Hersha Hospitality Trust (HT) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hersha Hospitality Trust First Quarter 2012 Earnings Conference Call. Today's call is being recorded. (Operator Instructions).

At this time, I'd like to turn the conference over to Ms. Nikki Sacks of ICR. Please, go ahead, ma'am.

Thank you, and good morning, everyone.

I want to remind you 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 is amended by the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect Hersha Hospitality Trust's trends and expectations, including the Company's anticipated results of operations through capital investments. The forward-looking statements involve known and unknown risks and 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, CEO.

Good morning, everyone. I'm joined today by Neil Shah, our Chief Operating Officer, and Ashish Parikh, our Chief Financial Officer. On today's call, as is our practice, we'll touch on some highlights from the first quarter, discuss our portfolio strategy, and update you on our lodging markets and outlook.

Our portfolio delivered very strong results during the first quarter, and trends suggest very strong top line and earnings performance as the 2012 lodging upturn continues. The ongoing and sustainable outperformance from our portfolio is driven by our market leverage, focus on the urban transient traveler, and exposure to the fastest-growing urban gateway cities in the country. Our portfolio's market leverage, combined with our aggressive asset management programs, the youthfulness of the portfolio, and the benefits derived from our capital reinvestment program, is setting the stage for another strong year and a multiyear growth platform that has begun to demonstrate its outsized growth prospects.

With 11.9% RevPAR growth driven by a 6.9% increase in ADR, we were able to drive another quarter of industry-leading margin performance, as our margins expanded by 320 basis points.

While we were pleased with these results, we're also focused on ensuring that the portfolio is properly positioned to sustain this level of outperformance in future periods. It is important to note that, in the first quarter, we took advantage of the seasonally lighter first quarter to undertake capital improvement projects at 11 of our hotels and are pleased to report that the majority of the renovations were completed by the end of the first quarter. In particular, with current market challenges in Washington, D.C., we decided to renovate all of our hotels in this cluster, beginning in the first quarter. While the projects caused some short-term disruption, the invested capital is already driving strong returns in the early part of the second quarter.

The full portfolio in the first quarter, excluding the impact of the 11 hotels that were undergoing renovation, posted RevPAR increases at 18% and hotel EBITDA margin expansion of a robust 620 basis points. We have largely completed our planned renovations for the year, and we expect increased contributions from our recently renovated hotels as the lodging cycle continues to accelerate.

Our portfolio of hotels now encompasses six of the top MSAs in the country, and most of these markets are expecting stronger results as the year progresses.

Let me touch on our key markets.

First, of course, is New York City, which accounts for roughly 45% of our annual EBITDA. We were particularly encouraged by the demand growth that the Manhattan market experienced during the first quarter, as demand was up 8.7%, or the equivalent of approximately 440,000 additional room nights sold during the quarter. Not only was New York one of the better-performing markets in the country, but it was a clear outperformer within our portfolio.

To give you some perspective on the overall strength of New York, total US occupancy for the first quarter was 56.8%, compared to 73.5% for all of New York and 79.5% for Manhattan. Hersha's New York City portfolio outperformed on both counts, with overall occupancy of 83%, and our Manhattan hotel occupancy performed at 85%.

This outperformance has been a trend. Since the beginning of the second quarter of 2011, the New York City market had occupancy higher than 87% for the remainder of the year, while our properties ran over 90% occupancy for this same period.

Our hotels again did better than the overall New York City market, and our outperformance was the result of several factors. Our properties are still very much in a ramp-up phase, with almost half of our New York City rooms less than two and a half years old. In addition to that, our transient-focused room inventory averages 130 rooms per hotel versus the New York City average of 210 rooms per hotel. Our lack of reliance on the group segment allows for more effective yield management with a focus on the higher-rated, urban, transient traveler. And, lastly, the midscale and upscale segments still appeals to the cost-conscious business and leisure traveler in New York, and it has seen a new level of acceptance across all segments.

Perhaps most importantly, these results indicate that the new supply has clearly been absorbed in New York and that the overall demand for the market will continue to significantly outpace supply growth in the future. Another indication of the firming market is the widening booking window in New York City. We have seen a somewhat longer booking window for our New York assets, and companies that have more significant group business have indicated that the group segment seems to be firming, leading to a longer booking window and greater ability to drive pricing power.

Let me now provide some more commentary on the New York supply environment, which is dramatically different in 2012 than it was over the past couple of years and is projected to be closer to its historical norm of 2% growth over the next few years and then below 1% from 2015 to 2017. In the first quarter of 2011, the unprecedented supply growth in 2009 and, particularly, in quarter four of 2010 had a significant negative impact on the market, considering that quarter one is the lowest-performing quarter for New York City. Important to note that the total new supply that opened in the fourth quarter of 2010 is 1.8 times greater than the total supply estimated to open for all of 2012.

With the supply/demand imbalance that we are witnessing in New York and the continued ramp up of our hotels, for us, New York has the potential to remain one of our top-performing markets well into the future. Our April results there have been very encouraging, with RevPAR up almost 13.5% for the month.

Washington, D.C. has demonstrated slightly different market dynamics. But we are seeing strong results during the second quarter, and the market remains very compelling in the longer term. In the first quarter, trends in D.C. were weak, as we anticipated, and the D.C. market did underperform the general market.

As mentioned previously, we had the foresight to take advantage of this weakness and undertook renovations at our entire D.C. cluster during the quarter. This included significant disruptions at our Capitol Hill Suites hotel, where we undertook a complete redesign of the lobby and public areas to fully transform the look and feel of the hotel. We have now completed all of these renovations, and, as mentioned before, we're already seeing a positive benefit from these renovations, as our D.C. cluster RevPAR was up almost 9% for the first 28 days in April compared to the prior year, and our two D.C. urban assets posted a 15.1% growth year over year for the first 28 days in April.

In May and June, in addition to better-than-expected corporate transient demand, we're projecting strong citywide compression there, with three conventions over 5,000 rooms at peak.

Now, turning to Boston, Boston was one of our stronger-performing markets in the quarter, and we expect that strength to continue throughout this year. The 2012 convention calendar comprises the largest citywide year that Boston has ever seen, and, as a result, the city is already benefiting from significant compression. The displaced demand in Boston has allowed our properties to secure a strong group base, which will enable our hotels to continue to yield the remaining inventory and maximize ADR at our transient-oriented hotels. Our Boston hotels showed 13% RevPAR growth for the first four weeks of April.

Similarly, in Philadelphia, while the first quarter was somewhat soft, as we had anticipated, we expect that it will be one of our best-performing markets in the second quarter. There is a full convention calendar for the remainder of the year, which, combined with the lack of any meaningful, new supply, should result in strong performance. The 250-room Philadelphia Hampton Inn in our portfolio performed at 31.3% growth for the first 28 days of April compared to prior year.

The strength of our revenue management programs is already yielding strong results at The Rittenhouse Hotel, the newest addition to our portfolio. Our April RevPAR for the Rittenhouse was up almost 13.2% from the prior year, and we anticipate double-digit growth for the remainder of the quarter there as well.

Finally, I'll touch on our two newest markets, Los Angeles and Miami.

The Los Angeles market is solid, and transient demand remains robust in the Culver City submarket there. The Los Angeles hotel is tracking 10% growth in April. During the first quarter, our hotel performed in line with our expectation, and we're encouraged by the current booking trends there.

Similarly, Miami remains a robust lodging market. And, during the quarter, the Courtyard Miami achieved the highest RevPAR in our portfolio while simultaneously outperforming its comp set. As we have discussed previously, we've begun construction of a new tower addition to the hotel this quarter and have built this disruption into our updated outlook for the year. The disruption will have an impact on the hotel's performance, and we will continue to update you on that as the year progresses.

In terms of our portfolio activity, we completed two transactions during the quarter. First, we closed on the sale of 14 assets in our noncore portfolio, generating net proceeds of $40.5 million and reduced the Company's consolidated mortgage debt by $42.5 million and reduced our proportionate share of unconsolidated mortgage debt by $13.8 million. Additionally, as I referred to before, we added the iconic Rittenhouse Hotel in the heart of Philadelphia to the portfolio. The property is consistently the top performer in the market, and we have identified further opportunities for enhanced asset management, upgrades, and expansion, which should improve operating margins and maximize Hersha's investment in the property.

While our deal volume has certainly slowed, as we have largely amassed a stellar portfolio that we had envisioned when we embarked on our urban gateway strategy, we remain very opportunistic and believe that we'll continue to source selective, attractive deals, as the transaction market appears to be showing slightly more activity.

In summary, despite the ebbs and flows of the broader economic recovery, the lodging recovery in our key markets is fairly clear. The urban transient traveler, our primary guest, has returned and, when combined with an anemic supply picture, results in a compelling supply/demand dynamic and a very optimistic outlook for the remainder of the year.

I'm going to turn the call over to Ashish to provide some more details on our operating results and financial position.

Let me start by providing some additional detail on the operational results of the portfolio.

Our first quarter results, both on our total portfolio and same-store basis, were very encouraging and sets the foundation for what we believe should be another strong year of growth and outperformance. Our consolidated hotels realized a RevPAR increase of 11.9%, driven by ADR growth of 6.9% and a 290-basis-point increase in occupancy. This strong top line performance resulted in hotel EBITDA margin expansion of 320 basis points and a 48% increase in hotel EBITDA to $19.2 million.

In addition to the strength of our New York, Boston, and Philadelphia portfolios, the first quarter growth was also bolstered by the strong performance of our recently acquired Courtyard Miami Beach and the Courtyard Westside Los Angeles. We're very pleased with the performance and portfolio contribution that both of these 2011 acquisitions have provided to our results.

As Jay mentioned, we commenced and, effectively, completed significant renovations at 11 of our hotels during the first quarter, and our results would have been even stronger were it not for this disruption.

RevPAR for our consolidated hotels, excluding these assets under renovation, increased by 18%, and hotel EBITDA margins expanded by 620 basis points to 30.7%. On a same-store basis, RevPAR at our 46 consolidated hotels was up 6.4%, driven by a rate increase of 1.6% and occupancy growth of 296 basis points. Hotel EBITDA increased 14.7% to $14.9 million, and margins expanded 190 basis points. RevPAR for our same-store, consolidated hotels, excluding the reno hotels, increased by 12.2%, and hotel EBITDA margins expanded by 460 basis points.

Jay provided some details regarding the overall strength of the New York market in the first quarter, and I'll drill down on these numbers and detail what we see as the potential for our New York portfolio.

We owned six assets in New York City in the first quarter of 2008 that are still in the portfolio today. In the first quarter of this year, these six hotels realized occupancy of 85.2%, which was 130 basis points higher than it was in the first quarter of 2008. At the same time, ADR in this year's first quarter was still 24.3% lower, and our hotel EBITDA margins were more than 1,500 basis points lower than they were four years ago, in 2008. With occupancy consistently greater than 80%, we believe we can drive meaningful ADR-driven growth. And the benefit of high-occupancy, ADR-driven growth is that we realize roughly 75% to 80% flow through to EBITDA once occupancy exceeds 80%. Furthermore, the data I just highlighted applies only to the six hotels we've owned since 2008.

Since then, we've added eight additional assets that are still stabilizing and have outsized growth prospects, and we'll be adding two additional assets later this year. All of these factors gives confidence to the organic growth prospects inherent in our New York City portfolio.

Due to the seasonality of our portfolio concentration, the first quarter is, by far, our weakest quarter. And, despite having almost 20% of our consolidated portfolio under renovation, we recorded adjusted EBITDA of $20.2 million with adjusted FFO of $2.7 million, or $0.02 per share. As we've mentioned, the renovation disruptions were approximately 600 basis points impactful from a same-store RevPAR standpoint and contributed additional operating expense of approximately $1.5 million during the quarter. In addition, we recorded an additional $500,000 of SG&A during the quarter related to a 2011 compensation accrual. Exclusive of these items, we would have exceeded our estimates for EBITDA and FFO during the quarter.

Our balance sheet continues to be strong, as our leverage ratios gives us the financial flexibility and liquidity necessary to continue to execute on our business plans. As of March 31, we had approximately $49 million in cash and escrow deposits and $88 million drawn on our $250-million line of credit. During the quarter, we refinance the Capitol Hill Suites in Washington, D.C. with a $27.5-million loan with a fixed interest rate of 3.79%. We have only $52 million of debt maturity remaining in 2012, and we're very confident in our ability to refinance the debt outstanding at very attractive terms.

During the quarter, we also closed on the previously announced sale of 14 noncore assets and anticipate closing the remaining four assets by the end of May. Upon sale, we anticipate the remaining four assets to generate net proceeds of approximately $14 million and to reduce our consolidated mortgage debt by approximately $19.2 million.

With respect to our capital plan, we're on track with what we outlined on our yearend call. We continue to expect our 2012 capital expenditures to be in the range of $25 million to $27 million for 2012. By the end of the second quarter, we anticipate that the majority of our renovation activity will be completed. We've already seen the positive impact from our expenditures over the past year, and we're confident that we will continue to position our portfolio to gain additional market share by completing these renovations in the early part of this lodging recovery.

I'll finish by addressing our outlook for the remainder of 2012.

First quarter results clearly illustrate the successful, ongoing transformation and expansion of Hersha's portfolio. Despite being our seasonally softest quarter and the impact of the current renovation, we delivered very strong results and are seeing this trend carry through into the second quarter. Our results for April have also started out very positively.

The consolidated portfolio RevPAR growth was approximately 10%, and these results are providing us the confidence to increase our guidance for the year. We now expect total consolidated portfolio RevPAR growth to be in the range of 7% to 9% and same-store RevPAR growth between 6% and 8%, up from our previous expectation of 6% to 8% and 5% to 7%, respectively.

In terms of margins, Hersha continues to deliver industry-leading, absolute hotel EBITDA margins. Primarily due to the addition of the Hyatt Union Square and the Hampton Inn Pearl Street coming online later this year, along with the addition of a few full-service hotels in 2012, we anticipate that consolidated portfolio hotel EBITDA margins will be consistent with 2011, at approximately 38.6% for the year. Excluding the impact of these hotels, we anticipate better hotel EBITDA margin expansion, with our expectations increasing to an improvement of 125 to 175 basis points in our total consolidated portfolio and a 100-basis-point to 150-basis-point improvement in our same-store portfolio.

That concludes my formal remarks, and let me turn the call back to Jay.

Operator, we can open the line for questions.

(Operator Instructions). Bill Crow, Raymond James.

A couple of questions from me. Can you -- ? You mentioned that the acquisition environment looks to be improving. We've heard that from, I guess, most of the REITs. And it looks like competition is going to be pretty heady for assets. Can you talk about what you're seeing out there when you're looking at deals?

Since sort of the second half of last year, things had become pretty dormant in the transactions market, I think, driven by a variety of factors, the least of which, in our mind, is CMBS maturities because most of the assets in the markets we're looking in -- we're not necessarily going to see maturities driving a lot of transactions there. But what we are seeing is that, because there is some attractive fundamentals growth in the types of markets that we operate in, we think that you're going to start seeing some sellers coming out from under the rocks to consider marketing a property.

I think, generally, what we're seeing is that, relative to cost of capital of -- that we have and the opportunities we're seeing, I think, if we remain selective, there's some deals to be made. I don't know that, as we talk about a more active transaction market, we're talking about going out and wildly chasing properties. But I think we will be able to continue to source deals that we -- the types of deals we have in the past and off-market transactions and taking a creative perspective towards deals and making them happen.

But, generally speaking, if you're wondering about sort of price guidance, I think that there's -- I think 12 to 13 times EBITDA is going to be achievable. I think, if we're going to be getting more aggressive than that, it will be in markets where we expect very strong EBITDA growth across the next two to three years. But I think that's -- those are reasonable market-clearing prices, I think.

I know, a couple of years ago, you discussed how you didn't want to make acquisitions that might be dilutive to your core portfolio's growth expectations. Has that view changed at all after a couple of great years of RevPAR growth within that portfolio? Or are you willing to trade off some growth for a better valuation? How do you approach it to that?

I think we're, generally, still pretty -- we're staying pretty disciplined about not buying assets that we don't think are going to drive our overall portfolio EBITDA growth rates. And I think we'll be able to find those. It's going to be driven, in our view, by finding those opportunities where not only is the market going to drive strong growth but where we can bring some operational advantage to the asset. Whether it be just through aggressive expense management or through some real incisive top line revenue management and value-added sales management strategies, I think we'll be able to pick off assets here and there.

We have an advantage. We're -- at our size, we need to only make two to four assets to really move the needle, but moving the needle is going to remain a standard as we consider any acquisitions going forward.

All right. And then, finally from me, I know we get so focused on current quarter or the next couple of quarters. If you could go up to 35,000 feet and look out a couple of years, where do you go from here? You've made great progress in entering a couple of new markets, but you've done so in kind of a modest way thus far. You've sold noncore assets, and you still have a little work to do on that end. But where do you see Hersha a couple of years from now? What's the big strategic move that you see?

Well, I think sort of near to moderate term, outside of any opportunities that we maybe haven't conceived of just yet, I think we're going to continue to build out the markets that we're in. New York, we have a terrific concentration. I think continuing acquisitions in New York will be something we do if it's strategic to our New York cluster. I think building out Los Angeles and Miami, where we have deep conviction, is something that we're going to continue to focus on doing. Boston as a market has been attractive and is one that has been, traditionally, very difficult to find attractive entry points.

So we continue to look very closely there. But I think, from an ongoing portfolio basis, I think the six markets that we're in are ones that we want to continue to focus on and continue to build out. And we'll continue to consider all other strategic alternatives and opportunities as they arise.

Okay. Thank you.

Jeffrey Donnelly, Wells Fargo.

I just had a question about your comp-store or same-store pool, the 46 hotels. The RevPAR growth there was maybe a little bit weaker than we had expected; I mean, certainly strong by historical standards but maybe a little below what we were thinking for the first quarter. I guess, just wondering if you might have maybe given up a little market share this quarter, or maybe we were just off base in our expectations for that core base of hotels.

Primarily, the same-store was dragged down by Washington, D.C. and all the renovation activity that we had there. The D.C. portfolio with the renovation disruptions was down around 7 % for the quarter. So that really dragged same store down. Once you take that out and the other four assets that were under reno, we're at 12.2% for the same-store. So it was really a matter of those 11 assets bringing down the same-store.

Okay. I thought we kind of might have captured that.

And, then, secondarily, concerning Rittenhouse, I think that transaction involves an ownership of -- I believe it's a nearby parking garage. Can you just remind me -- ? Is that a fee-simple interest in the garage? Does that have to remain a garage for, I guess, purposes of the hotel or any other adjacent assets? I guess I'm wondering if anything could be done with that extra asset.

The 300-space parking garage is a fee-simple asset. The hotel has 100 parking spaces, below grade, below the hotel complex. And then the garage is a separate, fee-simple garage. It does need to remain a garage for purposes of the hotel. But, because it's fee simple, it is something that we can consider in the future of doing a sale leaseback or some other sort of financing transaction on the asset that would possibly lighten the basis in the hotel. At this point, it's not something that we are considering. But we have gotten some inbound inquiries regarding it, and we'll continue to look at that as an opportunity.

They're not abutting, though, are they?

They are not abutting. It actually happens to be -- it's a separate building.

It's across the street, but it does face -- it's on Walnut and 20th Street, so it's a very well-located garage. And, arguably, you could get [air] rights to develop on top of the garage. It's not part of our current business plan, but it does give a lot of value, I think, that we could potentially unlock from that garage.

That's great. Thanks, guys.

Sule Sauvigne, Barclays.

I wanted to ask about some of the land that you own in New York City and what your plans are for that; specifically, the Brooklyn land. I know there's some debt coming due on that later this year. Are you still pursuing sale of that?

We actually sold the Brooklyn land at the end of the fourth quarter. And then, just yesterday, we closed on the land parcel in Manhattan. So we now -- we no longer own any land in New York at this time.

Okay. Great. And the one in Manhattan -- that was the one that was valued at around $18 million?

That's right.

How much did that one go for?

We sold that for $19.25 million.

Okay. Was there any debt on that? Can you remind me?

There was. There was approximately $11.8 million of debt outstanding on that asset.

Okay. Great. Thank you.

Will Marks, JMP Securities.

My first question just on the $25 million to $27 million of CapEx guidance. How much of that has been spent to date?

We have spent probably -- we spent $12 million in the first quarter as actual cash spend. And I think that, by the end of the second, we will have spent just above $20 million of that $25 million.

Okay. A second question just looking at -- it's a supplemental. You mentioned New York City urban, I guess, as 34% of the quarterly EBITDA. Is that a seasonality issue? That will rise during the year. Is that correct?

That is correct.

Okay. It seemed low, but now I know why. Okay.

And, on April, you gave a consolidated RevPAR growth number of 10%. Is same-store significantly lower, or how can we look at that?

No. It's not significantly lower. Same-store for April is right around 8.5%.

All right. Okay. And I guess the other question I had -- Are you seeing any deals, actually, New York deals in particular? Maybe there haven't been a whole lot. But I'm just wondering what price per key numbers are in the market. You seem to have bought well in that market. I wonder if anything comparable has traded lately.

We don't know of anything in just like the last 30 or 60 days. But, across the last four or five months, there's been several select-service trades in between $400,000 and $475,000 a key. And there's been kind of upscale trades north of $600,000 a key and north of $700,000 a key in some cases. But, still, not a lot -- there's just not a lot of volume of late. But those are -- these compare to, I think, our basis. And our New York City portfolio is closer to $300,000 or $320,000 a key or something like that. So the current market prices are well ahead of ours, over where our basis is.

I think we've seen -- we've seen less transactions in New York in the last several months, but there has been some debt -- there's been some refinancings done in New York, and those were pretty impressive as well. I think, on the luxury end, there's been north of $800,000 a key in first mortgage debt available on the luxury side and above $350,000 a key on select-service and kind of more regular hotel product.

Okay. Thanks. That's very helpful.

Smedes Rose, Keefe, Bruyette & Woods Inc.

I wanted to ask you a little just on New York City as well. We've been talking to some folks that are saying it's now cheaper to build than to buy in New York. I was wondering if you could comment on that and what your thoughts are about sort of all-in construction prices in New York now.

And then I also just wanted to ask you -- on the Rittenhouse, you gave some statistics. I was just wondering what -- Would you expect that to be kind of a neutral contributor to earnings this year and pick up next year? What are your thoughts on that property? What can you, I guess, kind of do with it from here, since -- ? Some of the other ones, I know, are new, so they kind of ramp up and stuff. But that's obviously a well-established hotel. So I'm just kind of curious what you think you can sort of bring to the party there.

Let me start with the Rittenhouse, and then I'll hand it over to Neil on the development cost side.

For the Rittenhouse transaction, I think that we are building in EBITDA for the year for the Rittenhouse. But I think, for 2012, we would agree that it's not going to be a huge contributor to the portfolio from an EBITDA standpoint. As we go in and we make our operational changes from both the top line and expense controls, we do think that it has the potential to be a much larger contributor in 2013 and 2014. The asset was running, basically, low, single-digit type of EBITDAs when we took it over. So we think that we could easily get it to that 25% or 30% type of margin range after being in the asset for a full six months or a year.

Okay.

Relative to New York City development costs, it varies so much from location to location because of the land cost part of it. But, generally speaking, I think we are getting to a point where -- when prices for select service get -- start to approach $500,000 a key, that where's the cost of construction or the cost of development starts to look pretty attractive.

That said, the cost of development is -- it's a long process. The shortest development process for a fully entitled site might be two years. But most projects are, from start to finish, even in our experience and our construction experience in New York, has been four to five years.

And so the alternative of building versus buying -- it is possible, and there is some construction financing available. But it just requires such a large equity check that it's just -- we don't see it picking up in great force across New York. But, as folks that have a lot of conviction in New York, I think there is a case to be made for development returns being more attractive than acquisition returns.

Okay. Thanks. And, then, is there -- ? Just on that, is there an update on the timing of when you open the -- your Pearl Street and Union Square hotels?

I think, from our standpoint, Smedes, we're still forecasting third quarter for both of those assets. They're still tracking to that.

Thank you.

Andrew Didora, Bank of America.

Ashish, appreciate the additional color that you gave in your prepared remarks on New York. I guess I just wanted to ask a little bit more specific question on the quarter. I know 1Q last year was -- you were up against a pretty easy comp. I think your RevPAR was down 5%, given all the renovation disruption that you had last year. I'm just curious if you had -- what RevPAR would have been this if you excluded the hotels under renovation.

Yes. Absolutely. Our Manhattan portfolio, once again, including all of the assets, was up 21.4% during the quarter. If we exclude the assets that were under renovation last year, RevPAR was up 16% during the quarter.

That's great. And, then, Jay, I guess, a bigger-picture question just on the acquisition side. Obviously, some other public REITs have been trying to grow their limited-service footprint this cycle. I was just curious if you've seen any other types of buyers coming to the asset type of late.

In addition to some of the other REITs poking into the space somewhat, you are starting to see some private equity starting to show up in some of these asset sales, but, clearly, nothing like what we saw in the last cycle. And, still, not in a position to be able to impact pricing as much, just because of the lack of ability to get financing and leverage enough to be able to make their IRR math work.

I think we have been surprised by how much interest private equity has on limited service this cycle though. That seems -- and it's not just a function of debt. I think, last cycle, it was about -- there were great platforms for CMBS debt, so there was a lot of interest in it. Today, it seems like the interest is just because of the kind of strength and the less volatility in the cash flows of the limited-service stuff. HEI, which is a large, kind of hotel-only private equity fund, now has extended their -- they've traditionally just been big-box, full-service. They now also are acquiring limited-service hotels in secondary and primary markets. They made two acquisitions recently. And then the big -- kind of the big, private equity complexes, from Blackstone to TPG, Cerberus, and the like -- they all have a strong interest in the sector. And we're seeing and hearing from them very often these days.

That's very helpful. Thank you.

Tim Wengerd, Deutsche Bank.

I'm just wondering. With your portfolio, since so much of the money is made in the second to fourth quarters historically, have you seen much of a correlation between really strong demand in the first quarter and follow through into the later quarters?

Yes, we have, Tim. We referenced 2011 as a quarter where you had sort of a weakness in the first quarter and then pretty strong performance for the remainder of the year. But, when you take 2010, we'll typically find that -- you take a quarter one occupancy rate, and you can probably add 300 to 500 basis points to it and expect that that's going to be our annualized occupancy. Is it directly related? I guess it just shows indication of the ability to build off of it. And that's what we're expecting this year.

Quite frankly, this first quarter and the trends we're seeing going into April in the advanced booking trends we're seeing for the upcoming 60 days kind of leaves us the most excited we've been in about four years. So, off of this first quarter particularly, I suspect we're going to see some very, very strong trends into the year. I don't know that you can just take one element of the first quarter. But, combining three or four different dynamics that we're seeing, we're very, very enthusiastic about the remainder of 2012.

And, then, I think on the last quarter's call, you had talked some about refinancing the Courtyard Miami Beach. I'm wondering if you've gotten any early indications for pricing and sort of how lenders are approaching that asset.

Tim, the current price guidance for that asset is probably in the LIBOR plus 350 to 400 range and more of a five-year type of deal. The interest level on that asset has really come from balance sheet lenders. CMBS is certainly interested. But we're seeing balance sheet lenders be more aggressive in today's markets because these spreads of 350 to 400, although, for hotel financing, is still historically on the very, very low side, still much better than what they can put out in the way of office or apartment types of money.

Thanks. And then one last question. As you think about your capital structure long term and sort of where debt markets are right now, are you happy with the amount preferred that's in the capital structure? And, if rates -- if you get an opportunity with low rates, would you consider removing some of the preferred?

Tim, we always a real close look at our capital stack and what the market has to offer. And, just as importantly, we look at our capital stack and cost of capital vis-a-vis the opportunities that are presenting themselves to us. So I don't know that we'd be driven to raise preferred just because the pricing was right. But, if anything in the capital stack makes sense from a cost of capital standpoint and there are very attractive acquisitions that make sense relative to the pricing of the capital stack, we'd consider one of several different alternatives.

Okay. Perfect. Thanks.

Nikhil Bhalla, FBR & Co.

Just a couple of follow-up questions on the CapEx. I think you may have mentioned this before. I'm sorry I missed it. When do you expect the CapEx to be ramped up for the 11 hotels? That's the first question.

The second question is just about your sort of leverage ratios two to three years out -- where -- what they might look like. Thank you.

Nikhil, all of the renovation activity on the 11 assets will be completed by the end of the second quarter. We finished nine of the renovations fully by the end of the first quarter. So we are not building in significant disruption from any of these renovations for the remainder of the year. The only major project ongoing is the tower construction in Miami.

And, from a leverage standpoint, as we look out two to three years, our stated goal has been below five times debt to EBITDA and close to or below 40% debt plus preferred to enterprise value.

Perfect. Thank you.

[Jonathan Punk], Robert W. Baird.

Just a quick question on another wave of potential dispositions. I know you guys, last quarter, mentioned that you continue to monitor that environment. I just wanted to see if there was any update you could provide on that. And, if so, would you still be more amenable to a portfolio deal similar to your last one, or would ones and twos be a sample as well? Thanks.

We are considering right now a kind of second set of noncore hotels to bring to the market. We're still in the analysis phase internally to determine whether it would be worth the loss of income or the dilution from them. But there are five to ten assets within the portfolio that would meet some of the kind of characteristics of hotels that we would consider noncore. There are some -- we still have a handful of assets that are older than seven or eight years old or are getting close to a major renovation time period. So we would consider it.

Whether it would be a wholesale transaction or a retail transaction, I think, like last time, we would use a group of brokers to look at highest and best price we could get. And, if it could be done in a retail transaction, that would be fine with us. We're willing to go through the extra hassle of doing so. But what we found last -- through our last process was that the private equity complexes and some of the other larger buyers were more aggressive and could get to a higher price on a wholesale transaction. So we'll see what the market bears at the time. But we do feel like we have some assets in our portfolio that could trade at attractive numbers.

And just anecdotally, when you think about the buyer universe out there relative to maybe three, four, or five months ago, would you say that pricing would be probably at a higher level than you would have thought previously? Or is the environment pretty much the same?

I think there's probably more confidence in the projected performance of the assets for new buyers. So perhaps it's a little bit more attractive pricing than we got in the last round of them. But it's hard to tell. I think what makes these kind of secondary-market, cash-flowing, limited- and select-service assets so attractive to some investors is that they are -- they can purchase it at below replacement cost, and they have a fairly steady set of cash flows to them. And so -- and, in some cases with our portfolio, they have assumable debt in place as well. But, really, it's unclear right now. I think that pricing -- what we're hearing from -- on secondary market assets is somewhere in between kind of an [8 and 10] cap. Hopefully, ours tend more towards the 8 side than the 10 side. I think we sold the first set of assets at what ended up being about a 9 cap rate.

Great. That's very helpful. Thanks.

Dan Donlan, Janney Capital Markets.

Just going back to the Pearl Street and Hyatt Union Square, you said third quarter. Could you maybe give us -- ? Is it early third quarter, mid third quarter? Any type of clarity there would be great.

I think, right now, we're tracking at mid third quarter.

Okay. And, then, on the new tower in Miami, what's the expectation for when that's going to be up and running?

I think we're probably estimating for June of 2013. Kind of pre-construction has already begun. We actually start moving dirt on May 13. And it could be a 12- to 13-month process from that.

Okay. And then, Jay, going back to your view of Hersha over the next few years, should we infer from your comments that maybe you're more interested in growing LA and Miami versus New York or some of the markets you guys are already pretty deep in?

I don't want to suggest that we're focusing on any one of our six markets at the expense of the others. I think we've always done a real good job of being opportunistic and finding the best deal within a set of parameters. And I think, these days, we look at the six markets we're in, and we have very, very strong conviction in every one of those markets for the remainder of the cycle. So I think we would pursue acquisitions in any of those markets.

I think, in New York -- our target in Miami and Los Angeles might be a bit broader, just because we don't have much concentration there. Obviously, we have an asset in each of those markets, and we would like to build some additional, critical mass there. When it comes to New York City, I think we're looking a little more specifically at submarkets, and we're looking a lot more specifically there on what is going to make a difference for us in New York and really drive our New York cluster numbers rather than just continuing to aggregate in the market generally.

Is that clear?

Yes; absolutely. And then, I guess, going back to New York, as well, I think in the past you guys have talked about potentially maybe selling an asset kind of to show the inherent value in your New York portfolio. Is that still on the radar screen? And have you received any indications of interest on your existing properties there?

I think we would be very open to selling an asset. The value -- where we hold these assets, the basis that we hold them at, a sale at this point in the cycle would be very attractive. That being said, I think there's still some terrific growth to be had at these assets. So we're not in a rush to do it.

And, secondly, I think we're sensitive to putting an asset on the market and going through all of the disruption that that would cause. I think, if we were to get a reasonable inbound inquiry with attractive conditions to closing, it would be something we would consider very, very seriously.

Okay. And then, Ashish, you mentioned the big gap in 2008 ADRs in New York versus where you are now. Given where your occupancy is, what do you think really needs to happen to bridge that gap? Is it just continued strength in the New York economy? Do we need to see some of these group houses start to fill up more? Or what needs to happen there, and how quickly to do you think you can bridge that gap on the ADR side?

Sure. I think it's a combination of a couple of things you mentioned. It's certainly still that the demand is continuing to outstrip the supply. Definitely, the group houses weigh on the first quarter. I don't think that the second, third, and fourth quarter ADRs will be 24% different, but I think they'll be still closer to 12% to 15% different than they were in 2008. And it's really the first quarter you see less group demand. You see a different sort of traveler in Q1. But, as the group houses fill up, as the New York economy continues to grow, and other demand grows in New York, I think that you'll start bridging that gap both in Q1 and in Q3. Q2 and Q4, I think, you should start getting to low, single digits even by 2013 or this year.

Okay. And, then, just lastly, on the dividend, I think you guys raised it in the second quarter of 2011. What are your thoughts there? Do you feel like you have enough room to raise the dividend? That would be great.

We review the dividend policy with the board on a quarterly basis, and I think it's something we'll continue to look at. As our fundamentals continue to improve, obviously, it's something we'll pay a bit more attention to going forward. But I don't have anything specific to report to you.

Okay. Thank you.

And, with no further questions in the queue, I'd like to turn the call back to Jay Shah for any additional or closing remarks.

Okay. Well, I think we would just like to take the opportunity to thank everybody. We feel terrific about this first quarter. And I think, as we referenced earlier, it's probably the most excited we've felt in about four years. We'll look forward to continuing to update everybody as the year progresses. Thanks.

And, ladies and gentlemen, that does conclude today's conference. We thank you all for joining.