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Apple Hospitality REIT Inc (NYSE:APLE)
Q4 2019 Earnings Call
Feb 25, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to Apple Hospitality REIT Fourth Quarter and Full Year 2019 Earnings Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Kelly Clarke, Vice President Investor Relations. Thank you. You may begin.

Kelly Clarke -- Vice President, Investor Relations

Thank you, and good morning. We welcome you to Apple Hospitality REIT's fourth quarter and full year 2019 earnings call on this, the 25th day of February 2020. Today's call will be based on the fourth quarter and full year 2019 earnings release and Form 10-K, which were distributed and filed yesterday afternoon.

As a reminder, today's call will contain forward-looking statements as defined by federal securities laws, including statements regarding future operating results. These statements involve known and unknown risks and other factors, which may cause actual results, performance or achievements of Apple Hospitality to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality's 2019 Form 10-K and other filings with the SEC. Any forward-looking statement that Apple Hospitality makes speaks only as of today and the company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

In addition, certain non-GAAP measures of performance, such as EBITDA, EBITDAre, adjusted EBITDAre, adjusted hotel EBITDA, FFO, and modified FFO will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com.

This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, Senior Vice President, Corporate Strategy and Reporting will provide an overview of our results for the fourth quarter and full year 2019, as well as an outlook for the sector and for the company. Following the overview, we will open the call for Q&A.

At this time, it is my pleasure to turn the call over to our CEO, Justin Knight.

Justin Knight -- President and Chief Executive Officer, Director

Thank you, Kelly. Good morning, and thank you for joining us. Before I get started, as we've discussed previously, Bryan Peery and Krissy Gathright plan to retire from their current officer roles with the company during the first quarter. We are close to finalizing plans for the reallocation and transition of their responsibilities and anticipate making an announcement in the coming weeks. I would like to take this opportunity to recognize, both of them for their significant contributions to the Apple REIT Companies over the years.

Krissy Gathright was the company's first employee and it's been an integral part of the development of our strategy and our team. She is one of the brightest and most talented people I know, and it's been a tremendous pleasure to work with her over the past 20 years. Krissy joined our Board of Directors last year and I'm grateful that she will continue to be a resource to us in that capacity. Her industry knowledge and understanding of our business are invaluable.

Bryan has been with the company for nearly as long and has been integrally involved in the shaping of our business. His dedication to the success of our company, our shareholders and our team has been absolutely incredible over the years and he will be missed. Upon stepping down from his current officer positions, Bryan will continue with the company in an advisory capacity to ensure a smooth transition.

I'm joined on today's call by Liz Perkins. Liz began her career in public accounting and joined the Apple REIT Companies as an Asset Manager in 2006. For the past six years, Liz has worked closely with me on corporate strategy and spent a significant amount of time on the road in meetings with many of you. I'm grateful to Liz and the incredibly talented and committed Apple Hospitality team members and the leadership of our senior managers who have worked together through multiple economic cycles, industry evolutions, and corporate transitions. We are fortunate to have a tenured group of employees that are intelligent, experienced and passionate about driving industry-leading results and maximizing value for our shareholders.

Together with our management companies, our team continued to work diligently in 2019 to maximize profitability and our portfolio of high quality rooms focused hotels produced results in line with our expectations for both the fourth quarter and the full year, despite challenging year-over-year storm and disaster related comps, new supply and continued wage pressure in many of our markets. During the fourth quarter, ADR decreased 1.2%, partially offset by 0.3% increase in occupancy, resulting in a comparable hotels RevPAR decline of 0.9%. RevPAR for the full year was essentially flat with ADR up 0.2% and occupancy down 0.1%, slightly better than the midpoint of our revised 2019 guidance.

Summarizing some of our results for the quarter and the full year, total revenue was $290 million and $1.3 billion. Adjusted EBITDAre was $86 million and $429 million. And modified FFO per share was $0.32 and $1.63, respectively. For the full year 2019, G&A expense was $36 million, representing a year-over-year increase due primarily to senior management transition costs and outperformance of the company's relative shareholder return metrics, which are components for the company's incentive plan.

With top line growth muted and continued cost pressures, we experienced modest declines in operating margins. Comparable hotels adjusted hotel EBITDA margin was 33% for the quarter and 37% for the full year, though slightly down year-over-year, 130 basis points for the quarter and 60 basis points for the full year. These margins continue to be among the strongest in our industry and I commend our team for their diligent efforts to maximize the profitability of our assets in a challenging operating environment.

We finished the year with $1.3 billion of total outstanding indebtedness and a current combined weighted average interest rate of approximately 3.6% and weighted average debt maturities of five years. Undrawn capacity on our unsecured credit facilities as of December 31, was approximately $374 million. With just 3.1 times net debt to EBITDA, no significant maturities over the next three years and a relatively young portfolio, we are in a position to be patient, flexible and opportunistic as we work to capitalize on dislocations that may occur in the market.

During 2019, we purchased approximately 300,000 shares under our share repurchase program at an average price of $14.92 per share for a total purchase price of approximately $4.3 million. As of December 31, 2019, approximately $360 million remained available for purchase under our share repurchase program. As I've highlighted on past calls, we intend to use this program opportunistically when we see the potential to create meaningful long-term value for our shareholders as a result of dislocations in the public market.

Since the beginning of 2019, we have sold 12 hotels for a combined total of approximately $135 million. Also, in December of 2019, we entered into a contract for the sale of our 230 room SpringHill Suites by Marriott in Boise, Idaho for a gross sales price of $32 million. This sale is expected to be completed in the first quarter of 2020, and the company anticipates recognizing a gain upon completion of the sale.

We believe the current interest in high quality rooms focused assets combined with strong debt markets will continue to create opportunities for selective dispositions from our portfolio in the coming year. These proceeds will be used in part to fund the acquisition of construction projects which we currently have under contract, but may also be used to opportunistically fund share repurchases or targeted acquisitions of existing assets that enhance the growth profile and value of our larger portfolio. We acquired three hotels in 2019 for a combined total of approximately $59 million. Our current acquisitions pipeline is approximately $209 million with projects in Cape Canaveral, Florida; Tempe, Arizona; Madison, Wisconsin; and Denver, Colorado.

During 2019, we invested approximately $79 million in capital expenditures. These investments in our hotels add to their operational stability and help to ensure the long term competitiveness of our portfolio. We plan to invest between $80 million and $90 million in 2020, with major renovations at between 25 and 30 hotels, including our full service Marriott in Richmond, Virginia where renovation began in the fourth quarter of last year, and our full service Marriott in Houston, Texas.

Our experienced in-house project managers work closely with our asset managers, third-party operators and the brands to deliver cost effective high impact results while minimizing property level disruption. We are committed to enhancing and incorporating sustainability opportunities into our investment and asset management strategies, minimizing our environmental impact. The hotels, we own are efficient by design and we seek to build upon this efficiency by investing in proven sustainability practices when renovating our hotels and in portfoliowide initiatives that enhance asset value, while also improving environmental performance.

Projects include a variety of equipment upgrades and replacements that reduce energy and water consumption and improve waste management. At the end of the fourth quarter, approximately 64% of our hotels have one or more upper mid-scale, upscale or upper-upscale new construction projects under way within a five-mile radius, which represents a decrease of 150 basis points from what we reported at the end of the third quarter.

While we are pleased to see a slight decrease in construction starts, we anticipate that new supply will continue to be a challenge for us in a number of our markets during the coming year. This combined with our expectations for slowing GDP growth, potential volatility associated with an election year and ongoing concerns surrounding the impact of the coronavirus act as a counterbalance to continued low unemployment, strong consumer confidence and other positive indicators of overall economic health.

Taking into consideration, these broad economic factors, as well as an expectation for continued property-level cost pressures, we are cautious in our near-term expectations for performance growth. Our operational outlook for 2020 includes the following, net income between $134 million and $161 million; comparable hotels RevPAR between negative 2% and 0%; comparable hotels adjusted hotel EBITDA margin between 34.5% and 35.5%; and adjusted EBITDAre between $394 million and $414 million.

Over our 20-year history in the lodging industry, the Apple REIT Companies have owned over 400 hotels. And through our ownership and transaction experience, we have fine-tuned the strategy for hotel ownership that mitigates volatility, provides consistency in operations and produces value for our investors throughout real estate and economic cycles.

Our mission is and has always been to provide our investors with attractive dividends and appreciation in the value of their underlying investment over time. Over the past year, we paid $1.20 per share or a total of approximately $269 million in dividends. Based on our February 20 closing price of $15.12, this represents a 7.9% yield. Operations continue to be healthy for our portfolio and despite uncertainty in the near-term macroeconomic environment, we remain confident that with the strength of our portfolio and the flexibility of our balance sheet, we are well-positioned to maximize shareholder value over the long-term.

As one of the largest owners of Marriott and Hilton branded hotels, with the concentration in upscale rooms focused sector of the lodging industry, our team has unparalleled to access the performance data. We benefit from visibility across different markets, brands and managers and utilize the information to implement the most efficient and effective practices across our portfolio, which along with purchasing scale reduce operating costs and lead to our strong operating margins. Our team works collaboratively with our third-party managers to maximize the performance of each asset and to ensure that we are well-positioned to compete effectively in our markets.

It's now my pleasure to turn the call over to Liz, who will provide additional detail regarding performance across our portfolio and the industry overall.

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

Thank you, Justin and hello, everyone. It's a pleasure to be with you this morning. As anticipated, the fourth quarter of 2019 proved to be our most challenging quarter of the year with tougher comparisons related to non-repeat business from the 2018 Boston area gas explosion and decreased disaster recovery business. Even with an estimated 100 basis point net impact from these headwinds in the quarter, our performance was in line with industry results for our chain scale. While our North Carolina East market was negatively impacted by Hurricane Florence's comps quarter-over-quarter, Panama City benefited from an easier comp with rooms out of service last year, as well as continued benefit from recovery business related to Hurricane Michael, particularly within Panama City proper and closer to Tyndall Air Force Base.

San Diego's weaker convention calendar in the fourth quarter drove RevPAR declines for the market in our hotels, particularly, our downtown properties with our suburban hotels outperforming the broader San Diego market. Our Nashville hotels and the market as a whole, are starting to see impacts from new supply despite continued demand growth which is putting pressure on rates. And our full service Richmond Marriott began it's significant room renovation in October, displacing revenue, some of which we captured by our Courtyard and Residence Inn. Markets that produce strong top line results in the quarter included Phoenix, Austin, Orlando, Birmingham and Washington DC.

For the full year, the industry continued to see outperformance outside of the top 25 markets, benefiting our geographically diverse portfolio. While demand growth continues to be strongest in the upscale and upper-midscale chain scale, supply growth in these chain scales has also been elevated, resulting in slight RevPAR declines for the year. As Justin mentioned, our RevPAR results were in line with our expectations with over 50% of our EBITDA coming from markets outside the top 25. In 2019, we benefited from disaster recovery business in our North Carolina East, Florida Panhandle and Anchorage markets. Phoenix, Norfolk, Virginia Beach, Washington DC, Huntsville and Birmingham were also among our top performing markets. Weaker markets for the year included Nashville, Seattle, Miami, Houston and Boston.

While we see varied performance across markets based on supply and demand dynamics, we continue to see our transient revenue grow with a decline in Group, both for the quarter and year-to-date. Though the Richmond Marriott's Group production for the year and our fourth quarter renovation impacted our overall results, this Group and transient trends for our portfolio was broad-based. As you know, in 2019, we invested an additional internal resources to work with our operators to enhance our overall revenue strategy and sharing that revenue management, sales and digital teams are working collaboratively and proactively to drive the optimal mix depending on the individual market conditions. Our teams remain strategically focused on increasing Group and negotiated based business to maximize top line performance in supply impacted markets.

The hotel industry remains strong, reporting record highs with respect to rooms available, rooms sold, average daily rates and RevPAR in 2019. But with the backdrop of slowing GDP growth and supply increases, top line growth for the industry has been flat to modestly positive, putting additional pressure on operating margins, while challenging continued solid cost control on the part of our operators assisted by our asset management team helped us to produce comparable hotel EBITDA margins of 33.4% and 36.7% for the quarter and the year, respectively, again, in line with our expectations.

With payroll as the largest component of our hotel operating expenses, we remain intently focused with our managers on minimizing increases in labor costs, largely related to a low unemployment environment, which drives increased competition for quality workers. While fourth quarter costs were slightly higher, due in part to benefits and bonus adjustments, our same-store payroll expenses increased 4.2% on a per occupied room basis for the full year. Our automated labor management systems have helped us to proactively increase productivity and reduce overtime where possible.

However, these productivity efforts are balanced by efforts to offer competitive wages, fill open positions effectively and monitor employee satisfaction in order to minimize turnover, increase guest satisfaction and maximize our overall results. Comparable hotel utility expenses declined approximately 3% for the year, potentially creating a tough comp for 2020. Comparable property taxes increased 2% in 2019, which -- with many localities reassessing property values. We continue to appeal tax assessments in an effort to mitigate these increases where possible.

We began the renovation of our full service Marriott and Richmond, Virginia at the beginning of the fourth quarter. With the convention calendar down in 2019, we have been able to absorb a good portion of the rooms displacement at our Courtyard and Residence Inn. Softer group production in the market, coupled with displacement from our renovation at this hotel negatively impacted our food and beverage revenues for the quarter and full year. The rooms portion of the renovation is expected to be completed by the end of the first quarter of this year with the transformed lobby area and expanded rebranded and enhanced food and beverage outlets scheduled to be completed by the end of the second quarter. Group pace is up 7% for 2020, and the outlook for Richmond is healthy with pace for 2021 and 2022 even stronger.

With food and beverage outlets under renovation for the first half of 2020, we expect F&B revenues at this hotel to decline for the year. However, the outlook is strong for the second half of the year. With increased focus on other income, we were able to increase same-store parking, pantry and late cancellation revenue for the year, bringing our annual growth to approximately 10%, which contributed 25 basis points to margin. While we've realized much of the growth and late cancellation fees year-over-year, we will remain diligent in monitoring our charging and collection of these fees and we believe there to be an additional opportunity with parking and pantry income.

As a reminder, we adopted the new accounting lease standard on January 1 of 2019, which resulted in a reclassification of four operating leases that are now classified as finance leases under the new standard. The net impact of this change was an approximate 50 basis points increase to hotel EBITDA margins, both for the quarter and the full year. Subsequent to year end, we converted our Renaissance Hotel in New York to an independent boutique hotel. The intent of the conversion is to provide greater long-term flexibility with the operations of the property.

We anticipate we will incur total conversion costs of approximately $1 million and experienced operational disruption, as the management team works to replace business that came through the Marriott brand channels. January RevPAR for this hotel was down over 30%, and while we expect to the first quarter to be the most challenging, the full-year impact to comparable RevPAR guidance is approximately 40 basis points.

Looking ahead to 2020, we expect broad supply and demand dynamics to create challenges for us in many of our markets despite continued strength in the overall economy. We anticipate the first quarter to be the weakest in the year and come in at the low end of our guidance range. Following the first quarter, we anticipate improvement as we move throughout the year. Comparable RevPAR declined 30 basis points in January for the entire portfolio with total revenues slightly positive.

The near-term operating environment will be disrupted by continued expense pressure especially with respect to labor. However, for over 20 years, Apple Hospitality has intentionally positioned its portfolio to mitigate market and industry level risks to provide our investors with attractive dividends and appreciation in the value of their underlying investment through all economic cycles, while maximizing operating results and driving long-term value. With consistent reinvestment in our hotels, a disciplined approach to capital allocation and a low leverage balance sheet, we are confident that we are well-positioned to meaningfully increase shareholder value over the long-term.

Thank you for joining us this morning and we will now open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Neil Malkin with Capital One Securities. Please proceed.

Neil Malkin -- Capital One Securities -- Analyst

Hey, guys. Good morning.

Justin Knight -- President and Chief Executive Officer, Director

Good morning.

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

Good morning.

Neil Malkin -- Capital One Securities -- Analyst

Appreciate the color on the Renaissance going independent impact. Could you give the same or what you estimate will be the impact to RevPAR due to the renovations at your two Marriott's -- your two full-service Marriott in 2020?

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

Good morning, Neil. This is Liz. I think for the Richmond Marriott what we'll find is that the first quarter and negative impacts will be offset in large part by the Q4 comp that we experienced from the negative drag in 2019 at the Richmond Marriott.

Justin Knight -- President and Chief Executive Officer, Director

And for the Houston Marriott, we are just beginning the renovation this year and because of the Houston, the impact will be less meaningful there as well.

Neil Malkin -- Capital One Securities -- Analyst

Okay. Great. And then another one for me is just regarding coronavirus, obviously, you guys aren't super concentrated to the cause. But just given the diverse nature geographically of your portfolio, have you been able or have your property manager has been able to discern any trend in terms of markets that potentially are impacted by coronavirus demand or cancellations? And what if any kind of impact or conservatism have you baked into your guidance related to coronavirus?

Justin Knight -- President and Chief Executive Officer, Director

I'll start with the last part of the question. And that's our guidance includes our best guess at this point in time as to the impact from the coronavirus on our portfolio. You began your question by highlighting, I think rightfully, that we're benefited relative to our peers from lower concentration in gateway and top 25 markets, which we anticipate will see the bulk of the impact. That being said, we do anticipate that there will be some halo impact as impacting voluntary travel.

And we will have some markets where we see specific impact. We were notified yesterday that Dell, which is a large producer for a portion of our Austin assets is putting a temporary freeze on inbound travel from China to their facility, which will have some impact on our portfolio. But again, at this point, on a relative basis and to some extent on an absolute basis, we anticipate that the coronavirus will be less impactful to us than our peers, and potentially to the national averages.

Neil Malkin -- Capital One Securities -- Analyst

Okay. Thank you, guys.

Justin Knight -- President and Chief Executive Officer, Director

Thank you.

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

Thank you.

Operator

Our next question is from Anthony Powell with Barclays. Please proceed.

Anthony Powell -- Barclays -- Analyst

Hi. Good morning, everyone. A question on top 25 performance versus all of the markets, you mentioned before that you benefited through -- last year from the outperformance of all of the markets. However, we've seen in recent months, top 25 markets do a bit better. So how do you expect those two segments to perform this year?

Justin Knight -- President and Chief Executive Officer, Director

And Liz can jump in on this. But in part, the outperformance of the top 25 markets with the result of calendar shifts as we rounded out the last part of the year, as we look at business trends which are the most impactful to our business, business transient trends as we round it out the last year -- the last part of last year, we were relatively stable.

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

Business transient and overall just transient for our portfolio was stable in Q4. I think what we saw a decline in was the Group as we look forward, this is for the portfolio more broad based top 25 and outside of the top 25. I think we're seeing pace for Group increase, which I think will help us overall, as we try to revenue manage and maximize the remaining inventory that we have available.

Anthony Powell -- Barclays -- Analyst

Got it. Another topic. I did notice the sales and marketing expense increase, I guess, that was partly due to the some of the Group initiatives. You've seen the pace increase but when do you expect that to really hit in the RevPAR then revenue numbers? Is it later in 2020, 2021?

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

No. For us, Group is relatively -- the booking window is relatively short term, so we should see the benefit and -- to our Group numbers actualized as we move throughout the year. I don't think that there is a long lead time for many of our Group bookings. Again, and I think while we have seen January, especially the first couple weeks of January, maybe a little bit softer. We say this every year, transient Group -- business transient, it's hard to judge in January and February for our portfolio. It's the weakest time for business transient. We typically wait to make any sort of broad conclusions on trends until we get further in the quarter. But I think that the Group pace is positive and indicative of our ability to capitalize on that transient as it actualizes.

Anthony Powell -- Barclays -- Analyst

Got it. And maybe one more from me. How did customer acquisition cost trends in the quarter? We've heard growth in both OTA cost and loyalty costs from some of the other operators. So what have you seen in that area of the business?

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

We continue to see positive shifts from OTA to brand.com from a channel perspective and brand.com is our lowest customer acquisition cost channel. So I think we continue to see that trend where we have the ability to yield out OTA business, we're benefiting from that. Overall, I think that as we are looking to really deploy our sales expenses and our sales initiatives strategically, we will increase some of our more tactical e-commerce initiatives. So I think that you'll see that we're increasing there. But we're trying to be strategic and find ways where we can reduce sales expenses to offset that.

Justin Knight -- President and Chief Executive Officer, Director

And in response to the loyalty portion of your question, the trends that we're seeing are not dissimilar to the trends that some of our peers are seeing with the one exception being that our hotels tend to be hotels where loyalty members go to earn points rather than redeem points. And so to the extent our peers are speaking to redemption and things of that sort, that would have a much lower impact on us. But we have seen loyalty members increase as a percent of the total guests staying at our hotels and there are some incremental costs associated with that. Over the long run, because again our brand channels are the lowest cost channels, still for our hotels, we see that as a positive and an offset in part to significant supply growth within the major chain.

Anthony Powell -- Barclays -- Analyst

All right. Great. Thank you.

Justin Knight -- President and Chief Executive Officer, Director

Thank you.

Operator

Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Hi. Good morning, everybody. So with the highlighted strategy -- revenue management strategy of proactively layering in more Group in sort of base business, what does Group pace look like over the next say 30 days to 60 days? And then I'm also curious what you underwrote for Group revenue in 2020, and what that could mean for growth in out-of-room spend as well on a year-over-year basis?

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

I think as we approach the year, and we went into budgeting for 2020, we looked at each market and each hotel on a case-by-case basis. And as there was additional supply impact or as we may have seen business transient more stable and maybe there wasn't a significant amount of growth, we wanted to layer on additionally based business. So that's always our approach as we go into the new year. I think with Group softening for our portfolio broadly for the full year 2019, we wanted to put an additional focus on that and we're seeing in our pace numbers that it's improving and we're actualizing on that strategy. To what extent, it's too early, I think, to say. But we definitely incorporated that as part of our strategy as we looked into 2020.

Justin Knight -- President and Chief Executive Officer, Director

And as Liz highlighted, our Group business books...

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Short.

Justin Knight -- President and Chief Executive Officer, Director

Short within a few weeks soften of the actual stay. And so even on the Group side for us, looking 60 days to 90 days out becomes a little bit less informative. In terms of additional income that we would receive from groups, again for our hotels, excluding hotels like the Richmond Marriott where restaurant revenues and other catering revenues are a more significant percentage of total business. Our groups have some incremental F&B spend, but again not nearly as significant in terms of incremental revenue for us as it is for some of our full-service peers. And the primary benefit for us really is compressing the hotel, I mean putting us in a better position to revenue manage the remaining room.

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

And as we're thinking about other income and F&B income for 2020, just take note again of my comments around the Richmond Marriott, we will have significant F&B displacement in the first half of the year, with improvement in the latter half.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

So how does that kind of balance overall, which is kind of what I'm looking at because F&B certainly was a source of negative growth, I believe for the full year or last year. So does that pick back up or do we kind of flatten out this year for the full year again?

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

I think we'll still have a negative impact from the Richmond Marriott overall.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Okay, got it. Thank you. That's helpful. And then, Justin, you referenced the dividend yield at nearly 8%, fundamentals remain challenged and you're expecting pressure on RevPAR and margins this year. So how comfortable are you in the Board with the current level of the dividend?

Justin Knight -- President and Chief Executive Officer, Director

Yeah. We're somewhat unique among our peers and that we pay a monthly dividend and so we're given the opportunity on a monthly basis to assess the sustainability and viability of our dividend on a very regular basis with our Board of Directors. Given the strength of our current yield and the more challenging operating environment, it has been a topic of conversation. That said, our dividend coverage last year, remained strong. We were -- depending on how you calculate it and I know there are a couple of different ways that people like to look at it, but we were in the mid-80s to low-90s, and low-90s being -- including actual capex spend for the year.

Given the environment, we anticipate that coverage percentage would go up in the coming year. And we'll continue to watch it as the year materializes. Based on where we are trading this morning, we're pushing a 9% yield, which is incredibly attractive. We're fortunate to have ownership in assets that produce a tremendous amount of cash and enable us to pay a strong dividend throughout cycles.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

So is it fair to say that, again, depending how you calculate it, some of the elevated capex is pushing up that coverage level this year?

Justin Knight -- President and Chief Executive Officer, Director

Yeah, and specifically at our full-service hotels. So I highlighted capex projections for this year being between $80 million and $90 million. Approximately $15 million of that is associated with renovations at our three full service hotels. The bulk of that is being spent at the Richmond Marriott, which is the largest of our hotels, involves -- the renovation involves a meaningful lobby renovation and renovation to the food and beverage outlets. And is an end of franchise if related renovation. So we're doing major renovations in the bathrooms and others, which we think will position the hotel incredibly well on a go-forward basis, but in the near-term by elevating our total capex spend.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Understood. Thank you for the time.

Justin Knight -- President and Chief Executive Officer, Director

Thanks.

Operator

Our next question is from Tyler Batory with Janney Montgomery Scott. Please proceed.

Tyler Batory -- Janney Montgomery Scott -- Analyst

Hi. Good morning. Thanks for taking my questions. Wondering if you can segment out trends that you've seen in the corporate side of things versus leisure, curious how those segments performed in the fourth quarter? And then also if you could talk to year-to-date as well that would be helpful.

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

So I alluded to this a little bit in the earlier question. I think Q4, what we saw between weekday and weekend was more stability in business transient as we sort of triangulate our overall transient numbers and negotiated business. As we went into the first part of the year, the first couple of weeks, we did see less growth in weekday. As we move throughout January and have moved into February, that's stabilized a little bit. And I think we will watch closely as we move throughout the quarter. Again, we've had this trend happen in previous years, and it's just a little bit early to draw a broad conclusion. For the full year 2019, our business transient was positive.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Okay. Great. And then just a follow-up, I'm not sure if you mentioned it earlier. What are you budgeting for a combined wage and benefit increases in 2020? And then are there any other areas of cost inflation that are notable that we should factor into our models?

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

As we looked at guidance, we assumed a 4% to 5% CPOR increase for labor -- total labor.

Justin Knight -- President and Chief Executive Officer, Director

And that would be the largest of the areas of expense increase over the coming year. And the bulk of the remaining expenses we assumed would increase roughly at a rate of inflation. We will see as Liz highlighted in her remarks potentially an increase in utility expenses, which have been slow for a number of years now and that's one that we're watching. In particular, we'll continue to see pressure on insurance costs and on property taxes. But as a percent of total expenditures, those are relatively small relative to labor.

Tyler Batory -- Janney Montgomery Scott -- Analyst

Okay. Great. That's all from me. Thank you.

Justin Knight -- President and Chief Executive Officer, Director

Thank you.

Operator

Our next question is from Michael Bellisario with Robert W. Baird & Company. Please proceed.

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

Good morning, everyone.

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

Good morning.

Justin Knight -- President and Chief Executive Officer, Director

Good morning.

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

Just wanted to go back to the dividend comment you made in clarify one thing or let you clarify one thing, and you said it's been a topic of conversation with the Board. Can you clarify the dividends have been discussed, and you discussed on a monthly basis or you talked about cutting the dividend?

Justin Knight -- President and Chief Executive Officer, Director

The dividend coverage is continuing portion of our review with our Board of our current operation. I highlighted in my earlier remarks that we view our dividend payout as a significant piece of the total value equation for our investors. We have -- continued to have roughly 40% of our investors as retail and dividends for them represent a meaningful piece of the total return that they anticipate from us. We're fortunate as I highlighted to be in an asset class or a sub-class that generates incredibly high margins, and have been able to maintain the dividend through economic cycles in the past. And we are comfortable with where we are currently, but we're monitoring. And our ability to maintain our dividend really depends on us performing as we anticipate we will for the coming year.

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

Got it. That's helpful. Thank you for clarifying. And then just one other follow-up on capex, the $80 million to $90 million range for this year, what would that look like if you weren't doing Houston and Richmond?

Justin Knight -- President and Chief Executive Officer, Director

Well, I highlighted in a response to an earlier question that the total capex spend for the three hotels in this calendar year is roughly $15 million and the bulk of that. So over $10 million of that is associated with the Richmond Marriott. We will be beginning the renovation in the latter part of the year in Houston, which will span over into the first part of the following year and likely during the same at our hotel in New York. But because the Richmond Marriott is the largest of our hotels, because we're renovating an addition to the rooms, a significant portion of the public areas, and because it's an end of franchise tip from Marriott, that's the most substantial single property renovation that we've incurred to date.

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

Got it. Thanks. I misunderstood that $15 million number earlier. And then just lastly on asset sales, it doesn't sound like you're too inclined to accelerate the pace, at least maybe versus the comments you provided on last quarter's call. But kind of a two part question, I guess, one is that the right read of your selective comment you made in the prepared remarks. And then the second part is, what would you need to see in the fundamental environment or the transaction environment for you to move faster on that front today?

Justin Knight -- President and Chief Executive Officer, Director

I would say, and I appreciate you asking the question to clarify. So by selective, we do not mean that we will be less aggressive in pursuing dispositions. In fact, I fail to highlight and again, I appreciate you give me the opportunity to clarify that the environment remains strong for potential sale of assets. By selective, really I highlighted on past calls that investors in today's environment seem to be more interested in individual assets than they do in larger portfolios. And the most likely nature disposition -- of our dispositions, as we roll through the year, we'll be in individual transactions for one or a small group of properties with buyers who see value in those individual assets.

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

Got it. Thank you. And then just one last one more housekeeping. Renaissance New York, you mentioned about 40 basis point RevPAR impact. But in guidance, what's the embedded number for margins and then adjusted EBITDA as well?

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

So for guidance, we mentioned the 40 basis points on the top line. I think for EBITDA, there's margin impact. There is probably 20 basis points -- 25 basis points to 30 basis points impact.

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

Thank you.

Justin Knight -- President and Chief Executive Officer, Director

Thank you.

Operator

[Operator Instructions] Our next question is from Matt Boone with B. Riley FBR. Please proceed.

Matt Boone -- B. Riley FBR -- Analyst

Hey. Good morning. This is Matt on for Bryan. I just had a quick one. Can you share what's your top 25 markets are currently seeing the most supply pressure and where you expect them to trend for the balance of the year?

Justin Knight -- President and Chief Executive Officer, Director

Okay. At our top markets, we continue to see pressure, and a number of them international historically has seen the greatest year-over-year growth. We anticipate that will flow in. And actually interestingly and I didn't have an opportunity to make this comment earlier. We believe that in terms of percentage growth, many of our markets peaked, this past year or the year before. And our expectation for 2020 openings is that they will be less as a percentage in the bulk of our market than they have been times now. And the challenge for us really is that given the number of openings we had in the number of our markets in 2019, we anticipate we will experience a bit of a headwind as those assets ramp. But really, Nashville and Dallas is a market with relatively low barriers to entry. We continue to see meaningful growth there. Miami and a number of our South Florida markets have also seen a significant amount of supply growth.

Matt Boone -- B. Riley FBR -- Analyst

Thank you.

Justin Knight -- President and Chief Executive Officer, Director

Thank you.

Operator

We now have a follow-up question from Anthony Powell of Barclays. Please proceed.

Anthony Powell -- Barclays -- Analyst

Hi. Just a few more on the dividend. I know you mentioned that people look at the payout ratios in a lot of different ways. How do you and the Board look at payout ratios? And how do you -- do you look at normalized capex? And just what's in your view your current payout ratio? And how do you -- and are you comfortable with that over the medium term?

Justin Knight -- President and Chief Executive Officer, Director

As I -- hope I highlighted earlier, we look at it a number of different ways with the Board. We look at it on an absolute basis, so given yield capex spend within any given year and then we look at it on a normalized basis as well. For this year and this past year, the delta between those has been 5% to 7%. And I highlighted that this year, we have somewhat elevated capex because of the renovations at our three full service hotels.

Anthony Powell -- Barclays -- Analyst

Right. So as I look to next year, you should have less capex, and you also have the ramp-up of newly acquired new build hotels. So theoretically, -- obviously, theoretically, coverage should go up. I guess with that regard, the same-store EBITDA, which I guess will probably continue to see pressure. But absent same-store EBITDA declining, your coverage should improve next year given the ramp in the hotels and lower capex, is that fair?

Justin Knight -- President and Chief Executive Officer, Director

I think that's fair. You included a number of caveats in your question. So I think given those, yes, that would be fair.

Anthony Powell -- Barclays -- Analyst

Got it, OK. And just one more. If you theoretically had to reduce your dividend, not saying that you will but if you had to, would it be kind of a gradual decrease based on taxable income or would you try to set some level that you think you can maintain beyond that?

Justin Knight -- President and Chief Executive Officer, Director

I think this probably isn't the best...

Anthony Powell -- Barclays -- Analyst

Form for that.Got it.

Justin Knight -- President and Chief Executive Officer, Director

But I would -- but I want to be fair and to answer your question. We have historically placed a premium in our analysis on maintaining consistency in our dividend and our dividend payout over time. And I think our first effort will be to manage our business in a way that we can maintain, and then should we make adjustments, it will be based on a longer-term view of our business, and what we expect to be a reasonable coverage over our long-term.

Anthony Powell -- Barclays -- Analyst

Okay. All right. Thanks for that. Appreciate it.

Justin Knight -- President and Chief Executive Officer, Director

Thank you.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Justin Knight for closing comments.

Justin Knight -- President and Chief Executive Officer, Director

Thank you. We really appreciate everybody joining us this morning. And hope, as always, that as you travel, you take an opportunity to stay with us at one of our hotels.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Kelly Clarke -- Vice President, Investor Relations

Justin Knight -- President and Chief Executive Officer, Director

Liz Perkins -- Senior Vice President of Corporate Strategy and Reporting

Neil Malkin -- Capital One Securities -- Analyst

Anthony Powell -- Barclays -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Tyler Batory -- Janney Montgomery Scott -- Analyst

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

Matt Boone -- B. Riley FBR -- Analyst

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