- Adjusted EBITDAre: Increased 6% to nearly $56 million, a new quarterly record high.
- Adjusted FFO: Increased 10% compared to the second quarter of last year.
- Pro forma RevPAR: Increased 3.4% year-over-year.
- Hotel EBITDA Growth: 6% with a margin expansion of 120 basis points.
- Group RevPAR: Increased 7.5% compared to the prior year.
- Urban Portfolio RevPAR: Increased by approximately 4% on weekdays and 5% overall.
- Weekend RevPAR: Increased 1.3% during the quarter.
- RevPAR Growth in Lagging Markets: 6% overall, with notable increases in Louisville (23%) and Minneapolis (17%).
- Hotel EBITDA Growth in Lagging Markets: 22% overall, with nearly 60% growth in Silicon Valley.
- Disposition of Hotels: Sold nine hotels for $131 million since 2023, including three hotels during the quarter.
- Full Year RevPAR Growth Guidance: Reduced to 1% to 2.5%.
- Pro forma Hotel EBITDA: $73.1 million, a 7% increase from the second quarter of last year.
- Adjusted EBITDA: $55.9 million, a 6% increase compared to the second quarter of 2023.
- Adjusted FFO: $36.4 million or $0.29 per share, a 10% increase year-over-year.
- Capital Expenditures: Approximately $21 million in the second quarter, $39 million year-to-date on a consolidated basis.
- Total Liquidity: Over $325 million.
- Average Interest Rate: Approximately 4.7%, nearly 80% hedged.
- Quarterly Common Dividend: $0.08 per share, representing a dividend yield of approximately 5.2%.
- Revised Adjusted EBITDA Guidance: $188 million to $196 million for the full year.
- Revised Adjusted FFO Guidance: $0.91 to $0.99 per share for the full year.
Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted EBITDAre increased 6% to nearly $56 million, setting a new quarterly record.
- Adjusted FFO increased 10% year-over-year, marking the second consecutive quarter of double-digit growth.
- Pro forma RevPAR increased 3.4% year-over-year, outperforming the total US lodging industry and upscale chain scale.
- Hotel EBITDA growth of 6% with a margin expansion of 120 basis points.
- Strong group demand with second quarter group RevPAR increasing 7.5% year-over-year.
Negative Points
- Full year RevPAR growth guidance reduced to 1% to 2.5% due to softer demand and tempered outlook over peak summer leisure travel months.
- June experienced a RevPAR decline of 1%, with July showing similar patterns.
- San Francisco assets showed weakness with a year-over-year RevPAR decline.
- RevPAR for resort and small-town metro assets declined modestly year-over-year due to ongoing renovations.
- Increased volatility in booking pace, particularly around holiday weeks, affecting business travel.
Q & A Highlights
Q: Jon, in your prepared remarks, you called out normalization over the peak summer leisure travel months as the primary driver of the RevPAR reduction. Can you elaborate on where and when we would expect to see this normalization in Q3?
A: We are mostly seeing it around the weekends and in our more leisure-oriented markets. Urban markets continue to perform well, and our lagging markets have also performed well. However, we have seen some pressure on pricing during peak summer travel months, particularly in June and July. Of the 125 basis point reduction in RevPAR growth at the midpoint, 25 to 50 basis points were in the second quarter, specifically related to June, with the balance in the third quarter and the back half of the year.
Q: Are we operating broadly in the hotel industry with 1% to 2% top line growth and 3% expense growth? How do you think about same-store profitability in that growth backdrop?
A: I would caution against drawing conclusions just from June and July. We have seen some softness, particularly around holiday weeks. April and May were up 5.5% combined. We remain optimistic that as we get through the peak summer travel season and into the fall, we will see more group and business travel demand, leading to reacceleration in top line growth. On the expense side, our expectations have moderated, with operating expenses increasing by about 3%, driven by labor efficiencies and reduced contract labor.
Q: Can you walk through some of the puts and takes between 3Q and 4Q for both RevPAR and margins?
A: For the second half, we expect margin contraction of about 150 basis points, with 50 basis points coming from GOP and the remainder from below GOP, including property taxes and a one-time insurance rebate. The second half has a more difficult comparison related to GOP, but overall, the year looks more improved than where we started.
Q: Are you seeing changes in booking behavior between leisure and business travel? Are the windows shrinking, and are there more cancellations?
A: We have seen more volatility in booking pace than historically. August pace is up 4%, but it has been more volatile. September pace is flattish. The booking window remains incredibly short. We remain optimistic that as we move into the fall with more business and group travel, we will see better rate growth and less pricing pressure.
Q: Are newer brands like Tru or Spark impacting rates for your Hampton or Hilton Garden hotels?
A: It is a bit early to tell. These economy conversion brands are more likely to be rolled out in tertiary and secondary markets, whereas our portfolio is more urban-focused. They target a different customer, and we expect below-average supply growth in the industry for several years, which should mitigate any significant impact.
Q: When switching from contract labor to more full-time employees (FTEs), are these contract workers becoming FTEs, or is it a different group of people?
A: Sometimes contract workers are converted to FTEs, but generally, we are seeing a broad easing of the labor market. This includes people from other industries or those returning to work post-pandemic. This easing is translating to less contract labor and lower turnover.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
