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Xenia Hotels & Resorts, Inc. (XHR -0.86%)
Q3 2018 Earnings Conference Call
November 5, 2018, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and welcome to the Xenia Hotels & Resorts, Inc. third quarter 2018 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the * key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your telephone keypad. To withdraw your question, please press * then 2. Please note this event is being recorded.
I would now like to turn the conference over to Cameron Frosch, Financial Analyst. Please go ahead.
Camera Frosch -- Financial Analyst
Thank you, Gary. Good morning, everyone. Welcome to the third quarter 2018 earnings call and webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas, our Chairman 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 an overview of our quarterly results and operating fundamentals. Barry will follow with more details on our portfolio performance and capital projects during the quarter. Atish will conclude our remarks with a review of our current liquidity position and an update on our outlook for the year. 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 in the earnings release that we issued earlier this morning along with the comments on this call are made November 5th, 2018 and we undertake no obligation to publicly update any of our forward-looking statements as actual events unfold. You can find the reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks on this morning's earnings release. An archive on this call will be available on our website for 90 days.
With that, I'll turn it over to Marcel to get started.
Marcel Verbaas -- Chairman and Chief Executive Officer
Thanks, Cameron and good morning, everyone. The US lodging industry continued its trend of low single-digit RevPAR growth in the third quarter as industrywide RevPAR increased by 1.7% during the quarter. Overall revenue growth was tempered by a number of factors that impacted demand. Early in the quarter, the Fourth of July holiday falling on a Wednesday appeared to have an outsized negative impact on both transient and group demand during the week, which got the month off to a difficult start.
Later in the quarter, the Jewish holidays shifting into an earlier part of September, difficult comparisons to last year's strong transient demand in markets such as Houston and Orlando after Hurricanes Harvey and Irma, as well as the negative impact this year from Hurricane Florence on markets such as Washington DC caused industry RevPAR to decline by 0.3% during the month of September.
Despite the monthly and quarterly fluctuations the industry has experienced this year, it is our belief that overall industry fundamentals have not meaningfully changed over the past few quarters and we remain cautiously optimistic about RevPAR growth trends as we finish out 2018 and look ahead to 2019.
Now, shifting to our third quarter portfolio results, same property portfolio RevPAR remained essentially flat compared to last year, as occupancy decreased by 189 basis points, while ADR increased by 2.5%. Our adjusted EBITDA RE was $60.5 million and our adjusted FFO per share was $0.46, decreases of 4.7% and 8%, respectively.
On a year to date basis, our same property RevPAR increased 0.4% through September 30th and our total portfolio RevPAR has grown by 5.1%, primarily as a result of the portfolio improvements we have made since the beginning of 2017. Through September 30th, our adjusted EBITDA RE has increased by 10.8% and our adjusted FFO per diluted share has increased by 7.2%.
Our third quarter bottom line performance matched our expectations. As it relates to revenues, RevPAR growth was slightly below our expectations with the industry factors I outlined earlier impacting our portfolio as well. We also experienced somewhat greater disruption than anticipated due to our guestroom renovations in Orlando and Dallas and our meeting room renovations at our Houston hotels.
On the positive side, we were pleased with our food and beverage and other ancillary revenues that we were able to generate during the quarter, which offset the shortfall on the rooms revenue side. We received stronger food and beverage revenue contributions than we had forecasted at a number of our larger group hotels, including Fairmont Dallas, Hyatt Regency Santa Clara, Renaissance Atlanta Waverly, and Marriott San Francisco Airport Waterfront.
Additionally, we benefited from increased catering contributions in September at our hotels in Houston and Orlando, as last year's post-hurricane transient demand was partially replaced by better group demand this year.
On the expense side, same property hotel EBITDA margin decreased by 87 basis points, primarily due to increased real estate tax expenses and an increase in incentive management fees, due to a change in accrual methodology related to some of our newer acquisitions that Atish will further outline later during this call.
These increases balance out over the course of the year and we are very pleased with the success of our continued focus on expense controls, as evidenced by the fact that our total same property hotel operating expenses only increased by 1.2% year to date.
It was a busy quarter for us on the transaction side of the business and we are pleased with the additions of the Ritz-Carlton Denver and Fairmont Pittsburgh to our portfolio of luxury and upper-upscale hotels.
In August, we completed the acquisition of the Ritz-Carlton Denver, a 202-room luxury hotel located in Downtown Denver, Colorado for approximately $100 million. The Ritz-Carlton Denver is the second Ritz-Carlton we've added to our portfolio in the past year. We're excited to further increase our exposure to this luxury brand in one of our core long-term markets. The hotel is one of the few true luxury products in the Denver market and offers guest rooms that are unrivaled from a quality and size perspective.
Despite some significant additions to supply over the past couple of years in Denver, we believe in the long-term strength of the market, as it continues to exhibit very good demand trends and a strong underlying economy. With none of the supply additions in the market being within the luxury segment, we believe the Ritz-Carlton Denver is positioned well to benefit from the many positive market characteristics.
Moving to our Pittsburgh acquisition, in September, we completed our $30 million acquisition of Fairmont Pittsburgh, a 185-room luxury hotel located in the heart of Downtown. We were able to acquire this hotel at a very appealing price per key and EBITDA multiple, which attracted us to this opportunity despite the relatively small investment size. Pittsburgh is a market we know well through our ownership of assets in the market previously and we have always appreciated the variety of demand generators in the market.
We were compelled to reenter the market when the opportunity arose to own the leading luxury hotel at very favorable pricing. Through the acquisition of Fairmont, Pittsburgh, we now own two Fairmont hotels as well. Our successful ownership of Fairmont Dallas since 2011 and the strong relationship we have built with the brand during that time was an additional factor in our decision to acquire this asset. We look forward to working with the Fairmont team to optimize the operations at the hotel through our dedicated asset management and project management practices.
One common theme in both of these recent acquisitions is that the previous owners were not lodging dedicated investors, which we believe creates and asset management optimization opportunity for us. Additionally, we were able to acquire the hotels with limited competition, as we were able to utilize our market expertise and strong network to acquire to outstanding hotels where we are uniquely qualified to drive growth.
This morning, we announced our purchase of the remaining interest in both Grand Bohemian Charleston and Grand Bohemian Mountain Brook from our joint venture partner for a combined $12.2 million, which represents a slight discount on the investment basis.
As a result of this transaction, we now wholly own both hotels and have no remaining joint venture hotels in our portfolio. Acquiring these partnership interests and paying off the debt encumbering these two assets further streamlined our balance sheet, which remains strong and provides us with significant flexibility to drive growth for the company.
Turning to investments in our existing portfolio, we spent $28 million on capital expenditures in the third quarter, bringing the total year to date expenditures to $84 million. We are pleased to have completed our guest room renovations at Hyatt Regency Grand Cypress and Marriott Dallas City Center and are thrilled with the result of these renovations.
We have also completed the meaning room renovation at Western Galleria Houston and made significant progress on the meeting space renovation at Marriott Woodlands. While we were certainly were impacted on the topline this year because of our increased level of renovation activity, we are proud of the way our teams executed these projects and will look forward to the growth we expect to achieve in 2019 and beyond as a result of these property enhancements.
Barry will provide some additional color on various completed and ongoing projects, including the exciting addition to the meeting space at Hyatt Regency Grand Cypress.
Looking ahead, our investment thesis remains intact and we believe we have continued to position the company well for our investment and balance sheet activities. Through our continued portfolio improvement efforts, we own a very high-quality portfolio of assets primarily in the luxury and upper upscale segments, where we believe the supply and demand dynamics as well as operating fundamentals remain favorable.
While we have remained disciplined in our underwriting, we are excited we have been able to add assets that we believe are accretive to the quality and growth prospects for the company. We continue to be in a strong position as it relates to the balance sheet, which Atish will provide more color on.
While finding the appropriate acquisition targets and executing transactions on both the disposition and acquisition side requires significant effort and dedication, we believe we have a track record and expertise that is second to none in our industry.
With less than two months remaining in 2018, we are continuing to work on a number of transactions that may come to fruition before the end of the year. Based on the status of these potential transactions, our current expectation is that we will end the year relatively balanced between acquisitions and dispositions in 2018, while having once again significantly improved the quality of the portfolio. We look forward to announcing and discussing these potential transactions if and when those are completed.
With that, I will now turn the call over to Barry.
Barry Bloom -- President and Chief Operating Officer
Thank you, Marcel. As a reminder, all of the portfolio information I'll be speaking about is reported on a same property basis for the 40 hotels owned at quarter end, which includes our two third-quarter acquisitions. Same property RevPAR was flat for the quarter as ADR grew 2.5%, and occupancy decreased 189 basis points. Group revenue was up approximately 2.9% for the quarter compared to last year, while transient and contract business were down approximately 1.4%.
While RevPAR performance was flat, food and beverage business was very strong, up 4.1% from last year, primarily from group-driven banquet business. This related in a 1.2% increase in overall revenues.
When looking at our top ten markets based on hotel EBITDA as presented in our earnings release from this morning, Phoenix, Santa Clara, and Boston were our top performing markets, with RevPAR up 16.9%, 4.8% and 2.5%, respectively. Phoenix had a great quarter as we benefited from strong group business at both hotels and lapping of last summer's renovations at Royal Palms Resort and Spa.
Hyatt Regency Santa Clara also benefited from strong group business and our Boston hotels were also notable performers in our portfolio this quarter, with strong occupancy performance. Additionally, other top ten markets posting RevPAR gains for the quarter included Denver, San Francisco, Napa, and Washington DC.
Other markets with significant RevPAR growth included Key West, up 23.7% as we lapped Hurricane Irma, Philadelphia, up 11.7%, and Chicago, up 9.1%. The worst-performing of our top ten markets were Dallas, down 11.4%, primarily due to the guest room renovation at Marriott Dallas City Center, Orlando, down 8.4% due to guest room renovation at Hyatt Regency Grand Cypress and a tough Hurricane Irma comp, and Houston, down 5.3% to a tough Hurricane Harvey comp.
We are pleased with our market performers for the quarter, as same property EBITDA margin was down 87 basis points despite a 15.7% increase in management and franchise fees to a one-time change in methodology and a 12% increase in real estate taxes and insurance as a result of prior year refunds. Gross operating profit for the quarter was down just 20 basis points from last year.
Year to date, EBTIDA margin has declined just 39 basis points and a RevPAR increase of 0.4%, indicating our significant success in expense control throughout the portfolio. We also continued to be pleased with the momentum and results achieved through our property optimization process, which has been conducted at six hotels year to date, with six additional properties scheduled for this year, and at 31 currently owned hotels since the program started in 2014, representing approximately 87% of our room count and $7.5 million of ongoing annual net benefit.
We are particularly pleased with the pop teams' achievements in our 2017 acquisitions, where we have worked diligently with the management teams at Hyatt Regency Grand Cypress, Hyatt Regency Scottsdale Resort and Spa at Gainey Ranch, Royal Palms Resort and Spa, and the Ritz-Carlton Pentagon City to identify and implement significant revenue enhancement and cost control opportunities. We're looking forward to implementing this program at our newly acquired hotels in Denver and Pittsburgh over the next few months.
Turning now to our project management activities during the quarter, we spent $28 million in the third quarter and have spent $84 million year to date. During the quarter, we completed the guest room renovations at Marriott Dallas City Center, which included bathroom to shower conversions in 75% of the guest rooms and at Hyatt Regency Grand Cypress.
In addition, we completed the meeting room renovation at Westin Galleria Houston, the final phase in the dramatic renovation and repositioning of this asset. We also made substantial progress on the Marriott Woodlands Waterway Hotel and Convention Center meeting room renovations, which include over 66,000 square feet of space.
Additionally, during the quarter, we began construction on the new 25,000-square foot ballroom at Hyatt Regency Grand Cypress, doubling the hotel's current ballroom space and adding an additional 32,000 square feet of free function and support space. The addition of the new ballroom will dramatically enhance the competitiveness of the hotel and enable the hotel to significantly grow its group business. With the expansion, the resort will offer 102,000-square feet of flexible meeting space comprised of two ballrooms, 45 meeting rooms, and unique outdoor venues.
We estimate the project will cost a total of approximately $32 million with approximately $6.5 million being expended in 2018. The project is currently scheduled to be completed by fall of 2019.
Additional renovation projects, which will commence in the fourth quarter of 2018 and the first quarter of 2019 include lobby refreshes at the Fairmont Dallas, Hotel Monaco Denver, and Marriott Chicago Medical District, renovation of the meeting space at Marriott Griffon Gate Resort and Spa and Marriott Chicago Medial District, installation of a market at Hyatt Regency Santa Clara, renovation of the restaurant and Starbucks at Marriott San Francisco Airport Waterfront, and most significantly, a guest room renovation at Hotel Monaco Chicago.
With that, I will turn the call over to Atish.
Atish Shah -- Executive Vice President, Chief Financial Officer, and Treasurer
Thanks, Barry. I will discuss two main topics this afternoon. First, I'll discuss our recent activities on the balance sheet and second, I'll address our outlook for the balance of the year. Our balance sheet continues to be a strength for the company. It enabled us to acquire two hotels for the quarter.
We remain well-positioned to take advantage of new opportunities in the months ahead. At present, approximately 85% of our debt is fixed or has been fixed through hedges. The weighted average interest rate for our debt is under 3.8% and our debt maturities are well-staggered.
As for specific activities in the quarter, there were two. First, we closed a new $150 million five-year term loan. The term loan is priced on a grid similar to that of our other unsecured debt with the spread over LIBOR based on our leverage ratio. In October, we drew $65 million on this term loan and we intend to draw the remaining amount as needed in months ahead.
Second, we completed a modification on the mortgage loan for the Andaz Napa. We were able to draw $18 million of incremental proceeds while reducing the interest rate and extending the maturity date.
Turning to equity capital raising, we utilized our ATM during the third quarter, we sold approximately $15 million of stock at a weighted average price of $24.13. Since the beginning of the second quarter, we've sold over $135 million of common stock through the ATM at a weighted average price of $24.02.
At September 30th, our leverage ratio was 3.6 times net debt to EBITDA. That level is within our historical range and positions the company well. Overall, we finished the quarter with approximately $90 million of unrestricted cash and full availability on our $500 million line of credit. In addition, we have $85 million that can be drawn on the term loan that I discussed earlier.
Turning now to our outlook for the full year, we have reduced our estimate of full year RevPAR growth by 50 basis points at the midpoint of our guidance range. RevPAR growth was lower than anticipated in the third quarter, as we've already discussed. Our fourth quarter expectations have come in similarly as well. The reduction is being driven by lower levels of transient business than we expected when we previously gave guidance.
In fact, our group revenue pace has remained about the same over the course of the last few months, with pace up in the 1% to 2% range. I will now discuss our profit measures. As a reminder with regard to the waiting within the quarter, October's adjusted EBITDA represents approximately 50% of the quarter's EBITDA with November representing about 30% and December representing slightly over 15%.
Despite a reduced outlook for RevPAR growth, we expect FMB and other revenue growth to be a driver in the fourth quarter as well, though not quite at the same level as it was in the third quarter. Therefore, our estimate of hotel-level EBITDA is about the same as it was when we last gave guidance.
Two items which are new relative to prior guidance have resulted in a $4 million increase to our adjusted EBITDA guidance at the midpoint. First, cash G&A expense for the full year is now $1 million lower than what we had previously guided to. Second, we expect $3.4 million of earnings from the two hotels we acquired in the third quarter.
As to adjusted FFO, our full-year estimate has increased by $5 million at the midpoint. This reflects the adjusted EBITDA increase as well as $1 million of lower income tax expense. Also, I wanted to mention the two specific items that impacted the third quarter are not expected to reoccur to the same degree in the fourth quarter.
During the third quarter, we experienced growth in real estate taxes that reflected the difficult comparison to the third quarter of 2017. The lumpiness on a quarter to quarter basis relates to timing of refunds as well as step-ups from acquisition activity.
Last year, we received more significant tax refunds in the third quarter. On a full year basis for 2018, we expect real estate taxes to grow by 6% on the same property basis. The second item was a change in methodology of incentive management fee accruals this year relative to 2017. This issue relates to the two Hyatt properties that we acquired in the fourth quarter of 2017. We conform the incentive fee accrual approach to be consistent with our approach on all the other hotels in our portfolio.
Prior to our ownership, incentive management fees were calculated by quarter and reflected the seasonality of the business. This year, our quarterly incentive management fee accruals reflect the full-year projection for incentive fees. Since this approach is different than it was in 2017, we had a large variance in the first quarter and again in the third quarter.
We did not adjust 2017, so therefore, this is entirely a comparison issue. The comparison was favorable to margin in the first quarter of 2018 by 40 basis points as we discussed during our call in May. That favorability was reversed in the third quarter and adversely impacted our margin by 35 basis points. On a full year basis, we expect incentive management fees across the portfolio to be approximately flat to last year on a same property basis.
That concludes our comments. Gary, we'll take our first question, please.
Questions and Answers:
Operator
We will now begin the question and answer session. To ask a question, you may press * then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. At this time, we will pause momentarily to assemble our roster.
The first question comes from Thomas Allen with Morgan Stanley. Please go ahead.
Thomas Allen -- Morgan Stanley -- Analyst
Hey, good morning. Just on the Grand Bohemian acquisitions, can you just talk about the rationale of doing those and what the implied multiple was?
Barry Bloom -- President and Chief Operating Officer
Sure, Thomas. That's a great question. Those were two new developments as of a few years ago. We had a joint venture partner in those hotels. The rationale was really to simplify the balance sheet, as Marcel discussed. Now, we have no joint venture hotels. If you think about the comments we made, we were able to acquire our partner's interest at a discount to their basis.
The total investment, if you look at the initial investment plus the investment we've made now and the debt payoff was a multiple in the mid-teens level for 2018, which given the quality of these assets, we think is appropriate. They're boutique lifestyle hotels. As of last year, the Charleston property's RevPAR was a $260 million range and the Mountain Brook property's RevPAR was in the $190 range.
We do think there's potential upside at these hotels over time as well, particularly on the margin side. So, we were pleased to be able to execute this transaction and again, think from a portfolio perspective, it's helpful because it really does clean up the balance sheet and all our hotels are wholly owned now. With regards to the assets and specifics, I think the pricing was not only fair, but we have some upside that we expect over the next couple of years.
Thomas Allen -- Morgan Stanley -- Analyst
Perfect. Thanks. Then just two more questions on acquisitions -- first, if I did my quick math correctly, your comments around potentially being a net neutral buyer versus seller would imply that you would buy about $50 million more of assets this year. Can you give us more color on that? Second, Sunstone announced this morning that they had sold two assets in Houston. Have you looked at those assets? Any thoughts on where those traded? Thanks.
Marcel Verbaas -- Chairman and Chief Executive Officer
Sure, Thomas, I'll take those. As I mentioned in my comments, we're continuing to work on the number of transactions that we think may come to fruition before the end of the year and certainly would look to obviously provide more information if and when those do come to fruition and talk about those in more detail, hopefully, on our next quarter call. Your math is obviously accurate. You'll balance out what we've bought and sold so far this year.
I wouldn't take my comments to mean it's going to be absolutely zero, but it's going to be relatively balanced between acquisitions and dispositions in our estimation right now. What we're looking at and how we're looking to improve the quality level of our portfolio, the things were currently looking at potentially completing are very much in line with what you've seen us do over the last few years.
As it relates to your particular question on the Sunstone sale of assets, obviously, it's not ready for us to specifically talk about what drove valuations for those assets in their particular case. They're obviously a lot closer to debt than we are. As it relates to the quality level of those assets compared to the assets we own in the market, those are a completely different stratosphere, obviously, and it's something I'm sure Sunstone has talked about as far as how those assets are not a good strategic fit for them and clearly, they're very different from the types of assets we own in that market.
Thomas Allen -- Morgan Stanley -- Analyst
Thank you.
Operator
The next question comes from Michael Bellisario with Baird. Please go ahead.
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
Good morning, everyone. I wanted to focus a little bit more on the disruptive renovation. Can you give us a sense of why that's occuring and maybe where you missed your budget, especially in the context of you guys expecting more disruption, at least that's what you guys communicated on the conference call 90 days, so I guess maybe what you were seeing on those assets and where you missed the mark and why it's happening.
Atish Shah -- Executive Vice President, Chief Financial Officer, and Treasurer
Sure. I'll start us off and Barry can feel free to jump in. As it relates to these disruption, last quarter, we talked about 75-100 basis points. So, we put obviously a little bit finer pencil to that, again, the quarter down the road and as we get closer to the end of the year here. So, our expectations for the full year is right above that 100 basis points, which means a little bit more disruption than we saw in the third quarter, particularly, as it related to the guestroom renovations, particularly in Dallas, a little bit more so than what we saw in some of the other projects we outlined.
How that ties in with the expenditures -- we didn't lower our expenditures in these renovations or do anything less in these renovations. Frankly, the number for the full year guidance we're giving on CapEx is related to timing and timing related to how we spend money on the ballroom expansion we're doing at Grand Cypress. So, some of that money moved into next year, frankly. It was not a reduction in scope or anything related to those kinds of things.
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
That's helpful. Then maybe in terms of the capital recycling and all the updating you guys have done in the portfolio -- higher quality brands, higher RevPAR, but maybe what do you see the market is still missing and what else do you guys want to do to get the investment community and markets to seem more appreciative of the portfolio and the upgrades you've made recently?
Marcel Verbaas -- Chairman and Chief Executive Officer
Well, we can control what we can control, which is obviously talking about and actually executing on the strategy we've talked about for years, not just acquiring assets from a standpoint of increasing RevPAR, but acquiring assets we believe have some real operational upside.
So, if you look at what we've done with the existing portfolio we own and how we've invested in that portfolio, the type of assets that we've added, if you look at even where we started as a listed company three and a half years ago versus where we are today, we've significantly upgraded that portfolio.
Clearly, we've been in an environment of some very muted RevPAR growth, but if you look at how we've been able to move the bottom line in our portfolio during that time, I think it's actually very impressive from our perspective and very highlighted with some of the numbers on the expense side this year and how we've been able to drive some growth through our thought processes.
I think that's what kind of set us apart over the next few years when we look at growth that we should be able to drive in this portfolio we've been able to build. I think our portfolio is a very high-quality portfolio that stacks up very well to our peers.
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
That's helpful. Thank you.
Operator
The next question comes from Bryan Maher with B. Riley FBR. Please go ahead.
Bryan Maher -- B. Riley FBR -- Analyst
Good morning, Marcel. Quick question for you, I guess -- you guys are making above average progress on your acquisitions relative to a number of your peers. Can you talk about given the lateness of the lodging cycle, are you seeing any narrowing of the bid-ask spread that could compel future transactions and are you seeing any changes in cap rates relative to the increase in interest rates?
Marcel Verbaas -- Chairman and Chief Executive Officer
Well, I think the last part of the question is probably a little bit early to say if there is any kind of meaningful change in CAB rates or expectations. I think a lot of it comes down to the individual asset and the individual market and what drives potential growth in those assets. I can speak very specifically, obviously, to the acquisitions we've made.
We feel that regardless of where you are in the cycle, these are really high-quality assets we've been able to buy at a discount per replacement cost with what we believe is operational upside that exists in those assets because of some of the factors that I mentioned. They're assets where we think we can prove bottom line performance because of our ownership of these types of assets and having strong relationships with Marriott and with Fairmont as it relates to the Ritz-Carlton and Fairmont, the Fairmont acquisition.
So, we think there's a way to move the bottom line. We think that us and the type of owner that we are versus non-lodging dedicated investors that own these two assets previously provide some real good opportunity. In both of these cases, we dealt with very limited competition because of the network that we have in place. S
o, the Ritz-Carlton Denver has been publicized, I believe, that it was an off-market transaction for us, which it was, and the Fairmont Pittsburgh because of the size of the transaction because of the network that we have in place. So, the Ritz-Carlton Denver has been publicized. I believe it was an off-market transaction for us, which it was, and the Fairmont Pittsburgh, because of the size of the transaction, and probably a market that maybe not quite as many people were looking at, but created a really compelling opportunity for us to acquire that asset.
So, that's how we turned over a lot of stones to find the right kind of assets for us. We have a lot of stuff in the pipeline that we underwrite. Some work out, some don't, and these are two that we were very excited adding to the portfolio.
Bryan Maher -- B. Riley FBR -- Analyst
So, you've talked a couple of times on this call about relationships and finding transactions via your relationships. How deep is that market? Is it measured in hundreds of millions? Is it more than that? How deep should we think that pipeline can be?
Marcel Verbaas -- Chairman and Chief Executive Officer
Well, it's everyone's dream to find off-market transactions and those are hard to find. Most sellers and all sellers are sophisticated sellers that will not let a buyer steal an asset from them. I wouldn't say that we can always count on being able to get off-market transactions like we did in the case of the Denver acquisition, but it comes down to having the types of relationships throughout the industry that we have with management companies, with brands, with owners.
We've bought from many different types of owners in the industry and this is not something we started three and a half years ago when we became a listed company. We've been at this in this company for the last 11 years, really, and much more so before that through prior companies in prior positions.
So, I think overall, our relationships are a strength of this company and our expertise in doing acquisitions and dispositions is a real thing for this company. It's hard to say what the market for off-market transactions is X-amount because that's hard to quantify, obviously.
Bryan Maher -- B. Riley FBR -- Analyst
Thank you.
Operator
The Next question comes from David Katz with Jefferies. Please go ahead.
David Katz -- Jefferies -- Analyst
Good morning all. I just wanted to follow that up from the perspective of the visibility into that pipeline what you have and the likelihood of success relative to others who may be looking at marketed transactions, is there any difference in the sort of timing, visibility, or likelihood of success when you focus on off-market versus on-market transactions?
Marcel Verbaas -- Chairman and Chief Executive Officer
Well, to be fair, the bulk of the transactions that we look at and that we underwrite are certainly marketed transactions too. So, I wouldn't say there is this big difference in the way that we look at the potential pipeline versus maybe some of our peers. I just think that because of the expertise we have and the experience we have, we have found a real balance in our pipeline of some of these types of transactions and then transactions that are maybe a little bit more widely marketed.
But ultimately, it all comes down to your belief in an asset and how you think your company can drive growth and profitability in a particular asset going forward and these are two very good examples of transactions we were able to add to the portfolio that fit extremely well for us and where we feel we can move the bottom like I talked about before.
That's not to say we don't very look very hard at the number of more heavily marketed transactions, where we also believe we bring something special to the table or different to the table where maybe some of our peers feel the same way or in some of those cases, it comes down to how do you execute and how are you able to underwrite?
Can you underwrite more quickly than other people can? Can you provide certainty for sellers a little bit more quickly than other people can? Can you put certain things -- can you do certain things during the process that make you the type of buyer people want to transact with. That's certainly the case in some of our acquisitions too where we have a track record, let people know how we perform in the space and how we are providing certainty and how we are a very good buyer for those types of sellers that are going through that process.
David Katz -- Jefferies -- Analyst
Right. Thank you for that. One other, if I may -- obviously, this a solid quarter and the deals you made are attractive and additive, but just to look at the devil's advocate perspective with higher-end properties like Fairmont, who are higher RevPAR and farther up the pricing scale, is there not embedded more long-term volatility and operating performance embedded in those versus things that may be more mid-range?
Marcel Verbaas -- Chairman and Chief Executive Officer
Well, we've talked about some of that. Our view on this is we've owned -- in the business of this company, we've owned a lot of select service assets during the last downturn. Frankly, our view of it is if we've acquired these types of assets that we've just acquired recently at the right kind of basis with the right kind of operational upside that we believe exists in those assets, that offsets some of the things you're talking about.
Also, we feel that in our space, where we currently play in the luxury and upper upscale segments, there is just more where we can move the needle and use our asset management practices to actually drive profitability. You get to a point where a select service hotel is running very efficiently at high margins, but during a downturn, it is tough to scale down anything in those assets because you're already running a very lean operating model.
In our case, we feel like these are assets where we can still pull a lot of different kinds of levers, both on the upside, driving growth going forward and to the extent that they're -- you do hit a time where things may be a little bit more difficult. There's also more that you can just do on the operational side that you can necessarily do on the select service side.
David Katz -- Jefferies -- Analyst
That's fair. I appreciate your answers thanks for taking my questions.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Marcel Verbaas for any closing remarks.
Marcel Verbaas -- Chairman and Chief Executive Officer
Thank you, Gary. Thanks, everyone for joining us today. We look forward to seeing many of you later this week at the Nareit Conference in San Francisco.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Duration: 40 minutes
Call participants:
Camera Frosch -- Financial Analyst
Marcel Verbaas -- Chairman and Chief Executive Officer
Barry Bloom -- President and Chief Operating Officer
Atish Shah -- Executive Vice President, Chief Financial Officer, and Treasurer
Thomas Allen -- Morgan Stanley -- Analyst
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
Bryan Maher -- B. Riley FBR -- Analyst
David Katz -- Jefferies -- Analyst
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