Good morning, and welcome to the Host Hotels & Resorts third quarter 2021 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Jaime Marcus, Senior Vice President of Investor Relations.
Thank you, and good morning, everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDAre, and hotel level results. You can find this information together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release, in our 8-K filed with the SEC, and in the supplemental financial information on our website at hosthotels.com.
On today's call with me will be Jim Risoleo, President and Chief Executive Officer, and Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer. With that, I would like to turn the call over to Jim.
Thank you, Jaime, and thanks to everyone for joining us this morning. Despite the Delta variant, we continued to significantly outperform expectations and meaningfully beat consensus metrics during the third quarter. We delivered adjusted EBITDAre of $177 million, which exceeded our interest in capital expenditures by $21 million and adjusted FFO per share of $0.20 during the quarter. In addition to delivering positive metrics each quarter this year, these metrics continue to see meaningful sequential increases over the prior quarter. Pro forma total revenues in the third quarter increased 25% sequentially over the second quarter, while pro forma hotel level operating expenses grew only 21%.
The increase in revenues was driven by strong leisure demand at resorts and hotels in Sun Belt markets and Hawaii, which led to a $67 million increase in adjusted EBITDAre in the third quarter compared to the second quarter. RevPAR for the third quarter was strong as volume improvements extended across the portfolio and rates held up in Sun Belt markets. While we saw softer demand in September due to Delta variant concerns, RevPAR for the quarter still improved by 26% compared to the second quarter. Our hotels saw a 49% increase in business transient room nights and a 72% increase in group volume over the second quarter. Our recent acquisitions all contributed to the outperformance during the third quarter and are exceeding our underwriting expectations.
Preliminary October RevPAR is expected to be approximately $143, a $15 increase over September and the highest RevPAR we have seen this year. We believe RevPAR will dip slightly in November due to seasonality before coming back in December. While much of the recovery was concentrated at resorts in Sun Belt markets during the first half of the year, our urban markets saw significant RevPAR improvements during the third quarter. At the start of the quarter, our urban and downtown markets had a weekly occupancy of 50%, and by the end of the quarter, these markets were running at nearly 56% occupancy. Quarter-over-quarter RevPAR in our urban and downtown markets grew by 89% to almost $96, driven by both ADR and occupancy improvements.
In addition to the sequential improvements in operations, we continue to execute on our three strategic objectives, all of which are aimed at elevating the EBITDA growth profile of our portfolio. Our objectives include redefining the hotel operating model, gaining market share at renovated hotels, and strategically allocating capital. As it relates to the last strategic objective, we made another off-market acquisition during the third quarter, Alila Ventana Big Sur in California. This brings our 2021 year-to-date acquisitions total to $1.2 billion at a blended 13.1x EBITDA multiple. This is a continuation of our strategy to deploy capital into assets that will elevate the EBITDA growth profile of our portfolio.
On the dispositions front, subsequent to quarter end, we sold five hotels totaling 2,323 keys for $551 million, including FF&E reserves at a 14.2x EBITDA multiple, including foregone CapEx based on 2019 results. Following this acquisition and our recent dispositions, which I will discuss in a moment, we have $1.7 billion of total available liquidity, including $138 million of FF&E reserves. As a reminder, we have completed five off-market hotel acquisitions this year, including the Hyatt Regency Austin, the Four Seasons Orlando at Walt Disney World, Baker's Cay Resort in Key Largo, The Laura Hotel, which was formerly known as the Hotel Alessandra in Houston, and Alila Ventana Big Sur. We also acquired the Royal Ka'anapali and Ka'anapali Kai golf courses in Maui.
All our recent acquisitions are performing substantially ahead of our underwriting expectations. As of September, the updated 2021 forecasted EBITDA at the Hyatt Regency Austin is $3.4 million higher than the full-year 2021 EBITDA that was estimated at underwriting. The Four Seasons Resort Orlando is $17.4 million higher. Baker's Cay Resort is $2.9 million higher, and the golf courses are $3 million higher. In addition, we acquired the former Hotel Alessandra, a luxury downtown hotel in Houston's central business district. At the time of acquisition, the hotel was closed and fully unencumbered by brand and management. The property has been rebranded as The Laura Hotel, and it will be operated by HEI Hotels & Resorts as part of the Autograph Collection by Marriott.
We have identified a number of opportunities that we believe will increase the EBITDA growth profile of this hotel, including affiliating the property with a major brand re-reservation system, expanding the F&B outdoor seating capacity, activating the rooftop pool experience, and leasing the ground floor retail. The hotel is expected to open in the fourth quarter of 2021. Turning to our most recent transaction. In September, we closed on the off-market acquisition of Alila Ventana Big Sur for $150 million. This ultra-luxury resort is one of the most uniquely located hotels in the United States and benefits from extremely limited supply and high barriers to entry due to strict land use regulations by the California Coastal Commission. We purchased the property at a 9.3x EBITDA multiple on 2021 forecast.
The RevPAR is expected to be $1,320, the TRevPAR is $1,870, and the EBITDA per key is $273,000 based on 2021 forecast. The performance ranks first in our 2019 pro forma portfolio on RevPAR, TRevPAR, and EBITDA per key by a very wide margin. Alila Ventana Big Sur is located on 160 acres of irreplaceable fee simple land on the California coast. It benefits from views of both the ocean and the redwood forest and is a drive-to destination for some of the country's most affluent areas. The hotel has 59 keys consisting of both rooms and suites and is operated under an all-inclusive model.
It offers a luxury spa, three pools, a high-end fitness center, 12,000 sq ft of event space, and two restaurants with locally sourced foods and a variety of private dining experience. In addition, the hotel has a number of unique outdoor amenities, including 63 campsites with 15 luxury tents located within the Big Sur redwoods, as well as numerous tailored experiences and adventures. I cannot emphasize enough the unique nature of this asset, and we are delighted to add it to our portfolio as the twelfth Hyatt-branded property, continuing our position as the largest third-party owner of Hyatt hotels. The hotel is Hyatt-managed under the Alila brand, and since Hyatt's acquisition of Two Roads Hospitality in 2018, the properties has enjoyed increasing market share and a record year of profitability in 2021.
The hotel significantly benefits from its Hyatt affiliation and World of Hyatt redemption bookings, which contributed a substantial amount of total room nights sold in 2020 and 2021. This demonstrates the growing desire for high-end leisure experiences among World of Hyatt loyalty members. In conjunction with the operator, we have identified additional opportunities to grow EBITDA at the property, and we have conservatively modeled this asset to stabilize between 8x and 10x EBITDA in the 2025-2027 time frame. The hotel recently completed a $23 million renovation and repositioning, investing $390,000 per key in the guest rooms, public spaces, pools, camping facilities, and back-of-house areas.
We are excited to have an ownership presence in Big Sur, and we believe the iconic and irreplaceable nature of Alila Ventana Big Sur will further strengthen the EBITDA growth profile of our portfolio. As I mentioned, we disposed of five hotels totaling 2,323 keys for $551 million, which includes $11 million of FF&E reserves subsequent to quarter end. We sold the hotels at a 14.2x EBITDA multiple, including foregone CapEx based on 2019 results. These five assets were sold as a portfolio and included the Westfields Marriott Washington Dulles, the Westin Buckhead Atlanta, The Whitley, the San Ramon Marriott and the Westin Los Angeles Airport, both on ground leases. The avoided capital expenditures associated with these five properties is approximately $122 million over the next five years.
We are pleased to have this capital to further bolster our EBITDA growth profile as we deploy it into high growth assets in our existing portfolio or into new acquisitions. In total, we have invested $1.2 billion in early cycle acquisitions year to date. The blended EBITDA multiple on our five hotel acquisitions this year now stands at 13x, which compares favorably to the $551 million we disposed of at a 14.2x EBITDA multiple. Between 2018 and 2021, we acquired $2.8 billion of assets at a 14x EBITDA multiple and disposed of $4 billion of assets at a 17x EBITDA multiple, including foregone CapEx.
Since 2017, we have dramatically improved the quality of our portfolio, increasing the RevPAR of our assets by 10%, the EBITDA per key by 20%, and the EBITDA margins by 110 basis points based on 2019 pro forma results. As we evaluate capital allocation opportunities going forward, we will continue to focus our efforts on assets with higher expected growth, with the objective of elevating our EBITDA growth profile. Moving on to third quarter operations, we saw significant improvements in transient room nights, which were up 18.5% compared to the second quarter. Our hotels in urban and downtown markets saw strong improvements in transient demand compared to last quarter as municipalities relaxed COVID restrictions.
Occupancy in these markets increased by 17.4 percentage points to approximately 50% in the third quarter, along 24% ADR growth. In our Sunbelt and Hawaii markets, transient rates remained resilient, up 26% in the third quarter compared to 2019, despite a modest softening of transient demand over the prior quarter due to seasonality. Our hotels saw continued strength in leisure demand during the quarter. Encouragingly, we saw a solid pickup in leisure demand in our urban and downtown hotels. For comparison, over Columbus Day weekend, our urban and downtown hotels achieved approximately 70% occupancy with an ADR of $231 versus 55% occupancy with an ADR of $180 over the July Fourth holiday.
Special events such as the Boston and Chicago Marathons and the return of Broadway shows in New York helped to drive this demand. Weekend occupancy at our entire portfolio reached 75% in early October with an ADR of $259 compared to a historical level of 87% and $259 in 2019. Resort revenue increased $43 million over 2019, driven by 39% ADR growth, with rates in most of our resorts seeing double-digit percentage increases. We expect strong demand at our resorts to continue through year-end, particularly at our Hawaii hotels, after the recent news that the state welcomed non-essential travel back on November 1. Saurabh will get into more detail on our business mix during the third quarter shortly.
In addition to our successful capital allocation efforts this year, we remain focused on our three strategic objectives. As a reminder, we are targeting a potential $240 million-$350 million of incremental EBITDA over time on a stabilized annual basis as we execute the initiatives and projects underlying our strategic objectives. This range includes hotel EBITDA of approximately $93 million from our acquisitions year to date. First, we expect to generate $100 million-$150 million of potential long-term cost savings over time based on 2019 revenues from redefining our operating model with our managers. We have taken steps toward 50%-60% of these savings to date.
Second, we expect to generate $21 million-$35 million of incremental EBITDA over time on a stabilized annual basis from our goal of gaining 3-5 points of weighted index growth at the 16 Marriott Transformational Capital Program hotels and 5 other hotels where major renovations have been recently completed or are underway. Keep in mind that our expectation of a 3-5 point gain in market share was a pre-pandemic estimate. As we have been in the unique position of deploying significantly greater capital in 2020 and 2021 than our competitors. We are optimistic that our market share gains could be greater, as the property competitive set is either an inferior product due to lack of renovation, or there will be meaningful business disruption as hotels are renovated.
We expect to complete approximately 85% of the Marriott Transformational Capital Program by year-end, and substantially complete the program by the end of 2022. We expect to invest $1.2 billion in these 21 assets, or approximately $73,000 per key. As of the third quarter, we have invested $834 million in renovations at these hotels, and we do not expect to spend significant capital on these assets in future years. During the third quarter, we completed renovations at the New York Marriott Marquis, which included a complete upgrade of the guest rooms, renovations of over 140,000 sq ft of meeting space, the expansion of a sky bridge line with 2 high definition LED screens, and a reimagined large lobby with new bars and upgraded restaurants.
Subsequent to quarter end, we completed transformational renovations at the Orlando World Center Marriott in Florida, which included the guest rooms and an updated lobby, restaurants, and bar. These multiyear comprehensive renovations at the two largest hotels in our portfolio were part of the Marriott Transformational Capital Program and bring the total number of completed projects in this program to 10 of 16 properties. We avoided significant business disruption by completing these projects during the pandemic. As a result, they are very well positioned to capture market share in the recovery. In addition to the Marriott Transformational Capital Program assets, we recently completed the extensive guest room renovations at the Hyatt Regency Coconut Point in Florida. Lastly, we expect to generate $25 million-$35 million of incremental EBITDA over time on a stabilized annual basis from recently completed and ongoing ROI development projects.
These projects are at different stages of renovation and development, and stabilization is expected to occur 2-3 years after completion. Some recent examples of our ROI development projects include the Andaz Maui Villas, which are targeting 49% occupancy with an ADR over $1,600 for 2021 versus our underwriting at 34% occupancy with an ADR of $1,400. The 1 Hotel beach club enhancements, which have led to over $2.5 million in incremental revenues with returns exceeding the underwriting. To conclude my remarks, we continue to be very encouraged by the operational recovery we are seeing across the lodging industry.
As we move further into the recovery, our capital allocation efforts over the past few years, the improved quality of our assets, and the elevated EBITDA growth profile of our portfolio should accrue to the benefit of our stockholders. These factors, combined with our strong balance sheet, geographic diversity, and size, scale, and reputation, leave us very well positioned to capitalize on accelerating demand. With that, I will now turn the call over to Sourav.
Thank you, Jim, and good morning, everyone. Following Jim's comments, I will go into detail on our third quarter cash flow, operations, expenses, and our top-line outlook for the remainder of the year. As Jim mentioned, we delivered positive adjusted EBITDAre and FFO during the third quarter. In addition, we achieved an important milestone this quarter with positive cash flow for the first time since the onset of the pandemic. We delivered adjusted EBITDAre of $177 million, which exceeded our interest and capital expenditures by $21 million. We continued to benefit from quarterly sequential improvements with 65 hotels achieving positive hotel-level operating profit compared to 53 hotels last quarter.
Subsequent to quarter end, these operational improvements led us to another important milestone of exiting our credit facility covenant waiver period 3 quarters ahead of its expiration and coming into compliance with our bond indenture debt incurrence covenant. This reduces our $2.5 billion credit facility interest rate by 40 basis points and gives us greater balance sheet flexibility. Moving on to top-line performance. While our Sunbelt hotels and our resorts continue to drive results, the third quarter represented the best quarter of the recovery for non-Sunbelt and large group hotels. Multiple hotels achieved positive EBITDA in Chicago, D.C., Boston, and San Francisco, and all hotels in Philadelphia and Denver maintained positive RevPAR for the second quarter in a row. Our large group hotels in San Diego, San Antonio, and New Orleans also maintained positive EBITDA in the third quarter.
Expanding on Jim's business mix comments, our hotels saw business transient room nights increase 49% over the prior quarter with a 5% increase in ADR to more than $172. Even more encouraging is that 40% of those room nights came from our urban and downtown hotels, where business transient rooms sold increased 112% over the second quarter. Additionally, we saw increasing activity from traditional top ten accounts, including a mix of Fortune 500 financial, government, and consulting companies, a positive given the challenges the Delta variant presented during the quarter. On the group front, group revenue showed steady sequential improvement over the prior quarter, with a 72% increase in room nights, combined with an 11% increase in rate driven by our hotels in San Diego, New York, Boston, San Antonio, Austin, and Chicago.
Overall, group room nights in the third quarter were 52% of 2019 levels despite the Delta variant headwinds. We were pleased to see corporate group perform better than expected in the quarter. This segment contributed 43% of total group room nights in the third quarter, which is on par with our pre-pandemic mix. Corporate group ADR also came in at $196 in the third quarter, which is the highest it has been since the first quarter of 2020, and indicates that more traditional groups are coming back. Corporate group also drove significant improvements in banquets revenue, which was up 100% quarter-over-quarter. Association group room nights of 150,000 was more than triple that of the second quarter, which we view as another positive sign for the return of large traditional groups.
Affinity groups, which include social, military, education, religious, and fraternal organizations, have been driving group demand during the pandemic. These groups continue to show sequential quarterly improvement, up 27% over the prior quarter. Looking forward, we currently have over 570,000 definite group room nights on the books for the rest of 2021, and we maintained 1.2 million group room nights on the books for the third and fourth quarters despite concern over the Delta variant. Of those group room nights on the books for the fourth quarter, over 42% of them are booked in San Diego, Boston, Orlando, and Phoenix. Net booking activity in the third quarter for 2022 totaled 180,000 room nights.
Our managers remain focused on holding future group rates, thus ADR on the books is slightly higher than the same period in 2019. We now have roughly 2.6 million group room nights on the books in 2022, an 8% increase over the second quarter. For comparison, this represents about 54% of 2019 actual group room nights compared to 50% last quarter. Moving on to expenses. Pro forma total operating costs rose by 21% during the third quarter compared to the second quarter, despite a 25% increase in total revenues. Variable expenses were down 40% relative to a total revenue decline of 32% when compared to the third quarter of 2019.
Most of this gap is due to the hiring pace lagging demand growth, and we expect this gap to moderate through the fourth quarter as our operators continue to ramp up staffing levels. The number of open positions at our major operators indicate they are at roughly 94% of targeted staffing based on current business volumes. For comparison, our managers have historically operated at 97% of targeted staffing based on historical business volumes. Fixed expenses, including wages and benefits, were 19% lower than the third quarter of 2019 and 16% higher than last quarter. Similar to last quarter, some traditionally fixed expenses like sales and marketing came back as business volumes continued to increase.
Combining revenues and expenses, this quarter our expense reduction ratio came in at 0.93, which means that for every 10% decline in hotel revenue compared to pro forma third quarter 2019, there was a 9.3% reduction in expenses. As Jim mentioned, in the third quarter, pro forma total operating expenses were down 30% from the third quarter of 2019 on revenues down 32%. On our last call, we indicated that we were expecting an expense reduction ratio of 0.75-0.80 for the second half of this year. The difference between our third quarter results and our forecast can be attributed fairly evenly to three factors. Average daily rate came in better than expected.
Wages and benefits did not ramp up as expected due to hiring challenges in certain markets, and we had unanticipated favorable one-time items in the quarter, including business interruption, insurance proceeds, and property tax savings totaling approximately $10 million. We are expecting an expense reduction ratio of approximately 0.85 for the year, which reflects our expectation of rate-driven RevPAR growth and a continued lag in expense growth driven by labor costs. As you may recall, we introduced the expense reduction ratio during the pandemic to measure the change in property-level expenses against the change in total revenue. As our revenue declines compared to 2019 decrease in size, one-time expenses have a much bigger impact on the ratio, thus making it less relevant.
We therefore expect to revert to pre-pandemic metrics in the coming quarters as operations continue to normalize. Turning to our top-line outlook for the remainder of the year, we are still unable to provide guidance given the continued uncertainty surrounding COVID. That said, we continue to expect sequential quarterly RevPAR improvements driven by rate growth from leisure travelers at our resorts, and we are encouraged by the performance of our urban hotels as demand drivers in those markets continue to recover. We also expect group and business transient to continue improving in our urban and downtown markets as impacts from the Delta variant moderate, companies return to the office, and traditional groups get back to meeting in person. To conclude, we are very pleased with our achievements during the third quarter, including generating positive adjusted EBITDAre, FFO, and exiting our credit facility covenant waiver period three quarters ahead of its expiration.
We remain very well positioned to execute on our goal of increasing the EBITDA growth profile and improving the quality of our portfolio, particularly given our strong balance sheet, accretive capital recycling, and the strong recovery that is underway. We continue to make significant progress on redefining the operating model with our managers, increasing market share at our renovated assets, and strategically allocating capital. With that, we would be happy to take any questions. To ensure we have time to address questions from as many of you as possible, please limit yourself to one question.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Rich Hightower. Please announce your affiliation, then pose your question.
Good morning, guys. I'm still with Evercore ISI. A lot of statistics thrown out in the prepared comments, so thank you for the detail there. You know, maybe give us a sense, you know, there's a lot of time spent on the improvement in the urban and the downtown segments of the portfolio. Maybe give us a sense there of where you stand in October, and I guess even November so far in terms of rate and occupancy versus the same periods in 2019. Do you expect those hotels to bridge that gap in the same way that the leisure and resort segments have already done? Do you think that gap could be fully bridged sometime next year? Is that a 2023 event?
How do we think about that? Thanks.
Yeah, Rich. I will, I'll start here, and then, Sourav, feel free to jump in as well. The number that we provided for October RevPAR is a preliminary portfolio number, and we do not have granular data at this point in time on, you know, performance at the urban hotels versus Sunbelt leisure hotels. You know, we did a roll-up, and, you know, we saw that $143 is a good number, and that's the number we provided. We're confident given the trajectory of the business return that we saw in the third quarter in particular that the business is gonna continue to ramp. You know, a lot of encouraging data points, as you said in our prepared comments.
One of the most encouraging with respect to the urban hotels is the level of leisure business we saw come back to those properties as amenities started to open up, such as Broadway in New York. You know, we saw the Boston Marathon. You know, we've had really strong performance on the leisure side. We're seeing a lot of solid business transient come back to the urban properties as well. You know, that's business transient from our more traditional accounts. You know, the top 10 accounts that are household names, financial services, consulting, you know, defense-related businesses, government accounts. You know, we are very encouraged with the ramp that we're seeing occur.
You know, to go from 50% at the beginning of the quarter to 56% in occupancy at the end of the quarter and see a nice uptick in rate is very encouraging to us. As vaccines continue to be rolled out, we had good news, I guess it was just yesterday, that adolescents are now approved for vaccines. Children down to five years old are eligible to get a vaccine. We think that's very encouraging. We feel that businesses are gonna get back to work. They're gonna open their offices. There is clearly a pent-up demand on the part of businesses to get out on the road and meet people. I mean, we're experiencing it ourself in our offices.
The number of folks who wanna come by and say hello face to face, really, you know, is testament to the fact that there's no substitute for in-person communication and in-person collaboration. Sourav, I don't know if you have anything else that we can add at this point in time.
Yeah. Hey, Rich. I can give you some color, at least on the BT front as it relates to October specifically. We do expect October to be the strongest BT month for 2021. Approximately 60,000 room nights is what we have on the books for BT, and that's a 17% increase over September. If you recall, from the beginning of the year, from January to July, we had about, on average, a 30% sequential improvement in BT room nights every single month. We saw a slight increase from July to August and then a slight dip from August to September, but now we have picked up and back on the trajectory that we had seen early on in the year. Very encouraged.
As you know, Jim talked about, sort of our overall BT rate is actually up 5% quarter-over-quarter, and that's holding strong. As it relates to 2019, we are about, call it around, you know, 50% of 2019 levels as we stand right now, and we expect that to continue to improve, with every single quarter going forward.
Perfect. Thank you, guys.
Your next question is coming from Smedes Rose. Please announce your affiliation, then pose your question.
Hi, it's Smedes Rose with Citi. Sourav, you gave a lot of statistics around labor and cost ratios, which we'll probably, you know, look through in more detail. I guess in general, I just wanted to ask you about the pace of labor costs, particularly for hourly workers and sort of tying that back to your initial cost savings goals. Because it seems you tell me if this is fair, but it seems that labor has definitely moved higher than maybe what those than when those initial goals were provided. I'm just wondering if it takes you longer to get to that cost savings target, or have you just been able to offset increased labor costs with other savings.
Sure, Smedes. You were breaking up there a little bit, but I think I got your question. On the labor front, you know, what I'll start off with, and I'll sort of end with, are the $100 million-$150 million that we have messaged, is when we were going into 2020, we were expecting higher than inflationary growth in a few of the Sunbelt markets, and that's obviously pre-pandemic. You know, as we went through the pandemic, there were obviously the rate of acceleration in terms of wage growth in those markets went up. For the portfolio, if I can give you some specific numbers here. For the portfolio, I would say we expect a CAGR from 2019-2022 of about 5%-7%.
Now I would break that down between urban and Sunbelt markets. For urban, just given, you know, a lot of those are covered under a CBA, that would be around 3%-4% CAGR from 2019 to 2022. In the Sunbelt, that CAGR would be about 6%-8%. Again, the overall portfolio, we expect that CAGR from 2019 to 2022 to be about 5%-7%. Now, as it relates to the $150 million that we messaged, remember that was in relation to 2019 revenues and expenses. Reality is, depending on how quickly we get back to 2019 levels of revenue, we can see all that benefit sort of come through to the bottom line.
Obviously, depending on how much inflationary, above inflationary growth we see in wages and benefits, it will be shaved off, and that will impact margin going forward. Hopefully that answers your question.
Thank you.
Your next question is coming from Neil Malkin. Please announce your affiliation, then pose your question.
Good morning, everyone. Neil Malkin, Capital One Securities. Good to be with you all. Great quarter, great announcements. You know, Jim or Sourav, I thought it was pretty impressive that you were able to keep your occupancy fairly steady through the third quarter, despite the vicissitudes of the Delta variant and its impact on particularly the corporate side of demand. You know, can you just talk about how you were able to do that and sort of what things leverage you were able to pull or sort of what came in better than expected, you know, that allowed you to kind of maintain those occupancies again, despite the dip in the middle of the quarter from a national level? Thanks.
Neil, you know, look, we're very encouraged with the trend line that we're seeing, going forward. I think one of the most encouraging data points with respect to the second half of the year and the third quarter and the fourth quarter was the fact that we were able to maintain 1.2 million group room nights on the books, notwithstanding Delta. It just points out that there's a lot of pent-up demand in the economy in general. People wanna get back out. They wanna meet. They wanna travel. You know, we've seen a little bit of a pullback for Delta as a result of Delta as everyone else did.
As the Delta trend line started to diminish and we got over the peak and new cases and people saw that we were going in the same direction as countries and other parts of the world were, they got back on the road. There's no magic to it. I mean, I think we've talked about this a lot, the quality of our assets is really second to none. The fact that we have continued to invest capital in our portfolio, we think is going to be a true competitive advantage as business really starts to open up.
I mean, I said it in my prepared remarks, with respect to market share gains, as we embarked upon the Marriott Transformational Capital Program back in 2017 and 2018, we underwrote 3-5 points pickup in RevPAR yield index. That was pre-pandemic. Now that we're gonna have a portfolio that is largely refreshed, I mean, we're gonna spend $75,000 a key on the 21 properties that we referenced, 16 Marriotts and 5 other assets. You know, we would expect that we'll continue to see strong performance going forward, and I'm optimistic, quite frankly, that we'll pick up more than 3-5 points in yield index.
I think it's a combination of the quality of our assets, the location of our assets, our asset managers and enterprise analytics team working very closely with the best in the business. You know, whether it's Marriott, Hyatt, our independent managers that are out there just really being very thoughtful about revenue management strategies and yield management strategies and getting business in the hotels while maintaining great integrity. I think that's another big story as we open up for business again. This pandemic and post-pandemic has been marked by material yield and ADR integrity as opposed to what happened coming out of the Great Recession.
We're able to truly asset manage these hotels and revenue manage them to maximize RevPAR, and I expect we'll continue to do that going forward.
Thank you, and congrats on the quarter.
Thanks, Neil.
Your next question is coming from Bill Crow. Please announce your affiliation, then pose your question.
Hey, good morning. Jim, just curious on the group side. I think yesterday, Marriott suggested their group revenues on the books for next year are down roughly 20%. I think you said your pace is down 46%, rate up just a little bit. Is it a locational issue? Is it just the big citywide? Or what creates such a big gap between what Marriott was suggesting for their portfolio and you who own a lot of the Marriott group houses?
Yeah. Bill, I don't know if anybody on the Host team, I don't know if Sourav listened to the Marriott call. I did not hear what they had to say. We are at, for 2022, as we sit here today, we have 54% of our group room nights on the books for next year that we had relative to the same time in 2019 for 2020. You know, we're encouraged that number actually ticked up from 50% at the end of our second quarter call to 54% now. I don't know what Marriott said with respect to pace, but we're actually encouraged. I mean, we have roughly 2.6 million group room nights on the books.
If we looked at the same period of time, Q3 2019 for Q3 2020, just to give you some context, and this is what we talked about last quarter, we had 68% of our actuals on the books at that point in time. I think the real number to look at is 68%-54%. That's the gap that we're working real hard to close. Does that answer your question, Bill?
Yeah. If I could just put a little bit finer point on it, how are New York and San Francisco in particular stacking up next year on a group basis? Then, maybe Sourav, if you could just tell us how much cancellation and attrition fee income was included in the third quarter results, that'd be great. Appreciate it.
Yeah. Well, you know, look, San Francisco is gonna have a challenging 2022. There's no question about it. You know, as we look at convention calendars for next year, San Francisco's very challenged. They're, you know, down at the bottom of the pack, quite candidly. I think a lot of that has to do with the fact that they were the last major city to open their convention center. I mean, they didn't open their Moscone until September of this year. San Francisco will recover. It's gonna take time for San Francisco to recover. You know, with respect to New York, New York is a tough market if you wanna talk about citywide, because they don't have a lot of citywide in New York City.
What we're seeing in New York is the return of a lot of affinity groups, a lot of corporate groups are coming back. You know, we're very encouraged with what we're seeing in New York, particularly as international inbound comes back into that market. You know, international inbound in New York City accounts for about 12% of our business. Again, as the borders open up and it's early, but we are encouraged with what we're seeing in New York.
Hey, before I give you attrition cancellation number, Bill, you know, on the group front, one thing I'll say is we obviously are expecting more in the year for the year bookings in 2022. While yes, pace is lower than what we had in 2019 for 2020, it's somewhat expected just given the skittishness in terms of bookings, particularly with the blip that we had with Delta. We do believe a lot of those accounts are gonna come out from the sidelines and then book in the year for the year. We expect in the year for the year activity to be much greater than what we had seen back in 2019.
Sort of since the start of 2021, just to put in perspective, we booked 600,000 room nights for 2023-2025, and that's like a 20% increase since the start of the year. If you compare the same time period, the three years from 2019, that was at 23% for future years that we are doing really well. It's a matter of 2022, which we feel will do well for the year. Can I answer your attrition cancellation question?
Hey, Sourav, let me add one more data point, Bill, for your benefit. As we look because we spent some time looking at citywides for 2022, and if we look at all citywide markets, we have about 89%. The citywide calendar equates to about 89% of 2019 citywides. We have obviously a number of markets that are going to outperform like Minneapolis, San Antonio, Atlanta, Houston, Chicago and Boston, and you know on down the line with quite frankly San Francisco being at the bottom of that list. There's a lot of good news out there as well. Sitting here today at 89%, again, makes us feel pretty good about how things are gonna evolve. Sourav, you want to answer the question about attrition cancellation?
Yep. We recognized $16 million of attrition cancellation for the quarter. Sixteen? Is that what you said? Yes. 16. Correct. Yeah. Thank you. Thank you both for the time.
Your next question is coming from Thomas Allen. Please announce your affiliation, then pose your question.
Yeah, Morgan Stanley. Just thinking about the fourth quarter and the RevPAR trends, you talked about November RevPAR dipping with the seasonality then back in December. Can you just help us think about the outlook on a kind of versus 2019 level and how you see trends going forward?
Our October number is down about 34% to 2019. I'll put this in perspective. I think November, you know, sitting here right now, would guess somewhere in the neighborhood of, you know, down $5-$7 from October, and then December close to October RevPAR. That's sort of what we are thinking as we sit as of today, just based on the data that's available.
Okay. Then, I mean, typically you haven't given monthly, so is that implying on a versus 2019 level, things are improving as we get through the year or decreasing? My follow-up question that I'm gonna ask is, the borders are opening next week, for more international visitors. Are you seeing a material benefit from that in bookings yet, or is it too early to tell or too difficult to tell? Thank you.
We've gotten anecdotal commentary on that, just speaking with some of our hotels in New York as well as San Francisco. I mean, international flight bookings are certainly up 15% since the announcement has taken place. Six weeks out from the time of the announcement, the bookings are up 15%, and specifically for San Francisco, that's up 34%, and that compares to what it was six weeks before that announcement. It's encouraging from a hotel perspective. In New York, we've definitely seen a transient pickup, and we can attribute a pretty meaningful percentage to pickup from Europe specifically. I don't have any hard numbers yet that I can share.
Okay. Helpful. Thank you.
Your next question is coming from Dori Kesten. Please announce your affiliation, then pose your question.
Thanks. Good morning, Wells Fargo. Now that you've exited the covenant waiver period for your credit facility, what barriers exist to returning to paying a common dividend?
Hi, Dori. The barrier that exists is our belief that we will see a sustained recovery and put us in a position when we start paying a dividend again, that we can maintain the dividend and increase the dividend on a regular basis. We view, you know, paying a dividend as one of the arrows in the quiver of capital allocation, and we realize that dividends are important to a lot of our shareholders. You know, our policy prior to the pandemic was to pay out 100% of our taxable income.
As a REIT, we have to pay out 90%, and you know, as we see how business returns and as we can wrap our arms around the pace of the recovery, we will take that into consideration as we think about reinstating the dividend.
Okay. Thank you.
Your next question is coming from Anthony Powell. Please announce your affiliation, then pose your question.
A transaction question. We haven't got one yet. Just, you know, the pipeline has been very strong this year. You know, the Big Sur acquisition is attractive. What's the pipeline look like going forward? As you look at acquisitions going forward, given you exited the covenant waiver, how do you rank incremental debt, equity offerings, and using your cash balance as sources of funds for those deals?
Anthony, the pipeline continues to be vibrant, I would say. As you know, the deals that we've been able to get done this year have been off-market transactions, and that's where we continue to stay focused right now, because there is a fair amount of competition out there, given that the debt markets are flush with cash, the CMBS market in particular, flush with cash. A lot of the private equity firms were sitting on the sidelines waiting for the CMBS markets to come back. So we are starting to see more competition. As we think about, you know, sources of capital, we're very delighted that we could exit the credit waiver amendment three quarters before expiration.
You know, one of the other data points that we didn't discuss is the fact that we had a debt incurrence test under our bond indenture. As you know, our portfolio is completely unencumbered, so it's all balance sheet debt. We had a debt incurrence test under our bond indenture that precluded us from issuing new debt, hard stop until we got back above 1.5 times interest coverage. We've met that threshold as well. I think it's going to, on the margin, give us a little more flexibility on the acquisition front. There were several transactions in the market that we worked on last year that had existing debt in place.
That debt was prohibitively expensive to break and pay off, so we had to take a pass. Now, with the fact that we can acquire assets with that gives us another opportunity to look at a few hotels out there that are encumbered with existing financing. You know, we're very happy with our cash position. We're happy with the fact that we have come out of the credit waiver amendments three quarters early. Between cash on hand and the ability to issue new debt, I think that is the direction you would see us going, if we continue to deploy capital into new acquisitions.
Got it. The bar is higher for ATM now. Is that fair?
I think that's very fair. Yeah.
All right. Thank you.
Your next question is coming from Chris Woronka. Please announce your affiliation then pose your question.
Hey. Hey, it's Deutsche Bank. Thanks for all the data points, guys. Very helpful. Question is, Jim, you guys gave out a bunch of data on your acquisitions to date and how much they're beating initial underwriting, and I think that was a comment probably on 2021. Could you just talk about if that's correct, whether the expectations for future years have also changed? Thanks.
Well, Chris, we are in the middle of the budgeting process, so it's a little early to give you specific numbers. I would venture that coming off the strong base in 2021, that we're seeing it really every deal that we've acquired this year, that 2022 is likely to outperform our underwriting expectations as well. You know, when we underwrote the acquisitions throughout the course of this year, we were in a very period of great uncertainty. You know, we didn't really have a sense on how Delta COVID was gonna behave and when the country was gonna be able to get COVID under control.
Long way of saying that we were conservative in our underwriting, but you know, as we looked out to you know, say, 2023, 2024 and beyond, and the financial performance that we baked into these properties, it penciled on an IRR basis and allowed us to pull the trigger and deploy capital. I think that it's going to be meaningfully better across the board. I mean, if you just look at where we put capital and what's happening in these markets, some of the best highest growing highest growth markets in the country, you know, with meaningful barriers to new supply.
If you think about Alila, you know, truly iconic and irreplaceable asset to be able to buy that at 9.3 x on this year's EBITDA, an asset that's generating $275,000 a key in EBITDA and, you know, we're not seeing any slowdown there. The Four Seasons Resort Orlando at Walt Disney World Resort, we're just starting to see the benefits of the celebration, the 50th anniversary celebration of Walt Disney World Resort, just kicked off in October. So I expect that we're gonna see outperformance going forward. You know, I think that you'll see it across all the assets we bought that we're gonna continue to see it in our resort portfolio, which is comprised of 16 properties now.
You know, we will see business return to the major urban markets. We've been encouraged there as well, this last quarter.
Okay. Very good. Thanks, Jim.
Sure.
Your next question is coming from Chris Darling. Please announce your affiliation, then pose your question.
Hi, good morning. I'm with Green Street. Just going back to the Ventana acquisition for a second. You mentioned 8-10x stabilized EBITDA multiple by about 2025. But given you're acquiring it, you know, at just over a 9x multiple, does that imply that, you know, this is really the high watermark for the near term and you might be expecting a dip in performance over the next couple of years? And then also curious if you could comment on the terms of Hyatt's management agreement there.
Yeah. Well, you know, with respect to the terms of Hyatt's management agreement, that's not something that we're in a position to talk about, Chris. I will tell you that the World of Hyatt is doing an incredible job filling Alila Ventana. I mean, we're getting between 65%-75% of our room nights through World of Hyatt redemptions. As a high redemption hotel, we're getting the premium rate, the highest rate that the property is selling rooms for. At 59 rooms, that gives us the opportunity to really yield manage, to revenue manage the rooms that are not being sold through the World of Hyatt redemption program.
with respect to our stabilized EBITDA multiple, you know, we gave a range of 8x-10x. You know, is 8x doable? I think it is doable, but, you know, are we being conservative and throwing a range of 8x-10x out there? I think that's the way you should think about it.
All right. Thanks.
Your next question is coming from Ari Klein. Please announce your affiliation, then pose your question.
Thank you, BMO. Maybe on the disposition, you sold a few assets a quarter, and I guess there are reportedly some others that might be on the market. You know, how should we think about asset sales from here? Have you done most of the heavy lifting or, you know, is there anything else that you'd look to sell?
Yeah. Ari, you know, I mean, it's Real Estate Alert is always good with publishing a rumored acquisition or a rumored disposition. You know, I'm very glad that on the five-pack that they indicated we were gonna sell for $500 million, and we ended up selling it for $551 million. You know, with respect to future dispositions, I think that you should think about our capital allocation strategy, really, with one bottom line goal in mind. Everything that we do is meant to elevate the EBITDA growth profile of the portfolio.
If we were to sell other assets, it would be because we believe that we're getting fair value for the assets relative to our hold value, and that by making those dispositions, we can redeploy that capital either into new acquisitions or into assets that we currently own that are going to grow faster than the rest of the portfolio on average. As you're thinking about dispositions going forward, I think that's the way, that's the bottom line. It's all to elevate the EBITDA growth profile of the portfolio.
Got it. Thank you.
Ladies and gentlemen, that is all the time we have for questions. I would now like to turn the floor over to Jim for any closing remarks.
Well, thank you, everyone. I'd like to thank you all for joining us on our third quarter call. We appreciate the opportunity to discuss our quarterly results with you, and I look forward to meeting with many of you, unfortunately, virtually, at Nareit next week. We really wanted to have the Nareit meeting in person at the Wynn Hotel in Las Vegas, but you know, there wasn't universal support among all the REIT teams to meet in an environment where masks are required, and they're still required. For those of you that I don't meet virtually, enjoy the upcoming holiday season, be well and stay healthy, and we at Host thank you for your continued support.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.