RLJ Lodging Trust (RLJ) 2012 Q2 法說會逐字稿

Greetings and welcome to the RLJ Lodging Trust Second 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. Thank you. Miss Delgado, you may begin.

Thank you, Operator. Welcome to RLJ Lodging Trust Second 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 make 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 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.

With that said, I will now turn the call over to Tom.

Thank you, Hilda. Good morning and welcome to our second quarter earnings call. We are pleased to report we had another strong quarter. RevPAR increased 7.1% with rate growth accounting for approximately 73%. We estimate our portfolio's RevPAR growth would have been an 8.6% increase excluding disruption.

In addition to our strong operational performance, we also completed a number of significant milestones this quarter that position the company for continued growth and success. For example, we completed the $25 million rooms renovation at our largest asset, the Doubletree Met in New York, initiated an additional five renovation projects, refinanced $85 million of debt and acquired three assets totaling $183 million in key gateway markets.

We are highly focused on delivering strong returns to our shareholders through our combination of internal and external growth while maintaining a conservative balance sheet and prudent capital allocation.

We are confident that our investors will see another strong performance from us in the second half of the year. During the second half we expect to see several events favorably impact our portfolio. For example, the Formula One event in Austin and the RNC Convention in Tampa should drive significant demand in pricing power at 22 of our hotels.

Additionally, 39 of our hotels were undergoing significant renovations in the second half of 2011, including 4 that were undergoing major brand conversions. Based on the increases we have seen from these hotels already, we expect to see further increases in the second half from favorable year-over-year comps.

Despite the macroeconomic concerns in the US and Europe, we are encouraged by lodging fundamentals. Corporate profits continue to rise and businesses continue to invest, which is a positive sign for lodging demand. Furthermore, lodging and supply remains muted and well below the long-term average of 2%. With a favorable supply and demand in-balance expected to continue over the next 3 to 4 years and positive trends in our own portfolio, we remain cautiously optimistic.

For the second quarter, Smith Travel reported another 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 7.3% and 7.7% respectively. Using Marriott's Limited Service Hotels as 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.

Our second quarter solid RevPAR growth of 7.1% was driven by a strong performance from our Louisville and Chicago markets, which posted a 13.1% and 8.6% RevPAR growth respectively. We continue to see strong purchasing power this quarter as almost three quarters of the portfolio's growth was driven by rate.

We estimate our portfolio's RevPAR growth would have increased by an additional 153 basis points to 8.6% excluding any disruption from the 14 hotels under renovation, including the completion of the Doubletree Met.

Excluding the Doubletree Met, our top 30 hotels, which made up about 52% of this quarter's EBITDA, posted an 8.8% RevPAR increase. And on an absolute basis, this intensely urban group of hotels had an absolute RevPAR of $140. We are very pleased by the outsize returns that our capital investments are delivering.

Our extensive capital program is just one of the many ways that we are enhancing the quality of our hotels and gaining market share. As an example, RevPAR growth after four conversions completed in the last six months have already increased 30.7% in the quarter. These assets are still ramping up after a major repositioning and we expect that we will see a significantly higher RevPAR increase during the second half of this year since it was the second half of last year when the conversions were well underway.

Additionally, the other 44 assets that were also renovated last year experienced double digit RevPAR growth during the quarter. This quarter's strong performance is just another great example of the combined efforts from our asset management team and operators implementing the right revenue management strategies and managing cost controls. Additionally, given the strong transient demand and needed supply picture, our top 6 markets recorded a solid RevPAR growth of 8% in the quarter.

Our hotels in New York posted a 6.2% RevPAR increase if we exclude the Doubletree Met. Our extensive $25 million rooms transformation at the hotel was completed in mid-May and therefore saw meaningful disruption in the quarter. In addition to adding five new guest rooms, the hotel is now well-positioned in the marketplace and in our portfolio to drive strong results.

Moving on to Washington DC. DC celebrated its Centennial celebration of the Cherry Blossom Festival and hosted multiple events throughout April. Overall, our hotel saw a strong pickup in tourist activity that helped drive leisure transient business. This quarter our hotel's RevPAR grew by 5.6%, well above the market's growth of 1.5%. Citywide compression from a stronger convention calendar in the third quarter was expected to help drive another strong quarter for our hotels.

In Chicago our hotels posted an 8.6% increase. Chicago is poised to have a strong 2012 convention year of which we've already seen our hotels benefit significantly. In the second quarter, we saw compression build up in our midway market from travelers using it as an alternative to downtown. We expect that third quarter citywide activity will continue to benefit our CBD hotels while those in the suburbs will see potential increases due to the 2012 Ryder Cup.

In Austin RevPAR grew by 6.3% or 8.6% excluding disruption. This quarter we saw our top corporate accounts drive a healthy increase in ADR. Austin also held a Formula One Expo in June and received very strong attendance. Approximately 120,000 visitors are expected to attend this three day event. We see this as an encouraging sign for our fourth quarter when the event takes place. Denver RevPAR posted a strong 7.7% growth and strong rate increases at several hotels renovated late last year, an increase in group rates and compression from downtown.

Louisville once again posted the strong growth in the portfolio. Our hotels in this market posted a strong 13.1% RevPAR increase for the quarter. We are seeing strong demand from Ford and insurance related business. Ford has already added 1,800 jobs and expects to add an additional 1,300 jobs later this year. With Ford investing heavily in the market, we expect we will continue to see strong demand growth.

Overall, the additional market share that we are capturing through our renovated product is enabling us to drive solid rate growth. Our strong pricing power and cost controls have enabled us to post one of the strongest hotel EBITDA margins in our space. We estimate that our margins this quarter of 36.2% would have increased by an additional 39 basis points to 36.5% excluding disruption.

I'd like now to spend a few minutes highlighting the three urban assets that we recently acquired. The addition of these three acquisitions will immediately improve the portfolio's overall RevPAR. To give you an example of the extent of their contribution, their combined 2011 RevPAR is approximately 55% higher than what we reported in 2011. Additionally, these new assets increase our urban market exposure and further enhance the overall quality of our portfolio.

First, we purchased the Residence Inn in Bethesda for $64.5 million or approximately $345,000 per key, representing a forward cap rate of approximately 7.1% on the hotel's projected 2013 NOI. This hotel is within two blocks of our headquarters in the urban Washington, DC submarket of Bethesda. In addition to the hotel's strong brand affiliation in the area, the hotel is proximate to multiple commercial and leisure demand generators.

Our next acquisition was the Courtyard Upper East Side, a highly complex deal. Our team was able to navigate through the bankruptcy proceedings and leverage our deep relationships with the affected stakeholders to execute the transaction. The hotel's purchase price of $82 million or approximately $363,000 per key represents a forward cap rate of approximately 7.5% on the hotel's projected 2013 NOI and a significant discount to replacement cost and to other hotels recently traded in the market.

The hotel is located in the Upper East Side submarket of Manhattan. It is the only branded hotel in the area within close proximity to numerous hospitals, museums and the upscale residential neighborhood of the Upper East Side. We have identified a number of operational improvements that we are planning to implement with our new manager High Gate to address the various operational challenges created by years of legal battles.

And finally, we acquired the Hilton Garden Inn in Emeryville for $36.2 million or $130,000 per key, representing a forward cap rate of approximately 9.4% on the hotel's projected 2013 NOI. The purchase price represents a significant discount to replacement cost and is considerably lower than other hotels traded in the market.

We are excited about placing our first flag in the San Francisco Bay area. The Bay area has multiple demand generators contributed to it being one of the highest RevPAR hotel markets in the US The acquisition of this hotel at such an attractive price during a period of strong RevPAR growth and recovery makes this an accretive deal to the overall portfolio.

Since our IPO, we have acquired approximately $225 million in hotels, which is in line with the target we provided during our IPO of approximately $200 million to $400 million over the 12 to 18 month period. All of our acquisitions have been consistent with our stated business plan of acquiring assets with a coastal bias and an emphasis on urban or dense suburban markets.

Our pipeline remains active. We have another deal under letter of intent that is also located in a key gateway market and a few other hotels that we are closely following. We are seeing debt maturities and improvement in market conditions act as a catalyst for hotel owners to evaluate their holdings and explore the market, something we are very encouraged by. We will remain measured and certainly disciplined as we underwrite and pursue new opportunities.

We are monitoring the capital markets closely to ensure that the environment is supportive of our growth objectives. In the near-term, we expect that our credit facility and our balance sheet will provide us with sufficient flexibility to purchase future acquisitions. And as Leslie will discuss later, we see attractive opportunities in the term loan market that will further strengthen our balance sheet and will serve as an interim step to becoming investment grade.

In summary, our portfolio continues to perform well due to the strength and makeup of our portfolio along with aggressive asset management and recent capital investments. Therefore, we are maintaining our RevPAR guidance for growth of 6% to 8%. With the additional accretive acquisitions made in the quarter and the positive fundamentals that we are seeing in our portfolio, we are increasing pro forma consolidated hotel EBITDA guidance by $10 million at both ends of the range to $280 million to $300 million.

I want to reinforce that our recent capital investments, especially at our four brand conversions, have positioned the company to deliver strong results. With strong performance already captured in the first half of the year, we are looking forward to another great second half. I will now pass the call over to Leslie to provide some additional information on our financial performance for the quarter.

Thanks, Tom. Before I report on our second quarter financial results, as on previous calls, I would like to remind listeners that pro forma results include prior ownership periods. The performance metrics that Tom shared earlier refer to 143 hotels as if we had owned them for the entire comparable periods and excludes our Garden District hotel, which is still closed. All adjusted EBITDA and adjusted FFO only reflect results for our ownership periods.

Now looking at our results, for the second quarter our pro forma consolidated hotel EBITDA increased $6.4 million to $83.6 million, representing an 8.3% increase over the prior year. This increase is attributed to the strong performance that Tom outlined earlier.

Our adjusted EBITDA increased $6.5 million to $76.1 million, representing a 9.4% increase over 2011. Adjusted FFO increased $10.2 million to $55.6 million, representing a strong 22.4% increase over 2011. Adjusted FFO for the quarter was $0.52 on a per share basis.

An adjustment worth noting in the second quarter is a $600,000 loss on the disposal of FF&E associated with some of our assets under renovation. This is a non-cash charge. We recommend reviewing the exhibits in last night's press release for a full reconciliation of adjusted FFO and adjusted EBITDA.

Now turning to our balance sheet and capital markets activities. As we announced in our last call, we completed the refinancing of two loans, totaling $85 million that matured in April. In its place, we were able to structure one $85 million first mortgage loan with a base term of four years and a one-year extension option. The new loan is interest only during the base term and bares a floating rate of a liable plus 235 basis points.

We were very pleased to see the considerable interest that this transaction generated in the lending market, particularly from our balance sheet lenders. With the execution of this new loan, we've expanded our core lending group. Assuming we exercise all of our extension options, our next tranche of debt doesn't mature until 2015. As a result, we have a very healthy balance sheet.

Finally, as it relates to our capital markets activity, we are currently evaluating the unsecured term loan market, which is a very attractive market today. We anticipate accessing this market and retiring potentially $250 million to $350 million of higher priced debt towards the end of this year. This will enable us to increase the number of unencumbered assets we have and reduce our interest expense, therefore providing meaningful savings in the upcoming years.

We view the term loan market as an interim step to becoming investment grade. We are currently reviewing our options and will provide further details in the upcoming quarters.

During the second quarter we purchased our three hotels with a combination of cash available on our balance sheet and funds from our credit facility. All three assets were unencumbered by debt and therefore increased our pool of unencumbered assets to 52, further strengthening our balance sheet. Since we used $85 million of proceeds from our credit facility to purchase these 3 assets, we expect our interest expense to increase slightly next quarter versus the second quarter.

As Tom mentioned earlier, our pipeline remains active and we have sufficient liquidity available on our balance sheet in our credit facility to pursue future acquisitions. We have $215 million of capacity in our credit facility and unsecured cash balance at the end of the quarter of approximately $156 million.

With an outstanding debt balance of $1.4 billion, our net debt to adjusted EBITDA was 4.9 times at the end of the quarter. Based on our expected full-year performance, we anticipate that we will end the year with a much lower leverage ratio. As we continue to acquire new assets, there may be a temporary increase in our leverage ratio from time to time. However, we will remain committed to being financially disciplined and will continue to target a leverage ratio of five times or less.

Our current cash from operations continues to support our commitment to distribute quarterly dividends. We increased our dividends by 10% to $0.165 in the first quarter and we maintain that rate in the second quarter as well. We will continue to balance our overall strategy of providing meaningful returns to our shareholders through the issuance of debt and our growth strategy objectives.

As of the second quarter, our strong dividend covers ratio of 1.4 times is evidence of our strengths of our operations and our balance sheet. It further demonstrates our ability to maintain our dividend rate, which over the last 30 days has averaged a yield of 3.8%.

Moving on to capital expenditures, as we had mentioned on our last call, at the end of 2012 we will have substantially completed our two year renovation program. Our 2012 capital plan is well underway and encompasses renovations at 45 properties for approximately $95 million. During the quarter, approximately $9.1 million of additional upgrades were initiated at five hotels. Year-to-date, the Company has initiated a total of about $63 million of upgrades across 22 hotels, which also includes the recently completed $25 million rooms renovation at the Doubletree Met.

For the quarter, we estimated that we had approximately $2.9 million of top line disruption, which was slightly higher than we anticipated because the average number of rooms out of service during the second quarter, the Doubletree Met was slightly higher than expected.

We remain on track and expect to start the remaining 23 renovation projects in the second half of this year. We anticipate that any other meaningful disruption in 2012 will occur in the fourth quarter when we start 19 new renovation projects to upgrade a combination of rooms and public space. The majority of the hotels under renovation the second half of this year are limited service hotels where disruption is generally easier for operators to manage.

Now with respect to our outlook, there are some key assumptions regarding the new guidance Tom mentioned earlier that is worth outlining for our listeners. First, our revised EBITDA guidance of $280 million to $300 million incorporates the 3 acquisitions with recently purchased during the second quarter but does not reflect any potential new acquisitions. As we purchase additional assets, we will evaluate and update guidance as needed.

Our updated pro forma consolidated hotel EBITDA reflects all 144 hotels for a full 12 months and includes approximately $3.5 million of hotel EBITDA from prior ownership. As a result, this will not be included in our corporate EBITDA or FFO.

Second, our full year estimated pro forma RevPAR growth, which remains unchanged at 6% to 8% is adjusted for non-comparable hotels. This year's non-comparable hotels include Courtyard Charleston, the Fairfield Inn and Suites DC and the Garden District Hotel. The Courtyard Charleston and the Fairfield Inn and Suites DC will both close during the first quarter of 2011. Therefore, the results are only excluded from the first quarter of 2012, but are included thereafter. Only the Garden District Hotel will remain as a non-comparable hotel for the full year.

And just to reiterate, our outlook already includes disruption. Unless a hotel is closed for the entire period, it will not be excluded from our results. Although we expect to have positive RevPAR and margin expansion for the full year, we expect that any further meaningful disruption will occur in the fourth quarter this year as we have concluded our 2 year renovation program. For additional details, please refer back to our press release from last night. Thank you and this concludes our remarks. We will now open up the line for Q&A. Operator.

Thank you. Ladies and gentlemen, we will now be conducting the question and answer session.

(Operator Instructions)

One moment while we poll for questions. Our first question comes from Andrew Didora of Bank of America - Merrill Lynch. Caller, please proceed with your question.

Hi. Good morning, Tom. Good morning, Leslie. Just really one kind of more strategic question for you. Can you give us a sense of how you'd like to see your portfolio evolve over the next two to three years and how do you think about capital recycling at this point in the cycle?

-- our EBITDA. Two of those we've already initiated the give back process in small tertiary markets. There are 11 of the remaining 18 hotels that are crossed in one debt pool and then there are a series of other assets that we are continuing to explore opportunities to recycle that capital.

As we think about our portfolio, I think if you've seen the last year, we are intensely focused on getting in urban or certainly dense suburban markets. I think the last four acquisitions, including Charleston, are great examples of that. So you'll see us continue to move in that direction. If you look at our portfolio, it's really sort of a barbell to some extent. Our top 30 hotels, if you look at on an EBITDA basis, they generate about 55% to 58% on a normalized annualized basis of our EBITDA.

And then the balance of the portfolio, there are some smaller secondary tertiary markets that are embedded there and we'll look to be moving out of that over time. It will take us time to do that and, again, given the strength of our portfolio, given the diversity of it and the strength of our balance sheet, we're in no rush to do a bad deal or to certainly sell those below value, but we will continue to look for opportunities to recycle capital.

That's helpful. Thank you.

Okay.

Our next question comes from Eli Hackel of Goldman Sachs. Caller, please proceed with your question.

Good morning.

Good morning, Eli. How are you?

Good. Good. How are you? Two questions. First is on the transaction market again. It seems like there's some ones and maybe twos out there. Do you see any opportunities for any portfolio sized deals and will those be able to be financed? And then second question is just on supply and construction. We're coming off a small base, but there have been a little bit of a tick up in what's under construction for upper mid-scale and upscale in terms of US supply. I'm just wondering what you're hearing. I know you guys don't do too much ground up development, but if you're hearing anything different from lenders in terms of their being more willing to lend to new development and we could see this coming down the road in the next couple of years. Thank you.

Yes, thanks, Eli. I'll jump in and then Ross will follow with some additional comments. I would say on the supply side we continue to believe that it's somewhat muted. We're certainly below the long-term average of 2%. We think that's going to remain for the next 3 to 4 years and some have said, and I tend to agree, that this cycle could get extended and could go into extra innings, so I'm not terribly concerned.

I mean obviously you're seeing pockets of it I think in New York, but even that is getting absorbed. And as we look out, it's very difficult to get construction financing for new debt, so out of all the issues I think we're faced with in the industry right now, supply I think, the underpinning of little or no supply is a real strength in the industry as we move forward. In terms of the deal side, make no mistake, we are serious about being an aggregator.

You've seen us in the last year be thoughtful, be careful in the deals that we've done. You will continue to see that but we'll look for single port, single assets, small portfolios and we're not opposed to having discussions about M&A as well. We think that this segment in particular in lodging really should consolidate. Certainly as you compare us against the other product types and there are fewer larger players in our business who tend to be a number of smaller players. So obviously pricing, timing, social issues, all of that comes into play, but we're certainly open to continuing to explore those opportunities over time.

Would the financing be there for a portfolio or bigger M&A CMBS type deal right now?

I think it depends on the size. Clearly a multi-billion dollar deal would be more difficult to get done than a $500 million to $700 million deal. Financing markets, I think, are available to good sponsors, good transactions that make sense and for balance sheets like ours that I think are low levered and well managed.

Great. Thank you very much.

Thanks, Eli.

Our next question comes from Bill Crow of Raymond James. Caller, please proceed with your question.

Hi, Bill. How are you?

I'm well. Thank you. My question really is on the Bethesda acquisition and how much you consider the potential change in the government per diems when negotiating that transaction and when do you think your portfolio in DC in particular will either benefit from or be hurt by the perspective roll down in rates related to government travel.

I'll grab the first part, Bill, and then Ross is going to jump in here. I'd say a couple of things about DC We continue to see a sort of tale of two cities. If you look at our Fairfield Inn conversion that we did first quarter of last year, we were up 22% again in second quarter. Our Homewood Suites also the CBD of DC was up nearly 4%. So we've got two assets, great real estate bulls eye locations that continue to perform and do well.

As we think about government per diem, nationally government is only about 6% of our overall portfolio. DC is larger. It's about 18% of revenue in total, although it's largely isolated in one hotel, our Residence Inn in National Harbor that's doing well with north of 30% of its business in government. So we think it's modest impact on us and really isolated to sort of one hotel. We're big believers in DC long-term, want to continue to invest here and liked the Bethesda asset. In fact, it's an asset that we have tried to acquire many times over the last decade. I'll let Ross provide some color on the acquisition.

Right, Bill. What we liked about the Residence Inn in particular, considering that we were looking at a per diem issue as a macro issue and also a fed fiscal issue where there is concern that the fed may pull back a little bit in the next couple years and how that may affect especially the group houses in the market. This is an extended stay hotel that's less dependent on fed business.

A lot of corporate, some corporate transient as well, but also what we really liked about this location is it's within a mile along Wisconsin Avenue of Walter Ried and NIH and all the medical treatment and research that's going on there. And with the Brack realignment, those facilities are only growing. It's a bit of a recession resistant and hopefully budget resistant pocket of demand from the fed and we have a high level of confidence in it. So we're still very bullish on the Residence Inn.

Great. And, Tom, if I can go back to one of your comments earlier about being a potential aggregator of the industry or M&A, it seems to me that one of the keys is to have a low-cost capital and one of the things that seems to be holding you back is the overhang from private equity. Any discussions that you can enlighten us on as far as what their intent is and maybe how quickly we might see some of that overhang go away?

Fair question, Bill. I would say as you look back a year or so now, our legacy investors owned about 66%, 67% of the company. As we look today, we think that's been reduced to probably the low-40% range. I think a number of our legacy investors have been wise and prudent. A lot of them sold when we were added to the RMZ and then later as we were rebalancing on the Russell Index 2,000.

So I think there was a concern historically that after the lockup here a lot of our legacy investors would sort of sell and dump the stock. That really hasn't been the case. Keep in mind that these are wise and sophisticated investors, many of whom had invested with us in multiple funds and we had performed well for them. I think they know, as we do, that our stock is undervalued, so I think they'll continue to be thoughtful about it and your point is appropriate. We do want to have discussions about larger portfolio and perhaps M&A transactions and obviously the capital markets need to be supportive of that and our stock price needs to reflect that and it certainly doesn't today.

Great. Thank you.

Our next question comes from Daniel Donlan of Janney Capital Markets. Caller, please proceed with your question.

Hi, Dan. How are you?

Good. Good. Just a question on dispositions potentially. Are you guys currently marketing any portfolios for sale and, if so, how are those discussions progressing?

We tested the market, Dan, with a few smaller portfolios and some single assets. Those discussions are ongoing. As I mentioned, though, there's nothing that's under contract or letter of intent and I don't think there's anything that's imminent. Please know that it is a priority for us, but we want to do that in a very thoughtful manner and we want to make sure that we are achieving the appropriate value for our shareholders.

Okay. And then going back a little bit to Bill's question, have you looked at the implications of the GSA potentially changing their ADR calculation? What type of impact do you think that would have on your portfolio given that you do have a lot of limited stock service hotels? Do you think it would actually be a positive for you guys or do you think it's kind of a market by market situation?

Yes, I think it's a market by market, Dan. If you look, as I said earlier, I think our total government spend is about 6% plus or minus across our entire portfolio. It is larger in the DC area. It's mid-teens, I think 15% to 18% I said earlier, in that range. Clearly there is one hotel in DC, which I mentioned, the Residence Inn National Harbor which has a larger percentage. So in theory if there is a recalculation it would impact that hotel.

As we think about it nationally, and I think DC is probably a good example, I don't think it's going to impact our CBD hotels that have got multiple sources of demand that are strong performers. Our Fairfield Inn conversion I mentioned earlier, is up 22% and DC in the second quarter. I do think there in theory could be some benefits as if they do change the calculation they could push out a number of that demand into some of the suburban markets. We do have some hotels in suburban markets and we could benefit from that. It's sort of hard to speculate.

I think we all know what an impasse we have right now with our government, and so it's sort of hard to pick where they're going to land. Fair to say they're going to try to do something over time that lowers rates, and I think the industry we get smarter with each cycle and we clearly will look at opportunities to candidly push out that business, if there's enough demand, and certainly coming from other segments.

Okay. And then just curious on the Rev progress for the quarter, what was your Rev progress if you excluded the three assets that you bought in the back half of the second quarter? And if you don't have that, information, maybe --

I have that. It's 7.1% with the three acquisitions. It's 6.8% if you exclude the three acquisitions. Now again, you've also got to add back our disruption largely coming from the Doubletree Met, so that would add back another 153 basis points, plus or minus, so you'd end up at an 8.3% to 8.4% range, Dan, plus or minus.

Okay. Okay. Thank you. And then just on those two assets, the Residence Inn Bethesda, Courtyard in Manhattan, what were the trailing 12 month cap rates or trailing 12 month EBITDA multiples when you guys acquired those assets?

Yes. I would think as you think about the Courtyard Upper East Side, I'm not sure it's really relevant. It would be low and sort of an ugly cap rate but you have to keep in mind that this is an asset that had been in litigation for three to four years among multiple parties and then it had been in bankruptcy. So it was really underperforming and, as part of this transaction, we were able to negotiate a very favorable deal from all the stakeholders because I think we were part of the solution here and, of course, we then converted that from a managed contract with Marriott to a franchise contract and instilled High Gate, who are operating three of our other hotels in Manhattan and doing a great job for us.

I would also tell you that the early signs coming out of it already, we were up north of 12% for all three of the acquisitions and I believe we were up north of double digit in July just for the New York Upper East Side.

All right, well, how about for the Residence Inn? I think that was - - you spent a big --

For the Residence Inn it would probably be a sub-6%, Dan, but we'll get that information back to you.

Okay.

Yes.

And then --

Yes, it's going to be - - yes, I stand corrected, Dan. I think that's a low 6%. It might be a 6.1%, I think, 6.2%, somewhere in that range if I remember from memory.

Okay. Thank you. And then just lastly, if I can --

Sure.

-- renovations for 2013, I know you probably haven't done all your budgeting, but I was just curious directionally where that may go versus '12. Is it going to be even or down substantially? Any type of clarity there would be helpful.

Yes, as I've said before, you think we had 48 renovations for $115 million in 2011 and another 45 renovations at about $90 million to $95 million approximately. As we think through to next year, we're probably looking at another 20 to 25 renovations. The reality is given a portfolio of this size and given the nature of this business, you're always going to have renovations.

And we've included that. We include if it's open. We include it in our analysis and hopefully you've seen and the listeners have seen that the team is focused. We're disciplined and I think we've shown that we can manage large scale renovations given the scope of renovations over the last two years. We will have less certainly than we've seen in the last two years, but just given the nature of this business you're going to have renovations.

But for the majority of your top 25 hotels in terms of EBITDA contribution, have they all been renovated, though?

Yes, the majority, yes. They have. When you think about it, as I said earlier, you've got if you isolate our top 30 hotels intensely urban on a normalized basis, those top 30 hotels account for about 55% to 58% of our overall EBITDA. And you'll hear me talk more and more about that because I want to get that message out, so that portfolio is as strong as any portfolio in this industry in generating RevPAR on an absolute basis and north of $140 range.

Understood. Thanks so much.

Yes. Hey, Dan, the only hotel out of the top 30 which could be renovated that we're still exploring would be the Marriott Louisville, which is our full service hotel in downtown Louisville.

Okay.

It's the only exception to that, but all the other big ones have been done.

Okay. Thank you.

Okay. Great.

Our next question comes from Enrique Torres of Green Street Advisors. Caller, please proceed with your question.

Morning, Tom.

Hi, Enrique. Good morning. How are you?

Good. You talked about how you feel the stock is kind of undervalued and I wanted to get an update, one, on the repurchase plan and how much you guys have spent and how do you look at the opportunity or how do you think about using that with the stock being undervalued?

Yes, well, we think having that tool available is important, Enrique. We haven't used any of it to date. Obviously we've used the excess cash to buy assets that we think are accretive and compliant with our strategy. We will continue to evaluate and if the stock continues to remain undervalued we will seek opportunities to buy back the stock. And you know we can also use it as a tool as we talk to some of our legacy investors about secondaries at the appropriate time and block trades.

Great. That's all I had. Thanks.

Okay.

Our next question comes from Wes Golladay of RBC Capital Markets. Caller, please proceed with your question.

Hi, Wes. How are you?

How are you doing? Excellent. Quick question going back to your Courtyard Marriott acquisition, you highlighted the problems as the asset was in bankruptcy. Do you think you can get that back up to optimal performance by 2013?

I don't think it's optimal performance by 2013, but I'm very confident that we have the right manager in High Gate, who I think are as strong as anybody in New York. And given the strength of our own internal asset management team, we are already working hard and, as I mentioned to you, we were up I guess going from memory I said about 10%. I think we were up about 10.6% already in July in our first - - after about one month of ownership. We think very huge opportunities in rate there and we will continue to push it. I would be hesitant to say that we'd get it all back in '13, but we will be working hard to move as quickly as possible.

Okay, so maybe a normalized cap rate on this thing would be north of 8.5? Is that a fair assessment?

That is a very fair assessment. Yes.

Okay. And going now to the capital structure, you mentioned the possibility of a term loan. Are you targeting around a seven year loan on this, five year? What are we looking at here?

We're targeting actually both. Obviously the five year term loan market is deeper than the seven year, but if you look at our maturity profile with a significant amount of maturity coming in 2015 and another slot coming in 2016, we'll be looking to push it out beyond '17 and '18. So targeting both a five and a seven with the majority of it in the five year.

Okay. And do you ever look at the preferred market or do you just kind of pass on that for now?

We're monitoring it, Wes, and we look at it. Given obviously their pocket is what's been attractive, but candidly we want to continue to drive down our cost of capital given the strength of our balance sheet and we think the term loan is more attractive and then ultimately positioning ourselves here to continue to delever and get to the point of investment grade.

We're constantly monitoring the debt capital markets including the preferred markets, so we're always monitoring it.

Okay. And lastly, for the renovations from a cash flow statement perspective, how much do you all have to spend to go out the door this year?

For the renovations?

Yes.

We've got a balance of $39 million in cash that's still going to go out the door.

Okay. Thank you very much.

Yes.

It appears we have no further questions at this time. I would now like to turn the floor back to management for closing comments.

We appreciate everybody taking time. We hope you have a great remainder of the summer and we look forward to our call at the end of the third quarter in late October, early November. Thanks.

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