Xenia Hotels and Resorts (XHR) Q3 2021 Earnings Call Transcript

Xenia Hotels and Resorts (XHR -2.68%)
Q3 2021 Earnings Call
Nov 02, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Xenia Hotels & Resorts third quarter earnings conference call. My name is Juan, and I will be coordinating your call today. [Operator instructions] I will now hand over to your host, Danielle Burgoon, vice president of finance, to begin. Danielle, please go ahead.

Danielle Burgoon -- Vice President of Finance

Thank you, operator. Good afternoon, and welcome to Xenia Hotels & Resorts third 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 on industry fundamentals, our quarterly performance and an update on our portfolio strategy.

Barry will follow with more details about our operating results, recent operating trends and status of our capital expenditure projects. And Atish will conclude our remarks with an update on our balance sheet. We will then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements.

These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued this morning, along with the comments on this call, are made only as of today, November 2, 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 our non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release. The property level information our executive team will be speaking about today is reported on a same-property basis for 34 hotels, which excludes the Hyatt Regency Portland.

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. The U.S. lodging industry continues on its path to a recovery in the third quarter as increased COVID vaccinations and continued strong leisure demand drove the highest occupancy the industry has experienced since the beginning of the pandemic. Xenia's RevPAR for the third quarter of 2021 decreased by only 4.8% compared to 2019, comprised of an approximate six-point decrease in occupancy and a 3.8% increase in ADR.

The luxury and ultra upscale segments have lagged lower-tier chain scales in terms of the recovery to 2019 occupancy levels and experienced occupancy declines of 19.8 points and 20 points, respectively, compared to the third quarter of 2019. However, luxury ADR increased 15.9% and upper upscale ADR increased 0.4%. The rate increases in the luxury segment have been impressive, and the positive signs we are starting to see as it relates to business trends and then group demand certainly give us cause for optimism for a robust recovery in the segments where our portfolio is positioned. Similar to the rest of the lodging industry, our portfolio faced on headwinds as the third quarter progressed due to the resurgence of COVID cases from the Delta variant, a seasonal decline in leisure demand and a tougher comparison to 2019 in September due to the timing of the Jewish holidays.

Given this backdrop, we were pleased with the 12% sequential improvement in our same-property RevPAR over the second quarter, especially since the third quarter has historically been our portfolio softness due to seasonality within our top markets. We were also happy to see that RevPAR declines compared to the same quarter in 2019 continues to moderate and that despite the cancellations that were likely linked to the emergence of the Delta variant, business strength and group demand appeared to increase as the quarter progressed. This trend has continued into the early part of the fourth quarter, with weekday demand continuing to strengthen. During the third quarter, we recorded a net loss of $22.2 million.

However, adjusted EBITDAre and adjusted FFO per share each remains positive at $35.4 million and $0.13, respectively. Our year-to-date adjusted FFO also turned positive as a result of our third quarter performance. We were particularly encouraged that 33 of our hotels and resorts achieved positive hotel EBITDA during the quarter. Our same-property portfolio generated a hotel EBITDA margin of 23.8% for the quarter as a result of the continued focus on cost controls and aided by flow-through from cancellation fees recognized during the quarter, as well as a shift in revenue mix at our properties, which reflects the higher contribution from rooms revenue than historical averages.

Our same-property RevPAR for the third quarter was $123.70, which represents a 23.1% decline for the third quarter of 2019, a substantial improvement from the 64.3% and 38.7% declines in the first and second quarter. Our managers did an excellent job maintaining rate integrity, which resulted in same-property ADR of $224.4 for the quarter, a 6.5% increase compared to the third quarter of 2019. An impressive 24 of our hotels and resorts have seen ADRs that surpassed those reached during the same quarter in 2019. While the quarter started off strong, demand levels began to moderate somewhat in mid-August through mid-September.

By the second half of August, the Delta variant was driving an increase in COVID cases, particularly in the Sunbelt region, where a significant number of our hotels and resorts are located. However, despite group cancellations impacting our portfolio, occupancy for the third quarter finished at 55.1%, a high watermark since the beginning of the pandemic. September ADR was the highest we have achieved this year, continuing the trend of every month in the quarter surpassing the average rates for the same months in 2019. Business transient demand levels began to accelerate mid-month as evidenced in our improving weekday occupancies, and these continued to improve during the month of October.

Based on preliminary data, our estimated occupancy for October was approximately 58%, and the ADR was approximately $245. The resulting RevPAR of approximately $143 substantially exceeds our July RevPAR, further highlighting the continued strength in leisure demand and improving business demand, both on the transient and group side. While October has provided a promising start to the fourth quarter, we believe our portfolio of recovery will truly accelerate as business transient and corporate group demand approach normalized levels. While we have seen improvement in these segments, we believe this will be a gradual process, particularly as we enter the seasonally weaker months that lie ahead.

The recent resurgence of COVID appears to be behind us at the moment, but we remain cautious about potential future resurgence during the winter, particularly in polar climate states. However, leisure demand has remained strong and has consistently exceeded our expectations over the past several months, we expect this strength to continue as we enter the holiday season. We believe our strategy of owning a geographically diverse portfolio of high-quality luxury and upper upscale hotels and resorts continues to show its value. The sequential improvement in our portfolio's performance quarter over quarter is reflective of the benefits of our long-standing focus on investing in Sunbelt and drive-to leisure locations and the desirability of our hotels and resorts to various demand segments.

Our higher concentration of luxury assets, with this segment comprising 30% of our portfolio, has also proven to be helpful as RevPAR these properties increased by approximately 30% over the second quarter. Our portfolio is able to maintain healthy margins this quarter and generate positive adjusted FFO each month as we have been able to do since March of this year. The management teams at our hotels were able to flex operations to align with fluctuating demand levels. This quick and nimble response was the result of the lessons learned over the last 18 months as our managers have rebuilt operations from the ground up.

And it is a testament to the success of our strategy of partnering with the best-in-class brands and managers. We continue to believe there are meaningful embedded growth opportunities within our portfolio. While we primarily measure the pace of our portfolio recovery in comparison to 2019 performance, hotel EBITDA at approximately half of our properties peaked prior to this time. As a result, we anticipate incrementally greater growth opportunities in the years ahead for a number of our properties in our top 10 EBITDA producing markets, such as Houston and Orlando, as well as in some of our smaller markets.

Additionally, we continue to be optimistic about three of our previously highlighted properties that could create significant incremental hotel EBITDA over 2019, Park Hyatt Aviara, Hyatt Regency Grand Cypress and Hyatt Regency Portland. While occupancy as Park Hyatt Aviara continues to build and will not stabilize until group business has returned in a more meaningful way, the resort achieved some remarkable results of several metrics during the third quarter. ADR at $558.30 for the quarter was nearly double what it was in the same period in 2019, driving an almost 30% increase in RevPAR. Additionally, the resort's hotel EBITDA margin was more than 800 basis points higher than the third quarter of 2019.

These results give us great confidence that the expectations we had when we acquired and renovated the resort will be met or exceeded in the years ahead. At Hyatt Regency Grand Cypress, we continue to be optimistic about the long-term benefits of the additional ballroom we created at this resort. While group business overall is recovering gradually, 2022 group booking trend for this property remains promising. At the end of the third quarter, the Hyatt Regency Grand Cypress ranked No.

1 in our portfolio as it relates to room nights and revenue on the books for 2022, and it is not far behind its group base for 2019 at the same time in 2018. We remain confident that the additional ballroom will drive the incremental revenue we projected as group business continues its recovery in the quarters and years ahead. Hyatt Regency Portland lagged the rest of our portfolio as the business environment in Portland and the state of Oregon remains challenged. With this hotel only having been opened for a limited period in early 2020, we are truly building the business as opposed to looking to recover to prior levels.

With this hotel intended to be group focused, we are dependent on group business in the state and region recovering before we will approach stabilization. In the meantime, we are pleased that the management team has been successful in attracting leisure and business transient demand at levels that continued to support our decision to reopen the hotel at the end of May. We are also encouraged that the hotel has over 50,000 group room nights on the books for 2022, which represents the second highest number of group room nights in our portfolio. While there obviously continues to be some uncertainty about these groups actualizing, this group pace does demonstrate the appeal that the property has to groups and meeting planners alike.

I will now turn briefly to the transaction landscape. We have not seen a significant shift over the past few months as it relates to the quantity and quality of acquisition opportunities in the market. I spoke last quarter about our ability and willingness to remain patient as it relates to potential acquisitions and that we believe that more and better opportunities are unlikely to surface as the recovery progresses. We continue to evaluate a pipeline of potential transactions, but will remain disciplined as we analyze and pursue potential additions to the portfolio that could enhance our growth prospects.

Meanwhile, we remain focused on internal growth opportunities through asset management optimization and various ROI projects within our existing hotels and resorts, which in many cases, are still relatively recent additions to our portfolio. Barry will now provide additional details on our third quarter performance, recent operating trends and the status of our current capital projects.

Barry Bloom -- President and Chief Operating Officer

Thank you, Marcel, and good afternoon, everyone. For the quarter, our portfolio occupancy was 55.1% at an average daily rate of $224.54, resulting in RevPAR of $123.70. As a reminder, RevPAR in the third quarter of 2020 was $42.09. And in the third quarter of 2019, it was $160.79.

The sequential improvement quarter over quarter, given the headwinds faced for the last few months, gives us optimism about the trajectory of our portfolio's recovery. July was a particularly strong month with occupancy reaching 59.1%, a new high for 2021, and an ADR of $224.23, which represented a 9.3% increase to 2019. The month benefited from the fourth of July holiday and five weekends, which averaged 72.4% for the month, allowing our hotels to capture additional leisure demand. We had seven hotels that achieved occupancies over 80% during July, primarily hotels in our leisure focus and drive-to markets such as Charleston, South Carolina, Savannah, Birmingham, Key West, Santa Barbara and Napa, all of which continue to show substantial strength.

We also had 12 hotels that exceeded their July 2019 ADR by over 20%. In August, we began to see some moderation in occupancies during the month due to the seasonal decline at the beginning of the new school year and the spread of the Delta variant across the Sunbelt region. As a result, August occupancy dropped seven points from July to 52.1% and an ADR of $218.12. On August 29, Hurricane Ida made landfall in the world in Louisiana as a category four storm.

Our Loews New Orleans hotel incurred property damage from the storm we believe will exceed our maximum deductible for this loss of approximately $4 million. In addition to our property damage insurance claim, we are currently evaluating our ability to recover proceeds for lost profits and direct policies which we would expect to settle in 2022. Moving to September. While we saw a boost in leisure transient demand over Labor Day weekend with slightly below occupancies reached over the Memorial Day weekend.

Heading into the quarter, we had anticipated a pickup in business transient and corporate demand following the holiday. While we experienced an increase in weekday occupancy mid-month, it was somewhat muted due to the resurgence of COVID cases and a further pushback in return to office time line for many large employers. The month also had a tougher comparison to 2019 due to the timing of the Jewish holidays. September occupancy improved by 2 percentage points over August to 54.1%, and ADR rebounded as well, increasing 6% from August to $231.26.

Group cancellations in the quarter, which Marcel mentioned, amounted to approximately $5.4 million of rooms revenue, which have been on the books for the third quarter of 2021, and an additional $7.8 million for the fourth quarter of 2021. We recognized $3.5 million in cancellation and attrition fees during the third quarter. I will discuss 2022 group pace in more detail shortly. We saw strong growth across many of the markets in our portfolio in terms of average daily rates.

Compared to the third quarter of 2019, we experienced ADR growth in several of our top 10 EBITDA contributing markets, including San Diego, up 64.2%; Phoenix, up 39.9%; Atlanta, up 13.8%; Orlando, up 10.7%; and Houston, up 8.3%. During the third quarter, we had an impressive 24 individual hotels and resorts that surpassed ADRs achieved in 2019, including all-time record highs at Andaz Napa and Park Hyatt Aviara Resort and Spa. In terms of profit, 33 of our 35 hotels achieved positive hotel EBITDA for the quarter, with 13 properties exceeding results compared to the third quarter of 2019. Nine hotels achieved EBITDA margins greater than 30% for the quarter and 22 hotels generated EBITDA margins greater than 2019, aided by lower-than-expected labor costs and real estate taxes and cancellation and attrition income.

Departmental expenses declined 31.3% in the third quarter compared to 2019, which handily exceeded the 25.6% decline in revenues, while undistributed expenses, often considered to be largely fixed in nature, declined by 19.7%, led by significant declines in administrative and general and sales and marketing expenses. Total payroll and employee benefits expenses declined by 32.4%. In terms of labor, our hotels still have many positions open due to the shortage of applicants in the market. However, our operators made significant headway this quarter in filling key property level management and line operating positions.

I want to spend the next few minutes sharing recent operating trends we have witnessed over the past quarter. Weekday occupancies in the third quarter continued to trend upward and exceeded those achieved during the second quarter by approximately 4.7 occupancy points. The most significant gains were achieved on Tuesday nights, indicative of the increase in corporate transient demand. We continued to experience additional gains in weekday occupancy in October.

In terms of corporate transient booking trends, we have yet to see a meaningful increase in volume from Fortune 500 companies. However, there continues to be stronger growth from smaller national corporate accounts, as well as local corporate accounts whose volume is improving each month. Corporate transient business from large volume accounts grew approximately 16% from Q2 to Q3. On our last earnings call, we shared that leisure booking windows had lengthened over the summer months.

We are now seeing a similar trend shaping up to the last few months of the year aided by the upcoming holiday season. The strengthening of the booking window has continued to allow our hotels to drive even further rate increases like we saw over the tail end of summer. Based on the Friday and Saturday occupancies our portfolio experienced in October, including achieving two of our five highest occupancy nights this year, it appears that leisure demand remains healthy and stronger than we had anticipated heading into the fall. As a reminder, approximately 30% of historical rooms revenue was driven by group business, which encompasses corporate, association and social groups.

In the third quarter, group represented approximately 20% of rooms revenue. Group pace for the remainder of 2021 was negatively impacted by the significant number of cancellations from the resurgence of COVID cases in August. At the end of September, group revenue pace for 2022 was down approximately 31% compared with our position at the end of September 2018 for 2019, with rate up approximately 3%. Group revenue on the books for 2022 continues to increase steadily and was up 27% at the end of September in comparison to where we stood at the end of June, with most of the increase falling into the second and third quarters of 2022.

I will end my remarks today with a few updates on capital projects and progress for the year. In the third quarter, we spent $7.3 million. We continue to estimate spending approximately $40 million on capital expenditures for the full year. The restaurant lobby renovation at the Ritz-Carlton, Pentagon City was completed in October.

This restaurant has been well received, and we are pleased with how the look and feel of the restaurant and lobby integrates with the meeting space we renovated last year. We believe these improvements will position the hotel for continued success. The development of the Regency Court, a new outdoor social venue at our Hyatt Regency Scottsdale Resort & Spa, was delayed primarily due to weather-related issues. It is expected to be completed in mid-November.

This significant increase in the hotel outdoor meeting space is already generating considerable interest for incremental social and corporate events. The restaurant, lobby and guest room renovations of Waldorf Astoria Atlanta Buckhead are nearly underway and are expected to be completed in the first quarter of 2022. We believe this comprehensive renovation will secure the property's position as a preeminent luxury hotel in the Buckhead market. Last quarter, we announced the plans for comprehensive renovations of Grand Bohemian Hotel Orlando and the Kimpton Canary Hotel Santa Barbara, both of which will encompass renovations of each hotel's guest rooms, restaurant and bar, lobby, rooftop pool area and meeting space.

We are pleased with the early design efforts for these projects, which will create a lighter and more contemporary look and feel for each property. Work on these two projects is expected to begin in the first quarter of 2022, with estimated completion dates in the first quarter of 2023. These projects are being completed in phases to minimize guest experience disruption and financial impact. With that, I will turn the call over to Atish.

Atish Shah -- Executive Vice President and Chief Financial Officer

Thank you, Barry. I will provide an update on our balance sheet. Our balance sheet continues to be strong with no debt maturities until 2024, over $1 billion in liquidity and strong banking relationships, we are in a good position to take advantage of opportunities. We continue to believe that our business will be cash flow or FFO positive going forward.

And as we look ahead, we expect our properties will continue to pivot to capture what demand is present with a focus on controlling expenses. As we look further out, we believe our assets are well-positioned as the rate of new supply growth declined. Properties in markets such as Houston, Orlando and Atlanta are expected to see lower levels of new competitive supply growth. Our portfolio consists of well-located higher-end properties that we expect to continue to recover well particularly as corporate transient group demand recovers.

And with that, we will turn the call back over to Juan for our Q&A session.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from David Katz from Jefferies. Please, David, your line is now open.

David Katz -- Jefferies -- Analyst

Hi, everyone. Good afternoon. Thanks for taking my question and for all the information. Earlier on, Marcel, you indicated that there is a pipeline of opportunities out there.

And to the degree you can, I'd love to just have you elaborate on that a little bit. The focus on the Sunbelt area has been pretty productive so far and fortuitous. Any geographic or size or cap rates perspective would be helpful on what might work in this environment.

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah, good afternoon, David. Like I said, our situation as it relates to our pipeline today is probably not too different from where we saw it last quarter, as I mentioned in my remarks as well. So we're -- we're looking at a number of opportunities, and we've certainly underwritten a good number of opportunities here in the last quarter or so. But I really feel like the pipeline is still relatively limited compared to where we think it will be in the quarters and years ahead.

So I mentioned last quarter that we felt that expectations that sellers had on some of these assets were still a little bit beyond where we were comfortable stretching to get deals done and didn't really feel the need to go that far, particularly given the internal opportunities that we still have in our portfolio with some of the assets that we bought coming into this. So I'm not sure that I can give you a little bit more color than that, except for to say that what we continue to underwrite the assets, but haven't really found the type of deal and asset that we think is a great strategic fit for us at a price that we're comfortable transacting. And yeah, to your point as far as it relates to kind of our focus. No, we continue to look at what has worked well for us, obviously.

We have a pretty significant Sunbelt presence. There are markets where we aren't in yet that we'd like to get in over time, but the time has to be right and the asset has to be right to get into those markets. And there are certain markets still where we have some presence where we wouldn't mind either upgrading our presence over time or increasing our footprint a little bit. So largely, we're going to clearly stick with the strategy that you've seen from us over the past few years as it relates to any new opportunities that we will pursue.

David Katz -- Jefferies -- Analyst

Right. And if I can -- appreciate that, and if I could follow that up. Are there areas somewhere on the board? And I guess I can't imagine you might name them in this forum, but areas where you would consider lightening up where you may be a little heavier?

Marcel Verbaas -- Chairman and Chief Executive Officer

Not particularly. We -- as you know, we've always been pretty careful about not getting overexposed in any particular market, which is really kind of sets apart a little bit from where our peers were certainly over the last few years, where some of our peers went pretty heavily into certain markets. We've -- our philosophy has always been to be a little bit more diverse in the markets that we play in. Historically, it's kind of at the top level where we're comfortable being in the market was somewhere in the 10% type range.

We're a little bit higher in a couple of markets just because of some dispositions that we've done over the past few years, but we think that it will balance out again over time. So there's no particular market where we say at this point, this is where we'd like to lighten load or anything like that. We're pretty comfortable with where the portfolio stands right now. As you know, and we've talked about this a lot.

We'll always continue to look for opportunities to strengthen the portfolio and upgrade the portfolio over time. So particularly, when we have some bigger capex decisions coming up on some assets, we'll do that very in-depth wholesale now just to see if it makes sense to potentially sell an asset or two. But we fine tune the portfolio a lot. So we're happy with where we stand.

And certainly, you could expect us to -- on the margin, sell some assets over time. But we'd like to focus to be a little bit more on the acquisition side here in the short and medium term.

David Katz -- Jefferies -- Analyst

That's perfect. And if I may ask one additional question, which is about labor and the cost thereof, I think there's little disagreement that it is an issue. I think where there's more debate is how long it lasts, and I would welcome your opinion on that as well.

Barry Bloom -- President and Chief Operating Officer

Hey, David, it's Barry. I think it's really important to gauge how long it lasts. Certainly, we continue to encourage our managers, and they have put in place their own programs to really make sure that: a, they're hiring quality labor; b, they're hiring the right amount of it so that they're not ahead of where business levels are; and c, I think, really try to ensure that they're paying a market competitive wage. I think knowing if, when or how that changes course I think is really hard to determine because we're still in -- a, still in the thick of it, and b, certainly looking forward to generating higher occupancies, which will require in the near midterm more employees.

David Katz -- Jefferies -- Analyst

Understood. Thank you very much.

Operator

Thank you so much. Our next question comes from Bill Crow from Raymond James Financial. Please, Bill, go ahead.

Bill Crow -- Raymond James -- Analyst

Yes. Thanks. Good afternoon, guys. Is it fair -- I was trying to read through your comments earlier, Marcel, about kind of the upcoming calendar.

And if you think about historical leisure trends and where we are in business transient. Is it fair to consider kind of January, February are going to be pretty weak as we stand today? Is that kind of the way you're thinking about them as we roll through the next few quarters?

Marcel Verbaas -- Chairman and Chief Executive Officer

I wouldn't necessarily say that, Bill, because in our portfolio, we do have some seasonality that helps us a little bit in the first quarter or two. As you know, especially in markets like Phoenix, Orlando, those are historically some stronger months from a seasonal perspective on the leisure side, particularly. I think it's more a matter of kind of looking at the next couple of months and saying you get post Thanksgiving where you're always starting to see a little bit of a letdown generally on business travel and group travel, and that's more some of the seasonally weaker months that I talked about in a normal situation, particularly in the fourth quarter, where October is generally very strong. The first half is November remains strong.

And then after that, obviously, the business starts to tail off a little bit. What we're certainly hoping for is that some of these back-to-office trends will improve a little bit where we're starting to hopefully see some more people getting back in the office, which will spur some more -- some business travel kind of going through those months coming up. I will say that looking into next year, the first quarter is a little bit weaker for us from a group pace perspective than the rest of the year. And I think some of that is also still impacted with some of the cancellations that Barry talked about as COVID was kind of rearing its head a little bit more again.

But we're hopeful going into -- certainly, based on the trends we're seeing on the leisure side, we're very hopeful that that will continue through the holiday season and provide some strength from us on that side.

Bill Crow -- Raymond James -- Analyst

All right. And speaking of the group cancellations, I think Barry mentioned maybe $3.5 million of term fees collected or I should say cancellation and attrition fees collected. I'm just curious what that looks like for the fourth quarter?

Atish Shah -- Executive Vice President and Chief Financial Officer

It's a little too early to think about that because some -- there are still accounts out there that could still actualize versus not and the way the revenue is recorded is when they actually don't attend a program. So it's really too early to put a number of any kind of magnitude at this point.

Bill Crow -- Raymond James -- Analyst

So the majority would not necessarily be in October? It could be in November, December as well? Is that --

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah. That's correct.

Bill Crow -- Raymond James -- Analyst

Yeah. OK. That's it. Thank you.

Operator

Thank you, Bill. Our next question comes from Bryan Maher from B. Riley Securities. Please, Bryan, your line is now open.

Bryan Maher -- B. Riley FBR Inc. -- Analyst

Thank you very much. Maybe a question for Barry. I'm interested -- so much has been talked about with labor costs and labor shortage. But we've noticed a pretty meaningful uptick in your food and beverage revenue.

And I'm curious as to what you're experiencing on food and beverage costs, the impact on margins. And then secondarily, on other supplies, if you're finding any problems getting stuff like towels and other supplies through the supply chain that we keep carrying out so much.

Barry Bloom -- President and Chief Operating Officer

Yeah. Really good on point question. We've certainly been talking about here over an extended period of time. I guess, kind of taking a little bit in order.

Food and beverage staffing, other than culinary, has actually not been a challenge as we ramp up in part because in most markets, banquet servers are often on call and work in multiple properties, and they seem to be quite available given the amount of business that hotels are generating at this point. So I think that's kind of one item. Food cost, we've actually -- although costs are higher than they might have been by a few hundred basis points, they've been pretty stable in our portfolio each month through this past quarter. I think -- and I think as it relates to kind of guest supplies, whether that's towels or other operating supplies.

I think this is one of the cases where affiliation with the biggest brands has been really helpful, and many of their relationships with Avendra has been very helpful in that they're kind of at the front of the line for getting supplies. We had a couple of months back in Q2 where we had a couple of hotels that had some challenges with sheets, for example, but that really kind of went away in the third quarter. And again, as we've seen kind of the bigger brand hotels get to the front of the line for supplies, I think hotels have gotten a little smarter and more educated about thinking about when they're going to need those kinds of supplies, and making sure they get their orders in earlier. It used to be kind of order a week or till out.

That's changed. There's a longer lead time on those, but we are seeing a relative success or maybe a relative to successful from the hotels in ability to acquire whatever kind of physical goods they need.

Bryan Maher -- B. Riley FBR Inc. -- Analyst

OK. Thank you for that. And just one question on the Grand Bohemian. That hotel had, and probably still has, quite a bit of character to it.

And so I was interested in your comment on having a more lighter contemporary look and feel to it. First of all, can you quantify roughly how much money you're going to be spending on that renovation? And how much are you going to kind of decharacterize it, for lack of a better word?

Barry Bloom -- President and Chief Operating Officer

Yeah. On the cost, we'll probably have a better handle and talk about that as we head into Q1 of next year. So we'd like to hold off on that for now, particularly as we're kind of working through a lot of the design and working on adding and subtracting components from a value engineering perspective. So appreciate some flexibility on that.

I think everything we're doing with any of the hotels is really in keeping with the character of the hotel in the market. There is some -- actually some deep theming to Grand Bohemian that is culturally related and that a major part of the design team effort has been to make sure that that's retained while creating a look that's different, quite frankly, than the hotel had 20 years ago. There's certainly been an evolution in hotel design and part of our feedback over time has been that it's the dark colors and perhaps by some -- in some opinion, overarted nature of the property that have -- people have perceived as detractors in the current environment. And those are some of the things we're trying to solve with the design team to create that fresher wider look.

Bryan Maher -- B. Riley FBR Inc. -- Analyst

OK. Thank you.

Operator

Thank you, Bryan. The next question comes from Aryeh Klein from BMO Capital Markets. Please, Aryeh, your line is now open.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thank you. Maybe following up on the F&B cost. Have you started to pass any of those along in the form of either higher menu prices or other ancillary items like parking to customers? Or are you still holding off on that?

Barry Bloom -- President and Chief Operating Officer

Yeah. No. Absolutely, we have. And that's been probably our asset management team and our portfolio initiative teams' biggest efforts through the last few months has really been looking at how do we make sure that we're taking advantage of the reverse side of inflationary costs that we're paying in the hotels.

And I think as inflation becomes part of the common vernacular in the U.S. that people are expecting to pay more for most things, and we don't have a single hotel that hasn't gone through adjusted pricing. I'll tell you, as we've spent the last few weeks kicking off the 2022 budget season and the asset management team and I have been out of the hotel, that's a major part of the dialogue, which is if costs are going up x, revenue needs to go up by y because we need to not only maintain our profit margins, but where we can, improve them. And this is -- we think we view it as some of the unique moment in time while, if you will, inflation is on people's tongues and while they're seeing it in the grocery stores and in the gas stations and in the retail auto market that it's a real opportunity for us to move revenues as costs increase as well.

Aryeh Klein -- BMO Capital Markets -- Analyst

Got it. And then on the business trend improvement trends you're starting to see midweek, can you give us a sense of, from a market standpoint, which ones maybe you're doing best and which ones are lagging? And then how much of business transient is typically those large corporate accounts that are a little bit slower to recover here?

Barry Bloom -- President and Chief Operating Officer

So in answering the first part, it's really been pretty consistent across the portfolio. There are very few hotels we can point to that are that are lagging. In fact, the hotels that you might view as a little more corporate. So if you think about our hotels in Houston and Dallas and the San Francisco Bay Area, we're actually seeing the biggest increases in those right now.

And of course, they had the longest room -- they had the most room to run because they hadn't been as successful in filling weekday nights of the leisure business as some of the other markets that we're in. So I think that addresses that piece. And then help me with the other part of your question, Aryeh, if you would.

Aryeh Klein -- BMO Capital Markets -- Analyst

Just on how much of business transient is typically those large corporate accounts that maybe have been a little bit slower to recover.

Barry Bloom -- President and Chief Operating Officer

Yeah. So the way we've accumulated that data over time, it's a little different to -- a little difficult to look back and see kind of what that has been. We look more on kind of across the portfolio on an account-by-account basis and how they're going over time. And looking in particular at the big four accounting firms and the large consulting firms and the Fortune 500 names.

And they're down significantly from where they were. I think you'd certainly say in the more than 50% or probably less than 80%, but I'm thinking about that on an account-by-account basis. So that may not translate to those on an aggregate basis.

Aryeh Klein -- BMO Capital Markets -- Analyst

Got it. Thank you.

Operator

Thank you, Aryeh. The next question comes from Austin Wurschmidt from KeyBanc Capital. Please, Austin, your line is now open.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Yeah, thanks. I'm not sure if this is what Aryeh was just getting at, and I may have missed it, but can you put some detail? You mentioned group, I guess, is 20% versus 30% historically. What's sort of the leisure BT mix today versus historical levels?

Barry Bloom -- President and Chief Operating Officer

Yeah, it's really hard to -- it's always been a little harder to discern that because, obviously, we don't -- no one stays upfront, whether they're for business or leisure, and there is no doubt in the portfolio. We've seen this concept of leisure really kind of looking different than it has historically, where Sunday nights are almost as good as Monday nights, and Thursday nights have become a real swing night that substantially is better than it has been historically on a relative basis, a Tuesday, Wednesday. So we know we have a lot of guests who are making combined stays, and we've seen that average length of stay in the corporate segment increase significantly. And in fact, it's increased so much.

It sounds like a question of the data. But what I think it really is, is corporate customers that are extending their stays into and onto weekends and meeting and having families meet them or spending extra time in a market. But to really break that down precisely right now between business and leisure I think is a really difficult thing to do.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Got it. No, that's helpful. And then can you just provide some additional detail. I mean, the ADR trends month-to-month versus '19, it's certainly moderated since July.

And I assume that the leisure component trailing off a bit is some portion of that. But is there anything else that's going on sort of under the hood? Or can you give us a sense what -- where that corporate rate is trending maybe versus pre-pandemic to help us better understand as we think going forward from here what the ADR trends could look like?

Barry Bloom -- President and Chief Operating Officer

Yeah, I think when you kind of work your way to the quarter and then particularly as you work at into October, what you're seeing is really a change in mix, where there is significantly more corporate demand. And that demand I think we've had great fortune with the leisure guests throughout the industry and certainly in our portfolio where that guest has gotten accustomed and trained to if they want to stay in their first choice hotel, they need to pay a pretty good rate to do it, and the hotels have not resorted to significant price lowering and discounting the way they may have in prior cycles. I would suggest that I think as we look at the data across our portfolio, corporate rates are generally flat to where they were in 2019. So again -- and we've seen, I think, some -- I think that's also again reflective of not a rate to the bottom in corporate rates.

And in fact, a lot more accounts that have moved from static rates to percent discounts off of VAR, which is also helpful because, obviously, each individual hotel controls VAR on day-to-day and week-to-week basis. So I think what you're seeing in that trend is really just mix of business versus leisure as business travel is increasing. I would had -- you didn't mention it, but I'd add group into that as well and that the group rates, quite frankly, particularly through certain months of the year, because of the volume of food and beverage business, particularly because it's directly negotiated, are often some of the lower taxable rates that hotels achieved. So you're also seeing that mixed in this blended rate as well.

And again, it's recovering at a pace as well.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

No, that's helpful detail as always, Barry. And just kind of piggybacking off the last one. Just on the leisure side, what's sort of your house view on the sustainability of pricing power among leisure customers over the next 12 to 24 months?

Barry Bloom -- President and Chief Operating Officer

Yeah. I don't really have a house view on over 12 to 24 months. We certainly feel good about what we're seeing in the 90-day forward bookings on leisure, which take us through the holiday season and obviously feel pretty good about that. I think there's certainly a view that we've, in many cases, broken through the new and higher ground and quite frankly, higher ground than we would have expected or naturally would have gotten to.

But I think there's a lot to be said for the retraining of the consumer that this type of hotel costs this amount of money. And then you're not seeing yet, as you probably know only in the luxury and upper upscale segments, but you're seeing it in the select service properties as well, where they've really gotten some pricing power with leisure. And I think that as -- if and as we stay in kind of this newfound inflationary environment, I think people are expecting to pay more. And I think I don't see any reason to think that that's necessarily changing materially going forward.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Appreciate the topic. Thank you.

Operator

Thank you, Austin. The next question comes from Michael Bellisario from Baird. Please, Michael, go ahead.

Michael Bellisario -- Baird -- Analyst

Thanks. Good afternoon, everyone. Barry, I have another question for you also on F&B, but I want to focus on revenues. It looks like F&B revenues, I think they were down about 15 more points than room revenues on a two-year basis.

How much of that is due to group lagging versus because some of your restaurants and outlets are still closed? And kind of how do you think about the ramp-up of the F&B revenues aside from group over the next 12 to 24 months?

Barry Bloom -- President and Chief Operating Officer

Yeah, it's interesting. In our portfolio, I would say that almost all of the decline is banquets related. We -- as I think we've talked about before, we made great efforts in our hotels to make sure that we have food and beverage outlets open and operating in our resorts. Our outlet food and beverage revenues have set all-time records, literally every week, maybe not every day, but certainly every week and month through the summer months in terms of that leisure guest being very capped in the resort, buying a lot of beverages to pool, having more meals on property.

It's been a really favorable trend. So we think, I mean, and our data tells us that the real gap is on the banquet side, and as food business recovers, we're actually seeing really good results in banquets on a per occupied group room basis. And our catering and event people are telling us, and the numbers are showing us, that they're doing a really good job of capturing bank of business that more groups, when they come into properties right now, are staying on property as opposed to doing more off-property events, which is great for the hotels. They're also buying the same or better quality and cost menus than they had been buying pre-pandemic.

And that has gotten even better as the group business shifted more from that Smurfy type business, and we're adding more and more traditional higher-caliber corporate group business.

Michael Bellisario -- Baird -- Analyst

Got it. That's helpful. And then --

Barry Bloom -- President and Chief Operating Officer

Sorry. That maybe wasn't what you asked for. But I thought I'd give it to you anyway.

Michael Bellisario -- Baird -- Analyst

No, no, that's helpful. And then the second part of the question, maybe Atish can chime in, too. But just your longer-term outlook on margins, has that changed at all? And when do you think the brands formalize their brand standards for 2022 and beyond?

Barry Bloom -- President and Chief Operating Officer

Yeah. Mike, I think it's been interesting to see that -- and we're still certainly waiting to see what the brands really want to ensure happens in terms of housekeeping. We continue to do a lot of experimenting within our portfolio in many of our hotels. As you can imagine, given our profile with the brands are serving as betas for a lot of the things they're trying in terms of light touch housekeeping and how effective is that and what the housekeeping looks like.

I think it's just too early to really think about what margins look like overall as we get to stabilization. I think certainly, we've proven we can operate with fewer bodies in the business and that hotels can run well. But I do think we're going to see over time we will see additional staff, and we're not going to have the labor -- the low labor costs we've necessarily run, particularly in Q2 of this year when hotels were significantly understaffed and that we've got to, at some point, get to a place where we are reversing the downward trends everyone is seeing. Although it's really stabilized now, but much, much lower guest satisfaction scores, which I think are directly related to both labor -- the amount of labor in hotels and the amount of services the hotels are providing to guests.

And those are obviously the trade-offs and what makes it hard to know where that shakes out on costs relative to revenue.

Michael Bellisario -- Baird -- Analyst

Got it. And then just last one for me on the transaction front, for you, Marcel. Just in terms of the deals that you've looked at, you haven't done or the ones you've passed on. Is it simply because you can't get to the pricing level that the seller wants? Or is it because maybe you're more turned off by certain qualitative factors like location, urban versus resort or other aspects of a particular deal?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah. It's obviously a combination, right? I mean you start off with kind of looking at what's out there in the market and seeing what do we think is something that we think is really additive to the portfolio and something that helps our portfolio from a growth perspective. And something that might work for someone else isn't going to work for us just because of what the makeup of a portfolio currently is already. So certainly, there's product out there, there's no question.

But there's not a lot of product out there that kind of rises to the quality level that we want to have in our portfolio and that we want to grow with. So that's the first component of it. Obviously, location plays into that and whether assets out there that fit our portfolio well or not. And then when you kind of drill it down, you end up with a relatively small pool of potential assets that really do fit well for us.

And we just haven't found that deal where we felt like the pricing really matches our outlook of cash flow in both the short term and where it can grow to. So we certainly -- we've bid on a few things. And we're outbid just because someone obviously wanted to get more aggressive on a deal than we did. So that goes back to my comments about being willing to be patient and stay really disciplined in the way that we're looking at deals.

And we have -- as you know, we have plenty of history and a very significant track record when it comes to doing deals in any part of the cycle. So I don't worry that we're not going to find things kind of as we progress here. But we're kind of -- like I said, we're remaining patient. We're remaining disciplined and pretty comfortable with where we are with our current portfolio and hopefully, we'll be able to find some things here over the next couple of quarters that makes sense for us.

Michael Bellisario -- Baird -- Analyst

Understood. Thanks for all the detail.

Operator

Thank you, Michael. The next question comes from Thomas Allen from Morgan Stanley. Please, Thomas, your line is now open.

Thomas Allen -- Morgan Stanley -- Analyst

Thanks. So just a couple more questions on the cost side. You talked about lower-than-expected real estate taxes. Can you just help us think about the trajectory of that line for the next few years and quarters?

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah, sure, Thomas. Thanks for the question. So yeah, property taxes are coming in a little bit lighter than they did for same property portfolio. If you go back to last year and the year before, they're down roughly 10%.

So I think that's a good rule of thumb to use. Now within that line on our income statement is also insurance costs, and insurance costs are up 15% to 20%. So there's a little bit of an offset there. But that's why that line has come down.

And we expect that to continue this year. We're a little bit too early to know what that looks like next year. But obviously, we've been pretty aggressive in trying to get the assessments and the tax expenses lower for us going forward.

Thomas Allen -- Morgan Stanley -- Analyst

And Atish, is that -- so are real estate and property taxes usually sounds like the larger like two-thirds of that line? Or is it -- what's the kind of weighting of the line historically?

Atish Shah -- Executive Vice President and Chief Financial Officer

There are two-thirds or even a little bit more than that. That's right.

Thomas Allen -- Morgan Stanley -- Analyst

And then I think I heard you right that payroll expenses are down 32%. I mean, any sense of if we're in a more normalized environment where we think we can keep payroll expenses down versus 2019 levels?

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah. I think it's really hard because you've got a confluence of both because again, not knowing kind of where staffing levels ultimately shake out and if and when kind of the actual wage rates flatten, it's really hard to put a number to that today.

Thomas Allen -- Morgan Stanley -- Analyst

OK. It was worth the shot. Thank you.

Operator

Thank you, Thomas. Our next question comes from Tyler Batory from Janney Montgomery Scott. Please, Tyler, go ahead.

Jonathan Jenkins -- Janney Montgomery Scott -- Analyst

Good afternoon. This is Jonathan on for Tyler. Thanks for taking our questions. First one for me today.

I wanted to follow up on the labor and margin discussion. Can you provide some additional color on the guest feedback you're hearing? And do you think you'll need to add labor in order to meet guest needs in the near term? Or are you still providing ample services in this term currently lower occupancy environment?

Barry Bloom -- President and Chief Operating Officer

Well, I think it's something that in our portfolio, our major companies have been keenly attuned to and the asset management I'm working with on making sure that we're providing right levels of service. I think you certainly saw higher levels of dissatisfaction across the industry with housekeeping services over the summer when hotels were still kind of sorting out what the right level of service was when you've got three or four people in a guest room in a resort type environment. So I think that's certainly a challenge. I think as the labor markets have opened up a little bit, I think the hotel has been successful in bringing back people into the more guest-touch positions.

So think about front desk, think about restaurant servers, things like that, they have been a little easier to fill than the housekeeping and culinary positions.

Jonathan Jenkins -- Janney Montgomery Scott -- Analyst

OK. Very helpful. And then can you remind us how much exposure the portfolio has to international travel and how much of an additional tailwinds, if any, could the reopening of international travel into the U.S. be in the portfolio?

Barry Bloom -- President and Chief Operating Officer

Yeah. When we looked at it last, we were sub-10% for sure, across the portfolio. As you know, we don't have a lot of significant major market gateway exposure. We do have in some of our hotels and international crew business and some of that is in place today, but that we expect to grow as well.

We also look forward to the reopening of, in particular, the European and South American markets to Orlando and where Hyatt Regency Cypress has been successful at times and capture some of that business, we may need some strategies in place. Let's go after that business, particularly from the U.K. as that market opens up.

Jonathan Jenkins -- Janney Montgomery Scott -- Analyst

OK. Great. Thank you for all the color. That's all for me.

Operator

Thank you, Tyler. We currently have no further questions. I would like to hand over to Marcel Verbaas for any closing comments. Please, Marcel, go ahead.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, everyone, for joining us today, and thanks for all the great questions. We look forward to talking to you and seeing many of you over the next few weeks at the various conferences, and look forward to talking to everyone again next quarter. Thank you.

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

Bryan Maher -- B. Riley FBR Inc. -- Analyst

Aryeh Klein -- BMO Capital Markets -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Michael Bellisario -- Baird -- Analyst

Thomas Allen -- Morgan Stanley -- Analyst

Jonathan Jenkins -- Janney Montgomery Scott -- Analyst

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