Hersha Hospitality Trust (HT) 2019 Q1 法說會逐字稿

Good morning, and welcome to the Hersha Hospitality Trust First Quarter 2019 Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Greg Costa, Manager, Investor Relations and Finance. Please go ahead, sir.

Thank you, Laura, and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust First Quarter 2019 Conference Call. Today's call will be based on the first quarter 2019 earnings release, which was distributed yesterday afternoon.

Prior to proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance or financial positions to be considerably different from any future results, performance or financial positions. These factors are detailed within the company's press release as well as within the company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust President and Chief Operating Officer. Neil, you may begin.

Thank you, Greg. Good morning, and thank you for joining us on today's call. Joining me this morning are Jay H. Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer.

The first quarter proved to be challenging for the lodging sector, with RevPAR declines in many of the leading markets in the country. However, we are pleased with the performance of our portfolio, driven by the legacy assets we renovated in 2018 and the ramp-up of our recently-acquired hotels.

As we discussed on our year-end call, we believe the first quarter will be our most challenging quarter in 2019. April's early results and our pace for the second quarter keeps us constructive on the sector, and we anticipate accelerating growth for our portfolio for the remainder of the year.

Our comparable portfolio, which excludes the Cadillac and Parrot Key Hotels, reported 2% RevPAR growth during the first quarter. And excluding our Manhattan portfolio, our comparable RevPAR growth was an impressive 4.4% during the quarter. Our Manhattan portfolio, which registered 10.3% growth in the first quarter of 2018, was impacted by numerous items that I will highlight in further detail, along with our outlook for New York.

Our first quarter results are directly linked to the investments we've made over the last several years. First, our recent acquisitions: Our recent acquisitions, the seven hotels we acquired since June 2016, reported weighted average RevPAR growth of 4.5%. These hotels provided a strong tailwind in 2018 as well, but their performance was obscured by the disruptive renovations we had ongoing throughout the year. Since 2016, these seven hotels have produced a 6.6% RevPAR CAGR and a 10.6% EBITDA CAGR. We expect these hotels to continue to drive meaningful outperformance as they ramp and garner the competitive advantages of our cluster strategy throughout this year.

The second major driver of our results this quarter are our newly repositioned hotels. We invested $90 million into our legacy hotels across 2018. We added hotel rooms, activated restaurants and bars, created event space, and upgraded the guest experience across our portfolio at our luxury hotels in Philadelphia and Coconut Grove, to our independent lifestyle assets in Santa Monica and Dupont Circle in Washington, D.C., our resorts in Mystic and Monterey, and our category killing select service hotels in Boston and metro New York. The hotels we renovated in 2018 posted a weighted average 25.9% RevPAR growth, with 510 basis points of EBITDA margin growth in the first quarter, led by the Rittenhouse and the St. Gregory hotel, which generated 60.6% and 39.7% RevPAR growth respectively.

Before we go into more detail in data by market, a quick update on our South Florida projects, our third distinct catalyst for our performance. The Cadillac saw sequential growth in rate and occupancy each month this quarter and recorded strong results in March, growing occupancy to the mid-80% range, which is just 100 basis points below our prior March peak in 2016, the last quarter without disruption from macro events, such as hurricanes, Zika, and the closure of the convention center. We were also able to capture rate at the Cadillac, as ADR and RevPAR were up over 20% compared to this prior peak month. EBITDA generation at the hotel remains on our forecasted path and close to prior peak levels, while margins remain below prior peak, as expected during this initial startup period, indicating that there is a significant opportunity for improvement as the property continues to ramp and the implementation of our revenue management initiatives take place.

In Key West, the Parrot Key Hotel and Villas ended the quarter also with mid-80% occupancy, above the first quarter 2016's occupancy levels, with ADR and RevPAR nearly at prior-peak period. The Key West market has seen a resurgence in demand year to date, supported by significant growth in airlift following the implementation of nonstop flights from LaGuardia, Philadelphia, and Chicago. With the market getting close to peak occupancy, we believe our upgraded, high-quality lifestyle offering better meets the tastes and preferences of the higher end traveler to the market and will allow us to drive meaningful revenue and margin growth. Similar to the Cadillac, this asset is very much in ramp-up mode, and with all ramp-up assets, the margins will stabilize a little slower than the top line. Ash will discuss both assets and our margin expectations later on the call.

Our Philadelphia portfolio was our best performing cluster in the first quarter, achieving 16.4% RevPAR growth, outperforming the market by over 2,500 basis points. Our performance this quarter was led by the Rittenhouse and the Hampton Inn Convention Center, both of which underwent major renovations during the first half of 2018. Despite overall market softness, we saw material benefits with having our rooms back online at both properties to capture the increase in visitation to Philadelphia. The Rittenhouse reported 60.6% RevPAR growth, while the Hampton Inn grew RevPAR by 39.2%, a continuation of its robust performance from the fourth quarter. And if we were to exclude these assets, our recently acquired Philadelphia Westin reported 2.9% RevPAR growth, outperforming the market by 1,170 basis points, despite undergoing renovation of the hotel's ballroom in the first quarter of this year.

The second quarter is shaping up to be robust for Philadelphia, with the city's best convention calendar this decade bringing notable events in May and June. We remain bullish on the growth fundamentals of Philadelphia long term, as the city continues to expand and develop its technology and innovation sector to complement the city's strong foundation in healthcare and education. Last year, Philadelphia added more jobs than it has since the late 1960s. Philadelphia also continues to see incoming leisure visitation that shatters previous records year over year, both domestic and international. We believe our clustered strategy, agnostic to market segment but clearly attuned to travelers' tastes and preferences, is best positioned to capitalize on this growing demand, and our results this quarter, when the market was down nearly 9%, is a testament to its effectiveness.

Boston experienced softness in the first quarter, with less group events on the calendar. However, our portfolio registered 3.8% RevPAR growth, outperforming the market by 590 basis points. The Envoy led the cluster again, with 12.9% RevPAR growth on robust L&R contribution. Its position in the market as one of the premier corporate and leisure hotels also allowed us to capture Boston's limited group demand during the first quarter. We continue to drive F&B revenue higher with the success of the Outlook Restaurant and Lookout Rooftop Bar, which we expanded in 2018. In addition, our Courtyard Brookline drove 3.3% ADR growth during the first quarter, with a focus on bar-related segments during compression periods. The second quarter looks more robust for the market, with broader array of conventions and historically strong demand around the Boston Marathon and graduation weekends. Despite a softer outlook for Boston in 2019, our cluster, and The Envoy specifically, should continue to outperform the market and its peer set.

Despite facing a tough comp in Q1 in Miami, with our portfolio up 20.3% last year on Hurricane Irma related demand, our South Florida portfolio maintained slightly positive RevPAR growth this quarter. We were able to maintain rate, but lost occupancy on Miami Beach, as hotels came back online in South Florida, in Puerto Rico, and the Caribbean. Our Ritz-Carlton in Coconut Grove, which completed its repositioning in the fourth quarter where we renovated all of the guest rooms and suites and launched our new restaurant and bar, Isabelle's and The Commodore, was our best performing asset in the region, generating ADR-driven RevPAR growth of 9.2%, making it the top RevPAR performer in its peer set with 110% RevPAR index.

We are pleased by our cluster's performance this quarter in Miami, facing a tough year-over-year comp, and the result gives us continued confidence in our portfolio's positioning in the market. South Florida's re-acceleration remains intact, but near-term performance will continue to be hampered by openings in the aforementioned leisure destinations and the delayed return of major conventions in Miami, following its reopening in late 2018. However, Miami International Airport continues to attract additional nonstop domestic and international flights, and visitation continues to hit record highs. Memories of Zika have faded. Hurricane-related comps are nearly [lapped], and the redeveloped Miami Beach Convention Center is attracting attention and several high-profile events in 2020 and 2021. Miami and Key West have been the two best RevPAR growth markets over the past 20 years, and we are excited for what the future holds with our recently upgraded suites and hotels.

The Washington, D.C. market experienced another quarter of headwinds, with a weak convention calendar and sluggish demand from traditional generators in the region that was exacerbated by the government shutdown. However, our comparable portfolio generated slightly positive RevPAR growth and outperformed the market by 330 basis points, bolstered by our St. Gregory Hotel, which underwent a holistic transformation during the first half of 2018. The hotel generated 39.7% RevPAR growth, driven by 9.3% ADR growth, attracting higher rated group and transient customers, following the hotel's upgrade to an upper upscale lifestyle offering.

The second quarter will remain soft for the market, with the Easter shift to April resulting in Congress out of session, while the city has just one major convention versus three last year, and new supply continues to enter the market. Nevertheless, we remain confident in the long-term fundamentals of D.C. and our positioning in the market with our market-leading cluster of hotels.

Our West Coast portfolio captured robust performance from our Silicon Valley and San Diego assets in the first quarter. However, this was offset by increased supply in Seattle, where we had the opening of the 1,200-room Hyatt Regency this quarter. Also, market softness in Los Angeles and sever weather disruptions in Monterey and Santa Barbara.

Our two Sunnyvale hotels registered combined weighted average RevPAR growth of 7.4% during the first quarter. L&R business was robust at these assets, as our largest corporate accounts, Amazon, Google, and Apple, continued to drive significant midweek ADR and occupancy growth. Our Courtyard San Diego generated 5.8% RevPAR growth, aided by a strong group calendar, most notably in January and March, helping to drive ADR and occupancy growth. Q2 is another robust quarter for conventions, particularly in May, which will cause significant compression across all segments of travelers.

Los Angeles and Santa Monica were affected by a weaker convention calendar, new supply downtown, and weather-related disruptions during the first quarter. However, our Ambrose Hotel continues to capture market share, growing RevPAR by 3.6% in the first quarter, driven by 2.9% ADR growth. Reviews following the hotel's public space renovation in 2018 have led to an increase in our midweek corporate base and leisure customer base over the weekends. Our resort destinations in Santa Barbara and Monterey should also have a much more robust Q2, with more suitable travel weather on the horizon and the U.S. Open coming to Pebble Beach in June.

Demand fundamentals were especially soft in New York City during the first quarter, as our cluster registered a 4.6% RevPAR loss. The market was impacted by the government shutdown, the Easter holiday shift, fewer city (inaudible), and no major snowstorms leading to midweek compression compared to the four that took place in first quarter of 2018. In addition, our Hilton Garden Inn Midtown East was hindered by the loss of a large non-repeating L&R contract.

Despite a weak first quarter, we remain positive on the long-term fundamentals in New York and our positioning in the market. Our purpose-built cluster allows us to capture peak submarket demand during growth periods, while also limiting our losses when the operating environment is difficult, like it was this past quarter. This strategy, coupled with our operational alignment, is unique to Hersha, and we believe it offers us the capability to outperform and maintain market-leading margins in this current low-single-digit RevPAR environment.

Before I turn the call over to Ash to dig a bit deeper into margins and our updated guidance, I wanted to briefly touch on two more topics. First, capital allocation: Following several years of capital recycling and portfolio upgrading, along with transformative renovations at our hurricane-impacted South Florida hotels, we are now in harvest mode. We do not expect any material portfolio changes in 2019, as we use our growing free cash flow to de-lever.

We do remain opportunistic with buybacks. In the first quarter, we repurchased $4.6 million of stock at an average price of $16.91. We last acquired shares in the first quarter of 2018 at a similar weighted average price. We consider opportunities to purchase our existing portfolio at these levels extremely attractive.

Second quick topic: sustainability. Please keep a lookout for our annual sustainability and ESG report that will be coming out over the next week or so. It outlines our approach to material environmental and social topics, and details our achievements to date through our award-winning EarthView program. Since 2010, we've saved over $11 million from energy efficiency initiatives that generate recurring savings year over year and help to alleviate expense growth and improve margins. We've also had a positive environmental impact. We've reduced energy use per square foot by 15% and greenhouse gas emissions by 41% since 2010, results that contribute to Hersha ranking in the top 10% of all participants in the Global Real Estate Sustainability Benchmark. And just as important, we've mobilized thousands of our team members and inspired countless others in our cities and neighborhoods to make a meaningful impact on our environment and on our communities.

Our portfolio's clear outperformance across the last two quarters demonstrates the effectiveness of our growth strategy. The hotels we acquired during our capital recycling campaign across the last two years, the repositioning in ROI-driven capital programs at our legacy hotels last year, and finally, the early ramp-up success of the Cadillac and Parrot Key hotels this year that set the stage for several years of meaningful outperformance. Armed with the incredible focus and energy of the people at Hersha at each of our properties and in our field support offices, we are confident that our investments and efforts will enable to achieve our stated EBITDA goals.

With that, let me turn it over to Ash to discuss in more detail our capital expenditures, margin performance, and our updated guidance for the year.

Great, thanks, Neil. Good morning, everyone. As previously mentioned, several of our markets faced difficult year-over-year comparisons or encountered exogenous headwinds that affected demand fundamentals this quarter following consecutive quarters of growth, and this put added pressure on our operating margins. As a result, our comparable portfolio reported 68 basis points of margin loss. But if we exclude our Manhattan portfolio, our most challenging market during the quarter, we registered 10 basis points of margin growth for the remainder of our hotels.

Our ability to maintain margins in a very challenging environment is a testament to our aggressive asset management strategies and is bolstered by tailwinds from our primary growth drivers. In 2018, we allocated $77 million to enhance and reposition seven of our legacy assets, and their performance in the quarter led to 510 basis points of margin growth for these hotels. The Rittenhouse generated over 2,000 basis points of margin growth in the first quarter, highlighting the benefits of our multi-year transformation following our full rooms renovation. Down the street at our Hampton Inn, renovation in 2018 led to significant occupancy growth that boosted performance during the first quarter and led to 1,350 basis points of margin growth. And in Washington, D.C., our St. Gregory in Dupont Circle generated 1,720 basis points of margin growth, driven by 9.3% ADR growth, combined with labor force management initiative.

Continued ramp-up at our newly acquired assets also yielded margin improvement this quarter, highlighted by The Envoy and the Annapolis Waterfront Hotel, the newest asset in the Hersha portfolio. In Annapolis, the revenue management initiatives we instilled at the hotel since our acquisition at the end of the first quarter of 2018 led to 370 basis points of margin improvement, while in Boston at The Envoy, continued success of our restaurants and bars, notably from our rooftop expansion in 2018, drove 360 basis points of margin growth during the softest quarter of the year for the market.

As I touched on last quarter, we are seeing increased operating expenses, driven primarily by higher wages and benefits, growth in property insurance costs at our South Florida and California hotels, and higher property taxes. However, we believe that one of our core differentiators from our peers is the ability to grow margins in the face of these mounting cost pressures. Our unique operating model affords us the ability to work directly with our management companies to adjust staffing in real time, providing us flexibility to control labor costs that have been increasing steadily for several years.

Despite our margin deterioration this quarter, we believe our strategy allowed us to limit this loss, and we continue to stay creative and nimble in our approach, as we continue to scour the portfolio for ways to reduce our operating expense risks and improve margins by various methods, whether that be outsourcing of line level positions, seeking ways to reduce OTA contribution, or innovative approaches to e-commerce and marketing to reduce travel agent commissions. One example of this type of expense control strategy is the recent change at our Sanctuary Beach Resort in Monterey. We recently entered into a third-party lease for our Salt Wood Kitchen and Oysterette, whereby we collect a base rent, but are also able to participate on the up side of this successful restaurant through a percentage lease structure. This lease structure will allow us to capture similar levels of EBITDA contribution as our prior operating model, but helps limit the potential drag on margins from volatile restaurant and catering operations.

Before moving to capital expenditures, I want to spend a minute on our margin performance at the Cadillac and Parrot Key. As Neil mentioned, these assets continue to be in their ramp-up period, and as such, margins will stabilize at a slower rate than our top line results. The first-quarter performance of these assets provides us additional confidence of that ramp-up, and our forecasts for the remainder of the year remain intact and reaffirm our belief that we will see continued EBITDA growth in these assets well beyond 2019.

When comparing our first-quarter margins at the Cadillac with the hotel's best first-quarter performance in 2015, when we ran a 52.3% EBITDA margin, we came in approximately 1,200 basis points below that level with equivalent revenues. And at the Parrot Key, compared to the same quarter in 2015, we are roughly 2,000 basis points lower than the prior peak first-quarter margin of 52.9% on slightly lower revenues. We are confident in our ability to progressively close this gap as we get to our forecasted stabilized year for these two hotels in 2021.

We shifted our CapEx strategy for 2018 and accelerated a number of plan renovations, especially in South Florida, with demand fundamentals looking robust over the next few years, allowing us to more clearly showcase our organic RevPAR and margin growth potential. During the first quarter, we allocated $9 million to capital projects versus $30 million in the first quarter of 2018. As we look out in 2019, we anticipate our total CapEx spend, inclusive of maintenance CapEx, to be in the range of $32 million to $34 million versus $90 million in 2018, with a very limited number of renovations resulting in rooms out of order or operational disruptions.

We maintained significant financial flexibility as we ended this quarter with $33.5 million in cash on hand and ample capacity on our $250 million line of credit. With the stabilization of operations, our dividend payout ratio is forecasted to be below our 50% payout target in 2019 and one of the lowest in the sector, along with a solid fixed-charge coverage ratio. We're also taking advantage of the strength of the debt markets and are refinancing several pieces of property-level debt that are maturing later this year. Based on our current negotiations, the new financings allow us to extend out our maturities and should further reduce our interest expense at these properties.

With the continued ramp-up of our newly-acquired assets and transformed South Florida assets coming back on line, along with a substantial reduction in CapEx spending in 2019 and 2020, we continue to target a leverage range of 4 to 5x debt to EBITDA. We believe this is attainable through organic EBITDA growth, debt pay-downs from free cash flow, and calculated property sales across the next few years.

I'll finish with our guidance for the second quarter and full year. So following a challenging first quarter, we're maintaining our full-year guidance provided for all forecasting metrics. As we discussed, the industry faced numerous headwinds in the first quarter, and the weekly or monthly results made it difficult to present a constructive view of the industry. On a monthly basis, we saw January, February and March comparable RevPAR up 2.2%, 3.7%, and 0.3% respectively. The weakness we witnessed in March was primarily driven by a few markets such as New York and South Florida, where calendar shifts from the timing of the Easter and Passover holidays, extended spring breaks limiting compression, and the lack of weather-related disruption in New York that significantly boosted March results last year, when our portfolio was up 10.8% during the month, limited the portfolio growth that we witnessed in several of our markets.

We remain confident, however, that our weakest quarter is now in the rearview mirror. The shift in the holidays has been a benefit to our New York portfolio, which is currently trending up approximately 3% for the month of April, and we continue to see strength at many of the same assets that drove our results in the first quarter. In addition to New York, we're looking at more consistent and broad-based strength in Philadelphia, Boston, and the West Coast during the second quarter. As such, we are forecasting comparable portfolio RevPAR growth between 2.5% and 3.5% and flat to 50 basis points of margin growth, with an EBITDA range of $54 to $56 million for the second quarter.

So that concludes my portion of the call. 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) Our first question will come from Shaun Kelley of Bank of America.

Hey, guys, this is Danny on for Shaun. Sorry about that. So maybe we can just start with -- sorry to be going a little bit more short term, but you know, it seems like generally speaking, March was a little bit disappointing relative to a lot of people. And so, maybe can you just touch on where that lined up relative to your expectations? And I know it's a little bit early, but you know, the spring break period is a little bit longer than it was last year and you do have a balance of resorts and [urban] exposure, so how does April look so far for you guys?

Let me start, Danny. So, Danny, when we look at March, we were off probably in our portfolio, I think March results did bring down overall results by about 50 to 70 basis points, so it was weaker than I think everybody in lodging anticipated, and certainly blew through our portfolio. As I mentioned, the biggest impact we saw was really in Manhattan, just from, you know, we knew that it was going to be weaker with the holiday shift, but not having the compression from last year's snowstorms and just the extended spring break period. What we saw really across the board in March and April, even at leisure properties, was with the extension of spring break from early March all the way through effectively this last week of April, we just lacked the compression in a lot of these markets that we traditionally see. We still saw the occupancy, but from an industry standpoint, we just didn't see the pricing power that that kind of compression usually leads to.

Great, thank you, and Ashish, maybe just one more question. You mentioned towards the end of your prepared remarks about calculated property sales to help you get to your target leverage range. So, I'm not asking you to call out any assets, but are there any specific criteria that a hotel should meet to maybe make that list.

Danny, this is Neil. We generally look at dispositions of assets that have fully stabilized, are confronting significant new supply, or significant CapEx requirements on a particular asset where we do not believe it will generate a significant ROI for that effort and the disruption. That's the general criteria. We're generally trying to upgrade our portfolio in terms of EBITDA growth profile and quality as well.

But today, as we look across our portfolio, there is very few assets that fit that bill. We have, across the last three to four years, we've sold over $1 billion in hotels, nearly -- more than half of our portfolio. And so, we targeted that assets that were fully stabilized and mature, were confronting new supply in their submarkets, or required CapEx that we didn't believe would get a return on it. What we're left with today in our portfolio are kind of our assets that we believed that you could put new capital into and get great benefits from. We mentioned that we put in $90 million into our legacy portfolio last year, and those assets we'd like to ramp up and allow to stabilize before considering any kind of transactions on.

And the remainder of the portfolio is really assets that we acquired as a result of our capital recycling program. And we chose assets and submarkets that we believed had a better growth profile than our existing portfolio, and we're starting to see that across the last several quarters, that that's coming to bear. I think as we, towards the end of this year and next year, we may consider a handful of asset sales, but right now, that is not a focus.

The next question will come from Bill Crow of Raymond James.

Starting along that same line, I guess I'm just trying to figure out if your goal is 4 to 5x leverage and you're hesitant to sell assets here, and I know you've got good ramp internally and EBITDA, but you know, Ashish, when do you think you can get to or below 5x, just kind of as you look at your internal budgets?

You know, Bill, we do look at it as a kind of end of 2020 event to get sort of to the top end of that range, just if we weren't going to do any asset sales, and then asset sales would just accelerate that to bring us, you know, further into the range.

So 5x by the end of 2020. Okay, that's helpful. Neil, my last question is on New York City, and it was a year ago that investor enthusiasm towards New York took a positive turn, and some of that was based on prospective changes politically and zoning and what that would do to new supply. But it doesn't seem that supply is decelerating as much as some had hoped, and the city certainly isn't shiny from a performance perspective. So where are we today? What's the prospects as we look out to the balance of this year and into 2020?

Sure. You know, Bill, as I think you're pretty aware as well, there's just been a lot of delays on projects delivering in New York. So we are, after last year where we had a nice kind of downtick in new supply, for the next couple of years, we're forecasting kind of mid-3% kind of supply growth. In 2019, we believe we'll see 3.8% supply growth. In 2020, we expect about 3.5% supply growth. And then in 2021 and 2022, we anticipate that getting closer to the historical averages of 2%. That is still significant supply growth, and as we've mentioned all cycle, when something -- when a new hotel opens in your comp set or in your neighborhood, it is difficult to push rate in that environment because hotels are trying to kind of get their fair share quickly when they open up.

But if you look at it just on a two-year basis or a three-year basis, on a rolling basis, supply is clearly decelerating in New York City. It's been decelerating across the last couple of years, and we expect that to continue. On the demand side, Manhattan continues to be very, very strong. Even across just the last several years, I think we've seen a very noticeable acceleration in the corporate market there, and particularly in the technology and innovation sectors. Visitation continues to shatter year-over-year records, and supply is diminishing. It's still significant because the market is a very strong demand market, and strong demand markets, and particularly ones that have great history of residual value appreciation, will attract investment dollars.

But supply is diminishing. The M1 zoning kind of change is real, and that does reduce the land available for hotel development by, I've seen reports of by like 30% to 40%, without -- for as-of-right kind of development. So I think it's significant, and it's decelerating, but it's a challenging market. There was a lot of new supply in the marketplace. A lot of the new supply was select service that does kind of bring down rates, or makes it a little bit harder to push rates, and we have yet to see this kind of great group recovery that we're all anticipating.

That's helpful. Let me just -- I got the Lodging Econometrics data yesterday, I think, the update, and they call for 8.1% supply growth in New York in 2019 and 4.8% in 2020, which is very different than the numbers that you're using. I'm just trying to figure out why there's such a big spread.

Yeah, you know, I don't have that data right -- I don't have the data right in front of me, Bill, but I think you've known -- and we've talked about this before -- just how accurate our forecasts have been for new supply in New York all cycle long. PWC, Lodging Econometrics, STR, they all overstate supply. I think they take their lead from brand companies that are driving unit growth and are being valued on pipeline. You know, my colleague, Greg, is just showing me some of what we've shared before in the past with investors, but our accuracy relative to all of the other forecasters has been very significant. And even we've kind of I think overestimated how much supply is going to deliver because of the delays in kind of construction and new builds.

So, you know, maybe next investor deck we'll put that in again, just to show kind of how we've forecasted from 2013 to 2018 versus all of the other consultants in the industry, and maybe that might give a little bit more confidence to our view of sub 4% supply for the next couple of years, and then falling off to sub 3% in '21 and '22.

Yes, okay. As always, the commentary is helpful. Thank you.

The next question comes from Michael Bellisario of Baird.

Just kind of a follow-up on New York, too, but also some additional commentary broadly on your portfolio would be helpful. Just, again, maybe what are you seeing on the individual demand front, both what you saw in the first quarter, and then also real time? And then, your early read on summer leisure booking travels, that would be helpful.

Michael, this is Neil. You know, on the international demand side, I think big picture, I would say not much of a change. You know, as we dig into -- and we do this every quarter. We dig in pretty deeply into kind of our existing -- our hotels and where the demand is coming from, which countries are outperforming. But on the other hand, it's really, you know, it's kind of -- there are so many influences of that. I think international demand is a secular growth tailwind for our industry for the foreseeable future, for sure. It's clearly decelerated that rate of growth. Instead of being 4% to 5% a year, that may have come down to 3%, 4% a year. But in our markets, these kind of major gateway markets across the U.S., it's a very significant part of the business.

But it is hard to sometimes classify it. It's coming in from different channels. Some of the group international (inaudible), very easy to see. We get it from some of our brand companies, but it's -- and we get it from some of our online travel agents, but I would be hesitant to draw any significant conclusions from it. But just to give you a few data points, you know, for us in Manhattan, we have for this quarter, we had 10.5% international contribution. Great Britain was our kind of biggest star this year, growing by 25% year over year. China continued to grow at about 3.5% of our contribution. But there's just so -- the reason I say that I wouldn't draw too many conclusions from it, because at the end of the day, it's another channel, it's another kind of customer, and it's a tool for our revenue managers to decide how much of that business you need and what segment of that international traveler is attractive for us.

I think markets like Philadelphia and San Diego are clearly growing very significantly international demand growth, kind of over 5% in both of those markets across the last several years, and we continue to see that increasing. San Diego just opened their new international terminal and have added lots of international flights, and Philadelphia has been for the last several years. Sunnyvale continues to get, for us, a lot of international contribution. A lot of it is obviously corporate driven, but it was nearly 20% of our business this quarter.

Is that enough information, Michael?

Yeah, that's very helpful; thank you. Kind of just switching gears a little bit, I think Ashish, you mentioned that 1Q is going to the weakest or maybe the most challenging quarter (inaudible). Is that more of a qualitative or kind of quantitative comment? And then, maybe, could you give us a sense of the quarterly cadence throughout the year that you guys expect, at least from a RevPAR perspective?

Yeah, absolutely, Mike. So that is primarily based on, you know, the two markets that had the most difficult comps for the year, so South Florida with a positive 20% print last year due to hurricane remediation, and then New York. As you saw, we came in at 2% for the quarter. Our guide for the second quarter is 2.5% to 3.5%. And as we sit here today, that really is the cadence that we're looking at for quarters 2, 3, and 4. Things may shift as we get further into it, but you know, we discussed it on the first quarter call as well. We do think that the first quarter will be the most difficult, with sort of easier comps as we go through the year and just, you know, a better fundamental backdrop for our markets.

The next question will come from Bryan Maher of B. Riley FBR.

Many of my questions, particularly as it relates to New York, have been answered already. But, Ashish, can you talk a little bit -- and you touched upon this in your prepared comments -- the, you know, refinancing some of the debt, extending the maturities out given the current debt markets that are advantageous for you at the moment. Can you kind of quantify how much you can get done and how far out you can push those maturities?

Yeah, absolutely. So in my comments, Brian, I was really referring to two asset-level maturities that we have coming up this year. For those, you know, right now, as we are discussing this with the lenders, you know, we're looking at extending this out, terms will be between 4 and 5 years on the asset side. You know, the interest rates are still -- they're going to be at the same level or better, and you know, most of it will be kind of interest-only type of financing as well. So, you know, I think it's safe to say that the majority is going to be brought out at least 4 years, and potentially 5 years -- and with extension options, definitely 5 years.

Is there any other debt that's coming due in kind of 2020 and 2021 that you think you can also address this year, you know, before we get into, you know, an election year next year and potentially some more uncertainty at a macro level?

Yes, yes, it is something that we are working on, and certainly the 2020 term loan facility that we have is likely to be refinanced by the end of the year.

The next question comes from David Katz of Jefferies.

I wanted to ask about, and I apologized if I missed the detail, but there's some CapEx out there of $32 to $34 million. Have you made a delineation between maintenance and what you consider growth, or ROI, within that?

Yes, David, for this year, we are only looking at -- let me get you that number -- I think we're only looking at around $10 to $12 million of maintenance CapEx. Yes, between $10 and $12 million of maintenance CapEx.

And just sort of a bigger strategic question, I know, you know, there's a lot of discussion about New York, but looking at the portfolio, there's still, you know, some limited service assets within the portfolio, and you know, more of the newer assets or newer focus is seemingly away from that area. With private market valuations seemingly robust, broadly speaking, is there any thought to maybe removing some of those from the portfolio? And I ask the question in the context of being able to take some bigger bites out of the leverage if that's a possibility.

You know, David, there are -- it's absolutely possible. We just don't think it's the right decision at this time. We don't necessarily just focus on limited service when we're selling hotels, but we can consider it. Last year, we did an opportunistic sale of the Hampton Inn Downtown in the Financial District. We'll continue to take inbound inquiries on select service hotels, as well as luxury and lifestyle hotels. When it makes sense to take gains and to either secure the balance sheet or to reinvest in new assets, we are willing to do so.

We believe that kind of urban select service hotels, when located in A locations, are great long-term investments for our portfolio and for investors, so that's why we're not kind of focusing only in that space for sales. If we were more concerned about the economic environment, if we were more concerned about leverage levels, it's absolutely a very liquid market for our kinds of assets throughout our portfolio. And so, you know, at this time, we just don't -- we don't have the level of concern about leverage or about the growth profile of our assets to warrant selling hotels. But it's something that we're very open-minded to, and as I mentioned, we continue to take inbound inquiries. But at this time, we feel that just the accelerating free cash flow growth can de-lever our company across the next several years.

We talked a lot about our CapEx. You know, last year we spent over $90 million of capital across our portfolio. That was more than we ever have. This year we're, including all of our maintenance CapEx, we're only spending $32 million. That $50 to $60 million differential is all going to de-lever the portfolio, and we expect to have very limited CapEx needs for the next several years. And so, we will be producing a lot of free cash flow to reduce leverage across the next several years. And so, at this time, we feel very comfortable with that position and our portfolio.

The next question will come from Anthony Powell of Barclays.

We've noticed that brands like Moxy seem to be gaining a lot of traction in the [development] community for urban select service. How do you see these brands like Moxy, Tru, Motto, impacting the pipeline in your markets over the next few years?

You know, they are, in New York, we've seen several Moxys open up already. There's talk about Mottos in some of our markets. I don't think any have kind of officially broken ground yet, but we've been hearing developers talking about it, clearly the brands talking about it in terms of trying to bolster their pipelines and the like. They are -- we believe that any time, you know, there's new hotels coming off of a brand distribution pipe, or whether it's the same brand or a different brand, it does have an impact. And that is -- so if a Moxy were to open close to one of our Courtyards or Hilton Garden Inns, we do think that there can be some impact.

They are generally positioned at a lower price point, smaller room offering, more focused on kind of younger travelers and often leisure travelers, so it's not kind of right on top of us, but there is impact. I think AC was the brand that Marriott came out with three, four years ago. That's definitely kind of growing in our markets and it does give -- it does lead to new supply.

I think in New York City, for the coming years, it seems like most of the development pipeline is really very Marriott focused. Marriott does have a lot of new brands. It has a lot of kind of wind at its back in terms of attracting financing in both equity and debt dollars. Our portfolio in Manhattan happens to be very Hilton oriented, and Hilton has less new supply entering the New York market for the next couple of years, so that gives us a little bit of relief. But it does have an impact, and we're -- it just -- they're still early in their kind of cycle of kind of getting units across the country, but we do expect them to grow, and we do expect them to be competitive over time.

I guess a similar question, obviously Airbnb announced a deal with a developer to take down 10 floors of Rockefeller Center and offer lodging units. Seems like a mall that could expand real -- pretty quickly, both in New York and outside of New York. How do you see this mall as a competitive threat to your hotel? And, just generally, do you believe Airbnb is becoming more of a threat to you than it was maybe a year or two ago, when the regulatory winds were at your back?

You know, it's interesting. On one hand, the Airbnb deal in Rockefeller Center is just new hotel supply. You know, it is going to -- it will be, you know, fully regulated. Taxes will be collected. They will have the life safety requirements. They will have the cost burdens that all other hotels have. And so, in that particular case, that is going to be competitive supply. They are focused on kind of bigger suites, and I think kind of more focused on the AKA or corporate extended stay model. But it has an impact, and it will have an impact when they open.

But I'm -- in some ways, that's a little bit more understandable and defensible, because it is truly kind of hotel supply. It's when -- I think where we felt there was less impact was just in this kind of shadow inventory of potentially competitive apartment buildings or condominium buildings right near our hotels in Manhattan. That was I think less of a drag on performance. But as Airbnb starts to do more hotel kind of product, they are becoming effectively a distribution channel with some actual hotels, and then some of the actual kind of sharing economy.

I think they are -- I think the regulatory wins clearly has influenced their strategy, and they are now, you know, buying distribution companies and getting into the hotel business more directly. Because the regulatory wins for that apartment-sharing model are clearly not at their back in most markets across the U.S.

So, just overall, in this kind of new phase of the share economy in these companies, do you believe it's something that you need to pay a bit more attention to? Is it more of a competitive threat than you thought it may be a couple years ago, or what's kind of the overall status of that in your mind?

You know, I mean, in some ways, like it just -- with this RXR deal in Rockefeller Center, I mean, it's just a new brand for us to consider for properties, right? And so, in some ways, it improves our set of opportunities. They might be able to, if they have a truly loyal customer base that they can develop, then it may be a brand that we look at for certain buildings that we have or certain hotels that we have. We have used Airbnb as a distribution channel for a couple of our independent hotels. It wasn't all that productive, frankly, at the price points that we were putting inventory out. But if it's a kind of true kind of hotel or kind of extended-stay kind of model, it's another brand for us to consider.

But, net-net, the regulatory wins change I think has been it's less of a concern today than it was 2, 3 years ago. As Airbnb evolves, we'll see. I think it's just a little early to tell.

(Operator Instructions) And our next question comes from Chris Woronka of Deutsche Bank.

You mentioned in the prepared comments the potential for some asset sales, I guess more next year. When we think about last cycle when you guys did this, or a few years back, you recycled those proceeds into some pretty high-end hotels with, you know, bigger price tags. And that was, I think, partially a function of the tax situation you were looking at. Should we imply from your comments that, you know, if you're going to further reduce debt with any proceeds, that these hotels you're selling or might sell would have lower taxable gains? Is that fair?

Well, I mean, the portfolio is younger than it ever has been, so maybe, you know, less gains from that perspective, but unclear. You know, I think what we would focus on selling are hotels that would have significant multiple benefits, kind of significant multiples relative to where we're trading today. And so, if we were to sell hotels, it may be hotels that are either underperforming or hotels that we can sell at 20x multiples. At that level there would be some gains, but probably less than we had before.

And, you know Chris, it's a good question, but if we were to sell assets, certainly we'd like to sell them at similar gains, right? We had about $270 million of gains from asset sales, so that's a good problem to have. Outside of 1031s, you can do special distributions and other things to limit your, you know, taxable gains. So I think if the -- we would really look at it as if the asset is the right asset to sell, regardless of the gain component, we would sell it if it makes sense and it's the right time. We can always defer gains by recycling that capital or by distributing it out as a special dividend.

Right, right, no, understood. I guess my question was more aimed at if you would further reduce debt with -- if you sell hotels, you take some EBITDA out, you further reduce leverage. But reducing the leverage would not give you any tax relief, right, because the tax relief comes from 1031 or dividend.

Yes, that is correct. That is correct. But you could do enough of a leverage pay down and then distribute enough so that you still hit the 90% taxable income test.

Okay, fair enough. And then, just wanted to follow up on kind of the breakdown of your performance in the first quarter, RevPAR wise. Are you seeing any big disparity by the way independent hotels and your branded hotels? Because all of our favorite STR data in a lot of markets is showing independents outperforming, and that's mainly because the branded hotels are, in a lot of cases, full. Is that the case for you guys as well?

At this point it would be -- we can't make an absolutely clear distinction, but generally, our independent hotels are growing faster. They're able to push rates faster, they have less competitive supply coming off of these other brand distribution channels and the like, and so they are growing faster and our margins are growing faster in those hotels.

You know, our independent hotels are pretty unique in that they're in the -- all of them are in these high compression, kind of high-occupancy markets already, so they're not necessarily gaining share. They're already at 80%, 85% occupancy, and so all of our growth is on rate, and that is flowing through to our bottom line. So I think our portfolio's performance may not show as clear of a distinction as national STR data might.

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you. With no more questions, we'd like to take a moment to thank all of you for your time this morning. We are confident that our company's specific growth catalysts and our exceptional team will drive our performance for several years to come, and we hope our results the last two quarters help more investors recognize this trajectory. If we can answer any further questions, please feel free to call Jay, Ash, or I at your convenience. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.