So that ramp up is going to be a little bit slower as we as we get through the rest of the year.
Now.
Speaker Change: to kind of equate that to 25, that's difficult to say.
frankly, because I don't think.
Speaker Change: the situation for 25 has changed really from what we previously anticipated because we still anticipate that the
Speaker Change: A meeting space is going to be available at the end of the year. So in January, we'll be able to start accommodating groups in that space.
Speaker Change: Clearly, all the facilities are open. As you know, leisure demand doesn't necessarily book out too far ahead. So I think we're in a good position to still deliver in 2025 what we otherwise would have delivered. So I don't see that really bleeding into the 2025 expectations.
Speaker Change: and that's just a normal ramp-up that I talked about earlier at the Dory's question. So unless you want to add anything Atish, Barry can answer the second part of your question, Mike.
Yeah
Speaker Change: Mike, I think what you surmise is what we are and aren't seeing, which is that we're not seeing particular pockets of abnormal expense growth across the portfolio. It's been fairly even in terms of geography. The properties that are performing best and that are where we're actually growing.
Speaker Change: Margin are the properties where we're experiencing both occupancy and rate growth which is not terribly surprising so we're able to cover the increases in costs that we're seeing through the P&L and where we're seeing the largest occupancy increases
Speaker Change: in connection with rate declines is where we're seeing the most margin erosion.
Speaker Change: So, some of that also skews in our portfolio a little bit to the smaller hotels. As I mentioned, one of the two of the key challenges right now are where we're bringing back
Speaker Change: Our managers are bringing back fixed staffing in both sales and marketing and property operations and maintenance. And that obviously impacts smaller hotels more than it impacts bigger hotels in terms of how margin is reduced.
ultimately performing.
Thank you.
Speaker Change: Our next question comes from Ari Klein with BMI Capital Markets. Please go ahead.
Speaker Change: Thanks and good morning. Maybe just following up on Scottsdale, what is the EBITDA contribution this year? And in 2019, the hotel did $23 million.
Speaker Change: In 2022, it's $30 million, and I appreciate that it's going to take a while to get to the stabilized number, but are those or either of those realistic kind of goalposts for 2025?
The End.
Speaker Change: Yeah, we've obviously outlined what we believe is a disruption for this year, so it's reasonable to assume that we get, you know, that we get that back as we get into the next year. As you recall,
Speaker Change: You know when we're getting close to the 30 million dollar number before in 22, you know, a lot of that was Also driven by some really frothy leisure demand that was in the market and there's no question that That overall there has been a little bit of softening
Speaker Change: Clearly with leisure throughout the country, but also impacting a market like Phoenix, Scottsdale. So we do expect that, you know, we're going to get that disruption back next year.
Speaker Change: You know, to answer the first part of your question, it's not contributing a whole lot of eBid out this year because obviously you've seen what the disruption numbers are that we've put out. So, we do expect to get that disruption back. Hopefully, you know, some growth there. We talked about the fact that
Speaker Change: You know, what we can point to is clearly the group base and where things are going there and we feel very confident about the direction that's heading for next year.
Speaker Change: that it gives us some confidence that we're starting to see, you know, some growth over the disruption number. And then.
Speaker Change: You know, it'll take a take a year or two from there to kind of get to that stabilized number going forward. What Barry also pointed out is that now that the project, the project is essentially done and the meeting planners are seeing this, they're obviously getting very excited about that. So, the number of leads that the property is getting.
Speaker Change: Not just for 25, but really going into 2026 and 2027 is highly encouraging. So we still feel as confident, if not more confident, today than when we started this project that we'll get to the statewide numbers.
Speaker Change: Thanks for that. And then just on the expenses, I guess...
Speaker Change: You know what would be helpful is just what caught you by surprise is it was this occupancy ADR shift I guess
Speaker Change: unexpected from your point of view, and are those trends expected to continue, I guess, moving forward?
Thank you for watching!
Speaker Change: that really across the board our operators had a much more balanced view of occupancy and rate that we would see during the quarter. And I think as the quarter progressed and as we moved through the summer months,
The properties were not seeing a lot of occupancy growth
a lot of rate strategizing.
Speaker Change: in conjunction with conversations with our asset management team that really shifted that as a strategy to be able to drive as much revenue as possible and to drive as much ancillary revenue as possible by
pushing to more of an occupancy
Speaker Change: forward strategy by lowering rate. Obviously, we look at that in hindsight as well and think that was certainly the best strategy through Q3. We think that's improved a little bit in October and November.
Speaker Change: December is always a question mark because of the lack of corporate business, but we are seeing
Speaker Change: A little bit better balancing between occupancy and rate as we move through Q4.
For more information visit www.FEMA.gov
Speaker Change: And one thing I'll add to there too is that where you've seen some of those rate declines
Speaker Change: It's been in some of those assets where, you know, rates have been
Speaker Change: very high, primarily driven by that strong leisure demand that we've seen before, so.
Speaker Change: The other part you're seeing, obviously, we're rolling up portfolio numbers. So when you think about...
Speaker Change: You know, we're gaining occupancy in some assets where the rate might be a little bit lower.
You know, we're really driving those high leisure rates.
Speaker Change: So when you all kind of roll that up together, that's part of it too.
Speaker Change: And even when you think about, you know, the impact of these hurricanes, for example.
Speaker Change: It impacted a lot of our high-rated leisure assets that clearly weren't delivering as much to the portfolio as they normally would. So some of that is obviously captured in...
Speaker Change: and how we're looking at this hurricane impact on the portfolio, but just that overall shift a little bit into some of the more occupancy in lower rated hotels and some rate declines in some of these higher rated leisure assets that kind of contributes to the overall picture too.
Helpful. Thank you.
Thanks.
Our next question comes from a line of Austin.
Warsmith with Key Bank Capital. Please go ahead.
Thank you very much.
Speaker Change: Thanks and good morning everybody. Sticking to the leisure theme overall and the softness that you referenced.
Speaker Change: What are kind of the early thoughts for, you know, remaining rate normalization within that segment? I think it's, you know, 25-30% of the portfolio.
Speaker Change: And then, you know, as I think you highlighted, you know, maybe contributing to some of this margin and weakness you cited, just some early thoughts on kind of how that trend you think goes from here heading into 25. Thank you.
Speaker Change: Thanks, Alfred. You know, I think it's early to say that, obviously, because, you know, as you know, that's, again, that transient booking window is obviously far shorter than what we're seeing on the group side.
Thank you very much.
We think that's
Speaker Change: You know, having the setup that we have with having pretty strong group base into next year, that's going to help overall with with revenue management going forward. So.
Speaker Change: I think we're optimistic as far as where that stabilization goes and how we can grow from there.
Thank you.
You know, clearly...
Speaker Change: If you look at market performance yesterday, there is some optimism about economic growth.
Speaker Change: There hopefully will be a little bit more balance next year between international outbound versus international inbound.
Speaker Change: We've talked about this before. I mean, it's not a big component necessarily of our overall portfolio, but it certainly will help to the extent that there's a little bit more balance there. So, I think it's early to really have a good sense for how that's going to play out in 2025, but I think that...
Speaker Change: As we're sitting here today, I think that we're, you know, we're reasonably optimistic about where that's going to go next year.
Speaker Change: Thank you. Our next question comes from Ari Klein with BMO Capital Markets. Your line is open.
Our next question comes from Tyler Batery with Oppenheimer
Please go ahead.
Speaker Change: Oh yeah, thanks. Good morning everyone. So just thinking a little bit more about...
Speaker Change: the portfolio opportunities to evolve the portfolio in the years ahead. From a strategic perspective, we've got a little bit more liquidity here with the expanded credit facilities. How are you thinking about
Speaker Change: the opportunity for potential acquisitions. I know a lot of moving pieces in the portfolio this year. You just did the asset sale in July, I guess. So how are you thinking about capital recycling and potential opportunities to look at acquisitions here?
Um, yeah.
Speaker Change: That obviously hasn't really changed from what we've talked about the last few quarters, right? I mean, we haven't seen a great number of opportunities to get us overly excited, but we think that that's going to change over the next few years.
Speaker Change: We certainly would expect to kind of get back to what we have historically done, which is, you know, growing the portfolio and growing it with assets that we believe are going to give us greater growth than what the current portfolio looks like.
Speaker Change: So, to the extent that those opportunities are out there, we want to be in a position to take advantage of that.
Clearly on the disposition side
Speaker Change: What you've largely see us do in the past is potentially dispose of assets where there may be some capex needs There may be some some other elements that make us believe that
Speaker Change: and the ROI on that CapEx and the future growth potential isn't quite there. So we'll continue to evaluate the portfolio in that light. So it certainly is our goal to continue to upgrade the portfolio over time, upgrade the earnings growth potential of the portfolio.
Speaker Change: and we think that there'll be some more opportunities over the next few years so just having having more flexibility and having the great balance sheet and the strength of balance sheet that we have is going to be beneficial to that.
Speaker Change: Now, as part of that, as we've also talked about before,
Speaker Change: Clearly, the fact that we expect earnings growth coming from an asset like Scottsdale is also going to put our leverage ratios in a place where we think we can be a little bit more opportunistic than we have been able to be over the last couple of years. So, that's really the view that we have and we're going to continue to balance that with.
like I said in my remarks.
Webster.
Speaker Change: whether there's internal ROI opportunities that we have a strong belief in.
Um...
Speaker Change: Clearly, you know, it's looking at where we're trading from a stock price perspective and do we think that there's opportunity to buy back shares that will create greater value than necessarily being out there and buying assets. So, we'll continue to balance all those aspects and certainly would expect that over time we'll continue to go on the path that we really have been on over the last 10 years, if you will.
Okay, great. Thank you.
Speaker Change: We have no further questions, so I'd like to turn the call back to Marcel Verbaas for any closing comments.
Marcel Verbaas: Thanks, Lydia. Thanks, everyone, for joining us today. I know it's a very busy earnings season, busy week overall, so I appreciate you joining us. I appreciate the questions today and we look forward to seeing.
Marcel Verbaas: Or many of you over the next few weeks, particularly at the conference. Thanks again. And we'll, we'll see you there or we'll speak over the next few months. Thank you.
Speaker Change: This concludes today's call. Thank you for joining. You may now disconnect your line.
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