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Xenia Hotels and Resorts (NYSE:XHR)
Q1 2021 Earnings Call
May 06, 2021, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Xenia Hotels & Resorts first-quarter 2021 results conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Cameron Frosch, senior analyst, finance. Please go ahead.

Cameron Frosch -- Senior Analyst, Finance

Thank you, Andrew. Good afternoon, and welcome to Xenia Hotels & Resorts' first-quarter 2021 earnings call and webcast. 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 quarterly performance.

Barry will follow with more details about our operating results and details on our capital expenditure projects. And Atish will conclude our remarks with a review of our balance sheet. 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 this morning, along with the comments on this call, are made only as of today, May 6, 2021. We undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release.

An archive of this call will be available on our website for 90 days. I'll now turn it over to Marcel to get started.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, Cameron, and good afternoon to everyone joining our call today. As you are all well aware, we are now more than a year into the COVID-19 pandemic. And fortunately, we are starting to see more and more signs that our country and our industry are starting to turn the corner. With vaccination rates across the country increasing and cases of hospitalization decreasing, the resulting loosening of restrictions and improving attitudes toward travel have manifested itself in increasing occupancy rates across the industry and in our portfolio, in particular, over the past couple of months.

We are encouraged by our recent results and the operating trends we continue to see throughout our portfolio, and we believe it is safe to say that the worst of the pandemic impact now appears to be behind us. The pandemic started to have a significant impact on the lodging industry in March of 2020, after a reasonably strong January and February. As a result, U.S. RevPAR for the first quarter of 2021 decreased by 27.7% compared to last year, comprised of an approximate 10-point decrease in occupancy and 19.6% decrease in ADR.

The luxury and upper upscale segments experienced RevPAR decreases of 42.7% and 54.4%, respectively. Given the severe impact on lodging demand during the remaining quarters of 2020, we expect the industry to post significant RevPAR gains over last year during the next three quarters. With those comparisons becoming relatively meaningless, we, like most other industry participants, will move more closely at comparisons to 2019 results in the months ahead. During the first quarter, we reported a net loss of $56.4 million.

Adjusted EBITDAre was negative $3.6 million, and adjusted FFO per share was negative $0.18, with both numbers representing meaningful sequential improvements over the prior three quarters. Most encouragingly, both adjusted EBITDAre and adjusted FFO per share were positive during the month of March. These results for the quarter substantially exceeded the expectations we had at the end of February. We are pleased with both top-line and bottom-line performance as our portfolio performed well ahead of our internal forecast on both measures as a result of a substantial operational improvement in the month of March.

A significant number of our properties contributed to our same-property portfolio, producing positive hotel EBITDA for the first quarter. Twenty two of our hotels and resorts, representing over 60% of our portfolio, were able to achieve positive bottom-line results in March and 17 did so for the entire first quarter, both of which are high watermarks for our portfolio since the beginning of the COVID-19 pandemic. These encouraging operating results were not only achieved through occupancy rates that improved as the quarter progressed but also by continued outstanding cost controls at our hotels and resorts as our asset management team has done a terrific job working tirelessly with our operators to limit cash burn and get to breakeven hotel EBITDA at occupancy levels well below our prior expectations. We have previously estimated that we would need to achieve approximately 40% occupancy to reach breakeven on same-property hotel EBITDA.

However, in the first quarter, we were able to achieve positive hotel EBITDA on approximately 35% occupancy, a significant and encouraging improvement. Same-property occupancy, ADR, and RevPAR each sequentially improved during the quarter, and April results have continued that trend. Our April same-property occupancy of approximately 49% and ADR of approximately $216 represent the highest levels we have witnessed since the beginning of the pandemic. And we continue to be encouraged by demand from the leisure segments that we expect to be particularly strong during the summer season.

Since the beginning of the fourth quarter of 2020, 34 of our current 35 hotels and resorts, which represent 97% of our assets and 94% of our rooms, have been open and operating. We are thrilled that our only remaining hotel with suspended operations, Hyatt Regency Portland at the Oregon Convention Center, is slated to recommence operations before the end of May. Our long-standing strategic focus on geographic diversification and a significant concentration in key leisure and drive-to markets has benefited us greatly over the past few months, has allowed us to be ahead of the curve in recommencing operations at our hotels and resorts, and be positioned to take advantage of improving demand trends, particularly in many of our Sunbelt locations. While most of our occupancy continues to be driven by leisure demand, we are starting to see some green shoots as it relates to business transient and group demand.

And we are hopeful that strong summer leisure business will provide a bridge to gradually improving demand in these other segments in the second half of the year. Given our recent results and the operating dynamics we continue to witness throughout our portfolio, we have been able to return to profitability sooner than we anticipated during our last earnings call. Clearly, the portfolio strategy we have executed over the past several years has been and will continue to be instrumental as we navigate through the pandemic and position the company for future success. As we have highlighted many times before, we have made significant strides since our listing in 2015 to upgrade the overall quality of our portfolio.

The improvement in our portfolio quality is obvious when taking a detailed look at the assets we bought and sold over the past few years. And it has also very clearly worked in our favor as the industry is starting to recover. We continue to believe that having a broad geographic presence without heavy concentration in a handful of urban gateway markets has proven to be beneficial as has our strategic focus on appealing to a wide variety of demand drivers throughout the portfolio. We believe that the fact that many of our hotels and resorts are relatively new to our portfolio continues to be an important factor in our ability to come out of the downturn on a strong footing.

We acquired a number of exciting high-quality assets at attractive pricing in the years prior to the pandemic. And we believe we have significant and better growth potential within our portfolio as a result of applying our transactional expertise and experience throughout the lodging cycle. As we look ahead to further potential transaction activity, our disciplined approach to acquisitions and dispositions will continue to guide our decision-making process. We are actively evaluating opportunities in our pipeline and are hopeful we'll be able to add properties to our portfolio that meet our strategic and return requirements in the years ahead.

However, we are very comfortable with the quality of our current portfolio and the internal growth we expect to be able to achieve as a result of our transaction activity over the past few years. One prime example of our transaction and project management expertise is the investment we have made into Park Hyatt Aviara Resort. We are thrilled to have fully completed the transformational renovation and couldn't be happier with the finished product. We have built on a strong foundation that was in place and have created a modernized world-class resort that will appeal to today's high-end group, leisure, and business customer, and that should be able to compete very effectively in the coastal California luxury resort market.

And importantly, we own this asset at an extremely attractive basis compared to recent comparable transactions and at a very significant discount to replacement cost. As a reminder, we acquired the 327-room resort in late 2018 for $170 million. Including the approximately $52 million renovations we just completed, our total investment is approximately $680,000 per key, an outstanding basis for a luxury resort that offers high-end amenities, including its outstanding golf course and includes well over 200 acres of fee-simple lands in a highly desirable Southern California location. We also remain bullish on the growth we expect to achieve with our assets we acquired in recent years, such as Hyatt Regency Grand Cypress, Ritz-Carlton Pentagon City, Royal Palms Resort, Hyatt Regency Scottsdale, Waldorf Astoria Buckhead, Ritz-Carlton Denver, and Fairmont Pittsburgh, all of which we acquired at attractive pricing and substantially below replacement cost.

We are closely evaluating a number of potential split and ROI projects. Not only are some of these more recently acquired assets, but also at certain hotels that have been part of our portfolio for a more substantial period of time. We are excited about entering a new phase in the lodging cycle and the opportunities that we believe will be available to us to build on our hard work and dedication to our strategy that has put us in the position we are today. On the balance sheet front, we have ample liquidity and flexibility to take advantage of both external and internal opportunities as they arise, even more so as a result of the financing activities and dispositions we completed last year.

Atish will provide additional detail on our balance sheet strength during his remarks. I will now turn the call over to Barry, as he will provide details on our first-quarter performance, our capital projects, and the current operating environment.

Barry Bloom -- President and Chief Operating Officer

Thank you, Marcel, and good afternoon, everyone. As a reminder, all of the portfolio information I'll be speaking about is reported on a same-property basis for the 34 hotels at quarter end. For the quarter, our same-property portfolio occupancy was 34.8% at an average daily rate of $188.68, resulting in RevPAR of $65.70. This reflects a decline in RevPAR of 49.4% as a result of an approximate 22-point decrease in occupancy and 17.1% decrease in rate during the same time last year.

RevPAR was down 72.3% in January, 64.2% in February, and 42.1% in March. Our results were still down significantly from pre-COVID-19 levels. We are encouraged by the sequential improvement month over month during the quarter as well as our continued strong performance in April, a testament to our portfolio mix and the performance of our individual assets. As Marcel mentioned, 34 of our 35 hotels and resorts are currently open and operating, and we look forward to recommencing operations this month at the newly constructed Hyatt Regency Portland at the Oregon Connection Center, which was only opened a few months before the COVID-19 pandemic began early last year.

As in many other markets, we expect strong leisure demand in Portland over the summer months and are confident that this is the right time to reopen this hotel, particularly given the effectiveness we've seen in our hotel's ability to launch specific targeted marketing campaigns toward leisure business, while they prepare for the hotel's primary target market, large-scale group business, to return. For the quarter, portfolio performance exceeded our expectations, largely due to strong March results, which is driven primarily by strength throughout the leisure segment and specifically in our drive to leisure markets and destination to our properties. January's occupancy was 24.5% at an ADR of $170.41, continuing the moderate softening in business we've seen during November and December. As expected, February saw a notable increase in occupancy to 34.5% with an ADR of $183.58 as weekends, and particularly the combined Valentine's and President's Day weekend were very strong.

Portfolio also benefited from displaced residents' demand in our Texas hotels as a result of Winter Storm Uri. March occupancy continued to be increased in demand with occupancy of 45.4% with an increase in ADR of $202.07, with staggered statewide schedules, phased reopenings in California, and increases in corporate transient and group demand contributing to performance that exceeded our expectations. We currently estimate that for the month of April, our 34 open and operating hotels will have outperformed expectations as well, running approximately 49% occupancy and an ADR of approximately $216. We had 18 hotels, representing approximately half of the portfolio, achieve 38% or greater occupancy for the quarter, including nine exceeding 50%.

These included properties in Key West, Birmingham, Charleston South Carolina, Savannah, Alexandria, Orlando, and Phoenix, generally continuing to reflect our leisure-focused hotels in drive-to markets. In the month of March, Hyatt Centric Key West achieved the highest monthly ADR in its history. In terms of profit, 17 properties achieved positive hotel EBITDA for the quarter, up from 13 in the prior quarter, with 12 properties exceeding results compared to the first quarter of 2020. For the month of March, 22 properties achieved positive hotel EBITDA.

The management teams at our hotels continue the strong focus on managing expenses in a very difficult revenue environment. For the first quarter, departmental expenses declined 53.5% compared to 2020, nearly matching a 66.8% decline in revenues, while undistributed expenses, often considered to be largely fixed in nature, declined by 42.1%. Our individual hotels have performed well on the top line, achieving some remarkable performance on the bottom line as Hyatt Centric Key West, Hyatt Regency Scottsdale, and Royal Palms, at hotel EBITDA margins of 55%, 38%, and 29%, respectively, during the first quarter. As our hotels begin to experience challenges in sourcing labor, our management teams are working quickly to devise innovative programs to attract and retain labor in order to satisfy the needs of our hotels' guests.

As we expected, leisure booking windows have started to lengthen as consumers are willing to adapt to an environment where early booking ensures them a room at the most desirable hotels in a given market. We are working with our brand managers to begin to tighten the relaxed cancellation guidelines that are in place over the past 12 months. Our hotels continue to refine their service models, reintroducing restaurant outlets wherever possible in order to serve demand. Looking ahead, we continue to see a strong leisure pace for the coming months in our resorts and drive-to leisure destinations.

We track it through a metric we refer to as forward booking velocity, which represents rolling 90-day forward transient bookings. As of the end of March, transient business on the books for the second quarter was up 235% compared to transient business on the books for the first quarter at the end of the year. As we mentioned before, on the corporate transient side, we continue to see improvement in volume, particularly from regional firms where employees have returned to their offices and are excited about being back on the road calling on customers. Corporate transient business from large volume accounts were approximately 75% from Q4 2020 to Q1 2021 and increased sequentially each month.

Average length of stay in the segment is extended due in part to corporate travelers, combining business and leisure trips as well as some longer-term extended-stay business. Our portfolio, given its significant Sunbelt orientation, has certainly been aided by this phenomenon, and we look forward to larger companies returning to their offices and getting the people back on the road. Also as noted previously, on the group side, our hotels continue to enjoy business in 2021 with professional sports teams, including NHL, NBA, and MLS business, reflecting a continuation of our significant success in this segment. We continue to see group demand from youth fans, pageants, and sporting events and are now seeing increasing interest in bookings from smaller associations and corporate meetings on a regular basis.

We continue to field significantly more inquiries for business for the second half of 2021 and for 2022 with lead volume for all future dates increasing in our 15 largest group hotels by 65% from January to March. For these 15 largest group hotels, group booking pace for 2022 is increasing steadily, with regard to on the books increasing approximately 13% from the end of Q4 to the end of Q1. I would now like to turn to a review of our capital projects and progress for the year. In the first quarter, we spent $7.2 million.

Our capital expenditures in the first quarter were primarily spent putting the finishing touches on Park Hyatt Aviara, where we've now completed its $52 million transformations. In the first quarter, we reopened the former specialty restaurant as a new three-meal dining concept featuring Baja California-inspired cuisine. The renovation of the Golf Clubhouse, including a new restaurant concept developed in conjunction with renowned celebrity chef, Richard Blais, was completed in February and has opened to both strong reviews and strong revenues. In 2021, we continue to estimate spending approximately $40 million in capital expenditures.

Many of these 2021 projects were originally scheduled for 2020 and were deferred, but we will be looking forward to them in the second and third quarters, given the strong return profiles. These include the development of the Regency Court, a new outdoor social venue at Hyatt Regency Scottsdale, and a restaurant and lobby renovation at Ritz-Carlton Pentagon City. We expect to renovate and reposition the restaurant and lobby at Waldorf Astoria Atlanta Buckhead in the fourth quarter. In addition, planning is under way on three significant room renovations and one significant resort pool area renovation, which could begin as early in the fourth quarter depending on business conditions.

In addition, we are well under way on several ongoing building systems and infrastructure projects at 15 of our properties. Accomplishing this work while our hotels are still relatively quiet, we can minimize disruption. With that, I will turn the call over to Atish.

Atish Shah -- Executive Vice President and Chief Financial Officer

OK. Thanks, Barry. I will provide a quick update on our balance sheet. It continues to be strong.

Our current liquidity is approximately $715 million, which is about $5 million higher than it was in early March. Our liquidity reflects approximately $355 million of unrestricted cash and approximately $360 million of undrawn capacity on our line of credit. We continue to have a well-diversified balance sheet with no debt maturities until 2023, and our balance sheet is one of the reasons we are well-positioned to take advantage of opportunities in the years ahead. As we look ahead, we expect the momentum we saw in March and April to continue, and we expect continuing to be adjusted EBITDA and FFO positive going forward.

In conclusion, we have strong relationships with industry participants, including lenders, brokers, and management, brand companies that will serve well as we move forward. We have significant experience in capital allocation at various points in the lodging cycle. That track record is a good indicator of how we will approach opportunities going forward. And with that, we will turn the call back to Andrew for our Q&A session.

Questions & Answers:


Operator

[Operator instructions] The first question comes from Bill Crow with Raymond James. Please go ahead.

Bill Crow -- Raymond James -- Analyst

Good afternoon, guys. Two questions. Barry, maybe for you first. I think the labor issue has been discussed in just about all of these calls, and I want to ask it from a slightly different point of view, which is any indication in the guest reviews that they're starting to get frustrated by some of the staffing shortages.

Barry Bloom -- President and Chief Operating Officer

I think the short answer is yes, but I'm not certain that it's a direct result of staffing shortages or it's also that many hotels continue to provide not full services. I mentioned in the comments, we've tried really hard to ensure in our hotels, which are all full-service hotels, that we get our restaurant open, that we attract them, we're offering services, we're bringing back valet parking, things like that, that the guests want and expect. I don't think we've reached the point of real dissatisfaction yet. And I think that's one reason why as an industry we're trying so hard to get and stay ahead of that.

So we don't have people kind of rejecting hotels as an interesting and fun and enjoyable place to stay.

Bill Crow -- Raymond James -- Analyst

Yes. OK. Something to keep an eye on, I guess. Marcel, there's a really strong bid out there for assets these days.

And I'm just wondering whether that prompts you to think about continuing to refine your portfolio by selling maybe some noncore assets or maybe that aren't quite as high quality as the ones that you've acquired more recently.

Marcel Verbaas -- Chairman and Chief Executive Officer

In general, what you're seeing out there currently, I think, is that there are some assets that people perceive to be highly attractive, especially in the current environment with a good type of leisure components and certainly looking for that high-end customer that is among the best and premium pricing, where you really are starting to see some very aggressive bidding on those assets and as you point out, there have been a few transactions recently, obviously, that are at some pretty eye-popping cost per key, where they're getting completed. I think you are still seeing a lot of capital is chasing kind of a small set of deals kind of on that spectrum. You're not seeing kind of a -- throughout the industry, I guess, when you kind of go down a little bit in the quality level, you're probably not seeing quite as robust of an environment yet. And I think that is a little bit just people still waiting out to see how some of these assets recovered before getting too aggressive.

And I'm really trying to see if there's more stuff that will come to market over time. So I think now, there are some very specific situations where you're seeing some pretty aggressive pricing. And as you know, this is kind of pivoting toward the part of your question on as it relates to how we look at our transaction activity. As you know, we've always been active on both the disposition and acquisition side kind of throughout the cycle.

And we'll always look for opportunities to continue to upgrade the quality level of the portfolio. Where we are today, we're pretty excited about what our portfolio looks like now because we did so much heavy lifting kind of coming into the pandemic, where we look at the majority of our assets as having some really great growth potential going forward. So we look forward to really starting to harvest on that, and we think there are some real opportunities for us to drive some additional growth coming out of this. So certainly, transactions is something we'll continue to look at on both sides of the ledger, but really are very focused on driving growth in our existing portfolio right now.

Bill Crow -- Raymond James -- Analyst

Great. Thanks for the time. Appreciate it.

Operator

The next question comes from David Katz with Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi. Good afternoon, everyone. I wanted to go back to Aviara, which you talked about in your prepared remarks. And having seen it and sort of walked through the road of doing your repositioning work, how are you thinking about really the ramp and the ultimate return on that property.

Because we look at it, obviously, in the context of a leisure positioning, but the world has sort of changed since the road map you laid out. And so I'd love just a little more color around that.

Barry Bloom -- President and Chief Operating Officer

David, it's Barry. I think as Marcel mentioned and as I've mentioned in prior calls, I mean, the product is top-notch and certainly have no misgivings at all about either what we did or how we did it. I think when you go back and think about the original business plan, it was to really increase leisure on top of what has historically been a strong group base. And what we're seeing as we come out of it, and it's really hard to put a time line to any recovery right now.

What we can tell you, what we've seen so far is really good and strong reaction from local leisure market, which was part of what we were hoping for and feel very confident that the product and amenities really matched that, I think, especially with the food and beverage offerings we've put in place. I think we're also very enthusiastic and perhaps even more so than we've expected about what we're seeing in terms of group business and the group profile moving forward that a hotel of this relatively small size that can focus a lot of attention on a group and has a lot of -- we always had a lot of meeting space, which we've only added to through the renovation. We are experiencing significant -- achieving significant increases in group rate for future bookings. And that was certainly part of our strategy.

But I think the hotel team and our asset management team have been really pleased with how receptive the guests have been to understanding that this is a product that could be positioned $100 above where it was positioned before, and we're really not seeing any resistance to that in the place where it first starts to matter most, which is big groups we're putting on the books for '21 and '22 and '23 and then looking to always top that off with a better and more pronounced leisure component that it enjoyed in the period prior to our ownership and prior to renovations.

Operator

Was there a follow-up, Mr. Katz?

David Katz -- Jefferies -- Analyst

Sorry about that. Apologies for the mute button. The essence of my question is, do you think the return opportunity is better or worse or sooner or farther, given how the world has changed since you set about with it?

Marcel Verbaas -- Chairman and Chief Executive Officer

I think the ultimate answer to how we feel about the return opportunity, it's probably greater than when we bought it, frankly. The product is just stunning. It's more like a blooming modern resort that can compete with any of the luxury resorts in that region. And we feel that having been able to complete it for the amount that we put into this asset, and I highlighted this in my comments, obviously, for being less than $700,000 a key for that type of a resort, knowing what it would cost to build a resort like that today, we feel like we're in an extremely good place.

So I have a high level of confidence around the ultimate return and what we will be driving out of this asset. The question mark absolutely is where was that timing? And certainly, COVID-19 did no help in kind of looking at how long does it take to get there. But as Barry said, we're very encouraged by the short-term response we're getting, particularly with the whole strategy we had around how do we move this asset up pretty significantly on the ADR side, which we are absolutely having a lot of success with and, obviously, becomes a matter of building on group business over time. And that's going to be a little dependent on just kind of the strength of group business coming back here in the short-term anyway.

Atish Shah -- Executive Vice President and Chief Financial Officer

When we acquired the hotel, David, we had posted some materials about our stabilized level of EBITDA that we expected. We're going to more than double the EBITDA, it's like sort of the high single digits. I believe it was somewhere around that, and that certainly is in fact our view on that. As Marcel and Barry mentioned, it's going to take a little bit longer for it to stabilize.

Certainly, that level is now better. And a lot of that thesis was around market share gains, frankly, other properties in the comp set that we've had versus this hotel because it had received the renovation money. So we feel confident, particularly around that trajectory and also subsequent to us buying the hotel, we did see some activity in the market, very high amount of growth in terms of the comps trading. So that also is another kind of positive review of our market investment.

David Katz -- Jefferies -- Analyst

Perfect. Thank you.

Operator

Next question comes from Aryeh Klein with BMO Capital Markets. Please go ahead.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thanks. Marcel, you noted some of the potential ROI opportunities you have in the portfolio. Can you maybe elaborate on some of those? And then given demand, how demand is returning, is there any opportunity to pull some of those forward into this year?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yes. We obviously -- we're purposely slightly vague on the exact opportunities because, frankly, there's a real effort going on internally right now to do some deep-dive analysis throughout our entire portfolio to say what can we do coming out of this and knowing, forecasting how we think the recovery will take hold coming out of this, where there might be some opportunities that may not have been quite as obvious coming into the pandemic. So we're going through that process right now. Barry alluded to a few room renovations in the portfolio that we're looking at that could be pulled forward a little bit from really kind of starting that process at the end of this year as opposed to maybe where we would have looked at doing it in the following year.

And in some cases, we obviously have some things that were supposed to be happening last year that we actually pushed back and that are happening this year, that we took some of the things that Barry highlighted in his comments. So we do think that -- and I alluded to it in my comments. There are a good number of assets that we lost in the years prior to the pandemic. And looking back on that, we're probably even more excited about buying them when we did at the prices that we did when you see where some of these things are getting bid off right now in kind of that quality level.

So having those assets in our portfolio, having an opportunity to really effectuate the business plans that we have for some of those already, and then maybe even going a little bit beyond that for some of those assets and for some of the assets that we've had in our portfolio a little bit longer, we're pretty excited about being able to come up with kind of a shortlist of where we think we're going to drive the best returns on some of these investments that we can make. And obviously, we will be highlighting those as we move forward over the next few quarters.

Aryeh Klein -- BMO Capital Markets -- Analyst

And then just on the labor front, how should we think about those expenses kind of flowing back in as you try to be a little more aggressive here to hire some more people to keep up with the pace of demand?

Barry Bloom -- President and Chief Operating Officer

I think there -- certainly occupancy and rates were stable, you might not be able to sustain the margin that we ran in the quarter and particularly in March. But I think what we'll see is that labor is going to come back in lockstep with demand increases, we believe, and certainly based on our forecasting. So I think it's really hard to say labor is going up by X or by Y. We are pretty confident that we're going to be able to obviously continue to improve margins than we are today, in part because I think we've learned a lot.

We all have learned a lot about staffing models and structure of the business and what gets done and who does it and what positions maybe we had a lot of overlap. So I think the best answer I can give is that it will move at least in the near term in relative lockstep with increases. But certainly, we are still very confident that we end up with a more refined cost model when we get back to stabilization than we had pre-COVID.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thanks for the color again.

Operator

[Operator instructions] The next question comes from Austin Wurschmidt with KeyBanc. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. Thanks, and good afternoon, everybody. You mentioned just how pleased you are with your basis on the acquisitions you guys have completed in recent years. And I'm curious if you think that's simply a function of where we are in the cycle and the growth that we have ahead, that's driving that? Or is it more of kind of what Barry was touching on, some of the savings and potential margin improvements coming out of this cycle? But what's kind of your take on the strength in pricing? Does replacement costs have anything to do with it? And then how do you guys capitalize on that coming out of the pandemic?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, clearly, we are very pleased with the basis of where we acquired these -- if and when we did acquire them. And it was one of the driving factors for why we did buy it also when we did it. We bought some really high-end, high-quality hotels at pretty attractive pricing certainly compared to replacement costs and it so only improves over time. Clearly, replacement costs have moved up fairly significantly over the last couple of years.

So compared to that, we're even in a better position than we were when we acquired the hotels. We do think there are some operational upsides, there are some of the things that Barry talked about. But the big driver really is that our thesis around a lot of those assets is completely intact from where it was before as it relates to the demand segments that they play to and in many cases, the kind of balance that we have in demands between the various segments. Most of these hotels play very well to the leisure components, which is obviously going to be helpful in the short term.

We also see, like I said earlier in my comments around the transaction activity that's going on right now, hotels that are in the type of locations that we bought hotels coming into the pandemic are in pretty high demand and particularly high-end hotels in those kinds of markets are in pretty good demand. So I can guarantee you that all those assets that I mentioned in my comments, we would not be able to buy today for the prices that we bought and that's coming into the pandemic. So whereas you would have kind of thought the opposite. Right? You would have thought you're kind of at the tail end of the cycle, you're buying hotels, maybe you're buying those at a high level compared to where you could buy them coming out of a downturn here, and before time, that don't appear to be the case.

I mean, there just isn't a real pullback in the type of pricing on those assets. And in many cases, they seem to be increasing. You obviously have seen some of the transactions that have happened. And they're in the type of markets where we own hotels and where we own hotels has a significantly better basis.

So we're pretty pleased with owning those properties that we have. And again, our thesis is intact. And if anything, we're even more excited around some of the upside that we can get out of those assets.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

I appreciate the thoughts there. And then you talked a little bit about sort of the acquisition pipeline, maybe starting to build a little bit versus earlier this year and these ROI opportunities are starting to make a little bit more sense. But just curious what type of capacity you have today without needing to either raise equity or sell a hotel to move forward with an acquisition or any type of significant CAPEX spend?

Atish Shah -- Executive Vice President and Chief Financial Officer

Austin, it's Atish. It's a good question. So in terms of capacity, obviously, we've talked about our liquidity, and we've got a significant amount of that. We do have restrictions under our corporate credit facilities, which do limit some of our activity.

So with regard to acquisitions, we can make them if they are funded with equity. So that's one. With regard to capital expenditures, we have a bucket that we can apply for this year, and I believe the bucket is $80 million. Plus anything you didn't apply from last year.

So obviously, significantly ahead of our current CAPEX guidance of funding there for additional CAPEX. So absolutely, they're the two buckets around the activities you just asked about.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Sure. Great. Thank you.

Atish Shah -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

The next question comes from Tyler Batory with Janney Capital Markets. Please go ahead.

Tyler Batory -- Janney Caipital Markets -- Analyst

Thank you. Good afternoon. First question I have is on the group side of things. Can you talk a little bit more about the pace and what you have on the books for the back half of this year and early 2022 as well? And the bookings that are coming through right now, I'm assuming there's capacity restrictions or limits perhaps contemplated in those bookings.

So I'm interested, perhaps how much group space you even have available for future periods right now.

Barry Bloom -- President and Chief Operating Officer

Thanks, Tyler. A couple of things. As it relates to restrictions, I think, when we're seeing the further-out bookings are, I think there's certainly an inherent assumption that at some point restrictions go away. I'll give you an example of where there -- these aren't governmental restrictions.

Right now, as we speak, we're hosting our first large-scale group at Hyatt Regency Grand Cypress. It's 460 rooms a night and they're doing three banquet meals per day for 800. So now they're using a little more space in the building than they otherwise would, and they're spaced out a little bit, but there are no -- in Orange County, Florida, there are no restrictions on how many people can be in a room as it relates to COVID restrictions. So we're watching that, but we are not seeing that as a restraint to booking.

In general, our hotels tend to book way more smaller meetings than larger meetings. So we view that as a plus across our footfall as well. As it relates to the second half of this year, we have more group definites on the books for the second half than we did a quarter ago. So that continues to mean that bookings are exceeding cancellations.

One of the things we're really focused on, and we think is a great mark for both '21 and '22 is that -- and I mentioned it in the prepared remarks, our lead volume is growing considerably for all future dates. And that volume increased 65% from January to March. So we're seeing a lot more inbound inquiries. Specifically to pace for the back half of 2021 compared to the -- basically the back half of 2019, two years ago, which we think is a more relevant comparison, we're down about 45% in room nights, but rates were up 7.1%.

So we're absolutely enthusiastic about that. And that room night gap really narrows beginning in September. For the fourth quarter, we're only down 30% compared to fourth quarter of 2019. And fourth-quarter rates are positive again for '21 to 2019.

So as each week passes, the setup is continuing to look better and better for the second half, really beginning post-Labor Day. For 2022, we're seeing a lot of -- anything that's moving out of '21 still is moving into 2022. And we think that's reflective of our management companies, the sales teams we have at our properties, regional and national sales teams of the biggest brands that we work with in managing our assets. Right now, group nights -- group room nights for 2022 were down 33% compared to the same point in 2018 for 2019.

So again, looking at 2019 as the better benchmark and raised up slightly. So we're enthusiastic about that as well. Our hotels have always had pretty short lead times and -- which we think that will -- we're really well-positioned to capture pent-up group demand. The markets where we're seeing the strongest all of the strength for 2022 are Orlando, Houston, and Dallas, and those are the markets where we've made significant investments over the last few years.

So we think that is certainly part of why those markets are attractive and why people are booking into those markets and part of the strength we're seeing across the portfolio for the future days.

Tyler Batory -- Janney Caipital Markets -- Analyst

OK. That's very helpful. As a follow-up, I'm interested in your perspective on ADR here. Really, the sustainability of the ADR that you saw in April as we move through the summer.

I mean, when you look ahead, you've got some seasonality here, you've got strong leisure trends, potentially a little bit of lift perhaps on the business transient side of things. So curious your thoughts about those factors and how they might impact rates both for you and for the industry broadly?

Barry Bloom -- President and Chief Operating Officer

I think every month, as we come out of the challenges we've had, is a new learning for us. I think there's no question that in the winter demand markets, we got some outsized rate this year that we weren't expecting and that is probably not sustainable through the summer. Right? We know that the Scottsdale market has a very different rate profile in June, July, than it does in March and April. But I think from our perspective, as it relates to our portfolio, I think we're pretty confident that as occupancies increase, we're starting to be able to use a lot more or have a much greater ability to compress rate.

And so as hotels continue to pick up on occupancy and then the group I'm targeting is really kind of that more the bottom quartile of the portfolio that's running much lower occupancies, every 10 points those hotels increase, if we think we're going to see, as business travel comes back -- I mean, there's no question that we're seeing individual business travel increase as people -- as more and more people get vaccinated. So kind of as these people get back into the hotels, we're going to have a much better ability to move rate. So where that ends up, I think it's really hard to say. But that's, I think, some of the factors to think about that should see some softer rates in the summer than you saw in the spring in traditional beach resorts, but you'll see better rates than we saw in the winter months in more summer-oriented destinations and in your general kind of major market commercial-oriented preference.

Marcel Verbaas -- Chairman and Chief Executive Officer

And what's been encouraging to us particularly, too, just looking at the past few weeks, it was really after the spring break season. I mean, there was a lot of discussion in the industry around how does -- what does business look like coming out of kind of the traditional spring break weeks and leisure potentially dropping off. And what we've seen over the past few weeks is that both occupancy and ADR held up very well, which is encouraging because it just shows you that there's obviously some of the demand that Barry is talking about that is going to the properties, we believe, and that gives us a lot of confidence as we look ahead through the summer, that there'll be reasonable results here for this appearance coming into a really busy leisure or summer season which then will provide a good bridge again to this of continued strengthening in corporate transient and group into kind of the close Labor Day environment.

Tyler Batory -- Janney Caipital Markets -- Analyst

OK. Thank you for the detail. That's all for me.

Operator

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

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, Andrew. Thanks, everyone, for joining us today. We're certainly encouraged by recent trends that we're seeing in the business and certainly in our portfolio. And we look forward to updating you in the quarters ahead.

And I hope everyone stays healthy and safe, and we look forward to seeing many of you in person soon again.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Cameron Frosch -- Senior Analyst, Finance

Marcel Verbaas -- Chairman and Chief Executive Officer

Barry Bloom -- President and Chief Operating Officer

Atish Shah -- Executive Vice President and Chief Financial Officer

Bill Crow -- Raymond James -- Analyst

David Katz -- Jefferies -- Analyst

Aryeh Klein -- BMO Capital Markets -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Tyler Batory -- Janney Caipital Markets -- Analyst

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