Xenia Hotels & Resorts, Inc. Q4 FY2020 Earnings Call

Good day and welcome to the Xenia Hotels and Resorts Fourth Quarter and Full Year 2020 Results Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Cameron Frosch, Senior Analyst, Finance. Please go ahead.

Thank you, Andrew. Good afternoon and welcome to Xenia Hotels and Resorts fourth quarter and full year 2020 earnings call and webcast. I'm here with Marcel Verbaas, our Chairman and Chief Executive Officer; Barry Bloom, our President and Chief Operating Officer; and Atish Shah, our Executive Vice President and Chief Financial Officer.

Thanks, Cameron and good afternoon to all of you joining our call today. Clearly, 2020 was an incredibly challenging year and one that we will not forget anytime soon. As soon as the pandemic began to unfold, lodging demand collapsed. While the lodging industry continues to struggle due to the pandemic, we feel we have weathered the worst of this downturn and we believe that Xenia is well-positioned for future growth. Similar to the third quarter, we saw encouraging levels of leisure travel during the fourth quarter. October occupancy was the high watermark since the beginning of the pandemic, after which we experienced a slight slowdown in November and December as a result of seasonality in demand and more significant restrictions that were enacted as COVID cases increased in many markets. Corporate trends and group demand continue to be limited as it was throughout the upper upscale and luxury segments across the U.S. Our results for the quarter were reflective of the weak overall industry fundamentals. During the quarter, we had net income attributable to common stockholders of $24.3 million which was aided by gains on the dispositions we completed during the quarter. Adjusted EBITDAre was negative $10.1 million and adjusted FFO per share was negative $0.24.

Thank you, Marcel. I will be discussing our property performance for the fourth quarter, our continued success in operating our hotels in this difficult environment and an update on our recent and upcoming capital expenditures. On a same-property basis for the quarter, occupancy was 27.8% and average daily rate was $182.64 resulting in RevPAR of $50.82. This same-property basis includes 34 of the 35 hotels owned as of quarter end which excludes Hyatt Regency Portland. These 34 hotels were fully operational throughout the entire quarter. This reflects a decline in RevPAR of 68.5% as a result of the 45-point decrease in occupancy and a 17.5% decrease in rate compared to the same time last year. RevPAR was down 66.1% in October, 71.6% in November and 68.3% in December. For the following operating metrics I'll be referring to our 34 same-property hotels. These metrics are based on the number of days individual properties were open and operating. Since Q2, near the start of the COVID pandemic when we performed the rigorous hotel-by-hotel analysis and made the hard decision to temporarily suspend operations at the majority of our hotels to year-end, our hotels achieved 28.5% occupancy and an average daily rate of $169.60 resulting in RevPAR of $48.41. While the absolute amounts continue to remain unprecedented, we were pleased overall with our portfolio's performance as our hotels exceeded our anticipated performance levels through the fall and holiday season. October's occupancy was 33.8% and an ADR of $192.82, significantly affected by the 18-day buy-up related to Major League Baseball at Park Hyatt Aviara. As a result, November saw a decline in occupancy to 25.9% and an ADR of $176.71. December occupancy declined over November to 23.7% with a slight decline in rate to $174.37. Strong performance over the holiday weeks was not enough to offset seasonal softness in early December and increased travel restrictions in California and other locations throughout the month. We currently estimate that for the month of January our 34 open and operating hotels will perform in line with our expectations, running approximately 24.5% occupancy and an ADR of $170.41. We expect February to achieve significantly better performance of approximately 33% occupancy with an ADR of approximately $183 reflecting significant leisure demand over the President's Day weekend along with continued improvement across all segments. As we've done over the past few quarters, we want to share with you some of the items we continue to track closely as business and consumer confidence shift from week to week. Overall, we continue to see strong performance in the portfolio from our drive-to-leisure market hotels and our resort hotels. In 17 hotels representing half of the portfolio, we achieved 30% or greater occupancy for the quarter, including six that exceeded 50%. These included properties in Birmingham; Charleston, South Carolina; Key West; Alexandria; and both of our hotels in Savannah. As I mentioned, our California hotels were impacted during the quarter as curfews, travel advisories, quarantines and stay-at-home orders impacted our various markets from late November through late January. As mentioned last quarter, our customer mix continues to evolve. Despite, in many cases as the result of the Q4 challenges in California, there is now little doubt that there continues to be pent-up leisure demand that we saw in the fall and that we expect to continue on an ongoing basis as vaccination availability continues to increase. All of our hotels, especially boutique hotels and resorts, became experts in creative uses of social media platforms. One of the ways we track this is by looking at our hotel's collective Instagram followers, which were up 32% over the past year. Booking windows for the leisure segment, particularly in our larger properties, started to expand from March and April, as consumers are learning that booking early ensures them a room at the most desirable hotels in a given market. We expect this trend to continue and when combined with the component of business that has a very short booking window, will afford many of our hotels the opportunity to yield higher rates on later booking business. We expect March occupancy in our three largest resorts to collectively grow at least 10 occupancy points over February levels with strong increases in ADR as well. On the corporate transient side, we continue to see improvement in volume, particularly from regional firms where employees have returned to their offices and are excited about being back on the road calling on customers. However, the length of stay in this segment is extended due in part to corporate travelers combining business and leisure trips. Our portfolio, given its significant Sunbelt orientation, has certainly been aided by this phenomenon. On the group side, our hotels continue to enjoy business in 2021 from professional sports teams, including NHL, NBA, MLS and LPGA-related business, reflecting a continuation of our significant success in the fourth quarter with MLB, NFL and PGA Tour-led business. Our hotels are hosting smaller association and corporate meetings on a regular basis and we are building significantly more business for the second half of 2021 and for 2022. We're pleased to note that since the end of Q3 2020, our group nights on the books for the second half of 2021 have increased by approximately 35%. Our team hopes that the end of cancellations outnumbering new bookings. We continue to see group demand from youth dance, pageants and sporting events and we are fortunate to have a portfolio which is not overly reliant on citywide conventions, due to our specific locations and markets. Wedding and social business continues to be strong in our boutique hotels and resorts, as many events originally scheduled for 2020 are now taking place albeit with fewer attendees. Our hotels and their sales teams have all the tools in place to aggressively pursue and capture this business, which often has a virtual component in addition to the in-person event. Our outdoor venues with a total of over 400,000 square feet across our three resorts in Orlando, Scottsdale and San Diego are seeing unprecedented demand as are our unique rooftop and other outdoor spaces across the portfolio. About 90% of our properties are equipped with food and beverage and event space, all of which is being utilized at unprecedented levels. As we and our management companies continue operating in this new environment, we're refining the balance between services offered and cost structure. These efforts have supported and continue expanding our EBITDA profile with 13 of our hotels, representing over one-third of our portfolio, generating positive hotel EBITDA for the quarter. This largely tracks to the higher occupancy hotels that I referenced earlier and includes hotels in Birmingham, Key West, Charleston, South Carolina and both our hotels in Savannah from our high occupancy list, as well as hotels in San Diego, Houston, Atlanta, Phoenix, Orlando, Napa, Salt Lake City and Santa Barbara. I would now like to turn to a review of our capital projects completed last year. In 2020, we spent $69 million on capital projects, including $11 million in the fourth quarter. Our largest project, the transformation of Park Hyatt Aviara, we have completed virtually all of this transformational renovation. As a reminder, we reopened the resort on September 30. During the fourth quarter, we completed the renovation and additions to the pool area and water amenities including the addition of dueling water slides and an innovative splash pad, as well as the creation of six freestanding cabanas. The existing specialty restaurant, formerly a dinner-only outlet, was transformed into a new three-meal dining concept featuring Baja California-inspired cuisine, while the existing breakfast-only outlet was turned into a highly functional meeting space. The renovation of the golf clubhouse including a new restaurant concept is on track to be completed later this month. As mentioned last quarter, we're excited that Richard Blais, a renowned celebrity chef and former Top Chef: All-Stars winner with a strong San Diego and national presence, is spearheading this innovative outlet named Ember & Rye. The effectiveness of the design, quality of construction, and the new flow throughout the resort each exceeded our expectations and we continue to believe that it's extremely well-positioned to capture precisely the type and quality of business for which it has been created and which we envisioned when we acquired it at the end of 2018. Equally important, we completed the project within budget. The total had a cost of approximately $51 million. Receptions from leisure guests and response to the meeting planning community will continue to be outstanding. Each of these audiences has been accepting of the new revenue structure we have put in place. The increased rates we are achieving better reflect the resort's five-star and five-diamond status, outstanding level of service and the transformed physical environment that is now comparable to the best resorts along the California coast. In the second half of the year, we completed the guest room renovation of Marriott Woodlands Waterway Hotel & Convention Center and the renovation of the existing ballroom and meeting space at Hyatt Regency Grand Cypress. In 2021, we currently estimate spending approximately $40 million on capital expenditures. Several of these projects were originally scheduled for 2020 and were deferred. We now intend to move forward with them in the second and third quarters given the strong return profiles. These include the development of the Regency Court, a new outdoor social venue at Hyatt Regency Scottsdale, and a restaurant and lobby renovation at Ritz-Carlton Pentagon City. We expect to renovate and reposition the restaurant lobby at Waldorf Astoria Atlanta Buckhead in the fourth quarter. In addition, planning work is under way on three significant rooms renovations and one significant resort pool area renovation, which could begin as early as the fourth quarter, depending on business conditions. Our in-house project management team continues to oversee the design, planning, and construction of these projects. In addition, we plan to continue ongoing building systems and infrastructure work, accomplishing significant projects across 15 properties in 2021. With that, I will turn the call over to Atish.

Thank you, Barry. I will cover three topics today. First, I'll provide an update on our liquidity and balance sheet. Second, I will discuss our monthly cash burn. And lastly, I'll provide some thoughts on our business outlook as we look forward. Starting with our liquidity and balance sheet. Having balance sheet strength has always been a key focus for the company. Through the variety of actions we undertook last year, we further enhanced our balance sheet. As mentioned before, we have no near-term debt maturities. We diversified the balance sheet by adding high-yield debt to our mix. Now we have this tool available as another source of debt capital for future growth. Having amended our corporate credit agreements three times over the last year, we enhanced our relationships with existing lenders. We are confident in our ability to work with them going forward. We have approximately $710 million of current liquidity, which represents years of runway at current business levels. Turning to my next topic, our monthly cash burn. During the fourth quarter, our average monthly cash burn was lower than expected. Recall that our expectations for average monthly cash burn was in the $13.5 million range at the end of October when we reported the third-quarter earnings. We estimate that our fourth quarter average monthly cash burn was approximately $9.5 million, inclusive of debt service and cash G&A expense. Turning down a bit, we estimate that our average monthly cash burn at the hotel level was approximately $2 million in the fourth quarter. These cash burn figures exclude capital expenditures. In addition, these figures reflect formalizing the timing of certain expenses. We estimate that the forward dispositions reduced our cash burn by several million dollars during the fourth quarter. A portion of that reduction reflects our estimate of what hotel-level cash burn would have been had we not sold those properties in the third quarter. And a portion reflects lower debt service as a result of using sales proceeds to pay down debt. Looking ahead, we expect the first quarter average monthly cash burn to be higher than it was in the fourth quarter. We expect a greater hotel EBITDA loss in the first quarter as compared to the fourth quarter. This is due to restrictions on activity in certain states during the winter, as well as lower levels of leisure demand during the first half of the first quarter. By the second quarter, we expect cash burn to moderate. With 34 of our 35 properties open and operating, we are poised to capture demand as it increases. As for the 35th hotel, Hyatt Regency Portland, it's expected to recommence operations in the second quarter. The exact timing is subject to our assessment of whether we are economically better off by resuming operations. Moving ahead to my final topic, I would like to offer some thoughts on the year ahead. We are increasingly optimistic about the second half of the year, based on the rollout of the vaccines and the continued downward trend in COVID cases. We expect more business-resume activity. We expect portfolio hotel EBITDA to be positive by mid-year. There may be months in which we have positive hotel EBITDA prior to then as we did in October of 2020, but I think it will likely take until mid-year to be more consistently positive in terms of monthly portfolio hotel EBITDA. We expect our corporate profit measures to follow. And as such, we expect that the portfolio would be positive by the third quarter. We did not provide earnings guidance in our release issued this morning, but expect to provide it once we have more clarity on fundamentals and trends within the industry. We did, however, provide guidance on certain corporate expenses that are more within our control. I will now discuss each of these three items. First, as to cash G&A expense, recall that during 2020, we reduced this expense by about 25% from what we had anticipated at the beginning of the year. For 2021, we expect to keep it approximately in line with 2020 levels. We are forecasting approximately $19 million. Second, we expect cash interest expense to be approximately $68 million. This estimate is a step up from last year reflecting the debt issuance. As for capital expenditures, we have already discussed the $40 million of anticipated projects. We expect one-quarter of this spend to be in the first half and three-quarters to be in the back half of the year. Both the outlay and the timing could change based on market conditions, meaning we could advance or push projects. In closing, over the last 12 months, we preserved value, enhanced liquidity, and positioned the company for the future. We remain focused on creating value over the long term. With that, we will turn the call back over to Andrew for our Q&A session.

We will now begin the question-and-answer session. The first question comes from David Katz with Jefferies. Please go ahead.

Hi. Good afternoon, everyone. Thanks for all of your detail. We appreciate it. Look, what I would like to do — we are a bit on in this earnings cycle, and we've heard so much positive commentary around the back half of this year and the optimism for it, as well as next year. We'd like to try and put it in context and be balanced about it. Can you just put a little bit more substance or detail around the back half of this year and early next year in terms of bookings and how we might evaluate their sincerity as best we can today?

Sure David. So, one of the things that gives us a good bit of optimism actually for the back half in terms of group is what we're seeing on the rate side. In fact, sitting here today, our group rate on the books for the back half of 2021 is actually higher than it was for 2019. So I think in light of what we've been through, we view that as a pretty remarkable statistic. And what I can tell you is that as new bookings are being made, we're not seeing the ultra-competitive price environment that you might have thought we would see given that groups have a lot of options and a lot of hotels with availability for them. I think part of that is that the groups that are booking right now are a lot of re-bookings. It's groups that maybe didn't move right away but now know they want it. They canceled their program, now they know they want to have it. So they've chosen their hotel and they want to rebook at that hotel. And we're also seeing a lot of groups that I think are getting a lot of confidence around just where they want to be. As opposed to a market like Orlando where historically a group might have come and looked at four or five or half a dozen hotels, we're seeing them look at a couple of hotels and I think that's certainly changed the rate profile. From an absolute standpoint in terms of what's on the books, they're down and they're down fairly significantly. We're looking at group pace versus what we had at the same time last year for 2020. The back half is down around the 40% level, but given our particular portfolio, we do not — the large majority of the group in our portfolio is corporate-driven; it's not citywide-driven and it's not necessarily large association-driven. It's exactly the kind of business that we would expect to book short-term and what we're seeing in terms of how that's grown over time has been significant. I made a comment in the prepared remarks that from the end of Q3 to the end of Q4, we saw back half 2021 bookings increase by 35%. We think that's significant. And we've certainly seen that trend continue in January and February, and hope to report an even stronger profile as it relates to that metric by the end of Q1.

Right. And if I may sort of follow up, I know there's been so much discussion about creating efficiencies and cutting costs. I heard someone adopt the expression recently about a lifestyle change rather than just being on a diet. How confident — Barry, I'm guessing this is right up your alley — are you that a lot of this will be a lifestyle change not just a diet?

I think that's actually a great analogy particularly as we've seen. If you look around, some people reacted well to working from home, some didn't in terms of personal habits. So I think that's a really appropriate analogy. There's no doubt that we will come out of this when we're fully stabilized with a lower expense structure in place. How the cadence to get to that point will work is going to be really interesting. One of the things that we look at every day in the portfolio is what are the full-time equivalents in the hotel? What business are they serving? How is that going to step up month over month as hotels in the portfolio go from 30% to 40% to 50%? In some cases in our portfolio we're now seeing 70%, 80%, 90% at some hotels. Are we able to maintain that level of employment if business does not maintain at those levels? That will create a huge challenge if there are peaks and valleys in how business unfolds. Seasonal softness in some markets may affect timing. I do think a lifestyle change is part of what we've gone through. We have figured out how to combine services in the hotels, have people do more, have working managers rather than just managing managers. We have a tremendous amount of respect and admiration for our managers in the hotels who are working shifts. How long we can perpetuate that, I think, will depend in part on how rapidly business comes back. We feel very good about the expense structure when we come out of this. Both in terms of number of bodies and in terms of what services we're providing. Having said that, we are very focused on making sure that particularly in our upper-upscale and luxury hotels we are providing service that protects the guest experience, because we have a fundamental belief that one of the reasons why many of our hotels are doing well is because we have restaurants open where other hotels may not. That's driving guest business right now. For us that may not be profitable in the traditional sense, but we know that we're driving additional room revenue because we're offering service and amenities that other hotels in our competitive markets may not be.

The next question comes from Michael Bellisario with Baird. Please go ahead.

Good afternoon everyone.

Good afternoon.

Barry, just one more for you on the group front: could you maybe give us a sense of where the bookings are actually occurring and how some of your bigger assets are actually performing? Do you see any differentiation? I know you mentioned Orlando, but how about Houston versus Portland which is still closed, and maybe Santa Clara that's a little bit more impacted from a fundamental perspective. Any other color there would be helpful.

Sure. It's interesting: for the most part if you look at the entire year of 2021, there is not a huge amount of differentiation in the performance among the hotels. Many of them are down relatively the same amounts, and that's true even as we look out into Q3 and Q4. There are a few pockets of hotels that are down a little less but there is not meaningful differentiation among hotels right now. That actually gives us a lot of confidence, because our group portfolio is primarily corporate-driven. So the fact that we're not seeing much differentiation among hotels suggests consistency in demand. What we're seeing in terms of new leads and new bookings from that segment has also been relatively spread evenly through the portfolio. Not case-by-case identical, but consistent in terms of where we are and where we think we're going.

I think that has a little to do with the geography of our portfolio and the exposure that we have to certain markets that are probably not behaving too terribly differently from each other. If we owned a significant number of large group hotels in markets like New York or Chicago — markets that are likely to take longer to stabilize — you would see much more disparity across a portfolio. So I think it has a lot to do with our exposure to markets that are more homogeneous in their recovery patterns.

Got it. That's helpful. And then just one more from me on the capital allocation and capital deployment front. I think you said you hoped to be an acquirer as the cycle progresses. What's your latest thinking on maybe when you'll be able to put money to work? And then how are you thinking about the different sources of capital that are available to you today?

We have a good amount of liquidity available to us today. We're continuously managing to various scenarios and the timing of stabilization. Our immediate focus remains on operations of our hotels — getting to breakeven and hopefully getting cash flow positive as a company sooner rather than later. We have been very active throughout various cycles historically, so we will absolutely look at acquisition opportunities as the next up cycle provides interesting opportunities. There are various levers we can pull to have the liquidity available to be an active buyer. That being said, we highlighted that there don't appear to be a tremendous number of assets on the market that are both a great strategic fit and available at prices we would view as discounted. Pricing for attractive hotels remains pretty aggressive, so there's no need for us to be overly jumpy. We'll continue to build a pipeline coming out of this and feel good about the growth opportunities within assets we've acquired over the last three to four years.

Thank you very much.

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

Thanks. Just following up on the last question. How are you thinking about dispositions right now?

We'll continue to look closely where we think the value for assets is versus where we think long-term growth potential is for a particular asset. We'll remain diligent in evaluating both existing properties and potential additions. When larger CapEx needs are coming up for some assets, we'll consider whether there's a good market to sell an asset as opposed to making an additional investment if the ROI isn't appropriate. We've done a lot of heavy lifting transforming our portfolio and see a lot of growth potential within it. At this point, dispositions will be considered on a case-by-case basis, focused on margin and value creation.

All right. Thanks, Marcel. And then just your commentary around thinking through 2021 and the comments that you're increasingly optimistic about getting to positive EBITDA or positive free cash flow by 3Q — it sounds a little more optimistic than peers who mostly are committed to the second half of 2021 improvement. Was that on purpose? Do you feel like your portfolio is better positioned to turn profitable before peers or other things that drive you to be more optimistic?

It's a good question. To be frank, I don't think we intended to project an overly aggressive stance. We do have some momentum and traction on booking activity. Our portfolio is concentrated in Sunbelt markets that seem to be doing better, and that mix supports our expectations. The momentum and geographic mix underlie our view that we can approach breakeven sooner than some peers. Marcel, do you have anything to add?

I'll add two points and Atish highlighted this as well. We could foresee some months where we hit breakeven prior to a sustained structural recovery — as we did in October. Where we finished the quarter reflected negative hotel EBITDA of less than $3 million for the 34 same-property hotels. We're not tremendously far from a level where breakeven is achievable, and the momentum we have supports the view that as we enter the second half of the year we will have the opportunity to reach that level.

All right. Thank you.

The next question comes from Bryan Maher of B. Riley FBR. Please go ahead.

Good afternoon. Maybe for Marcel and then Barry. You guys have been at this for a long time and I think The Wall Street Journal wrote a piece suggesting a permanent impairment of business travel to the tune of 20% or 30%. What are your thoughts on that? Is that a bit of a stretch? Do you think there's some truth to that? Do you think the Zoom environment is going to reduce business travel by some degree? Can you expand upon that?

I'll start and let Barry add some color. Personally, I think that 20% to 30% permanent impairment sounds excessive. I don't believe there will be a fundamental long-term shift that eliminates business travel. Short term, there are challenges as people get back on the road, but I think many business trips will resume as offices reopen and people return to in-person interaction. Barry often points out that there will be a push to travel again when competitors and customers are meeting in person. There will be some substitutions by virtual meetings, but there are many other factors that could actually increase travel — for example, people relocating and having to travel to an office farther away. There are many ins and outs that are hard to predict today, but I do not believe in a large permanent structural reduction in business travel.

Yes, I agree with Marcel. I think there will be some changes in behavior, but business travel has important in-person components that are hard to replace fully with virtual meetings. We expect a recovery in business travel as confidence returns and as companies restart in-person sales and customer interactions.

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

Thank you. Maybe on the CapEx front: can you expand how you think about spending over the next few years? Have there been significant deferrals and are there a handful of potential ROI opportunities that you're looking at beyond the ones that you've highlighted for 2021?

Last year we came into the year with a budget of about $120 million and cut back to an ultimate spending of $69 million. We had expected 2021 to be a lighter CapEx year knowing the portfolio's shape. The projects I mentioned were either to be executed or in deep planning stages in 2020 for 2021. One of the great benefits of our in-house project management team is our five-year planning process. We're constantly looking at what projects make sense, what we can afford, and expected returns. We were pleased with the portfolio and didn't feel urgency to do a lot of projects in 2021, but there are projects with substantial returns. This year, as part of our planning and strategy, we're doing deep dives on assets that have been in the portfolio longer, looking at physical changes or brand and management changes to materially change assets. Some of those ideas are in the five-year plan; some are not. Those could retrigger investment. Historically we've talked about a normalized run rate on CapEx around the $60 million level, which we believe is appropriate to keep the portfolio in good shape, maintain guest-facing freshness, and do building systems and back-of-house infrastructure work.

One silver lining from the pandemic is that it allowed us to step back and look closely at the entire portfolio to determine appropriate spending over the next few years. That goes to the point Barry made about assets that have been in the portfolio longer and the timing and depth of renovations. Also, the four assets we sold would have required significant CapEx in coming years, so selling them reduces future CapEx needs as well.

On supply growth: the pre-COVID weighted supply for 2020 was 2.7% and it was 3.6% for 2021. Post-COVID at year-end 2020, supply growth came in at about 1.6% and is at 3.2% for 2021. Reasons for the decline include our dispositions which lowered the weighted supply a bit and delays or cancellations of projects. We would expect the 2021 number to continue to come down during the course of the year as projects are pushed out and not much new supply is being added for 2021-2022 and beyond at this date. From a supply growth perspective, we think we're likely in a much better position than a couple of years ago and will reap the benefits over the next several years. This is due to changes in project financing and our shifting portfolio to better markets through our transactions.

Thanks for the color.

The next question comes from Austin Wurschmidt with KeyBanc. Please go ahead.

Hi. Good afternoon, everybody. Marcel, you've referenced the Sunbelt exposure as an outcome of the dispositions you've done and highlighted that some of these markets will ramp quicker than the overall portfolio. When you overlay the market view with the transaction-oriented mindset and diversification, how does that affect your view on how you allocate the next dollars either on the CapEx side or acquisitions for that matter moving forward versus broadening your geographic exposure?

Great question. We will continue to invest primarily in top 25 U.S. lodging markets and key leisure destinations. Our strategy over the past few years produced the current portfolio exposure we have. We will keep an open mind on acquisitions and cast a wider net than some peers. We like the characteristics of markets where we are concentrated — long-term demand characteristics and more benign expense environments. We'll remain opportunistic and focus on the same characteristics we've always liked: not over-reliant on a single demand segment, good leisure exposure and attractive long-term growth dynamics. If there are attractive acquisition opportunities in markets where we don't have exposure, we won't shy away from them. It will be driven by deal supply and pricing, but we'll be opportunistic.

I appreciate that. And then just on the F&B side and the level of spend: as groups rebook and others look to put bookings on the calendar, any change in the F&B spend level or types of items groups are willing to spend on today? Also, specifically on the Hyatt Regency Portland, can you give an idea of what the group bookings or the convention calendar look like in that market given some of the challenges it's facing?

On food and beverage, we're seeing good contributions from groups, but hotels are having to work differently to deliver them. Some groups are willing to do buffets; others prefer plated meals. We're seeing a lot of groups use box lunches for lower-cost, efficient meal solutions. Some groups that historically did cocktail parties are not doing those today. The comeback to historical food and beverage spend will be gradual and varies market by market. In California, for example, many hotels are still not able to do indoor dining which has a big impact on what we can offer groups. Regarding Hyatt Regency Portland, the overall market has a number of citywide events and in the back half of the year the number of definite events on the books is greater than it had been. We're keeping a careful eye on those and their quality. We start seeing real transition into citywide and larger group business around June for the market. That's why we're considering reopening the hotel in Q2 — to position ourselves to capture that demand. The market has a terrific airport and good connectivity, and we think Portland can serve as a lower-cost alternative for West Coast groups that might otherwise go to California.

Great. Appreciate it. Thank you.

The next question comes from Tyler Bator with Janney Capital Markets. Please go ahead.

Hi, good afternoon. This is Jonathan on for Tyler. Thanks for fitting us in. One quick one on international demand. Do you have any sense as to when that demand will return and how much of a headwind is that for markets that are more tilted toward international?

We're pretty fortunate to have a low percentage of international travel in our portfolio overall, given our limited exposure to major gateway cities. We have seen significant international business at the Westin Oaks and The St. Regis in Houston where South American and Central American travelers have returned. When they do travel, Houston is a strong shopping destination and that hotel has done quite well. Other hotels that traditionally had a larger international component are near the San Francisco airport and we're starting to see international flights and international crew business come back. We watch the return of international flights and crew business as a marker for when the international traveler will return to inbound business.

Okay. I appreciate all the details. That's all for me. Thank you.

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, again for joining us on our call today. We are at the end of earnings season, so I appreciate everyone's attention and insightful questions. There is some light at the end of the tunnel with vaccinations increasing and business appears to be slowly rebuilding, particularly on the leisure side. We look forward to updating you again in the quarters ahead. So, thanks again for joining us today.

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