RLJ Lodging Trust (RLJ) 2013 Q1 法說會逐字稿

Greetings and welcome to the RLJ Lodging Trust first-quarter 2013 earnings conference call. At this time all participants are in a listen only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

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

Thank you, operator. Welcome to RLJ Lodging Trust 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. Leslie Hale, Treasurer and Chief Financial Officer, will discuss the Company's financial results from last night.

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-Q and other reports filed with the SEC. The Company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release from last night.

I will now turn the call over to Tom.

Thank you, Hilda. Good morning and welcome to our first-quarter 2013 earnings call. I'm pleased to report that we had another quarter of great performance. Our portfolio was once again one of the top performers in the industry with RevPAR growth at 10.6% and margin expansion of 150 basis points. This quarter's strong results were driven by our brand conversions, renovated assets, and acquisitions acquired over the last 24 months.

Not only did we achieve solid operational growth, but we also completed two other notable transactions during the quarter. Highlights of those include the acquisition of a small portfolio in one of the top performing markets in the country and our first follow-on offering. The patience and discipline we showed while executing these transactions highlight our commitment to grow long-term shareholder value. The positive trends that we are seeing in our portfolio, as well as the economy are encouraging. We are pleased to see that GDP growth has strengthened and that the S&P 500 and Dow Jones are reaching record highs. Furthermore, rising home prices and a slight reduction in unemployment to a four year low have helped fuel improvements in consumer confidence. That said, we do not believe we have seen the full impact of spending cuts on the economy.

Within the lodging sector we continue to see rising corporate profits translate to a steady flow of corporate travel. Additionally, the positive imbalance of supply and demand reinforces our ability to continue to drive rate and expand our margins. Over the past eight quarters as a public company, our RevPAR growth has been largely driven by ADR increases for each quarter, a trend we expect will continue.

For the quarter Smith Travel reported US RevPAR growth of 6.4%. More specifically, for the upscale and upper mid-scale segments, which are most representative of our portfolio, Smith Travel reported a 6% increase and a 4.5% increase respectively. Using NYAS limited service hotels as an additional benchmark, RevPAR grew 4.1%. Once again our industry-leading RevPAR growth exceeded all of these benchmarks and reflects our well diversified portfolio. For the quarter RevPAR increased 10.6% and our EBITDA margin improved 150 basis points. Our hotels' strong performance is also evident through the additional market share we captured this quarter. Compared to prior quarter, our portfolio's market share increased to 114.9 and all of our top six markets grew market share relative to the prior quarter as well.

While all of our top six markets generated healthy RevPAR growth, our New York hotels showed exceptional growth this quarter, with almost all of the hotels reporting at or above double-digit growth. As we had expected, our New York hotels lead our top six markets this quarter, with RevPAR growth of 43.1%. Our Doubletree Met, which underwent a major rooms renovation last year, benefited from favorable year-over-year comparisons and strong corporate demand.

Excluding our Doubletree Met, our New York hotels' RevPAR increased 13%. Our other New York hotels also benefited from post Sandy demand, strong corporate demand, and an increase in room nights from international travel. We remain bullish on the overall New York City market and expect that it will continue to show strong growth through the remainder of this year. In Austin our hotels continue to outperform with RevPAR growth at 9.8%.

Austin's diverse demand generators continue to drive strong compression for the city and for our hotels. During the quarter our hotels benefited from a strong showing for the South by Southwest Festival, a strong January citywide calendar and it's also a legislative year, which has historically meant 180 basis points of RevPAR. We expect to see further pick up from this year from the new Circuit of America's racing events and from a strong base of technology companies in the area.

In Chicago, our RevPAR grew 6.6% and more than 2.5 times greater than what the market posted. We attribute this strong performance to an increase of corporate demand being generated from two large refinery projects. We expect that these projects will remain in the market through the end of the third quarter and continue to positively benefit our hotels.

In Louisville, our hotels experienced tough year-over-year comparables. RevPAR growth for the quarter was 3.5%. Do you recall from last year our Louisville market posted a 22.5% RevPAR increase in the quarter from strong convention center activity and from the NCAA basketball tournament. Going forward we expect this group of hotels to perform strong, particularly in the second quarter, when we anticipate a strong turnout for the Kentucky Derby.

In Washington DC, we saw an increase in leisure demand driven by the presidential inauguration and a record turnout for the Cherry Blossom Festival. However, our RevPAR growth for the quarter was muted because of a decrease in government and government related demand in our Residence Inn National Harbor. Excluding that hotel, RevPAR growth would have been 9.3%. While we expect recently enacted austerity measures will create softness in the market, we continue to believe in the strong long-term fundamentals in the DC market.

And finally in Denver. We are pleased to report that in addition to several of our renovated assets reporting healthy RevPAR growth, we were also able to drive twice as much ADR growth in the overall market despite a slight drop in our occupancy. During the quarter some of our hotels experienced softer demand as a result of record low temperatures that lasted 10 straight days and less government related business. Outside of Washington DC, our Denver hotels have the second highest exposure to government related business in the portfolio. While demand was softer than originally expected, we expect our hotels to bounce back in the second half of the year.

In addition to the strong performance from our top six markets, our geographically diverse portfolio benefited from other strong performing markets, including Houston, and South Florida. In Houston RevPAR grew more than 17%. Most of our hotels in the market posted more than 14% of RevPAR growth, three of which posted more than 20%. Also, our eight hotels in the South Florida market posted RevPAR growth of 13%, in large part due to the significant growth from one of our brand conversions in that market.

And lastly, would like to provide color on the performance of our top 40 hotels. This set of hotels, which accounted for almost 60% of our hotel EBITDA this quarter, delivered an attractive RevPAR growth of more than 14% and margin growth of more than 240 basis points during the quarter. Our press release from last night includes the expanded disclosures we initiated last quarter for this key group of hotels. In summary, these results validate our proactive asset management approach and strategically positioning efforts. With regards to acquisitions, we continue to grow our portfolio and focus on dynamic urban markets that have multiple demand generators.

During the quarter we closed on the Humble Oil Building Complex in Houston in an off market transaction for a purchase price of $79.5 million. The Humble Oil Building is a three tower complex that occupies an entire city block in downtown Houston. The complex consists of an existing courtyard and Residence Inn that were recently renovated and also includes an apartment building that we plan to convert into a SpringHill Suites. The hotels are located in Houston's central business district and will benefit from multiple demand generators, including business demand from the energy, education, healthcare, and transportation sectors, as well as from leisure and group demand from the convention center and sports teams.

In 2012 Houston was one of the top performing markets among the top 25. With a strong start already in the year, we believe that Houston will continue to show above-average growth. The assets we acquired are ready positively contributing to the portfolio's composition and our overall RevPAR value. We expect to see further lift from these assets once we implement our best practices and complete the apartment building conversion. Our acquisition pipeline remains active and we continue to see a number of quality assets that meet our investment criteria. Currently, we have over $200 million of deals under contract or letter of intent in key Gateway markets, including our previously announced deals in San Francisco and Miami. We are confident in our ability to deploy at least $300 million of capital this year. With the excellent execution of our follow-on rates, we have sufficient liquidity to support future growth.

Furthermore, given our extensive experience using complex conversions and the successful performance of the last seven conversions, approximately one-third of the deals we are currently looking at would be value add conversion opportunities. Also, we are moving forward with disposing some of the non-core hotels and recycling capital into higher growth markets. We have identified 12 assets that are currently being marketed. As we make progress on the sale of these assets, we will provide further updates.

Looking ahead. Our portfolio is set to capture outsize growth. Not only do lodging fundamentals remain strong, but more importantly the groundwork that we set forth in 2011 and 2012, the value added acquisitions, capital investments and proactive balance sheet management, has positioned us to be strong players. Given our strong performance during the quarter and our recent acquisitions, we are raising our guidance. We are increasing our 2013 pro forma RevPAR growth to 6% to 8% and increasing our consolidated hotel EBITDA by $10 million on each end to $320 million to $340 million.

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. Before I report on our first quarter financial results, like on previous calls, I would like to remind listeners that the pro forma results include prior ownership periods. The performance metrics that Tom shared earlier refer to 147 hotels as if we had owned them for the entire comparable periods and excludes the Houston apartment income. These results also exclude non-comparable hotels, such as our Garden District Hotel, which was closed for most of 2012. Adjusted EBITDA and adjusted FFO, which I will discuss shortly, only reflect results for our ownership periods.

Now, looking at our results for the first quarter. Our pro forma consolidated hotel EBITDA increased $9.9 million to $68.9 million, representing a 16.8% increase over 2012. This increase was primarily driven by the strong performance at our New York, Houston and Austin properties. For the quarter our adjusted EBITDA increased $12.2 million to $61.3 million, representing a 24.8% increase over 2012. Adjusted FFO increased $15.5 million to $44.1 million or $0.41 on a per share basis. During the quarter we realized significant interest expense savings, primarily from the first mortgage debt we refinanced in the fourth quarter of 2012. And as a reminder, during the quarter we issued 15.9 million shares as part of our equity offering, which will impact our weighted share count going forward. Both adjusted EBITDA and adjusted FFO reflect add backs to normalize our operating expenses. We recommend reviewing the exhibits in last night's press release for full reconciliation of both metrics.

Moving on to our balance sheet and recent capital markets activity. We strive to maintain a strong conservative balance sheet and continue to seek ways to further enhance our financial position and lower our cost of capital. During the quarter we successfully completed our first equity raise since our initial public offering in 2011. The strong demand that we received from both new and existing institutional investors led to our deal being oversubscribed and ultimately allowed us to upsize the base transaction by 20% and the over allotment option was exercised in full as well. The shares were offered at a 2.4% discount to the last trade, which represented one of the tightest discounts for re-executing a first time follow-on since January of 2009. Since we closed the transaction, our stock has consistently closed above the offering price.

In total, we raised almost $330 million for acquisitions and general corporate purposes. Concurrent with the closing of the transaction, we paid down our line of credit, which we had temporarily used to fund our Houston deal. This resulted in an unrestricted cash balance at the end of the quarter of $347 million and an undrawn $300 million line of credit leaving us with ample capital for our planned investments. With an outstanding debt balance of $1.4 billion, our net debt to adjusted EBITDA was 3.6 times at quarter end. Our strong cash position, as well as continued solid operating performance, provides us with the ability to offer our shareholders meaningful returns through both growth and cash dividends. In the first quarter we distributed a $0.205 dividend. On an annualized basis this equates to $0.82 or a 17% increase over last year's annual distribution of $0.70 per share.

As mentioned on our previous call, in 2013 we will initiate approximately $40 million to $45 million in additional value add capital investments to 25 hotels. Since most of the renovations will take place in the fourth quarter of this year, we expect that there will be limited disruption. This schedule is consistent with our historical renovation patterns that have taken place and taken advantage of the seasonality of our portfolio. Our capital plan for this year does not include the conversion of the Houston apartment building. There will be no hard costs spent on the conversion of this asset to a SpringHill Suites until 2014 when construction begins. The hotel is slated to open midyear 2015.

Now, with respect to our outlook. We would like to reiterate several key assumptions for our 2013 guidance. First, our updated hotel EBITDA guidance of $320 million to $340 million of what's our recent Houston acquisition and includes approximately $1.7 million of prior ownership result that will be reflected in our operating statistics, but will not be included in our corporate EBITDA and FFO. Second, our full year estimated pro forma RevPAR growth of 6% to 8% and EBITDA margins of 34% to 35% are adjusted for non-comparable hotels.

This year we will only have one non-comparable hotel, our Garden District Hotel, which was closed for most of 2012. And lastly, our portfolio is well positioned to deliver solid year-over-year results for the remaining quarters. However, we expect RevPAR results to step down each quarter given the favorable comparables from last year.

Thank you and this concludes our remarks. We will now open the lines for Q&A. Operator?

(Operator Instructions)

Jeff Donnelly with Wells Fargo.

First question for you, Tom, and maybe I misheard you, but I think in your opening remarks you said that we had yet to see the full impact of a reduction in government spending. I guess, did I hear you correctly and if so, how much further do you think we have to go to flush out that full impact.

I think the honest answer is, Jeff, I'm not sure anybody really knows. I think if you think about it historically they were talking about $85 billion in the first year. I think they further revised that to be sort of $44 billion. What we saw in DC and it was largely isolated in one hotel, our Residence Inn in National Harbor, which is really on the same pad as the Gator property. We were down about 25% there. If you look historically government business is about 6% across our entire portfolio, but historically it's been 22% to 23% of our DC portfolio. But we were down about 530 basis points approximately in DC, again, largely at that hotel and accounted for about 551,000 of lost business in the first quarter. So, we are continuing to monitor it carefully.

We did see a little bit of softening in Denver as well. That's probably the second market where we've got a little bit of government exposure. Obviously, not as much as we do in DC. There we saw reduced business coming out of DOJ, Department of Interior and some of the government contractors as well. I would say that we saw April, across our entire portfolio, recover pretty dramatically. Again, we had a great first quarter. April was up 13% across our entire portfolio, but DC was up about 15% of RevPAR. So, the market came back. I think we're just being cautious. We think there is clearly some additional uncertainty out there. We continue to monitor it. Given the fact that our portfolio is so well diversified, I think we are as insolated as anybody.

You might've just answered my question on this, but do you feel that select service hotels, particularly I guess in the DC market, could in some cases be a net beneficiary of sequestration. Maybe it is on a relative basis. I guess my thinking is that could essential government travel -- be forced to trade down, if you will, to lower-cost channels.

Jeff, I absolutely agree with that statement. I think one of the beauties of our strategy, and we use this phrase all the time, is that it's sort of an all weather strategy. Were are going to be full participant in the recovery. I think we have continue to demonstrate that. Our portfolio was up 10% in the fourth quarter, again, 10.6% here in the first quarter. But if things soften and I think government spend is an example of that, we are a natural trade down opportunity where people are going to still get that price value. And again, we've got a much leaner operating model, so I think we benefit on the upswing and to the extent things soften slightly we're well-positioned.

Jeff, it is Ross Bierkan. One more thing, too, is it seems like the group business has been impacted more than the transient. Group bookings are an easy target for budget cuts and because of the nature of our portfolio a little bit more transient oriented than group, we are perhaps less impacted.

I think the facts of our portfolio support the statement that both I made, as well as Ross.

If I could just switch gears. I am just curious with interest rates low and stocks recovering and what have you, I guess I want maybe first your general thoughts. How do you think about the possibility of further consolidation in this sector in terms of the odds of seeing it in the next year. Do you think they're increasing that we see more consolidation either public to public or the public companies buying large portfolios that help privately to the extent that they're out there?

Well, you know I've been a vocal advocate for consolidation in this industry. And I think having 13 REITs plus or minus is too many. And I think it is a far more use, more efficient use of capital to the extent you could consolidate and perhaps have many fewer. Whether that's half or I think there is some natural combinations that make sense. No secret, we clearly want to be part of that discussion. Probably our preference would be as a buyer, but at the end of the day we are not opposed to being a seller to the extent it creates shareholder value.

In terms of the likelihood of it this year, I would say probably not likely, Jeff, based on where we are in the cycle. I do think that this year for us you'll see us use more of a sharpshooter approach and that is a single assets, small portfolios. We are interested in some large portfolios and we are certainly interested in talking about M&A, but I think M&A will happen. I just think it is going to be a little later in the cycle. And again, it's always about timing and price and of course you always have to be able to work out the social issues. But I for one believe strongly that this industry should consolidate.

Thanks guys.

Jordan Sadler with KeyBanc Capital Markets.

Good morning. It's Austin Wurschmidt actually with Jordan. Just wanted to talk a little bit about the decision. It looked like you increased the dispositions. I think last quarter you talked about 8 to 10, now you are talking around 12. Could you just talk about what drove that decision and then also how many additional hotels in the portfolio would you consider to be sort of non-core candidates for disposition.

If you remember historically, Austin, we talked about we've got, say, 20 assets that really count for about 5% of EBITDA and about 10% of rooms. 11 of those historically have been crossed in the debt pool. We did come through the portfolio and really identified 12 assets that we have now listed with two brokers and we commenced marketing, but those are assets that are really non-core. Many of them are in secondary tertiary markets, not part of our long-term strategy. We think given the attractiveness of the debt markets and the fact that there are many owner operators that might be interested in these assets that now is the time to really accelerate that pace. We know, quite candidly, we've gotten question from many investors and we've stated before that it would be part of our strategy and again we want to demonstrate that we are going to do what we say we are going to do and we've initiated that process.

In terms of long-term, we have provided more disclosure recently. I think you have noted our top 40 hotels, which really account for north of 60% of our EBITDA. You will see us continue to prune and manage the portfolio and certainly look for opportunities to continue to create long-term shareholder value. No doubt those 40 assets, I think, are as strong as any portfolio in the business and again those 40 are up north of, I think, 14.5% of RevPAR in the first quarter.

And what should we be thinking on in terms of cap rates on dispositions?

In markets like these assets that are secondary tertiary, clearly those are going to be wider of, I think, where we trade today. But the reality is they are such a small part of our portfolio and I think we're confident that we can recycle that capital into higher growth markets that are going to be accretive. I don't have an answer for you today and we will see how the market responds, but I certainly would expect them to be a little wider where we trade today.

And then just turning to the acquisition side, you had talked about increased competition from PE firms and other REITs, what are you seeing out there today in terms of the assets that you're looking at.

Well, let me talk about it globally and then Ross Bierkan, our Chief Investment Officer, is here and just got back from a low trip, so I think he will have even more insightful commentary. The reality is that we've been very careful in the deals that we've done since we have gone public. I think we bought now 8 or 9 assets. They have all been compliant, bull's-eye real estate, attractive cap rates. I think those cap rates have ranged from 7.1 to 10.1 when you include the most recent Houston deals. So, we've been very careful, very thoughtful about the deals that we've done. If you look -- if you back up even further, I think sometimes people forget, we have actually acquired about 31 assets over the last three years. So, about $1.4 billion. So, we were pretty active right before going public. So, we really like the pipeline that we have built over that period of time and the recent deals that we have certainly added to that.

Clearly, we're seeing more competitors in the marketplace. The debt markets are certainly helping and aiding from that standpoint to the extent that a lot of the PE firms can lever up more to get their returns. I would say that given Ross Bierkan, and Ross and I have been together for 14 years, we have been as successful as anybody at finding off market deals or limited bid deals and that's really, I think, where we separate ourselves from many of our peers. We try to stay as far away from what I call the heated auctions as we can. I'll let Ross give some commentary.

Yes, Jordan, the private equity guys, fortunately, seem to be sort of bifurcated in what they're chasing. They are looking for core assets in major markets and then they're looking for more recently select service assets in secondary markets where they're chasing yield. And we are not particularly interested in either of those. So, that's a good thing.

Secondarily, the inventory of opportunities on the market to the brokerage community, while ample, not necessarily a good fit for what we are looking for either. We are being very selective. So, we are having to use our own relationships built up over the years to create our own heat and source opportunities off market and out of the spotlight a little bit. So, it's working in our favor.

Also, the other thing I would add is we've got, there are four assets right now that we have under contract that I mentioned in my prepared remarks. Know that those are, that's Miami deal that we are closing the end of the year, obviously, the San Francisco deal that we previously announced that we think will close at the end of second quarter plus or minus. Again, that's another conversion. Both assets, one in North Miami Beach, the other three blocks from Union Square in San Francisco, bull's-eye real estate, very compliant with our strategy. The other two assets are also really of that same class, Gateway, West Coast, very excited and again improving the quality of our portfolio, improving the RevPAR and also we believe pretty attractive yields as well. So, we feel very good about our pipeline and as I also stated in my remarks, we are confident that we are going to deploy at least $300 million in capital this year. Hopefully that answers your question.

Yes that's very helpful. Thanks for the color, guys.

Okay.

Wes Golladay with RBC Capital Markets.

Looking at the dispositions, you mentioned that some of them are tied up in a debt pool. You guys also have a large CMBS debt piece that is pre-payable this year. What would prevent you from prepaying this and would you consider doing an unsecured note at that time?

That's a great question, Wes, and look, the assets that we are listing today, 12 assets, there are fewer of them that had debt, but they are not part of the debt pool that you mentioned. And for the listeners, I would say we've got 43 assets that are tied up in a debt pool. Leslie will correct me if I am wrong. I think it's about $487 million with a coupon rate of 6.59%. We think it's a great opportunity to refinance and that lockup burns off, I believe, at the end of July of this year. So, Leslie and her team have begun discussions and are working on looking at our options and, Leslie, you might want to add some additional commentary.

Sure. First of all just remind everybody that we don't have any debt that is maturing this year. So, this will be something new to exercise in order to take advantage of where we talked today and his focal low. We, as Tom mentioned, we are exploring and looking at it. And hopefully we will have some more color on it on our next call. But we will evaluate all product types, whether it is unsecure, first mortgage, et cetera. We're looking at all those product types.

Wes, I would also add that keep in mind in our portfolio our long-term objective where it less than 5 times net debt to EBITDA. I think this quarter we ended up about 3.6 plus or minus. You'll see us working this year to really -- that will probably end up in the low 4s. Ultimately we aspire to get to investment grade. But keep in mind that we've got about 60 assets today that are unencumbered, which again gives us great flexibility. If we look at unlocking those 43 as well, we can see some pretty attractive scenarios and Leslie and her team did a fabulous job as we did two term loans last year and also a recast of our credit facility. So, rest assured that we are out in front of this. We think, obviously, that we can lower our interest expense and we will continue to evaluate in a very thoughtful manner.

Now looking at your margins, you guys are still guiding flat to 100 bps and you seem to off to a very good start the first quarter and then the good RevPAR numbers in April. Is this just being conservative or do you have a new increased cost that you see in the second half of the year.

Yes, I wouldn't say conservative, Wes. We are cautious and I think if you look historically, keep in mind we start at a much higher base. I think we ended last year at 33.9. There may be one or two of our peers that are in that category. So, we are fighting for the nickels and dimes and quarters here to move those margins. I think first quarter is a great example of that. 150 bps. We're very comfortable with the guidance that we've given so far, across from both RevPAR, EBITDA, and margins, but rest assured we are working our tails off to do better than that.

Lastly, can you provide an update on how the hotel Indigo New Orleans is doing for you?

Indigo has just been -- it was a fabulous conversion. As you know, we had the seven -- that is the seventh conversions that we completed. Six of them, while we get the data on the Indigo, let me give you a little bit about the overall conversions. The six conversions were up 19.3% of RevPAR in 2012. They were up 22.6% in the first quarter. So, feel really good, really excited about that. The Indigo itself in first quarter generated an ADR of about $226. And occupancy just over 50% in the first quarter. Keep in mind that it just converted and obviously we got the benefit of the Super Bowl. So, we are really excited about that asset and I think like all the other conversions, we think conversions are a way that we have really distinguished ourselves and we really have a core competency in doing that. But most importantly, we think it's a way that we can generate outsize returns for our shareholders.

Okay, thanks for taking the questions, Tom and Leslie.

(Operator Instructions)

Lukas Hartwich with Green Street Advisors.

For your Houston acquisition, what do you think your all in basis for the SpringHill Suites will be and what sort of return are you expecting.

I think the all in basis, the allocated price on the apartment building is about $18.8 million. We're estimating today at about $17 million of CapEx. So, all in would be at about $215,000. We think, again, the combined all three, because obviously it is a combined entity there, both the Residence Inn, the Courtyard and the SpringHill Suites will generate well north of an unlevered 11%.

So, we're excited about it. It's off to a great start already. I think both assets were, the two that up and running were up north of 14% of RevPAR in first quarter. And we like the market dynamics in Houston as well. We think this is an example of really how we separate ourselves and off market deal, great going in yields, two existing assets and a great conversion and we're very bullish on this portfolio and this transaction.

Great. And as you look to use the proceeds from the recent equity offering, what sort of cap rates or multiple do you think you will be able to deploy that at.

If you look, Lukas, the last, as I mentioned, the 9 deals that we've done the cap rates since the public Company have been really from 7.1 to 10.1. Every asset's a little different, every story. I would say clearly our investment criteria we are looking for unlevered yields in the 10% to 12% and pretty significant discount to replacement cost. But I would fully expect that first year cap rates would be in the 8% range. We want to do deals that are accretive and that are adding value in short order to our portfolio.

Great that's it for me. Thank you.

Okay.

It appears there are no further questions at this time. I would now like to turn the floor over to Thomas Baltimore for closing remarks.

We appreciate all of you taking time. Please know that the team here at RLJ that we are working hard and committed to creating long-term shareholder value. I look forward to seeing many of you in the next few weeks, as we will see you at NYU and NAREIT and perhaps even individual meetings as well. If you have any additional questions or concerns we will be available today. Please don't hesitate to call us.

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