Xenia Hotels & Resorts Inc (XHR) 2016 Q3 法說會逐字稿

Good day, and welcome to the Xenia Hotels & Resorts, Inc., third-quarter earnings conference call and webcast.

(Operator Instructions)

I would now like to turn the conference over to Ms. Lisa Ramey, Vice President of Finance. Please go ahead.

Thank you, Dan. Good morning everyone and welcome to the third-quarter 2016 earnings conference call and webcast for Xenia Hotels & Resorts. I am here with Marcel Verbaas, our President and Chief Executive Officer; Atish Shah, our Chief Financial Officer; and Barry Bloom, our Chief Operating Officer.

Marcel will begin with a discussion of our third-quarter results and an overview of our activities for the quarter and year to date. Barry will follow with additional details regarding operating performance and market color. Atish will conclude our remarks with a discussion on our capital allocation strategy and balance sheet, as well as an update on our outlook on the remainder of the year. We will then open up the call for Q&A.

Before I get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments in this call, are made only as of today, November 7, 2016, 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 income and definitions of certain items referred to in our remarks in this morning's earnings release. An archive of this call will be available on our website for 90 days.

With that, I'll turn it over to Marcel to get started.

Thank you, Lisa, and thank you all for joining our third-quarter call.

Our third-quarter results were generally in line with our expectations, with Houston being the primary outlier. As with several of our peers, our third quarter benefited from the shift of the Jewish holidays into October and the Democratic National Convention in Philadelphia that took place in July. These positive factors were largely offset by the continued weakness in the energy markets, specifically at our Houston area hotels. For the quarter, our same-property portfolio RevPAR declined 0.7%. On a monthly basis, RevPAR declined 2.8% and 2.2% in July and August respectively, and increased 2.9% in September.

During the quarter we had net income attributable to common stockholders of $20.2 million, an increase of 11.9% over last year. Our adjusted EBITDA declined 2.4% to $73 million for the third quarter and our adjusted FFO per share remained flat at $0.57. Our same-property hotel EBITDA margin was 33% for the quarter. Expense control continues to be an area of focus, and we are pleased with our ability to maintain margins, particularly during a time of RevPAR growth challenges. The result of these efforts is that our same property EBITDA margin year to date, as of the end of the third quarter, has increased by 26 basis points compared to the same period last year on RevPAR growth of 0.6%.

As we discussed last quarter, growth in the lodging industry continues to moderate due to a slowdown in demand coupled with supply growth, which is significant in several markets. While we believe we are better positioned than most of our peers from a supply perspective, our portfolio is not immune to the demand challenges the industry as a whole is experiencing, particularly on the corporate side. And we are continuing to experience significant weakness in the Houston markets. Against this background, we are concentrated on the aspects of our business that we can manage.

By way of reminder, and as we discussed in May at our Investor Day, four pillars makeup our strategy. First, a broad portfolio mix. Second, a focus on quality, through transactions and portfolio enhancement. Third, differentiated portfolio management through aggressive asset management initiatives and the leveraging of our relationships with brands and managers. And fourth, a strong financial profile and healthy balance sheet throughout the cycle.

In the past year we have upgraded the quality of our portfolio through several strategic dispositions as well as capital reinvestment in our current portfolio. As previously discussed, we have sold six hotels since last fall which, on average had RevPAR over 25% below the remainder of our portfolio and an EBITDA per key discount of over 40%, generating gross proceeds of almost $310 million. The assets we have sold to date not only share their positioning on the lower end of our portfolio but also have significant upcoming capital needs in common. Our ability to exit our ownership of these assets at an attractive multiple while avoiding approximately $90 million in near-term capital expenditures has significantly strengthened our portfolio and our balance sheet. We continue to evaluate potential additional dispositions and will provide details on any additional transactions if and when they occur.

After the dispositions we have completed to date and the addition of the River Place Hotel, the Canary, the Palomar in Philadelphia, the two Grand Bohemians, and the Hotel Commonwealth, our Company today not only owns a higher quality portfolio than at the time of our listing, but we have been able to achieve this while continuing to strengthen our balance sheet. As a result, our total portfolio RevPAR during the third quarter was 6.3% higher than last year and our net debt to EBITDA remains at a low ratio of 3.5 times. This puts us at a very conservative level among our peers, particularly considering the fact that we have no other senior capital. Atish will provide additional details on our balance sheet activities later on.

In addition to utilizing proceeds from our dispositions to fortify our balance sheet, we have been able to return capital to the shareholders through the execution of our share repurchase program, while also maintaining a strong dividend yield at a manageable payout ratio. We announced an additional $75 million share repurchase authorization this morning and will continue to evaluate buybacks as part of our capital allocation approach going forward. We have also deployed capital into our portfolio by completing several significant renovations since our listing.

In addition to the renovations we completed at the Andaz Napa, the San Francisco Airport Marriott, the Hyatt Regency Santa Clara, and the Marriott Napa Valley, we most recently completed the final installment of the renovation at the Hyatt Key West, which included an extensive soft goods renovation of the guest rooms. Upon completion of this full property renovation, which included not only this guestroom renovation but also the previously discussed Blue Mojito Bar renovation, construction of a new spa, and the addition of two guestrooms, the hotel was rebranded as the Hyatt Centric Key West Resort and Spa just a few days ago. We are excited about the rebranding of the hotel and believe that the hotel's premier location, newly upgraded rooms and amenities, combined with the Centric lifestyle brand will continue to drive solid performance.

Now looking ahead, in the fourth quarter we will complete the renovation of the meeting rooms and ballrooms at the Renaissance Atlanta Waverly and we will begin guestroom renovations at the Westin Galleria in Houston, Andaz San Diego, Bohemian Hotel Celebration, and Bohemian Hotel Savannah. The Westin Galleria is the most significant of these and includes the complete renovation of the guestrooms, tub-to-shower conversions in 75% of the rooms and the creation of 10 additional suites through the combination of 20 existing guestrooms. This renovation will enable our hotel to provide guests with both the premier location in the Galleria as well as the best rooms product in the market, which we believe will position the hotel well for the eventual recovery in Houston. We are planning for the Westin Oaks Tower to receive similar upgrades beginning in late 2017. We believe that these renovations and additional projects that we are planning to start later in 2017 and 2018 will position us well as the industry regains strength.

In addition, we continue to be dedicated to aggressive asset management initiatives, including our property optimization process. This has led to continued margin improvement in the third quarter and year to date. We are extremely pleased with our year-to-date expense controls, which demonstrates our ability to leverage our relationships with both brands and managers, and contain costs in a challenging revenue environment.

Before turning the call over to Barry I would like to spend a few moments discussing the Houston markets. The third quarter in Houston was tougher than we anticipated and the fourth quarter forecast remains very challenging. Although our Houston area hotels only represent approximately 10.5% of our estimated 2016 hotel EBITDA, the weakness in the market certainly has an impact on our overall performance. This is evidenced by the fact that our same-property portfolio RevPAR excluding Houston actually increased by 2.3% during the quarter. While we do not have a projection on the exact timing of the recovery of the energy markets and Houston in general, we look forward to the days ahead when Houston will be a driver of positive performance in our portfolio. We believe that the improvements that we are making to our high-quality assets in the markets during this time of reduced demand will serve the Company well when the cycle turns. And we remain steadfast in our belief that the location of our assets in the market is second to none.

With that I will turn it over to Barry, who will provide additional details on our operating performance.

Thank you, Marcel, and good morning everyone.

As a reminder, all of the portfolio information I will be speaking about is reported on a same-property basis for 43 hotels. As Marcel mentioned, our RevPAR for the quarter was down 0.7%, which is comprised of a decline in occupancy of 72 basis points and a slight increase in rate of 0.3%. Excluding our four hotels in the Houston area, portfolio RevPAR grew 2.3% for the 39 remaining properties, as occupancy was up 74 basis points and ADR increased 1.3%. Year to date, through the end of the third quarter, our RevPAR is up 0.6% compared to 2015, with a 77 basis point decline in occupancy and a 1.6% increase in rate. Excluding our Houston area hotels, RevPAR for the portfolio year to date grew 3% due to a slight increase in occupancy of 31 basis points and a 2.6% increase in ADR.

Of our 30 markets half had positive RevPAR growth for the quarter. Our strongest market was Philadelphia, which benefited from the DNC in July and achieved RevPAR growth of 38%. Other top-performing markets included Charleston, West Virginia, up 18%; Fort Worth, up 14%; Santa Barbara, up 8%; Dallas and Napa, both up 6%; and Honolulu, San Diego, and Denver, each up 4%. As mentioned earlier, Houston remains a tough market due to the volatile energy markets and significant additions to supply. RevPAR for the quarter was down 24.5% as occupancy was down 11 points and rate declined 11.5%.

Year to date, San Francisco, Philadelphia, Atlanta, and Santa Clara are our top-performing markets. As we've discussed previously, our Marriott San Francisco Airport enjoys diverse demand generators with its proximity to one of the busiest airports in the US as well as Silicon Valley. While 2017 will be a challenge for the San Francisco market with the closing of Moscone Center, we believe our hotel will continue to capitalize on its unique location and relationship to high-quality technology and biotech firms located along the San Francisco Peninsula.

Though not yet included in our comparable hotel statistics, we are pleased with the performance of the Grand Bohemian Charleston and Grand Bohemian Mountain Brook, our two development projects that opened in the second half of last year, as well as the Hotel Commonwealth, which we acquired in January. The two Grand Bohemians are terrific absolute RevPAR performers both in the context of their individual markets as well as in our overall portfolio. The Commonwealth also continues to perform very well, with RevPAR nearly equal to last year despite the addition of 96 rooms to the previously 149-room property. Even more significantly, we expect the property will improve its EBITDA margin by approximately 1,500 basis points from last year. We're pleased with the growth trajectories of these hotel and expect them to continue to perform well.

Turning back to Houston, I'd like to provide some additional detail. The third quarter significantly underperformed our expectations. In the second quarter of last year performance took a dramatic downward turn and we originally anticipated that the third and fourth quarter of this year might benefit from easier to year-over-year comps. To date that has not been our experience, and it has been difficult to ascertain when the market may stabilize. One of the harder things to predict is the impact of new supply to a market with such challenging demand characteristics. And as we have discussed previously, the Woodlands sub markets has seen significant supply open this year.

Two new directly competitive hotels opened in early 2016 and they continue to compete aggressively with our Marriott on rate. In addition three select-service hotels have opened between our hotel and the new Exxon campus over the last 12 months. These have also had some impact on our hotel. Fortunately, all current projects in the competitive market have been completed and several potential projects have either been deferred or canceled entirely. The Galleria sub market continues to struggle as a result of supply additions and the return of newly renovated rooms to the market. In addition to the supply that has already opened, the 1,000-room Marriott Marquis will open in downtown Houston in late November. We expect this hotel to impact overall compression in the market, which will be more significant during this period of weak demand. On a citywide basis, despite hosting the Super Bowl in 2017, convention pace for Houston for next year is down in the low to mid single digits in terms of percentage points.

Even with the dramatic downturn in the top line of our Houston hotels we are pleased with our hotels' efforts to control expenses in this difficult environment. As mentioned previously, we have spent a significant amount of time identifying potential costs and productivity savings, a process that began as soon as we recognized the current downturn in top-line performance. Year to date, the EBITDA margin at our four Houston area hotels has declined only 250 basis points on a RevPAR decline of 16.4%, a direct result of us proactively addressing the cost structures at each of these hotels.

For the overall portfolio we achieved EBITDA margin growth during the quarter of 26 basis points despite negative RevPAR growth. Aside from Philadelphia, where margin also benefited from the DNC, we had several hotels that experienced margin growth of over 500 basis points for the quarter, including our Hilton Garden Inn in Washington, DC, and the Fairmont in Dallas. The significant margin improvement in these hotels is due largely to productivity improvements and the ongoing efforts of our asset managers and our portfolio initiatives team.

Our business mix remained constant for the quarter with transient business accounting for approximately 70% of our revenue. As reflected in our overall RevPAR, both our transient business and group business were virtually flat for the quarter. We continue to have more attrition than originally anticipated as certain pieces of group business did not pick up their blocks in line with our expectations.

Overall, we are experiencing comparatively weak pricing power in a large number of our corporate transient markets and with specific individual volume corporate accounts. We are frequently seeing slower pickup in demand, even for days of the week that typically sell out, with various market participants reacting by lowering price, which is leading to discounting by the entire market. We continue to work with our management companies on specific efforts to ameliorate these trends.

Looking ahead to 2017, total group booking revenue pace is currently up in the mid single digits, with solid bookings for the first quarter where group revenue pace is particularly strong due in part to the shifting of Easter back to the second quarter. We are pleased to have secured increases in both room nights and rates for a number of our largest annually recurring bookings for 2017.

With that, I will turn the call over to Atish, who will discuss our financial position in greater depth.

Thank you, Barry, and good morning.

I will cover two topics today. First I'll discuss our financial profile and balance sheet. Second, I will provide our outlook for the remainder of the year and some initial thoughts as we look forward to next year. I'll begin by discussing our financial profile and balance sheet.

We continue to be well positioned for the current operating environment. Our balance sheet is strong, as reflected by a 3.5 times leverage ratio. We are well positioned to take advantage of future growth opportunities. Since our last quarterly call, we have executed on plan to continue to strengthen the balance sheet. We have repaid over $225 million of property-level debt in part from proceeds of asset dispositions. In doing so we have addressed all debt maturities until April 2018. Including potential extensions, our weighted average loan duration currently is approximately five years. We have increased our asset level flexibility and resource base as well, as 28 of our 46 owned hotels are currently unencumbered by property-level debt. We also strengthened our balance sheet by modifying two property-level loans. These modifications extended the maturity dates on the loans into 2022. As part of the modifications we were able to draw down over $40 million of total proceeds without any change to the interest rates of the loans.

Our overall weighted average interest rate is 3.17%. This low interest rate is the result of our mix of debt. Almost half our debt is variable-rate debt. Over time we intend to increase our share of fixed-rate debt in order to lock in favorable rates. In fact, during the quarter we fixed the interest rate on two of our loans. The fixed rates on these loans are attractive at less than 3%. As to our liquidity, we currently have over $75 million of unrestricted cash and $390 million of capacity on our credit line. These resources are available to us should we see attractive opportunities.

Now I would like to turn to our revised outlook for the full year 2016. We have revised our guidance for full-year same-property RevPAR change to flat to down 1%. This reflects a reduction of 100 basis points. Excluding our Houston area hotels, we currently expect the remaining 39 hotels to generate full-year RevPAR growth of between 1% and 2% relative to 2015. Our adjusted EBITDA forecast is currently $282 million to $288 million; this is approximately $7 million lower than our prior guidance, primarily as a result of lower revenue expectations during the fourth quarter. We expect adjusted FFO to be in the range of $231 million to $237 million, which equates to $2.14 to $2.19 on a per-share basis.

It's important to note that our reduction in guidance is due primarily to lower fourth-quarter expectations. The four reasons for the reduced fourth-quarter outlook are as follows: first, weaker performance in Houston; second, lower group pace; third, flat transient business expectations; and lastly, the impact of Hurricane Matthew. Our hotels located in Houston are expected to continue to experience significant RevPAR declines in the fourth quarter. For the fourth quarter we're currently forecasting our Houston area hotels as RevPAR to decline 18% to 20%.

As to changes in group pace, fourth quarter pace is down in the mid single-digit percentage range. We expect in the quarter for the quarter bookings to also be soft and saw some cancellations in October. Transient business on the books for the balance of the year is flat to last year, but as we know, this business is very short-term in nature. As for Hurricane Matthew, our hotels in Charleston, South Carolina, Savannah, and Orlando were each negatively impacted. These hotels experienced some combination of evacuation or curfews in their markets. We estimate the negative impact to be approximately 25 basis points to fourth-quarter same-property RevPAR and about $400,000 to EBITDA and FFO. As it relates to net income and FFO, our expectations for interest expense, as well as income tax expense, have come in slightly as we have fine-tuned our estimates.

Looking ahead to 2017, our properties are in their budgeting process, so it is a bit early to provide a specific outlook. There are a few factors which make us cautious for next year. First, the citywide convention pace appears to be weak in many of our markets. Markets such as Denver, Austin, and Dallas are currently showing citywide pace off over 20%. DC shows strong pace, as you would expect; and in Boston convention pace is slightly positive. Second, next year we will see significant new hotel openings in Houston, Napa, Austin, Dallas, and Denver. These five markets represent about a third of our annual hotel EBITDA. It is likely that supply growth will be greater than demand growth in these markets, so we would expect that this new supply will take some time to be absorbed.

Third, we have several renovations scheduled for 2017. For the full year we expect this to be a slight headwind to RevPAR relative to 2016. We believe these renovations will better position these assets for the long term. We also believe that the returns we can generate from these investments are superior to those we can generate from other uses of our capital. All this said, we continue to be optimistic about our ability to maintain margins in this environment. We are still hard at work on our property optimization reviews at our hotels and continue to find more efficiencies. In the same way, we continue to fortify our position by making targeted capital expenditures at some of our hotels. Our goal is to take advantage of this time in the cycle and be well-positioned when growth rates improve.

Again, and to wrap up, we are pleased with our results particularly with regard to margins. We are focused on making the right capital allocation decisions. We have geared the Company for softer operating fundamentals and remain positioned for new opportunities.

This concludes our prepared remarks. Dan, we will now take our first question.

Yes, sir.

(Operator Instructions)

Jeff Donnelly, Wells Fargo. Please go ahead.

Good morning, guys.

First question, maybe, to start out with Barry, it was impressive margin growth considering the soft top line. I was curious, what specifically was behind some of the cost reductions? And were those savings broad-based? Or do they really fall on the hotels where the top line was weakest?

Couple things. You know, and looking at this quarter to quarter obviously is a little bit skewed as opposed to the year to date. We did have a couple of pieces in terms of reclassifications that aided us a little bit, but what we've continued to do, as we've been talking about for quite a while, is really digging into our hotels. We have our two-pronged asset management approach. Really, a traditional approach with day-to-day asset managers, as well as our in-depth on-property portfolio initiatives team that does these property authorization processes.

I think we were prepared early for the downturn. Our asset managers have an average of 28 years of experience in the lodging industry, so they've seen a lot of cycles and that really has helped us dig in very early. In general, we are holding margin well throughout the portfolio, so in not just Houston. The kinds of savings we are finding, in general, in very broad strokes, but we find a lot of opportunity in modifying labor scheduling, managing overtime hours, and alignment with corporate purchasing programs or getting the properties back in line with corporate purchasing programs. Bu we look at little things, too, everything from switching from canned soda to fountain soda in a restaurant or reducing the number of free bottled waters in a guestroom were part of that plan.

We're also doing it on the revenue side as well, particularly in the ancillary revenue side, where we are finding opportunities to implement or increase pricing for the items that are delivered to guest rooms, like rollaway beds and refrigerators. We have taken a deep look at our restaurant pricing and are doing a lot of rounding or semi-rounding in pricing. And really, just adjusting and taking a look at every revenue item in the hotel, which obviously provides very good margin growth when we are able to implement those because they're generally 100% flow-through items.

That's helpful; and I'm not sure if you or Atish have it handy, but are you able to talk about the margin change for this quarter for just the Houston assets? And for the portfolio overall excluding Houston?

Give us one second, Jeff; we are trying to pull that.

Yes. Okay. Actually if you want I can move on and ask you a second question, maybe.

Why don't you do that while we pull that info.

Actually, maybe I'll just ask for Marcel: as you mentioned at the beginning of the call about the prospect for additional dispositions, do you have a rough sense of how many more properties, either by rooms or by count, that you might consider selling in the next 12 to 18 months? Or is it just really not at that point yet where you've have really formulated a target list?

Yes, good morning, Jeff.

We don't really have a specific target list saying X amount of additional dispositions. We are obviously pleased with what we've done to date and we've been pretty active, not only just looking at us in a vacuum but also looking at us compared to peers and how much we've been able to transact. So we are pleased with what we've done so far. Certainly we are looking at the long-range growth prospects for some of our assets and particularly when we are coming up on some of these renovation decisions for some assets, and we look at our wholesale analysis and decide whether it is potentially time to sell some of those assets.

I talked a little bit about some of the renovations that we've got coming up, so obviously we've made decisions on certain assets that we feel that those are great long-term assets for us and we are going to maintain those assets and then position them better coming out of a potential downturn. So certainly it is a little bit more around the margin than what you've seen us do over the last 12 months. But we are certainly not shutting our eyes to some additional dispositions. And again, we will provide detail as some of those come to fruition.

Okay. And maybe just one last one for Barry: how do you think about the Super Bowl impacts in Q1 next year? Is the headwind in California that you could face offset by maybe the tailwind you're going to catch in Houston? I'm just -- wasn't sure if you had a rough sense of that.

Yes, my sense is, yes, the Super Bowl, obviously it did not set up great for us in San Francisco at [santa scoreboard] in Santa Clara, although we think we did well through the period. Having the game concentrated where the guestrooms are I think will be really helpful. We are looking at probably at this point a net revenue increase year over year related to Super Bowl of about $1 million, assuming everything that we have booked sticks. And we think we've done a good job, again, of picking the right kind of business. Some business that comes in a little earlier, stays a little later, and really trying to fill those shoulder periods before and after the game. We don't expect really any impact at the Woodlands. I'm really talking specifically about Galleria.

Okay. Thanks.

Sure. Back to your question on margins: so, as we had said we were 26 basis points of margin improvement for the 43 same-store hotels. Without Houston, margin improvement was 71 basis points.

Great. Thank you very much.

At hotel EBITDA.

Okay.

Thomas Allen, Morgan Stanley. Please go ahead.

Hey, good morning.

Just talking about the dispositions, what are you hearing in general from the broker community or from the buyer community for transactions? Thank you.

Good morning, Thomas. This is Marcel. I'll take that question.

What we're seeing is volume of transactions is certainly down a little bit and I think what we expected to happen has certainly happened -- happening where we are seeing a little bit of softening on prices out there. And that's not unexpected as the year has kind of progressed. We look at it obviously from both perspectives. We continue to also look on the acquisition sides, maintaining a pipeline of assets that may be good growth vehicles for us going forward. We haven't quite gotten to the point where we've found those opportunities that we feel strongly about to pursue. But we continue to keep our eye out for those.

On the flip side, on the disposition sides, like I've said, we are pleased with what we've done to date. We still are seeing opportunities out there and I think the landscape hasn't changed dramatically as far as the type of buyers that are out there from what we talked about a quarter ago to where we are today.

Helpful. Thank you.

Just thinking about your balance sheet. How are you thinking about the sensitivity? How are you thinking about, A, the sustainability of your dividend? And then maybe the sensitivity of it to potential EBITDA trends? Thanks.

Yes, that's a great question, Thomas.

So you know how I think how we think about sensitivity is in terms of the payout ratio. So our payout ratio in the low 60% range is certainly on the low side relative to the peer set. So we believe that's representative of what, on a relative basis, should be stable dividend. And then I think in terms of overall profile of earnings, we do obviously look at the progression in earnings and think about dividend in that context, and again it comes right back to payout ratio.

Okay. Helpful.

Okay.

And then just two quick numbers questions: any color on what October RevPAR was, now that that's past? And then, corporate negotiated rates, any expectation for kind of annual average increase of rate for next year? Thank you.

Yes, as it relates to October, as you point out, obviously we've got a good sense of where October came in and that certainly is a component of what we've talked about in our guidance. We were down in the mid-single digits in RevPAR in October. And clearly the shift of the Jewish holidays factored into that, and all the things that we knew calendar-wise were going to make the difference between September and October certainly played out. But the softness that we saw in October is certainly what drove us in our decision-making when we looked at guidance for the quarter and for the full year.

And on corporate negotiated rates, a little early in the season for us to have really good info on that. We are out -- asset managers are on the road most of this month in their budget reviews. And what we're seeing is, as you would expect, varying a lot by market and a lot by account, so there are some cases where we're having very good success where we know accounts like staying with us and the markets are still fairly compressed and we are able to drive some strong growth. On the other hand we are also seeing, as corporate travel managers get smarter and smarter, they recognize when markets are soft and they're trying to beat up all the hotels in a given market. So really too early to identify anything overall as a trend in terms of how those two disparate environments come together.

Thank you.

Bill Crow, Raymond James. Please go ahead.

Thank you. Good morning guys.

Could you maybe link or should we be linking potential dispositions with a more aggressive share repurchase platform?

Good morning, Bill. I'll take that question.

As you know, we've obviously been fairly active on our buyback program that we announced last year. So we had a little under $30 million left under that authorization, and as we pointed out in our remarks and as you saw on the release, our Board authorized an additional $75 million buyback on top of that. What we've done and what we feel strongly about is -- is to have really a balanced approach. We've been able to reduce leverage. We've been able to extend maturities out. We've done some things with proceeds from dispositions to continue to fortify the balance sheet. And we've also taken advantage of the opportunity to buy back shares at what we believe is attractive pricing. So we will continue to look at that going forward.

I think longer term we're certainly looking at utilizing all these different tools that we have available in our capital allocation efforts and that includes continuing to look at potential buybacks. It includes also continuing to look at whether there is acquisition opportunities that will be available going forward. And overall we are just very pleased with what we've done with our balance sheet and where we are now, and the different opportunities that we have as a result of that.

Thanks, Marcel.

Let me switch over to Atish and ask you a margin question. The other direct expense line seemed to be quite a bit lower than it has been the last five or six quarters. Is there a reclass or something going on in that line item that we need to be aware of?

Yes, that is the reclass that Barry had mentioned earlier. So that is a factor with regard to that line item.

Atish, I'm sorry, which reclass is that?

It's on parking. So it relates really to parking revenues and expenses. So that's representative of one of the factors in that line item, and the other is, obviously, the ancillary revenues that we generate from some of our hotels, particularly ones that are more group-oriented. So we've seen some of those ancillary revenues come down and Houston's a driver of that as well.

Okay. And then last question from me.

As you think about the two Grand Bohemian hotels going into your same-store portfolio, which I assume will happen at the start of the year, if that is correct, will that have a disproportionate impact on how you report same-store results next year? Or are they pretty well ramped up to stabilized?

Two things: they are still ramping up, but they are relatively small in the grand scheme of the entire same-set portfolio, so I don't think it's going to have a huge impact, and they opened roughly a year ago. So -- a little more than a year ago. So they'll continue to ramp a little bit from here. But not a huge impact.

Now it's only 150, obviously small room count between the two hotels. So it's a very small impact on what I would say, particularly on those two Grand Bohemians they have ramped pretty well on the RevPAR side. We think that there's definitely some margin improvement to come particularly on those hotels. The Commonwealth, as Barry pointed out, some of the specifics on that hotel that would also become part of our same-store comparisons as of the new year. And as you can tell from the improvement that we've already seen in margin there this year, that is much more of a stabilized situation, too.

Yes. That's it for me. Thank you.

Whitney Stevenson, JMP Securities. Please go ahead.

Hi, everyone; good morning.

Good morning.

I was wondering if you would mind talking just a little bit about what you're anticipating from the brands for next year in relation to distribution? And maybe specifically just what you see as far as them moving beyond discounting to increase the value proposition for booking direct?

I think we're still pretty early in the process of the discounting piece and I think we continue to keep an eye on it. Unfortunately, in the current environment it's been very hard to evaluate whether it's been successful or not. So we do expect that program to stay in place until the brands can really evaluate whether or not it is moving any share away from the OTAs or not. I think in terms of specific distribution strategies that they're looking at for next year, it's obviously -- it continues to be centered around loyalty and building, building their frequency programs.

Certainly I think it will be an interesting environment, given the Marriott Starwood merger and how even stronger that program has become and the combination of two programs that may have been serving somewhat different demographics, and that may now create a real powerhouse in that regard in terms of First Choice and loyalty. But I think those are some of the kinds of things we will see going forward.

Okay; and then anything specifically, maybe on cancellation fees? Or cancellation policies in general?

You know, it's interesting. Almost all of our group contracts through the hotels have cancellation policies in place. What's really hard to look at and track is that, so when we have that -- so we almost always have the ability to collect cancellation fees. However, the practice is to give some of sort of rebooking window when a group can come back and rebook within that, which pushes either the actual business if it's rebooked or the associated cancellation fees out 6 to 12 months from when the business would have occurred. So we would expect, although we don't necessarily budget for it, I think industrywide we would expect to see, given the cancellations in Q3 and Q4 of this year either hopefully rebooking, which is what you always want, or increased cancellation fees hitting sometime throughout 2017. Again, thinking about the broader industry.

Okay. Great. Thank you.

And, ladies and gentlemen this concludes our question-and-answer session. I would like to turn the conference back over to Marcel Verbaas for any closing remarks.

Thank you. I would like to thank everyone for joining us today for our third-quarter call and we look forward to updating everyone after the turn of the new year. And as we look forward to 2017 and what's, as Atish points out, is obviously a little bit more difficult operating environment than we've been operating under, but we feel very good about the steps we've taken overall both on the expense control side and particularly how we've set up our balance sheet to really take advantage of opportunities going forward. So we thank you for your interest today and look forward to updating you in the future.

And ladies and gentlemen the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.