Xenia Hotels & Resorts, Inc. (XHR) Q1 2024 Earnings Call Transcript

Hello, and welcome to the Xenia Hotels & Resorts, Inc. Q1 2024 Earnings Conference Call. My name is Alex, and I will be coordinating the call today. I will now hand it over to your host, Aldo Martinez, Finance Manager, to begin. Please go ahead.

Thank you, Alex, and welcome to Xenia Hotels & Resorts First Quarter 2024 Earnings Call and Webcast. I'm here with Marcel Verbaas, our Chair 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 on our performance. Barry will follow with more details on operating trends and capital expenditure projects, and Atish will conclude today's remarks on our balance sheet and outlook. We'll then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday afternoon, along with the comments on this call, are made only as of today, May 3, 2024, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in our first quarter earnings release, which is available on our Investor Relations section of our website. The property-level information we'll be speaking about today is on a same-property basis for all 32 hotels unless specified otherwise. 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, Aldo, and good morning, everyone. Our operating results continue to be encouraging in the first quarter as strong group demand and steady improvement in business transient demand drove same-property portfolio RevPAR and total revenues that exceeded our expectations for the quarter. Our consistent focus on expense controls by our operators and asset management team and a continued inflationary environment allowed us to also achieve a same-property hotel EBITDA margin that was a bit ahead of our expectations. As a result, our adjusted EBITDAre came in above our internal forecast as well. For the first quarter of 2024, we reported net income of $8.5 million, adjusted EBITDAre of $65.3 million, and adjusted FFO per share of $0.44. While adjusted EBITDAre declined from the first quarter of 2023, we had anticipated this as Hyatt Regency Scottsdale at Gainey Ranch had record high performance last year when Phoenix hosted the Super Bowl and overall market demand was extremely strong. Despite the lapping of this outperformance and the high level of EBITDA disruption resulting from the ongoing transformative renovation at our Scottsdale resort during the quarter, our adjusted FFO per share increased by 10% over last year. This was mostly driven by the significant amount of share buybacks we completed in 2023, which we continued at a slower pace during the early part of the first quarter this year. Although same-property RevPAR for our 32-hotel portfolio decreased by 1.5% for the quarter, RevPAR actually increased by a healthy 3.7% when excluding Hyatt Regency Scottsdale despite the negative impact of the Easter holiday occurring at the end of March this year. This increase was mainly driven by a significant 310 basis point increase in occupancy for these 31 hotels. We saw particular strength in a number of our large group-oriented hotels such as our Houston hotels, Hyatt Regency Portland and Park Hyatt Aviara as well as at Marriott San Francisco Airport and Hyatt Regency Santa Clara. We continue to believe that these two high-quality hotels possess some of the greatest earnings growth potential within our portfolio. Additionally, Grand Bohemian Hotel Orlando is hitting its stride now that the comprehensive renovation is fully behind us. And Canary Hotel Santa Barbara had outsized revenue and earnings growth compared to last year as we lapped the room renovation that took place mainly in the first quarter of last year. On a same-property basis, first quarter same-property hotel EBITDA of $70.7 million was 8.5% below 2023 levels and hotel EBITDA margin decreased 228 basis points. Excluding Hyatt Regency Scottsdale, first quarter hotel EBITDA increased 4.7% and hotel EBITDA margin decreased just 14 basis points. We continue to be pleased with these margin results as overall inflation remained at an elevated level during the quarter. As we have noted over the past several quarters, the trends across our portfolio continue to indicate that our demand segmentation mix is reverting towards pre-pandemic levels with group and business transient demand recovering and leisure demands normalizing. Group demand was a particular bright spot during the first quarter. Same-property group room revenues, excluding Hyatt Regency Scottsdale, increased 8.1% as compared to the same period last year. We also saw a modest improvement in business transient demand with continued increases in midweek occupancy. And while leisure demand has largely stabilized across the portfolio, we did see some further retracement in a few of our more leisure-dependent assets and markets in the quarter, particularly in Napa and Savannah. Now turning to our capital expenditure projects. We continue to project that we will spend between $120 million and $130 million on property improvements during the year. While Barry will provide additional details on the $33.4 million we invested into the portfolio during the quarter in his remarks, I would like to highlight the progress we are making on the transformational renovation and up-branding of Hyatt Regency Scottsdale. The project is progressing as planned, and we still anticipate a completion by the end of 2024 with approximately $65 million to $70 million that will be spent during this year. After completing the adult pool and its H2Oasis pool bar in January, the large family pool and its F&B amenities were fully completed and operational in early April. The new pool complex is spectacular and significantly improved over the resort's previous amenities. Their early reviews have been very positive, and we expect that this new pool complex will be well received by our anticipated higher-rated leisure and group demand. We also believe that this upgraded pool complex will enable us to attract significant staycation leisure demand during the slower summer season in the years ahead. We also continue to make progress on the renovation of all guest rooms. We have now completed the renovation of 230 rooms, and we anticipate that a total of almost 300 out of our current 491 rooms will be fully renovated by the end of May. The remaining guestrooms, including the additional five rooms that will be created as part of this project will be completed in continual phases until final completion by the end of the third quarter. We are also making good progress on the approximately 12,000-square-foot expansion of the Arizona Ballroom. We continue to expect that this ballroom expansion as well as the renovation of all existing ballrooms, meeting spaces, and pre-function space will be completed by the end of the year. We have also commenced the renovation of the public space, including the lobby, lobby bar, hotel market, and all indoor and outdoor dining spaces. As announced last quarter, we are collaborating with celebrity chef Richard Blais on all food and beverage offerings at the relaunched resort. We are thrilled we are expanding our relationship with chef Blais, with whom we have developed an excellent working relationship at Park Hyatt Aviara, Hyatt Regency Grand Cypress, and Hyatt Centric Key West. We continue to expect completion of these components by the end of the third quarter. Restaurant concepts and menus are nearly finalized as work has now begun in each of the food and beverage outlets. And finally, we continue to expect completion of all improvements to the resort's building facade, infrastructure, and grounds to be completed by the end of 2024. The renovation and transformation of all of these components will continue to displace a significant amount of revenue and EBITDA as the overall guest experience is meaningfully impacted. We expect that the majority of the remaining revenue disruption will occur during the second and third quarters and subside as the fourth quarter progresses. We now expect the impact of renovation disruption to be a bit higher than previously projected as we have gone deeper into the project and the sequencing of demolition and construction has become clear. Atish will provide further details on our outlook, including our renovation disruption during his remarks. We continue to be extremely excited about this project and the earnings growth potential that we expect will be created by this transformation. The Phoenix Scottsdale luxury resort market remains strong, and the soon-to-be-launched Grand Hyatt Scottsdale will be a formidable competitor in this luxury peer set. Looking ahead across the portfolio, we remain cautiously optimistic for the remainder of 2024. As we have previously outlined, we believe we have significant embedded earnings growth potential within our portfolio, primarily through our recently renovated properties, our hotels that primarily cater to group and business transient customers, and our two most recent acquisitions, W Nashville and Hyatt Regency Portland at the Oregon Convention Center. Additionally, we continue to expect strong RevPAR growth at our properties in our recovering northern California markets, San Francisco and Santa Clara. We saw these themes play out in the first quarter as we experienced encouraging results at our recently renovated properties, Grand Bohemian Orlando and Canary Hotel Santa Barbara as well as further gains of properties that were renovated in recent years, including Hyatt Regency Grand Cypress, our Houston properties, and Waldorf Astoria Atlanta Buckhead. We also had strong results at our other large group-oriented hotels, our northern California assets, and our most recently acquired hotels, particularly Hyatt Regency Portland. We are off to a good start in the second quarter. We estimate that excluding Scottsdale, same-property RevPAR increased 6.2% in April as compared to the same period in 2023. When including Hyatt Regency Scottsdale, which continued to deliver very strong results through May of 2023, we estimate that April RevPAR is up 0.9% compared to last year. Given its performance through May of last year and the renovation disruption we are experiencing this year, we continue to expect that Hyatt Regency Scottsdale will be a drag on RevPAR growth through the first half of the year, after which the comparisons will become more favorable. We remain particularly optimistic regarding our portfolio performance and earnings growth potential as we look ahead to 2025 and beyond. We expect recent demand trends in our portfolio to continue and are looking forward to the additional growth we expect to get from the completion of the Scottsdale project. We continue to believe that supply growth will remain muted in our submarkets over the next several years, especially in the upper upscale and luxury segments where our hotels and resorts are positioned. This will provide a very favorable backdrop for potential RevPAR growth, as we have seen in previous cycles in the lodging industry when supply growth has been subdued. With our high-quality and further improved portfolio, we expect to be well positioned to take advantage of these dynamics. I will now turn the call over to Barry to provide more details on our operating results and our capital projects.

Thank you, Marcel, and good morning, everyone. For the first quarter, our 32 same-property portfolio RevPAR was $176.86 based on occupancy of 67.4% at an average daily rate of $262.39, a decrease of 1.5% as compared to the first quarter in 2023. Excluding Hyatt Regency Scottsdale, first quarter RevPAR was $178.07, an increase of 3.7% as compared to 2023. This increase reflected 3.1 points of occupancy gain and a decline of 1% in average day rate as compared to the first quarter of 2023. As Marcel indicated in his remarks, the same-property leaders in terms of RevPAR growth in the quarter included our hotels that were lapping first quarter 2023 renovations at Canary Santa Barbara and Grand Bohemian Orlando. Additionally, RevPAR grew significantly at Hyatt Regency Santa Clara, up 26.3%; Waldorf Astoria Atlanta Buckhead up 15.9%; Fairmont Pittsburgh, up 9.8%; Portland, where our two hotels were each up approximately 9.5%; Houston, where each of our hotels were up over 8.5%; Park Hyatt Aviara, up 7.6%; and Marriott San Francisco Airport, which was up 5%. The growth in these markets is a result of clearly improving business transient and group demand that we are seeing across the portfolio. We observed a decline in RevPAR compared to the first quarter of 2023 at some of our leisure-focused properties, such as Bohemian Savannah Riverfront and Andaz Napa. As anticipated, results in the first quarter improved as the months progressed. Analyzing each month of the quarter, with the exception of Hyatt Regency Scottsdale, January's RevPAR was $157.14, reflecting an increase of 11.1% over January 2023. February's RevPAR reached $178.71, which is up 0.6% compared to February 2023, while March's RevPAR was $198.40, showing a 0.9% increase over March 2023. Importantly, occupancy improved each month during the quarter. We are hopeful about the recovery in corporate and group rates as we continue to see higher mid-week occupancies across our portfolio, especially on Tuesday and Wednesday nights, where these increased occupancies are creating significant opportunities for rate compression. We note that compared to 2019, which excludes Hyatt Regency Scottsdale, Hyatt Regency Portland, and W Nashville, daily occupancy still trails by approximately 5.5 to 7 occupancy points each day of the week, with the exception of Mondays and Thursdays, which have been slower to recover, trailing 2019 by approximately 10 to 11 occupancy points. Business from the largest corporate accounts across our portfolio continues to be significantly behind 2019, while corporate business from small and medium-sized accounts has recovered much more significantly. Group business continues to be a bright spot across the portfolio, where we continue to see a reversion to pre-pandemic patterns. For the first quarter, excluding Hyatt Regency Scottsdale, group room revenues were up just over 8% as compared to the first quarter of last year. Notably, much of this growth was in occupancy with room nights up approximately 7% with rates up approximately 1%. This reflects a continued trend in our mix of group business with the association group business now recovering at a stronger pace than corporate group business. Now turning to expenses and profit. First quarter same-property hotel EBITDA was $70.7 million, a decrease of 8.5% on a total revenue decline of 0.6% compared to the first quarter of 2023, resulting in 228 basis points of margin decline. Excluding Hyatt Regency Scottsdale, hotel EBITDA was $67.2 million, an increase of 4.7% on a total revenue increase of 5.3%, resulting in a margin decline of just 14 basis points. This modest decline in hotel EBITDA margin for the quarter reflected our operators' ability to manage expenses while continuing to improve guest services and satisfaction. Overall, labor expenses increased over last year, which was expected due to higher occupancy levels. Our operators continue to control overtime more effectively as the staffing levels have normalized. In the undistributed departments, expenses in A&G and property operations were well controlled, while sales and marketing expenditures continue to increase as hotels grow their sales teams and continue expenditures on digital marketing efforts. Energy expenses for the quarter declined year-over-year as a result of the warmer weather and reduced pricing in certain markets compared to last year. Turning to CapEx. During the first quarter, we invested $33.4 million in portfolio improvements. As Marcel discussed, we continued our significant work on the approximate $110 million transformative renovation and up-branding of the 491-room Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and are pleased that the project continues to be both on time and on budget. In addition to our work in Scottsdale, in the first quarter, we completed the renovation of all meeting rooms at the Waldorf Astoria Atlanta Buckhead, a complete renovation and reconcepting of the restaurant at Bohemian Hotel Savannah, and a renovation of ELWAY'S Downtown Steakhouse at the Ritz-Carlton, Denver. Planned renovations will take place in our Texas hotels during the seasonally slower summer months, including the renovation of the restaurant and creation of an M Club at Marriott Woodlands Waterway, renovation of the lobbies at the Westin Oaks in Galleria Houston, relocation of the fitness facility and addition of a concierge lounge at the Westin Oaks Houston, and continuing with approximately $20 million of infrastructure and sustainability projects across the portfolio as the year progresses. We're excited about the work our in-house project management team has completed and even more excited about the projects that we have underway and in various stages of planning in 2024. With that, I will turn the call over to Atish.

Thank you, Barry. I will update on our balance sheet and our guidance for 2024. We maintain a strong balance sheet with good liquidity. With no short-term maturities, a significant base of unencumbered assets, and limited interest rate exposure, our balance sheet remains a strong point for the company. At the end of the quarter, our leverage ratio was 5.2 times trailing 12 months net debt to EBITDA. Our long-term goal is to achieve a leverage ratio in the low 3x to low 4x range. We anticipate moving closer to that range by 2025 as we see the Scottsdale project ramp up after renovations. To conclude the discussion on the balance sheet, we repurchased around $6 million worth of stock during the quarter. In 2023, we repurchased about 9% of our outstanding shares at approximately $12.75 per share. While we view our stock at the current price as an appealing use of our capital, we are also weighing other factors such as liquidity in our stock, current year capital expenditures, and aiming to reduce our leverage ratio to align more closely with our target range. Next, I'll turn to our 2024 guidance. At the midpoint, our current full-year guidance is in line with the guidance we provided at the end of February. While the first quarter came in better than expected, given that we are still early in the year and visibility to the back half of the year continues to be limited, we are maintaining guidance midpoints at prior levels. What has increased is our level of confidence in achieving full-year guidance. And we will continue to monitor recent trends to see if the broad momentum over the last several weeks continues over the months ahead. With regard to our first quarter results, adjusted EBITDAre benefited from nearly $1 million of business interruption insurance proceeds that were recognized in the quarter earlier than expected. As for our full-year RevPAR, we continue to expect same-property RevPAR to increase 3.5% at the midpoint of the range or 4% exclusive of Scottsdale. Looking at our business by demand segment. On the group side and excluding Scottsdale, our group room revenue pace for the second through fourth quarters is up nearly 4%. Of the 4% increase, 90% is driven by rate. About 25% of expected group room nights for the balance of the year have yet to be booked. In terms of booking activity or group production, it continues to increase as group rooms revenue booked in the first quarter for future quarters in the year was ahead of that booked during the first quarter of 2023 for the comparable period. As to leisure demand, as we look ahead to the summer, our operators are expecting robust demand, including more international travelers as well as more U.S. travelers staying domestic compared to trends observed last year. Finally, at the corporate transient demand, during the first quarter, we benefited from higher-than-expected mid-week business transient demand, particularly at some of our larger hotels, and we expect that to continue. We have seen a decrease in expense pressure compared to last year. For the second through fourth quarters, we anticipate a decrease of about 25 basis points in hotel EBITDA margin. Excluding Scottsdale's impact, we expect the hotel EBITDA margin for these quarters to decrease by around 15 basis points. The midpoint of our adjusted EBITDAre full-year range is $254 million. In the second quarter, we expect slightly more than we had in the first, falling within the mid- to high 20% range. For the third quarter, we project earning about 20% of our full-year adjusted EBITDAre, and for the final quarter of the year, we expect to earn nearly 30%. This adjustment indicates a slightly lower mix of earnings in the second quarter than previously anticipated, primarily due to higher-than-expected disruption from renovations. We now predict renovation disruption for the year to be $16 million, up from our earlier estimate of $14 million, mainly due to revised construction timing at Scottsdale, which has a greater effect in the second quarter. As we get into the second half of 2024, the comps become easier, and our renovation activity turns into a comparative tailwind as the year progresses. And finally, our adjusted FFO per diluted share guidance is unchanged with the midpoint of $1.69, which reflects about 9% growth in adjusted FFO per diluted share versus 2023. To wrap up, during the first quarter, our portfolio benefited from stronger-than-expected business transient and group demand, particularly in some of our larger hotels. We are hopeful that this broad momentum continues into the remainder of the year. Our focus on the ramp-up of the newer properties, certain markets which are still in recovery, as well as successful execution on Scottsdale continues. And we expect that the setup for 2025 and beyond will continue to improve in the months ahead.

Our first question comes from Michael Bellisario of Baird.

First question is probably for Barry here. The slide deck references cooling leisure demand in Nashville. Not totally surprising, given the recent data, but you only mentioned Napa and I believe Savannah in your prepared remarks. So maybe help us understand what you're seeing at the W, how that hotel performed in the quarter relative to your expectations and the broader market.

Yes, sure. When we talk about transient hotels, we generally refer to our smaller leisure-focused properties, which is relevant to the commentary on Napa and Savannah. W Nashville has a diverse demand base, and we’ve historically focused on enhancing our presence in the corporate transient and group segments, which has seen improvement. However, the influx of luxury hotels in Nashville over the past few years has led to some softness in leisure demand during the first quarter at both the market and W Nashville. Nevertheless, leisure demand isn't the main driver in Nashville for the first quarter and hasn’t typically been. We will have a clearer picture as we progress through Q2 and Q3, which are generally stronger months for the market and have historically witnessed better performance for W Nashville as well.

Got it, understood. And then a bigger picture question for Marcel on sort of capital allocation and strategies. Remind us how you and the Board are thinking about value creation for shareholders. What metrics are you focused on? And sort of what are the risk-adjusted returns that you're targeting when looking at investment opportunities? That's all for me.

Thanks, Mike. Atish has obviously spoken about this in his remarks, too, and we continue to look at capital allocation as needing to be balanced between the various levers that we can pull to drive value for shareholders. Obviously, last year, we talked quite a bit about not seeing a lot of acquisition opportunities and being very focused on value that we saw in potential share buybacks, which we obviously were very active in last year. And also, as Atish pointed out, we still believe that there is good value in the stock where we are today. But we are balancing that with the needs that we have with cash outlays for CapEx and clearly, Scottsdale was a big part of that for this year, and also wanting to maintain a good amount of dry powder going forward for potential acquisitions. So clearly, as we kind of work through these main expenditures we have this year, we also are keeping a very close eye on what's out there in the acquisition markets. Clearly, I haven't seen us be active on that side yet here in recent times. But we do feel like the pipeline is building a little bit better now, where there may be some opportunities for us here going forward. Clearly, interest rates are higher than where they were previously as everyone knows, so that's probably moved up the requirement a little bit on what kind of returns we're looking for. But we're certainly looking for that unlevered double-digit type returns. And obviously, to the extent that there's more risk and there's more renovation risk or any other risk related to that, you're going to look for some better returns to reach those risk-adjusted returns in that range.

Our next question comes from Aryeh Klein of BMO Capital Markets.

Maybe just on the Hyatt Scottsdale, curious what you're seeing from a group booking standpoint as you look beyond this year. What kind of uplift are you seeing on the rate side? And maybe if you can talk to pace at that asset, even acknowledging that it's still pretty early.

Thanks, Aryeh, for the question. It's a good one. The data fluctuates quite a bit when you're dealing with smaller numbers and varying booking patterns as we approach '25. In one or two quarters, we'll have a much clearer understanding of how things are shaping up for '25. The rate has increased significantly. The booking pace in terms of room nights is aligned with our expectations, noting that many groups, especially high-end ones, are waiting until closer to their event to finalize bookings as they want to see the product first. We will have a lot of offerings available for them, both for late '24 and into '25.

Got it. And then, Atish, I think you mentioned expectations for inbound international travel recovery maybe helping leisure a bit in the summer. I'm curious how the views may have changed or if they've changed at all, given the U.S. dollar trend.

Yes, that's a good question, Aryeh. I think look, there are certain markets which are still very significantly off where they were in pre-COVID in terms of international inbound. If we think about some of the markets in Asia, some of the European and Latin American markets that might come into a market like Orlando. So I think even despite the move on the currency side, there's still sentiment that there's a lot more potential for inbound business. And certainly, if you look at the lift going into markets like San Francisco, that has increased quite a bit, as well as international lift coming into a market like Orlando. International is not a huge driver of our portfolio. But certainly in those two markets, we do see some international business that comes into the market. So that's just another point around confidence in leisure business this summer.

Can you discuss the timing of the EBITDA impact for the year regarding the Hyatt Scottsdale? Specifically, how it may be distributed between the first half and the second half of the year?

Yes, sure. I mean, the $16 million by quarter, maybe I'll just give you that, so $4 million in the first quarter, $7 million in the second, $4 million in the third, and $1 million in the last quarter of the year. So that's how you get to the $16 million. And as we had mentioned, the increase from $14 million to $16 million really is more oriented around the second quarter. Year-over-year, slightly different. Obviously, we had $12 million of disruption last year. How that shaped out by quarter was, no disruption in the first quarter, $1 million of disruption in the second quarter, $5 million in the third quarter, and $6 million in the fourth quarter. So the year-over-year change, obviously, $4 million more disruption this year than last year at Gainey Ranch. But you can just subtract those two and you get to how that $4 million comes in. Obviously, $10 million more disruption in the first half and $6 million of the tailwind in the second half, really more in the fourth quarter than in the third. So hopefully, that helps.

Our next question comes from Dori Kesten of Wells Fargo.

On the W Nashville, has your outlook for the remainder of the year shifted at all within the updated guidance? And then I'm just wondering if you've finalized plans for the new F&B space there.

Yes. No, our outlook and how we performed there in the first quarter and what we're seeing through the rest of the year is right in line with our expectations coming into the year. But again, we feel very good about the market and particularly good about the property and the ability they've had to grow the segments where they needed to. And we've also enjoyed in the first quarter a little better focus on the middle of the P&L, where we're driving a little more EBITDA and more EBITDA margin than we might have expected coming into the year. In terms of food and beverage, we've not outlined a plan for a long-term replacement for The Dutch, which is the three-meal restaurant, which left in the very beginning of this year. We're still looking at a number of different concepts, but the property has performed acceptably, certainly, and to our expectation with the unbranded restaurant, which has been very successful for breakfast and lunch and is working on strategies while we figure out a long-term strategy for lunch and dinner.

Okay, regarding Gainey Ranch, when do you plan to introduce most of the meeting planners to the renovated space? I'm trying to understand the timeline for when you expect to have a solid number of rooms booked for 2025.

Yes. I mean, obviously, we're actively in the market. The sales teams are doing site tours every day. There's just not a lot for the guests to see, particularly in terms of the expansion of the meeting space, although we're now at a point where you can actually see the structure. So that's actually a huge plus as opposed to cleared land next to the existing ballroom facility. So we've actually seen a pretty good uptick in terms of numbers of site visits and things like that at the encouragement of the hotel. So I guess the simple answer is, there is no particular point in time. And we had a lot of experiences when we did the ballroom expansion at Grand Cypress. There's no particular mark in time when there's a huge flood of business. It's a continual effort and focus on getting people excited about the product. There are some people that simply won't book the product until it's done, but that's not where the focus is. And that would be business to be out in the latter half of '25 and then '26 and '27 in a property like this.

On a positive note, let's discuss the various components we are working on. We are making continuous progress. When visitors come to the property now, they can see the newly completed rooms. They can also see the spectacular pool complex. Additionally, as Barry highlighted, there is visible progress with the meeting space. The main challenge for the next two quarters, specifically the second and third quarter, involves enhancing the public areas, lobby, and all food and beverage offerings, which are crucial for the guest experience. Once we complete this work, which is on track to be finished by the end of the third quarter, we will enter the fourth quarter with a nearly fully renovated property, aside from finalizing the meeting spaces and some ongoing infrastructure and facade work.

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

Wanted to hit a little bit on some of the markets that have been slower to recover. And I'm just curious if these regions and markets like Bay Area and Portland, to name a couple, are seeing a more durable recovery at this point in demand, and how are booking pace group and/or transient continuing to ramp as you look out through the rest of the year?

Yes. Thank you, Austin, for your question. If we examine the growth we've seen in Q1 across various markets, Santa Clara and Portland stand out as two notable success stories for the quarter. They demonstrate the progress we've made towards stabilizing operations, and we are achieving significant improvements. In Santa Clara, the tech sector has really contributed to this recovery. Specific companies in the area have notably increased both individual and group travel. While we haven't previously detailed booking pace by property or market, it's clear that these areas not only present opportunities for recovery but are also making substantial strides toward that goal.

So what do you think you need to see to really capture the occupancy point differential that you highlighted in your prepared remarks? What's sort of that next leg up to keep the momentum going?

We see strong momentum continuing, with quarter-by-quarter improvements across our portfolio. Corporate transient demand is increasing, notably among smaller and medium-sized companies that have mostly recovered, as well as larger companies that are still in the recovery phase. Every quarter shows an upward trend in this business. Regarding the difference in demand on Mondays and Thursday nights compared to Tuesdays and Wednesdays, we believe it's a matter of time before this dynamic changes. Travel habits will adjust as people become aware that they may struggle to find accommodations on Tuesday and Wednesday nights for business trips, regardless of market strength. Our markets are performing exceptionally well on those midweek days.

What's particularly been encouraging as far as kind of going on that path, like you're describing, as far as kind of narrowing the gap in occupancy, is how much of our RevPAR growth in the first quarter was occupancy-driven, obviously, versus rate. We're seeing that continue with our April results. So most of our growth that we saw in the April record number that we quoted was really driven by occupancy as well.

Yes, that's really helpful. And then just last one for me maybe for Atish. Can you provide some additional detail around your comment about sort of fine-tuning the construction timing and what's really accounting for the additional disruption now embedded in, it sounds like second quarter, in particular, from the Hyatt Regency Scottsdale? I mean, was it pulling forward some room renovation or just performance in the market that's impacting that, that's creating some additional disruption? Any detail would be helpful.

Yes sure, Austin, this is Marcel. I'll actually answer that for you. So we are obviously very, very focused on making sure this project gets done on the timeline that we've outlined and that we want to make sure we hit. So in order to feel as good as possible about getting all these components done by the time frames that we've talked about, we decided to pull forward into the second quarter, a little bit earlier in the second quarter, some of the renovations that we're doing on the public spaces particularly, so lobby, F&B spaces. And that is pretty impactful to the guest experience and will impact a little bit more on the leisure side than what we initially had projected. So that's really the main driver between it. It's really making sure that we hit these timelines, that we get these projects done specifically on the times we talked about and having some more comfort around pulling that forward a little bit to start for those particular components.

Our next question comes from Tyler Batory from Oppenheimer.

This is Jonathan on for Tyler. Congrats on the quarter. Most of my questions have been answered but maybe one for Barry. You noted the discrepancy between large corporate and small and mid accounts. I'm curious how you think about that gap closing and large corporates returning to maybe pre-COVID levels.

Yes, as I mentioned in response to Austin's question, we are indeed seeing a recovery, and larger accounts are showing improvement quarter-over-quarter, which is definitely a positive sign. It’s a bit challenging to predict when they will close the gap and return to pre-COVID levels. However, I believe much of this relates to business expansion and a growing willingness to travel on Monday and Thursday nights, in addition to the traditional travel on Tuesdays and Wednesdays. This behavior will certainly contribute to closing the gap. As more people adjust to normalized patterns and engage in traditional business travel, we expect continued progress. While we do not interact directly with the major accounting and consulting firms or the Fortune 100 companies that make up that segment, all of our operators indicate that there is a strong desire for people to travel more, meet customers, and connect with their teams. Therefore, we believe it is just a matter of time before demand fully returns.

At this time, we currently have no further questions, so I hand back to Marcel Verbaas for any further remarks.

Thanks, Alex, and thanks, everyone, for joining us today. We're certainly pleased with the continued momentum that we're seeing within our portfolio and in our markets. And we look forward to seeing many of you at NAREIT or any other conferences coming up or meeting opportunities. So thanks again for joining us today, and we look forward to speaking to you next.

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