Q4 2024 Xenia Hotels & Resorts Inc Earnings Call
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Lydia: Hello everyone and welcome to the Xenia Hotels and Resorts fourth quarter 2024 earnings conference call. My name is Lydia and I'll be your operator today.
Lydia: After the prepared remarks there'll be an opportunity to ask questions. If you'd like to participate in the Q&A you can do so by pressing star followed by one on your telephone keypad. We kindly ask that you limit yourself to one question and a follow-up and then return to the queue for any additional follow-ups.
Lydia: These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.
Lydia: Forward looking statements in the earnings release that we issued this morning, along with the comments on this call are made only as of today February 25, 2025, and we undertake no obligation to publicly update any of these forward looking statements.
What events unfold.
Lydia: You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks, and our fourth quarter earnings release, which is available on our Investor Relations section of our website.
Lydia: The property level information, we will be speaking about today is on a same property basis for all 31 hotels unless specified otherwise.
Marcel: 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, Oliver and good morning to everyone joining our call today.
Marcel: We are pleased with our accomplishments during a challenging 2024.
Marcel: Particularly the positive momentum that was generated in the fourth quarter as portfolio operating performance improves and the significant capital improvement projects have weighed on our portfolio results. During the year were largely completed.
Marcel: Most importantly, we substantially completed the transformational renovation and upbringing of Grand Hyatt Scottsdale.
Marcel: But just some minor components remaining to be finished in 2025.
Marcel: The expanded Arizona Ballroom was completed on schedule in early January representing.
Marcel: A significant achievement in the overall project.
Marcel: The timely completion of the ballroom allowed us to capture some lucrative last minute group business during the month of January.
Marcel: This outstanding New facility has been extremely well received by groups that I've been able to experience the new space already and by meeting planners, who are considering the resort for future business.
Marcel: With the now fully renovated and relaunch Grand Hyatt Scottsdale ramping up operations. We expect this strategic investments to begin delivering meaningful returns over the quarters and years ahead.
Marcel: We remain confident that the resort will be able to drive significantly higher cash flow than it did during its prior peak performance years through stabilization and into the future.
Marcel: Now turning specifically to our fourth quarter operating results.
Marcel: This morning, we reported a net loss of $638000 adjusted EBITDA Reed was $59 $2 million and adjusted <unk> per share was 39 cents for the quarter.
Marcel: Which modestly exceeded the midpoint of the guidance range, we provided when we announced our third quarter results.
Marcel: Same property Revpar came in at five 1% higher than the prior year in the fourth quarter of 2024.
Marcel: As performance of Grand Hyatt Scottsdale became a tailwind for our overall portfolio revpar gains.
Marcel: Encouragingly, we experienced double digit revpar growth in a number of our markets in the fourth quarter.
Marcel: These outperforming markets, including Nashville, Santa Barbara Pittsburgh.
Marcel: Birmingham Salt Lake City.
Marcel: Orleans, Charleston, and Phoenix, driven by Grant Hyatt Scottsdale.
Marcel: Indicating strong demand generated by various segments in these diverse markets.
On a same property basis fourth quarter hotel EBITDA of $62 $9 million was 0.6% below 2023 levels.
Marcel: And hotel EBITDA margin decreased by 120 basis points.
Marcel: Excluding Grand Hyatt Scottsdale fourth quarter same property hotel EBITDA was flat compared to last year.
Marcel: Hotel EBITDA margin decreased by 68 basis points.
Marcel: Yes.
Marcel: We continue to appreciate our operator's efforts to control costs in a difficult external environment.
Marcel: For the full year 2024, net income was $16 $1 million adjusted EBITDA was 237 $1 billion.
Marcel: And adjusted <unk> per share was $1 59.
Marcel: Our same property portfolio achieved a revpar increase of one 6% in 2024.
Marcel: Which was significantly impacted by the scope of the renovation.
Marcel: Excluding Grand Hyatt Scottsdale, Revpar increased by three 4% driven.
Marcel: Driven by solid occupancy gains throughout the year.
Marcel: As we discussed throughout the year, the group and business transient segments drove these revpar and occupancy gains as leisure demand has moderated a bit.
Marcel: In 2024 18 out of the 31 hotels in our same property portfolio achieved revpar growth as compared to 2023.
Marcel: In addition to significant revpar growth at our recently renovated properties in Salt Lake City, Santa Barbara and Orlando.
Marcel: Our hotels in Houston, Dallas, Santa Clara, Pittsburgh, and Washington, D C, where relative outperformance during the year.
Marcel: On a same property basis, 2024 hotel EBITDA of $255 $4 million was five 5% below 2023 levels and margins were 189 basis points lower as compared to 2023.
Marcel: Excluding Grand Hyatt Scottsdale in both years same property hotel EBITDA increased one 3% and margins decreased just 64 basis points in 2024 as compared to 2023.
Marcel: Yeah.
Marcel: As I mentioned earlier the group segment has continued to be a relatively strong driver for our portfolio.
Marcel: For the full year same property group room revenues, excluding Grand Hyatt Scottsdale increased by 5% as compared to 2023.
Marcel: We continued to be particularly encouraged by our strong group booking pace for 2025.
Marcel: Which while enhanced by returning group demand in Scottsdale as evidenced throughout the portfolio.
Marcel: As usual further discuss our group pace in his remarks.
Marcel: We also saw a strengthening in corporate transient demand over the year as evidenced by our continued improvement and with midweek occupancy.
Marcel: Looking ahead, we casino believes that there is still substantial growth for room for growth in revenues generated by this segment as corporate transient demand throughout our portfolio still lags significantly behind in 2019 levels.
Marcel: Particularly on Monday, and Thursday night.
And while leisure demand moderated in 2024.
Marcel: We did see signs of stabilization in the fourth quarter.
Marcel: With most of our leisure driven markets experiencing revpar growth during the quarter.
Marcel: But savannah being the notable exception.
Marcel: We are particularly pleased with the Capex projects that we have completed in recent years and expect to see meaningful returns from these projects in 2025 and beyond.
Marcel: While we experienced good results at the recently renovated Grand Bohemian Orlando Hotel, Monaco, Salt Lake City, and Canary Hotel in Santa Barbara in 2024, we believe there is further room for revenue and EBITDA growth at these hotels.
Marcel: Additionally, relatively recent larger projects such as the additional ballroom at Hyatt Regency Grand Cypress are expected to reach their full revenue potential in the coming years.
Marcel: And while most of our focus in 2024 was on the Scottsdale project.
Marcel: There were a number of other projects completed that improve the competitive positioning of several of our hotels and resorts.
Marcel: As we turn to 2025, our total capital expenditures are projected to remain slightly higher than where we expect these to stabilize in the years ahead.
Marcel: This is partially as a result of closing out the expenditures related to the Scottsdale project.
Marcel: However, we anticipate only minor revenue on EBITDA displacement in 2025 as the projects, we intend to undertake what caused very limited disruption to guess given the scope and timing of these projects.
Marcel: Barry will provide details on both our recently completed as well as our planned capital expenditures in his remarks.
Marcel: Our initial 2025 guidance is based on a range of three 5% to six 5% same property revpar growth or 5% at the midpoint.
Speaker Change: And better than this outlook is an expectation for further occupancy gains.
Speaker Change: Although we saw solid occupancy gains of 2020 for occupancy for our portfolio, excluding W. Nashville, Hyatt Regency, Portland, and Grand Hyatt Scottsdale.
Speaker Change: Still approximately seven points behind 2019 levels.
Speaker Change: We clearly also expect Grand Hyatt Scottsdale to be a significant driver of our projected occupancy and revpar growth in 2025.
Speaker Change: As we are now past the significant revenue and EBITDA disruption, we experienced during a transformative renovation that took place in 2023 and 2024.
Speaker Change: As we begin 2025, we are optimistic about our growth prospects. Despite continued uncertainty in the overall economic climate and we are off to an encouraging start to the year.
Speaker Change: We estimate that our same property revpar increased by seven 3% year to date through February 20th compared to the same period last year.
Speaker Change: While these strong results were aided by the Super Bowl taking place in New Orleans in February we also experienced some offsetting negative impact from the winter storms in January and a number of our sunbelt locations.
Speaker Change: These early results coupled with the completion of the transformational renovation at the Grand Hyatt Scottsdale.
Speaker Change: Confidence in our outlook for 2025.
Speaker Change: And in our portfolios ability to drive significant revenue and earnings growth in 2025 and beyond.
Speaker Change: We are proud of all the hard work that was done in the last year not only as it relates to our asset management and project management initiatives, but also on our financing and capital markets activities.
Speaker Change: We address all near term debt maturities and have further strengthened our balance sheet positioning us to capitalize on potential strategic opportunities in the years ahead.
Speaker Change: While it appears that the pipeline of potential acquisitions may be improving somewhat compared to the last few years, we remain patient as we prudently evaluate imbalance all potential capital allocation alternatives.
Speaker Change: We will continue to focus on improving our portfolio over time.
Speaker Change: As we have gone through our capital expenditures that are focused on driving strong rois.
Speaker Change: As well as through selective dispositions of properties with significant upcoming capital needs that may not meet our investment requirements.
Speaker Change: And if market conditions allow this could also include taking advantage of external growth opportunities as we have done in the past.
Speaker Change: I will now turn the call over to Barry to provide more details on our operating results and our capital projects.
Barry: Thanks, Marcel and good morning, everyone.
Speaker Change: Fourth quarter of 2024 are.
Speaker Change: Our 31 same property portfolio Revpar was $165.92 based on occupancy of 64, 4% and an average daily rate of $257 52.
Speaker Change: Same property portfolio Revpar increased five 1% in the quarter compared to the same period in 2023.
Speaker Change: This increase reflected about two five points of occupancy gain and a 1% gain in average daily rate as compared to the fourth quarter of 2023.
Speaker Change: Excluding Grand Hyatt Scottsdale fourth quarter, Revpar was $168 30 for.
Speaker Change: The increase of three 4% as compared to 2023.
Speaker Change: This increase reflects the two point gain in occupancy and a <unk>, 3% increase in average daily rate as compared to the fourth quarter of 2023.
Speaker Change: During the fourth quarter same property Revpar improved each month, both sequentially and compared to 2023 with October growing three 9% November growing by four 6% and December grew by seven 4% exclude.
Speaker Change: Excluding Grand Hyatt Scottsdale, Revpar was up three 3%, 2% and five 2% in October November and December as compared to 2023.
Speaker Change: Throughout the year, we continue to see improvement in the business transient and group segments.
Speaker Change: As your business continues to soften from the extreme peaks experienced in 2022.
Speaker Change: For full year 2024, our 31 same property portfolio Revpar was $172 47.
Speaker Change: Based on occupancy of 67, 4% and an average daily rate of $255 72.
Speaker Change: Same property portfolio Revpar increased one 6% as compared to 2023.
Speaker Change: This reflected a 2.3 point gain in occupancy and a one 9% decline in average daily rate as compared to full year 2023.
Speaker Change: Excluding Grand Hyatt Scottsdale full year Revpar was $176 62.
Speaker Change: The increase of three 4% as compared to 2023. This increase reflects the three point gain in occupancy and a one 1% decline in average daily rate as compared to full year 2023.
Speaker Change: Our properties, achieving the strongest revpar growth as compared to full year 2023 included Grand Bohemian Orlando with Revpar up 43%.
Speaker Change: Monica Salt Lake City of 25, 4% and Kimpton Canary, Santa Barbara of 21, 2%.
Speaker Change: Each of these hotels underwent significant renovations during 2023 and each has performed admirably with fully renovated rooms, and food and beverage facilities.
Speaker Change: Revpar growth was also experienced at the Westin Oaks in Galleria, Houston, and Hyatt Regency, Santa Clara each up 10, 1% Waldorf Astoria, Atlanta, Buckhead up nine 1% Marriott Dallas Downtown City Center up eight 1%.
Speaker Change: These properties benefited from improved group demand and recovering business transient demand.
Speaker Change: Conversely, the greatest Revpar declined compared to 2020 fewest experienced a grand Hyatt Scottsdale as a result of the ongoing renovation and.
Speaker Change: In addition, our leisure focused properties in Savannah, Phoenix, and Napa also experienced declines as leisure business continues to normalize.
Speaker Change: <unk>, San Diego and high recent Grand Cypress also suffered revpar declines primarily due to difficult market conditions.
Speaker Change: Business from large corporate accounts continue to recover throughout the year and improved significantly compared to 2023 in the latter half of the year.
Speaker Change: Business from the very largest accounts continues to track well behind 2019 levels, while demand from small and mid sized customers has largely recovered 2019 levels.
Speaker Change: As noted earlier these are business continued to struggle throughout the year, both from an occupancy and average rate perspective in markets like Savannah, Napa and Phoenix.
Speaker Change: Occupancy and rate levels, and <unk> appear to have stabilized and Charleston, and Santa Barbara both grew revpar for the year.
Speaker Change: Our significant resorts in San Diego, and Orlando, both experienced very competitive leisure environments throughout the year.
Speaker Change: Now turning to group for the year, our same property group rooms revenue, excluding Scottsdale exceeded 2024 levels by 5%.
Speaker Change: Our performance reflected some softening in group business at our large resort hotels with stronger group results in our urban and suburban markets business in the fourth quarter was generally in line with the full year.
Speaker Change: Now turning to expenses and profit fourth quarter same property hotel EBITDA was $62 9 million a decrease of <unk>, 6% compared to the fourth quarter of 2023, resulting in 120 basis points of margin erosion.
Speaker Change: Excluding Grand Hyatt Scottsdale fourth quarter same property hotel EBITDA was $63 million flat as compared to the fourth quarter of 2023 reflects a 68 basis points decline in margin.
Speaker Change: On a full year basis same property hotel EBITDA was $255 4 million.
Speaker Change: And EBITDA margin decreased 189 basis points.
Speaker Change: Excluding Grand Hyatt Scottsdale same property hotel EBIT margins decreased 64 basis points as compared to full year 2023.
Speaker Change: Our fourth quarter and full year 2020 for margins, excluding Grand Hyatt Scottsdale continues to normalize and we saw increases in full time equivalent employees and wage rates throughout the year.
Speaker Change: <unk> control improved throughout the year as our hotels lapsed significant increases the impact of 2023.
Speaker Change: In the fourth quarter food and beverage revenue declined slightly as outlet revenues increased while banquet revenues decreased.
Speaker Change: Revenue from other operating departments grew significantly, particularly in spine, <unk>, which were both up double digits.
Speaker Change: On the expense side rooms, departmental profit improved by 49 basis points compared to the fourth quarter of 2023 with an increase in cost per occupied room of just 1%.
Speaker Change: Food and beverage margins declined 79 basis points, a result of the mix of outlet versus banquet business.
Speaker Change: AMG and utility expenses continued to be well controlled of just two 2% and one 7% respectively compared to the fourth quarter of 2023, while sales and marketing and repairs and maintenance expenses were up five 9% and eight 5% compared to the fourth quarter of 2023.
Speaker Change: We continue to see significant increases in sales and marketing expenses as a result of royalty expenses and digital marketing.
Speaker Change: Repairs and maintenance expenses continue to increase as cost for qualified labor and contracted services continue to grow.
Finally, turning to Capex during the quarter and year ended December 31, 2024, we invested $24 4 million and $146 million and portfolio improvements respectively.
In 2020 for some of the significant projects. We completed included the renovation of all meeting rooms at Waldorf Astoria, Buckhead and substantial restaurant renovations at Ritz, Carlton Denver, and Bohemian Hotel Savannah Riverfront.
Speaker Change: In addition, we renovated lobbies and upgraded the heavily beds at both Western Oaks in Galleria.
Speaker Change: At Western Galleria, we also renovated the lobby and restaurant relocated and substantially upgraded the fitness facility and added a concierge lounge and meeting space at.
Speaker Change: At the Marriott woodlands, we renovated the lobby restaurant and bar and adding them.
Speaker Change: In addition, we began a comprehensive program that they can select upgrades to guestrooms at several of our largest hotels, including Hyatt Regency Santa Clara.
Speaker Change: AMSCO Airport and Renaissance Atlanta Waverly. These projects will continue into 2025.
Speaker Change: We also made progress on several significant infrastructure projects at Andaz, San Diego Fairmont, Dallas same score Airport Renaissance, Atlanta, Waverly, and the Ritz Carlton Denver.
Most notably we have now completed all of the major components of the transformative renovation of the former Hyatt Regency, Scottsdale resort and Spa Gainey Ranch November one 2024, the progress upgrading Grand Hyatt Scottsdale resort.
Speaker Change: As a reminder, this approximate $150 million project was completed in phases throughout these with the full year was completed in the first quarter of 2024, Guestrooms and corridors were completed on a phased basis throughout the year with certain premium suites in casinos finished in January 2025.
Speaker Change: Perhaps the most exciting component of the renovation from a revenue generation standpoint was the expansion of the Arizona ballroom renovation of all meeting spaces.
Speaker Change: Renovation of the existing ballrooms meeting rooms, and pre function spaces were completed in October 2024.
Speaker Change: The expansion of the Arizona ballroom by approximately 12000 square feet.
Speaker Change: Was available for groups in early 2025.
Speaker Change: We're also incredibly excited about the work we completed in the public areas, including the lobby, which has completely changed the look and feel of the resort.
Speaker Change: All of the hotels food and beverage venues were re concept and redesign.
<unk> opened on a phased basis between October 2024, and January 2025, and coordination with business levels.
Speaker Change: It couldnt be more pleased with the outcome and initial interest in these outlets for both hotel guests and the butter Scottsdale community.
Speaker Change: Finally upgrades to the building facade exterior lighting and exterior signage were all completed by the end of 2020 for the certain exterior projects, including renovation of the parking lots.
Speaker Change: To be completed in the summer of 2025.
Speaker Change: Significant planned renovations for the portfolio. In 2025 include the first phase of a comprehensive rooms renovation to begin in the fourth quarter at Andaz, Napa and renovation of Guestrooms and corridors and the Ritz Carlton Denver.
Speaker Change: <unk> planned to begin in the fourth quarter of the year.
Speaker Change: In addition in 2025, we will continue our ongoing program of incorporating select upgrades to guest rooms, and public areas at a number of our properties.
Speaker Change: These projects will be done based on hotel seasonality and are expected to result in minimal disruption.
Speaker Change: In addition, we expect to form infrastructure in facade upgrades and approximately nine hotels throughout the year.
ashish: With that I will turn the call over to Ashish.
ashish: Thanks, Barry and good morning, I will provide an update on three items, our balance sheet return of capital and full year 2025 guidance.
ashish: First on our balance sheet, the credit facility recast and bond issuance, we completed in the fourth quarter have resulted in greater liquidity and flexibility for the company.
ashish: We addressed all significant near term debt maturities, but for one mortgage loan that matures next year and is that a favorable interest rate.
ashish: At present, approximately three quarters of our debt is fixed.
ashish: We had approximately $650 million in liquidity at the end of January inclusive of an undrawn $500 million line of credit.
ashish: As to specific balance sheet actions since we last reported the bond financing. We completed in November was well received we upsize the issuance to $400 million and utilized proceeds to pay off bonds that were slated to mature in August of this year.
ashish: In January of this year the delayed draw.
ashish: Tranche of our term loan was funded thereby taking our term loan outstanding balance to $325 million.
ashish: As to our overall balance sheet position, we continue to have significant flexibility all but three of our assets are unencumbered, we have no senior capital.
ashish: And our net debt to EBITDA ratio was five four times at year end and we expect it to decline at Scottsdale continues to ramp up.
I want to now turn to our return of capital.
ashish: I have two specific items here are as follows.
ashish: During the fourth quarter, we repurchased over 500000 shares of common stock at an average price of $14 83 per share.
ashish: In 2024, we have repurchased a total of about one 1 million shares at about $14 per share representing about 1% of our outstanding shares at the start of 2024.
ashish: Our current board authorization permits the repurchase of an additional $118 million of common stock.
ashish: Turning to the second way, we have returned capital our dividend, we expect to pay a first quarter dividend of 14 <unk> per share.
ashish: Up from <unk> 12 per share last quarter.
ashish: This dividend equate level equates to an annualized yield of over 4%.
ashish: As to our payout ratio on an annualized basis. The dividend reflects just over 50% of 2024 funds available for distribution or fad.
ashish: Over time, we expect our payout ratio to return to pre pandemic levels in the mid 60% range.
ashish: The third item I would like to discuss is our 2025 guidance.
At the midpoint of the full year guidance. We issued this morning, we expect same property revpar to grow 5% versus last year.
ashish: Adjusted EBITDA increased 7% and adjusted <unk> per share to increase three 5%.
ashish: Getting into each of the components a bit more I will begin with same property revpar.
ashish: We expect Revpar to increase 5% at the midpoint of the range supporting these expectations for revpar growth or three items.
ashish: First is the strength of group demand in our portfolio.
ashish: 2025 group room revenue booking pace as as measured at year end 2024 is up 17%.
ashish: This is driven by a mix of healthy occupancy and rate growth.
ashish: We expect the growth to be three quarters, driven by demand in one quarter driven by rate.
Excluding Scottsdale group revenue pace is up 12% again about three quarters demand driven in one quarter ADR driven.
ashish: As a group on the books about three quarters of our expected 2025 group room revenue is already definite with one quarter left to book, which is typical for this time of year.
ashish: Group revenue production continues to be strong as well over the last four months through January of 2025.
ashish: Group production for 2025 increased 20% versus the same period in the prior year.
ashish: Excluding Scottsdale increased 13%.
ashish: Again, reflecting continued momentum in near term group booking activity.
ashish: Second a continuation of the improvement in business transient demand across our major markets as the stock is.
ashish: As expected excuse me in the second half of last year, we began to see business transient pick up more and we expect that to continue.
ashish: Our first quarter to date preliminary revpar growth of seven 3% reflects that recovery.
ashish: More specifically over the first seven weeks of 2025, our hotels located in Philadelphia, Denver, Pittsburgh Nashville in Buckhead, which are five of our urban hotels that have strong appeal to business transient guests had an average of 13 points of midweek occupancy growth.
ashish: Third Scottsdale is driving over half of our expected 2025, revpar growth as we recover from displacement from last year.
ashish: Scottsdale reflects approximately 300 basis points of our expected, 5% revpar growth.
ashish: The momentum in Scottsdale is growing.
ashish: As of the end of January 2025 group revenue pace.
ashish: Is ahead of 2019.
ashish: This reflects 2025 group ADR pacing nearly 30% ahead of 2019 levels.
ashish: Over 75% of our expected group revenues at Scottsdale are already definite.
ashish: Moving ahead alternative.
ashish: Next to hotel EBITDA margins for.
ashish: For the year, we expect margins to be roughly flat as compared to 2024.
ashish: While we expect growth in food and beverage and other revenues to outpace Revpar growth. We also expect expense pressures, which I will discuss in a moment.
ashish: First half margins are expected declined two declined slightly with growth expected in the second half.
ashish: Excluding Scottsdale, we expect full year margin to decline approximately 100 basis points due to higher expenses and our expectation that much of our revpar growth in 2025 will be driven by occupancy.
ashish: On operating expenses on a per occupied room basis, we expect hotel level expenses to increase about 4%.
ashish: Wages and benefits, which make up 45% of our hotel level expenses are expected to increase slightly higher than that.
ashish: All other hotel level expenses, which make up about 55% of our hotel level expenses are expected to decrease to excuse me to increase slightly below the 4% level.
ashish: As to adjusted EBITDA, sorry, we are guiding to a midpoint of $254 million for 2025.
ashish: By quarter. The weighting, we expect is about 25% for the first quarter about 30% for the second quarter nearly 20% for the third quarter and just above 25% for the fourth quarter.
ashish: The weighting is more in line with our pre Covid seasonality as we expect more normalized business and minimal renovation disruption this year.
ashish: While our full year adjusted EBITDA benefits from Scottsdale coming back online in a bit of growth across the remainder of the portfolio. There are some offsets.
ashish: These four offsetting items totaled $6 million on are as follows.
ashish: First as you May recall, we sold the Laurean hotel last year, it earned $1 million of EBITDA during our ownership period in the first half of the year prior to our sale.
ashish: Second we received $2 $3 million in business interruption insurance proceeds in 2024.
ashish: Third we expect interest income to be $1 million lower than 2025 versus last year.
ashish: And lastly, we expect cash G&A expense to be about $1 $5 million higher in 2025 as compared to last year.
ashish: To recap taken together these four items reflect about $6 million of headwind to adjusted EBITDAR.
ashish: And finally, moving on to adjusted <unk> per share our guidance of $1.64 at the midpoint reflects a $17 million expected.
ashish: Of an increase in adjusted EBITDA Ari.
ashish: Versus last year. It also reflects higher interest expense and higher income tax expense.
ashish: As to interest expense, our full year estimate is $4 million higher than last year due to mix, a greater mix of variable rate debt and less capitalized interest.
ashish: As to income tax expense, our full year estimate of $7 million higher than last year.
ashish: Recall, we had $5 million of favorability due to the release of evaluation allow.
ashish: Allowance in 2024.
ashish: Our 2025 estimate reflects income tax expense at a similar level to our initial 2024 guide.
ashish: Income tax expense is expected to be at a lower level than pre COVID-19, both due to the use of Nols and additional tax work that R.
ashish: Our team has completed.
ashish: Year over year, our guidance reflects a $6 million increase in <unk>.
ashish: On a per share basis that is about three 5% of an increase at the midpoint.
ashish: As we look ahead, we remain confident in the longer term earnings power of the company the completion of Grand Hyatt Scottsdale.
ashish: Its renovation and it's early ramp overall strong group pace and the rest of the portfolio holding its own in the face of expense pressure gives us confidence in our expectations for the year.
ashish: Beyond that we expect our investments over the last few years to drive superior earnings growth. As we look ahead, we expect <unk> per share to grow more significantly in future years as demand continues to improve the supply backdrop continues to be favorable and our hotel operators continue their efforts to manage expenses.
linear: And with that we will turn the call back over to linear to begin our Q&A session.
ashish: Thank you.
ashish: Please press star followed by the number one if you'd like to ask a question and then surely devices, Amit likely limit your attention.
ashish: And reminder, to please limit yourself to one question and one follow up and then return sticky.
Speaker Change: Our first question comes from Ari Klein with BMO capital markets.
Speaker Change: Your line is open. Please go ahead.
Speaker Change: Thank you and good morning, I was hoping maybe you can help unpack the Revpar guide a little bit.
Speaker Change: Group pace is up 12% I think excluding Scottsdale.
Speaker Change: You talked about improving.
Speaker Change: Business transient, but I got the Revpar guide at Scottsdale is around 2%.
Can you just provide a little more insight into that.
How you came up with that.
Speaker Change: Forecast.
Speaker Change: Sure Eric Good morning, Thanks for the question.
Speaker Change: Yes, as you pointed out obviously, our group pace is very strong going into the year and continues to be strong.
Speaker Change: It is definitely encouraging as we look at our guidance for the year.
Speaker Change: As you recall group business is about 30% of our business overall.
Speaker Change: So it's nice to feel good about where we are on that piece, but obviously the economic climate over royalty is creates a little bit more uncertainty still on these other components.
Speaker Change: If we look at this year versus last year, we are encouraged by some some improvement that we've seen on the corporate transient side and that we've talked about.
Speaker Change: But clearly we are still expecting.
Speaker Change: Leisure demand to lag.
Speaker Change: Where we were so if you kind of put all the pieces together.
Speaker Change: We obviously have a good amount of confidence in the guidance, we put out today.
But we don't want to completely hang our hat on group pace. This early in the year because.
Speaker Change: Because we still want to see where that plays out as we go along throughout the year and are clearly is just a lot more uncertainty at these other segments.
Speaker Change: Understood and then maybe just on Scottsdale.
A nice contributor this year.
Speaker Change: How much.
Speaker Change: Are you expecting it to contribute to EBITDA in 2025, I think the hotel did $23 million in 2019 and then.
Speaker Change: Given some of the broader challenges.
Speaker Change: Two on leisure.
Speaker Change: Your views on the timeframe to get pure that stabilization number of 42 million change in any way.
Speaker Change: Yes, what we have.
Speaker Change: We expect Scottsdale, so essentially.
About three years to get to stabilization so.
Speaker Change: Kind of a shorthand way of looking at it is probably kind of low 20% EBITDA. This year hopefully getting to the low Thirty's next year, and then getting to that stabilized number that we talked about for 'twenty six.
Speaker Change: Part of part of our strategy here was that we really looked at where we were in 19 before we got a lot of strength from.
Speaker Change: Clearly, how leisure demand propped up a lot of markets not only Phoenix Scottsdale, when you looked at specifically 2022, which was more of a high watermark for the hotel.
Speaker Change: So the way we're looking at getting to that stabilized number is really looking back a lot more of what our business mix was in 2019 and how we improve from there. So as you know a big component of what we did here was expanding the Arizona ballroom and Barry talked a little bit about that so from our perspective. The thesis is intact as far as where we were.
Speaker Change: To get to and what our mix should be going forward, we keep between group.
Speaker Change: And leisure.
Speaker Change: As we stabilize that hotel. So so really what we're seeing in the short term a little bit of pullback on the leisure demand in the markets.
Speaker Change: Unexpected certainly wasn't unexpected from the heights that we saw coming out of Covid, so getting kind of back them with a more normalized level that we saw on 19.
Speaker Change: It's not something that would undermine where we think we will get through with this resort.
Speaker Change: Yes, the two things I would add one.
Speaker Change: Marshall mentioned getting into the low $20 million range for this year, just one thing to keep in mind with regard to the seasonality of the property.
Storage, if you've looked at the business, we make 70% to 75% of our EBITDA in the first five months or so of the year. So obviously with the completion of the ballroom taking place.
Speaker Change: Towards the end of last year beginning of January.
Speaker Change: We're not going to see full <unk>.
Speaker Change: <unk> earnings in the first five months of this year just given the ramp there. So that's that's one piece and why the numbers kind of in the low $20 million range and the second thing I'll add is the production on the group side has been very strong if.
Speaker Change: If you look at the last four months that we have data for so that's October through.
Speaker Change: January of this year.
Speaker Change: Our pace was about 120% higher than it was in that comparable period at the end of 19 January of 2020. So.
Speaker Change: And that reflects 60% growth in room nights being booked and 40% higher rates so that.
Speaker Change: That combination, we think bodes well and we're just getting going on that on the group side in terms of having the expanded ballroom.
Speaker Change: And so on.
Speaker Change: All indicators are good in terms of the traction we're seeing.
Speaker Change: Thanks appreciate the color.
Speaker Change: Our next question comes from Michael Bellisario with Baird Your.
Speaker Change: Your line is open.
Speaker Change: Thanks.
Speaker Change: Good morning, everyone.
Barry: Hi, Good morning couple of questions for a couple of questions for Barry here.
Barry: Back to your prepared remarks, I think you mentioned softening group sort of outside of the urban and suburban locations can you expand on that what markets what assets why do you think that occurred.
Barry: Yes.
Barry: It was a trend that we had seen kind of set up for 2024 and a couple of markets in particular, specifically in Orlando and at Park Hyatt <unk> in Carlsbad, We've never had a great setup for group as we look at it kind of as we looked at it both in fore sight, but now looking at the benefit of hindsight.
Barry: We in those hotels, we clearly had some big benefit coming out of Covid in terms of.
Barry: Demand from corporate customers in particular that really kind of piled into the hotels in 'twenty, two and 'twenty three and while they didn't necessarily take a break in 'twenty four it was not as robust in terms of what our expectations were and a lot of the the holes were back filled with association business that had not been as evident.
Barry: In those markets in 'twenty, two and 'twenty three.
Barry: Looking ahead to 'twenty five both of those properties have excellent group prospects and are back to a much more normalized mix of corporate versus association business.
Speaker Change: Got it that's helpful. I just wanted to clarify that and then also on the loyalty cost that you mentioned any way you can quantify that in terms of margin impact in the year anything that you. Your operators can do with kind of the on peak off peak pricing to mitigate some of these cost pressures.
Barry: Yeah.
Barry:
Barry: It's really hard to put a number to it attracted in a meaningful way some of the things that.
Barry: We know and I think it's in many cases, it's part of why we're we're happy to have a.
Barry: Hey.
Barry: Branded portfolio now.
Barry: Now it is now in its entirety is that we generate a lot of loyalty.
Barry: And those programs for us, particularly with our largest brands and Marriott and Hyatt are driving a lot of loyal customers into our hotels. The offset is that we're paying when they are in the hotels. So.
Barry: Are there and so that's not I'm not talking about this is not about the redemption side. This is really about the the cost of what we pay to provide points for guest stays and we talk a lot about how with the brands. Some of the brands as you know are lowering those costs this year.
Barry: Two to us as the as the pair those points lowering the percentage of folio that Youre Bang, but as we continue to drive that business and get the benefit of the brands that's kind of the offset we're seeing and as we and in particular and in addition, as we drive more out of room spend we're driving and spending more dollars on those royalty costs as.
Barry: Well.
Barry: Okay.
Barry: So it's more about volume increasing in the underlying like for like cost per room, increasing at least in 'twenty four correct.
Barry: Yeah for sure.
Barry: Sorry.
Barry: To frame it that way I mean, it's all about where we are capturing more of our guests are card carrying loyal members of these programs and we're paying the cost of providing them their points.
Barry: Understood. Thank you.
Jewelry Huston: Our next question comes from jewelry Huston with Wells Fargo. Please go ahead. Your line is open.
Jewelry Huston: Thanks, Good morning, and you mentioned in your prepared remarks that the pipeline of what your underwriting right now has grown versus the last few years can you provide a little bit more detail around that.
Eric: Thanks, Eric.
Eric: Probably won't give you detail on what's in the pipeline, but what I will say if thats just a number of opportunities that are out there same set of increase a little bit so.
Eric: Thanks look we would underwrite that we would consider.
Eric: That could be interesting additions to the portfolio.
Eric: And that's not saying much because there wasn't a whole lot in the pipeline. The last couple of years. So we're just see I've seen kind of a modest improvement there of deals thats seem worthy of underwriting now I also obviously mentioned in my remarks.
Eric: We're going to be looking at that and.
Eric: In conjunction with all of our capital allocation decisions and clearly.
Eric: We continue to believe that there is a lot of value in our in our existing portfolio.
Eric: You've seen us over the last couple of years to be more active on the share buyback side than we've been in the acquisition side.
Eric: So we'll clearly look at both of those to see how we drive shareholder value going forward.
Eric: Okay, and then I think it was back in January you drew down $100 million or so for the term loan should.
Eric: For now we just view that as funding funding capex near term or.
Eric: So there will be more about share repurchases are being qualified for production.
Eric: Well I think.
Eric: I would just at this point, it's general corporate purposes, I mean, we have it on the balance sheet as cash in.
Eric: Look to utilize that if something compelling comes across in terms of acquisitions, but.
Eric: Also consider that some of the other capital allocation tools, we've implored employed in the past so.
Eric: Nothing more to say about that at this point.
Speaker Change: Okay, and then can you give us an update on how youre thinking about that trajectory of.
Eric: W Nashville Ebitdas.
Eric: After a flat EBITDA year.
Eric: Yeah.
Eric: As we've talked before I think 2024, it was very much a.
Eric: Transitional year for the property in terms of getting the mix right as we've talked about before the market as you likely know.
Was very soft on the leisure side compared to prior year, we did have good growth.
Eric: On the group side group was up.
Eric: Almost 6% last year, which was a very definitive part of our strategy and we also had growth in.
Eric: In business transient, which is again another market that we had had intentionally pursued so we feel good about the mix.
Eric: Of the hotel.
Eric:
Eric: Group business on the books for 2025 without giving a specific number is up.
Eric: Much more than the portfolio average overall, which we think bodes well and again as part of really a multi year strategy.
Eric: Two to position the hotel properly. So we think as we can layer.
Eric: We can layer business transient on top of that mid week at compressed pricing and hope for a better recovery in the market overall and continued absorption of the other luxury hotels on the leisure side, we think we're set up for a much better year there.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thank you and just as a reminder to ask a question. It still followed by one on your telephone keypad.
Speaker Change: Our next question comes from.
Speaker Change: Slash net with Keybanc.
Speaker Change: Your line is open.
Speaker Change: Hey, it's Josh <unk> on for Austin.
Speaker Change: Excluding the Grand Hyatt, Scottsdale, which markets do you expect to drive above average revpar growth in 2025.
Speaker Change: So outside of Scottsdale.
Speaker Change: Some of the markets that obviously.
Speaker Change: Obviously, you had big group components, given the strong bench of group base that we have we think will help us drop be after.
Speaker Change: The top end of our.
Speaker Change: Of Revpar.
Speaker Change: <unk> performance. So that would include some of our properties and in Houston as well as Orlando.
Speaker Change: Barry just mentioned Nashville, So that's another market, which we think will perform well. This year. So those are a few that give you a little bit of a sense of kind of.
Speaker Change: Now.
Revpar across the portfolio might might shake out.
Speaker Change: What I would say is that I think as we as we've looked at 2025.
Speaker Change: The kind of the spread between the moderate performers and the outperformers is much much tighter than it has been the last few years is really back at the almost the 2019 levels.
Speaker Change: Other than Scott other than Scottsville, obviously, but it's a very tight range.
Speaker Change: Of anticipated performance between the asset so there are no huge outliers, where we're expecting.
Speaker Change: Really significant growth nor are there markets.
Speaker Change: Okay.
Speaker Change: This decline and that's very different.
Speaker Change: And the way we've looked at guidance in 'twenty, three and 'twenty four.
Speaker Change: Okay. That's helpful. Thanks and.
Speaker Change: As a follow up what are you assuming for the west coast markets in 2025.
Speaker Change: We based on what based on what we saw continued through.
Speaker Change: Flash through.
Speaker Change: Through 2024, when we look we look to see continued growth, particularly on the business transient side in the northern California market, So for us, bringing in San Francisco and Henry Santa Clara, where we expect to see continued strength in rebound.
Speaker Change: From Tech business, it's off a very low base so.
Speaker Change: But we have seen last year and continued to see in the early part of this year a recovery in that as well.
Speaker Change: And obviously, our other markets, we expect some recovery in our leisure assets in California, particularly naphtha.
Speaker Change: Canary Hotel in Santa Barbara and then we're actually set up for a very good year at <unk> in terms of group and are hopeful that we'll be able to drive transient through there as well.
Speaker Change: Great. Thanks for the color.
David Katz: And our next question comes from David Katz with Jefferies.
Speaker Change: Your line is open.
Lee Chen: Hi, This is Lee Chen on for David.
Speaker Change: Just wondering if you can.
Speaker Change: Unpack a little bit on your assumptions at the low end and the high end of your guidance, particularly around your comments on.
Speaker Change: Macro economic uncertainty and leisure moderation. Thanks.
Speaker Change: Yeah sure when we when we look at.
Speaker Change: The high end versus the low end.
Speaker Change: Scott today was one component of that and how that's.
Speaker Change: If that comes in a little bit stronger than what our current expectations are that that will certainly help get us closer to the higher end.
Speaker Change: Piece of it is as we talked about we have a very strong group base right now so.
Speaker Change: If it turns out that business transient continues with the recovery that we've seen in the earlier part of the year.
Speaker Change: That will certainly be helpful too.
Speaker Change: <unk> demand thesis is.
Speaker Change: So really kind of a question mark here so.
Speaker Change: <unk>.
Speaker Change: Clearly, we don't necessarily deal with the same trends that some of our peers, though as it relates to international visitation.
Speaker Change: But just in general how strong the leisure market is over the summer could have some impact on whether we get.
Speaker Change: Got a little bit above the midpoint of the guidance first.
Speaker Change: First is below the guidance. So it's more about just some uncertainty around the transient side of the business, while we feel very good about where group stands right now.
Speaker Change: Great. Thank you for the color.
Speaker Change: Thank you we have no further questions. So I'll pass the call back to Marcel Gabor.
Speaker Change: Ladies and gentlemen.
Speaker Change: Thanks, Neal and thanks, everyone for joining us today as we mentioned in our remarks, we're very excited about where we are at Scottsdale. The finished product where we ended up there I'd like to thank our project management group for their hard work that went into getting the projects are complete.
Speaker Change: Wanted to have seen the offset is.
Speaker Change: Extremely.
Speaker Change:
Speaker Change: Out of the work that we've done there and excited about what that can do for us going forward.
Speaker Change: Clearly we are still in an uncertain environment from an economic standpoint, but we feel very good about the quality of the portfolio, where we are positioned to go forward I think we are well positioned to do that.
Speaker Change: Outpaced the industry over the next few years. So thanks again for joining us and look forward to seeing many of you over the next few weeks.
Speaker Change: This concludes today's call. Thank you very much for joining you may now disconnect your lines.
Speaker Change: [music].