Earnings Call Transcript - HST Q3 2021

Operator, Operator

Good morning and welcome to the Host Hotels and Resorts' Third Quarter 2021 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Jaime Marcus, Senior Vice President of Investor Relations.

Jaime Marcus, Senior Vice President of Investor Relations

Thank you and good morning, everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities laws, as described in our filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed. And we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA RE, and hotel-level results. You can find this information together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release in our 8-K filed with the SEC and in the supplemental financial information on our website at HostHotels.com. On today's call with me will be Jim Risoleo, President and Chief Executive Officer, and Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer. With that, I would like to turn the call over to Jim.

Jim Risoleo, President and Chief Executive Officer

Thank you, Jaime. And thanks to everyone for joining us this morning. Despite the Delta variant, we continued to significantly outperform expectations and meaningfully beat consensus metrics during the third quarter. We delivered Adjusted EBITDA RE of $177 million, which exceeded our interest and capital expenditures by $21 million and adjusted FFO per share of $0.20 during the quarter. In addition to delivering positive metrics each quarter this year, these metrics continued to see meaningful sequential increases over the prior quarter. Proforma total revenues in the third quarter increased 25% sequentially over the second quarter, while proforma hotel-level operating expenses grew only 21%. The increase in revenues was driven by strong leisure demand at resorts and hotels in Sunbelt markets and Hawaii, which led to a $67 million increase in adjusted EBITDA RE in the third quarter compared to the second quarter. RevPAR for the third quarter was strong as volume improvements extended across the portfolio and rates held up in Sunbelt markets. While we saw softer demand in September due to Delta variant concerns, RevPAR for the quarter still improved by 26% compared to the second quarter. Our hotels saw a 49% increase in business transient room nights, and a 72% increase in group volume over the second quarter. Our recent acquisitions all contributed to the outperformance during the third quarter and are exceeding our underwriting expectations. Preliminary October RevPAR is expected to be approximately $143, a $15 increase over September, and the highest RevPAR we have seen this year. We believe RevPAR will dip slightly in November due to seasonality, before coming back in December. While much of the recovery was concentrated at resorts in Sunbelt markets during the first half of the year, our urban markets saw significant RevPAR improvements during the third quarter. At the start of the quarter, our urban and downtown markets had a weekly occupancy of 50%. And by the end of the quarter, these markets were running at nearly 56% occupancy. Quarter-over-quarter RevPAR in our urban and downtown markets grew by 89% to almost $96 driven by both ADR and occupancy improvements. In addition to the sequential improvements in operations, we continue to execute on our three strategic objectives, all of which are aimed at elevating the EBITDA growth profile of our portfolio. Our objectives include redefining the hotel operating model, gaining market share at renovated hotels, and strategically allocating capital. As it relates to the last strategic objective, we made another off-market acquisition during the third quarter, Alila Ventana Big Sur in California. This brings our 2021 year-to-date acquisitions total to $1.2 billion at a blended 13.1 times EBITDA multiple. This is a continuation of our strategy to deploy capital into assets that will elevate the EBITDA growth profile of our portfolio. On the dispositions front subsequent to quarter-end, we sold 5 hotels, totaling 2,323 keys for $551 million, including FF&E reserves at a 14.2 times EBITDA multiple, including forgone CapEx, based on 2018 results. Following this acquisition in our recent dispositions, which I will discuss in a moment, we have $1.7 billion of total available liquidity, including $138 million of FF&E reserves. As a reminder, we have completed 5 off-market hotel acquisitions this year, including the Hyatt Regency Austin, the Four Seasons Orlando at Walt Disney World, Baker's Cay Resort in Key Largo, The Laura Hotel, which was formerly known as the Hotel Alessandra in Houston, and Alila Ventana Big Sur. We also acquired the Royal Kanapali and Kanapali golf courses in Maui. All our recent acquisitions are performing substantially ahead of our underwriting expectations. As of September the updated 2021 forecasted EBITDA at Hyatt Regency Austin is $3.4 million higher than the full-year 2021 EBITDA that was estimated at underwriting. The Four Seasons Resort Orlando is $17.4 million higher, Baker's Cay Resort is $2.9 million higher, and the golf courses are $3 million higher. In addition, we acquired the former Hotel Alessandra, a luxury downtown hotel in Houston's central business district. At the time of acquisition, the hotel was closed and fully unencumbered by brand and management. The property has been rebranded as The Laura Hotel, and it will be operated by HEI Hotels and Resorts as part of the Autograph Collection by Marriott. We have identified a number of opportunities that we believe will increase the EBITDA growth profile of this hotel, including affiliating the property with a major brand reservation system, expanding the FMB outdoor seating capacity, activating the rooftop pool experience, and leasing the ground for retail. The hotel is expected to open in the fourth quarter of 2021. Turning to our most recent transaction, in September, we closed on the off-market acquisition of Alila Ventana Big Sur for $150 million. This ultra-luxury resort is one of the most uniquely located hotels in the United States, and benefits from extremely limited supply and high barriers to entry due to strict land-use regulations by the California Coastal Commission. We purchased the property at a 9.3 times EBITDA multiple on the 2021 forecast. The RevPAR is expected to be $1,320, the TRevPAR is $1,870 and the EBITDA per key is $273,000, based on the 2021 forecast. Their performance ranks first in our 2019 proforma portfolio, RevPAR, and EBITDA per key by a very wide margin. Alila Ventana Big Sur is located on 160 acres of irreplaceable land on the California coast. It benefits from uses of both the ocean and the redwood forest, and is a drive-to destination for some of the country's most affluent areas. The hotel has 59 keys consisting of both rooms and suites and is operated under an all-inclusive model. It offers a luxury spa, 3 pools, a high-end fitness center, 12,000 square feet of event space, and 2 restaurants offering locally sourced foods and a variety of private dining experiences. In addition, the hotel has a number of unique outdoor amenities, including 63 campsites with 15 luxury tubs located within the redwoods, as well as numerous tailored experiences and ventures. I cannot emphasize enough the unique nature of this asset and we are delighted to add it to our portfolio as the 12th Hyatt-branded property, continuing our position as the largest third-party owner of Hyatt Hotels. The hotel is Hyatt-managed under the Alila brand. And since Hyatt's acquisition of Two Roads Hospitality in 2018, the properties have enjoyed increasing market share and a record year of profitability in 2021. The hotels significantly benefit from its high affiliation and World of Hyatt redemption bookings, which contributed a substantial amount of total room nights sold in 2020 and 2021. This demonstrates the growing desire for high-end leisure experiences among World of Hyatt loyalty members. In conjunction with the Operator, we have identified additional opportunities to grow EBITDA at the property, and we have conservatively modeled this asset to stabilize between 8- and 10-times EBITDA in the 2025 to 2027 timeframe. The hotel recently completed a $23 million renovation and repositioning, investing $390,000 per key on the guestrooms, public spaces, pools, camping facilities, and back-of-house areas. We are excited to have an ownership presence in Big Sur, and we believe the iconic and irreplaceable nature of Alila Ventana Big Sur will further strengthen the EBITDA growth profile of our portfolio. As I mentioned, we disposed of 5 hotels totaling 2,323 keys for $551 million, which includes $11 million of FF&E reserves, subsequent to quarter-end. We sold the hotels at a 14.2 times EBITDA multiple, including forgone CapEx based on 2019 results. These 5 assets were sold as a portfolio and included the Westfields Marriott Washington Dulles, the Westin Buckhead Atlanta, The Whitley, the San Ramon Marriott, and The Westin LAX, both on ground leases. The avoided capital expenditures associated with these 5 properties is approximately $122 million over the next 5 years. We are pleased to have this capital to further bolster our EBITDA growth profile as we deploy it into high-growth assets in our existing portfolio or into new acquisitions. In total, we have invested $1.2 billion in early cycle acquisitions year-to-date. The blended EBITDA multiple on our 5 hotel acquisitions this year now stands at 13 times, which compares favorably to the $551 million we disposed of at a 14.2 times EBITDA multiple. Between 2018 and 2021, we acquired $2.8 billion of assets at a 14 times EBITDA multiple and disposed of $4 billion of assets at a 17 times EBITDA multiple, including forgone CapEx. Since 2017, we have dramatically improved the quality of our portfolio, increasing the RevPAR of our assets by 10%, the EBITDA per key by 20%, and the EBITDA margins by 110 basis points based on 2019 pro forma results. As we evaluate capital allocation opportunities going forward, we will continue to focus our efforts on assets with higher expected growth with the objective of elevating our EBITDA growth profile. Moving onto third quarter operations, we saw significant improvements in transient room nights, which were up 18.5% compared to the second quarter. Our hotels in urban and downtown markets saw strong improvements in transient demand compared to last quarter as municipalities relax COVID restrictions. Occupancy in these markets increased by 17.4 percentage points to approximately 50% in the third quarter, along with a 24% ADR growth. In our Sunbelt and Hawaii markets, transient rates remained resilient, up 26% in the third quarter compared to 2019, despite a modest softening of transient demand over the prior quarter due to seasonality. Our hotels saw continued strength in leisure demand during the quarter. Encouragingly, we saw a solid pickup in leisure demand in our urban and downtown hotels. For comparison, over Columbus Day weekend, our urban and downtown hotels achieved approximately 70% occupancy with an ADR of $231 versus 55% occupancy with an ADR of $180 over the July 4th holiday. Special events such as the Boston and Chicago marathons, and the return of Broadway shows in New York, helped drive this demand. Weekend occupancy at our entire portfolio reached 75% in early October, with an ADR of $259 compared to a historical level of 87% and $259 in 2019. Resort revenue increased $43 million over 2019, driven by 39% ADR growth with rates in most of our resorts seeing double-digit percentage increases. We expect strong demand at our resorts to continue through year-end, particularly at our Hawaii hotels after the recent news that the state will welcome non-essential travel back on November 1st. Sourav will get into more detail on our business mix during the third quarter shortly. In addition to our successful capital allocation efforts this year, we remain focused on our three strategic objectives. As a reminder, we are targeting a potential $240 million to $315 million of incremental EBITDA over time on a stabilized annual basis as we execute the initiatives and projects underlying our strategic objectives. This range includes hotel EBITDA of approximately $93 million from our acquisitions year-to-date. First, we expect to generate $100 million to $150 million of potential long-term cost savings over time based on 2019 revenues from redefining our operating model with our managers. We have taken steps toward 50% to 60% of these savings to date. Second, we expect to generate $21 to $35 million of incremental EBITDA over time on a stabilized annual basis from our goal of gaining 3 to 5 points of weighted index growth at the 16 Marriott transformational capital program hotels, and 5 other hotels where major renovations have been recently completed or are underway. Keep in mind that our expectation of a 3-to-5-point gain in market share was a pre-pandemic estimate. As we have been in the unique position of deploying significantly greater capital in 2020 and 2021 than our competitors, we are optimistic that our market share gains could be greater as the property competitive set is either an inferior product due to lack of renovation or there will be meaningful business disruption as hotels are renovated. We expect to complete approximately 85% of the Marriott transformational capital program by year-end, and substantially complete the program by the end of 2022. We expect to invest $1.2 billion in these 21 assets, or approximately $73,000 per key. As of the third quarter, we have invested $834 million in renovations at these hotels. And we do not expect to spend significant capital on these assets in future years. During the third quarter, we completed renovations at the New York Marriott Marquis, which included a complete upgrade of the guestrooms, renovations of over 140,000 square feet of meeting space, the expansion of a Skybridge line with 2 high-definition LED screens, and a re-imagined lobby with new bars and upgraded restaurants. Subsequent to quarter-end, we completed transformational renovations at the Orlando World Center Marriott in Florida, which included the guestrooms, and an updated lobby, restaurants, and bar. These multiyear comprehensive renovations at the 2 largest hotels in our portfolio were part of the Marriott transformational capital program and bring the total number of completed projects in this program to 10 of 16 properties. We avoided significant business disruption by completing these projects during the pandemic. And as a result, they are very well-positioned to capture market share in the recovery. In addition to the Marriott transformational capital program assets, we recently completed extensive guestroom renovations at the Hyatt Regency Coconut Point in Florida. Lastly, we expect to generate $25 million to $35 million of incremental EBITDA over time on a stabilized annual basis from recently completed and ongoing ROI development projects. These projects are at different stages of renovation and development, and stabilization is expected to occur 2 years to 3 years after completion. Some recent examples of our ROI development projects include the Andaz Maui villas, which are targeting 49% occupancy with an ADR over $1,600 for 2021 versus our underwriting at 34% occupancy with an ADR of $1,400. And the 1 Hotel beach club enhancements, which have led to over $2.5 million in incremental revenues with returns exceeding the underwriting. To conclude my remarks, we continue to be very encouraged by the operational recovery we are seeing across the lodging industry. As we move further into the recovery, our capital allocation efforts over the past few years, the improved quality of our assets, and the elevated EBITDA growth profile of our portfolio, should accrue to the benefit of our stockholders. These factors combined with our strong balance sheet, geographic diversity, size, scale, and reputation, leave us very well positioned to capitalize on accelerating demand. With that, I will now turn the call over to Sourav.

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

Thank you, Jim and good morning, everyone. Following Jim's comments, I will go into detail on our third quarter cash flow, operations, expenses, and our top-line outlook for the remainder of the year. As Jim mentioned, we delivered positive adjusted EBITDA, ROE, and FFO during the third quarter. In addition, we achieved an important milestone this quarter with positive cash flow for the first time since the onset of the pandemic. We delivered adjusted EBITDA ROE of $177 million, which exceeded our interest and capital expenditures by $21 million. We continued to benefit from quarterly sequential improvements with 65 hotels achieving positive hotel-level operating profit compared to 53 hotels last quarter. Subsequent to quarter-end, these operational improvements led us to another important milestone of exiting our credit facility covenant waiver period 3 quarters ahead of its expiration and coming into compliance with our bond indenture debt incurrence covenants. This reduces our $2.5 billion credit facility interest rate by 40 basis points and gives us greater balance sheet flexibility. Moving on to top-line performance. While our Sunbelt hotels and our resorts continue to drive results, the third quarter represented the best quarter of the recovery for non-Sunbelt and large group hotels. Multiple hotels achieved positive EBITDA in Chicago, DC, Boston, and San Francisco. And all hotels in Philadelphia and Denver maintained positive RevPAR for the second quarter in a row. Our large group hotels in San Diego, San Antonio, and New Orleans also maintained positive EBITDA in the third quarter. Expanding on Jim's business mix comments, our hotels saw business transient room nights increase 49% over the prior quarter, with a 5% increase in ADR to more than $172. Even more encouraging is that 40% of those room nights came from our urban and downtown hotels, where business transient rooms sold increased 112% over the second quarter. Additionally, we saw increasing activity from traditional top 10 accounts, including a mix of Fortune 500 financial, government, and consulting companies. A positive given the challenges the Delta variant presented during the quarter. On the group front, group revenue showed steady sequential improvement over the prior quarter with a 72% increase in room nights combined with an 11% increase in rate driven by our hotels in San Diego, New York, Boston, San Antonio, Austin, and Chicago. Overall, group room nights in the third quarter were 52% of 2019 levels despite the Delta variant headwinds. We were pleased to see corporate group performed better than expected in the quarter. This segment contributed 43% of total group room nights in the third quarter, which is on par with our pre-pandemic mix. Corporate group rate also expanded to $196 in the third quarter, which is the highest it has been since the first quarter of 2020 and indicates that more traditional groups are coming back. Corporate group also drove significant improvements in banker’s revenue, which was up 100% quarter-over-quarter. Association group room nights of 150,000 were more than triple that of the second quarter, which we view as another positive sign for the return of large traditional groups. Affinity groups, which includes social, military, education, religious, and fraternal organizations have been driving group demand during the pandemic. These groups continue to show sequential quarterly improvement, up 27% over the prior quarter. Looking forward, we currently have over 570,000 definite group room nights on the books for the rest of 2021. And we maintained 1.2 million group room nights on the books for the third and fourth quarters despite concern over the Delta variant. Of those group room nights on the books for the fourth quarter, over 42% of them are booked in San Diego, Boston, Orlando, and Phoenix. Net booking activity in the third quarter for 2022 totaled 180,000 room nights. Our managers remain focused on holding future group rates, thus ADR on the books is slightly higher than the same period in 2019. We now have roughly 2.6 million group room nights on the books in 2022, an 8% increase over the second quarter. For comparison, this represents about 54% of 2019 actual group room nights compared to 50% last quarter. Moving onto expenses, proforma total operating costs rose by 21% during the third quarter, compared to the second quarter, despite a 25% increase in total revenues. Variable expenses were down 40% relative to a total revenue decline of 32% when compared to the third quarter of 2019. Most of this gap is due to the hiring pace lagging demand growth, and we expect this gap to moderate through the fourth quarter as our operators continue to ramp up staffing levels. The number of open positions at our major operators indicates they are at roughly 94% of targeted staffing based on current business volumes. For comparison, our managers have historically operated at 97% of targeted staffing based on historical business volumes. Fixed expenses, including wages and benefits, were 19% lower than the third quarter of 2019, and 16% higher than last quarter. Similar to last quarter, some traditionally fixed expenses like sales and marketing came back as business volumes continued to increase. Combining revenues and expenses this quarter, our expense reduction ratio came in at 0.93, which means that for every 10% decline in hotel revenue compared to proforma third quarter 2019, there was a 9.3% reduction in expenses. As Jim mentioned in the third quarter, proforma total operating expenses were down 30% from the third quarter of 2019 on revenues down 32%. On our last call, we indicated that we were expecting an expense reduction ratio of 0.75 to 0.80 for the second half of this year. The difference between our third quarter results and our forecasts can be attributed fairly evenly to 3 factors: average daily rate came in better than expected, wages and benefits did not ramp up as expected due to hiring challenges in certain markets, and we had unanticipated favorable one-time items on the quarter, including business interruption, insurance proceeds, and property tax savings totaling approximately $10 million. We are expecting an expense reduction ratio of approximately 0.85 for the year, which reflects our expectation of greater driven RevPAR growth and a continued lag in expense growth driven by labor costs. As you may recall, we introduced the expense reduction ratio during the pandemic to measure the change in property level expenses against the change in total revenue. As our revenue declines compared to 2019 decrease in size, one-time expenses have a much bigger impact on the ratio, thus making it less relevant. We therefore expect to revert to pre-pandemic metrics in the coming quarters as operations continue to normalize. Turning to our top-line outlook for the remainder of the year, we're still unable to provide guidance given the continued uncertainties surrounding COVID. That said, we continue to expect sequential quarterly RevPAR improvements driven by rate growth from leisure travelers at our resorts, and we are encouraged by the performance of our urban hotels as demand drivers in those markets continue to recover. We also expect group and business transient to continue improving in our urban and downtown markets as impacts from the Delta variant moderate Company’s return to the office, and traditional groups get back to meeting in person. To conclude, we are very pleased with our achievements during the third quarter, including generating positive adjusted EBITDA RE, FFO, and exiting our credit facility covering the waiver period, 3 quarters ahead of its expiration. We remain very well-positioned to execute on our goal of increasing the EBITDA growth profile and improving the quality of our portfolio, particularly given our strong Balance Sheet, accretive capital recycling, and the strong recovery that is underway. We continue to make significant progress on redefining the operating model with our managers, increasing market share at our renovated asset, and strategically allocating capital. With that, we would be happy to take any questions. To ensure we have time to address questions from as many of you as possible, please limit yourself to one question.

Operator, Operator

Ladies and gentlemen, the floor is now open for questions. Your first question for today is coming from Rich Hightower. Please announce your affiliation, then pose your question.

Rich Hightower, Analyst

Good morning, everyone. This is Rich Hightower from Evercore ISI. Thank you for the detailed statistics provided in the prepared remarks. I would like to know about the progress in the urban and downtown segments of your portfolio. Can you share how things are looking in October and even in November compared to the same period in 2019 regarding rates and occupancy? Do you anticipate that these hotels will be able to close the gap like the leisure and resort segments have? Is it realistic to expect that this gap will be fully closed sometime next year, in 2023? Thank you.

Jim Risoleo, President and Chief Executive Officer

I will start, and then Sourav can chime in. The figure we shared for our October RevPAR is a preliminary portfolio number, and we currently lack detailed data distinguishing performance between urban hotels and Sunbelt leisure hotels. We found that $143 is a strong figure, and we are confident given the business return trajectory observed in the third quarter that we will continue to see growth. There are many positive indicators, particularly regarding urban hotels. The return of leisure business to these properties has been encouraging, especially as amenities like Broadway in New York reopened and events like the Boston Marathon occurred, showcasing solid leisure performance. We are also seeing a significant return of business travel to urban properties, particularly from our traditional accounts, including well-known names in financial services, consulting, defense, and government. We are pleased to see occupancy rise from 50% at the beginning of the quarter to 56% by the end, along with a positive rate increase. With ongoing vaccine rollouts, including recent approvals for adolescents aged 5 and older, we are optimistic that businesses will resume in-person operations. There is clearly pent-up demand among companies to travel and meet face-to-face. This is reflected in the increasing number of visitors to our offices. Sourav, do you have anything else to add at this point?

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. Hey, Rich, I can give us some color at least on the BT front as it relates to October, specifically. We do expect October to be the strongest month for 2021, approximately 6,000 room nights was all we have on the books for BT, and that's a 17% increase over September. If you recall, from the beginning of the year from January through July, we had about on average a 30% sequential improvement in BT room nights every single month. We saw a slight increase from July to August, and then a slight dip from August to September. But now we have picked up and back on the trajectory that we had seen early on in the year. So very encouraged. And as Jim talked about, our overall BT rate is actually up 5% quarter-over-quarter, and that's holding strong. As it relates to 2019, we're about call it around 50% of 2019 levels as we stand right now, and we expect that to continue to improve with every single quarter going forward.

Rich Hightower, Analyst

Perfect. Thank you, guys.

Operator, Operator

Your next question is coming from Smedes Rose. Please announce your affiliation then pose your questions.

Smedes Rose, Analyst

Hi, it's Smedes with Citi. Sourav, you provided a lot of details about labor and cost ratios, which we'll review more closely. I wanted to ask you about the trend in labor costs, especially for hourly workers, and how it relates to your initial cost savings. It seems like labor costs are increasing more than some of those initial targets suggested. I'm curious whether it will take longer to reach your cost-savings goal or if you've managed to offset these costs with other savings.

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

I understand that there may have been some technical issues, but I believe I got your question. Regarding labor costs, starting with the $100 million to $150 million we mentioned earlier, this was our expectation going into 2020 for growth in several Sunbelt markets, which was before the pandemic. During the pandemic, we saw an increase in wage growth in those areas. For our overall portfolio, we anticipate a compound annual growth rate (CAGR) of about 5% to 7% from 2019 to 2022. If we break it down, urban markets, many of which are under collective bargaining agreements, are expected to see a CAGR of approximately 3% to 4% during that period. In contrast, the Sunbelt markets are projected to have a CAGR of about 6% to 8%. Therefore, we expect the overall portfolio's CAGR from 2019 to 2022 to be around 5% to 7%. Regarding the $100 million to $115 million figure, remember that relates to revenues and expenses from 2019. Depending on how swiftly we return to 2019 revenue levels, we can see that benefit reflected in the bottom line. However, any above-inflation growth in wages and benefits may reduce that impact, which will affect margins moving forward. I hope this clarifies your question.

Smedes Rose, Analyst

Thank you.

Operator, Operator

Your next question is coming from Neil Malkin. Please announce your affiliation, then pose your question.

Neil Malkin, Analyst

Good morning, everyone. It's Neil Malkin from Capital One Securities, and it's great to be with you all. You had a fantastic quarter with some impressive announcements. Jim or Sourav, I found it quite noteworthy how you managed to keep your occupancy relatively steady during the third quarter, despite the fluctuations caused by the Delta variant, particularly affecting corporate demand. Could you share how you achieved that? What strategies or unexpected factors contributed to maintaining those occupancy levels, especially considering the decline in the middle of the quarter at a national level? Thank you.

Jim Risoleo, President and Chief Executive Officer

We’re very encouraged by the positive trend we’re observing going forward. One of the most promising indicators for the second half of the year, especially the third and fourth quarters, is that we managed to keep 1.2 million group room nights booked despite the Delta variant. This highlights the significant pent-up demand in the economy; people are eager to travel, meet, and get out again. We did experience a slight pullback due to Delta, like many others, but as the situation began to improve and new cases declined, people resumed traveling. There’s no secret to it. We’ve emphasized before that the quality of our assets is exceptional. Our ongoing investment in our portfolio is expected to provide a genuine competitive edge as business activity resumes. In my earlier remarks, I mentioned our goal of gaining 3 to 5 points in RevPAR yield index, a target set prior to the pandemic while embarking on the Marriott transformational capital program in 2017 and 2018. Now, with a largely refreshed portfolio, having invested $75,000 per key in 21 properties, including 16 Marriotts and five others, we anticipate continued strong performance. I am optimistic that we will achieve more than the initial 3 to 5 points in yield index. This optimism stems from the combined quality and location of our assets, alongside our asset managers and enterprise analytics team, who collaborate closely with top players in the industry, such as Marriott and Hyatt, as well as our independent managers. They are all very strategic about revenue and yield management to attract business while preserving rate integrity. This aspect is crucial as we reopen. Unlike the recovery after the Great Recession, our approach during and after this pandemic has focused on maintaining yield and ADR integrity. We are effectively asset-managing and revenue-managing our hotels to optimize RevPAR, and I expect this trend to continue.

Neil Malkin, Analyst

Thank you and congrats on the quarter.

Jim Risoleo, President and Chief Executive Officer

Thanks, Neil.

Operator, Operator

Your next question is coming from Bill Crow. Please announce your affiliation, then pose your question.

Bill Crow, Analyst

Hey, good morning. Jim, just curious on the group side, I think yesterday Marriott suggested their group revenues on the books for next year are down roughly 20%, and I think you said your pace is down 46%, rate up just a little bit. Is it a locational issue, is it just the big city-wide, or what creates such a big gap between what Marriott was suggesting for their portfolio and you who own a lot of the Marriott group houses?

Jim Risoleo, President and Chief Executive Officer

Bill, I’m not sure if anyone from the Host team or Sourav listened to the Marriott call, so I can’t comment on what they said. However, for 2022, we currently have 54% of our group room nights booked compared to the same time in 2019 for 2020. This is an improvement from 50% at the end of our second-quarter call. While I can’t speak to Marriott’s pace, we are encouraged by this progress. We have approximately 2.6 million group room nights booked. Looking back at the same period, third quarter 2019 versus third quarter 2020, we had 68% of our actuals booked at that time. The key figure to focus on is the drop from 68% to 54%, which is the gap we are working hard to close. Does that address your question, Bill?

Bill Crow, Analyst

Yeah, thank you. If I could just put a little bit finer point on it. How our New York and San Francisco, in particular, stacking up next year, on a group basis? And then maybe, Sourav, if you could just tell us how much cancellation and attrition fee income was included in the third quarter results, that'd be great. Appreciate it.

Jim Risoleo, President and Chief Executive Officer

Well, San Francisco is going to have a challenging 2022. There's no question about it. As we look at convention calendars for next year, San Francisco is very challenged. They're down at the bottom of the pack quite candidly. I think a lot of that has to do with the fact that they were the last major city to open their convention center. I mean, they didn't open their Moscone until September of this year. So San Francisco will recover. It's going to take time for San Francisco to recover. With respect to New York, New York is a tough market if you want to talk about city-wise, because they don't have a lot of city-wise in New York City. And what we're seeing in New York is the return of a lot of affinity groups, a lot of our corporate groups are coming back. And we're very encouraged with what we're seeing in New York, particularly as international inbound comes back into that market. International inbound in New York City accounts for about 12% of our business. So again, as the borders open up and it's early, but we are encouraged with what we're seeing in New York.

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

Hey, before I give you an attrition cancellation number, Bill on the group front, one thing I'll say is we obviously are expecting more in the year for the year bookings in 2022. While yes, pace is lower than what we had in '19 for '20, it's somewhat expected to just given the skittishness in terms of booking, particularly with the blip that we had with Delta, we do believe a lot of those accounts are going to come out in the sidelines and then book in the year for the year. So we expect in the year for the year activity to be much greater than what we had seen back in 2019. And also, since the start of 2021, just to put in perspective, we booked 600,000 room nights for 23 to 25 and that's like a 20% increase since the start of the year. And if you compare that same time period, the 3 years from '19, that was a 23% for future years. So that we're doing really well. It's a matter of 2022, which we feel will do well in the year for the year.

Jim Risoleo, President and Chief Executive Officer

Let me add one more data point for your benefit. As we spent some time looking at citywide for 2022, we found that all citywide markets equate to about 89% of 2019 citywide. Certain markets like Minneapolis, San Antonio, Atlanta, Houston, Chicago, and Boston are expected to outperform, while San Francisco is at the bottom of that list. However, there's a lot of positive news as well, and sitting here today at 89% makes us feel optimistic about how things will develop. Sourav, do you want to address the question about attrition cancellation?

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

Yeah. We recognized $16 million of attrition cancellations for the quarter.

Bill Crow, Analyst

Sixteen, is that what you said?

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

Yeah, one-six, correct?

Bill Crow, Analyst

Yes. Thank you. Thank you both for the time.

Operator, Operator

Your next question is coming from Thomas Allen, please announce your affiliation then pose your question.

Thomas Allen, Analyst

Morgan Stanley. Sir, just thinking about the fourth quarter of the RevPAR trends. You talked about November RevPAR dipping business seasonality than back in December. Can you just help us think about the outlook on versus 2019 level and how you see trends going forward?

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

So October number is down about 34% to 2019. I'll put this in perspective. I think November, sitting here right now, would get somewhere in the neighborhood of down $5 to $7 from October, and then December, close to October RevPAR. That's what we're thinking, as we said as of today, just based on the data that's available.

Thomas Allen, Analyst

Okay. Typically, you haven't provided monthly updates. Does this suggest that compared to 2019, conditions are improving as the year progresses? Additionally, with the borders opening next week for more international visitors, are you experiencing any significant impact on bookings, or is it too soon or difficult to determine? Thank you.

Sourav Ghosh, Executive Vice President, Chief Financial Officer, and Treasurer

We have gotten anecdotal commentary on that, speaking with some of our hotels in New York, as well as San Francisco. I mean, international flight bookings are certainly up 15% since the announcement has taken place. So six weeks out from the time of the announcement, the bookings are up 15%. And specifically for San Francisco, that's up 34%, and that compares to what it was six weeks before that announcement. So it's encouraging from a hotel's perspective in New York; we've definitely seen a transient pickup and we can attribute pretty meaningful percentage to pick up from Europe specifically. But I don't have any hard numbers yet that I can share.

Thomas Allen, Analyst

All right. Helpful. Thank you.

Operator, Operator

Your next question is coming from Dori Kesten. Please announce your affiliation, then pose your question.

Dori Kesten, Analyst

Thanks. Good morning. Wells Fargo. Now that you've exited the covenant waiver period for your credit facility, what barriers exist for returning to paying the common dividend?

Jim Risoleo, President and Chief Executive Officer

Hi Dori. The barrier that exists is our belief that we will see a sustained recovery and put us in a position when we start paying a dividend again, that we can maintain the dividend and increase the dividend on a regular basis. So we view paying dividends as one of the arrows in the equivalent of capital allocation. And we realize that dividends are important to a lot of our shareholders. Our policy prior to the pandemic was to pay out 100% of our taxable income. As agreed, we have to pay out 90%. And as we see how business returns, and as we can wrap our arms around the pace of the recovery, we will take that into consideration as we think about reinstating the dividend.

Dori Kesten, Analyst

Correct. Thank you.

Operator, Operator

Your next question is coming from Anthony Powell. Please announce your affiliation, then pose your question.

Anthony Powell, Analyst

We haven't received any transaction questions yet. The pipeline has been robust this year, and the Big Sur acquisition is promising. What does the pipeline look like moving forward? As you consider future acquisitions, now that you've exited the covenant waiver, how do you evaluate incremental debt equity offerings versus utilizing your cash balance for funding those deals?

Jim Risoleo, President and Chief Executive Officer

The pipeline remains strong. This year, we've focused on off-market transactions, and we're maintaining that focus as competition increases. The debt markets are currently flooded with cash, particularly in the CMBS sector, and many private equity firms have been waiting for those markets to recover. Consequently, we are noticing more competition. We're pleased to have exited the credit waiver amendment three quarters ahead of schedule. Additionally, we faced a debt incurrence test under our bond indenture, which previously restricted us from issuing new debt until we surpassed the 1.5 times interest coverage threshold, which we have now achieved. This increased flexibility should help us in acquisition opportunities. Last year, we encountered several transactions with existing debt that was too expensive to pay off, leading us to pass on those deals. Now that we can acquire assets with such financing, it opens new opportunities for us to consider hotels that are currently encumbered. We are satisfied with our cash position and pleased to have come out of the credit waiver amendments early. Between our cash reserves and the ability to issue new debt, we plan to continue deploying capital into new acquisitions.

Anthony Powell, Analyst

Got it. So the bar is higher for ATM now; is that fair?

Jim Risoleo, President and Chief Executive Officer

I think that's very fair. Yes.

Operator, Operator

Your next question is coming from Chris Woronka. Please announce your affiliation, then pose your question.

Chris Woronka, Analyst

Thanks for all the helpful points, guys. The question is, Jim, you provided a lot of data on your acquisition date and how much they are exceeding initial expectations. I believe that was regarding 2021. Could you discuss if that is correct and whether expectations for future years have also changed? Thank you.

Jim Risoleo, President and Chief Executive Officer

We are currently in the budgeting process, so it's a bit premature to provide specific figures. However, I believe that given the strong foundation from 2021 and the performance of every deal we've acquired this year, 2022 is likely to exceed our underwriting expectations. When we evaluated these acquisitions this year, we were in a period of significant uncertainty regarding the Delta COVID variant and when the nation would manage to control the pandemic. Therefore, we took a conservative approach in our underwriting. Looking ahead to 2023, 2024, and beyond, the financial performance we anticipated from these properties was promising on an IRR basis, prompting us to invest. I expect overall performance to significantly improve. Our capital allocation has been directed towards some of the fastest-growing markets in the country, where there are significant barriers to new supply. For example, acquiring Alila at 9.3 times this year's EBITDA, generating $275,000 per key in EBITDA, shows no signs of a slowdown. Additionally, we're beginning to see the benefits of the 50th anniversary celebration of Walt Disney World, which commenced in October, affecting our Four Seasons Resort. I anticipate strong performance moving forward across all our acquired assets, including our resort portfolio, which now comprises 16 properties, as well as a return to major urban markets, where we've seen positive signs this past quarter.

Chris Woronka, Analyst

Okay. Very good. Thanks, Jim.

Jim Risoleo, President and Chief Executive Officer

Sure.

Operator, Operator

Your next question is coming from Chris Darling. Please announce your affiliation, then pose your question.

Chris Darling, Analyst

Hi. Good morning. I'm with Green Street. Just going back to the Ventana acquisition for a second. You mentioned 8 times to 10 times stabilized EBITDA multiple by about 2025. But given you're acquiring it at just over 9 times multiple, does that imply that this is really the high watermark for the near-term and you might be expecting a dip in performance over the next couple of years? And then also curious if you could comment on the terms of the Hyatt management agreement there?

Jim Risoleo, President and Chief Executive Officer

Regarding the terms of Hyatt's management agreement, we are not able to discuss that at this time. However, I want to highlight that the World of Hyatt is performing exceptionally well in filling Alila Ventana, securing between 65% and 75% of our room nights through World of Hyatt redemptions. As a high redemption hotel, we are achieving the premium rate, which is the highest rate the property charges for its rooms. With 59 rooms, we have the opportunity to effectively manage and optimize the revenue for the rooms not sold through the World of Hyatt redemption program. In terms of our stabilized EBITDA multiple, we provided a range of 8 to 10 times. Is 8 achievable? I believe it is possible, but we are being conservative by suggesting a range of 8 to 10. That is the perspective you should consider.

Chris Darling, Analyst

All right. Thanks.

Operator, Operator

Your next question is coming from Ari Klein. Please announce your affiliation, then pose your question.

Ari Klein, Analyst

Thank you. BMO. Maybe on the disposition, you sold a few post a quarter and, I guess, or importantly, some others that might be on the market. How should we think about asset sales from here? Have you done most of the heavy lifting? Is there anything else that you'd look to sell?

Jim Risoleo, President and Chief Executive Officer

Yes, Ari. It's always beneficial to have real estate news when there's talk of a possible acquisition or sale. I'm pleased to report that for the five-pack we were looking to sell for $500 million, we actually sold it for $551 million. Regarding future asset sales, our capital allocation strategy should focus on one main goal: enhancing the EBITDA growth profile of our portfolio. If we decide to sell additional assets, it will be because we see fair value in those assets relative to our overall valuation, and by selling them, we can reinvest that capital into new acquisitions or into existing assets that are expected to grow faster than the average for the portfolio. So, as you consider this going forward, it's important to remember that everything we do is aimed at improving the EBITDA growth profile of our portfolio.

Ari Klein, Analyst

Got it. Thank you.

Operator, Operator

Ladies and gentlemen, that is all the time we have for questions. I would now like to turn the floor over to Jim for any closing remarks.

Jim Risoleo, President and Chief Executive Officer

Well, thank you, everyone. I'd like to thank you all for joining us on our third quarter call. We appreciate the opportunity to discuss our quarterly results with you, and I look forward to meeting with many of you, unfortunately, virtually, in Nareit next week. We really wanted to have the Nareit meeting in person at the Wind Hotel in Las Vegas, but there wasn't universal support among all the REIT teams to meet in an environment where masks are required and they're still required. So for those of you that I don't meet virtually, enjoy the upcoming holiday season. Be well and stay healthy and we, at Host, thank you for your continued support.

Operator, Operator

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.