Xenia Hotels and Resorts (XHR) Q4 2021 Earnings Call Transcript

Xenia Hotels and Resorts (XHR -1.70%)
Q4 2021 Earnings Call
Mar 01, 2022, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Xenia Hotels & Resorts fourth quarter and full year 2021 earnings conference call. My name is Alex, and I'll be coordinating the call today. [Operator instructions] I would now hand over to your host, Aldo Martinez, senior financial analyst. Over to you, Aldo.

Unknown speaker

Thank you, Alex. Good afternoon, and welcome to Xenia Hotels & Resort's fourth quarter and full year 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 and annual 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 comments on this call, are made only as of today, March 1st, 2022, 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 I referred to in our remarks in this morning's earnings release. The property level portfolio information we'll be speaking about today is on a same-property basis for 33 hotels.

Subsequent to the sale of Hotel Monaco Chicago in January, certain information is for current same properties reflecting 32 hotels. 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, Aldo, and good afternoon to all of you joining our call today. We are pleased to be sharing our fourth quarter and full year 2021 results with you today as well as some recent developments that we believe to be very positive for our growth outlook over the next several years. After a slow start to 2021, industry fundamentals gradually improved as the year progressed, particularly after our vaccine rollout accelerated in the second quarter, leisure demand increased significantly, while corporate and group demand started recovering in a more moderate pace. Despite the emergence of the delta variant over the summer and the omicron variant post-Thanksgiving, we experienced an overt trend in occupancy throughout the year.

And the gap to 2019 RevPAR diminished substantially as we finished out 2021. Importantly, we were able to return to positive adjusted EBITDAre in March, and we are able to maintain and grow this positive cash flow through the remainder of the year. During the fourth quarter, we reported a net loss of $22.9 million. Adjusted EBITDAre and adjusted FFO per share each remained positive at $48.9 million and $0.25, respectively.

We are pleased that 31 of our hotels and resorts achieved positive wholesale EBITDA for the year, which translated to adjusted EBITDAre of $108.1 million and adjusted FFO per share of $0.28. Our same-property portfolio generated a hotel EBITDA margin of 27.2% for the quarter as a result of a continued focus on cost controls by our operators and benefits from real estate tax reductions and cancellation fees. Our same-property RevPAR for the fourth quarter was only 17.5% below the same period in 2019, representing another sequential improvement over the first three quarters of the year when we experienced RevPAR declines of 63.3%, 38.6%, and 22.9% in the first, second, and third quarter, respectively. Average rates remained a price off, as our same-property ADR increased 7.1% compared to the fourth quarter of 2019.

An impressive 25 of our hotels and resorts achieved ADRs that surpassed those reached during the same quarter in 2019. The fourth quarter was our strongest quarter of the year despite the difficult seasonals in December and the early impact from the omicron variant. The two highest ADR and RevPAR months of 2021 were both in the fourth quarter, with October being the strongest month of the year and November not far behind. Impressively, ADRs for every month during the second half of the year surpassed those achieved during the same month in 2019.

The emergence of the omicron variant and resulting spikes in positive COVID-19 case counts throughout the country, doubled with the typical seasonal decline in leisure travel, caused a slowdown in overall demand in January. The corporate and group segments were most significantly impacted, and we were confronted with a meaningful number of group cancellations and postponements. As a result, our current same-property portfolio RevPAR in January was markedly lower than we experienced in December, and RevPAR was approximately 37% below January 2019 RevPAR. This decline was substantially greater than the approximately 8% decline we achieved in December, which was the smallest gap since the beginning of the pandemic.

However, travel patterns have improved significantly over the past several weeks as case counts have fallen dramatically, and evidence is mounted of the new variant causing less superior illness and lower percentages of hospitalizations and death. Based on our preliminary estimates, February RevPAR should be approximately $157, which represented approximately 19% decline versus a very strong February of 2019, with ADR up approximately 6% over 2019 levels. The projected RevPAR for the month represents the highest absolute RevPAR since the onset of the pandemic, with both occupancy and ADR surpassing the levels achieved in October. We are encouraged by these recent trends and our forward-looking trends and are optimistic about a strong recovery as the year progresses.

We continue to be bullish on our growth prospects in the years ahead. We believe that we have many strategic advantages, including our geographic footprint, the quality of our assets and operators, our strong balance sheet, and a number of embedded growth opportunities, some of which we have highlighted during previous earnings calls and presentations. We believe that we are in the early stages of a strong multi-year recovery for upper-upscale and luxury hotels and resorts and that our company is positioned well to drive superior results. While we have already benefited from our geographic diversification and focus on Sunbelt locations during the earlier stage of the recovery, we continue to have many opportunities for growth throughout our portfolio, particularly as corporate and group demand recovers as we expect it will.

We have continued our focus on identifying and executing internal growth opportunities, as we have done in the past with projects such as the ones we recently completed at Park Hyatt Aviara and Hyatt Regency Grand Cypress. For 2022, we are planning to substantially increase our capital expenditures over the reduced levels of spend that we had in 2020 and 2021 when we responded to the impact of the pandemic by emphasizing liquidity and cash preservation. Barry will provide details on the most significant projects we are intending to complete work starts this year in his remarks. We also remain optimistic about the growth we expect to experience as a result of Hyatt Regency Portland, reaching stabilization over the next several years, as it is essentially still a newly opened hotel.

I will now turn to the transaction activity we have recently completed and the exciting announcement we made this morning. In November, we completed the previously announced sale of Marriott Charleston in West Virginia. And in January, we completed the sale of Hotel Monaco Chicago, a transaction that we also announced before the end of the year. Through these two dispositions, we exited two challenging markets with what we believe to be tough operating environments and difficult path to get back to prior peaks.

We were particularly pleased with the pricing at an almost 17 times 2019 EBITDA multiple, we achieved on the opportunistic sale of Hotel Monaco Chicago, which was owned one of only two hotels in our same-property portfolio that had negative hotel EBITDA in 2021. Over the past several quarters, we have consistently maintained that we would be opportunistic but patient as it relates to potential acquisitions. The announcement we made this morning regarding our agreement to acquire W Nashville is reflective of our efforts during this time as we were able to identify a potential acquisition that meets all of our investment criteria, including pricing that we believe reflects an appropriate risk/reward balance. We are extremely excited that we have been able to reach an agreement to acquire this outstanding hotel.

Nashville is one of the most dynamic growth markets in the country and has been a target investment market for us. We were able to moved decisively once we began aware of the opportunity to acquire the hotel because of the strong balance sheet and liquidity we achieved and maintained through our recent balance sheet activities. We believe this acquisition hits the bull's eye as it relates to our investment strategy. Nashville is a high-growth top 25 lodging markets, with significant and growing year-round corporate and leisure demand.

We have extensive experience with Marriott, managing some of our most significant assets. And the hotel a fee simple luxury lifestyle hotel that has many truly unique attributes and that we believe is the best hotel in the market. The hotel opened just a few months ago and is extremely well designed to be able to cater to any demand segment, as evidenced by outstanding guest feedback since the October opening. In our view, this hotel is in a class of its own in the national markets, particularly as it relates to its rooms and suites product, its food and beverage facilities, and its other amenities.

There are six food and beverage venues in hotel, including two destination restaurants by renowned Chef Andrew Carmellini. Additionally, the pool, rooftop, and outdoor entertainment dining and meeting areas are unrivaled in Nashville. And while this almost $330 million acquisition is a large transaction for us, we are comfortable with having this level of concentration in one of the strongest economic growth markets in the country. While supply additions in Nashville have been significant over the past decade, there are a number of projects will still be added through the supply over the next several years.

The market has been resilient, and demand and RevPAR growth has consistently outpaced supply growth, resulting in one of the highest RevPAR CAGRs of any of the cloud watching markets. We strongly believe that luxury demand in the Nashville CBD West and submarket will continue to experience substantial growth in the years ahead. And this unique luxury lifestyle hotel is the perfect embodiment of what the higher-end leisure and corporate clientele will seek out as their destination of choice in the market. As we highlighted in our release this morning, we expect W Nashville to be one of the leading contributors in our portfolio in the years ahead, with hotel EBITDA reaching between $25 million and $30 million upon stabilization.

We are thrilled to be adding W to our stable Marriott brands in our portfolio. We have long and deep relationship with Marriott and are looking forward to owning a flagship W hotel in the U.S. as Marriott evolves and refreshes the brand. With significant capital investments being made in many existing Ws and exciting new W hotels opening and in Marriott's pipeline domestically and internationally, we are optimistic about the future of the brand and the contributions it will make to what is an outstanding hotel from a physical and location perspective.

With our asset management expertise and Marriott's operating prowess and brand power, we are excited about what lies ahead for W Nashville under our ownership. Barry will now provide additional details on our fourth quarter performance, recent operating trends, and the status of our current and planned capital projects.

Barry Bloom -- President and Chief Operating Officer

Thank you, Marcel, and good afternoon, everyone. In the fourth quarter, our same-property portfolio occupancy was 56.4% and an average daily rate of $241.11, resulting in RevPAR of $136.01. The fourth quarter marked the best-performing quarter in 2021, coming in at 7.1% higher in ADR and 17.5% below in RevPAR compared to the fourth quarter in 2019, and beating every other quarter in 2021 in terms of occupancy, ADR, and RevPAR achieved. Despite some weaker-than-expected corporate and group business related to the delta variant, October and November were both strong months, with occupancy coming in at 58.6% for each month, each second only to the July peak of 59.2% for the year.

October achieved the highest ADR and RevPAR of any month in 2021 at $248.69 and $145.71, respectively, bolstered by five weekends, which allowed our hotels to capture additional leisure demand. ADR in November was $238.05, resulting in RevPAR of $139.45. In December, we began to see some expected moderation in occupancies during the month, driven primarily by seasonal declines. However, despite these slowdowns, December achieved an ADR of $235.92, or 15.2% higher than 2019, and RevPAR of $122.99, or just 7.8% below the same month in 2019.

During the quarter, we had 6 hotels achieve occupancy above 75%, primarily in hotels that are leisure-focused and drive-to markets such as Key West, Charleston, South Carolina, Savannah, Birmingham, and Napa, all of which continue to show substantial strength. We also had 25 hotels representing 74% of the portfolio and achieved higher ADRs in the fourth quarter of 2021 than they did in the fourth quarter of 2019. We commend our hotels and asset management team on identifying and pursuing opportunities to drive ADR and take advantage of the consumer who's willing to pay a premium for quality properties like ours and our focused efforts on activating on-site amenities. For the full year, we had five hotels achieve greater than 75% occupancy, again, primarily at the same hotels in our leisure-focused and drive-to markets.

We also had 15 hotels achieve higher ADRs in 2021 than they did in 2019. Group cancelations in the fourth quarter amounted to approximately $8.5 million of rooms revenue, which have been on the books for the fourth quarter of 2021, primarily related to the delta variant. We recognized approximately $5 million in cancelation and attrition fees during the fourth quarter. Atish will discuss 2022 group pace and the impact of group cancelations as a result of the omicron variant on Q1 of 2022 in more detail shortly.

In terms of profit, all 33 of our same-property hotels achieved positive hotel EBITDA for the quarter, with 13 properties exceeding results compared to the fourth quarter of 2019. 11 hotels achieved EBITDA margins greater than 30% for the quarter, and 16 hotels generated EBITDA margins greater than 2019. For the full year, 16 hotels were able to generate EBITDA margins of above 25% as a result of efficient cost controls and optimization of operations. Our properties under respective management companies continue to do an excellent job in controlling margins.

For the fourth quarter, hotel EBITDA was $54.1 million, a decline of 17.5% on a total revenue decline of 18.5% compared to the fourth quarter of 2019, resulting in hotel EBITDA margin growth of 32 basis points to 27.2%. For the full year, hotel EBITDA declined 52.3% on a total revenue decline of 39%, resulting in a hotel EBITDA margin of 21.7%, down approximately 600 basis points from 2019. Our hotels, thanks to the efforts of our operators, continued an amazing job controlling expenses while ensuring a high-quality guest experience. In the fourth quarter, rooms expenses declined by over 18% compared to 2019, while undistributed expenses declined by 13.7%.

For the full year, rooms expenses declined by approximately 35%, while undistributed expenses declined by approximately 26%. Within the undistributed expenses, while the greatest declines were seen in A&G and sales and marketing, utilities expenses declined by approximately 7.6% for the year, related in part to lower occupancy levels, but also as a result of our hotels having become more efficient in their use of electricity and natural gas, despite rate increases in many markets. Our operators continue their work in refining service models and staffing levels. For the fourth quarter, total employee compensation, as reported by our operators, declined by 21.5%, and for the full year by 36.7%.

We currently estimate that wage rates across the portfolio, based on our operators' budgets, will increase by approximately 5% in 2022 versus 2021. Leisure business continue to be strong throughout the portfolio, with increased booking windows for our most popular drive-to destinations and resorts throughout the first and second quarter. Despite significant success in the leisure segment, we note that occupancies for the year of our three largest resorts, Park Hyatt Aviara, Hyatt Regency Scottsdale, and Hyatt Regency Grand Cypress, ran between 35% and 56% occupancy, leaving room for significant upside at these hotels as high-rated and banquet-intensive group business returns to these properties in 2022 and beyond. Despite the seasonally slow and omicron-impaired levels of business travel our portfolio experienced in January and early February, we're now seeing a significant pickup in corporate volume accounts.

Business travel has notably picked up in recent weeks, as evidenced by increases in occupancy levels on Monday, Tuesday, and Wednesday nights as well as transient business on the books to March. I will end my remarks today with a review of our completed and upcoming major capital expenditure projects. During the fourth quarter and year ended December 31, 2021, the company invested $12.7 million and $31.8 million, respectively. In the fourth quarter, we completed the restaurant and lobby renovation at The Ritz-Carlton Pentagon City, which was completed in mid-October, and the development of the Regency Court, a new 5,300 square foot outdoor social venue at Hyatt Regency Scottsdale that was completed in late November.

During the fourth quarter, we made substantial progress on the renovation of the restaurant, lobby, and guest rooms at Waldorf-Astoria Atlanta Buckhead. The restaurant lounge opened in mid-February, and we anticipate that the guest rooms project will be completed later this month. In 2022, we estimate spending approximately $95 million on capital expenditure projects. We continue to be excited about two major projects, which we accelerate and take advantage of current business conditions, which will primarily take place in 2022.

The first is a comprehensive renovation of Grand Bohemian Hotel Orlando, including guest rooms with substantial tub-to-shower conversions, restaurant and bar, lobby, rooftop pool area, and meeting space, which will commence in the second quarter of 2022 and is expected to be completed in phases, concluding in the second quarter of 2023. The second is a comprehensive renovation of the Kimpton Canary Hotel Santa Barbara, including guest rooms, restaurant and bar, rooftop, lobby, and meeting space, which recently commenced and is expected to also be completed in phases, concluding in the first quarter of 2023. In 2022, we also plan to renovate the meeting space and convert the existing lobby bar to a Starbucks outlet at Fairmont Pittsburgh, renovate the meeting spaces at Marriott Dallas Downtown and Royal Palms Resort & Spa, complete bathroom renovations at Marriott Woodlands Waterway Hotel & Convention Center, renovate the premium suites at The Ritz-Carlton Denver, including the addition of three new guestroom keys, and commence planning and design for a comprehensive renovation at Hotel Monaco in Salt Lake City. In addition, we plan to commence work on a significant upgrade to the spa and wellness components at Park Hyatt Aviara, along with a comprehensive renovation of existing golf course, features which were deferred during the initial renovation, but for which we now have even stronger conviction given the positioning and performance of the property.

Finally, we continue to focus on numerous building infrastructure projects to enhance building resiliency and extend the useful life of our physical structures, in addition to focusing on a number of environmentally sustainable projects throughout our portfolio. With that, I will turn the call over to Atish.

Atish Shah -- Executive Vice President and Chief Financial Officer

OK. Thanks, Barry. I will provide an update on our balance sheet and a high-level outlook for 2022. Our balance sheet continues to be strong, with no debt maturities until 2024, significant liquidity, nearly all debt currently at swapped or fixed.

Swap to fix were at fixed interest rates and strong banking relationships, we're in a good position to take advantage of opportunities such as the W Nashville. Our liquidity, inclusive of available cash and our line of credit, is currently approximately $950 million. In January, we paid off the $65 million mortgage loan on The Ritz-Carlton Pentagon City, thereby lowering our cost of debt to sub 5%. Looking ahead, we intend to acquire W Nashville with cash on hand.

As we get further into the year and depending on other opportunities, we could access the equity of our debt markets to raise additional capital or continue to evolve our balance sheet. Similarly, as business rebounds and after exiting the covenant waiver period, we could consider other tools to drive shareholder return, such as a quarterly dividend or share repurchase under our existing board authorization. As to a high-level outlook for the year, we have a positive view based on the demand trends and booking activity that we're seeing, as the transient demand, Barry mentioned, strengthening corporate transient trends. Turning to group demand.

Our pace information is as of the end of January for our current same-property set. At that time, room revenue pace for 2022 was down 27% versus where we were in January of 2019, and that's for the full year. For the first quarter, the decline is greater than 40%. For the second and third quarters, we are pacing down about 20%.

And for the fourth quarter, we are pacing down about 10%. Focusing on just room rates. For the full year of 2022, we're pacing up about 4%. For the second half specifically, room rates are pacing ahead by over 9%.

As more current group trends, group activity for remainder of this year continues to pick up. Our hotels continue to see near-term bookings, and we have picked up over half the group revenue that canceled for the first quarter of 2022, with most of that rebooking concentrated in the second quarter of 2022 and lesser amount in the second half of '22 and into '23. Between cancellation income and rebookings, we expect to recapture most of the profits from the group cancellations due to the omicron variant. One thing to keep in mind in terms of comparing 2022 to 2019 is that between the start of 2019 and now, we have sold eight assets, which contributed nearly $55 million of hotel EBITDA in 2019.

This information is further broken out by quarter in the historical current same-property tables in our earnings release schedules. Moving ahead. While we are not yet ready to provide 2022 earnings guidance, we wanted to provide some thoughts on the cadence of earnings as well as some estimates for items that are more under our control. As to the cadence of earnings that we expect in 2022 in terms of hotel EBITDA, we expect hotel EBITDA weighting by quarter to be as follows: first quarter, about 20%; third quarter, about 25%; and each of the second and fourth quarters just under 30%.

That weighting is our current estimate, it assumes no change in economic conditions or additional variants of COVID-19. Turning to estimates for certain expense items. As to cash G&A expense, we expect it to be approximately $22 million. The increase to last year reflects higher wage and benefit costs and the lapping of payroll tax credits.

As to interest expense, we expect it to be approximately $77 million, which is a decrease of over 5% to last year, reflecting changes in our balance sheet over the course of the last year. As to capital expenditures, we expect them to be approximately $95 million to cover the projects that Barry discussed. On W Nashville, assuming the purchase closes by the end of the first quarter, we expect to generate between $13 million and $15 million of hotel EBITDA during our ownership period in 2022 as the hotel ramps up. To wrap up, each quarter of 2021 showed strengthening trends across our portfolio.

We finished 2021 on a high note, despite the emergence of COVID-19 variants. As compared to other high-end portfolios, we outperformed last year due to our favorable market and asset mix. We expect that momentum to continue this year as the recovery and fundamentals continues. Our properties are affiliated with some of the best brands and managers, are in good condition, and have the product offerings and amenities that travelers are currently seeking.

In addition, our properties located in several Sunbelt markets, such as Houston, Orlando, Phoenix, Atlanta, and San Diego, are still well behind peak levels of RevPAR and earnings, so there is significant room for earnings growth as corporate and group demand recovers and augments leisure demand. In addition to our asset profile, the strength of the balance sheet and our transactional expertise gives us confidence that we can be active participants in the multi-year lodging upcycle, which we believe is just getting started. And with that, I'll turn the call back over to our operator, Alex, for our Q&A session.

Questions & Answers:

Operator

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

David Katz -- Jefferies -- Analyst

Good afternoon, everyone. Thanks for taking my questions. I apologize if I missed it, but with respect to this Nashville hotel, was this a marketed deal? And I'm curious what commentary you might have about what marketed deals are looking like these days? And what -- how you would sort of maybe 1 to 10 or qualitatively gauge the competition for marketed deals?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah. Thanks, David. Good afternoon. This was actually not a broadly marketed deal.

It was not listed with a broker. So when you would call it -- traditionally, you would call it an off-market deal, which it certainly was. We do know that there were certain other potential buyers that were looking at the transaction. And from that standpoint, it's -- probably was a competitive process, but with a very limited group of potential buyers that were looking at it.

And I talked in my prepared remarks a little bit about us being able to jump in with a lot of conviction around this particular opportunity. And we really believe that's the reason why we had to go with this transaction. It was really being very decisive, being able to move quickly and get a deal done with this -- what we believe is a phenomenal hotel.

David Katz -- Jefferies -- Analyst

All right. And when you look at it, it looks like -- sorry, go ahead.

Marcel Verbaas -- Chairman and Chief Executive Officer

Sorry, David. The question on kind of what the process for marketed properties. Listen, it's obviously still a very competitive process when you're looking at deals that are being brokered. And we felt very fortunate to actually find an opportunity like this where we could really separate ourselves from the pack by being -- as the size -- the room of this transaction.

David Katz -- Jefferies -- Analyst

All right. Understood. And so when we look at a hotel like this, is there -- what -- is there value that you can add to it over time from an operating perspective? Or is this just positioning in a terrific market with a brand-new asset and the tide sort of carries its value along?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah. Great question. We think it's a combination of both, certainly. We do think that -- we talked a lot in the comments about and in the release this morning about the positioning of Nashville as a market.

And we really believe that there's a fundamental shift going on in the country as far as what are the most dynamic markets and where do you want to be for the long term. So from that perspective, we think this is kind of a bull's eye location for us where we want to be invested for the long term. But we certainly also are very excited about the fact that it's a property that's managed by a brand that we have a very, very long relationship with and a very deep relationship with, and where we can basically get in somewhat at the ground level and asset manage really coming from the start on this asset with Marriott. And we believe there's a lot that we can bring to the table through our expertise that will help this property be even more successful over time.

David Katz -- Jefferies -- Analyst

Understood. I'll give somebody else a chance and come back around. Thank you very much.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, David.

Operator

Thank you. Our next question comes from Bill Crow of Raymond James. Bill, your line is now open. Sorry, Bill, I'm not receiving any audio could ensure your unmuted, please.

Sorry, Bill, I'm still not receiving any audio--

Bill Crow -- Raymond James -- Analyst

Yep. Yep. Can you hear me now?

Operator

Apologies. Go ahead.

Bill Crow -- Raymond James -- Analyst

Yep. OK. Great. Atish, let's start with you.

The $5 million of cancellation fees received in the fourth quarter, what would the margins have been had that business actually shown up?

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah. Well, the cancellation fee income was about $2.5 million more than the fourth quarter of '19, so it did benefit margin by over 100 basis points. I mean it's hard to give you the exact number of what it would have been had the business showed up. But that gives you a sense of what the impact was in the fourth quarter.

Interestingly, for the full year, cancellation and attritions fees were not that much ahead of where they were in '19 of $1.5 million for the full year. So it was just sort of the timing of when we got those cancellation and attrition fees compared to '19.

Bill Crow -- Raymond James -- Analyst

And how much have you -- or do you anticipate collecting in the first quarter in cancellation fees? And I assume that's in your quarterly cadence that you talked about?

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah. It wouldn't be nearly as much as that. I mean I don't have a good estimate for that at this point, but a lower number. I think what you saw in the fourth quarter is, frankly, cancellation fees that came in from omicron, but probably some leftover cancellations, at least from delta, in fact, as well.

So that's what drove the number and the timing last year. I think that will moderate as we go into this year.

Bill Crow -- Raymond James -- Analyst

Yeah. OK. If I could just ask on the W acquisition, how you all get comfortable with the W brand? Because clearly, it has been -- we've -- a lot of us have had questions about it over the last 10-plus years. And so if you could answer that.

And how you think about permanently financing that acquisition?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah. I'll take the first part of that question, Bill. From our perspective, first and foremost, we look at this typical asset location, right? When -- and if you look at what this hotel is, it could be really many things from kind of a luxury lifestyle perspective. And we think that even without W standing on its own, it's just a phenomenal asset that will drive a lot of demand.

Now on top of it, we do think that W is really additive to this asset, particularly with some of the refreshing and evolving that Marriott is currently doing with the brand. If you look at -- and I think I've talked a little bit about it a little bit in my comments. If you look at the amount of money that's going into certain W assets right now that are being refreshed, there is very significant capital investment going into some of those assets. There certainly are still some assets that need to kind of be brought up to the next generation, but there also are some really phenomenal assets in the U.S.

And this hotel only helps to elevate the W brand here in the U.S. It is a flagship hotel, really, when you think about what W is going to be going forward. And then you see some of the hotels that have opened up internationally as well and what Marriott is doing with the brand overall on a global perspective, I think that there's a lot of positive momentum there that we're going to be benefiting from.

Atish Shah -- Executive Vice President and Chief Financial Officer

On the finance question, Bill, as we've mentioned, our plan is to fund this with all cash. And while I think this would be an attractive candidate for secured financing at some point, I'm not sure that we're necessarily ready to commence with doing anything like that right now. I mean, as you look at our balance sheet, a few years ago, we had 8 hotels that have secured financing on them. Now we have four.

We've certainly been active participants on the public debt side in terms of high-yield money that we've raised and frankly, are pleased with that tool that we can continue to utilize. So I think my comments were about generally raising equity or debt capital in the future. I think that applies here as well. But we don't have any specific plans with regard to this asset or this transaction at this point.

Bill Crow -- Raymond James -- Analyst

All right. Thank you, all. Appreciate it.

Operator

Thank you. Our next question comes from Austin Wurschmidt of KeyBanc. Austin, your line is now open.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. Thanks and good afternoon. Just going back and revisiting the acquisition, certainly makes sense from a lot of -- checks a lot of boxes. So I guess just how do you get comfortable with the price per key? And while I know it just recently opened, I suspect some portion of the construction costs might have been baked pre-pandemic.

So curious about your thoughts how it stacks up the price tag versus your estimate of replacement cost today? And then can you also just speak to how conservatively you underwrote to get to that sort of mid-8% yield at the midpoint?

Marcel Verbaas -- Chairman and Chief Executive Officer

Sure. Thanks, Austin. From a price per key perspective, I mean, we certainly recognize that for the national market, it's a number that's higher than what you're seeing recently in the market. But as you also know, there is so much positive momentum going on in those markets.

And there's so much economic growth in the market that I'm quite convinced that we will not be the highest price per key transaction for a very long time in this market. There are certain other things that are happening there that I think will be close to where we are on this price per key. One thing to really remember about this asset really is that you're not just buying 346 hotel rooms here. You're buying a very significant income stream coming off of the F&B facilities and very high margin type of revenue that's coming in for those facilities because of a lot of the beverage primarily coming in as well.

So when you think about kind of all in what you're buying here, you're buying a very attractive cash flow stream that is going through all those different venues going forward. We obviously -- this is not something that's -- that where we just decided, hey, let's invest in Nashville right now. We've looked at the markets for a number of years. We've underwritten a good number of assets in the markets.

So this is really kind of a culmination of looking at various assets here for a very long time. And we are extremely comfortable that we are, in our mind, buying the best hotel in this market that's going to have the best operational upside going forward. As it relates to kind of comparing it to development costs, this is also a project that has taken a long number of years to actually come together. So even thinking about what's a potential developer profit as we may own this deal, construction costs have gone up very substantially over the last few years, as you know, and continue to grow very substantially.

You think about basis that they may have had in the end would be very, very different today. So there are just a lot of things that we're kind of in a soft view for where development cost versus value. We feel from a value perspective, this hotel is absolutely worth it, especially when you look at not only where it sits in the markets, but if you also compare it to the basis for hotels and other -- it's even tough to call it other markets -- similar markets because there are not many markets that are seeing the growth that Nashville is seeing. But if you compare it to some of those other markets, we feel really good about being here and what the risk-reward is of this investment versus where we could have invested in smaller hotels.

And I'll just add one thing, which is we've talked to you a lot over the last few quarters about kind of being patient and waiting for the right acquisition opportunity. And this really is as we looked at it because if we didn't buy this hotel at this level, someone else would have. And we'd have potentially paid even more for it. And it's probably the one hotel that we've looked at in the last two years that if we would have seen one of our peers come out with an announcement on this, we would have been very disappointed and jealous as opposed to other deals that we've seen.

So we feel really good about where we are with this asset and what it's going to do for us going forward.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Yeah. That's very helpful. And then -- so when it comes to the underwritten yield in the mid-8s, I guess we're in this like transitional period of hotel demand with the backdrop of high inflation. It's been beneficial to ADR and margins.

And these potential operating efficiencies coming out of the pandemic that get discussed by many in the industry, so can you just give us a sense of what you kind of underwrote toward from an ADR margin perspective? Is it kind of the new paradigm? Or were you a little bit more conservative, I guess, to get to the range of outcomes for hotel EBITDA?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah. That's a great question. And I'll answer your question specifically as it relates to some of the underwriting that we did on this. What I also want to point out is that you brought up -- the way you asked your question, you brought up the fact that we're kind of in this new environment and the new paradigm kind of post-COVID, and that is another of element that we just really like about this hotel.

As much as everyone wants leisure demand, this is a hotel that's going to absolutely benefit very strongly from the leisure demand that exist in Nashville that is really very strong in the market. But it also will cater very well to both group and corporate demand that comes into that market. So in our mind, you get kind of the best of both worlds because you own a great urban hotel. But in some ways, you can kind of view it as an urban resort, particularly with the amenities that this hotel has.

When you think about all the space that's in the hotel, all the outdoor space, from a dining perspective, from a meeting perspective, the pool area is something that is absolutely unrivaled in the national area. So we think it really plays very well to what the current consumer is looking for, especially when you think about the leisure traveler that is looking for this type of asset. So we think that it's -- from that standpoint, we view it as a safer and better bet than if we were going somewhere that was just 100% driven by leisure and where you're potentially buying at kind of peak of the market with some of those assets. As it relates to how we underwrote it specifically, I'll just start kind of where we are when we get to stabilization.

We expect this to be over $300 in RevPAR upon stabilization. And we expect the mix between food and beverage revenue and rooms revenue to be fairly balanced. So we think that food and beverage revenue is going to be somewhere in the same zip code as what the rooms earnings will be. And on the margin side, we're underwriting it to about the low 30s margin, which compares to our portfolio that was at about 28% going into COVID.

We think this will do a little bit better. And we also realize the EBITDA opportunities of this hotel. And our underwriting will be throwing off. It's essentially even more than double the EBITDA opportunities that we had in our portfolio going into COVID.

So we think that it's very accretive from a lot of different standpoints.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

That's a lot of great detail. Thank you.

Operator

Thank you. Our next question comes from Michael Bellisario of Baird. Michael, the line is now open.

Michael Bellisario -- Baird -- Analyst

Just sort of one more follow-up on the transaction front. I know you haven't closed the Nashville deal yet, but maybe going forward, how are you thinking about capital allocation in terms of maybe an increased desire to sell another property, partially back fund what you're buying now? Just any updated thoughts on buy versus sale on a go-forward basis would be helpful.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, Michael. We talked about this, you hear me basically say the same thing every other quarter on this is that we're always going to be looking to upgrade the portfolio we find. And we're constantly kind of analyzing potential additional dispositions, especially when we're making -- having to make some decisions about additional capital investments that we might have to make into some assets. I wouldn't say that this acquisition is necessarily going to change the way we look at some of those potential dispositions, but you could certainly expect us to continue to be -- to look at those additional capital investments pretty critically and see if there are some opportunities to maybe harvest some value from some assets.

But I think they're going to be more around the margin, probably some smaller assets in the portfolio to the extent that we're looking at that in the short term as opposed to any kind of meaningful seismic shifts that are happening because of dispositions.

Michael Bellisario -- Baird -- Analyst

Got it. That's helpful. And then just switching gears, maybe one for Barry. Hyatt recently -- they announced category changes for a lot of their hotels.

Two of your three highest EBITDA-producing hotels last year are moving up one category. Can you help us understand what that means for demand, EBITDA trends, and sort of loyalty redemptions and bookings at those hotels this year compared to if those changes hadn't occurred on the loyalty front?

Barry Bloom -- President and Chief Operating Officer

Yeah. Sure. I mean, as you know, the brands move these things around a lot year-to-year. I think we were pretty pleased with the few properties that actually got up category-ed, Grand Cypress and Key West, because each of those was kind of the leader in that market and were quite frankly, in our view, underpriced on a redemption basis.

So along with those increased redemption levels, our base redemption level moves up as well. That's not -- although that's not really wherein our mind, kind of the upside comes next year. Next year, the upside -- we got into Key West this year a lot given the high occupancy, but Grand Cypress still had a relatively low occupancy, and we redeemed a lot of rooms at the base rate. We're already seeing in February and March many, many nights where we're getting to the higher stairstep levels where we get redemptions based on a percentage of ADR.

So there were certainly no negatives from our perspective from Hyatt's moves, and there were even some behind-the-scenes things related to just because of the significant rate increases in Aviara year over year, or year over 2019, given the renovation where we'll have a higher base reduction rate there as well. So all positive from our perspective.

Michael Bellisario -- Baird -- Analyst

And when you talk about the rates being higher, is that simply just a function of 1Q '22 so far being just much better than 1Q '21, given we were still ramping up then? Or do you expect that to be true throughout the year for the other three quarters?

Barry Bloom -- President and Chief Operating Officer

If you look at Grand Cypress kind of running in the mid-50s last year, we did not have a lot of compression dates. We will have a lot more compression dates this year, and that's what I'm referring to that we've seen in February and March. And we continue to see that as we did last year at Hyatt Regency Scottsdale.

Michael Bellisario -- Baird -- Analyst

That's helpful. Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from Thomas Allen of Morgan Stanley. Thomas, your line is now open.

Thomas Allen -- Morgan Stanley -- Analyst

Thank you. Two more questions on Nashville. The first, when do you expect to get to the $25 million to $30 million of stabilized EBITDA? The second, do you own any other properties that are about half room revenue versus other revenue? And kind of how do you think about underwriting those kinds of assets versus others?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yes, Thomas. I mean, obviously, stabilization is -- the way we look at it is strongly in the kind of three to four years out. It could happen a little bit quicker, but that's the way we underwrote it. So as it relates to other properties that had kind of similar mix, we -- Royal Palms, for example, obviously, a smaller resort, but that's a little bit less on the rooms side actually than it is on the food and beverage side.

So that's one example. When you think about -- you can look at it from two sides. I mean, obviously, you want to make sure you stay relevant on the F&B side, and that's to make sure that it's a good, sustainable cash flow model. But that's not necessarily too different from the rooms side because as you all know, it's a capital-intensive business, maybe fall behind with the room product, you're going to ultimately have to make additional investment in that, too.

As it relates to F&B, it's really about where are your locations? What are your facilities? How relevant are they in the marketplace? And we think that these particular venues are the most relevant they possibly could be in a location like Nashville. So part of when you think about the price per key, for example, I mean, it's obviously very different from looking at doing a select service deal that are getting down to $500,000 a key, and all you're getting is kind of the room product. I mean we have a better rooms product than virtually anything in that market, and we have the most relevant F&B venues there that we think really when you kind of add that all together, you're really not just buying rooms at $950 a key. I mean you're really buying a very substantial revenue stream from both sides that we think is very helpful and helps you actually fill your rooms.

The fact that you have these really relevant F&B venues helps you fill those rooms. The fact that you have the best pool in the market helps you fill the rooms. The fact that you have the best pool or the best rooftop in that market, those are all elements why people are going to want to stay at this hotel, whether they're there for leisure or whether they're there for any kind of corporate reason.

Thomas Allen -- Morgan Stanley -- Analyst

And then just a follow-up. When we were at [Inaudible] about a month ago, one of the key themes was the brands really wanted to start to enforce brand standards and like brand requirements and some of that stuff again. Where do you think we are in that trajectory? Where do you think we're going? How do you feel about that kind of the brand standard implementation right now?

Barry Bloom -- President and Chief Operating Officer

Hey, Thomas. This is Barry. I think that, obviously, from their perspective, they want to have a more unified product. It's certainly, from their perspective, one of the ways to -- for them to deal with some of the challenges that they add on the guest satisfaction side.

So I think they are certainly all looking at how to best roll -- still determine what those standards are and how best to roll them out. But I think it's going to be longer than shorter, at least in terms of the way we think about the business. And I think as it relates to our portfolio, I think we're not terribly afraid or concerned about what those might be. As we've talked about for a long time, we've been very aggressive in getting our facilities and operations back as close as we can to pre-pandemic levels, even in cases where we're running low occupancies, that having restaurants open, where appropriate, I think it's certainly been the right thing to do.

And I think that shows, in Q4, for example, in our significant food and beverage revenues. I think when you think about it from the brand perspective, I think they certainly are taking and will take, as they develop these standards, a much more reasonable and balanced approach perhaps than it had before. And I think they will end up with more flexible approaches in terms of not every full-service brand ex-hotel has to be open for lunch. I think owners are going to be able to continue the dialogue that they -- every brand is welcome that the owners have participated in over the last two years now in terms of helping guide them toward those decisions.

Thomas Allen -- Morgan Stanley -- Analyst

Helpful. Thank you.

Operator

Thank you. Our final question for today comes from Tyler Batory from Janney. Tyler, your line is now open.

Jonathan Jenkins -- Janney Montgomery Scott -- Analyst

This is Jonathan on Tyler. First one for me, and I know it's maybe difficult to segment everything up, but the rate strength in the quarter, is that all coming from leisure? Or is there some corporate or group in there impacting positively or negatively? And can you provide any color on your expectation for rates as we move through '22?

Barry Bloom -- President and Chief Operating Officer

Sure. Let's talk about Q4 2021. And obviously, leisure was still a significant piece for us, particularly in December. But I think part of the story that maybe has not been told as well for us, and we believe across the industry as well, was there was a lot of very good quality group business in October and November.

While some of it got lost due to delta, the business that we did have in our hotels was very high-quality group business, both in rate and in terms of banquet spend per occupied room. So that was definitely a trend. Again, volume corporate was where the weakness was, both in terms of kind of demand as well as in terms of rate. Talking about 2022, Atish touched on in his remarks kind of group rate and group booking pace and particularly strength in group rate looking at the latter half of 2022 compared to 2018 going into 2019.

But again, where we sit today in terms of the near-term transient demand, we feel very good about March and now even into April in terms of what we're seeing in terms of both continued strength in leisure demand as well as some notable pickup in terms of volume corporate demand as well.

Jonathan Jenkins -- Janney Montgomery Scott -- Analyst

OK. Very helpful. And then maybe for Marcel, I'm curious if the capex guide, which is essentially back to pre-pandemic levels. Is that a vote of confidence in the pace of recovery this year and wanting to position the portfolio for the recovery? Or is there just seeing catch-up capex in there that you feel comfortable addressing now that you're in a really solid liquidity position?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah. It's not so much cash out as it is more kind of the first part of your question, which is we obviously do have confidence in the recovery, where we are right now. We certainly scaled back our spend a lot in 2020 and 2021. And I think I mentioned it in my comments that we obviously were very focused on preserving cash, preserving liquidity, increasing liquidity.

We certainly have more confidence around where things are going and how things are recovering now. So there certainly are a few things that Barry highlighted where we did push those back a little bit from prior years, but a lot of where spend really is, is on the type of renovations where we think we're going to drive some real ROI, and particularly the two bigger ones that Barry mentioned, being Orlando and Santa Barbara. Those are two projects that we have very high hopes for how we can spend that money on this now to be really well-positioned as the recovery really takes hold.

Jonathan Jenkins -- Janney Montgomery Scott -- Analyst

Thank you for all the colors. That's all for me.

Operator

We have no further questions for today, so I will hand back to chairman and CEO, Marcel Verbaas, for any closing remarks.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thank you. Thanks, everyone, for joining us today. I know it's been a long earnings season for many of you. We're excited clearly about where we are with the company, how we performed in the fourth quarter, and certainly extremely excited about the W Nashville acquisition.

And we're excited about what this year is going to bring for us. So we look forward to continuing our dialogue and speaking to you as the year progresses.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Unknown speaker

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

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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