Hersha Hospitality Trust (HT) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, in the welcome to the Hersha Hospitality Trust first-quarter 2011 earnings conference call. 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 now like to turn the presentation over to Ms. Nikki Sacks with ICR. You may proceed.

Thank you and good morning, everyone. I want to remind everyone that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that's amended by the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Hersha Hospitality Trust trends and expectations, including the Company's anticipated results of operations through capital investments.

These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the Company's actual results, performance, or achievements or financial provisions 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 in the Company's SEC filings.

With that, let me turn the call over to Mr. Jay Shah, Chief Executive Officer. Jay?

Thank you, Nikki; good morning, everyone. Welcome to the Hersha Hospitality Trust's first-quarter 2011 earnings call. Joining me today are Neil Shah, our President and Chief Operating Officer, and Ashish Parikh, our Chief Financial Officer.

I'll briefly discuss today our first-quarter results and comment on some of our recently announced acquisitions and the ongoing strategic transition of our portfolio. During the first quarter we delivered 6% RevPAR growth, even with the significant disruption caused by our planned renovations, the harsh weather conditions in the Northeast which caused numerous travel disruptions, and the additional room supply in New York that came online in late 2010 and during the quarter.

Seasonality in the geographic concentration of our portfolio has historically led to the first quarter being our weakest quarter. Typically it represents between 12% and 14% of our adjusted EBITDA and between 5% and 6% of our Adjusted Funds from Operations.

In anticipation of this seasonality, we timed the commencement of several return on investment projects to occur during the first quarter. The nine impacted hotels -- including properties in New York City, Metro Washington, DC, and Philadelphia -- are some of our larger properties and are among the EBITDA-producing leaders in our portfolio.

We undertook these renovation projects to ensure that the high-quality standards of the Company are maintained and to increase the cash flow and profitability of the hotels as we continue into the recovery. While these projects' unusual disruption in the short term, we believe that the renovation enhancements will be accretive as the overall booking trends and group pace in the second quarter have picked up. We expect these hotels will provide increased contribution to our results as they are brought back online and the lodging cycle continues to accelerate.

Given the unusual disruption that these projects caused, I'm going to provide some additional context of our performance, which will better reflect the effectiveness of our normalized portfolio in the first quarter. Excluding the results of the hotels undergoing renovation, the Company's consolidated hotel RevPAR increased by 9.8%, and the EBITDA margins increased by 29 basis points year-over-year.

In terms of our important New York City portfolio, although the New York market experienced a 5.3% RevPAR decline during the quarter, our pro forma New York City portfolio excluding the hotels under renovation realized RevPAR growth of 4.8%. For the month of April, our same-store New York City portfolio is up approximately 14%, and we are very encouraged by the strong stabilization trends in some of our recent acquisition properties, such as the trio of hotels that we purchased in Times Square early last year. During the month of April, these three properties -- the trio in Times Square -- have recognized a RevPAR growth in excess of 30%; and the group and transient booking pace in May and June continue to be strong.

Let me spend a few minutes on new supply in New York City. Last year, New York City had approximately 26 new hotel openings which accounted for 7,294 rooms or approximately 10.3% of the existing New York room supply, certainly not an insignificant addition. Nonetheless, the resiliency of our assets and the demand in the market led to very strong performance.

During the fourth quarter of last year, while the city was absorbing all this supply, our New York City portfolio of consolidated hotels realized a 12.9% growth in RevPAR, driven by an 11.2% increase in ADR and a 131 basis point increase in occupancy. As we review the many industry sources such as Smith Travel, Lodging Econometrics, and PWC, and we continue our own in-depth due diligence on the status of New York City projects, we believe that we will see a growth rate of approximately 3.1%, 3.8%, and 2.8% in New York City room supply in 2011, 2012, and 2013, respectively, for a total of approximately 7,723 rooms, which is only slightly more than the rooms added last year alone. Combined with New York's increasing demand dynamics, which are averaging close to 5% across the next four years, based on projections, the recovery -- increasing demand dynamics that are averaging close to 5% into the recovery we remain quite bullish on the barriers to entry in the market and New York's ability to absorb the new supply.

While three of the strongest markets in the country -- New York, Washington, and California -- make up approximately 65% of our EBITDA, in first quarter we had strong RevPAR growth in our other key urban markets including Boston, Philadelphia, and the mid-Atlantic. Our focus on leveraging a wave of urbanization is hitting the mark and gives us confidence in the strategic positioning of the portfolio that emphasizes urban gateway markets.

To that end we are very excited to have announced the acquisition of our first hotel in Los Angeles. This is another step in executing on our strategy of building a presence in a high-growth, high-density market.

We recently signed a purchase and sale agreement to acquire the 260-room Marriott Courtyard Westside for $47.5 million or $182,500 per key. We have studied the market for quite some time and are pleased to have identified a strong entry point.

This hotel was completely renovated in 2008 and includes approximately 11,000 square feet of meeting space. Culver City is an area that is home to a vibrant entertainment industry, a growing cultural district, and an already burgeoning employment center with convenient transportation options. The market consists primarily of less attractive hotel product outside of the Courtyard; and the Courtyard Westside is arguably the best hotel in its market due to its desirable location and the strong asset quality.

Our confidence in entering the Los Angeles market at this point in the cycle is a result of the strong gains that the market recognized in 2010 and during the first quarter of 2011. And we believe that the market is poised for ongoing growth as occupancy continues to increase and new supply growth is extremely limited.

In fact since 1995 Los Angeles has offered the second-highest RevPAR in the country, behind only New York. Even with that average, market RevPAR is 17% below the peak it had reached in 2008. We look forward to the meaningful growth opportunity there as the cycle progresses.

We also recently announced the acquisition of two more hotels in New York City in the downtown financial district, a 112-room Holiday Inn Express on Water Street and an 81-room Hampton Inn on Pearl Street for a combined price of approximately $69.1 million or $358,000 per room. We closed on the Holiday Inn Express during the first quarter and now own 15 hotels in New York City.

In addition we closed on our previously announced acquisition of 152-room Capitol Hill Suites in Washington, DC, a very centrally located hotel in the Capitol Hill district that benefits from a wide variety of corporate, government, and leisure demand generators that are within blocks of the hotel.

We continue to be active on the acquisitions front as we continue to take advantage of our access to appealing off-market transactions in gateway cities. As we evaluate additional opportunities, we will remain very selective and concentrate on only the best urban markets in the country, particularly New York and Washington, DC, and select other markets with similar characteristics.

Ashish will provide some additional perspective; but as we discussed on our last call, we will continue to sell certain non-core brands and assets in locations that we believe have less opportunity for growth in the cycle. This asset disposition program for non-core properties provides us with additional financial capacity and further will concentrate our portfolio to markets with higher anticipated RevPAR growth.

The recent renovations, the young age of our hotels, along with the realignment of our portfolio that focuses on high-barrier gateway markets should serve us well as the lodging cycle moves ahead. As we drive our ADR growth, our focus on select service and upscale hotels in major metropolitan markets and our cost-containment emphasis will not only enable us to reach peak margin levels but should allow us to meaningfully exceed them.

We are firmly convinced that Hersha is positioned to benefit from the ongoing recovery and emerge as the leader in our selected urban markets. Let me now turn the call over to Ashish to go into some more detail on our financial position. Ashish?

Thanks, Jay. I'll focus on our operational results, balance sheet, disposition activity, and financial outlook for 2011. Excluding the hotels under renovation, our total consolidated portfolio recorded a RevPAR increase of 9.8%, driven by a 7.5% increase in ADR and a 126 basis point gain in occupancy. This ADR-driven growth led to an expansion of our gross operating profit margins of 157 basis points.

On a same-store basis excluding the renovation hotels our portfolio recognized a RevPAR growth of 3.1%, driven by a 4.1% growth in ADR and a loss of 60 basis points in occupancy, which translated into GOP profit margins -- GOP margin expansion of 64 basis points.

Operational profitability from our core consolidated portfolio reflected the effects of a seasonally soft first quarter along with several items that served as significant disruptions and have been previously discussed. In addition to these items our profitability was impacted by higher property-level payroll expenses, increases in the cost of snow removal and property taxes, along with the elimination of certain brand credits that were available to us in the previous year.

Our EBITDA margins were also impacted by certain nonrecurring items totaling approximately $500,000, such as a sales tax audit charge and a property tax credit which benefited one of our New York City hotels during the first quarter of 2010. Collectively, these items had a disproportionate impact on our margins due to the low base of revenues and EBITDA that we record during the first quarter. However, we expect that the recurring expenses will be offset by ADR-driven growth in the coming quarters, leading to EBITDA margin expansion.

Turning to our balance sheet, as of March 31, 2011, we had significant capacity for additional investments with only $63 million of borrowings against our $250 million line of credit; almost $40 million in cash and escrows; and only $17.9 million of debt maturing in 2011. Excluding the line of credit, approximately 94.5% of our consolidated debt is fixed or capped, with a weighted average interest rate of 5.69% and a weighted average life to maturity of approximately 6.3 years.

During 2011 we plan to commence or complete approximately $24 million of capital improvements for the full year, as we catch up on upgrades we chose to forgo during the recession and undertake additional ROI projects. We spent approximately $10.5 million during the first quarter; and although there was carryover of some of the renovation work into April, we believe that the majority of the projects that required rooms to be out of order or were likely to cause significant disruptions are now completed at this time. We plan to fund our capital expenditures with cash on hand and through the existing reserves.

As we have previously discussed we are also pursuing certain strategic dispositions as we recycle capital and seek to redeploy it to higher growth opportunities. We have identified approximately 20 assets that we now consider non-core properties, due to their brand affiliation, age, or due to the fact that they are in locations that we believe have less opportunity for growth than our other assets in our existing portfolio and our acquisition targets.

We are actively marketing a number of these assets, and we are encouraged by the amount of interest that we have received from potential buyers. At this time we are in the later stages of our marketing efforts and we do expect to be able to announce select dispositions in the near future, with the expectation of closing by the end of the year.

At the end of the first quarter we also made the decision to cease operations at our Comfort Inn in North Dartmouth, Massachusetts, which was a 15-year-old hotel where we determined it was best to convey the hotel back to the lender. The asset was producing negative cash flow for the Company for several years, and we had previously taken impairment charges such that our basis in the asset is currently below the debt balance of approximately $3 million. As the debt is non-recourse to the Company, we don't anticipate any further impairment charges; and we may actually need to record a gain upon the final conveyance of the property.

We also continue to streamline our business model and reduce our development loan portfolio. We recently announced the acquisition of the Hampton Inn, Pearl Street, in the financial district; and we plan to convert our $8 million mezzanine loan on the project to equity.

As of March 31 our development loan portfolio consisted of six loans with a total value of approximately $42.3 million. Pro forma for the closing of this acquisition, which we anticipate to be in the second quarter, our development loan balance will be less than $35 million, representing less than 2% of our asset base.

Turning to our outlook for the remainder of the year, in providing our full-year guidance in late February we had taken into account the weakness that we had noted during the first quarter and the financial impact of the planned renovations. The majority of the renovation hotels are now back online, positioning us to benefit from the seasonal demand that typically picks up through the spring and summer months.

As we have mentioned, the second-quarter trends have been strong in New York City, and we continue to see growth in markets that outperformed in the first quarter such as the Boston and New England market and our properties in the mid-Atlantic, California, and Arizona.

We are also encouraged by the results in our Philadelphia portfolio, as we are seeing strong booking trends from the opening of the Convention Center expansion at the end of the first quarter and the completion of our renovation activity at the Hampton Inn Philadelphia, located adjacent to this Convention Center.

These improving fundamentals have resulted in our same-store consolidated RevPAR improving over 6% in April, with our same-store New York City hotels recording growth of over 14% during the month. As such we are reiterating our full-year guidance which we introduced on our 2010 year-end call. The details of these guidance ranges can be found in our earnings release.

And with that, that would conclude my formal remarks; and I would like to turn the call back to Jay.

Okay. Thanks, Ashish. Operator, we could open the line for questions that listeners may have.

(Operator Instructions) Will Marks, JMP Securities.

Great, thank you. Good morning, Jay; good morning, Ashish. First, you had mentioned on the call a New York number. I guess, RevPAR up 14% in April. Is that a same-store number?

That is a same-store number, Will.

Okay. Let's see, second question on -- you talked a little bit about your EBITDA. I think you mentioned EBITDA including LA, 65%. Could you maybe break out pro forma EBITDA by market? Just simply California, I guess, New York, Boston, DC, Philly.

Yes, absolutely. This is a range for the full year for the existing portfolio right now. I think we have looked at New York accounting for about 45% of our EBITDA. DC will be somewhere in the range of 15%. Boston around 10% to 12%. California would be between 5% and 7%. And Philadelphia is around 10% to 12%.

Okay, so this is -- that would be pro forma with these new properties?

Pro forma with the new properties.

Okay, great. Then toward the end of your comments you talked about CapEx. Can you quantify from now through year-end approximately how much you will have to spend?

From now through year-end, I think we are at about $7 million to $10 million that we will need to spend.

That's total, maintenance and --?

Right, and that is going to be back-ended, mainly in the fourth quarter now. There will be some work that will need to be done; we are taking on some work in Arizona during the second quarter, which is going to be -- which is a slow quarter for the Summerfield Suites property. But that is the only major renovation in the second quarter.

Okay. Then just looking at the travel numbers, DC in April looks really weak. I am wondering if that is the month, if that is -- do you think that is the quarter? Or if that is not you?

You said DC in --?

Yes, DC. Just I think it is the Smith Travel number, it looks pretty bad for the quarter. It was down 1% (multiple speakers).

We have been finding a real -- there is a real divide between the greater Washington, DC, market and the District of Columbia. So we have seen some softness in The Residence and Greenbelt, in Gaithersburg and in -- not so much in Alexandria. But there has been more softness on the ring suburbs around DC as government businesses start to contract a bit and those areas.

But in the District we are still experiencing good growth at the Hampton Inn DC. That is in the same-store -- or not yet in same-store?

Right.

Not yet in same-store. Then the Capital Suites that we just took over, we are having a great month there. So, I think it is -- the STAR data may be covering the Greater DC area.

Yes, generally, just for some more color, Will -- this is Jay. What we have been hearing in Washington is just the uncertainty surrounding the budget approval process has caused a lot of government agencies to generally not -- just to stall out there spending a little bit and cut their travel.

It's obviously unclear when that will pass, but on the outside it is September. So you might continue to see some choppy results. But the District, as Neil mentioned, continues to be strong for us.

Okay, thanks. If we look at the overall platform and the RevPAR guidance, how should we be thinking about it by quarter or just in general trends? Is it going to be more second half will be better than second quarter?

Yes, I think that as we have looked at the trends, we do believe that there will be continuing strength from second to third, and third to fourth. So we do believe that. It is based on the pace and the bookings that we have been seeing, that back half of the year will be stronger than the second quarter.

Okay, great. That's all for me. Thanks, guys.

Shaun Kelley, Bank of America.

Hey, good morning, Jay; good morning, Ashish. Just wanted to dig in a little bit more on the operating leverage point. Obviously a lot of noise in the margins that you saw this quarter. But you did drive at least in some of the markets a lot of -- you were able to drive a lot of rate.

So I am wondering first of all, like how should we think about the margin progression as we work through the year? You obviously didn't change your full-year outlook.

So does that work in lockstep with RevPAR? Or how much of a bounce can we see once some of the renovation disruption rolls off?

Sure. Shaun, this is Ashish. Let me touch upon that a little bit. I mean the first quarter was definitely impacted by -- everything we have discussed. But it is just seasonally such a weak quarter for us.

Then we mentioned the one-time items. So if you look at just the $500,000 of nonrecurring, if you look at that from a standpoint of -- for assets that weren't under renovation, we mentioned we had about 29 basis points of improvement from our EBITDA margin standpoint.

Without that $500,000 you would have 129 basis points or 130 basis points of improvement. So it's just the seasonality makes it look more exaggerated.

I think that with this type of 5% to 7% type of RevPAR growth that we are seeing, and as long as it is ADR-driven, we could easily expect 100 to 150 basis points of EBITDA margin growth.

Got it. That is helpful. Then I guess digging in on the LA asset that you purchased, obviously your first acquisition out there. How should we think about some of those markets on the West Coast?

Obviously it seems like you're bullish on some of those fundamentals. Are there other areas that you are looking for? Or do you think you can gain scale in LA with a couple of assets there?

I think the cap rates that you gave look pretty attractive. But I would also like your thoughts on maybe the recovery potential there as well.

Yes, Shaun, this is Jay. I think as we are looking out on the West Coast, I think we will be able to continue to build some scale in Los Angeles. That being said, it has taken us a very deliberate and sustained period of time to build the presence and relationships that we have in New York City. Washington DC is emerging as a new area of focus for us.

So I think we will continue to scale out in Southern California, but I don't anticipate that happening overnight. I think it is going to be, as I mentioned before, a deliberate process.

That being said, this first hotel will stabilize. It is not an insignificant amount of EBITDA for the first hotel. We think that the dynamics are very attractive and the size of the hotel and its EBITDA potential; we expect it to stabilize at north of $5.5 million of EBITDA. Makes it worth our while to move to that market.

I don't know that we have a broader plan for California generally. I think we will just continue to opportunistically find acquisitions in the Los Angeles market that we like.

This was another -- this was an asset that was virtually off-market purchase. And we will continue to seek out off-market or narrowly marketed assets that fit our profile.

That's helpful. I guess just like the last question was, what do you think about as you are -- and I apologize if I missed it in the prepared remark. But the total firepower right now in terms of the balance sheet, between the line and cash on hand for acquisitions, where are you on that front?

Yes, I think we threw out some stats. But generally speaking we have got about $190 million undrawn on the line of credit; about $40 million of cash on hand.

We are pretty encouraged by the capital markets right now. There appears to be debt available for property-level mortgages right now, for cash-flowing hotels but good sponsorship. We have got many unencumbered hotels, so we will be able to tap that market.

These are between a 10 and an 11 debt yield. You can probably get into the mid-60s on LTVs; and the rates are still attractive, say between 5.5% and 6%. So we will continue to look for opportunities there.

The preferred market continues to be open. But forgetting all of the new sources of capital that we could access, when you just look at what we have on hand, we feel pretty comfortable that we could do close to another couple hundred million dollars worth of acquisitions from where we are today.

Just to be clear then, would that include putting some leverage on some of the unencumbered assets that you have right now?

Yes, on unencumbered assets that we have and on acquisitions that we might make.

Okay, and then I guess to that last point, you guys gave a little bit of color on the potential portfolio of sales. So what are you seeing from -- obviously private equity, I think, is the likely buyer for some of those assets. So what is the latest in terms of activity that you are seeing from that side of the world?

I mean how should we -- if you could you help us get a sense of the magnitude of difference in terms of the values that maybe you are hearing back from some of those folks versus what we are seeing in the public markets, that would be useful.

Sure. Shaun, this is Ashish. I think that we have seen more private equity groups link up with hotel operators, where they are the primary money behind the acquisition and they are linking up with more regional firms to buy portfolios like this, as the gateway cities seem to be going to a different buyer class with different return expectations. So we are encouraged by that.

We are seeing a lot of new groups coming in. I would say that out of the non-core there's probably 50% that is being looked at by those type of private equity groups; and another 50% is really much more owner-operator, local hotelier.

So from a standpoint of what we are seeing as far as -- I think on a forward cap basis we would anticipate a fully loaded number somewhere in the 8 to 9 cap range. Fully loaded being -- taking into account PIPs and things like that, is probably what the buyer groups are looking to purchase at.

That's great. Thanks, guys.

Bill Crow, Raymond James.

Good morning, a couple of questions here. Jay, is the pricing on the East Coast to the point where it is driving into the West Coast and other markets?

I don't think so, Bill. We are continuing to explore some other acquisition opportunities on the East Coast. Certainly pricing on the East Coast is not inexpensive; but I think we are still able to find some attractive deals.

That being said, LA was opportunistic in that the market lags the recovery. So I think we had an opportunity to insert ourselves in that market with a purchase that I suspect -- these type of returns about 12 months down the road I don't know that you are going to be able to get in Los Angeles either. So I guess it is -- make a -- I think it was an opportunistic time for us to enter that market.

That being said, I fumbled around with it a little bit in my remarks. But when we look at -- if you just take even New York for instance. Between 2011 and 2014, according to PKF you've got demand increase averaging about 4.7% across a four-year period. Limit supply growth. So I think even though pricing has gotten a little richer in New York and Washington, DC, the supply/demand dynamics continue to remain attractive.

I think as some of these macro economic indicators start shifting, we are going to see the recovery even produce better returns for us on the East Coast.

Fair enough. On the asset sales, I know maybe it's been asked a different way, but can you confirm you think you are going to have 20 assets sold by year-end? Is that correct?

Then help us think about the proceeds or the EBITDA that might be associated with those 20 assets.

Sure. Hey, Bill. This is Ashish. The number 20 is really the number of assets that we have identified as non-core. So we don't at this point believe that we will sell all 20.

There is certainly an appetite on our part to dispose of them; but not sure if there is a buyer appetite to buy all of those assets, or if the timing is right to sell every asset this year. I would think that we should be able to close anywhere from seven to 10 assets that we have identified by year-end.

And just looking at the proceeds, I would estimate that the proceeds could be anywhere from $40 million to $50 million, anticipating that you sell -- $40 million to $50 million of equity to us anticipating that we sell half of them.

Got you. Got you. Then help us think about the rest of your portfolio. You have just renovated nine assets. You have obviously bought a tremendous number of new assets lately. But should we anticipate that maybe first quarter of next year we also start a new renovation program for other assets? So should we anticipate disruptions next year as we kind of model out?

Yes, that's a great question, Bill. I think that we will have renovation disruptions next year in the first quarter. Just looking out at the portfolio, if we can renovate between four and six properties over the next few years we will take the opportunity to do that.

And we will try to do it in the first quarter, where it is really not that impactful to us, so we can get everything staged and timed. Some of these assets, if you have assets in Boston and some other markets that really slow down after say in mid-November, you could do some of that work at the end of the year as well.

But at least for next year I would anticipate maybe four to six more significant renovations in the first quarter of next year.

And I think this is very -- this is Jay, Bill. I think the magnitude of the disruption may or may not be as significant next year in the first quarter. This year was further complicated by weather, as we mentioned; some nonrecurring items; as well as absorption of some of this new supply in New York from 2010.

But you will continue to see disruption from renovations, obviously. And we will time them in the first quarter.

You gave us some historical quarterly percentages, contributions for the full year. Should we use that as a basis as we are thinking about next year? I think you said 6% of total FFO per share comes from the first quarter. Is that right?

That's right.

We wouldn't be too far off using something like that for next year, I assume.

No, I think that's right.

Then finally from me, I am just trying to see what else I have here. New York. Is it a supply issue in the first quarter or is it a demand issue? I know it is just the same thing essentially.

But was the supply brought on in fourth quarter last year, and then it is really going to hit throughout the year? Or is it just that demand and weather and everything else really weighed on a seasonally weak period in New York, and so it's magnified in the first quarter and we should anticipate better results going forward?

Yes, Bill, this is Jay. I think you kind of hit the nail on the head. I think it is a confluence of both supply and demand.

Just when you have got a quarter that is light from a demand standpoint relative to the three other quarters in the year, and you add to that absorption of a lot of new supply, it has an impact on pricing power. It has an impact on occupancy.

That being said, when you look at the annual numbers, even if you look at 2010 historically, there is a 10.3% increase in supply. You had an increase in demand of 11.4%, according to PKF in 2011. So you have still got -- you still have an imbalance and you have an ability across a year to absorb it.

I think in this case the new supply came in towards the second half of 2010. I suppose that's fair. So we saw some impact in the first quarter.

I think when you take into account the pace reports that you are seeing for Manhattan for the second quarter, as well as some of our early indications of what April is looking like, I don't know that you are going to feel the supply as much as we progress into 2011.

Just judging by our April numbers even, it is starting. You can see that the supply has been absorbed somewhat. Even like where we saw the most supply was that Times Square South and Tribeca.

In Times Square South, April, as Jay mentioned, we're up above 30% RevPAR growth again. Tribeca, where we had a big Sheraton and a Courtyard, and an independent hotel opened up close by, there in April we are still up 5%.

But there is -- it is kind of a local submarket dynamic. But as hotels are opening up, they do make it harder to push rate.

Got you. Then finally for me, could you just talk about the acquisition pipeline and whether you have seen competition in your niche pick up recently? We have got other public companies, or want to be public companies in this space.

So what are the dynamics there? Or do you see even the guys that have been chasing full-service upper-upscale assets looking for yield in your playground?

Yes, I mean certainly there are more and more people that are turning their attention to the select service market and the markets that we are in. I think the secret might be out.

But I think as we continue our program, we have got a pretty well-developed and principled approach to acquisitions. Even adhering to that, we are continuing to find opportunities.

I think if we were relying purely on the intermediated sales, the auction market, I might be talking a different tune. But I think at this point our relationships that we are leveraging in these markets are continuing to create a pipeline that is still very attractive. In some cases, narrowly marketed; in some cases, off-market all together, that meets our investment criteria.

That's helpful. Thank you, guys.

David Katz, Jefferies & Company.

Morning, all. So I wanted to ask about LA. If we look across you and your -- at least the publicly traded colleagues, we have seen a bunch of deals in LA. I am wondering if that is a function of the relative attractiveness of those assets; or is it a function of some specific attributes about that market and the opportunity going forward; or some combination thereof?

How do you envision -- how big do you envision this market becoming for you over time?

You know, David, this is Neil. I'll leave the last part of that question relatively open, because in terms of building out our platform there we think it will take some time to find the kinds of deals that we would like to be making in California or in Los Angeles. But just to speak a little bit about the market, this was -- as Jay said, it was a great opportunity for us to make our entry point.

But we have been studying the market very carefully for at least a year. We spent a lot of time on San Francisco, and we spent a lot of time on Los Angeles. As we were looking at these markets what we were finding was that they do often lag the recovery versus New York or DC.

But that they do -- in past cycles across the last 15, 20 years -- they have had very strong growth for multiple years after the recovery gets going. We started to see that happen in 2010. And then this first three, four months of 2011 there has been 15% growth coming out of Los Angeles on a RevPAR basis.

What we also liked about LA versus San Francisco -- San Francisco also has some great growth dynamics. But a lot of the returns there seem to be -- you have to really buy into back-ended returns. It is a high-terminal value kind of market or high-terminal value expectations.

And the value add from running value-added management opportunities are fewer in San Francisco. So we didn't find something there that made sense.

But in LA we felt that the market offered the potential for double-digit kind of RevPAR growth for multiple years in the coming years. We found that there are certain submarkets in the Los Angeles market, particularly in Western LA, that offer very strong ADRs, very high ADRs; strong, consistent, multiple demand generators driving very high occupancy.

And as these infill locations in the Western side of LA, there is just less opportunity to build new supply; or if you can it is pretty pricey. So we have been looking around in markets like Century City or Beverly Hills or Marina del Rey or this asset here in Culver City.

The submarket that the Culver City asset is in has had -- across the last 10 years has only been below 80% occupancy twice. We are buying into a time where we are 8%, 9% below-market average occupancy; and we have an opportunity with the Courtyard flag and the highest quality asset in the submarket to, we believe, really drive rate here as well.

So this was a great entry point for us. I think Los Angeles offers some very strong growth characteristics that will make it an interesting market for us to look for more deals in. But I still do believe our advantage remains in New York, Washington, and some of our core markets here.

Can I just circle back on what those -- the growth characteristics in that market are?

Sure. Yes. I could share with you just some random kind of data points, but if you look from industry pundits or what HVS or a PKF values might be, the projections for values across the next five years for LA, according to HVS, are 12% valuation increases on a CAGR basis, second only to New York. But that is pretty prospective.

I guess looking at the RevPAR growth to date, this year has been -- I mean last year in 2010 for LA it was around 8%. Then so far this year it has been 15%.

What are some of the other metrics that we were talking about? We mentioned in the script in our discussions that we are still 17% below peak in the market. Once again the average active occupancy of this market was 81% and we are buying in at 73%.

I guess on the fundamental, on the supply basis, in this submarket there is absolutely no supply expected. The Downtown LA market is getting new hotels, but that remains 12, 14 miles away from our location. The greater Los Angeles market is actually very constrained in terms of new supply.

David, is that helpful?

Those are -- that is exactly what I was looking for. Thank you.

Chris Woronka, Deutsche Bank.

Hey, good morning, guys. I wanted to ask you about the supply in New York and go back to it. I think about two-thirds or maybe 65% has been upper/upscale luxury or independent boutique.

How do you guys look at what is truly competitive? I know it all can be especially in a seasonally weaker period. But is it at your price point?

Are these guys -- do you think some of the newer stuff is effectively discounting relative to where they should be?

This is a little anecdotal, but on our Hilton Garden Inn in Tribeca, where we try to drive our upscale assets to have RevPARs that are like upper/upscale assets. So we do view competition -- so generally we do view that there is competition from those kinds of hotels.

But just anecdotally, there at the Tribeca Hilton Garden Inn we are competing against a new 400-room Sheraton. They have reportedly been giving $25 free food and beverage credits to all guests, so that has an impact that. It helps -- it does make it more difficult for us to drive rate at that particular location.

So absolutely there is an impact. But it does seem to pass as the competing hotels start to ramp up. Once they get to 70%, 80% occupancy, we would hope that the management team at those hotels would start to push rate themselves.

If the Seaport -- we have a Hampton Inn down at the Seaport. A big 400-room Doubletree opened in that market. So that did make it more difficult to push rate. In April, we were only able to move RevPAR about 4% at that asset.

If didn't have that competition, we might have moved it a little bit higher. But again we do believe that in a couple of months that hotel will be ramped up, the competing hotel; and we will be able to start driving rate again.

Brooklyn, for example, took a lot of new supply, the very large Sheraton in the Aloft. The new hotel that we have in Brooklyn, despite that supply -- because the supply came about five, six months ago, was the big Sheraton opening -- it took four or five months. We did have impact on rate for those four or five months.

But then again in April, we were able to drive RevPAR growth of 25% at the new hotel in Brooklyn. So it has an impact, but it is absorbed across a couple of quarters.

Okay, that's great. Then again, the April data point sounds really encouraging. But just wanted to ask if you think that -- we have heard -- it has been suggested that maybe certain -- and this is more on the group side. I know you guys aren't really there, unless you are catching overflow.

But maybe certain folks are going back to resort markets or something like that instead of New York. Do you think that was an impact in the first quarter itself?

No one likes to come to New York in the first quarter. Even we hardly do. I don't think that that would be an alternative.

I don't know; I don't know. It's not our business really.

Right, okay. Then just on those New York renovations, and sorry if I missed this earlier. But can you maybe break that out between what you think is just brand standards and things like that, and what might really be ROIC, and how you are underwriting those?

Yes, I think that a lot of the rooms renovations themselves were obviously brand standards, and just our refreshes as the assets are in that five to seven-year period. I think that the ROI is really the lobbies of those hotels as we've done a lot of renovations to really make them more like the new prototype Hampton Courtyard lobbies, to really drive a better guest experience.

You know, it is hard to measure it. But when you switch out flatscreen TVs it is a brand standard, but that does help you drive some rate. So there is an impact to even what we are doing in the guest rooms, I believe. But it is just hard to measure.

It takes away another excuse, I think, for not outperforming.

Yes, Chris, this is Jay. I will just -- let me just add one last piece to the comments Neil and Ashish are making. We generally find that in our markets even when we are making brand standard based improvements, we are able to drive rate from it.

So when we talk about ROIC we are not adding a ballroom, for instance, or we are not adding a parking deck. We are generally just enhancing our product.

So we take a look at brand standard capital and ROIC capital in the same way. We generally -- we are fortunate enough to be in markets that when we do invest money we generally see a return; and we just work on making sure that we are leveraging the highest return we can from every capital dollar spent.

Sure, that's great. Just on the cost side, we have heard a lot this quarter about some of these costs that I guess appear to be exogenous to the first quarter. But I guess how confident are you that some of these things or other things don't crop up as we go along into 2Q and 3Q?

Yes, we have looked at the cost side, Chris. I mean -- you know, I think it is from a standpoint of some of the exogenous items we can identify all of those. We know what the payroll increases were, and it affected us in the first quarter more just because of the lower base.

But when you look at our business model in general, there is not that much variability due to the type of assets that we run and things that we get hit with are somewhat predictable. So I am not going to say that nothing ever happens, but we believe that we have a good handle on the cost side of things for the future quarters.

Okay. That's helpful. Thanks, guys.

Dan Donlan, Janney Capital Markets.

Thanks. Good morning. Ashish, I wonder if you could -- if we look at the same-store -- excuse me. The consolidated RevPAR growth when you exclude the renovations was up 9.8%. If you exclude New York, what was that RevPAR growth number, if you have it?

Yes, we do. So we have looked at it. We have looked at this, and said if you take away -- and this is taking away a lot. But if you take away our New York assets and you took away all the renovation, assets under renovation, the total portfolio RevPAR growth was up 11.7% and EBITDA margins were up 346 basis points. Same-store was up 4.9%, and EBITDA margins were up 266 basis points.

What particular market was really driving that?

I would say our strongest performing markets in the first quarter were Boston, California, and Arizona markets. Overall New England did well, and those are probably our leading markets for the quarter.

Do you think the rest of the portfolio can continue at that pace or at least the high single digit pace in the second and third quarters?

I think that it can. I think that -- as I mentioned on my part, we are seeing maybe not as robust, but still very good growth in Boston. California, and Arizona, we are seeing excellent growth.

We have seen double-digit type of growth in Philadelphia now. And Connecticut, Rhode Island, mid-Atlantic, all seem to be high single digit type of growth.

So we are seeing -- those markets really did not come back very strongly last year. I think you see that in many markets across the country, where you will have some of the markets that we're not currently present in just showing double-digit type of growth, because they are still back at -- almost back to '09 type of numbers.

They are comparing against almost the same numbers as they did in '09 because they have just didn't have much growth last year.

Okay. Thanks. To kind of continue with this theme, I think you said same-store New York RevPAR growth in April was up 14%; but that the trio assets were up 30%. If you backed out trio what was that same-store NOI number if you have it? But if you don't, no worries.

I don't have it offhand, but just mathematically I would imagine it is in the high singles.

Okay. How much more longer do you think the trio can achieve such high RevPAR growth returns? When do the comps start getting a little bit harder for that asset -- for those assets?

You know, in the past we have always found that we have three to four years of outsized RevPAR growth at brand-new assets. The first two years are the most obvious that it's a ramp-up asset. But even that year three and year four, we found with all of our past transactions and pasts investments there was still premium to submarket RevPAR growth from a hotel that is less than four years old.

Then if we could talk a little bit more about New York, could you maybe give us a sense of what percentage of your business in the summer months is international? And what is your expectation, given the strength of the euro versus the dollar, and the strength of the euro really versus the pound as well?

Sure, Dan. This is Jay. I will just talk about what we are seeing as far as group booking pace in New York generally and then what we are seeing from a transient pace standpoint. We feel pretty comfortable that going into June and July, at least through June we are going to be able to drive decent corporate transient. I would expect by the time you get past the first week of July and certainly in August you will see the mix to transient significantly increase.

That being said, our pace in Manhattan continues to look pretty good. So whether that is being driven by the euro or whether this is just being driven by general pressure in the markets, we feel pretty good about the summer this year. It certainly won't be as strong as some of the other months that we have in New York, but I think we are going to be able to continue to drive rate.

That is always the biggest concern, is that you end up getting a disproportionately high leisure in your mix, and they're price shoppers, and you are not able to drive the rates. But I think this year things are looking slightly different than they have in the past couple of years.

Okay. Thank you.

Ryan Meliker, Morgan Stanley.

Good morning, guys. Most of my questions have been already asked and answered. But just one thing I was hoping you guys could touch on, the land that you guys have at Nevins Street and 8th Avenue, both in New York, that is maturing this summer. Have you guys started the process of speaking with lenders with regards to refinancing of that?

Or are just planning to take it down on the revolver, given the current cash you have? And if you have started talking to lenders, I am curious what the overall sense on financing of land for future development is right now. Thanks.

Hey, Ryan. This is Ashish. On those two products we have engaged with the existing lender on those.

We have a preliminary term sheet on the 8th Avenue land. We think that the terms would be very similar to what we have today and may even get somewhat of a reduction on the interest rate. So we would keep the same amount of loan balance, which is right around $12 million on that particular parcel, at somewhere in the low 6% type of range.

On Nevins Street, that is actually a parcel of land that we are marketing at this time. We do believe that there is an opportunity to potentially sell that prior to when the debt comes due. That is a smaller piece; it's about $6 million. I would think that we would potentially just take it down on the credit line if we had to.

So it sounds like your lenders are just as receptive today as they were several years ago for financing land for future development.

Yes, I think that this lender actually extended the loan in the summer of 2009. So if you can imagine they are much more receptive on doing it today than they were then.

I think it is a unique situation. This is a particularly good sponsorship for the lender. I don't think that is a common occurrence across the lending community today.

Because the construction financing market has not come back yet for institutional New York hotels, which makes financing land for future development a little bit more difficult unless you know -- unless the vendor has real confidence about the sponsor.

Great. That's actually really helpful color. Thanks a lot, guys.

Will Marks, JMP Securities.

Thanks, just one follow-up. You mentioned I believe $40 million of potential equity raise by asset sales this year. What about the debt reduction associated with those?

Sure, Will.

Just a minute.

You know, Will, we are trying to forecast which of those 20 assets would be sold; and so it does depend a little bit on that because there is more debt on some of them.

I think it would be probably an equivalent amount of debt reduction, Will, as equity. So maybe a little bit more debt reduction, let's say $50 million to $60 million of debt reduction. And this is just using, as Neil mentioned, a hypothetical portfolio of around 10 assets.

Okay, great. Thanks.

David Loeb, Baird.

Good morning. Like Ryan, most of my questions have been answered as well. But, Ashish, I wonder if you could just -- or perhaps talk a little bit more about the remaining development loans in that program. Particularly of the five, I guess I am most interested in what you think will happen with the two Hyatts. Do you think it's likely that those are assets that you would consider buying?

Hey David, how are you doing? It's Ashish. You know, I think that we are looking at the Hyatt Lex opening in the next couple of months and Hyatt Union Square sometime early next year. It is difficult at this point to really gauge sort of the REIT interest in maybe at least the Hyatt Lex and potentially both of them.

But as you know they are phenomenal assets. They would fit very well within the REIT. We just don't know if, with the pricing that we are seeing in New York, if we can work out a deal with the developer on one or both of them that makes sense for the REIT. I think they would be great acquisitions.

Generally speaking, David, I will just add, the Hyatt 48 Lex, as Ashish mentioned, is opening in a couple of months. It is an attractive asset. It is unclear if it is a fit for our portfolio.

I think the pricing per key and the overall size of the investment in one hotel, it is just -- would be atypical. So I think you would have to do a pretty in-depth analysis to know that if it made sense as a fit.

And some of it also depends on the investment fundamentals of it. The Hyatt on Union Square is a very different pricing structure; but it is also a little further into the future.

So is your expectations -- I'm sorry, go ahead.

No, I was just thinking through some of the other loans. There is an extended stay hotel in New Jersey; and an upper/upscale asset in New Jersey that at this time do not make sense for us. And the Hampton Inn, the 32 Pearl Street is the one that we have now taken in and we will hopefully have a completed Hampton Inn by the first quarter of next year.

Do you think then, looking a year out, that those remaining five hotels or the bulk of them will be repaid?

I think that there is a good chance that at least one of the two New York ones would be repaid, David. I think that there is a potential that the other non-New York deals are probably out for another 12 to 24 months.

Okay. Great. Thank you.

We have no further questions at this time. I will turn the conference back over to our speakers for any additional or closing remarks.

Yes, with that if all of the questions are answered, I will just thank everyone for being with us this morning and your continued interest in the Company. We are around all day, so if any questions occur to anybody that was listening in and they would like to give us a call in the office, we'd be happy to answer any questions off-line. Once again, thank you all for joining us this morning.

Ladies and gentlemen, that does conclude today's conference call. We would like to thank you all for your participation.