Summit Hotel Properties Inc (INN) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Summit Hotel Properties Q3 2018 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's call Mr. Adam Wudel, Senior Vice President of Finance and Capital Markets. You may now begin.

Thank you, Sherry, and good morning. I am joined today by Summit Hotel Properties' Chairman, President and Chief Executive Officer, Dan Hansen; and Executive Vice President and Chief Financial Officer, Jon Stanner.

Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our 2017 Form 10-K and other SEC filings.

Forward-looking statements that we make today are effective only as of today, October 31, 2018, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at www.shpreit.com.

Please welcome Summit Hotel Properties' Chairman, President and Chief Executive Officer, Dan Hansen.

Thanks, Adam, and thank you all for joining us today for our third quarter 2018 earnings conference call. Yesterday, we recorded bottom line results in line with our expectations coming into the quarter, despite a difficult year-over-year comparison to the third quarter of last year when natural disaster-related occupancy boosted our results, which was compounded by some disruption caused by Hurricane Florence.

For the third quarter, we reported adjusted FFO of $36.1 million or $0.35 per share, which came in above the midpoint of our guidance range of $0.33 to $0.36 per share. On a pro forma basis, RevPAR was unchanged compared to the third quarter of 2017, which consisted of a 1.7% increase in average daily rate, offset by a 1.6% decline in occupancy, largely driven by our hotels and markets effected by hurricanes Harvey and Irma as well as the wildfires in Southern California.

In addition to the markets effected by last year's natural disasters, there were a few markets, such as Asheville and Charlotte, that experienced disruption from hurricanes Florence and Michael in September of this year.

Several of our markets performed quite well during the quarter, which gives us continued optimism that well-located hotels with great brands and efficient operating models have opportunities for growth. Minneapolis was again one of our better performing markets with our 2 downtown hotels leading the way with a combined 9.2% increase in RevPAR during the quarter, bringing year-to-date RevPAR growth to an impressive 18.4% at the 2 hotels.

Bottom line performance has been encouraging at our downtown hotels as well with hotel EBITDA growth of 19.0% and margin expansion of 230 basis points during the third quarter. Although we will be up against a difficult Super Bowl comparison in the first quarter of next year, we are encouraged by the strengthening market fundamentals in Minneapolis.

Our 3 San Francisco hotels generated strong RevPAR growth of 5.9% during the quarter, led by a recently renovated Holiday Inn Express & Suites, which posted 8.3% RevPAR growth. A 9.3% increase in average daily rate across our 3 San Francisco hotels this quarter outpaced the overall market growth rate of 8.3% and translated to hotel EBITDA growth of 10.9% and margin expansion of 215 basis points.

In Austin, our Hampton Inn & Suites increased RevPAR 8.9% in the quarter, significantly outperforming both the Austin market increase of 0.6% and the competitive sets decline of 4%, which resulted in a 13.5% gain in share.

The hotel's solid top line performance in the quarter translated to hotel EBITDA growth of 16.1%, with hotel EBITDA margin expansion of nearly 250 basis points as compared to the same period in 2017.

Our Courtyard in downtown Pittsburgh, which was acquired in mid-2017, had an impressive quarter posting RevPAR growth of 13.4%, and the ADR-driven RevPAR growth boosted hotel EBITDA margin to nearly 42%, an expansion of 400 basis points.

In addition, our recently developed and now opened Hyatt House Orlando at Universal Studios is still ramping up, and I'm happy to report that our new hotel has been a resounding success, already achieving its fair share of market share in its first month being open, which makes it the fastest select service hotel to reach a 100% RevPAR index in Hyatt's history.

We continued to make progress on our capital recycling and allocation strategy during the quarter, as we announced the acquisition of the 150- guestroom Residence Inn Boston Watertown. The purchase price of $71 million represents an 8.1% cap rate on the estimated forward 12-month net operating income. The hotel will require very limited near-term capital expenditures and will have the highest absolute RevPAR and EBITDA margin of any hotel in our portfolio.

The hotel is in the rapidly expanding submarket of Watertown, adjacent to Cambridge and across the street from the transformational mixed-use Arsenal Yards redevelopment.

During the quarter we completed the previously announced sale of the 148-guestroom Hyatt Place in Fort Myers, Florida. The sale price of $16.5 million resulted in a 7.5% cap rate on the trailing 12-month NOI, including estimated capital expenditures for brand-mandated PIP items. This brings our gross disposition proceeds in 2018 to $106.8 million at a blended cap rate of 7.7% including capital expenditures.

Combined, the weighted average 12-month RevPAR of the 8 hotels sold in 2018 was approximately $90, or 26.3% lower than the pro forma portfolio average as of September 30th. The combined hotel EBITDA margin of 33.9% was 340 basis points lower than our pro forma portfolio average for the same period. Our blended hold period, unlevered IRR on the 8 sold hotels was 14.1% and resulted in a net gain of $42.6 million, further demonstrating our ability to execute on a strategy of buying, renovating, and selling hotels at attractive returns.

The execution of our capital recycling strategy during the year has allowed us to redeploy capital into hotels that we believe have greater growth potential and better overall risk-adjusted returns than our recent dispositions. Our 16 hotels currently classified as acquisition hotels have a 43% absolute RevPAR premium compared to the hotels we have sold in 2018, and on average, a hotel EBITDA margin of 570 basis points higher.

Their success continues to validate our ability to identify and execute high-quality acquisitions in markets and locations where today's guest want to stay.

During the third quarter, we invested $18.9 million into our portfolio on items ranging from public space improvements and lobby bar enhancements to complete guestroom renovations.

The planned and ongoing renovation projects are strategically timed to position our hotels to benefit from demand in markets with near-term upside such as San Francisco, Atlanta and Houston, to name a few.

With that, I'll turn the call over to our CFO, Jon Stanner.

Thanks, Dan, and good morning, everyone. For the quarter, our pro forma hotel EBITDA was $53.4 million, a decrease of 0.2% compared to the same period in 2017, and hotel EBITDA margins contracted 87 basis points to 37.2%.

Hotel operating expenses increased just under 4.0% on a per occupied room basis during the quarter, primarily driven by higher labor cost. During the third quarter, our adjusted EBITDAre increased 3.6% to $49.6 million. Our balance sheet continues to be well positioned with approximately $300 million of current liquidity and an average length of maturity of more than 4 years.

As of September 30th, we had total outstanding debt of $974 million with a weighted average interest rate of 4.3%. At the end of 2018, we intend to repay 4 mortgage loans that mature in 2019 without penalty and an outstanding balance of $108 million. Following the repayment of these loans, approximately 82% of our hotel EBITDA will be unencumbered, validating our continued efforts to assemble a highly flexible balance sheet.

As Dan mentioned, we have continued to make great progress on our capital recycling program with the sale of 8 hotels year-to-date for a combined sale price of $106.8 million. After the completion of these transactions, our trailing 12-month net debt-to-EBITDA is approximately 4.6x on a pro forma basis. On October 26th, we declared a quarterly common dividend for the third quarter of 2018 of $0.18 per share, or an annualized $0.72 per share.

The annualized dividend results in an attractive dividend yield of 6.2% based on the closing stock price as of October 29th and a prudent AFFO payout ratio of approximately 54% at the midpoint of our 2018 outlook. We updated our guidance for the fourth quarter and full year in the press release yesterday. Our full year 2018 guidance for adjusted FFO was tightened to $1.31 to $1.34 per share. We also updated our pro forma and same-store RevPAR growth guidance to 0.25% to 0.75% and negative 0.75% to negative 0.25%, respectively.

Our full year estimate for capital improvements is expected to be in the range of $60 million to $65 million.

For the fourth quarter 2018, we provided AFFO guidance of $0.26 to $0.29 per share and RevPAR growth guidance of negative 3% to negative 1% for both the pro forma and same-store portfolio.

As a reminder, we face a particularly difficult year-over-year comparison to the fourth quarter of last year when storm-related demand drove RevPAR growth to 5.6%.

No additional acquisitions, dispositions, equity raises, or debt transactions, beyond those previously mentioned, are assumed in the fourth quarter or full year 2018 guidance.

With that, I'll turn the call back over to Dan.

Thanks, John. In summary, we're very pleased with our capital recycling progress in the third quarter as our well-diversified portfolio and our acquisition properties continue producing solid results. We continue to be extremely optimistic about the future of Summit.

And with that, we'll open the call to your questions.

(Operator Instructions) Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Just first question, I know it's only a month into the fourth quarter, and clearly the 4Q guide suggests some challenges from the hurricane comps, but how have the markets -- from what you can see so far, how have the markets been impacted up to this point that faced the difficult comp from the hurricane?

Austin, this is Dan. I'll start. I think everything's been kind of in line with expectations. I think that -- as we've talked about in the past, that general underlying fundamentals of business travel and leisure travel have been solid. There's been some challenges pushing rate, and there's been in -- almost market-by-market challenges, some is supply, some is renovation, but we feel good about the guide. We feel good about all the work that's been done. It's always difficult when you have a really strong quarter to compare yourself to. And with -- over 5.5% RevPAR growth in Q4 last year, it's a bit of a mountain to climb, so to speak. So that has all taken effect kind of early in the year and almost implies less growth then perhaps there actually is in the portfolio. So despite the difficult comp and the challenging fourth quarter, we still feel good about the portfolio. A lot of work's been done with renovations, and we had some great acquisitions we purchased over the last few years. So we're certainly optimistic, more so than the guide would probably imply.

So saying that they've kind of performed as expected, was the RevPAR guidance decreased largely attributable to third quarter performance? Or is there any other markets in the fourth quarter that are underperforming what you originally anticipated?

Yes, Austin, it's Jon. I think that the guidance in the fourth quarter is a combination of a weaker third quarter coming in towards the low end of our guidance range and a softer fourth quarter than what was otherwise implied when we guided for the third quarter. As Dan mentioned, I think the hurricane affected markets have largely performed in line with our expectations. There has been some other softness throughout the portfolio. Some of that in the third quarter was caused by some storm-related disruption in the third quarter of this year, but there are other pockets of weakness. Salt Lake's a market that's been weak for us; Santa Barbara has been a little weaker; we've been a little weaker in Nashville. I wouldn't say that's it's any just one market but more of a combination of a couple, and obviously, very difficult comps in the fourth quarter.

Thanks for the added detail. And then just last one for me. Last quarter, you talked about supply in suburban Boston has created some softness in that market. You announced the acquisition in Watertown, certainly a high-quality, well-located hotel, but just curious what your near-term growth prospects are or outlook is for that market?

Yes, I think that the supply in Boston, that's really had an effect on us, has really hurt us more in Waltham, in Norwood. When we look at Watertown, we look at it not as a suburban market but more as a submarket of Boston adjacent to Cambridge. And I think that there's just tremendous growth coming out of that submarket. And particularly, as it relates to kind of this Arsenal Yards redevelopment, that's really going to be a transformational mixed-use development that's right across the street from a relatively new asset. So I think Boston's a little weaker from a city-wide convention calendar perspective next year. But I think the growth in that market -- there's tremendous growth from the universities, from all the life science companies that have moved in there. And we believe we've got a great location that's relatively less affected from that suburban supply. The real -- really the only new supply coming in that we see that's going to affect that submarket is, there's a new Hampton being built right across the street that we have a right of first refusal to purchase. So we feel good about the market and the location we're in there.

And what's the timing on that right of first refusal?

We -- it's in process of being built. So haven't been disclosed the actual time. But through -- obviously through construction.

Our next question comes from Chris Woronka with Deutsche Bank.

I just want to ask you, as you look at how the year's unfolded, we're now almost to November. Do you think the supply pressures -- you've mentioned from time-to-time in certain markets, do you think those are worse than a year ago, or are they abating, or are they about the same? Just trying to get a sense as to what your broader supply outlook is for your markets heading into the next year?

Chris, this is Dan. I'll -- Jon and I'll probably share this one a bit. I think that what we've kind of witnessed over the last several years is probably a larger effect of new supply in the short term, but some stabilization and some real benefits from renovation. If you think about one of our goals, as we have transformed the portfolio, it's to have the very best locations. And while, a new supply can come into a market and disrupt things in the short term, locations will always matter, especially with the proliferation of brands. So good renovations and good locations I think over time create -- as the supply gets absorbed, can still lead to great performance. And I think Minneapolis is a great example. We had a really challenging year in 2017 as a lot of new supply came on. And the market had some dynamics with some special events that helped kind of drive the performance up prior to the supply coming online. So you had some supply and difficult comps. And so far this year it's been a really solid market for us. Now we do have the Super Bowl, which was certainly a tailwind going into the year. But even with -- without the Super Bowl, we've seen strength and consistency in our performance there. So as we look at supply, I think there are some markets that probably stick out more than others, markets like Nashville and Austin. Austin was a market -- that, this quarter in particular, as noted, was up significantly versus the market and the competitive set. So great general managers in markets with a great property can still drive value. So I think that, to sum it up, supply will, I think, continue to abate and continue to be absorbed. And we see that being much less of a headwind going forward than perhaps we have seen in the last couple of years. And part of that thesis is predicated on locations and renovations coming online. So we do have some markets as we go forward that we could talk through, that will probably be shorter-term challenges. But -- and as we've talked about the high-quality portfolio we have, we think competes very well with new properties coming online.

Okay. That's helpful. And then I guess similar type of question on the expense front, which is, do you think there's a point where you kind of cycle the worst of the increases? Or do you think we're still kind of -- that's still kind of a moving target and still potentially a pretty meaningful headwind for next year?

I think we should start to cycle some of the challenges we have. I think we're in an environment that many of our general managers and probably management companies haven't experienced before, to be honest, prolonged lower RevPAR environment where expense management is under higher scrutiny. So I think because of the efficiency of our operating model, there's not a lot to cut when we start. So being efficient and being creative on ways to mitigate increases is something we continually challenge, not just our asset managers with -- but our management companies. So I'd expect them to moderate over time through some of the efficiencies that we'd hope to create. But I think it has been a greater headwind than certainly we anticipated this year. And lot of that has to do with labor. That's probably been the biggest driver of expense growth. But as you'd expect there's always little things that can be focused on to create some added efficiencies.

Chris, I -- the only thing I would add is, just keep in mind that -- we've talked quite a bit, particularly in the first half of the year, about increases in property taxes, which have been a big headwind for margins. I -- we look at kind of the first half of the year, we're up 11%, 12% in property taxes. Clearly that's as a result of being very acquisitive in 2017. That headwind goes away in a material way in 2019.

Our next question comes from Michael Bellisario with Baird.

Just wanted to go back to your comments from the press release and earlier, just on September weakness. And maybe can you strip out Florida -- South Florida, and Houston in Texas, just the hurricane-impacted markets? Could you guys pinpoint any segments that were weaker than expected or maybe trends that snuck up on you to have the quarter be weaker than expected in particularly September?

Yes, Mike, it's Jon. I think, specifically, on the question of what were the storm impacts, particularly in the third quarter. We had -- keep in mind, we had a very difficult comp for some benefits from last year's storm. That was about a 60 basis point headwind for us in the quarter. The storms from this year, which were disruptive and thankfully not as damaging as the storms from last year -- we didn't get any pickup from those storms. So it was another 20 basis points of headwind for us in the quarter. So about 80 basis points total between the 2 storms related to some disruption there. I don't know, as we've looked through on the kind of segmentation analysis, it wasn't any one particular segment that was particularly weaker than others. We talked about some of the markets that were a little bit softer. But it wasn't any particular segment driving the results lower. Any type of trend that I think is a read through to future quarters.

Got it. And I take it you've seen some of those same trends in September carry over into October? And it's more weather and hurricane-related, is that correct?

Yes. Again, I think the fourth quarter guide is more reflective of a very difficult comp. Again, if you go back and look at kind of the implied fourth quarter guide, when we guided in the third quarter and the fourth quarter guide we put out yesterday, it does imply a softer fourth quarter. And I think, that's a combination: one of hurricane-effected markets and two, just kind of the -- some of the softness that we saw in September.

Got it. That's helpful. And then, maybe, just on capital allocation with your stock price underperforming lately. Kind of talk about it, how do you think about all the options you have today, all the way from share repurchases to the other side, thinking about potential new developments and kind of your sources and uses of capital going forward?

Yes, Mike, this is Dan. I think we've consistently been, in our view and by many, very thoughtful in how we've been allocating capital. Recycled a lot of capital. We've raised the dividend. We've issued stock. We really believe that every dollar of capital is precious. And we do believe we're stewards of that capital. So to the extent there's an alternative that we haven't used, such as a stock buyback. That is certainly not off the table. I think, we'd evaluate everything whether it's an acquisition, an investment in a renovation where we could drive some incremental revenue, a bar or things like that. I mean everything has -- there's a little bit of internal tension and discussion about what the very best use of that capital is. So I think as a REIT, the expectation by investors is that, we're looking at all the options and people should be certain that, that is something that we take very seriously. And that we will continue to evaluate each and every quarter, as a team and with our Board.

Got it. Then just last one from me on that same topic, just on the disposition front. You think you can continue to sell some of your lower quality, lower growth properties at the same cap rates? Are you hearing anything from buyers about change in value perspective given the rising interest rates? And then any prospect for a potential portfolio sale, or is that appetite still out there at all?

Yes, Mike, it's Jon. Look, I don't think that we've seen any material correction in private market asset pricing given what's happened with the public market share prices. So I still think that we've been that seller this year. I think we've been fairly consistent talking about it being an environment that's more conducive of selling than buying. I think that same environment persists today. And I think we'll continue to opportunistically look to sell assets in the portfolio.

Our next question comes from Shaun Kelley with Bank of America.

Jon, I think you sort of already mentioned the demand side of what you guys are seeing out there. But I wanted to go back to -- on maybe some of the thoughts around supply. It seems like you guys think that we're starting to shift from headwind to tailwind on that. Just -- could you give us a little bit more clarity? Do you think in -- at least in your markets or for Summit's portfolio, peak supply growth for your property types are more 2018. Does that blend into 2019, kind of when you look at it in a weighted average basis? Or just how are you thinking about timing because we certainly know that overall the construction pipeline is already peaked?

Yes, it feels like kind of late this year, early next year is when we see peak supply growth. It's clearly a market-by-market analysis. When you look at -- we talked a little bit about Minneapolis and the supply that came on there last year. And that's a market that feels like its firmed this year. There's still pockets. Nashville is a market where there's been a lot of supply. There's still a lot of supply coming in. I think that's a market that stands out to us as one that needs to be watched from a supply perspective. By and large, I think it's safe to say that we will see kind of peak headwinds from a supply perspective, again, late this year, early next year.

Yes, Sean, it's Dan. The only thing I'd add is, the -- if you look at the top 25 markets, there's -- there has been some consistency. And probably, likely to see over '18 and '19, some of the usual suspects like Nashville and Austin, Denver and Houston are all suppose to -- are expected to have the highest supply growth. So those are markets that I think would be the likely culprits of any effect of new supply. Having said that, a market like Denver has a lot of different submarkets. And what new supply coming in downtown may not affect some of the other pockets and unique areas that have it their own demand drivers. But I think those usual suspects are the ones that we are watching very closely.

Great. And do you guys have just sort of a ballpark estimate of weighted average supply growth across the portfolio. They're sort of now, let's call it, at the end of the year? Or which -- sort of what you're looking for '19?

Yes, I think it's -- I think ours is fairly in line with what you'd see from top 25 markets. So if -- we've kind of pegged the industry growth for both '18 and '19, right around 2%. We've pegged kind of top 25 market supply growth, closer to 2.5%. And our growth is in line with that. Again, Nashville is probably the one top 25 market that's an outlier for us. Ex-Nashville, we're probably closer to the industry average.

Right. I think Nashville's an outlier for everybody. And then last thing was being, you mentioned the sort of -- just -- maybe it was a throwaway, but sort of the proliferation of brands out there. Could you just talk at sort of a high strategic level about as we see more, let's call it, upper-midscale type brand introduction or maybe even some of these urban targeted brands that we've seen launched very recently? How does -- is that impacting things out there? Is there cannibalization or downshift across some of these bigger brand family? Is that something we need to think about, or kind of how do you guys kind of think about some of those launches?

Sure. We don't expect the launches to stop. I think there's a narrative around unique types of guests that are looking for a specific and unique opportunity. And that may be true. And I would say that those kind of niche products that cater to a unique individual looking for a specific experience are interesting. But our focus to mitigate a lot of that risk is to be looking at location. And if you look at the last dozen or 15 hotels that we have purchased, they have great locations, very diverse demand generators. So -- while there's a lot of new brands that come out that I think cloud the water, so to speak, on guest preference, I -- we do believe in the brands, both Marriott, Hilton, Hyatt, and IHG are brands that are well distributed. And we think that great locations and great renovations can drive that behavior. We think that loyalty and distribution is a way for these hotels to be successful. And think about it not just on the individual brand but more on the family. So we're big believers in our partners out there. But our way to mitigate the risk is great locations and great renovations that bring a level of authenticity to a property that may be distinct and unique from the average, everyday suburban kind of Upscale town. Is that helpful, Sean?

Yes, it is. Perfect, guys.

And our next question comes from Bill Crow with Raymond James.

Let me start with a big picture macro question. Is the labor challenge encouraging, speeding, changing the way that brands are thinking about using technology to shift labor costs, reduce labor costs? Maybe rethinking the way that rooms are cleaned, that sort of thing? Is there anything in the offering that we could be encouraged by that would change the margin dynamics?

This is Dan. I know they're talking about it. And as owners, we're all talking about it as well. I think the greatest component of the -- our challenge is in labor, are the result of much of the need for physical contact. And to the extent, there's keyless entry and opportunities to be efficient with technology, I think that's important. But we are a hospitality industry, we believe in people and to find good people that can provide value and service and engagement with guests where they choose to want to be engaged, whether it's in the lobby or at check-in, is continually a challenge. I don't see a future where there are fewer people. I think, maybe there will be a future where they'll be utilized a little bit different. But certainly, to your question, there's a lot of discussion going on with the brands and with the owners on how to be efficient, but still deliver a great guest expectation and to really be thoughtful about how to engage workers to fulfill their needs as well.

Yes. Okay, thanks. Which is more impactful to your portfolio, Super Bowl in Minneapolis or the Super Bowl in Atlanta? Kind of how should we think about the first quarter?

I think from a rooms base, we've probably had a heavier waiting in Minneapolis. From a -- but from an EBITDA base, we're more heavily weighted to Atlanta. So I think it should be -- the expectation would be more of a tailwind.

Okay. And then finally from me, as you think about your top, I don't know, 5 or 6 markets, which ones are definitively going to be worse next year? Which ones are going to definitively be better next year?

It's still October, so I'm not sure there's a definitive answer to provide yet. We are very well diversified, so the difference between a market that has 7% weighting and 5% weighting, I'm not sure that the magnitude of that difference could be quantified as significant. I think the markets where we've been thoughtful about renovations, such as a Boulder or a San Francisco, we'd expect to have some significant upside. San Francisco is well understood. I think there's high expectations from everybody there. But -- I think those are the markets where we've had some disruption that we'd expect there'd be some great strength. And on the convention calendar, I mean that always creates the compression. We do have some markets that, like Louisville, which we have 2 hotels in, which is kind of up and running at full steam from the convention center. So I think there's some upside there. And Atlanta, who has -- also has a fairly strong convention calendar or pace for next year. So I think there's some markets there that we'd expect strength in. But I'm not sure because of the diversification of our portfolio there'd be one big driver. Part of that, our thesis is not to have the concentrations in markets that can kind of whipsaw the earnings, so to speak.

And our final question comes from Wes Golladay with RBC Capital Markets.

I just want to go look at the $108 million you guys might prepay of mortgages. You -- looks like you've a line balance a little over $50 million. Is the plan to issue a term loan? And if so, what is your current rate for a new issuance?

We have capacity to do it on the line. I think that can be the expectation for now. Certainly, doing a term loan or some other capital markets transaction is always an option that we'll evaluate. But I think for now the safe assumption is that we have the existing capacity to do it on the line.

Okay. And then you have a mezzanine loan that you have out there. First option expires end of this year. What is the plan with that, I guess, maybe strategically thinking, is it -- if the hotel yields more than the current interest on the mezzanine note, would you exercise it or you're going to try and take it all the way out to the last expiration?

Yes. The expiration's actually not this year, it's next year. And I don't know that we'd look at it different than as you've described. I think we want to be thoughtful about our use of capital and where the returns are at the greatest. So part of it would be a capacity issue. Part of it would be almost another underwriting as the option becomes available to look at current market dynamics and current growth potential. But we do look at it as a use of capital like we would anything else. So I think you should expect us to be very thoughtful about any capital investments we make down the road as we look at our options to exercise.

Okay. And then taking one more look into 2019, we addressed a lot of issues that appear to be abating from this year. But looking at renovations next year, do you have any material, let's call it, top 10 assets that you're going to renovate? Or do you have any residual comp issues from the storm in the first quarter next year?

I think I'll talk about kind of the pipeline first. This is Dan. We still have some acquisitions that we have renovations planned for, so I think throughout the year we -- as we've always done. Do you kind of look at a $50 million run rate as probably a safe bet? We try to time out the renovations as to minimize disruption and maximize the effects of the investment in the properties. We did have disruption in the second quarter of this year, which is unique for us. We typically have most of our disruption in the fourth quarter and in some years the first quarter. So I think that will be a much easier comparison next year. Did that answer your question?

Yes. That's what I was looking at, more like it was going to be renovations and tailwind versus the headwind. I know you had the high occupancy hotels this year, but I want to make sure we didn't have that again next year.

Yes. What I think is fair to say that the expectation again kind of with the knowing that we're just getting started with budget season. I think the expectation from our end would be renovation disruption would be a tailwind in '19 versus the headwind that it was in '18. Particularly, as you mentioned 2 of our larger more significant higher occupancy hotels that were renovated in the first half of the year this year.

Okay. And then the -- just the residual issue from the comp for 1Q of '18 from Houston and Florida. Is that material next year from a comp issue?

I -- there's probably some residual. I would say that it's probably -- we probably had more pickup in the first quarter of this year in Florida as a residual, and some of that was, again, displacement from the Caribbean travel. A leisure travel that there was pickup in South Florida, particularly in Fort Lauderdale for us, will probably create some challenge for a comp. I'm not sure how meaningful that is. We're just getting to the planning season for '19.

Ladies and gentlemen, thank you for participating in today's question-and-answer portion of today's call. I would now like to turn the call back over to management for any closing remarks.

We certainly appreciate you all taking the time together. And as always, we'll continue to work very hard for shareholders creating value through thoughtful capital allocation and operational enhancement. Our portfolio of high-quality hotels continues to grow, and we continue to see great things in the future for Summit. So hope you all have a terrific day, and we look forward to talking to you again soon.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect, and have a wonderful day.