Hersha Hospitality Trust (HT) 2014 Q4 法說會逐字稿

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of the conference. (Operator Instructions)

At this time I would like to turn the conference over to Mr. Pete Majeski, Manager of Investor Relations and Finance. Please go ahead, sir.

Thank you, Kim, and good morning to everyone participating today. Welcome to Hersha Hospitality Trust's full year and fourth quarter 2014 conference call on this, February 19, 2015.

Today's call will be based on the full year and fourth quarter 2014 earnings release, which was distributed yesterday. 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 the call please visit www.hersha.com within the investor relations section.

Prior to proceeding, I'd like to remind everyone this today's call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance or financial positions to be materially different from any future results performance or financial positions.

These factors are detailed within the company's press release as well as within the company's filings with the SEC.

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.

Great. Thank you, Pete, and good morning to everyone. Joining mow this morning are Neil Shah, our Chief Operating Officer; and Ashish Parikh, our Chief Financial Officer. 2014 was a solid year for the lodging sector. The 4.5% increase in industry wide demand derived from a combination of robust corporate and leisure trends in demand increased international inbound travel and improving group business drove an unprecedented mid cycle reacceleration of RevPAR growth to 8.3%.

This is significant from a historical perspective. Since 1987 the lodging sector reported only three years of 8% plus growth with each of those instances occurring earlier in their respective cycles. More importantly, these significant tailwinds benefited Hersha's high-quality urban transient hotels allowing us to significantly grow our same-store earnings while harvesting first year EBITDA from our newly acquired assets and recently opened development projects.

From an investor perspective, the sector's positive underlying trends led to stock market outperformance in 2014 as lodging topped most of the commercial real estate subsectors.

Hersha generated a total return of 31%, inclusive of dividends for the year. As our free cash flow generation driven by industry-leading margins, aggressive asset management and collaborative management structure came into focus. In 2014, Hersha's returns outperformed those of the S&P 500 and Dow Jones industrial average by 17% and 21%, respectively. As we move forward, major decisions will continue to be clearly aligned with long term and sustainable value creation consistent with our demonstrated absolute return philosophy and commitment to total shareholder return.

As we have explained, the culmination of our recycling program which included the sale of 39 stabilized assets and purchase of 12 high-growth hotels since 2012 and the successful completion and delivery of our development pipeline and large-scale renovations has allowed us to create a focused urban transient portfolio differentiated from the others within our peer set. The culmination of our clearly defined strategic initiative provides a clear path to growth at an advantageous point in the current lodging cycle. We continue to target acquisitions within in place cash flow that's been our urban transient strategy however we'll remain disciplined and only pursue assets that meet our criteria in terms of markets and growth profile that exceed our portfolio average economic return metrics.

During 2014 and inline with this criteria, we acquired four high-quality well-located hotels and markets that possess long-term growth prospects that exceeded our portfolio average for $216 million. In March, we closed on the purchase of the Hotel Milo in Santa Barbara for approximately $42 million. In May, we purchased the Parrot Key Hotel and Resort in Key West for $100 million.

Both of these investments provided exposure to high barrier-to-entry markets and a high RevPAR transient guest mix. As a result, our consolidated EBITDA contribution continued to materially shift.

As South Florida portfolio contributed 11% of consolidated EBITDA in the fourth quarter of 2014 versus 6% in the fourth quarter of 2013 while our West Coast portfolio contributed 11% of consolidated EBITDA in the fourth quarter of 2014 versus 10% in the fourth quarter of 2013.

In late May, we closed on a recently developed 205-room Hilton Garden Inn Midtown East and early cycle undertaking for $74 million. Post acquisition, the hotel was appraised for $112 million, a clear indication of the quality and inherent value of our (inaudible) Manhattan portfolio.

In June, we also opened a brand-new 81-room Hampton Inn Downtown financial district, our fourth hotel in the financial district. Both hotels are in the process of stabilizing and have been immediately accreted to our earnings.

While adding high-quality hotels it our portfolio, we also recycled out of stabilized select service asset in sub-urban markets and capitalized on the strength of the New York real estate market in 2014. During February, the company closed on the sale of the remaining four hotels within our noncore portfolio and we further demonstrated the value of Hersha's Manhattan portfolio by selling the 70-room Hotel 373 in April to an off shore investment group for $37 million.

The pricing on the sale of Hotel 373 was indicative of Manhattan's highly sought-after real estate market and the significant international interest from public and private groups seeking to acquire cash flow in real estate in top U.S. gateway markets.

In terms of large-scale renovations, we have created significant portfolio value by entering into timely ROI projects earlier in the cycle. We completed work at the Rittenhouse earlier this year and the spa, salon and fitness center and pool area successfully completing and implementing final pieces to what is truly a unique urban luxury resort. Significant renovations were undertaken and completed at hotels in Boston, Miami and Los Angeles in 2014 with each property benefiting from enhanced market positioning post renovation.

With 70% of the portfolio fully renovated in the past three years, we are well positioned to leverage the earnings potential from young stabilizing assets and full-year contributions from completed acquisitions and developments. As a result, we reported a 26.4% increase in hotel EBITDA to $157.4 million in 2014 while our consolidated portfolio RevPAR rose 8.3% to $155.19. Our full-year 2014 consolidated RevPAR and hotel EBITDA were new highs for the portfolio in our 15-year history.

In terms of our performance during the fourth quarter, our consolidated portfolio delivered 8.6% RevPAR growth to $161.37, driven by a 4.9% increase in rate and a 275 basis points increase in occupancy to 81.3%. Fourth quarter performance was positively impacted by our West Coast and Boston portfolios which reported RevPAR growth of 17.1% and 10.1%, respectively.

With regards to performance in Manhattan, our completed Manhattan portfolio delivered full-year 2014 RevPAR growth of 5%, driven by a 1.3% increase in rate and a 330 basis points ride in occupancy to 94%. During the fourth quarter, 2.6% occupancy driven RevPAR growth outperformed the 1% RevPAR growth the Manhattan market. Our comparable, Manhattan portfolio reported fourth quarter occupancy of 95.3%, approximately 650 basis points above the broader Manhattan market, which demonstrates a unique approach to revenue management and that new supply is, in fact, being absorbed in the market.

Based on our internal estimates, Manhattan experienced supply growth of 4.8% in 2014, which was below internal and industry projections. As a result, Hersha estimate supply growth of 4% to 4.5% in 2015 and 2016 with the anticipation of continued delays pushing projects and openings into 2017 and beyond.

While demand is sufficient, new supply deliveries will have a greater impact and slow demand quarters, such as the first quarter. We feel confident that as we move beyond the first quarter 2015, demand growth in New York City will continue to outstrip supply deliveries.

As of December 2014, Manhattan trailing 12-month occupancy levels remained above 85% for 31 consecutive months, resulting in an all-time high of 87.3% in December 2014.

Overall, demand has increased at a CAGR 6% from 2009 to 2014 versus a 4.2% CAGR in supply. These dynamics bode well for future ADR increase, given average rate in Manhattan was 4.7% below the 2008 peak as of December 2014 indicating that a run way of demands for rates to rise.

Further supporting our constructive view of New York is the city's robust office market. 2014 was the strongest year for the office market since the financial crisis with steep declines in vacancy, positive absorption, and a 10-year high in new large block leasing activity.

Since the prior peak, New York City's corporate base is meaningfully diversified from financial services to technology, advertising, media and information. The emergence of what is known as the TAMI enterprises is transforming the office market with migration to submarkets south and west in Manhattan where we have a significant presence with assets that meet the current tastes and preferences of TAMI workers.

Additionally, the expected delivery of 16 million square feet of additional office space in downtown and in Hudson Yards for 2018, which is approximately the same amount of office space in Boston's back bay and financial districts total inventory will generate substantial additional room night demand to absorb new hotel supply.

While Ashish will discuss our Manhattan portfolio's 2015 performance to date in his remarks, I want to touch on the strengthening dollar and related impact on international demand in our New York City portfolio.

Overall the international contribution to our total room revenue in New York City during 2014 was 18.5%, which represented a 2.4% decline year over year as international business was displaced by higher rated domestic leisure and corporate transient business. Canada and Brazil continue to [commend] a high share of international demand at our New York properties followed by France and Great Britain.

However, it was important to keep in mind is that no one country represented more than 2.1% of our total room revenue in New York City with eurozone countries accounting for only 3.1% of total revenue in our New York port. Much has been said with regards to a stronger U.S. dollar negatively impacting inbound international travel to the United States, while we're cognizant of the potential slowdown in international travel in the short-term. Our longstanding view on the significance of international travel is firm as international visitation to the US continues to be expected to increase at a 4.5% CAGR through 2019.

A subject often lost within the discussion of new supply in Manhattan and the impact of the stronger dollar and operating metrics but one that is especially meaningful for our Manhattan portfolio is the market's rising real estate values. There is significant international private capital targeting well located cash flow in real estate in top US gateway markets. Foreign investors purchased $45 billion of US commercial real estate in 2014 second only to $47 billion purchased in 2007.

This interest has led to recently select services transactions in excess of $650,000 per key, which remains below prior peak and certain full service hotels trading north of $1 million per key. Despite the noise surrounding supply growth and headwinds from the stronger dollar, these factors have not affected the value of hotels in Manhattan. Land now accounts for approximately half of the value of the hotel at Manhattan and new construction of a select service hotel apply at a cost basis of approximately $500,000 per room depending on location.

These metrics support a net asset value for our Manhattan porfolio that continues to meaningfully rise in a truly deep and recognizable global gateway market. We entered 2015 with a bullish view of the lodging cycle in our high-quality urban transient hotel portfolio's growth potential. Our year will be focused on harvesting the EBITDA embedded in our young and ramping hotels while taking a very disciplined approach to external growth and markets in which we have strong conviction and where we can truly create operational advantage.

While the first quarter in New York City is seasonally the weakest, the year faces a difficult comparison from last year's Superbowl and its related activities and reduced city-wide activity. As in prior years, performance in Manhattan is expected to stabilize in the latter part of the first quarter and into the second quarter. These factors, while a short-term challenge do not change our long-term conviction given Manhattan's continued preemminents as a financial, cultural and technological hub, it's rising real estate values and demand that continues to outstrip supply.

With that, we'll bring my portion of the call to a close and turn to Ashish to provide additional color and context to our financial result. Ashish?

Great. Thanks, Jay, and good morning everyone at the close of 2014, for the first time in 10 years, Hersha did not have any development loans outstanding assets held for sale or ground-up construction in progress on our balance sheet. Completion of these multiyear initiatives allowed us to more clearly demonstrate the EBITDA run rate potential for our high-quality urban transient portfolio going forward.

For the full year 2014, we delivered adjusted EBITDA of $162.5 million, adjusted FFO of $102.8 million and portfolio [live] consolidated RevPAR of $155.19. In each case, the highest levels reported on an annual basis in the company's history.

Cash flow growth in ramp up and stabilization of strategic acquisition and development projects delivered into the company's consolidated portfolio allowed us to increase our common dividend in September to $0.7 per share representing an annual dividend of $0.28 per share.

During the fourth quarter, comparable hotel EBITDA increased 8% or $3 million to $39.8 million aided by contribution from our newly acquired and developed assets in South Florida and on the West Coast.

In the fourth quarter, Parrot Key Hotel and Resort in Key West and Hotel Milo in Santa Barbara delivered approximately $2.5 million in hotel EBITDA, while results at the Cadillac Courtyard Miami Beach continued to benefit from the opening of the new Ocean Tower an ongoing stabilization of the existing hotel. The Cadillac generated an incremental $1 million in EBITDA during the fourth quarter as a result of 13.7% ADR driven RevPAR growth and 540 basis points of margin expansion.

In Manhattan, our two new assets, the Hilton Garden in Midtown East and the Hampton Inn Downtown Financial District collectively produced $3.1 million in EBITDA in the fourth quarter. Both properties continue to stabilize as expected reporting very strong occupancy of approximately 97% and 90%, respectively, in the fourth quarter.

Moving now to our EBITDA margins for the full-2014, we delivered very strong absolute margins of 37.7%, an increase of 80 basis points. In the fourth quarter, our New York City portfolio reported robust EBITDA margins of 43.5%, however fourth quarter EBITDA margin growth in New York was challenged as our quarterly RevPAR growth was primarily occupancy driven.

Fourth quarter occupancy in our New York City portfolio reached 93.5% as a result of strong demand in both Manhattan and the outer burrow. However, there was limited ADR growth from mid-November through the end of the year which is one of the strongest leisure demand periods in the city. And as we have seen historically, leisure demand is much more price sensitive as compared to business transient [trough].

In addition, increased property taxes specifically at Hyatt Union Square, which was reassessed from a development asset to operational asset negatively impacted margin performance. Offsetting margin performance in New York City was solid EBITDA margin growth in our Boston, West Coast, Philadelphia and Washington, D.C [clusters], which all registered more than 200 basis points of margin expansion during the fourth quarter.

Moving to CapEx, our total 2014 CapEx spend was approximately $38 million with normal hip renovations and maintenance CapEx totaling approximately $23 million while large-scale redevelopment projects, such as the Rittenhouse and residence in Coconut Grove accounted for the remaining $15 million. Each of these properties has shown positive results to date in 2015 benefiting from enhanced market positioning and competitive set share gains post renovation. At present, we have standard renovations ongoing at Hotel Milo, the Hilton Garden Inn Tribeca and the Sheraton JFK and have nearly completed major renovations at our residence in Coconut Grove. At this point in the cycle, all of our large-scale return on investment initiatives are complete with total CapEx spend expected to decline significantly to between $18 million and $22 million in 2015.

Our balance sheet remains mains in great shape providing us ample flexibility to capitalize in opportunities on the market while executing our business plan. We finished 2014 with approximately $22 million in cash with minimal debt maturities in 2015. As we discussed in our third quarter call in November, we are actively working on refinancing portions of our debt at attractive terms from a rate proceeds and duration standpoint.

At the end of 2014, we refinanced debt at our Hilton Garden Inn in Tribeca, the new $46.5 million floating rate mortgage, which matures in 2019, was priced at 30-day LIBOR plus 230 basis points or approximately 2.5% on an all-in basis. This compares favorably to asset's previous fixed rate mortgage of 8.25 percent. We also completed financing of the Capitol Hill Hotel in January at similar terms and we'll continue to pursue opportunities to refinance our existing secured debt to take advantage of current market conditions.

Prior to discussing our 2015 guidance, let me first discuss what we're currently seeing across our portfolio and our major markets. Quarter to date as of February 2015, our comparable hotel portfolio has seen RevPAR increase by 6.5% while our total consolidated portfolio registered 9.2% RevPAR growth. On a market specific basis, our comparable in New York portfolio or Manhattan portfolio reported a RevPAR decline of 7.5% negatively impacted by the difficult comparison to last year's Superbowl in addition to reduced city-wide activity in January where we do not see two major city-wide repeat this year. Noticing improvement of our trend in February compared to January results in New York and forecasting improvement as we move through the remainder of the quarter especially in March.

Our best-performing markets quarter to date have been our West Coast, South Florida and DC Metro properties which registered comparable property -- of 33%, 20% and 17%, respectively. Taking together and despite headwinds in New York City, we feel very God about our portfolio's first quarter trajectory and look forward to providing additional detail in terms of our performance on our next quarterly conference call.

In terms of our guidance, we presented our detailed 2015 guidance in the earnings release published yesterday. I won't repeat all of the guidance provided but a few of the highlights include consolidated RevPAR growth of 6% to 8% with 75 to 125 basis points of margin growth and a comparable store RevPAR growth range of 5% to 6% with 50 to 100 basis points margin growth. We've also initiated EBITDA guidance to be in the range of $176 million to $180 million with FFO per diluted share between $0.56 and $0.58 per share. As we've done in the past, we'll continue to monitor our portfolio performance and the economic outlook as we progress through the remainder of the year and we'll update our guidance accordingly.

This now concludes my portion of the call. We can now proceed to Q&A where Jay, Neil, and I will be happy to address any questions that you may have. Operator?

(Operator Instructions) Chris Woronka, Deutsche Bank.

Hey, good morning guys.

Good morning.

Good morning.

I want to ask you on the New York exposure, what is your kind of lead time on those bookings? I know the inherent nature of your assets is a little bit shorter term relative to some of those bigger boxes with a group component so I'm trying to get a sense as to -- on your international visitors how far do they typically book out?

Chris, this is Neil. You know, it's -- our booking window is pretty short in our kind of highly transient focused portfolio but international demand often is booked far in advance. A lot of is it is leisure oriented a lot of it is value oriented and so there are in certain kinds of leisure tour groups and things are booking as far as six months in advance.

So that I think we will see we're still sensitive to seeing impacts for the summer. I don't think we've been able to gauge that or assess that just yet. It's the short term that we've seen very little impact from any kind of international demand but moving out into the summer period is something that we continue to look for and watch.

Okay. Understood. And then just as a follow-up I think you guys did a really nice job with the sales of the [370] last year. Can you comment on whether you kind of as a routine matter of business are getting inbound calls about other New York assets?

Yes, Chris. There's a lot of interest today in the marketplace for New York City lodging assets and I think select service assets in particular are one of the kind of favored investment opportunities in New York for a wide range of buyers. I think that's what's been interesting across the last few years is to so not only kind of other public REITs active in the space, private equity, family offices, nontraded REITs and an increasingly -- just international buyers from Asia.

So it's a pretty wide marketplace with buyers for it. We have been getting a lot of inbound inquiries from a range of those kind of groups and I think it's a pretty liquid market. I think that's what makes us -- we don't push the sell button easily because we do expect that market to remain robust for some time. So we're trying judge whether an asset has the ability to generate how performance in it's submarket whether there is any kind of imminent capital needs or anything to kind of inform our judgments so on 373 Fifth Avenue was a pretty clear easy decision. As we think of other assets within our New York City portfolio, it's something that we're actually open to. But unless we had a very compelling use of proceeds or something sensitive in a particular submarket, it's not something that we're actively pursuing today.

Okay. That's it for now. Very good. Thanks.

Anthony Powell, Barclays.

Hi. Good morning, everyone.

Good morning, Anthony.

On your guidance, first of all, your year-to-date performance comparable basis is pretty good given the 6.5% increase so far and a very tough operating environment, your 5% to 6% growth for the rest of the year seems pretty conservative. How do you look at the rest of the year trending on a quarterly basis given your performance so far this year?

Sure. As I mentioned we've had a strong 45 days in most of our markets. And as we look out through the rest of the year, I think our -- I think it's important to recognize usually our first quarter only accounts for about 12% of our FFO for the full year.

So there are some head winds that the industry faces with FX that maybe weren't there last year but that the demand and supply outlook overall looks very good for the countries that overall business transient travel, leisure transient for our portfolio continues to be very strong.

So I think that at this point, we feel comfortable with our guidance range and certainly, if we at the end of the first quarter and during our second quarter call we feel that trend has improved materially, we'll adjust it at that time.

All right. Great. And on New York, occupancy rates keep climbing up at your hotels. Year over year, what customer segments are you seeing visiting your hotels more and what's kind of driving the overall just growth and demand on a customer segment basis? Thank you.

You know, I think we're getting the touchtone point in our -- in our ramp up at a lot of our new hotels and even our more stabilized properties where we're starting to now move kind of market mix at our hotels and attract more corporate demands during the week, attracting a higher end leisure guest during the weekends where we used to rely a loot on foreign international travel groups and tour groups we can now find shorter booking windows, less value oriented, more compression oriented business. There isn't kind a kind of -- I can't give you one or two segments that are the clear outperformers but we're just getting to the point in demand in some of these markets and where our occupancy levels are that we can be choosy with the customers we get reducing our reliance on discount channels on the OTAs and the like and going for more corporate and other brand-related domestic leisure.

Okay. A quick follow-up to that. So on average, what rate is an international customer paying in relative to the corporate transient or a high-end leisure traveler. And that's it for me, thank you.

It's such a hard one. It's really hard. The lowest end of the international leisure market, there can be group tour series as low as 129 at times. But there's also higher end international groups and there's also a lot of just international transients. So I can't give you a lot of color there.

Yes. You know, because it's very -- as Neil said, it really varies by season, time of the week, and with whatever else is going on in the city. But New York will do close to a [220] RevPAR and so we kind of look for where everything converges into the RevPAR number and kind of juggle mix accordingly.

Ryan Meliker, MLV & Co.

Hey. Good morning guys. First of all, thanks for the color on the 1Q today trends really that's really helpful. I know there were a lot of lot of guys out there who are particularly concerned surrounding the New York numbers that have been coming in.

So with that question -- with that back drop, I guess, can you guys give us a little bit more color or at least a break up within your 5% to 6% same-store RevPAR guidance where you're expecting New York to come out over the course of the year? I know Ashish, you gave some good color that you think the worst is behind you and things will get better from here but how much better?

So yes, we're looking at it, Ryan, similar to last year. If you remember, New York City for our portfolio, the entire New York market was down 5% in the first quarter. Manhattan was down just about 50 basis points. And as you mentioned, we ended up 5% RevPAR growth for the Manhattan market for the year. You know, I think this the first quarter is going to be trending similar to last year from a RevPAR perspective, a RevPAR loss perspective so we would anticipate that if New York is kind of low single digits this year this that we can continue our outperformance by 200 to 300 basis points and that's how we're looking at the city.

Okay. That's helpful. And then with regards to your other markets, obviously, you have had a very strong quarter to date. Were there any soft comps in there or one-time items that really --whether it be big convention because that really drove some of those numbers but that wouldn't expect to recur throughout the rest of the year or are you really looking at that type of robust level of growth in the other core markets that are not New York?

Sure. You know, we had some renovation activity last year that we're benefiting from. But something like the Courtyard Miami with the New Ocean Tower, the Courtyard Los Angeles, some of that just placed last year so we're getting a benefit. But at the same time we're seeing renovation activity that's impacting our portfolio at Hotel Milo, at Hilton Garden Inn Tribeca and Sheraton JFK so I think that's a little bit of an offset. I mean we think that the trends in the rest of our portfolio remain strong this year. You know, although they may not be as strong in the first 45 days as some of the comps get more difficult.

And then, you know, speaking -- you're shifting back to New York with regards to top line, you guys gave some good color on longer term bookings for some of the international guests that you tend to accommodate. Have you seen any trends in a slowing in those international bookings over the past few months, obviously, that won't necessarily show up in your numbers in the next couple of months maybe as you look into the summer and fall time frame?

Yes, Ryan. As of now, we had really no discernible impact from the dollar in New York City or throughout out portfolio. New York is our most international -- our hotels in New York have more international bookings at close to about 20% than any other part of our portfolio. And so it's the only one this we've seen any kind of impact but it's been very, very minimal. I think any kind of slow down in any of the kind of European booking patterns has been offset when you look at -- and (inaudible) data has been offset by Asian and south American travel as just Ashish mentioned can did and Brazil are actually our biggest contributors in New York City.

So we're cautious but as of now, there's been no discernable impact from the strong dollar. I think overall, the US is increasing its share of the global travel market from all over the world, and that's going to continue to be a secular trend that's going to be a a tailwind for us generally and broadly across New York, Miami, and L.A.

Yes. That's helpful and then one last one for me is yesterday (inaudible) mention that they're expecting property margins at their New York assets to be down materially and impacting their 2015 overall portfolio margin by 30 basis points. I know their assets are full service and have more union type cost structures but any thoughts on how you're expecting your margins in New York to play out this year?

Ryan, as we look at New York, I think that is for us it's difficult to push our [team] margins, as I mentioned, we are well into the 40%-plus range for New York City EBITDA margin. You know, what we see now is a greater percent of our mix in 2015 is expected to be rate based. We ran 94% occupancy year-round in New York last year. So even if we wanted to, there's no road to push occupancy and we certainly don't want to at this point. So we're going to try our best to push rates as much as we can to drive margins. The offsets are not so much on the operating expense side for us but really it impacts the property taxes that, we'll continue to make it a challenge to push margins in New York City.

Got you. But you're not necessarily expecting them to be down materially either it doesn't sound like?

No. Not outside of the first quarter. I think the first quarter where --

Sure.

A lot of the loss being rate-based loss in New York we would expect them to be negative but certainly not after that.

You know, Ryan, this is Jay I'll give you an added piece of color. In the last two months of 2014, when we started seeing ADRs to [Wayne] a little bit on a year over year basis, what I wanted to do is just highlight a little bit of our asset management strategies and our collaborative approach with our operators. So December, maybe that's the easiest example. So in December, we started noticing that we weren't going to be coming in at the rates we had expected. So we had in New York a 4.4% ADR slow down.

So in response to that on a real-time basis, we were able to reduce our A&G and A&P expenses in the market totaling close to 100 basis points of revenue. And that's kind of a -- that's something that we can do by consolidating positions, leaving certain positions open, re-timing of advertising and promotional initiatives that we're doing in the marketplace. We were also able to drop in December our [cost] per occupied room on a rooms labor basis by $1.42 in New York.

And so I guess the point I'm making is we've got an upscale in New York and we've got a strong relationship with our operators and our asset managers work very closely with them to really monitor where we're going to come out on margins on a quarter-by-quarter basis. And so I think that very, very close focus on a portfolio with scale and synergies also allows us to manage that as about as well as you might be able to in a market that's facing some challenges.

That's really helpful color. Thanks a lot, Jay, I appreciate that. That's all for me.

Shaun Kelly, Bank of America Merrill Lynch.

Hey, good morning, everyone. Jay, Ashish, I was curious you guys do a lot of detailed supply work in terms of what you're seeing in either on forecast for New York. So I was just curious if you could give us a little bit more color on what you think the mix of limited service hotel openings are going to be versus more boutique independent that you may not compete with as directly as we sort of think about 2015 and 2016?

Shaun, this is Neil. I think from what we've seen from the research and from what we're looking at but most of the new supply -- 40%, 42% of the new supply is until 2017 is limited service. And so today's Manhattan marketplace is about 35% limited service, limited or select service. That compares to national levels at around 50%. Remember how much that's changed across the last 10 years but now it is nearly 35% inventory in Manhattan is limited services -- 55% across the US, 43% of the new supply coming in is limited service.

I'm not sure. I think any supply in the submarket is competitive to a certain extent. I think we're getting to a place in the industry and how consumers look at these hotels where it's very hard unless you're comparing to a large group hotel, I think that whether it's limited service, whether it's lifestyle, whether it's a full-service hotel but just not one with a lot of conference and meeting space, it's competitive. But that's the data that we've seen so far.

That's helpful, Neil.

I think, Shaun one thing I just add, I think it's the submarkets where they come that is -- what's most kind of telling in terms of performance and the like, where we're seen most of the supply in the last several years come into the Times Square market nearly 65%, 70% of the new supplies come no that market generally or broadly speaking and that has made it much more difficult in the Times Square market to push rates. Other markets -- other submarkets like Midtown East haven't had nearly that level of supply. Lower Manhattan in the accompanying -- couple of years is expecting more supply but hasn't had as much over the last several years. And I think it's really the location of where the supply is coming that has the greater impact than the segment of supply that's entering.

Got it. That's all very helpful. And then just thinking about I guess the behavior of other competitors in the markets so that each year you start to run into a lot of new competitors that may not be as familiar with the seasonal vaguaries of New York. So are you seeing meaningful or rational discounting in Q1 driving some of the underperformance or would you actually characterize the market as decently rational and it's more just because of the convention comps, Superbowl, et cetera?

It may be rational but they're trying to get to a fair share of occupancy sooner than they think about their fair share of rate. And I think that's just the natural tendency when you're opening a hotel in New York. It's just so significant, the impact of it. But in the first six months to a year of a new hotel's opening, a lot of the new operators and new hotel owners are pushing for occupancy, and it makes it very difficult to push rate in those first years of new openings.

Got it. Last question would be I've heard one or two guys who do focus on New York exclusively actually mention Airbnb. And I was curious at the highest level and I know it's kind of impossible to analyze but do you actually think that's an impact on New York or any specific submarkets in New York?

I don't believe so at all. At least in Manhattan it's not a major impact. I think there's a lot of Airbnb inventory in Brooklyn and Queens and I think there might be some impact there that might be measurable. But in Manhattan, we don't believe it's an impact today or even likely to be. It's a much more value-oriented consumer. It's a consumer that is booking out three months in advance generally. It's a consumer that is usually -- requires accommodation for multiple people so it's two or three people in a party not really the Manhattan hotel customer base. And most of the inventory is, again, in Queens and Brooklyn and in areas outside of the core New York City hotel locations.

Perfect. Thank you very much.

David Loeb, Baird.

Good morning, everybody. I wanted to go back to some of the comments that, Neil, you made at the beginning of the Q&A about values in New York. And really just ask you in that context where values are for your portfolio, where prices are as you look for acquisitions in your target markets, and where your stock price is relative to the value of the portfolio. How are you looking at the trade-off between acquisitions and stock buy backs and what are your latest thoughts about where you might -- what level you might be interested in buying back stock?

Okay. I can get started with maybe the first part of it, David. I think in terms of just the acquisitions market generally -- let me start with the very first part of your question which was New York City.

Yes. There's been just a significant amount of trades now across the last six to 12 months in Manhattan select service assets trading between $500,000 and $650,000 per key. We feel that there will be even more trades in that neighborhood across 2010 and there we do expect there to be significant EBITDA growth in New York and so we see that continuing to increase across the next several years.

On the full service side in Manhattan, we're seeing trades or assets being marketed between $800,000 a key on the low side and as high as $2 million a key for the [buffer out] recently and we're expecting to see a lot of product in the market in that way and trading and transacting.

I think broadly speaking about the acquisitions market generally, I think we think of it as being kind of in this fourth, fifth inning of the lodging market. And at that point in the market and the cycle, I think it's great to be an owner. You know, really strong internal growth.

For acquisitions, it's a little bit more difficult. I think low interest rates are driving a lot of leverage buyers and so there's some opportunity in highly financed transactions. I don't think the cost of capital advantage is allowing -- is driving acquisitions for a public REITs or for folks like us so it's always some kind of redevelopment or value add to create value from acquisitions at this point from what we're seeing.

We are in an environment where you're preparing somewhat maybe for interest rates to go up. I think there's a lot of the private equity buyers out there that are really focused on the high-yield select service kind of assets or a lot of them are now chasing opportunities in Europe where they're earlier in the cycle and the like.

I kind of feel like there could be an opportunity on the single asset side for pricing to get more attractive as the year goes on in the acquisitions market. But at this stage, transactions remain pretty complicated. You know, there's lots of other kind of mixtures, real estate to it. There's ground leases often encumbering these new opportunities. A lot of them require pretty disruptive repositioning plays.

So in that kind of environment, we remain active in our six markets looking at opportunities but we continue to hold a very high threshold for external kind of growth. We feel really good about our existing portfolio and embedded growth in it and so for us to do something to acquire something we're looking for -- as, Jay mentioned, we're looking for it to be accretive to cash flow almost immediately and for it to have an EBITDA growth profile that looks like our existing portfolio, which is generating kind of 10% plus kind of EBITDA growth and we're looking for higher quality assets if we're going to make an acquisition today. I think as the cycle goes on, it's higher quality assets will be a better store of value.

So in that environment, we're looking but holding a very high threshold. Last year, we were in a very similar position and we looked at the market in a very similar way. We were able to find a handful of acquisitions that met our criteria. So we're hopeful that there could be opportunities this year but nothing imminent today. And as you said, we do think of buying back stock or returning capital to shareholders or dividends and other strategies for creating the value just as well as acquisitions.

Yes, David, this is Jay. Relative to your question regarding stock buy backs and following up on what Neil said, we last bought back stock in that $5.80 to $6 range when we felt that we were at a material discount to where we thought our [NAV] should be. I think as we kind of look ahead here, if we find that the market possesses less confidence than we do and the math makes sense, we are still very open to buying back stock. You know, we kind of take a look at that on a very regular day-to-day basis. And though I don't know that we have a specific set plan on how much to buy back or one that we're prepared to share, it is something that we continue to look at very closely here. Certainly, stock buy back right now for Hersha looks fairly attractive. So I'll leave it at that.

Just to kind of follow up on that, maybe try to pinch at the corner a little more, Jay, given the context Neil described where acquisitions are expensive there could be opportunities but your stock looks attractive relative to the opportunities that you see. At 6.50, all of the things being equal, do you think your stock is a better buy than what you're seeing on the acquisition market today?

Yes. Certainly, it's better than most acquisitions we're seeing out there today, yes.

Okay. And doesn't necessarily mean you would be a buyer at 6.50, but all other things being equal, you do see that as an attractive alternative and it sounds like you're considering that regularly. Is that fair?

Yes. That's fair. Yes.

Okay, great. Thank you. Appreciate the clarity.

(Operator Instructions) Wes Golloday, RBC Capital Markets.

Yes. Good morning, guys. With all the focus on New York, is there any other pockets of weakness we should be aware of for the rest of the year?

Hey, Wes. This is Ashish. Pockets of weakness from a portfolio standpoint?

No, no. Not just for the industry but (inaudible) SGR data on a weekly basis when we all have to worry about the international travel slowing so we'll probably extrapolate any kind of weakness which could be related to a convention that was not reoccurring as potential weakness because of the dollar (inaudible) travel so I'm just wondering is there any other bogeys out there for the rest of the year that is material in nature?

This is kind of a unique one maybe but maybe the package tour operators and the package tour kind of segment of the business just with consolidation and the expedia orbits of the world, maybe there's some pressure on hotels that rely on that marketplace.

Okay. But no big large convention last year there or seasonality, holidays this we should be aware of? Any particular month this year?

Our markets have actually -- we have some good confidence for this year. The DC submarket both urban and suburban is market strong. The convention calendar is going to get stronger across the next several years in DC but it's starting to produce and government spending is clearly on a significant rebound and we're seeing that really our suburban DC hotels just really taking off.

In San Diego, the convention calendar isn't great, but we've been able to share some very significant growth based on the conventions that are there and how you can compress on those as well as attracting other business. San Diego has been getting more international travel than it ever has before. It's been the highest growth international travel market. A lot of their travel comes from Canada but they also get some European business. It's still less than 5% of our revenue, but there is some international demand there. But I think it's secular growth and international will offset any kind of dollar impact in that kind of market.

The Boston market has a very strong both convention outlook as well as just general business trends there are very strong both in the downtown area, as well as in the few suburbs that we're in there. Most of the news is very positive around the country.

Yes. Generally corporate transient has continued to be strong and we don't see any real bogeys that aren't offset by just continued demand increases. Bay Area's also quite strong for us. So, yes, so I guess a short answer to your question is no.

Okay. That's good. And what do you think the appetite is starting redevelopment in Manhattan? You mentioned the delays are pushing out some projects and the rising land cost and somewhat offsetting that is the rising price that can sell the asset at but how do you see the dynamics of the rising cost versus price appreciation by now for our pipeline that's about 2017, 2018.

Yes. No. That's a good point. I think the land prices continue to increase in Manhattan. They've been on a steep increase in trajectory for the last three or four years. And today it is very difficult to find any development opportunities where you can deliver for less than $500,000 per key. And that's really hard and soft costs. You really have to add a significant premium on top of that for risk, for time, bandwidth and the like. So I think it's at least $500,000 a key to build a mid block select service asset to build a full service or even kind of lifestyle kind of asset on a corner in a good submarket. It's $1 million kind of a key kind of value.

So I think that on one hand, the value of hotels in New York we believe is going to continue to increase because there's such a deep buying group and increasing new formation of capital in Asia that are aggressively targeting New York City opportunities. So I think the values will continue to increase. But what we'll mitigate the ability for developers to keep chasing them is that the values for retail, office and residential are growing at an even faster rate than lodging values.

And so the competition for the few remaining sites are in Manhattan less than -- I've read something six months ago, it that was less than 3% of the buildable land --available sites in Manhattan were still available for land for development. But for those few sites that are available, the competition from residential developers or from retail developers will usually be too much for hotel developers to compete, we believe.

So there's a bunch of projects that are in the ground or have all ready been financed and secured and equity in, and those will continue. They will go through the usual construction delays of major projects in New York City, which generally take three to five years from start to finish to complete.

But we believe that there will be a significant fall off after this current pipeline of projects delivers. So we've experienced close to 5% new supply in 2014, which we view as kind of the high watermark and we see supplies falling off in the next couple of years to around 4%. And then after that point for it to fall back to traditional New York City supply levels of 2%.

All right. Thanks a lot, guys. I appreciate all the color.

Ladies and gentlemen, that concludes today's question-and answer-session. At this time, I will turn the conference back to Mr. Jay Shah for any additional or closing remarks.

Thank you, all, for being with us this morning. Neil, Ashish and I are in the office all day so if you have any questions [occur to anyone] afterwards, please feel free to call us. Thanks again. Have a good morning.

And that concludes today's conference. Thank you for your participation.