Hello and welcome to the Xenia Hotels & Resorts Third Quarter Earnings Conference Call. My name is Quan and I will be coordinating your call today. I will now turn it over to your host, Danielle Burgoon, Vice President of Finance to begin. Danielle, please go ahead.

Thank you, Operator. Good afternoon and welcome to Xenia Hotels & Resorts third quarter 2021 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. Marcel will begin with a discussion of our industry fundamentals, our quarterly performance, and an update on our portfolio strategy. Barry will follow with more details about our operating results, recent operating trends and status of our capital expenditure projects. And Atish will conclude our remarks with an update on our balance sheet. We will then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements and the earnings release that we issued this morning along with the comments on this call are made only as of today, November 2nd, 2021, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of our non-GAAP financial measures to net income and definitions of the certain items referred to in our remarks in this morning's earnings release. The property level information our executive team will be speaking about today is reported on a same-property basis for 34 hotels which excludes the Hyatt Regency Portland. An archive of this call will be available on our website for 90 days. I will now turn it over to Marcel to get started.

Thanks, Danielle, and good afternoon to all of you joining our call today. The U.S. lodging industry continued on its path to recovery in the third quarter as increased COVID vaccinations and continued strong leisure demand drove the highest occupancy the industry has experienced since the beginning of the pandemic. U.S. backlog for the third quarter of 2021 decreased by only 4.8% compared to 2019 comprised of approximately a six point decrease in occupancy and a 3.8% increase in ADR. The luxury and upper upscale segments have lagged lower tier chain scales in terms of the recovery through 2019 occupancy levels and experienced occupancy declines of 19.8 points and 20 points respectively compared to the third quarter of 2019. However luxury ADR increased 15.9% and upper upscale ADR increased 0.4%. The rate increases in the luxury segment have been impressive and positive signs we are referring to see as it relates to business transient and group demand, and certainly give us cause for optimism for a robust recovery in the segments where our portfolio is positioned. Similar to the rest of the lodging industry, our portfolio faced some headwinds as the third quarter progressed, due to a resurgence of COVID cases driven by the Delta variant, a seasonal decline in leisure demand, and a tougher comparison to 2019 in September due to the timing of Jewish holidays. Given this backdrop, we were pleased with the 12% sequential improvement in our same-property RevPAR over the second quarter, especially since the third quarter has historically been our portfolio's softest due to seasonality within our top markets. We were also happy to see the RevPAR declines compared to the same quarter in 2019 continued to moderate and that's despite cancellations that were likely linked to the emergence of the Delta variant. Business transient and group demand appeared to increase as the quarter progressed. This trend thus continued into the early part of the fourth quarter, with weekday demand continuing to strengthen. During the third quarter, we recorded a net loss of $22.2 million. However, adjusted EBITDAre and adjusted FFO per share each remained positive at $35.4 million and $0.13 respectively. Our year-to-date adjusted FFO also turned positive as a result of our third quarter performance. We were particularly encouraged that 33 of our hotels and resorts achieved positive hotel EBITDA during the third quarter. Our same-property portfolio generated a hotel EBITDA margin of 23.8% for the quarter. As a result of the team's focus on cost controls, aided by flow-through from cancellation fees recognized during the quarter, as well as a shift in revenue mix at our properties, which reflects the higher contribution from rooms revenue than historical averages. Our same-property RevPAR for the third quarter was $123.70, which represents a 23.1% decline for the third quarter of 2019 — a substantial improvement from the 64.3% and 38.7% declines in the first and second quarters. Our managers did an excellent job maintaining great operational integrity, which resulted in same-property ADR of $224.54 for the quarter, a 6.5% increase compared to the third quarter of 2019. An impressive 24 of our hotels and resorts achieved ADRs that surpassed those reached during the same quarter in 2019. While the quarter started off strong, demand levels tended to moderate somewhat in mid-August through mid-September. By the second half of August, the Delta variant was driving an increase in COVID cases, particularly in the Sunbelt region where a significant number of our hotels and resorts are located. However, despite group cancellations impacting our portfolio, occupancy for the third quarter finished at 55.1%, a high watermark since the beginning of the pandemic. September ADR was the highest we have achieved this year, with every month in the quarter surpassing the average rates for the same months in 2019. Business transient demand levels began to accelerate this month, as evidenced in our improving weekday occupancies, and these continued to improve during the month of October. Based on preliminary data, our estimated occupancy for October was approximately 58% and ADR was approximately $245. The resulting RevPAR of approximately $143 substantially exceeds our July RevPAR, further highlighting the team's success in capturing transient and leisure demand and improving business demand both on the transient and group side. While October has provided a promising start to the fourth quarter, we believe our portfolio recovery will truly accelerate as business transient and corporate group demand approach normalized levels. While we have seen improvement in these segments, we believe this will be a gradual process, particularly as we enter the seasonally weaker months that lie ahead. The recent resurgence of COVID appears to be behind us at the moment, but we remain cautious about potential future resurgence during the winter, particularly in colder climate areas. However leisure demand does remain strong and has consistently exceeded our expectations over the past several months. We expect this trend to continue as we enter the holiday season. We believe our strategy of owning a geographically diverse portfolio of high quality, luxury, and upper upscale hotels and resorts continues to show its value. This quarter-over-quarter improvement in our portfolio's performance is reflective of the benefits of our longstanding focus on investing in Sunbelt and drive-to leisure locations and the desirability of our hotels and resorts to various demand segments. Our higher concentration of luxury assets, which comprise 30% of our portfolio, has also proven to be helpful, as RevPAR of these properties increased by approximately 30% over the second quarter. Our portfolio was able to maintain healthy margins this quarter and generate positive adjusted FFO each month, as we have been able to do since March of this year. The management teams at our hotels were able to flex operations, aligning quickly with fluctuating demand levels. This quick and nimble response is the result of the lessons learned over the last 18 months as our managers have rebuilt operations from the ground up. It is a testament to the success of our strategy of partnering with best-in-class brands and managers. We can say that we believe there are meaningful business growth opportunities within our portfolio. While we primarily measure our portfolio recovery in comparison to 2019 performance, hotel EBITDA at approximately half of our properties has not yet returned to 2019 levels at this time. As a result, we anticipate incrementally greater growth opportunities in the years ahead for a number of our properties in our top 10 EBITDA producing markets such as Houston and Orlando, as well as in some of our smaller markets. Additionally, we remain optimistic about three previously highlighted properties that still create significant incremental hotel EBITDA over 2019: Park Hyatt Aviara, Hyatt Regency Grand Cypress, and Hyatt Regency Portland. While occupancy at Park Hyatt Aviara continues to build and will not stabilize until group business has returned in a more meaningful way, the resort achieved some remarkable results in several metrics during the third quarter. ADR at $558.30 for the quarter was nearing double what it was in the same period in 2019, driving an almost 30% increase in RevPAR. Additionally, the resort's hotel EBITDA margin was more than 800 basis points higher than the third quarter of 2019. These results gave us great confidence that the expectations we had when we acquired and renovated the resort will be met or exceeded in the years ahead. At Hyatt Regency Grand Cypress, we can see the long-term benefits of the additional ballroom we created at this resort. While group business overall is recovering gradually, 2022 group booking pace at this property remains promising. At the end of the third quarter, Hyatt Regency Grand Cypress ranked number one in our portfolio as it relates to room nights and revenue on the books for 2022, and it is not far behind its group pace for 2019 at the same time. We remain confident that the additional ballroom will deliver the incremental revenue we projected as group business continues its recovery in the quarters and years ahead. Hyatt Regency Portland lagged the rest of our portfolio, as the business environment in Portland and the state of Oregon remains challenged. With this hotel only having been open for a limited period in early 2020, we are truly building the business, as opposed to looking to recover to prior levels. With it expected to be group focused, we're dependent on group business in the state and region recovering before we will approach stabilization. In the meantime, we are pleased the management team has been successful in attracting leisure and business transient demand at levels that continue to support our decision to reopen the hotel at the end of May. We were also encouraged that the hotel is over 50,000 group room nights on the books for 2022, which represents the second highest number of group room nights in our portfolio. While there obviously continues to be some uncertainty about these groups actualizing, these group rates do demonstrate the appeal that the property has to groups and meeting planners alike. I will now turn briefly to the transaction landscape. We have not seen a significant shift over the past few months as it relates to the quantity and quality of acquisition opportunities in the market. I spoke last quarter about our ability and willingness to remain patient as it relates to potential acquisitions, and thus we believe that more and better opportunities are likely to surface as the recovery progresses. We continue to be evaluating a pipeline of potential transactions but will remain disciplined as we analyze and pursue potential additions to the portfolio that could enhance the growth prospects. Meanwhile, we remain focused on internal growth opportunities through asset management optimization and various ROI projects within our existing hotels and resorts which in many cases are still relatively recent additions to our portfolio. Barry will provide additional details on our third quarter performance, recent operating trends and the status of our current capital projects.

Thank you, Marcel and good afternoon to everyone. For the quarter, our portfolio occupancy was 55.1% and average daily rate of $224.54 resulting in RevPAR of $123.70. As a reminder, RevPAR in the third quarter of 2020 was $42.09 and in the third quarter of 2019 was $160.79. The sequential improvement quarter-over-quarter given the headwinds faced over the last few months gives us optimism about the trajectory of our portfolio's recovery. July was a particularly strong month with occupancy reaching 59.1%, a new high for 2021, and an ADR of $224.23, which represented a 9.3% increase to 2019, and benefited from the 4th of July holiday and five weekends, which averaged 72.4% for the month and allowed our hotels to capture additional leisure demand. We had seven hotels that achieved occupancy over 80% during July, primarily hotels in our leisure-focused and drive-to markets such as Charleston, South Carolina; Savannah; Birmingham; Key West; Santa Barbara; and Napa — all of which continue to show substantial strength. We also had 12 hotels that exceeded their July 2019 ADR by over 20%. In August, we began to see some moderation in occupancies during the month due to the seasonal decline for the beginning of the new school year and the spread of the Delta variant across the Sunbelt region. As a result, August occupancy dropped seven points from July to 52.1% and ADR was $218.12. On August 29th, Hurricane Ida made landfall in Louisiana as a Category 4 storm. One of our hotels in the affected area incurred property damage from the storm that we believe will exceed our maximum deductible for this loss, approximately $4 million. In addition to the property damage insurance claim, we're currently evaluating our ability to recover proceeds for loss of profits under relevant policies, which we would expect to settle in 2022. Moving to September, we saw boosts in leisure transient demand over Labor Day weekend, though September was slightly below occupancies reached over Memorial Day weekend. Heading into the quarter, we had anticipated a pickup in business transient and corporate demand following the holiday. While we experienced an increase in weekday occupancy mid-month, it was somewhat muted due to the resurgence of COVID cases and further pushback on return-to-office timelines for many large employers. The month also had a tougher comparison to 2019 because of the timing of the Jewish holidays. September occupancy improved by two percentage points over August to 54.1% and ADR rebounded as well, increasing 6% from August to $231.26. Room cancellations in the quarter, which Marcel mentioned, now are approximately $5.4 million of rooms revenue which have been on the books for the third quarter of 2021, and an additional $7.8 million for the fourth quarter of 2021. We recognized approximately $3.5 million in cancellation and attrition fees during the third quarter. I will discuss 2022 group days in more detail shortly. We saw strong growth across many of the markets in our portfolio in terms of average daily rates. Compared to the third quarter of 2019, we experienced ADR growth in several of our top 10 EBITDA contributing markets including San Diego up 64.2%, Phoenix up 39.9%, Atlanta up 13.8%, Orlando up 10.7% and Houston up 8.3%. During the third quarter, we had an impressive 24 individual hotels and resorts that surpassed ADRs achieved in 2019, including all-time record highs at Andaz Napa and Park Hyatt Aviara Resort and Spa. In terms of profit, 33 of our 35 hotels achieved positive EBITDA for the quarter as 13 properties exceeded results compared to the third quarter of 2019. Nine hotels achieved EBITDA margins greater than 30% for the quarter, and 22 hotels generated EBITDA margins greater than 2019, notwithstanding expected labor costs, real estate taxes and cancellation and attrition income. Departmental expenses declined 31.3% in the third quarter compared to 2019, which handily exceeded the 25.6% decline in revenues, while undistributed expenses, often considered to be largely fixed in nature, declined by 19.7%, led by significant declines in administrative and general and sales and marketing expenses. Total payroll and employee benefits expenses declined by 32.4%. In terms of labor, our hotels saw many positions open due to a shortage of applicants in the market. Some of our operators made significant headway this quarter in filling key property-level management and line operating positions. I want to spend the next few minutes sharing recent operating trends we've witnessed over the past quarter. Weekday occupancies in the third quarter continue to trend upward and exceeded those achieved in the second quarter by approximately 4.7 occupancy points. The most significant gains were achieved on Tuesday nights, indicative of the increase in corporate transient demand. We continue to experience additional gains in weekday occupancy in October. In terms of corporate transient booking trends, we've yet to see a meaningful increase in volumes from Fortune 500 companies. However, there continues to be stronger growth from smaller national corporate accounts as well as local corporate accounts, whose volume is improving each month. Corporate transient business from large volume accounts grew approximately 16% from Q2 to Q3. On our last earnings call, we shared that leisure booking windows had lengthened over the summer months. We're now seeing similar trends shaping up for the last few months of the year and into the upcoming holiday season. This lengthening of the booking window continues to allow our hotels to drive even further rate increases. Now, we saw the tail end of some of the gains in Friday and Saturday occupancies our portfolio experienced in October, including achieving two of our five highest occupancy nights this year as leisure demand remains healthy and stronger than we had anticipated heading into the fall. As a reminder, approximately 30% of historical rooms revenue was driven by group business, which encompasses corporate, association and social groups. In the third quarter, group represented approximately 20% of rooms revenue. Group pace for the remainder of 2021 was negatively impacted by a significant number of cancellations from the resurgence of COVID cases in August. At the end of September, group revenue pace for 2022 was down approximately 31% compared to our position at the end of September 2018 to 2019, with rate up approximately 3%. Group revenue on the books for 2022 continues to increase steadily and was up 27% at the end of September in comparison to where we stood at the end of June, with most of the increases falling into the second and third quarters of 2022. I will end my remarks today with a few updates on capital projects in progress for the year. In the third quarter, we spent $7.3 million. We continue to estimate spending approximately $40 million on capital expenditures for the full year. Restaurant and lobby renovation at the Ritz-Carlton Pentagon City was completed in October. This restaurant has been well received and we're pleased with how the look and feel of the restaurant and lobby integrates with the meeting space we renovated last year. We believe these improvements will position the hotel for continued success. The development of the Regency Court, a new outdoor social venue at our Hyatt Regency Scottsdale Resort & Spa, was delayed primarily due to weather-related issues. It was expected to be completed in mid-November. This significant increase in the hotel's outdoor meeting space has already generated considerable interest for incremental social and corporate events. The restaurant, lobby and guestroom renovations at Waldorf Astoria Atlanta Buckhead are nearly underway and are expected to be completed in the first quarter of 2022. We believe this comprehensive renovation will secure the property's position as a preeminent luxury hotel in the Buckhead market. Last quarter, we announced plans for comprehensive renovations for Grand Bohemian Hotel Orlando and the Kimpton Canary Hotel Santa Barbara, both of which will encompass renovations of each hotel's guest rooms, restaurant and bar, lobby, rooftop pool area, and meeting space. We are pleased that the early design efforts in these projects, which will create a lighter and more contemporary look and feel for each property, have progressed. Work on these two projects is expected to begin in the first quarter of 2022, with estimated completion dates in the first quarter of 2023. These projects are being completed in phases to minimize guest experience disruption and financial impact. With that, I will turn the call over to Atish.

Thank you, Barry. I will provide an update on our balance sheet. Our balance sheet continues to be strong with no debt maturities until 2024, over $1 billion in liquidity and strong banking relationships. We are in a good position to take advantage of opportunities. We continue to believe that our business will be cash flow or FFO positive going forward. And as we look ahead, we expect our properties will continue to pivot to capture what demand is present with a focus on controlling expenses. As we look farther out, we believe our assets are well-positioned as the rate of new supply growth declines. Properties in markets such as Houston, Orlando, and Atlanta are expected to see lower levels of new competitive supply growth. Our portfolio consists of well-located higher-end properties that we expect to continue to recover well, particularly as corporate transient and group demand recovers. And with that, we will turn the call back over to Quan for a Q&A session.

We will now open the call for Q&A. If you would like to ask a question, please press the star key followed by the number one on your telephone keypad. Our first question comes from David Katz from Jefferies. Please David, your line is now open.

Hi everyone, good afternoon and thanks for taking my question and for all the information. Earlier on, Marcel, you indicated that there is a pipeline of opportunities out there and to the degree you can, I'd love to just have you elaborate on that a little bit. The focus on the Sunbelt area has been pretty productive so far and fortuitous; any geographic or size or cap rates perspectives would be helpful on what might work in this environment?

Yes. Good afternoon, David. Like I said, our situation as it relates to our pipeline today is probably not too different from what we saw last quarter as I mentioned in my remarks as well. So we're looking at a number of opportunities and we've certainly underwritten a good number of opportunities here in the last quarter or so. But we really feel like the pipeline is still relatively limited compared to where we think it will be in the quarters and years ahead. So I mentioned last quarter that we felt that expectations that sellers had on some of these assets were still a little bit beyond where we were comfortable stretching to get deals done, and we didn't really feel the need to go that far, particularly given the internal opportunities that we still have in our portfolio with some of the assets that we bought coming into this. So I'm not sure that I can give you a whole lot more color than that, except for to say that we can see and underwrite assets, but haven't really found the type of deal or asset that we think is a great strategic fit for us at a price that we're comfortable transacting. And yes, to your point, as far as it relates to our focus, we can look at what works well for us. Obviously, we have a pretty significant Sunbelt presence and there are markets where we aren't in yet but we'd like to get in over time. Timing has to be right and the asset has to be right to get into those markets. There are certain markets where we have some presence where we wouldn't mind either upgrading our presence over time or increasing our footprint a little bit. So largely, we're going to pursue acquisitions that fit our strategy that you've seen from us over the past few years.

All right. And if I can appreciate that, if I could follow that up — are there areas somewhere on the board now, I guess, I can't imagine you might name them in this forum. But areas where you would consider lightening up, where you may be a little heavier?

Not particularly. As you know, we've always been pretty careful about not getting overexposed in any particular market, which has set us apart a little bit from where our peers were over the last few years when some went heavily into certain markets. Our philosophy has always been to be a little bit more diverse in the markets that we play in. Historically at a top level we were comfortable being in a market with somewhere in the 10% range. We're a little higher in a couple markets just because of some dispositions we've done over the past few years, but we think that will balance out again over time. So there's no particular market where at this point we'd like to lighten our load. We're pretty comfortable with where the portfolio stands right now. As you know, we'll always continue to look for opportunities to strengthen and upgrade the portfolio over time. Particularly when there are significant CapEx decisions coming up on some assets, we'll do a very in-depth, wholesale analysis to see if it makes sense to potentially sell an asset or two. But we fine-tune the portfolio well. So we're happy with where we stand. And certainly you could expect us to — on the margin — sell some assets over time. But our short- and medium-term focus is more on the acquisition side.

That's perfect. And if I may ask one additional question, which is about labor and the cost thereof. I think there's little disagreement that it is an issue. I think where there's more debate is how long it lasts. I would welcome your opinion on that as well.

Hey David, it's Barry. I think it's really hard to gauge how long it lasts. Certainly, we continue to encourage our managers and they have put in place their own programs to really make sure that a) they're hiring quality labor; b) they're hiring the right amounts of it so that they're not ahead of where business levels are; and c) they're paying a market competitive wage. Knowing if or when that changes course is really hard to determine, because we're still in an environment where demand continues to evolve. We are looking forward to generating higher occupancies, which will require near- and mid-term hiring of more employees.

Our next question comes from Bill Crow from Raymond James Financial. Please Bill, go ahead.

Yes. Thanks. Good afternoon guys. Is it fair — I was trying to read through your comments earlier, Marcel — about kind of the upcoming calendar? And if you think about historical leisure trends, and where we are in business transient, is it fair to consider January and February are going to be pretty weak as we stand today? Is that kind of the way you're thinking about it as we roll through the next few quarters?

I wouldn't necessarily say that, Bill, because in our portfolio we do have some seasonality that helps us a little bit in the first quarter too. As you know, especially in markets like Phoenix and Orlando, those are historically some stronger months from a seasonal perspective on the leisure side. I think it's more a matter of looking at the next couple of months and saying post-Thanksgiving, you generally start to see a bit of a letdown in business travel and group travel. Those are some of the seasonally weaker months that I referred to, particularly in the fourth quarter. October and the first half of November remain strong. Then after that business typically tails off a bit. We're certainly hoping that back-to-office trends will improve a little bit, leading to more business travel. Looking into next year, the first quarter is a little bit weaker for us from a group perspective than the rest of the year, and some of that was impacted by cancellations that Barry discussed when COVID reemerged. We're hopeful going into the holiday season, based on leisure trends, that strength will continue and provide a good base.

Got it. And speaking of the group cancellations, I think, Barry, you mentioned maybe $3.5 million of cancellation and attrition fees collected. I'm just curious what that looks like for the fourth quarter?

It's a little too early to gauge that because some accounts could still actualize versus not. The way the revenue is recorded is when they actually don't attend a program. So it's really too early to put a magnitude on what fourth quarter recognition might be at this point.

So the majority would not necessarily be in October; it could be in November, December as well?

Yes, that's correct.

Our next question comes from Bryan Maher from B. Riley Securities. Please Bryan, your line is now open.

Thank you very much. Maybe a question for Barry. So much has been talked about with labor costs and the labor shortage, but we've noticed a pretty meaningful uptick in your food and beverage revenue. I'm curious as to what you're experiencing on food and beverage cost, the impact on margins. And then secondarily on other supplies, if you're finding any problems getting stuff like towels and other supplies through the supply chain that we keep hearing about so much.

Good question, Bryan. Food and beverage staffing, other than culinary, has actually not been a challenge as we ramp up — in part because in most markets banquet servers are often on call and work at multiple properties, and they seem to be quite available given the amount of business hotels are generating at this point. Regarding food costs, although costs are higher than they might have been by a few hundred basis points, they've been pretty stable in our portfolio month to month through this past quarter. As it relates to guest supplies, whether that's towels or other operating supplies, affiliation with the major brands has been very helpful because of vendor relationships; they tend to be at the front of the line for getting supplies. We had a couple months back in Q2 where a couple hotels had some challenges with sheets, for example, but that really went away in the third quarter. Hotels have gotten smarter about ordering earlier given longer lead times. Overall, we're seeing relative success in acquiring the physical goods they need.

Okay, thank you for that. And just one question on the Grand Bohemian: that hotel has and probably still has quite a bit of character to it. I was interested in your comment on creating a lighter contemporary look and feel. First of all, can you quantify roughly how much money you're going to be spending on that renovation and how much are you going to kind of de-characterize it?

On the cost, we'll probably have a better handle and talk about that as we head into Q1 of next year, so we'd like to hold off on specifics for now, particularly as we work through design and value engineering. I think it's important to stress that everything we're doing with any of the hotels is in keeping with the character of the hotel and the market. There is some deep styling to Grand Bohemian that is culturally related and is a major part of the design team effort to retain while creating a look that's different than the hotel had 20 years ago. There's been an evolution in hotel design, and part of our feedback over time has been that the dark colors and some of the over-weighted elements of the property were perceived as detractors in the current environment. Those are things we're trying to solve with the design team to create a fresher, lighter look, while maintaining the property's character.

The next question will come from Ari Klein from BMO Capital Markets. Please Ari, your line is now open.

Thank you. Maybe following up: have you started to pass any of those higher costs along in the form of higher menu prices or other ancillary items like parking to customers, or are you still holding off on that?

Yes, absolutely, we have. Our asset management and portfolio initiatives teams have been focused on how to take advantage of the revenue side as costs increase. As inflation has become part of the common vernacular in the U.S., people are expecting to pay more for many things. We don't have a single hotel that hasn't gone through adjusted pricing. As we've spent the last few weeks in the 2022 budget season, that pricing dialogue has been a major focus: if costs are going up, revenue needs to go up. We view this as an opportunity to move revenues as costs increase.

Got it. And then on the business transient improvement trends, you're starting to see midweek improvements. Can you give us a sense of from a market standpoint which ones maybe are doing best and which ones are lagging? And then how much of business transient typically comes from those large corporate accounts that are a little slower to recover?

The midweek increases have been fairly consistent across the portfolio. Very few hotels are lagging. In fact, hotels that might be viewed as more corporate — for example in Houston, Dallas and the San Francisco Bay Area — are actually seeing the biggest increases right now. They had the most room to run because they hadn't been as successful filling weekday nights with leisure. Regarding large corporate accounts, we track account-by-account — large accounting firms, consulting firms and Fortune 500 names — and they're down significantly from where they were. On an account-by-account basis, you might say they're down more than 50% but probably less than 80%, though that may not translate directly to aggregate impact across the portfolio.

The next question comes from Austin Wurschmidt from KeyBanc Capital. Please Austin, your line is now open.

Thanks. I'm not sure if this is what Ari was just getting at and I may have missed it, but can you put some detail around the BT (business transient) and leisure mix today versus historical levels? You mentioned group is about 20% versus 30% historically — what's the leisure versus business mix today versus historical?

It's hard to be precise because guests don't always self-identify as business or leisure. We've seen the concept of leisure look different — Sunday nights are almost as good as Monday nights in some places, and Thursday nights have become a strong night relative to Tuesday and Wednesday. Many guests are combining stays and our data shows average length of stay in corporate segment has increased significantly, which suggests corporate customers are extending stays into weekends. Precisely breaking down the mix between business and leisure right now is difficult.

Got it. No, that's helpful. And then can you provide some additional detail on ADR trends month-to-month versus 2019 and what might be behind moderation since July? Is it mainly the leisure component tapering off or anything else under the hood? How is corporate rate trending versus pre-pandemic?

When you work through the quarter and into October, you see a change in mix with significantly more corporate demand. Leisure guests have been willing to pay higher rates, and hotels have not resorted to broad discounting the way they may have in prior cycles. Corporate rates are generally flat to 2019 levels in our data, not racing to the bottom. Many accounts have moved from static negotiated rates to percent discounts off of BAR, which helps because each hotel can control BAR on a day-to-day basis. Also, group rates, particularly for months with high food and beverage volumes, are often lower negotiated rates, which blend into the overall ADR. As group and corporate recover, that blended rate will continue to improve.

No, that's helpful. What's your house view on sustainability of pricing power among leisure customers over the next 12 to 24 months?

We feel good about near-term trends in 90-day forward bookings through the holiday season. There's evidence we've broken through to higher pricing power in leisure, even beyond luxury and upper-upscale into select service in many cases. With a general inflationary environment and consumers accustomed to higher prices across categories, we see an opportunity to maintain or grow rates, and we don't see a reason that should change materially going forward.

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

Thanks. Good afternoon, everyone. Barry, I have another question on F&B but want to focus on revenues. F&B revenues appear down about 15 more points than room revenues on a two-year basis. How much of that is due to group lagging versus some restaurants and outlets still being closed? How do you think about the ramp up of F&B revenues aside from group over the next 12 to 24 months?

In our portfolio, almost all of the decline has been banquet-related. Outlet food and beverage revenues have hit record levels as leisure guests spend more at pools and on property. The gap is on the banquet side. As group business returns, we're seeing good per occupied group room results and catering and events teams are capturing higher-quality banquet business. Groups currently are buying equal or better quality menus than pre-pandemic, and that trend has improved as group business shifts back toward more traditional corporate groups.

Got it. That's helpful. And then the second part of the question for Atish on the margin outlook — has that changed at all and when might the brands formalize their brand standards for 2022 and beyond?

Mike, I think it's been interesting to see and we're still waiting to see what the brands require to ensure consistency in housekeeping. We continue to experiment within our portfolio — serving as beta properties for light-touch housekeeping and testing effectiveness. It's too early to say what margins will look like at full stabilization. We have proven we can operate with fewer bodies and hotels can run well, but over time we will see additional staff return and we won't necessarily keep the very low labor cost levels we saw in Q2 when hotels were significantly understaffed. At some point we need to get to a staffing level that supports guest satisfaction scores, which are directly related to labor and service levels. That trade-off is what makes margin forecasting difficult.

Got it. And then last one from me on transactions for you Marcel: for deals you've looked at and passed on, is it simply pricing or are qualitative factors like urban versus resort keeping you from transacting?

It's a combination. We start by looking at what's on the market and identify assets that would be additive to our portfolio. There's product out there, but not a lot that rises to the quality level we target. Location and portfolio fit matter. When you narrow to a relatively small pool of potential assets that fit well, we haven't found deals where pricing matches our outlook for both short-term cash flow and long-term growth. We've bid on some things, but sellers have been more aggressive than we were comfortable with. We remain patient and disciplined. Given our track record, I'm confident we'll find attractive opportunities over the next couple quarters, but we won't stretch beyond what makes strategic sense.

The next question comes from Thomas Allen from Morgan Stanley. Please Thomas, your line is now open.

Thanks. A couple more on the cost side: you talked about lower-than-expected real estate taxes. Can you help us think about the trajectory of that line for the next few years and quarters?

Thanks, Thomas. Property taxes are coming in a little bit lighter for the same-property portfolio; compared to prior years they are down roughly 10% — that's a good rule of thumb. Within that line on our income statement is also insurance costs, and insurance costs are up 15% to 20%, so there's some offset there. That's why the overall line has come down this year. We expect that to continue this year. It's a little too early to know what it looks like next year, but we have been aggressive in appealing assessments and working to keep tax expenses lower going forward.

And within that line, are real estate taxes typically two-thirds of the total? Historically how does that break down?

Yes, they are about two-thirds or even a little bit more of that line.

Perfect. And then I think I heard you right that payroll expenses are down 32%. Any sense if in a more normalized environment we can keep payroll expenses down versus 2019 levels?

It's really hard to say because there's a confluence of factors — staffing levels, wage rates, and how those trends evolve. We don't yet have enough visibility to put a definitive number on where payroll will settle relative to 2019.

The next question comes from Tyler Batory from Janney Montgomery Scott. Please Tyler, go ahead.

Good afternoon. This is Jonathan on for Tyler. Thanks for taking our questions. First one: I wanted to follow up on labor and guest feedback. Do you think you'll need to add labor or amenities to meet guest needs in the near term, or are you still providing ample services in the current occupancy environment?

Our management companies and asset management teams are focused on providing the right levels of service. We saw higher levels of dissatisfaction across the industry with housekeeping over the summer when hotels were sorting out service levels, particularly in resorts with high occupancy and multi-guest room stays. As the labor market has opened, hotels have been successful bringing back more guest-touch positions such as front desk and restaurant servers, which have been easier to fill than housekeeping and culinary positions. We are attentive to guest feedback and making adjustments to staffing levels as demand requires.

Very helpful. Can you remind us how much exposure the portfolio has to international travel and how much an additional tailwind the reopening of international travel to the U.S. could be for the portfolio?

When we looked at it last, international was below 10% for the portfolio for sure. We don't have heavy gateway exposure. Some hotels have international crew business in place today and we expect that to grow. We also look forward to the reopening of European and South American markets to Orlando, where Hyatt Regency Grand Cypress has historically captured some international business, particularly from the U.K. as that market opens up.

We currently have no further questions. I would like to hand over to Marcel Verbaas for any closing comments. Please Marcel, go ahead.

Thanks. Thanks everyone for joining us today and thanks for all the great questions. We look forward to talking to you and seeing many of you over the next few weeks at the various conferences and look forward to talking to everyone again next quarter. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.