Host Hotels & Resorts Inc (HST) 2013 Q3 法說會逐字稿

Good day and welcome to the Host Hotels & Resorts, Incorporated, third-quarter 2013 earnings conference call. Today's conference is being recorded. At this time I would like to turn the comments over to Ms. Gee Lingberg, Vice President. Please go ahead, ma'am.

Thank you, Tiffany. Good morning, everyone. Welcome to the Host Hotels & Resorts' third-quarter earnings call.

Before we begin I would like to remind everyone that many of the comments made today are considered to be forward-looking statements under federal securities laws. As subscribed in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements.

In addition, 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 information 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.

With me on the call today is Ed Walter, our President and Chief Executive Officer, and Greg Larson, our Chief Financial Officer. This morning, Ed will provide a brief overview of our third-quarter results and then will describe the current operating environment as well as the Company's outlook for the remainder of 2013. Greg will then provide greater detail on our third-quarter results, including regional and market performance. Following the remarks we will be available to respond to your questions.

Before I turn the call over to Ed, I would like to remind everyone that at the beginning of this year we adopted calendar quarter reporting periods; and to enable investors to better evaluate our performance we have presented 2012 RevPAR and certain historical results on a calendar quarter basis we call the 2012 as-adjusted results. The following discussion of quarterly and year-to-date operating performance will include a comparison between the three months and nine months of operations ended September 30. And now, here is Ed.

Thanks, Gee. Good morning, everyone. We are pleased to report another quarter of solid operating results as strong demand in our transient business and better-than-expected short-term group bookings fostered solid rate growth across all segments of our business.

We are also pleased to report some activities that we believe have added value to the Company. We continue to feel very positive about the fundamentals in the business and our outlook, which I will discuss in more detail in a few minutes.

First, let's review our results for the quarter. Overall comparable revenue growth for the quarter was 4.6%. This was driven primarily by a comparable hotel RevPAR increase of 5.5% to $150, as average rate improved 4.8% to $192 and occupancy increased 0.5 percentage point to 78.4%. We also had comparable hotel food and beverage revenue growth of 3.1%, driven by increases in banquet sales.

As anticipated, the third quarter had difficult margin comparisons to last year, which included items that increased profit in 2012. As a result, our comparable-hotel adjusted operating profit margins for the quarter were unchanged. Adjusted EBITDA for the quarter increased slightly to $270 million, and our adjusted FFO per diluted share was $0.25, an increase of nearly 9%.

On a year-to-date basis, comparable-hotel RevPAR increased 5.5%, driven by a 4.3% increase in average rate and an 8 percentage point improvement in occupancy. Total year-to-date comparable revenue growth of 4.6% combined with adjusted operating profit margins that increased 100 basis points resulted year-to-date adjusted EBITDA of $984 million, representing an increase of 12.5%. Adjusted FFO per diluted share increased 22.5% to $0.98.

The key drivers of our third-quarter room revenue results were strong increases in rate across all segments of our business. We also benefited from mix shift in both our transient and group segments.

In our transient business, demand in our higher-rated retail segment increased more than 10%, while lower-rated special corporate, government, and other discount rooms decreased almost 1%, primarily due to a 16% decrease in our government room nights. Overall for the quarter, transient demand increased 4%. The combination of mix shift and rate increases in every segment led to an overall rate increase of 4.3%, which resulted in a revenue increase of 8.5%.

Our group segment also benefited from mix shift as our higher-rated corporate association business increased almost 2%, while our discount and government segments fell by more than 8%. As with our transient business we saw rate increases across all segments, which resulted in an average rate increase of more than 3.5%.

While overall demand fell by 2%, we were very pleased to see that bookings in the quarter, for the quarter, increased almost 12% compared to the prior year. The welcome pickup in booking activity also has benefited the fourth quarter, as bookings increased more than 9%.

We expect very solid group activity in the fourth quarter as both rate and demand are running ahead of last year's pace, with booked revenues indicating an increase of more than 6%. We also expect that transient demand will remain strong.

On the investment front, the Company's European joint venture in which we hold a one-third interest acquired its first hotel in Sweden, the 465-room Sheraton Stockholm Hotel, for a total purchase price of $135 million. Stockholm is the business capital of Scandinavia and a regional hub for many large multinationals in the IT, banking, automotive, and business service sectors, which are key drivers of corporate demand.

It is also a popular leisure destination, offering beautiful architecture and museums. The hotel has one of the best locations in the city, situated across from the historic old town and within short walking distance of the Grand Central train station.

Looking at disposition activity, as we announced this morning we sold the Portland Marriott Downtown Waterfront for $87 million or approximately $173,000 per key. Additionally, subsequent to quarter end, the Company's European joint venture sold the 150-room Courtyard Paris La Defense West for EUR19 million, which we had acquired in a portfolio transaction last year.

Overall, because we feel confident in the fundamentals of the lodging business, we are interested in completing additional acquisitions and have an active pipeline of potential deals. However, a combination of high prices and fewer attractive acquisition candidates have limited our activity this year, and we do not expect to complete any additional investments in 2013.

We do intend to take advantage of these market realities by selling more assets, and we are currently marketing several hotels, some of which may close by or shortly after year end. Given the uncertainty as to the timing and execution of these transactions, our guidance assumes no impact from these potential sales.

We have an outstanding portfolio of 137 hotels from which we can extract value in various and creative ways. In the past you have seen us partner with an expert to revamp retail space, convert an underoccupied tower to apartments, built a timeshare on an oceanfront parking lot, sell unused tennis courts to a developer, and complete various redevelopment and ROI investments.

We have also been successful in creating value by extending ground leases and restructuring management agreements. For example, we recently extended the ground lease that was set to expire in 2019 at the Houston Airport Marriott, negotiating a new 40-year term.

This new lease results in a reduction of ground lease payments; and as part of this agreement we will invest approximately $35 million in the property to completely redevelop the guest rooms, public space, meeting space, and modernize the mechanical systems. While we do not typically seek to invest in airport hotels, this hotel is directly connected to the airport and traditionally maintains a market share premium of nearly 30%.

We also completed the construction of a 20,000 square foot ballroom and the renovation of 25,000 square feet of meeting space at the Newark Airport Marriott, which we agreed to accomplish in time for the 2014 Super Bowl at the Meadowlands as part of our ground lease extension for that hotel which we announced last year.

Management agreements are another source of value-enhancement opportunities, especially if competition between operators has increased over time. We review management contracts on a hotel-by-hotel basis and work towards obtaining the most efficient model for each hotel.

During the third quarter we successfully converted the Memphis Marriott to the Sheraton Memphis Downtown, which will be managed by Davidson Hotel & Resorts, an independent operator which has long ties to the Memphis market. The conversion enabled us to increase the value of the hotel by selecting the right brand, operator, and capital plan for the market. We anticipate that both improved performance and the availability of the hotel as a franchise will increase the sales price in the future.

We also successfully amended the Calgary Marriott Downtown management agreement with Marriott International. The term of the agreement was extended, and we received an increase in the owner's priority threshold which will reduce current and future management fees by more than $2 million a year.

In conjunction with these two transactions we also gained the right to franchise three additional hotels, substantially improving the value of those hotels at the time of sale and advancing our strategy of obtaining franchise rights for hotels in the bottom half of our portfolio.

Now let me spend some time on our outlook for the remainder of the year. As we have outlined today we continue to see strong demand trends in both our transient and group segments for the fourth quarter. However, as Greg will describe in more detail, the government shutdown has impacted us in October by costing us $6 million to $7 million in EBITDA.

With that in mind, we are tightening our guidance and expect comparable-hotel RevPAR for the full year to increase between 5.5% and 5.7%, with an increase in adjusted operating profit margins of 100 to 105 basis points. Based on these RevPAR and margin expectations, we now expect adjusted EBITDA to be in the range of $1.290 billion to $1.3 billion, which includes the impact of the shutdown. This operating forecast will result in adjusted FFO per share of $1.28 to $1.30.

Looking at our dividend, our third-quarter common dividend was $0.12 per share. Our fourth-quarter dividend will depend on operating results and activities on the sales side.

While it is premature to offer any specific guidance relative to RevPAR or revenue growth for 2014, we do believe that the fundamentals for our business continue to be attractive. The single biggest factor is continued low supply growth.

Overall, industry upper/upscale supply will average roughly 1% for the next two years, which is about half of the long-term stabilized growth rate. Looking at our primary markets, New York City and Washington DC are the only markets with average supply growth in excess of the long-term average growth rate.

Our remaining eight target markets in the US are expected to average just 0.75% in increased supply over the next few years. In particular, Boston, Hawaii, LA, and San Francisco expect no upper/upscale supply growth in 2014.

On the demand side we are very encouraged by the indicators that we track. Business transient demand has remained strong this entire year, and the outlook for 2014 is quite positive as business investment is expected to accelerate next year.

International travel continues to grow at a multiple of domestic demand, as it becomes easier for the Chinese and Latin Americans to navigate our visa process, which further stimulates transient demand.

Our group booking pace for 2014 is solidly positive as group bookings in the third quarter improved by 16% over last year. If these trends continue into 2014 we see the opportunity for strong RevPAR growth driven primarily by rate improvement, and solid F&B growth driven primarily by banquet activity.

Thank you, and now let me turn the call over to Greg Larson, our Chief Financial Officer, who will discuss our operating and financial performance in more detail.

Thank you, Ed. Before I present the individual market information let me provide an overall summary of comparable-hotel RevPAR by region. RevPAR growth was strongest in the West, increasing 10.5%, driven by 8% ADR growth. Five markets, four of which represent our West Coast target markets, grew RevPAR by double digits.

In the Central and South region, RevPAR increased 3.9%, in line with our expectation. While Atlanta and Houston had strong double-digit RevPAR growth, weak group demand in San Antonio, Tampa, and New Orleans resulted in a combined 11.5% RevPAR decline.

In the East, ADR grew by only 1.6%, contributing to a 3.1% RevPAR growth. Results were slightly lower than expected especially in Philadelphia and Washington, DC, due to declines in group demand.

With that in mind, let me begin by giving you specific market data. Houston is once again our best-performing market in the third quarter. Houston has continued its impressive RevPAR growth with gains of 18.8% on a difficult comp from last year's strong third quarter.

Occupancy improved 60 basis points and ADR grew an impressive 17.8% due to the continued high transient demand from energy and energy-related business in Houston. The strong demand enabled the hotels to implement a strategy of shifting the mix of business to higher-rated segments. We expect Houston to continue to perform well in the fourth quarter, however, not at the same pace as the first three quarters, as there have been cancellations in group business related to the government budget crisis and fewer fourth-quarter citywide events.

RevPAR at our San Francisco hotels continued to perform well, with a robust increase of 15.8%, moving up to the number 2 spot from number 4 last quarter. Occupancy grew 1.9 percentage points, and ADR increased at a very strong 13.3%.

This strong rate increase was mainly driven by business mix shift from contract to higher-rated transient and group business. With continued high transient demand, we expect our San Francisco hotels to perform well in the fourth quarter.

Due to the strong third-quarter citywide calendar, our Atlanta hotels grew RevPAR an impressive 15.5%, as ADR improved 5.8% and occupancy grew 6.1 percentage points. The rate improvement was primarily driven by compression created by the better-than-expected demand from strong citywide, due to a large event that will not be repeated in the fourth quarter. We do not expect Atlanta to outperform in the fourth quarter; but based on year-to-date RevPAR increase of 10.9% we expect Atlanta to be a top performer for the year.

Driven by the strength of group business, RevPAR at our hotels in Phoenix increased 14.5%, significantly outperforming the STAR upper/upscale market performance of 5.9%. Occupancy gained 2.9 percentage points and ADR increased 8.9%.

Strong business allowed the hotels to shift the mix into higher-rated transient business to drive overall ADR growth. In October, some groups canceled due to the government shutdown, so it is unlikely that the third-quarter RevPAR growth will be sustained, but we still expect Phoenix to outperform in the fourth quarter.

In Los Angeles, our hotels' RevPAR increased 13% on occupancy gains of 1.6 percentage points and ADR growth of 10.9%. All hotels in this market had strong rate growth due to transient demand strength. We expect transient demand to remain strong for the fourth quarter, but expect negative impact from a weaker group booking pace and the scheduled rooms renovation at the Marina Rey Marriott.

Solid group base and strong transient demand propelled our Seattle hotels to another great quarter with a RevPAR increase of 12.2%, driven by a 2.1 percentage point increase in occupancy and an improvement in ADR of 9.6%. Strength in both group and transient bookings allowed our hotels to shift the mix from discount to higher-rated retail and special corporate segments. We expect our Seattle hotels to have a good fourth quarter, with solid group room nights on the books to create compression to drive rate.

Our San Diego hotels' RevPAR increased 10.3% with occupancy growth of 4.1 percentage point and ADR improvement of 5%. Due to strong group and transit demand at our hotels, RevPAR growth more than doubled the STAR upper/upscale market growth of 4.3%. As we look forward in the fourth quarter, we expect our San Diego hotels to continue to outperform.

In the third quarter, our hotels in New York increased rate by 3.2% while occupancy remained relatively flat, resulting in RevPAR improvement of 3.5% despite increased supply in the market. We are still concerned about increased hotel supply in New York and the resulting impact on hotel rates, but expect that our hotels should perform well when compared to the broader New York market.

Our Washington, DC, hotels continued to struggle in the third quarter as RevPAR decreased 0.1%, with occupancy increasing 1.1 percentage point while ADR declined 1.5%. However, we outperformed the STAR upper/upscale market performance as the market RevPAR decreased 3.3%.

Our hotels in the central business district outperformed hotels in the suburbs. Given the continued weakness and government travel and government dysfunction, we expect our hotels in DC to underperform the portfolio in the fourth quarter.

Tampa and New Orleans both had double-digit RevPAR decreases of approximately 14% each in the third quarter. Both were impacted by large, nonrecurring events.

Tampa was impacted by the absence of the Republican National Convention this quarter. New Orleans was impacted by the large Lutheran convention that did not repeat this year. We expect Tampa to underperform due to a large 2,600-room cancellation related to the government shutdown, and New Orleans to outperform in the fourth quarter due to increases in the number of citywide events for the fourth quarter.

The pro forma RevPAR for the 19 hotels in the European joint venture, which includes the five-hotel portfolio acquired in 2012, increased 2.8% for the quarter in constant euros. As anticipated, third-quarter ADR declined 2.3% due in part to the strong rates during the London Olympics last summer.

Occupancy was up 4.1 percentage points due to the increase in both transient and group volume from citywide events held in Amsterdam this quarter and strong incentive demand at Westin Europa and Pullman Bercy. The best-performing hotels in the quarter were Renaissance Amsterdam, Crowne Plaza Amsterdam, Renaissance Brussels, Western Europa in Regina, and Westin Palace Milan. Sheraton Skyline and Le Meridian Picadilly underperformed this past quarter due to difficult comps from the Olympics last quarter.

Some signs of improvement in the eurozone economy give us encouragement to be cautiously optimistic about our European hotels. The 2013 GDP forecasts in the major eurozone economies have been upgraded over the past quarter, predominantly driven by stronger-than-expected performance in Germany and France. Spain appears to have reached the bottom, but Italy remains challenged. An emphatic reelection of Chancellor Merkel in Germany should offer some stability in the eurozone.

Outside of the eurozone, the UK economy is making a faster-than-expected recovery, reflected in a strengthening London hotel market.

As anticipated, operating profit margin growth in the third quarter was our weakest for the year. Comparable-hotel adjusted operating profit margin for the third quarter of 2013 was unchanged, as third-quarter 2012 was a particularly strong quarter, with margins up 285 basis points.

Certain items were included that increased operating profit last year, such as prior-year tax refunds and utility rebates totaling $5 million, which decreases operating margin growth this quarter by 50 basis points. In addition, as Ed commented in his prepared remarks, the conversion of the Memphis hotel to a Sheraton with an independent manager increases the value of the hotel in the long term; however, in the near term this also negatively impacted our margin performance.

Looking to the fourth quarter, we expect that RevPAR will continue to be driven primarily by rate growth, which should lead to solid rooms flow-through. However, the government shutdown had a one-time negative effect on the results for October. We estimate that the government shutdown impacted RevPAR for fourth quarter by over 100 basis points, which translates to approximately 25 to 30 basis points for the full year.

We expect margins for the remainder of the quarter to remain at or above our year-to-date result, leading to a full-year profit margin increase of 100 basis points at the low end of the range, and an increase of 105 basis points at the high end of the range.

Shifting to our balance sheet, in the third quarter we redeemed $200 million of the 6.75% Series Q senior notes at a premium of $2 million. This redemption brings the total debt reduction since January 2012 to $1.2 billion, decreasing our weighted average interest rate to 4.9% and extending our weighted average debt maturities to 5.5 years.

As a result of these efforts, our annual cash interest expense decreased approximately to $210 million. As of September 30, 2013, we have approximately $350 million of cash and $770 million of available capacity under the credit facility.

In the quarter, we issued 6 million shares of common stock at an average price of $18.39 per share for net proceeds of approximately $109 million through our at-the-market program. This quarter issuances complete the sales under our agreement, which had a combined capacity of $400 million.

In summary, we achieved solid RevPAR growth with double-digit RevPAR increases in markets such as Houston, San Francisco, Atlanta, Phoenix, Los Angeles, Seattle, and San Diego. We further improved our balance sheet and now have the lowest annual cash interest expense and best interest coverage and leverage ratios in the 20-year history of the Company.

This completes our prepared remarks, and we are now interested in answering any questions you may have.

(Operator Instructions) Felicia Hendrix, Barclays.

Hi, good morning. Ed, just to touch on your group business for a minute, last quarter you mentioned that 2014 group was 50% booked at the time at an increased rate and pace year-over-year. I was just wondering if you could update us on that statistic.

Yes, at this point, we have probably booked about two-thirds of our 2014 group business. We would be expecting to -- by the time we get to the end of the fourth quarter, we would be expecting to be somewhere around 70% to 75% of that business booked at that point in time.

Is the pace and the rate meeting your expectations?

Yes, we up just short of 6% in terms of the combination of improvement in room nights and improvement in rate. So up just short of 6% in terms of revenues for 2014 compared to last year.

I think this was one of the things, as we looked at this quarter, that we were very encouraged by. Because as I think we all know, as we had been working our way through 2013 we were typically finding that bookings in the quarter for the quarter were really not as strong as they had been in the prior year. And depending upon the individual quarters, some of the bookings for the rest of the year were not necessarily as strong as they had been.

One quarter doesn't necessarily make a trend; but the reality is, as I have indicated in my comments, our bookings in the quarter for the quarter were up meaningfully. Our bookings for the second half of the year, meaning in the third quarter for the third quarter and for the fourth quarter, were up 10% compared to the prior year.

And then our bookings for 2014 were up 16%, compared to what we did last year, and last year was a good year for bookings for a year out. So I don't -- we want to be thoughtful and cautious about trying to carry this too far; but the bottom line is we were very pleased with the increase in group bookings that we saw over the last three months.

Thanks. That's helpful. And while I have you or maybe Greg, just as a follow-up given that commentary, assuming that you make asset sales next year, referring to, Greg, your commentary about how strong your balance sheet is, the strongest it's ever been, your free cash flow should be quite attractive next year. Balance sheet's strong. Everything seems to be operating well.

Just wondering how we should think about your targets for payout relative to cash available for distribution next year.

I would say that at this stage while we are certainly -- as we think about the dividend I think it is still going to generally be driven by what our taxable income is. That is going to be affected by two things. It is going to be affected by both how our operations perform next year, which of course we would be expecting would be higher than this year.

And then secondly, it is going to depend upon the asset sales that we do, the profits that we have generated on those sales, and whether we tax-free exchange the proceeds from those sales into other investments or not. But I would say that in general we certainly -- all the points you made about the strength of the balance sheet are true; and it would in general be our goal to continue to see our dividend increase. But it will be tied to those factors in general.

Great. Thank you. Very helpful.

Joshua Attie, Citi.

Thanks. Good morning. You mentioned improvement in group business, and some other companies have as well. It's sometimes difficult for us to translate some of those statistics into overall RevPAR growth for the portfolio.

Do you think, if the current momentum you are seeing in that segment is maintained, it will be enough to drive an acceleration of RevPAR growth for the Company next year? Or is the magnitude of the group pickup not quite that large yet?

Josh, it is a little hard to predict that at this point in time, especially since I think the results that we have seen the last couple of years have all been pretty solid. So what I -- if the trends that we see today continue through the quarter and then into next year, I think it is reasonable to assume that we would see more balanced growth between group revenues and transient revenues next year. Whereas this year it has been far more heavily weighted towards transient revenue growth.

So I think you would have that opportunity for better balance. We are at pretty high occupancy levels already, so that suggests that most of what we should see should be in the rate side. And I think then it is just going to come down to how aggressively can we push rate between the two segments.

I think it would probably suggest that you might find that the occupancy increase next year is generally attributable to group; and transient will really be more of a rate story.

Okay, thanks. Separately, you have been issuing about $100 million a quarter of new equity through the ATM this year, and I noticed you completed the program and you didn't put a new one in place. Can you just remind us where your leverage is today in terms of what your target is?

And should we interpret the lack of putting in a new program as a sign that the future equity issuance will diminish? Or have you just not gotten around to putting in a new program yet?

Josh, this is Greg. So our leverage -- we ended the quarter at 3.46 leverage. As I mentioned in my comments, it's our best leverage level in the last 20 years, so we are quite happy with that.

But as you also know, our ultimate goal is to push that leverage ratio to 3 times. So what we have always said consistently through this cycle is that in general what you will see us do, until we hit our goal of 3 times, is that when we sell assets we will use the proceeds to pay down debt; and when we buy assets we will finance those acquisitions with about 75% to 80% equity.

I think if you look at what we have accomplished from the beginning of this cycle to today, that is exactly what has happened. We have sold just over $1 billion worth of assets and we have used those proceeds to pay down debt. We have acquired just over $2.5 billion worth of assets and we financed those acquisitions with about 75% to 80% equity.

But I do think your point is correct that we did issue $100 million per quarter in the past. But as you can tell, we're getting closer to 3 times leverage, and we ended the year with a pretty good cash balance.

And subsequent to quarter end we sold the Portland property for north of $80 million. So I think we are in pretty good condition at this point.

Okay, thank you.

Steven Kent, Goldman Sachs.

Hi, this is Anto Savarirajan for Steve Kent. Broadly, what are your internal thresholds for ROI investments? The reason I ask is, given the ROI investments you have made at the Newark Airport Marriott, how are bookings trending ahead of the Super Bowl? And how should we in general think about some of these ROI investments you make?

Yes, the thresholds that we establish for ROI investments will differ a bit based on the size of the investment and also the certainty of achieving those results. Broadly speaking, I would say to you that when we look at adding a ballroom, such as what we are doing in Newark, what we ultimately will be doing out in San Diego, we are generally looking at IRRs on those transactions that will be in the high teens.

When we are looking at some of the energy-saving improvements or enhancements that we have implemented over the years, we have enough of those, to be perfectly honest, that we typically have targeted a threshold north of 20%, just to make certain that we stay focused on the most rewarding of those types of opportunities.

As it relates to bookings in Newark, I don't have any specific numbers. The ballroom just opened up in the last 30 days. Our sense is that it is certainly going to do -- we're going to do fine out there around the Super Bowl, because we are so close.

But obviously what will matter more for the success of the investment is the long-term bookings for that space. We feel pretty confident, though, that that space will be a big plus for that particular hotel.

Thank you. Over the past few years you have indicated to us that now the quality of the asset portfolio has been getting better as you prune some of your assets. Tying your commentary that you may be selling a few more assets than you actually buy, how should we think of these assets and how you are bucketing them?

And really, which are these assets that you are thinking of selling over the next, say, few quarters?

It's a good question, because it is an important part of our overall strategy. Generally what we are trying to do with asset sales is sell assets that are located in non-target markets where we generally expect lower growth. And then if we are selling assets that might be in target markets -- such as, say, the sale of the San Francisco Airport Marriott in San Francisco -- what we are doing is selling an asset in a target market, but it is in a part of that market where we generally have lower expectations for overall growth.

So the idea is to ultimately end up with a portfolio that is generally focused in the target markets and in the best submarkets in those target markets.

One thing I would also add to that is, as we engage in this sale process -- because Portland is a good example of that -- we try to be pretty thoughtful about exactly what is the best way to sell the hotel. So in the case of the Portland transaction we first renovated the lobby in the meeting space for that hotel, because we figured that that would help improve the performance of the hotel. And in fact over the last two years we saw a 20% increase in RevPAR; we picked up all the market share that we had dropped the two years prior. We saw a 30% increase in NOI in that asset, that took us back to where we were in 2007.

And then we looked to put the hotel on the market to take advantage of that, because we generally thought that we had captured most of the surge that you would get in the recovery in terms of performance. And since it wasn't a primary market for us, it was a good time to be a seller of that hotel.

Thank you.

Robin Farley, UBS.

Thanks, yes; just a couple clarifications. Your RevPAR guidance rate for the full year at the top end is down a little bit more than the government shutdown impact. So I wonder if you could just give some color around what other issues you are maybe feeling less optimistic about.

And then for Q3, I just want to make sure I understand the EBITDA. The calendar shift I think would have been a benefit to you. I understand there was $5 million of asset sales dispositions affecting year-over-year comps, and then some property-specific things last year of $5 million.

But still wondering why we are not seen the benefit of the calendar shift. We're not seeing positive EBITDA. Maybe it is just the too many moving parts; but if you could help us with that.

Sure, I am going to -- we will split this up. I will try to answer the RevPAR question and then I am going to let Greg handle the EBITDA question. I think on the RevPAR, probably the simplest answer to that is that the third quarter was solid, but it didn't outperform our expectations. So as we looked at the high end of our guidance for the full year, it felt like we needed to make an adjustment to reflect the fact that the third quarter was in line with expectations, which would've been -- think of that more as the middle of the guidance that we have previously given as opposed to the high end. And then given the combination of the government shutdown and what that then meant for that guidance, it just felt that we should -- the 5.5% to 5.7% was probably the right range for here.

But in general, coming back to our overall perspective on the guidance, I would say that we generally looked at this as essentially -- if you looked at the midpoint from where we were, and you look at the midpoint for where we are now, the difference there is essentially the government shutdown. So yes, we did not meaningfully outperform in the third quarter compared to our thoughts, which would have taken us to a higher level. But the bottom line is, in terms of our expectation, the real difference between the two different forms of guidance is really related solely to the government shutdown.

Yes, and Robin, look, I agree with you that this year has been difficult because of our calendar shift. That is one of the reasons why last quarter I tried to give a little bit of color and guidance on that.

What I said last quarter is that in the third quarter our EBITDA would be about 20% to 21% of our full-year EBITDA. I think if you take your full-year EBITDA and multiply that by 20% to 21%, my guess is your EBITDA for the quarter would have been less than our $270 million that we achieved.

Okay. Then can you just finally remind us what remaining capacity you have for Sales Agency Financing Agreements now after the issuance in the quarter?

You mean on the continuous equity plan?

Yes.

We exhausted it.

So there is nothing in --

(multiple speakers) this quarter.

So there is nothing in place with any other agreements? I know you completed the ones in the quarter; but nothing else at the moment in place?

That's correct.

Okay, thank you.

Thomas Allen, Morgan Stanley.

Hey, guys. I appreciate the comments you have given so far on 2014. But just for our modeling, can you update us on your thoughts around seasonality and other factors that could impact RevPAR growth? Specifically, how the Super Bowl could impact renovations, citywide calendars, things like that. Thanks.

I don't know that we are in a position to give you much insight into that right now. We haven't seen our first budget for next year and won't see those for a couple more weeks, so we really don't have a lot of specific insights.

If I were thinking quickly off the top of my head, we are certainly hoping that a Super Bowl in New York City is going to be a benefit to us. But conversely, on a year-over-year basis, while the inauguration in DC was not anything to write home about it still had a favorable effect on Washington in the first quarter and roughly around the same time.

So beyond that we don't -- really haven't had a chance to think through the year from a seasonality perspective. The one thing that should be easier for all of us next year -- and Greg was sort of referring to this in his answer to the last question -- is at least next year we are going to be matching up against calendar quarters where we all have the benefit of being able to look back at both what the top line and the bottom line were on a year, without having to do a lot of adjustments to try to capture those numbers.

Okay, thanks. Then just in terms of your JV EBITDA, guidance came down slightly for the year. What drove that? And -- yes, what drove that? Thanks.

I think part of that is probably related to the sale of the asset, because we would have lost a chunk there. I don't know that there was any particular factor of significance on that. Greg, do you --?

You're right. I think our number for the full year is down only EUR2 million. So part of it was Courtyard and maybe just a smidge from an operating perspective.

Okay. Thank you.

Andrew Didora, Bank of America.

Hey, good morning, guys. Typically in the past, the ATM was sometimes a predecessor to some transaction activity. But it certainly doesn't seem like you have anything lined up for the rest of the year.

Can you maybe expand on what you are seeing on the deal front? And what does your lack of activity right now imply for your thoughts on where we are in the cycle right now? Thanks.

Yes. You know, I would say that we have been -- we certainly feel comfortable, as I mentioned in my comments, that we would like to be investing more. There have not been as many transactions or properties that are in the markets that we are interested in and have come on the market over the last 12 months.

We are looking at a few things, both in the US and outside the US. But as I highlighted in my comments, as I look at the timing for those I think it is unlikely that they would have any kind of an effect on this year.

But I think part of what you are seeing in the US is that transactions in general are probably being driven more by the strategy of the owner as opposed to any duress or anything like that. I think most folks would share our insight that supply is relatively low, not expected to accelerate meaningfully except in a couple of markets. Consequently, no one is sitting there starting to anticipate that it is the end of the cycle and consequently they should be a seller because of that reason.

So you are seeing good levels of activity. I think overall the level of activity that we are seeing in the market across the world is a little bit higher than what we saw last year. Unfortunately, a lot of that is happening in asset quality and price points that are of less interest to us.

Great, thanks. Then just finally, one of the themes we have been seeing this earnings season has been some of the greater strength on the West Coast versus the East Coast; and your results in the quarter didn't really seem to deviate from that.

What do you think are the key drivers of that outperformance are? And what are your expectations for East Coast versus West Coast over, call it the next 18 to 24 months?

I suspect that, at least looking into next year, that we will probably see that same pattern -- strength in the West, weakness in the East -- continue. Supply on the West Coast is very low. Demand both in the US domestic demand as well as international demand is quite strong on the West Coast. So that same -- sort of the same set of facts that has been driving great results this year should continue to drive the West Coast next year.

And then when you look at the East Coast, I think unfortunately all the data that we are all looking at is suggesting that New York is going to continue to get hit by high levels of supply. I think the numbers we're looking at right now would say industrywide across all segments New York will be up north of 7% next year in terms of supply.

While the story is better, considerably better in upper/upscale, where I think the number is closer to 2% to 2.5%, the reality is that that much supply coming into a market even as strong as New York is still going to lead to probably relatively anemic levels of RevPAR growth in that market.

And I think Washington, as Arne commented last week and we would echo, is that while the center city, the downtown part of Washington will continue to do better than the suburbs, the overall market is still going to be facing some challenging headwinds in 2014. So if you look broadly at the East Coast, those are two big, important markets and neither one of them will likely perform at the industry average next year.

Great, Ed; appreciate the comments. Thank you.

Smedes Rose, Evercore.

Thank you. I wanted to -- I saw in your release you have your select service asset with White Lodging opening later this quarter. Just wondering as you look forward, how do you think about selective service assets?

That one I know is a JV and it probably doesn't really move the numbers for you. But you did buy that property in Hawaii. And do you see that becoming a more significant piece of your portfolio going forward?

The short answer is yes. I think as we look at owning hotels in urban locations, urban select service is something that we think can work and can make sense. We would love to add more properties like that.

I would say that one of the things we are watching carefully in some markets -- and New York, witnessing the comments I just made, would be one where we would want to be thoughtful -- that this is the segment of the business that tends to see supply first. So our investments in this area need to take the supply risk into account.

But we would be comfortable owning more urban select service in the markets that we have identified as targets.

Then for your European joint venture, just the Stockholm asset, I was just wondering. Could your -- any pricing commentary you can give on trailing cap rates or forward cap rates, or maybe how that came to be in -- that transaction?

Yes. You know, this was an interesting acquisition for us. Sweden is not part of the eurozone from a currency perspective and so has not been dragged down by a lot of the factors that have otherwise affected Europe. So while the rest of Europe has struggled a bit over these last couple of years, the Swedish economy has continued to do reasonably well and is projected to continue to do quite well.

As we look at this acquisition, we paid about EUR220 million per room for the hotel. We think that is probably a 30%, 30-plus-% discount to replacement cost. On a cap rate basis it is just a hair north of a 7 cap rate.

Okay, thank you.

Wes Golladay, RBC Capital Markets.

Hey, good morning, everyone. I am wondering, can I get a better grasp on what is driving the ADR growth? Are you raising prices across the customer segment? Or was it more of the mix shift that you talk about?

I think it is probably more that we are raising prices, although we are clearly benefiting from mix shift, too.

Okay. How much do you think the mix shift can benefit you into 2014?

I don't know that I've got a quick percentage off the top of my head, but I see no reason why we shouldn't continue to see mix shift be a factor next year.

Okay.

Just simply because we are going to -- when you look at the occupancy I think we're going to finish this year somewhere, 75.5%, maybe a touch better in terms of occupancy. So we are obviously at a great place in terms of having -- filling up the hotels many nights during the week.

So if the group booking pace continues to do well, as we feel it is at this point in time, operators are going to be pretty confident about their ability to sell out during the normal nights during the week where we sell out. Which means that the discount business and government business is already down, but those two segments of our business which tend to be cheaper will be segments that we will be trying to effectively weed out by not reducing prices to make our hotels attractive for that customer, which will lead to mix shift.

Okay. Turning to the Memphis and Calgary opportunities you guys have this quarter, how many of those do you expect over the next few years?

You know, there always seem to be a few per year. It is hard to predict when opportunities like this are going to come up. So I don't know that I -- I am not going to tell you it is going to be three or four a year; but we certainly have a few other hotels where we see redevelopment opportunities next year that we're trying to sort through right now. And I would like to think that those sorts of things will continue to crop up in the portfolio.

Okay. Thank you.

Joe Greff, JPMorgan.

Hey, guys. Most of my questions have been asked and answered. Given that maybe in the near term at least you are more of a net seller, Ed, when you look at next year and you look at the levels of capital investment you have made the last couple of years, do you think 2014 the levels of capital investment, CapEx, project CapEx -- however you want to categorize them -- that the direction of that will be down in 2014 versus what you are budgeting for 2013?

I don't know that it will be down a lot. We will see some reduction. My guess is that what we would call maintenance CapEx will be generally consistent with the levels that we have been this year. Then the acquisition CapEx is probably down a bit simply because our acquisition pace this year has been lower so there is really not a lot of meaningful CapEx that relates to the 2013 acquisitions. We will be finishing up some work on the two Hyatts that will carry into next year.

And then it is the ROI piece of it that we are really looking at right now and trying to decide how much of that to do next year. We do hope to be able to start the ballroom out in San Diego, which we still are comfortable it will be a good investment. So those -- that is probably the area that swings the most.

Kind of going back to a question that occurred earlier in this conversation, these ROI investments do generally work and they generally drive pretty high returns. So we have made a conscious internal effort to reprioritize pursuing those types of investments.

I don't how much of that will show up in 2014 versus 2015, but given the returns that we can get, especially compared to the other opportunities we are seeing, we would like to exploit those opportunities in our portfolio. But that will affect our investment spending.

Thank you.

Nikhil Bhalla, FBR.

Yes, hi. Good morning, Ed and everyone. Just a question in terms of -- you talked about seeing acceleration in bookings in the quarter for the quarter. Any signs on like why that may be the case and what is probably driving that near-term acceleration?

I don't know that we have any particular insight into that. I think we have long felt that there is linkage between employment growth and GDP growth and group bookings. You would look at it a little bit and perhaps suggest that in general corporate America -- because it is really our corporate bookings that are driving this activity -- may be on the margin feeling a bit more optimistic and looking to take advantage of whatever is happening within their individual company to try to meet more often. But I don't know that we have a great explanation for why it has picked up, other than that general sense that perhaps the economy is improving.

Okay. Just a follow-up on the sale of some assets that you referred to earlier. If you can just probably give us some sense of what the amount is that we can think about and the possible use of the proceeds.

Hard to predict amounts because they tend to be somewhat lumpy. But I guess I would say in general the level of asset sales you have seen over the last couple of years from us -- which, Greg, is roughly $400 million or so?

$450 million or so.

Yes, I would certainly think that our goal for 2014 would be in that range, conceivably higher. And I'm sorry, what was the second part of your question?

Just the use of proceeds from --?

The use of proceeds, well, you know, Greg gave a great description of what we have done so far as we are getting so much closer to achieving our balance sheet objectives, and we certainly hope to get the rest of the way there next year, primarily on EBITDA growth. When we sell an asset today I think the one option is to invest that in incremental, in new investments in new hotels; another would be some of these ROI type investments that I described.

A third option would be to invest the proceeds from that sale into paying down debt. Most of these transactions are at varying levels of tax, generating varying levels of taxable income. So if we don't exchange the proceeds on a tax-free basis into a new investment we are probably going to need to dividend out incremental taxable income, so the dividend would go up.

And then the other two options to really use the proceeds for are what we have been doing, which is paying down debt and lastly, as the cycle progresses, one thing we always come back and look at is -- does it make sense to buy our stock as an investment as opposed to some of the other investment opportunities I described?

So all of those things will get looked at as we continue our asset sale program.

Thanks, Ed.

Ryan Meliker, MLV & Company.

Good morning, guys. Most of my questions have been answered, but I was hoping you could talk a little bit more about what you are seeing in the acquisition and disposition market. Are you at the point now where you are struggling to find the right acquisitions because values have gotten too steep and numbers don't pencil out? Is that reminiscent to 2006/2007 time frame of the last cycle?

Are things very different in Europe and maybe outside the US than what you are seeing in the US? Just some color on that would be really helpful. Thanks.

I would not describe our market share as back to 2006/2007 levels where in hindsight -- and frankly at that time -- we felt pricing was crazy. We are not at those types of levels. I would say pricing is competitive, but we are not at points where people are paying what will later look like absurd prices for assets.

I think the bigger issue is that while volumes are relatively high this year -- in fact they're higher than where they were last year -- they are just -- is it in some limited service portfolios that have not been of interest to us. It has been -- second, you are starting to see some pickup in some of the secondary markets; those are not markets we are interested in acquiring.

And generally, a lot of the other assets that have traded have not just not been ones that we thought made sense to invest in. But I would not look at the market as it stands right now and say that it is being stretched or that people are really using unrealistic assumptions to justify a purchase.

I would contrast Europe, which is really the other market that has been more active, with the US and say that there has been less activity in Europe and the activity that you are seeing there is generally driven more by maturing debt or debt issues, as opposed to the sales that are happening in the US which I think are happening more because of the strategy of the individual owner, who may be -- they are looking, if they own a fund, to cash in essentially. Or if they are not a fund investor then they are in a mode where they just want to redeploy the proceeds for other uses.

So Europe activity has been at lower levels, but seems to be driven more by the debt issue than anything else so far.

That's helpful. Thanks, Ed. With regards to (technical difficulty) has the buyer pool in the US changed at all over the past few months? I know that maybe we are just -- maybe it was a few one-off things. But we have now seen two different hedge fund (technical difficulty) [offers] for two different publicly traded companies over the past week.

Are we at the point now where we are starting to see a lot more private equity, a lot more top-of-the-cycle type buyers getting involved? Or are we not there yet?

Certainly the recent offers that we have seen would suggest that we are seeing more private activity. One group -- I think right now part of what you are seeing is that while debt issuance is certainly not back to the levels it was in, in 2005, 2006, and 2007, you are seeing some increasing activity on the debt side. And since a lot of your opportunity fund private buyers tend to use higher leverage than say the REIT universe, you are probably seeing them being more comfortable in bidding for assets because they feel more comfortable that they are going to be able to get the debt that they need to provide for that.

I think the other buyer that you are seeing is the nonlisted REITs are continuing to raise capital. So those folks, as they continue to raise capital, continue to invest. So that buyer has been active over the last 12 to 24 months, but they certainly continue to be active today, too.

That concludes today's question-and-answer session. At this time I will turn the conference back to President and CEO Mr. Ed Walter for any additional or closing remarks.

Great. Well, thank you all for joining us on the call today. We appreciated the opportunity to discuss our third-quarter results and outlook with you. We look forward to talking with you on in February to discuss our year-end results and then give you some more detailed insights into 2014. Have a great day. Thanks.

That concludes today's conference call. Thank you for your participation.