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spk00: Hello and welcome to the Xenia Hotels and Resorts fourth quarter and full year 2021 earnings conference call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you can press star 2. I will now hand over to your host, Aldo Martinez, Senior Financial Analyst. Over to you, Aldo.
spk01: Thank you Alex. Good afternoon and welcome to Xenia Hotels and Resorts fourth quarter and full year 2021 earnings call and webcast. I'm here with Marcel Verbas, our Chairman and Chief Executive Officer, Barry Bloom, our President and Chief Operating Officer, and Atish Shah, our Executive Vice President and Chief Financial Officer. Marcel will begin with a discussion on industry fundamentals, our quarterly and annual performance, and an update on our portfolio strategy. Barry will follow with more details about our operating results, recent operating trends, and status of our capital expenditure projects. And Ateesh will conclude our remarks with an update on our balance sheet. We will then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC findings. which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued this morning, along with comments on this call, are made only as of today, March 1, 2022, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find the reconciliation of our non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release. The property now portfolio information we'll be speaking about today is on the same property basis for 33 hotels. Subsequent to the sale of Hotel Monaco Chicago in January, certain information is for current same property set reflecting 32 hotels. And our chart that is called will be available on our website for 90 days. I will now turn it over to Marcel to get started.
spk09: Thanks, Aldo. And good afternoon to all of you joining our call today. We are pleased to be sharing our fourth quarter and full year 2021 results with you today, as well as some recent developments that we believe to be very positive for our growth outlook over the next several years. After a slow start to 2021, industry fundamentals gradually improved as the year progressed. Particularly after the vaccine rollout accelerated in the second quarter, lever demand increased significantly, while corporate and group demand started recovering at a more moderate pace. Despite the emergence of the Delta variant over the summer and the Omicron variant post-Thanksgiving, we experienced an upward trend in occupancy throughout the year, and the gap to 2019 REV part diminished substantially as we finished out 2021. Importantly, we were able to return to positive adjusted EBITRE in March, and we were able to maintain and grow this positive cash flow through the remainder of the year. During the fourth quarter, we recorded a net loss of $22.9 million. Adjusted EBITDA RE and adjusted FFO per share each remained positive at $48.9 million and 25 cents respectively. We are pleased that 31 of our hotels and resorts achieved positive hotel EBITDA for the year, which translated to adjusted EBITDA RE of $108.1 million and adjusted FFO per share of 28 cents. Our same property portfolio generated a hotel EBITDA margin of 27.2% for the quarter as a result of a continued focus on cost controls by our operators and benefits from real estate tax reductions and cancellation fees. Our same property REF PAR for the fourth quarter was only 17.5% below the same period in 2019, representing another sequential improvement over the first three quarters of the year when we experienced REF PAR declines 63.3%, 38.6%, and 22.9% in the first, second, and third quarter respectively. Average rates remain a bright spot as our same property ADR increased 7.1% compared to the fourth quarter of 2019. An impressive 25 of our hotels and resorts achieved ADRs that surpassed those reached during the same quarter in 2019. The fourth quarter was our strongest quarter of the year, despite the typical seasonal slowdown in December and the early impact from the Omicron variant. The two highest ADR and RETBAR months of 2021 were both in the fourth quarter, with October being the strongest month of the year and November not far behind. Impressively, ADRs for every month during the second half of the year surpassed those achieved during the same months of 2019. The emergence of the Omicron variants and resulting spikes in positive COVID-19 case counts throughout the country, coupled with a typical seasonal decline in leisure travel, caused a slowdown in overall demand in January. The incorporating group segments were most significantly impacted, and we were confronted with a meaningful number of group cancellations and postponements. As a result, our current same property portfolio record in January was markedly lower than we experienced in December, and Ref Bar was approximately 37% below January 2019 Ref Bar. This decline was substantially greater than the approximately 8% decline we achieved in December, which was the smallest gap since the beginning of the pandemic. However, travel patterns have improved significantly over the past several weeks, as case counts have fallen dramatically, and evidence has mounted of the new variant causing less severe illness and lower percentages of hospitalizations and deaths. Based on our preliminary estimates, February REF BAR should be approximately $157, which represents an approximate 19% decline versus a very strong February of 2019, with ADR of approximately 6% over 2019 levels. The projected REF BAR for the month represents the highest absolute REF BAR since the onset of the pandemic. with both Occupancy and ADR surpassing the levels achieved in October.
spk03: We are encouraged by these recent trends and our forward-looking pace and are optimistic about a strong recovery as the year progresses. We continue to be bullish on our growth prospects in the years ahead.
spk09: We believe that we have many strategic advantages, including our geographic footprint, the quality of our assets and operators, our strong balance sheet, and a number of embedded growth opportunities, some of which we have highlighted during previous earnings calls and presentations. We believe that we are in the early stages of a strong multi-year recovery for upper upscale and luxury hotels and resorts, and that our company is positioned well to drive superior results. While we have already benefited from our geographic diversification and focus on Sunbelt locations during the earlier stage of the recovery, We continue to have many opportunities for growth throughout our portfolio, particularly as corporate and group demand recovers as we expect it will. We have continued our focus on identifying and executing internal growth opportunities as we have done in the past with projects such as the ones we recently completed at Park High Javier and High Green Sea Grand Cypress.
spk10: For 2022,
spk09: We are planning to substantially increase our capital expenditures over the reduced levels of spend that we had in 2020 and 2021 when we responded to the impact of the pandemic by emphasizing liquidity and cash preservation. Barry will provide details on the most significant projects we are intending to complete or start this year in his remarks. We also remain optimistic about the growth we expect to experience as a result of high-ingrediency portals
spk03: reaching stabilization over the next several years, as it is essentially still a newly opened hotel. I will now turn to the transaction activity we have recently completed and the exciting announcement we made this morning.
spk09: In November, we completed the previously announced sale of Mary of Charleston in West Virginia, and in January, we completed the sale of Hotel Monaco, Chicago, a transaction that we also announced before the end of the year. Through these two dispositions, we actually have two challenging markets with what we believe to be tough operating environments and difficult paths to get back to prior peaks. We were particularly pleased with the pricing. At an almost 17 times 2019 EBITDA multiple, we achieved on the opportunistic sale of Hotel Monaco, Chicago, which was one of only two hotels in our same property portfolio that had negative hotel EBITDA in 2021. Over the past several quarters, we have consistently maintained that we would be opportunistic but patient as it related to potential acquisitions. The announcements we made this morning regarding our agreement to acquire W National is reflective of our efforts during this time as we were able to identify a potential acquisition that meets all of our investment criteria, including price We are extremely excited that we have been able to reach an agreement to acquire this outstanding hotel. Nashville is one of the most dynamic growth markets in the country and has been a target investment market for us. We were able to move decisively once we became aware of the opportunity to acquire the hotel because of the strong balance sheet and liquidity we achieved and maintained through our recent balance sheet activities. We believe this acquisition hits the bullseye as it relates to our investment strategy. Nashville is a high-growth, top 25 walking market with significant and growing year-round corporate and leisure demand. We have extensive experience with Marriott managing some of our most significant assets. And the hotel is a fee-simple, luxury lifestyle hotel that has many truly unique attributes and that we believe is the best hotel on the market. The hotel opened just a few months ago and is extremely well-designed to be able to cater to any demand segment, as evidenced by outstanding guest feedback since its October opening. In our view, this hotel is in a class of its own in the national market, particularly as it relates to its rooms and suites product, its food and beverage facilities, and its other amenities. There are six food and beverage venues in the hotel, including two destination restaurants by renowned chef Andrew Carmelini Additionally, the pool, rooftop, and outdoor entertainment, dining, and meeting areas are unrivaled in Nashville. And while this almost $330 million acquisition is a large transaction for us, we are comfortable with having this level of concentration in one of the strongest economic growth markets in the country.
spk03: While supply additions in Nashville have been significant over the past decade,
spk09: and a number of projects will still be added to the supply over the next several years, the market has been resilient, and demand and ref-park growth has consistently outpaced supply growth, resulting in one of the highest ref-park acres of any of the top-watching markets. We strongly believe that luxury demand in the Nashville CBD West End sub-market will continue to experience substantial growth in the years ahead, and this unique luxury lifestyle hotel is the perfect embodiment of what the higher-end leisure and corporate clientele will seek out as their destination of choice in the market. As we highlighted in our release this morning, we expect W National to be one of the leading contributors in our portfolio in the years ahead, with Otele without reaching between $25 and $30 million upon stabilization. We are thrilled to be adding W to our stable of Marriott brands in our portfolio. We have long had a deep relationship with Marriott and are looking forward to owning a flagship W hotel in the US as Marriott evolves and refreshes the brand. With significant capital investments being made in many existing Ws and exciting new W hotels opening and in Marriott's pipeline domestically and internationally, we are optimistic about the future of the brand and the contributions it will make to what is an outstanding hotel from a physical and location perspective. With our asset management expertise and Marriott's operating prowess and brand power, we are excited about what lies ahead for WNational under our ownership. Barry will now provide additional details on our fourth quarter performance, recent operating trends, and the status of our current and planned capital projects.
spk11: Thank you, Marcel, and good afternoon, everyone. The fourth quarter for same property portfolio occupancy was 56.4%, an average daily rate of $241.11, resulting in rev bar of $136.01. The fourth quarter marked the best performing quarter in 2021, coming in at 7.1% higher in ADR and 17.5% below in rev bar compared to the fourth quarter in 2019, and beating every other quarter in 2021 in terms of occupancy ADR, and rent bar achieved. Despite somewhat weaker than expected corporate and group business related to the Delta variant, October and November were both strong months, with occupancy coming in at 58.6% for each month, each second only to the July peak of 59.2% for the year. October achieved the highest ADR and rent bar of any month in 2021 at $248.69, and $145.71, respectively, bolstered by five weekends, which allowed our hotels to capture additional leisure demand. ADR in November was $238.05, resulting in rev par of $139.45. In December, we began to see some expected moderation in occupancies during the month, driven primarily by seasonal declines. However, despite these slowdowns, December achieved an ADR of $235.92, or 15.2% higher than 2019, and REFR of $122.99, or just 7.8% below the same month in 2019. During the quarter, we had six hotels achieve occupancies above 75%, primarily at hotels in our leisure-focused and drive-to markets, such as Key West, Charleston, South Carolina, Savannah, Birmingham, and Napa, all of which continue to show substantial strength. We also had 25 hotels representing 74% of the portfolio and achieved higher ADRs in the fourth quarter of 2021 than they did in the fourth quarter of 2019. We commend our hotels and asset management team on identifying and pursuing opportunities to drive ADR and take advantage of the consumer who's willing to pay a premium for quality properties like ours that have focused efforts on activating on-site amenities. For the full year, we had five hotels achieve greater than 75% occupancy, again, primarily at the same hotels in our leisure-focused and drive-to markets.
spk10: We also had 15 hotels achieve higher ADRs in 2021 than they did in 2019.
spk11: Group cancellations in the fourth quarter amounted to approximately $8.5 million of rooms revenue, which had been on the books for the fourth quarter of 2021, primarily related to the Delta variant. We recognized approximately $5 million in cancellation and attrition fees during the fourth quarter. Atish will discuss 2022 group pace and the impact of group cancellations as a result of the Omicron variant on Q1 of 2022 in more detail shortly. In terms of profit, all 33 of our same property hotels achieved positive hotel EBITDA for the quarter, with 13 properties exceeding results compared to the fourth quarter of 2019. Eleven hotels achieved EBITDA margins greater than 30% for the quarter, and 16 hotels generated EBITDA margins greater than 2019. For the full year, 16 hotels were able to generate EBITDA margins above 25% as a result of efficient cost controls and optimization of operations. Our properties and the respective management companies continue to do an excellent job in controlling margins. For the fourth quarter, hotel EBITDA was $54.1 million, a decline of 17.5% on a total revenue decline of 18.5% compared to the fourth quarter of 2019, resulting in hotel EBITDA margin growth of 32 basis points to 27.2%. For the full year, hotel EBITDA declined 52.3% on a total revenue decline of 39%, resulting in a hotel even margin of 21.7% down approximately 600 basis points from 2019. Our hotels, thanks to the efforts of our operators, continue to do an amazing job of controlling expenses while ensuring a high quality of guest experience. In the fourth quarter, rooms expenses declined by over 18% compared to 2019, while undistributed expenses declined by 13.7%. For the full year, rooms expenses declined by approximately 35%, while undistributed expenses declined by approximately 26%. Within the undistributed expenses, while the greatest declines were seen in AMG and sales and marketing, utility expenses declined by approximately 7.6% for the year, related in part to lower occupancy levels, but also as a result of our hotels having become more efficient in their use of electricity and natural gas, despite rate increases in many markets. Our operators continue their work in refining service models and staffing levels. For the fourth quarter, total employee compensation, as reported by our operators, declined by 21.5%, and for the full year, by 36.7%. We currently estimate the wage rates across the portfolio, based on our operators' budgets, will increase by approximately 5% in 2022 versus 2021. LEASURE BUSINESS CONTINUES TO BE STRONG THROUGHOUT THE PORTFOLIO WITH INCREASED BOOKING WINDOWS FOR OUR MOST POPULAR DRIVE-TO DESTINATIONS AND RESORTS THROUGHOUT THE FIRST AND SECOND QUARTER. DESPITE SIGNIFICANT SUCCESS IN THE LEASURE SEGMENT, WE NOTE THAT OCCUPANCIES FOR THE YEAR AT OUR THREE LARGEST RESORTS, PARK HIGH AT AVIARA, HIGH AT REGENCY SCOTTSDALE, AND HIGH AT REGENCY GRAND CYPRUS, RAN BETWEEN 35 AND 56 PERCENT OCCUPANCY, LEAVING ROOM FOR SIGNIFICANT UPSIDE OF THESE HOTELS AS HIGH RATED AND BANQUET
spk10: in 2022 and beyond.
spk11: Despite the seasonally slow and Omicron-impaired levels of business travel, our portfolio experience in January and early February, we are now seeing significant pickup in corporate volume accounts. Business travel has notably picked up in recent weeks, as evidenced by increases in occupancy levels on Monday, Tuesday, and Wednesday nights, as well as transient business on the books for March. I will end my remarks today with a review of our completed and upcoming major capital expenditure projects. During the fourth quarter and year-ended December 31, 2021, the company invested $12.7 million and $31.8 million, respectively. In the fourth quarter, we completed the restaurant and lobby renovation. which was completed in mid-October, and the development of the Regency Court, a new 5,300-square-foot outdoor social venue at High Regency Scottsdale that was completed in late November. During the fourth quarter, we made substantial progress on the renovation of the restaurant, lobby, and guest rooms at Waldorf Astoria Atlanta Buckhead. The restaurant and lounge opened in mid-February, and we anticipate that the guest room project will be completed later this month. In 2022, we estimate spending approximately 95 million dollars on capital expenditure projects. We continue to be excited about two major projects which we accelerate and take advantage of current business conditions, which will primarily take place in 2022. The first is a comprehensive renovation of Grand Bohemian Hotel Orlando, including guest rooms with substantial tub-to-shower conversions, restaurant and bar, lobby, rooftop pool area, PHASES, INCLUDING IN THE SECOND QUARTER OF 2023. THE SECOND IS A COMPREHENSIVE RENOVATION OF THE KIMPTON CANARY HOTEL SANTA BARBARA, INCLUDING GUEST ROOMS, RESTAURANT AND BAR, ROOFTOP, LOBBY, AND MEETING SPACE, WHICH RECENTLY COMMENCED AND IS EXPECTED TO ALSO BE COMPLETED IN PHASES, INCLUDING THE FIRST QUARTER OF 2023. IN 2022, WE ALSO PLAN TO RENOVATE THE MEETING SPACE AND CONVERT THE EXISTING LOBBY BAR TO A STARBUCKS OUTLET AT FAIRMONT PITTSBURGH. Renovate the meeting spaces at Marriott Dallas Downtown and Royal Palms Resort and Spa. Complete bathroom renovations at Marriott Woodlands Waterway Hotel and Convention Center. Renovate the premium suites at the Ritz Carlton Denver, including the addition of three new guest room keys. And commence planning and design for a comprehensive renovation at Hotel Monaco and Salt Lake City. In addition, we plan to commence work on a significant upgrade to the spa and wellness components at Park Hyatt Aviara, along with a comprehensive renovation of the existing golf course. features which were deferred during the initial renovation, but for which we now have even stronger conviction given the positioning and performance of the property. Finally, we continue to focus on numerous building infrastructure projects to enhance building resiliency and extend the useful life of our physical structures, in addition to focusing on a number of environmentally sustainable projects throughout our portfolio. With that, I will turn the call over to Atish.
spk09: Okay. Thanks, Barry. I will provide an update on our balance sheet and a high level outlook for 2022. Our balance sheet continues to be strong with no debt maturities until 2024. Significant liquidity, nearly all debt currently at swapped or fixed swap to fixed or fixed interest rates and strong banking relationships. We're in a good position to take advantage of opportunities such as the W Nashville. Our liquidity, inclusive of available cash and our line of credit, is currently approximately $950 million. In January, we paid off the $65 million mortgage loan on the Ritz Carlton Pentagon City, thereby lowering our cost of debt to some 5%. Looking ahead, we intend to acquire W Nashville with cash on hand. As we get farther into the year and depending on other opportunities, we could access the equity or debt markets to raise additional capital or continue to evolve our balance sheet. Similarly, as business rebounds and after exiting the covenant waiver period, we could consider other tools to drive shareholder return, such as a quarterly dividend or share repurchase under our existing board authorization. As to a high-level outlook for the year, We have a positive view based on the demand trends and booking activity that we're seeing. As to transient demand, Barry mentioned, strengthening corporate transient trends. Turning to group demand, our PACE information is as of the end of January for current same property set. At that time, room revenue PACE for 2022 was down 27% versus where we were in January of 2019, and that's for the full year. For the first quarter, decline is greater than 40%. For the second and third quarters, we were pacing down about 20%. And for the fourth quarter, we were pacing down about 10%. Focusing on just group room rates, for the full year of 2022, we were pacing up about 4%. For the second half specifically, group room rates are pacing ahead by over 9%. As more current group trends, group activity for remainder of this year continues to pick up, our hotels continue to see near-term bookings. And we have picked up over half the group revenue that canceled for the first quarter of 2022, with most of that rebooking concentrated in the second quarter of 2022 and lesser amount in the second half of 22 and into 23. Between cancellation income and rebookings, we expect to recapture most of the profits from the group cancellations due to the Omicron variant. One thing to keep in mind in terms of comparing 2022 to 2019 is that between the start of 2019 and now, we've sold eight assets, which contributed nearly $55 million of hotel EBITDA in 2019. This information is further broken out by quarter in the historical current same property tables in our earnings release schedules. Moving ahead, while we are not yet ready to provide 2022 earnings guidance, we wanted to provide some thoughts on the cadence of earnings, as well as some estimates for items that are more under our control. As for the cadence of earnings that we expect in 2022 in terms of Hotel EBITDA, we expect Hotel EBITDA weighting by quarter to be as follows. First quarter, about 20%. Third quarter, about 25%. And each of the second and fourth quarters, just under 30%. That weighting is our current estimate. It assumes no change in economic conditions or additional variance of COVID-19. Turning to estimates for certain expense items, as the cash G&A expense, we expect it to be approximately $22 million. The increase the last year reflects higher wage and benefits costs and the lapping of payroll tax credits. As the interest expense, we expect it to be approximately $77 million, which is a decrease of over 5% to last year, reflecting changes in our balance sheet over the course of the last year. As to capital expenditures, we expect them to be approximately $95 million to cover the projects that Barry discussed. On WNashville, assuming the purchase closes by the end of the first quarter, we expect to generate between $13 and $15 million of hotel EBITDA during our ownership period in 2022 as the hotel ramps up. To wrap up, each quarter of 2021 showed strengthening trends across our portfolio. We finished 2021 on a high note despite the emergence of COVID-19 variants. As compared to other high-end portfolios, we outperformed last year due to our favorable market and asset mix. We expect that momentum to continue this year as the recovery of fundamentals continues. Our properties are affiliated with some of the best brands and managers are in good condition and have the product offerings and amenities that travelers are currently seeking. In addition, our properties located in several Sunbelt markets such as Houston, Orlando, Phoenix, Atlanta and San Diego are still well behind peak levels of REVPAR and earnings. So there is significant room for earnings growth as corporate and group demand recovers and augments leisure demand. In addition to our asset profile, the strength of the balance sheet and our transactional expertise gives us confidence that we can be active participants in the multi-year lodging upcycle, which we believe is just getting started. And with that, we'll turn the call back over to our operator, Alex, for our Q&A session.
spk00: Thank you. We will now proceed with the Q&A. If you'd like to ask a question, you can press star 1 on your telephone keypads. If you would like to withdraw your question, you can press star two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from David Katz of Jefferies. David, your line is now open.
spk03: Afternoon, everyone.
spk07: Thanks for taking my questions. I apologize if I missed it, but with respect to this Nashville hotel, was this a marketed hotel? deal and i'm curious you know what commentary you might have about you know what marketed deals are looking like these days uh and you know what how you would sort of maybe one to ten or qualitatively gauge the competition for marketed deals yeah thanks uh good afternoon um
spk09: This was actually not a broadly marketed deal. It was not listed with a broker. So, you know, it's what you would call traditionally, you would call it an off-market deal, which it certainly was. We do know that there were certain other potential buyers that were looking at the transaction. And from that standpoint, it probably was a competitive process with a very limited group of potential buyers that were looking at it. And I talked in my prepared remarks a little bit about us being able to to jump in with a lot of conviction around this particular opportunity. And we really believe that's the reason why we ended up with this transaction. It was really being very decisive, being able to move quickly and get a deal done with this, what we believe is a phenomenal hotel.
spk07: And when you look at it, it looks like... Sorry.
spk09: Sorry, David. You had a question. kind of what the process for market of properties is. It's obviously still a very competitive process when you're looking at deals that are being brokered. And we felt very fortunate to actually find an opportunity like this where we could really separate ourselves from the pack by being as decisive as we were on this transaction.
spk07: Understood. And so when we look at a hotel like this, you know, is there value that you can add to it over time from an operating perspective, or is this just positioning in, you know, a terrific market with a brand new asset and, you know, the tide sort of carries its value along?
spk09: Yeah, great question. We think it's a combination of both, certainly. We do think that we talked a lot in the comments about and in the release this morning about the positioning of natural as a market, then we really believe that there is a fundamental shift going on in the country as far as what are the most dynamic markets and where do you want to be for the long term. So from that perspective, we think this is kind of a bull's eye location for us where we want to be invested for the long term. But we certainly also are very excited about the fact that it's a property that's managed by a brand that we have a very, very long relationship with and a very deep relationship with and where we can basically get in somewhat at the ground level, an asset managed really kind of from the start on this asset with Marriott. And we believe that there's a lot that we can bring to the table through our expertise that will help this property be even more successful over time.
spk07: Understood. I'll give somebody else a chance and come back around. Thank you very much.
spk00: Thanks, Adam. Thank you. Our next question comes from Bill Crow of Raymond James. Bill, your line is now open.
spk03: Sorry, Bill, I'm not receiving any audio. Could you ensure you're unmuted, please? Sorry, Bill, I'm still not receiving any audio.
spk12: If you could read the line. Yep, yep. Can you hear me now?
spk00: Apologies, go ahead.
spk12: Yeah, okay, great. Atish, let's start with you. The $5 million of cancellation fees received in the fourth quarter, what would the margins have been had that business actually shown up?
spk09: Yeah, well, the cancellation fee income was about $2.5 million more than the fourth quarter of 19. So it did benefit margins by over 100 basis points. I mean, it's hard to give you the exact number of what it would have been had the business showed up, but that gives you a sense of what the impact was in the fourth quarter. Interestingly, for the full year, cancellation and attrition fees were not that much ahead of where
spk12: And how much have you or do you anticipate collecting in the first quarter in cancellation fees? And I assume that's in your quarterly cadence that you talked about?
spk09: Yeah, it wouldn't be nearly as much as that. I mean, I don't have a good estimate. the number and the timing last year. I think that'll moderate as we go into this year.
spk12: Yeah. Okay. If I could just ask on the, uh, on the W, uh, acquisition, um, how you're, how you, how y'all get comfortable with the W brand? Um, because clearly it has, has been one that we've, a lot of us have had questions about over the last, uh, 10 plus years. And, and, uh, So if you could answer that and how you think about permanently financing that acquisition.
spk09: Yeah, I'll take the first part of that question, Bill. You know, from our perspective, first and foremost, you know, we look at this typical asset and location, right? And if you look at what this hotel is, it could be really many things from kind of a luxury lifestyle perspective. And we think that even with LWS, standing on its own is just a phenomenal asset that will drive a lot of demand. On top of that, we do think that W is really additive to this asset, particularly with some of the refreshing and evolving that Marriott is currently doing with the brand. If you look at, and I think I talked a little bit about it a little bit in my comments, if you look at the amount of money that's going into certain W assets right now that are being refreshed, there's very significant capital investments going into some of those assets. There certainly are still some assets that need to kind of be brought up to the next generation. But there also are some really phenomenal assets in the U.S. And this hotel only helps to elevate the W brand here in the U.S. It is a flagship hotel, really, when you think about what W is going to be going forward. And if you see some of the hotels that have opened up internationally as well and what Marriott is doing with the brand overall on a global perspective, I think that there's a lot of positive momentum there because we're going to be benefiting from On the finance question, Bill, as we mentioned, our plan is to fund this with all cash. And while I think this would be an attractive candidate for secured financing at some point, I'm not sure that we're necessarily, you know, ready to commit to doing anything like that right now. I mean, as you look at our balance sheet, you know, a few years ago, we had, you know, eight hotels that had secured financing on them. Now we have four. We've certainly been active participants on the public debt side in terms of high yield money that we've raised and frankly, you know, are pleased with that tool that we can continue to utilize. So I think, you know, my comments were about generally, you know, raising equity or debt capital in the future. I think that that applies here as well. But we don't have any specific plans with regard to this asset or this transaction at this point.
spk02: All right.
spk03: Thank you all. Appreciate it.
spk00: Thank you. Our next question comes from Austin Verschmidt of KeyBank. Austin, your line is now open.
spk04: Great. Thanks, and good afternoon. Just going back and revisiting the acquisition certainly makes sense from a lot of – it checks a lot of boxes. So I guess just how do you get comfortable with the price per key? And while I know it just recently opened, I suspect some portion of the construction cost might have been, you know, baked pre-pandemic. So, curious about your thoughts, how it stacks up, the price tag, you know, versus your estimate of replacement cost today. And then, can you also just speak to, you know, how conservatively, you know, you underwrote to get to that sort of mid-8 percent yield, you know, at the midpoint?
spk09: Sure. Thanks, Austin. You know, from a price-to-key perspective, I mean, we certainly recognize that for the natural market, it's a number that's higher than what you've seen recently in the market. But as you also know, there's so much positive momentum going on in the markets, and there's so much economic growth in the market that I'm quite convinced that we will not be the highest price-to-key transaction for a very long time in the market. There are certain other things that are happening there that I think will be close to where we are on this price-to-key. One thing to really remember about this asset too is that you don't have to find 346 hotel rooms here. You're buying a very different income stream coming off of the F&B facilities and very high margin type of revenue that's coming in through those F&B facilities because of a lot of, well, the beverage primarily coming in as well. So when you think about kind of all in what you're buying here, you're buying a very attractive cashflow stream that is coming from all those different venues going forward You know, we obviously, this is not something that's where we just decided, hey, let's invest in Nashville right now. We've looked at the markets for a number of years. We've underwritten a good number of assets in the markets. So this is really kind of a culmination of looking at various assets here for a very long time. And we are extremely comfortable that we are, in our mind, buying the best hotel in this market that's going to have the best operational upside going forward. As it relates to kind of, you know, comparing it to development costs, this is also a project that has taken a long number of years to actually come together. So even thinking about what's, you know, potential developer profit has been made on this deal. Construction costs have gone up very substantially over the last few years, as you know, and continue to go very substantially. You think about, you know, basis that they may have had in the land would be very, very different today. So there are just a lot of things that, you can look kind of in, you know, kind of a spot view of where is development cost versus value. We feel from a value perspective, this hotel is absolutely worthless, especially when you look at not only where it sits in the markets, but if you also compare it to the basis for, you know, hotels and other, you know, it's even tough to call other markets similar markets because there are not that many markets that are seeing the growth that Nashville is seeing. But if you compare it to some of those other markets, we feel really good about being here and what the risk-reward is of this investment versus what we could have invested in smarter hotels. And I'll just add one thing, which is we've talked to you a lot over the last few quarters about kind of being patient and waiting for the right acquisition opportunity. And this really is it, as we looked at it, because if we didn't buy this hotel at this level, someone else would have, and would have potentially paid even more for it. And it's probably the one hotel that we've looked at in the last two years that if we would have seen one of our peers come out with an announcement on this, we would have been very disappointed and jealous as opposed to what it gives that we've seen. So we feel really good about where we are with this asset and what it's going to do for us going forward.
spk04: Yeah, that's very helpful. And then so when it comes to the underwritten yield in the mid-eighths, I guess we're in this transitional period of hotel demand with a backdrop of high inflation. It's been beneficial to, you know, ADR and margins. And, you know, there are these potential operating efficiencies coming out of the pandemic that get discussed, you know, by, you know, many in the industry. So can you just give us a sense of, you know, what you kind of underwrote towards from an ADR margin perspective? You know, is it kind of the new paradigm or, you know, were you a little bit more conservative, I guess, you know, to get to the range of outcomes for Hotel EBITDA?
spk09: Yeah, that's a great question, and I'll answer your question specifically as it relates to some of the underwriting that we did on this. What I also want to point out is that, you know, you brought up in the way you asked your question, you brought up the fact that we're kind of in this new environment and the new paradigm kind of post-COVID, and that is another element that we just really like about this hotel. It's as much as everyone loves leisure demands, you know, this is a hotel that's going to absolutely benefit very strongly from the leisure demand that exists in Nashville that is that is really very strong in that market. But it also will cater very well to both group and corporate demand that comes into that market. So in our mind, you get kind of the best of all worlds because you own a great urban hotel, but in some ways you can kind of view it as an urban resort, particularly with the amenities that this hotel has. You think about all the space that's in the hotel, all the outdoor space from a dining perspective, from a meeting perspective, pool area is something that is absolutely unrivaled in the natural area. So we think it really plays very well to what the current consumer is looking for, especially when you think about the leisure traveler that is looking for this type of asset. So we think that it's from that standpoint, we view it as a safer and better bet than if we were going somewhere that was just 100% driven by leisure and where you're potentially buying at kind of the peak of the market with some of those assets. As it relates to how we underwrote it specifically, I'll just tell you kind of where we are when we get to stabilization. We expect this to be over $300 in RAPR upon stabilization. And we expect the mix between food and beverage revenue and room revenue to be fairly balanced. So we think that the food and beverage revenue is going to be somewhere in the same zip code as what the room revenue will be. And on the margin side, we're underwriting a food about the low 30s margin. which compares to our portfolio that was at about 28% going into COVID. We think this will do a little bit better. And we also really like the EBITDA part of this, although in our underwriting we'll be throwing off. It's going to be more than double the EBITDA part that we had in our portfolio coming into COVID. So we think that it's very accretive from a lot of different standpoints.
spk04: That's a lot of great detail. Thank you.
spk00: Thank you. Our next question comes from Michael Belisario of Baird. Michael, your line is now open.
spk05: Thanks. Good afternoon, everyone. Just sort of one more follow-up on the transaction front. I know you haven't closed the Nashville deal yet, but maybe going forward, how are you thinking about capital allocation in terms of maybe an increased desire to sell another property, partially back-fund what you're buying now, just any updated thoughts on buy versus sell on a go-forward basis would be helpful.
spk03: Thanks, Michael.
spk09: You know, we've talked about this. You hear me basically say the same thing every quarter on this, is that we're always going to be looking to upgrade the portfolio over time, and we're constantly kind of analyzing potential additional dispositions, especially when we're making having to make some decisions about additional capital investments that we might have to make into some assets. I wouldn't say that this acquisition is necessarily going to change the way we look at some of those potential dispositions, but you could certainly expect us to continue to be, you know, to look at those additional capital investments pretty critically and see if there are some opportunities to maybe harvest some value from some assets. But I think they're going to be more around the margin, probably some smaller assets in a portfolio to the extent that we're looking at that in the short term, as opposed to any kind of meaningful seismic shifts that are happening because of the disposition side.
spk05: Got it. That's helpful. And then just switching gears, maybe one for Barry. Hyatt recently, they announced category changes for a lot of their hotels. Two of your three highest EBITDA-producing hotels last year are moving up one category. Can you help us understand what that means for demand, EBITDA trends, and sort of loyalty redemptions and bookings at those hotels this year compared to if those changes hadn't occurred on a loyalty front?
spk11: Yeah, sure. I mean, as you know, the brands move these things around a lot year to year. I think we were pretty pleased with the two properties that actually got up-categoried Uh, Grand Cypress and Key West, because each of those is kind of was kind of the leader in their market. And we're quite frankly, in our view under priced on a redemption basis. So, along with those increased redemption levels, our base redemption level moves up as well. That's not although that's not really where in our mind. Kind of the upside comes next year, next year the upside. We got it in Key West this year a lot given the high occupancy, but Grand Cypress still ran a relatively low occupancy and we redeemed a lot of rooms at the base rate. We're already seeing in February and March many, many nights where we're getting to the higher stair step levels where we get redemptions based on a percentage of of ADR. So there were certainly no negatives from our perspective from highest moves, and there were even some behind-the-scenes things related to just because of the significant rate increase of Aviara year over year or year over 2019, given the renovation, where we'll have a higher base reduction rate there as well. So all positive from our perspective.
spk05: And when you talk about the rates being higher, is that simply just a function of 1Q22 so far being just much better than 1Q21, given we were still ramping up then? Or do you expect that to be true throughout the year for the other three quarters?
spk11: You know, if you look at, you know, Grand Cypress kind of running the mid-50s last year, we did not have a lot of compression dates. We will have a lot more compression dates this year, and that's what I'm referring to that we've seen in February and March. And we continue to see that as we did last year at High Ridge State Scottsdale.
spk03: Got it. Helpful. Thank you.
spk00: Thank you. As a reminder, if you'd like to ask a question, it's star 1 on your telephone keypad. Our next question comes from Thomas Allen of Morgan Stanley. Thomas, your line is now open.
spk06: Thank you. Two more questions on Nashville. The first, when do you expect to get to the $25 to $30 million of stabilized EBITDA? The second, do you own any other properties that are about half room revenue versus other revenue? And how do you think about underwriting those kinds of assets versus others? Thanks.
spk03: Oh, yes.
spk09: Obviously, stabilization is the way we look at it is probably in the kind of three to four years out. It could happen a little bit quicker, but that's the way we underwrote it. as it relates to other properties that have kind of similar mix. We have Royal Palms, for example, obviously a smaller resort, but that's a little bit less on the room side actually than it is on the food and beverage side. So that's one example. You know, when you think about it, you can look at it from two sides. I mean, obviously, you want to make sure you stay relevant on the F&B side, and that's to make sure that it's a good, sustainable cash flow model. But that's not necessarily too different from the room side because, as you all know, it's a capital-intensive business. Maybe fall behind with a room product, you're going to ultimately have to make additional investment in that too. As it relates to F&B, it's really about where are your locations, what are your facilities, how relevant are they in the marketplace? And we think that these particular venues are the most relevant they possibly could be at a location like Nashville. So, you know, part of when you think about the price of key, for example, I mean, it's obviously very different from looking at doing a select service deal that are getting done at $500,000 a key. And all you're getting is kind of the room product. I mean, we have a better rooms product than virtually anything in that market. And we have the most relevant F&B venues there that we think really, when you kind of add that all together, you're really not just buying, you know, rooms at $950 a key. I mean, you're really buying a very substantial revenue stream from both sides that we think is very, very helpful and helps you actually fill your rooms. The fact that you have these really relevant F&B venues helps you fill those rooms. The fact that you have the best pool in the market helps you fill the rooms. The fact that you have the best pool or the best rooftop in that market. Those are all elements where people are going to want to stay at this hotel, whether they're there for leisure or whether they're there for any kind of corporate reasons.
spk06: Thanks, Marcel. And then just to follow up, when we were at Alice about a month ago, one of the key themes was the brands really wanting to start to enforce brand standards and brand requirements and some of that stuff again. Where do you think we are in that trajectory? Where do you think we're going? How do you feel about the brand standard implementation right now?
spk11: Hey, Thomas, it's Barry, you know, I think that obviously from their perspective, they want to have a more unified product. It's certainly from their perspective. I think 1 of the ways to, you know, for them to deal with some of the challenges that they've had on the guest satisfaction side. So, I think they are certainly all looking at at how to best role. still determine what those standards are and how best to roll them out. But I think it's going to be longer than shorter, at least in terms of the way we think about the business. And I think as it relates to our portfolio, I think we're not terribly afraid or concerned about what those might be. As we've talked about for a long time, you know, we've been very aggressive in getting our facilities and operations back as close as we can to pre-pandemic levels, even in cases where we're running low occupancies, that having restaurants open where appropriate, I think it's certainly been the right thing to do. And I think that shows in Q4, for example, in our significant food and beverage revenues. I think when you think about it from the brand's perspective, I think they certainly are taking and will take as they develop these standards, a much more reasonable and balanced approach, perhaps, than they had before. And I think they will end up with more flexible approaches in terms of, you know, not every full-service brand X hotel has to be open for lunch. I think owners are going to be able to continue the dialogue that every brand has welcomed and the owners have participated in over the last two years now in terms of helping guide them toward those decisions.
spk06: Thank you.
spk00: Thank you. Our final question for today comes from Tyler Battery from Janae. Tyler, your line is now open.
spk08: Good afternoon. This is Jonathan on for Tyler. Thanks for taking our questions. First one from me, and I know this may be difficult to segment everything out, but the rate strength in the quarter, is that all coming from leisure or is there some corporate or group and they're impacting positively or negatively? And can you provide any color on your expectations for rates as we move through 22?
spk11: Let's talk about Q4 of 2021. And obviously, leisure was still a significant piece for us, particularly in December. But I think part of the story that maybe has not been told as well for us, and we believe across the industry as well, was there was a lot of very good quality group business in October and November. While some of it got lost due to Delta, the business that we did have in our hotels was very high quality group business. both in rate and in terms of banquet spend per occupied room. So that was definitely a trend. Again, volume corporate was where the weakness was, both in terms of kind of demand as well as in terms of rate. Talking about 2022, Matisse touched on in his remarks kind of group rate and group booking pace and particularly the strength and group rate looking at the latter half of 2022 compared to 2018 going into 2019. But again, where we sit today in terms of the near-term transit demand, we feel very good about March and now even into April in terms of what we're seeing in terms of both continued strength in leisure demand, as well as some notable pickup in terms of volume corporate demand as well.
spk08: Okay, very helpful. And then maybe for Marcel, I'm curious if the CapEx guide, which is essentially back to pre-pandemic levels, is that a vote of confidence in the pace of recovery this year and wanting to position the portfolio for the recovery? Or is there just some catch-up CapEx in there that you feel comfortable addressing now that you're in a really solid liquidity position.
spk09: Yeah, it's not so much catch up as it is more kind of the first part of your question, which is we obviously do have confidence in the recovery where we are right now. We certainly scaled back our spend a lot in 2020 and 2021. And then I think I mentioned in my comments that we obviously were very focused on preserving cash, preserving liquidity, increasing liquidity. We certainly have more confidence around where things are going and how things are recovering now. So there certainly are a few things that are very highlighted where we did push those back a little bit from prior years. But a lot of where it's been really is on the type of renovations where we think we're going to drive some real ROI. And particularly the two bare ones that Barry mentioned, being Orlando and Santa Barbara, Those are two projects that we have very high hopes for how we can spend the money on this now to be really well positioned as the recovery really takes hold.
spk08: Great. Thank you for all the, Collier. That's all from me.
spk00: Thank you. We have no further questions for today, so I will hand back to Chairman and CEO, Marcel Verbas, for any closing remarks.
spk09: Thank you. Thanks, everyone, for joining us today. I know it's been a long, burning season for many of you. So we're excited, clearly, about where we are with the company, how we perform in the fourth quarter. Certainly extremely excited about the W National acquisition, and we're excited about what this year is going to bring for us. So we look forward to continuing our dialogue and speaking to you as the year progresses.
spk00: Thank you for joining today's call. You may now disconnect.
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