Q2 2025 Xenia Hotels & Resorts Inc Earnings Call

Hello everyone and welcome to the senior hotels and resorts in Q2 2025 earnings conference. Call my name is Carla and I will be coordinating your call today during the presentation, you can register to ask questions by pressing star. Followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I will now hand you over to your host, Alder, Martinez manager, of finance to begin. Please go ahead when you're ready.

Thank you, Carla.

And welcome to Xenia hotels and resorts second quarter, 2025 earnings call and webcast.

I'm here with Marcela boss, our chair and chief executive officer, Barry Bloom, our president and Chief Operating Officer and the T. Shaw are 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.

And the piece will conclude today's remarks on our balance sheet and Outlook.

We will then open the call for Q&A.

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.

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.

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, August 1st 2025 and 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 second quarter earnings release which is available on the investor relations section of our website.

The property-level information we will be discussing today pertains to the same property basis for all 30 hotels, unless specified otherwise.

an archive of this call will be available on our website for 90 days.

I will, I will now turn it over to Marcel to get started.

Thanks. Good morning, everyone.

We are pleased with our second quarter performance, as our portfolio delivered results that meaningfully surpassed our expectations.

Both revenues and hotel ibida increase significantly, compared to the same period last year.

Which is especially encouraging during a time, when industry performance continues to be choppy in an uncertain, microeconomic climate.

Performance at our recently, renovated, and up brand at Brand, high at Scottsdale Resort continues to be on track.

And was the main driver of our 4%, same property, RevPAR increase for Q2 2025, for the quarter.

This 4% increase was driven by 140 basis. Point increase in occupancy and a 2% increase in average daily rate.

We saw a very strong group business demand throughout the portfolio during the quarter.

This strengthened group business drove substantial food and beverage revenue increases at a number of our properties.

Which greatly contributed to an 11% increase in same property. Total rep bar compared to the second quarter of last year.

For the second quarter of 2025, we reported net, income of 55.2 million adjusted ebit of 79.5 million and adjusted ffo per share of 57 cents.

Which was an increase of 9.6% compared to the same quarter last year.

Second quarter of same property Hotel. Ibida of 84 million was 22.2% above 2024 levels.

And hotel EBITDA margin increased to 269 basis points.

Excluding Grant Heights, Scottsdale second quarter Hotel ibida, increased 11.5% and hotel. Evida margin increased at 148 basis points.

The majority of our second quarter outperformance was the result of outsized gains in highly profitable catering. Revenues that substantially exceeded our expectations. At a majority of our group oriented hotels.

My coupled with lower-than-expected expense growth across our portfolio.

This fueled solid operating margins and hotel ibido growth.

Additionally, our ibid down margins benefited from the timing of approximately 1 and a half million dollars in property tax refunds that were received during the second quarter.

In the 42nd quarter, Same Property Group room revenues increased by 15.6% as compared to the same period last year.

An increase by 7.6% when excluding Grant highs Scottdale.

Corporate transient, demand continues to recover slowly, while Leisure demand has continued to normalize over the past several months, and into the summer season.

Performance at the newly up. Branded Grant High at Scottsdale Resort has been encouraging and revenues and bottom line performance are tracking in line with our underwriting expectations thus far.

Although leisure demand in the Phoenix-Scottsdale market has been a bit softer this year.

The trade directory of group demand continues to improve.

Both in the quarter and for the future.

The property saw Group market share improve each month during the second quarter which culminated in the resort exceeding 2019 group room nights and revenue during the quarter.

And achieving above fair share in, its competitive set for the first time. Post renovation in June,

The group's success translated to extremely strong banquet and catering revenues, with the resort producing the highest such revenues on record for the month of June.

We are pleased with the progress that has been made thus far and remain confident in our investment thesis and the earnings growth that we expect this outstanding property to deliver over the next several years.

In addition to the strong growth in Scottsdale, during the second quarter, we saw outside the refer growth in Pittsburgh, Orlando, and our California markets.

Fairmont Pittsburgh had an extremely strong quarter, which was aided by the US Open taking place at Oakmont in June.

In our California markets, we experienced particularly strong ref Park growth in Santa Barbara, San Francisco, and Santa Clara.

On the transaction side, during our last earnings call, we discussed the sale of Fairmont Dallas, which was completed early in the second quarter.

as a reminder, we sold the hotel for 111 million generating, an unlevered irr of 11.3%, Over Our approximately 14 year old period,

We estimate that approximately $800 million in near-term capital expenditures would have been required to maintain an improved market position for the hotel.

And we believe that the sale of the hotel was a superior Capital, allocation decision for the company.

Now, turning to our capital expenditure projects, we continue to project that we will spend between $75 million and $85 million on property improvements during the year.

Which as you will recall is an approximately 25 million reduction from the amount we projected at the start of the year.

We strongly believe we acted prudently to reduce our capital expenditures in an environment in which tariffs on imported goods remain uncertain and could be meaningful.

Our project management team has done an outstanding job in evaluating all ongoing and upcoming projects to mitigate any impact to the extent possible.

Including identifying alternative sources for goods and materials.

Variable provide an update on our ongoing and upcoming capital projects during his remarks.

Booking ahead in the second half of the Year shaping up in line with our prior expeditions.

Fourth quarter.

Meanwhile, corporate Transit and demand is continuing to recover slowly, but Leisure demand continues to normalize.

Consistent with our expectations at the start of the year.

We estimate that. July refer growth for our 30 Hotel. Portfolio was slightly negative compared to the same period last year.

While this is slow down from the ref bar growth. We experienced in the second quarter. We had anticipated this as the summer months, are more dependent on Leisure demand, that as we expected is a bit weaker in last year.

Additionally, growth was very strong in the Houston market in July of last year in the aftermath of Hurricane Barrel.

When we exclude, our Houston hotels, we estimate that ref work for the remainder of the portfolio. Increased by approximately 3% in July,

Given recent trends, we have increased our full-year guidance for adjusted EV and adjusted FFL to reflect our outperformance in Q2 and an unchanged outlook for the second half of the year.

While we expect Revenue growth to be muted in the third quarter.

We are anticipating a stronger fourth quarter as our group Revenue, pays for the for the quarter continues to be highly encouraging.

We believe that owning a portfolio of luxury and upper upscale hotels or Resorts that are not heavily dependent on inbound International and government demand is particularly beneficial in the current economic environment.

And we saw the benefits of this in our second quarter results.

We continue to be optimistic regarding the future growth prospects for our high-quality portfolio and our ability to drive shareholder value through Superior. Capital allocation decisions, such as the successful disposition of Fairmont Dallas and the repurchase of almost 6 million shares of our common stock this year, are expected to contribute to our valuation.

I went out to turn the call over to Barry to provide more details on our operating results and capital projects.

Thank you Marcel. Good morning, everyone.

For the second quarter our same property. Portfolio, rep bar was 195.51 based on occupancy of 72.3% and an average daily rate of 270.42. The increase of 4% as compared to the second quarter in 2024.

Excluding Grant Height, Scottsdale, for the second quarter, the rep bar was $194.87, which reflects an increase of 0.4% compared to 2024.

This increased reflected, the decrease of 40 basis points in occupancy for the period and an increase of 0.9% in average daily rate as compared to the second quarter of 2024.

Our top performing hotels in the quarter. Were Grant Heights Scottsdale with red bar up, nearly 150% from on Pittsburgh up, almost 30%.

Kimpton Canary Santa Barbara up, 10% Park, height, Aviara Hyatt, Regency Santa Clara and Marriott San Francisco Airport each up, approximately 8% and height Regency Grand Cypress of just over 7%.

Strength in group business and continued improvement in corporate demand was the driver behind the success at most of these properties.

Hotels that experience our weakness compared to the second quarter of 2024 included Royal Palms which suffered from software Leisure demand. Both Portland hotels, which experienced an anticipated decline in Citywide convention demand.

Marriott Dallas, which lapped last year's solar eclipse and saw a softer city-wide convention, demand in Western Oaks and Galleria, which experienced softer in-house group, demand,

Looking at each month of the quarter compared to 2024 April repar was 207.24 up. 3.7%.

May rip apart was 194.80 up 3%, in June. And April was though it was 184.50 up to 5 and a half percent.

We've seen continued recovery in corporate and group rates, and we continue to achieve significant repar growth across the portfolio, on Tuesday, and Wednesday. Nights with rep are growing at Scottsdale at 4.6% and 3.6% for the quarter respectively, with growth in both, occupancy and rate.

This growth was mitigated by rapid declines on weekend and Monday nights. The documents, he declines related primarily to softening Leisure demand.

Business from the largest corporate accounts across our portfolio. Continues to grow significantly, although still meaningfully behind 2019 levels.

We note that, compared to 2019, which excludes Hyatt Regency Portland and W Nashville during the second quarter, daily occupancy still trails by approximately 6 to 8 percentage points midweek. Additionally, corporate business from small and medium-sized accounts has recovered much more significantly.

Recent performance on our corporate Transit driven hotels, gives us confidence that we still have significant growth ahead particularly during High business, travel demand periods.

Group business continues to be a bright spot across the portfolio.

For the second quarter, excluding Grant Heights Scottsdale, group room revenues were up 7.6% compared to the second quarter of last year.

growth was driven more significantly by room nights, which were up 6 and a half percent and by average rate which was up 1%

Food and beverage revenue from groups was particularly strong in the second quarter, as high-quality corporate groups continued their trend toward higher-end catered events.

Now turning to expenses and profit second quarter, same property, total revenue, increased 11% compared to the second quarter of 2024.

Hotel. Eid do margin improved by 269 basis, points, resulting in hotel. 84 million, an increase of 22.2%.

Since Grant Heights, got still was undergoing. Its transformative renovation last year, the following pnl analysis is presented for the remainder of the same property portfolio, which had excellent Resort results for the quarter.

Hotel was 77.4 million and the increase of 11.5% on a total of 11 increase of 5.9%, resulting in a margin Improvement of 148 basis points.

Rooms department expenses increased just over 3%, on 0.4% RevPAR growth.

Food and beverage Revenue growth is outstanding with overall growth of 12.7%.

And banquet Revenue growth of nearly, 20% driven by higher quality, corporate Group business compared to the second quarter of last year.

Having margin improvement of over 300 basis points.

Other operated Department income including Spa parking golf revenues was up 5% and total over increased by 5.9%.

In the undistributed Departments expenses and AMG and sales and marketing were very well controlled AMG declined by 1.1% compared to last year while sales and marketing expenses. Grew by just 2.1% reversing the increasing Trend, we've experienced over the past, several quarters.

Property operations and utilities expenses for a 4.8% and 7.3% respectively.

According to capex during the second quarter, we invested $18.5 million in portfolio improvements, which brings our total for the first half of the year to $50.8 million.

These amounts are inclusive of capital expenditures related to the substantial completion of the transformative renovation of Grand Hyatt Scottsdale.

We made significant progress during the quarter on select upgrades to guest rooms at a number of properties, including Renaissance Atlanta Waverly, Marriott San Francisco Airport, Centric, Key West, and Regency Santa Clara.

Grand Bohemian Mountain Brook, Grand Bohemian, Charleston, and Kempton River Place.

This work will continue throughout the year as being done based on hotel seasonality and is expected to result in minimal disruption.

Expect to commence work in the fourth quarter on a limited room renovation at Fairmont Pittsburgh, and a renovation of the M Club at Marriott Dallas. Downtown,

At Grant Heights Scottsdale. We began work on improvements to the building facade and parking lot in the second quarter with completion expected in the third quarter.

Additionally, we continue to perform significant infrastructure upgrades at 10 hotels this year, including facade waterproofing filler, Replacements, elevator, and escalator modernization projects and fire alarm system, upgrades with that. I will turn the call over to a team.

Thanks very much, Barry. I will provide an update on 2 this morning, our balance sheet and 2025 guidance.

At quarter end, we had approximately $1.4 billion of outstanding debt, with just over 3 quarters of our debt hedged.

Or hedged to fix.

Our weighted average interest rate at quarter end was 5.7%.

Additionally, a quarter end. Our leverage ratio was approximately 5 times trailing 12 months.

Net debt to Eva.

Pro-forma for the sale of Fairmont Dallas. Our leverage ratio was 5.2 times.

We expect our leverage ratio to further decline as Grand Hyatt Scottsdale continues to stabilize.

As a reminder, we have no preferred Equity or senior capital.

Our long-term leverage target is in the low 3 to low 4 times range.

our debt maturities continue to be well, laddered

and at quarter end, our debt had a weighted average duration of 3.7 years.

The vast majority of our properties. In fact, 27 of our 30 hotels are uncomfortable

As to liquidity, we finished the second quarter with $173 million of available cash, excluding restricted cash.

Our 500 million revolver remains undrawn.

Therefore total liquidity was 673 million.

Our board authorized a second quarter, dividend of 14 cents per share.

if annualized this reflects an approximate 4.5% yield on our current share price,

For distribution or fad.

Our long-term Target is a payout ratio of 60 to 70% of fad consistent with our pre-pandemic payout range.

During the quarter, we we repurchased 35.7 million of common stock

since the year began, we have repurchased 71.5 million of stock, which equates to 5.6% of our outstanding shares at year end 2024,

Our year-to-date weighted average buyback price is 12.58 cents per share.

We have $146 million of remaining capacity under our share repurchase authorization.

We continue to believe our shares are a good value. Given the outlook, our balance sheet, and relative to other uses of capital.

Turning next to my second topic, our current 2025 full year guidance.

We are increasing our current full year guidance for adjusted Ava by 8 million dollars at the midpoint.

To 256 million.

The increase reflects the carry-through of our second quarter B.

With no change in Outlook, overall, outlook for the second half.

As to the specifics of each, of the third and fourth quarters. And this is important from a modeling perspective, our Cadence of earnings has evolved slightly

Our expected adjusted EBITDA waiting is as follows in the third quarter. We expect to earn about 15% of full-year adjusted EBITDA.

and in the fourth quarter, we expect to earn a quarter of full year adjusted EBA

The rationale for this light change to waiting is threefold as follows.

First, we have fine-tuned our quarterly estimates, as we have a better grasp on the seasonality of our portfolio.

Second the timing of approximately 1.5 million dollars in tax. Refunds moved from the third quarter.

To the second quarter.

And lastly, relative to our prior forecast, our properties expect a smooth soft leisure demand in the third quarter and a touch better group demand in the fourth quarter.

Moving ahead to a revpar Outlook. The midpoint is unchanged at 4 and a half percent growth.

Exclusive of grand high at Scottsdale. We expect rough part to grow 1.5% for the full year which is consistent with our prior guidance.

Our implied second, half revpar, guide of approximately 3.6% growth at the midpoint.

Reflects a flattish summer, followed by better growth in the fall.

Again, driven by Scottsdale.

Exclusive of Scottsdale are a full year. Guidance implies less than 1% back half. Repar growth across the portfolio.

The key months for us are September and October and we expect our strong group based provide compression to enable our properties to optimize the transient segment.

Turning to group business, which, by way of reminder, was about 35% of our overall mix in 2024.

Which is up a couple points versus prior years. Our Outlook continues to be strong.

As of the end of June route room Revenue, pays for the second half is up 16%.

Excluding Grand High at Scottsdale, it's up 7%.

While this reflects an expected, moderation from a few months ago, it says, it's it sets us up. Well, for the second half, particularly the fourth quarter and we remain on track to have a stellar group year.

Looking ahead to 2026 group Revenue pace is up with over 40% of our estimated group rooms revenue for 26 definite, as of June 30th.

Exclusive of Scottsdale group. Room Revenue pays is up in the low. Teens percentage range for 2026.

Inclusive of Scottsdale group pace is up in the mid teens percentage range.

We are seeing strengths across the portfolio.

And this speaks to the quality of our assets: the investments we have made in meeting space and group amenities, and the power of branded hotels in attracting group demand from the association, corporate, and leisure segments.

So again, early indications are that 2026 will be a strong group year.

Can reach the high 30% range of our rooms revenues.

Given the increasing importance of non rooms Revenue that is driven by this group demand. We have introduced total revpar disclosure in the table on page 3 of our earnings release

Moving ahead to hotel EBITDA margins, the drivers of second quarter strong gains include banquet and catering profitability and expense controls in the undistributed areas of the P&L.

We expect these Dynamics to continue in the second half albeit at a lower pace.

In addition, second quarter margin benefited from property tax refunds, which boosted margins by approximately 60 basis points in the quarter.

Overall, we expect second half Hotel, even down margin to be flat to last year.

Excluding Scottsdale we expect Hotel a bit down margin for the second half to decrease approximately 100 basis points.

Our guidance for interest expense income tax expense and capital expenditures are unchanged.

We expect the cash GNA expense to increase by million dollars due to higher incentive compensation, because of the increase to full year earnings.

And finally, our adjusted ffo per diluted share.

Guidance midpoint is at $A173, which is an increase of $0.11 at the midpoint.

This reflects, both the increase in adjusted debit diary as well as the beneficial impact of share repurchases.

Relative to 2024 our guidance reflects over 8% growth in adjusted ffo per share.

In closing our strong performance in the second quarter, reflects many of the positive attributes of our portfolio, we have a high quality premium, all branded collection of assets that benefit from group as well as transient demand.

We are seeing the benefit of having multiple earnings levers at the property level.

And as we look forward, we are encouraged by the supply Outlook.

Annual us lodging Supply growth for higher-end. Hotels is expected to fall from the 1 and a half percent range at present

to 210 of 1% by 2028.

Overall industry Supply growth is for 22,028.

Is even lower.

At 1/10 of 1%.

If this comes to fruition as projected, it will make for the best backdrop for topline growth that we have had in the last two decades.

That concludes our prepared remarks and with that we will turn the call back over to Carla to begin. Our question and answer session.

Thank you. We will not be in the question-and-answer session. If you'd like to ask a question, please press star, followed by 1 on your telephone keypad. If you change your mind, please press star, followed by 2.

To ask you a question. Please, ensure your device is unmuted. Locally, we will make a quick pause here for the questions to be registered.

And the first question comes from David K with Jeff.

Hi, good morning everyone. Thanks for all the details and thanks for taking my question. So I I I wanted to just sort of float the conversation about stock BuyBacks. Um, and you know, they they obviously are not a sort of broad-based cure all, but, you know, given that you've come through a capex cycle, clearly quite well. Um, and you know, I think the, the sort of valuation discussions. I think have been, you know, had many times over. How are you thinking about BuyBacks and and potentially that, you know, the prospect of maybe ramping those

Hey, David, thanks for the question. I think we continue to think BuyBacks are uh, a good tool to drive shareholder value. And I think, you know, you've seen us be very active on that front, maybe more so, uh, than others in the, in the peer set. Even um, you know, and even you know, this year, I mean we've bought um, you know, a large amount of our float back thus far, uh, at a price that's roughly in line with where we trade today. So, I think we remain very open to it. We've been very active with BuyBacks and, you know, on the counterbalance, I, you know, there are obviously some including our leverage level and being mindful of that. So, um, you know, I would say we continue to utilize it as a tool, uh, to drive, uh, value for our ownership base.

Follow up, you know, so far we've obviously come through earnings, and I guess I would, you know, ask your collective help in just classifying some of the dispersion we've seen in outlooks, right? Where, you know, you obviously have fully loaded new assets that are helping the group, right? But some of the group commentaries have been mixed. Some of the, you know, leisure transients seem to be a bit mixed. Some of the BTS is mixed. How might you help us explain?

Sort of what we're seeing out there.

Yeah, sure, David. I from my perspective, you know, really focusing on our portfolio obviously. Uh, we're not very dependent on, on kind of large Citywide conventions. Uh, and I think some of our peers benefited from that a little bit last year and some of the markets where they have a little greater concentration than we have. So we didn't necessarily benefit from a, from a great group set up last year but we've had a really good group group set up this year uh and also go into next year as as a teacher talk about a little bit or you know kind of the early numbers on our pace for next year. So we we've obviously invested a good amount of money over the last several years too and upgrading uh a lot of our meeting facilities that some of our larger hotels, you know, the new Ballroom that we created, that's high green sea, Grant Cyprus. Clearly, what we did here very recently, at Scottsdale significantly, expanding the ballroom space there, but we've spent a

Good amount of money of operating our other facilities as well. So uh I think it's set us up well for for really capturing a lot of the higher end, corporate business, uh corporate Group business. Um we're also seeing you know, a bit of a pick up now in the associations, uh, on the group side. So for us as we got into the year um and I and I mentioned this a couple times and I prepared remarks at the way things are playing out for us, are are very similar to what our expectations were at the beginning of the year, which was a great group set up. Um seeing this kind of continued. Um,

Obvious, you know, relatively slow. But a continued Improvement on the corporate, transient side on the midweek business, and we expected some softening and Leisure demand, and we've, we've definitely seen that in the early part of the summer. Now, you know, we obviously hear a lot of the commentary too from other travel companies, including some of the airlines talking about, you know, expecting to see a little bit bit, bit, bit of a pickup as we get, uh, into August September. And we certainly hope to see some of the benefit of that. But, uh, as I said, the way things have played out for us, this year are very, you know, very much in line with what we expected at the beginning of the year.

Got it. Thank you so much. Appreciate it.

David.

Thank you. The next question comes from a recline with BMO capital.

Uh, thanks and good morning. Um out of room, span seem to be a lot better than expected uh in the second quarter. And I guess as you look out to the second half of the Year, while the red part grows expectations, haven't changed. Have your expectations around the out of room, piece change, or were there some benefits in the second quarter, that may not necessarily be repeatable.

Thanks.

Well, I was able to, uh, thanks. Sorry for the question. It, it was very strong for us in the second quarter and certainly was a, was a bit of a surprise to the upside. Um, we obviously had a, you know, good, a good group base going into the quarter include catering phase but the way that things, um, you know, fell out that there was just a good amount of, of, of additional spending from

from groups that were saying at the at our hotels or Resorts during the quarter. So as we look kind of towards the second half of the year and I teach talked about that in in his comments regarding kind of our updated guidance. Uh you know the third quarter is is is a little bit weaker uh from a group perspective than the fourth quarter. The fourth quarter sets up really well for us. We have very strong group based on the fourth quarter. So we could certainly see a scenario where in the fourth quarter, uh, we'll see some out outside spending on the on the catering and banquet side as well, uh, but it's going to be a lot more muted than the third quarter, that is historic.

Lie. Obviously a driven a little bit more by Leisure anyway, but also in the way that the seasonality of our portfolio sets up is just the weakest quarter, uh, from a seasonality standpoint. So so I wouldn't expect to see a lot of that outside spending and and the third quarter, uh, but to have some potential for that in the fourth quarter,

Well let me let me start with the second 1 um that the expectation for Scottsdale and the low 20s that has not changed. So we're still, you know, expecting to be in that range.

and in the investor presentation we, uh, published this morning, we have, you know, kind of the Outlook uh, for

The next 2 years, uh, provided in there, as well. So in the 30s next year in the low 40s, the year after um,

To your, to your first question in terms of uh booking uh, velocity and Pace. I, you know, I think um

You know, certainly, our guidance reflects kind of a, a more muted uh Demand on the Leisure side. And as we started the year, we thought Leisure was going to be, uh, down. And I think that's, that's consistent with how we feel today. So, uh, I would say that's where you've seen, maybe not as much of the transient, uh, pickup is on the Leisure side in the near term. Uh, but we continue to feel good about group and the production that we're doing, um,

Both in the year and for the future even, you know in recent weeks. Uh, I don't know if Barry or Marcel you have anything to add on that on

No, I mean I think you summarized that well.

Yeah. And as it related to the reporter, we always knew that that July was uh, was going to be a little weaker. Um, you know, particularly because of some of the comparisons of the last year and we we highlighted some of the strengths that we saw in Houston July last year. Um, clearly these demand is a little softer. Like we talked about um, you know, the group demand is not quite as robust in a month, like July in our, in our portfolio with the seasonality that we have in our portfolio. Um,

So that's the that's kind of how the third quarter is shaping up. You know, when I'll add 1 thing to the to the Scottsdale comments that's uh, that a team made, which is, you know, we've seen really good results on the group side that that property obviously and I and I highlighted some of those uh some of those things that we've seen over the last last few months of the property. So we definitely have seen Group business. Be a little bit stronger there. This year than anticipated at the beginning of the year, uh, and also some that out of out of room spending that we definitely got in Scottsdale as well. Um, and overall Leisure demand is a little bit softer in the, in the Phoenix, not still market. So that's that's offset. A little bit of of that really good strength that we've seen on the group side. So that's why our expectations for the full year. Um, you know, the first year coming out of renovation has haven't changed at this point.

Appreciate the color. Thank you.

I'm sorry.

Thank you. The next question comes from Austin Bmid with Key Bank, Capital Markets.

Thanks, uh, good morning, everyone. Um, appreciate all of the details on the group Pace. You provided um, is, is this mostly, you know, volume driven. Um, just giving kind of the ramp that you've talked about with Scottsdale and and I guess what, what are you seeing on the rates side for group, given some of the upgrades to this space, that that you highlighted more so

Yeah, I mean, I'll I'll start um, you know, in terms of the second half, its 2/3, volume 1/3 rate. Um and and as we look into next year it's it's a similar balance uh 2/3 volume 1/3 rate and that obviously does reflect uh you know Scottsdale and picking up additional room nights there. Um if you strip out Scottsdale, it's a little bit more. Uh even half half demand, half rate for the balance of the year. So look, I I think um, you know there's there's a story on both those uh you know, obviously on the demand side uh we're seeing um not only at Scottsdale but at other locations where we've made improvements uh and expansions to meeting space like at Grand Cyprus here in Orlando. Um we're seeing the ability to drive more

Uh, Group business into the property, uh, given additional meeting space and then on the right side. Um, yeah, we have, you know, made Investments that, uh, improve

Uh, the uh, amenity offering and have enabled us to drive better quality groups as well. So, uh, higher rated group. Um, so those, um, you know, we're we're glad to see kind of, uh, you know, both pieces come together and as, uh, several of our properties both experienced both good group demand, as well as uh, the ability to better optimize uh, the group business based on the Investments we've made.

Is excluding Scottsdale, uh, the majority of this um, you know, uh, excess of 6% came from group room nights, uh, and over low level, 1% came from came from raid. Now, the benefit of that. Obviously, if you look at the rest of the portfolio is that it drove so much of the out of room spending. So with more people in the building for these group events, uh we got a lot more ancillary spending out of that so it's not just a matter of kind of pushing the the ADR on the group room nights. It's obviously when you look at that total ref bar picture where it was very beneficial for us.

And strategically, it was not accidental. We worked with the properties last year on some very intentional strategies for 2025 and 2026 around filling group.

Pockets where group might not have traditionally been. And that that's going to come that's going to drive room nights, but it may come at a lower rate so where we're booking business into the peak periods, we're growing rates significantly, but a lot of what you see in the blending of that with room with overall rooms Revenue up so much is that the hotels are placing Group business in areas that are of the calendar that are harder to fill. So we're very pleased. So we were very, very pleased with that. And the, and the dynamic of the occupancy versus rate. Um, is I think is exactly where we had hoped. It would be looking at this year and looking ahead into 26.

That is a great points and thank you for the detail. Um, the team also flagged the attractive growth in some of your Northern California assets. This quarter do do you see that ramp continuing as you look into the booking window? And and just curious if it's accelerating or or just you know, a continued steady Improvement and are you starting to see that growth in a flow through to the bottom line? You know, given maybe some of the expense pressures um you know that that have been discussed in some of those markets. Thanks.

Yeah, great. Great question, Austin. We are definitely seeing.

Continued increase in in demand in the northern, California markets, particularly from the higher quality, corporate demand, and particularly on week nights that there's no doubt is growing as it relates to kind of the tech profile, the AI profile, all of the things that are happening out there.

Um, very obviously very positive. Uh, the challenge out there is that it is very high wage cost market and its markets where wage pressures have continued. Probably more so than we've seen in some of the other markets. So we're doing better. We're certainly increasing uh ebita we're doing better IBA margin but it's it's really tough to keep ahead of of the cost pressures. We're experiencing in those in those 2 hotels, 2 specific hotels, High re Santa Clara and Mar Santa Square airport. But again we're pleased, we're pleased with the the Cadence of growth. We're pleased with what we're seeing on a 4.

Looking at our basis, we're pleased with how well our hotels are performing relative to their competitive sets.

And I'll just add for 26, and we look ahead the Northern California. In terms of group pace is, uh, is tracking even better than the, the low teens that I indicated for the portfolio at Scottsdale. So certainly, those are, uh, expected to be drivers over the long term. And we're starting to see, you know that, um, recovery um, really take more strength, uh, as we look forward here and over the next year.

Great. Thanks everybody.

Thank you.

Thank you. So this is a reminder to ask you a question, is start 1 on your telephone keypad? The next question comes from Jack Armstrong with Wells, Fargo.

Hey, good morning. Thanks for taking the question. Can you share an update on any broader changes that you're seeing in consumer behavior? Any insights on the book of windows or...?

Are those generally suitable and and do the preliminary read on July right before?

Um, yeah, Jerry Barry drunk with. So it's, um, so you know, we talked about July that July was uh again was a tough comparison for us to place on what we saw at the Franklin use in last year and and

Done some weakening that we did see in Leisure demand of the early months of the summer. So, I spoke about that a little bit. Our, our X Houston refer number was up 3%. Uh, we estimate um, and, um, including Houston, it was, it was down slightly. Um, so we definitely saw some weakening, um, on the Leisure side, over the summer, but not unexpectedly. You know, we had again, kind of

Expected it at the beginning of the year. Um, and

To see a little bit more strength in August and September. Um, you know, we certainly are hearing the same thing like I said from, from other people, in the business that say, say that particularly on the, on the airline side that are looking at bookings, really kind of picking up as we get into the early, you know the end of summer early fall season so we're hoping to see some of that as well. Obviously in the portfolio like ours. When you look at transient demands it doesn't it doesn't look out particularly far. So it's hard to get a a much better sense of where we think transient demand is going to go over the next couple of months. But um, we think that based on what we're seeing that July might have been kind of the you know, kind of the lowest uh the lowest part of of seeing that that that type of demand.

Hope what color thank you and then on transaction markets, you know, it seems that they've opened up significantly over the last couple of months with the readily available financing that the reason that we're hearing from a lot of folks, you know, with that in mind, are there any changes that you're looking to make to the portfolio kind of over the next year?

well, you know, as a as as you know, we've we've historically always been a very transactional company to

Trying to upgrade our portfolio for the long term. Not only from a quality perspective from but from an earnings growth perspective, most importantly um,

Clearly, with where stock price has been and, uh,

Not only for us but many many public companies, uh, and you look at the value that we believe exists in our exist, in our, in our portfolio, on our current portfolio. Um, external growth opportunities have not been at the top of the list, just because we think believe that there's so much more value in our existing portfolio.

So, I don't know that that has changed. We haven't really seen too much of a change in potential acquisition opportunities that have become much more appealing. Um, it probably are some.

More assets out there now than what we saw, you know, 6 or 12 months ago. Uh, but I don't think that the pricing has has gotten to a level that external growth is going to be a big driver for us over the next 6 to 12 months. Um you know hopefully that changes and hopefully those Dynamics change a little bit where, you know, on both sides where uh you know of our stock price goes up and you see some better pricing for a potential Acquisitions than it may become more appealing uh but I don't see that as as being a big driver for us in the short term, now we'll continue to look at some additional dispositions over time. Um um you know nothing drastic as far as the reshaping of the portfolio but clearly to the extent there are some capex needs particularly at some assets and and we don't believe we're going to get the approach.

Brokerage the return on investment on those, and it may be time to sell some of those assets. But it's not going to be, you know, wholesale.

Great. Thank you.

Thank you.

The next question comes from Daniel Organ with Bed.

Um, first just quickly, I know on Scottsdale and you have other Rumor innovations that you mentioned. Are there other bigger ROI projects that can be done? Any upcoming opportunities that might be present within the portfolio? You know, those conversations that would be started by you, or what you need to be approached by the brands for?

Uh, well it's it's really something that would be something we'd be driving from our side. But, um, not not a whole lot of significant opportunities there. I mean, there are some embedded opportunities, uh, in in certain assets where we can over time look at uh, you know, monetizing some uh,

We have some additional land and a few properties for example, where we could look at doing something with those whether it's, um, included adding some amenities to existing, uh, hotels or Resorts or and or potentially selling some of those landmarks but it's relatively relatively limited within the portfolio. You know, on the renovation side. As we're as, we're kind of looking ahead over the next few years. We don't have any really massive, uh, projects upcoming, uh,

Um, more, you know, some of the, more run-of-the-mill type room Renovations that we've always done throughout our history, uh, that could be happening over the next next several years. But we really expect our, our total capex uh, numbers to come down, uh, a bit over the next few years. Um, clearly we we brought our number down, pretty significantly this year, from where we started at the beginning of the year, but it doesn't mean that we've kind of kicked a, you know, like kick things down the road. Um, we we do expect our number to come down over the next few years and uh and kind of settle in more and that's you know, 60 to 65 million. Probably range of capex. If you look at the existing portfolio

folio is

100% luxury and upper upscale. So there's not as much room potentially to up brand. I mean, we already have a very, very high quality.

So that's also something to keep in mind, maybe relative to others that, you know, may have lower-end assets.

Okay, that's very helpful. And then, quickly touching on expenses. Uh, real quick. Um, are those pressures? Are you lapping tougher comps? If I remember, I think the pressure sort of started in the second half of last year. And, um, are those cost controls and other levers that you've pulled, are those in a good position and just sort of waiting for those to play out, or is there more still to tinker with?

Um, there's that there's definitely some some lapping of last year. I think both on both on the wage side where where in general uh employee costs are not growing the same way they were last year.

And we expect that to continue through the rest of the year. Although, uh, we're not forecasting, uh, really significant margin improvements through the second half of the year, um, in part because the RevPAR environment at Scottsdale is still, uh, not terribly desirable. Uh, we are seeing the benefit in the middle of the P&L and some of the distributions, uh, oops. Some cost savings from some of the programs the brands have talked about for quite a while. Um, and.

We're seeing some shifts in some costs related to that actually lower when we do more group business. For example, lower credit card commissions when we're driving more group business and things like that. So, obviously, something we have to be careful about, um, but feel good about where we are. However, we are not expecting significant improvements on the expense side through the rest of this year.

Thank you very much.

Thank you.

Thank you. So just as a final reminder, is that 1 to ask a question?

So, as we have no further questions in the queue, that concludes the Q&A portion of today's call. I will hand it back over to the Chair and CEO of our shelter, Marcel Verbaas, for any final comments.

Uh, thanks, Carl. Um, obviously, we're quite pleased with our results for the second quarter. Um,

We believe if we put ourselves in a position to outperform here over the next few quarters, we have a great portfolio and we're really reaping the benefits of that. So, we look forward to updating you over the next several quarters, and I hope you enjoy the rest of your summer.

Thank you, everyone. This concludes today's call. You may now disconnect. Have a great day.