Hersha Hospitality Reit Trust (HT) Q3 2021 Earnings Call Transcript

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Hersha Hospitality Reit Trust (HT)
Q3 2021 Earnings Call
Oct 27, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the Hersha Hospitality Trust Third Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions] Also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Greg Costa, Investor Relations. Sir, please go ahead.

Greg Costa -- Manager, Investor Relations & Finance

Thank you, Jamie, and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust Third Quarter '21 Conference Call. Today's call will be based on the third 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. As always, I'm here with Jay H. Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer. Thank you to everyone for being with us this morning to kick off third quarter earnings. When we last spoke in late July, demand for travel and hotels was the highest since March 2020, and projections were shaping up for a very strong second half of the year. The delta variant made for a choppy seasonal shift in demand in late August and early September, but we were able to meet our internal forecast each month through a combination of aggressive revenue management and strict cost controls, allowing us to drive strong GOP margins even compared to the same period in 2019. Despite a slow start on the top line shortly after Labor Day, we were encouraged by the positive momentum we are seeing over the last few weeks, coinciding with the decline in COVID cases and notable green shoots indicating that travel is ramping up meaningfully. TSA data shows the beginning in mid-September, we have seen consecutive weeks of more than 12 million travelers.

And if you zoom in on our markets, New York City, Boston, Philadelphia, San Jose and Washington, D.C., have all seen a rebound over the last few weeks of at least 7.5% in air travel. Additionally, Uber recently reported a 15% increase in airport rides during the last two weeks of September. And U.S. car traffic in major cities like New York and Los Angeles was significantly higher in September versus August. In New York, weekday ridership of trains and subways have each increased about 30% since the end of August. While Times Square foot traffic reached a record high since the start of the pandemic with 270,000 people visiting last Saturday, 80% higher than the same day in 2020. Robust leisure demand post-Labor Day is encouraging for the upcoming holiday season as well. And our booking pace for weekends in New York City and the holiday weeks in South Florida and California is noteworthy.

And beginning next week, our borders will open to fully vaccinated international travelers. One week after the announcement, airlines such as JetBlue and American, reported positive trends. JetBlue said it had seen a 5 times increase in bookings to the U.S. from the U.K., while American noted it expects international revenues to surpass 2019 levels in December and throughout 2022. On the hotel booking front, many OTAs have noticed an uptick of almost 20% international bookings in the week since the announcement in major feeder markets like New York City. With an expectation for 2022 bookings to materially increase across the next several weeks. The international demand is diverse, but Canada, Mexico, the United Kingdom, Brazil and even several Asian countries are booking again. Ash and I will discuss in more detail our top line and bottom line results.

But first, a quick recap of third quarter performance for our portfolio. We began the third quarter on strong footing as our portfolio RevPAR ended July near $150, approximately 15% higher than June as peak summer travel translated into robust results across the portfolio. The first half of August was equally strong. But due to the delta variant and typical seasonality with the resumption of the new school year, demand began to moderate during the second half of August, which stretched through the middle of September after the Jewish holidays. Despite the occupancy decline, our revenue managers continued their strategy of holding rates, resulting in our comparable portfolio ADR for the quarter coming in only 1% below third quarter 2019. Rate integrity remains key to the lodging recovery and based on year-to-date performance from our resorts and our urban clusters, we believe strong ADRs will prove sustainable on a portfoliowide basis for years to come. Our resorts portfolio was strong again this quarter as the group generated weighted average occupancy of 68% and ADR growth of 30%, leading to weighted average RevPAR growth of 20% compared to the third quarter 2019. Performance this quarter continued to stem from robust demand in South Florida, despite what is typically the slowest period for travel to this region. The Parrot Key Hotel and Villas was our best-performing asset during the third quarter from a RevPAR growth perspective as 71% occupancy and a $409 average daily rate resulted in a $290 RevPAR, which surpassed third quarter 2019 RevPAR by 73%.

The Keys continue to garner unprecedented demand, and we expect the Parrot Key to continue its robust performance into year-end. Performance on Miami Beach was also encouraging as the Cadillac and the Winter Haven on South Beach each exceeded their third quarter 2019 occupancy, ADR and RevPAR levels. Even in the more business-oriented submarket of Coconut Grove, we were able to drive 36% ADR growth during the quarter as we captured local business from a variety of industries, law, universities, financial services, consulting, technology, healthcare and advertising, which is leading to stronger weekday demand post-Labor Day.

Our South Florida hotels continue to generate robust rates into the fourth quarter with significant growth on the horizon, as peak travel is set to return after Thanksgiving, highlighted by the resumption of noteworthy citywide events such as Art Basel in early December. Out in California, the Sanctuary Beach Resort continues to lead our resorts from a rate perspective as a $669 ADR and 78% occupancy resulted in 30% RevPAR growth versus the third quarter of 2019. The Our Hotel Milo in Santa Barbara reported 22% RevPAR growth this quarter, recording 75% occupancy at a $446 average daily rate. Both of these hotels set record ADR levels under our ownership last quarter during the peak travel season on the California Coast, further proving that the leisure traveler is not price-sensitive for high-quality, well-located, differentiated hotels. Back East, our Annapolis Waterfront Hotel occupies an irreplaceable position on the Chesapeake Bay and was our strongest performing hotel from an occupancy perspective during the third quarter.

We recorded an 86% occupancy and an average daily rate of $332 last quarter, which led to a 24% RevPAR growth over the period. Annapolis in the summer was primarily leisure transient but the hotel has seen significant demand continue post-Labor Day, highlighted by weddings, smaller conferences and corporate groups, collegiate sports and alumni reunions at the Naval Academy and the historic vote show that took place just a few weekends ago. Our regional resort destinations have provided robust results for the portfolio year-to-date and continue to show strong pace heading into year-end. But our core urban portfolio, 75% of our rooms has also seen a steady demand increase over the last several months. Weekday ADRs in our urban portfolio exceeded $195 in July, surpassed $200 in August and ended September at approximately $225, 15% higher than July. From June to September, our urban portfolio saw a 7.5% CAGR in weekday RevPAR, supported by notable increases in both rate and occupancy. And weekday demand has continued to accelerate in the fourth quarter. As the month-to-date ADRs in October are higher than the same time in September, with occupancy up approximately 650 basis points to 54%.

This performance has led to substantial weekday RevPAR growth over the last 30 days as RevPAR for our urban portfolio is up 15%, with increased demand across each of our major northeastern cities. Despite the third quarter being predominantly leisure-driven, and the business transient recovery clearly slowed by the delta variant, we have seen a steady return of corporate business across our markets. Airlines have reported that the larger corporate accounts are beginning to fly again and domestic business demand has rebounded to pre-delta levels or better. And we are seeing the shift in our hotels. After months of healthcare workers, sports teams, design and construction and other small- and medium-sized companies, we are now seeing the return of our more traditional corporate accounts midweek, Accenture, Deloitte, JPMorgan, Goldman Sachs, Bank of America, McKinsey, Boston Consulting Group and General Dynamics remain active across our portfolio.

Our urban luxury hotels have enjoyed meaningful rate growth across the last several months, as the Rittenhouse Hotel in Philadelphia and the Ritz-Carlton in Georgetown, outperformed our third quarter 2019 ADRs by 17% and 7%, respectively. Demand at these assets was broad-based and supported by leisure and social groups such as weddings and entertainment over the last few months, the reopening of universities and parents weekends, and the blending of leisure and business travel in luxury. But in September and October, we've seen an increase in corporate guests for stays and catering events, healthcare, consulting, financial services, media, software have all been gathering and traveling at our hotels. Weekday trends have been clearly accelerating, but the return to more stable business travel is closely correlated with employees going back to the office and resuming traditional travel to conferences and group meetings. Although many of the world's largest corporations have postponed their return to office plans, third-party data providers indicate that major cities like Boston and New York saw a 30% month-over-month increase in workers returning to the office in September. And conversations with our corporate accounts indicate that we should continue to see a resumption in companies opening their doors and encouraging travel through the end of the year.

But anticipate the first quarter as the next inflection point in demand growth from the business traveler. Gateway urban markets have been more impacted by this pandemic than any other segment, and offers the longest runway for growth as we look forward to the next several years of this cycle. Last month, we saw the return of traditional major events in Manhattan, the U.S. Open, which benefited our assets in the JFK submarket. Fashion Week, which led to the compression at our Hilton Garden Inn Tribeca. And the UN General Assembly, we saw increased demand at our Hilton Garden Inn Midtown East from foreign delegates and secret service personnel. Despite attendances below pre-pandemic levels, it was great to have these events back in person as they help drive hotel demand in Manhattan to its highest levels since the beginning of the pandemic. And New York has more citywides occurring in Q4. Comic Con took place a few weekends ago, the NYU Lodging Conference and the New York City Marathon is resuming next month, and several trade shows and medical conferences remain on schedule. Pockets of corporate strength remain across our assets in Manhattan from the traditional accounts I noted earlier, but we believe they will continue to expand as more corporations reopen their offices.

With the first mover advantage of remaining open throughout the pandemic, our clustered sales effort in the marketplace should yield additional revenue opportunities. New York City has historically been the market leader in occupancy and we remain confident that it will revert back to prior levels over the next few years with our operating and data advantage driving meaningful outperformance throughout the recovery. During the last cycle, we had record demand for hotel rooms in New York, but year-over-year mid-single-digit supply growth resulted in a very challenging operating environment for owners. Although we have seen new hotels open again this year with more on pace to open over the next 12 months, it is important to note that many hotels have permanently closed. And although a few have recently reopened following the passage of the severance law in the city, the midterm supply picture looks very encouraging. Based on our internal projections as well as some recent third-party studies, it is estimated that 10,000 keys may be removed from inventory for the foreseeable future, if not permanently by way of demolition, resizing or alternate use conversions. When we factor in this in the analysis and the aforementioned new supply, net supply over the next few years will actually be negative 1% to 2%.

And with the cost of construction financing remaining exorbitantly high and the recent approval by the New York City Planning Commission of the special permit for all new hotel construction, supply should remain in the low single-digit range for years to come. Two quick notes on our capital allocation strategy and sustainability before I turn it over to Ash to discuss our margins and balance sheet. Earlier this year, we completed the sale of six noncore hotels that had substantial capital improvements on the horizon. And we also took necessary steps to infuse the portfolio with nondilutive equity through our notes placement with Goldman Sachs Merchant Bank. We believe that our unique collection of hotels and our advantaged operating strategy allow us to manage cash burn in the worst of times and drive out performance early in the recovery. We have and continue to actively monitor the capital markets for the best opportunity to increase our operating capital without diluting shareholder valuation. The capital markets for almost every level of financing remains extremely competitive.

And with improving fundamentals in each of our markets, we will remain opportunistic with both asset sales and financing opportunities across the next several quarters. At current prices, we see no better value in the marketplace than our existing collection of hotels. Second quick topic, sustainability, which has been at the core of our strategic operations since we launched our EarthView program in 2010. Since inception, we have saved over $20 million from energy efficiency initiatives that generate recurring savings year-over-year and help to alleviate expense growth and improve margins, vital over the past 18 months as we navigated the COVID crisis. We have also had a very positive environmental impact. We have reduced energy use per square foot by 15% and greenhouse gas emissions by 44% since 2010. And we announced our 2030 targets in our robust annual report on our website, disclosures that contributed to Hersha ranking #1 among our U.S. hotel peer set in the Global Real Estate Sustainability Benchmark public disclosure for the second year in a row.

We continue to be proud of the work of our teams in the field and in our headquarters, to ensure our hotels continue to operate not only efficiently, but are positioned for sustainable long-term growth. As I mentioned earlier, the resumption of business travel is closely correlated with the return to office. And this will present a major inflection point for our hotels, with 75% of our rooms situated in major gateway cities. Performance at our resorts has led to significant growth this year and allowed us to generate property level cash flow quicker than most of our peers. But our growth runway remains long with the pending rebound of business travel demand to our urban gateway markets. 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. And with the delta variant peaking, our borders reopening and businesses ramping up travel, we expect 2022 will be an inflection point for the lodging recovery. 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

Great. Thanks, Neil, and good morning, everyone. So as Neil mentioned, my comments will focus on the continued growth in our margins and cash flow, and I'll close with an update on our balance sheet and outlook for the current quarter. Top line performance from July to September continue to provide a boost to bottom line results. During the third quarter, 31 of our 33 hotels were cash flow positive, a 21% increase versus the second quarter. Results last quarter highlight the efficiency of our portfolio in the merits of our operating model, leading to cash flow generation in an extremely volatile environment that is still reeling from the effects of the pandemic. These factors allowed our portfolio to generate $25.4 million in property level earnings and $4.5 million of positive corporate cash flow after all corporate expenses, debt service and the payment of dividends on all tranches of our preferred equity. Based on month-to-date trends and forecast for the remainder of the year, we anticipate continuing to achieve positive corporate level cash flow for the fourth quarter.

The asset management initiatives we've implemented over the past 18 months, combined with our flexible operating model and continued top line improvement showed early signs that our margin expansion goal through the recovery is moving in the right direction. As GOP margins of 45% during the third quarter were in line with the forecast we outlined on our July earnings call and approximately 100 basis points higher than our third quarter 2019 GOP margin. On the EBITDA line, we witnessed sustained margin improvement as our comparable hotel EBITDA margin of 30% and was 360 basis points higher than the second quarter 2021 and just 230 basis points lower than third quarter of 2019. From a profitability perspective, our resort portfolio continued to deliver meaningful EBITDA margin performance as the group ended the third quarter with a weighted average EBITDA margin of 38%, 1400 basis points higher than the third quarter 2019. Results out west were highlighted by our Sanctuary Beach Resort in Hotel Milo as both finished the quarter with a 50% EBITDA margin.

In South Florida, the Parrot Key and Cadillac each surpassed their third quarter 2019 EBITDA margin by at least 1,800 basis points while the Annapolis Waterfront Hotel aided by a strong end to the summer, recorded a 55% EBITDA margin, the highest margin in our comparable portfolio last quarter. Primary source of savings at our hotel has been the significant reduction in total labor. Over the past 18 months, we've been able to run our properties on a lean staffing model with occupancies between 35% and 60% at many of our hotels. As demand started back in the spring, we began to expand our open positions across our portfolio. to rehire staff to support increasing occupancies.

Over the past few months, our on property and corporate level management and HR teams have been very focused on our recruiting efforts. And over that period, we have seen a 44% rise in applicants for new posting with total hires in September, up 12% versus August following the expiration of additional unemployment benefits. Over the last two years, we have absorbed 10% to 15% wage growth in each of our markets. But despite this increase, our total cost per occupied room remains approximately 15% below pre-pandemic levels, with total nonmanagement contracted labor 40% below the same time in 2019. We are encouraged by recent trends, but the hiring market, especially for hourly employees remains challenging. Fortunately, our cluster strategy and close relationship with our third-party management company allows us to run our properties with staffing levels capable of offering our guests a service expected at our hotels, all while continuing to drive GOP and EBITDA. As RevPAR and out-of-room revenues increasing in 2022 and beyond.

Our current operating model will yield much higher levels of absolute GOP dollars 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, provides us continued confidence in our ability to generate 150 to 250 basis points of sustainable long-term margin savings for the portfolio. For the second consecutive quarter, we saw substantial growth in food and beverage revenues at a few of our hotels. This was led by the Envoy in Boston, which generated $3.6 million in food and beverage revenues, 80% higher than the second quarter. The hotel's very popular Lookout Rooftop Bar was the primary driver of profit again this quarter, generating $2.4 million in revenues from beverage sales. Meanwhile, down in Key West, revenue generated from the food and beverage outlets at our Parrot Key Resort was 48% higher than the third quarter of 2019. We expect our recently renovated outlets at the Parrot Key will remain popular as we enter the peak season of travel to the Keys. So just a few closing remarks on our balance sheet and outlook for the fourth quarter. We ended the third quarter with $83.7 million in cash and cash equivalents and deposits. In September, we successfully refinanced the $23 million mortgage loan on the St. Gregory Hotel, eliminating all debt maturities until third quarter 2022. The interest-only loan was completed at prime plus one and matures in October of '23. As of September 30, 78% of our debt is fixed or swapped with our total debt weighted average interest rate of 4.41% and 2.9 years life-to-maturity.

During the quarter, we spent $2.6 million on capital projects, and we continue to limit our capital expenditures strictly to maintenance and life safety renovation. Year-to-date, we have spent $7.9 million on capital projects, and we anticipate our full year Capex load to be more than 50% 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 supply chain continues to tighten in conjunction with elevated construction costs, labor and oil prices. Month-to-date in October, we continue to see incremental growth across our portfolio, but especially in our urban markets, which are running close to 10% ahead of forecast. The largest outperformance from an occupancy perspective has been our Boston portfolio, which is currently running at a 77% occupancy month-to-date up approximately 1,800 basis points from September. Our Manhattan portfolio occupancy is approaching 70%, 1,200 basis points higher than September. While our Philadelphia and Washington, D.C. clusters are above 60% occupancy month to date.

From a revenue perspective, our Philadelphia and Manhattan hotels are surpassing initial forecast by 15% and 12%, respectively, while our Boston and D.C. portfolios are exceeding revenue forecast, by approximately 8% thus far in October. Our weekday improvement post Labor Day has shown that business travelers are hitting the road, and we expect this will continue to accelerate across the next several months as more companies reopen their offices, reinstate in-person meeting some staff that is widely dispersed across the globe, resume group attendance and encourage travel to reengage with customers in order to gain market share, which will provide a strong boost to our urban-centric portfolio. With our balance sheet rightsized to allow for accretive opportunities through the recovery and our on-property operations set to capture continued demand at our hotels. We look forward to continued robust leisure demand at our resort properties and an inflection point in the return of meaningful and sustained business travel to drive outperformance across our portfolio for the next several years. So this concludes my portion of the call, and we will be happy to address any questions that you may have at this time.

Questions and Answers:

Operator

[Operator Instructions] Our first question this morning comes from Dori Kesten from Wells Fargo. Please go with your question.

Dori Lynn Kesten -- Wells Fargo Securities, LLC -- Analyst

Thanks, good morning. You mentioned remaining opportunistic with respect to asset sales over the next few quarters. Which markets do you imagine and would present the best opportunities for the company.

Neil H. Shah -- President & Chief Operating Officer

This is Neil. Where we are engaged with some off-market interest as well as with a handful of advisors and brokers has been in some of our urban transient markets, actually. So as you know, we have a very large exposure to New York City, nearly 1/4 of our rooms in the portfolio, and it is a market that we feel is recovering pretty actively right now, but we're going to continue to monitor pricing in the marketplace. We think that there are -- it's clear that across the country, there are -- there is still a pretty significant disparity between private market values and where things are trading in the public markets. And so we've -- last year, we took one asset in each of our markets, hotels that were older, more mature, that required capital and sold those to create some liquidity. As we look forward, this year, it's going to be, as you said, more opportunistic. And we're thinking of markets that have perhaps a longer recovery cycle or that we have more exposure to. So New York fits in that bucket from an exposure level. And on the West Coast, Seattle is a market that we think has really strong longer-term fundamentals or even midterm fundamentals as evidenced by office leasing, lab construction, even just the multifamily and residential market in that place. But the hotel market is going to take a couple of years to kind of ramp back up from the new convention center and some of the new supply. And so that's a market that we're also looking at and seeing where pricing may come up. We are going to -- we mentioned as opportunistic. There's nothing that we feel is kind of noncore in our portfolio at this stage. But if we can get attractive pricing, we do feel that selling hotels is the lowest cost of liquidity, particularly for hotels that have a slower ramp-up.

Dori Lynn Kesten -- Wells Fargo Securities, LLC -- Analyst

Okay. And with respect to the Goldman facility, I guess, what's the timing and potential different ways you may refinance.

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

Yes. Sure. So Dori, on the Goldman facility, it's -- we have a non-call one. It was just a non-call one. So we are -- it's very flexible. At the end of February of '22. We could refinance that facility. We'll continue to look at the debt markets. But as you've seen, the preferred markets also remain very viable and would lower our cost of capital pretty significantly. So there's not much left from a non-call period, and we continue to look at the capital markets to really see the most accretive way to refinance that paper.

Dori Lynn Kesten -- Wells Fargo Securities, LLC -- Analyst

Okay. Just one last question. Historically, when you look at your corporate EBITDA in Q4 versus Q3, Q4 is typically less than 10% lower. With business transient demand improving international travel set to rebuild and leisure is still strong and good exposure to South Florida, can you give us a better sense of how you're looking at Q4 versus Q3, in this year?

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

Yes. Dori, as we mentioned, October is coming in ahead of our forecast. From a revenue perspective, it's probably trending close to, if not higher than July, maybe similar trends on the cash flow perspective as well. November and December traditionally are not as strong for most of the urban markets, business travel really starts to fall off. This is pre-COVID. So we do expect solid results in November and December compared to maybe what we saw 30 days ago. But it's still hard to forecast if they'll actually be better than, say, August and September. There's a lot of unknowns. But we would anticipate that Q4 is certainly much better than Q2. I'm not sure if it's quite as good as Q3 just yet.

Dori Lynn Kesten -- Wells Fargo Securities, LLC -- Analyst

Ok, thanks.

Operator

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

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

Thanks, good morning everyone. Neil, just back to the capital allocation topic for my first question. Can you help us understand what do you have left to do? And what do you have to see fundamentally before you start maybe going on the offensive in terms of looking at acquisitions?

Neil H. Shah -- President & Chief Operating Officer

On one hand, on the acquisitions front -- let me just -- I think broadly on the acquisitions market, we are not seeing -- we haven't seen anything that we are -- we feel like we've been missing at least these last three to six months. We continue to underwrite assets. And with many of our operators, we see a lot more opportunities. But we're just not seeing the uncertainty in the marketplace in markets around the country. It's just not feeling as compelling to us. And clearly, this is also influenced by just our cost of capital and where we are trading and where the value is in our portfolio. We think we're still trading well over 30% below our pre-pandemic values relative to replacement cost or even just private market values, it's at least a 30% kind of discount. And so until we see that discount dissipate and our cost of capital improve meaningfully, it's hard for us to imagine going on offense just yet. Now this can all turn on a dime, both our cost of capital and the opportunity set. I think across the last year or two, we've seen transactions occur, but we haven't seen the volume of deals that you would generally see in an early recovery. I think that's what we're going to start seeing next year and into '23 and even into '24, frankly, I think we have not seen any kind of capitulation bid.

There aren't folks selling unless there is a really kind of low-quality assets, land leases really over-levered, significant Capex required. That's the only place you're seeing major discounts. And those kinds of assets don't fit our profile and our cost of capital right now. I think the more cash flowing assets, pricing on those just seems too high, frankly, for our cost of capital or even for most companies and for how we think of transactions. So I think we're going to have time across the next couple of years to take part in this cycle. But in the meantime, we are also very confident and have a lot of conviction in the organic growth that our portfolio will create. As you remember, going into the pandemic, we were a highly unstabilized portfolio. We had taken our largest 5, six assets and gone through major capital redevelopment programs in 2018 and '19. So we have a lot of embedded growth in the portfolio that makes us less focused on external growth at this point in the cycle. That's long winded, Michael, but I hope that addresses the question.

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

No, it does. Thank you. And then just switching gears maybe on what you're seeing on the booking front, I think you talked about South Florida for the holiday periods and New York City on the weekends being strong. But what are you seeing weak days in your urban market? Are you seeing any improvement there yet in terms of forward bookings?

Neil H. Shah -- President & Chief Operating Officer

Forward bookings are still tough for the portfolio on days. It is improving going into November, December. Our -- we feel like our forecast maybe slightly conservative as we look into November and December weekdays. But really where we're seeing forward bookings has been in New York and the urban markets is on the weekends. And there, it's very robust. We're already reaching kind of 80% in the weekends in New York. But as we look into November and December, we think that we'll be able to push above 90%. In Boston, we've been at -- we've sold out several weekends already, and we're maintaining really high occupancies. But it's still -- for midweek, we're still feeling -- for the next couple of months, we still don't have a lot of visibility.

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

That's helpful, thank you.

Operator

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

David Brian Katz -- Jefferies LLC -- Analyst

Hi good morning everyone, thanks for taking my question. I know that there has been some commentary and discussion about the cost of labor and the availability of labor. But I hope you'll agree that it seems like a topic we can't discuss enough at this point. What kind of endurance do you see? And what kind of visibility do you have in terms of how long the weight on labor cost continues to press? Or do you expect that it may alleviate some as we get out maybe a year or so from now?

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

David, as we speak to our operators, we -- as I mentioned in my remarks, when we look across our markets from housekeeping to guest service. From the third quarter of '19 to now, most of our -- in most of our markets. The wage growth from third quarter '19 to now is anywhere from 10% to 15%. And there's a few markets that are even above that. So we are at a very -- we were at a high base in '19 already because most of our markets, we couldn't pay minimum wage. We were far above the federal minimum wage. And in most cases, in almost all cases, above even the local municipal minimum wages. So the rate of growth has increased even since then. We think two things happened. We do think that the availability of labor increases, September six, the unemployment benefits will out. But there wasn't a hockey stick type of inflection where you had weaves of people coming back to the market. It's trickling in, and it's definitely improved. But it's going to continue to come back into '22 as people feel better about the health situation. Some of the savings that they've accumulated over the last few years from benefits also wears off. So all of these things are going to take some time. So the availability of labor increases and the rate of growth of wages should slow down. It's not really something that we wouldn't think that wage costs go down in any market. It's just that the rate of growth, it should moderate as you get into '22 and '23.

David Brian Katz -- Jefferies LLC -- Analyst

Right. And just to follow that up, the availability of labor in terms of prospective workers arriving internationally, that presumably has been shut off. Is that a factor that can alleviate some of this as we move forward?

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

Yes, absolutely. It's a good point. I mean the entire J-1 Visa program effectively turned off for the last year. So that should help and just more people coming back into the workforce should help as well.

Neil H. Shah -- President & Chief Operating Officer

David, just from June to September -- just from June to September, our open positions decreased by 1/3 by 33%. And that's before some of these other factors and dynamics Ash was referring to, that should improve the availability of labor, helping to moderate some of the inflation we're seeing in wages.

David Brian Katz -- Jefferies LLC -- Analyst

Understood, perfect thank you.

Operator

Our next question comes from Bryan Maher from B. Riley Securities. Please go ahead with your question.

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

Right. Good morning, thank you. Kind of a big picture question, maybe for Neil. Traditionally, it's been the business traveler who's been pretty price insensitive and the vacation traveler was more price conscious. And it seems like we've had like an inverse of that over the past, particularly six to nine months. Do you expect that to start to shift again, over the next two to three quarters back to the historical way as people kind of burn through those savings and burn through their desire to go on vacations that were so pent up? Are you expecting that reversal of trend?

Neil H. Shah -- President & Chief Operating Officer

Bryan, in 2022 and 2023 I'm not really expecting a reversal of that trend. I think the end of the day, we're all pretty -- like we look at a lot of data, we do a lot of research but at the end of the day, we're pretty customer-centric. And when we look at like the consumer and the leisure customer, they are clearly wealthier than they've been. It's not just the stimulus, but it's just everyone's 401K, everyone's stock market, their homes. Everything has gone up in value so significantly. And so there's clearly like there is that pent-up demand or I've heard it referred to as the YOLO effect, you only live once. And so that's leading to some of this. But I think a lot of it really is just wealthier, wealthier people, choosing to travel. Because it is the accessible kind of luxury and experience that people are after. So I do expect the leisure customer to continue to be strong for the next couple of years.

Usually, during these kind of major cyclical shifts, you have such high levels of unemployment, you have such financial concerns and distress among the consumer population. We just do not have at this time. And on the business side, you could really say the same about the businesses. The corporate balance sheets are stronger than they ever have been. There is more expected growth in many of the key drivers of lodging demand than there ever has been or at least has been in other early cycle periods. So we do think that the business transient customer will -- it's probably going to take a little bit longer. It will take most of '22 to kind of really get back into a sense of normalcy. But then we do expect to have price elasticity among business guests later in this cycle. So we do think that this is a very unique cycle in that ADR has not suffered.

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

And when we think about the portfolio, again, big picture, we heard your comments on the asset sales and kind of being -- looking out there and what's the market that you can sell, what's the market where you can buy opportunities. But when you think of Hersha, let's say, three to five years from now, is this a portfolio that's bigger than it is now and maybe to what degree? And do you anticipate moving more upscale or having kind of the same mix that you do now? And I think you might have said in the past couple of quarters that you were considering adding another cluster. Is that still the case?

Neil H. Shah -- President & Chief Operating Officer

Yes, Bryan, across three to five years, we would expect the portfolio to be larger. Likely would include another cluster or two. We were from 2000 to 2010, we were exclusively focused on Boston, New York, Philadelphia and Washington and the major metro suburban markets around it. And then between 2010 and 2020, we sold out of the -- I'd say, 2010 and 2015, we sold out of the suburban assets and reduced our exposure to some of the northeastern cities, namely New York, while expanding our presence in two new clusters, the West Coast, and South Florida. The last few years before the pandemic, we kind of doubled down on some of these resort markets by investing a lot more capital in them than we had in the past. So we're very -- we are strategic and careful in adding a new cluster in a new market because we do feel like when we add something into an existing cluster market, we have a clear advantage on the top line and the bottom line and in deal flow. So when we added new cluster, we are very focused on fundamentals and our ability to grow in that market.

We're just not at a point, I think there's just too much uncertainty in the environment today to make that move right now, as we've discussed and with our cost of capital. But across the next three to five years, we absolutely would expect to grow markets. I think over the course of the next three to five years, we'll see kind of which segments provide the best kind of risk-adjusted returns and opportunity. But we have tended toward across the last five to seven years, toward more of an independent differentiated lifestyle-oriented portfolio, and then we balance it with some of our lower volatility urban select service assets. So we're not ready to say that we are going in one particular direction on the segment side. But hotels that have fewer rooms or newly built, reflect consumers' taste and preferences and can drive higher EBITDA per key than most other hotels is going to continue to be a focus of ours.

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

Ok, thank you.

Operator

Our next question comes from Dany Asad from Bank of America. Please go ahead with your question.

Dany Asad -- BofA Securities -- Analyst

Hi good morning guys. Just a quick one for me. Do you have any early reads on international inbound travel and how those bookings are shaping up in November, December for your portfolio?

Neil H. Shah -- President & Chief Operating Officer

Yes, Dany, we can't -- we don't have a lot of specific data just yet. We're getting bookings now, but it's not a noticeable percentage of revenue or anything like that, where it's still inquiries. We're getting some of our group kind of oriented international travel like those discussions have begun again with our sales teams and sales forces. But we are relying a lot more on the data we're seeing from international, from airline bookings and from inbound interest right now to develop our view. As in a stable -- over time, we found that New York and Miami can be 10% to 20% of the total kind of business and our hotels can be driven from international. We do think that, that will occur again, but it will likely take a couple of years to get there. We think there's going to be a big bump in the fourth quarter and early part of next year. But it will likely take a couple of years for it to be a meaningful part of our segmentation. But so right now, Dany, it's just inbound calls and early bookings are coming from -- Canada is leading the pack by far. But Canada, Mexico, the U.K., we've mentioned Brazil. Latin America, we have had Latin American travel in Miami and South Florida during the pandemic, but we're expecting that to really increase very significantly. We're seeing Brazilian travel and interest in New York as well. And those kinds of -- these countries are also a little less price sensitive than the Asian travelers, which are likely going to be a little bit closer to the end of '22. We look forward to the Asian traveler coming back and compressing New York and some of these other markets, but we think we'll get the higher rated traveler to begin and then move from there.

Dany Asad -- BofA Securities -- Analyst

Great, thank you very much.

Operator

Our next question comes from Anthony Powell from Barclays. Please go ahead with your question.

Anthony Franklin Powell -- Barclays Bank PLC -- Analyst

Hi good morning, Just a question on leisure demand. So I mean you talked about leisure pricing and volume being very strong. What's the leisure revenue mix in your portfolio now relative to 2019? And looking to the future, do you think you and the industry can get back to 2019 RevPAR with a structurally higher leisure revenue mix contribution.

Neil H. Shah -- President & Chief Operating Officer

I'd say pre-pandemic, we were about 50-50 really because a lot of our urban gateway markets were still driving a lot of leisure demand, both international and domestic leisure demand. Today, we are likely 75% leisure...

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

Yes. In the third quarter.

Neil H. Shah -- President & Chief Operating Officer

In the third quarter for sure. Quarter-to-quarter will differentiate fairly significantly, Anthony, just with the mix. But third quarter, we were probably 75%. By next second quarter, will we be back to 50-50? Probably not. But we're beginning closer we expect. We do expect this urban recovery. I mean it's on, and it's a big part of our portfolio. And we have three, four months ahead. I think it's that end of first quarter. I think Anthony, we were just talking about that last that February, March is when business travel traditionally really gets going. This time, maybe it's a little bit earlier because people are just getting back to their offices and will feel some pent-up business travel demand earlier. But we think it's across '22, it will increase, I think, by the -- heading into '23, we do think it will be probably very similar to '19 levels for our portfolio. we're probably a little more resort and leisure though because of the expansions of our South Florida portfolio since prepandemic and some of the asset sales. Yes. We're more urban centric. That's right. So there is a good chance that we'd probably go above 50-50 starting in a year or so, more leisure than business.

Anthony Franklin Powell -- Barclays Bank PLC -- Analyst

Got it. I guess even urban hotels, let's say, New York or Boston, where you're seeing this kind of a strong weekend demand. Do you see a scenario where you could be at a structurally higher leisure demand and still get back to your '19 cash flow levels because, in effect, you substituted whatever potential corporate loss is with this higher pricing and more volume on days like Sundays, where you have more leisure customers theoretically staying in the properties?

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

Yes. Anthony, it's a good point. I mean we can see that scenario. And I think that when you look back at pre-COVID, you really started to see a lot of travelers checking out on Thursday, like Thursday night at the airports were busier than Friday nights in all cases. Like a lot of the business travelers were already working from home on Friday or going back doing something remotely. Those -- what we've seen right now is Fridays and Saturdays are the best night of the week, but Thursdays are right behind that. And that's just really the business traveler kind of extending their weekend day. So they may stay Thursday night, and then stay over on the weekend. So we could see that scenario where it's -- instead of a two-day weekend, it's kind of a three-day with the customer working from the hotel one of the days. So that is a good point.

Anthony Franklin Powell -- Barclays Bank PLC -- Analyst

Alright, thank you.

Operator

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

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

Thanks. Maybe just following up on wage growth. How are you thinking about that for 2022? What are some of your expectations there? And then there was no change to the long-term margin outlook or expectations. But was there any change in your underlying assumptions where you're maybe assuming more wage growth but also higher ADR.

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

Aryeh, we are going through the budget process and things to that effect right now. We do anticipate wage growth at the hotels in 2002 when we're doing the budgets. We continue to anticipate that even hotels that are at peak occupancy will not have anywhere close to 100% of the FTE counts that we had pre-COVID. So that's really the offset. And at this time, it's -- I wouldn't say that it's us increasing our ADR expectations as much as it is, we do think that wage growth will moderate, but we have figured out how to run these assets with less FTEs in a very efficient manner.

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

Got it. And then just on the seasonality, it sounds like October is kind of at July levels, but it also sounds like maybe November, December wouldn't necessarily get to August and September level. which is maybe a little bit surprising since that was somewhat impacted by delta variant concerns, and now you have business travel returning and international travel returning. So could you just talk about that dynamic? And how that plays into your November-December expectations?

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

Yes. I mean it's really -- when you think about August, it's almost exclusively leisure-oriented. September, you have a mix of business and leisure. This time, we didn't have a great business environment. But November and December, you traditionally see it's -- until the holiday season, you don't see as much leisure, especially during the weekdays, you don't see as much leisure. So the weekend will remain as strong, it's really weekday leisure that may fall off. Business should pick that up. But to the extent that it replaces it, it's uncertain right now.

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

Ok, thanks for the color.

Operator

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

Jonathan David Jenkins -- Janney Montgomery Scott LLC -- Analyst

Alright, good morning. This is Jonathan on for Tyler. Just one quick one for me and then I'll let everyone get out of here. Neil, you highlighted some of the strength you're seeing in the urban markets in the prepared remarks. And I'm curious how that compares to your expectations given last time when we spoke, it seemed the prospect of a post Labor Day recovery was fairly high. So any additional color you can provide there on those markets.

Neil H. Shah -- President & Chief Operating Officer

Yes, Tyler, I think if we go back to late July, our expectations for the fall were higher, absolutely. As we got into September, we were -- as we got into the back half of September is when we started to feel the momentum in the portfolio, like around September 18, 20 right after the Jewish holidays. We kind of reforecasted October at that point. And we have been able to beat that performance so far in October, primarily because of our urban assets. not because of the resort. The resort is actually slightly underperformed our October forecast, while the urban markets were up, both on ADR and occupancy. As we -- and so for November, December, as we've been sharing, it's still -- that is seasonally a more leisure-oriented kind of customer. There's a little less business travel. So as we look forward to November, December, we're still unsure.

We see the momentum we've seen every week in all of the urban markets, including New York, increased RevPAR the last four or five weeks. We're expecting that to at least remain kind of stable and moderate maybe across the rest of the year before it picks back up in January. But we'll have to see week by week. On the resort side, on the other hand, there we have actual pace that we can kind of monitor going into the fourth quarter because for our 10 resort assets, where our -- at least relative to 2019 pace, we can see a double-digit kind of growth and nearly over 30% growth on the ADR side. So on the resort side, we can see the pace, and we feel very good about our projections there. On the urban side, we're going to have to still continue to wait and see week by week.

Jonathan David Jenkins -- Janney Montgomery Scott LLC -- Analyst

Ok great, thanks for all the color, thats all for me.

Operator

And ladies and gentlemen, that will be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Neil H. Shah -- President & Chief Operating Officer

No, I think that will do it. Thank you, everyone, for your time, and we're all in the office awaiting any follow-ups. Thank you.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Greg Costa -- Manager, Investor Relations & Finance

Neil H. Shah -- President & Chief Operating Officer

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

Dori Lynn Kesten -- Wells Fargo Securities, LLC -- Analyst

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

David Brian Katz -- Jefferies LLC -- Analyst

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

Dany Asad -- BofA Securities -- Analyst

Anthony Franklin Powell -- Barclays Bank PLC -- Analyst

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

Jonathan David Jenkins -- Janney Montgomery Scott LLC -- Analyst

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