RLJ Lodging Trust (RLJ) 2012 Q1 法說會逐字稿

Greetings, and welcome to the RLJ Lodging Trust First Quarter 2012 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, 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 First 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.

Once again, forward-looking statements made on this call are subject to numerous risks and uncertainties that can lead 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, 10-Q and other reports filed with the SEC. The Company undertakes no obligation to update forward-looking statements. Also, as we discussed certain non-GAAP measures, it may be helpful to revenue the reconciliations to GAAP located in our press release from last night. With that said, I would now turn the call over to Tom.

Thank you, Hilda. Good morning, and welcome to our First Quarter Earnings Call. We close on another excellent quarter and expect 2012 to be a great year. We are pleased to see a robust start to the year with RLJ's RevPAR growth of 9% excluding the impact of renovations, and outpacing the industry by 110 basis points. Our optimism is supported by several positive factors including an increase in demand, low supply growth and the overall evidence of a broader recovery in the economy, the lodging industry and in our own portfolio.

We continue to see strong corporate profits translate into additional business travel, with a majority of our business coming from this segment we expect to continue to benefit from this trend. The volume of new supply means the low peak levels in spite of improving operating fundamentals.

Smith Travel reported US supply growth of less than 0.50% for the quarter in the last 12 months. Demand, on the other hand, grew by more than 4% for the same period. We expect that financing will remain challenging for the new construction projects, and therefore constrain further supply growth. As a result we anticipate that we will continue to enjoy a favorable imbalance of demand and supply for several more years and see an increase in pricing power as we move through this cycle.

Last year our occupancy improved across our portfolio and the industry as well. We are projecting greater opportunities for stronger rate growth in 2012 and beyond. Our operators are becoming more confident about pushing rate, and in the first quarter 80% of our hotels in the portfolio posted positive ADR growth.

We are also seeing slow, but positive momentum with job growth. The unemployment rate continues to edge lower each month, and in April the unemployment was 8.1%. We remain concerned about the sovereign debt crisis in Europe; however, we are becoming more optimistic by the positive trends we are witnessing across the lodging sector.

Smith Travel recorded strong RevPAR growth for the US of 7.9%, and for the upscale and upper mid-scale segments which, again, are most representative of our portfolio of 7.6% and 8% respectively.

Using Marriott Limited Service Hotels is an additional benchmark, RevPAR grew 6.7%. We believe that these metrics continue to demonstrate the strength of the lodging industry, and our segment in particular. During the first quarter our portfolio's RevPAR growth of 3.8% came in stronger than our original estimate of 3% that we provided during out last call in March.

As we had previously communicated, we will initiative major capital projects this year during our softer periods and, accordingly, started new projects across 17 hotels during the first quarter including and extensive rooms renovation at the DoubleTree by Hilton Hotel Metropolitan New York City, also referred to as the DoubleTree Met. This is the largest asset in our portfolio.

We have several projects that we also initiated in the fourth quarter of 2011 that carried over into the first quarter. In total we had about 25 hotels that experienced some disruptions from innovations in the quarter of which most were concentrated in our top six markets. Almost 92% of the disruption this quarter was concentrated across our top six markets, and as expected, most was driven by the DoubleTree Met in New York City, which accounted for approximately 65% of the total.

Adjusting for disruption caused by our recent capital investments, we estimate the RevPAR growth would have increased by an additional 522 basis points to 9%. The impact of disruption also carried over to the bottom line. First quarter's hotel EBITDA margins dropped 37 basis points to 29.7%. We estimate that our margins were impacted by approximately 153 basis points and therefore would have been 31.2% if adjusted.

We are pleased with the progress of growth from our recently converted and repositioned hotels. Of the four conversions which were completed by year-end, RevPAR grew by 17.4%. We expect to capture further growth from this set of hotels as well of the renovations currently planned during the second half of this year.

Setting aside the disruption, our performance this quarter was much stronger than we had anticipated. Clearly, we are seeing stronger lodging fundamentals across our portfolio and we are reaping the benefits from our recently renovated hotels earlier than expected. For example, our hotels outside of the top six markets this quarter posted a solid 8.3% RevPAR growth with several markets, such as South Florida and Indianapolis, close to double-digit RevPAR increases, and generating healthy rate improvement.

Now looking at our top six markets, and I will start with New York. In January this we took rooms offline at the DoubleTree Met and began our extensive $25 million rooms renovation which included a full transformation of all of the hotel's guest rooms. As the highest contributing hotel to the portfolio, we expect that once these renovations are completed later this May, it will position the portfolio for strong performance. Our hotels in this market closed at a 19.1% RevPAR drop, but excluding the DoubleTree Met the remaining three hotels posted a solid 9.5% RevPAR increase.

Moving on to Washington DC, the market in general continues to face various macro headwinds. However, we see DC as a strong long-term hold and believe that the markets current softness will subside. In anticipation of this we took advantage of the quarter seasonal and market softness to reinvest in the remaining three assets that we did not renovate last year.

As a result we've noticed disruption impacted RevPAR growth by approximately [1,600] and 21 basis points this quarter as our RevPAR decreased by 12.4%. We remain committed to invest in Washington, D.C. and expect to see positive RevPAR growth going forward.

In Austin, another successful South by Southwest event helped drive a strong 8.7% of RevPAR increase for the quarter, our hotel operator's drove rate and more than compensated for several cancellations that resulted from inclement weather. Furthermore, we are seeing positive momentum in the market as Austin continues to attract more technology firms and high profile events such as Formula One, which is scheduled to launch in November.

Denver RevPAR growth was tempered this quarter by renovations of some of our larger assets in the market, RevPAR for the quarter increased 3%. Adjusting for disruption caused by our recent capital improvements, we estimate that RevPAR growth would have increased by an additional 407 basis points to 7%. We expect to see stronger growth in the upcoming quarters specifically from our two compact full-service hotels in the market that are showing a strong pick up in [group] business.

In Chicago, we saw strong pick up in convention activity that helped drive a healthy compression into the newer suburbs, a trend that we expect to continue to see and benefit from. However, this quarter with several assets under renovation we did experience some disruption. Adjusting for disruption we estimate the RevPAR growth would have increased by an additional 148 basis points to 8.1% instead of the current 6.6%.

Louisville posted the strongest growth in the portfolio; all hotels in this market posted a remarkable 22.5% RevPAR increase for the quarter. We saw a strong pick up in the quarter from better convention activity and a strong showing in March, thanks to the NCAA Tournament.

Now as I move onto acquisitions, volatility in the markets last year translated into lower acquisition activity while with an improvement in the capital markets, and the confidence in the economy slowly improving, we are bullish on what the transaction markets will bring in the near future.

And after a major stall in financing we are beginning to see more lenders willing to reenter the market for the right assets with strong sponsorship. We expect these factors will result in the increase in the number of transactions later this year. For RLJ we see a number of attractive deal opportunities moving forward and you should expect to see more activity for us as the year progresses.

Currently we have over $150 million of deals under contract or Letter of Intent in key gateway markets that fit our overall investment strategy. These are focus-service hotels in markets with strong demand generators that will be accreted to the portfolio immediately. While we don't provide details on transactions until they close, we are very optimistic about our pipeline. Furthermore, I want to reinforce what you're seeing from us over the past few quarters.

We will be disciplined in our approach to growing our portfolio. We will only pursue deals that we feel are at the right price and in the right market. We have a strong history of executing deals and our team remains committed to driving shareholder value through executing on value-enhancing opportunities.

With regard to our disposition efforts; we will continue to evaluate non-core assets, we see dispositions as and additional opportunity for us to create value for investors, and recycle assets into the Top 30 markets with an emphasis on buying close to markets. With a fortress balance sheet, we don't have a need to dispose of assets to de-lever and therefore we will seek to maximize the value of these assets which could take some time.

Before I turn the call over to Leslie, I want to reiterate the growth and [sense of play] that our portfolio provides investors. Our acquisitions in core markets; renovation activity and asset management initiatives are all materializing into stronger performance for the company. We had a great quarter, and strong lodging fundamentals remain in place. Some risks remain as the national and global economies still seek some footing, but our long-term outlook remains positive.

Accordingly, we are increasing our guidance for 2012, we are increasing pro forma RevPAR to 6% to 8%; from 5% to 7% and we are increasing pro forma consolidated hotel EBITDA from $270 million to $290 million; from $265 million to $285 million.

With an excellent portfolio, and a great team we are excited abut 2012 and beyond. We will continue to execute the strategy that we've laid out, and once again strive to achieve or exceed all of our key performance metrics. I will now pass the call over to Leslie, who will provide some additional information on our financial performance for the quarter. Leslie?

Thanks, Tom. As on previous calls, before I report on our first quarter financial results, I would like to remind listeners that while adjusted EBITDA and adjusted FFO only reflect our ownership periods; pro forma results include prior ownership periods. Furthermore, the results that Tom shared earlier refer to only 138 hotels and exclude non-comparable hotels. Pro forma consolidated hotel EBITDA which I will discuss next reflects all 141 of our hotels.

In the first quarter a pro forma consolidated hotel EBITDA increased by $4.2 million to $54.8 million and represents an 8.3% increase over the prior quarter. This solid increase is attributed to the strong operational performance that Tom outlined earlier. Along with the performance from our Fairfield Inn & Suites DC conversions and our recently acquired Courtyard at Charleston, both of which were closed to a comparable last year.

Our adjusted EBITDA increased by $3.1 million to $49.1 million representing a 6.6% increase over 2011. Adjusted FFO increased by $8.5 million to $28.5 million representing a 42.8% increase over 2011. On a per-share basis an adjusted FFO for the quarter was $0.27. Both adjusted EBITDA and adjusted FFO reflect add backs to normalize our G&A expense. We recommend reviewing the exhibits from last night's press release for full reconciliation of adjusted EBITDA and adjusted FFO.

Now turning to our balance sheet and capital markets activity; during the quarter we secured term sheets from several lenders for $85 million maturing debt obligation that expired in April. We received several competitive offers with favorable terms. The original loan was originated in 2007 when spreads were very low. So we expect to see a slight increase in our interest expense going forward. Based on the new interest rates and amortization associated with the financing fees, we estimate that we have an additional $150 per quarter in interest expense.

We are very pleased with the terms of our new loan, and in particular how it will complement our current debt maturities schedule. On contemplating this refinancing later this month, we will have no further maturing debt obligations in 2012. Our next tranche of debt that expires, assuming all extensions are exercised, will be 2015. In the interim we used our existing line of credit to repay the $85 million loan, when we pay off that line of credit later this month, there will be no outstanding balance on the $300 million credit facility.

Therefore, we will continue to have plenty of capacity to use towards funding of our acquisitions. With an unrestricted cash balance at the end of the quarter, up $261.1 million and outstanding debt balance of $1.3 billion, our net debt to adjusted EBITDA was 4.5 times. Our low leverage continues to evidence our prudent balance sheet management, which we believe positions us to have liquidity and flexibility to achieve our growth objectives and drive shareholders' return.

Additionally, our current cash from operations continues to support our commitment to distribute quarterly dividends. We increased our first quarter dividend by 10% over the prior quarter to $0.165. With the improving operations and pending acquisitions, we will continue to evaluate the amount of our distribution each quarter, to remain compliant with our REIT requirements and overall strategy of providing meaningful returns to our shareholders while achieving our overall growth objectives.

Now moving on to capital expenditures; in 2012, we will substantially complete the second half of our two-year renovation program. Our 2012 capital plan is well underway and will encompass renovations at 45 properties for approximately $95 million. With an experienced in-house team we expect that we will continue to successfully execute our capital plan. This quarter we started projects at 17 hotels for a total of $53 million.

As previously announced, major initiatives during the quarter included completing the conversion of the Hilton Garden in Los Angeles, Hollywood, from an independent hotel, and beginning the extensive rooms renovation at the DoubleTree by Hilton Metropolitan in New York City.

As Tom mentioned earlier, the DoubleTree Metropolitan started its extensive room renovations during the first quarter. The rooms' renovation was Phase II of the hotel's overall improvement plan; the hotel's first phase started in third quarter of last year, when we began, and completed the upgraded hotel's public space. We are very pleased by the overall progress and expect the rooms' renovation to be completed later this month, at which point our guess will be able to experience a newly-renovated and upgraded hotel.

Product; this quarter, our team, once again, successfully navigated through the renovation process to minimize disruption and keep the projects all on track. Our disruption this quarter of approximately $7.8 million was in line with our forecast. While we expect the second quarter we will have some spillover from the DoubleTree's room renovations, the bulk of any additional disruption this year will occur during the fourth quarter.

With respect to our outlook, there are some key assumptions regarding the new guidance Tom mentioned earlier, but it's worth reminding listeners of. First, although we are optimistic about our pipeline, our provided guidance does not reflect any potential acquisitions. We will provide further guidance when we have closed on our new deals.

Second, our full-year estimated pro forma RevPAR growth of 6% to 8% is adjusted from non-comparable hotels. This year's non-comparable hotels include Courtyard Charleston, Fairfield Inn Suites, DC, and the Garden District Hotel.

The Courtyard Charleston and the Fairfield Inn Suites, DC were both closed during the first quarter of 2011, therefore, we've excluded their results in the first quarter of 2012, but we will include them going forward.

And finally, just to reiterate, our outlook already includes disruption. Although we expect to have to have positive RevPAR and margin expansion for the full year, we will experience some disruption from our ongoing renovations. Now for additional details please refer back to the press release from last night. Thank you, and this concludes our remarks. We will now open the lines for Q&A. Operator?

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Our first question is coming from Jeffrey Donnelly of Wells Fargo.

I guess, first question is for you Tom. I'm curious where you -- sorry -- I think -- I'm curious where you think pricing is on select service asset versus full-service assets, and is one side of that equation, it gets more appealing to you than the other at this point when you think about, you know, pricing metrics as well as finance ability?

Jeff, it's really opportunistic, I would say, generally, if you're looking at an urban select service hotel, or an urban compact full service, I think in many cases you're going to find those cap rates to be comparable. Obviously if you're talking about New York, you might find that there's a -- you know, a lower cap rate certainly for a full-service hotel, but I don't think that gap is wide.

And for us it's really opportunistic. If you look at out portfolio today, we've got probably about 70% of our rooms coming in focused-service and the balance coming in, in compact full-service, but it really is opportunistic. We like both product types, we have a strong portfolio today, we are focused principally on expanding into the Top 30 markets with an emphasis on coastal markets and I'm sure we'll get additional questions on pipeline, but we have a very active pipeline right now as I alluded in my prepared remarks.

Already the assets that are -- I guess under a Letter of Intent, or potentially I'll call it drifting around your pipeline, some of the ones that you might have walked away from back in the -- what was it, third quarter of last year?

They're not, and I'll give a little more color. We have three assets today as I mentioned, over 150 million, two of those assets are under contract, one is under Letter of Intent. They are in key gateway markets, they are focus-serviced hotels, very compliant with our investment strategy.

You know, no assurance that we will close, and it is our policy to not comment and not announce until we have closed. But we are cautiously optimistic, and these are deals, in some cases that we have been working on for some time. We may revisit some of the deals that we walked away last year, but I would say generally that would be an exception rather than the rule.

And just a last question and to change gears. You know, you increased your RevPAR outlook for this year, but there's no shift in margin with that. Was it just really too small of a change to really see the margin expectation change? Or is the source of the RevPAR growth just really wasn't conducive to further margin expansion, and for guidance purposes?

Yes. I would think that given the fact, Jeff, that we've got additional renovations in the second half of the year, as you know we tend to be conservative and careful and prudent, and we are comfortable with the aggregate guidance that we are given so far, both at the top line moving that to [68%] and the bottom line increasing that from [270 to 290] and we are comfortable keeping our margins in that 33.5% to 34.5%.

And my last question and, I guess, it dovetails with that on renovations. Do you have a sense of how many rooms are going to be out of service for the remaining quarters? I'm just trying to make sure that we get our disruption right in future estimates?

We have 45 hotels that we intend to renovate this year. Obviously 17 of those we started, we initiated in the first quarter. We will have five; I believe in second quarter, there will be three in third quarter, and then approximately 18 to 20, whether that balances in the fourth quarter. I don't have the rooms with me, but we'll get that to you quickly, one of my colleagues here in the room.

Great. Thanks, guys.

Okay.

Thank you. Our next question is coming from Eli Hackel of Goldman Sachs.

Hi, Eli.

Hi. Good morning.

Good morning, to you.

Two questions. Maybe first, just sticking with the renovations; clearly, this year is a big year, the renovations, especially with the DoubleTree, is there any way to characterize this year, maybe, versus the following years, especially if the cycle goes on for a long time, and the step-down in renovation impact, that that may have? And then, the second question, just on the pipeline -- pipeline activity.

On the $150 million deals, what really has been the precipitous for the increase in the pipeline? Is that financing is available? Have there been changes in price? Just more color on the increase in the pipeline and with the big backlog with pipeline, do you see yourself getting into the $300 million to $400 million per year of acquisitions that we are kind of hearing about more, when you were going to do the IPO process?

Eli, a bunch of questions embedded in those general questions. I would say the first, regarding our appetite for acquisitions, obviously we've got a great balance sheet, about $260 million of available cash, obviously we've got an ongoing credit facility of about $300 million. What we've said is, and what we said last year and we will say again this year, really $200 million to $400 million is sort of our target and we can comfortably do that in our current balance sheet.

We did have aid assets under contract, the Letter of Intent last year, we made the prudent decision, we thought. Clearly as you look at what was happening with the capital markets we thought it was appropriate to sort of pause. We, clearly, are feeling a lot better about the outlook today as we underwrite portfolios and individual assets. And as a result of that, given also where our own stock is, we are confident that not only will we be able to execute on the deals that we have in the pipeline, but we think that achieving our target and $200 million to $400 million is realistic this year. Hold on one second, Ross is going to add an additional comment on that.

Eli, as it pertains to these three assets, one of them was a distress situation, and two of them were not distress, necessarily, but the sponsors were looking at debt maturities, and they were a catalyst for action. Not a distress sale, just a reason for them to explore the market and perhaps trade at a fair market value. So that story is beginning to unfold in the marketplace and we are encouraged by it.

And Ross, maybe just on that. I mean, as you -- assuming that you know, the funnel was bigger than this $150 million is that a large percentage of the deals you're looking at. Maybe not distress, but maturities maybe this year, next year, that people just don't want to have to deal with?

I'd say a large percentage would be overstating it. You know, certainly a third of what we are looking at and, again, it's no tsunami of distress, like people were talking about a couple years ago, but it is a call for action, as responsible owners and sponsors, you know, just look over the next year or two, and see that event coming out, and that's good. That's good, it creates activity.

And, Eli, I would also say, as you look at, kind of, the CMBS market, you've got $19 billion in maturities this year, and that's covering about 490 assets, probably $8 billion of that, plus or minus as it's related to Hilton, we have combed through most of those maturities, and there about $4 billion that we think are sort of RLJ compliant, or assets that we would be interested in.

So you know, really as part of our outsourcing and our desire to certainly enlarge and grow our portfolio, we are looking at that as source of the FFO force, in addition to off-market deals, the brands. I mean, if you look at our history over the last ten years, we have bought north of 180 hotels and north of $6 billion in transaction. So the Deal Shop is always open, we continue to underwrite and look for deals but I would also say that we -- we tend to be measured and we certainly want to be careful.

We are watching the capital markets to make sure that the environment is supportive both on the debt side as well as -- as well as with our stock prices. And to your earlier about renovations, you know, we've got a team of 50 professionals, men and woman, where we've got a large portfolio, we are very experienced to handle -- managing renovations, I think we did a very good job in 2011, and we are confident that where we are in 2012, and I think you can see from -- from the first quarter I think we manage that very well.

We will be thoughtful, again, about how we do it, and in 2013 and beyond, but given the size of our portfolio with 141 assets, every year we are going to have renovations. It may not be as extensive, obviously, as we've seen in the last two years, but you know, it could be, you know, 20 hotels or more next year as well. Again, those will be at varying degrees. That could be public space in some cases, it could be rooms' renovations, but you know, we will plan, in most cases to do that at our weakest periods, which we generally are -- our first quarter or our fourth quarter based on the makeup of our portfolio.

That's great. Thank you very much.

Okay.

Thank you. Our next question is coming from Bill Crow of Raymond James.

Hi. Good morning, guys.

Good morning, Bill. How are you?

I'm doing well. Thank you. Two questions; first of all if you could give us a snapshot of what you've seen April and May to date from the performance of your portfolio?

I would say on April, Bill, we continue to be encouraged, I would say. As you sort of look at our entire portfolio, I would say that you're seeing the recovery sort of broaden, and if you kind of look at what happened first quarter for us, Louisville is a great example of that. That ended up being a very strong performer.

As you look at Austin. I mean, Austin had a great quarter. We are seeing that sort of continue and broaden out, including South Florida. South Florida had a very strong fourth quarter as well, and a very strong first quarter, and that's continuing into the second quarter as well. I don't want to give guidance, but I would say that we are comfortable with our overall guidance of 6% to 8% for the balance of the year.

Is DC starting to improve a little bit, or is just kind of flat line at this point?

You know, I wouldn't say flat line, I think DC is, sort of, the Tale of Two Cities. I think the [CBD] is still relatively strong. You know, we do have two assets, our Homewood Suites and our Fairfield Inn conversion. Fairfield Inn conversion was not in our first quarter numbers, as Leslie pointed out, because it was non-comp but that conversion was up 47% last year. I think we were up another 11% in April in that individual asset.

No doubt that I think DC is going to have a slower year, in part it's an election year, in part you've got softer convention activity. You do have cutback in some government spend. Our numbers, you know, we were down 12.4%, I believe, in the first quarter, it's a little misleading because we had three major renovations for three assets, totaling about $10 million, so that certainly impacted and skewed the numbers there. If you back all of that out, we end up being slightly positive, sort of north of about 3.8% I believe in the first quarter, of DC.

I will tell you, we are very bullish on DC long term. Multiple demand generators, huge barriers to entry, very much on our short list of cities that we want to expand our presence.

Yes, fair enough. That's helpful. The other point I want to explore briefly, was with the stock now having rebounded off the two [lows] that got too -- have you gone back to your original fund investors to see if there might be an opportunity here, or to organize secondary offering which would, you know, give you a chance again to get out in front of the Street and tell the story.

Yes. That's a good question, but we are obviously coming -- approaching, obviously, our first year anniversary, and in fact, I think it's today or tomorrow, if memory serves me correctly. We are in frequent contact with our legacy investors, many of whom -- in fact most of whom still own our stock, and we want to believe that they still have confidence in the team and recognize quite candidly that we are undervalued.

We are in talks with them about, occasionally, if any are in interested in the secondary, we do plan to -- when permitted to file our [F3]; certainly sometime this summer which, again, will give us flexibility. It's also important to note that, again, we have great balance sheet today. We have plenty of capital so we can certainly execute our growth plans today without having to go back and raise additional capital.

And, Bill, one qualification, I'm learning, I'm imperfect, so I gave you -- I though we were -- I thought D.C. was up -- Fairfield was up 11%, it actually was up 33% in April, that individual asset. So I do think D.C. is a Tale of Two Cities. CBD is still strong, but in the suburbs you do have some fundamental challenges this year. We think D.C. gets back on track in 2013.

Terrific, thanks for the time. I appreciate it.

Thank you. Our next question is coming from Andrew Didora, of Bank of America Merrill Lynch.

Hi, Andrew. How are you?

I'm good. Yourself?

I'm doing well, thanks.

Two -- Tom, two questions for you. First, kind of a bigger picture, you know, we've obviously seen, in the industry fundamentals, you continue to improve here, you know, REIT stock prices have bounced back a bit. What do you think we have yet to see? You know, your pipeline aside, what do you think we have yet to see? More deals break free date? And then, my second question; of your current pipeline, what percentage of that would be a bigger portfolio type deals versus more the ones in (technical difficulty) acquisitions?

I would say, Andrew, right now you're seeing more single assets pipeline, and we are always underwriting, whether it's single assets, small portfolios and occasionally, you'll see larger transactions. My sense is as you think about larger transactions or M&A potential activity, that's -- I think that's downstream. I think that's probably 2013 or somewhere later. I think what's happening now is when I think -- some of them - I want to speak for myself and not some of my peers, but I do think that we, perhaps, are feeling a little more confident, given the outlook in the industry, given where our relatives -- our stock prices are.

Clearly the debt market is coming back, are certainly helpful. I also think, to some extent, debt maturities play a role in that, and I do think that the gap is narrowing between buyers and sellers. I think buyers, perhaps, are getting a little more confident to move their price a little bit, and I think sellers are being a little more realistic about, perhaps, taking less money today in order to get certainty and perhaps recycled capital in the other projects, or into other needs.

I just thought to follow up on your first answer in terms of larger transactions probably happening. You know, more in '13 or later. Why do you think that is? Is it just availability of those types of deals, or financing behind them?

I think availability comes into play, I think financing. Clearly, if you're going to -- we are looking at, you know, take private deals, or someone is looking at, perhaps, a larger M&A deal, not involving stock, and would clearly need the debt markets to be certainly cooperative. I also think given where we are in the cycle and given the supply picture.

I think we've got a lot of running room, and some believe it's three, four, I certainly would be in that camp. Others believe it could be as long as five years, I do think that we are relatively early in the cycle and that, you know, individual management teams would need to look at their outlook and how they underwrite their potential -- their particular portfolio.

We, for one, see a lot of embedded value in our own portfolio of you look at, sort of, past peak and where we are and all the quality assets that we've added, all the renovations and all the conversions that we've done. So, you know, we re not opposed to having a discussion, we clearly want to be part of that dialog and want to be an aggregator. That's a stated aspiration of ours, but obviously we would want to do it prudently and smartly and we would want make sure that we add assets, whether they be single assets to portfolio in the right way.

That's great, Tom. Thank you.

Okay.

Thank you. Our next question is coming from Wes Golladay of RBC Capital Markets.

Good morning, everybody.

Good morning, Wes. How are you?

I'm doing good. You mentioned that maturity is driving acquisition volume. Will you look to, I guess, acquire assets with all cash, or you look to encumber the assets? Or keep the existing mortgage and work with a lender?

You know, it's really opportunistic; again, you know, part of our long-term strategy is to continue to de-lever the balance sheet. We are a strong believer in low leverage, and as Leslie pointed out, our net debt EBITDA is about $4.5 million and you know, we want to be lowering that over time, and certainly getting to the point of being a candidate for investment grade.

We are passionate about that, it's something that we believe in and are a fundamental tenet for us. I would say, generally, for the assets in our pipeline, we would be in a position to taking down, all cash, either all cash or using our credit facility, and then put a modest amount of debt on the asset. But again, we are going to be looking to de-lever over the short term and long term so you won't see us -- if there's debt in place we would consider it, but that's -- that's probably unusual for us.

Okay, and sticking with the target of investment grade. I guess, where would you like to be by the end of the year on your debt to EBITDA and into next year?

You know, clearly low-4s. We want to be, as a stated policy, under-5, and certainly want to be working towards low-4, and we would hope that over time we could get that down to, you know, 3.5% and be in a position to begin to have that dialogue. As you look at our debt maturities, with the $85 million that Leslie mentioned, will push that out 2017, so we really won't have any maturities till 2015 to 2016.

Okay, and then just one final question. How much did you spend on renovations in the quarter?

In the quarter we had 17 renovations that we initiated and the balance was $53 million.

Okay. Thanks for taking my questions.

Yes. Thank you.

Thank you. Our next question is coming from Dennis Forst of KeyBanc Capital Markets.

And, Dennis, how are you?

Good morning. Actually that was one of my questions. You said you spent $53 million or there's $53 million that's going to be spent on those 17 accounts?

It was $53 million, so the largest part of that, $25 million, was the DoubleTree Met which, by the way, will finish up on the 15th of May. We've -- our team there has done a great job and so we've accelerated the renovation process. So that's a half of it, but we've spent $35 million out of the $53 million. The balance of that will linger into the second quarter.

Okay, great. So the first quarter you spent $53 million.

Right.

And then about the DoubleTree Met, how many rooms were out of service during the first quarter? You said that that property was kind of the majority of the renovation and the difference between the 3.8% RevPAR, and 9% RevPAR; I wanted to get an idea how many rooms were out of service there.

Yes, the hotel has 759 rooms. We added through this process another 5 guest rooms, so we are increasing that to 764. If you look at the daily average of rooms offline for the quarter, it was about 415 rooms.

Okay, so those kinds of rooms were out, and those will all be back in service by when?

This morning, as of May 15th, and the team has done a great job of a complicated process, given assets that size, and to commence that in early January as we did and conclude that on May 15th, it really takes great coordination, not only between the owner, but our manager and those third parties that are doing the work for us.

And the Fairfield Inn, DC will be included in second quarter, obviously --?

It will be in second quarter.

Okay. And the Charleston property also, and the Marriott?

And Charleston also.

Will there be any that will not be included? Or will we have 140 comparable hotels?

The Garden District Hotel in New Orleans is still under construction --

I didn't know that.

Yes, other than that everything else will be included.

Okay, terrific. Hi, thanks a lot, and keep up the good work.

Great. Appreciate the confidence.

Thank you. (Operator Instructions)

Our next question is coming from Enrique Torres of Green Street Advisors.

Hi, guys.

Hi, Enrique. How are you?

Good, good. In terms of the acquisitions, you know that they have these -- the current deals are in gateway markets. Are you also going to consider assets that are kind of in more suburban locations, or are you specially just looking to increase the portfolio quality with our gateway assets?

We are focused and committed on upgrading the portfolio quality. Enrique, I just -- just for benefit of all of our listeners, I mean, if you look at our portfolio today, our Top 25 assets, you know, really account for about 52% of our EBITDA. All of those 25 assets are intensely urban. And as you look at our portfolio in New York and DC, in those two markets 25% of our EBITDA is coming out of the four assets that we have in New York and obviously the six assets that we have in the Greater DC market.

As we said, we are focused on the Top 30 markets with a bias on coastal markets. The deals that are in the pipeline today are key gateway cities, Bullseye Real Estate. We are committed towards upgrading the portfolio, improving our RevPAR and hopefully in that process or generating, not only stronger RevPAR and stronger performance, but being the [multiplier] of our stock price as well.

Okay. That's helpful. And then as a question on dispositions, I know last time you mentioned that you guys were marketing core assets, you know, is that still part of the plan, or any update, or progress or have you ramped that up at all?

We are increasing that. Enrique, we do have a -- we have added several more assets to the pool and we are beginning the marketing process for some non-core assets. Again, for the benefit of the listeners, or non-core portfolio is about 20 assets, or is about 5% of our EBITDA and about 10% of our rooms. And we are initiating marketing efforts on two small portfolios right now.

Right. Thank you.

Thank you.

Thank you. At this time I'd like to hand the fort back over to Mr. Thomas Baltimore for any closing remarks.

We thank everybody for taking the time, and we look forward to resuming our discussion at the end of the second quarter. Have a great spring.

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