RLJ Lodging Trust (RLJ) 2011 Q3 法說會逐字稿

Greetings and welcome to the RLJ Lodging Trust third-quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Hilda Delgado, Director of Finance for RLJ Lodging Trust. Thank you, Ms. Delgado. You may begin.

Thank you, operator. Welcome to RLJ Lodging Trust's third-quarter earnings call. On today's call, Tom Baltimore, the Company's President and Chief Executive Officer, will discuss key operational highlights for the quarter, and Leslie Hale, Treasurer and Chief Financial Officer, will discuss the Company's financial results. Ross Bierkan, Executive Vice President and Chief Investment Officer, will be available after our prepared remarks to answer questions.

Forward-looking statements made on this call are subject to numerous risks and uncertainties that can cause the Company's actual results to differ materially from what has been communicated. Factors that may impact the results of the Company can be found in the Company's prospectus, 10-Q and other reports filed with the SEC. The Company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release or 10-Q.

I will now turn the call over to Tom.

Thank you, Hilda. Good morning and welcome to our third-quarter earnings call. We are very pleased by the overall performance of our portfolio. Despite various macro headwinds and market uncertainty, we generated solid results once again with RevPAR for our entire portfolio increasing 8% for the quarter.

Our top 25 hotels, which represent approximately 50% of our pro forma hotel EBITDA, reinforced the strength of our portfolio by generating an impressive 10.9% RevPAR growth. Although we can't ignore the broader macro concerns that have led investors to be cautious of the lodging sector, we are very aware of the challenging and volatile geopolitical environment and the possibility of a pullback in the economy. However, with the 0.5% increase in supply expected and corporate profits rising, we don't foresee a significant slowdown in lodging. We remain cautiously optimistic that we are in the midst of a multiyear lodging recovery.

Looking to Smith Travel to see how the lodging industry and our segment are performing, we see the industry experiencing a strong rebound in demand and pricing, reinforcing the positive trends that we are seeing throughout our portfolio.

This quarter Smith Travel reported US RevPAR growth of 7.9%, which is the sixth consecutive full quarter of positive growth. Smith Travel also recorded RevPAR growth for the upscale and upper midscale segments, which again are most representative of our portfolio, as 8.1% and 8.8% respectively. Using Marriott's limited service as an additional benchmark, we saw their RevPAR grow 7.3% for the quarter.

We believe that these metrics demonstrate the current strength of the lodging industry and our segment in particular.

As I mentioned earlier, RevPAR this quarter grew by a solid 8%. This quarter's growth was driven by the combination of 4.5% increase in ADR and 3.3% increase in occupancy. Our topline performance helped drive strong margins of 33.8%, a 109 basis point improvement over last year.

Year-to-date RevPAR grew by 8.4%. Margins increased by 183 basis points to 33.5%, and our portfolio RevPAR penetration was 113.5.

Given our year-to-date performance, we are comfortable maintaining our guidance for RevPAR of 7% to 9% and margins of 33% to 34%. While we are very pleased with our performance this quarter, renovations at 13 of our hotels, Hurricane Irene and the earthquake in DC did impact our hotels. Excluding these factors, our RevPAR for the quarter would have been 90 basis points higher or 8.9%.

Yet, in light of this, each of our top markets realized RevPAR growth. Our New York and DC markets, which combined represent 25% of our pro forma hotel EBITDA, were major contributors to this quarter.

New York City led the way with double-digit RevPAR increase of 16.2%. Our hotel operators drove rate by 11.9% with the strongest gains coming from our three Manhattan hotels. These select hotels all posted occupancy over 97% and average rates in the mid-$230 to $250 per night. New York's RevPAR was negatively impacted by Hurricane Irene. However, overall we are extremely pleased with the performance of this market and expect to see strong growth from New York.

Our Washington DC/Baltimore market had to endure various market challenges. First, we continue to see some of the same challenges from last quarter of less pickup from citywide conventions and a lighter conditioner congressional calendar. Second, our Residence Inn National Harbor experienced some type year-over-year comps with several groups not returning. And, lastly, we had to take rooms off-line due to Hurricane Irene and the earthquake. Yet, despite all of these market headwinds, we managed to post a RevPAR increase of 8.8% with a strong lift coming from our recent conversion of the Fairfield Inn & Suites in Downtown DC, an asset that is poised to continue to outperform as a result of our repositioning efforts.

Louisville also posted double-digit growth and was our second top performer this quarter. RevPAR grew 13.4% and was driven by gains in occupancy of 8.8%. This quarter an increasing convention activity and an influx of Extended Stay business and weekend group business helped generate strong demand for our properties.

Denver and Austin both posted solid RevPAR growth of 7.5% and 8.9% respectively. Both markets continue to see an increase in business activity, which helped drive corporate demand and pricing power. Our Chicago market posted a modest RevPAR increase of 1.4%. This quarter there was a lack of compression from citywide conventions, which affected several of our hotels.

Looking forward, we expect that we will report positive fourth-quarter RevPAR growth and, therefore, reaffirm the outlook we have provided last quarter of 7% to 9% for the full year. We expect that pro forma hotel EBITDA will fall in the range of $249 million to $261 million for the full year, although we would guide you towards the lowest end of the range.

Moving onto acquisitions, we continue to execute our investment strategy and remain committed to being the aggregator in this space, again targeting upscale focus service and compact full-service hotels in urban and dense suburban markets. While we continue to evaluate many acquisition opportunities, we maintain an extremely disciplined approach.

This quarter we had a large pipeline with a number of assets under Letter of Intent or contract. In light of the economy and capital market volatility, we've revisited pricing for several of these deals and requested necessary price reductions. After evaluating each asset closely, we elected to only proceed with the purchase of 176-room Courtyard by Marriott in Charleston's Historic District.

We purchased this asset for $42 million and used cash available on our balance sheet. The purchase price represents a significant discount to replacement costs and an 8.3% forward 12-month cap rate. This hotel is an attractive acquisition and in full compliance with our investment strategy of acquiring high-quality assets located in urban locations with high barriers to entry and multiple demand generators.

The hotel was operated as a Holiday Inn until late 2010 when it was temporarily closed for an extensive renovation and conversion.

The hotel reopens as an 123-room Courtyard by Marriott earlier this year. The construction of a new tower added 53 rooms for a total of 176 rooms and 2100 square feet of meeting space. The construction for the tower was completed shortly before we acquired it last month.

We consider the Charleston Historic District a bull's-eye market for us.

The market's strict building regulations make new supply near impossible, and the area's hospitality and tourism is an important economic driver in the Charleston area. Recently Conde Nast Traveler's recognized Charleston as the number one destination in the US. Charleston's Historic District has been able to capitalize on its multiple demand generators, coupled with low supply, to drive RevPAR growth and outperform the growth rate of the national average by 2 times over the last 20 plus years.

Overall, this hotel is an attractive acquisition, and we believe that it has tremendous upside, and we expect the hotel to generate robust RevPAR numbers and strengthen the mix of assets in our portfolio. The hotel's 2012 RevPAR is expected to be 40% to 50% higher than our portfolio average. Now with the addition of the Courtyard Charleston, we have 141 hotels and more than 20,600 rooms that span 20 states and the District of Columbia.

While we have significant purchasing power, we will continue to be very selected with the opportunities we proceed with. Our ultimate goal is to provide shareholders with outsized returns by acquiring assets in excellent markets with multiple sources of demand.

Based on the current capital market environment, we have evaluated various acquisition alternatives, including purchasing our own stock. In our constant pursuit to provide shareholders with strong returns, we sought and received authorization from our Board of Trustees to implement a share buyback program. Under the program, we are allowed to repurchase up to 100 million of the Company's common shares. We believe that the share buyback program provides us with an attractive opportunity to generate strong returns for our investors and shows management's confidence in our existing portfolio.

Furthermore, we will be opportunistic and purchase shares from our legacy investors if an opportunity exists.

Briefly looking into next year, we expect to see meaningful RevPAR growth from our completed conversions in 2012. The two conversions that we completed earlier this year will continue to ramp up nicely, and we expect that the additional four conversion projects slated to be completed over the next four months will see a meaningful rate lift from our rebranding efforts and will contribute 2.5 times more EBITDA in 2012 than in 2011.

Despite today's challenging macro environment, we remain optimistic about the future of the lodging industry. Our portfolio is large, diverse and well positioned in the future to generate superior risk-adjusted returns. We remain committed to managing the challenges as they present themselves and being relentless in our goal to enhance shareholder value.

I will now pass the call over to Leslie who will provide some additional information on our financial performance for the quarter.

Thanks, Tom. Before I report on our third-quarter financial results, I would like to remind listeners that the pro forma numbers that Tom reported on earlier referred to 139 of 141 hotels and include results from periods prior to our ownership. The two hotels excluded are the The Garden District Hotel, which is not planned to open until 2012, and our recent acquisition of the Courtyard Charleston since it was purchased in the fourth quarter. However, adjusted EBITDA and adjusted FFO that I will discuss next only reflects our ownership period.

Additionally, this quarter we completed the deed and the transfer of the Marriott LaGuardia Hotel to Capmark Financial. Therefore, the results for this hotel are now reflected in discontinued ops and are excluded from our adjusted EBITDA and adjusted FFO numbers.

Now looking at the quarter, adjusted EBITDA increased $17.3 million to $61.9 million, representing a 38.8% increase over 2010. Year-to-date our adjusted EBITDA increased $62.3 million to $176.7 million, representing a 54.4% increase.

Adjusted FFO for the quarter was $39.4 million compared to $22.7 million in 2010. On a per-share basis, adjusted FFO for the quarter was $0.37 per share. Year-to-date adjusted FFO was $104.1 million compared to $49.1 million in 2010, representing 112% increase over the prior year.

Both adjusted EBITDA and adjusted FFO reflect addbacks to normalize our G&A expense. Minor adjustments were made this quarter that primarily reflect transaction and pursuit costs that were incurred in connection with our acquisition efforts. A complete reconciliation to adjusted EBITDA and adjusted FFO is available in last night's press release.

Turning to our balance sheet, we continue to have ample liquidity, low leverage and a simple capital structure, all of which are fundamental tenants for us. We ended the quarter with a cash balance of $368.5 million, and after giving effect for the recent acquisition of the Courtyard Charleston, we now have approximately $326.5 million of cash remaining on our balance sheet. And with no outstanding balance on our $300 million credit facility, we have more than enough liquidity to cover the planned capital expenditures and our projected quarterly dividend and the potential share buyback that Tom outlined earlier.

Our outstanding debt balance as of September 30 was approximately $1.3 billion. As of the quarter end, our net debt to adjusted EBITDA ratio was 4.3 times. After giving effect for the acquisition of Charleston, our net debt to adjusted EBITDA ratio was 4.2 times.

We expect to end the year with a debt ratio of below 5 times.

Last month we refinanced our unsecured $140 million term loan, which was supported by a negative pledge on 10 assets. In its place, we structured five independent first mortgage loans, each secured by only one asset, for a total of $142 million in proceeds with Wells Fargo Bank. Under the new financing terms, the loans are interest-only for the initial term and bear floating-rate of LIBOR plus 360 basis points.

We successfully lowered our interest spread to 360 basis points from 425 basis points and eliminated a 1% LIBOR floor. Assuming LIBOR of 25 basis points, we lowered our interest rate by 140 basis points, thereby saving the Company approximately $1.4 million of annualized interest expense net of the associated deferred financing charges.

The new loan has a three-year term with two one-year extensions. Including these extensions, this tranche of debt will now mature in 2016. Accordingly, only 6% representing $85 million of our outstanding debt will mature over the next three years.

We have strengthened our balance sheet by reducing the number of assets secured by this tranche of debt from 10 to 5, and as a result of this refinancing and the Charleston acquisition, the number of unencumbered assets in our portfolio increased from 44 to 50. Our unencumbered assets now account for over a third of our EBITDA.

We strongly believe that the benefits derived from this financing have further solidified our overall balance sheet, reinforced our conservative capital structure, and are aligned with our long-term debt strategy to become investment-grade.

Our current cash from operations continues to support our commitment to distribute quarterly dividends. Accordingly, we will be well-positioned to cover our dividend payments, and we expect that our fourth-quarter dividend rate will continue to be $0.15 per share. However, the final declaration of a dividend will remain at the discretion of our Board. Overall, we expect to maintain a payout ratio of approximately 55% of adjusted FFO.

With regards to our capital expenditure program, our in-house design and construction team has been diligently managing our 2011 capital plan and will remain on track to complete the projects that we outlined during our last call. As we noted last quarter, we plan to release renovation projects totaling $115 million in 2011 spread across 48 properties, largely focused on upgrading or repositioning 24 assets we acquired in 2010 and 2011.

The balance of the renovations will include brand-related upgrades at other select hotels.

This quarter we initiated an additional $19 million of renovation projects, bringing the total amount of released capital to approximately $72 million year-to-date. We expect to release the remaining capital in the fourth quarter.

Our reported results include hotels undergoing renovations. Unless a hotel is fully closed during the period, it is not excluded from pro forma results. This quarter disruption was greater than expected and was largely concentrated at six hotels. As a result of this additional disruption from this quarter, we expect that our total disruption for the year to now be in a range of $3 million to $5 million, up from the $2 million to $3 million that we outlined last quarter.

Our 2011 outlook presented in our press release already accounts for this displacement. Finally, as Tom noted earlier, we are reaffirming the full-year outlook that we provided last quarter of 7% to 9% RevPAR growth, pro forma EBITDA margins between 33% and 34%, and pro forma hotel EBITDA of $249 million to $261 million, although we expect our results for the hotel EBITDA to come in towards the lowest end of the range.

For the fourth quarter, I would like to point out a few key embedded assumptions. First, although we expect to have positive RevPAR growth for the fourth quarter, this quarter is generally one of our softest quarters based in our portfolio's current seasonality patterns.

Secondly, while we expect year-over-year margin growth to be positive for the full year, we believe the renovation disruption that we outlined earlier will negatively impact pro forma hotel EBITDA margin growth for the fourth quarter.

And, finally, interest expense for the fourth quarter will generally be in line with the third-quarter actuals. For additional details, please refer back to the press release from last night.

Thank you and this concludes our remarks. We will now open up the lines for questions. Operator.

Ladies and gentlemen, we will now be conducting the question and answer session. (Operator Instructions). Sule Sauvigne, Barclays Capital.

My question is regarding your use of capital. Should we interpret your recent share repurchase authorization as a signal that you might be less aggressive on acquisitions in the near term because of all this market uncertainty, or are you just being opportunistic given where your stock is trading?

It is Tom Baltimore. We are certainly going to be opportunistic. We had a very active deal pipeline. We had eight or nine deals in the pipeline last quarter. We'll elected to proceed with one of those deals. We obviously see where our stock is trading and certainly the volatility. And to the extent that we can acquire our stock, particularly in this range where it is probably trading at a cap rate on a 2012 forward basis somewhere between 9% and 10%, our stock is really a good investment for us as well.

So -- and it is certainly not mutually exclusive. We are going to be continuing to look actively for deals. And if we can also use our available capital to buy back our stock, we will do that as well. And, obviously, with the pending lockup expiring to the extent that our legacy investors are looking to sell some portion of their shares, we certainly will have that discussion as well.

Okay. Thank you. You mentioned that Chicago had lower city-wide demand this quarter. What is your outlook on that market for the remainder of the year and into 2012?

It should have a stronger fourth quarter. Obviously, in third quarter, there were only two city-wides in the third quarter versus three city-wides in 2010. But the two city-wides in 2011 third quarter only generated about 36% of the room nights generated by the third quarter of 2010.

So, as you look at -- in the fourth quarter, it should be stronger. As I recall, I think there were about 240,000 room nights and city-wides on the books, so we are cautiously optimistic about the fourth quarter in Chicago.

Thank you.

Jeff Donnelly, Wells Fargo Advisors.

Actually, just a follow-up to the question on the repurchase. Tom, I'm sure it isn't lost on you that RLJ has a fairly low float. Should we read between the lines here that you effectively do see some of these insiders maybe coming to market with their shares and that is the purpose of this repurchase, or is the repurchase above and beyond that? It is sort of separate and distinct. I'm just curious.

I would say that it really is opportunistic. It is not lost on us, obviously, with the lockup, and it is not lost on us that there could be some investors who may look to liquidate some portion of it. Clearly, we have great confidence in our existing portfolio. And to the extent that we could help mitigate the perception of an overhang by perhaps buying from some of those legacy investors, we certainly would engage in that dialog.

Having said that, we are also mindful of how our stock is traded, and we think it is certainly undervalued, and we have great confidence in our existing portfolio. So we would look opportunistically if our stock fell between certain levels to prop it up accordingly because we think it is a good investment for our shareholders.

Leslie, I don't want to leave you out. Are you able to give us maybe a specific estimate of how much you think margin could be impaired in Q4? I just want to get a specific figure in mind if it is going to be 100 basis points, 300 basis points, just really for modeling purposes.

Jeff, I will take that. I do want to point out to all the listeners we had 13 hotels that were renovated during third quarter. Six of those were major renovations, including three conversions or what I would call reinventions, and those reinventions were probably north of $40,000 a key. That is the Wyndham in Pittsburgh that we are converting to a Hilton Garden Inn. That is the Wyndham in Durham that we are also converting to a Hilton Garden Inn. That is the Crowne Plaza in West Palm that we are also converting to an Embassy Suites. So those three hotels alone were about $25 million in CapEx.

Clearly we are disrupted in the third quarter. There will be continued slight disruption from those three assets. In the fourth quarter, those renovations or those reinventions will be completed in the fourth quarter. We also had three other major renovations -- the Renaissance Plantation, the Courtyard in Sugar Land, and also the Hilton Garden Inn in New Orleans. The first two, the Renaissance Plantation and Courtyard Sugar Land, are completed. Those three assets accounted for about $12 million in renovation, and the Hilton Garden Inn, which was about a $7 million renovation, should also complete in the fourth quarter.

Our impact of third quarter from -- in terms of disruption from those six hotels was about 70 basis points in RevPAR and about approximately 38 basis points in margin for the third quarter.

As we look out in the fourth quarter, we also want to point out again, if you look back to the original IPO, we had about $220 million of CapEx, about $115 million of that slated for 2011, and about another $90 million to $100 million of that slated for 2012.

The 2011 involved 48 hotels. We will be releasing projects for 26 assets in the fourth quarter, and only 15 of those involving guestrooms and only one of those being what I would call a major renovation, and that is our Hollywood Heights Hotel in West LA that we are going to convert to a Hilton Garden Inn. That project will begin fourth quarter and will deliver probably in the February timeframe.

So we have been -- we are still very comfortable with our guidance that we have given from a top line. I would remind listeners that if you look year-to-date we have been at about 8.4% in RevPAR. We have also had, obviously, margin growth of 183 basis points, and we have had margin growth as well of 13.9% in EBITDA. So we're very proud and pleased with our performance year-to-date through third quarter, but there will be impact given the disruption, given the amount of construction that we are going to see in the fourth quarter.

So getting to your question, I would encourage listeners to assume our RevPAR will be lower than we have achieved for the first three quarters. In other words, our first quarter is our slowest quarter of the year, and we were about 7.2%. We will be beneath that level in the fourth quarter. Our first quarter is also -- our fourth quarter is our second slowest period, so this window is really the best time for us to renovate this number of hotels and really minimize the displacement.

So the RevPAR impact could be -- and, again, we are going to be conservative -- I would say 125 basis points to perhaps 250 basis points in RevPAR for the fourth quarter, and on an annualized basis, that would be 50 to 80 basis points on an annualized basis 2011. Is that helpful?

That is, and I know it will generate more questions. I will probably follow up with you off-line. But one last question, actually, and it is, I guess, for you and Ross. Can you update us on the acquisition market. Because last quarter we talked -- I think you talked about deals getting repriced and maybe trading -- or trading down called 8% to 10% off of where they were maybe put under contract, and some sellers pulled deals back waiting for a better day.

Have you seen either side return to the table, or is there still a chasm between buyers and sellers?

I will tee Ross up here in a second. I will say in the Charleston deal and the other deals that we had under contract or Letter of Intent, we did get a price reduction in Charleston of 8%. My own belief is -- and we have talked about this in the past -- that given the market dynamics, there was a price reset, I believe, in the 5% to 10% range. My experience is that many sellers are unwilling to recognize that at this time. But, again, we still have an active pipeline, and I will let Ross share some of his thoughts.

It is Ross, and I will echo what Tom is saying. There is a little bit of a pricing reset going on. Some of our peers in the private sector are seeing deals come back to them that the public guys have walked from. But even they are struggling to get to the original pricing because the debt is no longer available for them at the level that it was prior to the summer.

The capital markets have affected the lending community as well. And so, while there are a number of deals in the market, we believe the number of transactions will slow over the next couple of quarters while that reset sort of sinks in to the seller community. But, of course, a relief recovery coming out of Europe or Washington would change all that. We just don't see that happening over the next couple of quarters.

You don't think that reset is widening still as it kind of largely happened and it is in the past?

Well, I think it has happened in the minds of the buyers, but it is still taking effect. It is still sinking into the minds of the sellers.

Okay. Thank you.

And, Jeff, your question about margins in fourth quarter, I would assume 100 basis points lower than what we achieved in third-quarter margins for planning purposes.

Okay. Great.

Andrew Didora, Bank of America/Merrill Lynch.

A few questions with regards to your markets, Tom. First, obviously New York did very well for you guys in the quarter. So particularly interested to hear any of your thoughts in terms of if you have seen any sort of change in the international travel to New York specifically from Europe, just given what is going on there.

We haven't. New York has been an especially strong market for us, as you know. I think part of that is we have got really three well-located assets. Obviously the Doubletree Met at 51st and Lex, obviously our Hilton Garden Inn by Herald Square, and, of course, the recent conversion of the Wyndham to the Hilton Fashion District, and we have performed, I think, north of 16% in RevPAR year-to-date. We happen to also have 16% growth in the third quarter as well.

Obviously, there is talk of a lot of new supply in New York. We like many others are concerned about that, but if you -- I think if you look at what has happened in New York, there has been about north of an 8% increase in supply, and demand has also increased correspondingly. So it has really been absorbed well. But at this point we really haven't seen any softening coming in from -- on the international side, and particularly given our product type or how well located our assets are.

That's great. Thanks. Just in terms of the -- your outperformance in DC relative to the market, what would DC have been up, excluding the Fairfield property?

I am going to go from memory here. It would have been up a few -- 2% to 3%. It would not have been as strong. In part, we have that conversion -- we have two well-located assets in the CBD. We obviously have the conversion of the Fairfield Inn & Suites in DC, and then we have got the Homewood Suites, and both of them are in bull's-eye real estate and well located and have been great performers.

I'm going to guess here, while my colleagues look, but I'm going to say 2% to 3% increase without those two assets.

Okay. Thanks and then just a final question. I know you guys -- you are certainly not as group-oriented as maybe some of your peers, but just curious in terms of how 2012 is shaping up from a group pace perspective.

For us, obviously, north of 85% of our portfolio is transient, and we did see strong group lift, obviously, coming out of Louisville in our third quarter of north of 16%. We are -- if you look at the booking pace for Louisville, I will highlight that, because that is really our biggest group house, and that was I want to say mid double digits. So in the 15% range.

So we are cautiously optimistic. But, again, we really don't have a group portfolio.

Understood. That is it for me. Thanks.

Michael Salinsky, RBC Capital Markets.

Just to go back to the acquisition pipeline, just because it sounds like you had the one deal you closed and you passed on the other eight, what does the pipeline look like today? Are you still actively out there aggressively pursuing transactions, or it is kind of a wait-and-see approach at this point?

We are always -- if you look back to even the 2009 timeframe in 2010 and we obviously were -- we have always been underwriting, working hard through our channels, and if you look at that 2010/2011 timeframe, we did again 24 assets over $1 billion, and Ross and his team in my humble opinion are one of the best in the business, and, again, the team has done north of $6 billion in transactions over the last 10 years.

So we are still active. We are still underwriting. We are still looking. But we are also be very disciplined to find deals that are compliant and deals that are going to be accretive. And I will see if Ross wants to add any additional color.

All I will say is we are probably underwriting about an asset today. So there's still things to look at, and we are painfully aware that we have capacity, both cash and credit facility at our disposal. And I say painfully, because that is -- I am the deal guy here at RLJ. But we are also very disciplined. And so while we do the underwriting because we want to understand the assets, we are not going to reach just to post a win. And so we are going to stick to our discipline.

We are going to focus on the urban markets, be very selective about the assets we actually make offers on, and not reach beyond our pricing parameters. We are aware of our cost of capital, and we are aware of the macro risk out there.

So it sounds like it is unlikely that we would see any additional transactions in 2011.

Well, we feel like the harder we work, the luckier we get, and we are looking at some interesting situations right now. A couple of them that there is a little bit of seller imperative to get it done by year-end for tax reasons, but it is hard to say. It is 50-50 on something by the end of the year.

That is helpful. Sticking on the transaction front, can you talk about asset recycling plans? Now as you are going through the renovations, I am sure there is few of them where you are questioning whether to put money into. Should we expect recycling efforts to step up a bit in 2012?

Yes, that is a priority for us. We have got 20 assets that account for about 10% of our rooms and about less than 5% of our EBITDA. Again, those are largely in slower growth markets in Michigan and Indiana. I would also note that 11 of those are crossed and part of our pools in the 2015/2016 window. So a little more complicated in terms of selling those.

There are also a couple of assets, quite candidly, that are older assets that may -- could, in fact, be [developed] candidates as well. It just won't make sense to put additional capital in. Again, these are small assets that are contributing $100,000 to $200,000 of EBITDA, so they are really insignificant. But we are also looking at selling three to five assets, and we are already talking to a few brokers and would expect that would be a priority for us in 2012.

Okay. That is helpful. In terms of capital spend for 2012, I think it was $225 million to $250 million, I think, the IPO. Was there any changes to that number for 2012.

No, as I said, as I said earlier, about $220 million over the two-year period. We are still wrestling with our CapEx plan for 2012, but I would say it would largely be $90 million to $100 million and would impact about 45 assets. I do want to note and share with the listeners that we are planning to renovate our Doubletree Met hotel and that we would commence that renovation at the end of the year and it would impact our first two quarters of 2012. That is our largest asset. It is incredibly well-located. It has been a strong performer, and we think it will only get stronger as we renovated and repositioned, and this will be a guest room renovation.

We did complete the lobby earlier this year.

Okay. That is helpful. Then, finally, just given the renovations and the amount you are spending on the portfolio, can you give us a sense of where are corporate negotiations, how those are going and what rate increases you are expecting?

Like many of our peers, I think on average you would expect sort of mid-single digits. Obviously we are pushing the brands and our operators to be as aggressive as we can, and I think given the supply picture and how we have performed in many markets I'm cautiously optimistic that at the end of the day it will be north of 5%. But I think for planning purposes right now, and obviously given the fact that it is still early, I think mid-single digits is a good planning place.

Great. That is all for me, guys. Thank you.

Dennis Forst, KeyBanc Capital Markets.

Tom, I wanted to get a definition that you had mentioned early on. You talked about the Charleston acquisition being a bull's-eye market -- you used the word bull's-eye later on also -- but how would you describe Charleston in general? Why is that such a bull's-eye market?

Well, I think for a couple of reasons. I think if you look historically since 1987, if you look at the compound annual growth rate of RevPAR nationally, I think it is about 2.3%, and if you look at the Historic District of Charleston, it has actually been about 4.7%. I don't think that market has ever been below 80% in occupancy, and it has had such a strong performance. It is a market that we have tried to get into for many years.

This particular asset is, again, a reinvention. It is well located. We think it improves the overall mix and quality of our portfolio, and, again, we expect the RevPAR in the first year to be between $130 to $140, which, again, is 40% to 50% higher than the average of our portfolio.

We have worked hard in the recent 24 acquisitions that we have done over the last two years to continue to improve the quality of the portfolio and, again, raise our overall RevPAR.

Would I say that Charleston is a top 30 market? We have a strong coastal bias. Obviously we have got a great presence in New York and in DC. Charleston, I think, is one of those special cities and, again, as Conde Nast recently, again noted, that it was the number one destination. So I think there are a lot of positives there, and it is a market that we are quite comfortable with.

Okay. That is a great answer. I appreciate that. Is Noble the manager?

Noble, obviously, is just completing a recent transaction with Interstate, so the Noble-Interstate joint venture will be the manager. And, again, we have had a long and successful relationship with both Noble and Interstate. So we are comfortable either way.

Okay. Given that coastal bias, clearly the left coast is underrepresented in your portfolio. Is that something that is a priority?

As you heard earlier on the call, Ross is our deal guy, and he is -- we have been actively looking for additional opportunities on the West Coast to put a flag. I would also note that we have the Hollywood Heights Hotel in West LA that we, again, will be a fourth-quarter conversion for us, and it will complete in February 2012. And we are very excited about getting a Hilton Garden Inn in that sub-market, and again, we are actively looking to continue to expand on the left coast where we are underrepresented.

Okay. And then lastly, just a housekeeping question for Leslie. Leslie, in the press release, the number of shares were 105.2 million, and in the press release for the share repurchase, the last line was on November 7 the Company had outstanding 106.3 million shares. Can you reconcile that for us?

Sure. The OP Units is what is missing from the 105.2 million, so for the buyback, we included those.

And how many OP Units are there?

There is about 894,000.

Those are equivalent to shares, are they not?

They are from a buyback perspective.

But not for the income statement?

Well, the income statement is based from a GAAP perspective, and that is income to common shares. So you see a deduct on the income statement for income related to the OP Units.

Right. Okay. Thank you. That clarifies it. Appreciate it.

(Operator Instructions). Enrique Torres, Green Street Advisors.

Most of my questions have been answered. Just a couple of touchups. Can you disclose if any capacity has been used in the share repurchase program?

Not at this time, and I hope you're doing well.

Thank you, as well to you guys. And then a follow-up on the -- you mentioned you're willing to do both the repurchase and the acquisitions. What would be your comfort level in increasing your leverage in doing those two until your share price obviously recovers and it allows you to kind of tap the equity markets again?

I think we have had this conversation before. I mean obviously a fundamental tenet for us is to maintain a simple capital structure and low leverage. I am a passionate proponent of that, and if you, again, look at our position today, we have got net booked EBITDA of 4.3 plus or minus. We took down the Charleston deal all-cash. We have got a $300 million undrawn credit facility, and we have got about $325 million of cash.

We will not be levering up to buy back stock. We have $100 million that has been set aside for that and approved by our Board of Trustees. And, as we look at acquisitions, again, we will be opportunistic. We will be prudent. And if we do a deal, we will look, again, to put leverage less than 40% and in some cases continue to delever our balance sheet because our ultimate goal is to get to the point of being investment-grade.

I would also point out that we have 50 assets in our portfolio out of the 141 that are unencumbered. So we are -- we are going to be very prudent capital allocators. We're going to be very disciplined, and we are going to be very protective of our balance sheet and our liquidity.

Great. Thank you, guys.

Dennis Forst, KeyBanc Capital Markets.

We must be getting near the end because I just had a simple question on the Garden District Hotel. Do you have a date for opening, or have you started taking reservations yet for the second half of 2012?

We have not. We are -- it is, again, another complicated reinvention. We have started the process, and we don't expect that we will complete until the end of the second-quarter 2012.

So for modeling purposes, if we used the full third quarter, that is probably reasonable?

I think that is very reasonable based on where we are right now.

Okay. Terrific. Thanks a lot.

There are no further questions at this time. I will now turn the floor back over to management for any closing remarks.

It is Tom Baltimore, again. I appreciate all of you taking time today. We will -- the management team will be available for the next hour or so for follow-up questions, and we will be reaching out to many of you. We, again, thank you for taking time, and we continue to work hard to build credibility and show you that we are doing what we said we were going to do, and we are excited about the future and looking forward to our next opportunity to talk with you in February, early March of next year.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.