Diamondrock Hospitality Co (DRH) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the DiamondRock Hospitality Second Quarter 2008 Conference Call. The Company is hosting a live webcast of today's call which you can access on the Company's website at www.drhc.com in the Investor Relations section. Many of the comments made today are considered to be forward-looking statements under federal securities laws.

As described in the Company's SEC filings, these statements are subject to numerous risks and uncertainties, which could cause future results to differ from those expressed in or implied by our comments. The Company is not obligated to publicly update or revise these forward-looking statements.

In this call, the Company will discuss non-GAAP financial information such as adjusted FFO and adjusted EBITDA, which it believes is useful to investors. You can find a reconciliation of this information to GAAP in today's earning press release, which is available on the Company's website and in the Company's Form 8-K filed with the SEC.

I would now like to now welcome management. With us today are Bill McCarten, Chief Executive Officer; John Williams, Chief Operating Officer; and Mark Brugger, Chief Financial Officer. At this time, I would now like to turn the call over to Bill McCarten for his opening remarks. You may proceed, sir.

Thanks, Marisa. Good morning everyone, and welcome to DiamondRock Hospitality's Second Quarter 2008 Earnings Conference Call. I'll begin the call by providing some context to our second quarter results and outlook.

I've been in the hospitality industry since the late '70s. It's an inescapable fact that the industry is cyclical, and that demand closely tracks trends in the overall economy. To state the obvious, we've entered the most difficult part of the cycle, often called the decline phase, which is marked by anemic GDP growth, declining corporate profits, and low consumer sentiment. As a result, the lodging industry will likely generate negative RevPAR growth for the balance of 2008.

On the positive side, the growth phase always returns. Moreover, in my opinion, we are approaching a point in the cycle where good value creation opportunities will arise for those that are astute, perhaps a bit lucky, and have the capacity to act.

Since early Spring, DiamondRock has been cautionary with respect to its 2008 outlook. At the end of the first quarter, we reduced our guidance well below our property managers' forecasts in an attempt to reflect a clearly-softening economy. Not surprisingly, their current forecasts now approximate that guidance.

Our second quarter results were generally in line with our guidance. However, the economic outlook has deteriorated more than we anticipated. Demand trends in all segments have weakened significantly more than expected, primarily over the past six weeks. And we have become increasingly skeptical about transient and in the year, for the year, group room night forecasts for the second half of the year.

As I'm sure you noted in our press release, current trends lead us to further reduce our guidance for the remainder of 2008, and Mark Brugger will update our outlook in a few minutes. Despite these headwinds, DiamondRock is well positioned. We have purposely maintained low leverage, which remains among the most conservative in the industry, with fixed charge coverage in excess of 3 times.

With a high quality portfolio of hotels and a stellar balance sheet, DiamondRock is poised to weather the downturn and opportunistically deploy its capital to create shareholder value going forward.

As you already know, I am retiring from my role as CEO but will remain Chairman. While it's unfortunate that we now find ourselves in the down side of this cyclical business, I take much comfort that we will continue to have strong leadership with a very talented and experienced team, with complementary skill sets. I'm highly confident that my successor, Mark Brugger, will do a great job for our shareholders.

Let me just conclude by thanking you for your support and interest since DiamondRock's inception in 2004. We've built a solid company, and I look forward to the future. In perhaps our last public event this summer, I'll take this opportunity to pass the baton to Mark and turn the call over to him. Thanks.

Thank you, Bill. Against the challenging macroeconomic backdrop that Bill discussed, DiamondRock generated results in the second quarter that were within our prior guidance, albeit at the low end of the range. The Company's portfolio delivered RevPAR growth in the quarter of 1.5%, driven by a 2.2% increase in average daily rate which more than offset a 0.5% decrease in occupancy.

The implementation of contingency plans resulted in Hotel Adjusted EBITDA margins declining only 60 basis points over the same period in the prior year. As a result, the Company was able to generate Adjusted EBITDA of $53.5 million and Adjusted FFO per share of $0.43 despite lower than anticipated revenue.

The bright spots for demand in the quarter included the Chicago Conrad as well as our hotels located in Los Angeles and New York City. These positives helped to compensate for general softness in a number of markets, with particular challenges in the Atlanta and suburban Chicago markets. In response to the difficult operating environment, we continue to work aggressively with our operators to implement cost containment measures and maximize revenue management.

John will speak about those efforts in more detail in a moment, but let me state that the team did a good job with margins in the second quarter given the modest revenue growth.

In the second quarter, we implemented our share repurchase program. Through last Monday, July 21st, we have repurchased 2.8 million shares at an average price of less than $10.75. The Board has authorized the Company to repurchase up to a total of 4.8 million shares, and we intend to continue to be measured and opportunistic with our program. With our stock trading at a greater than a trailing 10% NOI cap rate, our current stock price appears compelling.

Turning to the outlook, as Bill mentioned, the economy and the travel environment have progressively become more challenging. Since our last earnings call in April, we've seen accelerating trends of decreased demand in all of our customer segments. Leisure showed the first signs of significant slowing as the struggling consumer cut back on vacations. We expect leisure weakness to persist.

Business transient hung in there during the first part of the year, but we are seeing a more price-sensitive business traveler going forward as companies cut back on their T&E budgets.

Groups have clearly been the strongest segment thus far. In fact, our group revenue is up 5.4% in the second quarter, and cancellation rates remained about the same as last year.

However, the short term group pickup, often referred to as the [to-be's], has declined rapidly in the last two periods. Although groups on the books are still showing, we have greatly reduced our expectations for additional group bookings for the balance of the year. Accordingly, based on a more conservative view of demand in the current lodging environment, we are revising down our expectations for the second half of 2008.

For the third quarter, our RevPAR results will be impacted by the softening general economy as well as poor convention calendars in both Boston and Chicago, our two most significant markets. Demand in Atlanta is also expected to decline. We do expect to see some strength in markets like New York. Overall, we now anticipate RevPAR in the third quarter to decline by 3% to 5%. This is considerably lower than our properties currently forecast.

Our managers currently forecast RevPAR to only decline 2.6% in the quarter. Our RevPAR guidance reflects our risk assessment of [to-be] groups as well as trend analysis in the business transient and leisure segments. So, based on our expectations for RevPAR, Adjusted EBITDA for the third quarter is expected to range from $36 million to $39 million, and Adjusted FFO per share to range from $0.32 to $0.34.

We expect continuing challenges in the fourth quarter, but we'll have some benefit from a better group base generally, and our Griffin Gate Hotel will benefit from the Ryder Cup being held in Kentucky this year.

For the full year, we now expect RevPAR growth to decline between 1% and 3%. This is well below our properties' current forecast showing RevPAR up nearly 1% for our portfolio.

The Chicago Marriott Downtown, which underwent a massive renovation earlier this year, negatively impacts full year RevPAR by about 1 percentage point. Based on our new RevPAR range, we expect Adjusted EBITDA for the full year of $175 million to $181 million, and FFO per share of $1.46 to $1.51. These numbers include the full benefit of aggressive cost containment plans and assume the completion of our 4.8 million share repurchase program in the third quarter.

Now, let me turn the call over to John for details on individual property performance. John?

Thanks, Mark. I'll talk about our second quarter property results and provide some additional perspective on our expected full year 2008 hotel performance, as well as our capital improvements initiatives.

In the second quarter, our strongest RevPAR performers were the Chicago Conrad, the LAX Marriott, and the Courtyard Fifth Avenue in New York, up 12.5%, 9.3% and 7.4%, respectively, over 2007 second quarter. Chicago had a good citywide convention calendar in the quarter, while LAX and the Fifth Avenue Courtyard enjoyed good transient business. Other strong performers included the Torrance South Bay Marriott, the Renaissance Worthington in Fort Worth, and the Salt Lake City Marriott, all up approximately 6% for the quarter. Torrance had good transient demand growth, while Worthington and Salt Lake City had strong group business in the quarter.

New York City remains a relatively strong market, with international and corporate demand deep enough to overcome financial sector retrenchment. Vail enjoyed another good snow season, although the early Easter holiday compressed business into March and resulted in a soft April.

Weaker performers were our Atlanta hotels, as Atlanta remains soft; Orlando is a soft market, and a newly-renovated competitor restrained results; and Austin where the legislature meets only in odd years creating soft first halves in even years. Increased supply in downtown Austin also impacted the Renaissance.

The Oak Brook Hills Marriott is suffering along with the rest of the southwest corridor of suburban Chicago. LAX revenue growth was solid, but flowthrough was negatively impacted by the implementation of LA's living wage law and lower catering revenue.

For the full year, we expect New York City market to moderate somewhat in the face of tough comps. We expect California transient trends to soften and airline cutbacks to begin impacting the contract segments.

As expected, the Westin Boston Waterfront's performance moderated in the second quarter as the convention calendar softened from the strong first quarter. For the balance of the year, the hotel faces challenges in the second half, particularly Q3, when the convention calendar is soft and the market absorbs the recently-opened Renaissance hotel. Although the Westin will benefit this year from the doubling of available meeting and banquet space, which we have recently completed, the real impact will be in 2009. Hotel bookings already reflect a dramatic increase in group revenue, with over 108,000 definite room nights on the books, nearly the total number of group room nights we're forecasting for all of this year.

In the first half, the Westin's transient rates, both corporate and leisure, were up about 10% over the first half of 2007, a function of the strong group base the hotel enjoyed. In the second half, with a lower group base, the hotel will likely have to open discount channels frequently.

In Q3, total citywide convention room nights in Boston are down about 7% from Q3 2007, but the BCEC, which is adjacent to our hotel, is down 21% as this year conventions are weighted towards the Heinz.

I mentioned last quarter that in Chicago, we were beginning to see a slowdown in call volume and tentative bookings. The trend has continued, and although 2009 is still a banner citywide year, group pace at the Marriott is up 8% versus the same time last year, down from a positive variance of 18% at the end of the first quarter.

In Q3, citywide conventions with over 6,000 peak room nights in Chicago are forecast to be down 25% from Q3 2007. For the full year, we expect continuation of poor performance in the Oak Brook Hills Marriott and our Atlanta hotels, particularly Waverly and Westin. Our group booking pace trends have slowed across the portfolio, although the pace remains slightly above same time last year for the second half. It is down 5% in Q3, and up 5.8% in Q4. Both those metrics are down 200 to 300 basis points from the Q1 pace report.

Although cancellations and group slippage are of concern, we don't see systemic evidence of either at this point. And while 2009 pace is more meaningful at the large convention hotels like Chicago and Boston, it's still encouraging that the 2009 group revenue pace across the portfolio is up 21% versus same time last year. That number was 26% in the Q1 pace report.

In the second quarter, food and beverage revenue increased 2.3% across the portfolio over Q2 2007. Food and beverage margins improved 50 basis points to 34.6%. Catering and A/V revenue was up 4.3% in the quarter, and margins improved by 70 basis points. We would anticipate food and beverage revenue to moderate or decrease as group sales moderate or decrease for the balance of the year.

On the cost front, we expect total portfolio operating costs to go up around 1% for the year, reflecting a 4.4% increase per occupied room. As we've mentioned, each of our 20 properties has implemented varying levels of contingency plans to control costs in this uncertain economic environment. We've left open positions unfilled, utilized PTO to reduce payroll, reduced par levels of operating supplies, and reduced man hours in food and beverage outlets and kitchens.

We anticipate operating costs savings from contingency plans currently in effect of over $5 million for the year, and this is built into our guidance. Additionally, we're seeing benefits of an energy initiative we began implementing across the portfolio and labor systems we have implemented in Boston and at our Frenchman's Reef Resort in the past six months. We'll complete a labor study in Vail this summer.

As evidence of the success of the initiatives, our Q2 wages across the portfolio were up only 1.6%. Our goal remains to run as efficient an operating model as we can at our hotels, and hold house profit margins as much as possible in the face of flat to declining RevPAR. We continue to find good value creation opportunities in our own portfolio of hotels.

As we've mentioned previously in 2008, we will spend $70 million to $80 million to improve our hotels. In the first quarter, we substantially completed on time and on or under budget, the projects at our two largest hotels, the Chicago Marriott Downtown and the Westin Boston Waterfront. At the Chicago Marriott, we spent $35 million to renovate all the meeting space, reinvent the lobby, change the food and beverage outlet, create an incremental 15,000 square feet of valuable meeting space, and modernize the elevators. At the Westin Boston Waterfront, we spent $19 million to convert non-revenue-producing shell retail space into 37,000 square feet of desirable meeting and exhibit hall space.

We've also recently signed a restaurant tenant to lease 6,700 square feet of space, and he is scheduled to open in October. We will complete the conversion of a dated nightclub in Austin to a 5,500 square foot catering facility and will complete a ballroom renovation at Atlanta Alpharetta, both over the summer.

In the fourth quarter, we'll be doing an $8 million guest room renovation at the Salt Lake City Marriott, funded almost entirely from the property's escrow fund.

On the acquisition front, we continue to look at offerings that are consistent with our portfolio strategy, but have not bid on any hotels in the past year. Although metrics have clearly moved in the buyer's direction, the dramatic revaluation of public REITs has widened the public-private value discrepancy. With that, I'll turn it back over to Mark.

Thank you, John. At this time we'd like to open up the call for your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of David Loeb from Baird. Please proceed.

Hi. Bill, you described this as the most difficult part of the cycle. Does that mean you think it's going to stop getting worse any time soon?

I don't know if, David, if I have a crystal ball. I think '09 still has a lot of uncertainty remaining, and we'll have a better feel as we get closer. My gut might tell me that some time in '09 we're going to see the trough and start seeing some great opportunities, but it's early yet.

And if '09 starts out worse than expected and you find yourself nearing the 100% dividend payout from AFFO, or more than 100% payout, what do you think the Board's reaction to that will be?

Well, first of all, sustaining our dividend is important to us. Liquidity is important to us. We are certainly well established with our balance sheet. I think what we would have to do is really assess what '09 looked like, what kind of duration we thought the problem might be, and how significant the problem might be. And then secondly, I think we would always, and we continually do this, look at the value of alternative uses of capital.

Does that mean that if you saw, given the priority of sustaining the dividend, if you saw a short term period, a quarter of two, where you might have to fund a portion of the dividend, that you'd probably continue to do that?

Likely.

Okay.

David, this is Mark, just -- yes, the first quarter of this year which is not our strong quarter for the way our portfolio lays out, we borrowed to pay the dividend. So that by itself is not the defining position.

Right, and then clearly, seasonality always affects that since you pay the same dividend and your earnings are seasonal. I guess the question really is, if it looks like it's more of a fundamental problem rather than a seasonal problem. And I certainly hear your answer on that. Do I have time for one more?

Sure.

This is more of a John question. Can you just talk a little bit about where the opportunities might lie that Bill referred to, and how those acquisition opportunities might come up, the importance of the Marriott relationship, and cap rates?

Okay. Starting at the top, I'm not sure where the opportunities are going to come, because at this point there's no distress selling out there. We don't have financings coming due in any kind of order of magnitude. So, we haven't seen distress in the market yet, and I think that's what's going to create opportunities. I can't predict when that's going to happen. Most of the -- as you know, most of the refinancings probably don't come due for a couple more years.

Secondly, from a cap rate standpoint, the recent devaluation of lodging rates have pretty much taken the public companies out of the market because the spread is just now wider from private to public. So, it's pretty difficult to see how we could find a value greater than some of our international and private buyers. Leverage is obviously going to be an issue, but if people are willing to put 60% to 65% as opposed to 85% leverage on it, and it's less than a $100 million transaction, I think there's money out there still.

David, if I could just clarify my comment in my prepared remarks. My view is that the times of greatest opportunity in this business are around the peaks and around the troughs. And as I look back at last spring, I think we can all, with the benefit of hindsight, know that there were some tremendous value opportunities then, perhaps in a different way. And my experience looking back at say 2003, which turned out to be a trough, I'm not sure we all recognized it at the time in the last cycle, there were a lot of buying opportunities.

Yes. And how will the Marriott relationship figure in?

Sorry, I forgot that one.

That's okay.

Generally, in times of distress, the Marriott relationship is going to be more valuable because they need partners more than they do in times of -- when capital is plentiful. We are talking to them about a couple of different areas of opportunity. Nothing specific, currently, but we're trying to sort of position the relationship for the opportunity phase.

Great, thanks very much.

Thank you, David.

And your next question comes from the line of Chris Woronka from Deutsche Bank, please proceed.

Hey, good morning, guys. Could you just remind us, how many -- what percentage of your group room nights for '08 were booked in '07 or earlier?

(inaudible) confident I had the answer for you, Chris. It was this -- I'll tell you about this year, because I can't look back at this point. But this year, we've got about, for the balance of '08, we've got about 90% of what we need, excuse me, 94% for what we need for the back half of the year on the books. For '09, that number is about 51%. I think that's probably consistent with last year. I remember about mid-year having about 50% of this year's room nights on the books for last year.

Okay. That's helpful. And then, just as I know you haven't really started the corporate negotiations yet, but how are you guys going to approach it, just in terms of everyone else in the industry is raising prices for various reasons, and you guys have the expense increase that everyone else has. At the same time, the fundamentals are weak, there's a little bit more supply, just how are you -- I'm not even looking for a number, but how are you going to approach those discussions, and kind of what's the goal if you, if you could define what the goal is in terms of the rate increases that would be helpful.

Well, we're working with our three brands, Starwood, Hilton and Marriott, and the strategy at this point is to try and maintain inflation price increases. I think if we're able to do that, it's probably going to come at the cost of some other things that are less tangible but expensive, such as last room availability and things like that, which we were able to get away from in the last couple of years.

So, we're approaching it with some degree of optimism. We'll see how the companies receive it, because there are a lot of cutbacks out there. Chris, I want to clarify a number that I -- a couple numbers I gave you. I said 94% of what we need for the balance of the year. We have 94% of total '08 group revenue on the books. For the second half of the year we have 90% of what we need.

Okay, great, that's all --

If you include Q1 and Q2 we're at 94.

Okay great, thanks.

And your next question comes from the line of Dennis Forst from Keybanc. Please proceed.

Yes, good morning. I wanted to get a clarification on your level of confidence for next year. I think Bill said that as of now, there's 108,000 group rooms already booked for next year? Is that right?

That's in our Boston hotel.

Oh, that's just the -- oh, okay. And that was about how many group nights there were going to be for the whole year at that Boston hotel?

For this year.

Yes, for this year. Okay. Then on the group pace, you said it was up 26% in the first quarter, up 21% in the second quarter, vis-a-vis last year? Are you confident that those rooms are going to get filled, what kind of -- what's your level of certainty or uncertainty of those rooms being filled next year?

Well, those are contractual rooms, for the most part. There are some in Chicago that are not contractual, they're citywide. But our expectation would be that most of those would be achieved and realized. Where you have risk, and this comes as you detail the groups not at this point but as they're closer to fruition, when you detail the groups you then plan for attrition, food and beverage spend, things like that. We're seeing attrition rates a little bit higher, although, as I said, not materially. They're running about 15%, attrition is running about 15%, and food and beverage is tending towards the contractual level which is fairly predictable at this stage of the cycle. So, as the hotels detail the groups, that's sort of what they're planning going forward, and I'm sure that will be the case in '09 although it's too early to do that.

Okay. And why is group pace up so much for next year, given the state of the economy?

Well, in Boston, it's a couple things. I think it's a favorable citywide calendar, slanted a little bit towards the BCEC as opposed to the Heinz, which it is this year. Secondly, we have 37,000 square feet of new space which meeting planners have been very anxious to book. So we've got a lot of sort of smaller corporate groups that we're able to put in there that we have not had the space to do before this year. And then in Chicago, there's a favorable trend in the citywides, and we also have new space there which is proving to be very helpful both this year in the fourth quarter and next year annually. So, if you look at the 21% increase, probably two-thirds of that is between Boston and Chicago, and a couple of the other smaller hotels.

Okay.

Vail, for example.

What percentage of your overall business is group?

It ranges by quarter, anywhere from 35% to 38%.

Okay, great. Thanks a lot.

And your next question comes from the line of Will Marks from JMP Securities. Please proceed.

Thanks, hi, good morning, Bill, Mark, John. I had a question on the corporate negotiations, just to follow up. Can you talk about what happened this year with bookings from last -- or corporate rates from last year, in other words, did you -- have the numbers stuck? Do you tend to in a situation like this, a slower economy, do you tend to relax your standards or not force your clients to use as many room nights?

Well, you don't really have volume agreements with these guys. It's really rate agreements. And we've stuck to the rate agreements, we've not come off the rates although we've been asked in some cases. What we have done is, we've thrown in some goodies like maybe a free breakfast, or internet, free internet access. But that's not unusual, so the rates have held up. In some cases, the volume has dissipated a bit, like in New York. We lost our Citibank account but were able to backfill it with other corporate customers. So, it really depends by hotel. But you don't really have volume guarantees as a part of these corporate rate negotiations. You have sort of indicative volume.

Okay, great. And then just my second question, unrelated. On the group side, or actually across the board, you mentioned a little bit on food and beverage spending, or outside-the-room spending. Can you expand a little bit on just what we're seeing in general across the hotel industry? Is that taking more of a hit than the actual room revenues?

I wouldn't say it's taken more of a hit. But we're anticipating and have realized some sort of trending towards the minimum if you will, under the contracts. So while the groups aren't reducing below the minimum, they tend to be reducing to the minimum. And as long as you can budget for that and forecast that, it's not difficult to deal with. But we've seen some catering reductions, for example, at LAX. We've seen a fairly, an 11.5% catering reduction in the quarter, which was a function of fewer groups, but also groups scaling back their food and beverage spend.

Okay. And then just the final question and then back to the corporate negotiation. What happened let's say back in 2002, in terms of -- or maybe 2001, I guess that was a tricky time. Did you have any leverage to raise rates to go to your customers and say, "Look, we need to push them by the levels of inflation?"

In 2002 no, hotels didn't have much leverage. But this is not 2002 or even 2003, I don't think, that we're facing in 2009. So as I say, we'll see. It's sort of a hypothetical question at this point. But, the plan is to go in for an inflationary increase with recognition that we're going to have to give on some of the softer issues.

Great, thanks a lot.

Thanks, Will.

And your next question comes from the line of Michael Salinsky from RBC Capital, please proceed.

Good morning. Looking at the cost contingencies that you've put in place throughout the year here, what RevPAR is needed to break even on the margin for that right now?

We --

Go ahead.

I think we've consistently said we need about 3.5% RevPAR on a full year basis to keep our house profit margins flat. So as we kind of move below that 3.5%, contingency plans come into effect. But the lower you get on the RevPAR and certainly once going negative, it's more and more difficult to maintain the margins.

Okay. Secondly, with the Los Angeles Airport Marriott and the Orlando, we've seen cutbacks in the airline industry right now, particularly in Orlando. Are you seeing any pressure on the negotiated business side there, or do you expect those to moderate significantly in the second half of the year?

Well, we're seeing softness in transient in Los Angeles, and group in Orlando. So, I don't think it's directly related to the airline activity. What is directly related to the airline activity is contract business, which is fairly significant in LAX and Torrance. And we're anticipating, we're seeing some but we're anticipating in the fall, effective I think in late October, early November, LAX is going to see some fairly dramatic -- for among big airports it's going to see probably on the high end of airline cutbacks so we're anticipating some contract impact there.

Okay. And then finally, in terms of you talked about the acquisition environment right now. Can you talk a little bit more about the asset pricing in the environment? How much are cap rates off right now, or how much are assets down from the peak, and at what level would you -- how much further -- how much further pressure do you need to see before you actually jump in and start looking at making bids or trying to acquire some of these properties?

I think right now, based on recent transactions, and there aren't a lot of them, but the range is 7 to 8 with urban assets being at the lower end, and suburban assets maybe even being 8.5. That's based on actual transactions, not the ask.

They'd have to come down significantly. If you think about it we're trading at a 10 cap on trailing 12 NOI, so it's a pretty wide spread that we're facing right now. So, the combination of the wide spread and our heightened concern about liquidity, I think it would have to be a compelling deal for us to buy and I don't see compelling deals on the horizon at this point.

Yes, Mike, this is Mark, just to add on to that I think the opportunity that would have to arise wouldn't just be an adjustment in the cap rate. There'd have to be some kind of real value-add play for us to do an acquisition in the near future. It'd have to be on kind of a rebranding, repositioning, where there was an opportunity to increase the cash flow 40% to 50% through some initiative, versus the whole market's cap rate's about 25 or 50 basis points, that's not going to be enough for us to jump into the market and an opportunity to create any value for our shareholders.

Okay. Then kind of as a follow up to that, you look at your repurchase program right now, 4.8 million shares. I mean, that looks like the most compelling investment at this point. Would you look to expand that if you exhaust the 4.8 million shares at this point?

This is Mark, we've talked to the Board about our share purchase program and we intend to, assuming that our stock trades within this range, complete our program this year. I think we need to get a little bit better visibility on 2009 before we would expand our program, but it's something we regularly talk to our Board about.

All right. Great, thanks guys.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of William Truelove of UBS. Please proceed.

Hi, good morning, guys. Just to follow up on the share purchase issue, when I'm looking at your balance sheet you've gone from 94.5 million shares to 94.7. So where's the 2.8 million shares being repurchased? I know that says as of June 13th, so is it as of between June 13th to today? Or is it that you're issuing shares and then just repurchasing them back, what's going on?

Yes, I think what you're seeing is that we started buying shares just in the beginning of June. Our quarter ended June 13th, so we only bought 240,000 shares in the second quarter. So the bulk of the 2.8 million is a third quarter event. So you'll see the share count changed for the third quarter.

Fantastic. That's a great answer. And then the second question, then, is, if there's no compelling acquisition activities given the where you're trading relative to the cap rates, what about the reverse of that? There should be a very compelling analogy to sell some assets, then, right, given where your stock is, and then use those proceeds to repurchase stock?

That's something we're looking at right now. So, it might be a great opportunity to sell some of your less strategic assets, or assets that you think have the slower growth prospects over the next three to five years, and redeploy that capital. So that's something we're evaluating currently.

All right. Thanks so much, and congratulations, Mark.

Thanks, Will.

And your next question is a follow-up question from Dave Loeb from Baird. Please proceed.

John, to follow up on the cap rate question, if you looked at your blend of assets, where do you think the cap rate, what's the cap rate that you could actually liquidate the portfolio today? In total?

I don't know the answer to that question, David. We haven't looked at it in those terms. We look at trailing 12 and what the cap rate relates to based on how we're trading, but it's not so much the individual assets that we do tend to price tend to be the ones that are nonstrategic and the ones that kind of fall at the lower end of the zone, and ones that are candidates for a disposition but we have not gone through the portfolio lately and tried to put a cap rate on New York, for example.

Right. Do you expect that New York would likely be below the 7 to 8 range that you cited?

Materially.

And how about big box like Chicago or Boston? Boston, of course, presumably has a bit of a benefit from being really new and ramping.

Right, they would command different cap rates. One's brand new, and as you say ramping up, although it hasn't ramped this year. Next year it looks like another kind of a rejuvenation year, if you will, than trying to get back on the ramp pattern. In Chicago, it just would depend I guess on the buyer's view of kind of the trophy component of the hotel. It's such a great real estate location, such a great piece of real estate, that we would look for a valuation based on the recognition of its kind of trophy status.

But that would put it sub-7, right?

Oh, yes.

David, there's been virtually no transactions over $100 million in the last six or seven months. The only significant transaction was Century Plaza which was a 5.5 cap, which we were surprised about. So, there's kind of only one marker out in the space but I don't know that that defines what the current cap rates are.

And that one clearly is muddied by the potential for redevelopment and land play.

Right.

Yes, I think so. So, okay. That helps. We're trying to figure out what the liquidation value would be today, and it sounds like while 7 to 8 may be what you're seeing out there for assets, that's not necessarily assets that are much like yours. Or much like a number of yours.

Right. I think if you take the urban assets, it would just be individual transactions that would define the cap rate. But our expectations would certainly be much higher than the 7 to 8 cap rate.

Okay, thank you.

And you have no more questions at this time, sir.

Great. We want to thank everyone for their time today and appreciate your continued attention to our company. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, good day.