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Xenia Hotels & Resorts Inc (NYSE:XHR)
Q4 2019 Earnings Call
Feb 25, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to fourth quarter 2019 earnings conference call. [Operator Instructions] I would now like to turn the conference over to Lisa Ramey, VP of Finance. Please go ahead.

Lisa Ramey -- Vice President-Finance

Thank you, Kate. Good morning, everyone, and welcome to the fourth quarter and full year 2019 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 a discussion of our operating results and our 2019 achievements. Barry will follow with more details about fourth quarter and full year 2019 results and details on our capital expenditure projects. And Atish will conclude our remarks with a discussion of our 2020 guidance and our view of 2019 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 yesterday, along with the comments on this call, are made only as of today, February 25, 2020, 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 yesterday'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 morning and thank you for joining our call today. We are happy to report what we believe was a successful fourth quarter and full year 2019. We were hopeful that in 2019, our portfolio would outperform, following our strategic renovation activity in 2017 and 2018. And our results came in ahead of the expectations we expressed at the start of the year.

During the quarter, we had net income attributable to common stockholders of $15.6 million. Adjusted EBITDAre was $72 million, and adjusted FFO per diluted share was $0.58. Our same-property RevPAR decreased 0.4% in the fourth quarter, and our same-property hotel EBITDA margin decreased by 39 basis points, with both measures exceeding our expectations for the quarter.

For full year 2019, we had net income attributable to common stockholders of $55.4 million. Our adjusted EBITDAre of $302.1 million exceeded the high end of the guidance range we provided in November and was above the midpoint of the range provided at the beginning of 2019. Adjusted FFO per share was $2.19, which was above the high end of the guidance range we provided for 2019 at the beginning of the year.

Aggressive asset management initiatives and leveraging our relationships with both brands and managers continues to be a pillar of our organization and a strength of our team overall. We continue to maintain best-in-class performance as it relates to expense control with same-property portfolio margin growth for the fifth consecutive year, an achievement that is unrivaled by our peers. Our operators' focus on expense controls, while maintaining guest satisfaction, remains exemplary as evidenced by full year same-property hotel EBITDA margin growth of 23 basis points on a 2% increase in same-property portfolio RevPAR. Total same-property operating expenses were only up 1.7%, which we believe to be an impressive result relative to our 2% same-property revenue growth.

We celebrated our fifth anniversary as a publicly listed company earlier this month and are extremely proud of the improvements we have made to our portfolio over the past five years. Since listing, we have completed nearly $2.7 billion of transactions, which have been relatively balanced between the acquisition of 13 hotels totaling over $1.5 billion and the disposition of 22 hotels for over $1.1 billion. This activity has transformed our portfolio in terms of desirability and long-term growth potential. We have traded lower-quality assets with more limited upside potential for high-quality assets with enhanced growth opportunities, all while maintaining a strong and flexible balance sheet.

Our year-end same-property portfolio achieved RevPAR of $171.32 and hotel EBITDA per key of approximately $29,600, both high watermarks in the history of our company. Both of these metrics represent an increase of over 25% versus the portfolio we owned at the time of our listing. And while these aren't the only metrics to consider when determining portfolio quality, they are relevant ways to demonstrate the improvements we have made to our portfolio over the past five years.

We have created a diversified portfolio that we believe will withstand future challenges and create value for shareholders in the long term, as we continue to optimize our assets, many of which are recent additions to our portfolio, through our asset management and project management initiatives. Our portfolio consists of primarily branded hotels and resorts, which we expect will continue to serve us well, particularly during times of volatility. We have a significant concentration in strong Sunbelt markets, which we believe to be well positioned for the long term as they have strong demand drivers and on average less expense headwinds versus other primary lodging markets.

In the fourth quarter of 2019, we continued our process of portfolio improvements through the completion of three on strategy transactions, the sale of two non-strategic hotels and the acquisition of Hyatt Regency Portland at the Oregon Convention Center. In December, we sold Marriott Chicago at Medical District/UIC for $10 million and Marriott Lexington Griffin Gate for $51.5 million. Both of these properties were legacy assets at the low end of the quality spectrum within our portfolio. On average, the hotels achieved RevPAR and EBITDA per key that were 35% and 45% respectively below our remaining portfolio. Additionally, the hotels are located in markets that have proven to be challenging. Supply increases and cost pressures significantly impacted the Chicago hotel, while competitive supply increases and difficulty in raising rates commensurate with ongoing capital requirements weighed on the outlook for the Lexington property.

The sale of Marriott Griffin Gate allowed us to avoid an estimated $30 million in near-term capital expenditures, a significant additional investment that we did not view as an appropriate capital allocation within our portfolio. The sale also allowed us to exit a tertiary market that was inconsistent with our strategy of primarily owning uniquely positioned luxury and upper upscale hotels and resorts in top 25 lodging markets and key leisure destination.

On the acquisition side, we were thrilled to acquire the 600-room Hyatt Regency Portland for $190 million, or approximately $317,000 [Phonetic] per key, a very attractive basis for this high-quality, newly developed hotel. The development of the hotel was partially facilitated through public investment of nearly $75 million through a combination of bonds and grants for which the hotel has no direct repayment obligations. This contribution to the development costs allowed us to purchase this outstanding new hotel at an immediate, quantifiable and substantial discount to replacement costs.

In addition to supporting the development of the hotel, local authorities made a significant investment to renovate and upgrade the Oregon Convention Center, which prior to the opening of the Hyatt Regency Portland, did not have a headquarters hotel or any large group hotel in its vicinity. The renovation of the convention center, coupled with the opening of the Hyatt Regency, should enable Portland to attract new and better convention and group business to the city. And we are encouraged by the early results of the hotel's group sales efforts.

Over the past few years, we have continued to strengthen and expand our relationship with Hyatt and we have seen strong operating results at our Hyatt hotels and resorts. We are excited to have been able to further this relationship through the acquisition of a hotel that is the largest in the State of Oregon and is unrivaled in quality and amenities in the Portland and regional group hotel market. As a result of this acquisition, we further improved our portfolio diversity by increasing our exposure in the Pacific Northwest, while also increasing our prospective group and convention exposure.

As announced in our earnings release yesterday, subsequent to quarter-end, we entered into an agreement to sell Renaissance Austin Hotel for $100.5 million. If completed, this sale will further improve our overall portfolio metrics as the hotel performed significantly below our remaining portfolio averages. Renaissance Austin is a legacy asset located in a suburban setting in a market where a meaningful amount of supply has been and continues to be added to the hotel room inventory. Additionally, the hotel will require a significant amount of near-term capital expenditures to improve its competitive positioning, as we last renovated the guest rooms in 2013 and the competitive supply is either new or more recently upgraded than the rooms product offered at the Renaissance. Based on these and other factors, we believe the timing and market conditions were appropriate to unlock value from this asset at this time. We expect the sale of the hotel, which is subject to customary closing conditions, to be completed by the end of the first quarter.

We believe that our strong balance sheet continues to provide us with the ability to take advantage of compelling investment opportunities as they arise in the future. A conservative leverage profile and healthy balance sheet continues to be a long-term strength of our company. And we intend to utilize the proceeds from the sale of Renaissance Austin to further solidify our capital structure. We intend to pay down a portion of the outstanding balance on our line of credit with the proceeds and reduce our net debt to EBITDA below 4 times as a result of this transaction.

Looking ahead to the remainder of 2020, based on current market conditions, we are more likely to be a net seller than a net buyer this year. Given the fact that seller expectations for appealing acquisition opportunities remain elevated, partially due to financing markets remaining open and providing attractive alternative options, we currently do not expect to be very active on the acquisition front in 2020 unless we see a shift in market conditions. However, we continue to view transactions as an important way through which we create long-term shareholder value. And this is more likely to manifest itself through additional opportunistic dispositions during the balance of the year. The number and amount of dispositions we have completed since our listing have been significant, and we believe that these asset sales have been as instrumental as our acquisitions in shaping the future growth profile of our company.

The sale proceeds have been an effective way for us to raise capital for exciting additions to the portfolio, and we have been able to do this in an efficient manner, both from a cost of capital and tax planning perspective. We believe that given the continued interest of private capital sources in high-quality lodging assets, additional opportunities may exist to take advantage of the disparity between private and public market lodging valuations. To the extent we are successful in doing so, further strengthening the balance sheet will provide us even more flexibility as we evaluate the various capital allocation tools at our disposal as we have done successfully over the past five years. As in the past, we will provide updates on additional transactions if and when any come to fruition.

We believe our recent transaction activity is strategically appropriate for the long-term success and trajectory of the Company despite near-term impacts resulting from renovation disruption, particularly at Park Hyatt Aviara, and ramp-up at several recently acquired hotels, including Hyatt Regency Portland. As a result, we anticipate that 2020 will be a transitional year from an earnings perspective as we build on the solid foundation we have established over the past several years.

As outlined in our earnings release, we expect a slight decline in same-property RevPAR in 2020, as well as a more significant decline in adjusted EBITDAre and adjusted FFO, which reflects our recently completed and announced dispositions, as well as renovation disruption at several of our hotels and resorts. Additionally, we anticipate more significant expense growth, primarily resulting from higher wage and benefit costs and greater real estate tax and insurance expenses.

We are extremely excited about the opportunities with Park Hyatt Aviara, following the transformative renovation that we commenced late last year and expect to complete in early 2021. As we finalize the design and planning of the renovation, we decided to compress the project into a tighter time frame. As a result, we outperformed our underwriting in 2019 but will experience increased disruption in 2020 as we strive to complete the vast majority of this significant project by the end of this year. Atish will provide additional detail on our 2020 guidance and discuss the various components of disruption related to Park Hyatt Aviara as well as other properties in the portfolio later during the call.

A modernized and upgraded Park Hyatt Aviara, along with a fully renovated and expanded Hyatt Regency Grand Cypress, the exciting potential of the newly acquired Hyatt Regency Portland, continued growth expectations related to other recently acquired hotels, as well as our strong balance sheet are a few of the important drivers that provide substantial earnings growth potential for our company in 2021 and beyond. We believe we have built a tremendous portfolio with exciting embedded opportunities for growth and are looking forward to what lies ahead for our company.

With that, I will now turn the call over to Barry.

Barry Bloom -- President and Chief Operating Officer

Thank you, Marcel. As a reminder, all portfolio information I'll be speaking about is reported on a same-property basis for 38 of the 39 hotels owned at year-end, which excludes Hyatt Regency Portland. The hotel recently commenced operations this past December and will be excluded from our same-property portfolio in 2020.

Same-property RevPAR declined 0.4% for the quarter as a result of a 7 basis point decrease in occupancy and a 0.3% decrease in rates. RevPAR was down 3.4% in October due primarily to the Jewish holiday shift, up 0.5% in November, and up 3.4% in December. Transient RevPAR for the quarter grew 2.1%, while group RevPAR declined 6.2%. Non-rooms revenues continue to be a strength for us, up 1.2%, contributing to a 0.3% increase in same-property total revenues for the quarter.

When looking at our top 10 markets based on 2019 hotel EBITDA, our top performers for the quarter were San Francisco, up 4.6%; Phoenix, up 3.2%; Napa, up 2.9%; Atlanta, up 2.8%; and Orlando, up 2.6%. The overall San Francisco market benefited from strong citywide compression during the quarter, which enabled the Marriott San Francisco Airport to drive rate despite flat occupancy. Our Phoenix performance was driven entirely by Hyatt Regency Gainey Ranch, which grew RevPAR and gained share with strong transient production, which offset softer group business. Both Napa properties saw strong demand despite softer rates due to nearby fires.

In Atlanta, Renaissance Atlanta Waverly saw strong group performance with several high-quality meeting events, and the Waldorf Astoria Buckhead saw improvement as a strong group base and changes in property leadership allowed the hotel to meet our expectations. All three of our Orlando properties had RevPAR growth in the fourth quarter as the overall market rebounded with strong citywide performance in December after a softer October and November, as well as good transient demand.

The worst performing of our top 10 markets for the quarter was San Diego, down 9.2% due in part to the commencement of the Park Hyatt Aviara renovation, resulting in nearly 5,000 out of order rooms, and a lack of citywide group business, which impacted Andaz San Diego. Dallas market was also challenged, down 6.2%, where the Fairmont struggled as expected with weaker group business than last year throughout the quarter, while the Marriott Dallas Downtown gained share with a strong group base and increased transient demand, albeit at a lower ADR.

For the full year, our same-property portfolio experienced 2% RevPAR growth as ADR increased 0.9% and occupancy increased 80 basis points. Our group mix ended the year at approximately 33% of total rooms revenue, a slight declines from 2018. For the full year 2019, the strongest of our top 10 markets in terms of RevPAR growth were San Francisco, up 6.9%; Houston, up 5.8%; Dallas, up 4.3%; Napa, up 4.2%; and Phoenix, up 3.6%. Other markets providing positive RevPAR growth for the year included Atlanta and Boston. In total, 15 of our 25 markets experienced positive RevPAR growth in 2019. The most challenged of our top 10 markets for the year were Santa Clara, down 1.5%; San Diego, down 1%; and Orlando with flat RevPAR.

As Marcel discussed earlier, we continued our track record of margin growth, marking the fifth consecutive year of margin growth in our same-property portfolios at each respective year-end. Same-property EBITDA margin grew 23 basis points, with total same-property hotel operating expenses up only 1.7% despite a 6.4% increase in real estate taxes, personal property taxes and insurance. We continue to find operational efficiencies and incremental savings elsewhere despite muted top line growth.

Our ability to find opportunities on the margin side comes from both the integration of our recent acquisitions into our asset management platform, as well as continued implementation of our property optimization process and aggressive asset management across the portfolio. On average, the four hotels we acquired in 2017 grew margin by 31 basis points in 2019, which is on top of the almost 140 basis points of margin expansion these hotels collectively achieved in 2018. This margin growth is despite significant labor cost headwinds we faced in Orlando. As a reminder, in 2017, we acquired Hyatt Regency Grand Cypress, Hyatt Regency Scottsdale, Royal Palms in Phoenix, and The Ritz-Carlton, Pentagon City.

The four hotels we acquired in 2018 each went through our detailed property optimization process where we identified numerous revenue and cost saving initiatives. These POPS followed the detailed playbooks we have developed, and our performance reiterates our unique ability to find and recommend operational efficiencies in the hotels new to our platform.

Although Fairmont Pittsburgh experienced a 10.8% decline in RevPAR in 2019, performance exceeded our underwriting, as we anticipated this decline as the hotel works to remix its corporate and transient business. Despite the significant decline in RevPAR, our asset management team was able to work with the hotel management team to limit the decline in EBITDA margin to only 37 basis points as they did a tremendous job in identifying opportunities to grow food and beverage and ancillary revenues and streamline the operation for the long term.

Park Hyatt Aviara, whose transformational renovation I will touch on a bit, performed very well in 2019, particularly from expense control standpoint. The property had substantially improved performance compared to prior year before the commencement of the renovation with hotel GOP margin up 245 basis points through October and EBITDA up 13.1% as the property put in place a number of programs to optimize operations, which will continue through and following the transformational renovation.

At The Ritz-Carlton, Denver, our team also worked closely with the local management team to identify and implement meaningful opportunities to grow revenues, minimize costs and still provide an outstanding guest experience. These efforts resulted in EBITDA margin improvement of 123 basis points.

Waldorf Astoria Atlanta Buckhead continues to show progress from the hotel's rebranding, which we completed immediately upon acquisition. We continue to work with Hilton to optimize the performance of the hotel. We are pleased with the hotel's ability to grow margin by 470 basis points on RevPAR that was essentially flat to 2018.

As you know, we are extremely enthusiastic about the acquisition of the Hyatt Regency Portland. Since the hotel opened two months ago, we have been pleased with the talented local operating team and their understanding of the dynamic Portland market. We are thrilled to have nearly 80% of our budgeted group bookings for the year already on the books, and we are seeing a very active sales pipeline as local, regional and national meeting planners now have the ability to see and feel its high-quality meetings-focused asset firsthand.

Through our 2019 property optimization process, our dedicated in-house team completed visits at our four 2018 acquisitions to focus on the implementation of our new program, POP 2.0, which revisited previously reviewed properties with a focus on both retention of previous savings as well as identification of new opportunities, particularly ESG arena, where we are continually seeking opportunities for energy and water conservation. In 2019, we identified nearly $3.5 million in potential net benefits of those properties, bringing our total identified opportunities to approximately $13 million at properties we currently own since we began this program in 2014. We are particularly proud that we've been able to work with our managers to implement nearly 75% of these recommendations to date, resulting in approximately $9.4 million of annualized ongoing net benefit.

A major ongoing initiative for our POP team has been transitioning our hotels from single-use amenities to bulk amenities and guestrooms. As of year-end, 15 of our hotels have made this transition, and we expect 8 to 10 hotels to transition in 2020. And we look forward to continue this program in additional hotels in future years.

We are also continually focused on making Green Choice and other similar initiatives which afford our hotel guests the opportunity to forego housekeeping services, typically with an offer or incentive for them to do so. As of year-end, 33 of our hotels offer this program. Our primary focus in this area is for our hotels to increase the capture rate of guests taking advantage of this opportunity, benefiting the environment, while also helping us reduce cost.

I would now like to turn to a review of our capital projects completed last year. In 2019, we spent $93 million on capital across the portfolio. The biggest project of the year was the completion of the new 25,000 square foot ballroom and 32,000 square foot of pre-function and support space at Hyatt Regency Grand Cypress. The project came in on budget with a total project cost of $32 million. This new facility hosted its first event in December 2019, and the resort's management team is enthusiastic about both the quantity and quality of business they are putting on the books for this new facility. In addition to the new ballroom, we also completed a renovation of Hemingway's, the resort's signature restaurant.

Other notable capital projects completed in 2019 included lobby renovations at Hotel Monaco Chicago, Hotel Monaco Denver, Marriott Dallas Downtown and Westin Oaks Houston, and a more substantial lobby, restaurant and bar renovation, and creation of a market at Hyatt Regency Santa Clara. Additionally, we completed the renovation of the casitas and suites at Hyatt Regency Scottsdale, guestrooms at Hotel Monaco Chicago, meeting space at Hotel Palomar Philadelphia, and the final phase of the meeting space renovation and creation of two additional guestrooms at Marriott Woodlands. Finally, we completed the renovation of the Alvadora Spa at Royal Palms, as well as the renovation of the Daily Grill restaurant at Westin Galleria Houston.

In 2020, we expect to spend between $110 and $130 million on capital expenditures, including several significant projects. Our largest project this year will be the continued renovation of Park Hyatt Aviara. We commenced the renovation during the fourth quarter of 2019 with the renovation of the guestroom and corridors, as well as the meeting space, both of which are expected to be completed during the second quarter of 2020. The exterior amenity upgrades across the resort, including a major renovation of the pool area and water amenities, renovation of the outdoor meeting space and upgrades to the exterior landscaping also commenced late last year with an anticipated completion date in the third quarter of this year. The renovation of the public spaces and food and beverage outlets will be the next to begin and include a major renovation of all areas, including the lobby, lobby bar, an expanded outdoor terrace, converting the existing specialty restaurant to a three-meal restaurant, and conversion of the existing three-meal restaurant into meeting space. This portion of the renovation is also anticipated to be completed during the third quarter.

Golf course renovation will begin in early spring with anticipated completion in the fourth quarter. The spa and golf facilities renovation will be the final portion of the project and will commence in late 2020 and are expected to be finished in the early part of 2021. This renovation of the resort is expected in total to cost approximately $55 million, which will bring our investment in the property to approximately $225 million, or approximately $690,000 per key, an enviable basis relative to other luxury California coastal resorts. We are excited to modernize the resort and enhance its appeal to a broader range of market segments through this transformational renovation. We continue to believe strongly that this renovation will be very well aligned with the Park Hyatt brand and its customers, and will position the resort extremely well against its competitor set.

Other notable capital projects scheduled for 2020 include guestroom renovation and the creation of a new M Club Lounge in the lobby level at Marriott Woodlands Waterway, as well as a meeting space and restaurant renovation at The Ritz-Carlton, Pentagon City, which we believe will enable the hotel to attract additional business related to Amazon's HQ2. Additionally, we will renovate the existing meeting space at Hyatt Regency Grand Cypress, which will align the design with that of the new ballroom [Phonetic]. Atish will discuss the disruption anticipated in these projects.

And with that, I will turn the call over to Atish.

Atish Shah -- Executive Vice President and Chief Financial Officer

Thanks Barry. I will cover two topics today. First, I'll discuss our 2020 outlook, and then I will turn to a brief review of our balance sheet progress over the past year.

As to 2020, we currently expect overall demand to generally be stable across our portfolio. But we expect this year to be a transitional year that prepares us for solid growth in 2021 and beyond. Specifically, we are expecting this year's profitability relative to last year to be moderated by three main items: first, renovations; second, the impact of transactions on a net basis; and third, higher expenses. I'll speak about each of these items individually.

As to renovation activity, this year is scheduled to be a busy one. We expect this year's renovations to generate strong growth for the Company in 2021 and beyond, just as the renovations that we completed in 2018 generated strong growth for us last year. This year, we expect displacement due to renovation to cause about 100 basis points of negative impact to same-property RevPAR. We also expect these renovations to displace non-rooms revenues such as food and beverage and ancillary revenues. Negative impact to EBITDA margins from renovations is expected to be approximately 65 basis points. We expect renovations to negatively impact adjusted EBITDAre by approximately $12 million, and this impact will be more concentrated in the first half of the year.

Secondly, the three transactions completed last year, as well as the one announced yesterday, are expected to result in a net $8 million year-over-year decline in EBITDA. The breakdown is as follows. The two dispositions we completed in December generated $8 million in EBITDA in 2019. The Portland acquisition is expected to generate $7 million of EBITDA this year, which is consistent with our underwriting. Given the expected timing of the Renaissance Austin disposition, we expect that sale to result in a year-over-year decline of approximately $7 million in EBITDA.

Moving ahead to higher expenses, consistent with other owners in the industry, we expect to be challenged by rising costs relative to last year. Wages and benefits, which represent nearly 50% of our expense base, are projected to increase in the 3.5% to 4% range. Our managers are increasing wages to maintain parity with other hotels and businesses. Additionally, we expect non-operating expenses to increase at a higher rate. As to property insurance expense, we expect an over 40% increase relative to 2019. And as to real estate tax expense, we are budgeting an 8% increase versus 2019.

Overall, owned EBITDA margins, exclusive of the impact of renovations, are expected to decline approximately 85 basis points. Same-property hotel EBITDA, again, excluding the impact of renovations, is expected to decline approximately 2.5%. Additionally, we expect a total negative $5 million year-over-year variance from a few other items. These items are: A, business interruption insurance, which was received in 2019; B, extraordinary real estate tax credits and settlements recognized in 2019; and C, higher G&A expense.

Now, I'd like to turn to some overall thoughts on our business. Excluding the impact of renovations, RevPAR is projected to grow modestly over last year. Industry occupancy as well as that of our portfolios is expected to remain strong. Despite that, we, together with other owners, have had limited pricing power.

As to our group pace, it continues to be healthy. As of year-end 2019, just over two-thirds of our expected 2020 group revenue was definite. Our same-property group revenue pace after excluding Park Hyatt Aviara is up 3.5%. Our group mix is an important attribute of the Company. Our properties have high-quality meeting space, drive internal group demand. Our group mix is expected to grow as our properties in Portland, Carlsbad and Orlando continue to ramp up post opening and expenditures of capital respectively.

As to our recent trends, January RevPAR excluding Park Hyatt Aviara declined approximately 2%. This is on track with our expectations as we faced a difficult comparison to last year.

As to COVID-19, our guidance includes cancellations and attritions known to date. We have estimated this as approximately $1 million of negative impact to EBITDA. This disruption in our portfolio has primarily been at Hyatt Regency Santa Clara and at the Marriott SFO. At Marriott SFO, our airline crew contract businesses declined, and we also anticipate this submarket could be soft given that about 10% of SFO's previously scheduled international flights have been canceled until the end of March. We're closely monitoring the situation but cannot predict what, if any, further impact there might be.

Some other items that I would like to provide include our expected seasonality and hotel supply growth in our markets. For 2020, we expect to earn approximately 23% of our adjusted EBITDAre during the first quarter, 29% in the second quarter, 22% in the third quarter and 26% in the fourth quarter. This weighting reflects renovations and net transaction activity.

Moving ahead, as to supply growth in our markets, as of year-end 2019, expected weighted supply growth in our market tracks for 2020 is approximately 2.7%. Supply growth in the market tracks of our top 5 EBITDA hotels, which generate over 30% of our hotel EBITDA, is about up 2% this year. Finally, about 20% of our rooms are located in market tracks that have no new supply growth this year.

Moving to my second topic, our recent balance sheet activities and overall balance sheet status, during 2019, we further optimized our balance sheet. We completed the final draw on our $150 million term loan that matures in 2023 and lowered the pricing grid on another term loan and paid off two secured loans. At year-end, approximately 70% of our debt was fixed or hedged to fixed. Our weighted average duration is approximately four years. Our weighted average interest rate declined approximately 10 basis points as compared to year-end 2018. That was due to a shift in the mix of debt and a decline in variable rates.

Our leverage ratio of net debt to adjusted EBITDA was 4.1 times at year-end. Pro forma for the pending sale of Renaissance Austin, our net debt to EBITDA is approximately 3.9 times. We continue to have well staggered debt maturities with no maturities this year. In addition, our balance sheet continues to be strong. We have 31 unencumbered assets that together represent over 70% of our annual hotel EBITDA.

In conclusion, the Company is well positioned for the current operating environment. We continue to be active and make progress in matters in our control such as asset and project management, transactions and other forms of capital allocation. We remain focused on creating value -- long-term value through our strategy of owning high-quality, luxury and upper upscale lodging assets in top 25 markets and key leisure destinations.

That concludes our prepared remarks. I'll turn the call back over to our operator. Kate, could we take our first question please?

Questions and Answers:

Operator

[Operator Instructions] Our first question is from David Katz from Jefferies. Go ahead.

David Katz -- Jefferies -- Analyst

Hi, good morning, everyone.

Marcel Verbaas -- Chairman and Chief Executive Officer

Good morning, David.

David Katz -- Jefferies -- Analyst

Thank you for the copious detail. Look, I wanted to just go back to the one comment earlier, Marcel, about being much more likely a seller than a buyer, which makes -- certainly makes perfect sense today. Can you just talk about the boundaries or parameters or how you're thinking about the criteria for what you would sell? And any indications on order of magnitude or size and kind of what the key barriers are to getting things done as you see them right now?

Marcel Verbaas -- Chairman and Chief Executive Officer

Sure, David. Really not much has changed in the way that we look at potential dispositions from what we've talked about over really the past two years, which is, a lot of dispositions that we have done kind of fit into a bucket where we view it's -- assets being somewhat optimized under our asset management expertise, situations where there is a pretty significant amount of capital that needs to go into an asset that we don't view as an appropriate return, locations that just don't fit with our long-term strategy of where we kind of focus our strategy on at this time. So if you look at what we've done historically, most of those most of dispositions we've done really fit into those type of categories. And I would say that Renaissance Austin, which we just announced, is another example of that type of disposition. Pretty significant amount of capital that needs to go into the asset. So we're pleased with the execution and pricing, assuming the deal obviously moves forward to closing as we currently anticipate.

That being said, we'll also look at whether it makes sense to opportunistically sell some assets in the portfolio, particularly in the current situation, like I said, where you really do see private market valuations that show pretty good disparity with public market valuations. And we've done some of that in the past too, when we sold the Aston Waikiki that was really kind of looking at that situation, aside from capex that was going to be needed at the asset. But also some of the select service assets we sold at the end of '18 when we sold Hilton Garden Inn DC, Residence Inn Denver, those really kind of fell into that bucket. So we continue to look at whether we can create value for shareholders through those type of transactions too.

David Katz -- Jefferies -- Analyst

All right. And at the risk of asking an extremely short-term question, these past couple of days have been categorically negative. Is there any up-to-the-minute information that's shareable with respect to the financing markets or any behavior that you can point to either qualitatively or specifically?

Marcel Verbaas -- Chairman and Chief Executive Officer

Nothing specific, to your point. It's -- I mean, obviously, there has been a lot of movement in the market in the last couple days. But from what we've seen really in the recent past is that financing markets have stayed [Phonetic] very much open for transactions and for refinancings. Very aggressive financing terms have been available. So really haven't seen any changes there. If anything, it's been more open than ever before. So, not sure that any kind of short-term impact here is going to change that trajectory very significantly, but obviously, too early to tell as it relates to...

David Katz -- Jefferies -- Analyst

Sure. Okay, thank you very much.

Operator

Our next question is from Austin Wurschmidt from KeyBanc Capital Markets. Go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Hi, good morning, everybody. Just touching on the big renovation at the Park Hyatt Aviara, assuming virtually that goes to zero contribution this year, just curious, how did you, with all the moving pieces, arrive at the significant disruption from that overhaul and renovation there? And then, as you think about the ramp into '21, does that get back to the 2019 level of, call it, $8 million to $9 million? Or could you potentially see it exceed that level into 2021?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah, Austin, obviously, as we alluded, probably all three of us in some regard during our prepared remarks talked about the significance of the renovation and the disruption that it will cause in 2020. In my comments, I pointed out that we really kind of compressed the time frame as much as possible into 2020, which will obviously create some more disruption this year. It also meant frankly that we outperformed our underwriting in '19. And it also means that toward the end of '20, there is going to be very little work that hopefully still needs to be done going into '21, which really sets up very well for us going into '21. And certainly, it is a true short-term impact that we're seeing here where we absolutely expect to see not only the numbers that you're referencing for last year, but significant growth coming off of that. Whether that all starts hitting in '21, that obviously we'll start talking about as we get deeper into the year, but it is something where our asset management team and our operating team at the property are very much focused on what this resort will look like coming out of the renovation and putting the appropriate type of business on the books coming out of the renovation. So nothing that we've seen as diminished our enthusiasm for this property and how we expect to stabilize this property in the next few years.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Got it. Thanks for that. And then, as you look into 2021, any assets that have big capex requirements coming up? And then, with kind of tying that to your comments on being a net seller, how would you prioritize potential uses today?

Marcel Verbaas -- Chairman and Chief Executive Officer

As it relates to capital requirements, we are obviously looking at our current five-year capital plan. There aren't a tremendous amount of room renovations that we will be doing in '21. Clearly, what we're doing this year is much more impactful than what you'll see going into '21. So it will be relatively limited next year. So certainly, we would expect to see disruption to drop off significantly. Certainly, we would expect to see the growth coming off of the things that we talked about, the assets that are being disrupted this year, and the growth coming from some of the newer assets. And it doesn't only mean growth coming off of Portland, which we expect to start stabilizing over time, but also some of the newer assets we bought over the last few years. So we think '21 sets up very well for us from that perspective.

As I talked about before, we mentioned the current disposition that we have under contract, if and when there are future transactions on the disposition side and when the time is right, we will talk about those. And clearly, our view is, if and when we do some of those transactions, to my points in my prepared remarks too, we would look to further strengthen the balance sheet and be in a position to use all the different capital allocation tools that we have at our disposal. And as we've done historically, we've been active on share buybacks in the past, we've been obviously very active in acquiring assets, and we also have been active in managing our balance sheet overall from a debt perspective. So all those tools could be at our disposal. And to the extent that we do disposition, that really is going to depend on the number and amount of those to see where the priorities might lie.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

All right. Thank you.

Operator

Our next question is from Ari Klein from BMO Capital Markets. Go ahead.

Ari Klein -- BMO Capital Markets -- Analyst

Thank you. Just following up on the Park Hyatt Aviara question, I believe on -- when you acquire the property, on project stabilization, you were targeting $17 million to $21 million in EBITDA. Is that still your target?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yes, and absolutely, yes. Like I said in my earlier answer to the earlier question, nothing we've seen as diminished our view of where we think this asset stabilizes. And I think it's really worthwhile to kind of talk a little bit about our investment basis in this asset too. We're going to be in after this renovation at about the $225 million number that Barry referenced. And if you look at the cost per key for this asset compared to comparable resorts in -- particularly in California that are sold for well in excess of $1 million a key. I think we're going to be extremely well positioned with our basis and to be very competitive with those type of resorts and drive a very good return off of our investment there.

Ari Klein -- BMO Capital Markets -- Analyst

Okay. And then, maybe turning to expenses, you mentioned that Sunbelt markets have maybe lower expense headwinds than some of your other markets. Can you talk about the differences you're seeing across your markets from an expense growth perspective and maybe how you see that trending beyond this year?

Barry Bloom -- President and Chief Operating Officer

Yes, sure. So Atish commented that our wage growth this year, we're looking at between 3.5% and 4%, which is probably about 100 basis points higher than we experienced in 2019. And I think, certainly, a big part of -- when you look at the relative number of our hotels where our managers have the ability to really both -- we're in markets where there may not be as significant wage growth as there may be in some of the major urban centers. Combined with our managers' ability to really continue to effectuate the ability to control expenses through better scheduling and things like that, it's really pretty consistent across our portfolio. There are a couple of outliers where we're seeing wage growth into the mid and even low-upper single-digit this year, really in cases where our managers have identified for us reasons to kind of match parity to the market, which in some markets is simply more competitive than others as it relates to other food service businesses and other service industry businesses. And we've generally listening to their recommendations and improved those within the budget.

Ari Klein -- BMO Capital Markets -- Analyst

Thank you.

Operator

Our next question is from Bryan Maher from B. Riley FBR. Go ahead.

Bryan Maher -- B. Riley FBR -- Analyst

Yes, good morning. When we look at asset pricing from a sales standpoint, I think most people would agree if we listen to most of the lodging REIT conference calls that asset sales have been done at fairly attractive prices for the REITs. But with what's going on with kind of coronavirus and the significant sell-off in the shares of the public companies over the past couple of days, couple of weeks, do you anticipate that that will change and thus impact your ability or desire to sell assets in 2020?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, in general, I think my answer to that would be, Bryan, it's obviously early days for really figuring out what the overall impact of Corona borrowers is going to be overall throughout the economy and the lodging industry in particular. So the way we look at it is, certainly we're expecting impact on operations. And Atish highlighted some of the immediate impact that we're seeing. And we, like everyone else, are obviously hopeful that the impact is going to be relatively short-lived and that it's something that will get under control fairly quickly worldwide and not impact things too dramatically. So from that perspective, our view of it is that as we sit here today, that's really hard to say whether there is going to be significant impact on valuation for assets. Our view is that, if you look historically, these type of issues had popped up in the past, obviously. And depending on where it happened and what the overall impact was, that was either a shorter or kind of a medium-term impact. But overall, this is something that -- once it's in the rear view, hopefully, it's something that hasn't overall impacted the long-term kind of trajectory of some of these valuations.

Bryan Maher -- B. Riley FBR -- Analyst

Okay. And then my second question is, you guys have done a really great job at controlling costs and you're much better than most of the lodging REITs that we cover. Where do you think that there's still some of the biggest opportunities to kind of offset the increases you're seeing on the wage side and property taxes still to come?

Barry Bloom -- President and Chief Operating Officer

Thanks Brian. I think we continue to see it in largely, again, portfolios relatively new to us. When we look at the volume of assets we acquired in '17, '18, now '19 with Hyatt Regency Portland, that we think properties are new to us certainly have much greater opportunity for us to really dig in, whether it's through our day-to-day asset management or our specific property optimization process and identify areas for opportunity. I think continually, certainly, the biggest opportunity is in labor, not necessarily on the wage side and not necessarily on the body side, but more in efficiency of scheduling, which our managers we think are getting better and better at, and we're finding opportunities assist them with that. We think there are still going to be benefits in the near to mid term from the -- in part related to brand consolidation, but where their system fees and charge-backs are in fact at lower cost than they been historically, we think we'll continue to be a beneficiary of that. And I think depending on what happens kind of in the world and it changes over time, but certainly, we're seeing in the case of food and beverage pricing, we're seeing very competitive market and the ability to purchase those items at costs that are generally not rising at inflationary levels, or rather at new inflationary levels, which in the case, certainly relative to other parts of the P&L, is beneficial to us.

Bryan Maher -- B. Riley FBR -- Analyst

Okay. Thank you.

Operator

Our next question is from Michael Bellisario from Baird. Go ahead.

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

Hi, good morning, everyone.

Marcel Verbaas -- Chairman and Chief Executive Officer

Good morning.

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

Just one more on Park Hyatt Aviara, just on the accelerated renovation there. How much of the changes is property-specific? And then, maybe related to the 2019 outperformance that you referenced versus any change in your broader industry view that you're seeing kind of toward '21 and '22 that you want to get this project done sooner?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, in general, and Barry talked about this a little bit, we went through a very detailed and thoughtful way of looking at how we best scheduled the renovation, and like I said earlier, really came to a conclusion to try to compress it as much as possible into 2020. That really wasn't driven as much by looking at the overall market demand factors or anything like that. It was more based on controlling the cost of the project overall, making sure that this is all a very consistent and congruence renovation where we can really hit it right away after this renovation is done with a very refreshed product that we can really, in some ways -- really rely on Hyatt to relaunch this as a very different product than what it was before. So it was much more driven by our views of the overall project and managing the project and getting ready for that rebound.

Now, that being said, I think what you will probably see is that it may not be a bad year to do it this year more so than into '21 and '22, which should only help us in hopefully limiting the disruption a little bit more, getting it done this year and we'll be able to be in a great position going into '21.

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

That's helpful. Thank you.

Operator

Our next question is from Tyler Batory from Janney Capital Markets. Go ahead.

Tyler Batory -- Janney Capital Markets -- Analyst

Hey, good morning. Thanks for taking my questions. And I appreciate all the detail here thus far. Just a few quick follow-ups for me. On the Portland acquisition, can you talk a little bit more about the citywide convention calendar in Portland both this year and in the next couple of years, and then also just talk about any competitive supply in Portland as well?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah, I'll talk a little bit about the competitive supply for us, and Barry will jump in with more of the group and citywide info. So, on the competitive supply piece, as you know, there has been a good amount of supply that's been added to Portland over the past few years, and frankly, there is still a good amount of supply that's being added right now. The bulk of the new supply coming in right now is obviously our 600 rooms with our hotel that were added to the supply. And what I'll say there is that our hotel is very different from the majority of the other type of additions you've seen to the room inventory there. There has been a very significant increase in more of the lifestyle boutique type assets in the markets, and that certainly watered down a lot of those type of assets in the markets. Our Hotel is very different. I talked about both the location, next to the Oregon Convention Center, the synergies with the Oregon Convention Center. This is absolutely far and away the best group hotel in the market. So the way we view this is, it's a great opportunity with Hyatt increasing its exposure here, having a hotel that is going to be not only the best group hotel in the market, but also be a great alternative overall in the Pacific Northwest and frankly kind of throughout the West Coast, as a meeting alternative to some of the other locations on the West Coast. So from that perspective, yes, there's supply that has been added to Portland. Yes, there's still supply coming in. But it's all of very different nature than this asset which is going to be pretty unique asset in the market.

Now, I let Barry talk about some of the -- on overall group dynamics in the market.

Barry Bloom -- President and Chief Operating Officer

Yeah, sure. So, of the markets that we're and that we -- I mean, we track our remarks -- so the markets we're in, Portland for 2020 has by far the highest group pace. You would expect that that group pace for citywides in 2020 is up in the mid-20% range. Now, you'd expect that because they're getting for the first time a true headquarters hotel adjacent to convention center. So we think that -- we think it's positive. We don't want to overstate the case because it's in a little different environment. So what we do know and what I think we have a lot of confidence in is really -- some of the pieces Marcel said is that this is the first time you've had a convention center hotel attached the convention center. Convention center is renovated. Portland has very, very good airlift, particularly on the West Coast. We think that opens up lots of opportunities for not just, obviously, [Indecipherable] but particularly regional and West Coastwide, and even ultimately, we think they can be a player in the national convention market with this 600-room convention center hotel. I mentioned the status of our group bookings at the hotel relative to our budget for the year. So we feel very good about 2020. Right now, citywide paces a little softer for 2021, but we've got a full year now that the hotel is open. Meeting planners can see it and they can really have the opportunity to book the hotel year out. And that's -- the sales teams focused on every day is showing that meeting planner who they never really believe until they see it open. They now walk into an absolutely gorgeous 600-room meeting hotel that can use the center but also was designed very efficiently and has exactly the right meeting space to be able to do in-house group. And we think that with the Hyatt system and being really the premier meetings property in the city, it's going to have a great opportunity to be able to do that.

Tyler Batory -- Janney Capital Markets -- Analyst

Okay, perfect. And then just a follow-up. I'm wondering if you can talk to trends that you're seeing at your resort assets versus your more urban located hotels. Just curious if you're seeing any notable differences in performance.

Barry Bloom -- President and Chief Operating Officer

I think if you look at Q4, our largest resort assets were set up for relatively softer group business than what they had had in the prior year. And that was pretty consistent across our larger group hotels in October, November. They were able to very well backfill that with transient business. And we saw through the holidays as good a transient business around the Christmas holidays as our hotels have generally ever seen at that time of the year. So we think that speaks well to the strength of the strength of the consumer, particularly the leisure consumer and their ability to continue at least through the data that we have through year-end, but we're also seeing that continue a little bit into kind of the peak winter season as well, desire to book quality resorts and spend good money not just on rate, but also a lot of ancillary spend while they're at the properties as well.

Tyler Batory -- Janney Capital Markets -- Analyst

Okay, great. That's all from me. Thank you.

Operator

Our next question is from Bill Crow from Raymond James. Go ahead.

Bill Crow -- Raymond James -- Analyst

Hey, good morning. Three topics for me despite the fact it's getting late here. Orlando, number one, any change in leisure demand in the market that has been reported based on coronavirus?

Barry Bloom -- President and Chief Operating Officer

Interesting. Very, very little, Bill. We had one large group -- international group at Grand Cypress that had a very small contingent from China not attend that convention. But in terms of overall transit business, we are not hearing that in our resorts -- at our hotels. One of our hotels plays in downtown Orlando market and the other two play -- while they are certainly transient hotels, they generally have not a lot of international transient. But we're not seeing or hearing anything in the market overall at this point.

Bill Crow -- Raymond James -- Analyst

Okay. And the second question on that market is, just now that your ballroom is done, talk about the bookings that you've been able to generate and how that compares to your expectations.

Barry Bloom -- President and Chief Operating Officer

Really well is the simple answer. The more detailed answer is, we've got group pace growth at Hyatt Regency Grand Cypress well into the double-digits for this year and which was always kind of we've been tracking toward that extremely well. It's been very well received. The hotel is able to juggle multiple groups in multiple ballrooms at the same time, from an operations perspective, which is good. And I think we're certainly, in terms of our overall expectation for the resort this year, very much on track in terms of the return we expected from ballroom and are already seeing or have seen for quite some time pace for '21 also look really, really good over '20, which again, to some extent, planners are always going to be a little hesitant we found to book that space until they actually see it. But the hotel is doing a ton of FAMs, getting a ton of meeting planners, and their response has been very, very good.

Bill Crow -- Raymond James -- Analyst

Thanks. Second question -- second topic is the capex for the renovation, repositioning efforts this year. How big a risk is being able to get the FF&E from Asia-Pacific area this year?

Barry Bloom -- President and Chief Operating Officer

Yeah. So we've spent a lot of time working on that, as you can imagine. I think it goes to one of the benefits of us having our entire project management function in-house with our nine-person team and project managers that are in touch with the procurement agents and the properties every single day. So I guess, just to mention on the -- our three largest projects, we have very, very little risk at Aviara because we -- essentially, the longest lead-time items being the guestrooms and the meeting space, has all been obviously ordered in warehouse here and we're going through that process to finish [Phonetic] those two phases of the project up. There's some small furniture pieces that potentially could be delayed.

The projects that we're tracking the most closely is our Marriott Woodlands guestroom renovation. A lot of that furniture is manufactured in China. We have a lot of lead-time on that still, and we're getting answers. It's obviously not -- we don't have a 100% confidence in the answers we're getting at this point. We're monitoring every week. We do know is, we have had some shipments go out on items in the last week or two for some smaller pieces of the project and some pieces like carpet, for example, that are critically important to the project. And then, we have other projects like our meeting space renovation at Grand Cypress ballroom where we are not using an Asian-based vendor for that at all. We're using a Middle East vendor for that. So feel pretty good about it. So it's something we're watching very closely. In most cases, any delays at this point would seem to be in smaller goods that can be easily replaced or repurposed with existing good if we needed to.

Bill Crow -- Raymond James -- Analyst

Great. And finally from me, I think, Atish, it was you that mentioned the challenges in crew business in San Francisco. Can you just quantify your exposure to the crew business across all your markets, not individually, but just...

Atish Shah -- Executive Vice President and Chief Financial Officer

It's probably the one where we've actually got a little bit more crew business than other markets, and it's less than 10% of the demand there. So that's how I would characterize it. The to-date impact that we talked about, the $1 million to adjusted EBITDA. About half of that would be Santa Clara, half would be SFO. So that's what we've seen so far in terms of lower crew business at SFO. And then in Santa Clara, it's just been some attrition on some group business -- tech-oriented group business where folks from Asia are not able to come in.

Bill Crow -- Raymond James -- Analyst

Okay. That's it from me. Thanks.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Marcel Verbaas for closing remarks.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thank you, Kate. I would like to thank everyone again for joining our call today. And I'd like to reiterate how excited we are about the portfolio that we have built and the embedded opportunities for growth in the future. We continue to believe we are good allocators of capital, demonstrated by the potential of our newly acquired hotels, our recent and anticipated capital expenditures and our strong balance sheet. In fact [Phonetic], these have provided us the ability to outperform and will be important drivers that we believe will provide substantial earnings growth potential for the Company in 2021 and beyond. And we look forward to updating you in the quarters ahead. Thank you.

Operator

[Operator Closing Remarks]

Duration: 63 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

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Ari Klein -- BMO Capital Markets -- Analyst

Bryan Maher -- B. Riley FBR -- Analyst

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

Tyler Batory -- Janney Capital Markets -- Analyst

Bill Crow -- Raymond James -- Analyst

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