Hersha Hospitality Trust (HT) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hersha Hospitality Trust First Quarter '08 Earnings Conference Call. Today's conference is being recorded. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

With that, I would like now like to turn our presentation over to your host for today's conference, Mr. Bartlett Parker -- Bartley Parker. Please go ahead, sir.

Good morning. Thank you, everyone. Before we begin today's discussion, management has asked me to make a cautionary comment regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Section 27(a) of the Securities and Exchange Act of 1933 and Section 21(e) of the Securities and Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995.

These forward-looking statements 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 may cause the Company's actual results, performance and achievements or financial position to be materially different from any future results, 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 filing.

Hosting me -- the call today along with Mr. Jay A. Shaw, Chief Executive Officer, is Neil Shah, President and Chief Operating Officer, and Ashish Parikh, Chief Financial Officer. With that, let me turn the call over to Jay. Jay?

Thank you Bartley, and good morning everyone. I'm happy to start this morning with news of a significant event that took place for us earlier today, namely our transition to the New York Stock Exchange. While our relationship with the American Stock Exchange served us well across the last several years, we believe as we continue our growth this move will drive shareholder value through trading efficiencies on the world's deepest and most liquid equity platform, along with the increased investor awareness achieved through the global reach of the NYSE.

Let's now turn to our first quarter. Faced with an economic environment that shows significant signs of weakness and the continued uncertainty in the financial markets, we are very pleased to announce that we posted the strongest first quarter financial results both on a historical basis and on a comparative year-over-year basis for the first quarter of 2008.

For this period, our adjusted funds from operations, or AFFO per share increased 67% on a year-over-year basis. And because of the seasonality in the northeast corridor, the first quarter is by far our weakest, yet we're particularly pleased that we recorded industry-leading RevPAR growth of 9.7% and same store RevPAR growth of 8.3%.

Our portfolio and same store RevPAR growth benefited from our concentration in the strong gateway markets of the northeast, which continue to show business travel resiliency and are benefiting from strong international demand. Our RevPAR growth was also a function of the continued stabilization of our youthful portfolio, asset and revenue management strategies, and strong brand affiliations.

We currently estimate that approximately 50% of our 2008 EBITDA will be generated by assets that are less than five years old and 75% of our EBITDA is generated from hotels with Marriott, Hilton, Hyatt or Starwood brand affiliations.

By market exposure, our New York City hotels increased RevPAR by 19.4% compared to the 9% growth for the city, as estimated by Smith Travel Research. Our two Hampton Inn properties in Manhattan produced RevPAR growth in the mid 20% range with EBITDA margins in the mid-40% range. Notably, our Hampton Inn-Chelsea had over 700 basis points of EBITDA margin growth during the quarter.

Our Metro Boston cluster of hotels generated total RevPAR growth of 8.8% during the quarter, performing favorably in comparison to the Boston MSA, which recorded RevPAR growth of 7.5%. Our growth in the suburban locations of the Boston Metro grew by 14.2%, primarily due to 9.9% of occupancy growth. This occupancy growth was a result of the continued stabilization of two assets that are still very much in the ramp-up phase. This increased asset utilization produced EBITDA margin growth of approximately 350 basis points for these hotels.

In Philadelphia, our RevPAR grew 5.3% compared to a market RevPAR decline of 0.5%. Our Philadelphia performance was led by our Hampton Inn Center City, which increased RevPAR by 17.2%. Our hotels in the Washington, DC, area increased RevPAR 5.5% compared to a RevPAR decline of 1.5% for the marketplace.

We also think we've made great strides in our asset management programs, as demonstrated in our same store metrics. Our hotels managed by Hersha Hospitality management increased EBITDA margins by 104 basis points for the quarter on a same store basis and 72 basis points on a consolidated basis.

As we have mentioned during the past few quarters, we have been placing more emphasis on our asset management and sales platforms and have been pursuing only the most select new acquisitions. We closed on two unique opportunities during the first quarter, the Duane Street Hotel in the Tribeca section of Manhattan and a development in Brooklyn.

The Duane Street Hotel was purchased in January from one of our development loan partners after carefully considering its strong location with various demand drivers, which allow us to drive rate and the strategic benefit to our profitability with its independent platform. Conde Nast Traveler Magazine named the Duane Street Hotel in its most recent May 2008 issue to it's twelve -- twelfth annual hot list of the world's top new hotels, restaurants, nightclubs and spas.

In Brooklyn, we have purchased an independent, upscale hotel development in a mixed-use building. In this transaction, we've purchased the white-boxed core and shell of the hotel from the mixed-use developer and are in the process of the interior fit out of the hotel currently. The location is excellent, on the corner of Smith and Atlantic Streets in downtown Brooklyn, with many demand drivers in limited supply. The hotel, to be called the [New Hotel] is expected to be opened by the end of the third quarter.

Lastly, let me also highlight that we grew our development loan portfolio by approximately $13 million during the quarter. Our development program is not only a great source of off-market transaction in attractive properties, such as the Duane Street Hotel, but also a good use of shareholder capital with the strong cash yields these loans carry. The increase in our development loan activity is the result of the continued dislocation in the debt markets, and we continue to see expanding opportunities in this area.

With that overview of the quarter, let me now the call over to Ashish to give some additional financial color on our quarter. Ashish?

Thanks, Jay. We are clearly pleased with our RevPAR growth and our AFFO of $0.15 per diluted share for the first quarter, which is seasonally our slowest quarter. Our results were ahead of our internal expectations as our stabilized portfolio continues to show resiliency and our younger assets including those in our joint ventures ramp up at rates higher than forecasted.

RevPAR growth for our consolidated portfolio of 56 hotels was almost 10% for the first quarter. As was the case last quarter, nearly all of this growth was attributed to increases in ADR, but we did experience occupancy increases of 63 basis points as well, primarily due to increased occupancy in our New York City and in our stabilizing hotels. On a same store basis, our consolidated portfolio also performed very well with first quarter 2008 RevPAR growth of 7.6%, almost all of it related to ADR.

Our joint venture assets were a particular bright spot with the Waterford portfolio of nine hotels having 422 basis points of occupancy growth leading to 7.9% RevPAR growth. Including our joint venture assets, our first quarter 2008 same store RevPAR grew by 8.3% on 5.7% of ADR growth and 162 basis points of occupancy growth.

Although our RevPAR growth was ahead of our internal expectations for the majority of the consolidated portfolio, we saw deterioration in EBITDA margins in our Hyatt Summerfield Suites portfolio, which was in sharp contrast to what we experienced in the remainder of the consolidated assets managed by Hersha Hospitality management and our other independent operators.

Let me first start by discussing the consolidated properties exclusive of the Summerfield Suites. Our consolidated EBITDA margins expanded approximately 135 basis points during the quarter. This growth in EBITDA margins was primarily due to energy management and expense control measures that our asset management group and operators have been focused on during the past year.

We were pleased to see that our per-occupied-room cost for items that have shown the highest growth rates for the lodging industry and our hotels over the past year such as utilities, payroll and benefits cost did not experience any significant increases from the same period in 2007.

Our EBITDA margins were impacted by increased per-occupied-room costs for higher guest rewards program costs and new brand initiatives related to food and beverage programs mandated by several of the franchisers. During the quarter, our EBITDA margins were also impacted by higher costs incurred at our consolidated properties related to upgrades in our financial reporting and forecasting systems and higher costs related to increased sales and marketing efforts. Our financial results clearly highlight the benefits provided by these programs.

We are confident that these efforts are generating a significant return on investment through increased visibility from more aggressive revenue management and timely and precise responses to trends at individual properties or clusters of properties.

As the macroeconomic environment continues to remain difficult, we continue to bolster our efforts related to developing and strengthening our revenue generation and sales platforms to ensure that our properties remain the market leaders in their respective segments and to ensure that we are utilizing the most innovative sales techniques and marketing mechanisms related to the expanding reliance upon Internet-based booking trends.

Let me turn now to our Summerfield Suites portfolio. Although this portfolio had RevPAR growth on a year-over-year basis, as a whole, the portfolio's EBITDA margins deteriorated during the quarter. The margin loss was driven primarily because we began incurring costs related to Hyatt brand initiatives, re-branding efforts and guest-related rewards programs that Hyatt put into place during the third quarter of 2007 as part of its acquisition of this brand.

We had budgeted for these expenditures, and we expect to see related margin deterioration relative to prior periods for the portfolio during the second quarter of 2008 as well. We expect we will begin seeing incremental distributions from the Hyatt system, and Hyatt's brand initiatives and re-branding efforts will yield significant return on investment in future quarters.

Turning to our balance sheet, we ended the first quarter with approximately $71 million in development loans and $23.4 million in land leases outstanding to 13 hotel development projects. The increased development loan balance is primarily related to New York and Washington, DC based projects. Our overall capital structure profile remains favorable with respect to our ability to execute our long-term growth plans.

We have a very high percentage of our debt at rates significantly below the yields on our properties and development loan investments. Our weighted average maturity is a comfortable 7.6 years and not including our credit line only 14% of this debt comes due within the next two years. We are currently in discussion to renew all of these loans coming due in 2008 including our credit line and are very comfortable with our ability to renew these loans at favorable terms.

[O] growth in AFFO and strong financial results also continue to have positive implications for our credit statistics and dividend coverage levels. Based upon our 2008 forecasted results, we expect our dividend payout ratio to approximate 60% of AFFO less maintenance CapEx at the current payout levels.

Let me move now to our updated guidance. As we worked through our models of expected financial performance for 2008, we considered a number of factors including the macroeconomic environment, changes in the supply and demand characteristics of the markets in which we operate. and the operating characteristics of our portfolio.

We share the consensus view that the economic environment provides higher levels of uncertainty with respect to demand from business group and leisure travelers in 2008. We're still only four months through the year and although we continue to see strong trends in our own properties and our markets in the near term, we do admit that the revenue and cost picture offers limited long-term visibility.

Given this backdrop and our stronger-than-forecasted first quarter financial performance, we are increasing our RevPAR forecast for the full year ended December 31st, 2008, up 100 basis points for both our total portfolio and same store guidance ranges to 6% to 7% and 5% to 6%, respectively. Given our current run rate for depreciation and amortization expense, we believe our net income available to common shareholders will now be $12.25 million to $13.75 million

Our EBITDA is expected to be $121.4 million to $123.8 million, and our AFFO is expected to be $1.30 to $1.33 per diluted share. We continue to forecast EBITDA margin improvements of approximately 25 to 50 basis points for the total portfolio. This concludes my formal remarks. Now, I'd like to turn the call back to Jay.

Thanks, Ashish. Although the uncertainty of the economy gives us pause, we were very pleased by the start of the year and we remain optimistic that our portfolio performance will continue to outperform the marketplace.

We believe that our strategy will drive additional growth in the coming quarters and years both internally and through the most select acquisitions. Thank you, for being with us this morning. With that, operator, I'd like to open the line up for questions.

Thank you.

(OPERATOR INSTRUCTIONS)

We'll go first to Michelle Ko at UBS.

Hi. Good morning, guys.

Good morning, Michelle.

I was just wondering, aside from the New Hotel in Brooklyn, are there any other assets you anticipate acquiring from your development loan program this year? And then also, can you also remind us how much you have on your credit line available?

On -- Michelle, this is Neil Shah. On the acquisition side, we are -- the JFK Sheraton Hotel --

Yes.

-- Is one that is nearing completion and one that we are actively negotiating right now.

As far as the credit line, Michelle, we have about $25 million available at this time.

$25 million, okay. And for the JFK Sheraton, do you think you'll be able to acquire 100% of that, or what's that?

We hope to be able to acquire 100%.

Okay, great. Thank you.

Next, we'll move to Will Marks at JMP Securities.

Thanks. Hello, Jay. Hello, Ashish.

Good morning, Will.

Good morning.

Good morning, a couple of questions. One, I'm wondering if maybe I have the wrong press release, but did you abbreviate it this quarter?

(inaudible)

In other words, there doesn't seem to be as much information.

The supplemental schedules you mean, Will?

No. We've -- we have the same supplemental disclosure and the same press release.

Okay. I -- because I didn't see it on your -- it wasn't in the email, and perhaps it's on your website. I just need to --

Okay. We'll make sure our IR firm gets you all that information.

-- No problem, okay. And then secondly, last quarter you said that less than 10% of your, I believe, you were talking about the FFO per share was -- would come in the first quarter and certainly based on the guidance, it would be -- you'd be very conservative right now with your full-year guidance. But, I assume that's no longer the case?

That's right. We did see more than our estimated 10% coming from the first quarter primarily for the reasons that we've described, overall out-performance across the board on the entire portfolio.

But, I guess that shouldn't take away anything, necessarily, from the next few quarters though?

You know -- you know, Will, this is Jay. It shouldn't, and we feel very comfortable with the guidance that we've given. But, we certainly don't have a crystal ball. And when there is -- when there's so much banging around in the press and what we see with the economic indicators suggesting such a slowdown, it's hard -- it's very difficult for us to be able to have a lot of visibility going deep into the third and fourth quarter.

But, I think where we have -- where we've placed our guidance, we feel very comfortable with it. We think it's realistic, and that is based on a lot of conversations with our operators, with reviews of -- with reviews of our forecasting tools and also counting on some international demand to continue to buoy up our gateway markets.

Okay, great. Thank you. And actually, do you -- wanted to take a stab at offering us the breakdown of second, third and fourth quarter just approximate where the FFO comes from?

I mean, I think that we could probably follow just last year's trends as to percentages.

Okay.

And it'll probably get you to the same place.

Great. Okay, thank you very much.

Sure.

Next, we'll move to Andrew Whitman at Baird.

Good morning, guys.

Good morning, Andrew.

A little bit more on the development and loan program, these other hotels with the Hilton Garden Inn in Brooklyn as well as the Homewood Suites, the Union Square Boutique Hotel I think is coming closer as well as another Hilton Garden Inn in Tribeca, can you just comment on your thoughts on those and whether or not you think you might be acquiring those, Jay, before the first half of '09 or if you might wait until they stabilize a little bit more?

Hey, and let me just quickly talk about the -- sort of the -- maybe the discrepancy. The development loans themselves have a one-year term, and then they have two-year extension option. So although the development loans may be coming due from a maturity basis, most of those hotels will not be completed this year. So outside of potentially the Hilton Garden Inn, which is slated to open sometime in 2008, none of the other hotels will open until late 2009, potentially 2010.

And we will likely renew --

-- All of those --

-- All those loans.

--Yes.

I see. I see. Just looking out a little bit farther, with where you anticipate the balance sheet being, do you think partnering up for those is a more likely option? Or, do you think -- I guess, can you just give us some color on how you think about maybe acquiring those?

You know, almost -- it seems that almost in every acquisition that we've been looking at and underwriting, we've been considering partnering with a private equity firm or a financial partner of some kind on most of the things that we've been looking at. On the development loans, that's a very possible outcome. Or, a partial ownership interest is a potential outcome or if we feel that the hotels will stabilize very quickly, then we will try to get 100% of the asset.

Okay, that's helpful. And the, I guess just a little bit more just on the outlook of -- for acquisitions. Can you just talk about what you're seeing or where you think cap rates might be for some of your major markets, given that you have been a little bit more active than some of your peers?

Sure. We've -- in some ways been active, but I think where we've been most active have been on assets coming off of our development pipeline, in our development loan program. We kind of feel that on the open market, since early 2007, we've been -- we've been very selective in our acquisitions and have done very few transactions of kind of third-party acquisitions since early 2007.

Unfortunately, I -- we don't really see that -- that picture for the acquisitions pipeline improving that much more in the last few months. I think clearly, cap rates have to fall if leverage is 100, 200 basis points more expensive when it's available even. So, cap rates should adjust. But what we've found is that in our major markets, in New York, in Boston, in DC, we haven't seen cap rates adjust.

That said, we haven't seen a lot of transactions closed either. So, we're still waiting and looking at opportunities but so far, we haven't seen a market shift in cap rates in major urban markets. I think in secondary markets, you're starting to see more assets trade in the kind of eight to nine cap range, but that hasn't been the focus of our acquisitions effort. So in the urban markets, we're not seeing any change in pricing yet.

We have some -- and Andrew, this Jay. I'll just add to what Neil said. We do have some sense that in the next two to four quarters, as Neil said, the pricing will change and we'll start seeing executed transactions to service comps. And I think there just needs to be -- there needs to be more debt bids on some of the assets that are out there so that people get some decent guidance on where marketplace LTVs and rates are. And I think that's going to impact price.

I think that's absolutely right. Where we've been most active so far in kind of underwriting deals has been, in fact, on the debt side. It seems like this -- it's been a credit dislocation rather than kind of a supply, demand imbalance that's caused kind of concern and caused a hope for changing prices.

But, the only place where we're really seeing good, unlevered yields on assets, good as in approaching double digits, has been on debt purchases, on either senior debt or on mezzanine loans. So, we've been looking -- with a financial partner, we've been looking at some opportunities there. But on the asset side and on the equity side, we think that there's probably still a couple of quarters to go before very attractive opportunities start to become available.

Okay, interesting. Any -- just any outlook on what's the senior debt or the mezz loan can mean in terms of dollars going out the door this year?

Unfortunately, no. We're just -- we're underwriting a bunch of opportunities. We don't know if we'll be the -- if we'll be a winning bidder on any of them, or we haven't allocated a certain amount of capital to this platform. But when we're out in the marketplace, we always are underwriting a lot of deals, both assets as well as joint ventures. And today, it just seems that the senior debt seems the most attractive in terms of going in yields.

Okay, great. Thanks.

Our next question comes from Jeff Donnelly at Wachovia.

Good morning, gentlemen.

Hi, Jeff.

A couple of questions, could you walk us through -- or would you be willing to walk us through the monthly progression of RevPAR at your New York City hotels in Q1 and maybe how you've performed subsequent to quarter end? And I'm just curious to see if that's sort of remained strong consistently over the quarter of if we've seen any, I guess, weakness as it progressed?

You know, I -- Jeff, I'm going to be honest with you. I do not have quarterly number -- but monthly numbers with me. Conversationally, April has been very strong in New York.

Right.

And through the month, we started -- probably started January slightly slower, and then February and March both came in above plan. We can get you more detailed information on that if you want -- would like to drill down on that.

Okay. Well, I guess as a follow-up to that, and I don't know if you might you have this with you but maybe you could just offer some anecdotal sense, but I'm curious in the New York City metro area, do you guys have a sense as to whether or not you're gaining or losing share, I guess sort of the like the Smith Travel Store data, on a same store basis?

Because I guess what's behind it is I'm wondering who your typical customer is and how that's changing. For example, do you -- are you -- have you been reliant on sort of that core independent business traveler, but now you're seeing firms who once paid up for the Sheraton or the Marriott maybe redirecting employees to lower-price options such as your hotels? Or --

Yes.

-- Just kind of curious what you're seeing there in the actual bookings?

Purely anecdotally Jeff, this is Neil, we're still seeing very strong kind of transient demand at our hotels. I think the most kind of -- the only real change in that regard has been there's -- of the transient business, which is maybe 80% of the business at most of our New York City hotels, there's more and more share coming from international bookings.

And it's -- generally it's -- in the past, we've had difficulty kind of slicing and cutting the data to see how much exactly is coming from the various channels from international customers. But, what it seems, at least at our Hampton Inns, is that it's international used to make up 20% of our -- or 12% of our transient business. Today, it's up to over 20% of our transient business. So clearly, there's some significant international effect in New York that we're benefiting from.

In terms of trading down, we haven't seen it yet, but we do expect it will come as corporate travel starts to tighten up across the next year.

Yes Jeff, this is Jay. Just to give you some general New York City data on international travel and then we can talk a little bit about the corporate demand and the trading-down effect. But the -- generally in the first quarter, New York City saw a 20% increase year-over-year for the number of international travelers visiting the city. So when you try to translate to -- that to room nights that we -- don't have room nights figures on that, but you have to assume it's some multiple of the number of travelers and so that's been very, very strong.

In Boston, for instance, there has been a 14% in the first quarter increase the number of tourists. They're expecting an 18% increase in the second quarter in Boston, and they're still far off the mark from the highs that they achieved 2000. So, there's even more upside in those areas, and we don't expect the international travel to abate any time soon, certainly not until well after the election. So, I think that demand for our markets is going to be an area of focus for us.

As far as corporate profits, when you take a look at sort of Smith Travel estimates, corporate profits are anticipated to swing almost 5% from a positive 2.7% last year to a negative 2.7% this year. So as we see the tightening of corporate profits, I expect we're going to see more travel budgets tighten.

As Neil mentioned, anecdotally, we're hearing about a lot of the big firms, the big four audit firms and some of the other law firms and banks where lodging choices have been curtailed, let me put it in as most flattering way I can. And so, I don't know that it's tightened up enough for us to notice that much of a difference and it's not something that we normally track, obviously. But, the potential for it is very strong.

That being said, I think that -- that makes us feel confident that our demand situation is going to remain fairly firm. So with demand firm and an in anticipation of the CPI increasing almost 60 basis points next year, we feel pretty confident we're going to be able to continue to drive rate. But, the demand picture for us looks very even keeled.

That's great. And just one last question, I just -- I guess Sam Chang's hotel company, it's been a significant tear in recent years. And I know Hersha, you guys have a pretty good relationship there. You're either buying hotels from, I guess it's called [McSam] -- or offering financing to some of their -- those developments, I believe.

I'm just curious to get my arms around, I guess, the concentration that you have there or the depth of your relationship. Are you able to quantify, I guess, the magnitude of capital you have in entities affiliated with them? Or -- I'm just curious how extensive that relationship is.

We have -- in New York we've worked with three development partners in addition to McSam. McSam has been one of our largest partners and have, I think, five projects that we provided financing on where he is involved in the -- so if we needed to guess a number, I think it's probably around $50 million.

We feel pretty good about all of those projects. It's a very attractive basis the developers have in those projects. So even a tightening kind of economic environment where construction loans and things are a little bit harder to get, we feel very good at the basis that HT will hopefully have an opportunity to buy these assets at.

Yes. So with McSam, it's about $50 million. With United Homes, our partner in Brooklyn, it's about $20 million and then most recently, the [Bonell Creek] transaction is complete. But -- so, it's a significant relationship but one we feel very comfortable with.

Great, thank you guys.

(OPERATOR INSTRUCTIONS)

We'll go next to Bill Crow at Raymond James.

Good morning, guys.

Hey, Bill.

How are you, Bill?

Good, thanks. Just a few questions, following up on Jeff's first question about the monthly results, I know you don't have New York City in front of you. Do you have a feel for what consolidated RevPAR growth was in April?

Sure. Bill, this is Ashish. Our consolidated RevPAR growth was sort of in the mid -- yes, a little better than 6% for our consolidated hotels in April.

Okay, great. Could you just -- Jay, could you talk about capital recycling? And have you kind of missed the opportunity to sell some secondary and tertiary assets now that cap rates have risen? Or, do you still plan to look to off-load some of those properties?

Yes. I think -- the -- some of the assets from the -- from Central Pennsylvania, for instance, we have continued to look at different opportunities for what we can do to recycle the capital invested in those assets. We focus more on building the portfolio and building out the markets that we wanted to be exposed to.

That being said, obviously pricing right now, one might argue that yes, it has gotten a little more difficult. It's difficult to say if that portfolio would have driven a significantly higher price a year ago than it would today. But again, this has been one of the issues that we have had with this portfolio.

I'll let Ashish just share some of the performance numbers out of that Central Pennsylvania portfolio in the last quarter. It has once again become a strong contributor to overall portfolio performance in uncertain times. And so, it's always sort of a grappling that we go through, but --

Yes.

Hi Bill, this is Ashish. Just for our Central Pennsylvania portfolio, we had about 8.2% RevPAR growth for the quarter, and although it consists -- now, the Central PA portfolio is about less than 10% of our EBITDA, as Jay mentioned, the -- on some of these assets, we've put some dollars in over the last year, and we're starting to see very nice growth year-over-year.

And there are some assets in Central Pennsylvania that may show some weakening trends, and we'll continue to see if there's some kind of asset disposition that we want to do on those. But as a whole, we're not seeing that portfolio showing any significant signs of weakness.

Okay.

And you know, it's a trade-off. And we'll -- and we continue to monitor it, and we are -- we're certainly going to act when we think we can create some strong and sustainable shareholder value from the transaction.

Okay. The JFK development asset, you've got a $10 million loan outstanding on that to the developer. What do you think that -- I don't want to -- don't want you to negotiate here on the telephone, but how much additional capital are you thinking you're going to need for that asset acquisition, given that you've only got $25 million available on your line right now?

Sure. Bill, we wouldn't anticipate that we need any --.

Okay.

-- Additional capital there. We would look at first-mortgage debt plus this and even the potential to use LP units to be more than sufficient.

All right. And then Jay, I've got to ask you the one -- just out of curiosity here, your development loan on the Comfort Inns in DC, how did you get your dad to accept a 15% interest rate?

You know that asset, it just -- it's not a strategic brand for us anymore and because of that, we felt that in order to move forward with it, we need a very strong return on the development loan. The development partners there feel very, very strongly about the asset and are expecting very strong [IORs] and so, the 15% worked neatly in their capital stack. And in this environment, to get 15% unlevered is obviously very attractive, and so we moved on that.

Do you still get invited over for dinner from time to time?

I guess --

Thanks for your time.

-- Thanks, Bill.

We'll move next to Will Marks at JMP Securities.

Sure. This has partially been answered but on just the idea of if we just take Manhattan and the idea of limited and full service, can you discuss as to what you think happens in an environment where maybe the growth slows a little bit. Does it really help you more? Or, are -- is paying $300 for a Hampton Inn something that goes away?

I don't think it fully goes away. I think everyone prefers good times. Good times, I think, lead to all boats performing well, but I -- we think that in a downturn where our risk is a little bit mitigated and we do feel that there is some trading down in fact and there is a loyal customer base for these brands that we operate in good times and bad.

That said, if there's -- if revenue -- if RevPAR goes down 10%, 15% for the entire market, I don't think we're going to be able to hold fully -- hold our ground. So, I think rates could fall in a situation where there's a huge -- a substantial impact on demand.

On the supply side, we've been monitoring that very carefully to see if it's going to have any impact on our ADRs just from the new hotel rooms being developed in the market, and we feel with when they're going to be delivered and the numbers and locations of those new rooms, we don't see that as posing as a threat. But, demands clearly would be a threat.

Yes. And the offset -- the only real offset we have against that is that strategically, we believe in our segments. The youth of the portfolio, I think, will continue to serve as an offset to downward pressure and finally, the locations that we're in, we continue to have great long-term belief in those location and a real resiliency of demand in those locations.

Okay. That's great, thank you.

And next, we'll move to Smedes Rose at KBW.

Hi, good morning.

Hi, Smedes.

I just -- I wanted to know, did your Pennsylvania portfolio benefit at all during the quarter just from the Democratic Primary issue? Did that help either of those categories? Or, did it not? Were there not enough people for that to really make a difference? And then, I also wanted to know for -- their hotels -- the brands owned by Hilton, has there been any sort of change in the pricing strategies now that it's owned by Blackstone, are they still sort of a tiered pricing strategy?

We are very hopeful -- we are very hopeful that we'll be able to gain -- garner some more flexibility in rate-setting with the Hampton Inn brand --

Yes.

-- With Blackstone's ownership, because it does serve their interest well as well. But that conversation is ongoing, and we haven't -- there hasn't been a change in the number of tiers since our last call. But, we're more hopeful that something will be able to make the right kind of ROI decisions with Hilton moving forward.

And as far as the election, Smedes -- this is Jay. I don't know that our operators have noted any additional demand from the -- from all of the Primary activity that was going on in the state during the first quarter. I'm sure that it had some incremental effect but nothing that was measured.

Okay, thank you.

And at this time, we have no further questions. I'll turn the conference back over to management for any closing remarks.

If there's no further questions, we'll sign off. If anybody has any questions that occur them after the call, please feel free to give us a ring. We're here all day. And once again, I thank you all for being with us this morning. Thanks.

And that does conclude today's conference. Again, thank you for your participation.