Hersha Hospitality Trust (HT) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Hersha Hospitality Trust first quarter 2015 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'd like to turn the conference over to Peter Majeski, Manager of Investor Relations and Finance. Please go ahead, sir.

Thank you, Miller, and good morning to everyone participating today. Welcome to Hersha Hospitality Trust's first quarter 2015 conference call on this, the April 28, 2015. Today's call will be based on the first quarter 2015 earnings release, which was distributed yesterday afternoon. If you've 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. 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. Neil Shah, Hersha Hospitality Trust's President and Chief Operating Officer. Neil, you may begin.

Thank you, Pete, and good morning to everyone joining today's call. With me today are Jay H. Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer. I'll start this morning's call by commenting on the sector's fundamentals and then transition to our first quarter operating results while providing some specific market commentary. Following those comments, Ashish will provide additional color on our first quarter financials and our view looking forward.

It is a great time to be a hotelier now. Fundamentals remain robust, capital is widely available at historically low costs, demand continues to be supported by economic growth, supply is in check across most markets and fund flows to real estate continue to grow given the global search for yield. Further supporting the sector is estimated US GDP growth of approximately 3% in both 2015 and 2016, marking the strongest two-year period in nearly 10 years. Consumer spending is expected to tick higher, aided by lower gas prices and muted inflation. The combination of strong economic growth and increased consumer spending will drive lodging's performance in 2015.

During first quarter 2015, our increasingly diversified, high-quality, urban transient portfolio reported 10.9% RevPAR growth, driven by a 6.6% increase in rate to $175.60 and a 301 basis point increase in hotel occupancy to 78.9%. Hotel EBITDA increased 22.4%, totaling $29.5 million, an increase of $5.4 million or 22.4%, supported by our increased contributions from South Florida and West Coast. On a blended basis, our South Florida and West Coast cluster of hotels contributed approximately 54% of consolidated hotel EBITDA in the first quarter this year. This compares favorably to 45% in the first quarter of 2014 given our increased exposure to these dynamic high-growth markets.

In the first quarter 2015, our best-performing market was Boston, despite a record snowfall of approximately 109 inches this winter. Our Boston portfolio reported 25.3% RevPAR growth due to robust ADR and occupancy growth of 10.5% and 900 basis points respectively. Our Boston portfolio's RevPAR growth outperformed the competitive set by 1,120 basis points and the Greater Boston Market by 1,160 basis points. Our urban properties were aided by favorable year-over-year comparisons to The Boxer, a great example of our ability to reposition and rebrand independent hotels, in tune with today's transient traveler. Results of the property have been excellent, with ADR-driven RevPAR growth of 27.6% in the first quarter. The Boxer is one of our nine high-growth independent hotels.

Our comparable West Coast portfolio helped drive results in the first quarter as well, delivering 18.4% RevPAR growth. First quarter performance on the West Coast benefited from this year's Super Bowl in Phoenix, which drove performance at our Hyatt House, Scottsdale, 32.2% rate-driven RevPAR growth, contributing $1.8 million in EBITDA. We enjoyed strong market dynamics in Los Angeles and San Diego as well. In Los Angeles, RevPAR at our Courtyard LA Westside rose 42% due to strong market conditions from robust city-wide activity and favorable year-over-year comparisons due to some renovations in 2014. In San Diego, our Downtown Courtyard reported 9.5% RevPAR growth due to strong city-wide activity that allowed operators to push rate. During the first quarter, San Diego hosted eight additional city-wide versus first quarter 2014, resulting in an additional 46,000 convention room nights year-over-year.

And finally, at our two Hyatt houses in Northern California, we continue to drive rate through a variety of revenue management and sales strategies, allowing us to drive growth of 29% and 8.5% in Pleasant Hill. In South Florida, our comparable South Florida portfolio delivered 7.9% RevPAR growth despite renovations at our Residence Inn Coconut Grove. The renovations concluded in early March. When excluding these renovations, our South Florida portfolio delivered 9.8% RevPAR growth. The strong city-wide calendar, events like the Miami Boat Show, the Food & Wine Festival, aided both the Autograph Collection and the Courtyard Cadillac Miami Beach, which delivered RevPAR growth of 15.3% and 14.6% respectively. The Cadillac was our biggest EBITDA producer in the first quarter, generating over $4 million of our EBITDA.

While new supply is a concern, the evolution of Miami Beach into a year-round international destination, not only for Latin Americans but also Europeans and increasingly Asian tourists provides us with confidence from a demand perspective. In addition, big infrastructure spending in ports and rails provide runway for continued growth for decades to come. Big cultural investments like the press art museum, the science and children's museum, and sustainability projects in the Everglades broadened South Florida's tourist and resident appeal. High-quality real estate developments downtown and in Miami Beach that include office, retail, along with upscale residential has attracted international capital that is further driving real estate values and supporting our constructive long-term view on Miami and South Florida.

Now, let's focus on New York City, a market that faced considerable headwinds in the first quarter, namely new supply, reduced city-wide activity and the impact of a stronger dollar on international inbound visitation. Our comparable Manhattan portfolio reported a 3.2% RevPAR decline to $143.90 in the first quarter, due to a 2.7% decline in rate and a 46 basis point decline in occupancy to 85%.

Our first quarter performance in Manhattan was impacted by renovations at the Hilton Garden Inn Tribeca. Excluding these renovations, our comparable Manhattan hotel portfolio reported a 2.4% RevPAR decline. As we proceeded through the quarter, performance improved materially. In January, our comparable Manhattan portfolio reported a 9.8% RevPAR decline due to soft demand from reduced city-wide activity and a harsh winter and tough year-over-year comparisons from the Super Bowl. In February, the RevPAR decline moderated to 1.9% with a pickup in demand that was offset by the Super Bowl comp and several winter storms. And in March, our comparable Manhattan portfolio delivered 1.1% RevPAR growth as the market started to improve.

While market dynamics in Manhattan are far from optimal, they will improve; and in the meantime, it is important to note our portfolio's ability to outperform. The hotels in our portfolio are smaller and uniquely tailored for today's corporate and leisure-transient traveler. We carefully assembled and developed a portfolio with compelling locations, diverse submarkets and significant runway before stabilization. And we are active owners, engaged in revenue management and operations to be responsive to short-term volatility, opportunity or vulnerability while executing longer-term business plans with our highly aligned operators. During the first quarter 2015, our comparable Manhattan portfolio RevPAR outperformed the market by 160 basis points. When excluding the previously mentioned renovations at the Hilton Garden Inn Tribeca, our comparable Manhattan portfolio delivered RevPAR 240 basis points higher than the Manhattan market. This is our fifth straight quarter of outperformance in Manhattan.

The market experienced 5% supply growth in 2014. Although we expect closer to 4% this year, much of it delivers early in the year. The first and second quarters will continue to face pressure from recent deliveries and new hotel openings. As we've discussed, when new hotels open, they offer low rates to achieve fair share occupancy to ramp profitability and make rate increases more difficult for others in the submarket. New supply remains the most significant challenge facing us in New York.

The strong dollar also contributed to the difficult operating environment in New York City. Overall, the international contribution to our total room revenue in Manhattan in the first quarter was 14.1%, a 2.5% decline year-over-year. We've seen disparate results on a country-by-country basis with weakness in countries such as Canada and Great Britain, offset by increased contribution from others like Spain, Brazil and Australia. We have not witnessed a material impact on the demand side, but have experienced some pricing pressure as a result of the stronger US dollar. As we move through 2015, the dollar's impact to our international demand is a theme we will continue to closely monitor. We are actively working with our operators to offset any potential loss of international business with higher-rated corporate and leisure domestic-transient business as the US economy accelerates across this year.

Certainly, the combined headwinds of new supply, reduced city-wide activity and a stronger US dollar have contributed to the negative sentiment and lower ADR growth in New York City. Yet, our long-term view is that New York is the most liquid and valuable hotel market in the world. The city's preeminence as a financial, cultural and technological hub drives transient travel. And the security and scarcity of its real estate drives interest from long-term investors. With interest rates expected to remain low, slowing growth in major emerging economies and political instability in key regions, global liquidity will continue to be drawn to the stronger yields the US commercial real estate provide and New York's record of residual real estate land value. This makes us very comfortable with our investments in New York.

Prior to passing it to Ashish, I want to discuss for a moment our stock buyback this quarter. In March, we repurchased approximately 2 million common shares at an average price of $6.36 for approximately $12.6 million in proceeds, which represented approximately 1% of our outstanding common shares. We consider opportunistic share buybacks an attractive use of capital and a driver of share value, especially when share prices are temporarily dislocated and at a material discount to the Company's net asset value. As a total return focused Company, we believe opportunistic share buybacks combined with our quarterly dividend which we increased by 17% in September of last year represents significant pillars of our total return philosophy.

With that, Ash, can you take us a bit deeper into the financial results and performance this quarter?

Sure. Alright, thanks, Neil. Good morning to everyone on today's call. We're very pleased with our first quarter performance and the ability of our assets to outperform the market that continue to show robust results. Equally as important, however, is our ability to outperform in areas that are encountering short-term headwinds. While the focus has been on the relative weakness in New York City, often forgotten is the underlying strength in locations such as Boston, Washington DC, South Florida and the West Coast, markets where Hersha is well positioned with assets appealing to today's corporate and leisure-transient guests.

During the first quarter, our consolidated hotel portfolio delivered hotel EBITDA of $29.5 million, a 22.4% increase, aided by a healthy operating environment that allowed our operators to increase rate 6.6% portfolio-wide. Our geographically diversified, urban-transient portfolio has benefited from EBITDA growth from our same-store performance along with 2014 acquisitions in South Florida and on the West Coast, ramp up at newly developed properties in Manhattan and growth from re-branding and early-cycle capital investments in markets such as Boston where our re-branded hotel The Boxer delivered approximately 300% EBITDA growth, along with 1,300 basis points of margin expansion. These terrific results were driven by demand growth of 6.6% in the market, in addition to the comprehensive renovation and repositioning that has allowed us to significantly outperform the market since the completion of our rebranding efforts in 2013.

In South Florida, the Cadillac Courtyard in Miami Beach reported $4 million in Hotel EBITDA, a 21% increase over last year and 290 basis points of margin growth. The hotel continues to benefit from higher transient rates commanded by the Ocean Tower as well as strong market demand in Miami Beach. In Key West, the Parrot Key Hotel & Resort contributed approximately $2.8 million of Hotel EBITDA at EBITDA margins approaching 60%. Performance at Parrot Key has exceeded our underwriting expectation; and based on our 2015 forecasted EBITDA, our yield on cost for the asset approximate 8.5%. We remain bullish on future prospects for this asset and believe that significant opportunity remains to push rate given the property's ADR index versus the competitive set.

Our Hyatt Union Square continues to ramp, aided by increased local negotiated contracts and retail production. In the first quarter the property grew RevPAR 18.3% and reported EBITDA margin growth of 290 basis points despite a significant property tax increase during the past year. The hotel's location within the vibrant Union Square submarket and the Silicon Valley technology cluster of Midtown South has the property well-positioned to drive performance. Furthermore, the hotel is somewhat insulated from Greater Manhattan market supply concern as Union Square will see little new inventory delivered in the next few years.

Our Hilton Garden Inn Midtown East also continues to ramp. In the first quarter, the hotel reported 91% occupancy, marking the third consecutive quarter since the property opened that we've registered occupancies above 90%. Our forecasted 2015 yield on cost already approximates to 10%, which clearly demonstrates the asset's strong performance within a dynamic real estate market that continues to see significant value appreciation.

Excluding renovations, our comparable portfolio ran GOP and EBITDA margins of 44% and 32% respectively in the weakest quarter of the year. We believe these results exhibit the free cash flow generation potential and resiliency of our portfolio as we enter the stronger seasonal quarters of 2015.

In terms of our first quarter EBITDA margins, we realized margin growth of 70 basis points to 30.9% in our consolidated portfolio, while our comparable hotel portfolio reported a 60 basis point decline in EBITDA margins to 31%. Excluding properties under renovation during the quarter, our comparable same-store margins were unchanged from the prior year. Of particular note was EBITDA margin performance in our Boston and West Coast portfolios which realized EBITDA margin growth of 700 basis points and 210 basis points respectively.

Regarding CapEx, we spent $5.2 million during the quarter and completed four capital projects, which created disruption and negatively impacted results in New York, South Florida and on the West Coast. Moving forward we're forecasting normal recurring capital expenditures with limited disruptions for the remainder of the year and are still targeting $18 million to $22 million in CapEx spending.

Our balance sheet remains in great shape, providing ample flexibility to execute our business plan. At the close of the first quarter, we reported cash and cash equivalents of $31.4 million with approximately $215 million of capacity from the Company's revolving line of credit, under the Company's credit facility. 78% of the Company's consolidated debt is fixed rate or effectively fixed through interest rate swaps and caps. And as of March 31, the total consolidated debt at a weighted average interest rate of 4.19% with a weighted average life to maturity of 3.7 years, assuming no extension options are exercised.

We've continued to actively refinance relatively high-priced mortgage debt at various properties. In the first quarter, we refinanced our mortgage debt at the Capitol Hill Hotel in Washington DC. This new $25 million loan is priced at 30-day LIBOR plus 2.25%, a notable reduction from the previous rate of LIBOR plus 3.79%. New loan is interest only for the full three-year term; and in addition, we paid off the mortgage loan at the Courtyard Brookline Hotel with proceeds from our credit facility early in the second quarter. We estimate the savings on this refinancing to approximate $1 million on an annual basis and approximately $750,000 in 2015.

In terms of our portfolio's performance quarter-to-date through April, the comparable hotel portfolio has seen a continuation of strong growth on the West Coast, Boston, South Florida and Washington DC, while our New York portfolio has been negatively impacted by the shift in Easter and non-repeating group business at our Times Square hotels. We are forecasting better trends in New York for the remainder of the quarter and the back half of the year. And in New York then what we've seen during the first four months of this year and we'll remain vigilant on our asset and revenue management strategies to continue to drive outperformance from the overall market trends.

So taken together, these factors reinforce the guidance provided in February on our 2014 fourth quarter conference call. Our forecast for full-year 2015 consolidated RevPAR growth remains in the range of 6% to 8%. We expect consolidated hotel EBITDA margins to increase 75 basis points to 125 basis points while on a comparable basis, we comparable RevPAR growth in the range of 5% to 6% and still expect comparable EBITDA margin growth of 50 basis points to 100 basis points. As we've done in the past, we'll continue to closely monitor our portfolio's performance as we progress through the remainder of the year and we'll update our guidance accordingly.

So that concludes my portion of the call. I think 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. Wanted to start off by asking about margins, and you mentioned really strong performance in Boston and California. Can you tell us kind of what New York margins were? And you can exclude maybe the renovation impact if you want, but is there something, or are you guys seeing some new costs coming in in New York?

Sure. Hey, Chris, this is Ashish. So from a margin perspective, our New York margins were hurt by the Sheraton JFK and the Hilton Garden Inn Tribeca renovations during the quarter. I think from a margin perspective in New York, the only thing that's really impacted us and it has been a significant impact for the whole market is property tax increases over the last few years, which we do think will start settling down when we get the reassessments midyear this year. But margin growth in New York was down and I remember margins -- our New York portfolio contributes 24% of our EBITDA during the first quarter. So it's our lowest EBITDA-contributing quarter. So kind of a law of small numbers. So we did have about 5% margin loss during the quarter.

New York margins are very strong throughout the year. I mean we usually approximate about 45% EBITDA margin in our New York portfolio on an annual basis and we're really able to produce these margins because of our flexible operating model and the alignment with our operators. So we continue to work on several initiatives with our operators to maintain our margins in what's a challenging ADR environment.

Recently, we've gone through the second quarter operating projections. We've made labor model adjustments for rooms, contract services, staffing changes. So those approximated about $175,000 to $200,000. We've made about $100,000 in operating expense cuts to training, food and beverage offerings; and about $50,000 in energy initiative and emissions to really make sure that we control and are able to produce the high margin [revenue].

Okay, that's helpful. And then, want to ask you on the transactional environment, you guys have been a little quieter this year so far as of many of your peers and just kind of wondering if that's -- is it seller expectations continuing to go up, is it you guys have any change in your underwriting in terms of the forecasts or is it something else altogether and how does your pipeline kind of look?

Chris, this is Jay, we're still very much in the acquisitions market, but we've been very selective, and I think that's driven by where we believe we are in the cycle, not believing that the cycle is coming to an end anytime in the next quarter or two. We do still believe that we are at a middle to an advanced portion of the cycle and so when we look at acquisitions, we've been using criteria that we've used since the beginning of the cycle, but we've got some additional criteria at this point.

Currently, we're not looking at anything that doesn't have in-place cash flow and doesn't fit with our urban-transient strategy and that's been somewhat consistent throughout the cycle, but at this point, we're also adding a couple extra traps to our acquisitions program and that is, we're looking at only assets that we believe are going to be very comfortably accretive immediately upon purchase and both from an absolute RevPAR and a RevPAR growth standpoint, we want to make sure that what we're buying is going to be at or above our portfolio growth rates; and of course, as I mentioned, we want it to be accretive; and so from an EBITDA growth rate, it needs to fit the profile of our overall portfolio.

We're not stretching right now and we are certainly not taking turnaround risk. If we are buying hotels that have repositioning opportunities, the business plans there generally will be executable within six months, maybe eight months on the outside; and even then, we would expect after executing those business plans, we would have the types of returns that we're seeing at The Boxer, some very, very dramatic topline and EBITDA margin increases and so in a market that has gotten a little more competitive, we are also being that much more selective and that's probably why you're not hearing a lot from us. That being said, we still are very, very interested in Washington DC. We think that it's an interesting time to be in Washington. We think across the next couple of years, the group segment is going to really allow us in our transient model to drive a strong performance. We're still very interested in Southern Florida, and we think the Bay Area also continues to fit our current acquisition objectives. So that's kind of our view on acquisitions today.

Okay, great. Thanks, Jay. Just a quick final one. For a few of your independents, are you guys maybe in the process of evaluating whether one of these new soft brands works or your thoughts on those?

Yes, we've certainly looked at the various soft brands at Marriott, Hilton and now Starwood have come to market with. We own all of our independents in very high-demand markets. And so, we're not necessarily looking for additional distribution. So for one of those brands to be a fit for us and to be worthwhile from an economics standpoint, we would need to be real confident that the brand would allow us to drive rate. And currently, our independent portfolio relative to similarly situated branded assets already runs close to a 15% RevPAR premium; and so currently, as we've taken a look at it, it hasn't really been a great fit. That being said, we are very interested by them, by these new brands; and we'll continue to see as we move forward with any acquisitions if there is a fit or not.

Okay, very good. Thanks, guys.

Anthony Powell, Barclays.

Hi, good morning, everyone.

Good morning.

Just, in New York, have you seen a change in cap rates for self-service hotels over the past two or three quarters, given some of the market pressure we're seeing on RevPAR growth over the past since second half of last year?

It's a good question, Anthony, this is Neil. I can't say we've seen any significant turn on it. I think we've just seen so many of the buyers of late across these last six to 12 months to be a lot of offshore capital, a lot of capital that's looking at New York as more of a longer-term investment where they see significant and positive hotel fundamentals but also see great real estate appreciation across five to 10-year kind of [hold]. So I don't think it's had an appreciable impact on cap rates. I think for some buyers, maybe some of the public buyers and some of the levered buyers, they are definitely looking for more yield going in than I think the private market will bear in New York.

Got it, thanks. And when you look at some of your other markets like say, Boston or San Diego, how does the supply growth outlook look for those markets over the next, say, one to two years? And also, how do the city-wide calendars look for both markets? Thank you.

On the city-wide front, San Diego continues to have very strong production for this year as well as the coming couple of years. 2017 is a very strong year for San Diego as well. Boston, I don't have the statistics right here in front of me, but it's been a very good year this year and we're expecting strong performance, the next couple of years. On the supply performance, on the supply side, in San Diego, they're in-supply on the horizon across the next two to three years, we would expect to see 4% to 5% kind of supply growth across several years of deliveries. We don't have anything imminent across the kind of 2015 horizon but later in 2016 and 2017, San Diego will add three to five hotels in kind of the CBD area that we work in, this Gaslamp and CBD area that we work in. We don't think it's of concern relative to the amount of demand coming out of the conventions calendar as well as the broadening of demand in San Diego generally, as San Diego is one of the highest growth international demand markets and in terms of the highest growth. They've never been as big of a gateway as some of the other markets, but it's become one of the highest growth ones and there's just the other leisure destination drivers in San Diego. So we feel good about the supply and demand position there.

In Boston, Boston is a very difficult market to build hotels in. With the development of the Seaport area, there is finally some new -- there is land available for the first time. It's going for very expensive prices, retail, office and residential have been able to outbid most hotel developers, but in the Seaport, we've seen a couple of hotels, one hotel opened last year, one more will open this year; and then, across the next several years in the Seaport, we will see more hotels built. Our Boston exposure is really focused on Cambridge and Brookline and the West End and we feel very good about kind of supply in those submarkets being either nonexistent or very far in the future. So feel very good about those two markets.

Our only concern really on the supply side beyond New York is we are seeing a lot of supply in Miami. In Miami, we think that the market can bear it, as I kind of discussed in some of the remarks; and in Miami, there is a big difference between being on the sand, being on the beach versus being in other submarkets, particularly downtown (inaudible) is where you're seeing most of the new supply coming.

Right, very helpful. Thank you.

Ryan Meliker, MLV & Company.

Hey, guys, good morning. I just had a couple of things. First of all, on margins, I know you touched upon what was going on in New York and that was helpful. But I guess I was a little surprised to see RevPAR up almost 7% and margins down 60 basis points on a same-store basis. Was there anything specific or a big impact in 1Q that we wouldn't expect to see going forward? Just help us reconcile that down 60 basis points in the first quarter at plus 7% same-store growth with your full-year outlook, which obviously is RevPAR growth not quite that strong on a same-store basis and margins much stronger.

Right. So Ryan, as I mentioned, if you take a look at our portfolio, I think that excluding New York, it would be probably in the range of a positive 300 basis points of margin growth, maybe even little stronger. Renovations impacted comparable store margins by 60 basis points, but in New York, we still ran approximately the same occupancies as we did in the prior year. So 85% strong occupancies, almost all the loss in RevPAR was ADR driven so that ADR-driven loss during the first quarter which was magnified by property tax increases at a lot of the properties along with a big property tax increase in Hyatt Union Square because it was reassessed from a construction property to an operational property, hurt margins significantly enough that it brought sort of the rest of the portfolio's margin gain down to effectively a flat margin for the quarter. We do think that in future quarters, this reverses, as you'll start seeing -- we are forecasting much stronger growth in the back half of the year from New York. We're expecting ADR growth because there's really no place to push occupancy nor do our sort of operating models have us pushing occupancy in the rest of the markets although the RevPAR may not be as strong as Q1, we'll still have mid-to-high single-digit RevPAR growth with nice margin performance.

Got you. So as New York improves throughout the year, your margins will improve with it. That's helpful. Okay. Second question I had was obviously you guys bought back a couple million shares in the quarter. Sure, your investors were happy to see that. I'm just curious how you guys are thinking about buybacks. Is it just about trying to be opportunistic here and there? Obviously, you believe your stock trades at a discount, I certainly believe your stock trades at a discount. Have you thought about potentially even selling an asset or two to fund buybacks? I would imagine that would probably be received very favorably by your investors. I'm just trying to think about how you're thinking about it.

I think, Ryan, on one hand, this is not new for us. Last year, first quarter 2014, we also repurchased about 1% of our shares outstanding and we do view it opportunistically when there is a particularly wide dislocation in share price versus our NAV and we believe that it has been pretty wide in the first quarter of last year and this year. Again, we'll have to continue to monitor kind of how the shares trade, how our price trades and our cash position, but we're very comfortable with buying back stock. As Jay mentioned, our acquisitions program has been very productive, but very disciplined and we look at stock buybacks very similarly to acquisitions. It's an opportunity to buy in-place yield with a really strong growth rate, inherent, organic embedded growth in this portfolio. So we'll continue to look at buybacks.

In terms of would we do an asset sale to fund it right now, we just -- we have sufficient capacity on our balance sheet. We feel like we have about $200 million of acquisitions and buybacks and dividend increase potential in our Company. And so, there hasn't been a reason to sell an asset in order to take advantage of that opportunity. We look at that as a distinct and separate decision, asset sale.

That makes a lot of sense to me. I guess the follow-up I would have to that is, if you have $200 million in capacity and you see a unique opportunity with your stock today or you did throughout the first quarter, why only buy $12 million worth of stock? Is it just because of you didn't want to necessarily push the stock too high being an aggressive bidder? Is it that the liquidity wasn't there to really pull the trigger on a larger number or that you're holding your capital for more acquisition opportunities, or a little bit of all of the above maybe?

It's hard to accumulate a lot of shares on the open market with our float in our Company and without kind of a tender or something, it's just hard to accumulate a meaningful position. We remained very opportunistic in terms of pricing and at what kind of discount to NAV we wanted to accumulate, but that was really the main driver. With all the black outs and the other kind of limits that we have in terms of not wanting to push the price too significantly on any given day. This is what we were able to accumulate.

Okay, now that makes sense and thanks for all the color and it was nice to see the buyback, sure your investors are happy about it.

Thanks, Ryan.

Shaun Kelly, Bank of America.

Hey, good morning, everyone. I just wanted to follow up on maybe two things. First of all, it was just where we sit in terms of stabilization for Hyatt Union Square, so sounds like the reassessment hit at the beginning of this year. But, just overall, in terms of your underwriting, what year are we in and when do you think that property actually reaches stabilized rates?

Yes, Shaun. So we've opened the property now, it's been just two years that we've opened it, it's a different market for us, different type of assets. So the stabilization is probably a little longer than we anticipated in that particular market. So we're seeing great growth this year. We are not close to what we consider stabilized though property based on our underwriting. We think that we have outsized growth potential well into 2016 and potentially even into 2017 based on sort of where we're running at an ADR index that market. So I would say that we're probably further than 50% through the stabilization period, but not 75% through.

Great, that's helpful. And second, also a little bit on New York, just your overall take on land values in the market right now, because it does feel like whether it's alternative use or anything else, other areas of New York real estate certainly haven't slowed down even if hotel is now all of a sudden a four-letter-word versus a five-letter-word.

Yes. Shaun, land values have continued to increase in New York and it's gone from beyond just the top-corner locations getting big numbers. It's now kind of throughout Manhattan that we're seeing a significant increase in land values where we've seen some data recently shows that asset sales across the last year were at $579 per buildable square foot in Manhattan, which represented a 30% increase over 2013, which was at $446 per buildable square foot. So it's been increasing at a very steady clip, 15% to 20% a year for several years now, and that does make it difficult to make hotel economics pencil. The residential bid can justify those land costs, retail and office in the right locations can justify that cost, but right now, it's making it very difficult for hotel developers to buy a piece of land and then start a development project. I think it's among top developers in the city, the conventional wisdom or the view is that to build a select-service hotel on a mid-block kind of location, you're going to be in for above $500,000 a key. If you're trying to build a full-service hotel or lifestyle boutique hotel, you're between $800,000 and $1 million a key. And to attempt to build luxury in today's market would require over $2 million per key. And those numbers are very reasonable if there's been huge land price appreciation, kind of 20%, 30% levels -- but also on the construction side. Construction costs across the US are increasing very significantly. I think the urban gateways might be actually taking it less hard than some of the suburban markets in this case, like we've been increasing construction cost by 10%, 15% in urban markets. But we've been hearing that in kind of suburban select-service markets, even there's 15%, 20% kinds of increase in construction costs. So the combination of land increases and construction increases are making it much more difficult to pencil new construction in New York City right now.

Really appreciate all the color. And I guess one follow-up and it would be, can you just remind us of -- we're all familiar with what happened with general real estate values in New York during the financial crisis, but what was your take on what happened with land values kind of peak to trough? Did those come off as much or did you ever see that? I mean obviously, transaction volumes slow a lot, but did you ever see land values come down as significantly, more significantly, what did you see during the financial crisis?

During the crisis, land values did take a big hit in New York and part of it, I think was that a lot of land was levered and there was a lot of bridge loans and there was a lot of land loans that got kind of held up in-between 2007 and 2008. It was aggressive lending in 2007-2008 that led to some of those deals, but they did get hung up. So we saw land values at the real trough of the market, kind of 2009, late 2009, early 2010. Land prices did fall down to kind of $250 to $300 a foot for kind of mid-block kind of sites. So we've seen that go from $300 to $550 this cycle. We think we do believe that the cycle will hold more this time because there has been less of that kind of very aggressive financing leading to some of these land purchases. This time around, there are bigger sponsors, more significant projects, often a lot of equity in there. But there was a pretty significant drop-off in land prices.

On New York real estate, I mean it's interesting to note just long-term value as you mentioned, we are just looking at some of our cost bases. It's been 10 years since we bought Hampton Inn on [Herald] Square. So that asset we purchased for $230,000 a key and when we were looking at land leases, we were offered more just for the land on that particular site. So over a 10-year horizon, the land is worth more than the entire asset, but what we paid for it.

Thanks for that, Ashish. And so I'll keep going with just one more here, which would be you mentioned that obviously at the tail end of last cycle, there was a lot driven by leverage. We've heard at other parts of the commercial real estate world that things that are very -- the ultra high-end have started to possibly slow a little bit in terms of at least transaction velocity. Are you guys seeing any slowdown in terms of either of land transactions or at least in possibly that price inflation or is it still a really robust environment in terms of what you guys are just seeing trading out there?

In New York, still very robust. There may be different parties that are active, but it's very robust today on kind of completed hotels that are delivering. We've seen now -- across the last few years, we've seen such a kind of so many deals, asset sales in New York that's probably better comps in New York than most other markets in the country right now but across the last six to 12 months, we saw select-service hotels, two or three select-service hotels trade at well above $600,000 a key, we saw one just very recently get close to $700,000 key with it had retail but on the other hand, it also was a ground lease, and so you are seeing some very significant transactions in select-service hotels at higher prices than we've seen to date.

Perfect. Thanks, guys, appreciate all the color.

David Loeb, Baird.

Good morning. I just have a couple. I'd like to kind of tie together the questions about acquisitions and the stock buyback. And Neil or Jay, how do you evaluate at the current stock price that, that trade-off between putting money into your existing portfolio effectively by buying stock versus buying additional assets?

Yes, David, when we take a look at that, Neil alluded to it, we applied similar criteria when we're considering a stock buyback. We're taking a look at it relative to where we believe NAV is and where the stock is trading. So somewhat of a discount to the value that the shares represent. And secondly, we're taking a look at what our EBITDA growth profile is as an enterprise and making the decisions that way.

When we're looking at acquisitions, not just similarly, we look at the asset on a per key basis consider what replacement costs, what the market comparables might be and then we look at what sort of investment returns would be, and we look at the growth rates. And so yes, we look at them both very similarly and that's why when we talk about buybacks versus acquisitions, we don't see them to be mutually exclusive from an economic standpoint. That being said, I think it gives us an additional alternative for the use of our capital when shares are mispriced and it also gives us another alternative to -- it's another way for us to return capital to shareholders, rather than just continue to increase the dividend.

Okay. Also just -- go ahead.

I was just going to mention, last year is a great example. Last year, we bought back stock in the first quarter and then in the second quarter, we announced -- first and second quarter, we announced four acquisitions that kind of met our criteria. As the year went on, we weren't able to find compelling acquisitions that met our criteria. Our shares were trading at a better price than they had in the past. They weren't as dislocated and so towards the end of the year, we increased our dividend as this year began, the dislocation was very significant again, we bought back some shares. Today, we have a couple of acquisition opportunities we're looking at. We're very willing to continue our buyback program up to $100 million and we'll see how this year goes in terms of our dividend increases and the like, so very much like last year.

That makes sense. Thank you. And one more. You mentioned warming a bit to DC in terms of the acquisition market. Can you just talk a little bit about what you're seeing in DC and what might make you consider an acquisition in that market?

Sure. David, this is Jay. As everybody knows and understand, DC has had some difficult years. What we're starting to see in DC is some encouraging trends from a transient standpoint. We're seeing not only -- and this year, particularly, interestingly Congress is in session. I think we're going to have a very strong year next year from a government transient standpoint as well. But what we're starting to see is we're starting to see a lot of the government-related private sector business coming back, lobbyists, contractors, et cetera; and we believe that with continued group compression starting to build in the coming years for types of hotels that we own, we're going to be able to really tease out some very strong rate growth there.

When we talk about sort of the government returning, because of the last couple of years where we've had challenges in Washington DC, we're probably going to see the pendulum swing back and start seeing some attractive per-diem increases and I think that those are very strong inflection points for assets in Washington DC. So when you look at it in its totality and the fact that there hasn't been much supply growth there, I think we'd be buying at a very attractive time in the micro economic cycle in DC.

Great, that's all I had. Thank you.

Bill Crow, Raymond James & Associates.

Hey, good morning, gentlemen. Couple of questions. Jay, how tough is it to get comfortable with your guidance given that the first quarter is a seasonally slow or low contribution from New York and that only gets more important as the year goes on. You have a very smaller short booking window. So visibility in New York and the other markets are certainly challenging. You get very tough comps coming up and the ramp from the new properties is starting to get a little bit [long in the tooth]. So as you sit here and look out, I mean, maybe it's not difficult at all, but just talk about how forecasting the next three quarters to what look like pretty good numbers, how are you able to do that?

Yes, absolutely, Bill. When we're considering New York and what that's going to mean for us overall, we've been looking at three things in New York. First is supply deliveries. We're looking at international demand and we're looking at just general economic recovery. And our forecast assumptions for GDP are clearly stronger than they've been in the last couple of years. And so we expect the corporate transient segment in New York to benefit disproportionately from strong GDP growth across 2015 and into 2016. We're expecting 3% GDP growth this year and New York's corporate transient segment has pretty strong correlation with macro GDP growth. That gives us confidence for the second half.

When we're looking at overseas visitation to the US, and that's been a real question with what does that mean for New York relative to the strong dollar. So 2013 to 2014 growth was very strong, north of 7% overseas visitation; and the stronger dollar is clearly creating some headwinds; and in headwinds, we try to attack our way through them. And when we're looking at international segments that are coming into the US, we're seeing some weakness from a couple of segments, but we're seeing continued strength in markets like the UK, Argentina, India, China. And so we're turning more of our efforts in that direction. That combined with the fact that we're getting to a point in the cycle where domestic travel is still strong, boosted by lower gas prices, stronger employment situation in the United States, and so we're continuing to focus on that.

Also, when we think about international, it's important to remember for us in New York, despite our growing number of independent hotels, we're primarily a branded portfolio in New York City in Manhattan. And so, our reliance on OTAs, which is where a lot of the lower-rated compression from international demand comes from is, we're far less exposed to that. Our OTA contribution in New York is probably somewhere in the low 20s, let's say 20% to 23% versus a lot of the hotels in our comp sets are very large independent hotels, transient; they're probably taking 40% to 50% OTA business and at that point, you have a greater exposure to lower-rated international demand.

I mentioned earlier, we're at this point in the cycle where we're no longer building demand in New York and we're really out seeking rate. And so we just have to become far more surgical in how we go after the business that we want in our hotels and there's a lot of factors other than the international headwinds that we're facing that are allowing us to do that we believe in the second, third and fourth quarter, particularly in the second half of the year.

On top of all of that, I'll tell you international demand, what we had forecasted for international demand that 2013 to 2014 growth was well above what we had expected. There was an anticipated growth rate of international demand from 2010 to 2019 of close to 4.5%. Even today with the Commerce Department's most recent forecast, they're still expecting close to somewhere slightly north of a 4% compounded annual growth rate between 2014 and 2019. So it's not a complete disappearance of international demand. And as we become less exposed to it as it is in our portfolio, we're just teasing out the best demand that we can.

And finally, supply is another factor that we look at in New York when we're considering what our forecast should be there. And what gives us confidence is that this first quarter was heavily shaken by a lot of supply delivery in the second half of last year. We're continuing to get deliveries in the first and second quarter, but in the second half of the year, I think we are going to have -- the supply-demand dynamics are going to become far more favorable and that's giving us also optimism that we're going to be able to drive better performance in the second half of the year. I think that's generally how we're thinking about New York. We're not counting on a lot of citywide activity because that has been somewhat off, but that's somewhat reflected in our forecasts already.

Okay. Appreciate the color. Two more questions. Ashish, have you bought any stock back in the second quarter?

Yes, we've bought some back.

You want to quantify that or --?

It hasn't been that material to date. Felt it's been -- I would say, I think it's been less than 50,000 shares at this point.

Got you. And then, finally, and this question was spawned by the answer to the very first question this morning. You talked about renovation disruption related to the Sheraton JFK. How tough is it to put money into an asset in that submarket with that flag given everything else going on and what are your return expectations for the additional capital in that property?

Into the Sheraton JFK?

Yes.

Okay. So that asset for us, Bill -- that asset is probably about seven years or eight years old. At this point, it's 150 room asset. So it is not kind of the typical sprawling full-service hotel. It's very much a compact, full-service hotel. At JFK, it does very well on an index standpoint. But what we've put in, we've put in about $1.3 million for our pretty comprehensive six-year refresh, seven-year refresh at the property and that market continues to generate high 80, 88%, 90% type of occupancy, good returns. So for us, it's not really that much of a concern at all.

There isn't a lot of new supply at JFK really. There is talk about something at the terminal and the like, but there's a lot of natural barriers to entry there. There is just not a lot of space. And our share return right adjacent to our Hilton Garden Inn, somewhere among the two closest hotels to the airport and as a complex, they're very productive assets for us.

That's helpful. I guess I'm in that same camp that would like to see you sell an asset or two, specifically in the New York area, and use the proceeds to buy stock back. And in some think about it from an additional capital versus the sale of that particular asset so that's it. I appreciate the color on that and I appreciate the time this morning.

Thanks.

Nikhil Bhalla, FBR.

Yes, hi, good morning, everyone.

Good morning.

Jay, just from a net asset value perspective, I remember last year, around the same time, you had put out what you thought was net asset value of the portfolio. As I recall, it was between $2.5 billion to about 2.6 billion. Do you have an update on that number, just so we get a sense of what you think the value of the portfolio is at this point?

Nikhil, we internally think about it. We haven't updated it and published it at this point. And so I don't have anything to share with you right now.

Okay.

That being said, we continue to buy back stock and we're doing that because we think we're at a discount to where NAV is and capital is precious. So we wouldn't be doing that in returning capital to shareholders unless in our estimation, it was still quite significant. And NAV is higher than it was a year ago, we've had some good growth in our portfolio.

Yes. And I realize that. I was just wondering if you had done something more updated just to kind of put something out there, give us some sense of what you thought the asset value of the portfolio at this point where it stood. That's okay. Another follow-up question here, this one is for Neil. Neil, can you just talk a little bit about what you might have seen in New York in terms of interest from international buyers in the select-service space, specifically?

Yes, there's been a lot of interest from international buyers. I think of late, we've seen a lot more interest from Asian capital. I think the first wave of Asian capital in New York lodging was -- we're syndicators private high net worth groups or people. We sold Hotel 373 Fifth Avenue to a group like that, that kind of capital continues and is growing and there are more syndicators, more kind of promoter advisors, that are bringing in capital from Asia for investment in hotels here.

We've also seen I think more institutional capital coming out of Asia with interest in New York lodging. The big trades were at the Waldorf and the Baccarat with the insurance companies in China, but we're seeing a lot of similar interest from Chinese, from Korean pension fund advisors for cash flow and real estate in New York from hotels. There's always been interest from the Middle East in New York and they've been active this cycle, as well as last cycle in Manhattan. There is some capital, that is shariah compliant, that's very attractive to limited service assets because of some restrictions around alcohol and certain food products and they've been active life cycle, they've announced a handful of transactions already this cycle. There's five capital that's sponsoring a bunch of deals that's accessing the international market, either in China or in Asia, other parts of Asia. So there is, there is a real kind of wide diversity of foreign capital interested in India and in New York City hotels. I'm not sure what else to mention there; it's a lot of them and the recent trades continue to kind of demonstrate how deep that market is.

Sure. I was just wondering like are you seeing a lot of our capital still flow towards most of the full-service larger assets are, have you started to kind of see a pickup in interest on the select-service side?

Definitely an absolute pickup of interest in the select service side. I think the, just as we saw in the US, where it took some time for institutional capital get comfortable in this space, I think we've seen that happened much quicker with Asian and Middle Eastern buyers of assets in New York.

That's great. One final question for Ashish, Ashish, just in terms of the cadence of RevPAR growth, as we think about for the remainder of the year. Clearly, your guidance implies that 2Q through 4Q will be a little bit more moderate. How should we think about sort of the 2Q, 3Q and 4Q cadence? Do you think 2Q maybe comes in kind of at the midpoint of your six to eight guidance and then we see an acceleration in the back half?

Yes, I mean I think that's right, Nikhil. As you look at it, as we discussed, New York will be an impact for Q2, but the rest of portfolio is still running kind of in the high single digit RevPAR growth rate. So we think that it comes in somewhere in the middle of the range for Q2. In Q3, we think that the overall RevPAR, certainly in New York, it's a lot better. We're sort of forecasting more in the mid single-digit range, and you have both 52nd Street and Pearl Street coming in on a comparable size in the back half of the year, which adds about 150 basis points, potentially 200 basis points of growth and that's the market. In the other markets, we think probably slow down a little bit from what we're seeing in the first half, but generally staying in that same mid to high single-digit range.

Perfect. Thank you.

Wes Golladay, RBC Capital Markets.

Hi, good morning, guys. You mentioned the 20% to 23% use of OTAs in New York. Is that consistent with past years?

I'm sorry. Wes, could you repeat the question? We couldn't hear you so well.

You mentioned 20% to 23% use of OTAs in New York. Is that consistent with past years?

Yes, it is. It is. That's our general target range. We tried to lower it when we can, but with the supply growth that we've seen, we've had to rely on it for a couple hundred basis points, 200 basis points to 300 basis points more than we like.

And then, when we look at your portfolio in Manhattan relative to the overall Manhattan market, do you expect that outperformance to continue about 100 basis point , 200 basis point throughout the year with the high Union Square still ramping? Is that a good expectation?

I mean that's a fair expectation. Yes.

Okay. And you mentioned international money for select-service assets in New York. Is that still an (inaudible) every market?

We have seen a lot more Asian capital mobilizing for South Florida and for Miami, noticeably so in terms of real estate investments they've made, but also just their interest and their conversations we've gotten some inbound increase about some acquisition opportunities there. I think traditionally, Asian capital is very focused on New York and Los Angeles. And I think that is now starting to broaden across the country. I think there is definitely these kinds of gateway markets like New York, Miami, Los Angeles will always Washington DC will always be a preference, but we are seeing it broader a bit.

Alright. Thanks a lot, guys.

And with no further questions, I'd like to turn the call back over to Neil Shah for additional or closing remarks.

I think we're all set, it's been great to catch up with everyone and we look forward to hearing from anyone after the call if we can answer any further questions.

This does conclude today's conference. Thank you for your participation.