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01/10 16:01
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents mixed signals. While there are positive aspects like improved employee turnover, reduced capital expenditures, and successful asset sales, the RevPAR decline and modest financial guidance are concerning. The Q&A section highlights stabilization in leisure demand and optimism for future events, but also notes pressures from government demand and unclear management responses. These factors suggest a balanced outlook, resulting in a neutral sentiment.
Same-store RevPAR Declined 3.7% year-over-year, driven primarily by a 3.4% decline in average daily rate as occupancy remained essentially flat. The decline was due to reductions in inbound international travel and government demand, resulting in a shift in room night mix to lower-rated segments.
Non-rooms revenue Increased 5.6% in the third quarter and has grown 4.3% year-to-date. Growth was driven by food and beverage sales, resort and amenity fees, and parking charges, supported by recent capital investments like the renovation of the Oceanside Fort Lauderdale Beach Hotel.
Operating expenses Increased only 1.8% year-over-year in the third quarter, or approximately 2% on a per-occupied room basis. Year-to-date, operating expenses have increased a modest 1.6% on relatively flat occupancy, mitigating EBITDA losses. Effective expense management, particularly related to labor costs, contributed to this modest increase.
Adjusted EBITDA $39.3 million for the third quarter, benefiting from lower interest expense and a lower share count due to accretive share repurchases in the second quarter.
Adjusted FFO $21.3 million or $0.17 per share for the third quarter, also benefiting from lower interest expense and a reduced share count.
RevPAR index Increased 140 basis points year-over-year to 116%, reflecting solid gains in both occupancy and average daily rate.
Food and beverage revenue Increased 5.9% year-over-year in the third quarter, driven by initiatives like re-concepted bar and restaurant offerings, a pay-for-breakfast program, and other efforts to boost breakfast and beverage sales.
Other non-rooms revenue Increased 5.5% year-over-year in the third quarter, driven by growth in resort and amenity fees as well as parking income.
Hourly wages (excluding contract labor) Increased 2% compared to the third quarter of 2024. Contract labor costs declined by 8% nominally, representing 10% of total labor costs, with opportunities for further improvement due to a softening labor market.
Employee turnover rates Declined 40% from peak COVID-era levels, resulting in improved productivity, reduced training costs, and greater guest satisfaction.
Capital expenditures $56 million invested year-to-date on a consolidated basis and $49 million on a pro rata basis. Over the past 3 years, $260 million has been invested in capital expenditures to maintain a best-in-class portfolio.
Asset sales Generated $39 million in gross proceeds from the sale of 2 noncore hotels in the third quarter, reflecting a blended yield of 4.3% based on trailing 12-month net operating income. Since May 2023, 12 noncore hotels have been sold, generating over $185 million in gross proceeds and eliminating nearly $60 million in capital expenditure requirements.
Non-rooms revenue growth: Increased 5.6% in the third quarter and has grown 4.3% year-to-date, driven by food and beverage sales, resort and amenity fees, and parking charges.
Renovation impact: Recent capital investments, such as the renovation of the Oceanside Fort Lauderdale Beach Hotel, are expected to continue driving non-rooms revenue growth.
Market share performance: RevPAR index increased 140 basis points year-over-year to 116%, reflecting gains in occupancy and average daily rate.
Geographic performance: Strong performance in Chicago, Orlando, and Nashville markets, with Chicago benefiting from conventions and special events, Orlando from leisure demand and theme parks, and Nashville from renewed revenue strategies.
Expense management: Operating expenses increased only 1.8% year-over-year in Q3, with a focus on managing wages, reducing contract labor, and improving employee retention.
Labor cost control: Hourly wages increased 2%, contract labor declined 8%, and turnover rates dropped 40% from peak COVID levels.
Asset sales and acquisitions: Sold 12 noncore hotels since May 2023 for $185 million, reducing capital expenditure requirements by $60 million. Acquired 4 hotels for $140 million with higher RevPAR and NOI yield.
Capital recycling strategy: Enhanced portfolio quality and growth potential while reducing leverage and funding share repurchases.
Government and International Inbound Travel: Significant year-over-year reductions in government and international inbound travel, collectively accounting for 15% of occupied room nights, have driven nearly 50% of the year-over-year RevPAR decline. The recent government shutdown has further exacerbated the pullback in government demand.
Room Night Mix: Shift to lower-rated demand segments due to reduced government and international travel has led to a 3.4% decline in average daily rate, impacting overall revenue.
Hurricane Activity: Hurricane activity in 2024 created comparison headwinds, particularly in Houston, where RevPAR declined 17%, reducing overall third-quarter RevPAR growth by 50 basis points.
Macroeconomic Volatility: Increased price sensitivity and macroeconomic volatility are negatively affecting near-term results, with RevPAR expected to decline by 2% to 2.5% in the fourth quarter.
Labor Costs and Retention: While labor costs have been managed effectively, reliance on contract labor and employee retention remain challenges, though improvements have been noted.
Debt and Interest Rates: The company faces ongoing challenges related to debt management and interest rate exposure, despite recent refinancing efforts to extend maturities and reduce borrowing costs.
Special Event Comparisons: Difficult comparisons to special events in 2024 are creating headwinds for fourth-quarter performance.
Supply Chain and Renovation Costs: Ongoing capital expenditures and renovation projects, while necessary, represent a financial burden and potential risk to operational results.
Sequential improvement in operating trends: The company expects sequential improvement in operating trends for the fourth quarter of 2025 compared to the second and third quarters. This is attributed to stronger business transient trends and midweek RevPAR growth, particularly in key urban markets.
Fourth quarter RevPAR expectations: RevPAR for the fourth quarter is expected to decline between 2% and 2.5% year-over-year, resulting in a full-year RevPAR decline of between 2.25% and 2.5%.
Impact of U.S. government shutdown: The company notes uncertainty created by the U.S. government shutdown, which could disrupt lodging demand and air travel. However, the resolution of the shutdown is expected to provide a more stable foundation for 2026.
2026 favorable setup: The company anticipates a more favorable setup for 2026 due to low industry expectations, easier year-over-year comparisons for government travel after March 1, and the 2026 World Cup, which is expected to create robust demand in key markets.
Constrained hotel supply growth: The company expects constrained hotel supply growth to persist due to elevated construction and financing costs, supporting healthy future supply-demand dynamics.
Orlando market outlook: The Orlando market is expected to perform strongly in 2026, supported by robust leisure demand, a healthy balance of leisure and group demand, and the opening of Universal's Epic Universe Park.
San Francisco market trends: San Francisco is expected to see continued improvement in convention trends, a gradual return of business travel, and event-driven leisure demand into the fourth quarter and beyond.
Nashville market performance: Nashville hotels are expected to continue benefiting from renewed revenue strategies, with strong ADR growth and positive momentum.
Capital expenditure plans: The company plans to invest $60 million to $65 million in capital expenditures for the full year 2025 on a pro rata basis.
Debt refinancing and liquidity: The company has refinanced its $396 million GIC joint venture term loan, extended maturities, and reduced borrowing costs. It plans to fully draw its $275 million delayed draw term loan in February 2026 to retire $288 million of convertible notes maturing in the first quarter of 2026.
Quarterly Common Dividend: On October 31, 2025, the Board of Directors declared a quarterly common dividend of $0.08 per share, representing a dividend yield of approximately 6% based on the annualized dividend of $0.32 per share. The payout ratio is modest at 38% based on the company's trailing 12-month AFFO.
Share Repurchase Activity: The company executed accretive share repurchase activity in the second quarter of 2025, funded by proceeds from the sale of two hotels. Since May 2023, the company has sold 12 noncore hotels, generating over $185 million in gross proceeds, which have been used to fund share repurchases among other initiatives.
The earnings call presents mixed signals. While there are positive aspects like improved employee turnover, reduced capital expenditures, and successful asset sales, the RevPAR decline and modest financial guidance are concerning. The Q&A section highlights stabilization in leisure demand and optimism for future events, but also notes pressures from government demand and unclear management responses. These factors suggest a balanced outlook, resulting in a neutral sentiment.
The earnings call presents a mixed picture. While there are positive aspects such as increased revenues, reduced labor costs, and stable occupancy, there are also concerns like declining RevPAR and cautious full-year guidance. The Q&A section reveals management's confidence in recovery and expense control, but lacks detailed guidance on asset sales and ADR improvement. The share repurchase program and cost-saving measures are positive, but the lack of strong growth signals tempers enthusiasm. Overall, the sentiment is neutral due to balanced positives and negatives, with no major catalysts for a significant stock price movement.
The earnings call presents mixed signals: strong shareholder return plans with dividends and buybacks, but declining revenue and ADR, and contracting EBITDA margins. The Q&A reveals stabilization in government and international segments, but uncertainties remain, especially with management's vague responses on expense management. Overall, the positive impact of shareholder returns and liquidity is offset by revenue declines and lack of clear future guidance, leading to a neutral outlook.
The earnings call summary reveals several negative factors: a decline in RevPAR, economic uncertainty, reduced capital expenditure, and high labor costs. The Q&A section indicates stabilization at lower levels for government and international travel, but management's unclear responses on expense relief and mix shift add to concerns. Despite a share repurchase program, the overall sentiment is negative due to weak financial performance, economic uncertainty, and unclear guidance on expense management. These factors suggest a likely negative stock price movement in the near term.
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