Host Hotels & Resorts Inc (HST) 2015 Q4 法說會逐字稿

Good day and welcome to the Host Hotels & Resorts, Inc. fourth-quarter and full-year 2015 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. Please go ahead, ma'am.

Thanks, Anna. Good morning everyone. Welcome to the Host Hotels & Resorts fourth-quarter 2015 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're 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 fourth-quarter and full-year results and then will discuss our disposition and redevelopment activity as well as our Company's outlook for 2016. Greg will then provide greater detail on our fourth-quarter performance by market.

Following their remarks we will be available to respond to your questions. To ensure we speak to as many of you as possible please limit yourself to one question and one follow-up.

And now I'd like to turn the call over to Ed.

Thanks, Gee. Good morning everyone.

Looking back on our performance in 2015 we had an active year and undertook a number of initiatives to capitalize on value enhancing opportunities to better position our Company for continued growth and success. We sold more than $1 billion worth of hotels including five of our nine hotels in Asia as we made good progress on our plan to exit the Asia-Pacific market.

We returned $1.3 billion to shareholders in the form of dividends and share repurchases. We invested more than $1 billion in new assets and capital improvements including the acquisition of the iconic Phoenician resort and the completion of the major redevelopment of four hotels. And finally we refinanced more than $1.4 billion of debt, reducing our average interest rate by 110 basis points to 3.7%, extending our maturity schedule and further solidifying our industry-leading balance sheet.

Looking ahead to 2016 we will continue to support a disciplined approach to actively managing our portfolio and efficiently allocating capital. We remain focused on continually improving operational and financial performance to better drive results for our shareholders.

Now let's review out results for the quarter and the year. Comparable hotel RevPAR for the quarter increased 3.6% with rate growth of 1.7% and an increase in occupancy of 1.4 percentage points. For the full year our portfolio achieved an average occupancy of more than 77%, allowing the hotels to drive average rate increase of 3.3%, resulting in an improvement in comparable hotel RevPAR of 3.8% which equals 4% when adjusted for the impact of the USALI accounting changes.

Adjusted EBITDA was $344 million for the quarter and $1.409 billion for the full year, exceeding consensus estimates and our prior forecast. Our adjusted FFO per diluted share was $0.39 for the fourth quarter and $1.54 for the full year also exceeding consensus estimates and reflecting a 2.7% increase over 2014.

Even though we were below our RevPAR forecast for the year adjusted EBITDA was positively affected by the higher-than-expected profits from food and beverage from our Maui timeshare project as well as $5 million associated with the write-off of deferred IMF relating to a hotel that converted to a franchise and a reduction in our restricted stock expense.

The quarterly results were driven by an increase in group room nights of more than 2.5% as Association business grew by more than 6%. Group rate improved by nearly 1.5% as corporate rate growth was up by 4% which was significantly higher than our year-to-date results. In total group revenues grew 4%.

Transient demand increased by 1.5% although it was primarily in the discount segment as corporate demand was weaker than anticipated which may reflect the weaker GDP growth the US economy experienced in Q4. While rate growth in the discount segments was fairly solid, the negative mix shift resulted in average rate increasing just 1% and transient revenue grew just 2.5%.

Some of the transient weakness was likely due to reduced international travel. While arrivals into the US continue to grow at a healthy pace in the fourth quarter spending declined slightly which suggests that our customers still made the trip but stayed for fewer days and likely shopped less. Our sense is that international business declined by 5% to 10% at our hotels in the quarter.

The strong group performance translated into strong banquet and catering activity as banquet and catering revenues grew by 6.8% or 5.4% after adjusting for USALI. We experience above expected catering activity in our Florida hotels and in our larger San Diego and San Francisco assets. Our outlets were also busy as revenues at our restaurants and lounges improved by more than 4.5%.

Overall F&B revenues increased 6.1% or 4.7% after adjusting for USALI which was one of our best quarters of the year. The higher revenues drove improved margins and our profits exceeded our expectations.

Total revenues for the quarter increased 3.6% and EBITDA margins improved by 55 basis points as the 9% reduction in utility expense and a 15% reduction in insurance costs partially offset by a 7% increase in property taxes and an increase in ground rent in one of our LA assets.

Transient demand represented 58% of our total room nights for the full year and increased just slightly from last year. Transient rate increased 2.8% for the full year as most segments experienced strong rate growth other than our OTA business. For the full year transient revenues grew 2.9%.

Despite starting the year with no additional group room nights on the books compared to 2014 bookings during the year were solid and group demand improved 1.1% for the year led by a 3% increase in Association business. Overall group demand represented 37% of our sold rooms and group revenues grew 3.1%.

F&B revenues grew 5.2% for the full year or 2.5% after adjusting for USALI. The increase resulted from banquet revenue growth of 5.9% for the year and outlet revenue improvement of 3.8%.

Reduced construction in our meeting space helped spark a 4.2% USALI adjusted F&B growth in the second half of the year. Total revenue growth for the year improved by 3.3% and full-year EBITDA margins improved 35 basis points after adjusting for USALI.

In 2015 we continued to execute on our strategic plan of reallocating capital out of markets where we expect lower growth or higher capital expenditure requirements. This approach has also enabled us to benefit from the arbitrage between private and public market valuations in the current environment.

We had a very active fourth quarter for dispositions with approximately $630 million in sales completed. These included the Sheraton Four Points in Perth, the eight property European portfolio, the Novotel and Ibis in Auckland and the Novotel Queenstown. In addition, as we announced this morning, we closed the sale of the San Diego Mission Valley Marriott, a suburban hotel with 350 rooms, and the Novotel Wellington, a 139 hotel located in New Zealand, for a combined sales price of almost $100 million.

The average RevPAR for these two hotels was approximately $116 which is consistent with our primary focus of selling lower RevPAR hotels.

The disposition of non-core assets continues to be a priority. We have an additional $117 million in assets under binding contracts with closings slated over the next three months. We are currently marketing an additional $800 million of assets with more than one-third of those fairly far along in the process.

We have been pleased with the response to our marketing efforts and remain optimistic that we will continue to complete sales, although there can be no assurances that that will occur. As we mentioned last fall the sales we are targeting to complete will generate a significant amount of taxable income which will likely result in a special dividend paid at the end of the year.

Last year we suffered significant disruption from a number of comprehensive renovations to close parts of several hotels for significant portions of the year. Each of the most impactful renovations, the Logan in Philadelphia, the Camby in Phoenix, the Axiom in San Francisco and the Houston Airport Marriott, has been or is about to be completed. All the hotels are now open for business and the initial customer reaction has been quite positive.

The new rooms product has been well received in the F&B outlets especially the Urban Farmer at the Logan and the Artisan at the Camby have generated significant favorable felicity. Last year these four hotels generated a loss of approximately $4 million. This year we expect them to contribute between $28 million to $30 million in EBITDA with additional above-average growth expected in 2017.

This year we are also completing major redevelopments of the Denver Tech Marriott, the Hyatt San Francisco Airport and the exhibit hall at the San Diego Marriott Marquis. While we expect there will be disruptive impact at the first two assets I referenced we currently anticipate that the San Diego Exhibit Hall project will be completed in midyear and the additional income it will generate will offset the negative impact from the other two assets on a full-year basis when compared to 2015. All three hotels should generate above trend improvement in 2017.

This morning based on our closing price from last night we are trading at a value of $260,000 a key compared to an estimated replacement cost that exceeds $500,000 a key. Based on the midpoint of our guidance range, which I will discuss shortly, we are trading at a 10.5 EBITDA multiple and an 8.5% cap rate. Both measures reflect valuations that are significantly lower than our historical averages and we believe our stock represents an excellent value opportunity.

As we generate cash flow from operations and asset sales we believe the best way to deliver the most value for shareholders is to repurchase our undervalued stock. In line with this approach we purchased a total of $325 million of stock in the fourth quarter, bringing our total for the year to $675 million. When combined with almost $650 million in dividends we paid over the last 12 months we have returned approximately $1.3 billion in capital to our shareholders.

Assuming 2016 plays out consistently with our expectations we would continue to execute on our existing share repurchase program and revisit the size of the program later in the year.

The guidance we announced this morning reflects the following. Nationwide supply growth when netted for likely closures is now approaching the long-term average of 2% for the next couple of years. However, supply growth in the top 20 major markets has accelerated more quickly and is now likely to exceed 3%.

While upper upscale supply in these markets, which is most directly competitive with our portfolio, should not exceed 1.5% strong supply growth in the upscale and midscale segments is driving the overall supply levels higher. Our portfolio will not be immune to impact from this new supply.

Over the last three years demand growth has averaged more than 3% in the top 20 markets but consensus forecast suggests it may moderate slightly in 2016 given the weak economic growth in the fourth quarter and the general lowering of GDP forecast for 2016. We are also watching international travel carefully as it impacts the gateway markets. The combined effect of these two factors, which likely influenced the weaker-than-expected fourth-quarter room revenue growth in the industry, suggests that demand may not match supply growth as 2016 progresses.

On the positive side we had very strong group bookings in the fourth quarter with the bookings up more than 4.5%. We are starting 2016 with group revenues up more than 6% compared to 2015 which positions us to maintain strong occupancies and drive higher rate of transient business. In addition, our negotiated rates in most markets have increased more in 2016 than they did in 2015, providing support for transient rate growth.

Finally, we have had a solid start in January, reversing the trend we experienced in the fourth quarter as our preliminary RevPAR growth estimate for the month is approximately 3.8% and that is after the negative impact of about 1% of lost RevPAR driven by cancellations in Washington and New York due to the severe snowstorm. As we indicated last year, we also expect to benefit from less construction disruption in 2016 as our maintenance capital spending should decline by more than 18% and the hotels we invested in last year not only face an easier year-over-year comp but also have an improved product to sell.

Given all these factors, we project that in 2016 total comparable hotel RevPAR will increase by 3% to 4% in constant currency and EBITDA margins will increase 0 to 40 basis points. This will translate to adjusted EBITDA of $1.450 billion to $1.480 billion and adjusted FFO per share of $1.65 to $1.69.

It is worth noting that our EBITDA and FFO estimates have been reduced by $14 million to reflect the impact of the $215 million of 2016 asset sales we have identified. However, our balance sheet does not reflect the receipt of the proceeds that these sales will generate.

Overall, I'm pleased to say that we are still seeing positive indicators within our portfolio with continued strong demand especially in the group segment. The capital we've invested in our hotels ensures that our portfolio is in excellent condition and our industry-leading balance sheet remains strong. We also remain focused on generating cash from asset sales and operations that can be deployed into stock repurchases and returning value to our shareholders.

We are confident in the future of our business and our entire team is still focused on delivering another positive year of growth. 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. Despite the fourth-quarter headwinds Ed described several of our important markets including Florida, Los Angeles, Atlanta, San Diego and Boston experienced excellent RevPAR growth and continue to give us confidence as we look ahead into 2016.

Let me provide some specific commentary on our major markets. Florida performed very well and produced the best domestic market performance with 11.7% RevPAR growth in the fourth quarter, 310 basis points above the STAR upper upscale market RevPAR. Strong group business at our Orlando World Center, Ritz-Carlton Naples, Harbor Beach Marriott and Tampa Airport Marriott contributed to high average rate growth at these properties.

With a group revenue increase of almost 22% our managers at our Florida hotels were able to institute more aggressive pricing strategies which increased transient rate by approximately 7%. In addition, a strong group business resulted in more than 23% growth in food and beverage revenues.

RevPAR at our hotels in Los Angeles grew 9.8% in the fourth quarter as several of our properties benefited from renovations that occurred during the same time last year. Once again, strong RevPAR growth in Los Angeles was the result of robust average rate growth of more than 5% in both transient and group business.

On the back of group business strength at our hotels our managers were able to drive food and beverage revenue growth of more than 17%. Looking forward group booking pace in Los Angeles looks very strong as the market is expected to host eight additional citywides in 2016. As a result, we expect continued solid performance from our Los Angeles properties.

In Atlanta RevPAR increased 8.2% for the quarter primarily as a result of average rate growth of 6.3%. Transient average rate increased 6.6% and 5.2% respectively. Food and beverage revenues at our properties in the market grew by 8.7% mainly due to healthy banquet and catering business at the J.W. Marriott Buckhead and Grand Hyatt Buckhead hotels.

We expect our assets in Atlanta will continue to have a solid year in 2016 based on an excellent group booking pace for the year. Atlanta is expected to add more than 8,500 room nights related to two additional mega citywides.

Our hotels in San Diego produced results that outperformed the average of our portfolio with RevPAR increasing by 7.5% in the fourth quarter. The Manchester Grand Hyatt benefited from having all of its meeting space available for bookings after renovations last year.

In addition, our managers in San Diego strategically focused on group business at the expense of transient room nights to drive the hotel's overall average rate. In the quarter group demand increased 7.3% and transient room nights fell 9.8%. As hotels filled with group business, it enabled our managers to become more aggressive with average rate which resulted in group and transient average rate growth of 9.2% and 7.5% respectively.

Overall, group revenues increased by more than 17%, contributing to a food and beverage revenue increase of nearly 18% while transient revenues declined 3%.

I should point out that nearly all of the increase in food and beverage came from the more profitable banquet and catering business. We expect the trend of our San Diego hotels outperforming the portfolio to continue in 2016. Even though the city is expected to have fewer citywides this year total room nights from the citywides is expected to increase by more than 20%.

In Boston our assets outperformed the portfolio average with a RevPAR increase of 6.9% driven by an occupancy gain of 3.5% coupled with an average rate increase of 1.9%. In October group room nights for our properties in the market grew at 24.4% with a 3.5% increase in average rate. Again this helped contribute to an 18% increase in food and beverage revenues this quarter.

As we look forward to 2016, I would note that although the Boston market is expected to have an average number of citywides the Hynes Convention Center is expected to host five additional events. This bodes well for both our Boston Marriott and Sheraton Boston hotels as we expect these hotels to benefit from these additional events and lead our Boston hotels to post solid results in 2016.

Moving to some of our markets that witnessed some weakness in the quarter RevPAR at our hotels in D.C. increased 0.6% with average rate growth of 1.6% and an occupancy decline of 70 basis points. The main reason for our properties in the markets underperforming the STAR upper upscale market by 250 basis points was due to a combination of the lack of in-house groups and softer transient business.

In 2016 the number of citywide events was flat to 2015. However, the number of citywide room nights is up approximately 85,000 over last year. For 2016 the group booking pace for our D.C. hotels looks very strong and many of these hotels are expected to benefit from substantial renovations that were completed in 2015.

Unfortunately, RevPAR at our assets in Houston declined 1.1%. However, the good news is our properties outperformed the STAR upper upscale markets by 690 basis points. The decline in the market continues to be attributable to an overall slowdown in the Houston economy as a result of severely depressed oil prices, increasing market supply and specifically for Host the renovation of the Houston Marriott Medical Center Hotel.

Our managers continue to focus on growing group room nights to offset the transient decline caused by weaker market fundamentals. We do not expect Houston's market conditions to improve in 2016. Therefore we expect these hotels to continue underperforming the portfolio.

Bear in mind that the hotels in the Houston market represent only 2% of our total EBITDA. Likewise, our New York hotels experienced a 2.4% RevPAR decline in the fourth quarter, slightly outperforming the STAR upper upscale market RevPAR decline of 2.5%. Much of the weakness was due to average rate which decreased 2%, although occupancy declined 40 basis points.

These results continue to indicate that the well understood supply in the market and a decrease in demand from international travelers due to the strength of the US dollar are impacting the overall market's ability to raise rates. We expect RevPAR in New York to significantly lag the portfolio in 2016 and acknowledge that the dynamics that impacted the market in 2015 will likely persist this year.

Moving to our international assets, these hotels had an impressive constant dollar RevPAR growth of 15.5% in the quarter. Latin America drove much of the international growth with a constant dollar RevPAR increase of 39%. This growth was spurred by the benefit of the renovated hotel of J.W. Marriott Mexico City.

Despite economic turmoil related to weakness in the global oil markets and tourism issues related to Zika virus in Brazil, the J.W. Marriott Rio had an outstanding quarter. As we continue to simplify the portfolio through non-core asset sales in both Latin America and Asia Pacific we expect the EBITDA impact from our international hotels to decline.

Shifting to our European joint venture, despite the negative impact of the terrorist attacks in Paris and the subsequent lockdown in Brussels our assets in the region performed relatively well with a constant euro RevPAR increase of 1.7% for the quarter as the significant decline in RevPAR at the hotels in these two markets were more than offset by the robust growth of more than 10% at the hotels in our other European markets. The RevPAR increase was due to an increase in average rate of over 6% which was offset by a decline in occupancy of about 3 percentage points.

As occupancies for both transient and grew business decline it is encouraging to see that our managers were able to increase transient and group rates in the quarter by 6% and 10% respectively.

There is uncertainty surrounding 2016 in light of the 2015 Paris terrorist attack and the economic and political recovery that is ongoing in the European Union. However, many positive market fundamentals exist including the fact that supply remains low in Europe at approximately 1%, the weak euro to the US dollar will likely drive demand from US to Europe and the economic environment in Europe is cautiously optimistic.

Now let's move to our forecast for 2016. With respect to the RevPAR guidance we gave today of 3% to 4% for the portfolio it is worth noting that we expect 13 of our top 17 domestic markets to experience RevPAR growth that will exceed the high end of our portfolio RevPAR forecast.

These markets are expected to perform well based on advanced group bookings, less capital disruption and lower supply. In fact, we expect some of our best performing markets will be Los Angeles, San Diego, Phoenix, Atlanta and New Orleans. However, the challenges in New York and Houston will continue in 2016.

Other factors to keep in mind for 2016 are the calendar shifts as these will affect the overall quarterly results. Easter moves to the first quarter and the Jewish holiday moves to the fourth quarter this year. This is reflected in our group bookings as they are strongest in the second and third quarters but still positive in all four quarters.

We expect approximately 22% to 22.5% of our total EBITDA for the year to be generated in the first quarter.

As disclosed in our press release during the fourth quarter we repurchased 19.6 million shares for a total purchase price of $325 million, bringing the total for 2015 to 38.3 million shares of common stock for a total purchase price of approximately $675 million. We currently have $325 million of capacity under the repurchase program.

With respect to dividend, we paid a regular fourth-quarter dividend of $0.20 per share which represents a yield of 5.4% in the current stock price. Further, as stated in today's press release the Board of Directors authorized a regular first-quarter dividend at $0.20 per share on its common stock. Given our strong operating outlook and significant free cash flow generation we are committed to sustaining a meaningful dividend.

In addition, based on the robust asset sale plan we've outlined and continue to execute on, we anticipate that asset sales will likely result in taxable gains which could lead to special dividends. While these special dividends will vary and be one-time distributions, they should result in a meaningful return to our stockholders.

Moving to one of our key pillars of strength and competitive advantage, our balance sheet. In 2015 we repaid or refinanced more than $1.4 billion of debt with a weighted average interest rate of 5% with proceeds from the issuance of $1.5 billion of debt with a weighted average rate of 3.1%.

As a result of these transactions, we decreased our weighted average interest rate by 110 basis points to 3.7% and lowered our annualized interest expense by $24 million to $165 million and extended our weighted average debt maturity by 0.8 years to six years. We have no significant maturities until 2019 and our operating a position of financial strength and flexibility.

At year-end we had approximately $239 million of cash, $702 million in available capacity under our revolving credit facility and $4 billion of debt while maintaining a leverage within our stated goals of 2.5 to 3 times.

In summary, we feel good about our results and accomplishments in 2015 and look forward to a solid year of growth in 2016 as we believe the softness we witnessed in transient business in the fourth quarter will be offset by our aggressive asset management strategies and the tailwinds we received from our comprehensive capital program in 2015. This concludes our prepared remarks. We are now interested in answering any questions you may have.

(Operator Instructions) Smedes Rose, Citi.

Hi, good morning. I wanted to ask you on the asset sales, as you bring your assets to market have you seen any surprises around the level of interest or the pricing that you're getting relative to expectations?

Not really but that's probably reflecting the fact that realistically since the summer it's been clear that the pool of buyers for assets in the second half of 2015 and into 2016 is a bit smaller than where it was let's say in 2014, primarily because the REITs are not aggressive buyers at this point in time. So I think we've launched those particular sales with an understanding that we were appealing primarily to two groups, private buyers who are often working with operators and then international buyers who are probably also either using the existing operator at the hotel aligned with the new operator.

So with that I'd say that I think I talked a little bit at the last call interest has been solid. It's probably not as deep as it had been in the past but it's still more than one person, the bidding on individual deals. I think we're very comfortable with the quality of the bids that we're getting and we continue to feel comfortable that we'll continue to close sales similar to the pace that we've been on.

Okay, and then the other thing I just wanted to ask you, it's a follow-up, you talked about group trends pacing up around 6% for 2016 on revenues. Have you seen anything over the last several months since your last call in terms of the tenor of corporations willing to book group or kind of just the pace relative to the backdrop or the issues we've seen around economic growth?

All we have seen on the group side really throughout 2015 and then looking at 2016 and at this point frankly even looking further down the road into 2017 is good strong group bookings. And it is carried all the way through last year and we expect to see that continue this year.

All right, thank you.

Harry Curtis, Nomura.

Hi, good morning. A couple of quick questions as a follow-up to Smede's question. Year to date to the extent that you've had any major conventions can you talk about cancellations and attendance?

Harry, I don't think -- there's always ebbs and flows at individual events. I think Greg might have described a little bit of that but reality is it's so far in terms of what we've been seeing over the last couple of months is that we haven't seen any signs of weakness in attendance at events.

Okay, and then my second question is could you give us an assessment of the condition of your current portfolio? And specifically you did give us guidance as to how much less you're going to be spending in 2016. As you look even further ahead and there is no budgeting done yet but do you think that your CapEx into 2017 can keep declining?

Our expectation at this point would be that 2017 would be at -- it shouldn't be above where we are in 2016. Our goal for the last few years has been that 2016 and 2017 would be lower CapEx years.

I think it's still a little hard to anticipate beyond that. But we're expecting levels similar to where we are on the maintenance CapEx aside. And then as it relates to what we would describe as ROI or redevelopment CapEx that will depend upon what projects we might identify for 2017.

At this stage I don't know that there's anything specifically on the books. So if I had to predict today what would happen in 2017 I would expect to see that spending decline.

I guess what I was specifically asking also is it's just your qualitative assessment of your portfolio and are there any glaring CapEx requirements that you need to address?

I would think that the quality of our portfolio is quite good at this point in time. We have spent heavily on the portfolio over the course of the last several years. So when we measure the portfolio in terms of its effective age that number is as attractive as it has ever been looking at how recently have the rooms been done, how recently has the meeting space been done, how many lobbies or food and beverage outlets have been done.

So I don't see that there's always going to be an asset or two where we've made a conscious decision not to do capital for a variety of reasons. And some of those are the ones that we're intending on selling because we think that allowing the buyer to do that capital will ultimately enhance the total price that they'd be able to pay for the asset taking into account the CapEx that might be required.

But outside of a handful of unique situations like that, our portfolio is in good shape. And the fact that we're spending less this year and most likely next year is not an indication of shorting the portfolio of capital that it needs. It's more an indication of the fact that we're in good condition.

Very good. Thanks.

Robin Farley, UBS.

Great, thanks. I wonder if you could quantify in your RevPAR guidance of the up 3% to 4%, how much of that is helped by the renovations, you mentioned those four properties that had significant renovations and I think you had initially expected Q4 RevPAR in 2015 to be your best RevPAR quarter for the year because of those renovations. So I assume some of the 3% to 4% or I don't know if you have that sort of fully adjusted not including benefit of the renovations.

Yes, let me try to provide some clarity on that because in a couple of the write-ups that I saw this morning I could tell that folks weren't exactly following the differences between some of these assets. So most specifically the four assets that I referenced when I was talking about the ones that are going to have a significant improvement on a year-over-year basis.

So the Logan in Philly, the Camby in Phoenix, the Houston Airport Marriott and the Axiom in San Francisco, all of those hotels are for our RevPAR purposes or our forecast non-comparable. So the incredible increase in revenues that we will see at those hotels is not included in our RevPAR forecast.

So that's one of the reasons why I think people we are getting a lift from that and we are trying to describe the lift that we're getting from an EBITDA perspective. But the benefits of that are not showing up in our comparable RevPAR numbers. Those numbers will not likely show up until most likely 2017, when those projects have been in our portfolio, operating on a stable -- not a stabilized fashion, but offering operating as a completed hotel for a full year. So we'll see the lift in 2017 from those assets but we're not going to see any lift in our 2016 reported RevPAR from those assets.

I guess you had other renovations as well during the year last year and your guidance for Q4 you had originally said would that the RevPAR would benefit in Q4 would be the best of the four quarters because of renovation. So even if it's not those four specific sort of major where you close the property for a time, can you talk about the benefit of renovations at other properties that might be included?

Robin, I think we did see some we did expect to see some benefit in the fourth quarter from less construction disruption. So you're right about that.

And I would say that in the end I don't know the RevPAR, our RevPAR came in below where we had anticipated it and I think that was not unique to us. That was really an industry-wide phenomenon.

We did see pickup at a number of the properties that were under renovation. I don't know that we would necessarily view it as overly significant in the fourth quarter.

A lot of those renovations had started at the very end of the quarter. And frankly with December being a low occupancy month I don't know that we necessarily saw as much benefit in 2015 as we might have anticipated.

We will see some lift and some positive benefits from that in the first half of the year. And I suspect that one of the reasons why our portfolio performed so much better than the industry in January despite the fact that we had even with the winter storm that hit the Northeast it is in part due to the fact that we had -- we did not have as much renovation activity at some of those hotels.

Okay, that's great. Thank you for clarifying.

And then just lastly real quick, you mentioned your maintenance CapEx or renewal and replacement CapEx is going to be down $60 million in 2016. It looks like in Q4 it came in like close to $35 million or $40 million higher than what you had guided to for renewal and replacement Q4. So is some of that is that is just maybe a timing issue that some of that renewal or replacement CapEx came in into Q4 that was originally planned for 2016?

Yes, I would say that it was probably the short answer is yes, I think some of that probably had more to do with the timing of when payments were made as opposed to necessarily when the work was completed. But the short answer is yes.

Thank you.

Shaun Kelley, Bank of America.

Hey, good morning guys. Ed, in your prepared remarks you mentioned a little bit more detail on the supply growth and how that sort of overlays with the demand environment that you're seeing out there, particularly in some of the urban areas. I was curious if you could just begin on that a little bit more for us.

How generally do you guys seek to react or do you try and manage the portfolio in an environment where demand may where on the one side demand is at peak levels but on the other side demand may actually not keep up with supply growth that you're seeing at least in a handful of markets?

Yes, I'd say there are sort of two ways to look at this. One element of this is that we look down the road and as we anticipate markets might see increased supply that does play into some of the decisions we make relative to whether we retain the asset or whether we try to market it.

So there is a sort of long strategic perspective that addresses that. As we look at it from a more near-term operating perspective if we see markets that are likely to get additional supply and we think that that could may have an impact on our property then that may guide some of our strategies in those markets relative to the level of group that we would want and the level of say special corporate business that we might try to attract for that individual hotel.

So in the markets where we've seen such as in New York, there is no secret that New York's had a lot of supply. And we have consciously tried to improve the level of group activities that we do in that market as a way to offset some of the increased supply that we expect to see.

That's really helpful. Thank you very much.

Anthony Powell, Barclays.

Hi, good morning. One more question on group. How did in the quarter for the quarter group bookings track in 4Q and how do you expect that part of the business to trend going forward?

You know, I don't know that I have that number right here in front of me. I would say that in the quarter for the quarter was probably you know I'd rather not guess.

I know that the bookings in the quarter for 2016 were solid and were running north of 4.5%. So the activity that we had booking for the future was quite good.

The way the third and fourth quarter played out, my guess is that the in the quarter for the quarter bookings were not particularly strong. But the reason for that was the bulk of the group strength was really in the first five to six weeks of the quarter.

It was October was filled because you had had the movement in the holiday, the Jewish holiday from September from October the prior year into September. So October was a very busy month but there wasn't really any capacity at the hotels to take a lot of additional group. And once we got beyond that period of time you are really at a stage during the year when there's not a lot of group pickup in general.

So I think the activity in the fourth quarter was not particularly remarkable in the quarter for the quarter. But it continued to be strong for the future.

Yes 2016 as Ed mentioned but also for 2017 as well.

All right, got it. And I think earlier you mentioned that OTA rate was down in the fourth quarter. How you are approaching your OTA allocations in 2016 and what are the operators doing I guess to reduce the industry reliance on OTAs going forward?

Yes, I'd say that in general because the hotels are running at high occupancies and because the operators, especially the major operators are refining their strategies in terms of their relationship with the OTAs we're generally seeing that business, the rate of growth there is slower than in some of the other segments. I think what we ran into in the fourth quarter was because we did see what is generally assumed to be some weakness in corporate travel there was a little bit more use of OTA options than we had necessarily predicted and what you saw with that was slightly lower pricing in an effort to attract more of that business.

So the good news is that we were able to get occupancy by opening up those channels to a greater degree. But unfortunately when you watched how that broke across the country some of that was at a lower rate than what we had done the prior year.

All right, and a small follow-up to that question, so as you tried and pushed corporate negotiated rates you mentioned that they are higher. How do you kind of avoid a replay of that in the coming quarters? Thank you.

Well it's obviously hard to stimulate demand of corporate travel and history has shown us in prior times that you don't stimulate that demand by dropping price. So I think with the way our approach was was to generally across the portfolio focus on, look at the different assets and take into account the market factors in individual markets.

Then look to try to generate, take advantage of the high occupancies to generate better rate growth in those corporate negotiations but also firm up in markets where you thought you wanted it at some additional accounts. To put some math around that what, we're looking at one kind of a comparable basis in the beginning of the year is that our special corporate rates at least looking at things that apply in the first quarter up north of 5% and last year we were more in the 3% range. So there's a nice opportunity there to see some better results because of improved special corporate rates.

All right, thanks a lot for all the color.

Ryan Meliker, Canaccord Genuity.

Hey, good morning guys. Most of my questions have been answered but first of all thanks for a lot of the color on the guidance and how the renovations are playing out.

Just one quick question I had regarding group pace, obviously I think at 3Q your group pace was up 6.5%, it's held steady around that level for 2016. But what we saw in January from the STR data was group was off dramatically, only up about 1.5%.

Is that indicative across your portfolio too? And is that just have to do with the timing that you talked about with some of the calendar shifts that I know they haven't materialized yet but you're seeing the sluggish group out of the gate for the first quarter for your portfolio and for the broader industry?

So not entirely. We actually saw, I don't have the segment results yet for January, but based on the bookings that we were anticipating, and I don't have any indication to think that it turned out radically different from this, we were expecting better than what you described in terms of group pace in January and frankly in February.

The month that is weaker for us in group on a year-over-year basis is March and that's I think solely because of the change in the Easter holiday timing. So as I think we've commented in our prepared remarks, the first quarter and the fourth quarter are slightly -- if you spread our group activity across the year Q1 and Q2 are still both up but they are not up as much as Q2 and Q2 and Q3 which are up significantly in terms of group revenue pace.

Yes and you were saying Q1 and Q4 were the two weakest and Q2 and Q3 are the two strongest.

Right.

Right, so the question that I would have is do you think that some of your group out-performance in the first quarter is more driven by some of the renovations in the types of assets that you have and revenue management strategies or do you think it's not so anomalistic in favor of your portfolio? I'm just trying to get a gauge of where group businesses throughout the remainder of the year, not just for you guys but for the broader industry in case we're seeing any type of pullback?

I think across the industry I'm continually hearing from everyone that group is fairly solid. But I am sure that we are benefiting a bit from the fact that we have less renovation activity and we have hotels that were under construction last year now are providing either new rooms or new meeting space and it's attractive to our customers. So I'm sure again going back to our January performance I'd say some of that is reflective of the fact that we had space available and not under construction.

All right, that's helpful. Thanks a lot.

Steven Kent, Goldman Sachs.

Hi, good morning. Just a quick question, it sounds like group bookings as you just mentioned are in good shape occupancy expectations and banquet.

Why is the margin outlook only up a modest zero to 40 basis points? Are we missing something on the expense side because it sounds like you should get some better flow-through?

And then just as an aside, because I think it's an interesting issue that we're starting to hear from some of the other companies, are you seeing any last-minute or late bookers canceling and rebooking other places? Are you starting to see some of that activity or more churn than you've seen before?

Going to your second question first, we have generally seen that problem in a variety of markets but we have not identified that in discussions with our operators as a situation that accelerated in the fourth quarter. We have also been actively encouraging our operators and of course this is one place where working with a lot of the major operators is probably helpful for us to push towards pricing strategies that in effect create some frictional cost around changing reservations at the last minute.

And we will continue to encourage that they look at either nonrefundable rooms or extending the time period for when you have to cancel in order to make it more difficult for people to reserve a room with us for a long period of time and then change their mind at the last minute and rebook elsewhere. But to your fundamental point we did not see an acceleration of that activity in the fourth quarter.

On the margin piece of it I'd say that some of the fact that the margins -- there's no real expense that we necessarily have highlighted that would drive weaker margin performance. We still expect as values continue to increase for the hotels and there's always a little bit of a lag on this that real estate taxes will be jumping by more than inflation on a year-over-year basis.

But beyond that --

Steve I guess the one point I would look at is if you look at our results for 2015 we had 3.8% RevPAR growth and 20 basis points improvement in margins. If you adjust those two things items for USALI we really had 4% RevPAR growth with margins up 35 basis points and so that's pretty similar to our guidance. If you look at the high-end of our guidance we're predicting 4% RevPAR and margins up 40 basis points.

Okay, thank you.

Rich Hightower, Evercore ISI.

Good morning, guys. I just want to hit back on the guidance for a second here.

I'm curious for what the 3% to 4% range implies for the transient side of the business. If group pace is up around 6% I know that includes some of the renovation tailwind and so it's not a true same-store number. But just sort of what the bridge is between that and the transient implied figure would be very helpful.

You know, I guess what I'd say with that is it wouldn't surprise us if we're up north of 6% right now in terms of group. Because we sold so many rooms already to potential group customers it wouldn't surprise us as we work our way through the year that the actual increase in group revenues that we experienced by the end of the year would be a smaller number than that. In other words, it's not abnormal to see some fall-off in that area especially with an extended booking cycle.

So my guess is that as we report group revenues throughout the course of the year the actual beat there will be a little bit less than that. So that probably addresses some of what you're looking at.

I'd say more broadly maybe as a more broad commentary on our guidance in general, our properties are more optimistic than our guidance would necessarily reflect. And we do see some benefits whether it's in the special corporate rates that I talked about before, the fact that our government rates are up meaningfully year over year, while that's not a huge chunk of our business it's one more place where you see some rate increases.

There are a number of factors like that that will help with transient pricing. We're not expecting a lot of transient occupancy increased.

We think it will be primarily a rate gain this year. But I think you're right in your sort of fundamental assumption is that if we hit our numbers that hit the projections that we've identified we'll probably see it be slightly more weighted towards group and slightly less weighted towards transient in terms of revenue growth.

Okay. So the group number should still outpace the transient revenue number in any case?

That would be our expectation for now, yes.

And then I guess as a follow-up to that, so the range of 3% to 4% at this stage in the year is pretty tight, only 100 basis points or so do you just have enough group business on the books you think at this point to peg such a tight range at this point in the calendar?

You know there are as many people in the room there are that many different theories on how to approach guidance. I guess what I'd say is the way we look at it we're trying to give you our best insight into how we think the year is going to play out based on the information that we have available to us. And in the context of this year we thought that it probably behooved us to be the hair on the conservative side, so that's why you see the range that we have.

All right, thank you, Ed.

Jim Sullivan, Cowen Group.

Thank you. Ed, just to kind of follow on from that last question as well as some of the comments you made in the prepared commentary part of the call, your comments on supply and demand suggest that the negative impact of supply growth will increase over the course of the year. Now we've heard what you've said about the group outlook in Q2 and Q3 but does that mean overall given that supply growth will increase over the course of the year that you expect RevPAR growth overall to be weaker in the second half than the first half?

Not necessarily, Jim, because as we look at group the strongest quarter for group bookings is actually in Q3. And so I don't necessarily expect that that's what's going to happen.

I think that -- I don't know that in a lot of these market supply necessarily accelerates through the second half of the year. But that's one of the things we'll need to see how that actually plays out. What we've been noticing in a number of markets over here is that the outlook for supply is in each of the last few years what's expected to be delivered at the beginning of the year and what's actually delivered by the end of the year turns out to be a lower number because the deliveries don't happen at the same pace it's originally forecasted. So that might help mitigate that.

But I'd say at this stage as we look at the year the only reason why I might anticipate that the first half could be a little stronger than the second half could relate to construction disruption because we had more in the first half than we had in the second half. But based on the discussions we've been having so far it feels like it's a fairly balanced year.

Okay, and then in your prepared comments on the markets, and I may have missed this but I don't recall you commenting on the outlook for San Francisco and Denver.

I think San Francisco we're generally expecting to be roughly in line with the rest of the portfolio. So maybe not the out-performer that it has been for the last few years but sort of certainly not in a level where it's going to be a significant underperformer either.

There's no doubt that there are some challenges in that market due to the fact that the convention center has been closed. The booking pace at our hotels is still up compared to last year.

It's not up as much as the overall portfolio. But we're fortunate that the big hotel there, the San Francisco Marquis, is essentially just doing a lot of in-house group business to deal with the fact that the convention center will have more closings.

And Jim, as I said 13 of our 17 markets based on the groups booking pace and the supply and some of the other metrics that we mentioned I said in my prepared remarks would actually exceed the high end of our guidance. And so San Francisco certainly would be one of those hotels that I included in those 13 markets.

Denver as you know in the fourth quarter for us has actually experienced a decline in RevPAR. We think it will turn positive in 2016. But I would think Denver will be sort of closer to call it the midpoint to the high-end of our guidance.

And Denver is one of those markets where we do have some construction going on.

Correct.

So it's not a big market for us. But one hotel is a redevelopment hotel and the other has some meeting space being worked on.

Okay, and then finally for me, in terms of the dispositions you have under letter of intent, it would be helpful to know if those are out of the wholly-owned segment of the portfolio or if they are out of the joint ventures.

All of the assets that were described there were consolidated assets. In one instance there is a partner with a minority ownership piece but they are all consolidated assets.

Okay, very good. Thank you.

Thomas Allen, Morgan Stanley.

Hi, a quick question on Houston. I know it's a small part, I think you said 2% of your EBITDA, but if you look at the rate of growth it is improved meaningfully in the fourth quarter.

It was often a much tougher comp in the fourth quarter of 2015 than what you saw in the first three quarters. But can you just help us think about 2016 as we are start to lap at least that initial drop in oil prices?

Yes, I'd say we still expect where Houston is one of the markets that we think is going to be challenged in 2016. And I think it's a tossup as to whether RevPAR there is slightly negative or flat.

I agree with that. I mean look the one interesting thing about Houston not that it's a big group market but the group booking pace in Houston in 2016 is actually quite strong.

Helpful, thank you. And then just in terms of your recurring dividend you've been paying $0.20 for seven quarters now. You talked a little bit about potential one-time dividends but how are you thinking about the recurring dividend as we sit here today?

I would say in the long run that our goal is to distribute our taxable income and so from operations but of course also from sales. And as we work our way through this year and see both how operating results materialize as well as what's the level of sales that we complete, we will continue to assess whether we should be doing increasing the regular dividend or handling things through a special dividend.

Some of that decision will be tied into our outlook for 2017, too, as we try to confront that question. We ultimately are certainly interested in being able to increase the dividend when operations, when the operating results of the Company support it because we'd love to return capital to shareholders in any way that we can.

Thank you.

David Loeb, Baird.

Good morning. Ed, you've talked a lot about group and how strong it looks.

Can you just give a little background of what you think is driving that? Is it tight employment for white-collar workers? And do you have any concerns about weakness in certain industries like energy or emerging weakness in financials or technology?

I'd be happy to do that David. Let me just look at one stat here. You know the wildcard in group over the years has tended to be what I think you are directing your question at which is what's happening on the corporate side.

And what we saw this past year was fairly good -- we saw some improvement on the in terms of Association but as I mentioned in my prepared comments we saw some really good corporate rate improvement as well as some improvement in corporate demand in the fourth quarter. I think what we're looking at in terms of why we've seen an improvement in group pace this year is a combination of probably a slightly better convention calendar which will reflect itself in a slight increase in Association business across all of our hotels.

But more importantly more activity coming out of the corporate side and companies recognizing that they are going to have events and they are now of a mind that they are convinced enough that they are going to have them that they are making the decision to book those events in advance and not wait until the last minute because what they realize is that if they wait to the last minute they are not going to end up with the time or the hotel that they want. So I suspect as we work our way through this year while it's fair to assume that there will be some pickup in Association business I'm hopeful that we're going to see good strong corporate growth.

That also tends to tie in with the fact that it could reflect itself in terms of better SMB growth too. So I think ultimately because corporate, the corporate group is the part that ebbs and flows the most based upon the overall economy the fact that we're seeing this strong growth is likely primarily due to strong corporate growth.

I'm sure that the oil industry, to your point about different businesses, I'm sure that the oil industry with all the challenges that they have is not necessarily booking as many group events as they might have in the past. So it is sort of interesting to see as Greg just referenced how strong our group booking pace is in Houston.

I suspect that has more to do with a smaller overall group profile for those hotels. But I don't know that we've heard of any other industry besides the energy industry that's cutting back at this point.

If anything our numbers which again as we suggested they are not only strong for 2016 they are strong for 2017. That suggests that there's a meaningful level of confidence and companies are making commitments.

Very helpful. Thank you. One more.

Can you give an update on the W Union Square? You acquired your partner's interest at the beginning of the year. Are you now looking to sell that asset?

That would certainly be one of the assets in New York that we would be open to selling, yes.

Okay and another one of those is the W on Lex?

That would be an asset that we would be interested in selling. I would say that that's not on the market at the moment. But that is another asset in New York that we would certainly be open to selling.

The opportunity in New York in order to get the sort of pricing that tends to make the headlines is to take advantage of assets where there's either an opportunity for a brand change or there's an opportunity for redevelopment. That's where it seems you can best take advantage of the property that you own and so those are the sorts of our fraternities that we're trying to explore.

It's certainly in that $800 million of assets that we're currently marking that does include a New York asset. And completing a sale in New York continues to be a very high priority for the Company provided we can attract pricing that we think is appropriate.

So on the W Union Square, are you able to rebrand that on sale?

There is flexibility on that asset with respect to management and branding.

Great. Very helpful. Thank you.

That does conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Walter for any additional closing remarks.

Great, well thank you for joining us on the call today. We appreciate the opportunity to discuss our year-end results and outlook with you and we look forward to talking with you in the spring to discuss our first-quarter results and provide you more insight into how 2016 is playing out. Thank you.

Once again that does conclude today's conference. We thank you all for your participation.