Host Hotels & Resorts Inc (HST) 2014 Q1 法說會逐字稿

Good day, and welcome to the Host Hotels & Resorts, Inc. First-Quarter 2014 Earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Gee Lingberg, Vice President of Investor Relations. Please go ahead, ma'am.

Thanks, Jessica. Good morning, everyone. Welcome to Host Hotels & Resorts First-Quarter 2014 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 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 first-quarter results and then will describe the current operating environment, as well as the Company's outlook for 2014. Greg will then provide greater detail on our first-quarter performance by market and our balance sheet. Following their remarks, we will be available to respond to your questions.

Now here's Ed.

Thanks, Gee. Good morning, everyone. Before I get started, I'd just like to say that we appreciated the opportunity to see many of you at our Investor Day three weeks ago, as we shared our insights on the industry and hopefully provided you with a better understanding of both our Company and our management team.

So in terms of the first quarter, we are pleased to report that 2014 is off to a strong start with another quarter of outstanding results for the Company. Consistent with our commentary on the year-end call in February, hotel demand continues to grow, particularly in our group business, allowing us to drive rates across all segments.

In addition, the solid group demand we experienced this quarter drove exceptional growth in food and beverage. We continue to feel good about industry fundamentals that contribute to our improved outlook for the remainder of the year, which I will discuss in more detail in a few minutes. First let's review our results for the quarter.

Adjusted EBITDA for the quarter was $308 million, which reflected an increase of 8.8% over last year. Our first quarter adjusted FFO per diluted share was $0.33, which exceeded consensus estimates, and reflects an 18% increase over last year. These strong results were driven by several factors.

First, RevPAR for our comparable hotels on a constant currency basis increased 6.8% for the quarter, as our hotels benefited from strong rate growth and an occupancy increase of 1.5 percentage points. Our group business was exceptionally strong, as our group revenues increased by 11%, as demand increased by more than 6%, and average rate improved by nearly 4.5%. All segments of our group business benefited from rate increases, and our corporate demand was up by more than 10%.

While the calendar change of Easter to April clearly boosted group activity, we saw solid demand improvement throughout the quarter. Given the strong increase in group activity, our transient room nights were essentially flat to 2013. But we experienced overall rate growth of 3.5%, driven by both rate increases and positive mix shifts, especially in our higher-priced segments. Transient revenues increased by 3.3% for the quarter.

Second, the surge in group activity translated to a 13.5% increase in our banquet and audiovisual business, which is our largest quarterly increase during the entire recovery. Banquet revenue per group room night jumped by more than 5%, suggesting that at least for this quarter, groups were willing to spend more.

In total, we generated a 9.5% increase in comparable food and beverage revenues, also our best performance in more than a decade. Catering activity was exceptionally strong in New York, driven primarily by the Super Bowl, as well as at a number of our West Coast hotels.

The combination of strong rate and RevPAR growth, plus exceptional food and beverage activity and flow-through, led to comparable adjusted operating profit margin expansion of 120 basis points, and comparable hotel adjusted operating profit growth of 12.5%, which exceeded our expectations.

We also experienced very strong performance in our non-comparable hotels, especially our two large Florida assets in Naples and Orlando, where RevPAR growth exceeded 10% and EBITDA growth exceeded 35%, as we benefited from both strong demand and capital investments made over the last year.

After a busy period completing a series of transactions at the end of the year, some of which extended into Q1, our activity has been relatively light since our last call. Our investment activity in the first quarter included the purchase of the previously-announced Powell Hotel in San Francisco for $75 million. We invested $6 million in ROI CapEx as we completed the expansion of the Willow Stream Spa at the Fairmont Kea Lani in Maui.

We also invested $5 million in a series of energy conservation projects, and the repositioning of the Cast & Plow Restaurant at the Ritz-Carlton, Marina del Rey. Finally, we invested more than $13 million in the Novotel Ibis in Barra da Tijuca, Brazil, and in our Maui timeshare community, as both of these projects continue to be on schedule and on budget. Today these projects represent a total investment to date of approximately $105 million.

Looking forward, while we have a few assets currently on the market for sale and continue to pursue acquisitions, given the difficulty in predicting the timing of completing these transactions, our guidance does not assume the benefit of any transactions other than the ones we have already closed.

Now let me spend a few minutes on our outlook for the remainder of 2014, as there are a number of factors that keep us optimistic about future results. First, demand growth throughout the US should continue to be strong, as key economic factors as GDP growth and business investment trend positively for the full-year. And international travel continues to demonstrate robust growth.

With the exception of the New York market, we continue to see supply to be constrained, especially in the upper price points. Overall, we expect average supply growth of less than 1% in our primary markets, excluding New York in 2014.

Overall, occupancy in the portfolio is ahead of our 2007 peak, suggesting that our hotels should be able to drive rate growth over the next several quarters. We expect group demand to remain strong throughout the remainder of the year. While second-quarter group activity will be lower, primarily because of the year-over-year Easter holiday shift, our booking pace for 2014 continues to be quite strong, as revenues are up 5.5% compared to last year.

We were also pleased to see that room night bookings in the first quarter for the remainder of the year exceeded last year's pace by more than 4%, with bookings for the month after April up nearly 10%. With roughly 85% of our full-year expected group bookings on the books, we feel confident about our group business for this year. The combination of a great first quarter and solid group trends suggests that banquet activity will continue to be strong, other than in the second quarter, leading to improved F&B growth and profitability, which will help increase margins.

With all this in mind, we continue to expect that our comparable hotel RevPAR growth for the year will be between 5% and 6%. But we expect comparable Food and Beverage revenue to increase 4% to 5%, which is a full point above our prior estimate of a 3% to 4% increase.

On the margin side, given expected rate growth and positive group demand and our first quarter results, we believe we can drive incremental profitability and strong flow-through. As a result, we are increasing our adjusted margin guidance to 70 to 120 basis points for the full year. Based on those improved operating assumptions, we are increasing our adjusted EBITDA guidance by $10 million, to $1.360 billion to $1.4 billion, and our adjusted FFO per share for the year to $1.41 to $1.46.

In summary, we are very pleased with our results for the quarter and remain confident about our outlook for the remainder of 2014. Based on our expectations for industry fundamentals, including a supply growth forecast that remains below historical averages, we continue to believe that the current growth cycle in lodging will be sustained. Our portfolio is well-positioned to benefit from continued improvement in the economy, particularly given the significant investment we have made in our assets in the form of maintenance capital expenditures and ROI and repositioning investments.

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. We are very excited about another impressive quarter. Our overall strong performance was predominantly driven by the outperformance of our properties on the West Coast, which increased the RevPAR by nearly 14%. This was achieved with a 4.5 percentage point increase in occupancy and a 7.2% growth in average rate.

Our San Francisco, Denver, Seattle, and San Diego hotels all achieved high double-digit RevPAR growth. The outstanding results were due to robust market demand and the benefit of renovation activity at the San Francisco Marriott Marquis in the prior year. Our five hotels in the San Francisco market grew RevPAR by over 25%, outperforming the star upper upscale market RevPAR by 10 percentage points.

Group and transient room nights increased 16% and 8.5%, respectively, while contract room nights decreased over 30%. This mix shift allowed the properties to drive ADR, as ADR increased in all segments by almost 16% in the quarter. We expect our hotels in the San Francisco market to continue to outperform the portfolio for the rest of the year.

The hotels in Denver grew RevPAR in the quarter by 19.3%, benefiting from excellent citywide, which allowed the properties to shift transient to higher-rated segments. The Seattle hotels increased RevPAR by 18.5%, driven equally by occupancy and ADR gains. The increase in RevPAR for these hotels exceeded the star upper upscale market RevPAR by 7 percentage points.

The Seattle hotels also had an impressive Food and Beverage revenue increase of 31%. The restaurant renovation at the Westin Seattle and the meeting space renovation at the W Seattle Hotel contributed to the outstanding growth in Food and Beverage revenues.

The San Diego hotels' RevPAR increase of approximately 16% exceeded the star upper upscale market RevPAR by almost 6 percentage points. The strong results were due to the completion of the rooms renovation at the Manchester Grand Hyatt and the San Diego Marriott Mission Valley Hotels. In addition, the solid group base at these hotels allowed the managers to drive transient ADR.

For the full year, we expect RevPAR at our San Diego hotels to outperform the portfolio, but not to the extent of the first quarter outperformance as RevPAR will be negatively impacted by the meeting space renovation scheduled at the Hyatt for the fourth quarter this year. For the full year, we expect the West Coast properties to continue to outperform, particularly in San Francisco, Seattle, Phoenix, and Hawaii. RevPAR growth in our Central and South locations, while only 2.5%, was better than our expectations for the quarter.

The anticipated weak first-quarter convention calendar, combined with the unexpected winter weather, impacted Chicago hotels, where RevPAR declined 2.8%. Florida hotels, with a combined RevPAR increase of 4.6%, had fewer vacation travelers due to the Easter holiday shift. We expect these hotels to show improved results in April.

Our comparable results for Florida exclude our two large assets, the Orlando World Center Marriott and the Ritz-Carlton, Naples. RevPAR, on a combined basis at these two non-comparable hotels, increased over 11% in the first quarter. Including these two assets, RevPAR increased almost 7.5% in the quarter.

In the Central and South locations, we expect RevPAR growth to exceed that of the first-quarter result and perform in line with the portfolio, with the exception of the JW Marriott, Houston and the Houston Airport Marriott hotels, which will be negatively impacted by the extensive room renovations and repositioning efforts scheduled to begin in the second half of 2014.

Our properties on the East Coast underperformed our portfolio in the first quarter, with a RevPAR increase of 2.6%. Hotels in Boston had a RevPAR decline of 2.7%, while Washington, DC was relatively flat to last year. New York hotels RevPAR increased 4.2%, and exceeded the star upper upscale market result of 0.1%.

The 2.7% RevPAR decline at our Boston hotels was attributable to the rooms renovation at two of our five hotels. The Sheraton Boston's room renovation began in December and was completed in April. And the Westin, Laughlin completed its room renovation in March. Excluding these two hotels, the other hotels' RevPAR increased 5.6%.

Our DC hotels' RevPAR was relatively flat, and was negatively impacted by the 2013 inauguration. In addition, the Hyatt, Reston Hotel was under renovation in the first quarter of this year. We expect that our DC hotels will remain challenged in 2014 due to the opening of the Marriott Marquis in May and the JW Marriott rooms renovation that begins in Q4 2014.

The RevPAR growth of 4.2% for our hotels in New York underperformed the portfolio. But as I mentioned, materially outperformed the star upper upscale market by 4 percentage points, due to the strategy of pursuing group business for the Super Bowl. Both our New York Marriott Marquis and Sheraton, New York hotels served as the headquarter hotels for the NFL and the media during the Super Bowl.

This strategy also significantly contributed to a Food and Beverage revenue increase of almost 18%. This exceptional Food and Beverage result was also due in part to the meeting space renovation at the Sheraton, New York as well as the new ballroom and great room at the Newark Airport Hotel.

Now let me move to our international portfolio, which had an outstanding quarter. In constant currency, first quarter RevPAR for the consolidated international portfolio grew 10.3%. All of our Latin American hotels achieved double-digit RevPAR growth in the first quarter and grew RevPAR by a combined 21%.

Our JW Marriott, Rio benefited from demand that shifted into the first quarter in anticipation of the World Cup to take place this summer. JW Marriott, Mexico City was a large contributor to the solid RevPAR growth, as the hotel is benefiting from strong corporate demand and the rooms renovation completed last year. We expect our Latin America hotels to continue to outperform the portfolio with the World Cup in Brazil this summer, strong citywides in Chile, and the strong corporate demand in Mexico City.

The Asia-Pacific portfolio grew RevPAR 8.2%, due to solid convention groups and increased transient business. Our Hilton, Melbourne had a robust double-digit increase in RevPAR, as the hotel benefited from the group demand generated from the closing of the Sydney Convention Center. This increase in group demand allowed the hotel to drive transient rates, which were up 9% in the first quarter. It is estimated that the Sydney Convention Center will remain closed for its major redevelopment efforts for the next several years.

Overall, first quarter RevPAR performance of our consolidated international hotels was very impressive.

The comparable hotel RevPAR for the European joint venture increased 2.8% for the quarter in constant euros. The notable statistic for our European joint venture results in the first quarter is the double-digit EBITDA growth on RevPAR growth of 2.8%. The outstanding EBITDA growth rate is due to the strong increase in Food and Beverage revenues, and the hotel's ability to control costs.

Food and Beverage revenues increased 9.5% in the first quarter, mainly as a result of an 18% increase in banquet and AV revenues. The strong banquet performance was driven by increased corporate catering demand at 11 of the 18 hotels. In addition, the Sheraton, Stockholm, which is not in the comparable results, performed extremely well, with double-digit growth in RevPAR and Food and Beverage revenues.

Despite the higher-than-expected utility costs associated with the harsh winter, our first-quarter comparable hotel adjusted operating profit margin increased 120 basis points, due to a rate-driven increase in RevPAR and excellent Food and Beverage sales and flow-through. Our first quarter Food and Beverage flow-through was an impressive 58.5%.

Looking to the rest of 2014, while we believe there is still room for occupancy growth, especially in our group business, we expect that RevPAR will continue to be driven, primarily by rate growth, which should lead to solid rooms flow-through. We also expect Food and Beverage revenue to improve a full point above our previous guidance, primarily in banquet and catering due to improving group demand.

Based on the strong results for the first quarter, and our improved outlook for Food and Beverage revenues and profits, we expect comparable hotel adjusted operating profit margins to increase 70 basis points at the low end of the RevPAR range, and 120 basis points at the high end of the range for 2014, resulting in a 10-basis-point increase in our margin guidance. At this point, we are forecasting that approximately 28% of our full-year EBITDA will be earned in the second quarter.

This suggests the resulting EBITDA for the second quarter will be lower than last year, due primarily to the following three reasons. First, as you will recall, in the second quarter of last year, we sold land adjacent to the Newport Beach Marriott Resort & Spa and reported a $21 million gain. Second, we lost EBITDA due to the timing of numerous asset sales completed after the second quarter of last year.

And third, the $5 million-per-quarter negative impact from the Hyatt, Maui timeshare sale that we brought to your attention on the last call will reduce our second- and third-quarter EBITDA. But for the full year, we estimate that the timeshare project will increase EBITDA by approximately $12 million.

During the first quarter, we redeemed or repaid $675 million of debt with available cash. We ended the quarter with approximately $392 million of cash and $782 million of available capacity under the credit facility and a debt balance of $4.1 billion.

In summary, we are excited with our first-quarter result, as this was a great way to start the year. As you know, we have the best balance sheets in the history of the Company, with the lowest leverage, the highest fixed-charge coverage ratio, and the lowest annual cash interest expense in our history, resulting in meaningful free cash flow.

As I stated at our Investor Day last month, we are in an incredible position, with a powerful and flexible balance sheet, with all options open to us as we progress through this cycle. We will continue to focus on creating value for our shareholders.

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

(Operator Instructions). Andrew Didora.

Hi, good morning, everyone. Ed, the recovery of group has obviously been a common theme out there over the past few months, and just wanted to get your thoughts on some of the deeper trends here. When you look at your future bookings, are you seeing group strength spread outside of the top gateway markets into more resort locations, or areas like Arizona and Hawaii? And if so, do you see any difference in outside-the-room spend between these locations, and maybe some of the top gateway markets?

I could tell you that we certainly are seeing growth across all of our markets. This particular quarter, it was centered more in New York and the west coast, but we also saw some pretty solid group growth down in Florida, in both Orlando and in Naples. And that's a big part of what drove the activity at those hotels that I commented on. So, I feel comfortable that we're seeing it across different price points.

As it relates to the spend, we've been encouraged that the catering contribution -- so that's the amount of F&B per group room night -- has been up the last two quarters. I think that still is something that tends to jump around a little bit, but I've been encouraged by the fact that that grew as aggressively as it did in the last quarter. And it may be at least an early signal that companies -- and, I think, the bigger swing here is in the corporate group activity -- that companies are getting a bit more comfortable and spending more associated with their group events.

Great, thank you. And then my second question -- would certainly like to get your thoughts here on New York. I know Greg gave some of the statistics in his prepared remarks, you guys obviously outperformed the market nicely in 1Q. What are you guys seeing in terms of both supply growth this year in the market, and how are your group and transient bookings looking for the rest of the year in New York? Thanks.

Certainly, there is no secret that supply in New York is pretty heavy this year. I think the numbers that we're looking at across all segments are in the mid-7% range; and unfortunately, it looks like 2015 is also going to be fairly strong on the group side. I think our current estimate now is somewhere north of 5%.

I would say that group activity in New York continues to be solid. I wouldn't say it stands out one way or the other compared to the other markets that we're involved with. Obviously, in the first quarter, because of the Super Bowl did quite well. But I think looking longer term -- I think in our portfolio, it seems to be consistent with the rest of the portfolio.

The problem with that much supply is that, despite the fact that New York is one of the most exciting, strong, demand-generating markets in the country, and probably in the world, that's a lot of supply to overcome. And I think we're all going to be struggling a little bit to generate rate growth in that environment.

Understood, thank you very much.

Joe Greff with JPMorgan.

Good morning, guys. Ed, you'd mentioned earlier there really is not much to report from a transaction side of things. Maybe you can just talk about why do you think the transaction market has been relatively quiet of late? Is it a seller or a buyer issue -- waiting on playing the cycle a little bit longer before putting more stuff out for sale? And then I have a follow-up.

It's a very good question. I think pricing is slowly but surely working its way back up; not quite to the levels that we saw during the last cycle, but certainly has been improving. So, you would think that that would start to draw more sellers out.

I think the fundamental problem, perhaps, is the fact that there is a universal perception that this cycle has a fair amount of time left to run. That you've got low supply for the next -- at least the next two years, and I would still be guessing that 2016�s supply will be below demand. Again, I think that's fairly well known.

So, I think the desire on the part of people to sell is probably driven more by strategic reasons than a sense that now is the time to act in order to get out before the cycle starts to go the other direction. So, you haven't seen -- you're just not seeing that impetus behind higher activity.

Overall, though, I think we've been seeing -- each year, we've been seeing the amount of transaction activity slowly creep up. My general sense from conversations with the brokerage community in the beginning of the year is that they expect activity in 2014 to exceed the activity that we saw in 2013.

And so, I think we'll probably have a little bit better clue on that as we work our way through the summer, because there seems to be -- the way the cycle has worked the last couple of years, that activity begins to heat up as we get into some of the NYU conferences and some of the others. That tends to be a focal point for folks to put assets on the market with the desire of closing those transactions before the end of the year.

Great. And then, Greg, with respect to your 2014 guidance -- and you gave some great commentary on the group trends -- with regard to your food and beverage revenue guidance or increase, does that also incorporate an increase in F&B revenues in the 2Q through 4Q, or are you just adding back in the increase or the better-than-expected result in the 1Q?

I think, primarily, it's because of our great results in the first quarter. We obviously incorporated those great results in our full-year guidance. And so, I'd say that was the main part of increasing our F&B guidance for the full year. But I think we also feel -- because of the success that we had in the first quarter, I think we also feel just a little bit better for the rest of the year as well.

Great, thank you, guys.

Ryan Meliker with MLV and Company.

Hey, good morning, guys. Just to talk a little bit more about the acquisition environment out there -- obviously, we're seeing a lot of private equity capital being raised; leverage seems to be plentiful for private equity.

So, I'm just wondering, as you guys are eyeing acquisitions right now, are you looking at things that maybe there aren't a lot of institutional buyers interested in right now? Whether that be one-off select-service assets, similar to what you did in Nashville with White Lodging, or whether that be resorts in the Caribbean that maybe don't appeal to as many others, or more international, et cetera? Just help us understand where you guys are focusing your efforts on the acquisition strategy.

Well, I'd say we are certainly looking internationally, although it's competitive in that environment, too. I think, as we think about the United States, we are looking -- we'd love to do some more transactions that might set up similar to the Powell Hotel acquisition in San Francisco.

We'd be open to more limited service. I don't know how much more limited-service development we would end up doing; but I think in a few select markets, we would be open to that.

The one thing I would say is we have no particular plans to be buying in the Caribbean. There may be opportunities there, but our past experience in that market would suggest that that's a market better avoided.

Okay, that's helpful. And then, with regards to things like the Powell or one-off development opportunities that come available, at what point in the cycle do you decide that those types of investments don't make a lot of sense, just given the remaining duration of the up cycle?

That decision ends up being a market-by-market analysis. I think that certainly, in the time frames we're in today with some of the commentary that I gave in the answer to a prior question, I would certainly feel comfortable about pursuing a repositioning in most markets in the US. And there are, I think, markets that show really good demand growth.

You could see an opportunity to do new development; although, again, I don't want to suggest at all that that's a priority for us. So, I think for a select-service development, there is an opportunity to move forward with something in that area, and feel comfortable that you're delivering still at a point in the cycle when it's trending positive.

All right, that's all for me. Nice quarter, guys.

Thanks.

(Operator Instructions). Michael Bilerman from Citi.

Good morning, this is Kevin Varin with Michael. You mentioned last call that 1Q EBITDA would account for around 21% of full-year EBITDA. So, just based on that commentary, it would imply you beat internal expectations by roughly $20 million. So, just considering that EBITDA guidance was only raised $10 million at the midpoint, is it fair to say that Host is tracking at the high end of the ranges where we stand today, or is there something else that we should be looking for within the remainder of the year?

(technical difficulty) and multiply it by -- I think where the consensus was for the year -- I think that would suggest that we really beat by about $17 million to $18 million; so, close to your $20 million, but a little bit lower.

The other thing that I would add is when you look on the income statement, you'll notice that we had a $3 million gain -- insurance gain -- which, we had forecasted that gain, but not in the first quarter. So, that takes your $17 million to $18 million down to $14 million or $15 million.

And then, as you correctly pointed out, we increased our full-year guidance by $10 million. So, there's a little bit maybe left on the table. And that's one of the reasons why I think when we look at our RevPAR guidance for the year today at 5% to 6%, we do feel a little bit more comfortable at the mid to high end of that range than we did a quarter ago.

Okay, thanks. And then, just one last question. Can you guys quantify the benefit of the holiday calendar shift in 1Q, and maybe how much of an impact it will have on -- as we think about 2Q?

I don't know that we've really run math specifically on that. I think we've been suggesting that we would expect the second quarter to be weaker than the first quarter, primarily because of the holiday shift. I don't know that I have a specific percentage to give you, though, to quantify the impact of it.

Okay, thank you.

Thanks.

Steven Kent with Goldman Sachs.

Maybe if you could just talk about the balance of dividend versus opportunity to buy assets; and could we look for -- what is the gating issues that keep you from maybe raising that dividend over the -- for the next 12 to 24 months?

And then, separately, you've given some color on RevPAR strength, but maybe talk a little bit about brands and location -- more on brands. Are there certain brands where you're seeing greater strength? I know you don't normally talk about that, but maybe give us some sense on that.

Steve, let me answer these in reverse order. I think we're going to shy away from any specific commentary on brands within our portfolio. I think that they all report on their own, so you get a good sense as to how they're performing on a relative basis. But we've not provided disclosure on that in the past, so I don't think this would be the time to change.

On your question on the dividend, I'd say, broadly speaking, we would be expecting -- as EBITDA continues to grow, we would be expecting, in general, for our taxable income to continue to increase. And so, that, in and of itself, should require that our dividend continue to grow.

So, then, the second part of the question becomes what to do with the free cash flow that we're generating, which, as we've talked about in the past, is north of $300 million a year. And how do we think about applying those proceeds going forward? And I think the question, as you identified, comes down a bit to what does the acquisition market look like, and what are the opportunities?

And whether it's acquiring properties or whether it's investing in the properties that we already have -- that -- to the extent that we can find investments of either type that meet our return the parameters, then I'd say that, at this stage of the cycle, that would still be our first choice in a lot of ways.

But to the extent that we do not identify those opportunities, or to the extent that the sales (multiple speakers) that we generate from asset sales exceed the amount of the investment opportunities, then we're going to look at ways to return that capital to our shareholders. I think, certainly one way to do that is an increase in the dividends; and at some point, another alternative would be to repurchase stock.

But I think we'd be open to looking at each of those as we work our way through the year and into 2015. But I'd still say that, given -- we'd still love to continue to grow through investment if we can, but if not, we'll look to return capital.

Okay, thank you.

Robin Farley with UBS.

Great, thanks. Just looking at the outperformance in Q1 RevPAR, I'm just curious why full-year RevPAR guidance wouldn't move up? Are there factors that you think won't recur? Because it sounds like the group trends -- and I know you were cautious about Q2, but just overall for the year, group trends sound positive, so why not higher RevPAR growth for the year?

I think Greg answered that question to some degree, and I think you're also right that we probably feel more comfortable raising that after we get through the halfway point in the year. But we certainly, given the strength of our Q1 performance, which was better than what we had anticipated in February, we certainly feel more comfortable in the higher end of the range of RevPAR that we've provided, and we'll re-look at that when we get into July for our next call.

Okay. And then, just looking at the outperformance, I had expected that maybe it was other markets that would have made up for Washington, DC, given that that market was weak. But you outperformed the market so much in DC, and what was behind that?

I think that what ended up happening in Washington is that there was just better overall transient activity and some group strength, especially in March, that helped Washington do better than we had expected at the beginning of the year.

The other thing, too, is inauguration, while a bit of a hill to climb, was not as beneficial in 2013 as we would have hoped. So, it still was a challenge for the market for this year, but perhaps not as big as in a historical context.

Okay, great, thank you.

Thomas Allen with Morgan Stanley.

Hey, good morning. Can you help us think about where your banquet and F&B revenue per room is versus prior peak? And just how we should think about the trajectory of those segments' growth longer term? Thanks.

To be honest, I don't have -- some of this is our reporting and our statistical analysis has really improved significantly since the prior peak. So, that's a good -- that's something we should look into a little bit more directly. I don't really have an answer for you on where our banquet revenue would match compared to prior peak.

On food and beverage overall, we're still -- we finished the year running about 10% behind where we had been at the prior peak. So, I would be expecting, for this particular quarter, I'm sure we were beginning to approach where we had been before. For the full year, given the guidance that we've given, we probably -- we are still looking to be 5% to 6% behind our prior peak level of food and beverage activity.

Yes. I think another way to look at food and beverage, especially if you look at it through the end of last year, is typically food and beverage growth is about -- the growth rate is about 50 basis points lower than our RevPAR growth. And what we've seen so far during this recovery is that food and beverage growth has been about 150 basis points lower than our RevPAR growth.

So, obviously, food and beverage really underperformed with group so far during this recovery, except for obviously in the fourth quarter of last year and the first quarter of this year when group really performed. And because of that, our food and beverage growth was quite strong.

Helpful, thank you.

Anthony Powell from Barclays.

Hi, good morning, everyone. The results in Seattle and Denver were very impressive. Can you talk about the availability of assets in those markets? Are hotels for sale there, and are there any new development opportunities in those markets for you?

We have looked at a couple of transactions in Seattle. I don't know that we have looked at anything in particular in Denver in the last 12 months.

There are a few new developments being contemplated in Seattle; probably the largest of those is a convention center hotel that a local developer is attempting to finance and get off the ground. But overall level of activity in both markets is probably about market average right now. I wouldn't say that there's been a big surge in activity there.

Great. And then, on Chicago, it's underperformed I think the market over -- US overall. What do you think has driven that result? And how do you view your booking trends there, both this year and next? Thank you.

As we mentioned during the quarter, obviously, winters in Chicago are never great. But this year, I think with the polar vortex and 50 degrees below zero, the weather was quite extreme. And so, I think that explained some of the weakness in Chicago for the first quarter. I think we think that that will -- Chicago will perform better as we move throughout the year.

I think, generally though in Chicago for this year, we're not seeing as -- this is not as strong of a convention year as we've seen; this market tends to move a bit in cycles. This is not one of these (technical difficulty) Chicago. And so, we probably expect lower levels of performance there for the full year.

Thank you.

Chris Woronka.

Hey, good morning, guys. You guys noted a pretty good benefit from renovations completed, I guess, the last year at several of your larger West Coast hotels. If we look out a bit, how does your renovation pipeline look, if you will? And is there a drop-off in that benefit at some point, or does it remain pretty constant?

My guess is that certainly we get a benefit as we enhance the hotels in terms of both -- one part is you get a little bit of a year-over-year benefit from not having a disruption. But more importantly, you get a benefit from having enhanced the asset.

I think we're looking at relatively consistent levels of maintenance level spending over the next couple of years. We shouldn't see a surge in disruption, other than at particular hotels. And as, we hope, we continue to spend intelligently on those hotels, we should continue to see lift. But I don't know that I would expect anything remarkable one way or the other for the next couple of years.

Okay, fair enough. And then, Ed, maybe you can contrast a little bit for us the international and domestic markets in terms of the transaction market, and how the buyers and sellers differ, and what they're looking for? And also, maybe, how much time you guys spend internally looking at international versus domestic deals?

The latter really -- we have distinct teams. So, we have a European team that's focused on Europe. We have a Latin America team that's focused on Latin America. And then, of course, we have our office in Singapore that focuses on Asia investments. And then in the States, everything right now is done out of Bethesda.

So, I'd say from a standpoint of time, each of the offices is pretty -- is 100% focused on activity within their region. And then, as that bubbles up to Greg and I and Struan and the other folks that are on our investment committee, that tends to vary based on the month, depending upon what's hot in a particular jurisdiction. Overall, I would say we still find that we spend the majority of our time talking about investments in the US, but the international piece of it is a meaningful component of what we're looking at.

In terms of the buyers internationally, I'd say that our world is becoming more and more of a global marketplace from investment. And so, capital from Asia is interested in the US; capital from the Middle East is interested in the US and in Europe. Certainly, the Asian markets are very active with Asian capital directly.

So, we run into different types of investors in different markets. But certainly some of the larger players, especially some of the sovereign wealth funds, are active across -- really in every jurisdiction. And we run up against them on transactions on a consistent basis.

Okay, very good, thanks.

David Loeb with Baird Investment Banking.

Good morning, this is really for Greg. On the gain on sale, which must be Philadelphia, can you talk about why that was such a large gain? Why the tax effect on that was relatively small? Do you have some plans related to that 1031 whatever, or will you need to have some dividend related to that?

Yes, David, you're right on Philadelphia. But when we think about our dividend for this year, the gain associated with that asset is already baked into our philosophies for the dividend this year. So, when we talk about increasing dividends, and Ed talked about it earlier, it's really going to come from three things. Obviously, as our EBITDA increases and taxable income increases, our dividends certainly will increase.

I also think that with subsequent asset sales, we will expect to have gains. And those gains, if we don't like-kind exchange, will obviously be added to our dividend, and could increase the growth of our dividend.

And as Ed also mentioned, if we're not -- if we can't find acquisitions, then our free cash flow -- if you look at our free cash flow today before we make a dividend payment or before we make investments, it's actually over three-quarters of a billion. So, again, if we can't find investments, that will go towards an increased dividend as well. So, all those things matter, but at Philly, there's really not much to talk about from the gain on Philly.

Okay. So, no plans to defer that one though -- no 1031 arrangements?

Correct.

Great, thank you.

Nikhil Bhalla from FBR.

Hi, good morning, Ed and Greg. Just a question on your group pace for the rest of the year. Did I catch that right, that your pace at around 5.5% is somewhat consistent from what it was about two months ago?

Yes. I would say that we're generally consistent with where we've been. But I think we were pretty encouraged by what we saw on the group side, both activity in the quarter for the quarter, and looking forward. Our in-the-quarter, for-the-quarter activity was up about 19%, compared to what we had experienced in 2013. So, that was a good jump.

As we look at the -- as I commented, as we looked at the rest of the year, we saw an increase in activity of north of 4%, in terms of room nights for the remainder of the year. But if you leave out April, where activity was down because of the Easter holiday, the activity after April was up nearly 10%. When we watched what was happening in-the-year, for-the-year type activity, we felt pretty good about that, and that made us increasingly comfortable with how group will play out for the full year.

Got it. So, it's fair to characterize I guess that, just given that second quarter is so much bigger, the impact of Easter seems to have a little more disproportionate -- a disproportionately larger impact, other than had it fallen the opposite way in the first quarter?

Perhaps. There are pluses and minuses of the extent -- of the holiday being in April. Like, I'm not certain I would completely agree that the impact is disproportionate in the second quarter, because I think that the second quarter overall is a bigger quarter for us. And so, the losing of the two weeks, and losing some group activity there, is probably in some ways potentially less impactful in Q2 than it would be in Q1, which tends to run at a lower overall level of volume.

The benefit of if being extended in a full-year context is that it does tend to -- the later Easter tends to extend the spring break season. And so, again, it won't show up in a year-over-year number for April or for Q2, but in the long run, it stretches out the spring break season, which tends to be a positive in Florida. So, I think, all in all, we'd rather see Easter occur in April, if we had a chance to control the calendar.

Got it, thank you very much.

Okay.

Harry Curtis with Nomura.

Good morning. Just a quick follow-up. What percentage of your portfolio do you think needs more CapEx or a return-on-investment CapEx spend? What inning are you in, do you think?

Harry, I don't know that we -- when I think of that question, I think of that in the context of assets that might have some deferred CapEx, because, of course, we're always in a situation where we are reinvesting in our hotels. I don't know that I have a real accurate, specific number to give you, but I would say that I would view it from a deferred CapEx perspective as very small.

The bottom line is we've been consistently investing in our portfolio. And as we've talked about in the past, we took advantage of low pricing back in 2010 and 2011 to accelerate our capital programs in an effort to try to both improve the quality of our hotels, but more importantly, do it for less money. And I think we're still seeing the benefits of that, in terms of our performance.

So, I'm sure if I sat down and looked at a list of our hotels, that there's a half a dozen where you could say we've underinvested. In general, if that situation exists today, it's because we did see an economic benefit from making the investment. And so, typically, those are assets that we might be contemplating on selling, where we don't think it's worth our -- where we think the buyer would probably prefer to control that CapEx decision.

On the ROI front, those are things that we are constantly looking at. Of course, we spent some time at our investor day trying to highlight the fact that we felt that there were a lot of opportunities within the portfolio. So, as you look at what we're -- this year, we've talked in terms of $70 million to $80 million. I would view that as a target, in my own mind, about what we should be trying to do on a consistent basis going forward.

Okay, fair enough. And then the second piece is with that in mind, over the last 12 months, the lodging sector, or in the lodging sector, the two stocks that have returned the most capital to shareholders have been Hyatt and Marriott. And those are the two that have outperformed, while the two that have been more reluctant to increase shareholder returns, Starwood and Host, are up about half as much. And so, what I'm wondering is do you recognize that more capital return would lead to higher investor interest? And given that you have meaningful free cash flow, what gets you to move on this?

Hey, Ed, before you answer, I just want to correct one thing. From our last quarter call through today, Host has been the best performing lodging stock by far. Go ahead, Ed.

I was looking at that over the last 12 months.

Okay, thank you.

Harry, I don't know that I have a lot to add beyond what I said in -- I think I was responding to Steve's question before. I don't know that it's so much of a performance question that would drive us to do it. I think we've been pretty clear that we thought it was important to achieve certain balance-sheet objectives before we start to contemplate any -- paying a dividend that would be larger than taxable income.

As we've been indicating over the course of the different -- whether it's calls or investor presentations during the first four months of this year, we have made great progress in strengthening our balance sheet, and are feeling that we're going to be accomplishing our objectives in 2014 on that front. So, that does provide us with the opportunity to think about deploying the free cash flow that we generate, in different ways.

As I said before, I still hope, because I think the cycle has got room to run, that we can find ways to invest that profitably in assets that will grow, that will generate a return in excess of our cost to capital, and that will drive improved shareholder return. To the extent that those opportunities don't present themselves, then we'll look at the alternatives.

And basically, from reading between the lines, that given that, that you want to find assets to invest in, we really shouldn't be expecting any meaningful lift in the dividend. Is that fair?

I think the answer is unfortunately, it depends. We have -- I think one of the things that sets us apart in our industry has been our discipline in investing capital. And we tried to highlight that at our investor day, in terms of discussing our performance compared to our competitors. So, it will come down to that decision -- that opportunity. I think it's early in the year to try to reach a conclusion on that, one way or the other.

Yes, I'd also add that, even if you look at it over the last couple of years, it depends on your definition of significant dividend increase. But even just -- certainly, our dividend is going to increase with taxable income, which has been about a $0.16 increase each year.

And then, in addition, I would say, as we sell assets, we'll have further gains, and that could certainly increase our dividend as well. So, I think some of it depends on how much we invest in assets, but I think even if we find assets to invest in, certainly our dividend is going higher.

Okay, thank you.

Patrick Scholes from SunTrust.

Hi, good morning. I'm wondering if you can break down, by month, how your group business fared as far as RevPAR for the first quarter? And then, how did April end up for you? Thank you.

We don't know April yet. The month may have just ended yesterday, but we don't have the reporting for the first few days -- the last few days of the month, nor do we have segmentation. But I'm sure it will be weaker than last year, just because of the calendar shift.

In general, if you looked at the overall level of increase in group activity that we had, which was really a north-of-6% group increase in group room nights, I would roughly say that January would probably been -- was the weakest of that time period, and really just reflected a small increase. February was slightly above 6%, and then as you get into March, I think we were north -- we had double-digit [group] room night growth in March.

Okay, thank you.

Wes Golladay from RBC Capital Markets.

Good morning, everyone. Looking at the transient rate growth in the quarter, just over 3%, and with group being so strong, did you leave money on the table there, or was there weather-related low-rated business you were taking?

I think that's a great question, and we spent some time trying to study that. I think you're right at one level, is that we did have some weather disruption. And we had the weather disruption in some of our higher-priced markets. So, that affected the statistic a bit.

I think the other factors that affected transient rate growth is, if we actually looked at the transient rate growth that we were seeing at individual hotels, it was stronger than the 3.5% that we just discussed in our comments here. But part of what we saw happen in the quarter is that we had stronger group business in some of our higher-priced markets, and we had an increase in our transient level business in some of our lower-priced markets.

And so, when you actually work your way through the math, it has the effect of understating our transient rate growth for the overall portfolio. But as I talked with our revenue management team about what was actually happening in market, they were seeing higher levels of growth than what we actually disclosed here.

Okay. And now turning to the balance sheet, you have a few 6% notes, [via the Vs and the Zs], about $800 million. Any of that pre-payable?

Yes, we can call both of those notes in 2015. So, that certainly -- if interest rates remain low, that's certainly something we will look at.

Okay, thanks a lot.

Thank you.

At this time, Mr. Ed Walter, I'd like to turn the conference back to you for any additional or closing remarks.

Great. Well, thank you all for joining us on the call today. We appreciate the opportunity to discuss our first-quarter results and outlook with you. We look forward to providing you with more insight into how 2014 is playing out on our second-quarter call this summer. Have a great rest of your day.

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