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Xenia Hotels & Resorts Inc  (NYSE:XHR)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Xenia Hotels & Resorts Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Lisa Ramey, Vice President of Finance. Please go ahead.

Lisa Ramey -- Vice President, Finance

Thank you, Andrea. Good afternoon, everyone, and welcome to the fourth quarter and full year 2018 earnings call and webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas, our Chairman and Chief Executive Officer; Barry Bloom, our President and Chief Operating Officer; and Atish Shah, our Executive Vice President and Chief Financial Officer.

Marcel will begin with an overview of our company's strategy and discussion on our operating results. Barry will follow with more details about fourth quarter and full year 2018 results and details on our capital expenditure projects and Atish will conclude our remarks with a discussion of our 2019 guidance and a review of 2018 capital markets activities. 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 only as of today, February 26th, 2019, 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 this morning's earnings release. An archive of 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, Lisa. Good afternoon, and thank you for joining the call. We are pleased to be able to discuss what we believe was a very successful fourth quarter and full year 2018 for the company in many regards.

But before I turn to specific achievements and results for the quarter and the year, I believe it's important and informative to revisit the pillars of our company's strategy, we laid out in detail at our Investor Day in May, 2016. As we review our performance as a company and as a management team over the past several years.

The first pillar of our company strategy is a transaction-oriented mindset with a focus on diversification, quality and portfolio enhancement. Since well before our listing in February 2015, and continually so since that time, we have transformed our portfolio through transactions.

Since our listing four years ago, we have not only continue to improve our overall portfolio metrics such as RevPAR, EBITDA per key, geographic diversification and projected competitive supply increases. But most importantly, we have improved the growth profile of the company as we look to the future.

We have accomplished all of this through primarily single asset and small portfolio transactions. While the smaller deal sizes less headline grabbing than a large portfolio transaction would be. Our execution has been strategic as it has allowed us to be thoughtful and methodical about each trade and enable us to match our acquisitions with dispositions and smart capital allocation decisions.

Our transaction strategy has allowed us to buy assets at attractive pricing without the need to pay significant premiums for large portfolios or companies. Each of our acquisitions has been directly on strategy. As a result of our acquisition activity since our Investor Day, we have doubled our exposure to luxury hotels and resorts up to 26% from 13% and further enhanced our geographic and brand mix.

We have acquired these assets at significant discounts to replacement cost. And most importantly, our acquisitions have provided us with significant opportunities to drive asset values through our asset management and project management expertise, as we unlock revenue growth potential and identify expense efficiencies.

Meanwhile, our dispositions have focused on assets that generally shared one or more of the following characteristics. One, significant directly competitive supply additions. Two, substantial near-term capital requirements without an appropriate projected return.

Three, hotel operations that we believe are at or near optimization from an asset management perspective or unfavorable ground lease terms and/or five assets that are not closely aligned with our strategy of owning uniquely positioned luxury and upper-upscale hotels and resorts in top 25 US lodging markets and key leisure destinations.

We continue to executing on this transaction strategy throughout 2018 and during the fourth quarter specifically. And I will discuss the details of the four exciting transactions we completed during the quarter shortly.

The second pillar of our company strategy is an emphasis on a conservative leverage profile and a healthy balance sheet throughout various lodging cycles. Our net debt to adjusted EBITDA multiple has fluctuated from 3.1 times to 4.2 times since our listing in early 2015.

We believe this to be an appropriate and conservative range for this part of the lodging cycle especially when considering that we have no preferred equity outstanding. Additionally, we have lengthened our debt maturity schedule, improved our mix of fixed and floating rate debt, and further streamlined our balance sheet by now wholly owning all 40 hotels in our Portfolio.

Through our capital allocation efforts in 2018, we ended the year at 3.6 times net debt to adjusted EBITDA over half a turn below where we began the year. At a time where the lodging REIT balance sheets range greatly from 1 times to over 9 times net debt to EBITDA. We believe our balance sheet is at an optimal level providing flexibility to continue our portfolio enhancement should opportunities present themselves.

And lastly aggressive asset management initiatives and leveraging our relationships with both brands and managers is the third pillar of our company strategy. We have some of the strongest relationships in the industry with the best brand and third-party management companies in the business.

Due to continued evolution of our portfolio over the past four years, we have maintained a significant relationship with Marriott while expanding our relationships with Hyatt, IHG through Kimpton and Accor through Fairmont.

We are excited to have also recently welcomed Hilton back as an operator of one of our hotels. Through the acquisition of what is now the Waldorf Astoria Atlanta Buckhead. We believe that our asset management initiatives and the expertise of the management companies operating our assets day-to-day drive optimal results at our hotels.

While the composition of our portfolio continues to evolve, we have been able to improve same property hotel EBITDA margins, each of the four years since our listing. Despite a same property RevPAR decline in 2016 and modest RevPAR growth in 2017 and 2018. We believe this is reflective of the effectiveness of our asset management platform overall and our property optimization process in particular.

Over the past three years, we have completed 27 parks resulting in recommendations that have helped to drive meaningful improvements in revenues and expense controls. We look forward to continuing this successful program.

Now let's move to our fourth quarter and full year results. During the quarter, we had net income attributable to common stockholders of $100 million. Adjusted EBITDAre was $75.7 million and adjusted FFO per share was $0.58. Our same-property portfolio RevPAR grew 1.6% in the fourth quarter and our same property hotel EBITDA margin increased by 47 basis points.

For full year 2018, we had net income attributable to common stockholders of $193.7 million. Our adjusted EBITDAre of $299.8 million was near the high end of the guidance range we provided in November. And adjusted FFO per share was $2.22, a 7.8% increase over last year and above the high end of the guidance range we provided for 2018 at the beginning of the year.

We are pleased to have provided this FFO per share growth in 2018, as we continue to focus on a balance between earnings growth and enhancing the quality of future growth profile of the company. We continue to be pleased with our operators focus on expense controls, as evidenced by our results in the fourth quarter and for the full year.

2018 marked another year of hotel EBITDA margin growth for our same property portfolio accomplished with a modest 1.2% RevPAR growth. Total same property operating expenses were only up 1.3%, resulting in same property hotel EBITDA margin improvement of five basis points for the full year.

We believe this is an impressive result in the current operating environment. We continue to work with our operators to find opportunities for efficiencies and we are particularly pleased with the performance of our 2017 and 2018 acquisitions as we integrated each into our portfolio.

Our transaction activities in 2018 were successful continuation of our focus on upgrading our portfolio. We were a net seller for the year, but only modestly so as our activities were relatively balanced between acquisitions and dispositions. We completed nearly $800 million in transactions, including four acquisitions totaling approximately $360 million and three dispositions for a total of $420 million. We were pleased with the pricing and execution of these transaction. We added four luxury hotels to the portfolio and sold three lower tier hotels, bringing our total portfolio mix based on room counts to 26% luxury, 72% upper-upscale and 2% upscale.

We have previously discussed the sale of Aston Waikiki Beach Hotel in the first quarter and the acquisitions of the Ritz-Carlton, Denver and Fairmont, Pittsburgh in the third quarter. During the fourth quarter, we acquired two additional luxury hotels with significant upside potential and sold two select-service hotels with more limited growth opportunities from an operational perspective.

In November, we completed the acquisition of Park Hyatt Aviara Resort, Golf Club & Spa, and Carlsbad outside of San Diego, California for $170 million or approximately $520,000 per key. This pricing represents a significant discount to replacement cost and to the prices paid for a comparable resource in the surrounding areas and nationwide in recent years.

As we detailed in our earnings release this morning, we anticipate spending between $50 million and $60 million at the resort over the next several years. Barry will provide further detail on our capital plans later in the call. As many of you may know, the resort was built as a Four Seasons Resort about 20 years ago and as such it is very well built. The opportunity here lies with the lack of capital invested at the property over many years.

We believe that the necessary cosmetic upgrades will allow the resorts to regain its proper positioning and successfully compete with its competitive set once again. Leading to significant increases in RevPAR and operating margins. We are excited to have acquired this high quality assets located on 222 acres of fee-simple land and a desirable coastal California location.

We acquired the resorts through a competitive process and believe that our transaction experience and ability to underwrite thoroughly and expeditiously were determining factors and thus being able to add this outstanding resort to our portfolio.

In December, we completed the acquisition of a 127 room luxury hotel in the Buckhead area of Atlanta for $53.5 million. Immediately upon completion of this acquisition, we rebranded the hotel as Waldorf Astoria Atlanta Buckhead and engaged Hilton as the operator of the hotel.

Simultaneously with this acquisition, we purchased a freestanding restaurant that as part of the same mixed use developments for $7 million. The restaurant is currently leased and operated as Del Frisco's Grille.

As I mentioned before, we are excited to have added Hilton back into our portfolio as manager and believe strongly in the value that the Waldorf Astoria brands will be able to add to the asset. While the hotels are in good physical condition, we intend to complete a number of ROI projects to further enhance the appeal of the properties, food and beverage facilities and rooms product over the next couple of years.

In 2019, our focus for this hotel will be on working with Hilton to optimize revenue and expense strategies. Also during the quarter, we completed the sale of two of our select-service hotels. Hilton Garden Inn Washington D.C. and Residence Inn Denver City Center for a combined sales price of $220 million, which equates to a 14.1 times multiple on the blended trailing 12-month hotel EBITDA.

We took advantage of strong private buyer interest in these two assets. In markets where we recently added high quality luxury hotels through the acquisitions of the Ritz-Carlton, Pentagon City and the Ritz Carlton, Denver. By selling the two hotels at attractive valuations, we further strengthened our balance sheet while effectively trading assets with what we believe to be more limited upside for assets with significant value enhancement opportunities.

Our focus is on unlocking the value potential of our hotels and resorts, which in turn should lead to greater RevPAR, margin improvements, higher EBITDA per key and FFO growth. We believe that the hotels we added in 2017 and 2018 provide a significantly greater opportunity to increase value than the assets we have sold over the past few years.

Meaningful top and bottom line improvement opportunities exist at the four properties we acquired in 2018 through a combination of capital expenditures, revenue optimization strategies and expense controls. It is worth noting that all four of the hotels we acquired in 2018 were previously owned by financial institutions that were not lodging dedicated investors.

Resultingly, we believe we have intriguing and ample opportunities to optimize operations at these assets under our ownership and through our strong relationships with Hyatt, Marriott, Fairmont and Hilton.

As outlined in our earnings release this morning, despite the many positive improvements we have made in our portfolio through our transactions and our well received capital expenditures, we expect another year of relatively modest RevPAR growth in 2019 relative to 2018. This is primarily due to the current overall economic climate as well as elevated supply growth in many markets.

The midpoint of our guidance results in adjusted EBITDAre and adjusted FFO which are down slightly compared to last year. Our expectations for improved performance at recently renovated hotels and newly acquired properties are being offset by expense growth resulting from higher wage and benefit costs and greater real estate tax and insurance expenses.

Atish will discuss these factors in more detail shortly. We continue to be excited about the long-term growth opportunities embedded in our portfolio. As a result of the recent moves we have made as well as our strong balance sheet, we believe the company is well positioned for earnings growth in the years ahead.

With that, I'll turn the call over to Barry.

Barry Bloom -- President and Chief Operating Officer

Thank you, Marcel. As a reminder all the portfolio information I'll be speaking about is reported on a same-property basis for the 40 hotels owned at year-end, which includes our two fourth quarter acquisitions.

Same property RevPAR grew 1.6% for the quarter driven by a 2.5% increase in ADR as occupancy declined by 62 basis points. Food and beverage continued to be a strength in our portfolio of 2.1% for the quarter and continued to be driven by strong contribution from in-house groups across the portfolio and in particular at our larger group oriented hotels.

Overall, we achieved 1.9% increase in same property total revenues for the quarter. When looking at our top 10 markets based on 2018 hotel EBITDA, which have changed this quarter as a result of our fourth quarter transactions. Our top performers were Napa up 15.8%, Phoenix up 8.5%, Boston up 6.7% and Santa Clara up 4.3%.

Our Napa hotels benefited from strong market growth over a weak 2017, which was impacted by the Northern California wildfires. Our Phoenix, Scottsdale hotels performed well as a result of strong group business which laid the foundation for transit compression.

Boston had strong occupancy in the quarter as Hotel Commonwealth benefited from the Red Sox postseason activity and a World Series win. Additionally, other top 10 markets posting RevPAR gains for the quarter included San Francisco and Dallas, which achieved growth on top of the double-digit RevPAR growth achieved in the fourth quarter of last year.

The worst performing of our top 10 markets for the quarter were San Diego down 2.2% due to softer in-house group activity and Orlando down 1% has elapsed a strong fourth quarter in 2017 when the market benefited from post hurricane demand. For the full year, our same property portfolio experienced 1.2% RevPAR growth driven entirely by ADR which was up 1.4%, while occupancy remained essentially flat.

Group room revenue for the year was up almost 2% compared to last year with transient and contract business also up by less than 1%. For the full year 2018, the strongest of our top 10 markets were Phoenix up 6.2%, Santa Clara up 6%, and Atlanta up 5.1%. Other strong markets included Pittsburgh, New Orleans, and Salt Lake City.

In total 15 of our 26 markets experienced positive RevPAR growth in 2018. Our most challenged market for the year was Santa Barbara which was down 11% as the market recovered slowly from the mudslides in late 2017 and early 2018 and the absorption of new supply, which will continue into 2019.

As Marcel discussed earlier, we continue to be pleased with our margin performance. 2018 marked four consecutive years of margin growth in our same property portfolios at year-end. For the year, same property EBITDA margin grew five basis points with total expenses up only 1.3% despite a 2.5% increase in wages and benefits and a 5.3% increase in real estate taxes and insurance as you're able to find incremental savings elsewhere.

In particular, we were extremely pleased with the integration of our 2017 acquisitions into our asset management platform. On average, the four hotels we acquired in 2017 grew margin almost 140 basis points on RevPAR growth of 2.8%.

These properties I'll went through are detailed property optimization process. We've identified numerous revenue and cost saving initiatives including aligning food and beverage pricing within each property, standardizing guest room amenities and collateral, implementing charges or revisiting pricing for certain guest services such as roll-away beds.

These pops provide us with a detailed playbook we follow on each acquisition and our proven performance reiterates our unique ability to find operational efficiencies at hotels new to our platform, and gives us confidence to our investment thesis for each of our 2018 acquisitions, which to date have exceeded our initial underwriting expectations.

During 2018, we completed reviews at eight hotel through our property optimization process. We identified nearly $3 million in potential net benefits at those properties, bringing our total approximately $11 million of properties we currently own since we began this program in 2014 and resulting nearly $7 million of annualized net benefit.

In 2019, this dedicated in-house team will complete visits at our four new acquisitions as well as fully implement a program we call POP 2.0, which revisits properties that have been visited previously and focuses on both retention of previous savings as well as identification of new opportunities. In addition to these internal opportunities, we expected a number of brand driven initiatives will help improve portfolio performance.

The continued focus and implementation of resort and destination fees further implementation and collection of cancellation fees, lower chain service costs, stronger brand loyalty programs, and operating initiatives and support of sustainability strategies will also helped to offset wage and benefit increases in the portfolio. I would now like to turn to a quick review of our capital projects completed last year before discussing our exciting upcoming capital plans for Hyatt Regency Grand Cypress and Park Aviara.

In 2018 we spent $108 million in capital expenditures. We completed guest room renovations at seven current hotels and resorts. Andaz Savannah, Hotel Monaco Denver, Hyatt Regency Grand Cypress, Lorien Hotel & Spa, Marriott Chicago at Medical District, Marriott Dallas City Center and Westin Oaks Houston as well as at Hilton Garden Inn in D.C. and Residence Inn, Denver both which were sold in the fourth quarter.

In addition, we completed major meeting space renovations at Westin Galleria in Houston, Marriott Woodlands and Hyatt Regency Scottsdale and significant food and beverage outlets upgrades and additions at Hotel Monaco Chicago, RiverPlace in Portland, Marriott San Francisco Airport Waterfront and Westin Galleria.

In addition to completing the guest room renovation at Hyatt Regency Grand Cypress. In September, we commenced construction of the 25,000 square foot ballroom and 32,000 square feet of pre-function and support space. As a reminder, this new facility is scheduled to be completed in the fourth quarter of 2019 with approximately $25.5 million of capital lease spent in 2019 as part of a total project cost of $32 million.

As of December 2018, below-grid infrastructure and the ground floor slab had been completed. The final phase of the resorts meeting space upgrade a comprehensive $7 million renovation of the existing meeting space is scheduled to begin in 2020. The resorts management team is enthusiastic about the quantity and quality of business they're putting on the books for this new facility, which will have some of the highest quality finished space in this very competitive market.

Now turning to Park Aviara Resort, Golf Club & Spa. We'd like to discuss our plans for the resort, which are an integral part of our overall investment thesis. The capital plan for the resort is expected to total between $50 million and $60 million will include a transformational renovation of the property and its amenities.

This renovation will include a straightforward yet complete renovation of guest rooms and corridors including casegoods and softgoods. Renovation and reconcepting of food and beverage outlets and the renovation of the meeting spaces and pre-function areas, including identification and creation of new meeting space within the resort.

The lobby and public areas will be improved to provide more open visitors and better flow throughout the property. In addition, substantial upgrades will be made to the spa and golf facilities as well as exterior landscaping, outdoor meeting space, and pool features and amenities.

As Marcel discussed the properties originally developed the Four Seasons Resort and opened in 1997 as would be expected the construction of the property is solid and the resort has a great foundation for us to work with because the resort is in such good physical shape in terms of the building and infrastructure this transformational renovation is focused primarily on guest facing areas with a scope as noted, we expect to drive significant ROI.

We are confident in the overall renovation budget, having spent the last few months with an outstanding team of designers, the hotel's management team and Hyatt's corporate team with whom we have worked on many successful ROI driven renovations over the past few years.

This transformational renovation will modernize resort and enhance appeal to the broad range of market segments that it has the potential to serve. We believe strongly that this renovation will be very well aligned with the Park Hyatt brand and its customers will position the resort extremely well against its competitive set, enabling it to regain much of the market share it has lost over time.

The renovation is scheduled to commence in the fourth quarter of 2019. We are targeting completion in the first quarter of 2021. The total renovation spend we anticipate spending approximately $15 million for the project this year.

With that I will turn the call over to Atish.

Atish Shah -- Executive Vice President and Chief Financial Officer

Thank you, Barry. I will cover two topics today. First, I will discuss our 2019 outlook and then I will turn to a brief review of our balance sheet.

For full year 2019, we expect adjusted EBITDAre to decline by approximately $4 million relative to 2018 as reflected by the midpoint of our guidance range at $296 million. As compared to last year, we expect better hotel operating results and lower expected G&A expense.

Offsetting that is a $3 million net transaction activity headwind. The three hotels we sold last year contributed approximately $19 million to EBITDA in 2018. The four hotels we acquired last year are expected to earn $16 million of incremental EBITDA in 2019 relative to 2018. In addition, we received a net $5 million in non-recurring business interruption insurance proceeds in 2018.

Taken together the net effect of these ins and outs yields adjusted EBITDAre that is expected to be slightly down year-over-year. At the midpoint of our guidance range, we expect 1.5% RevPAR growth in 2019. We're expecting RevPAR growth above 4% at our hotels and resorts in San Francisco, Houston, Napa and Key West.

Hotels that were under renovation last year in markets such as Dallas and Denver are also expected to show better than average RevPAR growth. Across the portfolio, we expect displacement due to renovations to be less of a drag to RevPAR than it was in 2018.

For the year, we expect a 20 basis point negative impact to RevPAR versus 90 basis points in 2018. For 2019, we expect disruption to occur mostly in the first quarter, but at a much lower level than in last year's first quarter. As a reminder in 2018, we had 220 basis points of impact in the first quarter followed by 50 basis points and 75 basis points of impact in the second and third quarters respectively and not much impact in the fourth quarter.

The supply growth forecast in our competitive markets continues to decline. On an overall rooms weighted basis, supply growth in our market tracks is expected to be approximately 2.5% in 2019. That number has come down from last year due both to our transaction activity and new hotel developments taking longer to be built and open.

Some markets such as Savannah and Portland are expected to experience higher levels of supply growth. Other markets such as Chicago and Boston will be more challenged due to lower citywide convention demand than last year. However, as we look across our most significant markets such as Orlando, Houston and Phoenix, our positioning gives us confidence in our outlook.

This year has started off well as our RevPAR grew 3.4% in January. We are on track to post even higher RevPAR growth in February. The Super Bowl in Atlanta as well as renovation comparisons over last year are expected to make very strong top line in the first quarter relative to 2018.

Turning to the group side of the business, we began the year with about two-thirds of our expected full year group revenue as definite. As a reminder, group represents approximately 35% of our rooms revenue. At year-end 2018, our 2019 group revenue pace relative to last year is up approximately 2%. For a top 15 group hotels which together represent 75% of our definite, our 2019 group revenue pace was up over 3%.

Turning briefly to other revenues, we are expecting growth in this area to be higher than RevPAR growth. We expect to see food and beverage revenue growth outpaced RevPAR growth as it did in 2018. One of the key drivers of this is improved banquet and catering revenue as a result of our mix of group business. As the same property hotel EBITDA margins, we expect these to be approximately flat in 2019 versus 2018.

We expect continued success in finding margin growth opportunities to offset a more difficult expense environment. As Barry and Marcel each mentioned, we grew margins last year for hotels acquired in 2017 and expect those opportunities to continue for newly acquired hotels.

Offsetting this will be expense increases that we together with other hotel owners are facing.

In particular as to expenses of a more non-operational natures, we are seeing continued inflation in certain areas. We expect property tax expense to grow almost 7%. We expect property and liability insurance expense to grow nearly 10%. Given that our portfolio continue to evolve last year, we would like to provide some additional detail about the seasonality of our earnings.

We expect to earn approximately 30% of our hotel EBITDA in the second quarter followed by nearly 25% each of the first and fourth quarters and just over 20% in the third quarter. As to business interruption insurance, we have reached final settlements on all, but one of our outstanding claims.

We have one remaining outstanding claims still open at Hyatt Centric Key West Resort & Spa, but we are not expecting significant proceeds given that business there is quickly returning to more normalized levels. Moving to adjusted FFO. We are currently projecting to earn between $231 million and $247 million.

It reflects the adjusted EBITDAre that I just discussed. In addition, we expect a $2 million increase in interest expense due to new financings and higher interest rates as compared to last year. On a per share basis, this results and guidance of $2.02 to $2.16 of adjusted FFO per share.

This is based on a 114.4 million weighted average diluted shares and units outstanding for the full year. Now I'll move to my second topic, our balance sheet. During 2018, we continue to improve our balance sheet profile. Subsequent to year-end, we completed the final drawn our new unsecured term loan. The outstanding balance on the loan is now $150 million. Pro forma for this draw approximately 80% of our debt is fixed or hedged to fixed.

This compares favorably to year end 2017 at which time a little over 70% of our debt had fixed rates. Our weighted duration is currently 4.8 years. Finally, in a rising rate environment, our weighted average interest rate is 3.9%, which is roughly 20 bps higher than it was at year-end 2017. At year-end, we had net debt to adjusted EBITDA of 3.6 times. That was over half a turn below the leverage ratio at the beginning of 2018.

We continue to have well staggered debt maturities having addressed all 2019 loan maturities and all but one small 2020 loan maturity. Our balance sheet is strong with approximately $150 million of available cash at present. We have 30 unencumbered assets that together represent approximately two-thirds of our annual hotel EBITDA. We continue to believe that our balance sheet strength can support our strategic goals.

Turning to the equity capital markets front, we finished 2018 having sold over $135 million of common stock through the ATM at a weighted average price of $24.02, while we did not buy back stock last year, we continue to believe share repurchases can be a good tool to drive shareholder value as evidenced by our track record on this front.

That concludes our comments. Andrea, could we move to the Q&A session and take our first question at this time?

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) And our first question will come from David Katz of Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi. Good afternoon, everyone.

Marcel Verbaas -- Chairman and Chief Executive Officer

Good afternoon, David.

David Katz -- Jefferies -- Analyst

Hi. I wanted to ask just a strategic question and I'll admit that I got on just a few minutes late. So, I apologize, if I missed it, but it has really has been a pretty busy year with the amount of buying and some selling. Should we think about the story transitioning a little bit to harvesting what you've planted at this point in the portfolio or do you expect that there's more activity that may be coming our way the rest of this year?

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, David. As I started our prepared remarks, and as you mentioned, you may have joined a little bit late, Dave. I did start with an outline again of kind of the three pillars of our company's strategy, as we've outlined them a number of years ago.

And obviously transaction activity to enhance portfolio quality over time in the hands of the growth profile of our earnings over time is a very significant pillar of that strategy, and it's something that we've -- to your points very active over the past few years.

What we want to do go forward is make sure that we maintain a very strong balance sheet that gives us optionality to the extent we find interesting opportunities out there. I do believe that's through our activities internally on renovations on assets where we've done a lot of work over the last couple of years, and through the acquisitions that we've made over the last few years, we've set ourselves up very well for the next few years.

And as we continue to look ahead, we'll look at opportunities to continue and to enhance that overall portfolio quality, and it will really depend on what we see out there from an opportunity standpoint.

David Katz -- Jefferies -- Analyst

So, if I can just follow that up. I appreciate you repeating yourself for me. But is there a weight on the performance of the portfolio, if I were to just play devil's advocate for a moment based on the fact that there is a number of new hotels and some construction going on. Is there a weight on the portfolio for a period of time and when might that weight lift, if in fact there is one?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, we obviously talk a little bit about renovation impact throughout the portfolio, which was frankly a little bit more elevated last year. We had about 90 basis points of impact through renovations on our RevPAR growth. For this year, as we sit here today, it's about 20 basis points, and it's actually a lower number of assets where we have renovations going on this year.

We just have a couple of bigger projects and the ones that Barry discussed as it relates to Grand Cypress with the ballroom that we're adding, which will review as a real ROI opportunity for us and then obviously the work that we'll be doing at Aviara.

So we think that those are going to be great growth vehicles for us going forward. But we certainly are looking to benefit and harvest the improvements that we've made at the assets that we frankly touched over the last two or three years.

David Katz -- Jefferies -- Analyst

Got it. Okay, thank you. Nice quarter.

Operator

Our next question comes from Michael Bellisario of Baird. Please go ahead.

Michael Bellisario -- Baird -- Analyst

Good afternoon, everyone.

Marcel Verbaas -- Chairman and Chief Executive Officer

Good afternoon.

Michael Bellisario -- Baird -- Analyst

Marcel, can you maybe give us your updated view on larger scale M&A opportunities and how you approach that maybe from both angles?

Marcel Verbaas -- Chairman and Chief Executive Officer

As I also pointed out in my comments at the start of the call, we were very pleased with how we've been able to grow our portfolio through very, very targeted acquisitions that are right on strategy for us.

So, we haven't found, frankly from our perspective at larger scale opportunities on a portfolio -- from a portfolio standpoint or a company standpoint that we have found more attractive than kind of building through the strategy that we have maintained over the past few years.

And I've obviously stated in the past that we've done frankly everything as a management team as it relates to transactions either that's one-off transactions, portfolio transactions, company transactions that we've been very well versed and being on both sides of those type of transactions in the past.

And our view is it hasn't changed over time, our view is always that we're looking to drive long-term shareholder value, and that's where our focus will remain on any side of any transaction in the future.

Michael Bellisario -- Baird -- Analyst

Got it. And then as you think about the single asset acquisitions kind of what does the pipeline look like today and then how are the pricing expectations changed at all recently given the recent market volatility?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, I probably sound somewhat like a broken record, sometimes when these questions come up as it relates to this, because I don't think the pipeline is necessarily terribly deep, currently.

We're not seeing just a kind of a wealth of opportunities out there, but we continue to look at a fair number of things that are out there, and historically we've been able to find those opportunities even at a time where maybe the pipeline has been a little bit lighter.

So, I haven't seen a dramatic change there. I think over the past few months, we haven't really seen an enormous shift one way or the other as far as the depth -- the pipeline goes and/or pricing expectations, as you know, there have been a few transactions in the space recently of some larger transactions, and some transactions that happened with some of our peer REITs where it appears that pricing is staying relatively stable.

Michael Bellisario -- Baird -- Analyst

That's helpful. And then just last one on San Francisco. I know you mentioned kind of better than portfolio average growth there, but can you maybe help us think about your properties in that area and then kind of the compression that you're expecting to get at those hotels outside of the CBD?

Barry Bloom -- President and Chief Operating Officer

Yes, sure, Michael. So, when we talk about San Francisco, as the market, it's the one hotel the Marriott San Francisco Airport Waterfront distinguished from Napa, which we talk about separate, it's a separate market considered by SGR and then Santa Clara also separate market.

But speaking specifically about the San Francisco Airport Marriott property, we do expect good growth there this year. It's a little -- it will be a different -- a little different growth and more muted growth then you'll see from the downtown hotels, but it follows for us three years of significant RevPAR growth in '16 '17 and '18 where we never saw decline in fact continuing to grow RevPAR significantly in '16 and then on a more moderate basis in '17 and '18.

So, it plays a little bit different market there we do get compression downtown for sure, but our primary business is serving the mid peninsula. A quarter on, we expect good growth there, but not necessarily a huge amount of compression from the downtown business. Any greater than what we saw historically looking back three or four years kind of pre (inaudible) on your renovation.

Marcel Verbaas -- Chairman and Chief Executive Officer

What I will add to that is that as Barry points out, Napa is a bit of a separate market for us. But as you can see from our growth there in the fourth quarter, we are lapping some of the disruption that we saw in the prior year. We're certainly expecting some good growth and the compression to come out of San Francisco to help us with those assets as well.

Michael Bellisario -- Baird -- Analyst

That's helpful. Thank you.

Operator

Our next question comes from Thomas Allen of Morgan Stanley. Please go ahead.

Thomas Allen -- Morgan Stanley -- Analyst

Hi. On Houston you guys highlighted you expect RevPAR to be up over 4% in 2019. Can you just talk about that kind of gives and takes there? Thank you.

Barry Bloom -- President and Chief Operating Officer

Yes, sure. So, as you know Houston has been a very evolving story for us over the past few years. I think at this point to talk specifically about the Galleria, I mean, we are virtually done with our renovation and repositioning work there. We got a very light lobby refresh and some meeting space to do in the Oaks Tower, but the Galleria has been done now for over a year.

The Oaks guest rooms have been completed now for a few months, and we're seeing very strong ramp up. We are executing the business plan that we'd always set out to do, which is really become the leading high volume corporate or large volume corporate accounts, and return the property to its positioning in the group market, that really hadn't been able to enjoy due in part to both relatively dated interiors and field of the hotel as well as what the market went through.

So, we're seeing strong demand in the Galleria market across the board in virtually every segment and look to take advantage of that this year. Woodlands, despite some supply, we've got some decent growth there obviously excess of 4% as Atish referenced.

In part, we had a significant meeting space renovation last year, which took that's a very large amount of meeting space in the hotel that took us offline for meetings for a period of time. We certainly did it during the slowest time of the year, but the market is reacting very well to the renovated meeting space as well as to we know we'll be lapping that renovation and some which gives a lot more opportunity to drive group business to that hotel this year.

Marcel Verbaas -- Chairman and Chief Executive Officer

The only other point I would add Thomas is, if you look at the earnings from those hotels back in 2014, they were making close to $40 million. And last year they made just under $30 million. So there's a lot of upside potential and certainly where we're happy with the overall positioning, and we think we're set up well for multiple years of outperformance just to get back to that peak level that we reached several years ago.

Thomas Allen -- Morgan Stanley -- Analyst

That's helpful. Thank you. And then just on the renovation commentary. So, you had 90 bps of renovation headwinds last year. You say you have a incremental 20 bps of impact on growth this year, but spend less on CapEx and what you are to spending on seems to be like Grand Cypress you're building a new ballroom, right and that's going to displace more than Aviara or you didn't own most from last year? So --

Marcel Verbaas -- Chairman and Chief Executive Officer

Yes, hold on one second, Thomas. So, it's not incremental what we're saying is last year we had 90 basis points of impact on a full year basis. This year we have 20 basis points that's not incremental though relative

Thomas Allen -- Morgan Stanley -- Analyst

It's on the growth rate, right?

Marcel Verbaas -- Chairman and Chief Executive Officer

It's on our overall RevPAR, that's what we're saying. So, it's actually 70 basis points less disruption in '19 than in '18. Okay, got it. Sorry for that, if that was confusing, but --

Thomas Allen -- Morgan Stanley -- Analyst

No. We're on the same pace now. Thank you.

Marcel Verbaas -- Chairman and Chief Executive Officer

Okay. Got it.

Operator

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

Bryan Maher -- B. Riley FBR -- Analyst

Yes, good afternoon. So, we were a little surprised by the strong F&B. Can you give us your view on that coming more from kind of transient leisure. Are you seeing it strengthen your group bookings and what are your expectations for that to continue on into 2019?

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, Bryan. We talked about this a few times last year. And I think we certainly have continued to see a trend as we've bought larger group hotels in particular the 2017 acquisitions of Hyatt Regency Scottsdale, Hyatt Regency Grand Cypress that we have a real ability and opportunity to grow particularly the group banquet side of the equation.

That's where most of the growth is coming from. We continue to have decent performance in our restaurants and I think we've right sized and have our restaurant setup and are renovating them the right way to be decent total restaurants.

But I think the real growth you're seeing in food and beverage is all driven almost exclusively on the group meeting and catering side. We're seeing a lots of opportunities as the economy strengthen a little bit for the year to up-sell groups for our management companies to up-sell our groups into more expensive meals, additional beverage packages things like that.

Then that we were, I think, we were also surprised by through the year and continue to see growth through the year, but we're fairly confident and are now seeing it more so than last year, which was a lot of last minute additions. We're seeing that being booked in the contracts in our booking pace for 2019. So, feel pretty good about that trend continuing.

Bryan Maher -- B. Riley FBR -- Analyst

And then how are you thinking about margins as it relates to your activity?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, I mean, we're obviously grateful that our growth in food and beverage is coming through banquets which are certainly by far the most profitable portion of that business. We did a tremendous job last year on controlling food and beverage expense, and part of that is a reflection of the shift from restaurant business to banquet business. So, in fact overall food and beverage expense in the portfolio was virtually flat last year on close to 2% revenue growth in food and beverage looking at the portfolio overall.

Bryan Maher -- B. Riley FBR -- Analyst

And then just lastly a little surprise not to see some buyback activity and kind of the depths of December. How are you guys thinking about that when the stock kind of bounce below '18 I know it only stay there for you know maybe a week or 10 days, but what was the thought process internally not to deploy capital to buyback shares at that time?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yes, that's a great question, and I think that dynamic that you mentioned is a relevant one. I mean, as we looked at that activity in that period of volatility in December, it was just very short-lived that you saw that move down. I think philosophically our position on this hasn't changed and we have a really good track record.

I mean, we bought back in 2016 and 2017 over 5 million shares for $15 a share. So, our track record is strong. We have a remaining authorization of nearly $100 million. We think it's a good tool, but specifically with regard to the fourth quarter, I mean, what you had is that period of volatility at the very end of the year and there was a lot of uncertainty in the market.

I think with the shutdown looming and entering a blackout period for us and other companies. So, I think, that factored into the thinking but overall we still feel like it's a great tool to have and we certainly feel like there's value there.

Bryan Maher -- B. Riley FBR -- Analyst

Okay. Thank you.

Marcel Verbaas -- Chairman and Chief Executive Officer

You're welcome.

Operator

Our next question comes from Brian Dobson of Nomura Instinet. Please go ahead.

Brian Dobson -- Nomura Instinet -- Analyst

Hi, good afternoon. So, thanks for that color on supply growth within your areas of operation. So I understand that's decelerating because of the shift in your portfolio distribution, but does it appear to you that any of that supply growth deceleration is coming from an actual same store supply growth deceleration in those markets that you're operating in?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yes, I think, what's happening is, as we look across our markets and our track specifically at new projects. We're seeing that they're taking longer to be built and to open. So, you're seeing that reflected in our numbers. So, if you looked at supply growth for '19 about a year ago, it would have been roughly 20 basis points to 30 basis points higher. So, in the 2.7% to 2.8% range for '19.

Now, we look at it, and it's about 2.5%. So, as I mentioned, some of that is because certainly the transactions that we've done, but it's also because projects are taking longer to get built and open.

Brian Dobson -- Nomura Instinet -- Analyst

And what would you attribute that longer timeline that longer project timeline to?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, our sense is that it's construction labor, construction costs, availability of construction labor, I mean, those factors. I mean we're not in the business obviously of building hotels, but that's the sense we get from the operating teams and our knowledge of these markets.

Brian Dobson -- Nomura Instinet -- Analyst

And as you're out in the market bidding for assets and looking at assets, who do you see your competitors being right now? What types of companies?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, frankly it's a mix. It really depends on which particular opportunity you're looking at, and in some cases, our sense is that we're competing with some of our peers, sometimes you're competing with more private equity type investors.

It generally depends a bit on geographic locations on whether someone has exposures in certain markets, whether something is a 100% strategic fit for us versus our peers. Some of the properties that we bought last year absolutely fell into both buckets.

We know that some of our peers look at and then looking around at some of the assets, and we know that in other cases that would probably deliver more between us and private buyers. But there's good robust group of people that are looking for a great type of acquisitions obviously.

So many times in our mind it comes down to your experience and expertise and being able to underwrite expeditiously, being able to refocus on those opportunities that you think are just great strategic fits and try to put all your effort into being able to buy those particular assets.

Brian Dobson -- Nomura Instinet -- Analyst

Okay, excellent. Thank you very much.

Marcel Verbaas -- Chairman and Chief Executive Officer

You're welcome.

Operator

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

William Crow -- Raymond James -- Analyst

Yeah, thanks. Good afternoon guys. Marcel or maybe this is Barry, which brands given that you have a presence in your ownership of many of the different brands that are out there. Which brand families are doing the best job of lowering customer acquisition costs and other ownership costs who is really kind of moving the needle?

Marcel Verbaas -- Chairman and Chief Executive Officer

Because you gave us the option of either me or Barry answering. I'll let Barry answer that.

William Crow -- Raymond James -- Analyst

There you go.

Barry Bloom -- President and Chief Operating Officer

So, I think, we are -- continue to see that evolve and I think every brand has their our own idea of kind of how to do that a little bit differently. I mean, we certainly, as you know, the largest brand family in our portfolio is Marriott. We certainly think they spend the most time thinking about that, and that we believe that ultimately part of them being the largest brand family and having the most brands and most points of distribution. They will be able to drive lower costs and we are fairly confident we're going to see some of that this year. I think, certainly, we're going to see some benefit this year we think and started seeing late last year from the Kimpton IHG transaction as specifically as it relates to brand costs and cost of distribution.

We also, similarly, we think Hyatt does a good job, they're very focused on it. It's an area, certainly, where they probably have more room to catch up in some of the other brands, but we know through our involvement with them through the hotels we own, our involvement on their own advisory council that they are spending a lot of time focus on as well.

So, it's very hard to say kind of who is best today. And I think we're really starting to converge toward a better world in terms of that as these companies have really listened we think well to owner feedback and know that's where they're going to satisfy owners going forward is by focusing on those costs often reducing them and getting the right kind of distribution at better pricing.

William Crow -- Raymond James -- Analyst

All right. Marcel, I'm not going to let you off the hook though. Here's my argument, it seems like your risk tolerance may have increased a little bit with the Aviara acquisition, just given the combination of luxury high price per key, late cycle economically enlarging, and then this $50 million CapEx spend over a couple of years, you really bet more on kind of a 2022 or 2021 outlook. Is that fair and did the returns that you're expected on this particular asset. Are they higher than what you've looked for in other maybe straighter down the middle of the fairway sort of acquisitions that you've done?

Marcel Verbaas -- Chairman and Chief Executive Officer

It's a fair question, Bill. From our perspective, a lot of the things you actually talked about are great opportunities. We actually think that the cost per key for these asset when you're thinking about 222 acres of fee-simple lands outside of San Diego at 520,000 a key is very attractive when you look at it compared to the resorts in that area.

And as I said in my comments when you look at resorts of that elk nationwide. So, we believe that we got into the assets that are really attractive basis. I also pointed out some of the other things that are attractive to us. We bought it from a financial institution, that isn't enlarging focus and clearly has not had the same kind of asset management expertise and oversight that we can bring to that asset.

The type of renovation that we're doing here even though it's $50 million to $60 million. It's very much cosmetic in nature. It's the kind of stuff that we believe is our bread and butter. We have that very experienced project management team that has done these type of projects and frankly more complicated projects in the past through.

So, we think this all lines up very well for what we can do very well and where we can actually really move the needle working with Hyatt was obviously very strong relationship for us where we have tremendous experience renovating assets and executing on that and really moving the needle operationally.

Great opportunity for us. So, from a risk tolerance standpoints, we view this as just a very much an untapped opportunity where there's a lot of upside, and we know was a competitive process to acquire this hotel. So, we certainly weren't alone and feeling that way so from that perspective.

As you talk about the cycle, we think that luxury resorts are well positioned at this time because of the lack of new supply that's been added in that space. We've clearly moved our portfolio more upscale over time and we think there are just a lot more levers for us to pull to actually create value as opposed to some of the assets that we sold where we feel like we've been able to optimize most of those operations already.

William Crow -- Raymond James -- Analyst

Okay, fair enough. Atish, I guess, I'm letting you off the hook. That's it from me.

Atish Shah -- Executive Vice President and Chief Financial Officer

Okay. Fair enough. You'll get me next time. I'm sure.

William Crow -- Raymond James -- Analyst

Yeah, I'm sure. Thank you.

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

I would like to thank all of you again for joining our call. I would like to reiterate how pleased we were by our activity and results in 2018. We continue to believe we are a good allocators of capital demonstrated by the significant progress in improving the quality of our assets, executing on projects to enhance long-term value of the company and positioning the balance sheet to once again be opportunistic. So, we look forward to sharing our progress in 2019 as we continue to execute against our strategy.

Operator

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

Duration: 60 minutes

Call participants:

Lisa Ramey -- Vice President, Finance

Marcel Verbaas -- Chairman and Chief Executive Officer

Barry Bloom -- President and Chief Operating Officer

Atish Shah -- Executive Vice President and Chief Financial Officer

David Katz -- Jefferies -- Analyst

Michael Bellisario -- Baird -- Analyst

Thomas Allen -- Morgan Stanley -- Analyst

Bryan Maher -- B. Riley FBR -- Analyst

Brian Dobson -- Nomura Instinet -- Analyst

William Crow -- Raymond James -- Analyst

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