Q2 2019 Earnings Call
Today's conference is being recorded.
At this time I would like to turn the conference over to Ms. Gee Lingberg Senior Vice President. Please go ahead ma'am.
Thanks Shentel.
Morning, everyone welcome to the hotels and resorts second quarter 2019 earnings call.
Before we begin I'd like to remind everyone that many of the comments made today are considered to be forward looking statements under federal securities laws.
As described in our filings with the FCC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward looking statements.
In addition on today's call, we will discuss certain non-GAAP financial information such as that so adjusted EBITDA Ari and comparable hotel results.
You can find this information together with reconciliations to the most directly comparable GAAP information.
<unk> earnings press release, and 8-K filed with the FCC and to supplement the financial information on our website at hotels Dot com.
This morning, Jim Rizzoli, <unk>, our president and Chief Executive Officer, [laughter] provide an overview of our second quarter myself and update on our capital allocation activity and our outlook for 2019.
Michael Doyle actually financial officer that provide commentary on our second quarter performance, our capital position and our guidance for 2019.
Following their remarks, they will be available to respond to your question and now I'd like to turn the call over to Jeff.
Thank you Jane and thanks, everyone for joining us this morning.
[laughter].
I want to start by emphasizing how proud I am of all that we have and are accomplishing in Jared host our successful execution continues to underscore the advantages of our geographically diversified portfolio of iconic in air replaceable hotels are unprecedented scale, one form can drive internal and external growth and the power and flexibility of our investment grade balance sheet.
Together these key pillars form the foundation of post the Premier lodging.
On the operations front, we delivered adjusted EBITDA or E $460 million and adjusted FFO per diluted share of 53 cents, which was in line with the consensus estimates for the quarter.
Our performance this quarter was driven by a 10 basis point increase in comparable total revpar to $305, which includes oh level revenues, including food and beverage and other revenues.
We had strong comparable hotel EBITDA margins, despite flat revenues in pressure on wages and benefits.
Our EBITDA margin declined 20 basis points, which included a 30 basis point negative impact related to the timing of the receipt of the New York Marriott Marquis tax rebate, which we received in the second quarter of 2018.
And six basis points related to severance from a planned operational restructuring at one of our properties this year.
Excluding these one time impacts our EBITDA margin would have increased an impressive 16 basis points.
[noise] generated exceptional bottom line performance results. Despite the comparable hotel revpar decline of 1.5% in the second quarter.
The second quarter Revpar results, driven by an occupancy decrease of 140 basis points, which was partially offset by a slight increase in average rate.
[noise] affected Revpar. This quarter include an estimated 90 basis point impact from disruption related to the Mariana transformational capital program.
[noise] weaker than expected transient demand in major markets like New York and supply growth in Seattle.
New York, and Seattle had a meaningful impact on revpar for the quarter.
Excluding those two markets our comparable hotel Revpar would have increased 20 basis points.
This performance once again demonstrated the benefits of our scale and integrated platform.
He element underpinning our ability to deliver outsized results.
We continue to benefit from our internal initiatives the Marriott Starwood merger synergies the receipt of operating profit guarantees from the Marriott transformational capital program.
And increases in ancillary revenues.
Michael will provide additional commentary on our continued margin outperformance.
In his prepared remarks.
In addition to our continued outperformance on our EBITDA.
We have made significant progress on the capital allocation process.
Yeah, I would say, we bought back $245 million of common stock and we are opportunistically, taking advantage of the current market conditions to divest some of our low revpar high capital expenditure assets and a strong capital market environment.
During the quarter, we closed on the previously announced sale of the Westin Mission Hills as well as two additional assets our leasehold interest in the Washington, Dulles Airport Marriott and the Newport Beach Marriott debut.
Subsequent to quarter end.
We sold a residence Inn Arlington Pentagon City.
The courtyard Chicago downtown.
In Chicago Marriott suites O'hare.
Which we closed late yesterday.
Including the Westin Grand Central sold in the first quarter year to date, we completed seven asset sales for $609 million and have an additional five assets under contract for sale.
Well, that's a solid year to date and those assets under contract after taking into consideration. The estimated capital. We wouldn't have spent on these assets the combined EBITDA multiple and cap rate on a trailing 12 month results would be 15.3 times and 5.7% respectively.
We continue to focus on advancing our long term strategic vision of owning iconic any replaceable properties in key markets with strong demand generators and high barriers to entry, while divesting low revpar I capital expenditure assets through active portfolio management, ensuring that the company is well positioned for continued growth.
As announced in our earnings press release, our board authorized an increase in our share repurchase program to $1 billion.
After taking into consideration the $245 million bought back to date.
Which includes amounts bought back in the second quarter and through that 71 program subsequent to quarter end, we have $755 million up capacity remaining.
In addition.
We further strengthened our balance sheet in the quarter by taking advantage of the strong bank debt markets, we refinanced our revolving credit facility and term loans upsizing it from 2 billion to $2.5 billion.
Michael will discuss this further in his prepared remarks.
The balance sheet has never been in better shape, and we are committed to maintaining our investment grade rating.
Shifting to reinvesting in our portfolio, we anticipate spending between 235 in $265 million on renewal and replacement capital expenditures and between 350 and $345 million, a redevelopment and ROI projects. This year.
Yeah, Hi projects include $225 million related to the Marriott transformational capital program.
Well, which Marianne provide operating profit guarantees to cover the anticipated disruption and enhanced owner's priority returns on the incremental spend.
The transformational capital program, which carries through 2021.
Well position the 17 targeted hotels, which are some of the most notable in our portfolio as even stronger competitors and their respective markets with the goal of enhancing long term performance and becoming number one in their competitive sets.
We believe this is a great high return use of shareholder capital as transformational capital projects have typically resulted in meaningful increases in revpar yield index, which translates to a strong improvement in EBITDA.
We expect the ROI on these investments to be in the mid teens.
In 2019 as I have stated we intend to spend approximately $225 million on 10 projects with four to be completed during the year.
Thus far both a quarter out, allowing Marriott and the New York Marriott downtown have been completed.
Two additional hotels, San Francisco Marriott Marquis in Santa Clara Marriott are expected to be completed in the fourth quarter.
[noise] only three of the 10 hotels, where we are allocating this capital.
San Francisco Marriott Marquis.
And then.
Marriott City Center, and the San Antonio marry up River Center are excluded from our forecast comparable results.
The seven that are still included in our comparable or resolve themselves have impacted revpar in the second quarter by an estimated 90 basis points.
And we expect will impact full year comparable revpar by 50 basis points.
However, the Revpar impact is mitigated by the operating operating profit guarantee of approximately $5 million and $10 million that has been included in comparable hotel EBITDA for the second quarter and full year forecast respectively.
For 2019, we expect to receive a total of $23 million of operating profit guaranteed payments for both comp.
Non com transformational capital projects.
This has been included in our guidance for EBITDA.
Turning now to our outlook for the remainder of 2019.
The U.S. economy slowed but still grew a solid 2.1% in the second quarter.
Strong consumer spending offset a drop in business investment.
Consumer confidence is at an all time high.
Unemployment is at a 50 year low.
The consumer is in good shape and leisure demand remained strong.
Businesses were cautious in the quarter.
Likely driven by the global slowdown and the uncertainty surrounding the ongoing trade negotiations.
Oh year non residential fixed investment, while still healthy declined 40 basis points since the first quarter to 3.6%.
We believe this led to a decline in business transient demand, especially in major markets, such as New York and San Francisco.
All of these factors resulted in weaker results and we and the industry anticipated.
Overall, as we look to the second half of the year.
And then there's a growing uncertainty about trade deal with China being getting being concluded in the near term, we do not see any near term catalyst to induce business transient demand.
As a result, we are revising our full year guidance to reflect a slightly softer operating environment.
All right.
Sure.
Constant dollar Revpar growth is flat to down 1%.
Based on our continued margin outperformance in the second quarter and our confidence that the increases are sustainable through the remainder of the year.
We are increasing our margin guidance.
We now expect comparable EBITDA margin to be down 25 basis points at the low end and up 25 basis points on the high end of our guidance.
Michael will provide further details surrounding our second quarter margin outperformance as well as reasons for our confidence for the remainder of the year.
In his prepared remarks.
These assumptions result in full year forecasted adjusted EBITDA, RMB $1.5 billion to $1.54 billion and adjusted FFO per share of $1.73 to $1.78 cents.
Keep in mind that our new guidance now includes a reduction of $21 million or a forecasted EBITDA.
For the sale of the residents in Pentagon City before here in Chicago.
Chicago, Marriott suites, O'hare and buying additional anticipated asset sales.
If we did not sell these assets at the midpoint our guidance for adjusted EBITDA, Our <unk> would have been $1.541 billion and adjusted FFO per share would have been $1.79 cents.
Before handing the call over to Michael I would like to reiterate that we are very pleased with our ability to continue to outperform on margins and continue to execute on our disciplined capital allocation strategy.
Our diversified portfolio of your replaceable asset, our unmatched scale and platform and our investment grade balance sheet, all position us to deliver shareholder value in the near medium and long term.
With that I will turn the call over to Michael will discuss our operating performance and balance sheet in greater detail.
Thank you Jim and good morning, everyone.
Building on Jim's comments all of US. It hosts are pleased with our strong continued bottom line performance this quarter.
Our asset management enterprise analytics teams continue to assist their managers and controlling cost to drive margins in the low total revpar environment.
With that let's discuss the details of our results for the quarter.
On a constant currency basis comparable total revpar, which includes all hotel level revenues, including food and beverage and other revenues improved 10 basis points to $305, representing an all time high for the company.
Strong food and beverage spend and in Chile revenues resulted in the record performance.
Comparable revpar decreased 1.5% on a constant currency basis, which was driven by a 140 basis point increase in occupancy partially offset by 30 basis point increase in average rate.
As Jim mentioned renovation disruption from the Marriott transformational capital program, we use their second quarter comparable revpar by 90 basis points.
Consistent with STR data for the overall industry, we experienced weaker than anticipated revpar in the second quarter due to softness in business transient demand.
Especially in the top markets.
Oh relative Overweighting in New York in Seattle, which declined to combine 10% also funded portfolio performance. Excluding these two markets comparable revpar increased 20 basis points.
Moving to comparable hotel EBITDA margins, we continued to deliver impressive margins through our internal initiatives and the benefits from the Marriott Starwood merger synergies demonstrating the benefits of our scale and integrated platform to deliver continued operational outperformance.
As Jim mentioned for the quarter comparable hotel EBITDA margin declined by 20 basis points.
However, after factoring in a 30 basis point impact related to the timing of tax rebates for the New York Marriott Marquis.
Six basis points related to severance from a planned operational restructuring at one of our hotels, our comparable hotel EBITDA margins increased by 16 basis points.
This is remarkable given a 1.5% decline in revpar this quarter.
These factors resulted in adjusted EBITDA, sorry for the quarter of $460 million and adjusted FFO per share of 53 cents.
Now, let me provide some additional color around their margin outperformance.
As we highlighted on the first quarter earnings call variety of internal initiatives are continuing to drive in Chile revenue growth productivity improvement and decreased operating costs.
These efforts are serving to offset increases in wages and benefits, which are accelerating in this low unemployment environment.
In addition to these initiatives we continue to receive outsize benefits from the synergies of the Marriott Starwood merger.
Maryann continues to use the increased scale to improve programs and combine systems to lower charge outreach. She was the owners.
This quarter, we can reduce fees related to the loyalty and rewards program I T systems in group and travel agent commissions.
And finally, the receipt of approximately $5 million related to the operating profit guaranteed for Marriott pretty comparable hotels that are part of the Marriott transformational capital program is enhancing margins by approximately 40 basis points. This quarter and will continue through the remainder of the year and into 2021.
Now, let's discuss the performance of our business mix.
Working with our transient segment second quarter trailing second quarter transient revenues were up 40 basis points.
Underperformed our expectations as an increase in demand was partially mitigated by an average rate decline of 50 basis points.
These results were lower than our forecast due to weaker than expected. They just business transient demand, especially in top markets, such as New York and San Francisco.
The weakening fundamentals around the global economy.
Uncertainty surrounding the resolution of the China trade issues weighed on business transient demand this quarter.
On a positive need to travel continues to be strong and improved as expected as revenues increased 4% driven by almost 8% growth at our resorts.
[noise] as expected group revenues declined 4.7% in the quarter driven by the lack of city wide events in San Diego, Seattle, Chicago, New Orleans in Washington DC.
Ladies are resulting in group volume decrease in April for us in the industry.
[noise] managers were very successful in partially mitigate any grew volume decline by pursuing corporate group business.
He's proved successful this segment improved 6.4% this quarter.
This increase in corporate business, which represents the largest segment of all businesses quarter, Jos a bank banquet and catering outperformance.
Overall, we are pleased with her out from a group mix for our portfolio. As you recall 2018 was a record year for group room nights with 5 million group rooms booked for the year.
Consistent with last year, we had over 90% of our group business booked for the remainder of 19, providing a strong base of business.
Looking at individual markets, our best performing domestic markets. This quarter were Philadelphia, the Florida Gulf Coast Phoenix in Maui, Revpar increases ranging from 5% to 12%.
Our hotels in Philadelphia outperformed STR luxury and upper upscale market by a wide margin with revpar growth of 11.5% versus SCR luxury and upper upscale revpar of 3.6%.
Strong group business at our properties in Philadelphia, let the manners to drive average rate, which increased 10.6%.
Florida Gulf Coast, Revpar increased 7.7% outperforming STR luxury and upper upscale due to strong group business, which was up 18.5% this quarter.
The stronger business, resulting in increased food and beverage revenues by 9% an increase banquet and catering sales by almost 13%.
In addition weather related events in the South East benefited the Tampa Airport Marriott.
Revpar for Phoenix hotels outperformed our portfolio this quarter with Revpar growth of 6.6%. This was primarily driven by strong leisure demand as transient revenues grew 10.7%.
The Phoenician with the exception to this trend and we can displace transient occupancy due to stronger group performance and was able to grow trends in 80 are over 23%.
Now moving on to the markets that were more challenged in the second quarter, our hotels in Seattle Orlando in New York, So revpar declines ranging from 10% to 11%.
I see I don't like Hill saw Revpar decline of 11.2%, which was in line with STR market luxury and upper upscale hotels.
The Revpar decline was related to the lack of citywide demand quarter, putting downward pressure on group and transient pricing.
The entire market was down 5% in group room nights in the quarter. This coupled with new supply, especially the new 13 on your room Hyatt Regency in downtown Seattle has put pressure on pricing in the market.
[noise] Red, Florida, Orlando World Center married declined 10.6% in the second quarter underperforming your internal forecast weaker than expected group business drove this decline paired with the transient rate softness from lack of compression.
In addition.
The rooms renovation as part of the Marriott transformational capital expenditure program began in the second quarter.
New York hotels, Revpar declined 9.8% softer demand experienced in the first quarter continued into the second quarter and demand for the times square Submarket was worse than the overall New York market.
As she has luxury and upper upscale Revpar was down 1.9% for New York, While the times square Submarket was down 4.2%.
In addition, major disruption from the renovations that are New York Marriott Marquis in New York Marriott Downtown entry, we contributed to the Revpar decline.
However, these are part of the Marriott transformational capital program EBITDA related to the disruption was protected she was married operating profit guaranteed.
These demand was also down and there was a large cancellation at the shared in New York for which we received a cancellation fees.
The New York market continues to experience weakness from both business and leisure customers and new supply.
Reducing our exposure to profitability challenge hotels in this market over the past year has strengthened the overall portfolio.
Looking ahead to the full year, we continue to expect Revpar at our hotels and in the Florida Gulf Coast Jacksonville in Philadelphia to outperform the portfolio due to strength in corporate and leisure demand as well as strong citywide.
Conversely, we expect Revpar at our hotels in Seattle, New York, and Chicago, Dr., Paul Underperform, our portfolio due to continued weakness in business transient demand weak citywide calendars or additional supply.
Moving to our balance sheet, we continue to operate from a position of financial strength and flexibility. We're the only luxury with an investment grade balance sheet, which we are committed to maintaining.
At quarter end, we had unrestricted cash of $1.1 billion, not including $203 million in the F. any extra reserve $943 million of available capacity remaining under the revolver portion of our credit facility.
Total debt was 3.9 billion with a weighted average maturity of 3.7 years and a weighted average interest rate of 4.3%.
Our leverage ratio at the end of the second quarter is approximately 1.8 times as calculated under the terms of our credit facility.
Subsequent to quarter end, we completed $2.5 billion, a bank financing capitalizing on one of the lowest borrowing cost in the company's history.
To this end, we financed refinanced our two term loans totaling $1 billion and expanded our revolving credit facility by $500 million to one and a half billion dollars.
As a result, we enhanced our liquidity and extended our weighted average maturity to 4.6 years.
Push get our nearest maturity to 2021 and reduced our borrowing cost by getting 10 basis points across the grid.
[noise] turning to a return to a return of capital discussion in July we paid a quarterly cash dividend of 20 cents per share, which represents a yield of approximately 4.8% on a current stock price.
In addition, as mentioned in the press release, we repurchased 10.9 million shares during the second quarter at an average price of $18 or 32 cents for a total purchase price of $200 million.
Subsequent to quarter end, we bought back an additional 2.7 million shares at an average price of $16.83 for a total purchase price of $45 million under a tenbfive one program.
Finally, we recently received authorization from our board recently received authorization from our board to increase our buyback capacity of $2 billion, providing incremental capacity of $755 million.
Notably year to date, we have returned $725 million of capital to our stockholders.
Let me take a few minutes, it's got some assumptions included in our 2019 Guy.
As Jim described we revised our comparable revpar guidance for the year, the negative 1% to flat, indicating that we expect revpar for the second half of the year to be stronger than the first, albeit at a lower level than we forecasted last quarter.
Included in this range is our estimate of a 50 basis point impact to our full year revpar for the renovation disruption related to the Marriott transformational capital project.
Without this impact the mid point of our Revpar guidance would have been approximately flat.
The 2019, we continue expect to receive a total of $23 million of marriage operating profit guarantees for both comp and non comp transformational capital program, which is being included in our guidance for EBITDA.
In addition, I hope the details I provided surrounding her outsize leveraged to the Marriott Starwood integration and the internal initiatives of our asset management enterprise analytics team to help you understand how we can continue to drive margin.
Outperformance, despite or downward revision in the Revpar guidance.
Our outlook for our EBITDA margins has improved several factors give us confidence in our margin.
First all hotels that have experienced a softening in top line expectations relative to budget and put in place property improvement plans to mitigate the impact to EBITDA and maintain margin.
Additionally, here is the savings associated with the Merry integration have exceeded our expectations in the travel agency commissions loyalty cost unallocated expenses for programs and services.
The actual savings are now fully reflected in our outlook.
In Chile revenues have also been here to come in stronger than expected the focus on can't capture of transient cancellations piece is positively impacting margin.
Further the Venetian and its world class Spa, and golf facilities, earning rate guest reviews, and surpassing our expectations on both the top and bottom line.
Finally, the operational profit guarantees we are receiving a properties under the Marriott transformational capital program. We're also providing a boost to our margins.
The reduction in our comparable Revpar and margin assumption results in a $27 million decrease to our forecasted adjusted EBITDA sorry for the second half of the year.
In addition, we reduce or 2019, adjusted EBITDA guidance by $21 million to remove the EBITDA related to the sale of Pentagon City residents Inn and the courtyard, Chicago Marriott suites industries I'm sorry go ahead.
Got out in the Chicago, Marriott suites, O'hare and five additional anticipated asset sales.
The combination of these items results in our new guidance ranges for 2019.
Adjusted EBITDA are you of 1.5 to 1.54 billion and adjusted FFO per share of $1.73 to $1.78.
Lastly, keep in mind that we expect or 19% to 20% of our total EBITDA in the third quarter and the third quarter is projected to be the stronger of the two remaining quarters driven by the Jewish holiday shift.
Overall, we are pleased with our strong bottom line operating results. Our performance continues to demonstrate that owning a portfolio of iconic irreplaceable and geographically diversified hotels, having the scale platform to drive value and maintaining a powerful investment grade balance sheet creates a strong strategic position to deliver superior value to our stockholders.
This concludes our prepared remarks, now I'd be happy to take questions.
Let me try to be a time to address questions from many of you as possible. Please limit yourself to one question.
[noise].
[noise].
[noise].
Thank you very much ladies and gentlemen at this time I would like to open the floor for questions.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad now.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again that is star one to ask a question.
Our first question will come from Moody's Rose City.
Good morning, I just wanted to ask you really you can't get the past you've said about.
Two two and a half billion dollars of total investment capacity, including share repurchases. So now that you've resumed repurchase activity.
Is that kind of priority going forward, particularly given that you know chairs, obviously are lower now than where you've been buying them back up.
Hi, It's me.
Absolutely.
Any time, we deploy capital.
We will.
The underlying fundamentals and our view of likely future performance and value.
Well, we're making a decision to invest in our portfolios to buy an asset or to buy back stock. So oh, yeah. I'll just point you to the fact that we have a billion dollar authorization, we had $755 million remaining for the year.
We will take a poll so the underlying operating trends and a and a view of our an a b given current facts and circumstances and accordingly.
Thank you.
Thank you very much again that is star one to ask a question.
Our next question will come from Anthony Powell Barclays.
Hi, good morning, guys.
Hi in terms of the asset sales or could you remind us how many assets and even number or percent of EBITDA fit into kind of the low profitability bucket and how quickly could you sell these assets over the next few quarters.
Ah you know Anthony we we have a really sat back and said that you know.
This is the.
Audio hotels, we want to dispose of.
You know we look at.
Sales on an opportunistic basis.
Where we see.
A need for high capital expenditure investments in properties.
Markets that Deb.
We don't have a favorable.
For the long term.
On every asset that we.
That we evaluate whether or not to sell we start with doing a whole value which is a.
A 10 year pro forma.
Including 10 years of Capex over and above the asset than he reserve and if we feel that.
We are able to transact in the market at a price that is greater than that whole value and the.
The market dynamics are such that.
We think the buyer can perform at today with strong financing markets. The financing markets have never been stronger quite frankly, both from a proceeds perspective and a.
An interest rate perspective, then we'll move forward, but we had no we have no programatic plan in place to sell assets.
Okay.
Oh, you're marketing more assets currently.
I think Dave will point you to is the is the assets that we've discussed on the call.
Got it thank you.
Our next question will come from David Katz Jefferies.
Hi, everyone. Good morning.
Good morning, David.
Listening to your commentary as well as the commentary of others and then looking at the capacity that you have.
Yes, I'd love to hear your commentary around the availability of assets to acquire right as well as.
What the tolerance for loan to values and valuations has done over the past couple of weeks as best as you can.
And you know just I'd love to hear your thoughts about how you're thinking about that and.
Whether having the capacity and just sitting tight for a period of time is not.
Maybe the maybe a very very solid choice.
Sure David I'll take the first part of the question Michael can you talk about the financing market.
Well with respect to the acquisition market place we.
We always have a pipeline of assets that we are evaluating and underwriting.
We've been very disciplined in our view toward performance of these assets.
Going forward and we have taken into consideration that.
The current economic times that we live in today.
And we will look at buying an asset that relative to as an example buying back our stock.
It's not to say that if they are very attractive opportunity presented itself that out.
That we wouldn't pursue it.
But to date I, we just haven't seen a lot out there that makes sense for us.
No there is a gap between.
Buyer seller expectations, and I think part of that is being driven still.
By the flush financing market that that that's available to buyers today to the sellers today to refinance or asset. So I don't know if you want to talk about benign revenue would be good to great point and that is what.
David the financing markets remain quite high.
Eight you've seen from other of our peers selling assets into it.
It really has given the ability to drive pricing I mean today in the in the CMBS market you can sell so to get 75% LTV financing it really record low borrowing rates and that's both in single borrower as well as in the conduit market.
Now, let me turn to the bank financing you've always been one of the biggest answering the company done it would have been down the bank credits at market rate in a lower for longer environment. We continue that will that will continue to expect India, a big catalyst for the.
For borrowers.
And again, you know also an environment, where you're seeing record low borrowing rates.
Perfect very helpful. Thank you.
Thank you. Our next question will come from Michael Bellisario Baird.
Good morning, everyone.
Morning, Mike.
Just on the capital allocation front, maybe ask it a little bit differently, maybe can you tell us how much of your buyback activity is being driven by that absolute returns you're seeing your stock today.
Versus the relative returns compared to where you are selling assets at and that that valuation arbitrage would be helpful.
What did Michel Cup couple of things in there. So look first of all I'd say as it relates on on you know, we don't know necessarily what type of buyers or buyers are I think they are buying that we certainly have Jim pointed out we have whole values set discount back the cash flows of properties as well as the capital requirement that our cost of capital.
And when when someone's paying a higher price in that and presumably they're getting a higher return than or expect to get a higher return and what we think it's going to get.
Mike as it relates to the capital allocation.
We took you through kind of what we bought in the open market as well as in the Tenbfive and collectively sort of the fair to say that kind of a weighted average price at sort of 18 spot four cents, which works out to about a 20% discount to consensus NPV, which like in today's environment and I think when you think about sort of.
Some of the sort of return profiles of a lot of the assets we've looked at in the past as well as the stuff that we're selling we think thats a pretty good use of capital.
[laughter].
Thank you.
Our next question will come from Rich Hightower Evercore ISI.
Hey, good morning, guys.
Rich, maybe just to shift gears, a little bit so with all of the moving parts in the portfolio.
In terms of asset sales and what's in the comp pool out of the comp pool and so forth wondering if you guys could help us bridge to a number for pro forma historical Revpar you know so that we're comping against the right number as we model going forward, you know or maybe you could you could couched in terms of the assets. We sold were X percent below sort of our average revpar for the portfolio you know just something to help us with the numbers there.
Rich the asset.
Yes.
And sold.
Year to date going back to the Westin Grand Central.
And the assets that are that have recently closed and the ones that are under contract.
Eight combined revpar for that portfolio I think is around $136 at about 27% below.
Our our company.
Revpar is that the direction, you're going with the question right. Yes, yes, that's very helpful and then.
You know, maybe translating that number into an overall sort of impact on.
On what exists today that we should be we should be comping against in forward periods right. So that could be a 3% or 4% whatever sort of number that is almost on a weighted weighted basis.
Does it.
Hopefully, we can talk offline, if I'm, not maybe being clear, which you probably talk offline I mean, I think that I think based on you know the assets that we've sold we'd probably see it tick up in our our total company Revpar from call. It a 180 to $183.
Okay, Yes, that's that's that's exactly what I'm what I'm after there.
And then maybe maybe secondly, while I've got you.
You did throw out some some group pace numbers last quarter for 2020.
I think maybe in the low single digit area. If you don't mind Reprising those numbers, where we sit today and then maybe describe any changes in the 2020 group pace numbers versus 90 days ago.
Yes, you know.
The group pace for 2020 asphalt hey, there.
Total group revenue pace at this point is up 5.4% for 2020.
Okay, great. Thank you.
Thank you. Our next question will come from Bill Crow Raymond James.
Hey, good morning, guys.
Question for Michael in the House housekeeping front, and then one for Jim.
Michael could you just kind of build US a bridge based on asset sales on what the impact will be on 2020 EBITDA.
On 2020.
Yes, I think that's that's.
Either.
That's that's been incorporated in your guidance.
To date for this year.
We can just get a full year number for next year.
Yes, if you go way back to the lasting brand.
Right Thats, a full year impact.
$50 million.
Okay for all of the assets relative to what this year's guidance is okay got it.
And Jim I guess my question is.
When we think about.
I want to get to be a bill I just want to make one of you asking it because it's.
I cannot machine here that.
Yes $27 million.
Okay.
All right and maybe we'll follow up just to make sure I'm clear but.
Jim on the.
Zillow re revenues that you call them and I'm thinking about parking them thinking about.
Fees, the gas may pay et cetera, what is the ability to.
Pushed those again next year I mean, we can we can project revpar growth, we can think about food and beverage.
Based on group and.
And revpar et cetera, but but the exemplary fee. It feels like we're playing catch up to some extent.
This year and I'm, just wondering whether the growth goes out of the Blue next year.
You know I think it's going to be an ongoing process. So I don't have hard numbers I'd like to talk about.
We're being thoughtful.
With respect to.
Making certain that our customers.
Our.
Understanding they want and what they are being asked to pay and they they're at achieving real value.
Or any fees that they might be asked to pay I would expect that we will continue to see increased capture on cancellation fees.
Just from some automated systems that have been put in place.
Not that we're seeing a pickup in cancellations I don't want to call anybody with that thought because we're not seeing a pickup in cancellations and you know we are continuing to see.
You know strong data room expanded.
At the Phoenician in particular with respect to.
Gol and ER and spot. So it's an area that we continue to be focused on going forward.
Okay. Thank you.
Our next question will come from Rescaling RBC capital markets.
Yeah. Good morning, everyone I just want to go back to that comment about the business travel will be in a little bit softer and the consumer hanging in there. How is this translating into the resorts. It sounds like the Phoenician is doing quite well is the corporate still spend in there.
Yeah actually you know I think a ER in Michael's prepared remarks, I'll, let him talk about a little more.
But we saw a.
That's very strong group performance at destination.
To the point, where as some of the transient business was yield it out.
And in favor of growth, allowing us to really compress transient rate with respect to what's left the.
They they leisure travel continues to be strong overall revenues increased 4%.
In the quarter and that was driven by almost an 8% increase in our resorts.
Okay and your modeling this divergence the continued throughout for the guidance is that sort of where we should expect.
I think you know our guidance is granular I mean, it's you know this is property by property forecast.
Welcome to arrive at that eight out our guidance for the full year.
[laughter] got it thank you.
Our next question will come from Patrick Stowe Suntrust.
Hi, Good morning, Jim and Mike.
You bet. It just just just just another way of asking the capital allocation question here is it fair to assume that all the proceeds from this next round of asset sales will be used for repurchases and then you know it looks like in Twoq you. Your repurchases work from asset sales would you also consider dipping in at this point dipping into the balance sheet to do repurchases.
Thank you.
Oh, yes.
Patrick Jim Jim's point, I mean I think.
Cash is fungible and.
When thinking about in the context of what were investing externally investing in our portfolio or buying back stock.
Yeah, we just talk about kind of what we bought back at close to a quarter billion dollars of stock.
Really liked that price like being a buyer at that price.
But again, we have to take that into consideration other other all of our capital investment opportunity.
Yes, the thing I'd add to that Patrick is that.
You know acquisitions carry a very high bar today.
Yeah.
Okay.
Thank you.
Okay. Our next question will come from Shaun Kelley of Bank of America.
Hi, Good morning, everybody I was just wondering if you could speak a little bit more about how the yeah. The operating profit guarantees from Ariad are going to play through in eight once the renovation start to roll off rates here in the middle of the process now and obviously they've been creating a lot of cash and what happens as the renovations are completed on you get sort of made whole up until you return to a certain level of profitability or do they roll off as soon as sort of the Capex has done and you kind of have to fight for yourself flight, while you are stabilizing.
Well, we're we're hopeful and we believe that.
You know the fight for yourself is going to put us in a very good place John because as these properties are.
Our fully renovated we do expect meaningful increases in yield index, which.
Should translate into strong improvements in EBITDA.
The way the.
The operating performance guarantees were calculated is really.
Based on the anticipated disruption.
At each property based on the scope of the renovation and based on our 20 plus years of data related to renovations and our ability to really forecast.
Displacement of business, whether you're doing rooms, whether you're doing rooms and bathrooms or.
Oh, a lobby or food and beverage or are meeting space. So its a property by property.
And Alex is we have some ability to adjust those ads based on timing.
Other renovation and the like.
But it's at a set amount I think that they set amount was $83 million in the aggregate.
And that is.
We stated earlier today.
Between CCOP non comp for this year, we will receive $23 million.
Got it.
Yes. It is sorry, I don't think I'd frame phrase that pretty well, but that's that's what I was looking for and then secondarily.
General Michael can you can you just mentioned on what you're seeing on group bookings for sort of 2020, and and beyond just sort of the all future periods type level of interest or demand on the on the really leading really far out.
Group side would be helpful. Thanks.
Yes, Hi, I tell you.
Sure I mentioned the number for 2020, you know, we're seeing total group revenue pace up 5.4% for 2020.
For 20 to 23, the number numbers are up approximately 2%, but it's really a a little bit early to start to start thinking about that any years beyond 2020, and John the only thing I would add there is that for too much for your AD for how the year shape and 2020, we've had almost 60% of the room nights on the books already.
Great. Thank you both.
Thank you our next question will come from.
Chris Woronka Deutsche Bank.
Hey, good morning, guys.
Wanted to ask you guys about.
Margins and you know you've gone through a lot of color on.
Some of the things that are impacting it this year between the renovations in the outer rims spend but but as we look forward and.
In consideration of the fact that the performance guarantees ultimately burn off.
You know is there anything.
Secular that has changed in terms of the margin structure. The hotels. So in other words, if we if we enter a softer patch.
Do you think margins hold up better.
This time or is there something.
Is there something tangible you can point to that's hotels now that maybe wasn't there last time.
Okay. Thanks, I think I'll start with you know.
I think we've all learned a lot.
The last recession about sort of really deploying.
Resources quickly to adapt to a changing fundamentals in the slide deck. This quarter, we talked about it I mean.
He started theses things slow down we're very front footed in putting together action plans, particularly around employee management.
And as a result, right I think we were able to kind of adapt quickly in Asia and we try to think about going if they tend to think that we're going to continue to wind down were going to be very correct, which is the gap.
I'll give you a fair amount, it's sort of a fair amount of how you came out of this quarter I mean, when you get a little bit more granular.
When you say really interesting productivity gains in both rooms, and food and beverage.
Which was.
Again very much of a prescribed by by our managers and our asset managers working with our managers.
Around scheduling and sort of employee.
Employee management better.
I'm also very very quick on the inventory control around here can be and that reflected really well in their cost of goods sold.
Cost structure, and how thats improved from last quarter.
And what we as we talked about last quarter, we did a fair amount of gives and takes in the industry the operating expense column.
Weather was energy related things are a lot of coming out of Starwood and Marriott synergies that helped us and able to keep that below inflationary growth and so look I think.
Yes.
I think you're getting a feel for for the way that.
No the way that we are approaching slowdowns and I do expect sort of a similar presently candidly slow down any further.
Only thing I would ask Chris add Chris that that's changed and I think we're going to continue to see change in a positive way.
As technology.
And our.
We embraced technology, we think were on the forefront of technology working with our operators.
That.
That will allow us to continue to improve productivity.
Going forward, so I think thats only going to get better and I do I do believe that it's a new paradigm for the operating expense model.
And the world of hotels.
Additionally, we are keenly focused on cost creep, it's so easy when times are good.
For.
The extra body here are the extra.
You know controllable whether it be in in rooms are up and be two to come back into the system and so we're keeping a keen eye on all of that.
Okay very good thanks, guys.
Thank you. Our next question will come from Robin Farley, Yes.
Great. Thank you my questions actually along similar lines. So you're talking about just that you've done such a solid job of incremental things to offset the margin pressure that I'm, just wondering what there might be sort of incremental and 2020 I know you're talking about sort of further productivity, but I was thinking specifically are there starwood synergies that will be incremental in 2020 that that aren't contributing and Tony 19, yet anything that that doesn't turn start to contribute to next year and then can you remind us that the Marriott I think he said it was 23 million of profit guarantees in 2019. It is that I'm, sorry, if I missed if he said.
First down next year, if there's an incremental the amount of fat and 2020, and then anything else sort of.
Incremental to I. I realize the cost saves. This year, you know will continue into next year, but just thinking about anything incremental thanks.
Yes, that's at Robyn I'll start with the are forecasted.
Operating profit guarantee payments based on.
Our anticipated construction spend next year for the transformational capital program.
It's likely.
At this point that we're going to be circa 200 million plus or minus.
We won't know until we get through the capital budgeting.
Process, which is starting in earnest.
And the next week or two actually add but we won't be done with us until the end of the year.
Right now we would be looking at operating.
Property guarantees.
$16 million again, plus or minus I don't I don't want to give you a hard number because both of those numbers are subject to change, but just directionally, that's kind of how we're up we're seeing things.
No I think that as.
As the Starwood acquisition gets fully integrated into the Marriott system that the focus is likely to change nothing but I mean, we're not going to take our eye off the cost side of it.
But the focus is likely to change too.
Yield index and improvements on the topline.
We bought.
We will also see we think incremental benefits from the rollout of marriott's enhance reservation system going forward, that's very early stages.
So.
We are constantly looking at the next initiative that we can do to drive topline as well as bottom line.
And just to clarify the operating profit guarantee 16 million plus or minus obviously not not a firm number yet I'm compares to the 23 and 2020 3 million in 2019, but not all of that goes into the.
The comp hotel. So is it possible that the amount. That's applied are attributed to the comp hotel base is actually up next year or or will it be thanks.
You know, we think it will get back to you on that when I don't have the numbers in front of me right now for next year.
Okay, all right great. Thank you.
Thank you. Our next question will come from Thomas Allen Morgan Stanley .
Hi, good morning, So a couple of questions on Revpar first your Andrew It's just stood out to me was the 80 or so growing in occupancy is down a lot I think there are a lot of dynamics at play is there can you just talk about why why that's happening.
Thanks.
Right.
Thomas could you repeat the question.
Why when we when we look at first half Revpar right. Your occupancy is down a lot, but your 80 ours up.
I think there are a lot of dynamics that are driving up I just want to kind of hear from you.
Why occupancy would be down.
And they will be up.
Oh I you know I think.
Topping the state New York for a minute.
It's just focus on that market.
And then we can also talk about Seattle to say, hey that same dynamic, but it's slightly different.
Both of those markets have a lot of new supply.
New York is why is I think going to be.
Forecast 20000 rooms.
Coming online this year 20 829000 rooms.
Seattle I, just had a 1300 room.
Hotel then in downtown Seattle.
Seattle had less citywide.
Hey over the course as the year.
So.
Some of the.
The lower rated transient business.
They're not show up in Seattle as well at the same thing in New York.
We send out lower rated transient business not show up in New York both of those markets are driven by international inbound travel.
We have seen a decline in international inbound travel.
From a in particular from Canada, and Mexico, and I think that's why you're seeing occupancy decline about rate go up.
That's helpful.
So two follow up questions on actually on the same topic. So first is can you quantify what international inbound travel has is declining and then second just when you think about guidance and Michael in your prepared remarks, you said that the midpoint of guidance implies that second half is in line with the first half like it feels like things have deteriorated in the past few months and so are there things that are kind of supporting and that's adjusting for the Marriott renovation guarantees.
Are there things that are supporting the second half from like a comparability standpoint, or anything else. It should kind of stabilize revpar versus continuing to deteriorate. Thanks.
With respect to international inbound Thomas.
Varies by market, obviously, but year over year. According to the data from U.S. travel was flat.
Yeah, No and no Thomas as they relate to the forecast they probably do a couple of things I mean look first of all start with.
And lastly, we had record group room nights, and we had 90% of our base, we've really any update on kind of how we're looking for 19, 90% of the business on the books spread there. That's attacking we spent a lot of time with our property.
In the past that over the past month, or so really understanding what they're seeing in their individual markets, what they're seeing in their comp stat.
Hi, there competitively position out there and certainly what those markets individually. Our experience is we talked about New York in Seattle with Big drivers of the quarter, New York in particular, where.
I think you get into sort of May I think everyone was a little surprised by that market in particular, and so as we thought about forecasting. It was very much enjoyed a detailed bottoms up analysis with our property.
Very thoughtful about the direction that things have been running in the past.
A couple of months.
We carried that direction forward.
And at both but certainly did not bring it down further assuming a further decline.
Beyond the type of the heck, we've been experiencing over the past few months again, I think what youve seen from a lot of other companies as well you give any information we have in front of us today and the outlook based on what we've seen over the past couple of months, we said that forward and we think we were pretty conservative in our outlook.
Makes sense. Thank you.
Thank you John Thank you very much ladies and gentlemen at this time, we have no further questions in the queue I would like to turn this conference back to Mr. Rosenfeld for any closing remarks.
Thank you all for joining us on the call today, we really appreciate the opportunity to discuss our second quarter results and our 2019 outlook with you.
And I look forward to talking with you in a few minutes to discuss our third quarter results as well as providing you with more insight into how 2018 is progressing.
Have a great day, and a great rest of your summer.
Thank you very much ladies and gentlemen at this time will now conclude today's conference you may disconnect your phone lines and have a great rest of the week. Thank you.
Okay.