Q4 2024 Summit Hotel Properties Inc Earnings Call
Yes.
[music].
Yeah.
Speaker Change: Welcome to the summit hotel properties 'twenty, 'twenty, four fourth quarter and full year earnings conference call.
Kevin: We'll now be passing the line to Kevin.
Senior Vice President of corporate finance.
Speaker Change: Thank you Michelle and good morning, I'm joined today by Summit Hotel properties, President and Chief Executive Officer, John Scanner, and Executive Vice President and Chief Financial Officer, Trey counseling. Please note that many of our comments today are considered forward looking statements as defined by federal Securities laws. These statements are subject to risk and uncertainty.
Speaker Change: <unk>, both known and unknown as described in our SEC filings forward looking statements that we make today are effective only as of today February 25, 2025, and we undertake no duty to update them. Later, you can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP.
Speaker Change: Actual measures referenced on this call on our website at Www Dot SHP reached dot com.
John Scanner: Please welcome Summit Hotel properties, President and Chief Executive Officer, John Scanner.
John Scanner: Thanks, Kevin and thank you all for joining us today for our fourth quarter and full year 2024 earnings conference call.
John Scanner: 2024, it was another year of effective execution and meaningful progress for summit positioning.
John Scanner: Positioning the company for continued success in 2025.
John Scanner: Today train I will discuss our solid full year operating and financial results highlight our recent transaction activity and its role in driving outside future growth.
John Scanner: Provided an update on our balance sheet and near term ROI driven capital expenditures and share our outlook for 2025.
John Scanner: Somewhat delivered another successful year in 2024 as the strength of our operating platform, coupled with well executed transaction activity resulted in full year <unk> per share growth of nearly 6%.
For the third consecutive year, the company's revpar growth exceeded the industry average with pro forma revpar growth, increasing one 8% for the year.
John Scanner: Our operating team and management company partners continue to view a terrific job managing expenses as pro forma hotel EBITDA margins were essentially flat year over year, driven by operating expense growth of just one 5% on a per occupied room basis.
John Scanner: Pro forma hotel EBITDA increased 2% year over year, despite the low revpar growth environment and difficult year over year property tax expense comparisons.
John Scanner: Historically, our business model has required 2.5% to 3% revpar growth to maintain operating margins.
John Scanner: In 2024, we significantly surpassed these expectations driven by ongoing tight cost controls and our ability to manage hotel level turnover as well as reduce our reliance on more expensive and less efficient contract labor.
John Scanner: Further validating our thesis for investing in hotels with efficient operating models.
John Scanner: Our revpar growth in 2024 was predominantly driven by occupancy gains as group demand remained robust and the gradual recovery of business transient demand drove weekday revpar growth of 3% for the year, primarily through outsized growth on Tuesday, and Wednesday nights.
John Scanner: While midweek urban market demand has been the primary driver of our Revpar growth for two consecutive years. It also represents the biggest opportunity for future growth as many of these markets have lagged in the recoveries from the pandemic.
John Scanner: At the start of 2024, we identified six markets. We believe we're poised for outsized growth given improving operating fundamentals, including Baltimore, Our Louisville, Minneapolis, New Orleans, San Francisco and San Jose.
John Scanner: Aside from the well documented challenges in San Francisco, the remaining five market performed exceptionally well achieving revpar growth of over 13%, which drove a 35% increase in hotel EBITDA.
John Scanner: Minneapolis, San Jose Baltimore, and New Orleans, all had double digit revpar growth for the year with the latter two markets achieving nominal revpar exceeded 2019 levels for the first time.
John Scanner: A hallmark of the summit investment thesis has been value creation through effective acquisitions and dispositions.
John Scanner: 2024, we continue this disciplined approach.
John Scanner: Culminating with the acquisition of the Hampton Inn, Boston, Logan Airport, and Hilton Garden Inn, Tysons corner for $96 million through our joint venture with GIC.
John Scanner: The well located hotels and dynamic Submarket of Boston, and Washington, DC feature industry, leading brands and minimal near term capital needs.
John Scanner: The purchase price represents an attractive eight 8% capitalization rate based on 2024, net operating income and a significant discount to replacement cost.
John Scanner: Revpar growth for the two hotels was over 6% in 2024, and we expect growth for these assets will continue to exceed our portfolio average given strong market dynamics and our ability to optimize operations.
We now own 41 hotels, and our joint venture with GIC, the vast majority of which have been acquired at 2022.
John Scanner: Operating performance in this portfolio has been terrific as Revpar grew nearly 3% driving 5% hotel EBITDA growth in 2024.
John Scanner: The strength of our operating platform is particularly evident with the significant improvement in performance we've experienced in many of these assets since taking ownership.
John Scanner: Further validating our ability to identify investment opportunities and develop and implement business plans in a value accretive manner.
John Scanner: Over the last three years, our Revpar market share index has increased nearly 300 basis points, while hotel EBITDA margin has expanded by over 200 basis points during that same period.
John Scanner: These improvements demonstrate our ability to refine revenue management strategies and identify efficiencies throughout the operating cost structure.
John Scanner: Our most recent acquisitions have been funded by a thoughtful and methodical disposition strategy selling 10 hotels over the past 18 months for nearly $150 million of gross proceeds while eliminating approximately $50 million of near term capital needs.
John Scanner: Our targeted approach to dispositions resulted in a sales price that represents a blended trailing 12 month net operating income capitalization rate of less than 5% at the time of sale when including the foregone Capex requirements.
John Scanner: Importantly, the investment profile of our acquisition activity compares favorably to our disposition activity, resulting in a positive NOI spread yield spread of over 400 basis points and a revpar premium of approximately 70% between our acquisition and disposition portfolios.
John Scanner: Over the past few years, we've deleveraged, our balance sheet by nearly a full turn of EBITDA growing.
John Scanner: <unk> grown adjusted EBITDA by over 6%.
John Scanner: And increase the common dividend by nearly 40% on an annual basis.
John Scanner: All while strengthening the portfolios long term growth profile.
John Scanner: We also continued to invest in high ROI capital projects designed to drive incremental EBITDA growth.
John Scanner: For example, we are nearing completion of a comprehensive repositioning of our courtyard Fort Lauderdale Beach Hotel.
John Scanner: This hotel set an irreplaceable ocean front location and will relaunch this spring with a full guestroom corridor and public space renovation.
John Scanner: And expanded and modernized fitness center and a re concept restaurant.
John Scanner: Additionally, we are making a significant investment in the outdoor experience at the hotel <unk>.
John Scanner: Including a core side bar and an enhanced product that is expected to drive significant incremental EBITDA.
John Scanner: While the hotel has always been a top performer in our portfolio, we have identified significant rate and ancillary revenue opportunities, we intend to capture post renovation in a market where it is virtually impossible to build new competitive supply.
John Scanner: Before I turn the call over to Trey, Let me briefly discuss our outlook for the year.
John Scanner: As we enter 2025, the lodging sector remains stable and well positioned for continued topline growth as we expect many of the same trends that drove our performance in 2024 to continue.
John Scanner: Robust group demand and the ongoing recovery of business transient travel are expected to lead growth, particularly in urban markets, where midweek occupancy is steadily improving.
John Scanner: With corporate budgets normalizing and organizations increasingly prioritizing in person meetings and conferences, we expect business oriented demand to further strengthen driving higher rate and occupancy in key markets.
John Scanner: Our first quarter Revpar growth is tracking slightly below the midpoint of our full year guidance range of 1% to 3% growth.
John Scanner: January winter storms resulted in airport closures in major markets across the South and East coast, resulting in a modest decline in revpar for the month.
John Scanner: We have made up for much of that disruption with a strong start to February driven by Super Bowl related demand in New Orleans, where we own six hotels.
John Scanner: As I previously mentioned, we had tremendous success managing expenses in 2024, and while our year over year comparisons are more difficult in 2025, we are confident in our ability to continue to control operating expenses driven by the benefits of our efficient operating model and the strength of our operating team.
John Scanner: One of the most significant long term tailwind for the industry is the persistent lack of meaningful new supply is elevated construction cost higher relative to interest rates and tight construction lending standards continue to constrain hotel development.
Particularly in the majority of our key markets.
John Scanner: Looking beyond 2025 lodging industry stands to benefit from a powerful long term consumer shift towards experiences over material goods.
John Scanner: Consumers, particularly younger demographics continue to prioritize travel unique destinations and high quality accommodations as part of their lifestyle and spending habits.
John Scanner: This secular trend reinforces our expectation for a strong and stable future demand outlook for lodging.
John Scanner: So its well located high quality portfolio is well positioned to capture this long term growth.
John Scanner: We've continued to improve the overall quality of our portfolio through strategic capital investments and a disciplined effective capital allocation approach.
John Scanner: Driven by the combination of these factors, we expect another solid year performance in 2025 with a favorable long term trajectory for both the industry broadly and summit more specifically.
Trey Counseling: With that I'll turn the call over to Trey.
Trey Counseling: Thanks, John and good morning, everyone.
Trey Counseling: For the full year 2020 for Revpar growth was driven by strength in the Companys urban and suburban portfolios for which revpar increased nearly 3% and 4% respectively.
Trey Counseling: Outpaced the total industry by 100 basis points, and 220 basis points respectively.
Trey Counseling: Growth in our urban and suburban markets was driven by continued strength and slower to recover markets that John previously highlighted but also from core markets, such as Boston, Chicago, Denver, Houston, and Indianapolis, all of which experienced full year revpar growth of 5% or higher.
Trey Counseling: In particular, our urban and suburban hotels benefited from robust group demand for which Revpar increased 10% and 12% respectively over 2023.
Trey Counseling: Pro forma for our recent acquisitions of the Hampton Inn, Boston, Logan Airport, and Hilton Garden Inn, Tysons corner, our urban and suburban hotels comprised 73% of our total guest room count.
Trey Counseling: As we look to 2025, we believe our portfolio is well positioned for continued outperformance as growth in group and business transient serve as the primary demand catalyst for the industry moving forward.
Trey Counseling: Turning to our resort and small town Metro assets full year 2020 for Revpar declined modestly year over year, primarily primarily related to displacement from both the impact of Hurricane Helene on our Indigo hotel in Asheville, North Carolina, as well as the transformative repositioning.
Trey Counseling: Of our courtyard Fort Lauderdale Beach Hotel, which will be completed in March of this year.
Trey Counseling: When adjusting for these two assets resort in small town Metro 2020 for Revpar was essentially flat to 2023.
Trey Counseling: With significant tailwind for these two assets in 2025, the company anticipates improved performance in our resort and small town metro portfolios moving forward.
Trey Counseling: Pro forma revpar for the full year 2024 was one 8%.
Trey Counseling: Pro forma expenses increased less than 3% or just one 5% on a per occupied room basis.
Trey Counseling: The intense focus on expense management resulted in positive flow through and hotel EBITDA margins that were essentially flat to prior year, despite modest revpar growth.
Trey Counseling: Pro forma hotel EBITDA and adjusted EBITDA increased for the full year 2024 to $264 $7 million and $192 $2 million respectively.
Trey Counseling: Adjusted <unk> for full year, 2024 was $119 2 million an increase of nearly 6% versus 2023 as the company continues to benefit from recent capital allocation decisions in particular to $150 million of accretive asset sales.
Trey Counseling: That has reduced corporate leverage by approximately one turn.
Trey Counseling: <unk> increased to 96 per share in 2024 from 92 per share in 2023.
Trey Counseling: Moving to the fourth quarter pro forma Revpar increased one 4% year over year.
Trey Counseling: An acceleration from our third quarter revpar growth of 0.3% trigger.
Trey Counseling: Driven by gains in both occupancy and average rate.
Trey Counseling: Similar to the full year fourth quarter pro forma Revpar growth was driven by our urban and suburban portfolios.
Trey Counseling: Which produced Revpar increases of 2% and 3% respectively.
Trey Counseling: Key markets driving fourth quarter growth include New Orleans, Indianapolis, Chicago, Houston, Minneapolis and Tampa.
Trey Counseling: All of which significantly outpaced the pro forma portfolio.
Trey Counseling: Moderating expense growth continued in the fourth quarter as operating expenses and our pro forma portfolio increased two 2% year over year or just one 7% on a per occupied room basis as.
As expense trends continue to exhibit a more normalized cadence representative of a stabilized cost structure.
Trey Counseling: The company continues to benefit from reductions in contract labor, which declined 17% on both a nominal basis and per occupied room basis versus fourth quarter 2023.
Trey Counseling: Contract Labor now represents 10, 5% of our total labor costs, which is 800 basis points below peak Covid era levels, but 300 basis points above 2019 levels, suggesting the opportunity for further improvement.
Trey Counseling: We also continue to see improvement in employee retention.
Trey Counseling: Which resulted in improved productivity and the hotels and reduced training costs.
Trey Counseling: Full year 2020 for wages increased three 4% versus prior year.
Trey Counseling: As the right sizing of Labor force wages has mostly been absorbed.
Trey Counseling: We continue to be encouraged by expense trends in our portfolio and how the current baseline cost structure positions the company for future bottom line growth.
Trey Counseling: Pro forma hotel EBITDA for fourth quarter, 2024 was $60 4 million, which represented a modest declines to prior year as the company faced a difficult year over year comparison due to property tax refunds realized in the fourth quarter of 2023.
Trey Counseling: Pro forma hotel EBITDA margins contracted 140 basis points in the corner with property taxes accounting for over 50 basis points of that decline.
Trey Counseling: Adjusted EBITDA for the fourth quarter was $42 1 million, while adjusted <unk> was $25 2 million or <unk> 20 per share.
Trey Counseling: From a capital expenditure standpoint in the fourth quarter, we invested $27 $5 million in our portfolio on a consolidated basis and $23 $3 million on a pro rata basis.
Trey Counseling: For the full year, we have invested $89 $3 million on a consolidated basis and $75 $6 billion on a pro rata basis.
Speaker Change: In 2020 for our design and construction team executed several notable renovations, including the courtyard, New Haven Hotel Indigo Ashville courtyard grapevine.
Springhill suites, Dallas Downtown Hyatt House, Denver Tech Center, and residents and Portland Hillsboro.
Speaker Change: The company's continued investment in our portfolio has resulted in a revpar index of 114 for the trailing 12 months ending December 2024.
Speaker Change: This investment ensures the quality of our portfolio and that positions the company to drive profitability in the future.
Turning to the balance sheet to recap our 2020 for our capital markets activities, we successfully refinanced our $225 million unsecured term loan in February 2024, with a new $200 million unsecured term loan that matures in 2029.
Speaker Change: In June we repaid our $42 million medibank load at a $3 million discount.
Speaker Change: Using proceeds from asset sales, which also allowed the company to facilitate the sale of the four points San Francisco Airport.
Speaker Change: Finally in December the company's GIC joint venture through $50 million on the accordion of its credit facility to partially fund the $96 million acquisition of the handset in Boston Logan Airport, and the Hilton Garden Inn Tysons corner.
Speaker Change: We continue to observe a very constructive capital markets environment for the lodging industry.
Speaker Change: Overall, the balance sheet continues to be well positioned with total liquidity of approximately $350 million.
Speaker Change: Average life to maturity of nearly three years and average interest rate of approximately four 6% and.
Speaker Change: And a leverage ratio that is nearly a full turn lower than when we initiated our disposition activity in 2023.
Speaker Change: As a result of our interest rate management efforts, our interest rate exposure continues to be effectively managed with a swap portfolio that has an average fixed rate of approximately 3%.
Speaker Change: And 72% of our pro rata share of debt is fixed after consideration of interest rate swaps.
Speaker Change: When accounting for the company's series E F N Z preferred equity within our capital structure, we were over 78% fixed at year end.
With no significant maturities until 2026, a staggered maturity schedule and a strong liquidity profile. We believe the company is well positioned to achieve its growth objectives.
Speaker Change: On January 23rd 2025, our board of directors declared a quarterly common dividend of <unk> <unk> per share.
Speaker Change: Which represents a dividend yield of approximately 5% based on the annualized dividend of 32 per share.
Speaker Change: The current dividend rate continues to represent a modest <unk> payout ratio of approximately 35% at the midpoint of our guidance range, leaving ample room for potential increases over time.
Speaker Change: Assuming no material changes to the current operating environment.
Speaker Change: The company continues to prioritize striking an appropriate balance between returning capital to shareholders investing in our portfolio, reducing corporate leverage and maintaining liquidity for future growth opportunities.
Speaker Change: Included in our press release last evening, we provided full year guidance for key 2025 operational metrics. In addition to certain non operational items.
Speaker Change: This outlook does not include any additional acquisition disposition or capital markets refinancing activity beyond what we have discussed today.
Speaker Change: For the full year, we anticipate revpar growth of 1% to 3%.
Speaker Change: Which translates to an adjusted EBITDA range of $184 million to $198 million and an adjusted <unk> range of 90 to $1 per share.
Speaker Change: At the midpoint of our Revpar guidance range, we would expect hotel EBITDA margins to contract 50 to 100 basis points year over year.
Speaker Change: Which incorporates approximately 30 basis points of headwinds from higher property taxes.
Speaker Change: We expect pro rata interest expense, excluding the amortization of deferred financing costs to be $50 million to $55 million series E and series F preferred dividends to be $15 9 million series Z preferred distributions to be $2 6 million and pro rata capital expenditures to range.
Speaker Change: Some 65 million to $85 million.
Speaker Change: Finally, the increased size of the GIC joint venture results in fee income payable to summit covering approximately 15% of annual cash corporate G&A expense, excluding any promote distributions something they earned during the year.
Speaker Change: And with that we will open the call to your questions.
Speaker Change: Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: And our first question will come from Austin, where Schmidt with Keybanc capital markets. Your line is now open.
Austin Schmidt: Great. Thanks, and good morning, guys.
Speaker Change: John you had highlighted the first quarter is tracking slightly below the midpoint of your full year guidance.
Speaker Change: Just wondering if you can provide some detail or proper context around kind of the booking pace over the next 30 to 60 days and as you look through some of the weather related disruption the Super Bowl benefit in January and February how is really that business oriented demand.
Speaker Change: That you and trade referenced in your prepared remarks tracking relative to kind of the last three months to six months or so.
Austin Schmidt: Yes, good morning, Austin I think as you referenced January was choppy for us and a lot of it just has to do with disruptions related to the store and so either our airport closures in Dallas, and Houston, and Atlanta, and Charlotte all of which were disrupted midweek for BT travel and we finished the month down slightly year over year, we did make.
Austin Schmidt: Some of that Alright, I think a lot of that in February in our February Revpar growth was driven just by the strength of the Super Bowl in New Orleans, where we have six assets, but also by we think a little bit of a catch up from what happened in January of where people re book.
Austin Schmidt: That were displaced in January ended up booking into February when we look out into March and April I think what we see from a pace perspective, but there are fairly stable trends our April paces, a little bit hard to interpret one given we're not in the key booking window yet into theres, some difficult comps from the solar eclipse of last year, but.
Austin Schmidt: When we look at March and particularly when I look at kind of the peak spring break weeks of March I think that the demand pace. All look solid again, our expectation for the year is this as you alluded to kind of continuation of some of the trends we saw in 'twenty four and all of that supported by the data we're looking at currently.
Speaker Change: That's helpful and look you guys have continued to cobble together small portfolios to recycle capital and then I'm just curious what kind of the next act as for some it could be and whether the playbook is somewhat consistent with what you've done the last two years in light of maybe a relatively.
Quiet transit transaction market overall.
Speaker Change: Yes, we've been more active than most I would say we did a couple of hundred million dollars of transactions last year over the 18 months, we've got about $300 million worth of deals and we did it over a 10 plus transactions. So as you alluded to a lot of that was being.
Speaker Change: Full around some of the lower Revpar lower margin hotels in our portfolio that really needed a lot of capital and so I think one of the things. We're really proud of is just spend a difference in profile of what we bought versus what we sold.
Have a less of kind of the low hanging fruit at the bottom end of our portfolio than we did 18 months ago.
Speaker Change: That being said, we're always trying to be very thoughtful around how we manage capital needs in the portfolio and we do have a high quality portfolio. So we get a fair amount of reverse inquiry to our portfolio to sell assets and we try to always be thoughtful around being opportunistic on asset sales and what we ultimately can redeploy those proceeds into <unk>.
Speaker Change: Again, I think one of the things and we said this in the prepared remarks, one of the ways. We believe we create value for shareholders is by being transaction oriented and despite the fact that it's been a slower transaction environment I think what we should expect us to continue to try to do that in 2025.
Speaker Change: Understood. Thank you for the time.
Allison: Thanks Allison.
Allison: And the next question comes from Danny Assad with Bank of America. Your line is now open.
Hi, good morning, John and Kevin.
Danny Assad: Hey, guys. If we're just thinking about the Revpar guide of 1% to three it's pretty much in line with pro forma Revpar of just under 2% for 'twenty 'twenty four so if we wanted to think about puts and takes can you just maybe walk us through what's getting better in 2025, and if there's any offsets.
Allison: To get us to that range.
Danny Assad: Yes sure.
Danny Assad: <unk> looked at it I think a lot of it is a continuation of what we've seen we still expect better performance in urban and suburban markets. We still expect better growth rates mid week and a lot of that is driven by the ongoing strength of group demand in this kind of consistent recovery on the BT side.
Danny Assad: I think what we expect this year is probably a little less or less lift from these lagging markets that we pointed out from last year. The five markets in particular that grew 15% revpar growth and 24, we expect that to normalize in 'twenty five we have a little bit more of a balanced growth profile across the portfolio and $25.
Danny Assad: 24, and I think that the expectation broadly for the industry or for leisure to kind of continue on its current normalized pace I do think that's where the upside exists for the industry and for summit in particular, we alluded to the renovation that's going on at the courtyard Fort Lauderdale that is going to create some disruption and.
Danny Assad: Our first quarter numbers, we do think there's significant upside in that asset beginning in the second half of the year and I think broadly speaking, we think the expectations for leisure travel are relatively low for 25, and if there is an upside to kind of broadly the broad industry forecast, we think it's likely in that segment.
Danny Assad: Got it thank you very much.
Danny Assad: Thanks Danny.
Speaker Change: And our next question will come from Michael Bellisario with Baird. Your line is open.
Michael Bellisario: Thank you good morning, guys.
Danny Assad: Yes.
Danny Assad: John sort of Big picture question, just on some of the management company changes that you've made but it looks like there has been some turnover recently I guess, one what's driving those changes and then two are there.
Danny Assad: Those changes leading to the better expense management and flow through that you referenced and maybe any.
Danny Assad: Kind of more changes to come on that front, just any thoughts around sort of the management company changes would be helpful.
Danny Assad: Yes.
Danny Assad: First thing I would say is that we're happy with our management companies.
Danny Assad: And with the performance of the management companies in general and again, a lot of that will fall back to what was incredibly strong expense management last year and a continuation of doing a good job driving market share and in an environment, where revpar grew slower than we would've otherwise expected it to at the beginning of the year.
Danny Assad: Changes, we made to the management companies were really driven by opportunities to create a cluster opportunities and more efficient management of more efficient operations in certain markets.
Danny Assad: The performance of what we've done has worked out in line with what our expectations are.
Danny Assad: Always trying to be very thoughtful and opportunistic around how we allocate management agreements across the portfolio. Today. There is nothing that we're contemplating an additional moves but certainly it's something that we continuously evaluate but I would say again, we're very happy with the management companies across the portfolio today.
Speaker Change: Got it fair enough. Thanks, and then switching gears just on the December acquisitions.
Speaker Change: Maybe provide some background on that transaction and then how youre thinking about sort of longer term returns and underwriting for those hotels above and beyond the eight eight cap and then how you think about and adjust for those assets being a little bit older in terms of vintage. Thanks.
Speaker Change: Yes, no problem.
Speaker Change: We're really excited about the transaction I think as you alluded to one its just a really strong going in yield and markets that are hard to get access to these are submarkets of really strong.
Speaker Change: Gateway cities.
Speaker Change: Have relatively less exposure in both of those markets and so we expect those markets to continue to be strong performers over the next several years. We are just the two assets that we bought from Magna It was an off market transaction.
Speaker Change: Fit in this bucket, we are underwriting two unlevered IRR that are a couple of hundred basis points higher than what we underwrote to pre pandemic.
Speaker Change: Probably three to 400 basis points higher than the IRR as we've underwritten our dispositions too and so we do think that this is an interesting time to be a buyer in this market yields are higher the expectation for rate declines I think has kind of come out of the market you don't have to be overly aggressive in terms of what we're underwriting for <unk>.
Speaker Change: <unk> growth from an NOI perspective, and our out years, and so again that that translate particularly when you can go in at stronger going in yields that translates just into higher or hold period IRR.
Speaker Change: These are older vintage assets, we have allocated some capital to them in the out years, they don't have any near term.
Speaker Change: Capital needs will likely commence renovation in Boston towards the end of next year, but for the most part they're they've been kept in very very good physical condition and again I think there are locations keep them relevant despite the vintage for a long time.
Speaker Change: Helpful. Thank you.
Speaker Change: Thanks, Mike.
Speaker Change: And the next question comes from Chris <unk> with Deutsche Bank. Your line is open.
Chris <unk>: Hey, guys. Good morning, Thanks for taking the question.
Speaker Change: Yes.
Speaker Change: And I agree with your observation John.
Speaker Change: Leisure is probably.
Speaker Change: More of an opportunity even in a threat this year, hopefully, but as I think about really the corporate side are you seeing any changes in whether it's.
Speaker Change: Type customer youre, getting large or small or booking pattern in terms of.
Speaker Change: Closer and farther out or direct buy direct or anything like that or any changes you notice throughout 'twenty four heading into this year.
Speaker Change: Yes, there have been gradual changes in the business as we as the recovery has evolved coming out of the pandemic. The booking window is starting to lengthen, but it's still relative to pre pandemic levels a short booking window.
Speaker Change: Type of customer initially in the pandemic. The BT customer was all kind of a local drive to regional type of BT traveler, obviously, thats changed and we're getting the.
The bigger more national accounts have started to return I would say that has been much more of a slow evolution I don't think we expect any meaningful changes.
Of those patterns in 2025, as we said 2025 is set up to be a lot of continuation for the trends that we saw in 2024, it feels fairly stable.
Speaker Change: Do think kind of the incremental push from corporations to get back into the office and just do things more in person is something that will ultimately benefit the business longer term I don't expect it to create any significant changes in segmentation or channel booking mix from what we've seen in 'twenty four.
Speaker Change: Okay.
Speaker Change: That job and then.
Speaker Change: Just a question.
Speaker Change: <unk>.
Speaker Change: My next question about the changes in management companies, but even putting that aside just on the labor front you guys have been very successful I think on a relative basis.
Speaker Change: <unk> 24 in terms of costs.
Speaker Change: How much visibility.
Speaker Change: Is there anything we need to think about in terms of <unk>.
Speaker Change: Not so much the unions on any.
Speaker Change: Labor availability in any of your markets or whether the new managers might need to change anything that we.
Speaker Change: Unknowns heading into this year on that thanks.
Speaker Change: No look again, it feels fairly stable I will.
Speaker Change: Take a second just to go back in 24 was an incredibly successful year from an expense management perspective operating expenses increased one 5% on a per occupied room basis for us to get essentially flat margins on sub 2% Revpar growth is very difficult. So we're very pleased with the outcome.
Speaker Change: We've kind of guided to 3% to 4% expense growth for 2025. Our hope is we will continue to do better than that we do feel like on a relative basis, we're going to be able to manage expense growth at the lower end of where a lot of other hotel owners are going to broadly.
Some of that is market and location mix as you alluded to but the team and our partners at the management Company and management company side have done a very good job of that we have seen kind of deceleration in wage growth stagnate over the back half of the year I wouldn't see say, we've seen any noticeable tightening in the labor market, but the pace.
Speaker Change: Which it is loosening kind of slowed but we do feel like wages are relatively stable, where they are at today and assuming there are no significant changes in the macro environment expect that to continue to be stable and 25.
Speaker Change: Thanks, Scott if I could sneak one more quick one in here.
Speaker Change: Just on the dispositions.
I know a lot of cases the market is kind.
Speaker Change: A a market decision as well as a capex decision and I'm just curious as to if it's more of a capex decision or the brand.
Speaker Change: Is there any yes.
Speaker Change: Do you think going forward there is more negotiation to be done there or do you think that youre more likely to.
Speaker Change: Discontinued selling software.
Speaker Change: Capex too onerous and maybe.
Speaker Change: This is a different plan.
Speaker Change: Yeah.
Speaker Change: Yeah look it's a balance for us Chris like we have tried to find assets, where the ones. We've sold that needed capital. We felt like there was a way for a buyer to underwrite something that we werent able to underwrite.
Speaker Change: And we have renovated a lot of assets and not sold we'll renovate 78 seven to 10 assets every single year, that's our expectation going into 2025 as well we do have one big significant transformational renovation going on in Fort Lauderdale that we think there is even more or less then we would expect from a more to.
Speaker Change: Additional renovation, but it is a real balance and we try to take a very objective approach to where we think the return and the lift is from a renovation.
Speaker Change: The brands have generally been very good supporters, there, obviously pushing to get their hotels renovated but that isn't the primary input in our determination of when and where to renovate.
Chris <unk>: Okay very good thanks for all the color John Yes, Thanks, Chris.
Speaker Change: The next question comes from RJ Milligan with Raymond James Your line is open.
RJ Milligan: Hey, good morning, guys.
RJ Milligan: Obviously, some activity with GIC and the fourth quarter I'm just curious how your conversations are with GIC and what's your appetite for growing the JV of 25.
RJ Milligan: Yes.
RJ Milligan: As we say almost every quarter they've been great partners.
RJ Milligan: Really been a wonderful partnership for US, we've got 41 assets and a debenture. The venture has performed very well, particularly in light of the kind of the macro backdrop in the environment and lodging broadly I.
RJ Milligan: I think they have.
RJ Milligan: Obviously, a continued appetite to grow the joint venture we want to make sure that we're always kind of balancing our investment activity.
And managing our balance sheet and the balance sheet and the appropriate leverage range, but I think it continues to be an attractive vehicle for us to look to future growth with them and they are certainly have the appetite to continue to grow with us.
Speaker Change: And Trey you mentioned pretty favorable capital markets environment, just for the general logic space I'm. Just curious what do you think needs to happen or improve to start seeing a more meaningful increase in transaction activity.
Speaker Change: Well I would just say from a capital market standpoint, whether we're looking at our balance sheet from a refinancing standpoint or from acquisitions.
Speaker Change: You look at whether its the secured markets the unsecured market. The bank market is opened up quite a bit as well the convert market is kind of all of the different paths that you would need for financing are accessible now and I think that they are improving and I think you've actually seen a noticeable shift in tone in some of those just as we've crossed over.
Speaker Change: The new year, and so from a financing standpoint, it feels like at least for the types of assets and the yields that we're buying that as John kind of alluded to in these mid eights to nine cap rates.
Speaker Change: It's a accretive way to be able to finance your transactions.
Speaker Change: I can't speak to the other asset classes and what other people are underwriting, but from our perspective, the financing markets are definitely constructive and there is a solid spread between where we can finance it where we can buy.
Speaker Change: Okay, Great. That's it for me thanks, guys.
Speaker Change: Okay.
The next question comes from Austin, where Schmidt with Keybanc capital. Your line is open.
Speaker Change: Yeah. Thanks, Thanks for taking the follow up and Trey your last answer might be a good segway I'm just curious how you're kind of still early but how you're thinking about the plans to address the 2026 convertible notes maturity.
Speaker Change: Yes, I should repeat the last answer I just gave you.
Speaker Change: No look the convert is it's a year out at this at this point and it's obviously, a large size maturity related to our balance sheet.
Austin Schmidt: It's a one 5% piece of paper I think the tone of the capital markets that we've seen makes us very comfortable that it's something that we have time to address here in 2025, I would say Austin at all kind of options are on the table. We're obviously looking at the.
Austin Schmidt: The best way to do that to minimize any type of.
Austin Schmidt: On a mark to market on what our rate would be but.
Austin Schmidt: There is a variety of paths open there as I said the secured markets, whether it's in the bank market or in CBS. The unsecured market. The bank market has become particularly attractive in the convert market is actually is there as well if that is something that we want to access.
Austin Schmidt: I think we will probably be patient with refinancing that.
Austin Schmidt: Year over the first part of the year given what the coupon is on the existing security, but we feel very confident based on our conversations with our with our banking partners that that's something that we'll be able to refinance.
Austin Schmidt: Here.
Austin Schmidt: Thanks, Brad I appreciate the comments.
Austin Schmidt: I show no further questions in the queue at this time I would now like to turn the conference back over to John for closing remarks.
John Scanner: Yes, well. Thank you all for joining us today for our fourth quarter and full year earnings conference call and we look forward to seeing many of you at our upcoming conferences over the next few weeks I Hope you all have a nice day. Thank you.
Austin Schmidt: This concludes today's conference call. Thank you for participating you may now disconnect.
Austin Schmidt: Okay.
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