Hersha Hospitality Trust (HT) 2015 Q4 法說會逐字稿

Good morning, and welcome to the Hersha Hospitality Trust fourth-quarter 2015 earnings conference call. Today's call is being recorded.

(Operator Instructions)

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

Thank you, Shannon. Good morning to everyone participating today. Welcome to Hersha Hospitality Trust's fourth-quarter 2015 conference call on this, the 17th of February 2016. Today's call will be based on the fourth-quarter and full-year earnings release, which was distributed yesterday afternoon. If you have not yet received a copy, please call us at 215-238-1046. Today's call will also be webcast. To listen to an audio webcast of the call, please visit www.Hersha.com within the Investor Relations section.

Prior to proceeding, I would 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. These 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 President and Chief Operating Officer. Neil, you may begin.

Thank you, Pete. Welcome, and good morning to everyone joining this morning's call. With me this morning are Jay Shah, our Chief Executive Officer; and Ashish Parikh, Chief Financial Officer. And we all look forward to sharing highlights from a very productive and profitable year in 2015.

In 2015, our consolidated portfolio reported 6.9% RevPAR growth. Hotel EBITDA increased by 13.5%. AFFO per share increased by 18.7%. We gained share in all of our markets, outperforming each of our six markets in RevPAR growth, including New York, where we have now outperformed for eight consecutive quarters. We meaningfully diversified our portfolio with acquisitions in Washington, DC and California, in addition to our joint venture with Cindat. And we bought back over 10% of our shares outstanding.

From a macroeconomic perspective, the underlying drivers for sustained domestic economic growth remained in place during 2015, including increasing wages, improving labor markets, lower fuel prices, a strengthening housing market, and higher consumer and government spending. These factors drove US RevPAR to increase 6.3%, despite a weaker-than-expected GDP growth environment, new supply in key gateway markets such as New York, headwinds from energy-dependent markets, the strong dollar. And perhaps most frustratingly, lack of pricing confidence among operators, notwithstanding the sector's record occupancy.

During our quarterly calls and in meetings with investors throughout 2015, we repeatedly stated that it's a great time to be a hotel owner. We continue to believe this to be true, as demand and pricing power remain at all-time highs. Given record occupancies across the country, the industry remains extremely well-positioned to raise rates, and rate-based gains will drive significant profitability growth for hotel owners in 2016 and beyond.

There's no doubt that the second half of 2015 had its fair share of challenges, which have significantly impacted market sentiment. It's quite natural for all of us to be influenced by recent events, and we surely maintain a healthy respect for them. We certainly don't control the environment. However, we do control several things: how we serve our guests at our hotels; how we adapt to change in the field; how we allocate our capital, manage our risks and control our costs; and finally, how we invest in the future. We believe it is our Company's commitment to excellence in these areas that has been and will continue to be what drives outperformance over the long term.

I'm going to provide an overview of our operational results, review our recent investment activities and touch on capital allocation, before turning it over to Ash for more detail and our 2016 outlook.

Operations. In 2015, our consolidated portfolio reported 6.9% RevPAR growth, as rates increased 5.1% and occupancy rose 143 basis points to a Company record 84.1%. Hotel EBITDA increased 13.5% to $178.6 million in 2015.

Strong demand and revenue management techniques, core characteristics of Hersha's alignment with operators, were critical factors in our ability to drive performance. Across the portfolio, we outperformed the market and local comp sets in each of our six markets, while reporting double-digit RevPAR growth in four markets. Our West Coast portfolio delivered impressive 18.8% growth. While our South Florida, Boston and Philadelphia clusters tallied 12.5%, 11.9%, and 10.9% RevPAR growth, respectively, in 2015.

Our Manhattan portfolio reported a RevPAR decline of 60 basis points, despite robust portfolio-wide occupancy of 92.7%. In Manhattan, new supply, which increased 2.6% in 2015, remained the most significant headwind to growth in the market. Nevertheless, our newer, purpose-built and rooms-focused assets outperformed the greater Manhattan market by 170 basis points.

In the fourth quarter, we reported comparable RevPAR growth of 4.2%, as rates increased 3.3% and occupancy rose 73 basis points to 82%. Fourth-quarter hotel EBITDA reached $33.1 million. During the fourth quarter, our Philadelphia hotel cluster delivered 16.6% RevPAR growth, while our West Coast and Washington, DC urban portfolios reported 12.5% and 8% RevPAR growth, respectively.

In Manhattan, we reported a 30-basis point RevPAR decline, despite very strong 95% occupancy. Especially noteworthy was HT's Manhattan portfolio registering occupancy 880 basis points above the greater Manhattan market. Rate growth was muted, due to softer international and domestic leisure demand and reduced citywide activity during the quarter, combined with the impact of new supply delivered throughout the year.

Our significant outperformance in challenging markets like New York or higher growth markets in California or Boston demonstrate our operations advantage. The alignment we have with our operator is unique. It encourages transparency and allows responsiveness to micro-trends in [arsa] markets.

As we look into 2016, our team remains laser-focused on execution, not only in Manhattan, but across each of our markets, in terms of revenue management, guest satisfaction, international mix, training and e-commerce initiatives. Which, combined, will help sustain outperformance from our carefully assembled portfolio in 2016. Our cluster strategy and our investments in the kinds of hotels that travelers seek out today clearly helps. But we are fortunate to truly partner with our operators. Together with our operators, we expect to be able to increase the value of any given hotel in our market through our very control of it.

Investments. After large non-core portfolio sales in 2012 and 2013, and the completion of our development projects in 2014, we started and ended 2015 highly focused on driving EBITDA growth from the portfolio we have assembled. However, we were also clear that we would be active in the acquisitions market if opportunities were accretive to current cash flow, accretive to the portfolio's growth rate and improved the overall quality of the portfolio. We're pleased to have acquired five hotels in 2015 and in the first months of 2016: the St. Gregory in Washington, DC; the Sunnyvale Silicon Valley TPS; the Sanctuary Beach Resort on Monterey Bay; the Ritz-Carlton Georgetown; and our recently announced Hilton Garden Inn M Street, Washington.

Each of the hotels are in great locations within high-growth submarkets, and we can meaningfully improve operations through thoughtful and aggressive asset and revenue management. We prefer bolt-on acquisitions in our existing clusters. These investments offer less ramp-up time and immediate efficiencies of scale and scope, and a clear path to creating more value from a given asset through our operational advantages.

These five assets will contribute meaningfully to our 2016 EBITDA, with limited capital expenditures and no operational disruption. For the interest of time, and since we have released press releases and supplementals on each of these transactions, I will leave further description of the acquisitions for Q&A.

In addition to acquisitions, we were also clear that we would actively seek to continue to recycle capital through further disposition activity in several of our markets. To that end, two weeks ago we announced a transformative portfolio sale in Manhattan with Cindat Capital Management. Forming a joint venture for seven of the company's limited service hotels in Manhattan, for a total purchase price, including closing costs, of $571.4 million, or $526,000 per key.

As a result of inbound inquiries from several Asian institutional investors in early summer, we conducted a process and received interest from investors on a joint venture and as an outright sale. We believe the economics of our joint venture structure, our continued confidence in long-term hotel values in Manhattan, and the opportunity to grow this institutional JV with other recycling or acquisition opportunities, offers the Company a compelling opportunity. The transaction also illustrates the continued strong demand from offshore capital sources, institutional capital and sovereigns, seeking exposure to top gateway markets in the US.

Our sale of the seven hotels in Manhattan, combined with the acquisitions in Washington, DC and in Northern California, highlights our ability to recycle capital from stabilized assets into high-growth hotels in strategic markets, as well as a proven track record of realizing NAV. Since 2012, we have been active capital recyclers, redeploying more than $500 million of sales into higher-growth and higher-quality acquisitions. We expect additional dispositions in 2016, and are evaluating several sales at this time.

Finally, capital allocation. Consistent with our 16-year commitment to total shareholder returns, we returned $127.9 million to shareholders through our buyback program in 2015. In 2015, with the large variance between our trading price and the Company's net asset value, we repurchased 10.7% of the Company's float. At present, approximately $72 million remains on our $100 million share repurchase program, which the Board approved in September. As we proceed through 2016, we may seek to increase our 2016 repurchase authorization, subject to approval by our Board.

Hersha will continue to leverage the free cash flow generation from our carefully assembled portfolio in 2016. We will continue to seek capital recycling opportunities from the sale of stabilized assets, reinvesting sales proceeds to four to five hotel clusters in key strategic markets with high-quality acquisitions, should they provide significant going-in yield and operational upside. In addition, we will remain active in the repurchase market, and look to repurchase our common shares, given current market dislocations and the material discount of our stock price to the Company's net asset value.

We've assembled a premier portfolio of 55 well-located hotels, clustered in six gateway markets, that provide a unique combination of high absolute RevPAR and sector-leading margins, while meeting the tastes and preferences of today's corporate and leisure transient travelers. Our higher-margin, rooms-oriented business model is positioned to both hold up well in the event of economic softness, and outperform given continued fundamental strength in our compressed markets.

HT is not a basket of star markets. We assemble clusters of hotels in markets where we have long-term conviction. Our clusters enable immediate operational advantage and crucial local knowledge for outperformance and for deal flow. We are not fixated on a particular segment or rate here. We love the margin profile of select-service hotels, but independent and luxury hotels can offer significant margin growth opportunities, and often more significant real estate appreciation, important drivers of NAV. Within our core markets, we assembled hotels with truly differentiated locations, and hotels where we can deliver a differentiated value proposition for our guests. We believe that brand proliferation and the continued growth of disruptive technologies commoditizes nearly everything else. Location and service are more in our control.

We are excited as we head into 2016, particularly in light of the turmoil in the financial markets. When we look at the strength of our portfolio, the strength of our balance sheet, as well as the dry power we expect through asset sales across this year, not only was 2015 a good year, but we feel very well-positioned as we move into 2016. And we have a management team that's eager for the opportunities that 2016 may present.

This concludes my remarks. I'm going to turn the call over to Ashish.

Thanks, Neil, and good morning. Over the past few years, we have diligently worked to position our balance sheet to allow us to respond to opportunity, while continuing to execute our business plan. At the close of 2015, we're pleased to report our balance sheet is in great shape. Cash and cash equivalents of $28 million and approximately $220 million of capacity on the Company's $250 million senior unsecured credit facilities. Throughout 2015, we accessed very attractive secured and unsecured debt to refinance or pay off existing secured debt at five properties. This allowed us to finish 2015 with the lowest weighted average cost of debt in the Company's history, at 3.68%.

Moving forward, we remain committed, and continue to see ample opportunities to refinance our 2006 and 2007 vintage 10-year CMBS loans, allowing us to further reduce our weighted average cost of debt. We estimate that by the end of 2016, only 10% of our debt will be securitized, with the remainder comprising unsecured or very flexible balance sheet loans, which will permit the Company to continue its disposition program without burdensome encumbrances. In addition, we estimate that upon the closing of the Cindat joint venture, we will free up approximately $300 million in net proceeds, allowing us to continue to free up our balance sheet via debt reduction or preferred share redemptions.

Transitioning now to the fourth quarter's operating results, during the quarter, our consolidated hotel EBITDA increased 9.4% or $4 million to $46.9 million. Rate-driven growth, combined with hands-on revenue and asset management, alignment with our operators and continued ramp-up at new and recently renovated hotels, generated comparable GOP margin growth of 20 basis points to 49.2%. Comparable hotel EBITDA margins rose 30 basis points to 38.2%, supported by rate growth across the portfolio, along with strong margin performance in our Philadelphia and West Coast clusters, where margins increased 850 and 160 basis points, respectively.

In Manhattan, GOP margins declined 40 basis points in the fourth quarter. However, on an absolute basis, GOP margins at 56.9% demonstrate the scale and efficiencies of our Manhattan hotel cluster. As was the case throughout 2015, cost and payment strategies benefited our Manhattan portfolio, with the goal of maximizing efficiency, while maintaining high service levels and industry-leading margin performance. Despite these healthy GOP margins, our Manhattan EBITDA margin declined 110 basis points, negatively impacted by the Manhattan portfolio's 30-basis point decline in ADR combined with increases in property taxes at newer hotels, which have been reassessed from construction projects to operational hotels. Similar to GOP margins on an absolute basis, our Manhattan portfolio EBITDA margins remain very strong at 44.2%.

In our Philadelphia cluster, RevPAR increased 16.6%, with the Rittenhouse driving performance, delivering an impressive 41.7% RevPAR increase. The hotel contributed $8.8 million in total revenue and $2.2 million in hotel EBITDA, ranking it as the Company's third-largest EBITDA-producing asset in the portfolio, despite the fact that the hotel only has 116 rooms. Increased bar and corporate group business, as well as strength in L&R relationships, allowed the property to significantly outperform the market and prior year's results. In addition, the Rittenhouse increased GOP margins by 1,500 basis points and achieved a 67% flow-through.

On the West Coast, RevPAR increased 12.5%, with our Courtyard in San Diego delivering 17.9% RevPAR growth. The hotel, which contributed approximately $1.6 million in hotel EBITDA, benefited from strong citywide activity, with 21% more citywide room nights in the market, along with high-rated retail production. RevPAR at our Courtyard LA rose 8.5% in the fourth quarter, as the property was aided by a strong group base in L&R production, which translated into 7.9% rate growth and hotel EBITDA of $1.1 million for the quarter.

In South Florida, our portfolio delivered 8.6% RevPAR growth, driven by strong results at the Residence Inn Coconut Grove, which was under renovation last year. Additionally, our two autograph collection hotels increased RevPAR by 7.9%. Combined, these three properties contributed approximately $1.2 million in hotel EBITDA in the fourth quarter.

Our Washington CBD cluster reported 8% RevPAR growth. Improved revenue management strategies at the Capitol Hill Hotel helped drive group business, leading to an 18.9% RevPAR improvement. Property-level EBITDA margins at the Capitol Hill Hotel also improved 610 basis points, with the hotel contributing approximately $773,000 in hotel EBITDA during the quarter.

With regards to capital expenditures during the fourth quarter, we spent approximately $9 million to commence a brand-mandated refresh at the Courtyard Brookline and our four Hampton Inns in New York City. The majority of the work and disruption for these five assets takes place during the first quarter of 2016. For full-year 2015, our CapEx spend totaled approximately $25 million. And we estimate that for 2016, our CapEx spend will be between $25 million and $27 million, along with an additional $4 million to $5 million related to the re-concepting of F&B operations at the Rittenhouse and the St. Gregory Hotels. Outside of these two renovations, we anticipate the majority of the disruptive CapEx to be completed by the end of the first quarter.

Prior to discussing our 2016 guidance, let me first discuss what we're currently seeing across our portfolio in our major markets. Quarter to date of comparable hotel portfolios, excluding renovations, has seen RevPAR increase from the low single-digit range across all of our markets. On a market-specific basis, our comparable Manhattan portfolio reported a RevPAR increase of 2.3%, while Philadelphia, Boston, West Coast, have all registered mid single-digit growth quarter to date.

We presented our detailed 2016 guidance in the earnings release published yesterday. In providing our guidance for 2016, we believe the most meaningful set of numbers we can provide at this time include full-year operating forecasts for all seven of the Manhattan assets to be contributed to the Cindat joint venture. Along with the addition of the Hilton Garden Inn M Street, which is expected to close prior to the end of the first quarter of 2016. We believe this provides the market with a snapshot of our operating expectations for the year prior to the closing of the Cindat joint venture, and any other strategic initiatives that we will pursue with net proceeds from this joint venture. We will continue to update all guidance figures upon the closing of the JV, and for any other potential acquisitions, dispositions, share buybacks or capital markets activity, as they are completed.

I won't repeat all of the guidance figures, but a few of the highlights include: comparable store RevPAR growth of 4% to 6%, with 50 to 75 basis points of margin-growth; EBITDA in the range of $198 million to $208 million, with FFO per diluted share of between $2.79 to $3 per share.

That concludes my portion of the call. I think we can now proceed to Q&A, where Jay, Neil and I are happy to address any questions that you may have. Operator?

(Operator Instructions)

Anthony Powell, Barclays.

Hi, good morning, everyone.

Good morning, Anthony.

Just in terms of your guidance, you just mentioned that you are currently in low-single-digit RevPAR growth for the first quarter. How do you think you will get to the midpoint of your full-year guidance of 5%? What segments do you think will accelerate as the year goes on, to drive your RevPAR growth higher?

Sure, Anthony, good morning. This is Ashish. You know, as you are probably aware, January and February are the weakest contributing months in our portfolio, and we have renovation activity going on. As we look out through the rest of the year, based on our bookings pace and what we are seeing in our markets, we do think that our best performing markets are still looking like the West Coast and the DC urban markets, with strong growth in Philadelphia as well.

We have the Democratic National Convention here in the summer, and there are several other group activities -- there is more group activity in Philadelphia this year. So as we look through the remainder of the year, we do see the quarters two through four having a much better outlook than quarter one at this time.

Got it. And just on acquisitions, you are one of the few REITs that are still buying. Clearly you have proceeds from a very accretive sale. What makes you confident or still willing to buy assets at this part of the cycle? Is it because you are selling at a higher valuation? Or do you still think you need to build out for these clusters that you've purchased?

Anthony, I don't think it's really a motivation to necessarily build out the clusters. But it's deals that, as we've mentioned, that are accretive to cash flow and accretive to our portfolio growth rates. We're generally buying assets that we can stabilize between an 8% and a 10% unleveraged yield. When we can do that, we feel like we can create significant value for our shareholders by continuing to grow.

Today, the dislocation in the markets, in the financial markets, may have an impact on the transactions market. And if it does, we will be -- we may benefit from even better stabilized yields. But at this stage, we believe that buying and -- growing in yields around 7% to 8%, and stabilizing those yields and those assets at above 10%, makes for very good business sense.

All right, great. That's it for me, thank you.

Shaun Kelley, Bank of America Merrill Lynch.

Good morning, guys. So I just wanted to touch back on the guidance as well. Ashish, as we try to break down the 4% to 6%, and start to compare this to other outlooks that we're going to hear throughout the week, can you help us think about, if you didn't have the Manhattan portfolio in that, how much of an impact -- or the seven hotels, let's call it. How much of an impact do you think that would have? What would the 4% to 6% look like excluding Manhattan?

Sure. Shaun, excluding those seven assets in Manhattan, we would estimate that our entire portfolio would have about a 50-basis-point lift in RevPAR growth. Absolute margins would probably go backwards by 50 to 75 basis points. But margin growth would go up, because the New York City portfolio is likely to see lower-margin growth or flat margins in 2016.

I think that in looking at the guidance, it's important to remember, even with the five acquisitions since the beginning of 2015, a lot of the modeling doesn't include the $16 million, $17 million of incremental EBITDA we're going to be picking up from all of these assets that we've acquired. And then you have to look at the Cindat JV as -- worst case, if it closes mid-year, we probably lose between $10 million to $12 million of EBITDA from that joint venture.

Got it. And then same question, but slightly different spin. If we were to think about the 4% to 6%, but exclude some of the acquisitions that you've done, where you are probably able to drive better-than-average or industry-average portfolio growth, because of some of your own revenue management activities.

Directionally, what do you think the core underlying same-store sales growth would be here? Is it pretty close to what we are seeing? Is the 4% to 6% pretty true? Or if we exclude a handful of hotels, are we looking -- again, where you guys are doing stuff, would it be materially lower?

No, I think it's pretty true, Shaun. Because it's really the Ritz, Hilton Garden M Street, which is running at a very high EBITDA level already, and stabilizing. And the St. Gregory, which is going to have some disruptions this year because of the restaurant reconcepting. So I think those are -- and the Sanctuary. So when you take out those, then it's really not that the range would go down significantly if it wasn't for acquisitions.

Got it. Last question. But just generally, your underwriting for New York City for this year, I mean, how are you guys thinking about what kind of RevPAR the market can post? And I know you guys have been taking share, so I'm actually more interested in just your macro-view of, what do you think the market overall is going to be -- is going to look like -- not necessarily Hersha-specific?

Sure. Not Hersha-specific, we think the market is probably range-bound, let's say, negative 2 to positive 2 -- somewhere in that range. And I think that we continue to outperform by 150 to 250 basis points.

Thank you very much.

Ryan Meliker, Canaccord Genuity.

Good morning, guys. I just wanted to talk a little bit about the Cindat transaction. Can you give us any color -- and I apologize if I missed this on the call -- on A, what your current expectations for timing of the closing is? And then, B, what you think that -- assuming that fell into line with your expectations, what the impact on your overall EBITDA net might look like?

Sure, Ryan. Right now, we are targeting an end-of-first-quarter close. I think that we would say, there's as good of a chance it happens sometime between the end of the first quarter and the end of the second quarter. I think that, right now, we don't see us going past June 30.

But the biggest sort of unknown here is the proceeds coming out of China. The debt is moving along at a very healthy pace. No issues on that side. But right now, as you may know, there is a big push to get money out of China. It has to go through government approval. And they have started the process, it's just a timing issue.

So we're saying, anywhere between the end of the first quarter and end of the second quarter. On the outside, if it closes at the end of the second quarter, we lose somewhere around $10 million to $12 million of EBITDA for this year.

Okay, that's helpful. And then can you just give us some color on the process for this portfolio sale? Obviously, we haven't seen a lot of big portfolio transactions recently. We keep hearing that the CMBS markets are shut. Obviously, this buyer isn't somebody that would need to access those types of financing markets.

But how deep was the buyer pool as you guys were looking at this transaction? Or was it really some of these more foreign capital investors that were, let's call it, not atypical, but more unique to the Manhattan market, driving this process?

Ryan, to start, the start of the process was it was a result of some inbound inquiries we got from Asian institutional investors in early summer. We responded to that inbound interest by having a process. That process focused on Asian investors, and Asian institutional investors in particular. We discussed a seven-hotel portfolio, like the one that we are transacting on, or individual assets within that grouping. And we were open to either joint venture or outright sale.

I think there was probably significantly more [confis] signed than this, but we were ultimately in process and in discussions throughout the summer and early fall with about six to eight groups. In the end, it came down to two that were very compelling. And ultimately, we felt that Cindat's experience already investing overseas in New York, LA, London and other markets, and their experience in large transactions, as well as in actually investing overseas, made them our most credible and compelling opportunity to pursue.

But I think to your question, it is this kind of capital -- offshore institutional capital is attracted to major gateway markets. New York City is clearly kind of number one on the list. But I think that other major gateways in the US are also of interest to investors like these. We've seen, from Asia, investors focus on both trophy assets, as well as yield-oriented assets.

And we've been talking about this on calls probably for the last year or two, that as they get more and more experienced investing overseas, they generally start on the trophy side, and then over time, we would see more interest in yield-oriented assets. I think that this portfolio was unique and particularly attractive to investors, in that it was relatively newly built hotels, with very little CapEx required. They were unencumbered of management, which gave them the flexibility to underwrite performance as they wished.

And all of these assets were clustered, and had some compelling scale economics, as well as good diversity in various submarkets around Manhattan. So I think this portfolio was kind of a perfect fit for some of this overseas capital. But we do expect to see more and more offshore institutional capital accessing markets like New York in the coming years.

That's helpful, thanks. I appreciate the color. And then just as a follow-up to that, why retain the 30% interest? Why not sell the assets outright, or try to retain at least a controlling stake? And is the deal structured where you have a controlling stake at a 30% interest or, pari passu, you tell me, how things are going to look? Are you going to be able to sell your interest as you so desire?

Sure. Hey, Ryan. On the last part of the question, we don't have a controlling stake at 30%. There is a three-year lock-up on the deal, so neither side can initiate a for-sale or a buy-sale for three years. This capital that's coming into the joint venture doesn't have a fund life or a particular hold period. So we would estimate anywhere from 5 to 10 years, on a hold basis.

Our view on this was, we did want to sell a majority stake. We did want this to go into an unconsolidated joint venture. We are happy to keep -- our target was anywhere from 20% to 30% of the stake in the joint venture. It helps us diversify our earnings base. We look at the 30% as, we probably aren't going to get our 8% preferred the first year, or potentially the second year, based on New York fundamentals.

But the real estate value in New York is going to continue to increase for fee simple, unencumbered assets that are newly built in these submarkets. And as we look out over a five-year hold period, we do think that we will do quite well with residual real estate value.

Great, that's helpful. And then one last maintenance question. Your tax benefit was pretty solid at almost $2.5 million in the fourth quarter. As you guys provide guidance for EBITDA and FFO for 2016, are you assuming a similar tax-type dynamic, like we saw in 2015, with minimal benefit through the first three quarters, and then some type of material true-up in the fourth quarter?

It's really difficult to try to gauge the income tax benefits. We are not building in a tax benefit for 2016 in these numbers.

All right, that's helpful. Thanks a lot.

Chris Woronka, Deutsche Bank.

Good morning, guys. I was hoping we could drill down a little bit into your outlook for Manhattan. And I know, given the nature of most of your hotels, you don't necessarily have a ton of visibility, although you always run very high occupancies.

But if you look out a little bit, maybe into summer -- which I know feels like it's a long time away -- what are you seeing on the booking pace there? And really, I'm just comparing where you were this year, versus last year, and where are you on nights booked versus where are you on rates?

Chris, our booking pace -- we are a very transient-oriented portfolio, as you know. So our booking window is much shorter than larger hotels in the city. Really it's a two- to three-week kind of window for filling most of our rooms. So we can't really rely on three-months, six-months-out kind of visibility.

What gives us some confidence relative to last year, on the summer, is that the foreign exchange headwinds, this impact of the strong dollar, that shock was really felt in the fourth quarter of 2014. And then really extended throughout all of last year. We felt the most pain from it in the summer season last year. And our expectation is that it may not reverse right away, but it will -- that shock has already been felt, has been priced in, people are aware of it. And we expect international demand to be somewhat stronger this summer than it was in prior years.

We also believe that new supply -- in 2015, new supply actually ended the year at only 2.7%. But we've always said that supply -- the impact of supply is really felt 18 to 24 months out. Our high watermark of supply in 2014 continued to be experienced throughout 2015. Now in 2015, we've had a little bit less supply than in 2014, and so the fundamentals and the opportunity for demand to outpace supply is a very rational and credible view. I hope that provides a little bit of color just on international and on supply, which have been kind of the biggest headwinds we faced last year in New York. They are lessened this year.

Chris, I'll just add to what Neil said. You know, if you are interested in group booking pace, I think, as Neil mentioned, the summer would be a little less relevant. But we are seeing March and April being up in group booking pace by 10% and 16%, and transient is up also through March. So generally, the early indicators are good. And then you put that against the macro, against the context of the macro backdrop that Neil gave, and that's what is driving our operators to be more sanguine about New York this year.

Yes, that's great color. And you guys have always had a mix of independent hotels in the portfolio, and you furthered that with the Monterey acquisition not that long ago. Are you any closer to maybe thinking about brands or soft brands for anything? Or is it pretty much, you are happy with what you've got, and you don't think you need the brands at this point?

We continue to -- we've had a very good relationship with Autograph and Marriott's soft brand in two of our assets down in Miami Beach, the Winter Haven and the Blue Moon. So we continue to always assess whether a soft brand can add value to our portfolio and our individual assets.

Currently, our independent hotels, however, are really performing very well, are in high-demand markets and have particularly compelling locations that make occupancy -- we are kind of already a premium, differentiated choice for consumers. So it's just a matter of balancing the fees that we would pay to a brand, versus the cost of accessing customers on our own.

Our independent hotels -- unlike many other public portfolios, our independent hotels are transient-oriented, rooms-oriented, and are smaller. Our hotels are generally less than 200 rooms. So we're just not as reliant on online travel channels. It's those hotels that are highly reliant on online travel channels that can really make the math work on soft brands. We often argue that soft brands should be very careful before putting their name on big boxes, because it's hard to keep the quality of a soft brand.

But regardless, that's where the real value can be had, is where a brand and the pipe from the brand can truly differentiate a hotel in a local marketplace. Right now, our independent collection of properties -- which now adds up to, I think, nearly 20% of our EBITDA -- are all already very high-occupancy hotels, over 80% occupancy, and are growing rate significantly on their own.

All of that said, all of the hotels that we buy are of institutional quality and are very attractive hotels to soft brands. And so if the world were to change and we found in a downturn that the pipe could help us, we believe that all of these hotels -- most of our hotels could be good fits with soft brands, from Marriott, Starwood, Hilton, Accor and others. So it's a conversation that we have, actually we've had just this past -- in the last month or two, we've spent some time with a couple of brands. But just the math is still not working. Or our assets are working too well.

Sure. Good problem to have. Thanks for that. Just finally for me -- apologize if I missed it -- on the joint venture for Manhattan, do you guys have a deposit from them, a hard deposit, or no?

We do, Chris. The total amount of the deposit is $20 million. They funded $6 million, and then the other $14 million is being converted from RMBs to dollars. So they are going through that process.

Okay, very good. Thanks, guys.

Wes Golladay, RBC Capital Markets.

Good morning, guys. You mentioned that part about hotels potentially becoming a commodity and lasting pricing power for the industry. Are you seeing any pricing power in your independents, your branded hotels or your soft branded hotels? Or is it more market specific?

No, I think it's really market and location specific. Our independent hotels do offer a higher RevPAR growth than the rest of our portfolio. But I wouldn't make the assumption that independent hotels grow faster than branded hotels. It's just in our portfolio, our individual business plans and locations have led to our independent hotels setting the pace on growth.

Okay. And then what do you think will drive confidence and ultimately pricing power for the industry? What needs to change?

We've been wringing our hands about this for years. I think in markets like New York, I think it's some stabilization to the supply inventory. Across the last five years, New York has experienced higher supply than it ever has. On a CAGR basis, it's about 3.9% supply growth from 2010 to 2015. That compares to the long-term average of about 1.7% supply growth. Our expectations for the coming five years is significantly less supply than we've experienced in the last five years. We think will be closer to 3% versus the 5% we've experienced across these last five years.

I think the nature of the supply is also changing a little bit. In the supply that's opening in 2016 and 2017 are larger hotels -- still not 800-room hotels, but after years of a lot of 100- and 150-room hotels, there's more 250-, 300-room hotels. We've mentioned before in calls that sometimes it's not the number of rooms that enter the market, it's the number of hotels that enter a market, and how many comp sets they influence.

It's absolutely rational for a new hotel owner to keep rates low while getting their fair share of occupancy across the first year or two. And when you have multiple hotels doing the same thing in various submarkets around the city, I think it really influences the psychology of a lot of general managers and revenue managers out there. So I think that part of it is just -- a reduction in the supply picture should help. I also think that it's a matter of leadership from management teams and investors to not view portfolios, as I mentioned in the remarks, as baskets of star markets, but rather assets that you can turn and drive and have a view on, on setting higher rates.

We adjust -- and you have to be very responsive to what's happening on a daily and weekly basis. We mentioned that in the fourth quarter in New York, there wasn't a lot of rate growth. And so we did play the occupancy game there, and finished the quarter at 95% occupancy. But it's being that responsive to daily conditions that allows you to really drive results and drive rates.

I think in other parts of the country -- on the West Coast, we've continued to have great success in driving rates. Miami has been a little bit softer in the last several months, but we have some unique assets and unique business plans there. So we been driving very strong rate growth at our Autographs in Miami Beach, as well as the Residence Inn Coconut Grove.

And so it is a bit market-to-market, and I think just our communicating more of successes from this strategy of pushing rates will help. I think there's a lot of headwinds in the air and there's a lot of shifting market sentiment but 2015 ended as a very strong year, and hopefully, that will give further confidence to operators and owners in 2016.

Okay, thank you. Real quick -- I know you guys actively target certain countries for international inbound travel. What countries do you see as being strong for inbound travel in 2016? And do you have an overall forecast for overseas tours into the US this year?

We focus most of our international conversation and dialogue on calls around New York and Miami. We have international demand throughout our portfolio, but it's only in Manhattan and Miami where it's a meaningful contribution. In New York, we range from 15% to 20% international mix in our business. We've mentioned before that that mix is not only a function of a strong dollar, it's also a function of how well the rest of the business is going.

At our hotels, we generally view international demand as more price-sensitive than value-oriented. And so as domestic economy improves, corporate spending increases and we get more take on our locally negotiated rates, we intentionally bring down some level of international mix. In New York, in 2015, we ended around 16%, 16.5% international. In Miami, we ended 2015 around 13% international.

And Miami was actually a significant growth versus prior years for us. Because we were taking over hotels that weren't even accessing some of these international markets, so we added the international market mix to them. In New York, we went down to 16% from about 18% the year prior, as there was more price sensitivity amongst the Eurozone traveler, and we found better priced domestic business to fill our books.

In terms of countries, it's a function of -- you look to where there is a secular change, and target those countries. So China, India -- they are not huge percentages today, but very high growth rates on their contribution, and so we do target those countries. But the countries that have been the real stalwarts across the last year, 1.5 years, have been the United Kingdom, the Netherlands. The Swiss franc has also been very strong -- we've had more Swiss travelers than we've had in the past.

Weakness has been from the Eurozone and from Canada. Brazil has always been a big driver of Miami, and is kind of stabilizing. I can't say it's meaningfully reducing, because there is so much more airlift to Miami, so it continues to make up a very strong portion of our business, of our international mix. The elections in Argentina in November have led to some more confidence there, and our sales team is getting more bites from Argentina than they did six months ago, eight months ago.

I think there's a lot of things happening in the world that could be real benefits to international demand in the US. If you think of the turmoil and concerns around safety in the Middle East, a lot of European travelers -- Germans, Brits and other European travelers -- have been going to the Middle East for resort vacations. We're expecting to continue to see more of that come to Miami, as there is unrest and instability in the Middle East. Korea, Japan -- these countries are benefiting from reductions in commodity prices globally, and should lead to more corporate spending from their international travelers as well.

Throughout this time, if you look at enplanement data and things, it's very strong growth, 6% growth in 2015 -- across all markets, that is. In markets like Boston, it was actually up 10.5%, as they've gotten many more nonstop flights from European destinations and Asian destinations. Miami was up in enplanements by over 8% -- again, just a lot more airlift coming from various Latin American countries, as well as European countries. As well as the first nonstop -- first flights coming in from the Middle East, from Qatar.

Airlines have clearly been bridging the gap for the traveler's wallet, with the strong dollar. Airlines have reduced prices in order to attract travelers. And fortunately, in most markets, hotels haven't had to follow suit to attract that business. But jet fuel and capacity have led airlines to lower costs, and that's leading to a lot more enplanements.

And the big secular trend, obviously, is just the growth of the middle class throughout Latin America, throughout Asia. And the first thing that the middle class deserves is the ability to travel for leisure. And when you travel for leisure to the United States, you come to our markets.

Okay. Thanks a lot for all the great detail.

David Loeb, Baird.

Good morning. I wanted to ask about acquisitions and dispositions. You've got some acquisitions to do to complete the 1031. Can you give us an idea about how that pipeline is -- where you're looking, what kind of pricing you expect to achieve? And also, what's the magnitude of potential dispositions beyond what you have announced so far? What markets might you be looking to lighten up on non-core assets today?

David, I think if we were to use proceeds from the Cindat transaction for 1031 exchange treatment, we would probably continue to look in the markets that we've been active in across the last year. We think that there is still some really attractive opportunities on the West Coast. Washington -- you know, Washington, we've built out some good exposure already. We would probably look towards Boston as well. And there might be interesting opportunities in Southern Florida.

From a yield standpoint, I think the bid on acquisitions right now is fairly scarce, driven by the debt markets picking up, to some degree, and the capital markets being dislocated. For the quality of assets in the submarkets and markets that we'd want to be, we would anticipate being able to buy something high-6s or in the 7s going forward. We wouldn't be taking on -- I don't think we would be taking on big value-add projects at this point. But I think we'd be able to buy at attractive going-forward cap rates in the range I mentioned, at 6.5% to 7.5%.

And as far as dispositions, we do have some hotels in the portfolio that the hotels have stabilized to a degree, and we're coming up to the end of CMBS debt terms on them. So we're continuing to consider disposition of close to another 10 to 12 hotels, and they would be similar to assets that we have transacted on in our two earlier tranches in the last couple of years. So they would be in markets that were that first ring, outside of core CBDs. They would be markets where we didn't expect a lot more growth. And they would be assets where it's just not necessarily in line with the growth profiles of the Company, in the Company average.

Do you see those dispositions as being in portfolio deals or single assets?

The market has become more difficult for portfolio transactions. There is clearly not a portfolio premium out in the marketplace. Private equity was the driver of this large portfolio transaction. And from what we're seeing in the marketplace today, that bid just no longer exists. It was dependent on high LTV CMBS financing, which remains dislocated.

So I think ideally, we would have been able to transact on a portfolio basis, but I think we've kind of reassessed our view on these hotels. And we will likely do them in either small portfolios of one or two assets, or three assets, or just sales to individual regional owner-operators or other aggregators who want to add a single asset to an existing cluster, or the like. But it's remarkable how quickly the private equity bid for large portfolios has dissipated.

And just one last follow up. Jay, you mentioned -- you were kind of vague on the $100 million or so of remaining 1031 proceeds to be deployed. I guess you've got some time on that. But do you have stuff that's under letter of intent? Do you have a shopping list you are working from now?

No, we do not. We don't have anything that we're looking at seriously right now, but the pipeline is pretty robust. I think Ashish and Neil alluded to it earlier, there are so many different alternatives on uses of the proceeds. And even to shield ourselves from the capital gains exposure, there's a couple of different levers we can pull. So we will see what makes the most sense in the market as the deal gets closer to closing, and then choose a direction at that point.

Okay, great, thank you.

Bryan Maher, FBR & Company.

Good morning, guys. I'm surprised an hour into this call, Airbnb hasn't come up at all, especially since it's been in the press again recently and operates a lot in some of the markets that you guys operate in. Can you just give us your view -- and we heard a lot about this at ALIS on Airbnb and its impact, and the potential for Airbnb being out there creating a scenario where operators do not feel like they have pricing power, because demand might go off to that other area. Can you just talk about that a little bit? Thanks.

Our view on Airbnb is, it's something that we spend a lot of time on. We read everything that comes out. We have team members testing different markets and different opportunities on their site. We try to use it ourself -- essentially very hard to, as you may have found, as you've looked at it. It's hard to, in terms of as a business traveler.

But our view is that it is a -- in the highest kind of compression periods, for leisure travelers, it may be an alternative. But we do not believe that it is directly competitive to our portfolio. It can have an impact in the market, just like a noncompetitive hotel can have an impact on a market. But we believe that it is a much more value-oriented traveler that seeks out Airbnb. It's a longer length of stay -- generally four days-plus. It's multiple guests per booking, over two guests per room -- I think we've seen some stats that it's actually three guests per many of these rooms.

Our hotels are transient-oriented, we have a short booking window, and we're focused on being in locations that are of choice for leisure travelers, and very convenient for business travelers. Our customers are willing to pay a premium for the consistency, quality and locations and services that we offer. So we don't have our head in the sand on it, but it's just not coming up as a truly significant impediment to growth for our operators today.

We think over time, Airbnb may become more like an online travel agent. And I think hotels that are highly dependent on online travel agents, that have more commoditized value-oriented products, that compete on price, may be feeling the impact of Airbnb more so than a portfolio like ours of smaller transient-oriented premium hotels.

But at this moment, we continue to monitor it. We think if it becomes more of an online travel agent over time, then it may be a good source of incremental demand for some of our independent hotels. We've actually had some conversations with Airbnb about some of our Airbnb hotels.

Relative to an online travel agent, it's a much lower-cost channel actually. They charge the host and the guest, but it's all-in less than 10% -- 8% to 10%. Most online travel agents are 15% to 25%. So that's our view. And we continue to update that view with new information that we see. But to date, we haven't seen anything that makes us feel like this is a significant threat for our portfolio.

Okay, thanks. That's helpful.

Ladies and gentlemen, with no further questions in queue, I'd like to turn the conference back over to Neil Shah for closing remarks.

Great. Well, thank you. I think this completes all the questions. I hope we've been able to demonstrate some of our advantage and our outlook for the coming year. Jay, Ash and I are standing by after this call and for the rest of the day, if there's any other follow-up questions. Thank you, and have a great day.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect. Have a great rest of your day.