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Host Hotels & Resorts Inc  (NYSE:HST)
Q3 2018 Earnings Conference Call
Nov. 02, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone. Welcome to the Host Hotels & Resorts Incorporated Third Quarter 2018 Earnings Call. Today's conference is being recorded. At this time I would like to turn the conference over to Gee Lingberg, Vice President. Please go ahead.

Gee Lingberg -- Vice President, Investor Relations

Thanks Nicole. Good morning, everyone. Welcome to the Host Hotels & Resorts Third Quarter 2018 Earnings Call. Before we begin, I'd like to remind everyone that many of the comments made today are considered to be forward-looking statements under federal securities law. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward-looking statements.

In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDAre and comparable hotel results. You can find this information together with reconciliation to the most directly comparable GAAP information in today's earnings press release and our 8-K filed with the SEC and the supplemental financial information on our website at hosthotels.com. This morning, Jim Risoleo our President and Chief Executive Officer will discuss our recent transaction, provide an overview of our third quarter results and our outlook for 2018. Michael Bluhm our Chief Financial Officer will then provide further details on our third quarter performance, discuss margins and the balance sheet.

Following their remarks, we will be available to respond to your questions. And now I'd like to turn the call over to Jim.

James Risoleo -- President & Chief Executive Officer

Thank you, Gee and thanks everyone for joining us this morning. We are pleased to report a quarter that once again exceeded our internal expectations on the bottom line and beat consensus estimates for adjusted EBITDAre and adjusted FFO per diluted share. While top line results were impacted by two hurricanes, we were encouraged that on a comparable hotel RevPAR increase of 1.6%. Our operators were able to increase comparable hotel EBITDA margins by 50 basis points.

Adjusted EBITDAre increased 7.8% to $344 million and adjusted FFO per diluted share increased 12.1% to $0.37 beating consensus estimates by $18.02 million respectively. These results continued to demonstrate the benefits of our geographically diversified portfolio of iconic and irreplaceable hotels, our unprecedented scale and platform to drive internal and external growth and the power and flexibility of our investment-grade balance sheet. Together, these key pillars form the foundation of Host, the premier lodging REIT.

As noted in our press release, we were very active on the capital recycling front in the quarter. This strategic activity followed through on two key initiatives we set early on in my tenure as CEO. Reducing our exposure to New York and exiting our international assets to focus our attention back to the U.S., where we have the greatest scale and competitive advantage.

In the quarter we closed on the previously announced sale of the W Union Square for $171 million. We also announced that the Westin New York Grand Central is under contract for $300 million, inclusive of the FF&E reserve. The Westin has significant money at risk and we anticipate the sale closing early in 2019. Including the W New York, which was sold earlier in the year. By early 2019 we would have sold three assets in New York for a combined EBITDA multiple of 28 times, significantly eliminating our exposure to profitably challenged hotels in the market.

New York is a market that continues to face headwinds due to significant supply increases and continued expense inflation. For reference, since 2007, New York supply has increased by 55% or 43,000 hotel rooms, at a compound annual growth rate of over 4%. In the quarter we also sold the retail signage and theater condo space at the New York Marriott Marquis for $442 million. In partnership with Vornado we redeveloped this space beginning in 2012. The sale was at a very attractive price and is another example of our asset managers identifying, implementing and executing on a real estate value-creation opportunity.

The sale resulted in an EBITDA multiple of 26 times and 19 times on 2018 and 2019 respectively. With substantially all the proceeds used to close out the reverse like-kind exchange structure for the acquisition of the Andaz Maui which we purchased earlier this year. The balance of these proceeds were used to establish a new forward like-kind exchange escrow. Our scale and platform provide us the opportunity to create value from our asset-base, and we will continue to identify, evaluate and execute on value enhancement opportunities to drive shareholder value.

On the international front, we also sold the JW Marriott Mexico City for $183 million or approximately a 15 times EBITDA multiple on 2018 forecasted results. We held a 52% interest in the hotel in a joint venture with Marriott International. For reference, this was a previously unidentified asset, sale we mentioned on our past two earnings calls. As I mentioned earlier we are going to focus our investment activity in the U.S. To that end we have reached agreement with our two European joint venture partners to sell them our approximate 33% interest in the Euro JV.

The gross asset value of our interest is approximately EUR700 million and equates to an EBITDA multiple of 17 times on 2018 forecasted results. After accounting for fund level debt, we anticipate the sale will generate net proceeds of approximately EUR435 million, a portion of which we intend to use to repay our outstanding EUR207 million draw on our credit facility. This outstanding amount was drawn to hedge our equity interest in the venture. While we have been successful with our platform in Europe, and very grateful for -- to our partners, who are helping to build a strong business over there. We believe it is the right time for the company to focus its effort, where we can have the most impact for shareholders, which is owning a geographically diverse portfolio of assets here in the U.S.

After these two international sales, less than 2% of our EBITDA will come from outside the country with only two hotels in Canada and three hotels in Brazil. For the remainder of the year, there are no additional asset sales or acquisitions included in our revised guidance. The combination of the disposition of the New York Marquis Retail, the Euro JV interest, and the JW Marriott Mexico City sale incrementally reduced our full year adjusted EBITDAre forecast by approximately $7 million. Again we expect the Westin Grand Central to close early in 2019.

Given the significant amount of disposition activity, Michael will walk through the specifics of how those sales will preliminarily impact 2019 EBITDA in his prepared remarks. Michael will also discuss how our investment grade balance sheet has never been in better shape and continues to get stronger. With leverage at only two times over $1.2 billion of unrestricted cash, and $700 million of capacity available under our credit facility. As of the end of the third quarter, we are well positioned to drive shareholder value, whether by acquiring assets, investing in our irreplaceable portfolio or buying back stock.

I should note that the leverage ratio and cash balance I referenced do not include the proceeds from the pending Westin Grand Central and Euro JV interest sale. We continue to maintain a disciplined approach to capital allocation and are evaluating and monitoring several acquisition opportunities. As it relates to investing in our portfolio, the company spent approximately $48 million in the quarter on redevelopments and return on investment expenditures, and approximately $71 million on renewal and replacement expenditures.

Major projects completed in the quarter include meeting space renovations at 10 hotels and restaurants and public space renovations at four hotels. For the full year we expect to spend $280 million to $300 million on renewal and replacement capital expenditures and $190 million to $220 million on redevelopment in ROI projects.

Another exciting initiative we concluded in the quarter was an agreement with Marriott International to execute a portfolio of transformational land reinvestment capital project beginning this year with the San Francisco Marriott Marquis and carrying through the next three years. These portfolio investments will position the targeted hotels to compete better in their respective market and enhance long-term performance. Some of these assets are among the most recognizable in our portfolio, including the San Francisco Marriott Marquis, the New York Marriott Marquis, the Boston Marriott Copley, the Orlando World Center Marriott and the Ritz-Carlton, Amelia Island among others.

Marriott has agreed to provide us with priority returns on the agreed upon investments which will result in reduced incentive management fees. Additionally they will provide operating profit guarantees as protection for the anticipated disruption associated with the incremental spend. This transformational program is expected to increase our total CapEx spend by approximately $150 million to $200 million per year through 2021. We believe this is a great use of our capital. Transformational brand reinvention projects have typically resulted in meaningful increases in RevPAR yield index, which translates to strong improvement in EBITDA.

On the operations front, comparable RevPAR increased 1.6% on a constant-currency basis, driven by 1.5% increase in average rate and a 10 basis point increase in occupancy to 81.4%. Third quarter occupancy is the highest since the third quarter of 2000. While our top line performance was in line with expectations and the bottom line results were better-than-expected, we were impacted by several factors in the quarter.

We anticipated the timing of the 4th of July moving to Wednesday, and the Jewish holiday is moving from weekends to mid-week. But we could not predict the impact of hurricanes Florence and Lane. An active hurricane season affected our Hawaii market in August and our Atlanta and Washington DC markets in September. While the D.C. market did not experience a significant weather impact from Hurricane Florence, local governments in the area declared a State of Emergency in advance of the storm which led to cancellations.

We estimate that the impact of the hurricanes cost us 30 basis points of RevPAR in the quarter. Year-to-date comparable RevPAR on a constant-currency basis increased 1.9% to $180, driven by a one point increase in average room rate and a 70 basis point increase in occupancy to approximately 80%. We reported adjusted EBITDAre of $344 million for the quarter and adjusted FFO per share of $0.37. Both were significantly above consensus estimates.

Year-to-date adjusted EBITDAre is $1.19 billion and FFO per diluted share is $1.34. As we look to the fourth quarter, our group booking pace is very strong, with group revenues up 4.5% and projecting to be the strongest quarter of the year. With approximately 98% of our group revenues on the books for 2018, and occupancy levels at all-time highs, we continue to see the booking window extend. While we are early in the 2019 budgeted process and have limited visibility at this time. The global economy continues to exhibit strength and appears supportive of the industry growth.

The economic indicators we closely follow, corporate profits, nonresidential fixed investment and consumer confidence all remain strong, and GDP continues to improve. The pickup in business trends in travel continues to gain traction and provides reason for optimism. This is bolstered by continued strong leisure demand, resulting from record levels of consumer confidence and lower unemployment.

Having said that we continue to monitor the impact of the stronger U.S. dollar, potential global trade wars, rising interest rates and the performance of global equity markets, and how that could affect lodging demand for the remainder of the year and into next year. Overall though, we believe industry fundamentals are on solid ground.

Given our year-to-date performance, we are narrowing the range of our full year guidance as follows: our revised comparable RevPAR guidance is now 1.9% to 2.1% for the full year. The slight reduction to the midpoint of our prior RevPAR guidance is due entirely to the impact of Hurricane Florence and Lane in the third quarter.

On the bottom line, we are increasing the midpoint of adjusted EBITDAre by $5 million to $1,550 million. On a revised range of $1.545 billion to $1.555 billion. This translates to an increase in the midpoint of adjusted FFO per share by approximately $0.01 to $1.75 on a revised range of $1.74 to $1.76. Including the $5 million raise to 2018 adjusted EBITDAre this quarter, we have raised guidance by $15 million at the midpoint since our earnings call in February.

In closing, we are pleased with another beaten race quarter, as it continues to demonstrate the attributes of our premier lodging REIT. We are also pleased that RevPAR will be accelerating this year over 2017 with our revised midpoint 70 basis points higher than the 1.3% comparable RevPAR growth we reported last year. Our diversified portfolio of irreplaceable assets, our unmatched scale and platform and our investment grade balance sheet positions us well to continue to outperform our peers in the near, medium and long-term.

With that I will turn the call over to Michael, who will discuss our operating performance and our balance sheet in much greater detail.

Michael Bluhm -- Chief Financial Officer

Thank you, Jim and good morning everyone. As Jim mentioned, our scale and platform continue to drive operational outperformance. Let me provide some details on the results for the quarter. Despite the impact of holiday timing and weather events, our comparable RevPAR on a constant-currency basis increased 1.6%, driven by 1.5% increase in average rate. As we mentioned on the last call, the set up for the quarter was strong, given the group pace we had on the books and to play it out as expected. Which allowed us to compress business and grow RevPAR predominantly by average rate.

Group RevPAR was up 2.3% led by association business which was up 8.8%. Additionally, the strong group business enabled our managers to capture more profitable banquet and AV business. Our transient business was led by corporate travellers. The business transient revenues increased 2.2%. We continue to see improvements in the business transient traveller as revenues in that segment increased for the third consecutive quarter and remain optimistic that business travel will remain strong, over the course of the remainder of the year, particularly as nonresidential fixed investment and corporate profits continue to project mid-single digit increases.

Looking comprehensively at revenue, total comparable hotel revenues increased 2.8% driven by F&B revenue increase of 5.1%, of which the more profitable banquet and AV business was up 7.6%, and other revenues increased 9.4%. For the second consecutive quarter, group turnout was better-than-expected, which is reflected in the significant banquet spend. Additionally our asset managers continue working with our property managers to find ways to increase high-margin ancillary revenues at our properties. We continue to do a great job in improving profitability at our properties and driving comparable EBITDA margin growth.

In the third quarter, comparable EBITDA margins grew 50 basis points. Margins benefited from strong productivity gains especially in F&B, an increase in ancillary revenues, reductions in undistributed operating expenses and a one-time distribution related to the sale of Marriott centralized purchasing company. As we anticipated, we continue to see the benefits from the MI integration take hold this quarter, as declines in credit card expenses, loyalty program cost and IT system cost contributed to the margin expansion.

We believe that the benefits from the Marriott Starwood merger will generate 40 to 50 basis points of incremental margin improvement annually for the near term. Now let me spend some time on specific performance in our individual markets. Our best-performing domestic markets this quarter were San Francisco, San Antonio, Philadelphia and Miami.

The RevPAR growth at our San Francisco hotels exceed our expectations with an increase of 7.5%, driven by a 6% improvement in average rate and a 1.1 percentage point expansion in occupancy. The large sales force city wide that moved from November last year into September this year, boosted the entire market and allowed our hotels to drive transient average rate by 9.2%. Our hotels in San Antonio increased RevPAR by 12.8% this quarter, exceeding the STR Upper Upscale results by 770 basis points. Strong Citywide led to solid corporate group business, which contributed to the F&B revenue increases of 11.5% in this market.

The two hotels in Philadelphia grew RevPAR by 10.4% this quarter, driven predominantly by The Logan's 36% increase in group business. Enabling the hotel to reduce discount channels and maximize transient ADR, which increased over 15%. Our Philly asset beat STR Upper Upscale results by 380 basis points. In Miami our hotels increased RevPAR by 9.5%, while the STR Upper Upscale market declined 8.1%. As you may recall our Miami Biscayne Bay Marriott had over 200 rooms out of service last year, following Hurricane Irma, which are now all back in service. The hotel will continue to benefit from this in the fourth quarter and outperform the market.

Looking to markets that were more challenged in the quarter, our hotels in Washington DC experienced a RevPAR decline of 8.6% in the third quarter. As weaker citywides and cancellations related to Hurricane Florence contributed to the decline in demand. As Jim mentioned, while the D.C. market did not experience a weather impact, the local governments declared states of emergency in advance of the storm resulting in cancellations.

In addition there were three fewer citywides this quarter when compared to the same time last year. In Los Angeles, RevPAR at our hotels decreased 7.7% in the quarter. The hotels were impacted by new supply downturn and with groups that did not repeat this quarter. Which meant our managers were required to take more discounted business. In addition, our Westin LAX had difficult comps this year as the hotel benefited from the Marriott LAX renovation last year.

In the Florida Gulf Coast, RevPAR at our hotels declined 3.3% resulting from a 1.5% increase in average rate, offset by a 2.9 percentage point decrease in occupancy due to the tougher comparables to the third quarter last year. As you may recall, certain of our hotels remained open and benefited from hurricane-related business last year.

In addition the Ritz-Carlton Naples Golf Resort had meeting space and ballroom renovation this year. Our New York hotel's RevPAR declined 2.8% this quarter with a decline in occupancy of 2.2%, and a decline in ADR of 40 basis points. The declines were primarily driven by a decrease in transient revenues of 5.8% this quarter, partially mitigated by strong group business which was up 4.5%.

Moving away from our quarterly results and looking to our forecast for the full year, we expect our hotels in Miami, Philadelphia, Maui and San Francisco to outperform. Inversely we anticipate our hotels in the D.C., Houston, Los Angeles and Atlanta market to underperform.

Now let me spend a little bit time talking about our capital position. In October, we paid a regular third quarter cash dividend of $0.20 per share which represents a yield of approximately 4.2% on our current stock price. In addition, this represents a payout ratio of 46% on our adjusted FFO per share. It remains our policy to pay out a 100% of our taxable income to shareholders. We continue to operate from a position of financial strength and flexibility.

We are the only lodging REIT with an investor-grade balance sheet which we are committed to maintaining, as we believe it is a prominent differentiator to our peers and provides flexibility to take advantage of value creation opportunities throughout the cycle. As of September 30, 2018, we had unrestricted cash of almost $1.3 billion and $702 million of available capacity under the revolver portion of our credit facility. Total debt was $4.1 billion, with an average maturity of 4.3 years and a weighted average interest rate of 4.1%. In addition, we have no debt maturities until 2020.

Our leverage ratio is approximately two times as calculated under the terms of our credit facility, providing a significant dry powder for opportunities to increase long-term shareholder value. As Jim noted, we've been very active on the capital recycling front. Year-to-date we sold five assets for a total sales price of $1.2 billion. Additionally we have $1.1 billion under contract, Westin Grand Central and our pro-rata portion of the Euro JV. Collectively this $2.3 billion of asset sales when closed, would have been sold at an approximate EBITDA multiple of 20 times, 2018 forecasted EBITDA.

Upon closing of the two pending transactions, along with the repayment of the corresponding debt related to the Euro JV and the payment to a minority partner in the JW Marriott Mexico City, our cash balance will increase by approximately $400 million to approximately $1.6 billion, and our capacity available on our credit facility will increase to $942 million. All of these recent sales and anticipated sales have been reflected in our guidance for 2018. However to help us modeling for next year, the pro forma effect of our net acquisition and disposition activity is a decrease of $64 million from our 2018 forecast EBITDA.

Overall, we are pleased with their strong operating results which enabled us to increase our adjusted EBITDAre and adjusted FFO per share guidance for the year. Our performance continues to demonstrate that owning a portfolio of iconic irreplaceable and geographically diversified hotels, having the scale and platform to drive value, combined with a powerful investment-grade balance sheet, with a strong strategic position to deliver significant value to our stockholders over the long-term.

This concludes our prepared remarks. We are now interested in answering any questions you may have. To ensure we have time to address questions from as many of you as possible, please limit yourself to one question.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We'll take our first question from Anthony Powell from Barclays.

Anthony Powell -- Barclays Capital -- Analyst

Hi, good morning everyone. You're building a pretty significant cash balance and investment capacity balance. What's the timeframe for investing that capacity? And if you're unable to transact on an acquisition of the hotel over next few quarters, would you move quickly to buybacks? Or are you comfortable holding that cash for a long period of time?

James Risoleo -- President & Chief Executive Officer

Anthony, thank you for the question. As we think about our capital recycling activity, I do want to point out that the assets that we sold have achieved superior pricing. And they have resulted in following through on two key strategic objectives that we set out about two years ago, when I first became CEO. That's reducing our exposure in New York City to profitably challenged assets, and really becoming more focused on the U.S. So we've accomplished that in a very attractive manner.

With respect to use of proceeds, as we sit back and think about reallocating that capital, we believe that there are three areas that make sense for us. One is buying assets to further upgrade the overall quality and growth and free cash flow generation of the Host portfolio. The second is investing in our portfolio, where we can drive meaningful returns by reinventing properties such as we have -- we'll talk about later, I'm sure, the Marriott transaction that we did are buying back stock.

So I don't think that we are in a rush by any means today to get the capital deployed. I will point out that we have not been shy about buying back stock in the past. Between 2015, 2016 we repurchased $890 million of stock, at an average price of about $17.15. So as we think about deploying capital we really do run the screen on an acquisition or investing on our portfolio relative to buying back stock at current prices, and that drives our decision-making.

Anthony Powell -- Barclays Capital -- Analyst

Alright. Maybe just one more follow up, I think there was a media reports a few months ago, that your thing that selling is large portfolio of non-core assets at presumably higher cap rates in your recent deals. So that's something you will still consider or have you been able to generate enough proceeds with these recent large low cap-rate transactions?

James Risoleo -- President & Chief Executive Officer

We're not out to generate proceeds for the sake of generating proceeds. We're up to opportunistically take advantage of good location in the market. And we start internally for every asset that we consider selling by doing our own internal hold value. And that hold value takes into consideration our view of the likely performance of that asset over the near-term, looking out over a 10-year time frame, but obviously it's little difficult to forecast anything over 10 years, but certainly over the next three to five years we can get a pretty good handle on it. Taking into account the full capital requirements of any particular property.

And then just kind of get back at what we consider to be appropriate discount rates using a market residual cap rate. So that's where it starts on dispositions, the same way we look at acquisitions. There are always a lot of media reports out there. We don't comment on anything until the deal is either done or we have a hard money contract.

Anthony Powell -- Barclays Capital -- Analyst

Alright. Thank you.

Operator

We'll take our next question from Chris Woronka with Deutsche Bank.

Chris Woronka -- Deutsche Bank Securities -- Analyst

Hey, good morning guys.

James Risoleo -- President & Chief Executive Officer

Good morning, Chris.

Chris Woronka -- Deutsche Bank Securities -- Analyst

Good morning. So you're now -- it seems like pretty complete on the strategy to reduce New York. So I guess the question is, if you look across-the-board does that -- are there certain markets or segments where you'd like more exposure with a higher transaction? You picked up a couple of resorts, you picked up San Francisco. Is there anything that kind of stands out to you again either market or segment wise?

James Risoleo -- President & Chief Executive Officer

We continue to like the resort market, Chris, given the dearth of new supply, that's being open to those markets today. It's particularly the type of properties that we feel we are very good at owning, given the scale and access to data and information that we have which differentiates us from others. The business information systems, the business intelligence systems allow us to really understand where we can drive value in resort properties. So we'll continue to be focused on resorts.

The other area that we feel we are differentiated in many ways is in big boxes. Again same metrics apply. We have an incredible database of information that allows us to benchmark any potential acquisition, against the performance of our existing assets. And from a supply perspective, it is very low. I think it is less than 40 basis points. So those are the two areas that we'll be focused on, additionally we will continue to think about assets that will outperform the rest of the portfolio, assets that are more sustainable from a CapEx perspective to fund capital needs out of the FF&E reserve. And thus will result in higher free cash flow generation.

Chris Woronka -- Deutsche Bank Securities -- Analyst

Okay. Very good. Thanks Jim.

Operator

And our next question comes from Shaun Kelley from Bank of America.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Hey, good morning everyone. We're just wondering if you could comment a little bit more about, what you guys are seeing on the Marriott integration front. I think last quarter you were very clear in your comments, some other peers or competitors are out discussing, that they are continuing to see some latent disruption issues. And also if you could just kind of hit on the union point, if you have any hotels exposed and if that's dragging down your 4Q expectations at all?

James Risoleo -- President & Chief Executive Officer

Sure, Shaun, let me talk about the union point first. And then I'll get to the Marriott integration question that you asked. We had experienced strikes at our Westin Seattle and the Chicago River -- Westin Chicago River North property, both of those strikes have been settled. The union is currently striking in San Francisco and in Boston. We are monitoring the situation very closely and have a good handle on what's happening at the hotels.

I am not in a position, given the sensitivity of the negotiations to talk about whether performance is up or performance is down at either property. I will tell you that we've taken the likely performance of those hotels into consideration, as we had developed our forecast for the balance of this year and our full year guidance.

Now with respect to Marriott integration, we continue to monitor it very closely. Of course there were a few hiccups along the way, but really no measurable negative impact. What distinguishes Host from others who may have experienced more disruption, is first the scale of our portfolio, but really the size of our hotels. Our properties have our sales management teams on site. So there was not a need to transition those sales teams to regional offices and the attended disruption that came from that.

And I understand there was disruption for others, but I can tell you, we saw no measurable impact at our properties. And more importantly on a very positive front is that, now our Starwood legacy hotels have access to 30,000 additional business-to-business accounts that Marriott had. And we're seeing benefits, already inuring to the Starwood legacy properties, as a result of having access to that account information. So we receive benefits on the top line and lower cost on the bottom line as well.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

Operator

And we'll take our next question from Michael Bellisario from Baird.

Michael Bellisario -- Robert W. Baird & Co -- Analyst

Good morning everyone.

James Risoleo -- President & Chief Executive Officer

Good morning, Mike.

Michael Bluhm -- Chief Financial Officer

Good morning.

Michael Bellisario -- Robert W. Baird & Co -- Analyst

Just wanted to talk on -- investment in 2019 outlook may be one just on group pacing, how you're seeing that shape up for next year? But then just, high level, how you're thinking about the macro backdrop heading into next year especially relative to the performance that you guys have achieved this year?

James Risoleo -- President & Chief Executive Officer

Sure. Talk about the macro backdrop a bit. And as I said in my prepared remarks, we think that industry fundamentals are on solid ground today, and we're optimistic that steady as she goes will continue. The hotels were running at record occupancies. All of the indicators that we focus on nonresidential fixed investment, consumer confidence, GDP, corporate profits, they're all strong. As I mentioned our third quarter occupancy was the highest, it's been since 2000. So the table is set for continued growth. We're also -- and have been keeping a keen eye on supply and while we'll have some new supply next year it's manageable. And we expect it will see just a bit more in 2020 and then supply taper down.

So our view is steady as she goes, things are looking pretty positive next year, given the fact that we're 100 months into the cycle right now. So that said we are keeping an eye on other things. We're keeping an eye on the impact, the potential trade wars could have, on the U.S. economy and U.S. businesses and business travel. The rising U.S. dollar, it's been bouncing around quite a bit and rising interest rates and the volatility in stock market. So we're optimistic, but we are being thoughtful and being very aware with what's happening around us.

With respect to 2019 group pace, we are a bit behind in -- in group room nights. As I mentioned the hotels are running at record occupancies. However our total revenue on the books between group room nights and F&B revenues is about flat to where it was this year. A part of that is being driven by fewer citywides in a few markets, Boston, Chicago, San Diego and Washington DC.

Additionally, we will see a little less group pace in a market like Orlando and a market like New York, the New York Marquis. But keep in mind what I said, we're getting -- that's because those two hotels will be part of the Marriott brand transformation program, really important to understand, that that's not going to impact our bottom line. Because we are getting disruption guarantees. So we feel that the portfolio is really positioned to produce optimal revenue mix. We are not concerned about the lack of citywides in the markets, that I referenced. We feel good about what we have been seeing on short-term corporate group bookings and strong leisure and transient demand.

Michael Bellisario -- Robert W. Baird & Co -- Analyst

That's all helpful. And just one really quick housekeeping item, just -- what are the tax implications of bringing back the capital from the Euro JV relative to the $505 million of net proceeds you mentioned in that 17 times EBITDA multiple?

James Risoleo -- President & Chief Executive Officer

Yeah. Well, let's start with New York first. Just to understand the valuation of the sale, and then we'll bring it back to you today.

Michael Bluhm -- Chief Financial Officer

So our 33% interest was valued at $700 million, that value of the entire portfolio -- EUR700 million, that value of the entire portfolio is EUR2.1 billion. And the valuation on our interest was 17 times EBITDA. That is the capital we're bringing back, a portion of it is a capital gain. And we will make a determination as to how we deal with that capital gain. We obviously have two options. One option is to distribute, the other option is to pay taxes on it and reclaim in cash. So as we get into planning for next year and the budgeting process, I think we have to make this decision by the end of January, and that's the time frame within which we will operate.

Michael Bellisario -- Robert W. Baird & Co -- Analyst

Got it. That's helpful. Thank you.

Operator

We'll take our next question from Smedes Rose from Citi.

Smedes Rose -- Citigroup Global Markets -- Analyst

Hi, thank you. I wanted to just ask a little bit about some of the parameters around the performance guarantees, that Marriott is providing. And I guess, first are they allocated on a per asset basis or is it sort of a large sum that you can draw from, depending on the amount of disruption? And then also, if the Marquis San Francisco kind of being retroactively added to this pool now, I can tell from your opening remarks, if it that was in that stat (ph) or not?

James Risoleo -- President & Chief Executive Officer

Sure, Smedes. Let me back up before I answer your specific questions and maybe give you a bit of color on the program. I think, I was pretty clear in the prepared remarks as to why we think this is a good use of capital, but it might be helpful to frame it. So that, then you can see how the priority returns and the disruption operating guarantees work. So as we said back, and yes, San Francisco was -- San Francisco was, I would say the -- as we call it the bell cow here. The property needed to be reinvented. It's a main and main asset and one of the best markets in the country. So we had talked with Marriott about what could we do together to really, I'll use a word that you hear other times, really make that hotel relevant, to make it number 1 in its competitive set in the market.

And let me stop on competitive set for a moment, because our objective on every brand transformation project we undertake is to bring that property to number 1 in its competitive set. And we had worked out a deal with Marriott where they would provide us disruption guarantees and a priority return on the San Francisco Marriott Marquis. So when we saw how that would work and we had the framework of a deal, we step back and took a look at our other assets in our portfolio that we're going to need -- to be renovated over the next several years, beyond the next several years. And we looked at the total CapEx spend that was going to be required on those assets.

Our experience has been that if you completely transform a property, you can expect a meaningful lift in RevPAR yield index. Somewhere around three to five points, and I think that's on the conservative side. But those are the numbers that we looked at. So by pulling those renovation projects forward and increasing the spend over what we would have spent. But really when we get into one of the assets, we're going to completely renovate the entire property, including, activating the lobby, activating the bar area, activating food and beverage, upgrading fitness facilities, doing tub-to-shower conversions in the guestrooms, in appropriate market is doing hardscape flooring in the guestrooms. So really make these hotels fit with what people are looking for today. And as I said make them number 1 in their set.

And we came to an agreement that Marriott would provide us with additional priority returns on our investment, which served to reduce their incentive management fees. And additionally it's on a property-by-property basis, means, now to get to your question about disruption to provide operating performance guarantees to deal with the anticipated disruption on a hotel-by-hotel basis.

Now I want to point out, that is unique to anybody in the industry. This is capital, 70% of it, plus we would have to spend any way, so we're getting compensated for doing this. And we're really excited about it.

Smedes Rose -- Citigroup Global Markets -- Analyst

Okay. Thank you. And then, just Michael you mentioned the dividend paid in October, as we head into year-end would you expect to have to kind of chew-up in order to distribute a 100% of taxable income above the $0.20 (ph)?

Michael Bluhm -- Chief Financial Officer

Yeah, I think -- I'm sorry. Yes, we again, our policy is to payout a 100% of our taxable income.

Smedes Rose -- Citigroup Global Markets -- Analyst

So you would expect this special dividend, in addition to the regular dividend in the fourth quarter or --

Michael Bluhm -- Chief Financial Officer

We can't comment on that, at this point.

Smedes Rose -- Citigroup Global Markets -- Analyst

Alright. Thank you.

Operator

Our next question comes from Rich Hightower with Evercore ISI.

Richard Hightower -- Evercore ISI -- Analyst

Hey, good morning guys. I'm going to waste a bullet here on a follow up to Smedes question on the guarantee in terms of the mechanics. So when we talk about full operating profit protection, is that based on a -- in our prior time period or some sort of baseline projection for the asset, just in terms of how we come up with that number? And then can you also walk us through the timing on the spending, is it pretty ratable across the next four years in terms of that incremental 150 to 200? Or is it more concentrated in certain periods over that four years? Just help us in terms of the modeling mechanics there.

James Risoleo -- President & Chief Executive Officer

So let me clarify one thing Rich, when we're talking about four years it starts with 2018, because the Marriott Marquis in San Francisco as we talked about before is $110 million brand transformation, so it's 2019, and the next three years. And it is ratable over that period of time. We spent on average roughly $500 million a year on maintenance repair replacement FF&E. And we've been doing that now for 25 years. Part of enterprise analytics is a group, its capital financial planning.

And every year as we develop our capital plans, we determine what the attendance disruption is going to be, and we factor that into our budget. So we have really solid data across all markets with all types of assets and have a very good handle on what our rooms renovation is going to do to the bottom line, what a ballroom renovation is going to do to the bottom line, what repositioning the lobby will do to the bottom line. And that's how we developed, the anticipated disruption in connection with the brand transformation project and that is the amount of guarantee that we negotiate with Marriott.

Richard Hightower -- Evercore ISI -- Analyst

Okay, Jim, that is helpful color. Let me ask one follow up here. We haven't spent a whole lot of time on labor expense on this call, as I think we have in the past. Can you, I know you said kind of a 3% to 4% CAGR is probably a good run rate for the next few years. Is there a way to break that down across East Coast, West Coast or union versus nonunion hotels, just so we understand the differentiation there as you roll up to the aggregate?

James Risoleo -- President & Chief Executive Officer

Yeah, it is really not Rich. I think it really does vary by market and it's across the board, and it's not consistent in any given market. It's really property by property.

Richard Hightower -- Evercore ISI -- Analyst

Got it. Thank you.

Operator

Our next question comes from Jared Shojaian with Wolfe Research.

Jared Shojaian -- Wolfe Research -- Analyst

Hey, good morning everyone. Thanks for taking my question. I just want to go back to some of your group comments, because I think last quarter you are seeing good production in terms of what you had on the books for 2019, as far as the bookings in the quarter for 2019. So to be a bit behind on group room nights in 2019, that seems like it's lower from where you were before, but can you just confirm if that's the case and maybe talk about why that is? And then if you could also just tell us your total group production in the quarter for all future periods? Thanks you.

James Risoleo -- President & Chief Executive Officer

Well, what I talked about last quarter was activity in the quarter. What I'm talking about today, is actual -- use it in a different way pace. And what we're seeing from a pace perspective. And I don't think that there is really been any change quarter-to-quarter from what we've been seeing. We've been focused on the assets in markets where there are weak citywides. I will tell you this, that our pace for 2020 to 2023, right now is up 6.4%. So we are very bullish as we see the booking window continued to extend, and beyond 2019 and into 2020, and beyond.

Jared Shojaian -- Wolfe Research -- Analyst

Okay. Thank you. That's helpful. And just a quick housekeeping for me. Can you just help tell us how much your competitive industry supply in your market is up this year and next year? And then you had mentioned an acceleration in the 2020, so that would be helpful to get that year as well.

James Risoleo -- President & Chief Executive Officer

I would say this year, next year roughly 2.3% or 2.5%. And then 2020, we're seeing a decline.

Jared Shojaian -- Wolfe Research -- Analyst

A decline, OK. Thank you.

James Risoleo -- President & Chief Executive Officer

A decline in 2020. Right.

Operator

And we'll take our next question from Robin Farley with UBS.

Robin Farley -- UBS -- Analyst

Hi. Most of my questions have been answered. I guess maybe just surfing back a moment to the Marriott deal just to better understand that. And I certainly understand from your perspective why you do it -- it seems like a great deal if you have a guarantee to be made whole kind of well into the cycle here. But just to understand how it works when we think about those properties and how performance might compare next year versus this year?

When you talked about the process of kind of estimating the disruption impact and then Marriott would sort of guarantee that amount of disruption impact. But I assume if there is performance is down, because of disruption there, one can always debate sort of what the cause of it. So I guess, I just want to understand, is the guarantee that basically your first x percent of decline whether that's 5% or 15% or 20%, whatever that -- from the EBITDA in 2018, that you report, that the first x percent of the decline you're going to be made whole. Is that the way to think about?

So from an EBITDA perspective we wouldn't even know if there is anything going on, if there is properties, unless you dropped below a certain amount of decline. Is that the right way to think about it?

James Risoleo -- President & Chief Executive Officer

Robin, no I think it's really based on the anticipated disruption. So you can paint two scenarios, one scenario is that we have a meaningful reacceleration in top line performance and attendant increase in flow-through and EBITDA, at a hotel that's part of this program. The operating guarantee still gets paid, right? And it goes the other way as well. If the EBITDA declines the operating guarantee et cetera, will fix them out.

Robin Farley -- UBS -- Analyst

Okay. So you'll make that amount in theory if there were no disruption, you would have an increase in EBITDA from that property, because you're going to get paid that amount anyway. Is that the way to think about it?

James Risoleo -- President & Chief Executive Officer

Yeah, I think that's the right way to think about it. Yes.

Robin Farley -- UBS -- Analyst

Okay. And I guess I don't know, and maybe this is really a question for Marriott, because again it seems like a great deal for Host, and I guess I'm just trying to think about Host, more typically you will do renovations and add meeting space and ballroom space, and you do this to properties all the time without typically getting that kind of guarantee. So, I guess just trying to understand what's different now? Did you did -- it's just a decision on Host part that you didn't want to have CapEx pick up to the levels that may be some of these properties required or like I guess why the change and what is sort of typically the case for kind of who bears the cost of renovations and the risk of disruption and all of that, I guess what's sort of behind that? Thanks.

James Risoleo -- President & Chief Executive Officer

A couple of things Robin. Our renovations have typically been staged over a number of years. Paint the backdrop, you do rooms at a property in 2018 and then in 2019 or 2020 you might touch the meeting space, and then you're going to get into -- excuse me the (inaudible) and the lobby. And then you're right back to doing your rooms again. So the thought here was we accelerate the spend. We are going to spend a little more than we typically would have. But when we are done in a compressed period of time, we are going to have a fully renovated hotel. That place very well to the consumers, than we'll clearly be number 1 in its competitive set.

I think what's important to Marriott is the fact that we own the best Marriott in the system. Some of the assets that I mentioned, the New York Marriott Marquis, Orlando World Center, Boston Marriott Copley, San Francisco. And down the list, and I think from a brand perspective to be able to showcase what brand transformation means, they've undertaken this exercise in other properties like the Charlotte Marriott, the Portland Marriott and a few others along the way. But to be able to showcase these assets, I think, I'm hopeful that other owners of Marriott hotels will follow down the same path.

Robin Farley -- UBS -- Analyst

Great. Thank you very much.

Operator

And that is all the time we have for today's Q&A session. I would like to hand the conference back over to our speakers for any concluding remarks.

James Risoleo -- President & Chief Executive Officer

Well thanks to everyone for joining us on the call. We appreciate the opportunity to discuss our third quarter results and outlook with you. We look forward to talking to you in San Francisco. And if you're not in San Francisco in February to discuss our early 2018 results, as well as providing you with more insight into 2019. Have a great day.

Operator

And once again ladies and gentlemen, that does concludes today's conference. We appreciate your participation today.

Duration: 60 minutes

Call participants:

Gee Lingberg -- Vice President, Investor Relations

James Risoleo -- President & Chief Executive Officer

Michael Bluhm -- Chief Financial Officer

Anthony Powell -- Barclays Capital -- Analyst

Chris Woronka -- Deutsche Bank Securities -- Analyst

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Michael Bellisario -- Robert W. Baird & Co -- Analyst

Smedes Rose -- Citigroup Global Markets -- Analyst

Richard Hightower -- Evercore ISI -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

Robin Farley -- UBS -- Analyst

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