Pebblebrook Hotel Trust (PEB) 2014 Q4 法說會逐字稿

Good day, and welcome to the Pebblebrook Hotel Trust fourth-quarter and year-end earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ray Martz, CFO. Please go ahead, sir.

Thank you, Lisa. Good morning, everyone, and welcome to our fourth-quarter and year-end 2014 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer. But before we start, let me remind everyone that many of our comments today are considered forward-looking statements under federal securities laws. These statements are subject to numerous risk and uncertainties as described in our 10-K for 2014, which we filed last night, and our other SEC filings, and could cause future results to differ materially from those expressed in or implied by our comments.

Forward-looking statements that we make today are effective only as of today, February 18, 2014, and we undertake no duty to update them later. You can find our SEC reports and earnings release, which contain reconciliations of the non-GAAP financial measures we use, on our website at pebblebrookhotels.com.

Okay, so we're very excited to report we had another strong quarter to complete another great year for Pebblebrook. In 2014, adjusted EBITDA grew 31.4%,or $47.2 million, versus the prior year. Our adjusted FFO climbed to $130.1 million, or $1.96 per share, compared with $91.3 million, or $1.47 per share, during 2013, representing a 33.3% increase per share. The strong growth through the year reflects an increased number of high-quality hotels in our growing portfolio, as well as the elevated growth rate in the same-property EBITDA of our existing hotels, which we believe will continue during the next several years.

As we look at our performance for the full year, our 2014 same-property RevPAR was up a robust 9.2%, well exceeding the overall industry growth of 8.3%. Our portfolio RevPAR growth was driven by a 7.4% increase in ADR and a 1.6% increase in occupancy. We're very pleased with our portfolio's performance, which was delivered despite the negative renovation impact we experienced throughout the portfolio at a number of hotels within our portfolio. Our hotels generated $219.4 million of same-property hotel EBITDA for the year, with same property hotel EBITDA margins improving 262 basis points to 31.9%.

Total hotel revenues grew 6.8%, while total hotel expenses were limited to a 2.9% increase. Paid occupied rooms increased by 1.6%, and total expenses per occupied room were limited to just a 0.6% increase. The hotels with the highest EBITDA growth rates in 2014 were: the Fifty NYC; Hotel Zetta; Sir Francis Drake; Hotel Palomar San Francisco; Mondrian Los Angeles; and W Boston.

Turning now to the specific fourth-quarter results, same-property RevPAR growth for the total portfolio climbed 7.4%, to $193, which is above our 5% to 6% outlook. This is largely due to strong demand across all of our market segments including group and transient, business and leisure, but especially group.

Continued strength in hotel demand helped to offset the negative impact from several disruptive renovations that commenced in the quarter. The impact from these renovations, most notably at the WLA, Embassy Suites San Diego, and Radisson Fisherman's Wharf, reduced RevPAR growth by roughly 190 basis points in the fourth quarter. Overall, transient revenue, which makes up about 75% of our total portfolio room revenues, was up 6% compared with the prior year, with ADR growing 4.9%. Group revenues, which were strong during the quarter, increased 11.5% with ADR up 10.9%.

Our properties located on the West Coast generated RevPAR growth of 7.6% in the fourth quarter, led by our hotels in San Francisco, Portland, and Seattle. However, our West Coast performance was negatively impacted by the renovations at the three properties located on the West Coast. Our properties on the East Coast also generated RevPAR growth of 7.6% in the fourth quarter, led by the Fifty NYC, which was negatively impacted by its renovation last year. Our hotels in Miami and Boston also performed well during the quarter.

As a result of these factors, monthly RevPAR for our portfolio increased 10.3% in October, 1.5% in November, and 10% in December. Convention calendar weakness on a year-over-year basis in San Francisco and San Diego was a primary factor for November's underperformance in our portfolio.

As a reminder, our Q4 RevPAR and hotel EBITDA results are same property for our ownership period and include all of the hotels we owned as of December 31, except for Hotel Palomar Los Angeles - Westwood, the Union Station Hotel Nashville, and Revere Hotel Boston Common, all of which were required during the second half of the fourth quarter. Our same-property numbers do not exclude hotels under renovation unless the hotel was closed during the renovation. RevPAR growth in the quarter was led by Viceroy Miami, Mondrian Los Angeles, Hotel Modera Portland, DoubleTree Bethesda, Hotel Zetta, and the Fifty NYC.

Food and beverage revenues for the portfolio decreased 3.7% compared to last year, but food and beverage expenses declined by 6.8%, underscoring the significant results our retooling and reconcepting efforts are generating. In Q4, F&B departmental profit margin improved by 224 basis points and, during 2014, margins were up 258 basis points. F&B departmental profit improved by $0.5 million in Q4 and $3.5 million for the year though it understates the total benefit due to increased rental revenue as well as further savings in undistributed cost. This is a favorable trend that we expect to continue into 2015.

When compared to last year, fourth-quarter same-property total revenues increased 4.5% and fourth-quarter same-property expense growth was limited to 0.8%, resulting in same-property EBITDA growth of 13.6%, with our EBITDA margin climbing 254 basis points. The hotel EBITDA percentage growth leaders in the fourth quarter were: the Fifty NYC; the Meridian Delfina Santa Monica; Hotel Palomar San Francisco; The Westin Colonnade Coral Gables; Mondrian Los Angeles; and the Sir Francis Drake in San Francisco. Our EBITDA growth is broad based as 15 properties grew EBITDA by more than 14% in the quarter compared to the same prior-year period.

Because of the exceptional performance generated by our portfolio during the fourth quarter and the benefit from a select number of acquisitions in the last year, adjusted EBITDA increased 24.7% and adjusted FFO per share climbed 17.9% compared with last year's fourth quarter. Non-cash G&A expenses were higher in the quarter due to increased accruals relating to our long-term performance shares, which reflect a better-than-expected improvement in our hotel EBITDA margins.

Now, let's shift our focus to our acquisition and capital markets activities in the fourth quarter. As of the end of the year, we are suddenly very active on the acquisition front, completing four acquisitions totaling $450.8 million in several high-quality hotels with a lot of upside potential. This includes the 157-room Westin Colonnade Coral Gables in Miami for $59.4 million on November 12, and the 264-room Hotel Palomar Los Angeles - Westwood for $78.7 million on November 20. Then, in December, we acquired the 125-room Union Station Nashville Hotel for $52.3 million, followed by the 356-room Revere Hotel Boston Common for $260.4 million, which also included an attached 826-space parking garage and an adjacent land parcel.

The pre-funded acquisitions we successfully completed two equity common offerings. One on September 9, which provided $131.4 million in proceeds, and the second on October 30, which raised $146.2 million. We had no ATM usage in the fourth quarter. In addition to the support we received from the equity capital markets, we also increased and extended our unsecured credit facility, upsizing our total line to $600 million, which is now comprised of a $300-million unsecured revolving credit facility and a $300-million term loan. We also extended the credit facility out to 2020 and reduced the overall interest cost on our line of credit and term loan.

To put this in perspective, based on our current outstanding balance on our amended line and term loan, we will reduce annual interest expenses by $1 million compared with our old line and term loan. As a result of our capital markets and investment activities during the quarter, at the end of 2014 we held consolidated cash, cash equivalents, and restricted cash of $69.3 million, plus an additional $16.7 million in unconsolidated cash, cash equivalents, and restricted cash from our 49% pro rata interest in the Manhattan Collection. Our balance sheet remains very healthy. At the end of 2014, our debt-to-EBITDA ratio was at 4.2 times, our debt-to-total gross assets was at a low 32%, and our fixed-charge coverage ratio increased to 3 times. As of today, we have approximately $240 million of availability on our $300-million credit facility and we have just $50 million of debt maturities, which represents just one loan coming due in 2015.

And finally, an update on our dividend. As you hopefully noted in our earnings release from last night, due to continued significant increases in the operating performance and cash flow of our portfolio, as well as our positive outlook for 2015, we anticipate increasing our quarterly dividend to $0.31 per share. Assuming approval by our Board, this would represent an increase of 35% from our current quarterly dividend of $0.23 per share and would be on top of last year's dividend increase of 44%.

We expect this increase to commence with our first-quarter dividend, which we typically announce in mid-March. This is consistent with our long-term strategy of providing industry-leading returns to our shareholders, including a reliable and growing stream of income.

And, with that good news, I would now like to turn the call over to Jon to provide more insight on the year as well as our outlook for 2015. Jon?

Thanks, Ray. As Ray said, 2014 was another terrific year for Pebblebrook. We completed $627 million of new investments through the acquisition of six high-quality hotels located in six different major cities including San Francisco, West LA, Portland, Boston, Miami, and Nashville. For our portfolio, our West Coast hotels -- meaning those located in San Diego, West LA, San Francisco, Portland, and Seattle -- now represent roughly 63% of our forecasted 2015 hotel EBITDA, which should allow us to further benefit from the significantly greater RevPAR growth outlook on the West Coast versus most of the rest of the country.

The stronger East Coast markets of Boston, Buckhead, and Miami represent an additional 18% of our forecasted 2015 hotel EBITDA, while New York is now forecasted at 10%, DC at 4%, and Philadelphia at less than 3%. We also grew same-property RevPAR a robust 9.2% for the year, ahead of the industry's 8.3% growth rate, which is the fourth year in a row our RevPAR growth has handily outperformed the industry. With same-property RevPAR growing 9.2% and with the addition of an average of 34 rooms, room revenues grew 9.8% for the year.

Same-property total revenues increased 6.8%. Same-property hotel expenses were held to just a 2.9% increase. Same-property hotel EBITDA increased an extremely strong 16.4%. Same-property net operating income, which is EBITDA after the assumption of a 4% capital reserve, grew an even stronger 17.9% in 2014. We mention NOI because this is the number typically used in the private markets for valuing properties.

With the benefit of the acquisitions made in 2013, and to a lesser extent those made during 2014, adjusted EBITDA for the Company increased 31.4% on top of 2013's 31.5% growth. With a very well managed balance sheet, adjusted FFO per share for 2014 climbed by 33.3%, an acceleration from 2013's 24.9% increase.

We're very pleased and proud of our performance in 2014 and our shareholders were rewarded by the market with a total return including dividends of 51.9%, outperforming the Bloomberg hotel REIT index at 32.5%, and the Morgan Stanley REIT index which delivered 30.5%. Our returns also beat the Dow, S&P 500, and the Russell 2000 which returned just 4.9%.

When we look at last year's overall industry trends, performance was again driven by strength in transient travel, both business and leisure, as well as strong growth in international inbound travel, the majority of which has been positively impacting our major gateway cities. Group travel finally improved substantially in 2014, with industry group demand increasing a healthy 4.4%, though group ADR growth improved just 2.9%. While not as strong as transient growth, it was a vast improvement from 2013's disappointing performance.

Travel in the upscale and midscale categories was also strong for the first time in 2014, as the economic recovery broadened out beyond the socioeconomically well off. We also believe demand growth was aided by a new secular trend of a higher proportion of discretionary spend being allocated to collecting experiences, often involving travel instead of buying and collecting more stuff. Overall, industry demand grew 4.5% in 2014, well above demand growth in 2012 and 2013. With industry supply growth again restrained in 2014, at just 0.9%, industry occupancy rose 3.6%, representing 43% of industry RevPAR growth.

For Pebblebrook, occupancy climbed 1.6% to a robust 85%. But at such a high level, we naturally focused on growing ADR, which increased 7.4%, representing 80% of our RevPAR growth and also helping with overall flow-through to the bottom line, as ADR growth is more profitable than occupancy growth.

Our West Coast markets continue to outperform our East Coast markets, with generally better economies, psychology, and underlining operating fundamentals. RevPAR at our West Coast hotels climbed 10.9%, while our East Coast hotels increased a still healthy 6.5%. These trends, including the West Coast to East Coast differential, should continue in 2015 as New York, DC, and Philadelphia are forecasted to again underperform the industry and San Francisco, Seattle, Portland, West LA, and San Diego are all likely to outperform again.

Our performance in 2015 will be negatively impacted in a relatively minor way by renovations at a number of our properties. They include: our comprehensive renovation and repositioning of Vintage Portland, which we closed in January and which is scheduled to reopen by April; the comprehensive renovation of the WLA with public areas that were just reopened last week and rooms to be completed by April, including the addition of 39 keys. Our new leased restaurant at the W, STK, which is currently under construction, should also open in Q2.

The renovation of the lobby and atrium at Embassy Suites San Diego downtown is just about complete, but it did cause major disruption in January and February. And the comprehensive renovation and repositioning of Radisson Fisherman's Wharf, which is well underway, will substantially impact performance through its completion and ultimate conversion to Hotel Zephyr in the latter part of the second quarter. A soft goods renovation of all our rooms at DoubleTree Bethesda is also having a negative impact on Q1 results. We believe all of this negative impact, which we estimate at about 100 basis points for the year and 300 basis points in Q1, is factored into our outlook for Q1 and the full year.

With the upcoming renovations later in 2015 at a Prescott in San Francisco, Westin Coral Gables, and Nashville Union Station, we continue to fill our pipeline with properties that will help us deliver outsized growth in RevPAR, EBITDA, and value in 2016 and beyond. Projects completed in 2013, especially the renovations at Fifty NYC, Manhattan at NYC, Hotel Zetta, Sir Francis Drake; and Sofitel Philadelphia, as well as those in 2014 including Vintage Seattle and Palomar San Francisco, will lay the further ramp-up in performance that we expect from other previously renovated properties, including Westin Gaslamp, the Le Meridian Santa Monica, and Mondrian LA.

We look at 2014, the benefits of our renovations and asset management efforts are clearly visible in the performance of many of our properties. Here are just a few examples. In 2014 at Hotel Zetta, RevPAR increased 30.6% over 2013, well ahead of underwriting. EBITDA at Zetta is forecasted to reach $6.3 million to $6.7 million in 2015, just the second full year of operations, which would represent an EBITDA yield of between 14.2% and 15%, and a likely value in the ballpark of $900,000 per key, more than double our total investment in the property. The Francis Drake delivered a RevPAR increase of 18.7% in 2014, with EBITDA increasing 47.8%, to $15 million, for an EBITDA yield over 14% on our total investment, including all costs of renovation. We believe the property would be valued today by the market at more than 2.5 times our total investment.

Hotel Modera, with no physical improvements but with a very successful collaboration on strategies, tactics, and best practices with our new operator OLS, drove RevPAR higher by 18.6% in 2014, with ADR up 15.4% and EBITDA higher by 24.6%, achieving an 11.6% EBITDA yield in our first full year of ownership. We would expect the investment market to value Modera at more than 75% above our investment. And we don't believe that Zetta, the Drake, or Modera, just as a few examples, have reached stabilization in positioning and performance just yet.

Other RevPAR growth leaders in 2014 included Viceroy Miami at 15.5%; Le Meridian Santa Monica at 14.1%; Mondrian LA at 14%; the Nines and the Argonaut at 12.3%; Monaco Seattle at 11.5%; and the W Boston at 10.9%. 16 of our hotels exceeded the industry's 8.3% RevPAR growth in 2014.

Now, I'd like to take a few minutes to discuss any opportunities we see at our 2014 acquisitions. These six properties offer a variety of opportunities to improve performance and drive significant growth in top and bottom line. First off, they're all located in markets with very strong existing operating fundamentals and prospects. San Francisco, Portland, West LA, Boston, and Nashville all have market occupancies at 80% or higher, and Miami is closing in on 80%. Several of the properties offer significant repositioning opportunities from redevelopment and renovation, in addition to new strategies.

Let's start with the most extensive, the Prescott. We're currently in the process of completing our property-visioning exercise, along with initial designs and layouts, and view the opportunity here just like the one at the property that became Hotel Zetta. We intend to basically gut Hotel Prescott. We do it completely and reposition it up from its current competitive set. Based on preliminary plans at the Prescott, which will be renamed upon completion next spring, we also believe we can add around 30 or 31 keys or an increase of 20% in the key count.

We expect our capital investment to total in the $35-million range, or roughly $180,000 to $185,000 per key, though these numbers are still very preliminary. We're currently planning to close the hotel in November and reopen it by the second quarter of 2016. We also plan to reposition higher both the Coral Gables and Union Station Nashville properties beginning later this year. Our intent is to position both properties at the top of their respective markets.

Both will involve renovations, with Nashville focused on bringing the room product up to the same level as the incredible architecture and public spaces there. And in Coral Gables, we plan to comprehensively renovate the entire property to also bring it up to the quality of its grand historic public spaces. The renovation in Coral Gables should commence in late summer and be complete late in the year. And the Nashville renovation is currently planned to commence by year end with completion in late Q1 next year.

Finally, both the Revere Hotel Boston Common and Palomar Westwood offer significant opportunities to reposition these properties higher through fairly dramatic changes in mix and pricing. There may be some bumps in moving both of these properties significantly higher in ADR, while we move out some lower-rated customers and segments, and shift to finding new customers willing to pay for the very significant value of the respective properties. But we believe the value-creation opportunities at both properties justify any near-term underperformance we may suffer, and we believe any negative impact is already built in to our outlook for 2015.

We also believe there are significant best-practice opportunities at these two properties -- and, in fact, all six of the 2014 acquisitions -- and some renovation and upgrade opportunities at both the Revere and Palomar, as well, though these are more likely 2016, 2017 projects, as we better understand and learn these businesses over the next year or so before we decide exactly how we want to improve and reposition them.

Now, let's turn to our outlook for 2015. As you know, we released our outlook last month and it remains unchanged. For 2015, we're forecasting that overall US industry demand will increase between 2.5% and 3%, with supply likely between 1.3% and 1.5%, which again is well below the long-term average growth rate in industry supply. We believe ADR is likely to grow between 4.5% and 5.5%. As a result, we're forecasting overall US industry RevPAR growth of 6% to 7% in 2015. We expect these strong underlying industry fundamentals to continue through at least 2016, based upon what we can see at this point. Please also note that our forecast assumes US GDP increases between 2.5% and 3% this year.

For Pebblebrook, we expect to outperform the industry again in 2015 -- this time by approximately 50 basis points -- though we expect our same property RevPAR to increase between 6.5% and 7.5%. Negative impact to higher growth, built into our outlook, includes significant renovation displacement at Embassy Suites and WLA in Q1; Radisson Fisherman's Wharf in both Q1 and Q2; similar impacts in Q3 and Q4 at our Coral Gables property; and some more minor impact in Q4 from what will be primarily room renovations at the Nines, Monaco DC, and Union Station Nashville.

We also have built in some lower RevPAR growth rates at the newly acquired Revere and Palomar Westwood as we seek to reposition those properties at much higher average daily rates. Based upon this level of projected RevPAR growth for our portfolio, we're forecasting same-property EBITDA to increase between 8% and 10.7%, with our same-property EBITDA margin increasing between 100 and 150 basis points. With the benefit of our 2014 acquisitions performing for all of 2015, adjusted EBITDA's forecasted to increase between 26.5% and 30%, and adjusted FFO per share is forecasted to increase between 22.4% and 27.6%, with the midpoint right at 25%. So we're forecasting that 2015 will be another year of very strong growth in earnings and cash flow on a same-property and per-share basis. Our outlook for 2015 does not assume any acquisitions. However, for the right opportunities, we hope to again be active in 2015.

Today, we feel particularly well situated to continue to take advantage of the strong underlying operating fundamentals of the business as well as amplify them through our renovation, repositioning, and asset management efforts. This should allow us to continue to significantly outperform and deliver strong growth on both the top line and the bottom line for the next several years. In other words, sweet dreams for our investors, as our song suggests.

We'd now be happy to answer whatever questions you may have. Thank you. Operator?

(Operator instructions)

Rich Hightower of Evercore ISI

Good morning. Very nice results. Congratulations on the year.

We covered a lot of ground in the prepared comments but I've got a couple of questions here. My first question is on Manhattan. I know that, obviously, guidance is unchanged but results have been pretty steadily deteriorating according to the weekly SDR data in New York recently. And I know a lot of that's a tough Super Bowl comp.

What's your outlook for that market in general? And has anything changed in Manhattan specifically since you issued guidance back in January?

Rich, our view of Manhattan has not changed for the last 30 days, the last 90 days, the last 180 days. I think we'll continue to see supply moderate slightly from last year. We think supply growth, which was up in the mid to upper five last year in Manhattan, will likely be up in the mid to high fours this year.

We think demand will likely continue to absorb that. We do have a very difficult comparison in January and February to last year when we had the Super Bowl in New York, which, while it was still a disappointment for the year compared to other Super Bowls, it was still very good for January in New York. There was also a major citywide in Manhattan in January; an HVAC citywide. So that had very positive results last year on January which don't repeat this year.

So, we think Manhattan is still going to underperform, no different than we thought last year. We think it's likely in the low to mid single digits in terms of RevPAR growth for the year and that's even with a first two months, I think January was down likely in the 15% range in the city and February is likely to be down somewhere in the 5% to 10% range, and then March should be up in a very fairly healthy way.

We haven't seen a change in demand patterns. We continue to see very healthy international demand growth in the market. I don't think we should get misdirected by the comparisons in the last couple of weeks. Which involve some difficult performance comparisons.

All right. That's helpful color.

The second question. This one's for Ray. I know you mentioned in the prepared comments that you've only got one maturity coming up for the remainder of 2015, but if you look at 2015, 2016 and 2017 maturities, I think on a cumulative basis that's over half of the total debt stack today. Just hypothetically, if the downturn were to hit tomorrow, where do you see these debt maturities in terms of the properties debt yields and loan-to-value ratios? I just want to get a sense of how conservative you see the balance sheet today?

Sure. That's a great question.

The great news is environment banks are open for business. So there's definitely a lot of interest from a very broad range of lenders and CMBS providers, as well to land on the debt side. So certainly, we're in a great position today from that side. The other side is over half of our hotels are unencumbered, so we have plenty of opportunities there as we prepare for financing that will come due in 2016 and 2017. We have that side. And then on our credit facility, which we can upsize another $300 million on our credit line itself, we have capacity there if for any reason the debt market's gotten out of whack for any period.

But our thought is as we plan through our maturities the next several years, you should anticipate that as we refinance or think about our financing this year. You look at some opportunities for seven year or longer debt whether that's on a term loan basis or CMBS, or a combination of all that. That will allow us to extend out the maturities, and then as we get into the fourth quarter and we prepare for the refinancings, we'll do a similar -- whether it's term loan or CMBS or other. But our preference would be on the longer-term side so help to stagger our debt maturities.

Okay, great. Thanks, Ray. One more quick one, if I may?

I had heard from one of your competitor properties in the West LA market that the West Coast port negotiation delays might impact some of the renovation process at hotels in the area. I know you guys have a lot of properties under the knife this year, so do you see that impacting your ability to bring these projects in on time, on budget and so forth? Or, is there any risk on that front?

Yes, that's a good question. There has been impact from the port.

We've actually passed that information along to the chamber of the industry and the administration. There tends to be this belief that somehow the selling impacts retail in agriculture, and it really impacts an awful lot of the economy. We are having trouble getting some FF&E out of the port, either off the ships or actually off the land after it's been unloaded. In some cases, and this I think applies only to the Radisson property right now, is we've been accumulating furniture that we would otherwise have liquidated out of the property when we renovate, storing it, and then as necessary bringing pieces of that back to fill in where we haven't yet received FF&E.

So it's not slowing us down in terms of schedule. It will likely ultimately change the quality of the room that's finished. These are generally minor things like mirrors, and some lights and vanities. However, it does make a difference in being able to present the fully completed product the way we want to present it. So hopefully, that gets resolved. We don't anticipate finishing the whole project, as we mentioned, until May.

As it relates to our other projects, I don't think there's any impact at the W in LA, where we've already finished the public areas and I think 95% of the FF&E is already in place. And the rooms, I think we have all of the furniture, so it is being completed. And the Embassy Suites is done with some very minor work to be completed this week and there we have everything.

At this point, we don't really think it's going to have an impact on schedule. It likely will cost us additional dollars at the Radisson. That could be anywhere from a few hundred thousand dollars to $500,000 or $600,000 depending upon how many times we have to go back in, put in old pieces of equipment, light fixtures, vanities, mirrors, et cetera, and then take them out and put them back in all with union labor upon completion. So, that's the only impact we see at this point.

Okay. Thanks, Jon. I appreciate the color.

Shaun Kelley of Bank of America Merrill Lynch.

Good morning, Jon. Good morning, Ray.

I just wanted to ask two things quickly again. I think you gave a great overview in your prepared remarks. The first question would be to put you on the spot a little bit.

If you had to pick one market that you said would you think is going to be the biggest outperformer in 2015, curious if you could dig in a little bit on the West Coast and tell me where you think the most -- you're the most positive for the coming year?

The second would be, just as a follow-up: obviously, the acquisition environment remains compelling. You did a lot in Q4. I am curious about where the demand cycle puts you as it relates to dispositions a little bit? So if you could just talk about that it would be helpful.

The first question Shaun, we could make out, I mean in terms of what market might outperform, I'd say if I had to pick one I'd say Portland. Demand continues to be very strong there. The market's moved above 80% occupancy. It had a great January.

It looks already to have a great -- it looks like it's going to have a great year overall and the market seems to be doing a very good job pushing rate from what historically have been relatively lower levels as a market. And then we couldn't quite make out your second question, because you were breaking up a little bit.

I'm sorry. Let me try again. Just curious on dispositions. Is now the right time in the cycle to consider those? And just your general thoughts on the ability to sell right now?

Sure. I think as we've explained in the past, our approach remains unchanged. Which is there's a limited number of properties in the portfolio that are not core perpetual market investments for us. Those properties, we watch -- we're watching the macro view, which we think is being extended out in terms of the economy. And the micro view which is what's going on with supply and demand in that particular market, obviously, with a particular focus on supply growth.

And so based upon what we're seeing in those markets, supply is coming back much more slowly in those markets. Actually, very similarly to the overall industry and it's giving us more runway than we would have thought when we bought those assets. We'll continue to monitor them.

Try to pick the right time. We're not going to try to time the top of the markets. In fact, we're not even going to get close to doing that. So it may be that we sell an asset this year. We thought we might sell one last year. That didn't happen, and we'll continue to look at that potential opportunity this year, as well.

Thank you very much.

Ian Weissman of Credit Suisse.

Just a follow-up on the prior question. You know in spite of some disconnect fundamental disconnect in New York City, we continue to see eye-popping prices paying for New York hotels. Can you just remind us of what your arrangement is or agreement is it with your JV partner Denihan? And when is the first opportunity you could possibly sell a New York asset?

If we were to do anything in New York, the first opportunity to start the process is in the summer of next year, 2016. Our rights are that we could bring any individual property, any group of properties or all of the properties, 100% of them, to the market for sale.

Okay, helpful. And then just obviously there's been a lot of discussion in the marketplace about the rise in the US dollar and the impact on international travel. I know we're well ahead of the summer tourist season. But any thoughts about your exposure in Miami and New York City and seeing any change in international demand?

Yes, I think, overall our view for this year is that we continue to think that international inbound travel or overseas travel, if you leave out Canada and Mexico, is again likely to be up somewhere between 3% and 5% for the year. So very healthy levels.

Not as strong as what the first 10 months were last year, which I think overseas inbound travel was up about 7.5%. We expect an acceleration from actually much higher levels in Asian travel, particularly from China with the change in the Visa rules. And with the overall structural improvement going on within the Visa and immigration -- I'm sorry, not immigration program, but the hospitality being provided at our ports of entry and the efforts made by the administration to ease the ability for people to get Visas more easily and more quickly.

We also see as we have monitored what all the airlines are saying. The forecasts are for a significantly greater increase in global airline capacity than GDP growth for this year. We expect the airlines to bring people to the United States and fill those seats. And to the extent there's pricing flexibility needed there to encourage travel, we think that's already happening.

So while we don't see fares declining for people leaving the US because demand and supply are in good balance, we do think that there's probably excess supply being added on a global basis for inbound travel, and that's going to resolve in lower fares which will help if not more than offset the change in the dollar, particularly for countries that aren't being impacted by the dollar.

We think Asian travel will be up, although we think Japan will continue to be down. We think Europe will be up slightly, which is really where it's been, where it was this past year. We think Latin America will be up as well, though we think Brazil may weaken somewhat. We continue to seek strong growth from other countries in Latin America, particularly Columbia. And good travel from the Middle East and from Africa despite what's going on with -- in parts of Africa.

So we think international travel is going to be a positive again in 2015. And while the dollar has provides somewhat of a headwind, we think it gets more than offset by the secular trends and the structural changes.

Okay. Thank you. Helpful.

Bill Crow of Raymond James.

My questions were right in line with what was just asked so let me try a different angle here. Any discussions between yourselves and the Denihan's about accelerating the opportunity to sell one or more assets given the environment there?

If there were, we wouldn't disclose them, Bill. Just as we don't disclose if we are thinking about selling a particular property or we even put it on the market. If there were a transaction to happen, we'll let you know when it happens. We'll just see how things play out. We haven't even indicated that we have an interest in selling on a public basis. I think it's probably appropriate to move on to another question.

I can do that. Jon, do you think you will be positioned, do you get enough information to be able to determine if we do start to see weakness in inbound international travel? In other words, are your management companies out there able to communicate that if they start to see it, say, as we get into the summer leisure season?

Yes, I think they are anecdotally, Bill. I don't think the data is particularly good. We do look at forward airline bookings into our markets and that data is available. I don't know how reliable that is at this point. Particularly with how short term a lot of that travel continues to be. I think we do have enough data and there's enough different sources at this point that we'll have fairly decent visibility on a change in trend.

Okay. Finally for me, Jon. It was probably asked last quarter so I'm guessing there's not much change. But any markets that have moved into or out of your kind of perpetual hold markets?

No. No changes, Bill.

Okay. That's it for me. Thanks.

Thank you.

Jim Sullivan of Cowen Group.

Jon, I wonder if you could talk a little bit about the transaction between Kempton and IHG. Obviously Kempton's a very important relationship for the Company. A company that obviously you've worked with now for sometime.

The IHG transaction runs the risk I suppose of changing the culture and maybe the pattern of how Kempton does their business. I'm just curious if you could talk a little bit about how you feel about the transaction, and what concerns you may have?

Sure. Well, as you know, we've had a very long term relationship with Kempton that dates back to 2000, so, 15 years at this point. The Company has been very successful over that period of time. We felt like we were fortunate to participate in that, and perhaps even assist in that regard with the success of the Company and the brand.

We've had a very good long term relationship with IHG. Both relationships are positive. If there had to be a transaction, we're happy it's with a group that we have a good long term relationship with and who, I think based upon conversations, I think understands exactly what you said. Which is there's a very unique culture. It's very important to the success of Kempton, if you even call it a brand, and, as opposed to a collection of assets.

And their view as we understand it and certainly our perspective is there's nothing broken about it. And so we'd like to see as little change as possible and that seems to be at least where they are currently in their thinking. Probably a better question for them than it is for us from that perspective, but certainly what they've told us is we don't -- they don't have plans to make any changes. It continues to be headquartered out of San Francisco. The people running it are the same people who were running it on an operating basis and they report directly into London and not through Atlanta, which is an important distinction I think.

And do you know whether there's any plans that have been clarified or communicated regarding their growth aspirations for Kempton?

I've looked at the public filings I'm sure like you have for IHG and I haven't seen anything specific other than in interviews and such they've indicated that they think there's an opportunity to grow it on a global basis. Of course, that additional distribution and exposure would certainly be a positive from our view as it relates to the collection.

Then second question for me following on the question that Bill Crow had. You bought your first asset in Nashville this year. I just wonder if you could chat a little bit about how you feel about some of the regional markets off the coast. Maybe there are other markets like Nashville that you're intrigued by where performance has been good and maybe the appeal of these downtown markets and some of these regional cities is improving. Are there any other markets that you'rd more open to in investing in that have some of the similar characteristics?

We'll let you know after we buy three or four properties in them.

Terrific. Okay. Thanks, Jon.

Dan Donlan from Ladenburg Thalmann

Jon, I was just curious if you could talk a little bit about your urban tracts in the fourth quarter and how that trended in terms of RevPAR growth relative to the MSA? Did they on the margin outperform? What type of clarity can you give us?

I know the urban has been kind of underperforming, at least in the fourth quarter. But when you take out in DC and New York I think on the full year, urban was performing in line with the US. So just kind of curious how you're looking at urban now?

Yes, our view of urban and its ability to outperform in up periods hasn't changed. I don't have the statistics for Q4 or the full year for our compiled urban markets. But the markets where we're focused in general continue to outperform. But for the markets you mentioned, New York and DC in particular. So, we think there continues to be an urbanization movement of residential and businesses moving back into the cities.

We think lifestyles are changing. We think amenities are being added in urban markets. We think international inbound travel continues to benefit the urban markets. And so we don't see any change in either our viewpoint, our strategy or the performance that's going on in the markets.

I think as you point out, Dan and I know that Bill Crow put some research out on this in particular. If you take New York and DC out, you eliminate the differentials between the industry and the urban markets. And that -- I think that says what we've been seeing in our markets which is the urban markets continue to do extremely well particularly compared to the metropolitan markets.

Okay. And then just kind of curious on the supply picture in Portland. It's not in the top 25 so there's not a ton of good data unless you want to pay for it, a lot for it. So what's the supply picture look like for Portland over the next two or three years?

So there's nothing under construction in Portland. The supply picture for the next couple of years looks great. There have been a few relatively small properties announced. From 100 rooms to a 300 room curio, I think, by Hilton that are out in the market looking for capital and who do not yet have it. So we think deliveries at this point are likely none in 2015 and 2016 and potentially some point in 2017, we might see minor deliveries.

There's also a convention hotel that everyone's well aware of, a 600 room hotel that Hyatt is committed to do over across the river next to the convention center, which is still in litigation with some local groups and they've yet to start construction. So we think the construction schedule's likely at least 24 months and maybe 30 months there. At this point, we think there isn't likely a delivery of that hotel in the next three years.

Okay. And then just going to the conversion away from a Radisson, how do you think about the reservation system from Carlson? Was that a big driver of demand there? Or are you just not really concerned at all just given how strong demand is in San Francisco?

Yes, I mean it's really two things. First of all, it's not the customer that we expect to have in general upon completion because we're positioning this $30 to $50 higher than where it was and is today. So, there's a lot of FIT that comes into that hotel. That's not delivered by Carlson. Clearly, any major brand reservation system, particularly one that doesn't have other distribution in the market, is going to deliver leisure transient in the market and it does do that.

But the Wharf is running at 85% on an annual basis and the City's running at 85% on an annual basis. And there isn't going to be any new supply, not on the Wharf and very limited over the next few years in the City as a whole. So we're very comfortable particularly with what we're doing there, driving business into that hotel like we do at the Argonaut down the street and like we do at the Sir Francis Drake, which is a bigger hotel without a major brand or flag and any of our other independent hotels in the city.

Okay. Thank you. And I guess just the last one. Not sure if this is for Ray or for you, but how should we think about F&B revenues next year? You added quite a bit of hotels. If you assume the same percentage of room revenues you get to a pretty big number in F&B. Is there any type of guidance you can give us on year-over-year growth for the whole OEM portfolio? Or maybe a percentage of room revenues, or any type of clarity there would be helpful?

I think we can probably give you a range. My sense is it's probably something -- because of all the things -- well, I'll give you something on a same property basis, but I think it's probably somewhere in the 2% to 3% range for the year.

Yes, 2% to 3% is a fair amount for the run rate for 2015. But just remember we have a couple of moving parts there. One is we have the rental income will be going up, so when you're looking at as we lease out properties to third party -- the food and beverage operation moving from in house to out house. So you have to look at the change in food and beverage revenues. We also have to look at the rental income, because we're getting rental income on that. And then you also add in the reduction in food and beverage expenses, which we expect will continue probably down another 0.5% to 1.5% in 2015.

And then we also have further savings in the undistributed categories, because you know you're going to have credit card commissions go down, management fees, in some cases you'll get energy reduction because you have the cam reimbursable. So it's multiple fees.

Also, all our food and beverage is we're having savings through different means. Some of our properties where we're leasing them out to third party operators like at the W Westwood and some other properties where retooling on reconcepting operations. So the Palomar with dirty habit and some other changes. There's a variety of measures we're coming to. There's many ways we think to solve the food and beverage problem, depending on the property in the market and we'll continue to be creative in finding means to do that.

Okay. Thank you.

Wes Golladay of RBC Capital Markets

Hey. Good morning. What drove the huge increase in deal volume this quarter? Of deals done, was it the volume, was it the win rate, were these deals you were looking at for a long time? And then lastly, how much capacity do you have as a team for more acquisitions? You look at a granular level in each property on an active basis. So I'm just wondering how much more capacity you have there?

Wes, in terms of what drove the higher volume, I would say it was a higher success ratio for us. Overall, last year, I think we aggressively pursued 11 deals and we were successful on six. That was much higher than what we were experiencing, which was more in the 20%, 25% at most range. I think part of it was the complicated nature of some of the deals. Again, some of them were direct relationship and then some of them had to do with visioning and understanding the upside potential that perhaps other people didn't see at those particular properties.

As it relates to capacity, we have plenty of liquidity. Between our line, what we could up size our line, what we could finance on our balance sheet, what we could borrow from the banks, and clearly, we've made and executed on successfully equity offerings as appropriate to match capital with acquisitions that we make. So, we don't view there being any particular number related to quote dry powder as some people might use that term.

You know I was actually referring to the management capacity. I know you like to actively manage and revision the properties and it takes a lot of time and resources. Just wonder -- you got quite a few properties now, and you just increased by a lot and you have a lot, nine renovation under the knife this year. So I was wondering from a management perspective.

Yes, that's a good question. In the past year, we've added an asset manager, so we have five at this point for the 35 properties. We feel like that's a good comfortable number right now, particularly with one of those being a joint venture of six hotels. As it relates to senior management, we're all actively involved in the asset management.

And as it relates to the developments, we have them you know, it's really the visioning exercise that takes the bulk of the time. We have those fairly well spaced out and far ahead.

So, things like the Embassy Suites, the W, the Portland Vintage properties, those are all done. They're just been executed now. We have third party project managers who report to our asset managers who we've worked with for a long time overseeing those projects.

As it relates to the upcoming ones, as we mentioned, we're moving fairly well along the Prescott from a design perspective. We actually have designs all ready for the Coral Gables property, and in a couple of months, we'll be moving to some visioning and some design on the Union Station and DC properties. Actually, the Nines is pretty far along in its design work already. So we're pretty comfortable with the overall level of volume that we have and our ability to as a team get our arms around all of the things we need to generate out performance.

Okay. Thanks a lot.

Lukas Hartwich of Green Street Advisors.

Hey, Jon, as an owner I'm curious, are you concerned about the continuing consolidation of the OTAs?

I would say to a very small extent, yes. I would say that those that are being consolidated right now are fairly small players in the industry, don't do a lot of business and aren't a big factor right now in the space.

But, if it continues, I'd say sure. It would be an issue. What we've been seeing to date, it takes two big players and we have two big players to bring rates down, to bring commissions down, to bring cost down. And from what we can see, Lukas, that is continuing this year and that's beneficial for all of us owners right now.

That's helpful. Sorry, lastly, can you provide your group pace for the year?

Sure.

We are up about 3% for the year. And let me just pull up the exact number. So, for 2015, we're down 3% in room nights, we're up 6.1% in ADR and we're up 3% in revenue.

Now, keep in mind that -- so we're down 20,000 room nights. All of that, 19,000 of that relates to the Embassy Suites, the W and the Radisson. So it all relates to the renovations.

Most of it's transient, actually three-quarters of it is transient and it's mostly in the early months of the year when we can't take the business, we don't have the rooms available. So while that's lower than we've typically gone into a year, if you took out those properties, we'd be at a much higher level.

Overall, we're very comfortable with where we are from a pace perspective. It's in line with what our outlook is and our expectations for the year and it's in line with the displacement and the negative impact that we're seeing and we forecasted in our outlook.

That's very helpful. Thank you.

Thank you.

At this time, we have no further questions.

Thank you, Operator. Thanks everyone for listening. If you're still there and not on the Hilton call. Sweet dreams to you and we'll talk to you next quarter.

That does conclude today's conference. We thank you for your participation.