Xenia Hotels and Resorts (XHR) Q2 2021 Earnings Call Transcript

Xenia Hotels and Resorts (XHR -0.07%)
Q2 2021 Earnings Call
Aug 03, 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 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 Danielle Burgoon, vice president of finance. Please go ahead.

Danielle Burgoon -- Vice President of Finance

Thank you, Andrew. Good afternoon, and welcome to Xenia Hotels & Resorts second-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, industry fundamentals, and the positioning of our portfolio.

Barry will follow with more details about our operating results, details on our capital expenditure projects, and the current operating environment. And Atish will conclude our remarks with an update on our recent capital markets activities and 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, August 3, 2021, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release. An archive of this call will be available on our website for 90 days.

I will now turn it over to Marcel to get started.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, Danielle, and good afternoon to all of you joining our call today. Since reaching an inflection point and turning cash flow positive at the end of the first quarter, the pace of recovery has accelerated. The quarter came in well ahead of our expectations. The results we reported this morning reflect the positive momentum in demand across our portfolio and across each segment of business.

During the second quarter, we recorded a net loss of $42 million. However, adjusted EBITDAre and adjusted FFO per share were each positive at $27.4 million and $0.08, respectively. In addition to continuous sequential improvement in occupancy during the quarter reaching 55.5% for our same-property portfolio in June, our operating performance was fueled by strong rates and outstanding cost controls. Our June ADR was virtually equal to the ADR we achieved during June of 2019.

Impressively, our same-property hotel EBITDA margin was 24% for the quarter. The hotel EBITDA margin we achieved during the quarter was the result of not only excellent cost controls and lower staffing levels at the property level, but also a shift in the revenue mix generated at those hotels and the sequential improvement in ADR as the quarter progressed. With leisure transient demand continuing to be the majority of overall rooms demand and group demand being a much smaller piece of the pie, food and beverage revenues continue to lag significantly behind pre-pandemic levels. This shift in revenue mix continues to be a driver of margin performance.

On the rate side, the delta to 2019 same-property monthly ADR was reduced from 16% in March to only 0.3% in June, and 17 hotels and resorts, or half of our same-property portfolio, achieved a higher ADR in June 2021 compared to June 2019. While the makeup and geographic mix of our current portfolio has historically caused the third quarter to be the portfolio's softest quarter, we are encouraged by the continuing improvement in top-level performance that we have witnessed thus far. Based on preliminary data, our July occupancy of approximately 59.2% and ADR of approximately $223 are the highest we have achieved since the beginning of the pandemic. The resulting RevPAR of $132.38 would be approximately 18% below July of 2019, continuing the sequential monthly improvement since January of this year when our RevPAR was 73% below 2019 levels.

Rates have been particularly strong with July ADR exceeding July 2019 by 9%. The continued strengthening of the RevPAR variance to 2019 gives us reason for optimism for a continued recovery. As I mentioned previously, leisure demand continues to drive short-term results in our portfolio and the U.S. lodging industry as a whole.

While the expectations for strong leisure demand during the summer months were high, the actual demand generated by the leisure segment has not disappointed and we are not seeing signs of a slowdown. While leisure has been the primary driver of the recovery, we have seen an uptick in business for transient demand, with midweek occupancy showing significant improvement in recent weeks. Clearly, the recent resurgence of COVID-19 cases and a concern regarding the Delta variance will be a variable as the summer continues, and we prepare for post-Labor Day environment. Most signs are pointing to the strengthening of corporate transient and group demand this fall.

However, it is unclear at this time how newly mandated or recommended social restrictions might impact return to work, corporate travel, and meetings business. Despite an operating environment that continues to be difficult to forecast and subject to many uncertainties, we are optimistic about our medium and long-term growth prospects. Our strategy of owning a geographically diverse portfolio of high-quality, luxury, and upper -- upscale hotels and resorts has clearly benefited us as we have navigated the impact of the pandemic. Our operating results during this early phase of recovery, highlighted by generating positive monthly adjusted FFO since March, are reflective of the desirability of our assets to diverse sources of demand and our long-standing focus on investing in Sunbelt and drive-to leisure locations while we have seen the short-term benefits of our strategy, we believe that we have further opportunities to drive differentiated internal growth.

Two specific examples of our embedded growth opportunities are a Hyatt Regency Portland, which has only been opened for a few months when operations were suspended in early 2020, and our repositioned Park Hyatt Aviara resort where post-renovation results have been highly encouraging, especially as it relates to room rates. In the second quarter, property ADR was up 64.5% relative to the second quarter of 2019, a clear indication of the successful reintroduction to the market of this significantly enhanced resort. Additionally, we expect to benefit from recent capital expenditure projects, with the most significant of these being the renovation of Hyatt Regency Grand Cypress and the addition of the new meeting facilities at the resort. We believe this asset is particularly well-positioned as group demand starts to recover.

Since the beginning of 2018, we have completed a substantial renovation projects at an additional 16 properties in our current portfolio. We expect to experience the full benefits of these enhancements as the recovery continues. During last quarter's call, I discussed evaluating the portfolio for further ROI opportunities that may go beyond cyclic renovations. Two projects that we highlighted in our release this morning fall into that category with both the scheduled renovation of Grand Bohemian Hotel Orlando and the planned capital investment at Waldorf Astoria Atlanta Buckhead being more comprehensive than previously planned.

We expect these projects to strengthen the competitive profile of each property and generate strong returns. Barry will provide more details on these projects shortly. We continue to evaluate a number of potential additional ROI projects and repositionings. Regarding potential dispositions, we have done the less heavy lifting over the past several years.

However, we expect that we will continue to fine-tune the portfolio while we look to upgrade portfolio quality over time. As always, there will be a particular focus on assets with a lower RevPAR profile and what we believe are lower growth prospects that have significant upcoming capex requirements. One of these hotels is our Marriott in Charleston, West Virginia, a legacy asset in a noncore market that we decided to take to market during the quarter. I will conclude with our thoughts on potential external growth opportunities.

Through our most recent balance sheet activities and credit facility amendments, we now not only have more liquidity, but also substantial flexibility to complete transactions. We have analyzed an increasing number of markets and potential off-market single property transactions. While we are hopeful that potential transactions could materialize in the quarters ahead and our track record through the prior cycle gives us confidence, we are maintaining a disciplined approach to underwriting acquisition opportunities. Given the strong embedded growth and the expected ramp on assets that we acquired at attractive prices from 2017 to 2019, we can be patient and act when we believe the transaction fits our strategy and return requirements.

While the number of potential opportunities are slowly increasing, we remain to believe that there will be more properties available as owners getting more clarity on each asset's recovery path, there are more available reference points on pricing and financing issues are worked through. I will now turn the call over to Barry as he will provide additional details on our second-quarter performance, our capital projects, and the current operating environment.

Barry Bloom -- President and Chief Operating Officer

Thank you, Marcel, and good afternoon, everyone. The portfolio information I'll be speaking about today is reported on a same-property basis for 34 hotels, which excludes the Hyatt Regency Portland, which we commenced operations on May 24. For the quarter, our same-property portfolio occupancy was 51.4% at an average daily rate of $215.01, resulting in RevPAR of $110.45. As a note, RevPAR in the second quarter of 2020 was $7.19, and in the second quarter of 2019, it was $108.05.

We continue to be encouraged by the sequential improvement month-over-month during the quarter, as well as our continued strong performance in July, a testament to our portfolio mix and the performance of our individual assets. As of May 24, all of our hotels and resorts were open and operating. We have been pleased with the ramp-up and market acceptance of the Hyatt Regency Portland at the Oregon Convention Center. As we anticipated, there is significant leisure demand in Portland over the summer months that the hotel has been able to capture.

For the quarter, portfolio performance exceeded our expectations, particularly due to strong June results, which continue to be a result of strength throughout the leisure segment and specifically in our drive-to leisure markets. April's occupancy was 48.9% at an ADR of $216.3, continuing to build on the strength we have seen in March when leisure demand at spring break filled many of our hotels. And results continued the sequential growth trend as occupancy increased to 49.7% with an ADR of $216.18 driven by increased corporate and group demand and healthy leisure demand over a very strong Memorial Day weekend. The layering of strong leisure vacation demand with four reopenings throughout California led to significant growth in June occupancy to 55.5%, with a modest decline in ADR to $213.03.

We have 13 hotels achieved 60% or greater occupancy for the quarter, including five that exceeded 80%. These included projects in Key West; Birmingham; Charleston, South Carolina; and Savannah continuing to reflect a number of our leisure-focused hotels in drive-to markets. In terms of profit, 32 of our 35 properties achieved positive hotel EBITDA for the quarter, up from 17 in the prior quarter with seven properties exceeding results compared to the second quarter of 2019. Without a doubt, operating hotels in the current environment continues to be challenging.

Overall, the management teams at our hotels have done an excellent job of managing expenses in a continually evolving environment with numerous cost headwinds, including the cost of food, operating supplies, and labor. Our hotels are continuing to experience challenges in sourcing labor. However, our management teams continue to implement innovative programs to attract and retain labor in order to satisfy the needs of our hotels' guests. In markets where supplemental unemployment has ended, we are seeing modest increases in interest and applications.

For the second quarter, departmental expenses declined 44.9% compared to 2019, slightly exceeding the 42.1% decline in revenues. While undistributed expenses, often considered to be largely fixed in nature, declined by 28.8%, led by severe declines in administrative and general and sales and marketing expenses. Total payroll and employee benefit expenses declined by 46%. Our individual hotels that performed well on the top line achieved some remarkable performance in the bottom line with 12 hotels achieving EBITDA margin greater than 30% for the quarter.

This compares to only two hotels exceeding 30% EBITDA margin in the first quarter. As we expected, leisure booking windows have lengthened over the summer months as guests are booking earlier in order to assure they can stay at the choice of property. This lengthening of the booking window has enabled many of our hotels to achieve significant rate increases. Our hotels continue to open restaurants and provide modified housekeeping services in response to guest demand.

Services offered continue to vary based on property needs, specific locations, and demand patterns. Guests continue to extend stays beyond their typical profile, with guests planning business and leisure space. Anecdotally, on our property visits, we continually see significant increases in guests using video conference services in our lobbies and other public spaces to conduct business meetings while on vacation. We continue to support and see results from our brand management companies marketing to this new and unique segment.

On the corporate transient side, we continue to see improvement in volume. We are particularly pleased to be seeing growth from larger national corporate accounts whose volume is improving each month. Corporate transient business from large volume accounts grew over 90% from Q1 to Q2. Tuesday and Wednesday net occupancies each increased over 13% from Q1 to Q2.

Group production grew by 133% from Q1 to Q2, with sequential improvement in each month this year. Professional sports teams, including NHL, NBA, and MLS business continue to be notable in the group segment during the quarter as the tour-related business. Smaller association and quarter meetings have notably improved, and we continue to see 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 over 50% from March to June, with again, sequential improvement each month. The largest increase in leads by far came from the corporate segment with lead volume up nearly 75%.

For the second half of 2021, group revenue pace versus 2019 is down approximately 45%, with rates down just 3%. Looking ahead to 2022, group revenue pace continues to increase steadily. At the end of June, group revenue pace for 2022 was down about 33% compared with our position at the end of June 2018 for 2019 with rate up approximately 2%. I would now like to turn to a review of our capital projects and progress for the year.

In the second quarter, we spent $4.6 million. In 2021, we continue to estimate spending approximately $40 million on capital expenditures. This includes the development of the Regency Court, a new outdoor social venue at Hyatt Regency Scottsdale, which is well underway, and a restaurant and lobby renovation at The Ritz-Carlton, Pentagon City, which is just beginning. We expect to renovate and reposition the restaurant and lobby at Waldorf Astoria Atlanta Buckhead beginning in Q4, with completion early in the first quarter of 2022.

In addition, we have recently made the decision to move forward with a significant renovation of the guest rooms and guest quarters in this hotel during the same time period. Although originally not planned until 2023, we believe that providing a comprehensive renovation of the hotel to the market one time will significantly enhance the hotel's market position and ability to continue to attract high-end corporate, group, and leisure travel. As we have mentioned previously, we continue to review opportunities for substantial internal growth within our existing portfolio. We are pleased to announce that we intend to engage in comprehensive hotel renovations at Canary Hotel and Grand Bohemian Hotel Orlando that will commence in Q4 of 2021 and Q1 of 2022, respectively.

The renovations of both hotels will consist of significant upgrades to the guestrooms, lobbies, and bars, meeting space, restaurants, and rooftop pool areas. At Grand Bohemian Orlando, we will be making significant modifications and enhancements to the 20-plus-year-old design, resulting in a lighter and more contemporary-looking field. At Canary, we will work to enhance the property's existing Mediterranean design with more contemporary design features. Each of these hotels has been and continues to be a market leader, and we expect these enhancements to ensure their premium positioning, enable the hotels to attract traditional business, and position the food and beverage offerings at the top of their respective markets.

With that, I will turn the call over to Atish.

Atish Shah -- Executive Vice President and Chief Financial Officer

Thanks, Barry. I will provide an update on our balance sheet. Overall, our balance sheet is stronger than it was pre-pandemic. We have less net debt, more liquidity, and extended maturity ladder.

We have achieved this without increasing our share count and without increasing the risk of future dilution. As a result of the successful high-yield offering, we completed in May, our liquidity increased by approximately $300 million since the end of the first quarter. Our liquidity is over $1 billion at present. It reflects approximately $500 million of unrestricted cash and a fully undrawn $523 million line of credit.

We continue to have a well-diversified balance sheet at an attractive weighted average cost of debt of just over 5%. The average duration of our debt is 5.3 years, up from about four years pre-pandemic, and we have no debt maturities for the next two-and-a-half years. As Marcel mentioned, we have amended our corporate credit facilities in May. We have already announced the details around those amendments.

Overall, we are pleased as the amendments provide the company with more operational and transactional flexibility. And they reflect the continued positive relations we have with our bank syndicate. As we look to the second half of this year and into 2022, our outlook continues to be positive. From a corporate profit measures perspective, and assuming a continuation of the demand trends we've seen in recent months, we expect adjusted EBITDA and FFO to be positive going forward.

More importantly, since the pandemic began, the moves we have made and the moves we haven't made have positioned the company to manage through a variety of near-term scenarios, and to eventually return to growing long-term shareholder value no matter the exact near-term trajectory of the recovery. Our portfolio is positioned superior relative to other high-end lodging portfolios. Owning branded hotels that are located in higher-growth markets that are not overly focused on either citywide convention demand or international inbound demand and that have shown strong recovering momentum to date will allow us to drive relative outperformance and with that, we will turn to our Q&A session. Andrew, may we please have our first question?

Questions & Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions] The first question comes from David Katz with Jefferies. Please go ahead. 

David Katz -- Jefferies -- Analyst

Hi. Good afternoon, everyone. 

Marcel Verbaas -- Chairman and Chief Executive Officer

Good afternoon. 

David Katz -- Jefferies -- Analyst

So look, I think at some point, we've expected that there might be some set of distressed opportunities, right? And when we've had discussions in the past about it, not necessarily with you, but that as the recovery wore on, there would be opportunities that bubble up for a variety of reasons. Is that still a fair way to think about it? Or is this just not going to be -- is distress just not going to be a driver here?

Marcel Verbaas -- Chairman and Chief Executive Officer

Good afternoon, David. Well, from our perspective, and I mentioned this in our prepared remarks, we do think that over time there should be more properties coming to market and more opportunities than what we necessarily see today. I think we're seeing the early stages of that with certainly being -- some more properties being out to market. I think part of it is people still need to really understand where the long-term trajectory is going with some assets, and we talked about it a little bit as far as having a little clearer direction on where things are going to go.

Certainly a number of lenders that have been willing to be very accommodating in the short term that may change over time as well. And I think we're still kind of in the early stages of that. So you've seen some transactions happening that clearly haven't been distressed type of transactions. And you just haven't seen that much of that, but I think we're still really early on in this part of the cycle.

And from our perspective, it certainly makes sense to be patient and wait for as better opportunities materialize.

David Katz -- Jefferies -- Analyst

So if I'm hearing correctly, as we get later this year and into next year is when those kinds of things start to present themselves, is that fair?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, it's obviously -- to my point, it's hard to say whether you're going to see the large number of distressed situations. I do think you're going to see more products hitting the market, which will presumably create some more opportunity because currently, you're in a situation with a good amount of capital chasing a relatively small number of interesting deals where the pricing ends up being pretty aggressive. So we think that -- and like I said, we're currently underwriting transactions too and analyzing a lot more than we did three or six months ago. But we're willing to be patient and willing to wait for those deals that are absolutely on strategy for us and that can meet our return requirements.

David Katz -- Jefferies -- Analyst

Right. And can we just double back and if this is repetitive, I apologize, but I just want to make sure we have. What is your sort of steady-state target leverage range that you'd like to sit in, Atish?

Atish Shah -- Executive Vice President and Chief Financial Officer

Yes. Long term, David, we've talked about sub-five times, so -- through the cycle. So we have been running the company kind of a low three times to low four times debt-to-EBITDA range over the last five years. And I think that is the appropriate range for our business long term.

So we'd like to get sub-five times certainly as soon as possible. And then long term kind of low threes to low fours is the right leverage range for us in terms of net debt to EBITDA.

David Katz -- Jefferies -- Analyst

Perfect. OK. Thanks very much.

Atish Shah -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

Your next question comes from Bill Crow with Raymond James. Please go ahead.

Bill Crow -- Raymond James -- Analyst

Yes. Thanks. Good afternoon, guys. Any difference you're seeing in the September cancellation rate relative to August, a month ago? In other words, any impact from the Delta variance or just simply more cancellations because we're transitioning into business from leisure?

Barry Bloom -- President and Chief Operating Officer

Bill, we've not. And obviously, we're watching it very, very carefully. We had a couple of smallish cancellations over the last week -- for kind of two weeks out. So obviously keeping a very careful eye on that, but certainly not seeing deep cancellations in the September at this point.

Bill Crow -- Raymond James -- Analyst

What are you watching from a larger group event calendar basis to kind of be a harbinger of attendance? And hopefully, it's not ALICE. We didn't hear great things about that. But as you look into September, October, November, give us a few conferences that you're watching to be indicative of trends.

Barry Bloom -- President and Chief Operating Officer

Yes. So in large part, we don't have a significant number of citywide in our portfolio in general, which is not in those markets -- in those types of properties. But we have a few -- I guess, without divulging exactly who they are and what properties they're at, a few bellwether groups that we kind of look at within each segment. So we're obviously focused -- we look very carefully at the pharma business, which when it materializes is a very strong business for us, and we're watching that very closely because they often have the ability to make decisions to book short term.

But once they have, they can push business off even in normal times, depending on when they do product launches and things like that. So we've been very careful on that. We're looking at business where we have a large -- a relatively large number of international attendees. In general, in our internal forecast, we have watched much of that out, the hotels have watched much of that out because we know that international attendance is certainly not assured at this point.

So if that gets to particularly challenging points when we saw this in the early days of COVID as well, companies may cancel their meetings if they're not going to get the international attendees they want, and that goes for both corporate group, but that's particularly notable, I think, for larger association groups that draw internationally. I think those are two good examples of things we're keeping a careful eye.

Bill Crow -- Raymond James -- Analyst

And then finally for me, if I could, one more. Just any incremental change in the ability to hire at the property level over the last month or two?

Barry Bloom -- President and Chief Operating Officer

Yes. And I think I mentioned this in the prepared remarks, in markets where they have -- where they're no longer getting supplemental unemployment, we have seen increases in number of applicants and ultimately number of hires. So when that happens, we've gone in immediately with job fairs, and we are seeing more than what we would have seen a month prior. It's not exponential, but it is notable and has helped fill the ranks in a number of our hotels, particularly in the Sunbelt markets, Florida, and Texas.

Bill Crow -- Raymond James -- Analyst

Great. thank you.

Operator

The next question comes from Dori Kesten with Wells Fargo. Please go ahead.

Dori Kesten -- Wells Fargo Securities -- Analyst

Thanks. Good afternoon, everyone. Somewhat of a follow-up question to Bill's labor question. So if we were sitting here today, Barry, under our pre-COVID model, how many FTEs would you have at these demand levels? And then just compare that to what you actually have today?

Barry Bloom -- President and Chief Operating Officer

Yes. So one of the things that we -- coming into this, as you know, had by virtue of our property organization process, we have developed always kind of within traditional operation levels kind of target FTE metrics. And then we went back last year in the depth of COVID, in particularly as hotels were closed, looking at what staffing models would look like at every occupancy deciles of that to get back to that. We're -- what I can tell you is -- we're very reticent to put that number out there in total.

And obviously, it changes every day in our hotels as they hire employees as employees fleet, things like that. We are -- it's very fair to say that we have no hotels in the portfolio that wouldn't take more staff if they could get them right now. And I think they're truly trying to balance a couple of things, one of which is making sure that we're not increasing the overall wage model over time by hiring more employees today than we can comfortably take on and changing the entire wage structure of our hotels and quite frankly, our industry that's one; two, that we're also balancing and have always tried to balance to ensure that we don't get staffing ahead of where demand levels are because in this environment, we want to make sure that we've not -- we're not overstaffing. Again, that's not to say we wouldn't take more employees in any of our hotels.

Our managers are constantly looking for more and better employees. But I think to put an FTE number on that is really a challenge and quite frankly, across the portfolio, given the variances we have between outperforming hotels and hotels that are still way, way, way off in terms of their business levels, it's a tough number to make sense of in the portfolio as a whole.

Dori Kesten -- Wells Fargo Securities -- Analyst

OK. Thank you.

Operator

The next question comes from Bryan Maher with B. Riley FBR. Please go ahead.

Bryan Maher -- B. Riley FBR -- Analyst

Thank you. Two questions for me. One on the food and beverage. I know it's not up to the level that you would expect or hope for.

It was above what we were looking for. Can you give us a little bit of the dynamic of the leisure traveler? And is there potential over-propensity to spend on F&B. I mean how is that dynamic working relative to what you would normally see with group using a lot of F&B?

Barry Bloom -- President and Chief Operating Officer

Yes. That's a great question, Bryan. And it's obviously different in -- it's a different kind of spend. So I'll put it in a couple of buckets.

One, in our resort hotels, we're seeing significant pool bar expenditures and food and beverage that serves pool bars, they're literally at the pool all day in a lot of these cases and are buying food and beverage from us. Similarly, we've seen something we've not traditionally experienced in the resort hotels either, which is the propensity of guests to stay on property and eat on property more times rather than go off property. Some of that has to do with difficulty in getting reservations and things like that. But our kind of three-meal restaurants in our resorts are doing better business they have ever done, not just because we have more leisure guests and, therefore, more people in the restaurants, they're just in the restaurants more and they're eating three meals a day sometimes in the property over multiple days.

So we're seeing that. We're also on the food and beverage side -- on the banquet food and beverage side where we have had banquets, the banquet spend per group room is fairly comparable to what it has been historically. We're not seeing significant reductions in that at all. And then the last piece, which is universal across the portfolio, we're seeing unbelievable business in our markets or cafes or coffee shops, not in the restaurants per se, but in the grab-and-go outlets we've always had.

The volume in those is, in many cases, double or triple what it would have been in a typical year. Again, leisure is driving a good bit of that. They're obviously not going -- they're not having the same kind of breakfast that a corporate traveler would have. We're not capturing them in a banquet breakfast related in a meeting.

But all of those are what is helping us sustain higher levels, I think, than even we might have expected. But those pieces, if you think about those, those are also part of what is driving what we consider to be department of profit at food and beverage probably better than, again, what we would have expected or underwritten in this type of environment.

Bryan Maher -- B. Riley FBR -- Analyst

And then maybe for Marcel, as you think about acquisitions, it seems like everybody wants to chase after the hotel du jour Sunbelt leisure drive-to. What are your thoughts about going after northern urban assets, if you could pick them up at a significant discount and either reposition those properties or wait for an eventual recovery? How are you thinking about the two different buckets to buy in?

Marcel Verbaas -- Chairman and Chief Executive Officer

From our respect, as you know, we've always focused on having our strategy be primarily top 25 markets, key leisure destinations. So you're absolutely correct that a lot of the hotels and resorts that people are particularly attracted to these days are the type of assets that we've also bought over time. As you know, we've never said we don't want to be in gateway markets. There is a time and a place to invest in those type of markets.

And we absolutely felt that the last five years or so was not a great setup in those type of markets because of many factors that we're aware of. So over time, we absolutely will continue to look at those type of markets. And the challenge, of course, and New York is obviously a poster child for this, is that even if you buy a hotel where you feel that your discounts to replacement costs might be pretty attractive. It's still a very difficult operating environment in some of those markets.

And we're clearly looking for opportunities where we can drive long-term value increases, but also make some operational cash flow and be able to really affect those cash flows. And in some of those markets, this is really tough to accomplish. So we will continue to look at kind of a wide variety of markets. And the good thing about our strategy has always been and will continue to be that we can be pretty opportunistic within that strategy, and we'll look to find deals that are actually on strategy for us and again, drive the right kind of return for us over the long term.

Bryan Maher -- B. Riley FBR -- Analyst

Yes. Thank you.

Operator

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

Aryeh Klein -- BMO Capital Markets -- Analyst

Thank you. Maybe just on the services front. How are you thinking about bringing some of those back? You mentioned kind of the modified services in certain hotels and markets. And what if any customer pushback have you seen or heard?

Barry Bloom -- President and Chief Operating Officer

Thanks, Aryeh. I appreciate the question. So obviously, our hotels follow the leadership of and direction from their brands. And as you know, Hilton has come out with a pretty rigorous standard on housekeeping or formal standard housekeeping.

Marriott is still working through that as is Hyatt. So let me start by saying that. And our hotels in general, complied with their brand standards. What we have seen is, in some cases, some of our hotels have moved to what we would call a modified housekeeping model, which is really where we're getting in rooms most days, particularly in the resorts that have heavy, heavy usage and have lots of use of towels and lots of people in them and lots of garbage generated, this it started making sense to go into rooms every day and do what we call a life touch cleaning.

But we're really taking care of the garbage, taking care of towels, but not necessarily doing the clean to would historically do every day. And that's gone a long way toward increasing guest satisfaction in the hotels and resorts that have implemented that system. I will tell you that most of our hotels, if a guest wants housekeeping on a daily basis, our hotels are not necessarily declining that opportunity. Our hotels are obviously in business of satisfying guests.

So even though the standard may be to go in that room, every second or third or fourth day depending on what each individual brand and each of those companies kind of set as a standard, we're doing whatever it takes to satisfy those guests in terms of what they want. We've seen -- what's interesting is that when you look across the portfolio, our highest guest satisfaction scores are in properties that are actually achieving the highest average daily rates. And so in those hotels, I think we're obviously doing a good job of giving guests what they want and what they expect, particularly when they're paying rates that are significantly in excess of what they have historically. I hope that helps.

Aryeh Klein -- BMO Capital Markets -- Analyst

Yes. Thanks for that. And then just -- you talked about a little bit earlier the trends you've seen in July. Can you maybe provide a little more granularity on what you're seeing in some of the urban or business-oriented markets that have maybe been a little bit slower to recover and how that's progressing?

Barry Bloom -- President and Chief Operating Officer

I think, obviously, July ended two days ago or three days ago, and we're still sort of filtering through the information to understand what it really means in terms of the portfolio. So I think we'll probably -- if we can take a pass on that for now until we can really sort through what the trends really are and which markets are seeing that performance. We can certainly -- as we noted, obviously, rate has moved significantly across the board in the portfolio in July over June. But I think getting an individual market conversations, probably, we're not ready to do that today.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thank you.

Operator

The next question comes from Austin Wurschmidt with KeyBanc. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. Thanks, and good afternoon, everyone. Barry, you mentioned group lead volumes were up 50% between March and June, and sorry if I missed this, but is that based sort of on room night demand or number of inquiries? And I'm curious if those trends continued into July, kind of the sequential improvement?

Barry Bloom -- President and Chief Operating Officer

The 50% I mentioned was actually lead volume from where it was at the end of March to the end of June. So we -- so obviously, that's incoming business. It doesn't reflect necessarily what was booked, which is harder to look at and process, and we're still processing July data. So there's really no update on that at this point.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Got you. And so what percent, I guess, of revenue is on the books that you'd typically target for either the back half of the year or 2022? Can you give us just some sense at this point?

Barry Bloom -- President and Chief Operating Officer

Yes. So for 2021, for the back -- for the full second half of the year, at the end of June, we were down 43% in group room nights with rate down about 3%, but it does vary by quarter. Q3, the revenue pace is down about 50%. Q4 revenue pace is down 35%.

So it's certainly -- and we've always kind of known and seen that the group business for this year continues to be back loaded, literally, not just quarter by quarter, but month by month with the exception of December, which, obviously, is always an outlier.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Got it. And then anything for 2022 at this point that's worth noting?

Barry Bloom -- President and Chief Operating Officer

No. We talked about being down right now compared to 2018 to 2019. So compared to a more normal year, where right now, room nights are down 33% and rate is up 2%. So -- and there is -- we also see there in Q1 and Q2, kind of Q2 down less than Q1 is down.

So again, we -- which gives us a lot of confidence that this is all going to fill in at some point, it's just a matter of when it fills in.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

No, that's very helpful. And then Marcel, you talked about kind of continuing to evaluate ROI investment opportunities. And I'm just curious with some of these new projects that the two new ones that you announced and as you think about additional spend, I mean, how do we think about kind of the pace of spend as you get into 2022 versus what you have planned for this year?

Marcel Verbaas -- Chairman and Chief Executive Officer

We don't have an exact number to talk about there yet, but clearly, it will be a number that we expect to be higher than where we are this year. As you know, we've last year deferred a good number of projects. Some of those kind of roll into this year. But being at about $40 million for this year, that's obviously kind of the below watermark for us historically.

So we certainly expect this to be a little bit more normal going into next year. But it's a little bit early to talk about that because we don't want to get too far ahead of ourselves as we continue to work through some of these potential ROI opportunities that could swing a bit. So I don't really want to get too far ahead of ourselves on that yet.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Fair enough. Thank you.

Operator

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

Michael Bellisario -- Baird -- Analyst

Hi. Good afternoon, everyone.

Barry Bloom -- President and Chief Operating Officer

Good afternoon.

Michael Bellisario -- Baird -- Analyst

Barry, first one for you. Just on ADR overall. Maybe can you dig a little deeper here. What are you seeing by segment? Are you really just seeing ADR increases from leisure transient travelers? And then any impact for more loyalty redemptions at your resorts? Just any more detail on the segmentation breakdown for ADR would be helpful.

Barry Bloom -- President and Chief Operating Officer

Yes. So no question that the primary driver of ADR is on the leisure side because our hotels, as you know, are primarily being -- are primarily capturing leisure guests at this point. In fact, what we've seen, and it's a little bit disappointing, is that are -- because we're not necessarily getting to peak occupancies, we're actually absorbing a lower redemption rate from the programs than we would if we were getting those occupancies up into the 80s and 90s where we might typically have been during a peak demand period. So there is actually some downward pressure on the actual rate transients are paying that you see in the overall rate because of the blending of kind of the contracted, if you will, redemption rate from the brands.

And we're getting substantial redemption demand, particularly at the resorts. One of the interesting things is we are seeing improvement month-over-month in corporate rate. Some of that is due to just the customer that we are getting, but it's also a lot of those rates are driven off of the best available rate or bar. And because the bar rates were -- because we've done a good job in the hotels of maintaining higher bar rates where corporate demand is choosing to stay with us, we're actually producing a pretty good corporate rates because we kept that bar rate at a higher level.

And many, many of the kind of not necessarily the very top accounts, but the second-tier accounts are all priced at a discount of a bar. And we're seeing production, we think, in line with where the rest of the market is on those.

Michael Bellisario -- Baird -- Analyst

Got it. That's helpful. And then just one for Marcel, just back to the transaction market and the way you're kind of underwriting deals today, at least the fact you said you were underwriting more deals. How much of that is: one, more deals to be underwritten? Two, did the deals look more attractive to you, and that's why you're underwriting more? And then three, how much of it is you now have more flexibility to spend money and invest post bond deal, and maybe that's the reason why you're looking at more deals.

Can you maybe break those three down for us?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yes, clearly, based on the way you're asking the question, I think you somewhat know the answer of it. It's a combination of all three, right? We are definitely seeing some more properties hit the market. There's no question about that. Clearly, when the short-term focus was much more on reducing monthly losses and having monthly cash burn, you look at things a little bit differently than when you're starting to stabilize from an operating perspective, and you obviously start turning a little bit more from defense toward offense.

So that's certainly a component of it. And as we think about the attractiveness of potential acquisitions, clearly, some of them become more attractive, so that you're not dealing with short-term cash flow losses and those type of things. But that all being said, we're being fairly cautious in the way that we're underwriting things. And we're just maintaining a really disciplined approach in potentially adding assets.

You mentioned, and we mentioned earlier, having the flexibility now under our credit agreements, which obviously changes things a little way too. But it doesn't mean that we just feel like there's this money burning a hole in our pockets. We were very active coming into the pandemic. We've got a number of hotels that we are very excited about the growth that we can still get out of those.

So we really feel like we're not behind in the game, if you will, because we were so active coming into the pandemic and have so many opportunities to grow coming out of this as a result of that. But we would love to find some interesting opportunities that we think are going to be good drivers for growth for the portfolio going forward. And certainly, with the track record that we've had over the last couple of cycles, I'm pretty optimistic we'll find those opportunities. But we're going to maintain a lot of discipline as we're looking at it.

Michael Bellisario -- Baird -- Analyst

Got it. And then just as a follow-up there, given what's happened over the last 18 months or so, any change in your view or at least maybe how you underwrite branded versus independent hotels today?

Marcel Verbaas -- Chairman and Chief Executive Officer

No, really not. So we -- if anything, we feel strengthened in our overall strategy that we have coming into this. We like being affiliated with some of the biggest brands in the business. And we've talked many times about some of the benefits we see in working with those stronger brands.

And certainly, the way that they were able to react to the pandemic, and the way that we think they will be very helpful in building back the customer base on both the group side and the corporate side going forward will be very important to our portfolio. We feel good about, obviously, the geographic diversification that we had, and that certainly helped us. If you think about the occupancy that we have that actually is on our basically entire portfolio, and we don't have anything closed anymore, we're able to open everything as quickly as we possibly could. We feel very good about that overall strategy and how it sets us up both in times when times aren't so good, like we've obviously seen here recently, and also during recovery.

So we really don't see any kind of reason to stray from the strategy and are very happy with that.

Michael Bellisario -- Baird -- Analyst

Got it. Thank you.

Operator

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

Jonathan Jenkins -- Janney Montgomery Scott LLC -- Analyst

Good morning. This is Jonathan on for Tyler. Just one quick one for me today. Barry, I wanted to follow up on the rate discussion.

Any additional color on your expectation for corporate rates moving through the fall and into next year? And I guess the crux of the question is how sustainable do you think those higher rates that you were talking about are in the medium and near term?

Barry Bloom -- President and Chief Operating Officer

I think that's really probably a question best directed at the brands who leave the large majority of those discussions for the very largest corporate accounts. I think we are certainly -- the feedback we're getting and also the feedback we're providing is that discounts off a bar seem to make a lot more sense necessarily than taking low rates in a market that we don't take -- potentially taking low rates in the markets many multiple markets, so we don't know exactly what the supply/demand equation is going to look like on your typical business pattern for next year.

Jonathan Jenkins -- Janney Montgomery Scott LLC -- Analyst

OK, great. Thank you for the details. 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 to everyone joining us today. We are certainly very optimistic about both the medium and long-term growth prospects look like for our company and aren't closing our eyes to some of the shorter-term challenges that I'm sure we and many other people in the industry will be dealing with. But we feel very well-positioned with our portfolio and look forward to continuing to update you over the quarter's end.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Danielle Burgoon -- Vice President of Finance

Marcel Verbaas -- Chairman and Chief Executive Officer

Barry Bloom -- President and Chief Operating Officer

Atish Shah -- Executive Vice President and Chief Financial Officer

David Katz -- Jefferies -- Analyst

Bill Crow -- Raymond James -- Analyst

Dori Kesten -- Wells Fargo Securities -- Analyst

Bryan Maher -- B. Riley FBR -- Analyst

Aryeh Klein -- BMO Capital Markets -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Michael Bellisario -- Baird -- Analyst

Jonathan Jenkins -- Janney Montgomery Scott LLC -- Analyst

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