Host Hotels & Resorts Inc (HST) 2008 Q1 法說會逐字稿

Good day, and welcome to the Host Hotels & Resorts Inc. first quarter 2008 earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions I would turn the call over to the Executive Vice President, Mr. Greg Larson. Please go ahead, sir.

Thank you. Welcome to the Host Hotels & Resorts first quarter earnings call. Before we begin I'd like to remind everyone that many of the comments made today are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC these statements are subject to numerous risks and uncertainties that could cause results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. Additionally, on today's call we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDA ,and comparable hotel results. You can find this, together with reconciliations to the most-directly comparable GAAP information, in today's earnings press release, in our 8-K filed with the SEC, and on our website at hosthotels.com.

This morning Ed Walter. our President and Chief Executive Officer, will provide a brief overview of our first quarter results and then will describe the current operating environment, as well as the Company's outlook for 2008. Larry Harvey, our Chief Financial Officer, will then provide greater detail on our first quarter results, including regional performance and market performance. Following their remarks we will be available to respond respond to your questions. And now here's Ed.

Thanks, Greg, good morning, everyone. Given the signs of stress in the economy is demonstrating and the overall state of the financial markets we were pleased with our favorable first quarter performance. Our comparable hotel RevPAR for the quarter increased by 2.4%, driven by a 4% increase in average room rate, which was partially offset by decline in occupancy of 1.1 percentage points. Food and beverage revenues at our comparable hotels were strong this quarter, with an increase of 4% generated from primarily from increases in banquet and audio-visual sales, and an exceptional increase in food and beverage revenues at our Orlando World Center Marriott. Overall, comparable revenues increased by 3.2% for the quarter and comparable hotel-adjusted operating profit margins decreased by 40 percentage points. Adjusted EBITDA for Host LP for quarter increased by $3 million to $262 million, and our FFO per diluted share was better than expected, increasing 10% to $0.33, which exceeded the high end of our guidance and consensus estimates by $0.03.

Consistent with the trends we experienced in the fourth quarter and with what would be -- what we would expect given the slowing economy, we have seen some weakness in our corporate transient and leisure business, as well as reduced pick up in short-term group booking. However, it is worthwhile to note that we are not experiencing an acceleration of those trends, nor have we seen an increase in attrition rates or group cancellation rates. On the transient side room nights were down by more than 2.5% on a quarter-over-quarter basis, but this decline was more than offset by an increase in rate of almost 4%. We did experience a general weakness in business travel across many markets, as overall corporate bookings and special corporate bookings declined by roughly 5%. We also saw greater weakness on weekend nights as compared to weekdays, suggesting that domestic leisure business was soft. On the positive side we see a general increase in international business in our gateway market, which is helping to offset some of the impact of the U.S. economic slowdown.

Our group business experienced a slight increase in occupancy, which combined with a 5% increase in rate generated revenue growth of more than 5%. Group bookings and overall performance were exceptionally strong at our Orlando World Center hotel, which benefited from the completion last year of our new 105,000-square foot Cyprus ballroom. Group bookings for the remainder of the year continue to be favorable, with revenues currently ahead of last year's [takes] more than 5%. Given the trends we have identified, all but a few of our hotels have implemented some form contingency plans. These plans start by focusing one finding additional customers, hopefully at the next highest price point. We are also carefully examining all repricing decisions to avoid unnecessary rate adjustments.

On the cost front we are reexamining the light labor models at each hotel, looking to avoid filling positions and emphasizing cross training to add further efficiencies. We are carefully reviewing our food and beverage service platforms to identify opportunities to cut costs through adjusting hours of operation of staffing levels. In some instances, in concert with our operators, we are mandating across-the-board expense cuts. In general, we are working closely with our operators to make certain that our expense levels are appropriate to the level of customer demand we generate.

On the strategic front we are pleased to announce in March the formation of a joint venture with an affiliate of GIC Real Estate to invest up to $600 million equity in hotel projects located in the Asia-Pacific region. When fully invested, the funds will likely own between $1.5 billion and $2 billion of real estate. Hosts will own a 25% interest and have the ability to earn or promote, based on achieving certain returns thresholds on the venture's investment. We will also receive a fee for providing asset management services to the venture. We are very excited about the opportunity to continue our partnership with GIC and expand our platform into the Asia-Pacific region, which continues to demonstrate exceedingly strong economic growth and solid lodging fundamentals in many markets. As in the case of our European joints venture, we believe that leveraging our platform and partnering with third-party sources of capital is an excellent way to maximize the return on our capital while building a business model to will ultimately add to our long-term growth.

On the domestic front the disarray in the lending market is causing a severe slowdown in the acquisition and disposition market. Although we are continuing to work on asset sales which could total $300 million for the year, the challenges for buyers in obtaining financing makes the amount and timing of dispositions difficult to predict, and while we are continuing to evaluate potential acquisitions we are not optimistic that we will identify transactions that satisfy our return target, so we would guide you not to include any acquisitions in your analysis for 2008, although we intend to be opportunistic as the marketplace evolves. We are concentrating on completing capital investments in our existing portfolio, including the extensive CapEx program we've discussed with you before, which includes maintenance CapEx and ROI repositioning projects in the amount of approximately $650 million this year.

In addition we are focusing on value enhancement projects, such as the timeshare development venture at our Hyatt Regency in Maui with Hyatt Vacation ownership. We have recently received final development approvals to build a 12-story tower, comprised of 131 luxury units with direct ocean views and beach access. The project will also feature an 8,000 square foot open-air lobby, pool, fitness center, owners lounge, and a casual dining [outlet]. Our investment will include approximately $34 million of cash and the contribution of the (inaudible) ocean-front parking lot, which is our land-(inaudible) site, which will be valued at roughly $35 million, in exchange for a 50% interest in the venture. Construction of the project is anticipated to begin in 2009 with a completion target of late 2010. We expect unit sales would commence near the end of 2009. The vacation ownership business is profitable in Hawaii and Hyatt Vacation ownership has been successful for many years. We are very excited about this project and believe this investment has the potential to achieve returns greater than 20%.

Finally, we have also invested in our portfolio through the implementation of the $500 million stock repurchase program we announced in conjunction with our fourth earnings release. During the first quarter we repurchased 2.2 million shares of our stock for approximately $35 million. Additional stock repurchases for the year will depend on conditions in the equity, debt and disposition market, as well as other opportunities we may have to invest our capital.

Now let me spend some time on our outlook for the remainder of 2008. I should start out by noting that our visibility is limited and we continue to be concerned by some of the recent economic reports and the overall weakness in the financial market. In addition, our results over the last few weeks are difficult to interpret because of the timing of the Easter and passover holidays, which impacted demand pattern. Having said that, the first quarter performed in line with our expectations, and while demand was clearly weaker than the prior year, the trends in group and transient business did not appear to deteriorate further ,as we completed the quarter and worked our way to the first few weeks of April.

Our group bookings remain favorable versus last year and should provide a base of support for the properties to offset expected transient weakness. Based on those trends and the fact that we expect construction disruption to moderate slightly as we progress through the second half of the year, we are assuming that we will continue to experience modest reductions in occupancy, which will be more than offset by moderate rate growth. As a result, we are maintains our 2008 RevPAR guidance of 2% to 4%, and expect hotel-adjusted operating profit margin growth to range between down 25 to up 25 basis points for our comparable hotels. Based on assumptions we are maintaining our guidance for our FFO per diluted share for the year of $1.88 to $1.98 and adjusted EBITDA of Host LP of $1.450 billion to $1.505 billion.

In summary, we are pleased with our results for the first quarter and we remain cautious for the remainder of 2008. We are intensely focused on our asset management activities, with the clear goal of maintaining pricing and achieving strong flow through.. As Larry will describe in more detail in his comments, we have taken steps to further strengthen our liquidity position to ensure that we have the capacity to take advantage of opportunities that may present themselves over the coming months. Our investment approach remains highly disciplined, with the goal of maximizing our returns on every dollar invested and with the intent of enhancing our existing assets and exploring our options in international markets while domestic market pricing remains unattractive.

Thank you, and now let me turn the call over to Larry Harvey, our Chief Financial Officer.

Thank you, Ed. Let me start by giving you some detail on our comparable hotel RevPAR results. Looking at the portfolio based on property types, our resort convention hotels performed the best during the first quarter, with RevPAR growth of 5.8%, led by strong growth for the Orlando World Center Marriott. RevPAR for our urban hotels increased 1. 8%, led by our Boston and New York properties. RevPAR at our airport hotels increased by 1.4%, and our suburban hotel RevPAR increased by 0.6%.

Turning to our regional results, as expected the New England region continued to perform well, with RevPAR growth of 10%, as our Boston hotels performed exceptionally well due to very strong group bookings at Citywise. The Boston market should have a very good second quarter due to the strength of the group bookings, but a weaker second half of the year. The Florida region performed very well, with RevPAR growth of 6.8%, driven by the Orlando World Center Marriott. The new exhibit hall and ballroom space that opened in the fourth quarter has helped to drive both group bookings and rates. We expect the Florida region to continue to perform well in the second quarter.

The Mid-Atlantic region enjoyed another good quarter, with RevPAR growth averaging 4.1%. Given that both the New York Marriott Downtown and W New York were under renovation in the quarter, our New York City properties performed particularly well, with RevPAR growth of 4.5% driven by rate increases and strong short-term lead group bookings. This performance was led by the New York Marriott Marquis, which had RevPAR growth of nearly 10%. We expect New York City to have a weaker second quarter, as the negative impact of the renovations will be greater in the second quarter, but a better second half of the year because of strong group bookings during mean times, excellent international leisure transient business and limited supply growth. The Philadelphia market also outperformed the overall portfolio for the quarter, with RevPAR of 2.9%. Philadelphia will be weaker in the second quarter, due to fewer Citywise and weaker group bookings.

Overall RevPAR growth for our Pacific region was 2.5% for the quarter, however results varied by market. The Los Angeles market continued to perform well, with RevPAR was up 7% due to excellent transient and group demand. The San Francisco market continued its strong performance, with RevPAR up 4.9%, driven by both group demand and rate growth. On the other hand, RevPAR for our Hawaiian properties increased less than 1% because of lower leisure transient demand. We expect the Los Angeles market to perform well in the second quarter, while San Francisco will be weaker the second quarter relative to the rest of the year due to lower group demand. RevPAR for Atlanta region increased 2.2% for the quarter . The growth was driven by strong group bookings, somewhat offset by lower transient demand, particularly in Buckhead. The region is expected to be weaker the second quarter due to flat year-over-year group bookings but rebound in the second half of the year due to better group bookings.

Our DC Metro region performed poorly, with RevPAR decreasing by 5.7% due to four hotels under renovation in the first quarter of 2008 versus no hotels under renovation in the first quarter of 2007. We expect the DC Metro region to rebound in the second quarter, as the hotels ramp up from the renovations. The North Central region also performed poorly in the first quarter, with RevPAR declining 11.2%. The results in Chicago were particularly weak, as RevPAR fell by over 23%, primarily due to renovations at three our our properties and no downtown city-wide activity in Chicago in January and February. We expect the North Central region to rebound in the second quarter as renovations are completed and group bookings and city-wide activity increases.

While the New Orleans Marriott is not in our comparable hotel set, we have seen improved signs of life in this market, as RevPAR increased over 12% for the quarter. We expect the property will continue to perform well in the second quarter. Our European joint venture had a strong quarter, with RevPAR calculated in Euros increasing by 6.9%, despite several properties undergoing renovations. The Westin Palace, Madrid and the Hotel Arts Barcelona performed particularly well. If calculated in US dollars RevPAR was up by 20.8%. The outlook for 2008 remains positive as the EU economy continues to grow at a solid rate.

For the quarter, adjusted operating profit margins for our comp hotels decreased by 40 basis points. Profit flow-through in the rooms department was affected by higher wage and benefit costs. Food and beverage flow-through was excellent, due to the growth in banquet and audio-visual business, resulting in a 50 basis point improvement in comparable hotel-adjusted food and beverage margins. Wages and benefits increased by roughly 3.9%, and unallocated costs grew by 4.5% for the quarter. As anticipated, real estate taxes increased by 6.3%, as assessed valuations continue catch up with increases in property values.

On the positive side, utility costs increased less than 2% for the quarter. However, we expect natural gas and other energy costs to increase significantly throughout the rest of the year, which will lead to utility cost increases in excess of inflation. For the quarter, property insurance costs decreased 4%. Looking forward to the remainder of the year we expect to see a significant decrease in our insurance cost, as our recently-completed April 2008 renewal reflected an annual premium decline of roughly 25%, even though we enhanced the level of our coverages and lowered some of our deductibles.

We finished with $317 million of cash. Subsequent to quarter end we entered into a $165 million term loan that was an add-on to our $600 million credit facility. The term loan has a maturity date of September 9, 2011, and is prepayable without penalty after 18 months. The loan bears interest at LIBOR plus 175 basis points, with a LIBOR floor of 2.25%. The proceeds from the term loan were used to repay the $100 million draw on the credit facility that was made after the end of the quarter and to supplement our cash position. We currently have $600 million of available capacity on the credit facility. The term loan provides us with additional financial flexibility and investment capacity to implement our business plan. In addition, as we discussed in the year0end earnings call, our only significant debt maturity in 2008 is the $209 million mortgage on the Orlando World Center Marriott. During the quarter we executed a term sheet with a lender for refinancing proceeds well in excess of the existing mortgage and we expect to close on the refinancing by June 30.

Turning to the second quarter guidance, as we discussed previously, the second quarter of 2008 will have considerably more business disruption from our CapEx program than the second quarter of 2007. However, because of strong group bookings during the second quarter we expect RevPAR growth for our comparable hotels to be 2% to 4% for the quarter, which is consistent with our full-year guidance. We are also forecasting that FFO per diluted share for the quarter will be in the range of $0.54 to $0.56 per share.

This completes our prepared remarks. We are now interested in answering any questions you may

Thank you. (OPERATOR INSTRUCTIONS) We'll take the first question from William Crow at Raymond James & Associates

Good morning, guys.

Hey, Bill.

A couple of questions here. Could you comment on what you're seeing for group bookings in '09?

Yes, short answer is that they are ahead of pace from where we were at this time last year. They're not as strong as -- we're nowhere near as far ahead of pace as we are in '08, but they are slightly ahead of pace.

Okay. And then as you look out to the rest of the year, your expectations are obviously buoyed by the group bookings. What percentage of those group bookings have contracted minimum room usage and food and beverage spent?

Bill, it's hard to track that exactly. What I could -- maybe one data point that's helpful is, at this point about 85% of our group room nights, our projected room nights, are under contract at this point.

Okay.

And I would tell you that of the remaining 15%, close to half of that is listed by the operators as tentative, which we've generally been told if shows up as tentative it's pretty solid that we're going to get it. So in terms of what is they're -- and in terms of it being firmly booked we're in good shape. You obviously still have the risk that you always have that at the end of the day you could see some increases in attrition levels, but that trend has not materialized yet.

All right, and then one final question. How do you think about starting new renovations, given the economic back drop? Is this the time to move forward on things and say you're going to have less disruptions because occupancy's down or do you say this the time to increase your cash flow and we're doing the best we can and not disrupt business? How do you think about that?

I think we're looking at this point that we're going to stick with the plan that we had all along for this year, was to have a fairly comprehensive capital program. Looking at the two description that you laid out we'd lean more towards the former than the latter. We're in a great financial position, as Larry described, and we indicated in our press release we've taken steps to bolster what was already a fairly solid liquidity position, so we don't have worries at this point on that front. So, frankly, to the extent that we -- not that we want to have lower operating conditions, but reality is if we can do it with less disruptions that's usually our goal anyway. We're normally targeting a lot of this activity to weaker time periods, so to the extent that we may have some softer periods it's good to take advantage of it and continue to update our properties, as necessary.

Where we're probably being a bit more cautions, though, would be in the areas around some of our ROI improvements, and I think we're -- we're being very careful as we evaluate ROI possibilities right now to make certain that if they're dep -- if it's adding additional group meeting space and that was the -- and assumptions that underlie that decision are tied to significant increases in demand, then we might end up concluded that some of those types of investments should be deferred to the extent that we were worried in a particular market that the demand wouldn't be there. But on the other work, everything that we have in process, including some of the major ballroom additions that we're doing, we are comfortable that those are exactly what we should be doing for those properties in the long term and consequently fully intend to move forward with them.

Right. Thanks, Ed.

And we'll take our next question from Steve Kent with Goldman Sachs.

Hi. You mentioned earlier in your presentation that you were not pursuing too many acquisitions, or you felt like things were slowing down there a little bit for you because the return targets weren't really there yet. Could you just give us a little information on that. Has there not been a reckoning on the prices to make it more attractive at this point? Is it your own forecast,, which obviously are modest from a profitability standpoint when you look at even new transactions? And then also I'm still -- the international business looks so strong. I know it's a relatively modest part of your portfolio, but maybe you could just give us a little bit more color on that, why the year over year was so strong and maybe the expectations?

Sure. Let me start with the acquisition market. I think you summarized some of the challenges in that area and we talked about this a little bit on the last call. We have seen an upward movement in cap rate on the assets we've been selling, which I have might for this purpose describe as four-star assets. We've yet to see any real movement on the types of assets that we've been buying over the last five or six years, which I generally put more in the five-star category, Having said that, I'd also, as confirming what I said in our prepared comments, the market has really slowed down a bit and I think that you're just not seeing a lot of activity at this point in time. I think you prob -- we probably are at the stage in the cycle where we're likely to see some adjustment in pricing, but the buyers are not yet -- the sellers have not yet conceded to where prices are likely going to have to go and the buyers are not anxious to commit until they see some change in where prices are and where cap rates are.

So I suspect that we'll see muted levels of activity for probably -- certainly through the summer and it wouldn't surprise me if it carried through the rest of the year, and at some point, as it seems to happen, we'll start to see each side move a little bit closer to each other. You can't ignore in assessing what's going on in the acquisition markets the disarray in the debt market, and until people get more comfortable about the ability of their lenders, from whatever source they may be, and their ability to commit and come through at the levels that they've committed, it's going to be hard to see a real meaningful pick up in activity. Switching over to the international side, you're right in your assessment that not a lot of our RevPAR or FFL at this point comes from international operations. We certainly did have, if you looked at our press release, some pretty good results in Canada and Chili and Mexico, which is where the international part of the portfolio that's consolidated is represented. Some of that was due to the currency and some of that was due to that fact that some some of those markets either had renovations last year or just simply performed quite well because economic growth was stronger . It was a variety of positive benefits

Okay, thanks.

And we'll take our next question from Celeste Brown with Morgan Stanley.

Hi, guys, good morning.

Good morning.

Can you talk a little about more about your ability to borrow? I was really surprised to see, one, that you were able to access the capital markets and two, not as cheap as you've borrowed in the past, like very attractive pricing, is it because of your relative positioning or are you just seeing things loosen up in general?

I don't think -- and Larry, after I finished with this, Larry, you should comment, too. I think the short answer is not loosen up yet. I think you are seeing in some instances and In the last week there were a couple of CMBS transactions that have happened, but in general I would say the credit markets continue to be constrained. And in fact, I would probably guess that over the last 60 to 45 days, whatever our pricing expectations would have been at the beginning of the time period they probably widened a bit as we worked our way through the last 60 days.

I think in our case we are fortunate that we have always had a fairly deep bank group, we have very good relationships on that front. We identified probably four or five weeks ago that that particular market could offer the most attractively-priced financing available today and that's frankly why we went after the term addition to our credit facility. And I think we're still seeing some activity on the life company side and that's really the target that we're going after for the refinance of the Orlando property. But even in that market we are finding it difficult to identify lenders that are willing to loan more than $100 million on any particular property. So I wouldn't say at this point that we've really seen any favorable trend in that business, other than the one that suggested around the edges you're seeing some slight improvement in activity. Larry, would you add anything to that?

I think the last point I'd add would just be that from a senior note perspective we have seen the spreads have started to contract finally. They had gotten very high, not just on our notes but as well as others, so those rates have come down, still nowhere near where we would issue senior notes but at least they've have come down roughly 150, 160 basis points in this last 30 days or so.

Okay. And then we're seeing tremendous group cancellation in Las Vegas. Do you think you're picking up some of that group business that's lost or is it a different kind of business and that's why your group cancellations haven't gotten any worse?

That is great question. I'm not certain since we're not not tied into Las Vegas in terms of our portfolio that we have a lot of insight into that. I would doubt that we're picking up a lot of the business, because I would assume that when it's cancelled, at least in the near term, they'd pay some sort of a cancellation penalty, which means they probably aren't going to have the event. I think in general what we've been seeing is just not a lot on the cancellation front and the only industry that I've really heard any theme that has weaker right now has been pharma. Even the financial world, which is a key -- key component of some of our higher-end properties has actually been fairly stable over the course of this year, which I view as a welcome development.

Okay, thank you.

And we'll take our next question from fell Felicia Hendrix with Lehman Brothers.

Hi, good morning, guys. A few questions. Just in the specifically the RevPAR seemed to be driven by the results in the convention resort are, I know that's partially due to the easy comps you had last year given the renovations, but I'm just -- and you also gave us color on your transient and your business bookings, but I'm just wondering if you expect the strength in the segment to continue to be stronger than others going forward?

I think the resort will holds up fairly well, certainly into the second quarter. I have think that some of the -- what I would view as relative under-performance of urban was really driven by a combination of some weakness in a couple of key markets for us and some renovations at five or six of our hotels in Chicago and Washington, DC. If you pulled those five or six hotels out you would have found that urban would have performed better, probably in the 3.5% to 4% range. And so I think some of what you saw was the strength of a number of properties like the Orlando World Center and the (inaudible) Hotel and our Coronado Hotel. The other part of it was that just where the impact from the renovations that we had talked about having in the first quarter where that would hit.

Okay, that's really helpful, thanks. Now with your interest in the GIC venture, I just wondering when you expect that to start hitting your P&L?

I missed that. Again, Celeste -- Felicia, could you give me that again?

Yes, with your interest in the GIC venture when do you start expecting that to hit the P&L?

I wouldn't expect that we would be acquiring any properties that would have any meaningful effect on the P&L this year. I think you're really more at '09 for that. We have -- we've announced the venture, we have -- are beginning to develop a pipeline, we are in the process of establishing our office in Asia. But we're -- I just -- knowing how long it takes to ramp-up this sort of an activity and looking, frankly, at our history in Europe, recognizing if you leave out the jump start that we got on that portfolio, it took awhile before we developed a deep pipeline. I suspect that we're really looking more at '09 for the first impact from that.

And would it be late '09 or mid? (LAUGHTER) Come on, some of us still quarterly model.

I would just -- why don't we said mid '09 and hopefully we can beat that. It's just hard to tell. I can't tell how quickly we're going to identify a deal that's going to make sense for us. Obviously, we're -- both us and GIC are very excited about the opportunity to move into those markets. The GDP growth, the lodging fundamentals and the number of submarkets are quite attractive there. Our sense is that, while there's been some effect on the financial markets there from the problems that exist in in the U.S. and to a lesser degree in Europe, it's still -- there's availability of financing, which should also help transaction flow. We're certainly committed in making it a fairly significant priority for the Company over the rest of this year and into next year, so I'm hopeful that we'll -- we'll get lucky. We'll find some deals that make sense and be able to see some contribution early on, but we'll just have to see.

Okay, and just final question. The percent of your overall business being driven by international visitation to the U.S., you mentioned that was a benefit in the quarter but I'm just wondering if you could quantify at that?

It's -- unfortunately we don't really have great tracking to be able to tell how much of our business actually comes from international. I can tell in you a market maybe anecdotally, if you look at a market like New York, our sense is in New York City right now that somewhere between, say, 20% and 25% of our business in New York is being driven by international and consistent with our comment and theme that we are seeing that as one of the benefits this year. As best as we can tell, in New York we're up 25% in international business so far this year. I think they generally expect that trend to continue throughout the rest of the year. If you start to think about that, that can offset a fair amount of some of the other areas where we've been weak.

Okay, great, thanks a lot.

Thanks.

And we'll take our next question is from Smedes Rose at KBW.

Hi, good morning. My question was about your timeshare venture with Hyatt and I'm wondering if you see any more opportunities along these lines at some of your other properties or with other timeshare operators?

The short answer is yes. I don't know how many of the other opportunities will happen at the scale or in the structure that we have with Hyatt, but we have some -- we have land associated with our Westin Kierland property where there is an opportunity to do timeshare and we've had some discussions with Starwood about how to approach that. A couple of our Florida properties on the Atlantic coast have spare land that could be developed into either condos, fractionals or timeshares and we're in the midst of discussions with the operators of both of properties about potential to try to pursue that type of a transaction. So in each of our resort locations, this is something that we're looking at. In certain cases, depending upon the status of the market, it may not make sense to go through with it and proceed with it right now, but in a lot of cases we've started the approval process to be in position for when the market recovers we could then take advantage of it.

Okay. And then if you could just -- maybe a little more color on the DC market. Just given that this is an election year, when would you expect RevPAR to pick up in that market? Also, are you seeing any impact from the new -- I think it's called the National outside of DC impacting the market at all or do you think that's more of a Baltimore issue or --?

It's hard to imagine that you could have that many rooms sitting just outside of downtown Washington, D.C. and not have some effect. I can't say that our properties -- our in-town properties have been overly concerned about it so far, but I think we'll obviously be watching that fairly closely to see what the effect of that property long term on our properties. Parts of it, as we look at that there's some business that they're bringing to the market that hasn't otherwise been coming to Washington, so that's not hurting us. A lot of our business that we tend to do in our in-town properties tends to be focused on Capitol Hill, and National Harbor's located fairly far outside of town for that business to match up with the business that we've been doing. So I think in some ways we're protected by where our locations are because we truly are center city properties, but in the long run there'll probably be some effect.

Looking at the Washington market, I think we're going to be looking at a pretty good spring and summer there. That seems to be the case so far. Some of the slowness that we had in the first quarter in the city was really driven primary by the fact that the JWDC was under going a fairly-significant lobby renovation and our Westin Grant Hotel was undergoing a very comprehensive room renovation. Most of the renovations are now behind us, so we should be able to take advantage of some pretty traditionally strong activity through -- into the -- I'd probably guess through August or into September. I suspect that also on -- looking at historical trends we wouldn't be counting on a lot in October and early November, simply because everybody will be out of the city campaigning.

Okay, thank you.

Thanks.

And we'll take our next question from Chris Woronka from Deutsche Bank.

Hey, guys, good morning.

Hey, Chris.

Question on the margin guidance. I guess to hit your guidance you'll need a little bit of pick up in the rest of the year. Is that due to the insurance -- the new insurance contract and maybe a little bit less displacement from renovations, or is there something else going on? Just any color would be great.

I think it's a couple of items. In particular, yes, the property insurance is pretty substantial savings and we'll see that through the last three-quarters of the year here. And also from a standpoint of displacement in the first half of this year, as we talked about, was significantly higher than last year, and then that will reverse in the fourth quarter -- a portion of that -- so we'll have some better year-over-year comps in the fourth quarter with respect to displacement, which should help on the margin side, as well.

Okay, great. And then just a quick question on the outlook for group bookings. How much of that -- what's the breakdown second, third, fourth quarter? I would assume third quarter has the least amount of group bookings, is that right? And so how do you think about -- in terms of -- it sounds like you're in good shape for what's on the books. I would guess that's a little bit more in Q2 and Q3, and how are you looking at the summer at some of the resort hotels?

Overall I think you're right that the third quarter tends to be -- it's a slightly lower group quarter, and I would probably say, looking at our pace for the rest of the year, that quarter is not the strongest quarter looking t the remainder of the year. So I think that's a quarter that we're watching fairly carefully at this point in time. In terms of the spread across resort versus some of the other sectors, I don't know that there's any dramatically different trend as it relates to the third quarter versus the other quarters for the resorts. It depends a lot on where they are. Certainly some of our resorts are just weak in general during the summer, such as the ones that are in Palm Desert. Others in Florida still have a fairly high level of group activity, the price point is just lower.

Okay. Very good, thanks.

And we'll take our next question from David Loeb at Baird.

Hi, first a quick one about guidance. You reported $0.33, $0.03 or $0.04 about your 1Q guidance, but you didn't change your annual guidance. What's your thinking there?

Well, David, I guess what I would just say is that this was just the first quarter of the year. We probably -- as we indicated, we did better in the first quarter than we thought. Some of the elements of that, like some of the corporate expense savings, which is generally related to restricted stock, I'm kind of hoping it's going to even out over the course of the rest of the year, so I'm hopeful that that's not actually something that turns up in the final analysis. As it relates to some of the others, I guess I'd just say it's good that we're ahead because it would just give us more confidence that we'll fall within the range of the end of the year.

But I don't think we saw -- we went -- while it may seem that all we did was reiterate our guidance, we spent a lot of time digging in on an entire analysis of the portfolio to try to understand what we really thought was going to happen over the rest of the year, and at the end of the day I think we were -- we started off a little bit more cautiously than others in our outlook for the year, and as we dug in on it, given where the first quarter came out, what our bookings looked like, the fact that the recent trend was actually fairly good and wasn't indicating additional weakening, the fact that we saw international travel building, and the fact that we think we're going to get some lift later in the year, all of that came together in our minds and leave us comfortable that we should still use the same 2% to 4% range that we had talked about before. But I think in trying to assess how we did in the first quarter in FFO within in the context of that, we didn't think we should make any adjustments for the fact that the first quarter came in a little bit stronger.

Okay, that's helpful. And Larry, a little more detail, if you can, on the Orlando World Center refinancing. Can you just give us an idea about what the terms are like on that? Had mentioned that was likely an insurance company lender, would this be a club deal given its size or is a single lender willing to take that much?

It's a single lender, but apologize, I'm just really not comfortable disclosing that stuff at this point. It's a single lender that stepped up proceeds, proceeds well in excess of the existing $209 million mortgage, and at rates that are consistent with what we budgeted we would refinance the property for.

And a rate that's lower than what exists today?

Yes, it's a 7.48% mortgage on the property today so the refinance rate will be -- all in will be well below that.

And how do you weigh that against just paying off the existing mortgage and drawing from the line and waiting for better debt markets?

Yes, I think is answer there is that -- is consistent with the theme that I highlighted in our initial comments, is that we are looking to maintain a higher amount of liquidity and as much flexibility as we can at this point in time, just in anticipation that there may be some opportunities that develop for us over the course of the next 12 to 18 months, so I think this is a natural property to refinance in some ways. I think we all concluded here that it would be better to maintain the $600 million of availability on the credit facility at this point rather than deploy that to pay off this loan. Obviously we could change that philosophy in the future. We could also -- if something -- if a problem developed here we'd certainly be comfortable in using the facility to pay it off, but I think from a balance sheet perspective we like the idea of having additional capacity on the facility.

Great. Okay, thank you.

We'll take our next question from Nap Overton with Morgan Keegan.

Good morning. In the last cycle-- in the last down cycle a multitude of distressed sellers or motivated sellers never really materialized because debt was so available and interest rates remained low throughout the down part of the cycle. Do you anticipate -- or are you aware of any developing situations that interest you in terms -- or what is your outlook for some distressed motivated sellers to show up in this cycle that we appear to be entering?

I think that is a great question. I would say so far, with just a couple of exceptions, you haven't seen too many opportunities like that develop, but I think that's also because if you really look at where we are right now, while RevPAR growth has moderated from where it was the last three or four years, we're still talking about positive growth and we're still generally talking at most properties about positive NOI growth too. So, while the financial markets are in disarray you're really not looking at a lot of defaults yet on individual mortgage loans secured by real estate because the properties aren't underperforming at this point in time. I think as we go forward, this cycle will be a little different from the last one, primarily because of the levels of leverage that the lending community was prepared advanced on hotel assets this cycle compared to last..

If you go back to the 90s the lending community was really still reacting to the debacle of the 19 -- the late 80s, where you saw a lot of 105, 110 or higher percentage loans. Now when operations declined in the early 90s with over-leveraged properties, you ended up with lenders owning a lot of real estate. There was at lot more discipline on the lending front at the end of the 90s, as the lenders remembered that environment that they had gone through and loan-to-value ratios were lower. I wouldn't describe what happened over the last four or five years as equivalent to what happened in the 80s, but I think if you look -- I think we all know if you look at a variety of different situations you'll see that leverage levels were higher this time than last and I think that at some point here -- it's probably not this year, it's probably more next year -- you'll begin to see some situations develop where folks have loans that are coming due and in this lending environment they can't borrow enough money to be able to repay that loan, which will start to put some pressure on the situation. That's our insight on it at this point in time and I think we've -- coming back to the first point, other than a few small instances where we've detected some pressure on a few sellers, there really hasn't much that's happened yet, but I think we're expecting more of that to come.

If such situations did develop within the next 24 months or so, what kind of flexibility do you consider that you have in your own balance sheet to -- how much muscle would you be willing to flex for an attractive opportunity?

We think we have a fair amount of capacity in our balance sheet right now. We are looking at coverage levels that are well into the fours and we're comfortable as a company, kind of looking at it from a safety perspective, being at least a full turn lower than that. So to the extent that the right opportunity developed and the transaction met all of the various targets that we would have around the transaction, we could be in a position to act on that in the future.

Okay, thank you.

And we'll take our next question from Joe Greff at Bear, Stearns.

Hey, good morning, guys. Can you hear me okay?

Sure, Joe, fine.

Hi. Quick question or two quick questions. Your comments on 2009 group bookings, you talked about pace. What's pricing like on 2009 group booking relative to 2008?

It's up a little bit.

Okay. And then if you were to look at the last 12 months or full year of 2007, room rates sold to Wall Street or the financial service industry, what is that number?

I don't have that here with us, so it's something we can probably look that up for you, Joe. If you're looking for a year-over-year comparison, I'd have to believe in general in the industry that it's down a little bit, but I wouldn't -- in terms of an actual number of nights we sold last year to them we don't have that number available.

Thank you.

And we'll take our next question from William Truelove with UBS.

Hey, guys, a couple questions here. First, what is your budget for ROI projects that is currently unfunded that you could divert to share repurchases this year?

We're looking this year at expecting that our repositioning and ROI projects in total will be somewhere in the -- I think it's like the $270 million to $290 million range. Some of that -- a fair amount of that's already underway. We're going to have a big quarter of construction this quarter and you'd have to really sit down and be carefully -- carefully analyze that. I would suspect that probably a third of that could be cancelled if we needed to, but there may be some cost associated with canceling that, including business disruption that we've built into the schedule by virtue of anticipating the construction project.

Wait a second. If you're not doing the construction projects wouldn't you have less business disruption? Wouldn't that be a positive?

Well, not -- yes and no. If what you were doing was affecting meeting space, was part of what your ROI involved, and you then -- and you already had it planned for the third quarter, if you then cancelled the project, you're right, you wouldn't have more business disruption, but I guess what I'm saying is I'm not certain you could fill that meeting space with new customers, given the timeframe we are talking about. So in effect, we already have incur -- by scheduling it the way we have, we've already incurred the cost of the business disruption. If we don't go forward with the project, I doubt we'd be able to book a lot of additional business in, so as a result we'd still incur the costs associated with the business disruption. Does that make sense?

Yes, that makes sense.

Okay.

Second question that I have is on your timeshare joint venture with Hyatt, if you're getting 20%-plus returns that usually in timeshare that requires you to also participate in the financing section of it, so is your participation in the JV strictly on the real estate only, or in this joint venture will you also participate in the financing gains associated with the timeshare?

We would be anticipating that we would participate in all facets of the development, so it would include both -- our anticipated returns would be profit on the land, profit on the sale of the units, and ultimately any profit that might stem from the financing.

All right. And then last easy question is which hotels are held for sale now that you've recently listed?

The Sheraton Tampa Suites.

Sheraton Tampa Suites?

That's the asset held for sale.

Oh, okay, I thought there were two of that.

Well, the Sacramento property is being taken by the city of Sacramento as they're expanding their airport, but that's very small -- that's a leasehold interest, so it's very small balance sheet amount.

Okay, that explains it. Thank you so much then.

Great.

And due to time constraints we are going to conclude the question-and-answer session today. I would like to turn the conference back over to Mr. Walter for any additional or closing remarks.

Thanks you very much for joining us on this call today. We've appreciated the opportunity to discuss our first-quarter results and our outlook with you today and look forward to providing you with more insights into how the 2008 is playing out at our second quarter call in mid July. Have a good rest of your week, everyone.

Thank you, that does conclude today's conference. You may disconnect at this time.