Chatham Lodging Trust (CLDT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Chatham Lodging Trust fourth-quarter results conference call.

During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator Instructions).

This conference is being recorded today, Thursday, February 23, 2012. I would now like to turn the conference over to Jerry Daly of Daly Gray. Please go ahead.

Good morning everyone and welcome to the Chatham Lodging Trust fourth-quarter 2012 earnings conference call. Yesterday after the close of the market Chatham released results for the fourth quarter and full year ended December 31, 2011, and I hope you have had a chance to review the press release. If you did not receive a copy of the release or you would like a copy, please call my office at 703-435-6293 and we will be happy to e-mail one to you, or you may view the release online at Chatham's website, www.ChathamLodgingTrust.com.

Today's conference call is being transmitted live via telephone and by webcast over Chatham's website and at StreetEvents.com. A recording of the call will be available by telephone until midnight on Thursday, March 1, 2012, by dialing 1-800-406-7325 with a reference number of 451-1083. A replay of the conference call also will be posted on Chatham's website.

As a reminder, this conference call is the property of Chatham Lodging Trust, and any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of the Chatham is prohibited.

Before we begin, management has asked me to remind you that in keeping with the SEC's Safe Harbor guidelines today's conference call may contain forward-looking statements about Chatham Lodging Trust, including statements regarding future operating results and the timing and composition of revenues, among others.

Except for historical information, these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including the volatility of the national economy, economic conditions generally and the hotel and retail markets specifically, international and geopolitical difficulties or health concerns, governmental actions, legislative and regulatory changes, availability of debt and equity capital, interest rates, competition, weather conditions or natural disasters, supply and demand for lodging facilities in our current and proposed market areas, and the Company's ability to manage integration and growth.

Additional risks are described in the Company's filings with the Securities and Exchange Commission. All information in this call is as of February 22, 2012, unless otherwise noted, and the Company undertakes no obligations to update any forward-looking statements to conform the statements to actual results or changes in the Company's expectations.

During this call we may refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, which we believe to be common in the industry and helpful indicators of our performance. In keeping with SEC regulations we have provided and encourage you to refer to the reconciliation of these measures to GAAP result in our earnings release.

Now to provide you with some insight into Chatham's fourth-quarter and full-year 2011 results, I would like to introduce Jeff Fisher, President and Chief Executive Officer, and Dennis Craven, Chief Financial Officer. Jeff.

Good morning everyone. We are pleased to be here again to talk to you about our fourth-quarter results, and most importantly what we see looking forward this year and beyond. Before Dennis gets into the specific fourth-quarter details though I would like to highlight some key points about Chatham for everyone.

First, with 2011 behind us, it is nice to be able to talk to you about the completion of the Innkeepers acquisitions and the substantial completion of renovations on 13 of our 18 owned hotels. Although it took more time and effort to complete the joint venture, we believe this deal is going to be a homerun for Chatham and Cerberus.

We are buying an excellent portfolio of assets for an all-in price of $118,000 per key, which represents an approximate 35% discount to what we sold Innkeepers for in 2007.

As Dennis will speak to later, not only does the JV contribute substantial FFO and EBITDA to Chatham, but it will provide to us a strong cash-on-cash yield. Additionally, as we move through this year because of some refinancing efforts and efforts in disposing of assets within the JV, we expect to receive approximately 40% to 50% of our $37 million investment back to us as a return of capital, which should really help to enhance our returns even further.

Despite the fact that our stock price hasn't performed like we would have liked, we believe 2011 was a very successful year for our fundamental business and our strategy. We have delivered on the commitments we made to our shareholders at the time of the IPO. We have acquired and assembled a high-quality hotel portfolio with a strong focus on bicoastal markets, our target markets, and an emphasis on major metropolitan areas.

The composition of the 18-hotel portfolio shows you that we are concentrated in strong markets with high barriers to entry. 77% of the portfolio is located in the Northeastern US and the West Coast. 65% of our portfolio is located in Metropolitan DC, Metro New York City and Southern California. Those are the kind of markets that we have always targeted and want to be in.

The portfolio was acquired at a significant discount to replacement cost. And a lot of these hotels, again, are in high barrier to entry markets, such as White Plains, New York; Tysons Corner, Virginia; New Rochelle, New York; and DC downtown, Foggy Bottom; San Diego and Anaheim.

Owning premium branded, select-service hotels in these kind of markets does command a premium RevPAR, which also produces industry-leading margins, as you have seen from us, and we believe the best risk-adjusted returns in the sector.

For the fourth quarter we generated FFO per share of $0.19 on RevPAR Grove of 5.7%, which was within the guidance we provided of FFO per share of $0.18 to $0.21 on RevPAR growth of 5% to 6%.

Interestingly, this was the first quarter where ADR growth outpaced supply growth for our portfolio, which is very, very encouraging. Actually that is -- what we mean to say there is occupancy growth. And that, of course, is what we want to see since it is ADR growth that drives margins even further, and we expect that to be the case as we move through 2012.

On our last earnings call we spoke of one hotel that was performing below our expectations and that was the Homewood Suites in Carlsbad, which is a submarket of San Diego. And RevPAR was down 2.6% in the fourth quarter, but we do see that stabilizing and look to turn the corner here as we move through 2012 in that market.

I want to talk a little bit about operating profit margins, seeing one or two of the analyst reports come out so far saying, and we have said, that we were somewhat disappointed in the margin growth or lack thereof in the fourth quarter. We have traditionally been and expect to be very strong in 2012 on flow-through. That is a key measure, of course, of how much money drops to the bottom line from incremental increases in revenue.

In the fourth quarter that was only 45%. We like to see 60% to 65%. We have had some issues, again, in our Hilton-managed hotels. Those are the six Homewoods dating all the way back to the IPO that produced flow-through of only 35%. We are working with them on that front. And again, that was kind of a recurring theme in 2011 that we expect to fix and have a plan to fix with Hilton in this first quarter of 2012.

Having said that, the management team is still delivering industry-leading margins on an absolute basis, with 2011 operating margins of 43% and EBITDA margins of 36%. And, again, to note in 2011 most of that was coming from occupancy gains as opposed to ADR gains.

So looking ahead to this year, which is really the key for us, we have got a lot of renovations that we had talked about many, many times and, frankly, I would rather not talk about them anymore. They're behind us. The hotels are performing. You saw that in the fourth quarter, coming up with almost 6% RevPAR gain, and again in the beginning of this year some strong gains in our hotels, with 72% or 13 of the 18 hotels having been fully renovated.

And since the usual renovation cycle is roughly six years, that is important to think about as we look towards 2013 and 2014 and beyond as to what these hotels can do, because we will not have the need to go back in here on these assets, and with a few more being done in the beginning -- just about finishing in the beginning of this year and two more -- Dennis will talk to the detail on this, by the way -- at the end of this year, you have got a portfolio that has a good running room, five to six years of -- with very, very little if any renovations going on in our 18 hotels.

So that, together with the lack of new supply in our markets, and certainly the lack of construction financing continuing to be the story overall in the hotel business, I think bodes very well to the fundamentals in the hotel business and, therefore, a sustained ability to generate RevPAR increases and EBITDA increases in our portfolio.

I typically don't like to talk about our stock price, as that is something that, of course, is hard for us to control. All we can control is the things relative to our business and how our operators operate the hotels; what we acquire and the markets that we acquire hotels in; what brands we acquire. And I think as we put together this portfolio and invested in the joint venture, we certainly have a great existing portfolio and growth platform to move forward with.

There was some uncertainty last year, and I think certainly with the headlines every day, unfortunately, being about the Innkeepers trade, there being a deal, there are not being a deal, there being litigation. You know, us including analysts, including some, I think, $0.10 to $0.15 of FFO in our numbers even in 2011, and certainly for 2012 from the JV, and then having that go away and come back, together with some lag in the fundamental portfolio coming out of the renovations, caused us, frankly, I think purely on a RevPAR basis and EBITDA growth basis to underperform in 2011.

So maybe our low multiple and our stock price reflects the other performance in 2011. But that is behind us. I think our shareholders and I appreciate the patience of our shareholders. I am a fairly sizable one myself. I don't want to see the multiple where it is. And I think as we look at 2012 and coming out of the chute, a strong year in January. And I'm looking at our February numbers, good RevPAR gains above even what we budgeted. January flow-through with the numbers are in are strong.

I expect us to build momentum in 2012. And I would expect as our history shows during the Innkeepers days, that if we deliver on the fundamental cash flow model I would expect that our roughly 9 times FFO multiple ought to expand as we go through this year.

If it doesn't, we think there is something wrong perhaps in the perception or our ability to communicate what the earnings will be. But the EBITDA will grow and the dividend will grow, and I think it will be very clear as to what this Company can earn as we get through this first quarter.

With that I would like to turn it over to Dennis for some more detail.

Thanks, Jeff. It is good to be with everybody this morning. Fourth-quarter RevPAR was up 5.7%. We are happy to report, as Jeff alluded to earlier, that average daily rate made up 3.1% of that gain, with occupancy increasing 2.6% to an overall portfolio occupancy of 76%.

We had provided a RevPAR growth guidance of 5% to 6% for the fourth quarter, so the 5.7% came in at the middle to upper part of the range that we had provided.

One thing that we do want to highlight is the fact that this was the first time for this portfolio where quarterly ADR outpaced occupancy gains through this part of the cycle. Having said that, even including this number, we still had four hotels that were under renovation during the quarter, our Houston and Holtsville hotels, as well as our Altoona and Washington, Pennsylvania hotels.

As we talked about on our last earnings call, we expected to see a jump in occupancy in the renovated hotels as they gained the occupancy coming out of the renovations and were able to bring back old customers and attract new customers.

Occupancy for the entire portfolio was 76% for the quarter and 78% for the entire year. We still have some room for occupancy gains moving forward, especially in those hotels that were renovated early on in 2011, and we are continuing to see these hotels gain market share coming out of those renovations. Again, this bodes well for us and for our performance moving through 2012 and beyond.

For the fourth quarter we reported a net loss of $6.2 million or $0.45 a diluted share. This was primarily driven by approximately $4 million of cost related to Innkeepers transactions, as well as about $700,000 related to the Pittsburgh termination.

Additionally, included in this loss is a net loss of $1 million related to the net income of the joint venture for November and December, which was primarily impacted within the joint venture by acquisition cost and the fact that the timing of the closing of the JV was right on the precipice of moving into that winter season for that portfolio, which is our slowest part of the year.

Adjusted EBITDA was up 94% for the quarter to $7.6 million from $3.4 million in 2010 due to the significant acquisitions we made in 2011 with the acquisition of the five wholly-owned hotels from Innkeepers back in July 2011 and our joint venture investment that closed in late October 2011.

Adjusted FFO was up 18% to $2.6 million or $0.19 a share. We have made substantial progress on our property renovations. And as Jeff spoke to earlier, we are happy to say that 2011 marks the end of most of our renovation projects. We have some small remnants that are wrapping up here in early 2012, which have had little or no impact on our performance as evidenced by our RevPAR growth of 9% and 13% in January and February.

With only two of our 18 hotels scheduled for renovation in the fourth quarter of 2012, it only represents about 13% of our rooms count, and we're going to time those appropriately in the fourth quarter to minimize any type of displacement. Those renovations are going to be taking place at the Residence Inn in Anaheim-Garden Grove and the Residence Inn in New Rochelle, New York.

Including the two hotels that we bought from Innkeepers in the summer, the Tysons Corner and the San Diego Residence Inns, we have spent approximately about $25 million investing in the renovation of the portfolio. It equates to about $14,500 a key, or almost $2 a share. A substantial investment that we believe will pay off with market share gains and improved occupancy and premium ADR as we move into 2012 and 2013.

We look forward to reaping the benefits of the substantial investment that we've made in what most believe will be a prolonged lodging recovery. And, secondly, what is really important on a go forward basis with respect to the rest of the portfolio we have very little renovation obligations over the next five years, again, really setting Chatham up to be able to provide significant cash flow to its shareholders.

We finished the quarter with approximately $5 million of cash and cash reserves and total assets of approximately $460 million, significant growth from the approximately $220 million of assets we began the year with. Total debt outstanding at September 30 was $229 million at a weighted average rate of approximately 5.8%, of which we had $68 million outstanding on our $85 million line of credit.

Our ratio of debt to investment in hotels at cost was approximately 51% at December 31, again a level that we are comfortable operating at at this stage of the cycle.

When you look forward to 2012, even at a 50% leverage ratio our debt coverage is projected to be over 2.0 times during 2012. Again, well-covered from a debt perspective as well as a dividend coverage perspective.

Looking into a little more detail on our debt capitalization, interest-rate risk and repayment risk are really not issues at all for us. Even at the highest level leverage ratio the maximum spread on our interest rate on our line of credit is 4.25%, which equates to an all-in rate of 5.5% based on the LIBOR floor of 1.25%.

The remainder of our debt is fixed at very low historical rates and the weighted average maturity on our fixed-rate debt is not until late 2016. And again, with the only maturity in the next four years essentially being the $5.3 million loan on the Washington, Pennsylvania SpringHill Suites hotel.

Additionally, as a reminder, each of the five loans from the 5 Sisters acquisition that we acquired in July 2011 can be repaid in whole at any point in time without prepayment penalties or defeasance. A feature that will allow us to refinance any existing indebtedness on those hotels or sell those hotels without any type of prepayment penalties.

During the fourth quarter we declared a dividend of $0.175, which was paid on January 27, 2012. And our Board of Trustees and management will continue to evaluate the dividend on a quarterly basis, given the fact that we see significant growth in our FFO and our EBITDA in 2012.

With respect to our guidance, which we hope was helpful in providing a little bit of a better picture of where we're going to be in 2012, we had last provided preliminary forecast for 2012 in connection with the original confirmation of the Innkeepers joint venture back in June of 2011. The guidance at the time factored in the acquisition of the Pittsburgh hotel, which we ultimately terminated in the fourth quarter.

Our guidance assumes no macroeconomic factors that are out there that are unknown at this point in time, which could have a negative effect on the industry.

Topline revenue for us in 2012 is expected to be in the range of $96.5 million to $99.5 million, up 33% over 2011. Other revenue comprises approximately 4% of our total revenue in the portfolio.

The hospitality industry is forecast to continue to improve in 2012 based on economic growth, lack of new supply growth, and increased business travel spending. Starwood and Marriott, which most of you are aware, both forecasting RevPAR to grow 5% to 7% in 2012. Our forecasted RevPAR growth equates to 6% to 8% for the full year with a 10% to 12% increase in the first quarter. Because we invested significantly in 2011 in our hotels, we expect to see above industry performance in terms of RevPAR in 2012.

Looking at the ADR occupancy mix for the first quarter and for the year, occupancy will make up about two-thirds of the first quarter RevPAR gains. And then when you look at the entire year's -- the entire year for the portfolio, we expect ADR to comprise two-thirds of our RevPAR gain for the entire year.

We estimate adjusted EBITDA will grow approximately 80% to $40 million to $42 million in 2012 from $22.6 million in 2011, and adjusted FFO to climb approximately 65% to a range of $17.5 million to $19.5 million from $11.9 million in 2011.

On a per share basis FFO will rise approximately 50% from $0.89 in 2011 to a range of $1.25 to $1.40 in 2012, again, significant growth that is built-in from this portfolio of investments we put together.

The quarterly contribution of FFO per share and EBITDA per share from an estimation perspective we expect to be about 14% in Q1, 32% in Q2, 35% in Q3, and 19% in Q4. We expect hotel EBITDA margins to rise 100 to 200 basis points in 2012 to a range of 37% to 38%, up from the approximate 36% in 2011.

From a cost perspective, we anticipate corporate cash, administrative expenses to be approximately $5 million in 2012 compared to our initial forecast of $5.2 million that we put out back in the summer.

As for corporate cash -- for corporate non-cash administrative expenses, which represents share-based amortization for the Board and for the executives, we anticipate these costs will be $2 million in 2012, up from $1.6 million in 2011 due to additional share-based compensation.

As you would expect, our interest expenses will increase to about $13 million in 2012, up from $8.2 million in 2011, really just due to a couple of things which is the acquisition -- the incremental debt that we assumed and that we borrowed to acquire the 5 Sisters in July of 2011, and also the $37 million investment we made in the joint venture in October of 2011.

As Jeff spoke to earlier, we do expect to get some capital returned to us from the joint venture in 2012 through the issuance of debt and from the sale of non-core assets within that joint venture with that initial return to capital initially being used to pay down our line of credit and available for potential acquisitions.

Looking at non-cash amortization and deferred financing fees, we expect those cost to be $2 million for 2011, up from $1.7 million -- excuse me -- for 2012, up from $1.7 million in 2011, attributable basically to a full year's worth of issuance costs related to 5 Sisters loans and the New Rochelle loan that we took out in August of 2011. And our weighted average shares outstanding are projected to be $13.95 million in 2012.

From a capital perspective we expect to spend approximately $9 million in 2012. $5 million of that number is -- $5 million of that number relates to the full renovations of our Residence Inns in Garden Grove and New Rochelle, New York, which again scheduled for late in the 2012 fourth quarter.

Our other CapEx spending of about $4 million is basically attributable to emergency maintenance spending. We do have some parking structure work and some roof work that we have to do it some of the hotels. And we have some minor amounts that we have to spend in our San Antonio and Washington, DC hotels to fulfill PIP requirements, which we do not expect to impact our revenue performance.

From a dispositions perspective, within Chatham we don't expect any in 2012. When you actually look at the joint venture, we do have a portfolio of assets -- of non-core assets there are currently for sale that we expect to execute on in 2012, which will return capital to Chatham.

Our guidance that we provided herein doesn't assume any significant asset sales within the joint venture or within Chatham.

From a dividend perspective in 2011 we paid out approximately 75% of our adjusted FFO as common share dividends. Our confidence in the overall health of the hotel industry remains very positive, combined with the fact that our FFO is projected to grow over 50% in 2012, we will continue to review with our Board of Trustees our dividend policy on a quarterly basis to determine increases -- to determine any potential increases in our quarterly dividend payment.

We know from our history at Innkeepers, as well as with Chatham, the dividends from REITs make up the primary component of REIT returns over time. And if you look at our dividend payment history from so far our year and a half as Chatham being a public company, as well as from our days at Innkeepers, you know that one of the primary components of our belief is to build an operating model that produces strong cash flow and will provide meaningful cash dividends to our shareholders.

Operator, that concludes our remarks at this time. We will turn it over to you for questions.

(Operator Instructions). Sule Sauvigne, Barclays Capital.

It is Sule. My question is about the renovations. I was wondering if you can quantify what kind of market share gains you are seeing from the renovated hotels? Maybe if you can't quantify it for the whole group, if you could kind of give us some highlights of the more significant hotels in your portfolio that have been renovated, just to give us a sense for if it is -- just how much of it is easy comps versus market share gains?

Hold on one second. Yes, if you actually look at for the last -- especially for the last three months, when you start to -- the last three months of 2011, you will start -- you will see that, again, just to give you an example for the six Hilton-managed hotels, which we renovated in the first and part of the second quarter of 2011, you will see that from the market itself was up -- the market itself was up 8% for the fourth quarter. You will see that our actual index performance was actually up 5% on top of that.

So you've got a combination of some pure market movements going upwards, but you also have our ability to go out and grab incremental share from those renovations. So just looking at those six hotels for the three months, you've got a one-third, two-third percent -- one-third, two-thirds percent -- one-third versus two-thirds attribution to those gains.

And going forward, I assume that as the more recent hotels will ramp up you should expect continued market share gains, at least in the beginning of 2012. What kind of marketshare gains are you expecting or assuming?

Well, they are huge in January and February, particularly on the six. Again, directly there, if you recall, that is when the bulk of the renovation was occurring in those assets. So you've got substantial double-digit RevPAR gains -- excuse me, RevPAR gains and RevPAR index gains as we start this year up.

Then on top of just the market performance for 2012 on a calendar year basis, you're looking at about an incremental kind of mid-single-digit index gains on top of just the market performance for 2012.

Then, just lastly, how much did you spend on CapEx in the fourth quarter?

I don't think I have that number just right here in front of me from a truth cash perspective. I think -- I know just from a true dollars perspective, probably just to give you a rough estimate, would be around $3 million of cash.

That was part of your guidance on that. I just wanted to see how it came in.

Total costs for the four projects that were under -- for the -- that were under renovation for the entire fourth quarter was about $5 million total from start to finish. So you have got -- we are wrapping up some of those here just in January and early February, of which we are basically done now. So, again, right around $3 million.

Thanks. I will give somebody else a turn. Bye.

Rochan Raichura, JMP Securities.

Thanks for the detailed guidance. Just a question on what you guys are seeing. And in terms of looking further into 2013, do you expect those trends to continue in terms of RevPAR growth and more of it coming from ADR versus occupancy, or if you can provide maybe some qualitative color around that?

I would expect that to be the case, assuming, again everything is predicated on this economy continuing to chug along at some small GDP growth rate that we are experiencing now. I think that hotels and the fundamentals and the markets clearly should show -- except for the hotels that had some of the occupancy loss due to renovations in our portfolio, but as you get into the 2013, it is ADR even much more so than as a percentage of total RevPAR gains in 2012 continuing to have stronger pricing power as you move into 2013 and beyond.

Would you expect the portfolio to outperform the industry standard as you do in 2012 or is it --?

I would think that generally historically this asset class is pretty much in line with industry on an overall basis. I think our markets perhaps here being coastal are a bit better, but then again, industry numbers tend to be overall Smith Travel numbers influenced by those same kind of markets.

So I would say industry numbers would exist as you get most of your renovation gains and market share gains that we were talking about with [shuelay] behind us as you work into 2013.

Then, just finally, on asset sales. I know you mentioned you're not modeling anything in for 2012, but what are you guys seeing in terms of asset dispositions? And with what is going on in the capital markets and just the environment in general if you can mention what you are seeing in the market right now?

Are you asking about what is the general flavor of the acquisition market is out there?

Right, exactly.

Well, I tell you what, there is really not -- as you know, there is not a lot going on. There hasn't been a lot going on since all the stocks cratered in August of 2011. I think that some of the REITs that have a better multiple than ours are looking and thinking about starting to pull the trigger again on some assets to acquire. But frankly, I think there is a slim pickings out there overall primarily because a lot of hotels that folks were thinking about selling have either come off the market or the gap between the bid and the ask has been, again, very, very large.

So you might see that change. I would suspect if the year continues to be as good as starting out as you move through the year.

Great, thank you.

(Operator Instructions). Patrick Scholes, FBR Capital Markets.

I apologize if I missed this in your prepared remarks. Can you provide a little bit of color on how the Innkeepers assets did in the fourth quarter?

You didn't miss it. We're probably going to undertake, just for future reference, since this is a JV that is not publicly traded, and we have got a minority interest there, we are not going to be disclosing -- Dennis, what are you showing me here? Are we disclosing information relative to the JV?

No.

I don't think so. So what I would say though is that the JV assets, frankly, are performing in line with what the Smith Travel numbers are week after week after week. The core portfolio there is right on top of those numbers.

Thank you. That is all.

Andrew Calderwood, Perennial Investments.

Just a quick question about the modified guidance. I think when it was updated last quarter, that included the adjustment for the retraction of the sale of the Pittsburgh asset. And just as we look now, have there been any changes -- maybe what effect has the change in the JV had on guidance specifically?

The overall net acquisition price went down $100 million or so, and I would think the ROE on that $37 million has gone up, and I am just trying to reconcile back as to how you get improved acquisition metrics and the downward adjustment for guidance.

Just to claw it back, the original forecast for 2012 was $1.45 to $1.65. That included $0.10 that was from the Pittsburgh acquisition, which would bring you down to $1.35 to $1.55 range. I think there are two things. First of all, to address the joint venture, really nothing has changed operationally in our expectations of the joint venture.

Our investment, even though -- and you are right, even though our investment is $37 million, the price came down -- our return on equity is getting better. Obviously, it does improve.

From an AFFO contribution perspective and an EBITDA contribution perspective I think those numbers really haven't moved a whole lot. But, certainly, when you look at what that means in terms of our return on equity it definitely improves that number.

I think when you look at a couple of other things with respect to the guidance, one is -- and what Jeff alluded to earlier, is we haven't been happy with the margin performance of certain of the hotels within our portfolio in 2011. We are showing 100 to 200 basis point improvement in that margin performance, which as you will see the main driver from that difference from the previous forecast for 2012 and today.

Still we are showing up 100 to 200 points, we're just not getting up to that 40% range of an EBITDA margin, and that is mainly attributable to 2011 not being as strong from a margin perspective as we had hoped.

So there was actually missing money, if you want to think about it fundamentally, in the 2011 model that you have got. And, therefore, when you extrapolate beyond 2011 and into 2012 that money, together with the margin that is supposed to be -- you know, that needs to get fixed, is fundamentally probably the $0.05 or so, if you want to quantify it as that, shortfall. It is really kind of rearview mirror, and we do expect as I said in my comments to have that fixed fairly quickly. And January numbers actually came through pretty strong, as I also mentioned there, but we have been trying to work strongly with them on breakdown for the general manager, who is doing what to who? Director of sales, is it the appropriate person or not.

By the way, that is all revenue, but general managers have to flow through. And we are -- because we have that affiliated manager all over them insofar as producing the kind of numbers they need to produce. We want to -- and that is why we gave a guidance number that is in a wide range with a lower number on the low end of the range, because we want to be in a position to increase that number as we move through this year and as opposed to be in a position of being surprised by some performance that we have not been able to control as well as we would like to so far.

Jeff, what are those main issues that are being negotiated with Hilton over this Homewood Suites in terms that are affecting margins? Is it staffing? Is it -- what are the big items that you are negotiating with them now?

We want to be careful in terms of not badmouthing them too bad. They have been a good franchise partner for over 25 years for us and for me. But the management side of the thing really relates to lack of expense control more than anything else. And one particular -- actually, two hotels in particular really sunk us in the fourth quarter with bills that just kept coming out of the woodwork. And so we have got to be -- let's just say we're working with them. I don't want to overstep my bounds and say too much at this point because it is sensitive negotiation that we will try to conclude.

Day-to-day control though from our asset management side is -- and way more frequent intervals of visits and interaction and sitting on P&L calls with them, although we were doing that, but driving into every single invoice if we have to, at detail for PLM and such as you do when you're running the hotel yourself, is really what we are doing.

But our feeling is if we have to in essence run the hotel ourself, then guess what, we ought to run the hotel ourself, i.e., through another management company.

So we're talking to them about that opportunity as well. There is only 13 months left on their management contracts. We certainly don't want to feel like they are in a lame-duck scenario, and therefore not performing. So we're going to give them every opportunity to perform, or otherwise they will have to speak to us about early termination, I think.

Great, thanks.

I am showing no further questions. Please continue.

So I would like to wrap it up here. Again, just to reiterate what I said up front, I think that we have given ourselves, by the way, on this guidance, considering all aspects of this thing, room to grow. I expect as we move through the year for hopefully our guidance to continue to be as it usually was during the Innkeepers days on the conservative side of life.

I think that our margins clearly, looking at the positive side of life, on an absolute basis, are extremely strong. Especially as you compare that to other select-service hotel REITs, which is where you need to look. We have got the best margin in the business.

I think we will continue to enhance that. The RevPAR finally is on the high end of the range, and, frankly, the high end of the range of all the hotel REITs, and certainly as compared to the select-service hotel REITs. I think we're going to end up on the very, very high end of that range.

In retrospect it takes time to build a Company. We know that, and it takes time for the strategy to come to fruition. Frankly, I would be surprised if our multiple doesn't expand to where the rest of this group is as you move here through the first part of 2012, given the EBITDA growth is on the table here, given the FFO growth and given, I think, some dividend growth as well this year, we will reward our shareholders appropriately with dividend growth.

It is funny, when you look back over the lodging equity index returns, over a number of years, even as far back as 1993, what you see is most of the returns, quite frankly, when you take out all the ups and downs and cycles that lodging experiences are really derived by dividends, and we are strongly aware of that.

We think that is what helped drive our Innkeepers. We know, actually, that is what helped drive our Innkeepers' overall return, and we expect that to be the same case with Chatham.

So it takes a little time, particularly in a small company with a hugely disparate number of hotels that we are getting renovated and actually losing market share, but being in control of our own destiny, being able to control their management on all of our assets, and I think, being the kind of asset managers that we are should also pay further dividends as we report our first-quarter earnings for this year.

So we look at history, and we expect that the value will come back to our stock. We have got to be disciplined without running around looking for a bunch of deals to buy. We're not trying to figure out ways to issue equity at $12 or $13 or $14. We are not going to sell the company for below NAV. We know where the value is here. Just to put a cap rate on the NOI. Put any reasonable cap rate that you want to put on there, and you have got a stock price that is in and around the IPO stock price.

So the math is pretty clear and we keep that always in mind as we move forward here. So we will look forward to talking to you on the next earnings call, and hopefully have a better multiple than where we are today, but, most importantly, for the things that we can control, like RevPAR growth, like EBITDA growth, like the renovations being on time and under budget, and, of course, overall flow through and cash flow, those things I expect to be in line, if not substantially better than the group.

And I think that is all we can do for the time being. So thank you all for listening, and we look forward to talking to you.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect.