Hersha Hospitality Trust (HT) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Hersha Hospitality Trust fourth quarter 2012 earnings conference call. (Operator Instructions). At this time I would like to turn the conference over to Ms. Nikki Sacks. 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 to your capital investments. The forward-lookingstatements 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.

Thank you , Nikki , and good morning to everyone. I am joined today by Neil Shah, our Chief Operating Officer and Ashish Parikh, our Chief Financial Officer. Let me start today by providing some of our thoughts around our strong fourth quarter results, and why we believe that we are at an inflexion point in the earnings potential of our portfolio.

Hersha's commitment to concentrated ownership of hotels in New York and other U.S. gateway markets has created a unique and very attractive earnings and cash flow profile for this Company. Our hotel investments ,our decision to renovate our portfolio during the early stages of the cycle and our proactive capital recycling and non core disposition strategy are all combining to yield outperformance as the cycle moves ahead. Since the recovery of the lodging markets in 2010, we have acquired 18 assets with a combined value approaching $1 billion. We have invest approximately $100 million in repositioning and renovation capital expenditures and sold 25 assets worth over $210 million.

It has been a transformational period for our Company, and are position the portfolio in the strongest and most vibrate urban centers in the country is showing the benefits of our pure play strategy through the strength in our absolute RevPAR quality, our uniquely high margins and our RevPAR and EBITDA growth. We are moving forward in what is expected to be a long recovery cycle, and we are encouraged that the earnings potential our portfolio will grow dramatically in 2013.

We will have completed the majority of our planned renovations by the end of the first quarter and all of our development activity is scheduled to be completed by year end. Our pure play portfolio is comprised of primarily of young or recently renovated hotels, uniquely positioning the Company to capture additional embedded growth opportunities inherit in our portfolio and continuing to drive sector leading EBITDA growth in the coming years. Our fourth quarter results clearly support our thesis and show the benefits of our portfolio investments.

Last night we reported that our fourth quarter consolidated and same-store RevPAR was up 12.8% and 10.9% respectively driven primarily by gains in our average daily rates. We were pleased despite the initial disruption from Hurricane Sandy and the closure of the Holiday Inn Express in lower Manhattan for all of the fourth quarter that our quarterly results exceeded even our upwardly revised guidance from early December.

We reported very strong RevPAR growth in our New York City urban and Manhattan portfolio 14.6% and 11.5% respectively. Both portfolios significantly outperformed their comparable market RevPAR performance by 620 basis points and 520 basis points respectively. This outperformance demonstrates our ability to continue to capture a disproportionate share of the markets corporate and leisure demand over our peer sets.

We are particularly encouraged by our fourth quarter results as their strength confirmed our point view that the weaker third quarter results in New York were due in large part to a momentarily pause in what has proven to be an uneven but continuing recovery cycle none the less. We had anticipated and communicated that the transient booking pace was pointing to a strong fourth quarter , and based on our current forward booking pace we expect that the first quarter will exhibit similar strength. The New York outlook as we move forward remains quite positive.

The City's job growth is expected to outpace the national rate in 2013 with many economic generators driving demand. This includes significant office square footage coming online over the next few years, which should result in job creation. New York City also remains the most visited destination by International tourist, and we continue to see strong growth from a variety of international markets, which should continue to be a tailwind for New York City for the years ahead. And the growth in the technology sector has become and continues to grow as an incremental and significant job creation engine.

Building on a two quarter trend our top 15 top properties by EBITDA contribution has occupancy of approximately 90% or higher, and 13 of the 15 produced primarily ADR driven RevPAR growth in the fourth quarter. This trend provides us further confidence that we will continue to see ADR driven RevPAR resulting in higher margins in the cycle. In the quarter we were also very pleased by the industry leading contributions from our Boston and Westcoast portfolios in the outperformance metro New York, New Jersey hotels.

Boston produce RevPAR growth of 7.7%, and the majority of this growth was driven by increases inADR. Boston's economy is supported by diverse businesses including financial services, education, technology, healthcare and related sectors to support consistent demand and ongoing rate growth. Despite a weaker convention calendar in 2013, we are forecasting strong transient demand at our Boston hotels throughout the year, and are also benefiting from renovation capital investments at several of our Boston hotels across the last two years.

Our Westcoast portfolio consisting of our newly renovated Hyatt House Hotels in Northern California and Scottsdale and in addition to our Courtyard in Los Angeles had 21.6% RevPAR growth with 8.6% coming from rate. Several of the Hyatt House properties under went significant renovation in late 2011 and the early part of 2012, and we are clearly seeing the benefits of these investments.

In Los Angeles we achieved RevPAR growth of 18.1% driven by an increase of 9.3% in ADR. The results from our Westcoast portfolio provides us additional confidence that pricing power is back in these markets, which we had started to experience in the back half of 2012. Since that time, we have continued to benefit from this pricing traction and minimal supply growth, and we expect this dynamic to continue in to next year, and we are forecasting a very strong growth in our Westcoast portfolio for 2013.

In Washington, DC as expected and in line with the market our hotels had a challenging quarter. The election and weak congressional calendar resulted in a weak group and transient demand during the quarter, and the market was further hindered by displacement from Hurricane Sandy without the resulting post storm pick up we saw in other markets. With the presidential inauguration and Congress back in session with a more aggressive calendar along with the majority of our renovation activity being completed in 2012 our expectation for the first quarter and the full year 2013 is for renewed strength in DC.

In Miami the renovation on the Courtyard Miami Ocean front are still anticipated to deliver in the fourth quarter with construction on schedule. With renovations becoming more extensive the impact on the hotel was apparent in the fourth quarter as RevPAR fell 3.7%. The renovation will add a 93 room ocean front tower that will meaningful contribute to our results when the work is done, and we are pleased that we are able to maintain our operating levels despite the significant and disruptive work currently underway.

In 2013 we are committed to maximizing our EBITDA growth across the entire portfolio. First our renovation activity is coming to a close throughout the majority of the portfolio in the first half of the year expect for the Rittenhouse and the Courtyard Miami which we discussed earlier.

In 2013 we will be showing significant EBITDA growth as a result of the development activity we have undertaken that will come online in 2013. We will have three new hotels in the highest valued market in the country Manhattan representing almost $225 million of basis. One is locate in Union Square in the Midtown South submarket and the other near the New York Stock Exchange. The third and most recently acquired development hotel is a 205 room Hilton Garden Inn, which is located in Midtown East near the corner of 52nd Street and 3rd Avenue in one of the strongest submarkets in Manhattan.

We have significant internal growth embedded in our current portfolio well beyond these development projects that will contribute for years to come. Going forward we will seek additional external growth selectively taking advantage of only opportunities that enable us to deliver incremental total returns.

The other strategic initiative we will continue to pursue is capital recycling opportunities within our portfolio. We have demonstrated to sell hotels that have growth rates below our portfolio average and are otherwise noncore to our strategy. This has generated capital that we have effectively reinvested in to younger hotels with stronger growth and used the proceeds to reduce our debts in some cases as well.

Despite the macro headwinds and resulting anemic GDP in the environment we continue to record growth that is significantly higher than that of the general economy and our peers. We currently have a favorable supply demand outlook and anticipate that it will continue for several more years. With our balance sheet in the strongest position it has ever been and purpose built portfolio starting to demonstrate the cash flow strength we had anticipated we are confident that Hersha is well positioned to drive strong shareholder value.

Now let me turn to Ashish to have him provide some more details on our operating results and financial position. Ashish.

Thanks, Jay. I will start by providing some additional detail on our operational results, transition over to the balance sheet and end with our outlook for 2013.

On a consolidated basis our hotels realized RevPAR increase of 12.8% driven by ADR growth of 7.8% and portfolio wide occupancy of 75.2% up more than 330 basis points from the prior year. On a same-store basis portfolio RevPAR increased 10.9%, also driven by an ADR growth of 6.4%, and 310 basis points increase in occupancy to 75.6%. This ADR driven growth lead to margin expansion of 360 basis points for the quarter and produced same-store EBITDA margins of 43.6% the highest fourth quarter EBITDA margins in our history.

As Jay had mentioned earlier we feel we are starting to hit a inflection point in our portfolio's life cycle, which will allow us to fully maximize the cash generating potential of our assets. I think this is best exemplified by the results of our Manhattan portfolio for the quarter. For the fourth quarter our Manhattan portfolio realized RevPAR growth of 11.5%,driven by ADR increases 9.7%, occupancy growth of 155 basis points to 93%.

Occupancy for our same-store Manhattan portfolio for all of fiscal year 2012 came in at 90.5%, almost 500 basis points higher than Manhattan City wide occupancy. These occupancy levels clearly allow our revenue managers to drive incremental rate, and point to the inherent demand and sell-out nights that Manhattan continues to realize. The ability to optimally revenue manage these transient focused hotels allowed our Manhattan portfolio wide EBITDA margins to reach an all time high of 53%, a full 250 basis points higher than our already impressive 2012 fourth quarter margins 50.5%.

If the take away from all of this is the ability of our portfolio to generate almost 50% more cash flow from ever dollar of revenue as compared to the peer median for the lodging REIT sector. We have a young portfolio with already strong margins that still has meaningful run way as it reaches stabilization. Approximately 40% of our EBITDA is forecasted to be generated by hotels that are less than five years old, and we have several new hotels coming online in 2013. As our young assets continue to ramp up through the cycle and with the majority of our renovation activity scheduled to be completed by quarter end we feel confident in our portfolio's ability to outperform its competitive set.

Turning to our balance sheet. Our strategic and capital initiatives over the past few years now provides us with significant financial flexibility, and our access to the capital markets has allowed us to meaningful reduce our weighted average cost of capital. During the quarter we completed new senior unsecured credit facility which reduces our weighted average cost of debt while allowing us to garner the benefits and flexibility provided by an unsecured revolving and term loan facility. As of year end 2012 we had drawn $100 million on our term loan facility, and we drew another $50 million in January to refinance existing debt at a cheaper cost to capital. We also finished 2012 with approximately $70 million of investable cash, no borrowings on our $250 million unsecured credit facility and one small loan maturity of $8 million in 2013.

We have also simplified the balance sheet by purchasing or selling the majority of our joint venture assets, and by reducing our exposure to development loans. We only have two development loans outstanding at this time, and based upon the recent pay downs and the anticipated opening of the Hyatt Union Square we anticipate that all of our development loans will be paid off in 2013.

With respect to our capital plan, we spent approximately $28 million on capital expenditures and ROI projects in 2012, and for 2013 we anticipate our capital spend to be in the range of $27 million to $29 million. And as previously mentioned the majority of our work on our 13 ongoing renovation projects is currently underway, and is scheduled to be completed by the end of the first quarter as it seasonally the weakest quarter for the majority of our portfolio. These renovation projects have proven to be far less disruptive during this quarter than we had expected as our performance suggests. None the less , we are bringing closure to the extensive renovation programs we have had in place the past few years, and look forward to leveraging the investments to produce incremental growth for the portfolio.

I will finish with our outlook for 2013. We continue to experience strong year-over-year trend, and the first quarter is benefiting from an increase in business transient demand, capital investments in prior years, ongoing recovery efforts related to Hurricane Sandy and the inauguration in Washington, DC. The overall New York City results and specifically our year-to-date trend have been very strong and helped to lessen some of the renovation related disruption that we have undertaken at our JFK and Manhattan hotels during the quarter.

As you are all aware, the first quarter is by far the least impactful quarter for Hersha , but we are encouraged by the overall strength of our market and our portfolio's outperformance within our markets. Year-to-date our same-store portfolio RevPAR is up 17%, and we believe that the inauguration and Sandy related displacement have added on approximately 500 basis points of RevPAR growth for the quarter to date figures. Our guidance ranges and estimates will continue to be volatile due to the uncertainty of the timing and ramp up of our development assets and the ongoing uncertainty of macro events including the impact of travel related disruption associated with the federal budget sequestration.

For the full year 2013 we expect total consolidated RevPAR growth in the range of 5.5% to 7.5%, and 5% to 7% on a same-store basis. We anticipate ongoing industry leading margins with consolidated hotel EBITDA margin expansion of 25 to 50 basis points and 25 to 75 basis points on a same-store basis. As we have in the past we will continue to monitor the pace and performance of our portfolio and we will continue to provide adjustments to our guidance if necessary to keep it meaningful as we progress further into the year.

That concludes my formal remarks , and I will now turn the call back to Jay.

Okay. Thank you, Ashish. Operator, we can open the line for questions.

All right. (Operator Instructions). We will go first to David Loeb with Baird. Please go ahead.

Good morning, gentlemen. Pretty impressive results. I have a couple of topics I want to hit. Can you start by talking a little bit about the development market in New York and what you are seeing in the pipeline? I am particularly interested in the impact of the slow down in permitting following Sandy and also the on the resurgence of the multi family market.

David, this is Neil. Those are good topics to discuss. I think we have always discussed just the uncertainty of the development timeline in New York City, and that uncertainty has been there even before Sandy or even 5, 7 years ago there was a long development cycle there and a lot of things that can go wrong or can cause delays. But post Sandy there has been not only more permitting bumps in the way and getting people and regulators out to the site, but there has also been a lot of issues just with supplies and with electrical hookups and the like. I think what is often already a pretty long drawn out development cycle has been stretched even further by Sandy. So for projects that we are planning to -- we felt this and experienced this with our projects. Hotels that were anticipating opening late last year or the beginning part of this year are finding at least a quarter delay in that expectation.

Overall with the Manhattan supply picture it continues to be something we monitor very closely. As you know, we go on a quarterly basis through each of the projects and the development around the island. And as you mentioned, it continues to be something that is significant and something that does influence our strategies out in the field as well as our acquisition appetite in New York. But overall our expectation for supply in New York City for the coming year is about 3% in 2013, and that compares to some of the consultants that are probably in that 4% to 6% range and the main difference there is that we believe the timing of new supply a lot of the consultants have not given enough delays, they have not built up enough delays in pipeline. I think last year for 2012 versus Starr we found that in actuality there were probably 1,200 rooms that were over counted for 2012. So we do some of those coming in 2013, but the expectation for other consultants for 2013 openings we see in 2014 and the like. So something that is significant 3% to 4% supply growth in New York City across the next several years is significant especially relative to historical, but is still outpaced pretty significantly by demand. Our expectation for demand across those three years is closer to 6% kegger.

And I would also mention, as you brought up, there is the residential market has been continuing across the last several years is increasingly attractive for developers to turn to what was beginning part of the cycle a push for multi-family apartments today there is a very vibrate condominium market again emerging in Manhattan. I think it has been reported that three large assets around Manhattan that were recently on the market for sale have been purchase by a condominium converter.

And all three of those relatively large hotels, 300 plus room hotels, in established markets in Manhattan will be going residential. We have not built-in in our expectations a significant drop off in existing inventory of hotel rooms, but I think that is likely across the next several years. So that gives us some positive news in the face of all this historically high supply. Does that answer your questions, David?

Yes, that is actually very helpful. I have an operational question as well. Mike Barnello on the LaSalle call said they are still a lot of sell out nights but it is harder to push rates on those. Can you give your perspective? You ran 90% occupancy in Manhattan higher than that in the fourth quarter. Can you give your perspective on the elasticity of rates in Manhattan on sell out night and in your other markets?

I will take a shot at it. Our strategy in New York and in most markets is to focus on smaller assets high quality kind of premium brands that are keeping up with current tastes and preferences of consumer and submarkets that we know very well and we expect to outperform broader Manhattan metrics, and then we investing in assets that have a real operational business plan to also outperform its competitive sets.

So I think having smaller boxes and newly built hotels does allow us to capture more market share in compression environments. So far we have been able to continue to see that experience throughout New York. I think it is the size of the hotels and our locations and submarkets that allow us to drive that continue outperformance.

Okay. Great, thank you.

We will go next to Nikhil Bhalla with FBR.

Good morning everyone.

Good morning.

We have obviously heard a lot about sequestration and the potential impact on lodging overall. Do you have any thoughts on how if sequestration were to happen would actually impact your hotels?

It is something we talk about and look into the best we can, there is just not a lot of visibility on it. What we do know is that sequestration is likely to hit about 15 major agencies. And we realize that of those 15 agencies for instance let us talk about Department of Defense. If there is going to be an impact of lay offs, most likely you are not going to feel all of it in Washington. You are going to feel it across the board, across the country because if there was a lay off civilian population, 80% of the civilian population that works for the DoD works outside of the District of Columbia and the region.

So it probably would be something that would be spread out quite a bit. I think other than that just generally talking about the Government sector in our business if that is question we do not do a lot of groups so we have not going to suffer in reduction in association meetings and large convention, not convention but large group meetings by these 15 agency. But there might be a curtailment of travel and that would probably hit our Government sector a little bit.

Outside of Washington we don't have a significant reliance on the Government sector. I would imagine if you were take an average across the portfolio it is probably less than 2% of our revenue. So even if you imagine 50% reduction in that you are talking about maybe a hit of 1% of revenue, which is not insignificant but in a growth cycle like we are in we feel very confident we would be able to find other offsetting demand generators to backfill it.

It is very hard to know. I wish I could tell you more. We have all these pages of information, but they do not really say anything. They are all potentialities until we have clarity from Washington what is going to happen, we won't be able to really plan for it.

Sure. And just a follow-up question on your margins on the same-store hotel side in terms of guidance 25 to 75 basis point increase. Would you give us some color on how you determine that particular range upon a 5% to 7% RevPAR growth guidance?

Nikhil, sure. This is Ashish.

Hi, Ashish.

When we look at our margins for 2012 for same-store they are just in excess of 40%. When we look at that 5% to 7% RevPAR growth it is tilting toward ADR. But we have built in a little bit of conservatism there on margins because of anticipated increases in property taxes and insurance for next year. Right now it is still a little too early to see where insurance comes in, but I think it is safe to say that with Sandy and some of the natural disasters that people are kind of circling around high single-digit even double-digit type of insurance growth number. So we have tried to build that in our 25 to 75 basis points.

Got it. Thank you very much.

(Operator Instructions). We will go next to Andrew Didora with Bank of America. Please go ahead.

Hi, good morning, guys. Jay, it seems like 2013 your acquisition activity won't be at the level it was in years. You have done a good job in terms of both increasing the quality of the portfolio and pruning some noncore assets. I guess now you are talking about seeing the inflection point in the cash flow of your portfolio now. Do you think there could be an opportunity to increase the dividend this year, and what kind of pay out ratio do you feel is reasonable at this point of the cycle and at this point in the life cycle of your portfolio. Thanks.

Sure. Andrew, we have always said that raising the dividend would not even be something I think the Board would consider unless we were inside of 50% pay out ratio. If we get there, I think it is something that will be discussed. I have mentioned it before. It really is the Board's decision. The Board's view has also been to raise the dividend it has been a big part of our tradition and our strategy, but to raise it when we feel like that show of strength and that additional value we are paying out is going to yield us some value in stock price.

I think through the year as we kind of consider it and if our metrics make paying out a dividend something we feel is prudent to do. We would probably take a look at it. But we would probably want to do it in a market where there would be some value for increasing it. At our current levels we are 4.5%, maybe even higher 4.6%, 4.7%yield. We are one of the highest payers in the sector. And if we are going to get some value for raising it, we would consider it if it was prudent to do it. But if it is just paying out additional cash rather than using it for reinvestment we would probably think twice about it.

Okay. That is helpful. That is all for me. Thanks

We will go next to Ryan Meliker with MLV & Company.

Good morning, guys. Just a couple of quick things. First of all with regards to the New York City portfolio and the outperformance relative to the market, I think you said 620 bps and 520 bps respectively. Is that relative to your comp sets or is it your comp sets that outperformed or your submarkets that outperformed or was it just your properties are managed the best and in the best locations and they are driving higher rates on occupancy than everybody else?

Hi , Ryan, how are you doing. This is Ashish. We looked at that as a combination, to build on what Neil, our ability to revenue manage these transient based hotels. We don't have a lot of group layered into these hotel, so when we see market dynamics changing, we can adjust our pricing strategies and occupancy levels very quickly. I think a lot of the our outperformance is based on our ability to revenue manage.

I would suspect that most of your comp sets are also select service hotels that are not focused on group, et cetera . Can you give us any color on did your penetration increase relative to your comp sets materially due to your harshness to specific revenue management or was it just more that you are in the right assets at the right time in the cycle?

I think Ryan from the fourth quarter numbers I believe the Manhattan overall was around 6%, 6.5% I think our comp sets were around 8% to 8.5% our comp sets and our sub markets, and our performance was around 11%. We are gaining index in most of our submarkets and our submarkets are better than just Manhattan as a whole.

It has always been apart of our thesis that in addition to owning assets in very strong markets where the dynamics are favorable we do as part of our business plan expect to bring operational advantage to the assets. Through our asset management program and our revenue management programwe do pay a lot of attention and we leverage some of positive attributes of these assets we have which is their size and market positioning. I think that is what leading to the outperformance.

That is helpful. Then just with regard to New York development you touched upon some of it with response to David's questions. Are you seeing delays regarding Hurricane Sandy that maybe are not in the consultants' estimates right now? Have you seen any slowing over the past three months that is atypical at this stage of the development processes?

It is a little bit more just antidotal as we visit some of these sites. But absolutely we do believe -- It is hard to see inside of four walls of a building necessary, but what we have experienced ourselves what we are hearing from consultants to the industry it is very significant delays both on City officials being able to come and do inspections but also then getting certain critical generators and electrical equipment.

Got you. When you say significant delays, are we talking three months or are we talking maybe as long as a year could be based on back up?

It really depends on where they were in the plate. Where in Manhattan and how affected they were. And then two where they were in progress of their building. There is definitely a lot of horror stories in lower Manhattan where 9 to 12-month delay would not be surprising, but that is not be the norm. I think a quarter to two quarters is probably the norm if you are taking a overall Manhattan view on supply.

That is really helpful, and I think that is good colorOne last housekeeping question. Can you give us an update on the tower in Miami is that proceeding on, do we have a scheduled opening date?

Ryan, the construction there is progressing quite well. They are topping off probably in the next week or two. Sort of riskiest part of the construction will be behind us, which is the foundation and superstructure, so that is good news. By April 13th they will have the building closed up to the extent they can reopen the pool which is good for the operating fundamental of the hotel. The pool being closed for the last few months is not a good fact. So that will be done. It is moving along very well. We are pleased I think we have a good relationship with the very strong local architect and we have a builder there that has done other work along the beach and is real familiar not only with site conditions there but also with the subcontractors community. We have been able to move through there with few delays.

What is the tentative opening schedule?

That we will deliver late third quarter early fourth quarter 2013.

That is what I wanted to know. Great. Wonderful. Congratulations on a really strong quarter. That was great.

Thank you, Ryan.

(Operator Instructions). We will go next to Bill Crow from Raymond James & Associates.

Good morning guys. Nice quarter.

Hi, Bill.

My question, Jay, for you is that last year the last couple of years you entered both Los Angeles and Miami. Great core markets but have not really establish a larger beach head in either market. Is it a good trade off to think about trading out of a New York asset or two given some of the concerns there and given your concentration and looking to get more aggressive in these other markets to at least get some sort of economies or larger presence in those markets or is it worth keeping one hotel in each of those markets?

Bill, both Los Angeles and Miami one of the reasons we were comfortable entering those markets aside from them very strategic and having attractive dynamics was that the assets that we bought there were of a descent scale. They were big enough to justify having a beach head of the a singular hotel. So we are still comfortable with that. These assets are large EBITDA producers and they are both doing well. I think growing in those markets is something that we would certainly like to do and we have continued to look for opportunities and just have not found an additional entry point there to add on incrementally to what we have. But we will continue to that.

Whether trading out of a New York asset right now and redeploying that into those markets I do not know. That might be a trade off that we would make if we saw pricing in New York transactions become extremely robust and I think we talked about that before. And that day is very likely to come where New York starts pricing itself at significant premium as we see liquidity in the transaction markets continue to grow this year. So we will certainly consider that. I do not know if necessarily in our minds we are linking up sale of something in New York with additional purchases in Miami or Los Angeles, but we are kind of assigning individual weight to each but it is significant weight. I mean we do think about both of those.

Okay. One other question. In New York it was apparent that acquisition costs were exceeding construction costs. That was the first market to show that. You seem to beat that given your early entry into the market. Are there other markets that you are seeing now where the same is happening where we are seeing development costs and construction costs come in below what the transitional market is?

Development cost coming in below the transactional market. It is also how much cost you assign to the development process maybe, and what kind of charge you take on that. But just broadly speaking price per key of assets in San Francisco are higher than the cost of building it, but it is the time and effort required in building those hotels is very significant and not necessarily reflected in their transaction at the end of their development process some times.

I think market by market there are gateway markets around the United States where the acquisition price is higher than the cost of development, but in those same markets the cost of development should reflect how uncertain and how costly that process might end up being. It is not just the bid you might get from the builder it is what it costs to get it done. I think there are gateway markets across the U.S. that are getting pricing above replacement costs.

We are trying to look at what is going to happen to supply here. We know there is plenty of money splashing around out there, and some of your pure REITs have gone to brokers and talked about take out financing on perspective new developments. It feels like we are sitting here on a ledge watching new supply ramp up a little bit. That was the reason for the question. I appreciate the commentary. Thanks, guys.

Our final question is a follow-up from David Loeb with Baird. Please go ahead.

One more sort of a follow-up on what Bill asked. You explored selling a somewhat mature asset in New York I guess it was about a year ago. Is that back on your mind? Would you consider selling one like 373 or another one that has sort of had its stabilization and ramp up?

Most definitely. I am glad your asking that question because I might not have made that clear when Bill asked. We were down the road significantly with an asset in New York, and we would have been very pleased to sell. It would have been a terrific outcome for the REIT. Pricing was attractive. I think it would have put a nice mark on the portfolio, and then Hurricane Sandy hit. It made the deal blow away no pun intended. The idea of selling something at an attractive premium for the REIT is something we will continue to look at. That particular assets there was interest in it. If that kind of opportunities arises we will certainly pursue it again.

Great. That might have been a better than pun even than Bill's beach head on Miami beach. Great. Thank you for that.

Okay. Great, thanks.

Having no more questions, I will turn the conference back over to the speakers for any additional or closing comments.

I will thank everyone for joining us this morning. We are in the office if any questions occur to anybody on the call, please feel free to dial us up this afternoon. Again thank you for being with us, and we look forward to updating you with our progress. Thank you,operator.

Ladies and gentlemen, that does concludes today's call. Thank you for your participation.