Xenia Hotels & Resorts, Inc. (XHR) Q3 2019 Earnings Report, Transcript and Summary

Good day and welcome to the Xenia Hotels & Resorts Inc. Third Quarter 2019 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Lisa Ramey, Vice President, Finance. Please go ahead.

Thank you, Andrew. Good afternoon everyone and welcome to the third quarter 2019 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 third quarter results and highlights. Barry will follow with additional details on our results as well as a discussion of our capital expenditure projects and Atish will conclude our remarks with a discussion of our current balance sheet and revised 2018 outlook. 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 in the earnings release that we issued earlier this morning along with the comments on this call are made only as of today, October 31, 2019, 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, and good afternoon everyone. The US lodging industry has continued to see muted growth and revenues with third quarter RevPAR up only 0.7%. The upper upscale and luxury segments outpaced the overall industry slightly with RevPAR growth at 1.1% and 1.3%, respectively for the quarter. Against this backdrop, our portfolio experienced a solid quarter, particularly as it relates to rooms revenues. Same property portfolio RevPAR increased 2.5% compared to last year during the third quarter as occupancy increased 140 basis points and ADR increased 0.6%.Our results were primarily driven by strong performance in July and August with RevPAR up approximately 4% for each month, outperforming our expectations for the summer months. September was the most significant contributor to the third quarter results, and as we have been anticipating proved to be more challenging than July and August. We had long identified meaningful group demand shortfalls in September and while transient production for the month was substantial and encouraging, RevPAR decreased by 0.8% as a result of this relative lack of group demand.Unfortunately, hurricane Dorian also negatively impacted results in September as we experienced a significant number of cancellations at our hotels and resorts in the Southeast, during and after Labor Day weekend. Although rooms revenues increased at a relatively healthy pace in the third quarter, the shortfall in group demand in the month of September and the impact of Dorian contributed to challenges on the food and beverage side. We have particularly strong catering demand in the third quarter of 2018, which did not repeat this year. As a result, our same-property, food and beverage revenues decreased by 1% for the quarter, which limited our third-quarter growth in total revenues to 1.6%.For the quarter, our adjusted EBITDAre was $62.6 million and our adjusted FFO per share was $0.47, increases of 3.4% and 2.2%, respectively. As I mentioned, hurricane Dorian disrupted operations at seven of our hotels and resorts during the quarter, including our properties in Key West, Orlando, Savannah and Charleston, South Carolina.We estimate that the negative impact to adjusted EBITDAre was approximately $500,000 and we do not anticipate recovering any of this lost income through business interruption insurance. We remain diligent and successful in controlling expenses across the portfolio. Our operators continue to find efficiencies, particularly in the rooms and food and beverage departments. As a result, same-property, property EBITDA margin for the quarter declined by only 16 basis points on our same-property revenue growth of 1.6%. We believe this is an excellent result in an environment, where increase in labor cost and fixed expenses, including real estate taxes and insurance, continue to put pressure on operating margins.Our portfolio's performance on a year-to-date basis has been strong, as our same property RevPAR increased 2.6% through the end of the third quarter. Our total portfolio RevPAR, which as a reminder measures our portfolio results on an as-owned basis, was 4.7% higher than last year for the third quarter due in part to the improvement in quality of our portfolio through the transactions that were completed in 2018.Year-to-date, same property EBITDA margin has improved 39 basis points, with rooms expense essentially flat to last year on 2.6% room revenue growth and food and beverage expenses up only 0.6% on 1.7% of F&B revenue growth. While our performance as it relates to margin improvement over the past few years has been outstanding, the operating environment continues to be challenging and we anticipate that it will become increasingly difficult to maintain margins if RevPAR growth does not accelerate from current levels. While we are pleased with our third quarter and year-to-date results, the US lodging industry is experiencing headwinds resulting from supply increases, pockets of weakness in demand as well as labor and other cost pressures and our portfolio is not immune from those factors. Atish will outline our expectations for the remainder of the year and how the current environment is impacting our fourth quarter forecast later during the call.Our overall strategy of owning uniquely positioned luxury and upper upscale hotels in a variety of top 25 lodging markets and key leisure destinations continues to prove itself in our results. We have seen outperformance across our portfolio relative to the market during the quarter and year-to-date, including in gateway markets such as San Francisco and in several of our Sunbelt markets such as Dallas, Houston, Phoenix and Orlando. These markets offer diverse demand generators for the group leisure and corporate transient segments, enabling us to successfully optimize mix at our properties. In addition to the quality of our hotels and the diversification of our portfolio across a variety of highly attractive lodging markets, we continue to believe that our affiliation with some of the strongest brands in the industry is a competitive advantage for our company.We have aligned ourselves with top lodging brand companies such as Marriott and Hyatt, which offer strong revenue generation channels and loyalty program programs that could prove to be particularly valuable during times of slowing demand. We believe our portfolio is generally well positioned following our significant capital expenditures in 2017 and 2018 and we continue to see positive results as these hotels and resorts gain market share against their competitive sets.On a year-to-date basis, we have been able to increase our portfolio's market share by over 300 basis points, a result that reflects both renovation improvements at our newly refreshed assets as well as successful revenue strategies implemented by our operating teams throughout the portfolio.We continue to look for ways to unlock additional value across our portfolio and believe our portfolio continues to provide opportunities for targeted ROI projects. Regarding our most significant capital improvement projects, we are looking forward to reaping the benefits from our soon-to-be completed new ballroom at Hyatt Regency Grand Cypress, particularly after we complete the renovation of the existing meeting space in 2020. We also remain excited about the revenue growth opportunities after the transformational renovation of Park Hyatt Aviara. This project is progressing very well as Barry will describe in detail shortly.Additionally, our significant acquisition activity over the past several years continues to afford opportunities for growth as we integrate the properties into our asset management platform. Ultimately, all of these factors that played in our favor in the current lodging environment and we believe have positioned us well for future growth.Now turning to the topic of potential future transactions. As you know, we have a history of being active on the transaction front. As such, we are continually evaluating potential acquisitions and dispositions that could further improve the overall quality and growth profile of our portfolio and create long-term shareholder value.Finding appropriate acquisition targets and executing transactions require significant effort and dedication. We have a track record and expertise that is second to none in our industry and we remain hopeful that we will be able to acquire assets in the quarters ahead that have unique investment characteristics and growth potential. However, we will remain disciplined in the execution of our investment strategy, as we attempt to identify appealing acquisition opportunities in today's competitive transaction market. As it relates to dispositions, the majority of our sales in recent years have involved properties with significant near-term capital requirements, where we did not project an appropriate return on these additional investments. We have also sold properties that we did not view as long-term strategic assets based on either property locations or the quality levels of these assets.While we have significantly improved our portfolio over the past several years, a few properties that fit a similar profile could be one source of the disposition activity for us in the future. We also believe that opportunities may exist to take advantage of this disparities and public and private market valuations of high quality lodging assets. And this could be an additional avenue we may selectively pursue on the disposition side. However, we will continue to exhibit discipline as we evaluate all of our potential capital allocation decisions. We also remain cognizant of the significant time and efforts that are required to build a portfolio of the scope and quality as ours. We continue to believe strongly in the long-term growth prospects for our company and believe we have tailored our portfolio to be able to outperform during times of reduced industry demand as well as in a more robust growth environment.Barry will now discuss our portfolio of third quarter performance in more detail and provide an update on our capital expenditure activities.

Thank you, Marcel. As a reminder, all of the portfolio information, I'll be speaking about is reported on a same-property basis. and the 40 hotels owned at quarter end.As Marcel mentioned, our third quarter results were in line with our overall expectations for the quarter. Same Property RevPAR was up 2.5% for the quarter with both occupancy and ADR increasing 140 basis points and 0.6% respectively. Group revenue was up approximately 1.8% compared to last year, while transient and contract business was up approximately 2.7%. Overall, weekdays are quite a bit stronger than weekends, particularly in September as a result of the disruption we experienced over Labor Day weekend. Despite the current lodging backdrop, we continue to see strength across many of the markets in our portfolio, looking at RevPAR growth in our top 10 EBITDA contributing markets, Dallas was up 15.2%, Phoenix up 8.2%. Houston up 6.5% and Orlando of 6.3%. Dallas benefited year-over-year from the renovation at the Marriott Dallas Downtown during the third quarter last year and we have strong in-house group and Fairmont.In the Phoenix market both Hyatt Regency Scottsdale and Royal Palms, saw strength in transient business. The production up at both properties as a result of successful marketing promotions as we work with hotels to refine topline strategies during our second summer of ownership.Our Houston performance was attributable to strength in our Western properties in the Galleria, which have been gaining significant market share as a solid group base has enabled the teams to yield higher transient rates since the comprehensive renovation of these properties. We also saw outperformance our Orlando properties, particularly relative to the overall market, which is actually down RevPAR for the quarter. Hyatt Regency Grand Cypress, which benefited from the lapping of the guest room renovation last year and Bohemian Orlando each of strength in July and August, which more than offset the hurricane Dorian related challenges and exhibited softer group bookings in September.Our two hotels in Boston were collectively up 5.3% in the quarter, despite an increase in supply in the market. [Indiscernible] Cambridge led the way with strong corporate demand throughout the quarter for Hotel Commonwealth hosted several quality groups, which helped to overcome impact of a lackluster Red Stock season compared to last year.Our Napa Hotels also saw RevPAR growth of 3.7% driven primarily by Marriott Napa Valley, which benefited from a strong group base in August. In the San Francisco area, our hotel at San Francisco Airport, grew RevPAR 2.3% despite weak citywide compression. This hotel continues to benefit from unique demand channels specific submarket, moving it less dependent on compression from downtown. The worst performing of our top 10 markets were Santa Clara, down 4.9%, San Diego, down 1.3% and Atlanta, slightly down at negative 0.4%.Hyatt Regency Santa Clara struggled from a combination of new supply in the market, including new select service higher product as well as the slowdown in demand due in part to modest disruption from the comprehensive lobby and first floor renovation. Increased convention activity in the San Diego market resulted in significant competition for transient business, particularly Andaz San Diego, which suffered from weaker than expected ADR performance. In Atlanta, strength at Renaissance Atlanta Waverly was offset by softer-than-expected performance at the Waldorf Astoria Atlanta Buckhead as the hotel continues to struggle following its transition from Mandarin Oriental. We continue to work with hotel and Hilton to ensure the right strategies are in place for the hotel going forward.Outside of our Top 10 markets other top-performing markets include Birmingham with the grand Bohemian Mountain Brook was up 10.5%, Austin, up 10.2% and Charleston, South Carolina up 9%. While we experienced strength in third quarter on the room size, food and beverage revenue was down 1% due to less banquet and catering business as a result of softer group business largely in September as well as several restaurants that are undergoing renovations during the quarter.Other revenue, however, grew 5.1% as a result of increases in resort and destination amenity fees and cancellation and attrition income. As Marcel discussed, we continue to be pleased with our margin performance in the third quarter and year-to-date. As was the case last quarter, rooms margin was a highlight with rooms expense actually down 0.5% as our operators continue to be extremely diligent in controlling expenses and our hotels. Food and beverage operating margins were also strong despite a decline in food and beverage revenue for the quarter. Undistributed expenses were not as well controlled and were up 4% as A&G, sales and marketing and repairs and maintenance grew at higher rates due to seasonal costs.Moving to our renovations and capital projects during the quarter. We spent approximately $26 million third quarter on CapEx, bringing our total to $63 million as of September 30. During the quarter, we completed several projects including renovations, of the casitas and suites at Hyatt Regency Scottsdale, renovation of the Alvadora Spa at Royal Palms, the renovation of Daily Grill the restaurant Western Galleria Houston, the final phase of the meeting space renovation at Marriott Woodlands, as well as the renovation of the rest and creation of a new Regency Club, as part of a complete renovation of the lobby level at Hyatt Regency Santa Clara. Looking to high Regency Grand Cypress, we continue to be excited about all the progress of the resort healthy forward to reaping the benefits of the capital spend at the property since our acquisition.During the quarter, we completed the renovation of Hemingway's, resorts signature restaurant. We are nearing completion on our biggest capital project of the year, the construction of the new 25,000 square foot ballroom along with pre-function and ancillary space of the resort. We anticipate completion of the new facility by the end of November with the first group booked in early December. At this point. group pace is up nearly 30% for 2020 reflecting the hotel's ability to book this new space, even prior to its completion and the strong reception of this facility by the meeting planner community. We look forward to renovating the existing meeting space at the hotel in the summer of 2020.The planning, budgeting and design for Park Hyatt Aviara continued during the quarter. We are on track to begin both the gas stream and meeting space renovations in mid-November with the remainder of the project including public spaces, food and beverage outlets, spa, pool areas, landscaping and the golf course to begin in stages throughout the fourth quarter of 2019 and the first quarter of 2020. As a reminder, the complete renovation of the resort and the property grounds is expected to cost between $50 million and $60 million. We are confident this investment will create a complete transformed resort and will appeal to a wide variety of group and leisure guests.While Park Hyatt Aviara will certainly be our largest capital project in 2020, we also look forward to starting a few smaller yet important projects in Q4 2019 and will conclude in the first quarter of 2020. Specifically, meeting space renovations at Ritz Carlton, Pentagon City; Westin Oaks, Fairmont Dallas and Andaz Savannah. In the summer of 2020, we will be transforming the Waldorf Astoria at Atlanta Buckhead restaurant over the summer, executing a significant guest room renovation in Marriott Woodlands as well.And now I will turn the call over to Atish.

Thanks, Barry. And I'll discuss two topics this afternoon. First, I'll discuss our balance sheet and then I will turn to our outlook. Our balance sheet continues to be strong. Our debt has a weighted average term to maturity of just over four years. Our debt maturities over the next two years are quite manageable, We have $190 million of debt maturing, that includes an unsecured term loan and one small mortgage loan.Approximately 80% of our debt is fixed rate debt based on origination or hedging and 20% is variable rate debt. We have a good mix of secured and unsecured debt as well. And overall, 31 of our 40 properties are unencumbered of property level debt. This provides a significant flexibility. Our net debt to adjusted EBITDA ratio was 3.4 times at the end of the third quarter. As a reminder, since our listing in 2015, our leverage ratio as ranged from the low three times range to low four times range. At quarter-end, our weighted average interest rate was 3.74%. As to liquidity, at the end of the third quarter, we had approximately $115 million in unrestricted cash. In addition to that, we have an undrawn $500 million credit facility.During the third quarter we completed one debt modification, we lowered the borrowing cost on our $125 million unsecured term loan that matures in September of 2024. With the reduction in pricing, the current annual interest rate on that loan is 3.27%.Now turning to our outlook for the full year. Our guidance is largely the same as it was a quarter ago. You'll note that we have narrowed the ranges consistent with our approach at this time in prior years. We currently anticipate Same-Property full year RevPAR to be up between 1.5% and 2%. We now expect 2019 adjusted EBITDAre to be between $295 million and $301 million, again the midpoint is the same compared to prior guidance. While our overall 2019 adjusted EBITDAre forecast hasn't changed, the guidance includes a few items worthy of a call out as follows.First, we outperformed our expectations by $1 million in the third quarter. Second, we expect G&A expense to be approximately $1 million lower than our prior estimate due to a lower bonus accrual and some open positions. Third, our guidance reflects us booking by year-end $2 million [ph] property tax settlement for several years of appeals for a property that we have sold. Offsetting these three items is the forecast for our Hotel EBITDA for the quarter. Relative to our prior guidance we expect lower non-rooms revenue and more margin decline. We are hopeful that our results actualize better than this, but are basing our guidance on recent trends. So net-net, no change to adjusted EBITDAre guidance for the full year.Turning to adjusted FFO; we expect to earn between $243 million and $249 million. On a per share basis, this reflects $2.12 to $2.18 of adjusted FFO per share. This is based on a full-year count of 144.4 million shares or units, which is unchanged from last quarter. Also unchanged are our forecast for interest expense and income tax expense. As to our outlook for 2020, we are early in the process of reviewing initial hotel operating budgets, one data point is our overall group revenue pace, which is up 3.5%. That increase was driven by Hyatt Regency Grand Cypress. Excluding Hyatt Regency Grand Cypress our overall group revenue pace is approximately flat. As a reminder, our group mix is about 35% of our overall mix and as of the end of the third quarter, half of our 2020 group revenue was definite.In conclusion, we are pleased with our performance in the third quarter and year-to-date. We have tracked at or above our internal expectations over the last several quarters. As we look ahead, we expect the next several months to be more challenging from both the demand and margin perspective. Overall, we continue to believe the company is well positioned for the future in terms of internal growth opportunities, the strength of the balance sheet and the capabilities of the team.That concludes our prepared remarks. At this time, Andrew we will take our first question.

[Operator Instructions] The first question comes from David Katz of Jefferies. Please go ahead.

Afternoon, everyone. So I appreciate all the commentary. And I just really wanted to go back to the comments made about the deal environment or the -- the economy is slowing and we obviously get to see RevPAR. But if you could elaborate just a bit on what you're looking at or what kinds of things you're seeing out there that shape your view about what the landscape looks like the next 12 months?

Well, I think in general, David. I mean, obviously, we're looking at a lot of the same kind of economic indicators that you're seeing out there and what we're really seeing throughout the portfolio frankly is, it's really a story of 40 different assets and a large number of different markets within our portfolio, that don't necessarily all behave homogeneously from week to week and month to month. So what we saw in the last quarter and what we focus on in our comments and in our release this morning is that we have some softness and particularly in September as it related to a group demand, but we were actually quite pleased with the way that transient came in during the quarter and backfill some of that shortfall, so I know that you've heard from maybe some other sometimes about maybe a little bit more concerned about the transient.When you just look back on the one quarter we just had, we actually, we're quite pleased with the transient demand that came in. The one thing that we were always concerned about coming into the year was, was really kind of a shortfall on the group size in the months of September and October and even though we've been able to backfill some of that and actually, I've seen some growth and pace towards the end of the year was something that was hard to fill in and with a little bit more surprising in September frankly because on October, there was always an expectation that the timing of the Jewish holidays was going to put some pressure on that and unfortunately September didn't quite make up for that and as you saw in the results kind of throughout the industry.

Thank you for that. And then one other question if I may, I know that the consolidation, particularly around Marriott has been, I guess I'd call it a less than straight path. Is that past starting to straighten out and we have also seen some consolidation that's going on the management company side, which is a bit less public. But it -- are there any dynamics worth discussing around that side of the business, where they can either help or show up and how you're operating performance turns out?

David, yes, I think so. Certainly we're, we're starting to see and I think we credit some of the transient infill we've had this year to the strength of the Marriott program, Marriott representing half of our rooms in the portfolio. And certainly, we think that they are attracting a loyal guest is utilizing their properties more including our specifically, although, as we've talked about before, we had some pretty intentional strategies around making sure that our Marriott properties are the best properties within their given markets and we think we've attracted more business from Legacy SPG gas, some we've lost to legacy SPG hotels. I think that's one. Two, we're certainly seeing some benefit this year from some of the program service fees and other shifts in cost that Marriott has put in place and I think that is reflected in in a portion of what we've been able to do as a company in terms of maintaining and in some cases in other quarters, improving margins. As it relates to the third-party managers, we have a relatively small stable of third-party managers that we've worked with for a long time and have not yet been impacted really at all by any of the consolidation in the third-party manager space.

Well, thank you very much. Appreciate it.

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

Hi, good afternoon everybody. Marcel, I wanted to touch on your comments on dispositions, specifically you mentioned that you were looking at an opportunity to capitalize on the disparity between public and private market valuations, which was a little bit of a pivot or maybe just incremental to your prior comments on surrounding sales and I'm sure we all saw the news, as it relates to kind of the Kimpton portfolio. But, I was really hoping that you could tell us how you weigh the different disposition buckets, the lower -- lower ROI moving forward versus non-core. And then just opportunistic in kind of the current fundamental backdrop.

Sure. I'm sure you know and I'm sure you've heard from us before it's really our custom that we really only talk about transactions that have occurred and that are transaction that's that are actual as opposed to either that we may or may not be working on. So, I'll just globally talk a little bit about our view of dispositions as I also did some of my prepared comments, which is the majority of what you've seen from us as more fit into that one bucket, which have been selling assets that we don't think or great strategic fits for us long term and in many cases also have -- have very significant CapEx needs in the short term, that just make it a type of investment that we don't feel appropriate for us to make. Doesn't mean that we also haven't looked in the past and we'll continue to look at potential opportunities to potentially selling assets if we feel that it is a good value creation tool for us and creates good long-term shareholder value for us.So, I wouldn't say that that's any kind of pivot from the way that we're looking at the portfolio, but to the extent we would, we would have some dispositions that fall into that bucket it would truly be driven by the fact that we think that there is more value to be harvested potentially from an assets than owning those assets longer term. But we are very much cognizant off and I mentioned this in my prepared remark -- remarks to off of the fact that it's hard to build the type of portfolio that we own, we are on a very high quality portfolio doing transactions is not as easiest and straightforward as you may think sometimes. So it's, it is something that we're very cognizant of -- And we believe strongly that we have a great portfolio that we've built over time that has some really good long-term growth prospects.

I appreciate the thoughts there. And you also characterize demand softness is being limited to pockets of demand. I was just wondering if you could put a little bit of a finer point on that, if that relates specifically to business mix and what you've seen in terms of kind of some group softness here in the near-term versus transient or if it's more market-specific ?

I will get back a little bit to my. So to the earlier question, which is -- it's really hard to paints stuff, with a very broad brush and then the current environment, we see markets where we're group demand has been very healthy, we see markets where corporate transient demand has been very healthy, there is just different, different dynamics at play in different markets sometimes. So that's why it's, that's why I wouldn't say that we're seeing kind of an overall softness in a particular category, because as I mentioned earlier, particularly when we look at September. We're very pleased with our production on the transient side to offset some of that weakness on the, on the group side. So it's, that's why I'm really to preferring to kind of some softness in some pockets of demand more so than that there is anything really for specific as it relates to one segment.

Okay, that makes sense. Thank you.

The next question comes from Ari Klein of BMO Capital Markets. Please go ahead.

Thanks. Just following up on the last question, you alluded to the stronger transient demand performance in the quarter. Can you maybe talk a little bit about how that had how that reformed in the -- so far this quarter. And then maybe you can elaborate a little bit on some of the challenges you're seeing at the Waldorf in Atlanta and one on there?

Ari, it's -- thanks for the question. So as per the first question, we don't really have the full data on transient for this month, we will say -- I will say that October RevPAR is down -- we expect it to be down approximately 3.5%. And the other piece I mentioned with regard to transient, is if you look at our transient pace, It's actually positive for the next 90 days. And while group pace is negative, it's less negative than it was 90 days ago. So those are -- those are both positive indicators relative to 90 days ago. The one area, and this does tie back to some of the prior questions, is the non-rooms of the F&B spend, which does have a pretty big impact in our portfolio, given the mix of group business that we have, and it has a pretty big impact on margins. So those are the things that we really kind of pointed towards in the prepared comments is as affecting our outlook, clearly it's not RevPAR because our RevPAR guidance isn't changed, but it's more of that non-rooms revenue and its impact on margin. That's led to our view that in the fourth quarter is expected to be weaker by several million dollars relative to what we thought a quarter ago.And then, Barry, perhaps you can talk a little bit about Buckhead?

Yes, sure. So at the Waldorf Astoria Atlanta. It's really just about a slower transition and ramp up than what we had expected, I think we start with some of the higher stand management customer is not currently staying at the hotel there but for other competitors that were -- that are more recently renovated and Hilton has been slower in filling -- backfilling that with the anticipated very high-end corporate group business that we thought would take its place not surprising would have taken that would take a year for that to ramp up and we're just now approaching the 11-month mark in our ownership of the asset. So, not particularly surprised and I think those were related to issues and we're working hard on them with the management team there every day. We have a lot of confidence in the Waldorf, we have a lot of content in the physical facility itself and certainly think we will make that property move in the direction we always thought we would have just been taking a little longer and I think we anticipated.

Got it. Thanks for the color.

Our next question comes from Michael Bellisario of Baird. Please go ahead.

Thanks, good afternoon, everyone. [Technical Difficulty].

That the right math, you're breaking up a little bit. So didn't fully hear that question. But if it's the question is it $4 million implied change in the fourth quarter, that is the number.

Okay. Thank you. And then just back to the opportunistic dispositions and the comment you made. Marcel, can you maybe help us quantify how wide you think that spread is today between the public and private market valuations that you referenced?

No, I'd hate to put any kind of fine point on that, frankly, I think that's, you were probably not the only people where you've heard us from that, we do believe that there is a disparity to some extent between private market valuations versus public market valuations even when it comes to assets that have a lot of goods, growth or good quality characteristics related to its as I said before, if and when there are transactions for us to discuss, then we will [indiscernible].

And then just how much of your motivation here on the opportunistic front, it is really because you're seeing more opportunities on the buy side versus the last quarter. I didn't. I didn't, that you say the pipeline and like you said, the last couple of quarters ago.

On general, I'd say that the pipeline hasn't changed that much, It might have improved a little bit just from the potential number of transactions that are out there. It's still little early to say whether that's spreads in the bid-ask between buyers and sellers that's compressed a little bit, I would say that there is probably a few more opportunities that we're seeing in the pipeline, but I wouldn't say that there is a real change there.

Thank you.

The next question comes from Thomas Allen of Morgan Stanley. Please go ahead.

Thank you. So in the fourth quarter, are you feeling any impact from the California wildfires?

Thus far, we've seen no impact, we've had a couple of properties that have lost patent for a couple of hours. And in the current environment, where the fires are particularly it relates to our NAPA assets, we're actually the beneficiaries of some albeit low rated displaced business of and relocation of residents from Sonoma.

Yes. All right. So nothing material to call out for the quarter. And then just as we kind of as I did a quick math, it kind of implies fourth quarter RevPAR guided down to flat is, I mean that's just a simple average is that a fair comment. And is there a way to kind of bifurcate some of the different pieces are affecting it like the holiday shift and anything else to call out? Thank you.

Yes, I mean that, the number is right down to flat as to bifurcating it beyond that. I'm not sure that we can do that, I would say that's it that reflects all of the various factors combined.

Including what I mentioned before, the fact that obviously October is more challenged because of the timing of the Jewish holidays and Atish obviously refer to that as well when he spoke about private preliminary estimate of where we think after we will come in.

I think one of your peers that of the Jewish holiday shift. So they got a 50 basis point impact on the fourth quarter, is that fair estimate. Do you think?

Really hard to say, I don't think we have said, we have a real financing on that right now. So it's certainly there was impactful on the group side, as expected, and that's what cost the whole in October group bookings that we knew was going to be exist.

Okay, thank you.

Our next question comes from Bryan Maher with B. Riley FBR. Please go ahead.

Yes, good afternoon. Marcel, can we drill down a little bit more on your potential acquisition, it sounded like your tone might lead one to believe that there is something in the offing maybe in a few months. And I guess you know hypothetically you may consider dispositions whether [indiscernible] other things it does it rely your hand upon on wanting to do it disposition in order to fund an acquisition in the capital recycle or you had so much availability that it's purely a price flash opportunity acquisition?

Well, we are once again -- I mean, obviously to the extent that or is there anything real to talk about, we would happily do so, but, and this instance, I will tell you that in general, as you know, our philosophy has always been that's transactions, doing transactions is the strength of this company and we been very comfortable doing both acquisitions and dispositions in various parts of the cycle. Our strategy has not -- has not been to necessarily build up a big war chest for the time when potentially there could be a lot of great opportunities out there because see just have it, It's hard to forecasted will absolutely happen. So, in our minds what we're always focused on is how do we create a portfolio that has a better growth profile going forward, how do we create a portfolio that has it overall better quality level that is able to withstand so potential downturns that may or may not be upcoming.So from that perspective, we're always looking, and we're always looking at building a pipeline of potential actionable acquisition opportunities. So I wouldn't say that any of that as necessarily changed over the last few months and as we look at overall capital allocation, we're obviously looking at all the tools that we have available these mentioned the strength of our balance sheet and you mentioned the fact that we have cash on the balance sheet, we have a fully undrawn $500 million line of credit. So I wouldn't, I really wouldn't be necessarily, tying anything together on the acquisition or disposition side, that is really being proactive, potentially on both sides for the extent that we find opportunities to create shareholder value.

Yes, I would just add generally, our view is, and you've seen this in our behavior, I mean we bought and we've sold we're these are difficult things to match fund, so you're -- we're trying to be active on both sides to create value and to move the portfolio and the deals with the acquisitions or dispositions need to stand on their own in terms of the value we believe we can generate. it is necessarily want to another.

Okay. And then maybe a question for Barry or Atish. On Labor costs, are you seeing any moderation on the pressures that most lodging companies have seen over the past few years?

We are definitely not seeing any moderation and certainly. Although we've been able to maintain our total payroll and benefits at about 2% growth year-to-date. I think it's fair to expect that that will not be reduced and would likely increase in 2020.

Okay. Thank you.

The next question comes from Bill Crow of Raymond James. Please go ahead.

Great, thanks, good afternoon. Marcel ,let me question on the, on the acquisition front. Because it seems like we've seen no change in cap rates are more acquisition yields, but the risk seems to have gone out on up a little bit based on the economic outlook. So, why are we not at a point where the uncertainties how the opportunity to at least basis or at least until cap rates were to move to kind of offset that?

No, it's a good, good question, Bill. In general, I think again, it's one of these things where it's kind of hard to talk about in abstracts and hard to talk to general, about what's out there in the landscape, I think you to your point, you've seen some transactions happening recently that have been still a pretty, pretty robust multiples and a very low cap rate. So, there clearly is a view and those type of transactions that the long-term benefits and long-term upside in some of the transactions are outweighing maybe a shorter-term risk that exist in those, in those potential transactions.So to the extent that we would be and then the weight of we're underwriting deals is obviously we're looking at, at both, we're looking at short term risk, and we're also looking at what is an asset, going to do to longer term, and what kind of value kind of drive for you in the portfolio. I think that's, it's probably a little too early to say. Are we seeing an impact on cap rates, or will we start seeing an impact on cap rates from maybe a little bit more uncertainty that's in the market. I think in general, there has been a fair amount of uncertainty in the market. And I think there still has been enough capital that has been has remained interested in transactions to still create a pretty robust transaction market out there. And we've talked about this before, I mean, overall the financing market remains very robust. So you're not seeing a lot of sellers that fuel like they need to just sell and really start driving up cap rates as a result of that because there is that alternative just being able to finance assets very, very attractively at very low rates and pretty good proceeds.

All right, thanks Barry. On Waldorf in Buckhead [ph] was remind me if there was any performance guarantee or key money or anything that provided to help you get through this transition period?

We did not disclose anything in that, in that regard [indiscernible] any of our historic transactions. Our interest with them are very clearly aligned to try to drive performance from the asset. But there is no, there is no, there is no, there is no income guarantee in place of that property.

All right. And then lastly, Atish, you mentioned that 50% of 2020 group business was definite, how does that compare to a year ago or two years what's where should you be at this point in the year?

Yes, it's about the same, Bill, it's generally consistent and that's, that's where we should be, that's where we think is appropriate. We're still booking quite a bit of business between now and year-end. So we'll start the year with close to two thirds of our group business on the books. So from that perspective where we're tracking, well, again, it's 35% of the business overall that's group. So there is obviously a lot of uncertainty in the remainder of the business, but at least from where we sit today, we are able to book in roughly at similar levels versus last year and year two.

That's it from me. Thanks.

Thank you.

The next question comes from Dori Kesten of Wells Fargo. Please go ahead.

Thanks. When you guys think of renovations in 2019 and 2020, would you expect them to serve as a net headwind or tailwind for RevPAR next year?

This year, obviously our renovation fact significantly below where we were last year and we've talked about last year being closer to about 100 basis points, and this year being at about 20 basis points. We, we don't have a large number of projects that are upcoming next year, but we do have two very significant renovation that we're doing at Aviara, that you're well aware of and then we have a rooms renovation scheduled at Marriott Woodlands and a couple of the other things Barry had spoken about. So, it's a little early to put a real number to that we're really in the early process as Atish referred to of reviewing budgets, we're trying to, as we always do, we'll limit the disruption as much as possible. Clearly, Aviara is a property where we will see a good amount of disruption. But on the other hand, it's also performing obviously at a level where we think there is very significant growth that should be coming out of it after we do some of these renovations. So a little early to put a real number to it Dori, but probably a little bit greater than where we are this year and clearly something we'll talk about in the next quarter.

Okay, thanks.

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

Thanks, Andrew. Thanks everyone for joining us today. Especially on a Halloween afternoon, I hope everyone has a -- has a great evening tonight and don't get spooked out to much by what you're hearing any calls over the next few weeks. And we also look forward to seeing most of you at the NAREIT Conference here in about 10 days. So thanks again, and we'll speak to everyone certainly next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.