Hersha Hospitality Reit Trust (HT) Q2 2021 Earnings Call Transcript

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Hersha Hospitality Reit Trust (HT)
Q2 2021 Earnings Call
Jul 28, 2021, 9:00 a.m. ET

Prepared Remarks:

Operator

Good day, and welcome to the Hersha Hospitality Trust Second Quarter 2021 Earnings Conference Call.

[Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Greg Costa, Investor Relations. Please go ahead.

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Greg Costa -- Manager, Investor Relations & Finance

Thank you, Betsy, and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust Second Quarter 2021 Conference Call. Today's call will be based on the second quarter 2021 earnings release, which was distributed yesterday afternoon. Before proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements.

These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance or financial positions to be considerably different from any future results, performance or financial positions. These factors are detailed within the company's press release as well as within the company's filings with the SEC. With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust's President and Chief Operating Officer. Neil, you may begin.

Neil H. Shah -- President & Chief Operating Officer

Thank you, Greg, and good morning to everyone. Joining me this morning are Jay H. Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer. We are pleased to kick off earnings season this quarter and glad that you could all join us.

During last quarter's call in late April, all indicators were setting up for a summer of strong leisure travel, and it appears that expectations were appropriately set. We significantly outperformed our internal forecast for the second quarter on both top line and profitability metrics. We saw increased demand portfoliowide this quarter and are expecting this trend to incrementally build through the second half of the year.

Property level cash flow sequentially improved from $3.8 million in April to $7.7 million in June. In June, our 33 hotels generated 59% occupancy at an average daily rate of $220 and comparable GOP margins for the month came in at above 45%. We are encouraged to see both ADR and GOP profitability metrics begin to approach 2019 levels, well before recovery in business transient and group gets underway in our gateway markets. Gateway market occupancy will push RevPAR higher from here. Achieving solid profitability and generating free cash flow a little over a year from the start of the worst crisis in this industry's history is testament to the quality of our hotels, the effectiveness of our cluster operating strategy and our mix of urban and resort markets.

These three advantages are our core pillars of growth for the early stages of this cycle. Our operating leverage positions us for outsized growth in a stabilizing environment. We began the second quarter on strong footing as our portfolio RevPAR in April exceeded $100 and was 10% higher than March, which had been elevated due to spring break travel and stimulus spending. Absolute RevPAR ticked sequentially higher during the balance of the second quarter, growing to $116 in May and exceeding $130 in June, resulting in second quarter RevPAR of $116, more than 50% higher than the first quarter 2021.

Rate integrity was a common concern this time last year. But compared to prior demand shocks such as the Great Financial Crisis, revenue managers have not sacrificed rate to put heads in beds during this recovery. In this environment, we've been able to strategically drive rates across our portfolio. Last quarter, our comparable portfolio ADR grew from $193 in April to $220 in June. That's just 13% below June 2019 without the core business traveler in the marketplace. In July, month-to-date, we are actualizing 2019 ADR levels. Based on pricing power at our resorts and the return of the price elastic business traveler in the fall to boost demand at our urban clusters midweek, we believe elevated ADR will prove sustainable on a portfoliowide basis through the recovery.

Let's start to dig in with the two largest EBITDA-producing assets in our portfolio, the Cadillac Hotel and Beach Club on Miami Beach and Parrot Key Hotel & Villas in Key West. They led the portfolio again this quarter on sustained demand to South Florida despite what is typically the start of reduced travel to the region. Back in 2018, we reinvested approximately $74 million in major upgrades of these resorts, and they are now firmly on target to achieve our expected post-renovation ROIs. At prior peak in 2015, the Cadillac and Parrot Key generated $9.5 million and $7.8 million in EBITDA, respectively. This past quarter, the Parrot Key and Cadillac generated $3.8 million and $3.2 million in EBITDA, respectively, for the quarter. And based on current projections, both hotels are expected to surpass prior peak and combine to exceed $20 million in EBITDA generation for the full year 2021.

As the lodging recovery continues to take shape across the next few years, we anticipate meaningful EBITDA contribution from these assets as they ramp toward stabilization. The Parrot Key was our best-performing asset during the second quarter, generating 92% occupancy on a $454 average daily rate, resulting in a $416 RevPAR, which surpassed second quarter 2019's RevPAR by more than 80%. The Keys have seen unprecedented demand year-to-date and the Parrot Key's performance has proven it is one of the most sought-after hotels in the marketplace. Despite inclement weather from tropical storm Elsa deflecting demand a few weeks ago, performance in July remains in line with our forecast at the beginning of the month.

Performance on Miami Beach was similarly encouraging as the Cadillac surpassed 80% occupancy for the quarter on a $235 ADR, which drove 39% RevPAR growth versus the second quarter of 2019. Demand trends for the third quarter remain robust at our three beach hotels as well as our more business-oriented Ritz-Carlton Coconut Grove, which is beginning to capture corporate business this summer across a variety of industries: financial services, defense, technology, healthcare and advertising, and broke through 2019 levels with 8.7% year-over-year RevPAR growth for the quarter. Despite August and September being traditionally slower in South Florida, our portfolio is forecasted to meaningfully outperform those periods in 2019 on the heels of continued price-elastic leisure demand and growth from both business transient and group. There are a number of events, festivals and conventions returning to Miami in the near future. Miami Beach Pride in September, the South Beach Food & Wine Festival and Art Basel later in the fall and Formula One Grand Prix next year. Beyond tourism, there remains significant corporate relocations and transportation-related infrastructure growth in the region, leading to robust near-term and long-term demand fundamentals for Miami that will be captured through this recovery.

Our drive-to resorts also continued their recent outperformance during the second quarter as the group generated weighted average occupancy of 72% and ADR growth of 23%, leading to weighted average RevPAR growth of 17% compared to the second quarter of 2019, further proving that the leisure traveler is not price sensitive for high-quality, well-located, differentiated hotels. The Sanctuary Beach Resort continues to lead our resorts from a rate perspective as its $506 ADR and 82% occupancy resulted in 21% RevPAR growth versus the second quarter of 2019. Our Hotel Milo down in Santa Barbara reports 77% occupancy at a $333 ADR, and a very similar 21% RevPAR growth versus prior year. We anticipate these resorts, in addition to our Ambrose in Santa Monica, will continue to garner robust occupancies and rates in the third quarter as travelers flock to the California coast. Back East, our Annapolis Waterfront Hotel occupies an irreplaceable position on the Chesapeake Bay. And after a significant renovation of the hotel, we are driving rates and occupancy. We recorded a 77% occupancy and an average daily rate of $294 last quarter, which led to 7% RevPAR growth over the period. Annapolis in the summer is primarily leisure transient, but social and sports groups provide a strong base of business to kick off the season. Looking further out toward the end of the third quarter, the hotel has several rebooked corporate and retreats that are helping to drive 15% ADR growth for Q3 versus 2019. Our Marriott in Mystic, Connecticut is also on pace to achieve peak summer leisure demand from weddings, leisure travelers and rebooked corporate and government groups during the third and fourth quarter at a better pace than was anticipated.

Across the quarter, we saw cities and states reopen their local economies and remove restrictions for gatherings and experiences, enabling the surge that we are seeing in domestic leisure travel today. This fall, we expect to see the next inflection in demand growth as large employers return to the office and encourage travel, and our cities begin to host conventions and major citywide events. Gateway urban markets have been more impacted by the pandemic than any other segment and offer the longest runway for growth as we look forward to the next several years of the cycle. With summer travel underway, demand across the portfolio continues to be heavily weighted on weekends versus weekdays, but weekdays have shown a noticeable increase compared to just 90 days ago. Month-to-date results in July for our portfolio versus March show average weekday occupancy growth of more than 1,200 basis points, leading to RevPAR growth of approximately 55%. Removing our resort markets, our urban cluster saw weekday RevPARs grow more than 100% over that same period, indicating our gateway cities remain attractive to all segments of the traveler.

When the higher-rated business traveler returns and replaces primarily leisure business, we would expect a meaningful increase in weekday ADRs. During the second quarter, we began to see traditional business travelers return to our hotels from one and two night stays to corporate groups. At the Philadelphia Westin, we saw transient business from many pharmaceutical companies, in addition to Accenture and Deloitte employees. Our West tech-related businesses are beginning to return with corporate groups from both Google and Facebook booked at our Sunnyvale hotels during the third quarter. McKinsey, JPMorgan, Goldman Sachs, IBM, General Dynamics and other traditional large accounts have become more active at several of our hotels in the portfolio.

While we are seeing early stages of business travel returning in each of our urban centers and expect continued improvements throughout the summer, we anticipate the next big leg up in the recovery to be after Labor Day when schools reopen in-person and employees return to the office. Despite our hotels being primarily transient, we have seen an increase in group activity over the last few months across our portfolio. The majority of the business has been through social groups and sports. But as cities have reopened, larger events are occurring and being scheduled in our markets, resulting in increased group activity at our hotels. Our luxury hotels have benefited from not only strong leisure business and social group but also the first signs of corporate group, small meetings and retreats. The Ritz-Carlton Georgetown finished the quarter with nearly 72% occupancy at a $456 ADR. The Rittenhouse Hotel in Philadelphia also turned cash flow positive this quarter as ADR reached $478 with occupancy growing by more than 2,500 basis points versus the first quarter.

Many of our hotels are located near major universities and health systems, and these significant demand generators have mobilized and are leading to increased production and group bookings at many of our Boston, New York, Philadelphia and Washington, D.C. hotels in the third quarter. Larger events are taking place in the third and fourth quarters across many of our markets, highlighted by healthcare-related conventions in Washington, D.C., boston and Philadelphia. Otakon in August in Washington, D.C. and the Boston and New York City marathons in the fourth quarter. The Javits Center in New York is slated to host a few larger citywides in August, including the New York Auto Show, but the major events in New York will return in September. The U.S. Open for tennis, Fashion Week and the UN General Assembly. And for the first time, Salesforce's Dreamforce event will occur across multiple cities, including New York. Our New York City portfolio saw occupancies incrementally build throughout the balance of the quarter.

Visitation remains primarily transient, and this leisure demand should continue as Broadway reopens this fall and more events occur. But as noted in other markets, first signs of corporate travel have emerged across the past few months, and we are encouraged by the return of our more traditional large corporate accounts in the market. We are very well positioned with our locations in several high-growth submarkets. We supported teams during the mayoral election race early in the quarter at our Hilton Garden Inn Midtown East and have since transitioned to JPMorgan as our top account. Our Hyatt Union Square has seen a pickup in travelers from entertainment, media and technology: AT&T, Discovery and Apple. And downtown at the Hampton Seaport and the Hilton Garden Inn Tribeca, business travel has increased from major financial services companies and GE, Blackstone. Pockets of corporate strength have taken shape across the city. And we believe they will continue to expand after Labor Day when schools fully return and more workers across all industries return to the office on a consistent schedule.

Conversations with our larger corporate accounts indicate that September is the month when the switch for business travel and in-person office work turns on. And with our first-mover advantage of remaining open throughout the pandemic, our clustered sales effort in the marketplace should yield additional revenue opportunities. Momentum is clearly building in New York, and our operating and data advantage can drive meaningful outperformance as supply remains significantly below pre-pandemic levels.

The lodging recovery is clearly underway. Near-term results have exceeded expectations, and there is a long runway of value creation ahead. During the first half of the year, we took swift action to rightsize our balance sheet and evenly reduced our exposure to our core markets by divesting of a lower-growth hotel in each market. With few capital expenditures on the horizon over the next few years, we can focus on hotel operations to drive high absolute RevPAR on industry-leading margins, resulting in significant EBITDA and free cash flow growth in the coming years. Results this past quarter illustrate the merits of this strategy and the growth profile of our unique portfolio. We are looking forward to a continued recovery in earnings in what we anticipate to be the start of a long up cycle in lodging. With that, let me turn it over to Ash to discuss in more detail our financial performance and outlook.

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Okay, thanks Neil, and good morning, everyone. So my comments will focus on the demand improvement across our portfolio throughout the second quarter and its impact on our margins and cash flow before closing with an update on our balance sheet and outlook for the current quarter. Demand fundamentals continue to improve from March over the balance of the second quarter and ultimately led to the company achieving corporate-level cash flow for the first time since the onset of the pandemic. In what is typically our best quarter of the year with meaningful business travel, group and conference demand and the beginning of peak summer leisure travel boosting results, demand trends during the second quarter were still heavily weighted toward leisure.

RevPAR and occupancy were up meaningfully from the first quarter, but RevPAR was still down approximately 45% from the second quarter of 2019. The strong demand at our leisure-oriented properties and weekend demand at our urban hotels allowed us to maintain our average daily rates, less than 18% below 2019, all without any meaningful business travel or group demand in the marketplace. On the weekends from March to June, we were able to achieve ADR growth at our resorts approximating 13%, while our urban portfolio captured 46% increase in rates with occupancies up 1,000 basis points. Incremental growth in occupancies, combined with our rate first strategy and expense savings initiatives, resulted in margin expansion and material cash flow generation at our hotels throughout the quarter. During the second quarter, 24 of our 33 hotels broke even on the EBITDA line, a 71% increase versus the first quarter. In June, each of our 33 operational hotels broke even on the GOP line, with 24 achieving EBITDA break-even levels, representing 79% of open hotels breaking even on EBITDA versus 58% in March. We originally forecasted levels needed to break even at the corporate level, approximately 60% of occupancy with a 40% RevPAR decline from 2019. Results from June cemented these projections as our comparable portfolio generated 59% occupancy with a 40% RevPAR decline. And combined with our $7.7 million in property level earnings, resulted in $334,000 of positive corporate cash flow.

The asset management initiatives we implemented in 2020, in conjunction with our flexible operating model, showed early signs that our margin improvement goal following the pandemic is beginning to take shape, as GOP margins of 44% during the second quarter were 830 basis points higher than the first quarter and just 260 basis points below our second quarter 2019 GOP margin. Based on current forecasts, we believe our third quarter GOP margins will actualize in line to slightly ahead of our third quarter 2019 GOP margins. As RevPAR and out-of-room revenues increase in 2022 and beyond, our current operating model will yield much higher levels of GOP and allow us to amortize our fixed operating expenses as well as our property taxes and insurance expenses.

This provides us confidence in our ability to forecast post-pandemic EBITDA margin growth as our ability to drive ADR in tandem with applied expense savings initiatives should allow us to generate 150 to 250 basis points of sustainable long-term margin savings for the portfolio. From a profitability perspective, our South Florida cluster led the portfolio again this quarter with 41% EBITDA margins, highlighted by our Parrot Key and Cadillac assets. The Parrot Key and Cadillac finished the quarter with 58% and 43% EBITDA margins, respectively, both exceeding second quarter 2019 EBITDA margins by more than 2,000 basis points. Robust results were also seen at our California and Washington, D.C. drive-to resorts as our Sanctuary Beach Resort and Hotel Milo generated a 49% and 38% EBITDA margin, respectively. While outside D.C., a strong start to the summer travel season from a rate and occupancy perspective, coupled with proprietary operational initiatives we have implemented since acquiring the hotel in 2018, led to a 59% EBITDA margin at the Annapolis Waterfront Hotel, 1,200 basis points higher than the second quarter of 2019.

Our asset management strategy since the onset of the pandemic focused on driving margins through aggressive cost control. This was done primarily through the reduction in labor, but we have also utilized various technology platforms at our hotels, such as mobile check-in and concierge services, guestroom energy management systems and water reuse systems to lower utility costs, and smartphone ordering systems at our food and beverage outlets. We have been more nimble in this strategy at our independent hotels, which has resulted in significant margin savings versus our brand-oriented portfolio, as our independent and Autograph Collection hotels generated a weighted average 38% EBITDA margin for the second quarter. Strong performance at our properties this quarter was not limited to just increased occupancies and our ability to push rate as we also saw substantial growth in our restaurant and bars.

At our Parrot Key, revenue generated from our outlets during the second quarter was 58% higher than the second quarter of 2019. Meanwhile, up in Boston, our Envoy in the Seaport District saw meaningful revenue generation from its Lookout Rooftop and our newly installed taqueria pop-up Para Maria, both of which have been well received by guests and locals alike. The Envoy boasts the premier rooftop in the city and its popularity helped the hotel achieve close to $2 million in revenues during -- in food and beverage revenues during the second quarter, $1 million of which was generated in June alone. We expect our restaurant and bars and our outlets at The Envoy will remain popular during the peak summer months. Based on strong demand at our resorts and increased travel to urban markets from the leisure traveler, our ability to strategically and effectively drive rates and a return of more consistent business travel on the horizon, we believe we are past the inflection point of corporate level cash burn and expect month-over-month positive cash flow for the remainder of 2021.

A few closing remarks on our balance sheet and outlook for the third quarter. We ended the second quarter with $80.2 million in cash and cash equivalents and deposits. As of July 1, we had approximately $46 million in capacity on our $250 million senior revolving line of credit, and $50 million of undrawn credit from the unsecured notes facility we placed with affiliates of Goldman Sachs Merchant Bank. Additionally, we received approximately $1 million in business interruption proceeds in the second quarter from the impact of COVID-19 at several of our hotels. Based on discussions with our insurance providers, we do not anticipate receiving additional recoveries for business interruption related to the pandemic.

During the second quarter, we successfully refinanced mortgage debt on four hotels: The Hilton Garden Inn Tribeca, Hyatt Union Square, Hilton Garden Inn 52nd Street and the Courtyard L.A. Westside. As of June 30, 79% of our debt is fixed or swapped with our total debt weighted average interest rate of 4.48% and 3.1 years life to maturity. We spent $2.6 million on capital projects last quarter, and we continue to limit our capex spend strictly to maintenance and life safety renovations. During the first half of 2021, we spent $5.3 million on capital projects, and we anticipate our full year capex load to be roughly 40% below our 2020 spend.

We project very little disruption or capital spend for our portfolio across the next few years, which is materially beneficial from a cash flow perspective as the sustained surge in construction costs, freight rates, oil prices, and the continued tightening of the supply chain remain elevated. Month-to-date in July, we have seen continued growth in our portfolio occupancy and revenues, with the majority of our portfolio in line to slightly ahead of our internal forecast.

The largest outperformance month-to-date in July has been our New York portfolio, which is currently trending up approximately 20% from June on occupancy growth, both on weekdays and weekends. Month-to-date in July, we are up over 1,000 basis points in occupancy in our Manhattan portfolio, and our New York City Metro, which includes the Boroughs, White Plains and Mystic, are running close to 80% occupancy. With our sights set on the recovery, which has already commenced, we remain laser-focused on operational performance of the portfolio and accretive opportunities that become available throughout the cycle.

So this concludes my portion of the call. We're happy to address any questions that you may have at this time. Operator?

Questions and Answers:

Operator

[Operator Instructions] And the first question comes from Dori Kesten with Wells Fargo, please go ahead.

Dori Lynn Kesten -- Wells Fargo Securities, LLC, Research Division -- Senior Analyst

Thanks, good morning guys.

Neil H. Shah -- President & Chief Operating Officer

Good morning.

Dori Lynn Kesten -- Wells Fargo Securities, LLC, Research Division -- Senior Analyst

What do you need to see in September to consider the return of business transient and group demand on track versus your expectations?

Neil H. Shah -- President & Chief Operating Officer

What do we need to see? What we're expecting to see is just midweek occupancy to start to tick up. We think that September -- it's going to be the second half of September. We do have a few kind of -- we'll have the Jewish holidays in the first part of the month. In New York, in particular, it is the back half of the month that some of the other major events start to take place in the city, and that could lead to some compression. But it is simply midweek occupancy that we're looking for or what we'll see on the lagging basis.

As we look forward, it's just companies continuing to go back according to plan. Right now, we've seen -- the only company, and this was on the West Coast, that we've seen have a delay in their return-to-work plan was Apple in Silicon Valley, moving it from September-October to being more flexible, I think, through the end of the year. In New York City, most of the large employers continue to be on track for post-Labor Day return to work. And so that's the -- that's where we're basing our expectation on. And so I guess any change in that would have an impact in our expectations.

Dori Lynn Kesten -- Wells Fargo Securities, LLC, Research Division -- Senior Analyst

Okay. And so typically, after Labor Day, there's a falloff in leisure demand if you look back historically. Would you expect that same fall off? Or do you expect there to be elevated leisure demand in your markets -- going into the end of September, October?

Neil H. Shah -- President & Chief Operating Officer

We think the weekends continue to be strong and maybe even long weekends. We've seen even across the last few months that Thursdays have been stronger than other weekdays as people take kind of longer weekends and Fridays have been as strong as Saturdays. So you could see leisure continuing to be strong, I think, on weekends. We also think that there are some things that -- not everyone has kids, and since there will be leisure travel post-Labor Day, people will want to go back and for the sake of New York City, it's just -- Broadway has been on hold for 1.5 years. The tickets are flying off the shelf. I think they opened it up, limited seating or limited kind of set of tickets last week, they went immediately.

There will be more coming but -- so I think that there's a lot of pent-up leisure demand that we'll continue to see in the cities in the fall. But our expectations are, like they are moderated by new normal seasonality and what we've seen prior to the pandemic. So the big driver still is the corporate side, but we do expect leisure to continue on the weekends, and we'll probably get the benefit of it through the weekdays as more and more things open up in the cities.

Dori Lynn Kesten -- Wells Fargo Securities, LLC, Research Division -- Senior Analyst

And just last question. Are you noticing in the last month, any sort of impact from the Delta variant, may be focused on your Florida market?

Neil H. Shah -- President & Chief Operating Officer

No. We really have not, Dori. We're obviously looking carefully, keeping our ears open. Sales teams are out there still booking things without much of an issue.

In Seattle, we did hear about a group being delayed at the Pan Pacific, but it was a single kind of issue. But in South Florida and the Northeast, we have not seen any impact. And even in the California kind of at least the coastal locations, we have not seen any impact to date. And frankly, even at the L.A. Courtyard, we haven't to date. We're monitoring it very carefully but have not seen an impact.

Dori Lynn Kesten -- Wells Fargo Securities, LLC, Research Division -- Senior Analyst

Okay, thank you so much.

Operator

The next question comes from Michael Bellisario with Baird. Please go ahead.

Michael Joseph Bellisario -- Robert W. Baird & Co. Incorporated, Research Division -- Vice President & Senior Research Analyst

Good morning everyone.

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Good morning Mike.

Michael Joseph Bellisario -- Robert W. Baird & Co. Incorporated, Research Division -- Vice President & Senior Research Analyst

Just first on the margin front. Could you talk about what you're doing to keep expenses in check and then maybe what pressures you're seeing that might cause flow-through to moderate as you have to bring back more FTEs at the property level?

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Sure, Mike. I mean first and foremost, we still have occupancies that are far below where we would traditionally run, which at this time of the year would be in the mid-80s, and we're sort of approaching 60%, a little bit above 60%. So we are -- our FTE counts are still at around a 50% level to where they would have been pre-pandemic.

I think from our standpoint, we could imagine that, you know getting back to peak occupancies, but the FTE count probably still staying in the 75% to 80% range of what we had. And a lot of that is just that we've had to zero-base budget, close hotels, and we've learned how to do more with less. Protocols have also changed from a housekeeping standpoint, breakfast bar and some other things. And we just don't see the same number of FTEs in these buildings post-pandemic. So that's probably first and foremost. We've done some more things around using technology for our sales group. That limits some of the salespeople that we need, and we can cross-utilize some of those personnel.

So as we see occupancies coming back, we absolutely are going to need to bring more people back into the buildings. We think that labor shortages will persist through the year, but will get better as we get past Labor Day, as we get past some of the return to schools for the children that will allow parents to go back to work, the unemployment benefits easing away. So we think a lot of those pressures ease, but we don't imagine that the labor shortage situation completely goes away by Labor Day.

Michael Joseph Bellisario -- Robert W. Baird & Co. Incorporated, Research Division -- Vice President & Senior Research Analyst

Understood. And then just switching gears to the balance sheet. Is there any proactive work that can be done today given the continued improvement that's occurred in the capital markets recently?

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Yes. I mean we continue to monitor the market. It's very encouraging to see that the capital markets for lodging are probably better from a standpoint of what you've seen some of the preferred offerings hitting record lows. The debt markets are available and open. So we are very in tune with that.

We think we have tremendous access to capital if we needed it. We will -- right now, at this time, we aren't in a position where we really need the capital. We have the Goldman Sachs notes coming up in February. We would imagine that we will either renegotiate those with them or that we would do something in the capital markets to pay those off at a very accretive -- with a very accretive transaction. So we continue to monitor the markets. We think that we have the access necessary. But at this time, we're not really seeing the need to do anything.

Michael Joseph Bellisario -- Robert W. Baird & Co. Incorporated, Research Division -- Vice President & Senior Research Analyst

Got it, thank you.

Operator

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

David Brian Katz -- Jefferies LLC, Research Division -- MD and Senior Equity Analyst of Gaming, Lodging & Leisure

Good morning everyone, thanks for taking my question. You've already covered a pretty copious amount of detail. But I wanted to just throw out one other issue, which is that we've all focused so much on the cost of labor. Can you just talk about the top couple of other costs within the business that may either be going down or up as we exit from COVID? And what else is sort of in the pot to be stirred on the cost side?

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Sure. David, I think two things that come to mind right now are our property taxes, we think, that for the short term are likely to go down. Right now, we received our New York City property tax bills, and they're down about 20% for the next year. So a lot of that is just due to reduced assessments at the hotels because of the impact of COVID.

The city could increase tax rates so that this could be transitory. But right now, we are looking at reductions in New York. Washington, D.C. came out with about 10% reductions in assessments. We should see some benefits from that. California and Massachusetts are usually more fourth quarter type of assessments for next year. So if it follows the same trend line, we're not expecting increases, we're not forecasting decreases, but we are hoping that they follow the same trend line. So I think we could get some property tax relief. We already have for the next year plus.

I think on the flip side, insurance expenses are expected to continue to go up, especially in coastal markets and in California, which with hurricanes, floods, wild fires, continues to be additional pressure, directors and officers insurance, general liability, all are expecting increases. So probably a little bit of a wash there. But I wouldn't say a wash because our property tax bills are three to 4 times what our insurance bills are. So I think we should still see a benefit. But the offset to taxes going down is definitely insurance.

David Brian Katz -- Jefferies LLC, Research Division -- MD and Senior Equity Analyst of Gaming, Lodging & Leisure

Perfect, very helpful. Thanks.

Operator

The next question is from Bryan Maher with B. Riley Securities. Please go ahead.

Bryan Anthony Maher -- B. Riley Securities, Inc., Research Division -- Analyst

Good morning guys. A couple of questions on kind of the consumer trend here. What are your thoughts on these elevated ADRs, particularly at the leisure properties? To borrow a word from the Fed, being kind of transitory and kind of post Labor Day and post the incentive stimulus payments, those got to come back down to earth. How are you thinking about that?

Neil H. Shah -- President & Chief Operating Officer

You know Bryan, we do think that there's been a benefit in certain segments of the industry from stimulus payments. I think some of the -- our most notable kind of ADR performance, RevPAR performance has been in pretty high-end resort markets with pretty high ADRs and high RevPARs. Now they clearly performed better than prior years even. But I think that's less a function of unemployment benefits, but it's a function of just fewer alternatives for travel, not having other international destinations, not having cruise lines and the like.

As the -- in the coming years, I think the U.S. domestic consumer will have other alternatives that could moderate rates to a certain extent. But on the other hand, the markets that we operate in and our resort markets, which are kind of California Coast, Miami, outside of Washington the Northeast, these will also be big beneficiaries of the next kind of leg of demand in international.

As international comes back and as there's just more events, we think that, that can kind of continue to give us some pricing power in the resorts. Where we see overall, as we look at our portfolio, we will be driving more growth from the urban market. So on a portfoliowide level, I think our confidence and conviction on ADR and RevPARs continuing to increase is driven by occupancy growth in the cities and midweek ADR growth in the cities. That will offset the kind of moderation we might see in some of our resort markets across the next year or two.

Bryan Anthony Maher -- B. Riley Securities, Inc., Research Division -- Analyst

Right. And kind of following on with that and maybe tagging on to Dori's question. We continue to hear a lot about, yes, corporate travel will come back post-Labor Day, but also that Chief Financial Officers have been ecstatic about that expense line being down so much and being a little bit more sensitive to kind of uber-discretionary travel.

What are you hearing from your corporates or just in the marketplace as to the level at which that corporate travel will come back? And when, from a reservation standpoint, not really an actuality standpoint, might you start to see that kind of mid-September pickup in midweek demand.

Neil H. Shah -- President & Chief Operating Officer

On the midweek demand, it's just -- I'm going to start with the second one. I'm not sure -- I think we'll start seeing it in the STR data for a lot of markets, even like the weeks in these, like late August, early September, depends on like when schools are starting in certain areas. In New York, we think it's that the week after Labor Day that we should hopefully see some buildup in it.

But all of this, I guess, September, it's a lot of pressure to put on September, but that is when it will get started. I think we believe that October, November and December is where you'll really continue to see this trend line develop. But I'm not sure if we can answer any more in terms of specificity for what to look for in that rebound or...

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

I think that's right. I think, Bryan, the booking windows still remain very short as well for corporate. So it's still sort of two weeks out or so. We are seeing bookings in September. We are -- we hear from all of our colleagues who're well like, "Hey, I've so much travel booked starting in September." We're not expecting this September to be anywhere near September of 2019. And I think that, that may be a stretch, right?

When you think about usually September and October are two of our best travel months of the year, we still think it's a pickup. But when you look at -- when we think about our occupancies sort of midweek in June, weekday travel, it was around 55%. That midday travel, we would anticipate and what we're already seeing to be sort of in the 50% plus range to probably be more like 70% to 75% in September.

Bryan Anthony Maher -- B. Riley Securities, Inc., Research Division -- Analyst

Okay. And then your thoughts on the corporate travel come back in general with CFOs kind of being a little bit more picky as to when and where people go.

Neil H. Shah -- President & Chief Operating Officer

Yes. I think that's very company specific. We have been talking to the sales teams about kind of what they're hearing from like many of our leading accounts. And for -- and it's really up and down across the board. But with consulting, for example, like with firms like Accenture and Deloitte and the like, as of June, most of them were permitted to travel but had still significant kind of approval requirements.

In September, they get back to the office and those travel kind of hoops that they have to go through lessen very significantly is what we're hearing from a lot of the consulting firms. Similar with the banking groups, there's folks like -- Amazon is not back in the office, but they are driving a lot of business in a lot of our markets across the country. And I think these companies, like some of these technology businesses that have morphed into media businesses and content producers, there are industries and sectors that really were only starting to emerge pre-pandemic and have had such solid growth during the pandemic that we're seeing kind of a new class of travelers.

They do fly under these kind of big company names at times, but they are a different kind of traveler within those groups. So we are seeing that, the kind of -- in some of the industrial kind of companies and aviation-related businesses have picked up. As you're seeing from the airline industry, they are growing and adding capacity. And so we are seeing some business from there already. So really, it's too hard to give you an indication on that. We have heard some employers say that we're going to be at -- we'll be back to 80% of travel within six to 12 months.

We've heard others say that it's going to require more hoops, and we'll see when they open up. But I can't give you too much guidance there, more than you read in the newspapers. The sales teams are finding that -- are confident about the fall, and that gives us our confidence. But it is a mixed bag across different companies and different geographies, frankly.

Bryan Anthony Maher -- B. Riley Securities, Inc., Research Division -- Analyst

Okay, thank you for that.

Operator

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

Aryeh Klein -- BMO Capital Markets Equity Research -- Analyst

Thanks and good morning. Just following up on the urban markets. Can you give us a sense of where RevPAR is currently relative to 2019? And then it sounds like you're relatively optimistic on New York City post-Labor Day, but any of the other urban markets where maybe things are looking a little bit slower or you're less optimistic?

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Yes. Probably I'll just start. From a standpoint of what we're seeing post Labor Day into the third quarter right now, the markets that give us, based on what we're seeing trend-wise, more confidence are New York City and Boston. I think that we have a little less confidence in the D.C. market right now just because we don't know what the government protocols are going to be, but certainly are seeing improvement in that market as well.

I think that from a growth perspective, our urban markets in the West Coast, we remain confident in those. Philadelphia, we're seeing -- we're feeling -- seeing a good uptick. And then as you would imagine, in South Florida, with leisure tailing off, usually by September, October, those are very weak months in South Florida with the pickup really being kind of post Thanksgiving.

Aryeh Klein -- BMO Capital Markets Equity Research -- Analyst

Got it. Got it. And then just in some of those markets, hotels are still closed. I imagine they'll start to open as business travel starts to return. What kind of impact do you think that has on maybe rates with obviously still kind of well below normalized levels?

Neil H. Shah -- President & Chief Operating Officer

In our markets, it was really New York was the most noticeable in terms of the amount of closures. And that at certain times during the pandemic, as early as, I think, last quarter, there was about 25% of the inventory that was closed and not operating. Currently, it's about 20%. So there has been 5% of those closed hotels reopened. We do think that there will be a permanent reduction in some of the existing inventory. Now it's going to be partially offset by new development that's already in the ground today.

We've talked on prior calls about our confidence in the kind of pipeline and new starts clearly being lower than it's been in nearly a decade. But there are some hotels in the ground that will open and deliver. And there are some hotels that are closed that will reopen. But net-net, we believe that it is a reduction in total supply. And overall, the -- I think the reopening trend and the amount of kind of new business that will -- that we expect to start to pick up in the fall and into 2022 will lead to more hotels kind of reopening, but it's a -- there were a lot of hotels prepandemic that were not profitable, prepandemic. And this kind of shock to the system has led many to seek alternative uses.

And in New York City, some of the alternative uses are coming back and are realizing capital and a lot of potential buildings are going for residential use, some are going for government use. And in certain locations, even office use. So we think it's a better environment than it's been. The fundamentals are better for New York in the early part of this recovery than they were at the back half of the last cycle, and we'll continue to make headway. But it's a -- yes, why don't I just leave it there. Aryeh, if there's anything else, we can answer about that.

Aryeh Klein -- BMO Capital Markets Equity Research -- Analyst

No, that's perfect. Thank you.

Operator

And the next question comes from Dany Asad with Bank of America. Please go ahead.

Dany Asad -- BofA Securities, Research Division -- Vice President & Research Analyst

Hey, good morning guys. Neil, you mentioned in your prepared remarks that what's different this time around compared to prior downturns is this ability to hold rate. So as corporate starts to -- like corporate demand starts to accelerate here, how do you think that rate dynamic plays out going forward?

Neil H. Shah -- President & Chief Operating Officer

I mean in some ways, Dany, it's -- the consumer -- there was -- we're seeing this great leisure demand growth. We're seeing great pricing power in the leisure markets because there was pent-up demand for leisure travel; and two, the consumer balance sheet was in pretty good order and was actually coming out of it with more savings, more investable income or more -- and -- and so they've been spending. And they have been -- had the pent-up demand, and they had the capital and the balance sheet to support it.

We think on the corporate side, it's going to be somewhat similar. We think there is pent-up demand for business travel, sales forces, client relationship, training. If we are moving to a more decentralized corporate organizational structure, that leads to a lot of travel for the setting up of these kind of ancillary nodes as well as coming back to the mother ship. So we think that there's a lot of pent-up demand. And second, corporations and many of the largest kind of travelers in America, those companies are in very good financial shape. Unlike the financial crisis, the financial services institutions are healthier than they've been in years, and they're big travelers: technology, media, infrastructure. And the federal government.

We can't forget that we came through many years of very little federal employment and new contracting, and we're going to be entering a period of a lot more of that. And so in some ways, it's similar to the consumer story, the leisure story. We think we can see some significant pent-up demand as well as most of these companies are in very good financial health and can invest in developing new business.

Dany Asad -- BofA Securities, Research Division -- Vice President & Research Analyst

Got it. And then just my follow-up. So we're -- for Q2, let's say, just looking at like your comparable metrics, right? We're 10% below 2019 levels on EBITDA margin, but we were 45%, 46% below on RevPAR. So I mean that, obviously, like it feels like on the bottom line, the margin profile is a lot more robust than just kind of how the dynamics should have really played out with these numbers.

So just how do we think about your margin profile or your flow-throughs as more urban hotels start to like -- or corporate demand starts to add, that incremental EBITDA comes from that piece of the equation, right? How do we think about the margin profile and like that trend going forward?

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Yes. So Dany, as we think about the urban hotels and what we're going to see, it's going to be from this point on, we think that rate growth is still going to be there. But it's an occupancy story in many of these urban markets. So where you can -- we've been able to drive 90% type of flow-throughs because it's purely rate at these resorts, really already doing similar type of occupancies. We wouldn't anticipate that type of flow. But we would anticipate pretty healthy flows at least in the 60% to 70% range as we have different staffing models at these properties.

Dany Asad -- BofA Securities, Research Division -- Vice President & Research Analyst

Alright, thank you very much.

Operator

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

Jonathan David Jenkins -- Janney Montgomery Scott LLC, Research Division -- Associate

Hi, good morning. This is Jonathan on for Tyler. Thanks for taking my question. One quick one for me. When you look out at the dichotomy between some of the markets like Miami or New York City, does that change your strategy at all in terms of what markets might be attractive for future acquisitions or dispositions in the near, medium and long term? And how are you thinking about balancing those opportunities?

Neil H. Shah -- President & Chief Operating Officer

It absolutely influences us. And -- but I think I would be -- we don't want to make long-term decisions based on short-term trends on one hand. So we just are very thoughtful about it. We've been growing our resort portfolio outside of major metro markets for the last 5, seven years, and we're able to do so in a cost-effective manner and in a way that we could create value over time with reinvestment and the work we've done on those hotels.

We'll continue to look at a lot of those markets for future opportunities. South Florida, even other parts of the state of Florida. We'll continue to look at coastal resorts in -- on the West Coast as well. We've had good success with these kind of regional drive-to resorts near the major metros like Annapolis, and we think that there's other opportunities for that. But on the other hand, there's -- also these major cities are where there was the most pain felt. And we do think that there will be a big rebound in those markets as well. And so we're not of the mind today to make a wholesale shift of our portfolio contribution from these kinds of markets.

Where pre-pandemic, we were maybe 70%, 75% urban gateway and then about 25% in the resorts nearby, the regional resort destinations nearby, right now, it's going to read as if it's a much bigger resort population or resort contribution because we're performing so much better on that side. Over time, could we tend toward a more balanced mix? It's possible, but it is a function of what opportunities are out there and how they're priced. We're not -- I don't think we have the confidence that some of the Sun Belt markets can kind of grow to the moon, and we've had a great year or two in them. And so it just moderates our expectations on opportunities in those areas.

We're very opportunistic, as you've known in the past, but we are also very focused on strategy and capability and true advantage in where we invest. And so our existing kind of cluster strategy is very important to how we look at deals and look at opportunities. And so we probably do favor our existing markets. That said, we continue to look at new markets and other opportunities, but really I think it's -- it would be hasty to act too quickly based on the last six to 12 months of performance and make a wholesale shift in portfolio composition.

Jonathan David Jenkins -- Janney Montgomery Scott LLC, Research Division -- Associate

Okay. Great. I appreciate all that detail. And then wanted to follow up on the labor side, if I could. What sort of guest feedback are you hearing? And do you think you'll need to add labor or more amenities to meet guest needs? Or do you think you're still providing ample services in this current lower-demand environment?

Neil H. Shah -- President & Chief Operating Officer

Over time, we absolutely will need to add back certain services. I think it's not going to be everything that we used to do at these hotels, but there will be demand from business travelers for certain food and beverage offerings and room service and certain things that we will bring back in locations where customers are demanding it and can pay for it. And it's -- so it's -- and that's how we've approached it so far as well. In our resort markets, we have reopened most of our restaurants and bars so that we can push not only profits from those departments, but also get higher room rates and kind of meet guest demand.

It's in these urban markets where there just hasn't been enough guest demand to justify adding back a lot of those amenities and services. I think across the next several quarters, we'll bring it back, but we're going to be very careful to bring it back in cases where it actually is incrementally beneficial to our bottom line. Consumers have been understanding to date, I would say. But as rates get -- continue to get higher, they're also demanding more.

But the consumer is pretty dynamic, and I think we have seen a bit of a change in expectations. The -- this -- what they've learned from short-term rentals is that there are some services that they're willing to pay for, and others, they'd like the optionality. And so we're still -- we think that there is an opportunity for a change in kind of consumer behavior and what we offer them. But it's -- something that we'll incrementally add back, but we're using real -- we're being careful in how we do it.

Jonathan David Jenkins -- Janney Montgomery Scott LLC, Research Division -- Associate

Okay, great. Thank you for all the answers. Thats all for me.

Operator

[Operator Instructions] The next question is from Chris Woronka from Deutsche Bank. Please go ahead.

Chris Jon Woronka -- Deutsche Bank AG, Research Division -- Research Analyst

Hey, good morning guys. Just another kind of follow-up question on the -- or deeper question on the labor. Is it possible to kind of roundly quantify how much you saved or think you saved perhaps the second quarter year-to-date from not doing the stayover housekeeping? I mean we think that's a huge, huge individual line item. Is there any -- do you guys track that? Is there a way to put a number on that?

Ashish R. Parikh -- Chief Financial Officer & Assistant Secretary

Chris, I wish I can tell you that we have a quantifiable percentage of labor that we've saved that we -- because it's -- although it's protocols out there, as you know, people can opt in and people can request it. And we do, do that at our hotels. So it's tough to quantify. I can tell you that Hilton has come out and said that this will be protocol for them going forward.

Marriott is likely to do the same. I think it will continue to be a margin benefit for our industry for a long time. And I would imagine that it's -- our ability for our FTE counts to be at 50% and maybe a peak to be at 75% to 80%, at least 10% to 20% of that is these housekeeping protocols.

Chris Jon Woronka -- Deutsche Bank AG, Research Division -- Research Analyst

Okay. Yes. That's helpful. And then also kind of circling back to, let's say, South Florida, Southern California. And obviously, this idea that you get some moderation there with pent-up leisure demand when you cycle that next year, is there any way to get a little sharper on that in terms of how many of these folks that stayed with you in the first half of this year, how many of them were people you'd never seen before that maybe they were going to go to Europe or the Caribbean or wherever? Any way to kind of add more color to that, just so we can think about it and maybe get a little sharper on what that effect will be when you cycle in next year?

Neil H. Shah -- President & Chief Operating Officer

Unfortunately, Chris, I don't think we can. I think we -- you can look at -- at least what we're seeing, at least for the next couple of quarters, is that a lot of the search -- kind of Google Search and other Internet search kind of are still showing great demand in a lot of these markets that may be -- that may have in prior years really had a seasonal drop off. So at least in the shorter term, in the next couple of quarters, that gives us a little bit more confidence in outperforming prior year's performance at some of these resort markets because there is still a lot of search and a lot of -- and bookings looking forward, particularly in South Florida, for example. But looking into next year, we don't really have a great metric for you yet.

Chris Jon Woronka -- Deutsche Bank AG, Research Division -- Research Analyst

Okay, fair enough. Appreciate all the details guys, thanks.

Operator

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

Neil H. Shah -- President & Chief Operating Officer

No, I think that will be it. With no more questions, we'd like to thank you for your time. And if we can answer any further questions, Jay, Ash, and I are available all day for any follow-ups. Thank you.

Operator

[Operator Closing Remarks].

Duration: 66 minutes

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