Host Hotels & Resorts, Inc.

Good morning, and welcome to the Host Hotels and Resorts First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jamie Marcus, Senior Vice President of Investor Relations.

Thank you, and good morning, everyone. Before we begin, please note 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 SEC, 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 FFO, adjusted EBITDA RE, and hotel-level results. You can find this information together with reconciliations to the most directly comparable gap information in yesterday's earnings press release, in our 8K filed with the SEC, and in the supplemental financial information on our website at hosthotels.com. With me on today's call will be Jim Rizzolio, President and Chief Executive Officer, and Saurav Ghosh, Executive Vice President and Chief Financial Officer. With that, I would like to turn the call over to Jim.

Thank you, Jamie, and thanks to everyone for joining us this morning. We kicked off the first quarter of 2022 with meaningful outperformance and, once again, substantially beat all consensus metrics for the quarter. We delivered adjusted EBITDA RE of $306 million and adjusted FFO per share of 39 cents during the quarter. All-owned hotel pro forma EBITDA of $330 million in the first quarter was just 18% below 2019, and March pro forma hotel EBITDA came in 8% above 2019, driven by significant rate growth at our resorts. Pro forma total revenues in the first quarter increased 10% sequentially over the fourth quarter, while pro forma hotel-level operating expenses grew 5%. The increase in revenues was driven by improvements across rooms, F&B, and other departments. Pro forma rev par for the first quarter was $167, an 11% improvement from the fourth quarter, as rates continue to increase in our Sunbelt markets and hold up at our urban hotels. This is the highest quarterly REBPAR we have seen since the onset of the pandemic, bringing our REBPAR to approximately 18% below first quarter 2019 levels. Our recent acquisitions, dispositions, and renovated properties continued to contribute to our performance during the first quarter. And notably, we had five hotels with ADRs of over $1,000. Preliminary April red par is expected to be approximately $225 to $230, which is up slightly to our March red par. It is worth pointing out that our preliminary April monthly red par represents the first time that our monthly red par is expected to exceed 2019 levels since the onset of the pandemic. However, consistent with historical monthly trends, we expect to see a pullback in May and June relative to 2019 levels. In addition to Maui and San Diego, we are pleased to see urban markets such as New York, Washington, D.C., and San Francisco driving the outperformance to our forecast. In short, all business segments and markets are trending in a positive direction, and we are very pleased with our performance. Subsequent to quarter end, we sold the 1780-key Sheraton New York Times Square Hotel for $373 million, or 28 times 2019 EBITDA. When calculating the EBITDA multiple, we included $136 million of estimated foregone CapEx over the next five years. In connection with the sale, we are providing a $250 million bridge loan to the purchaser. In addition, we sold the 243-key hotel EVE Miami for $50 million, including $1 million for the FF&E replacement funds, or 23.2 times 2019 EBITDA. When calculating the EBITDA multiple, we included $9.5 million of estimated foregone CapEx over the next five years. This brings our 2021 to 2022 year to date total dispositions to approximately $1.4 billion at a blended 17.8 times EBITDA multiple, including estimated foregone capital expenditures of $435 million, which compares favorably to our $1.6 billion of acquisitions at a blended 13 times EBITDA multiple. Our 2021 acquisitions continued to perform substantially ahead of our underwriting expectations. Based on first quarter performance, EBITDA from our seven new hotel acquisitions and two golf courses is on track to meaningfully outperform our underwriting expectations. Looking back on our transaction activity since 2018, we have acquired $3.2 billion of assets at a 14 times EBITDA multiple and disposed of $4.9 billion of assets at a 17 times EBITDA multiple, including $938 million of foregone capital expenditures over the next five years. Comparing pro forma 2019 results for our current portfolio to 2017, We have increased the red part of our assets by 11%, EBITDA per key by 25%, EBITDA margins by 190 basis points, and avoided considerable business disruption associated with capital projects over the past two years. As we continue to evaluate capital allocation opportunities, our efforts will remain focused on assets that have the potential to bolster our EBITDA growth profile. Turning to first quarter operations, our total portfolio pro forma revenue was up 10% sequentially to the fourth quarter, driven by 16% rate growth. Transient revenue was up over 1% compared to the fourth quarter, and rate was up 18%. Putting this into perspective, First quarter transient room revenue was 97% of first quarter 2019. Transient was again driven by our Sunbelt and Hawaiian hotels, where revenue was up 17% sequentially with a 21% improvement in rate, and once again exceeded prior peak levels for the fourth quarter in a row. Drilling down to resorts, outperformance continued as ADR grew by 48%, leading to a transient revenue increase of 42% compared to 2019. Our one hotel, South Beach, and Four Seasons, Orlando, grew transient revenue over $10 million each, with ADR up 60% to 2019. Group business continued to improve at our hotels during the first quarter. Group revenue was up 33%, driven fairly equally by rate and demand growth compared to the fourth quarter. Despite a weak January, we were encouraged by net booking activity in the quarter for the quarter, which resulted in 682,000 group rooms sold for the quarter. We saw meaningful improvement in banquet and AB revenue as group business continued to return. In the first quarter, Banquet and AV revenue increased by $24 million, up 17% over the fourth quarter. As groups get back to in-person meetings, we expect the trend of higher out-of-room spend to continue. Looking forward to our expectations for group in 2022, we currently have 3 million definite group room nights on the books, which compares favorably to the 2.7 million group room nights we had on the books for 2022 as of the fourth quarter, after adjusting for our recent dispositions. Group rate in 2022 is up 4% to the first quarter of 2019, a 300 basis point increase over the last quarter, with 1 million definite group room nights on the books in the second quarter. This represents 82% of second quarter 2019 actual group room nights. Last quarter, our 2022 definite group room nights on the books represented 60% of 2019 actuals. Adjusted for our transactions and including bookings from the first quarter, 2022 definite group room nights now stand at approximately 70%. of 2019 full-year actuals. For the remainder of the year, 2022 definite group room night pace is down 14% to 2019, while total group revenue pace is down just 8% to 2019. So Rob will get into more detail on business mix and markets in a few minutes. In addition to delivering significant operational improvements, We continue to execute on our three strategic objectives, all of which are aimed at elevating the EBITDA growth profile of our portfolio. As a reminder, our objectives include redefining the hotel operating model with our operators, gaining market share at hotels through comprehensive renovations, and strategically allocating capital to development ROI projects. As a reminder, we are targeting a range of 147 to $222 million of incremental stabilized EBITDA on an annual basis from the initiatives and projects underlying our three strategic objectives. $100 to $150 million is expected to come from potential long-term cost savings over time based on 2019 revenues from redefining the operating model with our managers. we have achieved approximately 60 to 70% of these savings to date. Another $22 to $37 million of incremental stabilized EBITDA is related to our goal of gaining three to five points of index growth at the 16 Marriott Transformational Capital Program hotels and eight other hotels where comprehensive transformational renovations have been recently completed or are underway. Starting with the Marriott Transformational Capital Program portion of our renovations, during the first quarter, we completed the Marina del Rey Marriott and the Houston Marriott Medical Center. This brings the number of completed properties to 12 out of 16 in this program, with 89% of the work complete, and we expect to be substantially complete by the end of 2022. The remaining Marriott Transformational Capital Program properties include the Boston Copley Marriott, the San Diego Marriott Marquis, the JW Marriott in Houston, which will be substantially completed by year end, and the Marriott Metro Center in Washington, D.C., which we expect to complete in the first half of 2023. We expect to receive over $11 million in operating profit guarantees from Marriott this year related to these renovations. In total, we expect to invest approximately $750 million on the Marriott Transformational Capital Program assets. As a reminder, we were planning to invest approximately 70% of this $750 million as part of our routine cycle-based renovations. The remaining 30% is ROI-focused CapEx and includes renovation scopes brought forward from future years to create comprehensive transformational renovations. We believe these renovations allow us to capture incremental market share, as is the case at the Ritz-Carlton Amelia Island, where we have seen a red part index share gain of eight points since May 2021. The Ritz-Carlton Amelia Island is now the number one hotel in its competitive set. up from three or four historically. In addition to the 16 Marriott Transformational Capital Program assets, we have eight hotels where we have completed or are in the process of completing major renovations. The completed hotels include the Don Cesar, Hyatt Regency Maui, and Hyatt Regency Coconut Point. The Ritz-Carlton Naples Beach Resort and Miami Marriott Biscayne Bay are both expected to be completed by year end. And the Westin Denver Downtown, the Westin Georgetown in Washington, D.C., and the Fairmont Keelanee in Maui are scheduled to be finished by mid-2023. In total, we expect to invest approximately $420 million on these eight assets over four years, $157 million of which we expect to spend in 2022. And finally, we are targeting another $25 to $35 million of incremental stabilized EBITDA from four major development ROI projects. During the first quarter, we completed and opened the two-acre River Falls Aquatics Park and substantially completed the 60,000 square foot meeting space expansion at our Orlando World Center Marriott. Both of these projects came in ahead of schedule and under budget. As mentioned, by year end, we expect to complete the expansion at the Ritz-Carlton Naples Beach Resort, which adds to the NDAS Maui Villas and AC Scottsdale North, both of which are complete. These four assets make up the current development ROI projects and our third strategic objective, and we continue to identify new development projects that will unlock value within our portfolio. In total, we expect to invest $216 million on these four assets. Stabilization of these projects is expected to occur within two to three years of completion, but we are seeing early signs about performance. In addition to the incremental stabilized EBITDA from our three strategic objectives, we expect approximately $120 million to come from the seven hotel and two golf course acquisitions we completed in 2021, all of which are meaningfully outperforming our underwriting for 2022. In closing, we continue to improve the quality of our portfolio with our recent dispositions, and we are very pleased with the $1.6 billion of acquisitions we closed on in 2021. As the lodging recovery continues to accelerate, We believe Host is very well positioned to capture a greater share of demand given the investments we have made in our hotels, our improved portfolio quality, and our balance sheet strength. With that, I will now turn the call over to Saurabh.

Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our first quarter top line performance, margins, and balance sheet before wrapping up with an update on our dividends. Starting with top line performance, first quarter pro forma rep part of $167 was the highest it has been since the onset of the pandemic. The quarter was a tale of two months with March rep part of $221 more than double that of January. Improvements in the quarter were driven by leisure travel in Sunbelt markets and Hawaii. These markets achieved a first quarter rep part of $251 a 26% increase over the fourth quarter. Our urban markets experienced the brunt of the Omicron impact in the first half of the quarter, but swiftly recovered, ending March on a high note. For comparison, March REFAR at our urban hotels was $132, up nearly 25% to the fourth quarter of 2021. Turning to transient mix, holidays in the first quarter drove steady sequential growth in both occupancy and transient ADR, with President's Day achieving the highest holiday occupancy since 2019, which was driven by our Sunbelt markets. Our urban hotels achieved 76% occupancy over Easter, which is nearly double that of the MLK holiday weekend. Holiday occupancy in our urban markets outperformed our Sunbelt markets for the second time since the onset of the pandemic. with a rate improvement of 26% over the MLK holiday weekend. Business transient revenue was up 2% in the first quarter, with a 4% increase in rate, despite the impact from Omicron and winter storms in January. Business transient room nights set a recovery record in March, breaking the 100,000 level, and encouragingly, half of those room nights sold were in urban markets. For comparison, that represents a 28% increase over October 2021, which had 78,000 business transient room nights and was the previous high water market. Providing a little color on a few of our urban markets, in San Francisco, we saw leisure demand starting to pick up in March. Business transient volume was slow for the first two months of the quarter, but our hotels saw a significant spike in March from consulting firms, and tech clients. In New York, traditionally strong leisure periods have rebounded to levels approaching 2019. While transient demand remains short-term in nature, we are starting to see the booking window stretch beyond 30 days. In March, business transient rooms in New York reached a post-COVID high, and as offices continue to reopen, we expect business transient demand to continue to rise. Early in the first quarter, Washington, D.C. experienced declines related to cancellations, but all of our hotels saw a meaningful improvement in demand in March due to cherry blossoms and spring break. As government offices reopen, we expect business change in volume to continue to improve. Turning to group, revenue increased 33% over the fourth quarter, driven by 14% demand growth combined with a 17% improvement in rate. Most of the room night increase came from our hotels in Orlando, Maui, and San Diego, where we saw incentive business from corporate groups come back into the mix. As it relates to overall group business, banquet and catering revenue was up 17% over the fourth quarter and clearly showed that groups are willing to spend when they meet in person. Banquet revenue per group room night exceeded 2019 levels in the first quarter for the first time in the recovery, ending 7% higher, with March absolute banquet and catering revenue down just 10% to 2019. Corporate group revenue increased 41% over the fourth quarter, driven by 17% demand growth and a 21% increase in rate. Corporate group room nights picked up meaningfully each month in the quarter and ended at 70% of 2019 levels in March. Orlando and San Diego hotels drove most of the demand growth in this subsegment. Association groups also showed steady sequential improvements. First quarter association group room nights increased 26% over the fourth quarter with a 13% increase in rate. Shifting gears to expenses, total pro forma expenses were down 17% to first quarter 2019 in line with the total revenue decline. Staffing at our hotels remains at 94% of desired levels based on business volumes versus 97% historically. Hotels hit pause on hiring during Omicron and were unable to keep up as demand surged back in February and March. While our hotels continue to fill open roles, a lag between demand and staffing levels still exists. This has acted as an offset to wages and benefits expense quarter over quarter. Briefly touching on our efforts to redefine the operating model, we have made meaningful progress on evolving brand standards with our operators. Marriott recently announced over 200 brand standard revisions that aim to reduce costs, align standards across brands and segments, enable greater operational flexibility, and eliminate outdated standards. Some examples include removing alarm clocks, printed compendiums, and premium channels from guest rooms. Our operators have also moved to residential style amenities in luxury hotel rooms and revamped the food and beverage options and hours of operation in many hotels to align with customer preferences. We expect brand centers to continue to evolve as we work with our operators to enhance efficiencies. Taken together, a strong top line and expense controls have allowed our margin to continue to meaningfully improve. Our pro forma hotel EBITDA margin in the first quarter was 31.4%, which is just 10 basis points below that of the first quarter 2019. For comparison, this represents a 350 basis point increase to our fourth quarter hotel EBITDA margin, which was 27.9%. First quarter margin improvement was primarily a result of strong ADR and cancellation revenue. As demand and rate quickly recovered from a decline in January, March had the highest monthly hotel EBITDA margin in host history for today's pro forma portfolio at 41%. Turning to our outlook for 2022, we are still unable to provide full-year operational guidance given the continued volatility surrounding COVID. That said, we believe sequential quarterly REVPAR improvements will continue as declines to 2019 diminish throughout the year. We expect second quarter REVPAR to be between $195 and $205 or down 8% to down 3% relative to 2019. This REVPAR range implied an adjusted EBITRE range of $375 million to $410 million for the second quarter. We expect sustained strength in leisure, as well as business transit and group demand to continue accelerating in our urban markets as companies get back on the road and groups get back to meeting in person. We have seen a recovery in international travel, particularly from Canada, Germany, and the UK. New York remains the top destination market, followed by San Francisco and Seattle, and we expect sequential improvements in international demand over the course of this year. Given the cadence of the lodging recovery, it is difficult to provide an accurate forecast for the year. While we expect sequential rev car improvements relative to 2019, seasonality and changing market and business mix are expected to lead to lower rev car and margins for the second half of the year relative to the second quarter. For reference, the third quarter has typically been our weakest quarter of the year. And as is historically the case, we would expect third quarter rev far and margins to be below that of the second quarter. Turning to our balance sheet and liquidity position, our weighted average maturity is 5.3 years at a weighted average interest rate of 3.4%. And we have no significant maturities until 2024. After accounting for our two hotel dispositions in April, we now have $2 billion in total available liquidity comprised of approximately $439 million of cash, $162 million of FF&E reserves, and a full availability of our $1.5 billion credit facility. Wrapping up, I am pleased to share that the Board of Directors authorized a second quarter dividend of $0.06 per share on host common stock, a 100% increase over the prior quarter. All future dividends are subject to approval by the company's Board of Directors But as the operational recovery continues, we expect to be able to grow our dividends to a sustainable level. To conclude, we are optimistic that 2022 will continue to build on the strong momentum of the past few quarters. We remain very well positioned to execute on our goal of increasing the EBITDA growth profile and improving the performance of our portfolio. With that, we would be happy to take your questions. To ensure we have time to address as many questions as possible, please limit yourself to one question.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Our first question is coming from Chris Wawonka from Deutsche Bank. Your line is live.

Hey, guys. Good morning. Thanks for all the data points. I guess I'll ask the obvious one, which is the 2Q guidance with what you said about April. And I understand there's normally seasonally a drop in May and June, but I think the basic math is suggesting a bigger than normal drop, like a double-digit drop. versus 19? Can you just give us a little bit of color on how you're thinking about that?

Sure, Chris. You know, we have talked a lot about the Q1 performance and April performance internally at host, and we just don't think we're going to be able to sustain the the level of rate that we achieved in Q1 and in the month of April at our resort properties. The spring break that occurred this year was off the charts. It really was very, very, very strong, and we expect to see some moderation back to the mean. as we see a rotation from spring breakers back into the urban markets group and business transient coming back. So that's the reason why we brought the guidance down for Q2. Strong April, but we expect May and June to moderate. May is definitely going to be lower than April. June may be slightly above May at this point in time.

Okay.

Very helpful. Thanks, Jim.

Sure. Thank you. Your next question is coming from Neil Malkin from Capital One Securities. Your line is live.

Hi, everyone. Good morning. Jim, question for you, kind of along the same lines, but in terms of maybe just leisure uh you know resorts or you know probably more so the the other uh you know urban or you know group hotels can you talk about what out of room total spending looks like i mean it at least from our expectations has continued to just be you know really strong and i know that you know people you've i think alluded to even though rate it may not be sustainable at some of these resorts the other side of the revenue equation should should pick up as as group and and uh various other uh you know, core travel segments come back. So can you just talk about what you're seeing there, the total out of room, and how to think about that maybe as we go forward in terms of out of room spending on a preoccupied level? Thanks. Sure.

You know, at our 16 resorts in the first quarter, Neil, we had outlet revenue per available room of $180. which is clearly a high watermark for our portfolio. And I would say probably industry-wide, it's a high watermark. As we look at all that revenue in the aggregate, it was just 7% below quarter one of 2019. And that's all driven by resorts at this point in time. I think our resort performance was plus 40% on a pro forma basis to quarter one of 2019. The same, and Saurabh touched on this in his prepared remarks, the same with respect to banquets at our hotels that are driven by group. I mean, banquets were plus $24 million to quarter four of 2019. You know, the per group room night, the banquet dollars exceeded 2019 by 7%. So what we're seeing on corporate, and it's mostly driven by corporate group at this point in time. And what we're seeing is, you know, the groups that are signing up are being cautious regarding what commitments they're making on a spend basis, both from a rooms perspective and out of room spend given what happened with Omicron in January and February and the attendant attrition and cancellation fees. But when they arrive at the hotels, they're spending a lot more money than they contracted for, which makes it a little bit difficult to forecast going forward. That's one of the reasons why we're not comfortable talking about the second half of the year, but talking about... the second quarter at this point in time. Does that answer your question?

Yeah, I think so. I mean, I'm just curious, you know, again, I understand like the decline in rev par, but I mean, you do expect just to be clear, you know, especially given your guidance in terms of bookings or room nights on a group side, the out of room or the non-room related revenue or trend to continue its upward tact, correct?

Absolutely. So I only touched on outlet revenue and banquet revenue. I mean, we have seen, you know, a very strong upward trajectory on Gulf revenues and on small revenues. You know, parking is relatively flat. And we, you know, we expect that to pick up as people get back on the road and start traveling again. We see no downturn whatsoever in golf or small revenues. The one area that did have an impact on our first quarter performance were attrition and cancellation fees of $26 million. And that's relative to $13 million that we collected in Q1 of 2019. So I wouldn't expect to see that level of impact. cancellation and attrition fees going forward. But the other out-of-room spend should continue to grow. Thank you.

Thank you. Your next question is coming from Smeets Rose from Citi. Your line is live. Hi, thank you.

I just wanted to ask, Saurav, as you think about I guess margin going forward. You noted that margin came very close at pre-pandemic levels and RevPAR is still quite a bit below. As RevPAR continues to improve, even if it's somewhat seasonal and more choppy going forward, how do you think about the flow through of incremental RevPAR gains? And would it be fair to assume that they might be more occupancy driven at this point versus rate driven? Or how are you thinking about that?

So I would say, you know, take a look at sort of how we performed in 2019 on a quarterly basis. And given that we have come back much quicker than expected and in terms of just getting back to normal seasonality, and that's obviously what's impacting our Q2 guidance, when you look at margin performance, it would be very similar to what we saw in back in 2019, the only thing I would say is obviously when you are growing revenues, rooms revenues more driven by rate, that will flow through better. So in other words, you can expect sort of Q2 margins, no different from sort of first quarter of 19, where it's slightly better than the first quarter. But then if you look at the third quarter of 2019, there is a marked difference in what happens in margins just because rate drops Back in 19, if I remember correctly, rate dropped close to like 10%, and there was a margin drop of about 600 basis points. So similar in terms of seasonality is what we would expect. So you would still expect sequential top-line growth relative to 19, but you will see the absolute revenue numbers sort of follow the same patterns as we saw back in 2019.

Okay. And can I just ask you one quick question? You mentioned $3 million. group room nights on the books for 23. That looks like somewhere between maybe 18 to 19 points of occupancy at this point. Where would you be now at a pre-pandemic going into the following year in terms of sort of points of occupancy on the books?

Now, what I would say is where we were pre-pandemic is about 3.9 million group room nights at the same time. Okay. But what's important to keep in mind here is we are talking about the full year, right? So Q1 obviously was impacted because of Omicron. So the way to think about it is more the remainder of the year. The remainder of the year, we have 2.3 million group room nights. So that's Q2 through Q4. At the same time, back in 2019, for the remainder of the year, we had 2.7 million group room nights. Does that make sense? So obviously... Sorry, I thought you were talking about for 23.

You're talking about for this year's group room nights. I'm talking about 2022. Oops.

Got it. Thank you. Sorry, I misunderstood.

Thank you. Your next question is coming from Bill Crow from Raymond James. Your line is live.

Hey, good morning. Thank you. Kim, just to put a little finer point of this whole sequential discussion, how much of this change in RevPAR is mixed, driven, more group on the books for June, for example, than there was in the first quarter? some more mixed, more business transient group? Or how much of it is just, you know, travel demand in some of those Sunbelt markets that caused all the compression and the pricing is just being more, you know, dispersed to New York and Boston and Chicago?

I think it's a combination of all the above, Bill. Clearly, you know, I don't want to give the impression that our team resorts and those five properties that had over a thousand dollars in ADR for the quarter are going to fall off the face of the earth. They're not. I mean, the demand is still there. We're still seeing it. But I think as we get past, you know, we got past April, we're going to get, as we get into June, we have some seasonality issues associated with the resorts. You know, as an example, you know, the One Hotel South Beach in Miami, the Ritz-Carlton in Naples, Four Seasons Orlando, just natural seasonality we think may temper some of the demand at those properties. And then we are seeing Group and Business Transient come back, which is going to clearly result in a red part that in the aggregate is lower than what we saw in the first quarter and in the month of April. We're delighted to have the business, make no mistake about it. We're, you know, we're very excited to see a group in BT come back as strong as they have been coming back. And, you know, having the resort portfolio that we do and having put $1.6 billion to work last year with assets that have really meaningfully outperformed our expectations has been in our mind, served as a good bridge to get us to the point where business transient and group recover. So it's a combination of all the above.

If I could just ask a follow-up on kind of the health of the consumer, I'm curious whether you're seeing points redemptions picking up. And if so, does that represent some pushback on these rates? at the resorts or, or maybe a concession that, that inflation is starting to eat away at consumers wallet.

Now I'll let Sir Rob get into it, but the short answer is no, we have looked at redemption, um, uh, numbers and, uh, we don't think that that is, uh, having an impact at all at this point in time. In fact, you know, for, as an example for a Lila Ventana, uh, we're, we're delighted that that hotel is the, uh, part of the world of Hyatt because the redemption numbers at that property really go a long way to allowing us to drive outsized REBPAR just given the small number of rooms that are there. And when we can really revenue manage down to the last room, that is how our redemption rate is set. So it's been very positive for us. And Saurabh, do you want to add a little bit of color on what we're seeing?

Sure. Net-net, it's actually incremental for us because if you think about sort of where we are getting those redemption room nights, they're primarily in the resort destinations, which has very high occupancy. And majority of our hotels in our portfolio are high redemption hotels. And we actually get a higher reimbursement rate at those hotels. And obviously at a higher occupancy threshold, it ends up being incremental in terms of revenue that's being driven by those redemption room nights.

Okay. Thank you all for your time. Thank you. Your next question is coming from David Katz from Jefferies.

Your line is live. Good morning. Thanks for taking my question.

I wanted to, you've talked quite a bit about the strength of the balance sheet. And I think the presumption is that there would be other properties out there that would be viable targets in the next 12 months. And I'm just wondering if we can expand that view a little bit, whether there are portfolios or even whether corporate M&A would even be within or outside the boundaries.

We are constantly evaluating investment opportunities, David. And I think what has happened, at least through our lens as we view the world today, as other hotel owners have seen the cadence of the recovery, we're seeing one of two things happening. Pricing expectations for a number of the properties that have been in the market early in this year have been beyond our reach. We just have not been able to pencil the underwriting to make sense. Other assets that we would like to buy, and that's because everyone is expecting a strong recovery, which obviously our first quarter results and our April numbers are validating as we move into 2022 and beyond. Other assets that we might want to acquire just aren't available for sale right now as owners sit and wait until cash flow recovers. So we are very well positioned. There's no question about it. We have $2 billion of available liquidity today. As the year progresses, that liquidity position will grow. And it puts us in a... a very strong position as we get later into this year and opportunities become available to really pivot and, again, be the buyer of choice as we were last year and take deals on all cash and not have to worry about the state of the debt capital markets today, which have gotten a little bit choppy. less loan to value proceeds, higher interest rates given the commentary and actions that the Fed has taken. And I think that patience is warranted at this point in time. We clearly are going to use the balance sheet. Beyond delighted that we were able to do what we did last year and get ahead of the curve and put $1.6 billion to work early in the cycle. I think everything's on the table, but it's very difficult to speculate on what might become available that meets our underwriting criteria.

I appreciate that. And if I can follow up briefly, just with respect to the kinds of markets where you would or wouldn't be, there's an argument that we see where companies are buying, you know, more Sunbelt oriented. You know, I wonder if there isn't a contrarian view, you know, where some markets that may be, you know, under some pressure or duress today or underperforming today might be, you know, some places to hunt for value. I just wonder what your thoughts are on that.

Let me start by saying that we don't have a red line through any market. And it really is, is dependent upon our view of value and likely performance going forward. So I agree with you, you know, that, you know, I think the puck is still going to the Sunbelt markets. I don't think that's going to change. And, you know, resorts in particular, you know, for a number of reasons. Number one is very, very low levels of supply in those markets, in the resort markets in general. But if opportunities presented themselves in some of the markets that are at the bottom of the recovery list and we thought that they were priced fairly and that we could add value and that the investment would serve to elevate the EBITDA growth profile of the portfolio, which is what we're really focused on doing, we would certainly be prepared to transact. Understood. Thank you very much. I appreciate it.

Thank you. Your next question is coming from Ari Klein from BMO. Your line is live.

Thanks and good morning. Just following up on the resort rates, you know, clearly it seems like there's some seasonality at play over the next few months. But as you look further ahead and comps begin to get much tougher kind of in the second half of the year and I guess the beginning of next year, are you expecting, you know, rates to actually decline a bit?

Hey, Ari.

So, I think, you know, while rates will temper, and a lot will be just natural business mix and market mix, so shifting of demand to different markets, as opposed to the strength of the leisure rate in those specific market. So we still expect, and just based on the demand that we are seeing into the next quarter and even the second half of the year, we are of the belief that the leisure rates are still going to hold pretty strong. And probably, frankly, well into next year, there's still a lot of pent-up demand. And once international borders really open up to the U.S., we think there is a meaningful amount of demand that's going to help sort of sustain those rates. Obviously, very difficult to tell to what magnitude it will be tempered as sort of the market mix takes place, but we still feel pretty strong about the leisure rates going through the rest of this year and into next year.

Great. Thanks for the color. Sure.

This question is from Anthony Powell from Barclays. Your line is live.

Hi, good morning. Sorry to keep focusing on this leisure performance in May and June, but I kind of want to ask another question on that. So we've seen strong pricing and demand on holiday weekends. There are two weekends coming up, Memorial Day and also Juneteenth. Just checking some of your properties on both of those weekends, they seem to be asking for very high pricing. So what are you seeing in the booking window for those two specific weekends? And are you seeing any, I guess, incremental weakness or softness or price resistance as we approach those time periods?

Specifically for Memorial Day, and this is again going back to sort of still the short-term lead time, we are seeing actually pace 12% above 2019 levels. So still holding very strong for holidays. Sunbelt markets are pushing rates really nicely with rates on the books up 44% versus same time 2019. But overall, still very strong performance for the upcoming holidays.

And what about Juneteenth?

I don't specifically have Juneteenth numbers handy, but we can certainly get back to you.

So I guess you're not really seeing, I guess, in the upcoming holiday weekends any kind of relative price softening versus what you saw in April or even President's Day. Is that fair?

That's fair. We're not seeing any softening. Great. Thank you.

Thank you. Your next question is coming from JJ Cornish from SMBC. Your line is live.

Hey, good morning. It's Jay. But I was going to follow up to a previous question. With the strong recovery in business transit and urban demand, it was interesting to see your Boston and New York asset dispositions. So I'm kind of just curious how you think about your asset allocation plan and but it may shift back to preserving your urban footprint, which is recovering versus maybe disposing in those markets and focusing more on the outperforming Sunbelt and resort assets.

Sure, Jay. You know, those two assets were, they each had a unique set of circumstances surrounding them that drove us to dispose of the properties. You know, in Boston, and let me, Let me say before I get into specifics about each of these two assets, we still have a healthy presence in both markets. You know, in Boston, we have the Boston Copley Marriott, which is part of the Marriott Transformational Capital Program. We're in the midst of a complete renovation of that asset. So clearly, you know, we are committed to the Boston market. But the Sheraton... Given its location in Back Bay and the size of the hotel and the plans on the part of the state of Massachusetts to sell the Heinz Center, which the hotel was very dependent upon for groups. It doesn't have an adequate meeting space platform to service groups. And, you know, the group business in Boston now has moved to the main convention center The hotel needed a lot of capital, a significant amount of deferred capex at that property. It just made a lot more sense for us to dispose of that asset. And, you know, similarly with the Sheraton in New York, we have the New York Mary Marquis in Times Square and the Financial Center Marriott in downtown New York. Both are in incredible shape. They were both part of the Marriott Transformational Capital Program. The assets are well-primed to really outperform as the recovery continues apace, whereas the Sheraton, again, an older hotel in need of substantial capex. So in that part, the Sheraton was forecasted to lose $15 million at the EBITDA line in 2022. You know, I think those two dispositions will go a long way to allowing us to elevate the EBITDA growth profile of the company. Taking the capital from those sales and investing that capital either in our existing portfolio through ROI projects or making additional acquisitions going forward is part of our capital allocation strategy.

Great. That's really helpful. And if I could just ask one follow-up. As we're seeing a nice recovery in the business in all the urban markets, can you just give us a little perspective on how San Francisco is shaping up and how you expect the market to perform in the second half of the year?

Yeah, sure. San Francisco is actually shaping up better than we were expecting. I'll give an example. San Francisco Marriott Marquis actually had 1,000 rooms per night midweek last three weeks of March. BT on the books for the last week of April is almost flat to 2019. So overall, pretty good see-through for San Francisco in terms of BT pickup.

Okay, that's really helpful. Thanks very much.

Thank you. Your next question is coming from Flores Van Dijkum from Compass Point. Your line is live.

Great. Thanks, guys, for taking my question. If I look at your EBITDA numbers, particularly if I look at your resort markets relative to 2019, obviously the resorts have been really strong. San Francisco has been lagging. DC has been lagging. New York is not really that big, but that has also been a troubled market. As you think about the recovery that we're seeing in the urban markets, I mean, in your view, I know that people are talking a little bit about sequential growth here, but you're pretty near an 83% of your EBITDA, hotel EBITDA already in the US in the first quarter. Some of your competitors think they can achieve that by the fourth quarter of this year. Is that your house view of potential? I know you're not giving guidance, but certainly is that how comfortable are you being able to achieve those kinds of levels by the fourth quarter of this year?

I don't think we're really comfortable talking about the second half of the year. It's very difficult at this point in time to forecast how this recovery is going to continue to unfold. So much of the business is being booked short-term, although we are starting to see the booking window extend. As I mentioned, A very valid point we think is on the corporate group business that we're seeing. The contracts that are being signed are for lower levels of food and beverage spend and smaller numbers of attendees than that are showing up because they just don't want to be dealing with attrition cancellation fees if they have to cancel or if they if there, you know, there is another event that, um, uh, as we saw in January and February. So, um, at this point in time, you know, I think we're confident and we feel really good about what we're seeing in terms of group bookings, uh, for the balance of this year. Uh, we had a nice pickup over Q4, uh, where we had, uh, 2.7 million definites on the books at the end of Q1. We had 3 million definite room nights on the books. That compares, I think, to 3.9 million in Q1 of 2019 for 2020. So we continue to close the gap going forward. And the same with Business Transient. You know, it's coming back. We think it's going to continue to evolve as offices open. We feel good about it, but we're just not in a position to give any guidance for the balance of the year.

Fair enough. I would just add, if there is any indication in terms of what we did in March as a representation of where we see the trends heading, I think we mentioned our prepared remarks on March was over 100,000 room nights, which is now the high water mark. So if you remember back in 2021, we had The last high-water mark was at 78,000 room nights in October of 21. So that's a 28% increase. And what we can say is we see that trend continuing into April. And as Jim said, since the lead times are short, it's difficult to have visibility on BT well into the second half, but the trends are at least positive. And March ADR for BT was $223, and that's down only 1.6% to 2019. Thanks, Rob. Appreciate it.

Thank you. Your next question is coming from Chris Darling from Green Street. Your line is live.

Thanks. Good morning. Just to put a finer point on what you're seeing on BT and group demand, I'm hoping you could just walk through how weekday occupancy specifically is trending relative to 19 and some of your major urban markets.

So for the major urban markets, the weekday occupancy is is still lower than what, you know, where we would like it to be, but it's trending in the right direction. I think that's the important point. From the last time we spoke in the fourth quarter call, there has been like a, you know, four to five point improvement in midweek occupancies. So that's where sort of, you know, we've been focused. Weekend occupancy has obviously improved meaningfully in those urban markets, but that trend continues.

Fair enough. And I don't know if you have the numbers in front of you, but just curious, you know, how that might compare to, you know, kind of pre-COVID levels.

We are still down, I would say, about, you know, sort of high double digits of 18, 20 percentage points in occupancy in those markets midweek.

Gotcha. Appreciate it. Thank you. Sure. Thank you. That concludes our Q&A session.

I will now hand the conference back to Jim Rosolio, Chief Executive Officer, for closing remarks. Please go ahead.

Thank you, and I would like to thank everyone for joining us on our call today. We appreciate the opportunity to discuss our quarterly results with you, and we all look forward to meeting with many of you in person in the coming weeks and months. We really appreciate your continued support. Have a great day.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.