Hersha Hospitality Trust (HT) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hersha Hospitality Trust Fourth Quarter 2006 Conference Call.

[OPERATOR INSTRUCTIONS]

With that, I would now like to turn the presentation over to your host for today's conference, Mr. [Bartley Parker], Investor Relations. Please go ahead, sir.

Thank you, Keith. Good morning, everyone. Before we begin today's discussion. Management has asked me to make a cautionary comment regarding forward-looking statements.

This conference call may contain forward-looking statements that reflect Hersha Hospitality Trust's plans and expectations, including the company's anticipated results of operations, joint ventures and capital investment.

These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the company's actual results, performance, achievements or financial position to be materially different from any financial result, performance, achievements, or financial position expressed or implied by these forward-looking statements.

These factors are detailed in the company's press release and from time to time in the company's SEC filings. With that, let me turn the call over to Mr. Jay H. Shah, Chief Executive Officer.

Thank you, Bartley. Thank you all for being with us this morning. Ashish Parikh, our Chief Financial Officer, is with me today. I'm going to start the call with some remarks about our quarter and the full year 2006, and then turn the call over to Ashish, who will provide some additional financial detail and our initial guidance for 2007. After we conclude, we'll be happy to answer any questions that you may have.

Hersha Hospitality Trust delivered a dramatic year of portfolio growth and financial results in 2006, which is quantified by the improvement upon prior year's operating performance, the success of our focused portfolio assembly strategy, and our total return to shareholders.

Strong execution across the company drove solid total returns to shareholders of 35.2% for the year, ahead of the 27.9% returns of the Bloomberg Hotel REIT Index and the 33.9% returns of the general Bloomberg REIT Index.

Our total returns included our above average dividend yield, which is well covered by the cash flows of our hotel operations. Our acquisition strategy and continued focus on the internal growth of our portfolio resulted in an adjusted funds from operations or AFFO growth per diluted share of 45% over 2005.

Our inline recurring fourth quarter and full year AFFO was $0.20 and $1.00 per diluted share respectively, excluding $0.03 per share of specific non-recurring costs, namely the late year issuance of 8,280,000 common shares, the late year timing of the Hyatt's [Summerfield] suite portfolio acquisition, and the write-off of certain costs related to acquisitions that we decided to forego for strategic reasons.

While we may look at a number of acquisitions throughout the year, we remain very focused on consummating only those transactions that meet our criteria for adding long-term value for our company.

Overall, we're very pleased with the financial performance of the company in 2006. Consolidated total hotel operating revenues increased 89% to $142.2 million, driven primarily by our acquisitions of high quality hotels --

[technical difficulty - background noise]

I am sorry, I'm not sure what's going on with this conference line, but I'm going to continue from where I left off. I am going to go back to -- let me start again with our AFFO.

Our inline recurring fourth quarter and full year AFFO was $0.20 and $1.00 per diluted share, respectively, excluding $0.03 per share of specific non-recurring costs, namely the late year issuance of 8,280,000 common shares, the late year timing of the Hyatt's Summerfield suite portfolio acquisition, and the write-off of certain costs related to acquisitions that we decided to forego for strategic reasons.

Overall, we're very pleased with the financial performance of the company in 2006. Consolidated total hotel operating revenues increased 89% to $142.2 million, driven primarily by our acquisitions of high quality hotels and growth in room revenue in our marketplaces.

Revenue per available room, RevPAR, for the company consolidated hotels increased 13.8% on a year-over-year basis. Because the majority of the RevPAR improvement came from increased average daily rate, or ADR, our EBITDA margins increased 311 basis points to 35.8%.

In 2006, we completed the accretive acquisition of interest in 24 properties, with a total of 3,528 rooms at a cost of $531.5 million. In only two of these acquisitions does the company own an interest of less than 50%, in furtherance of our plan of simplifying the company's ownership structure by increasing the proportion of wholly-owned assets. Also worth noting is that five of these hotels were less than a year old when we closed on their purchase.

On the disposition side, we sold five mature mid-scale hotels in non-strategic markets, which better positions us with a portfolio predominantly young, upscale, limited service and extended stay hotels. These hotels were sold at gains and provided some marginal liquidity, but more importantly, by leveraging the liquidity in the marketplace and selling these assets at this time, we'll be able to commit more attention to internal and external growth opportunities in our high barrier to entry markets and in the upscale extended stay segment.

We were able to finance our growth in 2006 partially through the issuance of over 18 million shares of common stock in three separate offerings. The timely offering of shares under a matching [you] strategy, allowed us to immediately deploy the proceeds into acquisitions without substantially diluting earnings. The additional shares have also increased our market capitalization and liquidity for investors, thereby raising our profile across the investment community.

Our 2006 acquisitions included several notable ones, such as the Residence Inn in Tysons Corner, Virginia, the Hampton Inn, Philadelphia, the Courtyard in Alexandria, Virginia, and the purchase of our joint venture partners' 66% interest in the Hampton Inn in Chelsea in Manhattan, New York.

We also closed the largest portfolio purchase in the company's history. We were able to acquire seven Hyatt Summerfield Suites Properties at favorable cap rates at prices below replacement cost. The acquisition gives us exposure to markets outside of the Northeast corridor, namely Northern California and in the Southwest in Scottsdale, Arizona.

We studied these new markets closely and moved forward after we became comfortable with the attractive market fundamentals there. This transaction also brought us our second independent management company in 2006, bringing the total number of independent hotel managers that we use to five.

We added several new hotel brands to our predominantly Marriott concentrated portfolio, and the Hyatt Summerfield Suites and the Homewood Suites by Hilton acquisitions, coupled with our purchase of five Residence Inns by Marriott, brings the number of extended stay hotels in our portfolio to 18, which represents approximately 35% of our forecasted portfolio EBITDA for 2007.

We have consciously pursued extended stay hotels in our acquisitions program because we believe that they better weather market cycles, have industry leading margins, and offer higher absolute RevPAR's. Our 2006 acquisition activity firmly positioned us as the best in class urban, franchise, upscale hotel portfolio in the sector.

We now derive approximately 75% of our EBITDA from properties in the metro markets of New York City, Washington, D.C., Philadelphia, and Boston, Massachusetts. Although our pipeline remains active, with our main interest in focusing on high barrier to entry markets and premium brand, we are in the best position in our history to generate meaningful growth leading to increased FFO.

Our internal growth opportunities stem from the potential to drive ADR growth at our high occupancy stabilized assets and increase both ADR and occupancy at our new hotels, which continue to ramp up.

Now, let me turn the call over to Ashish Parikh to provide additional detail on fourth quarter performance, our financial position at year end, and to talk about our initial guidance for 2007.

Thanks, Jay. At December 31, 2006, our portfolio consisted of 66 hotels, with 8,640 rooms. Of that, our consolidated hotel portfolio consisted of 52 hotels with 6,235 rooms. We also maintained an interest in 14 properties with 2,405 rooms, that are accounted for as unconsolidated joint venture investments.

Though we ended the quarter with 52 consolidated hotels, 45 hotels contributed to the fourth quarter results due to the timing of the company's purchase of seven Hyatt Summerfield Suites assets, which closed on December 28, 2006.

RevPAR for our consolidated portfolio reached $79.98, an increase of 18.3%, as compared to the 2005 fourth quarter. About three quarters of our RevPAR growth was driven by increased average daily rates. This increase in rate driven RevPAR contributed to significant growth in EBITDA and margin expansion.

Our consolidated portfolio has EBITDA margins of 32.8% in the fourth quarter, up an impressive 460 basis points from the same period a year earlier.

This increase in RevPAR and margin speaks volumes of the strategic direction of our acquisitions program during the past year. Most of the current acquisition activity has been focused on newer hotels with best-in-class franchise affiliation in central business districts and first string suburban markets that have displayed the highest growth in the current year. This acquisition strategy has clearly had a positive impact on our consolidated hotel portfolio.

Margins were also positively impacted by the stabilization of several newly opened hotels that were in the portfolio during the fourth quarter of 2005.

On a same store basis for our consolidated hotels, which includes 27 of our 66 hotels that were owned for the entire quarter and excludes our unconsolidated joint venture hotels, RevPAR for the fourth quarter increased 9.8% on a year-over-year basis to $82.86, driven by an 8.4% increase in ADR and a 1.2% improvement in occupancy.

Same store consolidated EBITDA increased 15.2% to 7.7 million due to strong REIT based revenue growth. Our same store margins expanded 185 basis points to 33.7% for the fourth quarter 2006, as compared to the fourth quarter 2005.

On a GAAP basis, we recorded net loss applicable to common shareholders of 1.3 million or $0.04 per diluted share, as compared to a net loss of 3.1 million or $0.15 per diluted share in the year ago quarter. The lower net loss on a year-over-year basis is primarily due to improved performance of our existing portfolio and contribution from our acquisitions.

This growth has increased the scale of our operation and has further enabled us to leverage the absorption of our general and administrative costs across the larger platform.

For the fourth quarter 2006, we recorded 143% increase in our adjusted funds from operation to $0.17 per diluted share. Our recurring AFFO for the quarter was $0.20 per diluted share, bringing our yearly AFFO to $1.00 per share, which is in line with our guidance. Our recurring AFFO excludes approximately $0.03 per diluted share in non-recurring costs that Jay had touched upon earlier in the call.

The majority of this is $0.02 per diluted share from the 8.28 million common shares issued in December and the timing of the Summerfield Suites portfolio acquisition. We closed on this transaction on December 28, 2006, and incurred all of the interest expense on 120 million of debt related to this portfolio through the end of the quarter, but due to the late December closings, did not receive any of the P&L benefits from the transaction in the quarter.

Moving to our financial position at December 31, 2006, we had approximately 580 million of long-term debt outstanding, which included approximately 51.5 million of trust preferred securities and approximately 24 million outstanding on our credit line.

Fixed rate debt, including variable rate debt hedged by an interest rate swap, amounted to approximately 95.5% of our total debt. The weighted average interest rate on the company's fixed rate debt is approximately 6.23%. The weighted average life for the company's debt was 9.7 years.

Our balance sheet has significantly improved since 2003 due to strong growth in operation, refinancing efforts and equity issuances used to assemble our portfolio. As a result, we believe we are well positioned for future growth from a balance sheet perspective and project improved dividend coverage over the coming years.

At December 31, 2006, the company's outstanding common shares and partnership units totaled approximately 44.5 million fully diluted shares. Total development loan financings outstanding, including equity in our Manhattan land leases, totaled approximately 66 million at the end of 2006.

Our development loan program is primarily utilized to afford the company the first right of refusal to purchase newly built strategic assets in very difficult to source markets. These loans combined with our acquisition activity to date serve as the validation of the hard work we've done in cultivating developer relationships in New York City in the area of tremendous opportunity with a robust economy and high barriers to entry eliminating supply growth. At this time, all of our development loans are being exclusively utilized to finance New York City hotel projects.

In the fourth quarter, we declared our regular $0.18 per common share dividend or $0.72 on an annualized basis for a payout ratio of 74% of our AFFO for the trailing 12 months. Our dividend yield currently stands at 6.5% based upon yesterday's closing stock price.

Our platform creates numerous opportunities for us and our capacity for additional growth remains solid. Our strong relationships with developers in many high barriers to entry markets continue to provide us a proprietary pipeline of new opportunities in very difficult to source markets.

Turning to our initial guidance for 2007, assuming a continued strong economy and limited supply growth in our market, the company expects that its current portfolio, including the assembled portfolio date, will lead to another year of strong growth in adjusted funds from operation.

Based upon anticipated RevPAR growth of between 12 and 14% across our total hotel portfolio, we expect to achieve net income available to common shareholders for the full year ended December 31, 2007 to be in the range of 14 to $16 million or 31 to $0.34 for weight average diluted share outstanding.

We expect AFFO to be in the range of $1.14 to $1.18 per diluted share and adjusted EBITDA of between 110 million and 113 million for the full year ended December 31, 2007.

Due to our heavy concentration in the Northeast and Mid-Atlantic regions, we believe that the cyclicality in our earnings stream will remain consistent with prior years.

In our earnings release, we have supplied supplemental schedules in order to provide additional disclosure and financial information for the benefit of analysts and investors. We have added significant disclosure regarding our unconsolidated joint venture program, and we hope that our stakeholders will come to appreciate the cash flow and accretion benefits of our participating preferred joint ventures by better understanding this.

We believe that now with a full year of historical data on our unconsolidated joint venture program, the consistency and growth of the earnings derived from these unconsolidated JV's becomes much more transparent to our stakeholders.

We've also expanded our EBITDA disclosure for both our consolidated properties and our unconsolidated joint venture properties in order to clearly present the company's EBITDA for the year and our forecasted EBITDA for 2007.

This forecasted EBITDA however, doesn't build into EBITDA that the company can expect from a full year's worth of operations from properties that have been acquired during these first few months of 2007 and for the ramp up of certain properties that we've purchased in 2006 with limited operating history.

This concludes my formal remarks. Now, I'd like to turn the call back to Jay.

Thanks, Ashish. Again, 2006 continued our very deliberate and selective acquisitions program, further strengthening our portfolio of upscale branded hotels in urban markets with high barriers to new competition.

Since the beginning of 2003, we have purchased interest in over 50 hotels with a combined 7,086 rooms, enabling us to transform from a Pennsylvania focused owner of mid-scale hotels, to an owner of predominantly upscale hotels situated in the New York, Boston, Philadelphia, and Washington, D.C. metros.

During this entire period, we delivered a sector leading dividend yield and impressive annual total returns. Our growth positions us to deliver share price appreciation and secure our sector leading dividend and allow for potential increases in future cash distributions for years to come.

With that, operator, we're happy to answer any questions that listeners may have. Thank you.

[OPERATOR INSTRUCTIONS]

We'll go first to [Aaron Mehita, Primer Asset Management].

Hello?

Hello, Aaron. I had a question regarding your explosive growth. Now that you have 72 hotels to manage, I was wondering how much growth do you see in the management team at Hersha to help manage all of these properties.

Aaron, you're talking about our asset management group, I suppose, and our accounting function. We feel pretty comfortable that at the size that we are at, we don't expect any real material increases to our SG&A because of the increase in the size of the portfolio.

I think at 72 hotels, you could even add to that number by maybe 25% or 33%, and I think it will just be adding scale and we'll be able to better leverage the resources that we have currently in place.

Okay, thanks. That's all.

We'll go next to David Loeb, with Baird.

Ashish, you talked about where the $0.03 that was non-recurring came from. Can you give us a little more detail on how you got to that $0.03 calculation? We've tried to replicate that and had some challenges.

Absolutely. First and foremost, is the equity issuance of the 8.2 million shares that were issued in early December? On top of that, we had closed on the Summerfield Suites portfolio at the end of December. In conjunction with that, we funded $120 million of mortgage debt and we incurred that mortgage debt from the 28th through the end of the year.

But due to the late December closing, there is no P&L benefit after Christmas. So although we held the portfolio, we funded it, had the interest expense, we did not receive any of the P&L benefits from owning it for those last four days. The last penny was, as Jay had mentioned, a write-off of certain costs that we decided to write off during the fourth quarter from acquisitions that we have decided to forego for strategic reasons.

If I'm doing the math right, a penny is about $380,000, more or less.

For the quarter, that's correct.

So the dead deal costs were in that range of 3 to 400,000?

Yes, that's correct. They were.

That means the interest was more like 800,000, the interest on the dilution. And our calculations on four days of interest weren't anywhere near that. Am I missing something? Is there some other element to that calculation?

The dead deal costs you have it are in line. The dilution from the equity issuance is just if you layer on 8.28 million additional shares for the quarter with no P&L benefit from it, an additional approximately 100,000 of interest expense and no P&L benefit from those last four days of the year, it gets you to $0.02.

I'll go back and look at the equity issuance. But it was just 20, maybe 25 days of shares?

Right. It was about 20% of our shares outstanding though.

Yes. For something less than a third of the quarter?

Right.

Okay. I'll keep trying. Thanks.

We'll go next to Jeff Donnelly, with Wachovia.

Good morning, guys. A couple of questions. You talked about selling assets in Central Pennsylvania in the past. Can you update us there and specifically, I guess, what chance is there that that becomes a reality in '07?

In Central Pennsylvania, we have often talked about those being less strategic, obviously, than portions of the portfolio that are focused in urban and metro markets. With that being said, we continue to look at these Pennsylvania assets and the accretion and cash flow that they provide to the portfolio.

We continue to consider disposition of those assets, but we have to be comfortable that the cash flow that they generate can be recreated with other acquisitions in our program.

Reality in 2007 is that we'll continue to take a look at it. The liquidity in the marketplace is very attractive. It's a bit of an analysis of not so much can those be sold at a gain, but can they be replaced with something that's equally as accretive and produces the cash flows that they do.

Okay. I'm curious, about three quarters of your EBITDA comes out of the Northeast corridor, New York, D.C., Boston, Philly, etc. Can you take a moment, if you don't mind, and walk us through what you see to be maybe positive and negative catalysts on the horizon for those markets in '07?

Sure. In 2007, I think -- let me start first with supply growth. We have very, very limited supply growth in those four markets, supply growth that's going to be competitive with our segments there. New York and Philadelphia is still close to just flat on supply growth. We've got Boston that has some supply growth, and obviously, D.C. that has some supply growth. But it's mostly hotels that are not going to be competing with the assets that we have there.

Additional catalysts include I think just continued strength in the economy. Now, we've seen some slight hiccup here in the last day or two. But I think generally speaking, we feel comfortable that for the remainder of '07 and into '08, we're going to see continued strength in the economy, which should keep the demand generation in those markets at the very attractive level that it's been in the past.

For us, an additional catalyst in those markets is that the assets that we have are newer and they're continuing to stabilize. And so that just allows for us to drive more internal growth relative to some of our peer hotels in some of those markets that we're talking about.

But that's what I see as some of the catalysts. Jeff, did you want to talk also about what some of the limitations might be from being concentrated in those markets?

I'm just curious more about like some of those items you touched on, whether it's supply or to the extent you benefit from it, maybe favorable or unfavorable shifts in the convention calendars or things that you think might impact those markets as we roll through '07?

As far as convention calendars go, we obviously do a decent amount of group business in those markets from conventions and other group business coming to town. But for us, the corporate transient nature of our business is less reliant on convention calendars.

We rely on the compression that occurs in markets because of that. We feel comfortable that the place that we hold in the markets there are going to continue to see that continued corporate transient demand, which is what we focus on quite a bit.

Actually, two last questions. One, are you able to quantify for us what percentage of your rooms have yet to reach stabilization; and then within that, how close are they to stabilization or how far?

From that perspective, Jeff, when we look at our hotels, in general, most of the properties take anywhere from 18 to let's say, 24 months to stabilize. Right now, if you look at the portfolio EBITDA, about 27% of our portfolio EBITDA is coming from hotels that have been owned less than three years.

So we believe that all of those assets are still somewhat in the stabilization range. 17% of our portfolio EBITDA comes from properties open less than one year.

That's helpful. And last question, I recognize I'm probably putting you guys on the spot here a little bit. But the dead deal costs were, I think you said 3 to $400,000, which implies you were looking at something that was fairly significant. Are you able to give us a flavor about what you might have been looking at and what led you not to pursue that deal?

Let me talk about what led us not to pursue it. Jeff, we've talked before as well regarding our view on acquisitions. We continue to look for acquisitions that are going to be accretive from both a growth standpoint and from a cash flow standpoint to our portfolio and that are going to produce long term value for all of the owners. In this case, we were looking at a significant size portfolio, and we went quite a ways down on the due diligence process.

The reason that we ultimately decided not to push on with the transaction in that case was that we had a couple of questions that we couldn't get comfortable with related to long term accretion and EBITDA growth from the portfolio.

From a physical standpoint, we had a little less clarity than we would have liked, but we had made some good progress on franchise life at the hotel.

Finally, from a standpoint of diluting our very focused strategy of being in high barrier and new competition metro markets predominantly on the Northeast, this was going to take us away from that a little bit. There were plans to dispose of some of the assets, but we ultimately decided that the portion of the portfolio that would have had to be disposed of in order to keep us in line with our metro strategy would have been a significant distraction from our day-to-day work. So those are the reasons that we moved away from it.

That being said, the reason we kept at it for as long as we did was the accretion from the portfolio initially, I would say for the first couple, three years, was extremely attractive, and we felt that some of the markets that were represented in that portfolio had some very attractive growth rates and we thought that they would over time create great shareholder value.

That's helpful. Thank you.

[OPERATOR INSTRUCTIONS]

We'll go next to Bill Crow, with Raymond James.

If memory serves, when you did your portfolio acquisition that expanded your reach into California, one of the things you acquired in that transaction was the right of first refusal for future development deals, I believe. Could you kind of give us an update on what the opportunity looks like from that perspective and your appetite for acquiring transactions out on the West Coast?

We purchased that portfolio from a company called Lodge Works, which many of you may be familiar with. Lodge Works is a very, very strong operator of extended stay hotels. They have been quite innovative in the past. And they are also a developer of hotels. Our appetite for more acquisitions of extended stay hotels is there. I stated it in my remarks. But we don't feel compelled.

On a standalone basis, that acquisition was just terrific for us with or without a first right of offer or a relationship for future acquisitions of new development assets. We just see it as an ancillary benefit from the transaction.

Currently, Bill, I can tell you, we have no specific plans to purchase any development assets that Lodge Works is in the process of developing, but we will certainly be talking about them as time goes on. I'm not even certain if they have that active a development program going currently.

Jay, what is the debt program look like as far as the opportunities for backing new developments in New York and downtown Boston and some of those markets that you really want to continue to add locations? Are you seeing that construction demand for the debt to continue at this point?

The debt market for construction loans and development loans are still there. As Ashish mentioned, all of our development line financing right now is committed to New York City. There happened to be from where we see it, we have been able to be involved with some of the most attractive developments that are going on in New York City. But we think that that market still continues to see the value in New York, we continue to see the value in New York and there seems to be plenty of liquidity for it.

Okay. Thanks, guys.

We'll go next to Michelle Ko, with UBS.

Hi, guys.

Hi Michelle.

How are you?.

Good, I was wondering if you could tell us a little bit more about some of those hotels that are being constructed under the development loans, when they're proposed to be finished. And then also, if you could just touch on if there are any other markets you feel you are underrepresented in?

Absolutely. I'll start with the projects that we have ongoing in New York right now, and I'll start with projects that are most likely to complete in 2007 and early 2008 and move forward. The project mostly to complete in our program right now is the Sheraton that we financed at the JFK Airport.

It is directly across the street from our existing Hilton Garden Inn, which is doing extremely well, and that market continues to show great occupancy and RevPAR for the year.

The other few hotels that we have that will be open or at least constructed probably in the next 12 to 18 months, there is a Holiday Inn being constructed in Times Square South on 39th Street. There is an extended stay/corporate apartment development on 41st Street, which is up and running. We are looking and the developer is looking at converting that to an extended stay hotel.

The other properties that are probably, let's say, 24 months out, is a proposed Hilton Garden Inn in Union Square, a proposed Hyatt Place on 52nd and 3rd, and a proposed Westin on Greenwich Street in the Financial District.

From the standpoint of other markets that we believe we're underrepresented in, we continue to look at Boston, we continue to look at D.C. for opportunities in the metros for hotels that would fall in the select serve segment and the extended stay segment. We are not financing any hotel projects in those markets at this time, but we continue to work with developers that are looking for opportunities in those markets.

Michelle, if I could, I'd like to go back to your first question. The timing on development in New York is clearly an art versus a science. We feel that we have addressed that risk on timing by being in a position to continue to collect returns on money that we have invested in these development projects by way of this development program.

The vagaries of development are tough to begin with, and then when you are in a metropolitan market like New York, it's probably complicated that much more. But as we've mentioned before and as I'm sure you're very well aware of, the money that we put out in these developments earns an accretive return on it during the entire development process so that we're not bearing the risk for any drift in opening dates, etc., etc.

When you asked about under-representation in which markets, like Ashish said, we continue to look at our major metro markets. From a development standpoint, we're very much focused on New York City. With that being said, from an acquisition standpoint, I think Boston still has some good opportunities.

We think Washington, D.C., if you're able to be in an asset in our segment that's sort of the first to fill in our segment, still I think offers some attractive opportunities there. So that's kind of where we're looking specifically these days.

But we've mentioned this also in our earnings release and in conversations with folks, the large part of our portfolio assembly is completed; and so we're going to continue to look for acquisitions at this time that not only meet accretion to cash flow tests, but also accretion to net asset value tests. In our portfolio right now, to be above average in both of those categories requires us to be extremely selective.

Great. Thank you. Also, I was just wondering if you were going to continue on. I know you said not too long ago that you were going to focus more on acquiring wholly-owned assets versus JV's. Are you going to continue on with that strategy?

Yes, we are, Michelle. If you look at the 24 assets that we completed in 2006, two of them were for less than 50%. One of them was an 80% asset, Hampton Inn here in Philadelphia, and the remainder were 100% wholly-owned assets.

Similar paths in the first couple of months of 2007. We've completed five acquisitions. Four of them have been wholly-owned and one was a 50/50 joint venture for the Holiday Inn Express on 29th Street in New York.

I would say that no more than 10% of our yearly acquisitions would we even consider them to be unconsolidated JV's.

Okay, great. Thank you.

We'll go next to David Loeb, with Baird.

A couple of follow-ups. First, on the development loans, Ashish, you just talked about the Hilton Garden Inn, the Westin, and the Hyatt Place. On the schedule, it looks like those loans matured all of them this year. What happens when the loan matures?

The developer actually has two one-year extension rights on those. It's unlikely right now, and we are very close with all of these developers, that these will get paid off any time in 2007 because of the stage of construction that they're in. So we're very comfortable with -- it's unlikely that any of those, except for maybe the Sheraton JFK and 39th Street get paid off before 2008.

If they do get paid off prior to you acquiring them, does your first rate of offer stay in place?

It does. Our first right stays in place for two years after the hotel is opened.

After it's opened. Okay. Back to acquisitions, I want to just take one more bite at the apple, so to speak, on the dead deal. Presumably, that transaction happened with someone else acquiring it. How did the price that was actually paid compare to what you were looking at paying?

It's in the process of being consummated now. It's going to go for a number higher than where we were pursuing it at.

And can you just, kind of more generally on acquisitions, talk about what your appetite is for '07 acquisitions? I know you're obviously being more disciplined and have some concern about the balance sheet. But if you could just talk a little bit about what the appetite is, what the market it, what kind of cap rates you're seeing out there for your type of assets, that would be very helpful.

We're sitting here at the beginning of 2007. We have had several acquisitions this year. They have been somewhat specific. Two of them are very new hotels out of the development program. The Summerfield Suites transaction was a portfolio. But I think, it's my view, and I think our folks on the acquisition team have made me comfortable with the fact that pricing has somewhat stabilized.

We still feel that there are opportunities to buy at or slightly below replacement costs. Our acquisitions last year were all at very attractive cap rates. And even the ones that we've purchased this year, they probably average around an 8.5 cap for 2007 with what we've purchased everything at.

So these opportunities are out there. And I've said this before, David, it's just a matter of finding the right ones. I think if you sit and wait for them to come to you, they probably aren't all that attractive.

They're probably a little bit more expensive. But I think as the cycle continues to mature, I think you're going to see more opportunities out there. But I don't necessarily think that those opportunities will be offered initially at the best price. You'll have to work your way to it.

So in your guidance, you assume no additional acquisitions, other than what you've been out so far?

That's correct.

It sounds like from what you're saying, because you're being more particular, there are likely to be some, but there won't be nearly as many as last year?

That's right. We're not anticipating nearly as many as last year. The reason we haven't modeled it is currently, where we stand with our acquisition criteria for this year, we don't expect anything more than marginal number of acquisitions.

And just again, on cap rates, in your four markets that are 75% of your EBITDA, where do you see cap rates today?

I guess last year, if you take all of our acquisitions, they were made at a forward 2007 8.5 cap. If you look at the ones that we bought in '07, it's similar. So that's probably a pretty good indication of where we're at.

As you looked at the portfolio transaction, and I'm sure you've done this with arithmetic for your own portfolio, what do you think your portfolio would get if you put it up for sale on a forward basis?

I personally believe that it's worth probably a seven.

Great, very helpful, thank you.

At this time, we have no further questions. I would like to turn the conference back over to the management team for any additional or closing remarks.

On behalf of Ashish, I don't think we have any more remarks. Thank you for bearing with us through the little technical issues we were having at the beginning of the call. Thank you all for being with us this morning. If anybody has any questions following the call, feel free to dial us at the office. Thank you.

Ladies and gentlemen, this concludes today's conference. You may disconnect your phone lines at this time.