Xenia Hotels & Resorts, Inc. (XHR) Q2 2018 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Xenia Hotels & Resorts Second Quarter 2018 Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Lisa Ramey, Vice President of Finance. Ms. Ramey, please go ahead.

Thank you. Good afternoon, everyone, and welcome to the second quarter 2018 earnings call and webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas, our Chairman and Chief Executive Officer; Barry Bloom, our President and Chief Operating Officer; and Atish Shah, our Chief Financial Officer. Marcel will begin with an overview of our quarterly results and operating fundamentals. Barry will follow with more details on our portfolio performance and capital projects during the quarter. And Atish will conclude our remarks with a review of our current liquidity position and an update on our outlook for the year. We will then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements and the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, August 2, 2018, 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. An archive of this call will be available on our website for 90 days. With that, I'll turn it over to Marcel to get started.

Thanks, Lisa. Good afternoon, everyone, and thank you for joining this quarter's call. As anticipated, the U.S. lodging industry experienced solid growth in the second quarter of 2018 as the Easter shift and strength in both corporate and leisure demands drove a 4% increase in RevPAR. With demand being up 3.1%, the 2% increase in the supply of available hotel rooms was outpaced handily during the quarter. While we remain cautiously optimistic about continued improvement across all lodging demand segments, we are cognizant of the impact increased supply is having in various markets across the country and within our portfolio and the difficulty this presents in driving rates during this period of record-high occupancies. Our same-property portfolio RevPAR increased 3.4% in the second quarter, with April, up 6.4%; May, up 1.4%; and June, up 2.3%. As discussed on our first quarter call, April was positively impacted by the Easter shift, which negatively influenced our March performance. As you are aware, the impact of holiday shifts on lodging results can create anomalies in year-over-year comparisons, and we will be dealing with this impact in the third quarter once again. As has been discussed during this earnings season already, the fact that the 4th of July fell on a Wednesday caused the month to get off to a slow start, with both business and leisure demand being softer than last year during the entire holiday week. Similarly, September could be impacted by the shift of the Jewish holidays. Our portfolio, however, expects a benefit in September as we lap the hurricane disruption we experienced last year. When adjusting for the Easter shifts, our portfolio RevPAR has been growing at the low single-digit RevPAR growth we anticipated coming into the year. Strength in markets such as Santa Clara, San Francisco, Dallas and Orlando has been offset by tougher environments and comparisons in markets such as Washington, D.C.; Napa; and several of our smaller markets, where supply increases are impacting our hotels more significantly. The strong RevPAR growth we experienced in the quarter was fueled by healthy group business in Dallas and robust transient demand in San Francisco as well as the early benefit from our renovations at the Westin in Houston. The double-digit RevPAR increases in these 3 markets as well as continued strength in Santa Clara, Orlando and Phoenix, were the primary contributors to our strong top line performance for the quarter. During the quarter, we had net income attributable to common stockholders of $28.8 million, a decline year-over-year due to a $49 million gain on the sale of hotels during the second quarter of last year. Our adjusted EBITDAre increased $10 million or 12.9% to $89.8 million, and our adjusted FFO per share grew 11.9% to $0.66. These significant increases to EBITDAre and FFO were the result of the acquisitions we completed in 2017, strong portfolio performance during the quarter as well as business interruption proceeds we received during the quarter. As disclosed in our release this morning, included in our adjusted EBITDA and adjusted FFO is $2.6 million of business interruption insurance income related to the loss of business in 2017 and the first quarter of 2018 at Hyatt Centric Key West Resort & Spa. We anticipate receiving additional proceeds for lost business during the second quarter of 2018 as the markets and our hotel, in particular, continued on its path towards stabilization post-Hurricane Irma. With our remediation efforts having been completed and the markets showing continued signs of improvement, we expect the property to return to a normalized level of performance as the year progresses. In addition to the insurance proceeds related to Key West, we anticipate receiving business interruption insurance proceeds from the impact of Hurricane Harvey at Marriott Woodlands, and we continue to work with our insurers on claims related to the 2017 California wildfires that impacted Andaz Napa and Marriott Napa Valley Hotel & Spa. None of the additional anticipated insurance proceeds are included in our revised guidance, and we cannot provide assurances as to the timing or amounts of these potential additional proceeds at this time. Unfortunately, our hotels in Napa and Santa Barbara are continuing to deal with the impact of both the publicity and reality of the natural disasters that have impacted these respective areas. While demand in Napa appears to be normalizing, results in the first half of the year were impacted by both increases in supply and demand levels that were down as a result of last year's wildfires. The Santa Barbara area has continued to feel the impact of both wildfires and mudslides, and demand has struggled to keep pace in an environment where some competitive supply has entered the market as well. In both cases, we are hopeful that demand will normalize in relatively short order, particularly in Napa, which is showing signs of improvement as we head into the peak season. As Atish will discuss in more detail later during the call, we were particularly pleased with the execution of our various capital market activities during the second quarter. We continued our process of strengthening our balance sheet with an eye towards future growth opportunities. We remain excited about the progress we have made in upgrading our portfolio over the past few years and particularly in the past 18 months. With our year-to-date total portfolio RevPAR increasing 8% compared to the same period last year and 12% compared to the same period 2 years ago, this improvement has been evidenced in our portfolio metrics. We also remain pleased with the early performance from our most recent acquisitions as the hotels have outperformed our overall expectations thus far. Each of our acquisitions in 2017 was right on strategy for our company, and we will continue our disciplined approach to acquisitions and dispositions as we evaluate opportunities in our pipeline. On the acquisition front, we remain hopeful that we will be able to find additional properties that are a strategic fit and meet our return requirements. We believe our balance sheet is in excellent shape, and we have the liquidity and flexibility to take advantage of strategic opportunities as they arise. As in the past, we will remain disciplined in our approach as we look to add high-quality assets located in desirable lodging markets with solid long-term growth prospects. On the other hand, we will also continue to evaluate our existing portfolio for potential dispositions, particularly when significant capital expenditures loom on the horizon and as we continue to upgrade and fine-tune our portfolio, consistent with our long-term strategy. As I have stated before, we believe our company and portfolio are positioned well for future growth as we look to 2019 and beyond. We have significantly improved our portfolio through transactions as well as capital investments in those areas that should drive strong ROIs. As a reminder, 37 of our 38 hotels are branded or soft-branded, which we believe is an advantage to our company through lodging cycles. We believe the various combinations of brand platforms that have taken place will increasingly benefit our hotels next year and beyond. Additionally, over the past 18 months, we have broadened our asset management platform by hiring several new employees, each with a unique background and differentiated perspective, which has strengthened the department and our ability to maximize results in our portfolio of high-quality, upper-upscale and luxury hotels. Bolstered by our expertise on the project management side of the business, where we are able to manage all of our significant projects in-house to maximize our control over both budgets and timing, we believe our platform is a significant strength that complements our high-quality portfolio and strong balance sheet as we continue to optimize performance. With that, I will now turn the call over to Barry.

Thank you, Marcel. As a reminder, all the portfolio information I'll be speaking about is reported on a same-property basis for the 38 hotels owned at quarter end. Same-property RevPAR increased 3.4% for the quarter as occupancy grew 190 basis points and ADR increased 1%. Group business was up approximately 10% for the quarter compared to last year, while transient and contract business was flat. Part of this increase was related to the shift of the Easter holiday into March, which negatively impacted our hotels in the first quarter. We experienced very strong group business in April and June. As a reminder, our group revenue contribution increased slightly over last year due to the acquisition of several large group-oriented hotels and is now approximately 1/3 of our overall rooms revenues. When looking at our top 10 markets based on hotel EBITDA as presented in our earnings release from this morning, Dallas, Houston and San Francisco were our top-performing markets, with RevPAR of 14.1%, 12.2% and 10.6% respectively. Dallas had a great quarter as the overall market had strong citywide performance, and our Fairmont Dallas performed particularly well as strong in-house group business enabled the hotel to push transient rates and enjoy significant banquet business. Our Houston hotels had mixed results as The Woodlands market continues to absorb new competition, and our hotel experienced a soft group month in June. More than offsetting that, we saw significant strength at our Westin properties in the Galleria, following the complete renovation of the Westin Galleria tower and despite having some rooms out of order at the Oaks tower for the first part of the quarter. The Oaks completed its guest room renovation in May, which I will discuss a bit later, and we have begun to see incremental demand post-renovation. Our Marriott San Francisco Airport was also a notable performer in our portfolio this quarter, driven by strong pricing in both the transient and group segments as the market saw strong overall demand during the quarter and we were able to attract high-rated transient business to replace some softness in group demand. We also saw strength in our food and beverage business, driven by the renovation of the hotel's great room, which was completed during the first quarter. At Hyatt Regency Santa Clara, RevPAR increased 5.3%, driven by increase in both occupancy and ADR. Our Orlando hotels were up 4.8%, with Hyatt Regency Grand Cypress leading the way, while the Grand Bohemian Orlando had softer group business. Our 2 Phoenix area hotels were up 3.1% overall, with Hyatt Regency Scottsdale producing strong results. Our three hotels in the D.C. area benefited from a strong convention calendar, with RevPAR up 1.9% overall. In Atlanta, our hotels' RevPAR increased 0.7%, with strong group production and weekday patterns, limited the hotels' opportunity to drive transient rate. The worst-performing of our top 10 markets were Napa, down 0.8%; and Boston, down 0.4% for the quarter. Napa has now begun to stabilize following the wildfires at the end of last year, yet the market experienced flat RevPAR growth for the quarter as supply increases have muted potential revenue gains. Boston had a tough quarter due to a lack of citywide group business, and the lack of market compression did not enable our hotels to push rate despite upticks in occupancy. Outside of our top 10, other top-performing markets included Salt Lake City, up 7.7% in RevPAR for the quarter; and New Orleans, up 5.8%. Gross operating profit margin was up 47 basis points in the quarter as we continue to focus on cost controls and continuity across the portfolio in the areas of the business we can control on the expense side. Our continued focus on productivity in rooms and food and beverage expenses are showing meaningful results, and our efforts on energy conservation are helping to restrain growth in utilities expense. Overall, we were pleased with our hotel EBITDA margin performance during the quarter, up 32 basis points despite a 3.8% increase in real estate taxes and insurance. Our property optimization process continues to yield strong results. We have now completed the POP process of the 4 hotels we acquired in 2017, and our expected implementation exceeds our pre-acquisition estimates. Since beginning this program in 2014, we have now completed this process at over 85% of our current portfolio by room count, have implemented over $7.3 million in annualized net revenue enhancements and cost reductions. Our internal POP team has an aggressive schedule for the remainder of this year, and we'll be revisiting several of the hotels where they have achieved significant prior success. Before turning to our second quarter CapEx, I'd like to revisit the substantial work we completed earlier this year. In the first quarter, we substantially completed guest room renovations at 7 of our hotels, including guest rooms, guest corridors and bathrooms, including the conversion of a large number of bathtubs to walk-in showers. We expect these renovations to improve each hotel's competitive position within its market. You may recall that many of these renovation projects were accelerated in order to take advantage of relative softer markets during Q4 '17 and Q1 '18. In addition, in Q1, we substantially renovated our restaurants and bars in Marriott San Francisco Airport Waterfront, Monaco Chicago and RiverPlace in Portland, along with substantial work at the Westin Galleria Houston, including a lobby renovation, which added a lobby bar, and a transformation of the top floor with upgraded meeting space and the creation of a club lounge and fitness area. During the second quarter, we spent $32 million and have now expended $56 million year-to-date. At the Westin Houston Galleria complex, we completed the guest room renovation at the Oaks tower this quarter, with the exception of the hotel's 5 premium suites that are anticipated to be completed early in the fourth quarter. At the Galleria tower, this summer, we are undertaking a soft goods renovation of the meeting space, including the ballrooms, smaller meeting rooms and the pre-function space. Upon completion of this work, we'll have touched every guest-facing area of the Galleria tower in the last 1.5 years and look forward to capitalizing on the anticipated recovering demand in the Houston market. Also on the meeting space front, we have begun renovations at Marriott Woodlands Waterway & Convention Center. The renovation at the Marriott Woodlands includes over 66,000 square feet of event and pre-function space, including new carpet, wall vinyl and public restroom upgrades. Additionally, during the quarter, we commenced the guest room renovations of both Marriott Dallas City Center, which will include bathtub to shower conversions in 75% of the guest rooms, and Hyatt Regency Grand Cypress, both of which are expected to be completed during the third quarter. With the completion of these renovations, we will have renovated approximately 30% of our portfolio's guest rooms in the past 15 months. We continue to be on track to commence construction later this year on the new 25,000 square foot ballroom, with 30,000 square feet of ancillary, pre-function and support space at Hyatt Regency Grand Cypress, and hope to open that facility in the fourth quarter of 2019. In Q4, we expect to begin a number of renovations. These include guest rooms at Hotel Monaco Chicago, where we will convert a substantial number of bathtub to shower conversions, meeting space at Palomar Philadelphia, accretion of a grab-and-go market and coffee bar as Phase 1 of the lobby renovation at Hyatt Regency Santa Clara and renovation of the licensed Starbucks outlet at Marriott San Francisco Airport. We are pleased with the planning and execution of our projects this year. And while we have experienced a little more disruption and displacement than we originally anticipated, we're excited about the growth potential from these renovations and look forward to reporting the financial success of these projects as they ramp up. With that, I will turn the call over to Atish.

Thanks, Barry, and good afternoon. I have two topics to discuss this afternoon. First, I will discuss the recent actions we have taken to further strengthen our balance sheet. And second, I will discuss our outlook for the year. We view our balance sheet as a strength of the company and have been able to utilize it to help execute on our strategic goals over time. During the second quarter, we paid off four mortgage loans totaling $210 million or approximately 15% of our outstanding debt. This accomplished 3 things: first, we addressed most of our near-term maturities; second, we further increased our mix of fixed-rate debt to 85% of our total debt; and third, we increased our number of unencumbered hotels to 26 out of the 38 hotels that we own. Turning ahead to capital raising. We began utilizing our At-The-Market equity program during the second quarter. We sold 5.1 million shares for approximately $122 million. We did this to further enhance our liquidity position and strengthen our balance sheet. We continue to believe that buying or selling stock can be an effective way to create long-term shareholder value. We finished the quarter with our leverage ratio at 3.3x net debt-to-EBITDA, which is down from 3.9x last quarter and 4.2x at year-end 2017. Our current leverage ratio is toward the lower end of the range of 3.1x to 4.2x that we have maintained since our listing in early 2015. We are well positioned to be opportunistic should we see compelling investments. Overall, we finished the second quarter with approximately $185 million of unrestricted cash and full availability on our $500 million line of credit. Now turning to our outlook. We have slightly adjusted some measures of our full year guidance. As to same-property RevPAR, we reaffirm that we expect it to grow between 50 and 200 basis points. As to adjusted EBITDAre, we expect it to be between $289 million and $299 million, which is an increase of $3 million from prior guidance. As to adjusted FFO, we expect it to be between $234 million and $244 million, which is an increase of $6 million from prior guidance. In terms of our RevPAR, our expected growth range is in line with prior guidance. We have seen continued positive trends on the group side. Second quarter group revenue production for the year was up 15%. Our group revenue pace for the full year is therefore higher. It has increased from roughly flat last quarter to up in the 1% to 2% range for the full year. These positive trends have been offset by 2 items: first, we have seen a slightly lower rebound in Santa Barbara and Napa following the natural disasters last year; in addition, our CapEx projects are expected to negatively impact RevPAR by 75 to 100 basis points, which is slightly greater than our prior estimate. As to adjusted EBITDAre, we have increased our guidance by the $2.6 million of business interruption insurance proceeds that we received in the second quarter. We've made no additional adjustments to our expectations for the balance of the year. As to our expectation for full year adjusted FFO, it has moved up by $6 million to reflect two items: first, the $3 million expected increase in adjusted EBITDAre; and second, $3 million of lower expected interest expense. One point of additional clarification as to our quarterly outlook. As a reminder, our seasonality relative to 2017 has shifted because of transactions completed in 2017 and the first quarter of 2018. We want to provide some weighting information because the mean estimates are currently showing similar weighting between third and fourth quarters. We expect third quarter to have lower weighting than the fourth quarter. We expect our full year adjusted EBITDAre this year to be earned as follows: 25% in the first quarter; 31% in the second quarter; 20% in the third quarter; and 24% in the fourth quarter. Finally, full year adjusted FFO per share is expected to be between $2.12 and $2.21. This reflects $6 million of higher adjusted FFO, offset by our higher share count. Our current estimate of full year weighted average diluted share count is approximately 110 million. Our current number of shares outstanding is 111.9 million. We have not assumed any additional dilution in our guidance. Overall, we remain confident in our outlook. Our guidance reflects full year FFO per share growth of approximately 5% as compared to 2017. Given that we have significantly strengthened the balance sheet and in the context of a rising interest rate environment, we believe this level of FFO per share growth represents successful capital allocation. We expect to continue to see growth in the quarters and years ahead. That concludes our prepared remarks. With that, we will now open the call for Q&A. Anita, can we have our first question?

[Operator Instructions]. The first question today comes from Thomas Allen with Morgan Stanley.

So going to that last comment about the seasonality of your business, in terms of RevPAR growth, how are you thinking about third quarter versus fourth quarter? Fourth quarter, you have a lot tougher comp, but third quarter, you're going to be renovating again. So yes, just any clarity would be helpful.

Yes, I think generally, the third quarter and fourth quarter are actually lining up relatively similar. There's obviously a little bit of difference there, but they're relatively similar. Expecting a little bit stronger growth in September when we look at the third quarter, a little stronger growth in September as we lap some of those renovation or the natural disaster disruption that we dealt with last year, as you know, not only in Houston but in a lot of different markets that were kind of impacted by the various hurricanes we were hit with and then similarly with some of the Napa wildfires that started happening. So September should be the strongest month in the third quarter. October is lining up to be a relatively strong month. But like you said, the comparisons become a little bit more difficult in the fourth quarter, so that's why both quarters are ultimately about in the same range.

Helpful. And then just two follow-ups. First, Houston and Dallas, can you just help us think about the outlook for those markets for the rest of the year? Dallas had a really strong second quarter, but you highlighted the group business. And then just an accounting question, where did the business interruption proceeds hit, was that in other revenue?

Yes, I'll do the second question first, actually, Thomas. So in terms of business interruption proceeds, that hit in other -- it would have been -- actually, it's marked as gain on business interruption insurance on the income statement. So you should be able to see that, $2.649 million, and then I'll turn it over to Barry.

Yes. For Dallas, Thomas, I think second quarter was a little bit of an anomaly. We don't expect to see that kind of growth necessarily moving forward. Our hotels there, the Fairmont in particular, does a lot of -- relies heavily on group business. So when we happen to have really good bookings, which we knew for a long time now, Q2 this year will be very strong. We were counting on good group, and we had good group, but that tends to really flatten out for the rest of the year as it kind of performs more normally and more in line with the rest of the market there, low single digits. And then in Houston, as you know, we have a lot of -- a lot going on there, particularly with renovations and lapping.

And similar to year-to-date, we talked about last quarter that we expected Houston to be flat to slightly down on RevPAR, which is still our expectation as we sit here today. Year-to-date, we're down about almost 1% in RevPAR for Houston, and we're expecting to be somewhere in similar range as we get closer to the end of the year.

[Operator Instructions]. The next question comes from Bryan Maher with B. Riley FBR.

Marcel, you were a little bit light in commentary on what I would think is the depth of your acquisition pipeline. I guess you're still looking at or for properties, but can you give us an idea if what you're looking at is one hotel or 4 or 6? I mean, really, how deep is the pipeline at this point?

Thanks, Bryan. Light in commentary to give you the opportunity to ask the question, I guess. As you know, when you look at acquisitions like we do, and as you know, we're very transaction-oriented within this company and always have been, you turn over a lot of stones to find the right kind of opportunities. And I would say that similarly to probably what you've heard from some of our peers, it does seem like there are a few more opportunities that are in people's pipelines, and ours is no different from that. I think we're seeing a few more things out there. Generally, pricing expectations are still pretty healthy. Sellers are expecting to get pretty good pricing, particularly because the financing markets are still very attractive. So sometimes, you think you're getting close to a deal, and then at the end of the day, maintaining your discipline, you might not quite get there. So that being said, we do have some confidence that we will be able to find some transactions and get some things in the remainder of the year. And like I said, I think we probably feel like the pipeline is a little bit more robust than what we saw in the last couple of quarters.

Okay. Great. And I don't know if this question's better for Barry or Atish, but it seems like you're kind of coming off of the heavy lifting on your renovation activity, and although you talked about some 4Q projects ramping up, they seemed, on the surface, to be not as robust of renovations, with the exception of the Orlando ballroom. Can you talk about how we should think about EBITDA ramping up from what you already completed or are soon to complete, let's say, over the next 12 to 18 months?

Well, I think one of the components of that walk would really be the level of disruption. So we haven't really guided to what type of disruption we have from renovations next year. But certainly, our expectation with that would be that it would be lower than this year. So that impact of the 75 to 100 basis points, that translates into, call it, $6 million to $10 million of EBITDA. So you would see some of that come back, that disruption lapping or the fact that you don't have that disruption or those rooms out of service. And then on top of that, as Barry mentioned, we did -- we have renovated a substantial portion of our rooms. So that return on that investment and the ramp that you would see usually takes some period of time to come in, but you will see the positive impact of that as well, particularly in markets where we're now better positioned to capture additional RevPAR. So I think those are the 2 main drivers. It's hard to give you exactly how that comes into play from a quarter-to-quarter perspective, but those are the two areas you should think about with regard to the renovation dollars we put out, both this year and last year. Barry, if there's anything else you'd like to add on that...

No, I think you covered it.

Okay.

Well, I guess maybe a slightly different way of asking the question to try and get a handle on maybe the ROI from your investment is when you make those investments in meaningful room upgrades, what kind of unlevered return are you looking for on that investment dollar?

I mean, we're looking for double-digit type returns. It varies a lot based on the type of project. So certainly, rooms, renovations, additional ballroom, those would have higher returns typically than lobby renovations per se. So it varies a little bit on the type of project. But certainly, double-digit type returns, strong returns, and we do underwrite each project individually.

The next question comes from Michael Bellisario with Baird.

I just wanted to go back to kind of the acquisition commentary. Maybe talk about balancing the equity issuance that you did during the quarter with the fact that the transaction market is competitive. Or maybe was the issuance more of a stock price-specific decision?

Well, it's certainly a combination. I mean, we are in a position where we felt it made sense at these kind of levels to be able to issue some equity and continue to strengthen the balance sheet to give us additional flexibility and liquidity as we look for acquisition opportunities. So certainly, it was done with an eye towards having that flexibility and being able to be opportunistic when we see things that we think are good strategic fits for us going forward. Clearly, us issuing equity at this level, it's certainly not a situation of where we don't think there is value in the stock at those levels. But if you go back and you think about what our capital allocation decisions have been over the last few years, and we bought back a good amount of stock at an average price of $15, and now we issued some stock at an average price of a little over $24 in the second quarter. And we've significantly strengthened our balance sheet through the transactions we've done and through these decisions that we had made on equity buybacks and equity issuance. So we just think that, overall, it has really strengthened our balance sheet, has strengthened the company and puts us in a position to be more opportunistic going forward.

Got it. That's helpful. And then on the F&B and other revenue side, it looked a little bit weaker in the quarter. Is that market- or asset-specific? Or is there anything broadly going on, on group trends that you are or not seeing?

Very asset-specific. When we look at the quarter, almost all of our large group hotels, obviously, we had significant outperformance in the quarter on group. Our large group hotels all had very strong food and beverage revenues. What we saw some softness in many of the more transient and leisure-driven hotels. Where we had softness again, a lot of the more -- either -- or in our markets like Napa and Santa Barbara and Savannah, where we had relative weakness in those hotels, we saw relative weakness even beyond the softer RevPAR in the food and beverage area.

Got it. And then last one for me, just on your increased CapEx displacement. Is that because the projects you're doing, are they taking longer for you to cross the finish line? Or is it because demand at those particular properties is actually stronger, so the displacement's greater and the opportunity cost is higher? How should we think about that?

It's actually a little bit in between that. Obviously, we try our best to forecast renovation disruption proactively, but we did underestimate, really, for our current projects going on in Q3. The summer rooms renovations in Dallas and Orlando were a little more impactful than we thought. We've seen some customers move to other competing hotels over the time period, I think more so than we had expected. And then in Houston, where we're doing meeting space at both hotels, although we're doing it at, historically, the slowest time of year for group business really more so than we thought, precluded -- obviously, knowing those in advance and having those scheduled precluded the booking of large-scale group business, and quite frankly, the gap to fill in the transient side has been a little more than we thought it would be.

This concludes our question-and-answer session. I would now like to turn the conference back over to Marcel Verbaas for any closing remarks.

Thanks, Anita. I thank you all again for joining us on our call this quarter. As I stated during my prepared remarks and also in answering the question, we think we have, once again, performed well operationally during the quarter, but certainly, put our balance sheet in a very good position going forward. So we like the position we've put the portfolio in from a quality perspective, with the renovations we've been able to complete so far this year and the balance sheet we've been able to put in place right now. So we look forward to sharing our future progress with you over the next few quarters. Thank you.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.