Ashford Hospitality Trust Inc (AHT) 2017 Q3 法說會逐字稿

Good day, and welcome to the Ashford Hospitality Trust Third Quarter 2017 Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead.

Thanks, Anne. Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the third quarter of 2017 and to update you on recent developments. On the call today will be Douglas Kessler, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Executive Vice President of Asset Management. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in a press release that has been covered by the financial media.

At this time, let me remind you that certain statements and assumptions in this conference call contained or are based upon "forward-looking" information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These risk factors are more fully disclosed in the Company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call and the Company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on November 2, 2017, and may also be accessed through the Company's website at www.ahtreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release, together with all other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the third quarter of 2017 with the third quarter of 2016.

I will now turn the call over to Douglas Kessler. Please go ahead, sir.

Good morning and thank you for joining us to discuss Ashford Hospitality Trust's results. Our third quarter comparable RevPAR growth for all hotels was flat, while comparable RevPAR growth for all hotels not under renovation was 0.4%. Additionally, we reported AFFO per share of $0.30 and adjusted EBITDA of $100.8 million.

We're very fortunate that our portfolio was not significantly impacted by the recent hurricanes. We monitored the storms very closely and had teams and supplies in place to quickly respond after the storms passed. I'm extremely proud of our asset management team, led by Jeremy Welter, and our property managers for their resilience and perseverance during and after these storms.

This management team has a long track record since our IPO of creating shareholder value and over the years, we have worked on various ways to maximize the value of our existing assets while also looking for accretive hotel investment opportunities and maintaining capital markets discipline. We believe shareholders have benefited from our efforts since our IPO given that Ashford Trust has achieved a 192% total shareholder return compared to a 150% return for our peers as of yesterday's close. Key to that outperformance is the exceptionally high level of alignment that is created by our 19% insider ownership, which is among the highest in the hotel REIT space, and approximately six times the peer average.

Our strategy remains focused in our effort to create shareholder value. We will continue to own predominantly upper upscale full-service hotels, opportunistically recycle capital, target net debt to gross assets of 55% to 60%, and maintain a cash and cash equivalents balance between 25% to 35% of our equity market capitalization for financial flexibility. We believe this excess cash balance provides a hedge in uncertain economic times as well as providing dry powder to capitalize on attractive investment opportunities as they arise.

During the quarter and subsequent to the end of the quarter we completed several capital market transactions that created additional value by significantly reducing our financing costs. First, we issued a new class of preferred stock and used the proceeds from that raise to retire other higher-priced preferred equity which will save us approximately $520,000 annually in preferred dividend payments. Second, we completed the refinancings of the Hilton Boston Back Bay Hotel and a 17-hotel portfolio. On both of these refinancings we were able to significantly lower our interest rate and in doing so we expect to realize annual interest and principal payments savings of approximately $12.6 million in total and when combined with the preferred raise, redemption, and the previous financing we completed earlier this year should result in total annual savings of approximately $13.7 million. Deric will go into more detail in these transactions later, but they are yet another example of how this management team looks for every opportunity to drive value in our platform.

With regards to investment activity, we have been relatively quiet despite our ongoing efforts to underwrite new hotel investments. We're focused on achieving growth that is accretive to our share price. Therefore, you should expect us to continue being selective and disciplined as we balance expected returns, underwritten growth, and our cost of capital.

Looking ahead, we have a high quality, well diversified portfolio and we're committed to maximizing value for our shareholders as we focus on generating solid operating performance, continuing to be opportunistic on transactions and proactively managing our balance sheet.

Finally, as you update your models on Ashford Trust, I'd like to point out that in the fourth quarter, we will have a significant increase in hotels under renovation. As you can see in our renovation schedule in our earnings release, during the third quarter, we had 13 hotels under renovation, which was pretty consistent with what we had in the first 2 quarters of the year. In the fourth quarter, this will increase to 24 hotels. A lot of this increase is driven by the seasonality of our portfolio as we strive to minimize business disruption from our renovations by doing the work during the slower periods.

I will now turn the call over to Deric to review our third quarter financial performance.

Thanks, Douglas. For the third quarter of 2017, we reported a net loss attributable to common stockholders of $37.8 million or $0.40 per diluted share.

For the quarter, we reported AFFO per diluted share of $0.30.

Adjusted EBITDA totaled $100.8 million for the quarter.

For purposes of calculating Adjusted EBITDA and AFFO this quarter, we added back the uninsured costs associated with the hurricanes. Those expenses totaled $5.5 million.

Also, when comparing our results to prior year, it's important to remember that our prior year Adjusted EBITDA included Hotel EBITDA of $3.9 million and $20.5 million in the third quarter and year-to-date periods, respectively, associated with hotels that we have sold. Our Adjusted EBITDA in the fourth quarter of last year included $2.4 million of Hotel EBITDA adjusted with hotels that we have sold.

At the end of the quarter, we had total assets of $4.7 billion. We had $3.7 billion of mortgage debt with a blended average interest rate of 5.7%. Our debt was approximately 12% fixed rate and 88% floating rate, all of which have interest rate caps in place. All of our debt is non-recourse, property level debt, and we have a well-laddered maturity schedule. Including the market value of our equity investment in Ashford Inc., we ended the quarter with net working capital of $484 million. I think it's important to point out that this net working capital on our balance sheet currently equates to approximately $4.12 per share.

As of September 30, 2017, our portfolio consisted of 120 hotels with 25,028 net rooms.

Our share count currently stands at 117.5 million fully diluted shares outstanding, which is comprised of 97.4 million shares of common stock, and 20.1 million OP Units. We have 21.3 million OP Units, but as a result of the current conversion factor being less than neo for one, these units are convertible into approximately 20.1 million shares of common stock.

With regards to dividends, the Board of Directors declared a third quarter 2017 cash dividend of $0.12 per share or $0.48 on an annualized basis. Based on yesterday's stock price, this represents a 6.8% dividend yield, one of the highest in the hotel REIT space. Our board will continue to review our dividend policy on a quarter-to-quarter basis.

On the capital markets front, during the quarter, we completed an underwritten public offering of 3,800,000 shares of our 7.5% Series H Cumulative Preferred Stock at $25.00 per share. Dividends on the Preferred Stock will accrue at a rate of 7.50% per annum on the liquidation preference of $25.00 per share. Additionally, in September, we completed the redemption of all of the issued and outstanding shares of our 8.55% Series A Cumulative Preferred Stock and 1,564,353 shares of our 8.45% Series D Cumulative Preferred Stock. Subsequent to the end of the quarter, we redeemed an additional 379,036 shares of our Series D Preferred Stock with the overallotment proceeds.

Additionally, subsequent to the end of the quarter, we refinanced two mortgage loans. The first was a mortgage loan with an existing outstanding balance totaling approximately $95 million and secured by the Hilton Boston Back Bay Hotel. The new non-recourse loan totals $97 million and has a five-year term. The loan is interest only and provides for a floating interest rate of LIBOR + 2.00%. This refinancing is expected to result in annual interest and principal payments savings of approximately $2.8 million. The second was a mortgage loan with an existing outstanding balance totaling $413 million and secured by 17 hotels. The new non-recourse loan totals $427 million and has a two-year initial term with five one-year extension options subject to the satisfaction of certain conditions. The loan is interest only, provides for a floating interest rate of LIBOR + 3.00% and contains flexible release provisions for the potential sale of assets. This refinancing is expected to result in annual interest rate payments savings of approximately $9.8 million. After these refinancings, our next hard debt maturity is in February of 2019. The debt markets are currently very attractive, and we will continue to be opportunistic in accessing the debt capital markets to both improve our liquidity and lower our cost of capital.

This concludes our financial review and I would now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric.

Those hotels in our portfolio not under renovation grew comparable RevPAR by 0.4% during the third quarter. Our comparable RevPAR growth outperformed the upper upscale chain nationally by 110 basis points. Year-to-date, comparable RevPAR for those hotels not under renovation has been 1.4%. Holidays had a negative impact this quarter with Rosh Hashanah and Yom Kippur shifting into September of 2017 compared with October 2016, and July 4 falling on a Tuesday in 2017, compared with a Monday in 2016. Specifically, we had a significant decrease in corporate negotiated travel for the week of July 4.

We are on pace for unprecedented RevPAR index growth; our portfolio has grown RPI in each of the last 3 years relative to its competitors and is on pace to do so again this year, which would mark 4 consecutive years. Despite renovations, acquisitions, and conversions, what Ashford asset management has achieved is remarkable. Over 4 years ago, in July 2013, we created a separate revenue optimization team with dedicated personnel focused on revenue strategies. These impressive achievements emphatically underscored the success and overall capabilities of Ashford's industry-leading asset management team.

The hurricanes in September certainly affected our portfolio. In some areas our diversified portfolio has benefited from the impacts of those storms.

Specifically, the Embassy Suites Orlando Airport realized 38.4% RevPAR growth during the third quarter, an increase driven by both prior year renovation displacement as well as Hurricane Irma. This top line performance surpassed that of the Orlando market and south Orlando submarket by 2,850 basis points and 2,750 basis points, respectively. Hotel EBITDA increased by $216,000 or 93%, a margin increase of 43.4%. These strong third quarter results brought year-to-date RevPAR growth to 19.7% in Hotel EBITDA flow-through to 54%.

We believe our risk management group on the Ashford asset management team is a true differentiator when it comes to peers in the industry. We own 15 hotels in Florida and seven hotels in south/central Texas. During the recent hurricanes affecting Texas and Florida, all of our hotels remained open while a very significant amount of our competitor hotels closed either before, during, or after the storms. We view it as our civic duty--after making all necessary preparations and ensuring that safety will not be compromised--to remain open as a place of refuge for affected citizens as well as those who must remain in the area, such as first responders. Following proactive tracking of the storms prior to landfall and taking a cautious approach to all risks, we're able to mitigate losses during natural disasters by remaining open and accelerating all recovery efforts. This aggressive approach has benefited hotel performance as well. The work and expertise of our risk management team are emphatically highlighted during quarters like the one we just experienced.

During the third quarter, we signed an outdoor advertising agreement at Ritz-Carlton Atlanta, which is expected to bring in about $200,000 in revenue annually. Year-to-date, this hotel has realized $725,000, or 2.4%, in total revenue growth, with the newly signed agreement representing a value add opportunity. During the third quarter, we also renegotiated our current parking agreement, which we estimate will increase annual parking revenue by $50,000. Finally, a rooms renovation of the property will begin next month, going even further to position the property for success going forward.

The Marriott DFW Airport in Irving, Texas, converted from brand-managed to franchised on May 24, with a comprehensive ballroom and meeting space renovation underway throughout most of the third quarter. The conversion of Remington management provides meaningful and significant upside. During its first full quarter under Remington management, the Marriott DFW Airport achieved 3.1% RevPAR growth, despite the ongoing ballroom and meeting space renovation, and Hotel EBITDA flow-through was 54%. This RevPAR growth outpaced the submarket scale by 360 basis points and was driven by 5.8% occupancy growth, with significant growth in contract and transient business due to the need to of replace group room nights during the renovations. By having a dedicated Business Travel Sales Manager, the property was able to increase corporate preferred room nights.

The Renaissance Nashville and adjoining redevelopment saw demolition of the Nashville Convention Center commence in June. Despite the ongoing renovation and limited meeting space to sell, the Renaissance Nashville has still been able to gain market share, with third quarter RevPAR growth coming in at 3.4%--120 basis points more than its competitors. Additionally, we achieved strong Hotel EBITDA flow-through of 144% and Hotel EBITDA growth of 156,000 or 2.5%. During the third quarter, occupancy was 90%. This strong performance, during renovation no less, is driven by us proactively shifting strategies to increase high-rated, short-term, transient business while remaining focused on controlling expenses and reducing labor wherever possible.

During the remainder of 2017, we will continue to invest in our portfolio to maintain competitiveness. In total, we estimate spending approximately $200 million to $210 million in capital expenditures during the year, which primarily will be comprised of guestroom renovations at Hilton Boston Back Bay, Marriott Crystal Gateway, Renaissance Palm Springs, and Ritz-Carlton Atlanta. In addition to the guestrooms renovations, we will complete a comprehensive lobby and restaurant repositioning at Hyatt Regency Savannah. We continuously identify opportunities to create value throughout our portfolio through prudent capital expenditures and operational improvements.

This concludes our prepared remarks, and we will now open the call up to your questions.

(Operator Instructions) We'll take our first question from Robin Farley with UBS.

Hi, this is actually Arpine for Robin. If you look at your portfolio, Houston was up 20% for the 10%. Could you perhaps quantify what RevPAR could have been up without that outsized growth from those markets dealing with the aftermath of the hurricanes? Then I have a follow-up.

I think that's a difficult theoretical question. So you're asking had the hurricane not come through what the RevPAR would have been in the Houston market. I think if that's the question, I think you'd simply just have to look at generally what the trend was in the prior-to-hurricane quarters. Houston had been a somewhat soft market given the new supply coming in. Obviously, the continued weakness in the oil industry and so unfortunately, the hurricane hit but it has had, at least for the third quarter, a positive impact and that's fairly typical in markets that you see following a hurricane. There is some potential benefit from those remaining operating hotels as you have displaced residents and you have responders to the damage done and they fill hotel rooms.

Now, obviously, there's some offset because you do lose some business that decided to hold off on their travel to that market until such time as things stabilize there. But it would be very difficult for us to comment on what the RevPAR growth would have been other than the direction that I've sort of hinted at with respect to prior quarter performance.

Okay, and then we saw margins slide for the quarter with flattish RevPAR. Maybe you could remind us what type of RevPAR growth you would need next year to keep margins flat. I know you don't guide for RevPAR but theoretically, how much RevPAR growth you would need for your margins to be flat into next year? Thank you.

I don't think that we'll provide that type of guidance.

We'll go next to Chris Woronka with Deutsche Bank.

Want to ask you on the Ritz Atlanta. I know the one up on Buckhead is going to go out of the Ritz system, right, but stay within Marriott. Do you guys expect maybe some kind of benefit to accrue to that -- to your location downtown once that happens? Is that plausible?

Yes, we believe that the removal of that hotel from the system at least with respect to branded as a Ritz is a benefit to our downtown Ritz-Carlton. In addition, that property is going through -- our property downtown is going through a significant renovation to rooms product and we believe that that will be a significant driver for us once that rooms renovation is complete. So we're really looking forward to the completion of that renovation work and obviously, the removal of the Ritz in Buckhead we think is a net positive for us.

You guys have been pretty active in recent years with converting management contracts to franchises and a few brand changes where you can. Is there anything on the horizon? Can the pace of that accelerate or is it kind of hard to tell? Is it more of a one by one case? Do you see anything coming down the road?

You're right, I think we have been successful doing that. Our most recent example was the conversion of our Marriott DFW from brand-managed to Remington-managed and we're very pleased with that along with the renovation of that property, which is now completed.

Our portfolio, as you can imagine, has matured, and it provides fewer examples or opportunities for that type of activity. We do have some independent hotels and so that gives us chances with brand ideas. We also have some hotels that are obviously highly aligned with both Hilton and Marriott and we are one of their largest accounts on both fronts. And so sometimes, when we're in negotiations with them on other matters, it does create an opportunity for us to possibly orchestrate and at least ask for the opportunity for that type of conversion.

Few and far between, going forward, but we never stop asking in the event that we think there's a value-add opportunity as such for our shareholders.

Understood your comments about the higher-level renovations in the fourth quarter. Is there any kind of, as we look at 2018, just a general sense for whether there's going to be more renovation activity or less relative to 2017?

We're still going through and finalizing all our capital plans and that's got to go through the Board. So I don't think we're prepared to give any guidance for 2018 from the capital front just yet.

We'll go next to Bryan Maher with FBR.

Can you drill a little bit deeper on what you're seeing in the market as it relates to your select service assets? Is it just the bid-ask spread is too wide for you or is there something else going on?

It's pretty simple, Bryan. We commented during our investor day back in October that we had been looking at a variety of strategic alternatives for our select portfolio. Either the overall valuation or execution of something more strategic in nature just didn't seem to pencil at that time. That doesn't mean we haven't closed the door to ideas. It's just that based on the options that we had at the time didn't seem to make much sense.

We continue to look at ideas to monetize those assets, but one of the balances is, is not just what we could sell the assets for. It's also how do we redeploy the capital? How do we perform that execution in a way that we think is accretive to shareholders. So we have to look at a variety of metrics. One, we have to look at the debt pools that the assets are in. Two, we have to look at the prices that we could sell these assets for. Three, we have to consider how do we redeploy that capital into accretive investment opportunities.

Let me touch on this latter point. When we look at the current market today for what is a very clear strategy for Trust to focus predominantly on upper-upscale full-service hotels and we look at the depth of the transaction market, I will tell you that what we're seeing is some aspirational prices being asked by many sellers today. And the reason why they're doing that is because they know that with their view of the fundamentals, which I think for a lot of sellers today are still reasonably healthy fundamentals, they can refinance their property alternatively and do so at a very attractive time in terms of the debt markets.

So if they can get a great price for the asset, they'll trade. Otherwise, they're comfortable refinancing and riding the continued cycle, which the last few quarters has shown 3% GDP growth and where the cycle goes from here, I think everyone is still trying to determine that. So when we look at redeploying that capital, the yields that we've seen on some recent transactions has been uninspiring for us in terms of deploying our capital.

And so as a result of that, we want to make sure that if we're trading out that we don't have too much of a bid-ask -- not really bid-ask but a gap between selling cap rates and buying cap rates because we want to make sure that we're doing something that is accretive to our shareholders in terms of the expected share price performance as a result of those trades.

We remain open to trading in our select service and we typically don't comment on trading activity until such time as something occurs.

Thanks, that's helpful. Taking a turn to the next level, you do have a decent amount of cash on hand and I'm sure you're exploring the outright purchase market irrespective of whether you sell select service or not. Are you seeing anything out of there that's appetizing in the more full-service upscale segment that you want to be in? Or are those prices just too aspirational also on the part of the seller?

Pretty much the same comment. Obviously, when you look back in terms of the transaction volume, 2015 was a pretty strong year. 2016 was down quite a bit and 2017 has been slightly off that amount. When we look at the investment opportunities, we're still seeing some aspirational requests for valuations and so those yields we view to be somewhat unattractive.

Obviously, we're not just looking at the yields that we're buying the assets for. We're looking at the underwritten internal rates of return, key metrics with respect to the impact on our share price, everything that we outlined in our investor day in terms of all the metrics that we focus on. I think that the issue for us is that we also have to look at what our cost of capital is. And when you look at where we're trading today at the current moment of $6.57 and we have $4.12 of networking capital, we feel like we need to get a stronger value for our currency in order to deploy it.

Now, absent a change in cap rates, absent a change in our cost of capital, absent a change in the underwritten performance metrics going forward, we will continue to be disciplined and I think we should get credit for being disciplined. It's been some time since we've deployed our capital and I think it's been really a function of where we see our currency today and where we see the prices in the market. Meanwhile, around the edges, we've been doing a lot of other activities to create value for shareholders such -- and there are many of them -- but as an example, some of the refinancing activity that we did accomplish during the quarter, which is true savings, true value-add of $13.7 million.

So we look at that as a good rotation into the types of events, which we believe will add value to shareholders, meanwhile, if we're not satisfied with what we're seeing in the current transaction market. Now, going into 2018, I think we're hopeful that the transaction pace will pick up and that the variety of opportunities will increase. It's not that we're necessarily losing out to competitive bidders for the types of assets that we're chasing. I think what we're losing out to is the alternative of sellers refinancing their assets. And in conversations that I've had with some of the leading hotel brokerage firms, they confirm the very same thing that I'm saying.

We'll go next to Michael Bellisario with Baird.

Doug, wanted to see if you could maybe marry Deric's comments on the strong debt markets and then also just your successful refinancings recently and how that improvement maybe in the last 30 or 60 days versus what you told us a month ago at the investor day -- thinking about your options for the select service asset any differently because of the change in the debt markets that you're seeing.

No, I wouldn't say that we're thinking any differently. Obviously, the pool that we just refinanced had select service assets, but our approach on the debt is less of mixing and matching loan pools. It's more of looking ahead and refinancing proactively, capitalizing on the current debt market today to hopefully reduce our interest expense, which we've been very successful doing over the past couple of years.

So in conjunction with those refinancings, we have also tried to free up adequate buckets within those loan pools to allow us to sell assets of any type within the loan pool. So even with the 17pact portfolio that we just refinanced we have capacity to extract assets out in a way that we think is cost effective. So I think if you're asking because of the favorable debt markets, are we looking alternatively to refinance instead of selling, I think our refinancing strategy is more programmatic and less focused on the alternative of selling select or refinancing all of the select from a strategy standpoint.

It's more local-oriented as opposed to strategy-oriented. Obviously, there's a general strategy as I suggested of lowering our interest expense and refinancing proactively and refinancing early, which is why we've been successful. We removed not only all of our 2017 maturities, but all of our 2018 maturities and our next one isn't until the first quarter of 2019.

We'll continue to look at all options with respect to our select service strategy.

Got it, understood. And maybe the same kind of question from the other side, the buyer's perspective, their ability to get attractively priced debt. Are you seeing any change in your appetite to transact? That's kind of where I was going with my question on the sell side. Is that making it more appealing for you from a valuation perspective (inaudible)?

That's a great alternative view to look at. I think that you're right. I think our most recent asset sale, the Crowne Plaza Ravinia, is a good example. We traded that asset. It was an $84 RevPAR asset. We traded it at a 5.6% I believe trailing cap rate is what I believe we reported in our last quarter's earnings. And I think some of that had to do with the fact that the debt markets are attractive still, right now.

And so there is the opportunity to be active selling in the market and having buyers capitalize on attractive leverage today. So that is a positive for transaction activity. We need to make sure that we can sell the assets at the right price, redeploy the capital appropriately. We're obviously sitting on a fair amount of cash currently and so the balance and timing of that is something that we're taking into consideration as we look at how to structure our transaction activities both on the buy and the sell side in ways that is the most accretive for our shareholders in terms of share price and total shareholder return.

Understood. Switching gears just a little bit, kind of 30,000, 40,000-foot view. Your geographically diversified portfolio has historically tracked the broader industry a lot closer than it has recently. Are you seeing anything differently or doing anything differently that's maybe causing the trend to diverge and then what are you seeing on the ground? What changes are you seeing that is maybe causing your portfolio, your assets, the performance to diverge a bit from the broader industry recently?

That's a good question. As you know, our portfolio is diversified. While we've got clearly assets in the top 10 markets, we're more diversified across the top 50 markets and the top 10 markets have generally lagged the broader economy in terms of RevPAR growth whereas the rest of the portfolio has accelerated. I think that the performance that we have lagged behind is now becoming a little bit more market-specific and it may just be the case that where we have had outperformance, we're now beginning to experience the impact not only of supply coming into some of those secondary markets, but also slightly -- while we try to be not as disruptive from our performance when it comes to our CapEx spend, we do have more projects going under CapEx. And so as a result of that, while we try to minimize the disruption, some of that could be impacting it.

So I would attribute it really to those two things. We're at that part of the cycle where it's probably about peak supply. I think we've seen some indicators that would suggest that maybe 2019 could be the crest of new supply for the industry. So as a result of that, while we have still I think outperformed the peer group from a RevPAR growth standpoint, we have slightly lagged the broader industry as a whole. And obviously, I think in this cycle most REITs have lagged the broader industry as a whole.

We've held up better, but this quarter, that was not necessarily the case.

The only thing I would add is that a lot of it is chain scale as well. Some of the lower chain scales are experiencing a lot more growth than we are positioned. As I mentioned, we've gained market share so it's going to be the fourth year in a row that we've gained market share.

On the FX comments, not looking for a number but do you see 2018 kind of being a similar level of CapEx or do you think that will step down a bit versus the $210 million to $220 million that you were thinking for this year? Or the $200 million to $210 million?

We just had the same question earlier in the queue. You might have missed it but we're still going through our capital budgeting process and we're finalizing that. And we are not prepared to share that guidance until we get approval through our Board of Directors.

(Operator Instructions) We'll go next to Tyler Batory with Janney Capital Markets.

I wanted to ask a little bit about the flow-through for the entire portfolio. How did that come in versus expectations for the quarter and then what are you seeing on wages generally just across all your markets?

This is Jeremy. We missed our flow target by $2.3 million this quarter. so naturally, we were all disappointed. I'm disappointed. A big portion of that is property tax related. Internally, we have different metrics but from the operational side, we missed our flow by about $800,000 and the rest of the $2.3 million was property tax related.

And there's several -- no underlying theme of what caused that miss. Certainly, wage pressures is one of them. A mix of the type of business that we have is included as well because we had a big drop in some of our high margin banquet and catering business and we didn't flow it as well as we should have. But in terms of wage pressures that's certainly something that we are dealing with and we have a track record of identifying creative ways to cut costs in these situations, in environments like this when you have a little bit softer RevPAR.

When you look at the full service hotels that you have in your portfolio and you compare those to the 61 select service hotels that you guys have, is there much difference in RevPAR growth over the past couple quarters and then can you also talk potentially about the absolute RevPAR difference at your full service versus select service properties?

It's more market specific for us when you look at it on a roll up in terms of growth and it's not necessarily -- I think they're very similar in terms of year-over-year growth. But I don't know if we have the -- prepared to share difference in RevPAR at this point. We might be able to get that later.

That was the only other question if you guys are able to sell some more of these select service assets, I would presume that the RevPAR or the absolute RevPAR or the entire portfolio would probably go up, correct?

That is correct.

And we've done that in the past for some of the investor days.

Last question. I understand there's a lot of moving pieces this quarter with holiday shifts, hurricanes, et cetera. But maybe an updated view on what you guys are thinking just industry-broadly here would be helpful.

Broad industry views, I think that there is a fair amount of economic data that is of interest as of late. We've seen for the first time in this economic recovery back-to-back GDP growth. And obviously, at a level north of 3%, that's pretty strong. And we think that obviously, on a lag basis that can be constructive to the hotel room demand.

Meanwhile, we continue to see strong job numbers. Consumer confidence is extremely high. Corporate profits are good. The opportunity on the supply side continues to shrink from what we gather anecdotally. We're not obviously in that business, but in discussions that we've had with groups that are more active in that area, we believe that there's continued rationing, if you will, of construction financing, which points to a tapering at some point in the near term.

As I commented, we felt that the potential crest could be some time in 2019. So when you put that all together, we are seeing at least from an economic standpoint on top of possible tax reform, some stimulus. Now, the flip side of that is we continue to see cost increases. We're continuing to see property tax increases. We fortunately are not seeing energy increases. It will be left to be seen whether there are insurance cost increases as a result of this year's fires and hurricanes across the U.S.

But we also see improvements in technology, which can also serve to reduce some cost. So we think that that backdrop allows people to draw their own conclusions as to whether we are in a recovery mode with future growth or are we experiencing short-term impact of new supply. Is there some cost creep. Left to be seen.

This concludes the question and answer session. I would like to turn the call back over to management for any additional or closing remarks.

Thank you for joining us on today's call and we look forward to speaking to you again next quarter.

This does conclude today's call. We thank you for your participation. You may now disconnect.