Pebblebrook Hotel Trust (PEB) 2011 Q3 法說會逐字稿

Good day and welcome to the Pebblebrook Hotel Trust third-quarter 2011 earnings conference call. Today's conference is being recorded.

I would like to turn the conference over to Mr. Raymond Martz. Please go ahead, sir.

Thank you, Alan. Good morning, everyone. Welcome to our third-quarter 2011 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer.

As always, before we get into the discussions of our results, let me first remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under Federal Securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings which could cause future results to differ materially from those expressed or implied by our comments.

The forward-looking statements in the press release that we issued last night along with our comments today are effective only today, October 28, 2011, and will not be updated as actual events unfold. You can find a reconciliation of non-GAAP measures including EBITDA, adjusted EBITDA, (technical difficulty) FFO, pro forma RevPAR and Hotel EBITDA referred to in our remarks on our website at www.PebblebrookHotels.com.

In the third quarter, pro forma RevPAR for the total portfolio declined 10.7% to $177.32. This exceeded our outlook for RevPAR growth of between 6% and 8% primarily as a result of much better than expected September results. The gain was driven by a significant increase in ADR, which rose 7.6% over the prior year to $211.19.

Occupancy also grew during the quarter, rising 2.8% from the prior year to a very robust 84%. This marks the first quarter during the year that our portfolio occupancy increased. As a reminder, our RevPAR and Hotel EBITDA results include all the hotels we owned as of September 30 including 49% of The Manhattan Collection but exclude the Grand Hotel Minneapolis.

RevPAR leaders in the quarter included Viceroy Miami, The Grand Hotel Minneapolis, Mondrian Los Angeles, and our two San Francisco hotels, the Argonaut and the Sir Francis Drake Hotel. By month, RevPAR increased 9.7% in July, 8.4% in August, and 13.8% in September.

Renovations at three of our hotels, Affinia Manhattan, Westin Gaslamp, and InterContinental Buckhead that negatively impacted our results during the quarter. We estimate that these renovations reduce our third-quarter RevPAR by approximately 200 basis points and a food and beverage and other revenues by about $1 million.

We also lost another 40 basis points of RevPAR growth in the quarter from the negative impact of Hurricane Irene and a one-day power outage in San Diego and Southern California. Nevertheless, with robust RevPAR growth in the quarter, our hotel portfolio generated $29.6 million of pro forma Hotel EBITDAR, a 20.7% increase over the prior year period.

Total revenues increased 9.7% and with expense growth limited to 5.4%, our Hotel EBITDA margin climbed a very healthy 264 basis points. This compares to our prior outlook for the third quarter of an increase of 200 basis points to 250 basis points and is higher primarily due to the stronger RevPAR growth in the quarter's results.

Because of this strong portfolio performance, we generated adjusted EBITDA of $26.5 million for the quarter, an increase of $22.2 million versus last year's third quarter. Our adjusted FFO was $17.5 million or $0.34 per share compared with just $3.8 million during the third quarter of 2010 or $0.11 per share.

Year-to-date, RevPAR is up a strong 9%, again largely driven by increased ADR despite all the negative renovation impact throughout the year.

Our Hotel has generated $57.3 million of Hotel EBITDA through the first nine months of the year with Hotel EBITDA margins improving 210 basis points to 25.9%. EBITDA margin growth is forecasted to accelerate in the fourth quarter as evidenced by our outlook for an increase of 240 to 300 basis points for the year.

Please refer to the reconciliation table we provided in yesterday's press release detailing which hotels are included in the year-to-date RevPAR and Hotel EBITDA tables.

Now let's turn to our capital market activities. During the third quarter, we successfully raised a net $97.4 million through two preferred equity offerings. Following these preferred equity raises, at the end of the quarter, we had $251.8 million of debt on our balance sheet and $291.7 million in unconsolidated debt, which represents our pro rata interest in The Manhattan Collection.

We had cash, cash equivalents, and restricted cash of $84 million on our (technical difficulty) plus another $21.7 million in unconsolidated cash, which also represents our pro rata interest in The Manhattan Collection. We currently have no outstanding borrowings on our $200 million unsecured credit facility as capital raised from September 8% Series B preferred equity offering was used to pay off our unsecured credit facility.

As a reminder, for GAAP purposes, our 49% pro rata interest in the $908 million Manhattan Collection joint venture is nonconsolidated on our financial statements. However, we believe it is useful to provide highlights of the balance sheet and income statement impact to our Company from The Manhattan Collection, since this in fact is how we approach the joint venture as well as how we view our overall balance sheet.

Although we have no debt maturities for the remainder of 2011, we do have three (technical difficulty) for the first quarter of 2012. This includes the $35 million 5.7% fixed rate loan on the Monaco DC, the $42 million 5.7% fixed rate loan on the Argonaut in San Francisco, and a $56 million floating rate loan on the Sofitel Philadelphia.

We are currently in active discussions with several lenders to separately refinance these loans and we will update you as we finalize these refinancings.

Despite the pullback in the CMBS market, we are still receiving active interest from numerous lending sources, which is very encouraging.

I would now like to turn the call over to Jon to provide a little color on the recently completed quarter.

Thanks, Ray. So the third quarter was a terrific quarter. When we closed on the joint venture of the six Hotel Manhattan Collection three months ago, it represented the culmination of an extremely active 14 months that included the acquisition of a total of 20 hotels and the transformation of our Company from a startup to a Company with a very high-quality portfolio of urban gateway, upper upscale hotels with very significant operational upside. And our entire team is highly focused on delivering this upside.

As Ray discussed, overall portfolio RevPAR grew very strongly in the quarter driven primarily by ADR. EBITDA margins expanded at a healthy pace and our outlook for the remaining three months of the year continues to be very strong.

For the industry, demand continued to recover from the prior downturn. It increased 4.7% in the quarter and it's probably fair to say it was stronger than most expected. Year-to-date, RevPAR is up a very strong 8.3%. We think it will end the year around 8%, which is at the top end of the 6% to 8% range that was being forecasted by most prognosticators at the beginning of the year. A pretty impressive year no doubt.

In fact, 2011 RevPAR growth is on pace to be the second strongest since Smith Travel started keeping statistics in 1988.

Both business travel and leisure travel have exhibited healthy growth trends all year, including in the last three months. This is despite significant geopolitical and economic uncertainties. We believe this is primarily due to three favorable factors.

First, corporate profits have grown to record levels with further strong growth this year. Second, consumers with jobs, particularly those who are college-educated, have relatively stable employment and improving balance sheets, and they have a continuing desire to travel on vacation especially at the upper end of the market. It certainly seems like it is a haves and have-nots economy.

And third, significant growth in inbound international travel this year both business and leisure is benefiting the US hotel industry, especially gateway cities. As a result of this healthy growth in demand and with very limited supply growth, industry occupancies have recovered substantially this year. This has allowed hotels to remix their occupancies with higher rated business travel, lower levels of discount and OTA business, and garner increasing pricing power from a growing number of high occupancy (technical difficulty) nights particularly in higher occupancy major cities.

We continue to be encouraged by these favorable trends and we expect these trends to continue for the remainder of this year and into 2012.

You can see this result quite clearly in our portfolio. We ran a very robust 84% occupancy in the third quarter, well ahead of the industries occupancy of 66.5%. That allowed us to drive ADR higher by 7.6%, again well ahead of the industry's 3.8% growth. Most of our markets are now running very high occupancy levels providing the opportunity to drive higher ADR growth. And most have very little supply growth, which should allow us to generate a higher level of ADR growth over the next few years.

We have this strong RevPAR growth even after losing RevPAR penetration for the overall portfolio in the quarter due to the negative impact of our renovations particularly the Affinia Manhattan. In fact due to renovations, we have lost RevPAR penetration all year until September, which is just the second month this year that our portfolio actually gained RevPAR share primarily because the negative effects of the Affinia Manhattan renovation were behind us.

And yet despite these negative impacts, about 150 basis points so far this year, we still managed to grow RevPAR (technical difficulty) 9% year-to-date. Hopefully that sheds some light on the relative strength of our markets.

(technical difficulty) the potential of this portfolio as we move forward. We should benefit from significant improvement in some performance from the renovations that now completed -- that are now completed at the Sir Francis Drake, DoubleTree Bethesda, Affinia Manhattan, Minneapolis Grand, and InterContinental Buckhead. These properties (technical difficulty) loss significant RevPAR compared to their markets and competitors over both the last few years and during their renovations. They all have already started recover that lost ground.

Renovations this winter at the Sheraton Delfina, Seattle Monaco, San Francisco Argonaut, and Westin Gaslamp San Diego, which is in its third and final phase, should significantly enhance the performance of these properties going forward and provide further fuel for the portfolio overall.

Revenues should also benefit from the 92 additional rooms at the Affinia Manhattan, the opening of our new restaurant at InterContinental Buckhead, and the new bar at W Boston.

In addition to this topline opportunity, we are deep into the process of restructuring and improving operations at all of our hotels. There is significant margin growth opportunity well beyond that which will otherwise occur as a result of significant future RevPAR and revenue growth and the fact that most of our future RevPAR growth will come from increases in ADR due to our already high occupancy levels.

I believe last month we talked about over $5 million of potential annualized expense reduction and operating efficiency opportunities that we had already identified. That number has now increased to over $8 million with another three months of hard work and the inclusion of The Manhattan Collection.

You could see with our third quarter results that some of these expense savings and efficiencies are just now beginning to kick in. Our portfolio wide EBITDA margin improved 264 basis points in the quarter despite a 70 basis point drag from a 20% increase in (technical difficulty) which was primarily a result of our California acquisitions.

Excluding The Manhattan Collection, which we just closed on in July, EBITDA margin for the rest of the portfolio increased a very strong 426 basis points, an indication of the progress we begun to make through our asset management activities and the hard work of our operators.

With our EBITDA margin up 210 basis points to date and our forecast to be up between 240 and 300 basis points for the year, you can see that we expect further significant improvements in the fourth quarter.

For our portfolio, we expect RevPAR to increase between 8% and 10% in the fourth quarter. Achieving these fourth-quarter numbers would leave us between 8% and 9% RevPAR for the year, an increase of 50 basis points at the bottom of the range from our prior outlook.

Business trends and business on our books continue to support the strong growth. As of the end of September for the fourth quarter, total group and transit revenue on the books is up 24.8% over same time last year for 2010's fourth quarter.

While this is a very high percentage, about 1000 basis points of this improvement is a result of the increased room count at the Affinia Manhattan. Portfolio wide, group room nights are up 6.5% with group ADR up 8.7% for a total of 15.8%. Transient room nights on the books are up 17.1%, with transient rate up 12.4% and total transient revenues on the books up 31.6%. Again, the transient numbers are substantially skewed by the additional Affinia rooms.

Pace for 2012 continues to be very promising as well. Total group and transient revenue on the books at the end of September for 2012 was 29.3% higher than the same time last year. It is made up of 22.8% more room nights at a 5.3% higher rate. Per group alone, revenues are pacing 24.6% ahead with 18.2% more room nights on the books and a 5.5% higher ADR.

While group on the books for next year only represents about one-third of our expected total group room nights for the year, it is nonetheless very solid evidence of positive trends for our portfolio.

Of course I'm sure we can all agree it's difficult at this time to predict the economy's performance next year given all of the geopolitical uncertainties. So given that, we are not prepared at this time to provide an outlook for our performance next year. But we do believe we are likely to significantly outperform the industry next year regardless of the level of growth in the economy and in travel due to the build (technical difficulty) topline and bottom-line opportunities that we expect to be able to deliver on throughout the portfolio.

We would now be happy to answer whatever questions that you might have. Operator?

(Operator Instructions). Jeffrey Donnelly, Wells Fargo.

Good morning, guys. Jon, judging by your opening theme music, I hope you have figured out how to assure guests check out and never leave but keep paying. So --

That would be a nice plan, Jeff.

Just don't open the call to Heartbreak Hotel. That would be good. Is it -- I'm curious, though, you surpassed the top end of guidance for RevPAR at least certainly what we were expecting. I wanted to get behind what the driver was there. Was it just stronger than expected market performance or did you gain more share than you would within your respective markets?

I think at the end of the day that the primary cause, Jeff, was a stronger-than-expected September in particular. I think we and our property teams had expected that September would be -- wouldn't benefit quite as much from the holiday shift as they did. I think some of that will end up just be given back by both us and the industry in October with probably a greater impact from the holidays and probably the newest holiday that inhibits group travel being Halloween at the end of the month. So Halloween came on the weekend last year. It's coming on a Monday this year and it's having more impact with travel in the first part of that week.

I think we had a number of markets that were up a little more than we thought, like Miami and San Francisco and Seattle. We probably had a couple of markets that were down a little bit more than we thought or just slightly softer than what we thought.

Can you update us? Because a few of the assets that you purchased I think it was Minneapolis and San Francisco had a bit more of I will call it market share gains story or market share recovery story. Can you update us where you are at on a RevPAR index for those hotels versus maybe where they were prior peak or where you bought them?

Yes, I mean we are really just making early impact. Sir Francis Drake gained share in the quarter. I think it was about 100 to 200 basis points compared to the prior year. Probably the biggest gainer we had in the portfolio in the quarter was The Minneapolis Grand, which was up very, very significantly in the quarter and I think in the Investor Day in the last quarter we gave you the early indications of the first month or two of that improvement.

We are running well over 100% share at that hotel between 100% and 110% now and we were running in the upper 70s to low 80s prior to the renovation. So we are seeing very good but it's very early improvement from the renovations.

That's helpful. If I could ask a question of Ray. Just given the turmoil in the markets in the last call it 90 days, where is the change in marginal cost capital, say, over that past 60 to 90 days?

Then the most pronounced, just given the change in CMBS appetite and even decline in base rates, does that hit you think larger stabilized deals more just because they typically would have accessed CMBS? Just curious where you see the impact might've been felt.

Yes, I think clearly you have to kind of look at different sources of CMBS market. I think they are a separate issues and that's really largely on the sidelines for now at some point hopefully that does change. But what we are seeing for the assets that we own and the markets that we own, there's interest out there from the lending community. It really does matter, the quality assets and then location of where they are at. So we haven't necessarily seen as much of an impact as some of the stuff we're hearing out there.

I think when we have been talking to folks whether it's in Monaco DC or Argonaut, there's been multiple bids from multiple different sources and I think overall I think probably the rates will be coming in lower than what we expected probably 30, 60 days ago based on what we're hearing out there.

Okay, thanks.

So, Jeff, for us and the quality of our assets and probably because of the lower leverage we tend to put on the properties due to the decline in the treasury rates, we actually think rates will be lower than where we thought we were going to need to refinance at.

Okay. Thanks, guys.

Michael Salinsky, RBC Capital Markets.

Good morning, guys. Jon, I appreciate the color on the group side. Can you talk a little bit though in terms of corporate negotiations or what you are hearing as you're kind of going into the process? I know it's early, but I am just curious as to what you are seeing there.

Sure. As you say, it is early, Mike, so we have a very, very limited number of accounts that have actually been finalized. We think that will probably run probably through the end of the year. I think what our expectations are at this point is that on average we are probably going to be in mid single digits maybe in the 5% range on average. We will have some markets like a Boston and a New York where we expect to see [double] (technical difficulty) increases on average probably. Philadelphia might be close to that as well due to the strength of the year this year and the incredible strength of the convention calendar last year.

And then some markets that will be in the upper end maybe on the West Coast up single digits and some of the weaker markets may be in the low single digits like a DC or a Buckhead, as examples.

Are you seeing any noticeable trends within the various industries as you're going into corporate negotiations?

Yes, the probably clearest trend is that the financial services industry and really I would say probably limited to the major banks, the big money center banks is that they are trying to drive to little to no increase in their corporate rates and so in those cases, we are either going to give up those accounts because we don't want to take them and don't need to take them at no increases or very, very low increases or we will eliminate any extras.

(technical difficulty) We will potentially move to [NLRA] from last room availability or we will increase the second-tier rates for all the non-standard rooms when the standard rooms are closed out.

So there will be a more extensive negotiation probably with those who seem to have some corporate edicts to limit increases.

Okay, that's helpful. Second of all, I believe on your second-quarter call you talked a little bit about the transaction market not seeing quite the quality of deals you had previously seen in the market. Can you just give us an update what you are seeing in the transaction market both in terms of quality, deal volume and pricing?

I think that would in general still be the case from a quality perspective. We are seeing fewer properties come to market. One of the things we are hearing is some of the advice the brokers are providing to their clients is if these are your expectations, you probably shouldn't come to market today because it's a very high likelihood that you will not achieve your objectives primarily because the REITs are out of the market and the debt markets are very difficult for the private equity players.

So I think we will continue to see a much slower transaction environment through the rest of this year and perhaps into the early part of next year. Then we will begin to see whether the gap closes (technical difficulty) depending upon what happens in the Capital Markets and what happens with the economy.

Okay, finally, Ray, not to leave you out, I think you talked about you guys are early in the refinancing process for the three loans. Can you give us a sense of what you are hearing in terms of pricing and spreads as well as LTVs?

We don't want to negotiate against ourselves given that we are talking to a number of folks. I think in the loan to values is they are certainly under the 60% level I would say. And there's -- so we look at that or the lenders look at that as well as the debt yields. So debt yields have probably moved up to that 12% to plus 14% range on a trailing basis.

And then again not to talk about pricing but what we were seeing on the CMBS side is we are hearing between 5.75 to 6.75, in that range, but we certainly think between the banks and the life companies they are going to be pretty meaningfully below those levels.

Okay, that's helpful. Thanks, guys.

Bill Crow, Raymond James.

Good morning, gentlemen. I have a couple of questions. You said about a third of next year's group business is now on the books. Is that unusual to be only a third on the books this late into the year? Is that just kind of your asset type and more in the period for the period business? Is that -- would explain it?

Yes, and the pay should give you an indication. We are up substantially in pace. This portfolio, which has -- we really don't have a convention hotel in the portfolio, so we are not booking business in many cases more than a year out and an awful lot of the business within the portfolio is in the quarter for the quarter, certainly in the year for the year. And we have a meaningful amount particularly in some of the smaller hotels where it's in the month for the month.

We are always amazed, Bill, that even the larger (technical difficulty) our hotels so we might see a 300 or 400 or 500 room night group for InterContinental -- or a Buckhead. We still see a meaningful amount of business in the month for the month or 30 to 60 days out which I find amazing from a corporate planning perspective. I don't how companies can plan on that short-term notice with groups, but it's still pretty short-term and what we find about next year's pace is very encouraging.

Okay, that's helpful. On yesterday's Starwood call, the company talked about weakening in Europe and reduced expectations. What I'm curious about is how much of your business in the Manhattan or the New York portfolio comes from Europe, from overseas, and whether you are seeing any impact lessening demand potentially over the short term?

I don't have a statistic for you. What I do know is we do do a material amount of international inbound business on both coasts. Europe positively (technical difficulty) New York in particular, but clearly DC and Boston as well, probably Philly less so. But it also has a meaningful impact on the West Coast, San Francisco and Southern California sees meaningful European impact.

To date, I mean one of the ways we look at it, we actually do a lot of -- we have been doing increasing business this year on bookings.com, which is primarily international travel and that business is significantly up this year and was significantly up in the last quarter. I don't know if that's an indication of the growth in bookings.com or an indication of healthy overall European travel. But it does continue to be pretty healthy. The dollar is -- continues to be weak against the euro and against the rest of the currencies around the world. And we continue to see attractive and growing international inbound travel.

Probably the biggest impact we have seen this year on international travel, and it's not primarily from Europe, is in Miami, where we have seen huge increases in demand from South America. And that's translating into the Smith Travel numbers that you see for the market and what we see for the urban market.

Okay, and you may have given this data point out in your Analyst Day. I can't remember. But have you given a CapEx budget for '12 yet, maintenance plus your renovation projects?

No, we haven't, Bill, but it will be obviously substantially below this year. I would say none of the projects that we are doing are major. They are mostly rooms renovations other than the Gaslamp, which is in its third phase, which is the ground floor, the entire ground floor and exterior as well as the fourth floor ballroom.

So we haven't -- we're just -- we haven't even gotten any budgets yet so we have kind of identified the major projects in our comments in terms of renovations, but we don't have numbers yet.

Finally from me, Jon, I know the Grand Hotel benefits to a great extent from the NBA usage of the hotel and I'm sure you have a couple of other hotels that may benefit as well. Have you seen a negative impact or have you been able to find other demand to replace the NBA demand?

It's a good question, Bill. We are a major beneficiary in Minneapolis of the NBA teams and so we have sent one of our head negotiators out to try to resolve the dispute. But we haven't had any luck there. So far, we have generally replaced the business. I would say it still has a bit of a negative impact because we are probably replacing it with some lower rated business and while that's not the greatest rated business, it's fairly decent. So that's probably the biggest impact in the portfolio.

We probably would have some overall revenue impact at the DC Monaco. I don't think we do any teams there, but we certainly get a lot of business from the Verizon Center across the street when there are games in the restaurant and in the bar. So my guess is it will have a negative impact on revenue but probably not a big impact on any kind of material impact on rooms.

Great. Thanks and great quarter, guys. I appreciate it.

Steve Boyd, Cowen and Company.

Okay, thanks. Good morning, guys. I had a quick question on the Manhattan Collection. From the income statement you all provided, it looks like the food and beverage is running at a small loss and I understand that New York can be a difficult market to turn a profit for food and beverage but I'm just curious how you think about the opportunity there?

That's a good question, Steve. We are actually highly focused right now on trying to significantly improve the performance of the (technical difficulty) and with six Manhattan Collection properties. Part of our focus is to drive higher revenues. One of the things we are looking at at the Affinia Manhattan is a project that (technical difficulty) were already working on, which is a reconfiguration and expansion potential of the meeting space at the Affinia Manhattan.

If we can make that work with a healthy return on the investment which looks like it would be about $5 million, that would help because the banquet and catering business even in New York can be profitable.

The biggest focus of ours within the portfolio is the restaurant at the Benjamin, which is doing well at the top line but doing quite poorly at the bottom line. And so a lot of time and effort is put forth by the Denihan Group as well as our team to bring some additional efficiencies and cost reductions to the table as well as trying to drive some higher revenue both there and in (technical difficulty) catering space on the second floor of the Benjamin.

So it's a big focus for ours and there's a meaningful opportunity there to improve the overall margins in the food and beverage, which will flow through to the bottom line.

Okay, great. Thanks. I know it's early and maybe not just in Manhattan but in the entire portfolio, can you comment on any success you've had with some of the retail, ground-level retail leases and retenanting those?

Are you talking about New York or --?

Yes, in New York and I think you have some opportunities elsewhere as well in other --

Sure, in New York we are in the process of making a change in the restaurant tenant at the Dumont and we think when that's resolved with the existing tenant and we're able to bring in a new tenant we will have a significant increase in our retail revenue there.

We don't have leases that come up I think at the other properties until I think it's 2013 in New York, but we will be -- we are beginning to work with a broker there. We are working on a renewal or a new tenant at the Drake in San Francisco and we think we will be able to significantly improve the retail income there.

And then while this is not a retail lease, we did open a new restaurant at InterContinental Buckhead, which is called Southern Art, which is an Art Smith Chef driven restaurant that InterContinental is operating and we had a successful opening in the second week of October and Oprah took the restaurant for herself and her team the first Saturday of the property's existence. And we are getting a great -- we are already getting great customer reviews and fairly significant volume compared to what was being generated before.

So I think we are -- we've got some good progress within the portfolio but I would say it's not material at this point to the bottom line.

All right, great. Thanks, guys.

Jeffrey Donnelly, Wells Fargo.

Just curious about New York City. It's facing and probably should face we think a little bit more supply growth than other metro areas. Are you concerned that performance there just could be hindered a little bit by that? I guess what's your perspective and maybe you can talk about specifically where it's coming in in the marketplace?

I'm sorry, Jeff. Yes, I think the interesting thing about New York is that it obviously runs a very high occupancy to begin with. I think this year's a pretty encouraging example of how the supply can get absorbed in the market. Year-to-date in lower Manhattan, which has seen the vast majority of the growth in supply in the market. Year-to-date demand is up 8.0% and supply is up 8.8%. So it has been pretty well absorbed in the market.

It does impact rate growth opportunities in the market. That's probably the bigger impact in the market and I think it certainly moderates significantly the ability to drive rates when you have that much supply that needs to be absorbed, and I think New York in 2011 -- I mean in 2012 will probably be an average market. I don't think it will be meaningfully above average because I think you will continue to have to absorb a meaningful amount of new supply. I think next year is looking like about 4%.

And while I think it will get absorbed, I think it limits our ability to raise rates in the market and I think you have pressure in the first quarter on rates where we don't have the occupancies in the marketplace.

Are there other assets or I should say markets in your portfolio where you might -- your specific hotels might be facing a new or reopening competitor in the next call it 12 or 18 months?

No, not generally in the rest of the portfolio, no.

And just last question, I know you are not giving guidance for next year, so maybe it's just more of a bigger picture question. As it relates to group business, do you expect that revenue growth from the group segment next year can be I guess I'll call it a leading or a lagging source of topline growth for your portfolio?

I think it will -- for our portfolio, I think it's probably going to be my guess is by the end of the year it will probably be a little better than the transient revenue growth in the portfolio and I think we benefit from the fact that we don't have convention hotels, big convention hotels with rooms that were booked at lower rates in the bottom of the (technical difficulty) really have rates that have to burn all off in the portfolio.

And to the extent the year is a good year, you can see it in our numbers. We are on the books with about a 5.5% rate increase per group for next year and certainly further out group would generally show lower rate growth than the near-term rate growth if we continue with decent compression in these markets.

So I would guess our group revenue might be -- might grow at a higher percentage than our transient revenue next year.

We have a lot of cities in '12 that have really, really favorable convention calendars, Boston, San Francisco, San Diego, Atlanta, Philadelphia, a lot of our markets have very, very favorable calendars next year.

That's good, thank you.

Enrique Torres, Green Street Advisors.

Good morning, Jon. Good morning, Ray. You touched a little bit upon kind of your view of the acquisition market. Kind of given your stock price has rebounded over the last month, can you talk a little bit about the Company's appetite to do deals if a deal does come to market or how far do you think away a (technical difficulty) stock needs to move in order for that to become an option again?

Well, I think at the end of the day, every deal needs to stand on its own and a lot of the deals are different in terms of overall returns. I think we are not at a point yet certainly where we think that can occur in the market. If we were presented with a deal that we could issue stock at this level and it added value for the shareholders, and it had equal or greater growth than the rest of the portfolio, we would certainly look really hard at doing that.

But I just don't think it's likely to happen because I don't think that's where seller expectations of value are. So I think -- I really do think it's a combination of the two, Enrique, that you need the buyers probably to come up a little and the capital market's performance if it's positive will help that. I think you need seller expectations to come down some with probably lower overall economic growth expectations on the part of buyers.

That's helpful. One other question was with the recent deal, the Via Florence in San Francisco, how did that make you feel -- reinforcing the pricing in that market and where your assets stand relative to the pricing on that deal?

We're certainly very encouraged by that transaction and others in the marketplace since the deals we did with both the Argonaut and the Sir Francis Drake. The Sir Francis Drake we bought and I daresay it's of a higher quality today renovation. We bought it at $216,000 a key. We put about $23,000 a key into it. Maybe a little less than that into it, so we are all in at about $240,000 a key and that property and pretty much everything else in the market has traded very substantially higher than that.

So now we are partly union and the Villa Florence as an example is not. That does impact value in a reasonably material way. But our food and beverage is not union.

So the transaction activity in San Francisco is very encouraging for us as an owner. Frankly more encouraging is the underlying operating fundamentals, which have been well in excess of what we expected and we expect next year again to be well in excess of what we originally expected.

All right. Thanks, guys.

Daniel Donlan, Janney Capital Markets.

Thank you and good morning. Just going back to Enrique's question, would you guys consider putting in place an ATM, just given the volatility in the markets and kind of where stocks are moving today?

Well, we have one in place.

Okay, I was looking at the press release and I didn't see it.

Sorry about that. I think it was probably a K filing and not a press release.

Yes, it was an 8-K we put in place over 90 days ago. We have not utilized it to date.

Okay, and then the increase in cost savings from $5 million to $8 million. Was that $3 million increase all The Manhattan Collection?

No, some of it was there. Some of it with best practices (technical difficulty) that are getting implemented at some of the other properties in the portfolio and some of it was uncovering of probably substantially more efficiencies and cost saving opportunities at the Viceroy in Miami.

Okay, and the -- how long does it take for those savings to kind of come into the portfolio? Is there kind of a lag effect to those taking effect?

There definitely is. I would say for the first 14 properties, certainly the ones we have already identified, the vast majority of those will be completed by the end of the year, put in place and should annualize next year. I think some of the other ones that we continue to uncover and put in place including some of the energy-saving ones which require capital expenditures for the Manhattan Collection, those will be put in place over the course of next year depending upon how quickly we can get them fully analyzed. We can get them set up and then installed and with savings being realized.

Okay, thank you.

It appears there are no further questions at this time. Gentlemen, I would like to turn the conference back over to you for additional or closing remarks.

Thanks, operator. Thank you all for participating, your support, and we look forward to giving you an update on our final numbers for 2011 and then our outlook for 2012 in our next call.

That does conclude today's conference. Ladies and gentlemen, thank you for your participation. You may now disconnect.