Hersha Hospitality Trust (HT) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Hersha Hospitality Trust's Third 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 Mr. Peter Majeski, Manager of Investor Relations and Finance. Please go ahead, sir.

Thank you, Dana. Good morning to everyone participating today. Welcome to Hersha Hospitality Trust's Third Quarter 2015 Conference Call on October 29, 2015. This call will be based on the third quarter 2015 earnings release, which was distributed yesterday. If you have not yet received a copy, please call us at 215-238-1046. Today's call will also be webcast. To listen to an audio webcast of the call, please visit www.hersha.com within the Investor Relations section.

Prior to proceeding, I'd like to remind everyone 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 position to be materially different from any future results, performance or financial position. Factors are detailed within the Company's press release as well as within the Company's filings with the SEC.

With that, it's 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.

Thanks, Pete. Good morning to those of you joining the call today. With me are Jay Shah, Chief Executive Officer and Ashish Parikh, Chief Financial Officer.

I'm going to jump right into what I believe is the most prevalent question on investors' minds and then hand it over to Ashish to provide details regarding our third quarter financials and our view for the remainder of 2015.

What's going on with lodging and where are we in the cycle? As we approach the end of 2015, investor sentiment has changed materially, not just from earlier this year, but even since we reported second quarter results in late July, less than three months ago. Idiosyncratic issues at some of our peers, a very late Labor Day, shifts in the holiday calendar and weakness in markets driven by the energy boom led companies to guide expectations downward for the third quarter and the back half of 2015 and subsequently, driven negative sentiment from an investor's perspective.

From Hersha's perspective, however, we continue to believe that it is a great time to be a hotel owner. Our view of the economy, lodging fundamentals and the cycle duration as well as the ability of our well assembled young and geographically diverse portfolio to continuous outperformance remains positive and unchanged.

Nationwide, RevPAR increased [5.9%], solid growth considering, it was in the context of 9.2% growth last year's third quarter. Demand increased 2.5% during the third quarter, outpacing supply growth by 70 basis points, propelled by a strong job market, increased consumer spending and construction activity, as well as growing stability in the housing market.

While potential headwinds such as stronger US dollar and slower emerging market growth, particularly in China, do exist, we remain encouraged by the domestic economy's trajectory. Based on what we are seeing on the ground, we believe that demand and pricing power is at an all-time high and it's time for our industry to separate noise from the macro environment from the drivers of lodging demand on the street corner, and refocus on the business' core operations. Demand growth is expected to outpace supply growth through 2017, consultants in national brands forecast 4% to 6% RevPAR growth in the years ahead. With occupancy levels already at an all-time high, accelerating group demand and the resurgence of the American consumer, revenue management techniques, our core capability of Hersha's unique owner-operator model will be a critical lever to drive ADR. Given record occupancies across the country, the industry is extremely well positioned to raise rates and rate-based gains will lead to record profitability for owners in the coming years.

In this environment, it is helpful to not be distracted or disrupted by major capital projects or brand changes. As you know, we spent the last several years selling lower-growth assets, reinvesting in higher-growth markets like Miami and California, completed our development pipeline and renovated nearly 75% of the remaining portfolio. Our management team is now clearly focused on executing in the field. Revenue management, guest satisfaction, cluster efficiencies, training, e-commerce initiatives. And we are focused on delivering outperformance from this carefully assembled portfolio over the next several years.

We are pleased to report that our team delivered in the third quarter. Our portfolio reports 6.9% RevPAR growth. Occupancy increased 95 basis points to 87.4% while ADR increased 5.7% to $199.34. We reported 10.5% hotel level EBITDA growth to $48.2 million in the third quarter.

Let's take a deeper look at our six core markets to see what drove results. In Boston, HT's properties achieved RevPAR growth of 11.7% with the ADR up 9.9% and occupancy increasing 141 basis points to 90.3%. Despite one less city wide and the $33,000 decrease in room nights compared to Q3 2014, demand in Boston actually increased 1.3% during the quarter. Higher demand combined with increased [L&R] business contributed to revenue growth of $1.3 million at the Boxer, which continues to benefit from an early-cycle repositioning, improved revenue management strategies and a strong group base.

RevPAR increased 21.5% and contributed $859,000 in hotel EBITDA. The Courtyard Brookline reported 13.1% RevPAR growth with rate up 12% and was the number one EBITDA producing asset in the portfolio, contributing $2.5 million for the quarter. Similar to the Boxer, the Courtyard Brookline was driven by strong corporate demand along with increased group in [L&R] business.

In the fourth quarter, renovations at the Courtyard Brookline will hinder group and transient bookings at the hotel through the first quarter, but despite this disruption we expect our Boston portfolio to continue to deliver above-average growth into 2016. Miami continued to perform well, delivering 11.1% RevPAR growth. The Blue Moon and the Winter Haven Hotels in South Beach that we acquired nearly two years ago are hitting their stride and achieved nearly 12% RevPAR growth for the quarter. The Cadillac Miami Beach grew 7.3% as the Ocean Tower continues to find its optimal rate position.

In addition, third quarter results were positively impacted by the Residence Inn Coconut Grove due to favorable comparisons as the hotel was under extensive renovations last year. This robust third quarter performance in South Florida was despite Tropical Storm Erika as the Parrot Key and Miami Beach properties did register a high number of cancellations during the storm, leading to significant lost revenue during that weekend.

In the fourth quarter, as we look forward, Miami Beach will benefit from citywide events including the Jewelers Showcase, South Florida Auto Show, Art Basel and Key West will see increased demand also from several events including the Super Boat Show, New Year's Eve and other events. These factors lead us to forecast double-digit RevPAR growth in the fourth quarter for our South Florida portfolio.

On the West Coast, we reported 10.5% RevPAR growth. In Los Angeles, our Courtyard LA Westside tallied 19.8% RevPAR growth, benefiting from compression stemming from several citywides, including the Special Olympics. In San Diego, despite a decline in convention room nights, our Downtown Courtyard delivered 5% RevPAR growth as ADR increased 9.2% to over $200.

Our two Northern California Hyatt Houses reported combined RevPAR growth of 21.9%. The strong corporate demand in Northern California provides strong base, while group contribution and increased transient activity in the market has allowed us to yield strong results across the last year. Our sales team expects significant rate increases next year.

Our best performing market in the third quarter was actually Philadelphia, which reported a 15.6% RevPAR increase. Philadelphia benefited significantly from the folks visit and the World Meeting of Families in September. Although lodging demand during the papal visit did not live up to the market's expectations, we did capitalize on the demand by employing unique and diverse strategies at our Center City Philadelphia Hotel. This allowed us to fully sellout the Hampton Inn to a large group for the entire week, while we took a more ADR driven transient strategy at the Rittenhouse, which allowed us to drive performance of that hotel and contributed to 41.8% RevPAR growth at the hotel for the quarter. Our expectations looking to the fourth quarter remained very strong for the Rittenhouse and for Philadelphia.

Now to Manhattan, where our young stabilizing portfolio reported 4.2% RevPAR growth to $236.77 in the third quarter. ADR rose 2.1% to $246.63, while occupancy also rose 190 basis points to an impressive 96%. HT's Manhattan performance outperformed the wider Manhattan market by 410 basis points, marking the seventh consecutive quarter of outperformance. We attribute our portfolio's ability to outperform to carefully selected locations in diverse submarkets.

Close engagement and alignment with our operators and younger room-focused hotels transient-oriented well attuned to the travelers' tastes and preferences today. A good example of these characteristics are Hilton Garden Inn, Midtown East which reported 16.5% RevPAR growth and contributed $2.3 million of hotel EBITDA.

Since opening in June 2014, the property has quickly established itself benefiting from limited new supply in the Midtown East. Our Hyatt Union Square delivered 10.2% RevPAR growth to $319.51 and contributed $2.3 million in hotel EBITDA in addition to improving EBITDA margins by 520 basis points. Hyatt Union Square continues to ramp with rate gains attributable to increased (inaudible) in retail production within a dynamic submarket that possesses multiple corporate leisure transient demand generators.

While New York remains a challenging market, our revenue and asset management expertise is a critical tool that drives our unique portfolios' outperformance. Aggressive revenue management strategies are tweaked daily and at times hourly based on what we see on the ground. We have and continue to direct our revenue management team to remain disciplined and hold the line on rate given our portfolio's very high occupancy. We are of the opinion that other operators and revenue managers in New York have failed to capitalize on demand that has increased 2.6% in the trailing 12-month period.

Occupancies have been and continue to be the strength of the Manhattan hotel market. As of September 2015, Manhattan trailing 12-month occupancy levels have remained above 85% for the 40th consecutive month. High occupancies combined with the aforementioned demand growth and 800 basis points still behind prior peak should be a welcome environment for revenue managers.

With regards to international demand, we continue to see an impact from the stronger dollar, but have not experienced a material impact on demand due to lower international visitation. As we've stated throughout the year, the stronger dollar places pricing pressure on a market and adds to the challenges of pushing rate in New York. And as is the case with new hotel supply, [impact is still] mainly in low demand period such as August. The international contribution to HT's total room revenue in Manhattan during Q3 2015 was 16.7%, a 270 basis point decline versus Q3 2014. This decline was due to decreased international travel originating from France, Italy, Canada and Germany, offset by increased contributions from Argentina, Japan, the UK and China.

Overall, the Euro zone contribution in international room revenue was 17.5% in Q3 2015, down 20 basis points versus Q3 2014.

In Miami, the other markets where international revenue is significant, the international contribution to HT's total room revenue during Q3 2015 was 14.5%. This was actually up 27.2% versus Q3 2014. Stronger international room revenue in Miami was due to increased international travel from the UK, from the Netherlands, Argentina and Norway.

We haven't discussed Washing DC. This quarter offered a weaker convention and congressional calendar. As expected, we were up about 3% in the district and 2% in the metro. Year-to-date, we are still up nearly 10% in the Washington DC area and the fourth quarter particularly downtown does look strong.

Our Capital Hill hotel benefits from a light refresh earlier in the year and the St. Gregory continues to ramp from our new management team and strategy and will drive results in 2016. We continue to be bullish about Washington in the coming years. The resumption of government spending, a stronger convention calendar and the upcoming presidential change in the guard.

So that's our six markets. Before I hand it off to Ash, a few more thoughts related to capital allocation. We acquired two hotels this quarter and continued our buyback activity. The acquisitions, they are the hallmarks of a Hersha deal, accretive to current cash flow, accretive to our portfolio's growth rate and improves the quality of the portfolio, great locations, great market and an opportunity to meaningfully improve operations.

Northern California remains one of the best lodging markets in the country addressed by increased demand and limited new supply, which is constrained by the high cost of land and the lengthy approval and entitlement process. We increased our Northern California presence by purchasing two very high quality assets at a blended 7% trailing yield. It is important to highlight that the 94-room TPS in Sunnyvale and the 60-room oceanfront Sanctuary Beach Resort in Monterey required little to no disruptive renovations and are immediately accretive to our earnings.

After closing on the TPS, in the third quarter and transitioning management, we are encouraged with results thus far. We're optimizing the customer and segmentation mix and believe there is significant opportunity to improve performance on weekends and shoulder periods. The Sanctuary, which we expect to close during the first quarter, holds a truly irreplaceable oceanfront location and a fee interest in 13.2 beachfront acres in Northern California. Sanctuary is the closest Monterey area of luxury resort to the demand drivers of Silicon Valley and the San Francisco Bay Area, and benefits from strong domestic and international leisure demand given its privacy and proximity to world-renowned golf courses, wineries, art galleries and high profile events.

It's an independent resort execution much like our Hotel Milo in Santa Barbara or Parrot Key in Key West last year. HT's combined $67.2 million investment in Northern California firmly establishes the Company's foothold in Northern California.

Prior to passing it to Ashish, I also want to discuss our share repurchase activity. During the third quarter, we repurchased $41.6 million of stock at an average price of $23.69. Given the large variance between the trading price and the Company's net asset value, we are very pleased with this buyback activity. To-date in 2015, the Company has repurchased approximately 3.7 million common shares at an average price of $24.68 for an aggregate repurchase price of $91.8 million, representing 7.5% of our shares outstanding. We continue to believe opportunistic share buybacks are an attractive use of free cash flow when the share price is temporarily dislocated and at a material discount to the Company's net asset value.

And as we announced a month ago, our Board has authorized a new share repurchase program of up to $100 million. The new program will commence upon completion of the Company's existing $100 million share repurchase program, of which approximately $88.2 million remains through the end of 2015. This concludes my remarks. I'll turn the call to Ashish.

Great, thanks, Neil. Good morning.

During the third quarter, our consolidated hotel EBITDA increased 9.5% to $48.2 million, generating $4.6 million more in the third quarter 2015 versus the comparable quarter last year. Rate-driven growth combined with hands-on revenue and asset management effort alignment with our operators and continued ramp up at new hotels generated comparable store GOP margins of 49.9%. Our comparable hotel GOP margins were driven by a strong flow-through of 77.8% in our New York City portfolio in addition to strong margin performance at our Boston and West Coast properties.

Our Manhattan portfolio GOP margins increased 100 basis point to 56.4% during the quarter. Cost containment strategies implemented earlier in 2015 continued to aid our Manhattan portfolio expense model with the goal of maximizing efficiency while maintaining high service levels and industry leading margin performance.

Despite this healthy GOP margin expansion, our Manhattan EBITDA margins remained essentially unchanged as a result of increases in property taxes at a few of our newer hotels which were reassessed from construction projects to operational hotels. This in addition to tax assessment refunds received in the prior year's third quarter made EBITDA margin comparisons challenging in our Manhattan portfolio. However, as we look out to the fourth quarter, we are forecasting property tax increases to be closer to the mid-single digit range, if not lower, which has significantly improved margin performance for the entire portfolio.

On an absolute basis, our Manhattan portfolio EBITDA margins remain very strong at 43.3% allowing us to generate an incremental $820,000 EBITDA going forward. As has been the case throughout 2015, our portfolio clusters in Boston, South Florida and in California drove performance and were supported by strong demand fundamentals. More importantly, our portfolio continues to show broad-based strength and once again we outperformed our respective MSA competitive set in each of our major part.

As we move forward, significant effort and attention will be placed on maintaining this outperformance through a close alignment with our operating partners that allows us to leverage our assets and revenue management expertise.

In Boston, favorable supply and demand fundamentals, along with increased group and [L&R] business contributed to total revenue growth of $1.3 million during the quarter, and EBITDA rose 15.1% or $810,000 to $6.2 million. There have been some conflicting reports with regard to performance in several high-profile West Coast markets during the quarter. We are happy to report that our portfolio had a terrific quarter on the West Coast with our EBITDA -- with our outlook for continued strength in our market is unchanged. Our West Coast portfolio delivered 13.3% EBITDA growth to $8.1 million in third quarter 2015 with 110 basis points of margin improvement at 42.2%.

Now, move onto capital expenditures, during the third quarter, we spent $5.6 million as we primarily completed non-disruptive CapEx work at several of our West Coast and South Florida properties. A well-timed early cycle CapEx and redevelopment continue to benefit portfolio. And for the rest of 2015, we expect to spend minimal CapEx dollars and estimate our total 2015 CapEx spend to remain between $20 million and $22 million.

Looking ahead, we have started planning for several brand mandated renovation scheduled for 2016, including the refresh of the Courtyard Brookline and several of our Manhattan Hampton Inn undertaken during the seasonally slower first quarter.

So our balance sheet remains strong, providing flexibility to respond to opportunities across our six markets, while continuing to execute our business lines. At the close of the third quarter, we reported cash and cash equivalents of $29.3 million with full capacity on the company's $250 million revolving line of credit.

In August, we closed on a new $300 million senior unsecured term loan and this new term loan together with the Company's $500 million senior unsecured credit facility expands our unsecured borrowing capacity to $800 million. Term loan interest rate is based on a pricing grid with a range of LIBOR plus 150 basis points to 225 basis points and matures in August of 2020.

At closing, $210 million was advanced as a single draw, with the Company subsequently drawing $50 million for the acquisition of the TPS Sunnyvale and for share buyback. The remaining $40 million is available on a delayed-draw basis until August of [2016]. Our access to the unsecured debt market and our ability to efficiently refinance existing secured debt has allowed us to reduce our weighted average cost of debt significantly during this cycle to 3.75%, a new record low for the Company.

As we look out over the next 12 to 18 months, we see significant opportunities to refinance our 2006 and 2007 vintage 10-year CMBS loan and what we anticipate will remain a very favorable and accommodating secured and unsecured debt market, thereby allowing us to continue reducing our weighted average cost of debt.

Let me finish with our outlook for the remainder of the year. As per yesterday's earnings release, we are maintaining our RevPAR and earnings guidance ranges for 2015 based on our year-to-date performance, acquisition and refinancing activities, capital market activity and stock buyback. In terms of our portfolio's performance quarter to date in October, our comparable hotel portfolio RevPAR has decreased 6.3%, portfolio performance remained strong in our core market and we continue to be encouraged with our fourth quarter results to-date and booking [pace]. In Manhattan, quarter to date we've registered low single digit RevPAR growth and we're anticipating another quarter of positive growth in New York for our hotel.

So, that concludes my formal remarks. I think we can now proceed to Q&A where Jay, Neil and I are happy to address questions. Operator?

(Operator Instructions) Neil Malkin, RBC Capital Markets.

First question is, you're buying back stock but you are also buying assets as well. It's kind of a mixed message, but given where we are in this cycle and your leverage levels, how do you look at buying back stock as well as asset -- where are the sources going to come from? I mean, do you have assets that you're planning on calling -- how do you plan on funding that?

Just to get started -- we don't think of it as a mixed message and probably importantly it's not a messaging tool to buy back the stock. We just find it to be a wonderful opportunity to acquire this portfolio of assets at this level of pricing. So, when we can buy it at 20% to 30% discount to NAV, we're buying this portfolio of assets that's better than a seven cap, we just find it to be a great use of cash on hand. It's very much like acquisitions; in acquisitions we're also looking for accretive opportunity, with buybacks there is less execution risk.

But to your second question in terms of funding acquisitions and buybacks, we felt and communicated to the investment community across this year that we felt that we had capacity in our balance sheet to make $100 million of buybacks and $100 million of acquisitions across this year. And we believe we still do have capacity on the balance sheet from the kind of embedded growth in our portfolio and the free cash flow generation that will reduce our leverage levels across the next couple of years, just organically.

But as we look forward and think about the next tranche of buyback that we've recently authorized and we look at future acquisition opportunities, we do believe that we will fund some of those with asset dispositions over time. I'm not sure if the timing will be just right in terms of when a disposition is an announcement when more buybacks are executed, but across the next 12 months, we imagine that we're net sellers, but it's just a matter of timing on it. Does that make sense?

Okay. Yes, that's helpful. And then, your West Coast continues to outperform, which is great to see. Two things on that, is it a function of sort of like a smaller box phenomenon being easier to compress and therefore being more liberal with the rate? And then also, can you just talk about in some detail on the opportunities from the operations side, from the acquisitions that you have completed or have under contract on the West Coast?

I think on the West Coast, some of our boxes are probably in the 150 range, but probably our more significant and strongest performer has been a 300-room post a full service asset, that has almost 10,000 square feet of meeting space and so I don't know that you can attribute all to the fact that the inventory sizes might be more manageable. I think the fundamentals in the market are strong and I think our asset management program and the operators have done a good job of staying very, very sensitive and responsive to the micro trends we're seeing from week to week. That particular asset that I was referring to the Marriott Courtyard Westside has a good amount of group as well, which makes revenue managing that much more of a sophisticated exercise.

But, I don't think it's just because of inventory sizes, I really think it has to do with being very focused on the operations, which at this point in cycle and with demand fundamentals where they are, I think it's pretty essential to drive returns and I imagine all of our peers are doing the same thing.

As far as the acquisitions are concerned, your question on those or did you just want a little more color on those or what specifically you talked about?

You said that how your strategy is acquiring great assets that are accretive, but also that have opportunities either on the revenue management or cost side. I don't know if you could talk to those things, just about -- just various strategies that you're seeing and then like for example, like [Prop 13], you gave a trailing NOI, but like what would the Prop 13 impact do to your projected forward, and things like that.

Yes. No, absolutely. So let me talk about the TPS, it's Sunnyvale first, if I look a little more straightforward, there we bought the hotel that is on a ground lease has north of 46 years remaining when you consider the two option terms. There, the lease -- we purchased it, I think one of the drivers of value there in addition to the opportunities on revenue management and positioning of the hotel going forward is it the lease -- is in our view somewhat undervalued, but the market value of the lease in our view is close to $2 million more than market value of the lease in our acquisitions analysis.

There as well, as we kind of mentioned in the prepared remarks by Neil, we think there is some real strong opportunities on weekends. The weekends at Sunnyvale are generally not as strong, but we believe that this hotel underperforms even the market and we think we've got strategies that we can put in place that will remediate that. So, that alone is probably going to drive RevPAR fairly significantly.

And then secondly, even during mid-week when you've got peak demand generally throughout the Valley, there is some strategies in place on pricing A and B on balancing the mix between extended stay occupancy and shorter stay occupancy, not necessarily making an extended stay hotel or transient hotel, but moderating that mix. And I think once we do that and able to drive rates then the overall extended stay rates can be raised as well. And I think the extended stay model helps to drive very strong margins here and so we don't want to be abandoning that altogether.

So those are the opportunities we see on the TPS. That one is very much right down in the middle of fairway and we think the execution there is fairly straightforward and most of these strategies can be put in place or already being put in place as we speak. So, we would expect strong growth from that asset in 2016.

When we look at the Sanctuary Beach Resort in Monterey, and this is one of two hotels that is on the sand and close to a 70-mile radius. It's protected to the north and the south by close to a 11 miles of protected dunes and so it creates a very, very unique experience on the beach. The hotel has been owned by the same private owner for close to 20 years now and he has done quite well with it. That being said, management has been somewhat less than active in driving top line performance.

So when we take a look at this property, you're triangulating value -- I mean, first when we look at it is the real estate play on its own is terrific. We looked at residential comps in the area and on a 13.2 beachfront acres [in that area], this is probably unrealistic to imagine any sort of a commercial development, but if you were to scrap the whole project and sell it for residential land value, comps would be around $4 million a key. So you can imagine how 13.2 acres -- the air covers pretty strong.

That being said, we believe that the asset has a great opportunity for mid-week corporate retreat business that it doesn't currently do being only a mile from the southern end of the Silicon Valley -- I mean an hour from the southern end of the Silicon Valley and an hour from San Jose airport. So we're going to be making some changes at the hotel very, very -- not disruptive. It's really about updating meeting space, repositioning the F&B to some degree and reconfiguring the F&B space, there is a 7,000 square foot restaurant and meeting room building that in our view is pretty inefficient and without a real heavy lift, we'd believe that that can be made a lot more attractive for the mid-week corporate business.

We've noticed that peers in the comp set do a great deal of weekend wedding business, which creates a higher RevPAR weekend business versus just a pure leisure. One of the closest peers did, and it's not on the beach, did 132 weddings last year, whereas this hotel did 13. So, you can imagine, even if we can get to 20% of the peers' wedding business, we believe that we'll be able to drive significant rate there. The hotel also doesn't have a lot of programming and really rests on just its beach location, and then I think with some additional programming and create more experience, lifestyle, which will also help in driving e-commerce demand to the building.

So, that's how we think about the Sanctuary. Both of these hotels even on a blended basis, if you look at it as the new sort of Northern California portfolio for us, Bay Area portfolio for us, we would comfortably expect them to be stabilized a double-digit yield in a matter of a couple of years.

The Sanctuary Beach Resort, one of the reasons we feel comfortable with that and I think one of the notes mentioned that it felt like a bit of an outlier similar to the Rittenhouse that we acquired a couple of years ago. And quite frankly the Rittenhouse has been a great success for us. I mean since we have purchased the hotel, we've driven EBITDA by close to 300% at the hotel and that's after a $15 million renovation and we still have additional value drivers there, the spa continues to ramp up on a month-over-month basis and we have a new leasing opportunity with the Smith & Wollensky gone. And this is all the while we're driving rate by close to 21%, just since [2014]. So the hotel now does $413 ADR from the time we bought it. We bought the hotel at around $300 ADR.

So, we have some experience with these kind of hotels, the Sanctuary Beach Resort will be positioned as a Four Diamond, the Rittenhouse was a Five Diamond hotel. That being said, I think a lot of the same levers can be pulled and dials can be turned and I think they're going to be very strong investments for us both with the Northern California one. Is that helpful?

Yes. Thank you very much for the color. I appreciate it.

Michael [Kogan], Canaccord Genuity.

Just a couple from us. So, the valuation on these two acquisitions looks pretty compelling. And, so I guess I was just wondering if you guys could talk a little bit about how you won these assets.

Yes, happy to do that. Sanctuary Beach Resort -- I think both of these assets, we had -- I think we've taken the opportunity to take advantage of a time when capital markets have taken some buyer interest off of the market and so both of the assets -- the Sanctuary Beach Resort was marketed, it was marketed fairly narrowly, and I think we were able to get into the property, do the work, figure out that we wanted to buy it and make a commitment on it to the seller quite early and I think they felt that execution risk with us would be mitigated relative to the other field buyers, and so that's how we got that deal.

Yes, I think that's right on Sanctuary Beach Resort. TownePlace Suites, there was an intermediary. That was probably closer to an off-market deal, it was very -- not even marketed, but we were one of the few people that were talked to about it and there again, we were able to get our arms around it pretty quickly just by benchmarking other assets that we have, our operators have exposure in East Bay and the Silicon Valley area and using benchmarking data we felt that's their projections for this hotel we could have confidence in and it would present a good investment for us. And so we've moved on that rather quickly as well committing to the seller very early on in the process.

That's very helpful.

This is a long answer. I think the short answer is, we remain very active on the acquisitions front, I mean, whether we're going to be net buyers or sellers, notwithstanding, I think with acquisitions in this kind of marketplace, I think if you look closely enough and stay very active, I think there are still opportunities in our view and demand in markets like we just bought in, is great opportunity, as there is just a lot of people backed off with the market.

And then just on the Sanctuary, are you expecting that to close before the Super Bowl or is that kind of up near at this point?

It really depends on the loan assumption process. There is a CMBS loan on this property. So, we would anticipate that we should be done by [this fall], but obviously that process is in servicer's hand more than in our hand.

And then finally, I apologize if I missed this on the prepared remarks early. I got dropped from the call, but what kind of -- you talked a little bit about Manhattan outperformance and then some of the drivers behind that, can you just maybe talk a little bit about your expectations for Manhattan going forward?

I think broadly, we're getting over the biggest challenge in the Manhattan market place. For the last several years, there has been supply, the high water mark of new supply was 2014. 2015, we expect supply to come in a bit less than 4%, that's coming off of a year of 5.5 kind of percent in 2014. So, meaningfully less supply, never pleasant to have supply in a market, but it's on its way down. Our expectations for 2016 are also in that kind of 4% area.

And, so with less supply and less individual hotels opening in submarkets around town, we expect that the entire market will have an easier time pushing rates. And I think what we're seeing this quarter and in the next quarter is some stabilization in the marketplace and the ability to push rates.

Our expectation in 2016 is still tempered by the fact that you have 4% kind of supply in the marketplace, but we do believe that we can have a stronger year than we had this year in Manhattan and we believe that our peers will too. I think our portfolio is unique. We acquired each of these locations one by one. We've built many of the hotels, we're active recyclers of capital. So, we've sold kind of the lower growth assets. We've refreshed all of these assets there in great condition and meet today's kind of taste and preferences and we're really hands on operator. So, we expect to be able to continue to outperform the market, but we expect the market will improve from this year's performance next year.

(Operator Instructions) Anthony Powell, Barclays.

Just on the capital allocation, you've invested a lot this year on acquisitions and share repurchases, how do you look at those two options relative to debt repayment and how do you look at your leverage to get to this later on in the cycle?

Just on the capital allocation, you've invested a lot this year on acquisitions and share repurchases, how do you look at those two options relative to debt repayment and how do you look at your leverage to get to this later on in the cycle?

Got it. On that topic, I'm sorry if you addressed this already, but have you seen any change in the buyer upside for these types of assets over the past three months with a lot of the volatility in the lodging space?

In the kind of the suburban select service space, I think we've seen some impact from the volatility in the macro environment. I think debt levels are still pretty good, but I think last year they were better and there was an expectation they could get even -- we're still not at the kind of debt levels where they were in 2005, 2006 and I still do believe that will come to cycle but today, I think right now we're in a period where that kind of aggregating select service story in suburban locations has slowed down. And so the kind of big buyers, Blackstone, Starwood Capital Group, Lonestar, they've all accumulated very large portfolios of suburban select service assets. They are not necessarily acquiring at the same pace as they were in the past.

There are some new players that are coming right behind them, like a lot of the non-traded REITs, that's probably about how -- continues to grow and some of the others continue to grow. So, there are some others that are kind of take that space a little bit, but I do feel like that suburban select service asset bid has gotten less deep and would likely transact in lower price than it did last year. On the urban side -- in major gateway markets, [so pleased] on the urban side, we haven't seen much of an impact. Public REITs weren't as active in that space to begin with, the fact that a lot of the public REITs are out of the market today, hasn't had a noticeable impact on gateway market transactions.

Gateway market transactions have been driven by offshore capital from China, from Asia, from the Middle East and from other parts of the world. For that kind of capital, the volatility in the markets are kind of underscore the reason why they're looking for opportunities in the US than in these major gateway markets. So, if anything the volatility has made Chinese investors and Asian investors even more aggressive than they may have been in the past or at least more committed to it, that capital is still forming and it's going to have an immense impact on our industry in the future, but we are starting to see more and more transactions, not just in the trophy space but in kind of cash flow yield-oriented investments as well.

So, on the urban side not much impact, on the suburban side, it is less deep of a market than it was.

(Operator Instructions) And with no further questions in the queue, I'd like to turn the conference back over to Mr. Neil Shah for any additional or closing remarks.

I think that does it. Jay, Ash and I will be here in the office for the rest of the day and we look forward to any follow-ups. But, thank you for your time today.

Again, that does conclude today's presentation, we thank you for your participation.