Xenia Hotels and Resorts (XHR) Q1 2022 Earnings Call Transcript

Xenia Hotels and Resorts (XHR -0.13%)
Q1 2022 Earnings Call
May 03, 2022, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. Thank you for attending today's Xenia Hotels & Resorts Q1 earnings conference call. My name is Bethany, and I will be your moderator for today's call. [Operator instructions] I would now like to pass the conference over to our host, Amanda Bryant, VP of finance with Xenia Hotels & Resorts.

Please go ahead.

Amanda Bryant -- Vice President, Finance

Thank you, Bethany. Good afternoon, and welcome to Xenia Hotels & Resorts first quarter '22 earnings call and webcast. I'm here with Marcel Verbaas, our chairman and chief executive officer, Barry Bloom, our president and chief financial 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, group business and our earnings profile. We will then open the call for Q&A. Before we get started, let remind everyone that certain statements made on this call are not historical facts 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, May 3, 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 non-GAAP financial measures to net loss and definitions of certain items referred to in remarks in this morning's earnings release. The property-level portfolio information we will be speaking about today is on a same-property basis for 32 hotels, excluding Hyatt Regency Portland at the Oregon Convention Center and W Nashville.

An archive of this call will be made 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, Amanda, and good afternoon to all of you joining our call today. The pace of recovery has picked up since our last earnings call in early March. As reflected in the results we reported this morning, demand in March was strong, and that has continued into April. With a strong leisure base, higher levels of business transient and then group demand allowed our properties to grow revenues above our expectations.

We expect this demand strength to continue in the months ahead. On a companywide basis, we had a net loss of $5.5 million in the first quarter. Adjusted EBITDAre was $49.9 million and adjusted FFO per share was $0.25. Despite the tough operating environment in January and early February as the Omicron variant surged, 88% of our properties generated positive hotel EBITDA during the quarter.

RevPAR for the quarter was $149.60 or about 20% below the same period in 2019, which we believe is an excellent result given the significant weakness we experienced in January and how seasonally strong the first quarter of 2019 was. When we reported year-end results, we provided information on both January and February. As we outlined at that time, the Omicron variant impacted performance at the beginning of the year. However, starting in mid-February, the recovery was back on track, and this was reflected in our February and March results, with RevPAR of $157.28 and $189.36, respectively, representing decreases to 2019 levels of 19.1% and 5.9%, respectively.

And March results were particularly encouraging as occupancy was almost 70%, ADR was approximately 11% higher than March of 2019, and hotel EBITDA margin was approximately 220 basis points higher than 2019. As a result, our March hotel EBITDA exceeded the level achieved in March of 2019. With ADR up 7.3% compared to the first quarter of 2019, we continue to be pleased with our operators' ability to drive rate growth as the demand mix evolves. Corporate transient and group demand continued to show significant improvements and accelerated into April.

Our estimated April occupancy of approximately 72% marks the highest occupancy we have achieved since the onset of the pandemic and, coupled with an approximately 18% growth in ADR over April 2019, drove an estimated April RevPAR that exceeded 2019 April RevPAR by 4%, highly encouraging given the historical seasonal strength of the month of April within our portfolio. Our results during the early phase of the recovery have been evidence of the success of our long-term portfolio strategy, allowing us to recover at a faster pace than many of our peers. We continue to benefit from our geographic footprint, as well as the high-quality level of our portfolio. We continue to be strong believers in the benefits of being located in higher growth Sunbelt markets and having a diverse set of demand drivers for our assets.

Our long-term strategy has allowed us to benefit from our demand mix, geography and property type advantage without having to make a change in our investment strategy. While we have benefited from strong leisure demand throughout our portfolio, we believe we are poised for continued growth as business transient and group demand recovers. We have seen encouraging signs here over the past couple of months, which Barry will highlight in his remarks. With a number of our assets being geared more toward the corporate and group traveler, we believe we remain well positioned to see substantial revenue and profit growth in the months and years ahead as demand from these segments further accelerates.

While many of our hotels and resorts were successfully able to pivot and capture the leisure demand that drove the early part of the recovery, including properties such as Hyatt Regency Grand Cypress, Hyatt Regency Scottsdale and Park Hyatt Aviara, as well as our Houston and Dallas hotels, we believe these assets should reap significant benefits from the recovery in the business transient and group demand that historically constituted a significant portion of overall demand at these hotels and resorts. Adding to growing demand from these segments on top of continuing strong leisure demand will further allow our operators to optimize demand mix and drive both occupancy and rate gains. Additionally, our hotels in markets that have been slower to recover, such as Santa Clara, San Francisco and Portland, are now experiencing encouraging demand growth from all segments, providing further opportunities for meaningful revenue growth within our portfolio. I've spoken many times over the years of our desire to continuously grow the quality and growth profile of our portfolio.

We have steadfastly adhered to our strategy of primarily owning uniquely positioned luxury and upper upscale hotels and resorts in higher growth top 25 U.S. lodging markets and key leisure destinations. Through our acquisition and disposition activities, our current 34-property portfolio has improved substantially from the portfolio we owned in early 2015. We believe this is not only reflected in shorthand statistics such as portfolio RevPAR and EBITDA per keys but also in the way we have been able to recover from the impact of COVID and our favorable positioning as the recovery continues.

Our recent investment activities have been a continuation of the execution of our long-term strategy. As we discussed last quarter, we completed the opportunistic sale of Hotel Monaco Chicago in January at attractive pricing, allowing us to exit a challenging market and divested the hotel that we believe would struggle to return to prior peak performance. And in March, we completed the acquisition of W Nashville, a transaction that we announced at the time of our previous earnings report. We continue to be extremely excited about this acquisition and the earnings growth that we expect W Nashville to deliver over the next several years.

The property is ramping up well, and the results during our first full month of ownership were highly encouraging as its RevPAR of approximately $270 during the month of April has us excited for the busy season that lies ahead. As the hotel opened in October of last year, this spring and summer season is marking the first time that the hotel is offering all of its impressive amenities to guests and locals alike. With its rooftop bar and its pool facilities that are both second to none in the market, we believe the hotel is poised to see significant growth in food and beverage revenues, as well as room revenues over the months ahead. Nashville is a tremendous high-growth market, and we are thrilled to own what we believe is the most desirable hotel in Nashville.

In addition to the earnings growth that we expect to achieve at W Nashville, we are encouraged by recent results at some of our more recent portfolio additions such as Park Hyatt Aviara and Hyatt Regency Portland, as well as record performances at Hyatt Regency Grand Cypress and Hyatt Regency Scottsdale. Our investment thesis for all of our recent acquisitions remains intact, and we are excited about the growth opportunities we believe we have created for our company through our investment activities over the past several years. We remain focused on driving superior risk-adjusted returns through ownership of premium hotels in higher growth top 25 markets and key leisure destinations. We remain focused on allocating capital to drive strong returns.

As we have shown consistently over the seven years since our listing, we will continue to execute on this strategy through both targeted capital expenditure projects and a combination of acquisitions and dispositions. With that, I will turn the call over to Barry, who will provide additional details on our performance during the quarter and an update on the significant capex projects we have scheduled for this year.

Barry Bloom -- President and Chief Operating Officer

Thank you, Marcel, and good afternoon, everyone. For the first quarter, our same-property portfolio occupancy was 58% at an average daily rate of $258.12, resulting in RevPAR of $149.60. On an absolute basis, this marks our highest RevPAR quarter since the start of the pandemic, coming in 7.3% higher in ADR and 19.5% lower in RevPAR compared to the first quarter of 2019. With sequential improvement each month during the quarter, March RevPAR was just 5.9% below March 2019.

We experienced significantly weaker-than-expected corporate group business related to the Omicron variant in January, with occupancy coming in at 44.1%, albeit at an average rate of $233.45, which exceeded the average rate in January 2019 by 1.2%. By mid-February, we saw a lessening impact from Omicron and very strong leisure business over Valentine's Day and President's Day with overall February occupancy of 60.8% at an average rate of $258.53, which was 6% higher than the average rate achieved in February 2019. By March, leisure demand related to spring breaks, short-term corporate bookings and researches of corporate demand more than covered any Omicron group cancellations as we achieved 69.2% occupancy at an average rate of $273.52 or 11% higher than the average rate in March 2019. On a RevPAR basis, January was 36.7% lower than January 2019.

February was 19.1% lower than February 2019. And as I previously mentioned, by March, the gap to March 2019 has been reduced to just 5.9%, the smallest gap since the start of the pandemic. During the quarter, we had five hotels keep occupancies above 75%, primarily at hotels in our leisure-focused and drive-to markets, including Key West, Savannah, Orlando, Birmingham and Charleston, all of which continue to show remarkable strength. We also had 22 hotels representing nearly 70% of the portfolio and achieved higher ADRs in the first quarter of 2022 than they did in the first quarter of 2019.

We continue to work with our hotels to identify opportunities to drive ADR to ensure that our properties are providing on-site amenities and services that satisfy our guests. Group cancellations in the first quarter amounted to approximately $10.2 million of rooms revenue, which had been on the books for the first quarter of 2022, with each cancellations primarily related to the Omicron variant. We recognized approximately $4.6 million in cancellation and attrition fees during the first quarter. Atish will discuss 2022 group pace in more detail shortly.

In terms of profit, 28 of our same-property hotels achieved positive hotel EBITDA for the quarter, with nine properties exceeding results compared to the first quarter of 2019. 11 hotels achieved EBITDA margins greater than 30% for the first quarter, and 14 hotels generated EBITDA margins greater than in the first quarter of 2019. Our properties and their respective management companies continue to do a very good job in controlling margins. For the first quarter, hotel EBITDA was $57 million, a decline of 27.9% on a total revenue decline of 20.8% compared to the first quarter of 2019, resulting in hotel EBITDA margin decline of 275 basis points to 27.8%, due primarily to the impact of the very soft January and larger-than-typical food and beverage mix throughout the quarter.

Hotel EBITDA margin grew significantly during the quarter from 10% in January, impacted by significantly lower-than-expected occupancy levels, to 29.6% in February and 36.2% in March, which exceeded March 2019 by approximately 220 basis points. Our hotels, thanks to the efforts of our operators, continue to work very hard at controlling expenses while ensuring a high-quality guest experience. In the quarter, rooms expenses declined by over 18% compared to 2019, while undistributed expenses declined by 14.1%. Within the undistributed expenses, the greatest decline to Q1 of 2019 were seen in A&G and sales and marketing, which declined 15.5% and 19.5%, respectively.

Our operators report that their recruiting efforts have improved, and there seems to be increasing availability of labor in the large majority of the markets where we own hotels. Our operators continue to focus on optimizing productivity and operating models as business levels and guest expectations increase. For the month of March, total hotel employee compensation as reported by our operators was approximately 5% higher on a per occupied room basis compared to 2019. We continue to estimate that wage rates across the portfolio will increase in the mid-single digits in 2022 versus 2021.

Leisure business continues 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. Hyatt Regency Scottsdale and Hyatt Regency Grand Cypress achieved their highest-ever levels of both revenue and profit during March. We continue to be impressed with the performance ramp up at Park Hyatt Aviara, where the hotel's ADR in March was over 50% higher than in March 2019 as the hotel continues to attract significant leisure and group business and understands its dramatic transformation at this property. Hyatt Regency Portland achieved nearly 56% occupancy in March as in-house group business, Portland Convention Center business and events at the adjacent motor center were significant occupancy contributors, and we look forward to a strong summer at this property.

Beginning in mid-February, we began to see a significant pickup in corporate volume accounts and net reduction, and our largest volume corporate accounts approximately doubled from January through March. Business travel has continued to pick up, as evidenced by increases in occupancy levels on Monday, Tuesday and Wednesday nights. And transient business for the remainder of the second quarter continues to increase week-over-week. Although still down in the 18 to 21 occupancy point range in March compared to 2019, Monday, Tuesday and Wednesday night occupancies we achieved in March represent an improvement of seven to 12 points from the levels we saw in February and are clearly indicative of the acceleration in business travel.

Turning to capex. During the quarter, we invested $7.5 million in portfolio improvements. We are pleased to have completed the renovation of the guestrooms, lobby and restaurant at the Waldorf Astoria Atlanta Buckhead and also the renovation of meeting space at Marriott Dallas Downtown. We began the comprehensive renovation of the Kimpton Canary Hotel Santa Barbara, including the commencement of renovations to the restaurant and bar, rooftop, lobby and meeting space.

Renovation of the public spaces is expected to be completed in the second quarter, and guestroom renovation is targeted to begin in the fourth quarter and be completed in the first quarter of 2023. We have continued planning work on the comprehensive renovation of Grand Bohemian Hotel Orlando, including guestrooms with substantial tub-to-shower conversions, restaurant and bar, lobby, rooftop pool area and meeting space, which is scheduled to commence in this quarter and is expected to be completed in phases, including the second quarter of 2023. During the quarter, we continued planning work on a number of additional projects that will take place during 2022, including the renovation of the meeting space and conversion of the existing lobby partner with Starbucks outlet at Fairmont Pittsburgh, renovation of the meeting space at Royal Palms Resort, completion of bathroom renovations at Marriott Woodlands, renovation of the premium suites at the Ritz-Carlton Denver, including the addition of three new guestroom keys, and renovation of the meeting space and restaurant at Hotel Monaco Denver. At Park Hyatt Aviara, the comprehensive renovation of the existing golf course began in the second quarter, and we continue planning work on a significant upgrade to the resort's spa and wellness components.

We continue to focus our capex efforts on numerous building infrastructure projects with particular emphasis on environmentally sustainable projects to enhance the life and resiliency of our physical structures, including six chiller replacements or upgrades in 2022. 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 and update on group pace and a bridge to pro forma 2019 earnings. As to our balance sheet, it continues to be a strength for the company. We have no debt maturities until 2024.

Virtually all of our debt is at fixed rates at present, with the cost of borrowing at just over 5%. Relative to other lodging REITs, our leverage ratio is modest in part due to the decisive actions we took during 2020 and 2021. And we have no preferred equity in our capitalization, representing another tool that we could utilize in the future. We expect our balance sheet to continue to be a tool to support the company's overall long-term goals.

Turning to our corporate credit facilities, which consisted of an undrawn line of credit and one term loan, we expect to exit the covenant waiver period around the time that we report second quarter results, so in about late summer. We expect that we'll meet the amended and relaxed covenants that will be in place then. And as such, the remaining restriction that is currently in place, namely a prohibition on share buybacks and dividends, is expected to end. And as the past dividend practice, by way of reminder, pre-COVID, we had an annual payout ratio in the mid-60% of that range, and we have been paying an annual dividend of $1.10 per share pre-COVID.

Moving ahead to thoughts on 2022. We continue to be optimistic about the trends we are seeing. Group revenue pace is strengthening with 2022 pace about 23% below 2019 levels. This reflects room night pace down 27% and rates up 6%.

The second half of 2022 continues to look better with the gap to 2019 shrinking and rate strengths evident. For the second half of 2022, pace is down about 20% versus 2019. This reflects room night pace down 28% and rates up 10%. The group revenue pace numbers I just provided were as of the end of March, and we expect pace to have continued to improve in April based on commentary from our operators.

Finally, I'd like to remind everyone about various puts and takes as you think about what 2019 earnings would have been on our current 34-hotel asset base if it had been stabilized at that time. On a same-property basis, for 32 hotels, we earned approximately $250 million in adjusted EBITDAre in 2019. While 2019 does not reflect peak earnings for every property in our portfolio, it is a good target to use. To bridge to a pro forma 2019 earnings, there are a few additions as follows.

First, Hyatt Regency Portland, which opened in late 2019, is expected to earn $15 million of hotel EBITDA upon stabilization. Second would be W Nashville, which opened last fall, is expected to earn $25 million to $30 million of hotel EBITDA upon stabilization. And finally, third, earnings for ROI-driven capex projects should also be included. Between 2018 and year-end 2022, we will have completed about $250 million of these projects.

That includes projects at Park Hyatt Aviara, Hyatt Regency Grand Cypress, Marriott Woodlands, Waldorf Astoria Buckhead, Ritz-Carlton Pentagon City, and at several other properties. Based upon our underwriting, we expect this spend to earn at least $25 million of hotel EBITDA upon stabilization. So reflecting these three items, we believe pro forma 2019 adjusted EBITDAre, if all 34 of our current properties have been stabilized, would have been $315 million to $320 million. Xenia continues to be positioned well to take advantage of the demand up cycle that we are beginning to see.

With limited levels of new supply growth on the horizon, increasing demand will result in pricing power, and we have just begun to see that dynamic. Our portfolio has some built-in growth drivers, and we expect to utilize our balance sheet to drive incremental growth over the next few years. Before we turn to Q&A, I want to welcome Amanda Bryant to our team. Many of you know Amanda from her time in New York and Chicago.

We're delighted that she's joined us here in Orlando as of last week. She will be helping lead our interactions with the investment community going forward. And with that, we will move to our Q&A session. May we please have the first question, Bethany?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of David Katz with Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi. Good afternoon, everyone. Welcome, Amanda. Look, I wanted to just explore a little bit more Nashville, which has been such a strongly growing market.

And if you could just shed a little more light on the segments within that market, what specific opportunities. It obviously is a nice new asset. But how does that sort of fit within, as I said, a pretty dynamically growing market at this point?

Barry Bloom -- President and Chief Operating Officer

Sure, David. This is Barry. It really -- one of the things that attracted us most about the asset is not just the growth that's been in the market and the physical quality of the asset, both of which you mentioned. But I think it has the kind of mix profile that we've tried to seek across the portfolio, meaning that it has -- it does substantive -- has the opportunity of a substantive group business, albeit in a relatively small group platform.

It's very appealing to the group market, and we've already seen that as a strength of the property, even in the time we've been there working with the property on how to identify additional group business, particularly music-related business. And where the project located geographically also gives us a really significant opportunity to participate in corporate demand from both the music business, as well as the financial services business and the other businesses that are relocated and are relocating to Nashville. And then, finally, and I think people think of this as maybe as primary demand driver, but it's really, in our mind, kind of the icing the cake is the substantive leisure business that the property does, particularly that weekend business where you have people coming in from all over the country to celebrate events, bachelor and bachelorette parties, reunions, group get-together, things like that. And we think, over time, we'll have the ability here to work with the property team to figure out how to best flex those three components of the business to really drive performance based on whatever the market conditions kind of dictate, but it's set up extremely well in all three sectors.

David Katz -- Jefferies -- Analyst

Just following that up. I think you gave us some pretty clear detail on what you expect it to earn, or at least a range normalized. What would have to happen for that number to, say, go up? Is that just going to be a function of market growth? Or are there additional levers you can pull within it?

Marcel Verbaas -- Chairman and Chief Executive Officer

David, this is Marcel. Just kind of piggybacking off of what Barry just said, I think we underwrote it in a way where we feel very comfortable with citing that it should in the $25 million to $30 million range. And if we get all these different segments kind of firing on all cylinders, like Barry just talked about, I think there's certainly upside on that. If you think about this hotel, I think, in October, and I mentioned the results on the top line as it relates to room revenue in April, thinking that it's $270 in RevPAR in April, that's obviously very encouraging when you think about the fact that I believe I said in the last quarter when we announced the transaction that we expect this property to stabilize a little over $300 of RevPAR.

So considering that we're at $270 here in April, with all of the amenities still kind of splitting and opening up now, opening up the pool facility, rooftop deck going into the summer season, we are highly encouraged by this and I feel very good about our underwriting at this time. Obviously, early. We're one month in, but nothing that we've seen so far has discouraged us. And we're highly positive on what the potential is for this hotel.

Atish Shah -- Executive Vice President and Chief Financial Officer

And David, I know you're going to be with us at the properties. But certainly, the suites are an area. The property has 60 suites. So the premiums we can get there, the food and beverage spaces that Marcel talked about.

And then, on the margin side, we have the underwriting that we could, but there's potential there, as well as the property really gets humming.

David Katz -- Jefferies -- Analyst

Understood. And if I can just squeeze one more in. With respect to San Diego, are there some comp issues or something in there? Because I think we're observing that the 4Q RevPAR was up a lot versus '19, and today was a little bit different, right? It was down a little bit. Is there a comp issue we should be considering in there?

Barry Bloom -- President and Chief Operating Officer

It's not a comp issue, David. It's more of a numbers you see -- the numbers in the earnings release are consolidated for both Aviara and the Andaz San Diego Downtown. So there's a little bit of noise and trade-off in there. Also, the first quarter, and particularly the first two months in Aviara and in that entire comps are quite weak primarily due to -- and other issues.

We're very pleased with the performance, and it was certainly in line at Aviara, certainly in line with the hotel's comp set. And really just -- it's really more reflective of the seasonality, I think, from Q4 to Q1.

David Katz -- Jefferies -- Analyst

Got it. OK. Thank you very much.

Operator

Thank you. Our next question comes from the line of Bill Crow with Raymond James. Please go ahead.

Bill Crow -- Raymond James -- Analyst

Thanks. Good afternoon, folks. A question on Dallas, which now has, I think, the largest pipeline in the country. And just sort of what are you seeing in Dallas? How much of that is competitive to your downtown assets?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah, as you know Bill, I've been in this business for a long time. It seems like every year, if you look at Dallas, there's a lot supply coming in. So that's not something new. A lot of what happens in Dallas metro is, obviously, properties are being developed in the suburban areas that are indirectly competitive with us and still allows select service supply that's being added as well.

There are certainly a few assets that are closer to us and that would have some impact on us. We do feel like, clearly, Dallas doesn't have the same kind of leisure like some -- the other markets have that's -- where we're able to pivot a lot more to leisure demand. So that is a market where we absolutely need to see some strengthening of corporate and group to kind of get back to those prior levels. And we are seeing some encouraging results there.

And Barry has talked about this a little bit in his remarks. Certainly, the midweek demand is improving in both markets. April occupancy is up pretty significantly over where March was. So we are actually seeing some signs of life in that market and are pretty encouraged by these recent trends.

Bill Crow -- Raymond James -- Analyst

Marcel, is that a long-term hold market, do you think? Or is that one that is more of an opportunistic market?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, yes, longer term, if we think about where we want to be. We clearly -- we've talked a lot about wanting to be and having a Sunbelt exposure. And being located in certain markets in Texas is, for us, something that fits within our strategy overall. So it is not necessarily markets that we'd look to actively dispose out of.

Now, could we potentially look at a market like that and say, "Hey, do we want to upgrade our presence even in the markets?" Whether it's through disposition or acquisition, whether it's through additional investments and the assets that we do own there, we're in the assets in the market at an extremely attractive basis. We bought those hotels kind of earlier on in the last life cycle. So we feel really good about the basis that we have there and, frankly, the return that we've earned on those hotels. And we think there's more to come for us there.

So I don't think that we're actively looking to divest out of. And like I said, you have a good, diversified portfolio. The geographic diversification that we aim for, a market like Dallas fits well into that.

Bill Crow -- Raymond James -- Analyst

One for Atish. Anything on the cancellation/attrition front for April or that you're aware of for the second quarter?

Atish Shah -- Executive Vice President and Chief Financial Officer

No, not -- certainly not to the same degree as the first quarter. So we don't expect anything like we've seen in the last couple of quarters.

Bill Crow -- Raymond James -- Analyst

Yeah. OK. All right, thanks. Appreciate it.

Atish Shah -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Our next question comes from the line of Dori Kesten with Wells Fargo. Please go ahead.

Dori Kesten -- Wells Fargo Securities -- Analyst

Thanks. Good afternoon, and welcome, Amanda. How has your booking window changed of late for leisure, business transient, and group?

Barry Bloom -- President and Chief Operating Officer

Certainly, we saw through the first quarter, and we are seeing into early second quarter that leisure transient is looking further out. The guests have really come to understand that if they want their first-choice market and first choice hotel, they need to start thinking about vacations earlier. I mean, obviously, what we all hear in our personalized is certainly replicated by the hotels, which are guests who haven't thought about planning a vacation, they're often left with a third or fourth or fifth choice destination and, in some cases, if there's a market, they're sold on a much lesser choice hotel than what they would have anticipated. So I think the leisure guest clearly understands that.

The volume corporate traveler, so it's very close in. And on group, it's very mixed. We're seeing -- we still see a lot of in the month for the month group business even, groups that -- companies that say we need to have this meeting and we really want to have it now, and hotels are really reacting very quickly to that. At the same time, we're seeing probably equal amounts of business that are saying, we know we need to figure out a program by year-end.

We're booking that. And then, yet another equal amount, so kind of in in thirds, it's roughly in those amounts, the way the properties describe it to us, people looking to plan the programs for their preferred dates in 2023 and want to get on the calendar now before their preferred hotels get booked up.

Dori Kesten -- Wells Fargo Securities -- Analyst

Your rate growth has been relatively strong for the last three quarters in a row. Are there certain markets where you believe continued expansion may be less likely in the coming quarters?

Barry Bloom -- President and Chief Operating Officer

Only potentially because of seasonality. When you look at -- we have some hotels that are seasonally strong in the first quarter. I think in particular, when you think about markets like Key West and Scottsdale, the strongest rate months of the year would have always been kind of behind us, although we saw substantial and higher-than-normal strength in April and through late April, and we would have seen some of that may have been to a little bit later Easter this year. But what we're seeing in the markets that are ramping up are really good rate growth along with that occupancy growth, and we're seeing that the corporate traveler is a little bit more -- not resilient necessarily because there's nothing to be resilient from, but we see rate accelerating from that segment, as well as properties and markets become more and more full.

Dori Kesten -- Wells Fargo Securities -- Analyst

OK. And lastly, what would you all need to see to reinstate a quarterly or annual outlook?

Atish Shah -- Executive Vice President and Chief Financial Officer

A good question, Dori. We expect to reinstate some type of operating guidance no later than when we report in August. So that's what we currently intend to do and, obviously, subject to our trends and our confidence level, but that's the current plan.

Dori Kesten -- Wells Fargo Securities -- Analyst

OK. Thank you.

Atish Shah -- Executive Vice President and Chief Financial Officer

Thanks, Dori.

Operator

Thank you. Our next question comes from the line of Michael Bellisario with Baird. Please go ahead.

Michael Bellisario -- Robert W. Baird and Company -- Analyst

Thanks. Good afternoon, everyone. First question, Barry, if you kind of take March and April together, how would demand an ADR look on a like-for-like basis if you were just comparing group, BT and leisure separately? Can you maybe give us how the three different segments are performing on an ADR and demand basis?

Barry Bloom -- President and Chief Operating Officer

It's a little early for us to comment on that. We're obviously working from a lot of estimates on April. What I can tell you is that we saw continued occupancy strength in all of our drive-to leisure markets. So I think that speaks to leisure, which we also saw in the resorts.

We did see substantial demand pickup in most of what we would categorize, and again, we don't look at this as a specific category, but in the large either urban or suburban markets, markets like D.C., Santa Clara, Dallas, where we saw significant occupancy growth primarily due to corporate business travel.

Michael Bellisario -- Robert W. Baird and Company -- Analyst

Got it. And can you just remind us, maybe today, point in time what your kind of rough customer mix is?

Barry Bloom -- President and Chief Operating Officer

Honestly, it's moved month to month. So I'm a little reticent to put a number out there. And we haven't really talked about it through the pandemic, in part because, as you know also, it's getting very hard to discern between that business and leisure traveler when they're on a combined state.

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah, we have historically been about a third group, just as a point of reference, and the rest is transient, whether BT or leisure. And long term, I think we're probably headed back in the same range.

Michael Bellisario -- Robert W. Baird and Company -- Analyst

Fair enough. And then, just last one for me. Atish, do you have an initial view on what you might do with your bonds when they become callable this summer, and then kind of just your latest take on the recent capital market volatility and how it's impacted your options around refinancing those?

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah. I mean, look, we -- obviously, to some degree, it's a math exercise, if it makes sense to call those. I guess that's something that we could do. But really, the view hasn't changed that we've got a good source of debt capital financing in the way of high yield.

And I think that's a good tool for the company to utilize over time, particularly as we continue to be opportunistic around the transaction. So despite the more recent volatility, I think we continue to think of that as a good tool.

Michael Bellisario -- Robert W. Baird and Company -- Analyst

Thank you.

Atish Shah -- Executive Vice President and Chief Financial Officer

Thanks, Mike.

Operator

Thank you. Question comes from the line of Bryan Maher with B. Riley Securities. Please go ahead.

Bryan Maher -- B. Riley Financial -- Analyst

Good afternoon. Maybe following up a little bit on Dori's question on rates. Are you seeing any pushback in any of the markets as you drive rate higher? And then maybe thinking a little bit longer term, as we continue to see inflation ramp and kind of suck up dollars from leisure travelers, what are your thoughts as we kind of get to the back half of this year and next year? Do you expect that that rate growth is going to start to slow down?

Barry Bloom -- President and Chief Operating Officer

Across the portfolio and across segments, we've seen very little, if any, rate pushback, and that the rates where our hotels are asking for, they're typically getting, and that's been true really across all segments. We know how strong leisure has been. Atish gave some commentary about our rate being up on the group side despite pacing down. And so, even with a relative lack of demand, we're able to -- the hotel has been able to drive a lot of rate.

As it relates to inflation impact on the consumer pocket book, certainly beyond what we think about everything that we're seeing, at least in the next three months as it relates to transient booking pace is at continued high and, in many cases, sequentially higher rates. So really hard to point to anything other than conversation and that that may be a factor down the road.

Atish Shah -- Executive Vice President and Chief Financial Officer

I mean the operators continue to be pretty bullish about leisure strength into the summer as they look at not only forward bookings but also the drivers of business, whether it's employment, economic growth, consult savings. So we obviously pay close attention to that feedback that we're getting from the operators, and that's our best indicator of how the summer may shape up.

Marcel Verbaas -- Chairman and Chief Executive Officer

The benefit of our portfolio, obviously, is that -- we talked about this a little bit, and I think in one of the earlier questions, is that we've always had a really good balance between the different demand segments within our portfolio. So the way things are setting up for us now, it's very advantageous because we're building off of this continuing strong leisure demand that's out there. And in the short term, the consumer is expecting to pay more for everything right now. They're seeing inflation everywhere.

So it's not a surprise that they're paying more for hotel rooms too. So we're able to capture those here, certainly here in the short term. And we feel really good about where corporate transient and group demand is trending. So it really gives us an opportunity that to the extent that we need to pivot away from leisure a little bit, and we have the ability to really start accommodating more of that corporate transient and group again, which to Barry's point, is also coming at very attractive rates.

So, so far, we're seeing nothing to suggest that we're going to get under a lot of pressure there.

Bryan Maher -- B. Riley Financial -- Analyst

OK. Just a second question for me. On the acquisition appetite going forward and kind of what you're looking at, is the W Nashville kind of representative of what might be the next property? Or are you still looking at smaller, more niche type of hotels to buy as well?

Marcel Verbaas -- Chairman and Chief Executive Officer

Well, when you think about -- you look at W Nashville, and it's obviously -- it's a new property. It's in a high-growth market. which obviously drove some of the pricing for where a hotel like that goes when it's high quality. But when you think about the transactions that we've done over the last five, six years, it's obviously very consistent with higher quality level hotels that we've been doing.

Where you will see us to look at potential acquisition opportunities, it could be a mix of assets where there's more of a project management component to it, there's more of a capital component to it, like there was, for example, at Aviara. There are also assets where we think we can -- they're in good condition already where we think we can really use our asset management expertise to drive revenue and profit growth. So from our perspective, W Nashville is very consistent with the deals you saw us do back in '18, '19, during that time frame. And that's kind of how you should think about what our portfolio looks like longer term, which is continuous move to have a high-quality portfolio, continually upgrade the quality of the portfolio and continue to upgrade the potential profits that we can drive from those assets.

Bryan Maher -- B. Riley Financial -- Analyst

OK. Thank you.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Aryeh Klein with BMO. Please go ahead.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thanks. On the group side, it doesn't seem like pace changed all that much from the last update. Can you talk to some of the trends that you're seeing there? And maybe some color on individual markets?

Atish Shah -- Executive Vice President and Chief Financial Officer

Yeah, sure. I mean we continue to see strength, particularly around the rate side. And you're right that the pace did not change incredibly from the last time we reported, it's been a couple of months, sort of the numbers at the end of January versus the end of March. We did the number of definites on the books.

They go up in the double-digit percentage range for the rest of '22 and '23. So that's a positive, and the production is broad-based. I mean, certainly, some of the bigger group-oriented hotels in Texas and Arizona, Georgia saw a lot of production, some of our properties in California. So the properties that you have expected are seeing the highest levels of production.

And where we have a lot of confidence is on the rate side, where the hotels and the operators are properly navigating between trying to get more group business on the books. Certainly, there's capacity given that pace is still down relative to 2019, but also preserving for what we expect will be continued strength in leisure and much higher levels of business transient as we get into later parts of this year. So that's kind of how we look at it overall and continue to feel good about how things are shaping up on the group side.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thanks. And then, just maybe on the transaction market. Clearly, rates have moved quite a bit here. Has there been any change in investor appetite? Or are you seeing any signs of cap rate movement? How do you think that evolves, I guess, as on the one hand, we have the recovery playing out, but on the other hand, rates moving higher?

Marcel Verbaas -- Chairman and Chief Executive Officer

Yeah, you're absolutely correct. You've got a lot of different type of factors that play into this. And there's clearly more comfort around the recovery, and we're -- not just leisure-driven, but as we've talked about a lot here during this call, coming from the different segments too. So we had obviously covered some of that.

And it is really early, frankly. We've just seen the more significant moves in interest rates fairly recently here. And in the short term here, we really haven't seen anything that makes us think that seller expectations and seller desires for pricing have changed. So it's still early that they change over time.

We haven't seen it yet. We certainly haven't seen a lot more product coming to market yet, which could happen down the road, to the extent that people say, "Look, it's getting more expensive to refinance an asset, maybe the appropriate time is to potentially sell the hotel." And that's why we obviously will remain somewhat patient too, as it relates to additional acquisitions. And we talked about that quite a bit really since the early parts of the recovery. We felt that the W Nashville was a really unique and great opportunity for us to acquire an asset where we want to be longer term.

We're continuing to look at the pipeline and seeing if there are additional transactions that could make sense for us in the short term. To the extent that those aren't there, we are not comfortable with the pricing, we're also happy to be patient and to wait for the right opportunity.

Aryeh Klein -- BMO Capital Markets -- Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Thanks and good afternoon, everybody. When you guys spoke about the stabilization in hotel EBITDA, including the bridge you provided, has stabilized hotel EBITDA at hotels like the Park Hyatt Aviara, the Hyatt Regency in Portland and some of the capex -- other capex projects that you've completed since '19, have any of that changed from your initial underwriting given some of the moves in ADRs we've seen relative to '19 and maybe some efficiencies that's been achieved in the business? Or do you think -- and I guess do you think there could be upside relative to that initial underwriting? I know we like to use 2019 as a milestone, but what's sort of the bull case, I guess, for exceeding those stabilized levels?

Barry Bloom -- President and Chief Operating Officer

Yeah, Austin. That's a great question. I think we continue to feel confident on the Portland underwriting at $15 million of hotel EBITDA. Nashville is new to us.

Obviously, we just acquired it. So the $25 million to $30 million that we've provided, that's our best estimate at this point, and we spoke a little bit earlier about where there could be some upside. I think on the ROI projects, yes, it's possible that there's more than the $25 million upon stabilization. Just given some of the strength we've seen, particularly at Aviara and some of these other projects and how they've been received, so I don't think it's necessarily all margin-driven.

I think it's just more overall revenue growth, as well as ancillary revenues and room revenue growth. So that's how I would describe maybe the upside. It's a little bit more on the ROI, capex-type projects.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Got it. And then, Atish, maybe another one for you. You Highlighted kind of the attractive leverage position relative to peers and the potential use of press you commented on and just overall plans to use the balance sheet as the recovery persists. So absent kind of the move in rates, how much dry powder do you have to pursue additional investments in the near to medium term before you'd need to tee up either dispositions or equity to fund those purchases?

Atish Shah -- Executive Vice President and Chief Financial Officer

Well, I mean I think some of it depends on kind of the cadence of the recovery, right, particularly after we get out of the covenant labor period. So I mean certainly hundreds of millions of dollars, but exactly what, don't know. Depends also on the timing of acquisitions or transactions. I think the important point is we're coming out of this pandemic with as healthy, if not a healthier, balance sheet, unlike some of the peers.

So we took the right decisions to kind of strengthen the balance sheet, even during the course of the pandemic. And the point on the preferred is just that many of our peers have preferred equity in their capitalization. It remains a tool that's available to us. So that's something else we could do to grow the company into the future.

And frankly, it is something that potentially could be attractive to us. So I think there's a lot of optionality in the balance sheet. I think we designed it to support the strategic goals of the company, and it continues to be intact and serve that purpose. And it has been a strength over the last many years, and it continues to be a strength.

So that's how I look at it from a big picture perspective. And as we get a little bit further past the covenant waiver period, we can probably get a little bit more into exactly how much capacity there is. I will also say, long-term leverage target, we always wanted to be sub five times. We've been running the company kind of low three to low four times net debt-to-EBITDA.

So that continues to be our view going forward. We think that's the right level of leverage for the company. Hope that helps.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Yeah. No, that's very helpful. And just one last one for me. When you -- I know there was a question earlier about mix.

And I'm just curious how we think or extrapolate the move in ADR we've seen relative to '19 as you see group business, that segment really pick up as a percentage and maybe some of these other segments like leisure that, I don't know, maybe stabilizes a little bit more relative. But is there anything you can share? I know you didn't give guidance at this point, but anything you can share as we think about to the middle of the back half of the year in terms of how that could progress?

Barry Bloom -- President and Chief Operating Officer

I mean, I think Atish touched on group pace for the back half of this year where rates are up 10%. And I think that while not every group is going to book up 10%, I think it's very indicative of the pricing power that the hotels in general have right now as it relates to group. But we've seen group certainly is not inconsistent with what the brands have told us. They're really trying to maintain the rates they've put in place for '20 with their negotiated corporate accounts.

And they seem to be doing a good job of achieving that level of stickiness. So I would say we take that as a plus as well. And then, I think as we've touched on in a couple of questions today, that leisure customer seems to really be willing to spend. I think you take all of that kind of in conjunction with, as Marcel said, an environment where people are paying more for everything.

And when you go and look at the other components of travel, airfare, car rental, things like that in particular, and I think it's great to see the hotel business is able to hang in there with those other travel players who historically may have done a better job of driving rate than the hotel industry has for no reason other than that hotels didn't have the sophistication of systems and management to be able to really drive that. So I think that all -- I think that bodes well for rate into the back -- into and through the back half of this year and hopefully into next year.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Absolutely. But like maybe what's the disparity between what that leisure customer is paying versus what you're getting on a group, on an average group rate across the portfolio?

Barry Bloom -- President and Chief Operating Officer

Again, keep in mind that breaking out business versus leisure is really, really difficult. But what I can tell you is that in the properties that are primarily leisure-focused, which we have a lot of, as you know, in those drive-to leisure markets we've talked about a lot over the last couple of years, in particular, that they've been showing significant rate growth. But the resorts have also shown significant rate growth. And again, as we're seeing pickup in these kind of urban, suburban larger hotels that we're seeing good rate growth out of those as well.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Thank you. Appreciate the time.

Operator

Our next question comes from the line of Tyler Batory with Oppenheimer. Please go ahead.

Jonathan Jenkins -- Oppenheimer and Company -- Analyst

Good morning, guys. This is Jonathan on for Tyler. Thank you for fitting me in and taking my questions. Just one for me today.

Barry, you touched on this in the prepared remarks, but can you provide some additional color on the labor market that's out there in terms of where you are on FTEs, the hiring pool and how much additional staffing you look at as occupancy continues to ramp into the summer?

Barry Bloom -- President and Chief Operating Officer

Yeah. I think our operators have done a really good job of looking after labor in general. As I said in the prepared remarks, and I'll repeat it only because it ties into the latter half of the question, is that we're certainly not seeing the same challenges in terms of either identifying new hires in the hotels, again, as reported by our managers or the same kind of pressure on wage rates that we have seen in Q3 and Q4 of last year. So not that we filled all of our open positions in the hotels, the operators certainly have not, and the biggest need areas continue to be in housekeeping and culinary and positions like that, but there is a much more consistent and fluid applicant pool.

One of the reasons we talked about the stat of kind of total labor per occupied room is we think it's very indicative of where we are in the cycle in terms of number of employees, which is that the fixed costs are really covered. I mean when you think about a portfolio that, for us, run 59%, 72% in the last couple of months, the hotels are nearly fully staffed as it relates to kind of the fixed position. So we're really now under the kind of the variable cost model as the operators look at that, which is adding enough housekeepers to be able to clean rooms as we hopefully go up from the low 70s, and banquet staff and culinary staff as we are able to drive more banquet revenue into the hotel with more groups. So I think in terms of overall staffing, again, thinking through kind of each of our conversations at each of our hotels and with each of our operating companies, the labor situation is much more stable than it was three months ago or six months ago, and that the large, large majority of the employees the hotels need are on property and are working most every day.

Jonathan Jenkins -- Oppenheimer and Company -- Analyst

OK. Just one follow-up on that bigger picture on the expense side. Obviously, doing a tremendous job. But now that you're on that variable cost side, any expectations you have for longer-term cost savings or potential margin expansion as we -- occupancy fully returns?

Barry Bloom -- President and Chief Operating Officer

No. I think we need to see how it shakes out. We're getting a little better direction and feedback from the operators in terms of what their plans are in terms of staffing models. And I think in general, we'll come through, at least in terms of management positions, the same way we've come through other downturns, which is with fewer management positions on the properties in general, which is going to be beneficial.

I think in terms of margins, I think we really need to see kind of how the rate situation kind of compares to the wage situation as we move forward through this year and into next year before we can really kind of settle around what the overall margin improvement might be across the portfolio and across the industry.

Jonathan Jenkins -- Oppenheimer and Company -- Analyst

Very helpful. Thank you for all the colors, guys. That's all for me.

Operator

There are no additional questions waiting at this time. I would like to turn to Marcel Verbaas for any closing remarks.

Marcel Verbaas -- Chairman and Chief Executive Officer

Thanks, Bethany. Thanks, everyone, for joining us today. We're certainly encouraged by the trends we've seen over the last couple of months, and we're looking forward to reporting next quarter on what hopefully will be positive results over the next few months. Look forward to seeing many of you over the next few months also at the various industry events, and I know a few of you will also be joining us in Nashville in a few weeks.

So we look forward to seeing all of you personally over the next couple of months.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Amanda Bryant -- Vice President, Finance

Marcel Verbaas -- Chairman and Chief Executive Officer

Barry Bloom -- President and Chief Operating Officer

Atish Shah -- Executive Vice President and Chief Financial Officer

David Katz -- Jefferies -- Analyst

Bill Crow -- Raymond James -- Analyst

Dori Kesten -- Wells Fargo Securities -- Analyst

Michael Bellisario -- Robert W. Baird and Company -- Analyst

Bryan Maher -- B. Riley Financial -- Analyst

Aryeh Klein -- BMO Capital Markets -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Jonathan Jenkins -- Oppenheimer and Company -- Analyst

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