Triumph Financial Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2024

There are 11 speakers on the call.

Operator

Hello, everyone, and welcome to the Zevia Hotels and Resorts Q4 2023 Earnings Conference Call. My name is Emily, and I'll be facilitating your call I will now turn the call over to our host, Amanda Bryant, Vice President of Finance. Please go ahead, Amanda.

Speaker 1

Thank you, Emily, and welcome to Xenia Hotels and Resorts' 4th quarter 2023 earnings call and webcast. I'm here with Marcel Verboff, our Chair and Chief Executive Officer Barry Bloom, our President and Chief Operating Officer and Ati Schopp, our Executive Vice President and Chief Financial Officer. Marcel will begin with a discussion on our performance. Barry will follow with more details on our operating trends and capital expenditure projects, and Atish will conclude today's remarks on our balance sheet and outlook. We will then open the call for Q and A.

Speaker 1

Before we get started, let me remind everyone that certain statements made on this call are not historical facts nor considered forward looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10 ks and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward looking statements in the earnings release that we issued this morning, along with the comments on this call are made only as of today, February 27, 2024, and we undertake no obligation to publicly update any of these forward looking statements as actual events unfold. You can find a reconciliation of non GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release and earnings supplemental, which is available on the Investor Relations section of our website. The property level information we'll be speaking about today is on a same property basis for all 32 hotels unless specified otherwise.

Speaker 1

An archive of this call will be available on our website for 90 days. I will now turn it over to Marcel to get started.

Speaker 2

Thanks, Amanda, and good afternoon, everyone. We are pleased to report on our results and achievements in 2023 as we successfully executed against our long term strategy by further investing in our high quality and diversified portfolio, while remaining focused on working with our operating partners to drive top line growth and control expenses in a challenging operating environment. During the quarters of 2023, we invested over $120,000,000 in capital expenditures across the portfolio, all of which was supported by our in house project management team. We believe that our recent capital projects will enable us to capture significant revenue and income growth in the years to come. Our 2023 portfolio performance was broadly in line with our expectations, despite a challenging economic backdrop.

Speaker 2

And our 4th quarter financial results allowed us to finish the year near the upper end of our full year guidance ranges for net income, adjusted EBIT ROE and adjusted FFO per share that we provided when we reported our 3rd quarter results. Same property portfolio RevPAR for full year 2023 increased 3.9% compared to 2022,

Speaker 3

just shy

Speaker 2

of the low end of our most recent guidance as November December RevPAR were a bit softer than expected. Our 2023 RevPAR increase was driven by a healthy 250 basis point occupancy gain as average daily rate was essentially flat. If we exclude high Regency Scottsdale Resort and Spa at Gainey Ranch, where the transformational renovation is well underway, same property RevPAR for the remainder of the portfolio increased a solid 6.4% as compared to 2022. In 2023, 23 out of the 32 hotels in our same property portfolio achieved RevPAR growth as compared to 2022. RevPAR increased by double digit percentages in 7 of our 22 markets, including Portland, Houston, Dallas, San Francisco, San Jose, Nashville and Atlanta.

Speaker 2

We expect most of these markets to continue to experience strong growth in 2024 as well. On the same property basis, 2023 Hotel EBITDA of $271,500,000 was 1.5% below 2022 levels and margins were 153 basis points lower as compared to 2022. Excluding Hyatt Regency Scottsdale in both years, same property hotel EBITDA increased 3.5% and margins decreased just 92 basis points in 2023 as compared to 2022. We are pleased with this result given the inflationary pressures in the overall economy and our industry particularly during the year. Now turning specifically to our 4th quarter results.

Speaker 2

This morning we reported net income of $7,600,000 adjusted EBITDAre of $59,400,000 and adjusted FFO per share of $0.41 Despite significant disruption from the Hyatt Regency Scottsdale renovation throughout the quarter, as well as disruption from our Grand Bohemian Orlando renovation early in the quarter, our 4th quarter adjusted FFO per share of $0.41 was flat compared to the same period in the prior year. This was partially due to a lower share count resulting from our substantial share repurchase activity during the quarter the year. Our same property RevPAR for the Q4 decreased 3.4% as compared to 2022. However, excluding high Regency Scottsdale, RevPAR for the quarter increased 1.2%. On a same property basis, 4th quarter hotel EBITDA of $63,700,000 was 8.4% below 2022 levels and hotel EBITDA margin decreased 162 basis points.

Speaker 2

Excluding Hyatt Regency Scottsdale, 4th quarter same property hotel EBITDA increased 2.5% and hotel EBITDA margin decreased just 10 basis points. The trends across our portfolio continue to indicate that our demand segmentation mix is reverting towards pre pandemic levels, as group and business transient demand recover and leisure demand normalizes. In the Q4 and the full year, same property group room revenues excluding Hyatt Regency Scottsdale increased 4% 16% respectively as compared to 2022. We also saw continued strength in business transient demand over the year, as evidenced by a healthy recovery in mid week occupancy. And finally, leisure demand continued to normalize, which was not a big surprise given the incredible strength in domestic leisure demand coming out of the pandemic.

Speaker 2

This retracement was evident in the lagging performance of some of our more leisure dependent assets and markets in the 4th quarter. As for our capital allocation strategy, included in our $120,000,000 in capital expenditures in our portfolio in 2023 were major renovations at Kimpton Canary Hotel Santa Barbara, Kimpton Hotel Monaco Salt Lake City and Grand Bohemian Orlando. In addition to other projects such as the creation of a Miraval Life and Balance Spa at Parc Hyatt Aviara. As you are all well aware, we also commenced the transformative renovation and outbranding of Hyatt Regency Scottsdale in June of last year. We are excited that this project is progressing on time and on budget to date.

Speaker 2

We continue to believe strongly that the property will be able compete even more effectively in the Phoenix Scottsdale luxury resort markets, Escharid's relaunch as the luxury Grand Hyatt Resort Scottsdale by the end of the year. Perry will provide a detailed update on our progress on this important project in his remarks. Importantly, we balance these investments in our portfolio with meaningful returns to our shareholders. In 2023, we returned approximately $177,000,000 to shareholders through nearly $133,000,000 in share buybacks and roughly $44,000,000 in common dividends. Looking ahead, we are cautiously optimistic as we start 2024.

Speaker 2

We believe that our recent and ongoing ROI investments will yield meaningful results in 2024 and in the years to come. We expect to invest another $120,000,000 to $130,000,000 in capital projects this year, with the Hyatt Regency Scottsdale renovation expected to account for $65,000,000 to $70,000,000 of this total amount. There's important projects to start to drive benefits later this year as the guest rooms and various other components are completed. Also in 2024, we expect to generate earnings growth from our recently renovated properties, some of which have already started to see notable share gains in the months coming out of renovation. While Barry will provide more detail on our capital projects, I would like to note that we expect overall renovation disruption in the portfolio to be a bit less than in 2023, despite continued significant renovation disruption at Hyatt Regency Scottsdale.

Speaker 2

The majority of the capital expenditures we will make in 2024 outside of the Scottsdale project are expected to be significantly less impactful to the guest experience than the major renovations we completed in 2023. Our initial 2024 outlook is based on a range of 2% to 5% same property RevPAR growth or 3.5% at the midpoint. Excluding Hyatt Regency Scottsdale, we expect the portfolio to produce 2.5% to 5.5 percent RevPAR growth. And better than this outlook are opportunities for further occupancy gains. In 2023, our same property portfolio excluding Scottsdale, occupancy was still approximately 10 points behind 2019 levels, despite a 2.5 point increase in occupancy during the year.

Speaker 2

In addition to growth from recently renovated properties, our greatest opportunities for growth in 2024 include continued strong performance at our hotels that cater to group and business transient customers. This includes our 2 most recent acquisitions, W Nashville and Hyatt Regency Portland at the Oregon Convention Center, both of which should generate above average levels of RevPAR growth as compared to our overall portfolio. Additionally, in 2024, we expect strong RevPAR growth at our properties in Orlando, Atlanta and our recovering Northern California markets, San Francisco and San Jose. Excluding Scottsdale, we crossed into 2024 with approximately 8% greater group rooms revenue on the books than we did for 2023 at the end of 2022. We also anticipate continued recovery in business transient demand, which should drive further mid week occupancy gains.

Speaker 2

We expect leisure transient demand to remain relatively stable this year after some retracement last year. Atish will provide additional details around our 2024 outlook, including our expectations for seasonality and impact from our ongoing renovation activity in his prepared remarks. We are off to a solid start in 2024. Quarter to date through February 22, 2024, we estimate that excluding Scottsdale, same property RevPAR increased 4.9% as compared to the same period in 2023. When including Hybris C Scottsdale, which delivered extremely strong results in early 2023 due to the Super Bowl and strong overall demand in the markets, quarter to date RevPAR through February 22nd is down 0.5%.

Speaker 2

Given its very strong performance through May of last year and the renovation disruption this year, Igrin C Scottsdale will be a drag on RevPAR growth through the first half of the year, after which the comparisons will become significantly more favorable. To wrap up, I'm very proud of all the great work our team accomplished in 2023. We not only delivered results broadly in line with the expectations we set at the start of the year, but we also invested meaningfully in our portfolio in ways that we believe will enhance our growth profile in the years ahead. All this was accomplished during a time when we also returned substantial levels of capital to shareholders through a combination of share repurchases and dividends. And as we announced this morning, we are continuing this into 2024 as our Board of Directors authorized a 20% increase in our quarterly cash dividend to $0.12 per share for the Q1.

Speaker 2

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

Speaker 4

Thanks, Marcel, and good afternoon, everyone. For the full year of 2023, our 32 same property portfolio RevPAR was $169.46 based on occupancy of 65.1 percent at an average daily rate of $260.40 Same property portfolio RevPAR increased 3.9% as compared to 2022. This increase reflected a 2.5 point gain in occupancy and flat average daily rate as compared to full year 2022. Excluding Hyatt Regency Scottsdale, full year RevPAR was $170.57 an increase of 6.4% as compared to 2022. This increase reflected over 3.5 points of occupancy gain and nearly flat average daily rate as compared to full year 2022.

Speaker 4

Our properties achieving the strongest RevPAR growth as compared to full year 2022 included the Hyatt Regency Portland with RevPAR up 30.8%, our 3 Houston properties with RevPAR up 19.9% and our 2 Dallas properties with RevPAR up 17.9%, all of which benefited from recovering business transient and strong group demand. In addition, our properties in San Francisco, Santa Clara and Nashville all achieved double digit RevPAR growth for the year. Conversely, the greatest RevPAR declines compared to 2022 were experienced at Hyatt Regency Scottsdale, Kimpton Monaco Salt Lake City, Grand Bohemian Orlando and Kimpton, Canary, Santa Barbara, all of which were undergoing comprehensive renovations, which will position each of these hotels extremely well for the years ahead. The RevPAR declines at Andaz Napa and Hyatt Centric Key West reflected weaker leisure demand against an extremely tough prior year comparison, although both properties RevPAR was above 2019 levels. At W Nashville, RevPAR grew by over 10% for the full year with 33% growth in group revenue as our business strategy for this hotel continues to become more refined.

Speaker 4

EBITDA margin improved by over 170 basis points in 2023 as compared to 2022. We continue to focus the hotel's efforts on improving food and beverage performance, including the repositioning and relaunch of the hotel's 3 meal restaurant. As we look ahead to 2024, group revenue pace is up nearly 20% as of the end of January. In January, RevPAR was up over 6% compared to the prior year despite inclement weather, giving us further confidence that the hotel's penetration within each segment will continue to improve as the market recognizes the outstanding attributes of this property. Although RevPAR declined in the Q4, this was expected as the overall market was impacted by the absorption of 3 new luxury hotels year over year during this traditionally softer period.

Speaker 4

For the Q4, our 32 same property portfolio RevPAR was $157.69 based on occupancy of 61.9 percent at an average daily rate of $254.56 Same property portfolio RevPAR decreased 3.4% in the quarter as compared to the same period in 2022. Excluding Hyatt Regency Scottsdale, 4th quarter RevPAR was $162.51 an increase of 1.2% as compared to 2022. This increase reflected about 1.5 points of occupancy gain and a slight decline in average daily rate as compared to full year 2022. In the quarter, same property RevPAR in October November declined 2.2% and 3.7% respectively as compared to 2022, while December RevPAR decreased 4.9% compared to 2022. Excluding Hyregency Scottsdale, RevPAR was up 2.4% and 1.4% in October November and declined 0.8% in December as compared to 2022.

Speaker 4

As Marcel mentioned in his prepared remarks, overall business reflects the continued transition in our business from what was primarily a leisure demand driven recovery in 2022 through more traditional mix of leisure, business transient and group demand. As it relates to business transient, midweek occupancies continue to improve in the Q4 with Monday, Tuesday and Wednesday occupancies all up relative to the Q4 of 2022. Conversely, occupancy on Saturday nights declined relative to Q4 of 2022, reflecting softening leisure demand across the portfolio and extreme peaks we experienced in 2022. Business from the largest corporate accounts improved throughout the year, but we estimate the room night demand for this important sub segment is still down about 20% from 2019 levels. On the leisure side, several of our more leisure oriented properties reported RevPAR declines in the Q4 and full year 2023 as compared to 2022, including our properties in Key West, Napa, Savannah and Santa Barbara.

Speaker 4

Among our leisure markets, Charleston was a relative bright spot in our portfolio with RevPAR growth in the Q4 and full year. Not surprisingly, the slight decline in our total portfolio's average daily rate in the 4th quarter was largely attributable to lower rates at most of our leisure oriented hotels. Now turning to group. In the quarter, our same property group's revenue exceeded 4th quarter of 2022 levels by nearly 5%, excluding Hyatt Regency Scottsdale. Our performance reflected very strong group results in October, particularly to our properties in Houston, Atlanta and Orlando and generally higher group rates across the portfolio.

Speaker 4

Our full year same property 2023 groups revenue ended about 16% higher than 2022 and about 2% lower than 2019, again excluding Hyregency Scottsdale in all periods. The vast majority of the recovery in group to date has come from average daily rate increases as group room nights in 2023 were still about 12% lower than in 2019. This gives us confidence that we will see further opportunities for growth over the coming year, particularly at our important group oriented hotels in Orlando, Portland, Atlanta and Dallas as we see booking windows lengthen and normalize. Now turning to expenses and profit. 4th quarter same property hotel EBITDA was $63,700,000 a decrease of 8.4% compared to the Q4 of 2022, resulting in 162 basis points of margin erosion.

Speaker 4

Excluding Hyatt Regency Scottsdale, 4th quarter same property hotel EBITDA was $63,400,000 an increase of 2.5% as compared to the Q4 of 2022 and reflected a 10 basis point decline in margin. On a full year basis, same property hotel EBITDA was $271,500,000 and margins decreased 153 basis points. Excluding Hymercy Scottsdale, same property hotel EBITDA margins decreased 92 basis points as compared to full year 2022. Our 4th quarter and full year 2023 margins reflected generally good expense control over the year light of significant increases in wages and benefits as well as utility costs. We continue to see significant reductions in overtime labor as staffing levels and recruiting by our managers normalize in line with business levels.

Speaker 4

Administrative and general expenses declined by nearing 3% year over year in Q4 and repairs and maintenance expenses were stable year over year in Q4. Now turning to CapEx. During the Q4 and over the full year, we invested $51,400,000 $120,900,000 in portfolio improvements respectively. In 2023, some of the significant renovation projects in our portfolio included: at Grand Bohemian Hotel Orlando, we completed a comprehensive renovation of all guest rooms and public spaces, including meeting space, lobby, restaurant, bar, Starbucks and the creation of a new rooftop bar. The phased renovation was complete in the Q4.

Speaker 4

This transformative renovation has completely changed the look and feel of the property and will afford the hotel with the ability to maintain its market leading position within the downtown Orlando market. At the Kimpton Hotel Monaco Salt Lake City and Kimpton, Canary, Santa Barbara, we completed comprehensive renovations of each hotel's meeting space, restaurant, bar and guest room. These significant renovations will ensure these hotels positioning as the premier boutique hotels within their respective markets. In the Q2, we commenced the initial phases of the approximate $110,000,000 transformative renovation and up branding of the 491 Room High Regency Scottsdale Resort and Spa at Gainey Ranch. Thus far, the project is on time and on budget.

Speaker 4

The 2 Acre Pool Complex is expected to be fully completed and operational by the end of the Q1. The guestrooms are being renovated in phases, the first 150 which have now been completed with approximately 50 more to be completed in the next 2 weeks and the remainder expected to be completed in continual phases until final completion at the end

Speaker 2

of the Q3. All of the

Speaker 4

other elements including public spaces and new and existing meeting spaces are expected to be completed by the end of 2024. We anticipate this property will be a meaningful driver of earnings in 2025 and beyond as we complete the rebranding of the resort to Grand Hyatt later this year. The initial response from both leisure and group guests has only affirmed our confidence in our expected outcome from the substantial investment. We are seeing future group business being booked at meaningfully higher rates than the hotel has achieved historically. Much of this is the direct result of the expansion of the Arizona ballroom, which will allow the hotel to retain existing group customers as well attract new group customers who otherwise could not be accommodated at the resort and the spectacular physical facilities being created throughout the resort.

Speaker 4

At the adult pool, which was completed in mid January, the new bar now known as H2 Oasis is meeting with significant positive feedback in part due to revised menu overseen by the renowned celebrity chef Richard Blaise with whom we have developed an excellent working relationship at Park Hyatt Aviara, Hyatt Regency Grand Cypress and Hyatt Centric Key West. Chef Blaise, the first winner of Bravo's Top Chef All Stars and a current co star on Fox's Next Level Chef will be involved in all aspects of food and beverage programming and menu design throughout the resort. Major new venues include an upscale modern Italian steak and seafood concept along with a speakeasy style bar in the resorts former Regency Club space and a global small plate concept including a sushi bar in the location of the long dormant Alto restaurant. In addition, the hotel's 3 meal restaurant will be completely reimagined along with an expanded lobby bar. Additionally, Fountain Court, the dramatic space just outside the lobby, we redeveloped into a space that will be able to be utilized for outdoor functions and live music.

Speaker 4

Finally, the previously mentioned H2 Oasis Pool Bar, a newly concepted pool bar and restaurant of the Family Pool will complete the significantly elevated food and beverage offerings of the resort, all of which will create a much more compelling offering for in house and local Scottsdale business. Other capital projects planned for 2024 include renovations of restaurants and bars at Bohemian Hotel Savannah, Ritz Carlton Denver and Marriott Woodlands Waterway. Renovation of the lobbies at the Weston Oaks and Galleria Houston, relocation of the fitness facility and addition of a concierge lounge at the Weston Oaks Houston, approximately $20,000,000 of infrastructure and sustainability projects. We are very excited about the projects we have underway and look forward to their completion. With that, I will turn the call over to Atish.

Speaker 5

Thanks, Barry. I will provide an update on 3 items, our balance sheet, return of capital and 2024 full year guidance. As to our balance sheet, we are well positioned to take advantage of opportunities given our liquidity and balance sheet profile. With no debt maturities until August of 2025, all of our debt at fixed interest rates at present, no preferred equity and 29 of our 32 hotels unencumbered of property level debt, Our balance sheet continues to be strong. At year end, our leverage ratio was about 5 times trailing 12 months net debt to EBITDA.

Speaker 5

We expect our leverage ratio to decline as earnings increase in the years ahead. Now I want to turn to our return of capital. I have 2 specific items here as follows. First, we repurchased about 3,900,000 shares in the 4th quarter, bringing our full year 2023 buyback total to approximately 10,400,000 shares. In total, during 2023, we repurchased about 9% of our outstanding shares at about $12.75 a share.

Speaker 5

Together with shares repurchased in the prior year and the small amount purchased thus far in 2024, we believe our repurchase activity at these price levels will prove to be a driver of long term value creation. 2nd, our Board of Directors increased our Q1 dividend to $0.12 per share. Based on the closing price of our shares yesterday, this level of dividend equates to an annualized yield of approximately 3.7%. As to our payout ratio, this level of dividend reflects approximately 40% of FAD based on 2023 FFO. Over time, we expect the dividend to grow to prior levels or to roughly double and that our payout ratio will return to pre pandemic levels in the mid-sixty percent range.

Speaker 5

The 3rd item I wish to discuss is our 2024 guidance. At the midpoint of the full year guidance that we issued this morning, we expect RevPAR and adjusted EBITDAre to each grow in the low single digit percentage range and FFO per share to grow in the high single digit percentage range. Getting into the components a bit more, I will begin with RevPAR. We expect same property RevPAR to increase 3.5% at the midpoint of the range. Supporting these expectations for RevPAR growth are 4 items.

Speaker 5

1st, group room revenue booking pace excluding Scottsdale is up about 5% as of the end of January. This is driven roughly equally by growth in room nights and rate. And just over 60% of expected 2024 group rooms revenue is already definite. The second item, continued pickup in business transient demand is driving higher occupancy. On business transient demand, the corporate negotiated rates piece of the business, we expect rates to increase in the low to mid single digit percentage range versus last year.

Speaker 5

3rd, leisure comparisons will become easier starting in May. We also expect some high end leisure travelers will stay in the U. S. This summer instead of traveling internationally as they did last year. 4th and last, strong growth from 3 of our smaller properties, which under renovation in 2023.

Speaker 5

These three properties together drive approximately 1 third of the 3.5% expected RevPAR growth. One final point on our RevPAR guidance is that we also provided a RevPAR outlook excluding Hyatt Regency Scottsdale. We expect full year same property RevPAR to grow approximately 4% at the midpoint excluding Scottsdale. The level of variance will change significantly as we move through the year with the first half seeing a much larger variance because of both the renovation timing as well as the comparison to a very strong 1st 5 months of 2023 in Scottsdale. As to hotel EBITDA margins for the year, we expect margins to decline about 100 basis points as compared to 2023.

Speaker 5

First half margins are expected to decline about 2 50 basis points and second half margins are expected to increase about 100 basis points. Excluding the impact of Scottsdale, we expect full year margins to decrease about 40 basis points, which reflects a first half decline of about 100 basis points and flat margins in the second half. Moving ahead to adjusted EBITDAre, we are guiding to a midpoint of $254,000,000 for 20.24. By quarter, the weighting is just above 20% for the 1st quarter, nearly 30% for the 2nd quarter, around 20% for the 3rd quarter and back up to nearly 30% for the 4th quarter. This weighting varies from the cadence of earnings in prior years due to tougher comps in some markets in the 1st couple of quarters, including Scottsdale, as well as renovation disruption, which is much greater in this year's first half than last year's first half.

Speaker 5

As we get into the second half of twenty twenty four, the comps become easier and our renovation activity turns into a tailwind relative to last year's half. And finally, our FFO per share guidance of $1.685 at the midpoint reflects the increase in adjusted EBITDAre versus last year, lower expected interest expense as well as lower share count. Year over year, our guidance reflects about 9% growth in FFO per share at the midpoint. As we look ahead, we believe the investments we are making this year and have made over the last few years, continued ramp in Nashville and Portland, significant recovery potential in Northern California and low rooms weighted supply growth should lead to higher levels of RevPAR growth in the years ahead. We also believe the annual expense growth relative to revenue growth will continue to moderate over the quarters years and that should lead to renewed margin growth.

Speaker 5

And with that, we will turn the call back over to Emily to begin our Q and A session.

Speaker 2

Thank

Operator

Our first question today comes from David Katz with Jefferies. David, please go ahead. Your line is open.

Speaker 6

Hi, afternoon. I appreciate it and congrats on your quarter. I wanted to just touch base on the W Nashville in particular, such a it was a large hotel, large presence and obviously seems to be getting some traction there. Can you and I did hear the prepared remarks, just color us in a little bit more about how high the ceiling is for that property now that it seems like you have it facing in the right direction and maybe how many years or what inning we're in in terms of getting that normalized,

Speaker 2

please? Yes, David. As we've talked about the last couple good afternoon, by the way, it's Marcel. As we've talked about the last couple quarters, we do think there is a significant amount of upside there over the next few years. We saw some of that upside coming last year, but clearly, we're still kind of in the first half of that ballgame, let's put it that way, of really optimizing both the business mix and truly continuing to optimize the food and beverage offering.

Speaker 2

So Barry spoke about a few of the things that we're doing there. I think we're seeing some really good results there on the group side. And we are certainly hard at work and looking to optimize these food and beverage spaces, including kind of the first step that we took there as far as reconcepting the 3 meal restaurant that we're really working through that process right now. So at this point, I think we're still, like I said, kind of in the first half of that ballgame. We have a lot of work to kind of cut out for us and it's not going to be a straight line, frankly.

Speaker 2

And you saw some of that in the Q4 where RevPAR declined a bit as a result of the absorption of some of those newer luxury hotels that came online, but that was not unexpected. And as we've talked about, again, over the last few quarters, we're really trending overall with on the room sides in the direction that we wanted to go, and we still do set some work left on the food and beverage side particularly. But I think our strategy is starting to pay off and we expect that to continue over the next couple of years.

Speaker 6

Understood. Look, I also wanted to just Atish touch on leverage for a few minutes because we've had obviously a dozen different interest rate expectations over the last 90 days. Where do you want to put your leverage now based on what the current interest rate environment is? And I suppose why do you want to put it there?

Speaker 5

Yes, great question, David. Thanks. Our long term view on the target for leverage is really getting back to the range that we were in pre COVID. So that's low three times net debt to EBITDA to low four times. So kind of that one point range between low three times and low four times.

Speaker 5

So we're still a bit away from that. And our view is at this point in the cycle, we'll as earnings continue to ramp from here, we should get back into that target range low three times to low four times over the next couple of years, particularly as we get past the renovation at Gainey Ranch and we see the lift at Nashville and Portland. So, and the reason really has less to do with kind of the current interest rates and more just about how we want to run the company for our asset base and the level of activity that we usually undertake in terms of acquisitions and dispositions. So making sure we have significant levels of flexibility. With regard to near term interest rates, I will also just add, as I mentioned in my comments that we are currently 100% fixed.

Speaker 5

So we don't have that interest rate exposure that maybe some others do. We're actually in a really good position balance sheet wise and also having no maturities till really a year and a half from now also positions us pretty well. Noted. Thank you.

Speaker 4

Thank you.

Operator

The next question comes from Michael Bellisario with Baird. Please go ahead, Michael. Your line is now open.

Speaker 7

Thanks. Good afternoon, everyone. Just want to

Speaker 5

stick on that same topic.

Speaker 7

Sir, just on capital allocation, you didn't touch on dispositions in the prepared remarks, but presumably that's a possibility this year as the transaction market improves. What's your thinking on asset sales? How are you thinking about which markets, which assets? And then maybe what would you do with any sale proceeds? Kind of to follow-up on David's question there.

Speaker 2

Yes. So on the I'll answer that really on both sides of the transaction equation, so both on acquisitions and dispositions. It really depends on what the opportunity set is on the acquisition side. And as you know, we haven't seen a kind of a wide kind of a broad range of good acquisition opportunities over the last couple of years. And we're hopeful that we're starting to see some signs there of improvement as it relates to potential acquisitions that could be appealing to us.

Speaker 2

So as you know, going into COVID and even a little bit out coming out of COVID, the transaction side has been an important pillar for how we want to create shareholder value over time. So I would say that we will continue to look at both dispositions and acquisitions to drive future value. And as it relates to the dispositions, a lot of our prior dispositions have really been in light of potential additional capital expenditures, whether that's in the we see an appropriate ROI in those kind of potential projects. And I would look at that the same way as what we've done historically. I think what our track record has been there is kind of what you could expect going forward that we will look at every hotel very carefully and do a very deep analysis, particularly when there are some additional CapEx needs.

Speaker 2

And to the extent that we don't feel the return will be there, that it might be the right time to sell some of those assets. I wouldn't expect any wholesale changes as it relates to dispositions. And certainly, we're going to remain very disciplined as it relates to potential acquisitions. And as you saw last year, we clearly felt that there was a very significant value in our own portfolio and in our own stock, which made that a bigger priority for us on the capital allocation front than potential acquisitions that really were too expensive and not really out there enough for us to get excited about.

Speaker 7

Understood. That's helpful. And then just for Barry on Scottsdale, you mentioned the group booking pace has picked up. Do you need to just help us frame that up? I don't know if it's comparison to 2019 or maybe there's a different year.

Speaker 7

But how many group rooms were maybe booked in 2019? What do you think the group upside is upon stabilization? Kind of how should we think about the curve of group bookings over the course of the renovation and completion? And then how much higher are those ADRs, excuse me, on the group rooms that have been booked so far? Thanks.

Speaker 5

Yes. Thanks,

Speaker 4

Mike. It's a really good question. I think it's a little early to really become that focused on it. What we're seeing is we're clearly seeing activity, a lot of activity for 2025 and rates that are absolutely incredible, in both in Q1 of for 2025 for Q1 of 2025 and kind of throughout the rest of the year. But one of the things that we've seen in all of the renovations we've done of this type is that it takes a lot of show and tell throughout the groups to really make the commitment and to really get rooms on the books right now.

Speaker 4

It's not a pretty property to tour quite frankly. And as we move through the year and it becomes much more clear to the planners what the product is like, we expect group pace to ramp significantly over the course of the year, particularly for 2025. We do have some pretty good business on the books for Q4 of 2024 in the space that is not being added to. So the non Arizona ballroom, the other smaller meeting spaces, we've continued to do through the renovation by maintaining about 300 rooms in inventory across the entire year. We've been able to capture a large number of small groups, smaller groups to the hotel that has really helped us maintain occupancy as best we can and to help drive EBITDA and reduce the displacement during this year.

Speaker 7

Understood. Thank you.

Operator

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead, Austin.

Speaker 8

Yes. Thanks and good afternoon. Just going back to the W Nashville for a minute and really, I guess, in the context of overall portfolio upside potential. I mean do you guys think that the prior hotel EBITDA stabilization level that you underwrote is still achievable at the outset of the acquisition? And I guess are there any real headwinds you see that could see that pushing that out, I guess, over a longer time period like the supply that you identified here more recently?

Speaker 2

Thanks, Austin. I think as we look at the property, and as I said earlier, we'd obviously like to see that capital stabilization level a little bit earlier than what we're seeing so far. As we're thinking about the market longer term and as we're thinking about the levers that can be pulled at the property and where this hotel is positioned and can be positioned going forward, we still believe we can get to that range. It's certainly going to take a little bit longer than we were hoping for, that we were expecting to achieve when we underwrote the property. And so that won't come as a big surprise to you.

Speaker 2

But clearly, we still believe that the asset can get there. And it takes some time to kind of change the strategy as it relates to what Barry explained as far as where we are on the group side and how we're really optimizing the room side and how that kind of plays into driving further food and beverage revenues. So as we sit here today, like I said, I think it's a lengthening of getting to the stabilized number, but we don't see a specific reason of why it can't get to the range.

Speaker 8

That's helpful. And then, Barry, you've kind of highlighted in the past, I think, that group bookings for the overall portfolio were trending a little bit better in the first half of the year and you've continued to see sort of good short term bookings, but that's lengthening. I mean, how did sort of the group set up for the year from a cadence perspective first half or second half? And what is sort of embedded in the guidance from a in the year for the year versus maybe what you had to do last year?

Speaker 4

Yes, it's interesting. We're definitely seeing the booking cycle lengthen, which means we're which actually we think very positive because we're seeing a lot more business going on the books for the 2nd year or the 1st next year. So we're seeing a real trend and some really good positive momentum in 2025. Quite frankly, we're sitting in the same place in 2023, we weren't seeing for 2024. The group is pretty balanced throughout the year, although we view a little more upside in the latter half of the year than the first half of the year.

Speaker 4

But some of that is based on just some of the particulars in the portfolio and which properties are performing well. We've got some issues this year between Q3 and Q4 on the group side as it relates to the Jewish holidays. But it's pretty steady through the year in terms of front half versus back half.

Speaker 8

Just to refine that a little bit. I mean, is there any more significant kind of go getter in the year for the year assume this year relative to last year embedded in guidance? Or is it sort of a similar or even less amount than what you ended up achieving in 2023?

Speaker 7

And that's all for me. Thanks.

Speaker 4

It's pretty comparable in for 2024 versus 2023.

Operator

Our next question comes from Ari Klein with BMO Capital Markets. Ari, please go ahead.

Speaker 9

Thanks and good afternoon. Just going back to the Hyatt Scottsdale, I think for the year, it's around the 50 basis point headwind. It may be a year to date, I think it's been around the 500 basis point headwind. Can you talk about the tailwinds in the second half of the year? And how significant are they?

Speaker 9

And I guess to the extent you can talk about bridging the gap between where things are today and versus the stabilized EBITDA? How does that cadence look over the next few years? How long does it take to get there?

Speaker 5

Yes, sure, Ari. Great question. So it is a pretty significant drag as you just pointed out in the Q1 in particular, probably in the order of magnitude of 500 basis points that moderates a bit in the second quarter, where it should be about a couple of 100 basis point drag. And then in the back half, it's about a 300 basis point tailwind. So as I was mentioning in my upfront comments, you see a lot of variability in performance.

Speaker 5

And that has to do with a couple of things. I mean, one is, the market was really strong last year in the first half. Prior to our starting the renovation, we had the Super Bowl and really strong leisure and group demand. So that we're coming off of that. And then on top of that, we've got the timing of the renovation where really the second half of last year was heavily impacted as is the first half of this year.

Speaker 5

And when we get into the second half of this year, we really have a tailwind from a comparison perspective. So you've got a few moving parts there with regard to that property. And so, hopefully the color I've given you helps a little bit in terms of how you think about kind of the cadence this year as it relates to RevPAR. In terms of getting to low $40,000,000 in terms of hotel EBITDA, which was our underwriting, we think that's a couple of years post commence sort of wrapping up the renovation. So we'll wrap up the renovation kind of the very end of this year.

Speaker 5

And it should take a couple of years given the group mix at the hotel to get into that low $40,000,000 range. And we continue to be really confident about that based on kind of what we're seeing in the market, some of the color Barry provided around what our key customers are telling us, as well as how the renovation is starting to come together and how it's starting to look. So I think those are the things that continue to give us confidence in the long term underwriting on that asset.

Speaker 9

Thanks. And then maybe just CapEx outside of the Hyatt's around $60,000,000 for the year. How should we think about the level of spend beyond this year once that project is completed? And maybe to the extent you could talk about some future projects that are of significance that maybe you can you might start to look at post the Hyatt?

Speaker 5

I mean, I'll start on that one. We have been spending on average about $70,000,000 to $75,000,000 a year pre COVID between kind of the usual MEP stuff and typical stuff that we do as well as some ROI type projects. Now it varied quite a bit based on acquisitions. So sometimes we acquired assets that required CapEx like Aviara. So you saw more elevated spending, particularly in associated with that project.

Speaker 5

So I would say longer term, for the portfolio, we should get back to that range. But again, there's going to be some lumpiness associated on transactions, what you're buying and selling and how that impacts CapEx and as well as ROI projects, which really kind of fall on the cycle that an asset has as opposed to necessarily the overall cycle for the company.

Speaker 9

Thanks.

Speaker 3

Yes.

Operator

Our next question comes from Dore Kestin with Wells Fargo. Please go ahead, Dori.

Speaker 10

Thanks. Good afternoon. As you think through the renovations in the portfolio that you've completed over the last several years, how much EBITDA upside would you estimate remains until they stabilize?

Speaker 5

Yes, that's a great question, Dory. So we estimate it's about $25,000,000 of upside from the renovations we've done over the last few years. This is excluding Scottsdale that have yet to ramp for us. And then Scottsdale is roughly another $25,000,000 So there's $50,000,000 of upside from the CapEx that we have done in the last few years and are currently doing this year. And we expect that $50,000,000 will take a few years again getting back to the earlier question on stabilization for Scottsdale.

Speaker 5

But the other projects as well, including the few projects that we had last year, they will take a little bit of time to stabilize. So that's the overall target on stabilization from CapEx spend this year and in the past few years.

Speaker 10

So that's 25x Gainey Ranch, is that what you meant?

Speaker 5

Yes, 25x Gainey Ranch. So it's 25x for all the other CapEx and then 25x for Gainey Ranch, so a total of 50.

Speaker 10

Got it. Okay. I may have missed this, but was there an incremental EBITDA headwind assumed this year for Gainey Ranch? I wasn't sure if that was a little incremental conservative nor a shift in group bookings or maybe just the timing of when the renovation completes?

Speaker 5

No, it's about 14 it was about $14,000,000 headwind last year and it's about $14,000,000 this year in terms of EBITDA loss due to disruption. So, it's the same level of disruption for the project. Now last year in 2023, we had some other projects, right? So that so our aggregate level of disruption was $18,000,000 So, it's $18,000,000 of disruption last year compared to primarily Gamey Ranch this year at $14,000,000 So that's the $4,000,000 benefit. But if you're just looking at Gamey Ranch, $14,000,000 to $14,000,000 Now again, the timing varies by quarter because of the timing of the renovation.

Speaker 5

And last year was much more second half disruption. This year is much more first half disruption. But

Speaker 2

the number overall is the same. As this pointed out

Operator

in his

Speaker 2

comments, that's not to say that's the number off of a kind of very stabilized number because clearly we had a lot of really good business in the 1st 5 months of last year. So gaining range overall would be down kind of absence the renovation as well. So the $14,000,000 is really the renovation disruption we're speaking of. But as we talked about earlier and how we kind of get to that upside going forward, In the years that the market did extremely well and in some ways was overly frothy, particularly in 2022 and also really in 2023, if we hadn't done the renovation, the property would have been somewhere in the high 20,000,000 dollars s whereas going into COVID in 2019, it was in the low $20,000,000 And given kind of the condition of the asset over time, that was a more reasonable expectation of where in a normal year the property was produced at the time. Clearly, the way we're looking at this renovation is it's going to give us very significant upside over both what we kind of view it as a true kind of stabilized number and even some of the frothy years that we've seen over the last couple of years in the market.

Speaker 10

Right. No, I appreciate that. I was sorry, what I was referring to is I thought last quarter the expectation for $24,000,000 was that there would be a $12,000,000 headwind and then it was $14,000,000 That was just the spread that I was asking about?

Speaker 2

Yes. And that's a good question. I mean, too, we did speak about the $12,000,000 last quarter, and we did talk at that point about the fact that we would have some additional disruption coming from some of the other CapEx that we're spending. So our expectation at the time was that we would probably end up around somewhere around EUR 14,000,000 of total renovation disruption for the full year, with 12 of that coming from Ganey Ranch. As we sit here today, we think that that's probably a little bit higher for Ganey Ranch and less coming from any other project.

Speaker 2

So the total of $14,000,000 disruption is kind of similar to what we thought last quarter with a little bit more disruption from gaining range than we projected last quarter.

Speaker 10

Got it. Okay. Thank you.

Operator

Our next question comes from Tyler Bassary with Oppenheimer. Tyler, please go ahead.

Speaker 3

Thank you. Good afternoon. This is Jonathan on for Tyler. Thanks for taking our questions. Just one for me today.

Speaker 3

It's a multipart question on the common dividends. Any additional details you can share in terms of what factors were contributing to that decision to raise and why you think this level is appropriate in the current environment? And I'm also interested in your perspective on the bridge to returning to that prior payout ratio that Marcel mentioned and kind of what you would need to see to get there?

Speaker 5

Yes, sure. Great question. So on the dividend, I think why the increase, I think that was the first part of your question. One is just looking at the demand that we're seeing in the business as well as the company's earnings profile, we have confidence in that. And so it seemed an appropriate time to recommend to the Board to increase the dividend, which they agreed to do.

Speaker 5

I think as we think about kind of the payout ratio, the point in that comment was just to indicate that our expectation is that the business will continue to recover and we'll get back to that pre COVID payout ratio level. There's no specific timeline we want to articulate at this point, but just to indicate that that is the long term goal is to get back to that prior payout level, which was in the as I mentioned, the mid-sixty percent range.

Speaker 3

Okay, very good. Thank you for all the color. That's all for me today.

Operator

Our next question comes from David Katz with Jefferies. Please go ahead, David.

Speaker 6

Hi. Thanks for letting me circle back. I just want to make sure we have this bridge properly. If we were to sort of take your $24,000,000 guidance, right, which includes $14,000,000 of impact, right? And take the remaining $11,000,000 of that notional $25,000,000 from Scottsdale, right?

Speaker 6

And then the other 25 is totally on top of the 24 guidance? Or is there any of that 25 that's sort of in 2024 already?

Speaker 5

Well, no, some of it is in 2024. I think we didn't break it out with that level of detail, but certainly you're seeing some because that 25% was off of last year. So it's a good point. I should have clarified that. So that $25,000,000 was off of last year.

Speaker 5

And certainly the 3 renovation projects we did last year, you're seeing lift this year in the numbers. I don't have kind of the breakout by year on that, but it's something we can look to provide in the future. But that certainly there is a piece of the 25% that's this year.

Speaker 6

Right. So there's some of that 25 that's in your 2024 guidance already and we can venture our own gas.

Speaker 3

Okay, got it. Thank you.

Speaker 5

Okay.

Operator

We have no further questions. So I'll hand back to Marcel Verbus for closing

Speaker 2

comments. Thanks, Emily. Thanks, everyone, for joining us today. I know it's you're getting to the tail end of a long earnings season. So we appreciate everyone's interest and questions today and look forward to updating you over the next couple of quarters as we progress through some important projects, particularly Scottsdale.

Speaker 2

And you can tell, we're very excited about the progress that we're making there. So we look forward to updating you on that next quarter.

Operator

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

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Earnings Conference Call
Triumph Financial Q4 2023
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