This is the conference operator. Welcome to the RLJ Lodging Trust Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Nikhil Bhalla, RLJ's Vice President and Treasurer, Corporate Strategy and Investor Relations. Please go ahead..

Thank you, Operator. Good morning, and welcome to RLJ Lodging Trust 2019 Fourth Quarter and Year-end Earnings Call.

On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter and the year; Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the company's operational and financial results and guidance; Tom Bardenett, our Executive Vice President of Asset Management, will be available for Q&A.

Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what had been communicated. Factors that may impact the results of the company can be found in the company's 10-K and other reports filed with the SEC.

The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release from last night. I will now turn the call over to Leslie..

first, maximizing our operational performance in the current lodging environment; second, executing ROI initiatives; third, finalizing the plan for the Wyndham conversion programming; fourth, redeeming the FelCor bonds, which have a 6% coupon; and finally, remaining active with our share repurchase program.

We are well positioned to execute on these initiatives, given our in-house expertise and significant capacity. We have already made progress on a number of these priorities.

In terms of our ROI initiatives, throughout this year, we anticipate investing up to $50 million among a number of projects, including space reconfiguration, brand conversions and operational opportunities.

We are pursuing several space reconfiguration projects, such as the conversion of underutilized meeting space to new rooms in Emeryville, which is currently underway. And also the addition of new rooms in Atlanta and San Jose.

Concurrently, we will execute a number of energy projects across our portfolio and continue our operational initiatives, including parking and renegotiating favorable terms on expiring management agreements. Late this year, we will begin the conversion of the Embassy Suites Mandalay Beach, which is expected to join Hilton's Curio Collection in 2021.

We are targeting a minimum of low double-digit unlevered returns on these investments, and we are already seeing positive results from our ROI program, which is projected to contribute $3 million to $4 million of EBITDA this year.

As it relates to the Wyndham repositionings, we remain excited by the high-quality rebranding opportunities available and are currently in active negotiations with multiple brands. We are prioritizing the repositioning of the Wyndham Santa Monica and The Mills House in Charleston, which we expect to complete by mid-2021.

Additionally, we anticipate repositioning 2 more Wyndham properties by the end of next year. We will provide updates throughout the year as we make progress. In early June, we put in the call, a $475 million FelCor balance.

We will optimize the arbitrage between the coupon and current interest rates, which will generate significant interest expense savings and simplify our balance sheet. Finally, we continue to view share repurchases as a highly accretive tool to return capital to our investors. Year-to-date, we repurchased approximately $24.5 million of shares.

For the full year, we expect share repurchases at levels similar to 2019, subject to market conditions. Now turning to our operating performance. With our reshaped portfolio, we are pleased that we achieved 0.7% RevPAR growth in 2019, which was ahead of our expectations.

Our portfolio performed in line with the industry while outperforming our local competitive sets as well as the urban and top 25 markets. During the fourth quarter, our RevPAR declined by 0.5%, which is driven by the holiday shift early in the quarter and approximately 115 basis points from renovation disruption.

With respect to our key markets during the quarter, Louisville was again our top performer with RevPAR growth of 21.8%, despite 1 of our two hotels being under renovation. In particular, the Marriott Louisville Downtown exceeded our expectations as the hotel continues to benefit from strong innovation ramp.

Looking ahead, our 2020 group pace at the Marriott Louisville is up, which is positioning Louisville for strong performance again this year. Our D.C. market achieved RevPAR growth of 4.6% during the fourth quarter despite having 1 hotel under renovation.

Our hotels benefited from strong transient demand and compression created by several events such as the Marine Corps Marathon in the World Series. In 2020, the D.C. market is poised for strong performance given the strength of the citywides, especially in the second half of the year.

Our Austin hotels, which are all now located within a CBD, achieved robust fourth quarter RevPAR growth of 4.3%. Our hotels benefited from a strong University of Texas football schedule and the Formula 1 race. As we move into 2020, the combination of fewer citywides, a nonlegislative year and increased supply will drive moderating market performance.

Moving to Denver. Our hotels achieved healthy RevPAR growth of 3.2%, driven by strong demand. Recent dispositions improved our geographic footprint in Denver relative to demand generators. However, 2020 citywides are weak, which is expected to result in soft performance in Denver.

Our largest market of Northern California achieved RevPAR growth of 0.5% during the fourth quarter. We achieved strong RevPAR growth of 6.2% at our San Francisco hotels, which was largely offset by soft business trade trends in Silicon Valley in late quarter renovations at 3 of our hotels.

In 2020, we expect RevPAR to be constrained due to a combination of fewer citywides and incremental impact from the coronavirus. In Chicago, although fourth quarter citywides were soft, our hotels outperformed the market with flat REVPAR, benefiting from some long-term project business during the quarter.

Chicago citywides are expect to be strong in 2020, especially during the first half of the year. Among our soft markets this quarter, New York and South Florida experienced declines, partially due to the Jewish holiday shift, while Houston and Southern California experienced incremental weakness from softer citywides.

In 2020, we expect Southern California to benefit from stronger citywides and South Florida benefit from the Super Bowl. In New York and Houston, however, we expect muted trends to continue.

During the fourth quarter, a number of our other markets such as Tampa, Orlando and Charleston achieved outstanding RevPAR growth of 20.4%, 9% and 6.4%, respectively, which underscores the benefit of our geographic footprint. Looking ahead to 2020, although the economy is projected to expand at a moderate pace and the U.S.

consumer is expected to remain healthy, recent trends and business investment are concerning. Additionally, uncertainty, relative to the impact of the coronavirus, will create an incremental drag to both global and U.S. economic growth.

We believe that these factors will result in a continuation of the current low growth lodging demand environment, especially in the urban and top 25 markets, which also face new supply, lack of pricing power and a tight labor market.

Taking all of these factors into account, we expect the urban and top 25 markets to once again underperform the broader industry this year. Now with respect to RLJ's footprint in 2020, we believe that soft business spending will continue to be a significant headwind to lodging demand in our markets this year.

We also expect strength from citywides in markets such as D.C., Boston, Chicago and Miami to be offset of difficult comps in markets such as Northern California, Louisville and Austin, after a robust RevPAR growth in 2019 and software citywides in South San Franco and Atlanta.

Overall, we expect our portfolio to perform in line with the urban and top 25 markets. Despite top line headwinds, returns from our ROI initiatives will have a positive impact on our bottom line and will contribute to our relative margin performance.

In an otherwise choppy environment, our portfolio is uniquely positioned with tangible catalysts to create shareholder value regardless of where we are in the lodging cycle. The strength of our balance sheet enables us to be nimble and allows us to pursue multiple value-creation opportunities simultaneously.

Finally, today, we have a curated portfolio of rooms-oriented, high-margin hotels that is well positioned for long-term outperformance. I will now turn the call over to Sean for a more detailed review of our financial highlights and guidance.

Sean?.

our fourth quarter and full year operating results include our 103 owned hotels as of December 31, and exclude the Austin South portfolio, which was sold during the quarter. And our reported corporate adjusted EBITDA and FFO only include operating results from sold hotels during RLJ's ownership period.

With this out of the way, let's move on to review the quarter. Our fourth quarter RevPAR contraction of 0.5% was driven by a 1.2% decrease in average daily rate, partially offset by a 0.7 percentage point increase in occupancy.

Monthly RevPAR results were uneven during the quarter with RevPAR contracting 3.5% in October, followed by RevPAR growth of 1.5% and 1.4% in November and December, respectively. Our October results were impacted by the timing of the Jewish holidays, which negatively impacted the group segment.

The October RevPAR decline was mostly offset by strong November and December leisure demand, which drove the RevPAR growth in these months. We were generally pleased with the quarter as we were able to maintain market share despite 115 basis points of renovation disruption during the quarter.

Total revenue grew 0.7% during the quarter, which outpaced RevPAR due to a 5.3% increase in food and beverage revenues and a 10.5% increase in other departmental revenues, which was driven by the continued success of parking and other revenue initiatives.

From a segmentation standpoint, our fourth quarter benefited from over 2% growth in leisure transient revenues, which was offset by a low single-digit decline in business transient. As we expected, group revenues declined approximately 2% during the quarter, which was primarily driven by the Jewish holiday impact on October.

That said, our group segment only represented approximately 18% of fourth quarter revenues. Finally, we continued our strategy of backfilling business transient with contract during the quarter, which increased in the mid-single digits. Turning to the bottom line.

Our fourth quarter pro forma hotel EBITDA was $102.6 million and $450.7 million for the year. In terms of our operating margins, we were pleased that our asset management cost containment initiatives limited the increase in fourth quarter operating costs to 2.4%, which led to our hotel EBITDA margin contracting by only 119 basis points.

The industry continues to operate with the headwind of rising wages and benefits due to a tight labor market and low unemployment. Our fourth quarter wages and benefits, which represent approximately 40% of our hotel operating costs, increased 3.8%.

Our team remains focused on cost containment initiatives and is continuing to implement best practices to manage productivity, turnover and labor cost in this full employment environment. Our fourth quarter operating results translated into adjusted EBITDA of $96.3 million and adjusted FFO per share of $0.41.

For the year, we delivered adjusted EBITDA of $462.5 million and adjusted FFO per share of $2.03. Turning to our fortress balance sheet. We ended the quarter with $2.2 billion of debt, approximately $0.9 billion of unrestricted cash and net debt-to-EBITDA of 3.1x. We continue to maintain significant flexibility on our balance sheet.

As of the end of the quarter, approximately 100% of our debt is fixed or hedged, and 84 of our 103 hotels are unencumbered, representing approximately 80% of EBITDA. As previously announced, we refinanced our $600 million corporate revolver and a $400 million term loan during the fourth quarter.

These transactions extended our maturities, increased our flexibility and reduced our borrowing costs. During 2020, we will continue to monitor the financing markets to identify additional opportunities to improve the laddering of our maturities, reduce our weighted average cost of debt and increase our overall balance sheet flexibility.

Our 2019 capital program was concentrated in hotels and markets within our portfolio with outsized growth potential. In total, our 2019 renovations resulted in approximately 65 basis points of renovation disruption.

As we look to 2020, we expect to invest between $90 million and $110 million on renovations and up to $50 million on the ROI initiatives that Leslie discussed. We expect our 2020 renovation disruption will be in line with 2019, which is incorporated into our 2020 guidance assumptions.

Now with respect to our share repurchase program, during 2019, we repurchased approximately 4.6 million shares for approximately $78 million at an average price of approximately $17 per share.

So far in 2020, we have been active under our share repurchase program to take advantage of share price volatility and have repurchased approximately 1.5 million shares at an average price of approximately $16.15 per share. Our Board recently authorized a new $250 million share repurchase program.

Additionally, we continue to view dividends as an important component of the total return we seek to provide investors. We expect to continue returning capital to our shareholders through share repurchases and dividends. As we have demonstrated, we will continue to remain highly disciplined as we deploy capital.

As Leslie said, we have a range of highly accretive alternatives to pursue, including share repurchases, multiple brand conversions and high-impact ROI opportunities. We remain committed to continuously evaluate capital allocation alternatives based on changes to market conditions and the relative value of each capital allocation alternative.

Now turning to our 2020 outlook. While we remain cautious on the overall macro environment, we expect our portfolio to perform in line with urban in top 25 MSAs, which will be impacted by continuing soft business transient demand. We anticipate that the strength in markets with strong 2020 citywides will be offset by markets with weak citywides.

Additionally, our 2020 guidance does not assume that we refinance the $475 million senior bonds or repurchase any incremental shares, as both will be influenced by market forces at the time of execution. I would also like to provide additional color on our 2020 cost assumptions.

We expect total 2020 hotel costs to increase between 3% and 3.5%, which is higher than our 2019 growth rate of 2.2%. The combination of the economy being at full employment and ongoing economic growth continues to pressure labor costs and our 2020 guidance assumes wages and benefits to increase between 3.5% and 4.5%.

Also, our guidance incorporates insurance premium and property tax increases with a combined impact of approximately 65 basis points of the implied 155 basis points decline in hotel EBITDA margins at midpoint. As it relates to the Wyndham guarantee, our guidance assumes that we record the same level of guarantee during 2020 as we recognized in 2019.

For 2020, we expect RevPAR growth to range between negative 1.5% and positive 0.5%. Hotel EBITDA margins in the range of 29.4% to 31%, representing a decrease of approximately 155 basis points at the midpoint from 2019. Consolidated hotel EBITDA to be between $413 million to $443 million.

Adjusted EBITDA to be between $378 million and $408 million and adjusted FFO per diluted share to be between $1.62 and $1.77. Our 2020 outlook also assumes no additional acquisitions or dispositions. Finally, we are continuing to monitor the potential impact of the coronavirus.

However, at this time, our guidance does not include any impact given the difficulty in quantifying the impact at this time. To assist in modeling our seasonality, please note that in the first quarter, we expect hotel EBITDA to be between $89 million and $94 million and corporate adjusted EBITDA to be between $83 million and $88 million.

Please refer to the supplemental information, which we posted on our website last evening, and includes pro forma results for our 103 hotel portfolio over the past 4 quarters. Thank you. And this concludes our prepared remarks. We will now open the lines for Q&A.

Operator?.

[Operator Instructions]. Our first question today is coming from Austin Wurschmidt of KeyBanc Capital Markets..

First, just a little bit of a clarification.

Is the $3 million to $4 million of contribution from the ROI initiatives related to investments you did last year? And if so, second, I'd be curious how much contribution you expect this calendar year from the $50 million you're targeting to spend this year?.

Sure, Austin. The $3 million to $4 million is what we expect to benefit in calendar year 2020 from our ROI initiatives. That's a combination of the lapping effect of initiatives that we put in place in 2019 as well as the partial year impact that we're going to get from the 2020 initiatives..

Got it. That makes sense.

And is -- how much of that is already captured, I guess, in your RevPAR growth forecast? Or maybe asked a little bit of a different way is, what do you expect sort of a pro forma same-store revenue growth number to look like in 2020?.

So Austin, a lot of those ROI initiatives that we put in place last year were things like renegotiating our parking agreements and operational-type initiatives that are not really RevPAR centric. And so I wouldn't -- you really can't parse out the RevPAR impact because it's de minimis on the ROI.

A lot of that is, it was us capturing lower costs on those initiatives as well as our green initiatives as well, which are reflected in our utility cost..

Got it. That's helpful.

And then recognizing you don't intend to use all the existing dry powder immediately, but what's a reasonable time frame that we should expect you to redeploy the capital?.

I think, Austin, I mean, we've talked about is, on the ROIs, we expect to deploy $100 million to $200 million, and $50 million per annum for the next couple of years. We've also -- are looking at a run rate on our normal CapEx at about $100 million this year that seems consistent with last year as well.

And then we will have some incremental on the conversions that we would bake in and say that's a to-be-determined number. But I would see this over a 2- to 3-year period of time..

That's helpful.

And then our acquisitions on the table today?.

Look, Austin, we never say never, but we recognize where the current cost of capital is at that the bar is a little bit higher for acquisitions. But our acquisition team continues to underwrite and never put our pencil down because you never know when an opportunity will present itself.

But we recognize that buybacks are very attractive given the current volatility today. We recognize that buying back the bonds or redeeming the bonds has an immediate impact as well as the ROIs. And so we're clear about -- from a prioritization perspective, but we never say never about acquisitions..

Our next question is coming from Chris Woronka of Deutsche Bank..

I was hoping to -- and I know you all have done a lot of CapEx over the last several years, but could we get maybe a big picture overview.

If we look at kind of the Embassy, Courtyard and Residence Inn portfolios, which are your 3 biggest with the current portfolio, where you kind of stand on overall capital needs for those given that I know those brands are all in various stages of new prototypes and such?.

Sure. Thanks, Chris. I think I'll start with that on -- a lot of our disposition activity was centered around hotels that frankly, there was a lot of the deferred capital with those assets that we couldn't justify allocating capital to those markets, or those specific assets.

And so a lot of that, what I'll call, brand reconditioning work that you referenced, we handled thus far with our disposition program.

But when you look at the initiatives within our portfolio, Embassy Suites is a big chunk of our capital over this year, last year and likely over the next year or so as we invest into the reimagining of that brand, which we're super supportive of, and Hilton's done great work there.

But the $90 million to $100 million of CapEx this year -- sorry $90 million to $110 million is what we would consider a normal run rate capital. And so all the work within each one of those brands is really just a subset of that $90 million to $110 million.

And so that's what we spent roughly last year and that's a 2020 -- and that's a normal run rate for our portfolio..

Okay. That's helpful. Just on the Wyndham portfolio, I think you said 2 repositionings by mid-2021, 2 by the end of 2021, leaving 4.

I mean should we -- not that we model it separately, but I mean, where do you think the performance of kind of the four that are not going to be done? Where does that fall between now and when you actually come up with a plan for those? Is that something that's a potential drag? Or how do you underwrite that?.

I mean there's a couple of moving pieces to that. Keep in mind that we did receive the termination payment from Wyndham that we're amortizing over the next few years. And so that will function as a yield support for our portfolio as we make -- as we renovate the assets.

Additionally, we are talking to brands about possibly converting some of the assets before they're actually renovated. And so it's hard for us to give you an exact perspective on that. But what we say is that we are looking for ways to offset that when the termination payment burns off and the actual conversion..

Our next question is coming from Wes Golladay of RBC Capital Markets..

Just want to look at the ROI projects.

Can you talk about your payback period on the energy investments? And how many keys you want to add to the hotel portfolio this year?.

Sure, Wes. For the energy initiatives that obviously varies by project. But generally speaking, we underwrite to anywhere from 2.5 to 3.5-year payback period. So those things like water flow and energy consumption projects are quicker. Things like in-room thermostats are a little bit longer on that.

With respect to the number of keys, we're adding 23 keys to the Emeryville hotel and then we're adding about 10 keys in Buckhead and 16 keys in San Jose. That's the projects that we've identified. Obviously, as you would expect us to continue to try to uncover incremental ROIs, adding keys is a critical subset of that.

But that's what we've identified today..

Okay. And then looking at the balance sheet, you have a lot of cash, and you did call out refinancing potentially the former FelCor bonds at about 6%.

Would this be a delay draw? And then just why not use cash on the balance sheet right now to pay that off?.

Sure, it's a great question. Within our term loan facilities, we have a delayed draw option within the existing facility. And so I don't have a crystal ball what the world is going to look like, June 1. But certainly, one of the options that we have is to utilize the delayed draw feature on our existing facility.

But it's something that is certainly on the table. But however we execute, that's ultimately what we're going to bake into our guidance when we announced that transaction. But in short, all of those options are on the table right now as we evaluate the right execution for that transaction..

Our next question is coming from Gregory Miller of SunTrust Robinson Humphrey..

As being on the call or where there are a number of New York City hotel owners that are defaulting on the mortgages to the point that a few are reportedly closing, given that environment, are there hotels competitive to your New York City hotels that are in trouble and/or have closed? And can these default trends actually work in your favor, perhaps for market share gains?.

Sure, Greg. Listen, we've been reading the same reports on that, that you have. I think New York City as a market, our assets are well positioned, right? We're in Midtown and times Square, respectively, for the majority of our New York City concentrations.

When you look at those submarkets, we're not seeing a lot of hotels exit the system, and so we're not seeing a lot of benefit. I think our view, as we said on the prepared remarks, is that 2020 will continue to be a challenging year within New York. When you look out on a longer horizon, supply does weighing starting next year and the following year.

And so we are cautiously optimistic that if that continues and demand trend continues to be strong, which it has been in New York that there is a light at the end of the tunnel for New York, but 2020 is going to be a challenge..

Okay. And just one other question on my end. As for the Wyndham hotels, I'm curious if there's any advantage today to perhaps holding out on signing new management or franchise contracts, given what could be a slowdown in U.S. development deals for some of the C corps.

Similarly, have you seen prospective deal terms becoming more favorable, say, versus your expectations a few months ago?.

I don't think there's any need to hold out. This is bullseye real estate that all the brands are very attractive to. As I mentioned in my prepared remarks, we're in active negotiations. We're excited by the opportunities that are being presented to us. And we're making great progress.

And so in those negotiations, we are starting to see the terms and they're very attractive relative to what we're seeing because of the real estate is driving it. Seven steps from Santa Monica Pier, in the heart of Charleston, doesn't matter what the development cycle is. It's bullseye real estate..

Our next question is coming from Anthony Powell of Barclays..

Yes. Focusing on New York, and sorry if I missed this in the prepared remarks, I wasn't on the call earlier.

But yes, the Knick seemed to show year-over-year declines in EBITDA and how that hotel ramping versus your expectations? And what's the update on the time line for a potential sale there?.

Anthony, I'll take the second part first, and then Tom will comment on the Knick itself. Look, we were very successful on our disposition program. Last year, we built a tremendous amount of capacity that's allowing us to execute on our initiatives this year.

And so with our strong execution, we are going to become patient with the Knick, as we've mentioned before. This is an iconic asset in an irreplaceable location, and we believe in New York long term and given our great execution on dispositions, we don't look at selling any more assets this year. And that includes the Knick..

Anthony, I would say that we're very pleased with the performance. In fact, the Knick outperformance in the New York market in the first 6 months. The back 6 months -- the backend of the 6 months was a little softer, but we continue to ramp up by growing share by about 4.5% grew RevPAR last year.

And we continue to see us having the right place when it comes to business transient in that marketplace in Times Square where we're growing that segment, which is critical for our average rate to continue to escalate..

Got it. And and on the planned refi of the Felcor bonds later this year, your lever has come down a lot, which is good.

Does it make sense for you to maybe even refi with a bit more debt than the $400 million, maybe a $500 million in the news and proceeds to buy back more shares given where your share is trading right now?.

Yes. Anthony, great question. We're sitting on a tremendous amount of capacity today. And so the incremental proceeds, I think, aren't going to help or hurt us from buying back stock. I mean we are sitting in a very enviable position today of having enough capacity with which we can deploy on the initiatives that we're so pleased, as we sit here today.

So I think our decision on how much to refinance is going to be a function of kind of what the arbitrage is between the 6% and where the market is as well as what our outlook is for capital needs over the next 2 to 3 years, as Les mentioned, on things like ROI initiatives, CapEx, share repurchase activity, Wyndham conversions, et cetera..

Got it.

And the $250 million buyback authorization, is that a signal that you want to do $250 million? Or just what's kind of the commentary on the magnitude and timing of the buybacks over the next year or so?.

Yes. I mean, Anthony, we've always said that order magnitude would be a function of where the price is trading at relative to volatility and current outlook. So you would expect us to be more active today, obviously, where things are at.

What I said in my prepared remarks is that we expect our levels to be similar to next year -- I'm sorry, to last year, rather. And the size of the program is just a typical size of the program. Obviously, if market conditions continue to be this volatile, you'll see us be more active..

And just to bolt-on to that, Anthony. We had a share repurchase program that was $250 million that expires on the 29th of Feb, and we just renewed with essentially an identical share repurchase program. And so there is no signaling by that amount..

Our next question is coming from Neil Malkin of Capital One Securities..

Wondering if you could just maybe talk about the different economics or acquisition costs or net REVPAR, however you want to look at it, between, I guess, booking through brand.com or the hotel website versus our loyalty guests doing the same thing versus an OTA booking?.

Yes. Sure, Neil. This is Tom. So we're very well-heeled when it comes to the support that we get from the brands. If you think about what's going on right now, the big brands that we have, most of our product, we got about 34% of our portfolio with Hilton, 43% portfolio for our Marriotts, and they continue to grow brand loyalty programs.

So a lot of the occupancy that's coming through the brand.com site is very attractive in regards to the cost related to compared to the OTA sites. Obviously, the percentage that you pay on the OTA sites are more like higher -- excuse me, single -- double digits. And there's a lot less fees and relationship when you look through the brand.com site.

So we're spending a lot of our opportunity and with the brands focused on e-commerce and making sure people are going to the brand sites. In fact, the brand loyalty program, for what it's worth, there's a lot of sign-ups that happen at the desk, there's a try over and over again to make sure you're converting from the OTA side.

So it's a much healthier, profitable location to drive business. And with the acquisition of new members, both for Marriott and Hilton, they're now over 100 million to 130 million members. So you have a significant amount of draw to those locations.

When you think about the group side, obviously, the brands have been working with us and brought down from the group commission from 10% to 7%. In regards to group acquisition for many of the meeting planner sites, the HelmsBriscoe, the folks that book the larger citywide events, and so that cost is also coming down compared to the OTA.

So when we look at where we spend our marketing dollars and what we're trying to attract, we obviously would like to have no commissions, first and foremost, but we do understand the importance of attach yourself to the pipe and the brand loyalty programs really give us that opportunity to do that..

Yes. I guess another way of kind of understanding.

Are you more -- are you happier or it's a net benefit to trade an OTA relative to a loyalty member who gets the lower ADR and whatever associated fee you pay into the brand system related to that?.

Yes. Neil, this is Sean. Listen, we are supportive of all things being equal. We like having a guest come in through brand.com. The overall cost to secure that revenue is less than it would be for an OTA. The commissions is a part of it, but there are other factors that influence us as well.

And I think when you look at what the trends have been, there's a report published on -- recently on the brands and how they continue to steal share, and they've increased during 2019, the amount of bookings that have shifted to brand.com.

And so we are super supportive of that continuing because it benefits our both top and bottom line through lower commissions, but also, I think, more predictable business, et cetera. And so from a preference standpoint, we prefer brand.com book business..

Okay. Great. And then, I guess, the other thing for me.

Obviously, you're not a big group house, but just given the coronavirus uncertainty, in terms of like the West Coast, are you seeing incremental increase in companies or large events pushing or canceling? And then if so, are you going through with the cancellation fee, attrition fee or because of the circumstance, are you sort of forgiving that just to build a goodwill?.

Yes. We are seeing some cancellations. Well, keep in mind, we only have sort of 60- to 90-day window of visibility here. We have seen some cancellations on the West Coast.

And they are oftentimes when we're having discussions with those individuals about rebooking and utilizing the cancellation provisions as a way to sort of segue into that conversation. As Sean mentioned, it's not in our guidance in terms of the impact because we are talking about them in terms of rebooking.

I think the real bigger issue is not necessarily what we're seeing in our properties, but it's really seeing what's happening in the broader market, and the lack of compression that's going to occur as a result of people not showing up to larger events, for example..

Our next question is coming from Michael Bellisario of Baird..

Just a couple of questions back on the Wyndham portfolio. I guess, first, specifically on the two 2020 projects.

Are you guys assuming any top or bottom line disruption in your guidance for this year?.

No. A lot of the work that we're doing with the Wyndham portfolio is going to be a soft-cost driven, Mike, and so that's not going to have any disruption impact this year. A lot of the hard cost is going to be spent next year..

Got it.

And then for these two first projects, fair to assume, at least on a gross basis, net of any brand, key money that these two hotels are going to be the highest cost of the rebranding projects that you guys do go forward with?.

one, we need to finalize the selection; two, once we get the PIP, we'll negotiate that. And so understanding the brand, the selection and -- I'm sorry, the brand and the scope of work is going to dictate that. But I would also say, no, just looking at these 2 assets on a relative basis..

Got it. And then just lastly, more high level.

Can you remind us of your underwriting on these deals? And how you're thinking about the top and bottom line lift over time? And how long you think it takes to get to those stabilized numbers that you're projecting?.

Sure, Mike. With respect to the entire portfolio, we think there's 20 points of share gains relative to these hotels upon getting rebranded from Wyndham. And so we expect that to happen over the next 3 years.

And so the way we've underwritten it is that by the end of 2022, which would have been the end of the guarantee period, we would expect it to grow back to where we otherwise would have been with the guarantee.

We also, as Leslie mentioned, have the $35 million termination payment, which will act as yield support against the renovation disruption as we renovate these hotels over the next 3 years.

But our view is that, that 20 points of share translates roughly at the top line to $30-plus million of incremental revenue and anywhere from $10 million to $12 million of incremental profit, just purely based on like margins to our existing portfolio..

Our next question is coming from Bill Crow of Raymond James..

With the lack of room revenues, industry-wide, everybody is looking at nonrooms revenue to drive or help support margins.

Can you remind us how many of your hotels are charging fees, amenity fees or resort fees or whatever you want to call it? And then what your thought process is in 2020 as far as growth in that number, both number of hotels you might add to that program? And how much you might increase in the actual fee itself?.

Sure. Bill, we have five hotels that are charging facility into our resort fees today. That's in Key west, Orlando and New York. We -- within our 2020 guidance, we assume that there is no incremental hotels that move into the charge resort fee year-over-year. We are expecting increases of the resort fee within the hotels that we do charge the fees.

But we are not underwriting, at least, for 2020, the addition of any new fees within the portfolio..

Sean, is that just a competitive issue within those markets? Is that a brand prohibitive issue? Or why do you not have more -- why are you not charging more fees across your portfolio?.

I think it's primarily a function of the kind of hotels that we own. We are not a resort-driven portfolio, as you know, which is where the greatest opportunity is to charge these fees. So that's probably the biggest impediment.

We will continue to look inwards within our portfolio and try to identify opportunities to add the fees, but we -- when you look at the opportunity set within our portfolio, which is our portfolio type is not -- we've had a resort type portfolio, where these fees are more common..

At this time, I'd like to turn the floor back over to Ms. Hale for closing comments..

I'd like to thank you all for joining us today. As we've discussed, we are very pleased with the successful completion of our repositioning, which has set us up with a number of unique value-creation opportunities along with the capacity to pursue them, and we look forward to providing you guys an update as we make progress. Thank you, guys..

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time. Thank you, and have a wonderful day..