Chatham Lodging Trust (CLDT) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to the Chatham Lodging announces their second quarter conference call. Today's call is being recorded. And at this time, it is my pleasure to turn the conference over to Chris Daly. Please go ahead, sir.

Thank you, Lori. Good morning, everyone, and welcome to the Chatham Lodging Trust's second-quarter 2014 results conference call. This morning, before the opening of the market, Chatham released results for the second-quarter 2014, and I hope you've had a chance to review the press release. If you did not receive a copy of the release or you would still like one, please call my office at 703-435-6293 and we'll be happy to send you a copy; or you may review 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 1 p.m. Eastern on Tuesday, August 12, 2014 by dialing 1-888-203-1112, reference number 8711670. A replay of the conference call 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 Chatham is prohibited. Before we begin, management has asked me to remind you that, in keeping with the SEC 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, amongst 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 real estate 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 national disasters; supply and demand for lodging facilities in our current proposed market areas; and the Company's ability to manage integration and growth. Additional risks are discussed in the Company's filings with the Securities and Exchange Commission.

All information in this call is as of August 4, 2014, unless otherwise noted. And the Company undertakes no obligation to update any forward-looking statements to conform the statement 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 reconciliations of these measures to GAAP results in our earnings release.

Now, to provide you with some insight into Chatham's 2014 second-quarter results, allow me to introduce Jeff Fisher, Chairman, President and CEO; and Dennis Craven, Executive Vice President and Chief Financial Officer. Let me turn the session over to Jeff. Jeff?

Thanks, Chris. And thank you, good morning, everyone. We are thrilled to be here today, this being our first earnings release since acquiring the four Silicon Valley hotels and completing the Innkeepers NorthStar transaction. I think the results reported continue to validate our strategy to own the best assets in the fastest-growing markets with the highest barriers to entry.

Additionally, our utilization of best-in-class manager Island Hospitality further enhances our already strong return on investment. You can see that as you look at the results, look at the margin increases and the flow-through to earnings from our RevPAR gains. We've got nothing but great results to talk about today.

During the second quarter, we increased our annual dividend 14%; and since our IPO, we've increased our dividend approximately 40%. We closed the largest acquisitions in the Company's history. We produced the highest RevPAR growth across the lodging industry. We drove the highest operating margins in the lodging industry.

We saw EBITDA and FFO jump 58% and 71%, respectively. And when you look forward to 2015, our EBITDA and FFO growth is projected to be among the highest in the space. By almost any metric, Chatham ranks as one of, if not the, best-performing companies in all of lodging.

We've spent a tremendous amount of time and effort putting together the Innkeepers transactions. We realized a profit of approximately $80 million or $3.00 per share in less than three years. That's $3.00 per share. The investment gained an over 80% IRR for our shareholders.

And through thoughtful analysis of potential structures and teaming up with NorthStar, we were then able to reinvest that $80 million profit tax-free into new investments with high-growth dynamics, with strong going-in levered yields. So when you put a multiple on that gain, the value is meaningful.

These transactions should create substantial value for Chatham and its shareholders going forward. And there's even more embedded value when you factor in the expansion opportunities at four of the top performing Residence Inns in the country, our Silicon Valley Residence Inns. And those numbers and those earning gains have not been picked up by any analyst thus far, because most of that is a 2016 event.

We have amassed a high-quality portfolio of upscale extended stay and premium branded select service hotels in locations with limited new supply growth, and highly focused on the corporate traveler. We know, based on years of experience in these sectors, that our hotels provide the best risk-adjusted returns over time. Because of their location and their customer base, we are able to achieve high absolute RevPAR combined with growth characteristics very similar to those you may see in urban markets.

When you look at our 29 hotels, approximately 87% of our portfolio is located in the top 25 MSAs; 80% of our portfolio is located on the West Coast and the Northeastern United States; and approximately 55% of our hotels are located in key West Coast markets, of course, including Silicon Valley, continuing to be one of the highest growth markets in the United States. Across the lodging REITs, the 55% ranks as one of the highest concentrations of all lodging REITs on the West Coast.

We've concentrated our acquisition efforts on primarily high-growth MSAs, as I've said, focused on technology, medical, and oil and gas. Our second-quarter topline results were very impressive, with RevPAR growing 9.6%; 8% excluding DC, which as of this morning, was the highest of all reporting companies. Absolute RevPAR was $133 on occupancy of almost 87%, and an average daily rate of nearly $155 for these hotels. Certainly not figures one typically associates with a geographically diverse select service portfolio.

The RevPAR growth of 9.6% was driven by an increase in occupancy of 3.7% and an increase in rate of 5.7%. So here, again, we want to note -- although other companies are seeing most of their gains in rate, we are continuing to see occupancy gains as well, which I think bodes well for our Company and our shareholders, because it should give us even longer legs in the cycle, because more rate growth will come as we continue to maximize the occupancy rates in these hotels.

We saw strong growth across our portfolio, with 13 of our 29 hotels posting double-digit RevPAR growth in the quarter. And importantly, this growth was spread across the country from Boston to Nashville to Texas to Southern California and Northern California. As a matter of fact, when you look at our portfolio RevPAR CAGR, this portfolio has exceeded the industry and upscale segments in eight of the last 12 years, and has outperformed those segments by 41% and [54%], respectively. Pretty interesting numbers, and just speaks to, again, the markets that we have chosen to acquire our assets in, and the strength of the brands and the operator that we are affiliated with.

RevPAR at our recently acquired Silicon Valley portfolio was up 12.1% for the quarter to $172, driven by occupancy growth of 5% to 92%, and an increase in rate of 8.4% to $187. The converted DC Residence Inn continues to gain traction, with a year-to-date market share index of 110, which is the highest level in any of the last five years. The highest index as a DoubleTree was $106 in 2012.

RevPAR is projected to be over $160 in 2014 in DC, which would be 10% higher than any year in the past 15 years -- yet another example of finding value in our portfolio. That conversion to the Residence Inn brand obviously is paying dividends and should continue to ramp up over the next year.

Within our markets, occupancy continues to climb, up 2% to 81%, a sign that demand continues to grow. And since our hotels are typically the strongest brands in those markets, we stand to benefit most. Island Hospitality has grown market share and continued that momentum through the first six months of this year. These factors bode well, since our operating model is best at growing, as I mentioned, operating margins.

We've got a best-in-class portfolio through our affiliation with Island. With three decades of experience investing in operating primarily select service and limited service hotels, we believe that we have a unique understanding of how to generate significant value in this space. The affiliation allows us to properly diligence acquisitions, given our knowledge of most major markets across the country, and allows us to leverage Island's relationships to drive operating costs lower, and allows us to make quick decisions regarding revenue management, revenue segmentation -- all helping to maximize topline revenue.

With our topline revenue growth exceeding our expectations, our hotel EBITDA margins advanced a very strong 350 basis points to almost 44%, the highest among all lodging companies. Since our IPO in 2010, we've raised EBITDA margins approximately 1300 basis points -- a staggering number -- a testament to our ability to continue to drive operating profits higher. We were able to generate operating profit flow-through of 55%, much better than our 40% first-quarter performance.

So, we are very pleased with the improvement, and applaud our General Managers for doing much better this quarter. And we expect that trend to continue throughout the year. We expect our third-quarter hotel EBITDA margins to rise to over 45%, and we believe there is substantial room for further advancement, as ADR grows over the next several years.

As I said earlier, our operating model is best at driving EBITDA, and our EBITDA per share has grown at a CAGR of 21% since our IPO. When you factor in reasonable leverage at low rates, we've been able to drive healthy growth in FFO per share at a CAGR of 30% since our IPO. All this translates into generating strong free cash flow, and Chatham pays a healthy dividend of $0.96 per share that is well-covered, given our estimated FFO per share of $1.91 to $1.96 for this year.

Our Board evaluates our dividend frequently, and it's our intention to grow our dividend in tandem with FFO per share growth. So when you look at our projected FFO per share growth, I believe that translates into a very significant dividend increase as we move forward.

Before I pass it on to Dennis, I would be remiss if I didn't thank Cerberus for their partnership in the Innkeepers transaction. The partnership was very successful and was mutually beneficial for both Chatham and Cerberus. We still hold one hotel in a separate joint venture with Cerberus, and look forward to continuing that partnership with them.

At this point, I'll turn it over to Dennis.

Thanks, Jeff. Great to be with everyone today and to talk about the all-around great results. For the first quarter, we reported net income of $64.9 million or $2.42 per diluted share compared to net income of $2.2 million or $0.11 per diluted share for the 2013 second quarter. The primary driver behind the significant net income increase was the accounting gain of $66.2 million related to the recapitalization of the Innkeepers joint venture and the sale of the four Silicon Valley hotels from the joint venture to Chatham.

Also, during the quarter, we incurred one-time expenses of approximately $5.5 million related to the transactions. The accounting gain of $66 million is not the same as the actual investment gain of over $80 million, due to basically some technicalities surrounding the rollover of the gain related to our investment in the Innkeepers joint venture with NorthStar.

It was record second-quarter RevPAR growth for Chatham, as we saw RevPAR grow 9.6% in the quarter for all 29 hotels owned at the end of the quarter. (technical difficulty) RevPAR were particularly strong, up 11% and 10.5%, respectively, aided by the fact that industry demand was up 4.5%, while supply growth was a muted 0.8% in the second quarter.

We saw double-digit RevPAR increases across almost half of our markets, including all four of the Silicon Valley Residence Inns, which, as Jeff alluded to, saw RevPAR grow approximately 12% in the quarter. However, if you actually exclude those four hotels, RevPAR was still up approximately 9% for the quarter, which shows the breadth of the performance across our entire portfolio, with really the only weak market for us being Portland, Maine, where RevPAR was down 1.4%. However, that was much better than we expected.

We knew that there were three new hotels coming into the downtown waterfront market when we bought the hotels -- when we bought the hotel, so it wasn't a surprise. But all in all, a very good summer, regardless of the new supply increases in the market.

In the second quarter, we were able to drive significant margin expansion through certain expense management initiatives we implemented across the portfolio, and we were able to drive our already leading margins up 360 basis points to 43.6% -- as of this morning, the highest in the industry. Through our close working relationship with Island, we are able to identify some focal points to enhance profitability across the portfolio. And, as a result, we were able to improve our flow-through in the second quarter to 55%.

The combination resulted in our delivering adjusted EBITDA of $21.7 million versus consensus estimates of about $20 million, and FFO per share for the quarter of $0.56, exceeding consensus estimates of $0.52 to $0.53 a share. Chatham is one of the top-performing lodging REITs over the past four years with regards to FFO growth, and the highest of the newer lodging REITs who have come public since 2009, growing, on average, 30% per year.

The Innkeepers joint venture performance was also strong for the quarter, and it contributed $3.5 million of EBITDA and $1.9 million of FFO or $0.07 per share. At June 30, our net debt was approximately $542 million, up $270 million from March 31, as we used basically debt of $270 million and the approximately $80 million of equity created through the rollover of our gain of the JV transactions, to make the $350 million of investments in the Innkeepers transactions.

During the quarter, we issued $220 million of 10-year, 5 years interest-only CMBS debt at an interest rate of 4.64%. The average interest rate on all of our debt sits now at 4.33%, with the average interest rate on our fixed-rate debt of 4.73%, and the weighted average maturity on our fixed rate debt is now out to October of 2023. We only have $11 million of debt maturing over the next seven years, with $5 million maturing next year and $6 million in 2016 -- very small amounts easily handleable by available cash flow.

At quarter-end, our leverage ratio was 51% based on the ratio of our net debt to investment in hotels at costs -- levels very similar to where we operated from 2011 through early 2013, with the only difference being that our average borrowing cost is down almost 150 basis points from that time. Accordingly, our debt is well-covered with our ratio of Chatham wholly-owned EBITDA to interest expense of well over 3 times.

Subsequent to the end of the quarter, we issued permanent financing on our SpringHill Suites Savannah through a $30 million 10-year CMBS loan at an interest rate of 4.62% -- again, with the first five years interest-only. Proceeds from that financing were used to pay down a portion of our borrowings on our line of credit, which now sits at approximately $62 million outstanding as of today. And we have $113 million available on our line.

We will continue to use free cash flow to pay down debt in the interim, and ultimately to reinvest into our hotels or new acquisitions. With projected FFO of approximately $27.5 million over the back-half of 2014, dividend payments of approximately $13 million, and capital expenditures of a few million dollars, we will use that approximately $10 million of free cash flow, again, to reduce borrowings on our line over the balance of the year.

In April, our Board of Trustees approved a 14% increase in the dividend, now standing at $0.08 per share per month, equating to an annualized dividend of $0.96 a share. With minimal CapEx obligations for the next several years, and debt locked in at very attractive long-term rates, our free cash flow projections are very strong. We've increased our dividend every year since our inception, and will continue to reward our shareholders with increases as our FFO per share climbs.

We stated since our IPO that we will continue to grow dividends in tandem with our earnings. And if you look at it as a percentage of FFO per share, we paid out approximately 60% in 2012, 56% in 2013, and what's projected to be approximately 48% in 2014, based on the current midpoint of our guidance of $1.94 per share. As Jeff said, we would expect that the dividend will continue to grow.

Our confidence in the overall health of the hotel industry remains bullish, and our Board of Trustees will continue to reevaluate the dividend each quarter. As a Company and management team, we know that dividends make up the primary component of REIT returns over time, and our goal is to continue to build a best-in-class company that produces strong cash flow that will provide such dividends to our shareholders.

Turning attention to our guidance for the second quarter -- or for the third quarter and the full year. We raised our full-year RevPAR growth by approximately 50 basis points to account for the RevPAR outperformance in the second quarter of 9% growth for the 25 hotels owned for the entire quarter, versus a range of 7% to 8% that we had provided back in May. For the third quarter, our RevPAR growth is forecasted to grow 7% to 8% on a 2% increase in occupancy. Prior-year quarterly RevPAR was $128 in the 2013 third quarter and $108 in the 2013 fourth quarter. Fourth-quarter RevPAR is currently forecast to grow approximately 5% to 7%, with almost all of that increase attributable to rate.

We've raised our Q3 and Q4 adjusted EBITDA, adjusted FFO, and adjusted FFO per share by about $500,000 to $750,000 or $0.02 to $0.03 per share based on our increased RevPAR and margin expansion for the balance of the year. There was a slight increase to interest and loan amortization expense associated with the new Savannah loan that we closed in early July. Additionally, we've increased our corporate G&A projections by approximately $250,000.

Our share of JV EBITDA increased $0.3 million from our June forecast, due to second-quarter outperformance and higher expectations for the balance of the year. Our joint ventures are expected to contribute $2.4 million of EBITDA in the third quarter, and $1.7 million in the fourth quarter, and approximately $1.4 million and $0.75 million of FFO in the third and fourth quarter, respectively.

On our June investor call, we provided a preliminary indication of 2015 adjusted FFO of approximately $2.35. Given the fact that our current portfolio has outperformed the industry for eight of the past 12 years, our outlook and earnings power is strong. When we look ahead to 2015, and if you just assume RevPAR growth of 6% to 8% -- which is a point above industry projections -- our FFO per share grows from a range of $1.91 to $1.96 in 2014 to a range of $2.43 to $2.53 per share in 2015 -- yet another year of significant growth. That's almost a 30% gain next year.

These are very powerful numbers. And one thing not to forget, as Jeff mentioned, is the fact that we do have the expansion and incremental EBITDA from the four Silicon Valley Residence Inns. We project that it's going to cost approximately $59 million.

And on a pro forma basis, when you look at those expansion opportunities, it would add incremental EBITDA of approximately $12 million. And if you look at that on a pro forma basis, based on our current capital structure, that equates to another $0.30 to $0.35 of FFO accretion, once the four renovations are finished. These -- and expansions are finished. These acquisitions should prove to be very accretive to earnings and the value of the Company.

That concludes my remarks. I think at this time, operator, we'll turn it over for questions.

(Operator Instructions) Gaurav Mehta, Cantor Fitzgerald.

You mentioned about certain expense management initiatives that partly drove the margin expansion. Can you elaborate on that?

Yes, we certainly can. We spent some time in the second quarter and, really, in the latter part of the first quarter, looking at, first of all, some repairs and maintenance expenses across the portfolio, where we thought we were just being a little inefficient in terms of staffing and overall expenses. So, we spent some time making those adjustments to repairs and maintenance.

And then as we've kind of moved through the second quarter, we also looked at both from a G&A and just a rooms margin perspective -- again, primarily staffing-related issues, where we were just a little bit heavy in certain departments. So we spent some time there, made some efficiencies that helped with the margins.

Great. And second question I have is on joint venture. In the press release, you mentioned that Chatham and NorthStar will continue to explore other JV opportunities. Can you talk -- provide more details on that? Is it -- are you looking at future acquisition via JVs? Or any kind of details on that?

Yes. Yes, we can certainly expand on it. I mean, listen, there are quite a few, and there have been quite a few, larger portfolios that have been on the market and sold this year. There continue to be some larger portfolios as well as some smaller portfolios.

And, as the same thing we did with the Cerberus joint venture but with NorthStar now, we continue to look at those and we discussed those openly, those opportunities with NorthStar, who is also very interested in the space.

Great. That's all I had.

Thank you.

Nikhil Bhalla, FBR.

Good morning, Jeff and Dennis. The first question I have is on second-quarter results, how much did the four hotels contribute on the EBITDA side? You only owned it, I think, for just maybe two weeks or so. So, I just wanted to kind of get some color on that.

Yes, I mean, I don't have the EBITDA number off the top of my head. I do know that I can -- basically, from an FFO perspective after debt cost, it was basically a penny for the second quarter. So, that's -- it was about $300,000 of FFO. From an EBITDA perspective, that's probably almost $0.5 million.

Got it. Okay.

And Nikhil, also I'd just like to add, because I think you're driving a certain point home, which is, those assets do not drive -- at least as of now -- our RevPAR results. So don't -- we don't want investors to believe that, oh, they added four Silicon Valley hotels, and all their strength and their portfolio RevPAR gain of almost 10% is there. It's not. As we said, a number of these hotels -- almost half -- have got double-digit RevPAR gains in them in markets spread all around the country.

Yes, when you exclude those four hotels, RevPAR was still up 9% for the quarter. It was really strong.

There's the number.

Yes, that's pretty strong. Thank you for that, Jeff. And just a follow-up question on the $59 million spend, the CapEx spend, can you just remind us how much of that takes place in 2014? How much of that takes place in 2015 and 2016?

Yes, no problem. When you look at the four hotels, the timing of that is that the Mountain View Hotel is a little bit ahead of -- or it's quite a bit ahead of the other three in terms of planning. We hope to start construction of the new tower at Mountain View in the fourth quarter of this year. That cost is about $7 million in total. And that's basically -- you'll probably spend about $1 million -- maybe $2 million by the end of the year. Not a lot. I'd say closer to $1 million. And then the balance of that $7 million will be spent in 2015.

For the other three hotels, you're looking at $52 million of costs, with those projects starting in the latter part of 2015. So, again, probably for those three, you're talking about $10 million of the $50 million is going to be spent in 2015, with the balance spent in 2016.

Okay. So it seems like the majority of the CapEx spend is loaded in 2016, probably more like around $40 million or so. Is that fair?

Yes, that's fair.

Yes, because that's where you'd spend it finishing the hotel, furnishing the hotel, et cetera.

Okay, got it. Just a final question on your targeted leverage levels. Where would you like to be on the net debt to EBITDA sort of one to two years from now?

Yes, I mean, listen, I think, as I alluded to, our free cash flow is pretty strong. We'll continue to pay down debt. As we kind of sit here at 7-ish times debt to EBITDA, I think we'd certainly like to ratchet that down over time with free cash flow. So maybe in the kind of 5 to 6 times range.

But we're pretty comfortable. I mean, we're certainly comfortable as we sit here today. We certainly want to continue to grow the portfolio if the right opportunities come around, but it has to be at the right price.

Got it. Thanks, Dennis and Jeff.

All right, thank you.

(Operator Instructions) Anthony Powell, Barclays.

Good results this morning. In second quarter, we saw pretty strong transient demand growth across the board, especially at your hotels. How sustainable is that demand growth going forward? And how do you expect group versus transient, or I guess leisure versus business to trend in the third quarter and beyond?

Well, I think -- this is Jeff -- I think you're right. And we don't see any reason for any change in the current demand patterns at all, you know, that we are experiencing. Obviously, our portfolio, when you look at it, particularly in the third quarter, has more leisure business -- not more as an overall number, but some of the hotels like Portland, Downtown at the Waterfront, Bellevue asset, et cetera, will experience heavy leisure demand that really doesn't exist for other parts of the year. But beyond that, corporate is strong and that's really our bread-and-butter business.

All right. Great and just one more maybe on the at-the-market program. What kind of drove the decision to issue shares at that time? And what were the use of proceeds? And how do you view that program going forward?

Sure. This is Dennis. We were included in the RMZ at the latter part, basically at the end of May. And we saw the opportunity from the increased volume and liquidity in the stock at the time, and demand basically as an opportunity to issue some shares under the ATM, which I think we disclosed was about $11 million. We basically used that debt or used that cash to pay down borrowings on our line that we had obviously pumped up a little bit in closing the Innkeepers transactions in the first week of June. So, really, we looked at it as a way to source a little bit of liquidity for that transaction.

And the stock price turned out to be pretty close or on top of our 52-week high, right, Dennis?

Yes.

So the number was the right number.

Got it. Thank you.

(Operator Instructions) Rod Petrik, Stifel.

Good morning, Jeff, Dennis. Hey, can we go back to the NorthStar relationship? They've come out publicly and talked to investors about growing their hotel platform, and they envision expanding their relationship with you all. And this is a company that can grow a platform quickly. They just grew their healthcare platform over $4 billion today.

How do you look at that relationship evolving from your perspective? Where do you fit in? I think they've talked about you sourcing deals, the possibility of Island managing properties. But just from your perspective, how do you look at it?

We look at it, Rod, as a fantastic opportunity and a relationship the probably will bring more benefits to our shareholders over time than even the Cerberus one. I think, first and foremost, the structure that we envision on very large transactions, such as some of the larger portfolio transactions like Innkeepers that we completed, would be the model; whereby it's kind of a 90/10 JV. But with Chatham being able to carve out the very, very high RevPAR, high barrier to entry market hotels that would go on its balance sheet 100%.

So we get great growth inside of Chatham with those kind of assets. NorthStar is happy to let us have those kind of assets, because they are going to be more in a levered return model, not quite as reliant on RevPAR and earnings growth-type assets as we are. So, obviously, the higher barrier to entry market assets, such as the four Silicon Valley assets that we bought, and frankly, the rest of our portfolio, grows faster.

So, we look (technical difficulty). And on the Island side, it certainly has -- the company has proven itself over and over and over again to be best-in-class. I think companies like NorthStar and others on Wall Street are seeing the results that Chatham posts. And therefore, Island as an independent third-party management company is being sought out for new management contracts.

And NorthStar sourced a 22-hotel portfolio over a year ago that they've been working on taking down. And in fact, they did, and engaged Island separately to run those assets for them.

So, you're right. They definitely are in a growth mode. And Island has the scalability, obviously, to be able to assist them on assets that they source, and that they may find on their own and acquire.

Thanks. Can you look at the Silicon Valley market? What kind of supply growth do you see coming on? And are there any barriers inherent in the properties that you have?

When you say barriers inherent in the properties we have, what do you mean by that?

Well, specifically location. Can somebody come and build across the street from you?

No. Nobody's building across the street from Sunnyvale Silicon Valley 1 and 2, which sit on Highway 101 and are surrounded by dense office or, in one case, some residential -- high-end residential. Mountain View, El Camino -- I'm just taking them one by one, Rod -- I don't see opportunity in Mountain View at all. The sites are all chopped up and tiny. We actually bought a tiny little luggage store and adjoining parcel where we are going to be able to add those rooms for Mountain View.

San Mateo is characterized the same way. It's all landlocked stuff. There is some new supply coming in and around the San Jose Airport. There's two or three hotels coming there. And there, there is a little more land.

And given the high absolute RevPAR numbers in Silicon Valley, those deals, even with the very high land costs there, probably pencil pretty well.

But, of course, as you look over the last 10 years -- and we've tracked it, obviously, for 20 -- that there is literally, on one hand, the amount of hotels that have been added to that supply over those 20 years. And, of course, we all know what office space and companies and number of employees in that market has done in terms of growth. So, frankly, the occupancy rates that you see ought to continue to be the occupancy rates.

I think it's really important, Rod, in those markets with the customer base that you have that is a little more, from a length of stay perspective, a little bit longer, that's where the Residence Inn brand really succeeds.

You've got a customer that wants -- that has to be there for multiple weeks or multiple months. They are not looking to stay at a hotel where they've got to pay for breakfast every morning and deal with those types of things. They want to -- our room at the Residence Inn provides the best value for those guys.

Well, they're engineers. They're people in from Asia. They're not wanting to stay at the San Jose Airport. So it's a different deal.

Any sense as to what an extended stay property at the San Jose Airport would cost to build today if you had to go in and buy the land?

Well, I'd say with land, you are certainly going to be well over $250,000 a room, somewhere in that area I would guess $250,000 to $285,000 is a pretty good ballpark, depending upon what you pay for land in that market.

Okay, thank you.

Thanks, Rod.

And gentlemen, I have no further questions at this time. I would like to turn the program back over to you for any additional or concluding remarks.

We thank everybody for their participation today. We are looking at, I think, a pretty strong summer, based on looking at our July numbers here as well. So we look forward to coming back for our third-quarter call and further reporting good results. Thank you.

And ladies and gentlemen, that does conclude today's conference. I'd again like to thank everyone for joining us.