Hersha Hospitality Trust (HT) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Hersha Hospitality Trust Second 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 would like to turn the conference over to Pete Majeski, Manager of Investor Relations and Finance. Please go ahead, sir.

Thank you, Tiffany. Good morning to everyone participating today. Welcome to Hersha Hospitality Trust's second quarter 2015 conference call on this the July 29, 2015. Today's call will be based on the second 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 those on today's call. Joining me are Jay H. Shah, Chief Executive Officer and Ashish Parikh, Chief Financial Officer and we all welcome you to our second quarter call.

I will start with a few comments on the lodging sector's fundamentals and then proceed to our second quarter operating results with some specific market commentary. After my comments, Ashish will provide additional color on our second quarter financials and our view on the back half of 2015.

On our first quarter call in May and in subsequent meetings with investors and analysts, we stated it was a great time to be an owner of hotels. Nearly three months later, with August now nearly upon us, we continue to enjoy an improving domestic economy, strong industry supply and demand fundamentals and increasing pricing power on our street corners.

We forecast US economic growth between 2.5% to 3% in 2015 and 2016 driven by consumer spending, improved business capital spending, reduced energy prices and government investment.

Private-sector employment continues to grow, adding 664,000 jobs in the second quarter with the unemployment rate declining to 5.3% at the end of June. The labor market has approached full employment levels, consumer finances are healthy and consumer confidence reached an eight-year high in June.

With inflation low and housing showing positive momentum, the economy has entered a self-sustaining cycle of rising incomes and spending, temporary setbacks aside. Asset level disruptions or operator specific issues will always exist in our industry, but our expectations for macro demand and ADR growth continue to be resilient. Nationwide, new supply remains in check and well below the long-term average of 1.9%, providing an additional tailwind for rate growth in the coming years.

While industry wide RevPAR growth of 6.5% in the second quarter appears to have decelerated from the first-quarter growth of 7.9%, on a two-year basis second quarter RevPAR growth was 14.7%, in line with the two-year RevPAR stack in the first quarter.

With all of our large capital and development projects complete, we are and will continue to benefit from the stabilization and asset management of our high-quality well located hotels in the country's very best markets. Our portfolio has been carefully assembled and polished across the last several years. Our focus today centers on working with our operators to optimize its performance. We aim to outperform our markets and generate meaningful free cash flow growth in the coming years.

In the second quarter our increasingly diversified urban transient focused portfolio delivered 7.9% RevPAR growth. Occupancy increased 116 basis points to an impressive 87.8% and we increased rates 6.5% to achieve a $207.76 ADR for the quarter. We generated hotel EBITDA growth of 15.7% to reach $54 million for the quarter.

With that let's double click on our six markets. In the second quarter, our best-performing market was the West Coast with RevPAR growth of 16.3% supported by 10.7% rate growth and a 419 basis point rise in occupancy. Of particular note were results at our Courtyard LA Westside where RevPAR increased 27% as a result of a strong citywide calendar that produced a combined 75,000 room nights, creating significant compression in the market.

In San Diego, our downtown courtyard reported a 11.8% RevPAR growth, aided by several conventions in addition to strong [L&R] and high-rated retail production. Our three Hyatt Houses, two of which are in Northern California and the other in Scottsdale, delivered 22.1% RevPAR growth due to a surge in corporate group activity in Northern California and increased group contribution in Scottsdale.

If we were to exclude results from the Hotel Milo, Santa Barbara, which was hindered by the Refugio oil spill in May, the West Coast portfolio reported RevPAR growth of 19.9%. While the oil spill did not drastically impact business in Santa Barbara or our future outlook, the spill did impact customer perception and resulted in some lost revenue due to short-term cancellations earlier this summer.

In Boston, our portfolio reported a 11.7% RevPAR growth as increased L&R production at premium rates drove performance. Our Boston portfolio's second quarter performance outperformed both the competitive set and the wider Boston market by 310 basis points and 460 basis points respectively.

During the second quarter, increased demand, residual winter storm disruption, and higher-rated business drove revenue growth of $1.3 million with EBITDA margins exceeding 50%. Strong results at Boston came despite a soft April, a result of the Easter shift and challenging year-over-year comps.

The Boxer, a great example of our ability to reposition and re-brand independent hotels in tune with today's transient traveler, continues to establish itself within the city's West End submarket and also benefited from improved revenue management strategies, which contributed to the hotel's 26.8% RevPAR growth and 610 basis point margin improvement.

Our Washington DC portfolio delivered 14.6% RevPAR growth with rate increasing 12.8% and occupancy rising 127 basis points. Our best performing hotel in DC was the Capitol Hill Hotel, which reported 21.6% RevPAR growth. Our Hampton Inn on Mass Ave also had a solid quarter with RevPAR up 12.9% as our CBD properties benefited from increased convention activity, combined with business and leisure transient compression in addition to more governmental group in travel.

Our DC metro cluster, disproportionally affected by sequestration and reduced government business in previous years, also continues to rebound registering 12.7% RevPAR growth.

In June, we closed on the purchase of the St. Gregory Hotel in Washington DC's Dupont Circle submarket for $57 million. Based on underwriting the purchase price represents a forward economic cap rate of 7% and a forward EBITDA multiple of 12.9 times. The acquisition of the St. Gregory demonstrates our long-term belief in Washington DC as the market recovers from a period of muted growth. The evolution of private and public sector demand drivers in DC over the past year provide excellent prospects for growth over the long term.

During the second quarter, our Philadelphia portfolio also recorded impressive results with rate driven RevPAR growth of 10.6%, outperforming the competitive set by 160 basis points. Overall, demand in Philadelphia rose 4.8% in the quarter due to strong citywide calendar with citywide room nights increasing 27% year over year.

Our growth was mainly driven by the Rittenhouse where RevPAR increased 44.7%. The Rittenhouse continues to ramp from renovations in 2013 and 2014 and also benefited from the closure of the Four Seasons in June. During the second quarter The Rittenhouse achieved a $439 average daily rate and generated an impressive $16,600 per key in EBITDA for the quarter.

In Miami, our same-store portfolio delivered 10.2% RevPAR growth driven by a 4.5% increase in rate and a 415 basis point rise in occupancy as the Miami Beach submarket benefited from strong convention calendar and our implementation of new revenue management strategies at some of our more recent acquisitions.

Our Residence Inn Coconut Grove was understandably up over 40% coming off of a major renovation but our performance at the Autograph Collection Hotels in South Beach was driven primarily by our asset management and pricing strategies. We acquired these two well-located hotels 18 months ago and our work with our operators is beginning to deliver solid outperformance. The properties delivered combined RevPAR growth of 21.6% for the second quarter and we continue to focus on driving rate to close the RevPAR gap versus the competitive set. Our outlook for these two properties continues to improve as we look across the coming couple of quarters.

Transitioning now to Manhattan where during the second quarter our Manhattan portfolio reported a 94.6% occupancy and a $253.85 in ADR, not bad numbers but performance reflected a year-over-year RevPAR decline of 1.7% as rate fell 100 basis points and occupancy declined 70 basis points.

While the delivery of new supply continues to be the most significant headwind in Manhattan, particularly in the seasonally weaker first half of the year, calendar disparities in the second quarter, particularly in April, also negatively affected the market and led to a decline in business transient demand, affecting operators' ability to compress the market. In addition, a softer citywide calendar hurt results as three citywide conventions did not repeat in the second quarter.

Despite these challenging conditions, our Manhattan portfolio outperformed the Greater Manhattan market by 50 basis points, marking Hersha's sixth consecutive quarter of outperformance in Manhattan.

Our ability to outperform is the direct result of, one, our carefully assembled hotel portfolio in compelling locations built for today's taste and preferences and two, our ongoing engagement and alignment with our operators in the market. Despite the difficult operating environment, we are clearly gaining market share.

The Hyatt Union Square delivered 11.5% RevPAR growth finishing the quarter at 93% occupancy and a $378 ADR. After a light refresh to the guest rooms earlier in the year, The Hilton Garden Inn, Tribeca also meaningfully outperformed, achieving 5.6% rate-driven RevPAR growth to end the quarter at $273 of ADR.

With regards to the effect of the stronger dollar on international travel, a topic widely discussed on our first quarter call, we do continue to see an impact from the stronger dollar, but in line with our first-quarter trends we did not witness a material impact on demand as a result of lower international visitation. The stronger dollar may place pricing pressure on a market and likely add it to the challenges of pushing rate in the New York market, but like new hotel supply this impact is felt most in seasonably low periods of demand.

Results by country and destination remain disparate and do not lead us to any specific conclusions beyond the conviction that international demand remains a long-term secular tailwind for the lodging sector in the US. As of May, total international passenger arrivals increased 3.7% year-to-date in our six markets.

In Boston, Miami, New York, Los Angeles all continue to attract new direct and nonstop routes from Asia and Latin America. The mix of international demand is clearly changing and we spend our time actively working with our operators to refocus marketing efforts on those countries less sensitive to the strong dollar.

During our previous calls, we highlighted that the Eurozone only represents approximately 2% of total room revenue in Manhattan and Eurozone's contribution did drop 23% year-to-date, but growth from Brazil, China, Great Britain and Canada handily offset these declines. Year-to-date international revenues have actually increased by 8.7% for us in New York.

In Miami, we welcomed fewer Brazilian and German guests, but this was easily offset by significant growth in Great Britain, the Netherlands and Canada. Through May, international passenger traffic in Miami is up nearly 4%. Year-to-date, our international revenues have actually increased by over 20% in Miami.

I will finish up with a few comments on our share repurchases this quarter. During the second quarter in response to the dislocation between our trading price and our net asset value, we repurchased $37.6 million of shares at an average price of $25.60. This activity combined with first quarter share repurchases of $12.6 million bring our 2015 year-to-date share repurchases to $50.2 million, which represents approximately 4% of our total shares outstanding.

Our share repurchases underscore our confidence in the portfolio, in lodging fundamentals, and our commitment to the value we are creating. Our portfolio has been assembled, pruned and polished and will generate significant free cash flow growth across the coming years. We've a demonstrated ability to source accretive and value-creating acquisitions in today's environment like the St. Gregory but when our stock does not appropriately reflect inherent value, we view buybacks as accretive as acquisitions without the execution risk.

This concludes my prepared remarks. I'm going to pass the call to Ashish. Ash?

Great. Thanks, Neil. Good morning to everyone. During the second quarter our consolidated hotel portfolio delivered hotel EBITDA of $54 million. We generated $7.3 million more in the quarter than a year ago. The increase was a 15.7% improvement compared to second quarter of 2014.

ADR driven growth combined with our aggressive asset management efforts and continued ramp-up at several of our new hotels generated consolidated GOP margins of 52.7% and EBITDA margins of 42.6% in the second quarter, an increase of 70 basis points, a new high watermark for Hersha for the second quarter.

Property taxes, which rose $803,000 or 13% in the second quarter weighed on even more significant margin growth across the portfolio. We have remained active in our efforts to challenge ongoing assessment increases and are pleased to report our fiscal 2016 property tax assessments are in the mid single digit range versus the double-digit increases experienced over the past few years, especially in New York City.

Consistent with first-quarter trend, strength in Boston, Washington DC, South Florida, and on the West Coast drove performance. Although we are encouraged with the velocity of lodging demand growth in these markets, we have been and will continue to be focused on ensuring our portfolio outperforms the wider MSA. Our efforts produced strong results in the second quarter and we outperformed our respective MSA competitive set in every one of our major markets in the second quarter. With the exception of New York City, all of our markets delivered double-digit RevPAR growth in the quarter, helped by strong citywide activity and transient business that drove compression and allowed operators to push rate. Fundamentals across our portfolio remains strong which provides us with an optimistic view of the remainder of 2015 to which I will provide additional detail in a few moments.

Our EBITDA outperformance was driven by our aggressive cost control and asset management strategies, coupled with a keen focus on revenue management. At this point in the cycle, we are working very closely with our operators to ensure we have the proper customer mix and booking channel utilization while closely monitoring peak demand days in our markets to optimize ADR without unnecessarily sacrificing occupancy or alienating our L&R customers.

Let me point out a few examples of our successful revenue management program during the quarter. Our Boston portfolio reported hotel EBITDA of $6 million, an increase of 15.3%. Our metro properties benefited from a 2000 room night increase in local negotiated rate reduction, at rates 7.6% higher than second quarter of 2014. Whereas within our urban portfolio, the decision to reduce local negotiated rate rooms at the Courtyard Brookline to allow for higher rated transient business drove a $28 rate premium year over year contributing to the urban portfolio's EBITDA growth of 12.5% and margin expansion of 150 basis points. These revenue management strategies, share shift and mix helped our Boston hotels to record portfolio-wide EBITDA margin of 50.8% for the quarter.

On the West Coast hotel EBITDA rose a robust 33.3% to $7.2 million as a result of strong market conditions in San Diego, Los Angeles and Northern California. Despite some weakness in Santa Barbara, our West Coast EBITDA margins expanded 490 basis points during the quarter.

In Manhattan, our three new properties continued to find their footing in their respective submarkets. Our Hyatt Union Square was the Company's top EBITDA producing asset in the second quarter, contributing $2.7 million in hotel EBITDA at a margin exceeding 45%.

Our Hilton Garden Inn 52nd Street reported $2.5 million in hotel EBITDA and a 51.4% EBITDA margin for the quarter. While the hotel is above its fair share in terms of occupancy for the trailing 12-month period, significant runway for rate growth remains. In addition with limited new supply in Midtown East as well as the 685 rooms InterContinental Barclay closed for renovation and the potential loss of rooms at the Waldorf Astoria, the hotel is expected to benefit from compression which should continue to drive strong results.

Our new Hampton Inn in the Financial District also continues to ramp nicely. Despite a significant increase in new room supply downtown, property continues to benefit from new and diverse demand generators in the Financial District, including new office openings in the World Trade Center building, the 9/11 Museum and the World Trade Center Transportation Hub.

In Manhattan, EBITDA margins declined 150 basis points to 46.1%. In addition to the 100 basis point decline in rate, EBITDA margins in Manhattan were impacted by significant increases in property taxes as some of our newer hotels were reassessed from construction project to operational hotels.

As I mentioned previously, we should not see these types of increases going forward as the hotels continue to stabilize. Despite the decline in ADR and occupancy in the Manhattan portfolio, cost management strategies implemented at the end of the first quarter led to a $257,000 or $1.95 per occupied room, decline in room expenses while hotel labor expense fell 20 basis points year over year.

Moving forward, we will continue to closely monitor our Manhattan portfolio's expense model to maximize efficiency while maintaining our high service levels and industry-leading margin performance. Transitioning over to capital expenditures, we spent $5.7 million during the quarter on ongoing capital projects and completed all renovations at our Residence Inn Coconut Grove, our only major redevelopment project for 2015.

Our well-timed early cycle CapEx and redevelopments are clearly benefiting the portfolio and we continue to anticipate spending between $18 million and $22 million in CapEx during 2015 with no major disruptions for the remainder of this year.

Our balance sheet is strong, providing ample flexibility to respond to opportunities in our markets, while continuing to execute our business plan. At the close of the second quarter we reported cash and cash equivalents of $28.2 million with approximately $122 million of capacity from the Company's $250 million revolving line of credit provided under our $500 million credit facility.

We are currently in the market with a new term loan that will refinance several of our secured loans while freeing up our revolver. We anticipate closing on our new term loans sometime during the third quarter, allowing us to extend out our maturity schedule while lowering the cost of capital on our existing debt. We also continue to actively refinance relatively high priced mortgage debt within a favorable financing environment.

In the second quarter the Company refinanced the outstanding mortgage debt at Hyatt Union Square. The new $55.8 million loan is priced at 30-day LIBOR plus 230 basis points and matures in June 2019. In addition to the additional term, the refinancing results in annual cost savings of approximately $1 million as a result of the lower interest rate. As we look into 2016, we see tremendous opportunities to refinance several tranches of our secured debt, assuming debt markets remain as accommodating as they are today.

As you may have seen in yesterday's earnings release, we have increased our RevPAR and earnings guidance ranges for 2015 based on our year-to-date performance, acquisition, and the financing activity, stock buyback program as well as what we're seeing in our markets and hearing from our operators.

In terms of our portfolio's performance quarter-to-date in July, our comparable hotel portfolio has seen RevPAR increase of 8.8%. In Manhattan, we are encouraged by our portfolio's July performance, which has seen RevPAR increase 7%. While group pace for the market in quarter three is down approximately 4%, transient pace is up 13%. Citywide activity in July and August will be lighter in Manhattan compared to a year ago and calendar disparities along with the Jewish holiday will also impact the third quarter. However, citywide events such as the UNGA and the Papal Visit in September are expected to drive compression and benefit our transient focused hotels in New York and Philadelphia with continued outperformance in our West Coast, Boston and Miami hotels which are all showing double-digit RevPAR growth for the month of July.

In terms of our guidance, we presented our revised 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 6.5% to 8.5% and a comparable store RevPAR growth range of 5.5% to 6.5%. We have also increased our EBITDA guidance to be in the range of $178 million to $182 million with FFO per diluted share of between $2.28 to $2.36 per share.

So this 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) Anthony Powell, Barclays Capital.

On the -- the change in demand was apparently very strong in the second quarter and also so far strong in the third quarter, could you split out the demand trend between business and leisure?

I don't know that we have -- we don't have -- on our pace reports, I don't know that we have that level of detail I'm sure we can get it. That being said, let me just give you some directional idea on the portfolio's mix. We've often said, we're very, very corporate, transient, focused and I think as we look at the forward booking report, I would imagine that the bulk of the forward pace is more corporate than leisure. And so our typical mix is about 80%/20% across the portfolio of corporate to leisure. I would imagine as we look at the forward booking pace -- longer booking windows for corporate travelers, I would estimate it's probably 85% to 90% corporate on the forward pace compared to leisure.

And if you could just also split out the performance between some of your branded hotels, and the interconnect question, you mentioned quite a few of your brand hotels are very strong in the quarter, are you seeing a benefit to having some of these brands in your portfolio?

Anthony, is that in regard to New York City or just generally across?

New York and also West Coast, you mentioned the Courtyard did well, just generally New York City in particular and also overall, if you could.

Yes, overall I don't think you can -- we could draw a clear distinction between performance between our branded versus independent hotels. I think it's more been a function of kind of where they are in their execution of their business plan and the location that they play and the position they play in the marketplace.

In New York City we've primarily branded portfolio and we have kind of the category killing brands in the portfolio, The Hampton Inns to the Hilton Gardens Inns and the like. So they perform well. Our independents still have very similar performance in New York as our branded hotels do.

We've discussed it before. It's the kind of whether it's an independent hotel or whether it's a branded hotel, we focus on the transient customer and we're focused on generally relatively newly-built hotels that are less than 200 rooms that have most of their income generated from the rooms part of the equation. And I think that the transient recovery has been stronger throughout the cycle and continues to be very strong looking forward in the next couple of quarters. Third quarter for New York, our transient pace is up pretty significantly and higher than we might have suspected. But again, I don't think you could distinguish that performance between kind of the Duane Street Hotel and the Hilton Garden Inn in Tribeca. They're both performing very well today.

Got it. And just maybe one final one on the term loan and the share repurchases. As you seek to [redo] your term loan, will you be able to potentially increase the amount of repurchases you can do? That's it. Thank you.

So, Anthony, we have approximately $50 million remaining on our authorization for the year and right now we have no restrictions from a covenant standpoint on any of our debt that wouldn't allow us to get to $100 million if we still saw the type of dislocation that we saw during the first half of the year and we wanted to buy back shares. So we have full capacity to buy back another $50 million if we so desire.

David Loeb, Baird.

I want to flip around part of the last question, just ask you about supply trends in your markets. In New York, in particular, obviously it's been a really big issue. But where do you see openings and new construction starts going in New York and how about it in some of your other markets, Miami and some of the other ones. Are you seeing any new construction starts or openings coming anytime soon?

David, maybe we can start with New York and we talked about this across many years, I guess, but the supply data in New York often overstates what is going to be delivered often to other consultants who will report on announcements made by brands or by developers that may have a piece of land or a building under contract, but still haven't fully committed to a hotel use.

We've been experiencing across the last several years the new supply that got started after the recovery when land prices in New York were very attractive and you could pencil hotel development. We've seen land prices in New York go from -- in 2011 the average price per square foot was around $322 a foot per buildable square foot. At that level you pencil hotel development. Today, in 2014, that cost per buildable square foot has gone up to $570 per square foot. At that level it's very difficult to make hotel development pencil.

And so we have -- we continue to believe that we've saw the high watermark of new supply in 2014, deliveries from the early part of the recovery and today land prices are keeping a cap on kind of new hotel development in New York. And increasing construction costs in New York City, probably a little higher than most other markets, but this is a phenomenon across the nation where construction costs are escalating by 5% to 10% per year for the last several years.

This time around the construction cost is less about materials and it's more just about labor and that's a problem in New York as well as other parts of the country. But in New York we believe that we've kind of gotten beyond the high watermark of supply. Our expectations for 2015 and 2016 are kind of low 4% level supply. We believe that those will likely also look overstated a year from now. It's very possible that we see more like 3% to 3.3% new supply in 2015 and 2016.

As far as other markets -- probably the other market that has absorbed some significant supply across the last couple of years and continues to this year is Miami. We've often distinguished kind of between new supply in the Miami Metro versus supply in Miami Beach which are distinct and distinguished partly because our portfolio is just more Miami Beach-driven. But this year we did see a lot of Miami Beach supply and fortunately most of that new supply has been higher-end hotels, luxury, and high-end lifestyle hotels and the market has been able to absorb it. But after years of absolutely no supply on Miami Beach and even negative supply in some cases, the last year and this coming year we are absorbing supply and it does make it a little bit harder. You got to out-operate in order to outperform in the Miami market today.

As we look across the rest of our markets Los Angeles all of the new supply in Downtown LA gets talked about a lot and there is a ton of new supply coming in Downtown LA. We feel good about our position. We're in the west side, in an area that is growing, has its own demand generators and isn't reliant on kind of traffic coming from downtown necessarily or the new kind of lifestyle destination of downtown. So less concerned about Southern California.

San Diego, there's a handful of hotels that will deliver across the next several years. San Diego -- it does make us a little bit more cautious about the market in terms of new growth, but new external growth for us there. But we think that market is still yet to kind of reach its prior peak. The convention calendar there for the next several years is very strong and so less concerned there.

In Boston there is new supply delivering. A lot of it's in the seaport which has really developed into its own kind of city or will develop into its own city. It's already got started pretty significantly, but the amount of office construction in that market and retail construction is overwhelming. That's going to come with some more hotel supply. But the fundamentals in Boston are just so strong both from corporate group convention as well as as a leisure destination that continues to attract a lot more international travel as well that we're not concerned there either.

So really very little supply concerns and you can see that in the national data. I think for the quarter it was only 1% supply growth. I think this is a -- there is a great tailwind for the next couple of years. Now if the market continues to heat up, there will be new construction again. But I think we have a couple of years of some pretty strong fundamental performance.

It was great. Thank you, Neil. One more about this $100 million of investment capacity. It seems like you've got three options, right; one is do nothing, two is to buy back stocks, three is to make acquisitions. With the stock close to $28 right now, is that something that that is off the table or how do you view the stock relative to the prices you're seeing on potential acquisitions?

David -- this is Jay. We've continued to be pretty selective with acquisitions and I think the St. Gregory is a prime example of that. As we've said before I think we look at buying back stock during dislocated trading periods as attractive as acquisitions. With $120 million of capacity on hand, we feel like we've got some room because we're not seeing such a wall of attractive acquisition. So as we continue to selectively pick through what we think makes sense for our portfolio, I think the capacity is sufficient.

Should that change and we start seeing a lot more opportunity for either buying back stock because the stock isn't trading where we believe it represents value or we start seeing a lot more transactions, we still have one other alternative and that's to sell assets. And we've continued to stay in the market, and we're fortunate to be in markets that are relatively liquid, we can't say that we can push a button and sell a hotel in 30 days, but generally the markets we're in are very liquid and attractive to investors. And so we would -- we consider that to be a very important alternative. I think that's where, if we needed more funds for either of the two alternatives of buying back stock or buying more assets, we would probably look to sell hotels.

(Operator Instructions) Chris Woronka, Deutsche Bank.

Want to ask you about New York and Miami and more from the standpoint of some of the soft brands. You guys have a few independents in both of those markets and I think a few of them in Miami are soft branded with Autograph. But do you -- as you look forward, is there any concern that more soft branded product kind of enters those markets and maybe a step-up in competition for your independents there?

Chris, this is Jay. I think the soft brands -- it certainly is an avenue of growth for most of the family of brands and brand companies out there. And so we would expect that we'll see additional supply in those areas either through conversions or acquisitions that are converted. But I don't know that -- I'd tell you, I think with the soft brands, I think the positive element with soft brands and something that makes us somewhat encouraged about them is that they do drive -- they are generally going to be in high-demand markets and they'll be able to drive rates. With the additional distribution they get from the brands we find that they are able to drive rates very well. And for us, I mean when we look at supply we look at that generally as an overall supply picture. We would probably prefer to see more soft brands as part of the supply mix than traditional brands because we think that there's more upside for rate in those and that generally will help the market overall.

We've seen some soft brand conversions in New York, certainly in Miami and I think it's just a matter of -- you again have to look at it on a market-by-market basis, but we haven't been alarmed by the number of conversions. We hear about big pipelines from Starwood and Marriott, particularly on their soft brands, but we haven't seen it as of yet. We watch it closely, but we're not that concerned about it. We think there could actually be a real benefit from it.

Okay, understood. And then you just touched on pencil for asset sales a minute ago and my question is kind of when we look at your portfolio and let's call it maybe suburban, DC and outside of City Center, Philadelphia maybe not real long-term core markets for you. Do you think maybe you look to proactively kind of test the market on those, not necessarily waiting for a need for funds, but just kind of take advantage of the current market conditions? Are those two of the markets we should be thinking about?

I think, Chris, we are always looking at sales whether there is an actual kind of broker pack on the street or we're talking to our relationships in various markets and the like. And so, I would say that those are ones that we have discussions about. But we also do have discussions around some of our more core stabilized, New York City assets at times as well.

But I think you highlight kind of two categories of potential sales. They could be these -- the suburban but it now appears as kind of less core to our story and there is suburban Boston, there is suburban Philadelphia and there is suburban Washington DC. We have an individual asset out in Scottsdale and then there's some of our core assets where we continue to believe that they are very strong performers that have growth trajectories that will allow us to continue to outperform the market. But those will also provides an opportunity for capital recycling if there is a compelling use of proceeds. But today we feel really good about the performance in some of these suburban markets. Like Washington DC suburbs they are recovering. They were really beat down by a sequestration and the government slowdown across the last two, three years and we see good 12 months of kind of very positive growth. Now we may not hold on to that the entire period, but we feel very comfortable that holding right now will pay off for us.

Bill Crow, Raymond James.

Appreciate the comments, especially the highlights on the inbound international travel patterns. Couple of questions here. I don't know that you provided a forecast for New York RevPAR growth in 2016 yet and you don't have to do your portfolio, I know you have not given guidance, but just give us a feel for how you see that market stacking up next year on a RevPAR basis.

The fundamentals will be stronger next year than they have been this year. And so that gives us a positive view on the market. I think probably more similar to 2014 than -- 2013, 2014 performance versus kind of 2015 performance. I think to have kind of a low to kind of mid single-digits kind of growth expectation for New York would be reasonable.

Okay, that's helpful. May be nitpicky question but the St. Gregory was included in your same-store portfolio performance. You only acquired it in June. So I am not sure why it was in the same-store. If we remove that performance, could you tell us what the performance was for the other assets?

Sure, Bill. It was in the comparable. We include all hotels that were open in the prior year, but we only had about 10 days of operating results for the second quarter for St. Gregory, so it was really a non-factor in numbers.

There was no impact on as reported RevPAR from putting that hotel in there, is that fair?

That's fair.

All right. And then finally, those of us who have had the pleasure of watching your Company progress, I don't know, 10, 12, 13 years something like that what's become apparent more recently is that there seems to be a role switch here between Jay and Neil certainly in outward facing aspects, Investor Relations that sort of thing and Jay we understand you're spending more time at the properties. Is that in fact the case, what drove that change, it's a little bit unusual in a public company?

Yes, Bill. This is Jay. I think the -- we have a very tight and lean team and so most of the major decisions we make here are -- they get weighed in by Ash, Neil and myself in any case. I think primary responsibility on a day-to-day basis, we did change it up a little bit. I think it's driven by a couple of things.

My background is -- across the many years you've been following the Company and even before that, my background has been asset management and acquisitions and our feeling was that we're at a point in the cycle where I should bring some of that to bear on this portfolio that has, we believe, more upside from the asset management standpoint. That being said, I think also sometimes in these kind of situations, having a fresh set of eyes on day-to-day responsibilities can be beneficial. So I don't know that there has been a formal role change, certainly not a particular change, but all the decision making is still made in the same way that it always has been. I think we are just spending our time differently on a day-to-day and minute-to-minute basis than we have in the past.

Ryan Meliker, Canaccord.

I just had a few questions on what you are seeing in New York right now. So obviously, your portfolio is slightly above expectations in the second quarter. It sounds like you are tracking up 7% in July. We heard from one of other hotel REITs last week that they were expecting Manhattan to be flat to up 2% in the third quarter. I'm just wondering is that in line with your expectations, is your 7% materially exceeding the broader market or do you think the market's going to perform a little bit better than maybe that 0% to 2% that we heard last week?

Hey, Ryan. This Ashish. On a trailing 28 the market is up about 4% as I mentioned, we are up 7%. As we look out through the quarter probably the month that gives us and the market most concerned is August because it's such a heavy leisure month. And certainly with Labor Day falling as late as it possibly could and two Jewish holidays it doesn't really help September. So we don't -- we are not forecasting mid singles to high single-digit growth in New York for the third quarter. I think the zero to two is probably where the market would shake out. We certainly expect it to be a little bit better than that for the quarter. But what we do recognize is, when you look at New York for 2015, the risk in New York was really the January through kind of April time period. We are past that. The performance of the portfolio exceeded our expectations. We were down about 2.3% for the first two quarters. We certainly think that the back half of the year in New York is stronger than the first half of the year and our properties are more stabilized and really hitting their stride at this point.

And then with the calendar disparities and the Labor Day issue in 3Q, does that mean that you would expect the trends that you're seeing to see a RevPAR growth acceleration in New York in 4Q from 3Q?

We would.

Okay. And then the second question I had with regards to New York was can you give us an idea of what's driving that plus 7% RevPAR growth? We heard last week that there is still a lot of pricing power concerns across Manhattan, but with your occupancy level, I would imagine the majority of that 7% growth is in the form of rate. So that would kind of dispute what we heard before. Just give us some color surrounding that?

It's a little bit (inaudible) we're seeing very good growth. In fact at this point Union Square was up almost 19% for the month of July just continuing its ramp-up. We also have the Hilton Garden Inn, Midtown East and Hampton in Financial District that are now in comparable set. So those opened in the last year in the second quarter. So we are definitely getting a stabilization and ramp-up from those assets. I think the market there continues to have extremely high occupancies, but just looking to push rate right now at Times Square.

Okay, that's helpful. And then the last kind of question I want to ask you guys about was so year-to-date it sounds like your RevPAR growth year-to-date has been slightly above your guidance. For the consolidated portfolio, kind of towards the middle versus your same-store portfolio, but your margins have been well below your full-year guidance. So what is it that gives you confidence that margins are going to accelerate in the back half of the year?

I think at this point, Ryan, we are past the first quarter where we had very difficult margin comparisons because of New York. We were down about 60 basis points in margin on a comparable basis. And then when we look at Q2, we were up 50 basis points and you look at the back half it's mainly ADR-driven growth. Quarter two, we were about 90% ADR growth, 10% up, growth in the portfolio. So those trends continuing on. A firmer New York gives us even more confidence that we can continue to push margins to get to sort of at least the midpoint of the range for the full year.

I think that's all for me. Great quarter and thanks for the color on July trends. It's really helpful.

Shaun Kelley, Bank of America Merrill Lynch.

I am going to apologize in advance if this sort of already been asked as I jumped on late, but just curious to gauge what your acquisition appetite is today, so you obviously did the Washington DC property. What are you guys seeing out there right now and is that -- how do you balance that versus the stock buyback kind of mentality?

Shaun, this is Jay. I think from a -- and we did mention this earlier, but happy to discussed it just briefly again. We are looking at acquisitions, stock buybacks with sort of with a similar view. We've been pretty selective with acquisitions this year as you can just tell from our acquisitions pattern over the year. We're not seeing such a wall of acquisitions that makes us highly enthusiastic buyers. That being said, as we kind of look through the pipeline of what's becoming available there are certain markets and specific assets in those markets that makes some sense for us and so we'll continue to pursue those. So it's going to continue to be on a very selective basis.

As far as stock buybacks are concerned that's something that we're going to continue to consider as an alternative for the Company as we move through the rest of 2015. If there continues to be price volatility, you see, inappropriate reflection of value, we would consider purchasing back stock. In our view it can be as accretive as an acquisition and as it was mentioned earlier in the prepared remarks, it comes without execution risk because it's already in motion.

That being said, it's been mentioned that we have close to $120 million worth of acquisitions capacity, at least based on what we're seeing in the acquisitions market and the potential for buybacks that that is a sufficient amount of capital for us as we look across 2015.

Should things change and we see even greater volatility in the price or if we see the acquisitions market pick up and we find more attractive opportunities, I think our next alternative from a capital standpoint would be to consider accelerating assets sales. And as I mentioned before, we think we're in markets that are very, very desirable from an investment standpoint and we have not only a handful of non-core hotels left but we would -- we're also considering looking at some core assets in markets such as New York where cap rates are extremely attractive.

So that's kind of the overall view on use of capital here through 2015.

Thanks for, I am sorry, sort of repeating yourself and I apologize for making you do that. But my second question then would be kind of a follow-up on the sales side. Can you just talk about a little bit more of the debts that what you are seeing, particularly in terms of private equity purchasers for select service because I guess we've heard a few other owners in the [life] service base saying that perhaps a pool of private equity buyers is not as deep as maybe it was either a few years ago or just in that period. So I'm curious on is that consistent with what you're seeing different? And I am talking more for -- probably more for some of your second tier assets [granted that] there's always going to be a lot of liquidity and some interested unique parties in New York City.

Yes, I think what we're seeing with private -- the larger, the private equity fund complexes that have large portfolios, we believe that our secondary market assets which are few at this point are still attractive enough because they're stronger RevPAR assets and I think that the funds out there that have portfolio holdings find those to be pretty desirable.

So I think sort of garden variety limited service assets in arguably tertiary markets maybe the bid on those have come off somewhat, but we think that our non-core assets would still be attractive. In addition to those private equity funds that would be interested in those kind of assets, they are also attractive enough for private buyers that have other kinds of capital to buy, whether it be high net worth individuals, syndicates of lawyers and doctors, country club type deals. I think that there is a market for those still. The markets are attractive in generally affluent areas and so a good local investment for folks.

Generally for the private equity bid on the core assets, you can imagine that's probably not a great fit. I think the cap rates that are out there for those kind of assets would make it uneconomic for the type of capital the private equity funds have for core assets in our portfolio.

And so, it's kind of a logical thing that that's going to be more of your either sovereign wealth for high net worth or some sort of other or international buyers, something a little bit more unique?

Yes, I think there is also -- both in kind of core markets and some of the more suburban markets, there is non-traded REITs that have been pretty active in this space across the last year or two and we see them continuing with the capital raise. So a good opportunity there. But I think in kind of New York City and in some of the gateway markets, there has emerged a kind of longer-term capital that is attracted to not only the yield on assets, particularly select service assets, but also the kind of residual land play and appreciation.

And the international market I think we're now seeing even in the start of this year and other a couple of months ago we saw the sale of the elements in Times Square at over $600,000 a key, at $650,000 a key on a land lease. Towards the end of last year we saw two or three other international buyers purchase select service assets in the $550 to $650 a key range. And I think with all the noise around NAREIT I won't kind of forgot about the Palace, but there is still some very significant transactions in New York from international capital and we see that continuing to grow actually. And it will be -- I think that would probably be the likely buyer for some of our assets if you were to test the market.

Jeff Donnelly, Wells Fargo.

Actually I just wanted to build on that last question. Just given that New York City is seeing such robust asset pricing both select service and full service, despite the headwinds on the earning side, do that leave you to explore or want to explore more dispositions in the New York City market? And I guess if not now, what are the metrics you look for to ultimately conclude that it might be the right time to sell an asset there?

We look at it -- we find New York City hotels in that market to be the most -- arguably one of the most valuable lodging markets in the world, very hard to assemble the kind of portfolio and the kinds of assets we have. We've gone through now kind of what we think are the most difficult times for the New York City marketplace and actually see some positive growth for the market overall as well as for -- and particularly for our submarkets and our locations in those markets. So we sold one hotel in New York last year, the Hotel 373 Fifth Avenue and that kind of fits the bill of what would lead us to kind of sell an asset. We have a great use of proceeds. Our stock [was dislocated] at the time we were able to use most of the proceeds to buy back stock.

We felt that that asset would require a significant amount of capital and disruption in its operations to get it to perform better than the market. It was our the only hotel that wasn't kind of newly built in our portfolio and it had the smallest room sizes in the portfolio and is truly a kind of commodity asset. Happen to be a great real estate in a great location and the buyer of it, the Asian buyer that purchased it will have a great run with it. But it was one that it kind of maxed out its ability to perform or outperform.

As we look through the rest of the portfolio, most of our assets are still less than 10 years old in New York. Many of them less than three or four years old. And so there's just not that many obvious choices of hotels where we don't -- that we have concerns about their ability to continue to perform and outperform.

All of that said, you've seen us every year since we've been public for across the last 15 years we always sold at least one assets in a year. And across the last three, four years we sold 50 hotels, more so than anyone else in the space. So we are absolutely willing to sell hotels, but we want to sell them for the right reasons. We don't think that we need to do so for external validation because there is plenty of comps in the marketplace. It has to be driven by our ability to redeploy the proceeds in something that is more accretive or truly upgrades kind of the quality of the portfolio we've assembled. Long answer but something we consider, actually engaged in discussions at different points throughout this year on individual assets, but it's not something that we feel we need to rush in to.

That's helpful. And just one or two questions, on Rittenhouse you mentioned the former Four Seasons closing being a benefit. That's going to ultimately reopening as an independent boutique, I think the Logan. Do you think a renovated boutique is more or less competitive than I guess let's say an un-renovated or a little outdated Four Seasons for you guys?

I'd tell you I think the new hotel the -- as a renovated boutique that hotel has 363 rooms and our view is that when it's renovated and reopened it's going to be positioned at a segment in the market that's going to be under our positioning at the Rittenhouse. The Rittenhouse always ran a significant RevPAR premium even to the Four Seasons and I think when the Logan comes back and reopens, I don't think it's going to be directly competitive. Certainly it will be additional supply in the marketplace, but I think by then our renovations will have seasoned and I think the positioning of the hotel is continuing to ramp very nicely since we purchased it. So we are a little less concerned about it.

An upscale hotel in the location that that building is in I think will be even less competitive than a luxury segment hotel in that location and the luxury segment hotel we were able to outperform that on a very regular basis as it was. So we feel okay about it.

What will open, and this is several years down the road, is a new Four Seasons will come to the market but that's going to be a more right-sized hotel at about a 180 rooms. Also from a locations standpoint not nearly as strong as our Rittenhouse Square location. But we are actually looking forward to that because I think it will bring another strong rate leader into the market which will, I think, buoy up the luxury rate in the market generally.

And then just last question actually for Ashish. I think you said you are still expecting $18 million to $20 million of CapEx for the year. Can you share with us what your expenditures were in Q2 and maybe just to hobble with the math what you're thinking about in the back half of the year?

Yes, absolutely Jeff. So for the second quarter, we spent about $5.7 million and for the first quarter we spent $4.4 million. So pretty much similar pace for the back half of the year.

And that concludes today's Q&A session. I'd now like to turn the call back in Neil Shah.

Great. Well, thank you everyone for your time. The three of us will be here in the office all day and look forward to answering any follow-up questions as they may arise. Thank you. Have a great day.

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