RLJ Lodging Trust (RLJ) 2011 Q4 法說會逐字稿

Greetings and welcome to the RLJ Lodging Trust fourth-quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, the conference is being recorded. It is now my pleasure to introduce your host, Hilda Delgado, Investor Relations for RLJ Lodging Trust. Thank you. Miss Delgado, you may begin.

Thank you, operator. Welcome to RLJ Lodging Trust's fourth-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 the year. 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 10-K 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 from last night. I will now turn the call over to Tom.

Thank you, Hilda. Good morning and welcome to our fourth-quarter and full-year 2011 earnings call. Before I begin discussing the quarter and year-end results I want to briefly recap what was a very exciting and significant year for RLJ.

We achieved a number of accomplishments in 2011, the most significant being the execution of our initial public offering in May. Our IPO was a culmination of more than a decade of hard work from a team driven to provide investors with outsized returns and we expect tremendous benefits from operating under a public platform.

We started the year by acquiring nine assets, all part of a larger $1 billion acquisition strategy that we started in 2010. As a company and as a team our primary goal is to create shareholder value by being prudent capital allocators.

During the fourth quarter we were opportunistic during a time of high volatility. Not only did our Board approve a $100 million share buyback program, but we also purchased the Courtyard by Marriott in the Charleston Historic District. This asset was purchased at a lower price than our original contract price and at a significant discount to replacement cost. It is an attractive acquisition that complements our high-quality portfolio.

After our most recent acquisition we now have more than 20,600 rooms in urban in dense suburban markets across 20 states and the District of Columbia. We have built a meaningful competitive advantage through our scale, platform and business model. We will continue to execute our investment strategy and we will remain committed to being an aggregator of focused service and compact full service hotels. In doing so we will maintain a strong balance sheet that provides us with the flexibility and liquidity to support that growth.

One of the key lessons that we have learned over past economic cycles is the benefit of operating a low leverage company with significant liquidity. For the year we reduced our total outstanding debt by 23% from the beginning of the year to a total of $1.3 dollars. Accordingly, we were able to increase the number of unencumbered assets to 50 and improve our leverage ratio. The result is a fortress balance sheet that supports our long-term goal of achieving investment grade and provides us with a strong base for future growth.

Our view is that the team with the lowest cost of capital wins over the longer term. We are pleased that we were able to initiate a quarterly dividend and maintain a meaningful rate that is sustainable from an operating cash perspective. We intend to provide shareholders with a quarterly dividend and expect it to grow as our operating cash increases as well. In fact, we expect to increase our annual dividend by 5% to 10% in 2012. As always, the final declaration of a dividend will remain at the discretion of our Board.

Overall in 2011 we achieved or exceeded all of our major operational and financial goals. Not only did we strengthen our balance sheet and acquire value enhancing hotels, but we also finished the year with strong operational results and further positioned ourselves to be an active participant in the economic recovery.

Managing a portfolio of scale requires active asset management and a strong partnership with our third party managers to ensure that each property grows their respective market share and drives profitability growth. The combination of our strategically located portfolio and our aggressive asset management program enabled us to drive meaningful portfolio growth over the prior year.

For the year, RevPAR increased a solid 7.7% and margins improved 106 basis points. Our top 25 hotels, which represent approximately 52% of our pro forma hotel EBITDA, generated an impressive 9.3% RevPAR growth. For the year, pro forma consolidated hotel EBITDA, which includes the results of our non-comparable hotels, was $253.2 million. In sum, we are pleased that we were able to achieve our hotel operational goals and come well within the guidance that we published in 2011.

For the quarter we saw RevPAR growth of 5.7%. As discussed on our last call, the quarter was heavily impacted by renovations that we initiated at 26 of our properties. Excluding the impact of renovations our RevPAR for the quarter would have been 133 basis points higher or 7%. Our EBITDA margins contracted by 126 basis points partly due to the renovations but also due to multiple tax appeals in the fourth quarter of 2010 that resulted in a tough year-over-year comparison.

Moving to our top markets, our Manhattan hotels have shown no slow down and we are extremely pleased with the performance of this market. For the year our hotels in New York posted an impressive 14.4% RevPAR growth. New supply of approximately 6% in 2011 was quickly absorbed and we expect with less supply coming on line in 2012 that there will be minimal impact to our assets.

For the quarter our New York market posted a 10.5% RevPAR increase. As of January this year we began taking rooms off-line at our 750 room Doubletree Met for a $24 million rooms renovation project that we expect to complete in mid to late May. Since this asset is one of our largest assets, we project that RevPAR and margins will be heavily impacted in 2012. However, once complete we expect that this asset will drive solid growth for the portfolio.

In Washington DC we continue to benefit from the conversion of the Fairfield Inn & Suites in downtown. Our hotels have posted terrific results and have continuously outperformed the market despite the challenges that DC has faced. For the year our hotels posted a strong 6.1% RevPAR growth in a market that witnessed only 1.5% growth. And for the quarter our hotels posted a solid 12.1% RevPAR increase.

We expect another year of light convention center activity and, with an election year in play, DC will remain a challenging market in 2012. Our assets are well-positioned and we expect that we will once again outperform the market.

Austin posted a strong 10.1% RevPAR increase for the full year thanks to the strong macro drivers in its favor. For the quarter RevPAR was flat primarily as a result of renovations and softer convention activity. Also this quarter we saw less pickup in some of our top corporate accounts. We believe these are isolated events since we are still seeing a healthy demand and increase in overall business travel. For 2012 we expect that business travel will remain strong and will help drive rate growth.

Denver posted a 6.1% and 1.6% RevPAR increased for the year and the quarter respectively. This quarter the market was impacted by renovations at one-third of our hotels. However, the Denver market continues to show steady growth. We are pleased overall by the increasing corporate demand and pricing power that we saw this year. Going into 2012 we project that the market will continue to benefit from its strong presence in tech, corporate transient and overall weekend business.

Chicago posted a 4.7% and 6.1% RevPAR increase for the year and quarter respectively. While the level of city-wide conventions in 2011 was down from 2010, Chicago has several high-profile conventions coming its way in 2012 that will help drive compression throughout the city and help drive stronger RevPAR growth for our hotels.

And finally, Louisville posted a 4.7 and 6.0% RevPAR increase for the year and the quarter respectively. All of our assets in this market posted positive RevPAR growth this quarter. Although we are seeing some softness with convention center activity going into 2012, we are encouraged by our current pace reports which show transient and group up year over year.

With a successful 2011 behind us we are looking forward to an exciting 2012 and beyond. While we expect that geopolitical headwinds will persist, we are beginning to see encouraging signs that the economy is on pace for stronger growth in 2012, consumer confidence has improved, unemployment has dropped, and corporate profits and discretionary spending continue to increase.

GDP during the fourth quarter grew by 3%, a major improvement from third-quarter's growth of 1.8% growth and the fastest growth since the second quarter of 2010. The lodging industry finished the year posting an 8.2% RevPAR increase, one of the best year-over-year performances since Smith Travel started tracking RevPAR in 1988.

With a favorable supply/demand imbalance expected to continue over the next few years we are excited about the future of the lodging industry. We expect growth will remain fragmented in the near-term with certain markets such as Chicago performing better than others like DC. However, we are confident that with our recent acquisitions in core markets, renovation activity and asset management initiatives we have built a strong platform for another successful year and ultimately long-term growth.

The opportunity to drive further value will come from recapturing business lost during the recession and returning to at least historical operating performance from our prior peak in 2007. Our peak RevPAR for the 89 hotels that we have owned since 2006 was approximately $85 in 2007; the same hotels are currently just under $74 representing embedded growth of 15%. Our EBITDA margins for these assets were 35.2% and currently these same assets are tracking at 32.8%. And with a more attractive portfolio today, we expect to capture additional growth from our new assets as well.

We are also positioning our portfolio for long-term growth and value creation through a number of renovation projects. Although we are experiencing some short-term disruption, we have already started to realize a portion of upside from the conversions of the Fairfield Inn & Suites in DC and the Hilton Fashion District in New York. This year alone these properties saw growth of 47.4% and are well ahead of our underwriting.

We project further upside in 2012 and 2013 from all seven conversions and the transformation currently underway at our largest asset, the Doubletree Met in New York. Our pipeline remains strong and is becoming more attractive after a noticeable pullback in real estate transactions during the second half of 2011.

With an undrawn $300 million credit facility, a low leverage balance sheet and more than $300 million available in unrestricted cash; we have significant purchasing power to compete for opportunities that meet our investments criteria. We will continue to leverage our existing channel to find off-market opportunities.

Our strategy will remain consistent and we will pursue growth through a disciplined approach. We will focus -- in markets where we know best, focus service and compact full-service hotels in core urban and dense suburban markets.

With various initiatives taking place one thing remains constant, our team's full commitment to drive shareholder value. We have developed an expertise in multiple areas, asset management, design and construction, acquisitions and finance. As a result we have all disciplines needed to realize the value embedded in our portfolio and expand our platform for the next phase of our growth.

We will continue to take advantage of our core competencies and are looking forward to achieving strong results in 2012 and beyond. Accordingly, we expect 2012 pro forma RevPAR growth of 5% to 7%, pro forma hotel EBITDA margins between 33.5% and 34.5%, and pro forma consolidated hotel EBITDA between $265 million to $285 million. These figures include the impact of disruption expected to occur at the Doubletree Met.

If we were to exclude the Doubletree Met for the year, our expected RevPAR range would increase by 100 basis points and translate to 6% to 8%. I will now pass the call over to Leslie who will provide some additional information on our financial performance for the quarter and the year.

Thanks, Tom. Before I report on our fourth-quarter financial results I would like to remind listeners that the pro forma results for 2011 that Tom shared earlier refer to 139 hotels and include results for periods prior to our ownership. However, adjusted EBITDA and adjusted FFO that I will discuss next only reflects our ownership period.

Now looking at our results, for the fourth quarter our adjusted EBITDA increased to $57 million in the fourth quarter and for the full year our adjusted EBITDA increased by $70.5 million to $234.4 million representing a 43% increase over 2010.

Adjusted FFO for the fourth quarter was $37.3 million compared to $24.8 million in 2010. On a fully diluted weighted average share basis adjusted FFO for the quarter was $0.35. For the full-year adjusted FFO was $142.2 million compared to $72.1 million in 2010, representing a 97.3% increase.

Since the timing of our IPO skews our weighted average share count for the full year, we believe that using fourth-quarter's weighted average share count is more appropriate and would result in an adjusted FFO per share for the full year of $1.34. Both adjusted FFO and adjusted EBITDA reflect add backs to normalize our G&A expense. Adjustments made in the fourth quarter primarily include transaction and pursuit costs that were incurred in connection with our acquisition efforts.

For the full year adjustments worth noting include $10.7 million for expenses associated with our IPO, $2.9 million to reflect nonrecurring prepayment fees, $1.4 million in accelerated deferred financing, and an additional $1.4 million associated with nonrecurring expenses of our predecessor entity. A complete reconciliation to adjusted EBITDA and adjusted FFO is available in last night's press release.

Now turning to our balance sheet and capital markets activity. As Tom alluded to earlier, the highlight of our capital markets activity this year was the completion of our IPO in which we sold 31.6 million shares yielding net proceeds of $533 million. With the proceeds from our IPO we paid off $473 million in debt and other related transaction fees.

During the year we also secured a new $300 million credit facility, with an accordion feature that allows us to upsize its $450 million. And in the fourth quarter we refinanced our unsecured $140 million term loan. In its place we structured five separate first mortgage loans for a total of $142 million.

Completing all of these transactions during a time of heavy volatility in the capital markets reinforces the support that we have from our banking relationships and provides us with the flexibility necessary to execute our growth strategy. As a result of this activity only 6% representing $85 million of the Company's outstanding debt will mature in 2012.

We are currently in the process of refinancing this tranche of debt and expect to finalize this transaction early in the second quarter. There are no other maturities prior to 2015 assuming we exercise all of our extension options.

We remain committed to being financially prudent and maintaining healthy financial ratios that can weather a downturn and also provide us with a solid position for strong external growth. Our outstanding debt at the end of the year was $1.3 billion, our net debt to adjusted EBITDA, which includes prior ownership, was 4.3 times; well below of our target level of 5 times.

Our unrestricted cash balance at the end of the year was $310 million. And with no outstanding balance on our $300 million credit facility we continue to have more than enough liquidity to cover our projected acquisitions, quarterly dividends and planned capital expenditures.

Our current cash from operations continues to support our commitment to distribute quarterly dividends. Thus far we have paid dividends for three consecutive quarters. We believe paying dividends shows our commitment to provide investors with meaningful returns and our ability to effectively manage our balance sheet. We anticipate increasing our dividend over time to correspond to a payout ratio of approximately 55% of adjusted FFO as supported by our growth.

With regard to our capital plan, in 2011 we embarked on an extensive two-year capital program to renovate and enhance our properties. As we have discussed previously, our capital plan primarily entails upgrading and/or repositioning 24 assets acquired in 2010 and 2011, including seven brand conversions.

During the fourth quarter major initiatives included completing three conversion projects -- the Hilton Garden Inn, Pittsburg University Place and the Hilton Garden Inn Durham were both converted from Wyndham Hotels. And the Embassy Suites West Palm Beach Central was converted from a Crowne Plaza.

We are very pleased by joint efforts of our asset management and design and construction team to plan, execute and ensure the success of our 2011 capital plan. In aggregate we initiated renovation projects at 48 properties for a total of $115 million.

The nature of the renovations range from minor aesthetics to full transformations. Nevertheless, we managed the schedule of each project very carefully to ensure minimal disruption and, as a result, we only experienced approximately $3.1 million in disruption for the year, which was at the lower end of our forecasted range.

As a reminder, our reported pro forma results include hotels undergoing renovations. Unless a hotel is closed for the period it is not excluded from our results, therefore the impact of this disruption to our overall RevPAR for the full year was 52 basis points which would have translated to RevPAR growth of 8.2% instead of the 7.7% that Tom reported earlier.

As you can see, in 2011 we made significant progress with our renovation projects. During 2012 we plan to complete the second half of our two-year renovation program. Our 2012 capital plan will encompass renovations at 45 properties for approximately $90 million to $95 million. And as Tom mentioned earlier, we expect that the disruption at the Doubletree Met will have the greatest impact to the portfolio during the first half of the year.

With an experienced in-house team we expect that we will see another successful execution of our capital plan. As evidence of this, I'm pleased to announce that this week we also completed the multimillion dollar conversion of our hotel in Hollywood California. The hotel was converted from an independent brand to a Hilton Garden Inn and will now be the only Hilton product in Hollywood, California. To date we've completed six of our seven planned conversions.

Now with respect to our outlook, there are some key assumptions worth emphasizing relative to the guidance Tom mentioned earlier. First, our full-year estimate for pro forma RevPar growth of 5% to 7% and pro forma hotel with EBITDA margins of 33.5% to 34.5% both reflect 140 hotels and are adjusted for non-comparable hotels.

And just to reiterate, our outlook already includes disruption. Although we expect to have positive RevPAR and margin expansion for the full year, we expect the first quarter will be heavily impacted by the renovation of Doubletree Met, our largest asset in our portfolio. If we were to exclude the Doubletree Met for the full year, our estimated RevPAR range would have increased by 100 basis points at both ends.

Finally, first quarter is our softest period and generally accounts for 18% to 20% of our annual EBITDA. Given that we expect first quarter 2012 to be further impacted by the Doubletree Met renovation and other renovations initiated during this quarter, we expect a lower first-quarter EBITDA contribution of approximately 16% to 18%.

For additional guidance please refer back to our press release from last night. Thank you and this concludes our remarks and we will now open it up for questions.

(Operator Instructions). Sule Sauvigne, Barclays Capital.

I was wondering if you could discuss your views on share repurchases both during the quarter and also going forward.

We think it's important obviously given the fact that we felt pretty strongly that our stock was undervalued to certainly have a share repurchase plan in place, obviously our Board supported that. It's something that we will continue to monitor. As you know, we didn't buy back any shares in fourth quarter.

We do think it's an important tool to have in our tool kit and we'll continue to monitor it carefully. Obviously we think there are a number of attractive deal opportunities moving forward. We've got a pretty active pipeline right now; we don't have any assets under contract or under letter of intent, but we are cautiously optimistic that you'll see a lot more activity from us on the deal flow front this year particularly in the second half of 2012.

Okay, thank you. And I'm not sure if I missed this, but can you quantify the margin impact from the renovations in the quarter and also in your 2012 guidance?

Margin impact for fourth quarter I think Leslie pointed out in her scrip that was 133 basis points, so we were 5.7%. And as you may recall, we gave guidance of $3 million to $5 million I believe in the last call. We ended up coming in at about $2 million in the quarter accounting for about 133 basis points. So taking out the renovations would have been about 7% RevPAR for the quarter.

Okay. And on the margins for your guidance for 2012. You said that renovation impact is obviously included in that. I just wonder what it would have been without.

I'd answer it this way, if you look at obviously the Doubletree Met being the greatest part of that, it probably would have been -- if you look overall on an annualized basis we think Doubletree Met will affect us about $5 million to $6 million largely in the first half of the year. So if you take New York we probably would end up 1% to 2% approximately and we would be probably 7% to 8% on an annualized basis. Does that answer your question?

I think so. I can always follow up. Thank you.

Andrew Didora, Bank of America-Merrill Lynch.

Tom, obviously some of your bigger repositionings are behind you outside of what you're doing at the Doubletree Met and you still have over $300 million in cash on the balance sheet, several unencumbered properties.

First question, can you maybe go into a little bit more detail on where your deal pipeline stands right now and your expectations in terms of when you could begin deploying some of this liquidity? And then second, if this pipeline doesn't materialize as you expect right now, when would you consider maybe returning some of this cash to shareholders?

I would say, Andrew, we're very confident in our ability to be able to deploy capital. I think if you looked historically, over the last decade we've done about $6 billion in transactions. We were pretty active in post-9/11; we continued that through '03, '04, 2005 and '06. We were a net seller in I think 2007 and '08 when it certainly made since. We resumed again in late '09 buying one asset. And then if you look over the last 18 months plus or minus we've done 25 acquisitions for over $1 billion.

So we clearly had eight deals under contract or letter of intent in the second half of 2011. Obviously it didn't make sense to proceed as we saw the capital markets drying up and obviously our cost of capital rising, so I think we did the prudent thing of not proceeding with those deals. We have attempted to reprice, we did reprice the Charleston deal and are quite pleased with that.

We always have an active pipeline and continue to underwrite. We would project to do $200 million to $400 million in deals this year. Obviously we are always looking to create shareholder value and, as I said earlier, you would expect to see our dividend increase this year, we had a healthy dividend last year and we think we can increase that another 5% to 10% this year.

That's helpful, Tom. And then in terms of your current pipeline, would you say that it's deeper now than it was during the back half of 2011?

Yes, I would say that -- and Ross -- I'll let him add some additional commentary, but the answer is yes.

Yes, Andrew, we never stopped hunting in '11, but clearly the arithmetic was a little fractured when the capital markets beat us up and the whole sector in fact. But as we've recovered we've amped it up even more and we have a lot of prospects, but probably one offs and pairs of assets characterize it best first half of the year and then we expect maybe the activity on deals of scale to increase in the second half.

Okay, that's helpful. Thank you very much.

Dan Donlan, Janney Capital Markets.

First question on the RevPAR growth guidance, just curious if you could give us what you think New York sans the Met is going to come out and maybe your other largest markets -- Chicago, Austin and Denver?

Let's talk about New York. First, we'll give you a little more color on first quarter, particularly given the fact that we're eight days into March here. We're expecting the overall portfolio to -- in first quarter up about 3%.

If you take out the Doubletree Met that would be 6% to 7% and if you look at -- if you isolate our Hilton Garden Inn at 35th Street, Hilton Fashion District, both of which I think are having a great first quarter, we would end up about 10% for first quarter for those two assets. And with Hilton Fashion District coming on the heels of being up about 48% last year already in the mid-teens in first quarter of 2012.

We're cautiously optimistic in Chicago. As you look city-wide bookings are up about $182,000, that's about 18.6% from seven fewer conventions than in 2011. We would expect probably 5% to 7% range in Chicago as kind of an overall market. Austin, it's a non-legislative year which impacts RevPAR about 1.8%, so we would expect Austin to probably be in the 5% to 6% range as we look out to 2012. And I don't know if you asked about Denver. Did you ask about Denver as well?

Yes, sir.

And Denver probably being in the 6% to 7% range. City-wide bookings are down slightly there, their per diem's are up 5% to 6%. But as we look at North Denver we're seeing really strong transient trends there and it's been a strong market for us as well.

Okay, that's very helpful. And then on your third-quarter call I think you said that the top 25 hotels in your portfolio generated about 50% of the EBITDA, what do you expect that to be in 2012 and beyond?

They generated 52% of our EBITDA in '11 and representing about 9.3% in RevPAR. I would expect it to be in that 8% to 9% range as you look at those assets. I mean there it's bull's-eye real estate well located and that account is obviously for our New York assets, DC, some of our urban assets in Austin and Chicago as well. So it's a very strong port of our portfolio and obviously those are the kinds of assets that we're going to be looking to acquire as we move forward.

Okay. And then on the disposition side, do you have any expectations there this year?

We do. As you may recall, we've got 20 assets that really account for about 5% of our EBITDA, about 10% of our rooms. We are currently marketing four assets and we expect to add some additional assets and we plan to market 10 to 15. Obviously each asset is -- these are assets in slower growth markets and we'd look to certainly recycle that capital. We would like to move a number of those assets during calendar year 2012.

Okay. And then just on the dividend growth, appreciate your thoughts there. How are you going to think about that? Is it something that you're going to look at once a year or is it something that you're going to evaluate on a quarterly basis here?

We will provide some internal guidance and thinking with our Board, but it's something that we will evaluate each quarter. Obviously that remains at the discretion of our Board. I would say, as you've noted, since we launched we've paid a dividend; we have a great balance sheet.

We believe quite strongly that a dividend is an important part of being a REIT. It shows obviously our return to shareholders. In addition it shows I think a prudent balance sheet management. So it is something that we will monitor carefully.

Okay. And then last question, not to leave Leslie out here. Just curious what your thoughts are on the debt that you have coming due in 2012. I'm sorry if you said something about it, but is the idea to refinance this or just to use your existing cash to pay it off?

No, we are in the process of refinancing it now; we're actually receiving [term seats] later this week and early next week. We've gotten a lot of interest from both the banking community, CMBS market as well as from the life companies given the fact that we're early in the year. It's a portfolio deal so it's very attractive. It's got obviously good sponsorship from us as well as it comes from a strong brand family. So we're seeing a lot of traction in it and expect to have that buttoned up by the first -- early part of the second quarter.

Okay. All right, thank you very much. That's it for me.

Wes Golladay, RBC Capital Markets.

Can you give us color on RevPAR, the range for the first quarter?

Yes, for first quarter actually we were going to give you a little more detail then, as I just answered Dan's question. We're currently forecasting RevPAR for the first quarter to be about 3%. That obviously does include the Doubletree Met, which is under renovation and north of 60% of those rooms, which is our largest asset, are under repair right now. If you exclude the Doubletree Met then that range would be 6% to 7%.

I would also again point out, as Leslie did during her remarks, that first quarter is really our slowest quarter and we generally get about 18% to 20% of our EBITDA. We would expect this year about 16% to 18% of our EBITDA coming in the first quarter. These numbers, that 3% is already baked into our guidance, the 5% to 7% that we have provided both in our press release and obviously in our prepared remarks this morning.

Okay. And on the financing front, what are you guys seeing in terms of loan to values and total rate? Just a range.

Sure, on the total value range we're seeing sort of 60% to 65%. Spreads right now are wide. We are receiving term seats later this week and early next week, and so really not at liberty to discuss that at this point in time as we're negotiating.

Okay, and last question regarding the acquisitions. How much of the current pipeline is comprised of assets that you were pursuing late last year and has pricing improved?

This is Ross, I'd say that probably 40% of the pipeline are assets that were around last year that didn't trade because of the condition of the capital markets. And pricing has been relatively flat to that period. The transactions stopped because most of the public REITs withdrew and the private equity buyers couldn't find attractive financing.

The financing is still an issue for the private equity guys if the assets aren't stabilized, but the capital markets have allowed the whole hospitality sector on the public side to recover a little bit. And so, activity is picking up a little bit.

But what we're competing with here, as much as each other, is seller indifference -- there's just a point at which the sellers aren't interested in transacting. And so I'd say that pricing is relatively flat to where it's been.

Okay, thanks for the color.

Eli Hackel, Goldman Sachs.

I have two questions, I'll ask them both up front. First, how many of your Courtyard Marriott's have their lobby refresh and what type of returns are you seeing on those upgrades?

And second, some of the other REITs mentioned this -- are you seeing a big increase in property taxes for this year? I think like Chicago maybe has a reset and you have a bunch of hotels there. If you could quantify any impact on increase in property taxes that would be great. Thank you.

We got pretty significant refunds in Chicago, part of the reason why the year-over-year comps in our margins had contracted and I believe our refunds were in the range of $3 million plus or minus and it was for a dozen hotels or more plus or minus. It is always an issue in Chicago, we continue to monitor that, we have an active appeals process. I don't have a range for you as to how much we expect those to increase, but that is something we are monitoring carefully.

And then regarding your Courtyard question, I believe we've got 33 Courtyards. I would say two-thirds of those are done and the rest in either design or planning. We do have another 45 assets that we're renovating this year.

We've been very thoughtful about our renovations, planning most of those in first quarter and fourth quarter, our two slowest periods. I think you saw how we renovated the 48 hotels last year and had minimal disruption, we're quite pleased with that process.

In terms of a return, I would say the returns are mid-single-digits is where I would rate them right now. It's still early in that process. We do think it makes sense as part of that repositioning of that brand. We're big believers in the brand and think the lobby reinvention was certainly the right next step.

All right, great color. Thank you very much.

Dennis Forst, KeyBanc Capital Markets.

I had a clarification question on both yours and Leslie's comments about first quarter being the softest quarter. I think you said the EBITDA contribution would be more like 16% to 18% of the total this year, is that correct?

That is correct.

And normally --

18% to 20%.

Yes, so I think last year it was close to 20%, was it not?

That's fair.

And the other question was a bigger picture question about acquisition activity. I think Ross said that there are a number of one-off deals that you're looking at now and that you'll be more active in the second half of the year and that second half of the year could include some deals of scale. What gives you confidence that there may be multiple acquisition opportunities in the second half of the year versus the first half of the year?

It's a combination of two things. One is just discussions we've been having with principals, direct discussions over time. And the other is the direction of the capital markets. And as things slowly, painfully get resolved in Europe it seems to affect sentiment in the markets at large and our whole sector is getting a lift.

Plus, as you're seeing with us and some of our other peers, we're delivering the numbers that we forecasted. And if the shares continue to rally we'll be in a position from -- just to do a deal that's accretive, a larger portfolio, we'll be better positioned internally to do that.

And a larger portfolio, does that mean two, three, four units or properties or could that mean as many as five to 10 properties in a single deal?

It's hard to say. I'd say both of the above would be considered.

Okay. Well we look forward to you completing those.

Dennis, we're not -- just to add to what Ross said, I mean we're constantly underwriting. We've got a history of doing single assets, smart portfolios, occasionally we've done very large transactions as we did with (inaudible) [Lodging] many years ago.

So we'll continue to be disciplined and underwrite, we do have a great balance sheet, we're active, we've never put down our pencils. And we're cautiously optimistic, again, if the capital markets cooperate, that you'll see a lot more activity from us in the second half of the year.

Great, thank you.

Enrique Torres, Green Street Advisors.

Most of the questions have been answered. But if you could just dive in a little bit more into what you're seeing in Austin in terms of performance. I know you gave a little bit of color on the fourth quarter, but what you would expect for this year, what's going on in that market with supply, kind of more of a three-year outlook.

Austin has been a good market for us. As you know, we ended the year up about 10%. The Statehouse was in session in 2011, they will not be in session in 2012, which will impact RevPAR we think 1.8% to 2%. As I said earlier, we expect to probably have RevPAR in the 5% to 6% range for that market.

We did see in fourth quarter Dell having a travel freeze, which did impact fourth quarter by about $420,000 in revenue, about 265 basis points in RevPAR. We expect that that's going to be lifted here in March. City wides are going to be down slightly, 10% to 14%, and I think there are 16 fewer events in 2012.

We are encouraged, however, by Southwest -- South by Southwest, which had a pretty significant benefit last year. We're expecting a significant benefit in 2012. We also are encouraged by Formula One, which obviously is planned for later in the year, fourth-quarter, which could be a significant windfall for Austin.

We like Austin long-term as a market, obviously a college town, a state capital. As you look at cities that have had pretty significant job growth, I think Austin has been at or near the top of the list. Clearly there's talk of new supply. We do know the Hyatt Place that will open in another year or so.

Regarding anything else, I mean I think it's somewhat speculative at this point. I think it would be inappropriate for me to comment until I think there's more definition to future supply there. In terms of the core fundamentals of that market, we think that is a top 30 market for us and one that we'd like to be in long term.

Good. That color is a very helpful and you can count me in Austin for the F1 race.

Wilkes Graham, Compass Point.

Maybe for Tom or Ross, you mentioned last fall that part of the reason that you weren't getting some acquisitions done is because there was a material gap in the seller's outlook for the hotel industry in RevPAR and EBITDA versus your own. I'm just curious absent a continued improvement that we've seen in capital markets, has that gap narrowed at all. Are the sellers becoming less optimistic or are you becoming incrementally more optimistic to where that gap is narrowing?

It's Ross here. Ironically, Wilkes, I don't think that philosophically we were that far apart from each other. The sellers were optimistic about the direction of the industry and, frankly, so were we. When we looked at the supply and demand fundamentals on Main Street everything looked good. It was the capital markets that were fracturing the model and undermining our ability to transact.

We never -- morale around here was fine frankly; we never lost confidence in our loan portfolio and in the direction of our industry. But as allocators of capital and stewards of the balance sheet we had to pull back when the capital markets forced us to. So as our shares recover it puts us in a position to reengage on transactions. But we never really lost our confidence in the direction of the industry over the next few years.

Thank you for that.

Dan Donlan, Janney Capital Markets.

Ross, just wanted to clarify your comments on pricing. I believe you said that pricing was flat kind of relative to where it was towards the back half of 2011. Does that mean that cap rates have actually gone up a little bit as (inaudible) the cash flows have obviously risen or did you mean that cap rates have stayed relatively the same?

That's a great question. I'm going to say cap rates may have gone up a little bit and that's a natural occurrence as the cycle moves on. Cap rates were at an all-time low in '09 and '10 when we first started coming out of this because we were pricing off of trough earnings.

And so now that hotels are performing better -- not at peak by any means, there's still plenty of running room -- but now that they're performing better we're pricing off of healthier trailing 12's, we're pricing off of healthier 2010 -- or I'm sorry, 2012 budgets. And so it is possible that cap rates have crept a few basis points. But I was speaking largely in terms of actual costs for the assets and prices per key.

Okay. All right, that's very helpful. And then just lastly on these acquisitions that you're potentially looking at. Are they more value add type of opportunities or do they kind of run the gamut of some newer properties or what's kind of your thinking there or your outlook there?

I would say, Dan, it's going to be a combination. If you look at the last 25 deals that we did, we had seven of those that were conversions and then the balance obviously being assets with in-place cash flow. I think our balance sheet and our scale really gives us the flexibility to look at not only deals with in-place cash flow, but those that we think through conversions that can generate outsized returns. So I'd say generally you'd see us 60% to 70% deals with in-place cash flow and then the balance looking at deep terms or conversions.

Okay, thank you very much.

There are no further questions at this time. I would like to hand the floor back over to Mr. Baltimore for closing comments.

Well, we appreciate everybody taking time and we look forward to discussing our first-quarter results in early May. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.