Hersha Hospitality Trust (HT) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Hersha Hospitality Trust first quarter 2014 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions)

At this time, I would like to turn the conference over to Peter Majeski of Hersha. Please go ahead, sir.

Thank you, Kyle, and good morning to everyone participating today. Welcome to Hersha Hospitality Trust's first quarter 2014 conference call on this, the 2nd of May, 2014. Today's call will be based on the first quarter 2014 earnings release, which was distributed yesterday afternoon. If you have not yet received a copy, please call us at 215-238-1046. Today's call will also be webcast. To listen to an audio webcast of today's call, please visit www.Hersha.com, within the Investor Relations section.

Prior to proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements as defined within Section 27A of the 1933 Securities Exchange Act, Section 21E of the 1934 Securities Exchange Act, and as amended by the 1995 Private Securities Litigation Reform Act. These forward-looking statements reflect Hersha Hospitality Trust's trends and expectations, including the Company's anticipated results of operations. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the Company's actual results, performance, or achievements of financial provisions to be materially different from any future results, performance, achievements or financial positions. These factors are detailed within the Company's press release, as well as within the Company's filings with the SEC.

And with that, it is now my pleasure to turn the call over to Mr. Jay Shah, Hersha Hospitality Trust's Chief Executive Officer. Jay, you may begin.

Thanks, Pete, and good morning to everyone. This morning I'm joined by Neil Shah, Chief Operating Officer, and Ashish Parikh, our Chief Financial Officer. As is our practice, I'll start the morning's call by reviewing our first quarter operating results and providing specific market and sector commentary. I'll also discuss our portfolio positioning and capital recycling and other capital management initiatives that we undertook in the first quarter. Following those comments, Ashish will provide additional color on our first quarter financial results and our outlook looking forward.

Improving economic fundamentals and consumer confidence levels provided a good backdrop to support our positive yield lodging fundamentals for the remainder of the year and gives the industry and our operators additional confidence in establishing rate strategies focused on driving ADR growth. In addition, the return of group business bodes well, increasing both compression and pricing power in our high occupancy markets. These factors resulted in the demand increasing 3.8% and industry-wide RevPAR growing 6.8% during the first quarter. These figures reinforce the view that the recovery is in the middle innings, with ample runway remaining in the cycle.

As discussed on our conference call in February, we recognized first quarter 2014 operating results would be subject to headwinds in our New York and Washington, DC portfolios, that we'd face a holiday shift from March to April, and inclement weather in the Northeast. We also noted that renovation activity at several of our hotels would impact first quarter operating results. Despite these factors, we're pleased with the portfolio's performance for the first quarter, which delivered 3.9% RevPAR growth, to $125, supported by a 1.7% ADR increase, to $164.67, and occupancy growth of 157 basis points, to 76%. Excluding the previously mentioned renovations, our consolidated portfolio delivered 6.6% RevPAR growth, very much in line with industry, despite the unique challenges faced in our markets for the quarter.

Our consolidated hotel EBITDA increased approximately 24% year-over-year, driven by strong growth in several of our markets, contributions from several of our new properties on the West Coast, and the new Tower at the Cadillac Miami Beach, and the benefit from the sale of the non-core hotels. The Company's best-performing markets during the first quarter were the West Coast, Philadelphia and Boston.

The West Coast portfolio reported 10.8% RevPAR growth, driven by a 6.3% increase in ADR, and a 317 basis point increase in occupancy, to 77.6%. Occupancy and ADR growth at our Northern California Hyatt House properties were especially strong, supported by improved business mix which enabled the properties to drive rate and replace more price-sensitive business with higher rated accounts and strong group.

Renovation disruption at the Courtyard Los Angeles negatively impacted the strong performance on the West Coast. Excluding the renovation asset, West Coast portfolio RevPAR rose 22.5% during the quarter. With renovations at the hotel now largely complete, our cluster of hotels in California is positioned well to leverage the strong market dynamics on the West Coast. Indicatively, the portfolio posted 25.7% year-over-year RevPAR growth in April.

Excluding the renovation activity at the Residence Inn Framingham, our Boston portfolio reported a 9.7% increase in RevPAR. Our Boston portfolio results were driven by 77% RevPAR growth at the recently rebranded and repositioned Boxer Hotel, which continues to achieve strong occupancy and rate growth following its renovation and rebranding.

Looking ahead, the outlook for the Boston market is very positive, with stronger city-wide activity expected to drive transient ADR across the entire region. April results again were encouraging in Boston, with RevPAR increasing by 18%, inclusive of Framingham, which posted flat results in the final month of its renovation.

In New York City, our Manhattan portfolio reported 2.9% RevPAR growth, driven by a 1.4% increase in ADR and a 129 basis point increase in occupancy to 85.4%. Year-over-year, first quarter demand in Manhattan increased 3.4%, offset by a supply increase of 5.9%.

Despite the first quarter challenging comparables that we've discussed, and increases in supply, we were very encouraged by the performance of our Manhattan portfolio during the quarter. Our same-store Manhattan portfolio reported occupancy of 87%, an increase of 295 basis points from 2013 and nearly 900 basis points higher than the greater Manhattan market, as reported by Star. These strong occupancy figures took place during the year's weakest quarter and demonstrate the Manhattan market's ability to absorb supply increases. These results also point to stronger performance for the remainder of the year.

The second quarter started very strong, with the portfolio achieving 14.6% RevPAR growth, with occupancy increasing 752 basis points, to 95.1%, and ADR growing by 5.6%, to $240. As we look at the supply picture in New York, we believe 2014 will be the high water mark in terms of supply growth, with 2015 and 2016 coming in at a more manageable pace. We continue to maintain our positive near- and long-term view of the market.

Transitioning now to recently acquired hotels and those that are in the process of ramping up, we are very pleased with the performance at the new Tower in Miami Beach. The number of room nights sold increased approximately 24%, with room revenue increasing 26%, or approximately $1.2 million year-over-year, contributing an $800,000 increase in EBITDA at the hotel. With ramp up at the new Tower well underway, strong international inbound travel, and a favorable city-wide calendar in the second and third quarter, we look forward to the Cadillac being one of our portfolio's top EBITDA-producing assets in 2014.

When we sold the two non-core portfolios across the last two years, we committed to redeploying the capital from the sales into hotels that would offset the lost EBITDA from the two portfolios and to do so in strategic markets that had higher growth rates than our portfolio average. In furtherance of that strategy, during the first quarter, we closed on the purchase of the Hotel Oceana in Santa Barbara, California, which was officially repositioned and rebranded as the Hotel Milo yesterday.

Following our acquisition of the hotel, we have implemented new revenue management strategies to further improve performance. This includes a new CRS platform, which is driving improved production from higher rated channels and driving more direct bookings through the hotel's website. The Hotel Milo will be absorbed into our successful Independent Collection, allowing for additional cross selling and promotional opportunities across the IC's 10-hotel platform. We are pleased with our progress at this high-quality, independent oceanfront hotel and look forward to harvesting returns from one of the best RevPAR markets in the country.

Also according to strategy, yesterday we announced that we entered into a definitive agreement to purchase the 148-room Parrot Key Hotel and Resort in Key West, Florida for $100 million at a forward economic cap rate of 7.5%. This oceanfront hotel was fully renovated in 2012 and requires no immediate capital. In terms of market dynamics, the Florida Keys is one of the strongest and most resilient lodging markets in the United States, due to a combination of year-round demand, limited new supply, and high barriers to entry.

With the acquisition of Parrot Key, our EBITDA contribution from South Florida will increase from 10% to 14%, with our strategic growth markets of South Florida and California expected to contribute approximately 26% of the Company's EBITDA. The Parrot Key transaction is expected to close during the second quarter.

Also this week, we closed on the sale of the Hotel 373 for $37 million. At $529,000 per room, the successful closing of Hotel 373 provides a strong comparable for the remaining hotels in Hersh's New York City portfolio and demonstrates the strong interest from public and private groups, both domestic and international, seeking well-located cash flowing real estate in top US gateway markets.

In anticipation of the sale, during the first quarter we repurchased approximately 2.6 million shares, recycling $15.2 million of capital, at a weighted average cost of $5.80 per share. We believe that opportunistically repurchasing undervalued shares is an attractive use of capital and we will continue to consider share repurchases during periods of price volatility or when the price doesn't appropriately reflect value.

In closing, with 2014's weakest quarter behind us and an expectation of acceleration in the second half of 2014 due to easy comparisons in New York and Washington, DC, we have a positive view for the remainder of the year. From 2012 through today, the Company sold 39 stabilized assets totaling $430 million, while purchasing 12 high growth hotels for $627 million.

While our strategy has taken a bit of time and has been disruptive to our EBITDA growth, our portfolio, as it stands today, possesses greater exposure to the high growth South Florida and West Coast markets, along with our already profitable core markets of Boston, New York City, Philadelphia and Washington, DC. We believe there is a very clear line of sight to value and we are confident in our strategy. We have a very positive outlook as we look ahead in 2014. With that, I'll turn the call over to Ashish, who will discuss the quarter's financial performance.

Thanks, Jay. I'll concentrate my remarks on our EBITDA margins during the quarter, capital spending, balance sheet activity, and provide some color on quarter-to-date results for the second quarter, as well as our outlook for the remainder of the year.

We reported consolidated hotel EBITDA margins of 30.2%, representing a 40-basis point improvement from the first quarter of 2013. Our margin growth benefited from strong operating results in several of our West Coast markets and the recent additions in Miami. EBITDA margins during the quarter were significantly impacted by the strength of our New York City and Washington, DC portfolios, which registered EBITDA margin growth of 250 and 640 basis points, respectively, in the first quarter of 2013.

Although occupancies at our New York City hotels remained very strong, at 85% during the first quarter, the mix of business was significantly different due to loss of higher rated FEMA and other Hurricane Sandy-related efforts, which was replaced by demand at lower, more seasonally typical price points. Margin performance in New York was also negatively impacted by approximately $270,000 of cancellation fee revenue during the first quarter of 2013 which has no associated costs.

Our EBITDA margins were further impacted by the renovation activity that we undertook during the quarter at five of our hotels. This renovation activity affected our consolidated EBITDA margins by 40 basis points and, excluding these renovations, the portfolio would have registered 80 basis points of growth during the quarter. We have completed the majority of the disruptive capital expenditure projects during the first quarter, and outside of the Residence Inn Coconut Grove, we're forecasting minimal disruptions for the remainder of the year. Based upon our current run rate, we are maintaining our PIP and maintenance capital spending budget to be in the range of $18 million to $20 million for the year.

With the majority of these nonrecurring events and renovation activity behind us, we face less obstacles in continuing to drive industry-leading margins. Over the past several years, we have increased our focus on energy management and sustainability initiatives to drive operating results across the portfolio. Since the implementation of our EarthView sustainability platform, these initiatives have helped us reduce our cost by approximately $2 million over the past two years.

During the quarter, we also completed the installation of a guestroom energy management system across the entire portfolio. This initiative is projected to produce $850,000 of energy savings during 2014, and the ROI on the capital dollars spent on the system provide a very short-term payback with a high rate of return. We will continue to seek ways to leverage our sustainability platform and our aggressive asset management practices to drive margins and profitability.

Turning to our balance sheet, during the quarter, we amended our senior unsecured credit facility, which reduces our weighted average cost of debt, while allowing us to garner the benefits and flexibility provided by an expanded unsecured facility immediately. The total facility size has increased from $400 million to $500 million, and we have a built-in accordion feature which allows us to expand the facility up to $850 million.

The benefits of the term loan expansion are already coming to fruition, as we plan to draw $100 million of the new term loan facility to purchase the Parrot Key Hotel and Resort that Jay highlighted. The new term loan will have a five-year maturity date and be priced at LIBOR plus 235 basis points, or approximately 2.55%. This alleviates any need that we may see right now to raise additional capital in the markets, and we have no plans to do so. We also ended the quarter with approximately $24 million of investable cash, $227 million of capacity on our revolver, and only one small debt maturity for the remainder of the year.

Moving on to our outlook, performance to date in the second quarter has been encouraging, as we place the difficult Sandy and inauguration comparisons in the rear view mirror and recover from a very disruptive winter that affected all of our Northeast markets. These factors, combined with improving economic indicators as evidenced by this morning's strong jobs report, reinforce our positive view of the second quarter and the remainder of the year.

As of the end of April, the consolidated portfolio RevPAR is up nearly 10%. As expected, our West Coast portfolio is leading the way, with RevPAR growth approaching 26%; and our Boston portfolio also posted a very strong 18% RevPAR growth for the month. April has also been a very strong month for our Miami portfolio, which registered year-over-year growth of 8.4%, and we are very encouraged by the ramp-up of the new Tower at the Cadillac Courtyard Miami Beach.

Our same-store Manhattan portfolio was also up 7%, driven by a better mix of ADR growth and occupancy gains, highlighting the resilience of the market in the face of new supply. In addition, the market in our Manhattan portfolio have benefited from the Easter shift, as the week is traditionally strong for leisure-related demand.

In Washington, DC, the market remains challenged, with a decrease in city-wide activity and reduced Congressional activity forecasted in the second quarter, as well as the new Marriott opening at the convention center. Although we are seeing some encouraging trends at several of our DC properties, April results have produced minimal RevPAR growth. We are forecasting a stronger back half for 2014 for our DC portfolio, with a pickup in governmental groups and related travel, which will be aided by easier comps due to the impact of sequestration and the government shutdown, which severely impacted 2013 results after the first quarter.

Taken together, these factors reinforce the guidance provided on our fourth quarter conference call. Our forecast for full-year 2014 consolidated RevPAR growth remains in the range of 5% to 7%. For our consolidated hotel EBITDA margins, we expect margins to increase 25 to 75 basis points, and EBITDA margins for the remainder of 2014 should benefit from the items I highlighted, but will be impacted by the ramp-up and stabilization of our three new development projects in 2014, along with increases in property taxes at several of our hotels.

As Jay stated, although still early in the year, we have a clear and, in turn, more positive view of 2014. Our upgraded portfolio, which will include full-year contributions from our 2013 acquisitions and major renovations on assets, totaled $322 million, as well as full- and partial year contribution from 2014 acquisitions and developments totaling $371 million.

With the addition of the high quality Parrot Key Hotel, incremental revenue from the new Tower at the Cadillac Courtyard, and the expected delivery of two brand-new assets in Manhattan, all of the EBITDA from the 18 assets we sold in 2013, as well as the Hotel 373, has effectively been replaced. These actions clearly demonstrate the execution of our strategic vision and provide a strong platform for growth moving forward. With that, let me turn the call back to Jay for his closing remarks.

Thanks, Ashish. Operator, we can open the line for questions.

Thank you.

(Operator Instructions)

And we'll take our first question from Bill Crow with Raymond James.

Good morning, guys. Jay, your company was built on select service, best-in-class brands, Courtyards and the like. You've increasingly gone to more of a, I'd say, independent focus, or unbranded focus, over the last year or two. Talk about how you see this playing out over the next couple years, as you reshape the portfolio. And does that involve additional risk? We know that managing those assets and getting the bookings without the brands is more challenging. So is Hersha management the right company to manage those independent brands or is there any thought process there?

Sure. Bill, we've been attracted to independent hotels across the last several years and have, at this point, put together a portfolio of close to 10 independent hotels. What we've found, as we've studied them and as we continue to build our experience with them, is that relative -- as long as you're in the markets that we operate in, which are very high demand markets with lots of compression, we find that these kind of hotels will typically operate at a RevPAR premium to a similarly situated branded hotel by about 10% to 15%. And there's significant margin benefits, as well, as you can imagine.

I think in order to pursue them as independent hotels, there is a capability that is required. And I think HHM, that has managed most of the independent hotels for us -- this last hotel that we purchased is going to be managed by Northwood Hospitality, which is the current manager at the hotel, who also manages many other, almost exclusively, independent hotels in their portfolio. So we're going to have HHM and Northwood as the two managers at most of our independent hotels. But they have built up a capability for that.

And primarily, what does that capability consist of? There's obviously, the significant distribution that brands provide is probably one of the strongest drivers in an argument for going with a brand. And so when it comes to distribution, sales and marketing, and revenue management, those are important elements to run an independent hotel. And yes, I think across the last several years, HHM has built up a very strong capability in that area. Northwood has a very strong capability in that area, that's demonstrated by the premium that these hotels run to their branded peers in the space.

I think as we look forward, the independent hotel segment is very interesting to us. Oftentimes, you're able to be in an asset, as I mentioned, that is very similarly situated as a branded asset, but you're getting a much stronger economic return from it. So we would continue to explore those as we go forward. But it's not at the exclusion of continuing to pursue branded assets, as well.

I guess that was going to be my next question, which is, has the pricing of the core asset risen so much that it's not as appetizing to you anymore? Are they starting to price you out, from an acquisition perspective?

A little bit. I think we have -- in branded hotels, there's probably more competition for those assets, and so it makes it a little bit more competitive of a process. With independent hotels, there's fewer owners and operators with that capability. So there has been -- on the margin, I think we have an advantage in the independent space. But again, across the last several years, we probably -- on balance, it's probably been even between branded and independent hotels.

All right. And then final for me, and I guess you touched on this a little bit in the prepared remarks. But your comps get materially easier as the year goes on, at least the next couple of quarters. So you almost have to average, what, 6% RevPAR growth in the next three quarters, maybe a little better than that, to hit your numbers. How much of that is -- are you depending on the markets to improve versus just this very easy comp in order to lift your numbers?

Hey, Bill. I think that when you think about the markets that are going to have the easier comp, certainly DC will have an easier comp in the back half of the year. But New York will be a straight up comp, because it really had a difficult comp from the year before, in the fourth quarter, and in the first quarter of this year. Most of our other markets, they performed pretty well last year, as well. I think Boston just has an easier -- has a better convention calendar this year. So it's a good mix of growth, not just from easier comps, but also from the assets stabilizing and from the new additions that we brought in.

Bill, let me add on to that. Our view is that this is -- 2014, after this first quarter, is going to be for us the first very clean set of three quarters that we've had in the last couple of years. And so I think most of this will be driven just by property performance and markets. Certainly, the easier comps help. But as Ashish mentioned, there has been a -- were winners and losers in the markets last year. So I would, on balance, consider that pretty even.

Okay. And then finally for me, it just feels like we're at a point of stability within the Company that same-store reporting would be more practical and maybe a better analysis tool than the consolidated portfolio. But that would just be my suggestion. Thanks, guys.

Thanks.

We'll take our next question from Ryan Meliker with MLV and Company.

Hello, guys. Good morning. Just a couple of questions. First, your Manhattan portfolio was up 3% in the quarter, but the broader New York City portfolio was down considerably. What was going on at those three hotels that are outside of Manhattan? Was that entirely just the Sandy comp, where those properties had a lot of Sandy demand in the comparable quarter, or was that the impact of the increasing supply in Manhattan and the lack of compression demand out into the outer boroughs?

Hey, Ryan. The three hotels that we have that are outside of Manhattan are the Hilton Garden and the Sheraton at JFK, and then the new hotel in Brooklyn. So the Sheraton and the Hilton Garden were purely Sandy demand related, so no impact from new supply. For the new hotel in Brooklyn, that asset was actually under renovation during the quarter. So that asset had somewhere around a 30% RevPAR loss, because we had a significant number of rooms out of service during the quarter.

So would you expect those three asses to perform similar to what you're expecting from Manhattan in the remainder of the year, based on what you saw in 1Q?

Yes. I think new hotel -- if I look at April for the new hotel, it's up 10% in RevPAR from the previous year. The Sheraton and the JFK asset are still flat to negative, because those benefited from Sandy all the way through the third quarter.

Got you. So a little bit of impact through 3Q. Okay. That's helpful.

And then the second question I had was with regards to the Parrot Key acquisition, I guess two questions with regards to that. First of all, that looks like a pretty attractive forward cap rate at a 7.5, so congratulations on being able to win that deal. First, it sounds like this a new asset that's been recently renovated. So help me understand why the forward cap rate is not a stabilized cap rate, where you're assuming that the stabilized yield would be 150 basis points higher. What are you planning to do to drive that incremental NOI?

And then second, why was this the asset that you guys chose to go after, with regards to the fact that we've now seen several other assets trade in the past 12 months in Key West?

Ryan, this is Neil. Yes, the first question, regarding growth at the asset, the hotel was originally developed as condominium timeshare, and then was reformatted and reprogrammed as a hotel in 2012, throughout the year of 2012. And so there is some ramp-up still left in the asset.

I think when we think of ramp-up, it's almost ramp-up like we experience in New York, where you're getting up to market occupancy levels very quickly, but then it's a matter of finding the right rate and finding the right revenue management strategy for the asset longer-term. The hotel really benefits from having one-bedroom, two-bedroom and three-bedroom kind of configurations. So we'll continue to see some real opportunity on the revenue management side. The hotel's already at a 91%, 92% occupancy, so future growth is going to be ADR led and should be able to flow to the bottom line.

Second, we are not allocating a lot of capital to the project, because it's in very good shape and feels like the newest, highest-quality kind of product down there right now. But we will experience just market growth in Key West. All the fundamentals there continue to look very, very strong. And so we're expecting some market lift. And the hotel's very well positioned to enjoy that market lift without any capital disruption. So that's the first question.

I think second question was, there's been some other assets trading in the marketplace, how did we build conviction on this one? We did spend a lot of time on at least two of the last three assets that have traded in the Key West market. So we know the market now very, very well from those pursuits.

In the end, what differentiated this and gave us a conviction to move forward was we were able to structure a deal and a purchase price in the transaction that just had higher going in cash flow. That was one of the things that helps balance the significant price per key that you have to pay in a market with such high barriers to entry. So that was really, I think, what for us -- and it was newly built. We've generally focused on assets that are recently built, so that there isn't significant capital disruptions in the future. So those two things were probably the driving factors for us.

Great. That's helpful. And then just adding color on the property type, it sounds like it's got a lot of different one-bedroom, two-bedroom and three-bedroom type suite scenarios. Is this a property that's going to actually be harder to revenue manage because of those dynamics and is going to have lower property margins, because the cleaning is going to be a little bit more exhaustive than a typical one of your typical independent or select service hotels?

I think the elasticity, like the pricing elasticity, will outweigh the size of the rooms, in terms of an operating expense standpoint. It will be -- it's definitely harder to revenue manage something with this kind of potential -- potential, but the reward is much greater for getting it right. We've developed -- most of our markets, we focus on these kinds of markets, markets that are 80% plus occupancy and that have very strong rates. And so we have a real capability in that regard.

Northwood, the operator here, also operates two other hotels down in the Keys and are actually doing a very good job here, as well. But I think in combination, our asset management revenue management focus with their on the ground ops team, I think we're going to be able to create some good results there.

All right. That's helpful. Thanks a lot, guys.

We'll take our next question from Chris Woronka with Deutsche Bank.

Hey, guys. You've been building out the South Florida and California portfolios pretty nicely. I think you said you're going to be up to 26% combined. Where -- do you have a target in mind of where that can get to or where you'd like it to get to?

You know, Chris, I would say we don't have a static target for it. I think one of the things that we believe is an advantage for us is our portfolio is at a size where we can be nimble and responsive to where market momentum lies. And so I think for now and for the foreseeable future, we're seeing growth out of both of those marketplaces that is higher than the national average, attractive growth rates. And so I think we would continue to look there today. but we don't have a static target. I think it's probably in any one market, we would probably not want to grow to more than 20%. But we take that on a case-by-case basis.

Okay. Got you. You mentioned potentially more share repurchase. What -- how do you guys evaluate? Is it looking at NAV? Is it some kind of DCF based on your understanding of the cycle, or something else?

You know, Chris, we look at it fairly simply, particularly because we think the disparity between our Net Asset Value and our current share value is so significant. So long as we're 20% below NAV, we would continue to repurchase stock. And so we will continue to look for opportunities to do that.

The question arises, so if you're repurchasing stock, why would you buy an asset? And our view is, as I said before, we like to stay pretty nimble. And we don't see those strategies being mutually exclusive. So we'll continue to look for opportunities when we can buy stock and use the capital which we think is in a very prudent way.

Okay. Got you. Now on the RevPAR outlook, and understanding what you mentioned about April and thinking back to the first quarter on the West Coast, and I know it's not yet a huge percentage of the portfolio, but as you look forward and we see easier comps in DC and New York, where do you see the comps in California? And I'm guessing that the north of 20% growth, you guys are expecting that to moderate at some point?

Yes, Chris, we are expecting that to moderate. I think we definitely benefited in April by a few one-time events on the West Coast. But the growth remains very strong, certainly higher than national average growth rates. But we don't anticipate that kind of growth continuing.

Okay. And then just finally for me, going back to New York, we've certainly heard that we may once again be reaching that point where you start to see some condo conversions or alternate use. What's your guys' understanding of that one? Is that likely, in your view? And if so, would you monetize an asset or two if that opportunity comes around?

Chris, this is Neil. In New York, you're starting to hear a little bit about the kind of residential conversion. I think where we're seeing it right now is just that there's on the land side, just land prices are escalating pretty significantly, to the point where residential and retail office clearly kind of outweigh or look like the highest and best use versus hotels. So on the land side, you're definitely seeing hotel developers finding it difficult to pencil new deals moving forward. You are seeing residential trades, or residential sales at prices I think none of us ever imagined. It's become pretty commonplace to have sell outs in the $3,000 to $4,000 a foot range at some buildings. So it's something that's very significant.

We haven't started -- there's been two deals so far that were actual significant conversions from hotel to condominium. I think moving forward, we don't know of any specifically. But I think we're in the point in the market for the next few years where that absolutely can become a strategy for other developers. I think we've been really -- not surprised, but just the velocity of the transactions on the land side for office developers and for existing retail in New York has been very significant.

You might've heard, there's a $400 million land purchase on 10th Avenue just last week. The price of air rights in the last year went up 47% in Manhattan. We've generally viewed select service development in New York City feels like a very good proposition when you're buying land at $400 a foot. Today, it's very difficult to buy land at that kind of pricing.

Sure. Got it. Very good. Thanks, guys.

We'll take our next question from Nikhil Bhalla with FBR.

Good morning, everyone. Jay, I'm not sure if you mentioned what the margins for this hotel were in 2013 relative to the rest of your portfolio and also RevPAR? So that's my first question.

The hotel is -- we're buying it on a 2013 full-year run at about 50.7% in margin, Nikhil.

So that compares to your New York hotel margins, roughly.

Yes, exactly. Those were some of the characteristics of this asset, particularly in the market, it's characteristics such as that that made us comfortable and puts this asset very much in our wheelhouse. It's a very, very high demand market, runs at 90%, has a very, very strong rate in the market, and you're able to drive strong efficiency at the property in these kind of high margins, which is something that we have a clear capability of knowing how to do. And we're able to generally, even from these sort of situations, continue to tweak out growth just by revenue management strategies.

Got it. So are there more opportunities for margin expansion at this hotel, as you see it as of this time?

I don't know that you're going to see significant opportunities for margin growth. It is very efficiently run. Northwood is a strong operator. I can't imagine that we can't find some opportunity. So I won't say that there's none. But I don't know that is going to be so significant that it's going to be a major driver of value. I think the real driver of value will be to just continue to drive the mix and the rate at the hotel, as it continues to ramp, and just with more strategic revenue management. And I think that that's where the margin growth is going to be primarily coming from.

Got it. And one more question here.

As Neil mentioned, the market has had very strong growth. Since 2012, or since 2010, the market has posted a 13.5% RevPAR CAGR. We're not expecting that going forward, but we're certainly expecting double-digit growth for the next couple of years. And I think we've described it in the press release, but there is a regulated -- there's a barrier to entry that is an ordinance in the city, and that is a rate of growth ordinance that doesn't allow for any new hotels to be built unless an older hotel is knocked down. It's called ROGO. And that gives us a lot of comfort that new supply is going to be -- is not going to be very quickly forthcoming in the market.

Okay. And final question on that. Does this hotel perform very similar to the rest of the market? Does it perform above or below, in the last maybe two or three years?

It's just been coming on. It probably performs below that. It's had a very good strong year, especially this first quarter was very strong at the property. We look at it, there's two comp sets that you can look at on the asset. There's a branded comp set, with some of the branded properties in the area. And in that set, it's starting to achieve its fair share. And then if you look at more of an independent luxury set, it's still well below that set. It's actually way off the page right now. It's over $100 ADR gap. And so we do see an opportunity in shrinking that gap over time. But it is ramped up to the more basic set.

Got it. Thank you.

We'll take our next question from Anthony Powell with Barclays.

Hi. Good morning. Good results this morning. Can you update us on the progress of your two hotels under construction in New York? Are they going to be delivered in the second quarter of this year?

Yes, Anthony. This is Ashish. We do expect both of those hotels to be delivered in the second quarter. They're both starting to get to a point where we're almost at the temporary certificate of occupancy, and then we'll need a few weeks after that to open the hotel.

Great. And on the share repurchases, you've raised some debt at some pretty attractive prices. How do you view your leverage right now relative to your target, and would you consider adding more leverage to repurchase shares, given the favorable outlook for the rest of the year? Thank you.

When we look at our leverage on a full-year basis, we think that it is within our target range. We would consider adding some leverage if, as Jay mentioned, if we thought that the price disparity remained as significant as it is today and buy back stock. But we just have to look at that from a need for the capital, and we'll look at it on a constant basis.

Thanks.

And we'll take our next question from Smedes Rose with Evercore.

Hi. Thanks. I just wanted to ask you, on your last call, you had said that you thought your same-store metrics for the year would be about 1 point lower than the 5% to 7% for the full portfolio. So 4% to 6%. And is that still your thought on the same-store? And the second part is, in your supplement on page 3, you show a 1.9% decline for 36 same-store hotels. But that 1.9 foot to the 4.6 for the year?

Smedes, we think that because of first quarter results at New York and DC, and the overall same-store portfolio, that gap is probably wider. It's probably about 200 basis points to the general portfolio. And that gap also widens out because of the acquisition of the Parrot Key Hotel, which has much higher RevPAR growth rate, and absolute RevPAR, than the rest of the portfolio. So I think that the gap is probably closer to 200 to 250 basis points for the remainder of the year.

So it's a 2% to 5% sort of same-store outlook for the year, and the first quarter, on that same basis, was down 1.9%. Is that correct?

I'd probably say it's probably closer to, say, 3.5% to 5%. Not 2% to 5%.

Okay. And then the other thing I wanted to ask you, you had mentioned that you thought supply would, I guess in Manhattan, would peak this year. And I'm just wondering, what are your supply percentage increase forecast? You guys obviously track this very closely, and I was wondering if you could share for 2014, 2015 and 2016 how you see room growth?

Sure. Smedes, I think in 2014, we're at about 6.3% for the year. For 2015, we're around 3%; and 2016, we're around 4%.

And that's Manhattan room supply, just the full percentage?

Manhattan room supply. Yes, that's right. This is the high water mark for supply, 2014. Q1 and Q4 will feel the worst. Next few quarters will be a slight relief, just on the year-over-year data.

But that's where we see supply. I know we've seen different numbers coming out from different places. But I think for 2014, we're at 6.3%, HVS is at 6%, Star is at 8%, PWC is at 7.5%. So there is a range there. We're pretty confident about our 6.3% number.

As you know, Smedes, we track this site by site in New York. Most of the consultants are getting their data from brands, and brands and the consultants, I think, have a hopeful bias, in terms of inventory. We look back at the last few years, what we were projecting and what actually happened and what the consultants were projecting. In 2013, actual deliveries were 3,850. Star was at 5,305. PWC was at 5,500. And very similar kind of variance in 2012, as well.

When you see that discrepancy between the actual and what the consultants, I guess, initially have out, is it because projects are actually coming out of the system, or is it simply that there's, it's just a timing issue and they just are coming up later than what's initially anticipated?

It is a bit of both. But a lot of it is timing. These projects take three to five years, and they're generally projected in brand systems to be a year-and-a-half or two years. And then there are entered into the supply when an application goes out or something to give confidence to the brand that there's a chance that the hotel can get open. But a lot of those deals just have natural attrition. They don't get financed or they miss the window for their equity raise or whatever it might be. So it's a bit of both. They take longer than they're ever projected to, and there is significant natural attrition to the projects.

Okay. Thank you. That's helpful.

We'll take our next question from Robert Higginbotham with SunTrust.

Hi. It's Robert in for Patrick Scoles. Most of my questions have been answered. But a couple of quick ones, and forgive me if you've covered this in the prepared remarks. But you had a little over $2 million of insurance recoveries in the quarter, presumably related to Sandy. But does that represent most of the claims that were put out there, and how much, if any, should we expect to see of that going forward?

Sure. This is most of the business interruption claims that we had out there. We've now recovered all of the property-related damage from Hurricane Sandy. We still do have a dispute on some business interruption insurance, but the resolution of that is pretty uncertain. As you can imagine, the funds we received in from Sandy were undisputed funds, but it still took a little over 15 months to get those. So we're not building in any insurance recoveries for the remainder of the year.

Got it. That's helpful. And I heard all the April color you gave on a market basis, but could you repeat it, if you didn't give it already, the overall portfolio trend for April, in terms of RevPAR?

So total consolidated portfolio is up about 10% and same-store is in the 6.5% range

Got it. Thank you. That's all for me. Thank you.

We'll take our next question from David Loeb with Baird.

I'm glad on down the list, because I've got a long list, if you don't mind. I just want to make a comment about Bill's comment that I agree that same-store is probably more relevant. Ryan asked a question about Manhattan that also seemed to blur the same-store versus the consolidated, because clearly the Hyatt Union Square is pushing up the consolidated, but not the same-store. And Smedes went to a question I wanted to ask about the impact of Key West on that.

So just to drill a little deeper on that, Ashish, you're saying same-store is more like 3.5% to 5%. So that's a little bit of a reduction, because if it was 100 basis point gap before, that would've implied 4% to 6%. Are you just being conservative, or do you actually think that the same-store will actually be a little less strong than it was before?

Well, I think based on the second, third and fourth quarters, our forecasts remain the same. But first quarter for same-store was lower. So just mathematically, I think it's come down.

Okay. So it's a function of the first quarter. Can you talk a little bit about the restrictions that you have on your ability to buy back shares from your credit facility? And what can you do to ease those if you sell more assets?

Sure. In our credit facility, we have a covenant which we have to stay within the dividend payout ratio. So it's effectively our dividends, which incorporate any kind of buybacks and return to shareholders, whether that's a special dividend or stock buyback, have to be at or below 95% of our yearly FFO. So our current dividend payout rate is about 50%. So effectively, there's another 45% of our FFO that we could pay out in the form of dividends or in the way of stock buybacks. If there was a situation where we had a large portfolio sale, probably in excess of $100 million, $200 million, we have the ability to go back to the bank and discuss additional buybacks.

Okay. Thanks. And it sounds like your available capital today pretty much matches your upcoming capital needs for the Hilton Garden Inn acquisition and the debt maturity you refer to. If you found more acquisitions, would you then go out and raise equity to fund those?

David, this is Jay. I don't -- we would not. As I mentioned before, at this point, I think it would be difficult to find an asset that's going to have such a significant growth rate that it would offset the discount that we believe we're trading at relative to our NAV. So for that reason alone, amongst a couple of other ones, we would not be raising capital at this point. We would probably sacrifice an acquisition for it. Just in our view, from a capital standpoint, it would be difficult to justify to ourselves.

Okay. That's a great segue into my questions about Key West. As you looked at Key West, did you see that one with a higher cap rate, higher growth rate, as a better deal than buybacks, at this point?

Yes. It was a $100 million asset with in place cash flow, EBITDA of $7.5 million, which was attractive from the standpoint of offsetting the lost EBITDA from the non-core sales that we've gone through across the last couple years. I think in addition to that, we were given confidence by the fact that the top line growth rates in the market are very, very strong. And we think we're going to be able to flow through to strong EBITDA growth there, as well.

So I guess the bottom line is, in this case, I don't know that we made a decision. As I mentioned before, we like the Parrot Key acquisition. If we were forced to make a decision between that and stock buybacks, I think we would've bought Parrot Key. From a strategic standpoint, it really goes a long way in allowing us to draw income stream from higher growth markets, and the asset itself meets all of our criteria.

But going forward, I think it's really important to understand that our view is that an acquisition like Parrot Key and buying back stock are not mutually exclusive. Parrot Key is pretty opportunistic. A 7.5% cap rate is not something that we see often. And it was something that we were able to get our heads around and figure out. So we like the acquisition. We thought it was a very good use of capital.

As Ashish mentioned, we're limited to some degree, currently, as to how much stock we can buy back, anyways. So to be able to buy $100 million of an accretive asset versus a limited amount of stock is, again, it's just a more significant impact to the Company to buy Parrot Key.

We'll continue to look for ways to discuss with the bank group on how we can address some of these limitation issues that we have on buying back stock. As we move forward, if we were to go through another recycling sale of an asset, we would at that time also consider repurchasing stock with proceeds. So I hope that gives you some color on how we're thinking about it.

Yes. That's very helpful. Okay. Last one, I promise, for Neil, so you don't feel left out. What were your competitive advantages in this Key West transaction? We've been hearing from a lot of REITs that they would love to own more in Key West. LaSalle, Ashford Trust, Ashford Prime, they've all been active there. How were you able to beat them on this transaction and still get what looks like a very attractive return?

You know, I don't know specifically how the final rounds and things went on the asset. Don't have that much color from the broker. But there was several private equity firms and likely a couple of our public peers looking at the asset. Our competitive advantage, I think, was a few things. One was that we have been studying this market and looking at this market for the last several years. So we did have conviction on the marketplace and had a lot of unique knowledge for that market that we were able to bring to bear. It was not a fire sale, by any means, but the sellers wanted a quick and expedient transaction. I think from the moment it was brought to market to the moment it will close, it will be about 90 days or so. And we were able to offer that kind of execution. We've known the sellers for a long time and have worked on things in the past. So I think there was some level of relationship that also helped.

Probably one of the most significant ones, though, is that we were retaining Northwood as operator. And I think that gave us more confidence on the in-place cash flow, as well as gave us unique insight into what the next 12 months or the next 24 months look like in the marketplace in partnership with Northwood. So speed, conviction, and flexibility on the operator.

Great. Thank you, all.

Thanks, David.

We'll take our next question from Bill Crow with Raymond James.

Hey, guys. Just a follow-up. You talked about the stock being at a 20% discount to NAV. And obviously, that's important when you decide on the repurchases versus the asset purchases. How do you calculate your NAV, or specifically, what cap rate do you think your portfolio should be valued at?

Hey, Bill. We actually have a section in our investor presentation where we go through our market and we go through, I think in some cases, even assets on an asset by asset basis and put out an NAV figure. So we look at it from a right now replacement cost, as well as what these assets are trading at in the private market. And on a cash flow basis, we're looking at stabilized EBITDA multiples on these assets of 13 to 13.5 times.

And where do you think replacement cost is overall for the portfolio? I understand you do it asset by asset, but --

I think we're north of 375 to 385 right now.

Okay. That's helpful. Thank you.

We have no further questions in queue. I would now like to turn the call back over to Jay Shah for any additional or closing remarks.

Okay. Thank you, Operator. Thank you all for joining us again today. As our remarks probably indicate, we have great optimism as we look into 2014.

When we began the portfolio transformation process a couple of years ago, and even as late as three or four quarters ago, we had mentioned that as we reached the second quarter of 2014, we were going to be at a point where we'd be able to really push on our portfolio against some very clean quarters and a very, very refined group of assets. And we're very pleased to be there, at this point, and we happen to be on time.

And so as we look across the remainder of 2014, we're very encouraged by our prospects. Neil, Ashish and I are in the office for the rest of the day. If anybody has any questions that occur to them after the call, please feel free to call us. Thank you again.

And this does conclude today's conference call. Thank you all for your participation. You may now disconnect.