RLJ Lodging Trust (RLJ) 2013 Q4 法說會逐字稿

Greetings, and welcome to the RLJ Lodging Trust Q4 2013 earnings conference call. (Operator Instructions). It is now my pleasure to introduce your host, Hilda Delgado, VP of Finance for RLJ Lodging Trust. You may begin.

Thank you, Operator. Welcome to RLJ's fourth quarter 2013 earnings call. On today's call, Tom Baltimore, the Company's President and CEO will discuss key operational highlights for the year. Leslie Hale, Treasurer and CFO, will discuss the Company's financial results.

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

Thank you, Hilda. Good morning, everyone. Welcome to our fourth quarter and full year 2013 earnings call. We are pleased to report another year of strong growth in our third year as a public company. Our well diversified portfolio produced another year of industry leading growth RevPAR of 7.2% as we continue to execute in our stated growth plan.

During 2013 we continued to focus on our three key pillars; Operational Excellence, prudent capital allocation, and pro-active balance sheet management.

First, our well diversified portfolio continues to produce industry leading RevPAR growth. To date, we have three consecutive years of high single digit RevPAR expansion and cumulative growth in excess of 22%.

Second, we enhanced the growth profile of our portfolio by making accretive acquisitions. During the year, we acquired over $200 million of assets in high growth markets such as Houston, and Atlanta, and expanded into top lodging markets such as Hawaii, San Francisco, and Portland.

Third, we remain disciplined balance sheet managers. We reduced our cost to capital, further staggered our debt maturity profile, and expanded our unencumbered asset base. We completed a $565 million refinancing that will result in approximately $10 of interest expense savings per year, and we have raised over $325 million in our first follow-on equity rate.

After year end, we also announced a number of strategic transactions that positioned us for continued growth in 2014 and beyond. We recently announced our intent to acquire a portfolio of ten high branded properties that will substantially increase our presence on the west coast.

Once we close on the Hyatt portfolio, we will have acquired 46 assets from more than $1.8 billion over the last four years. The addition of these higher growth assets has been immediately accreted to our overall RevPAR, and geographic profile.

We are also pleased to report that we have generated significant momentum in our capital recycling program. We recently announced the sale of a portfolio of eleven hotels, for about $85 million. We remain committed to aggressively recycling capital from non-core assets, into higher growth properties.

We have several other assets in various stages of the sales process that we will provide further details on if, and when they close. The sale of these non-strategic assets will also be immediately accretive to the portfolio as RevPAR and our overall profile.

These two announced portfolio transactions will shift our product mix to higher RevPAR assets, and increase our presence on the west coast, which we have been targeting.

We are cautiously optimistic by the steady economic improvement. During the fourth quarter, unemployment decreased, and consumer spending improved. Furthermore, corporate profits continue to grow, interest rates remain low, and businesses continue to invest, which all bode well for the lodging industry.

The lodging sector enjoyed it's fourth consecutive year of positive RevPAR growth, as demand continued to outpace supply. We believe that we are in the middle innings of a cycle, and there is plenty of runway for continued growth. Although we are seeing a moderate uptick in supply, it is still well below the long term average. Furthermore, we expect demand will continue to outpace supply growth, as the US economy continues to strengthen, and international arrivals continue to increase.

For the full year, Smith Travel reported US RevPAR growth of 5.4%. Specifically, for the upscale and upper-mid scale segments, which are most representative of our portfolio, Smith Travel reported a 5.3% increase, and a 4.2% increase respectively. Using (inaudible) as an additional benchmark, RevPAR grew 4.4%. Our RevPAR, once again, exceeded both US RevPAR and Marriott's limited service hotels by more than 170 basis points.

Our excellent portfolio drove strong results for the full year despite tougher comps for the fourth quarter. As expected, (inaudible), and tougher comps from business generated from super storm Sandy lead to growth in the quarter however, for the full year, we still outperformed the industry, and generated RevPAR growth of 7.2% and EBITDA margins of 34.5%.

Moving on to our top market. I'll begin with Houston, our top performer for the year. Our hotels continue to benefit from strong corporate (inaudible) demand generated from a booming oil and gas sector. For the quarter, we generated double digit RevPAR growth, and ended the year with 15.7% RevPAR growth, primarily driven by rate increases. We expect corporate demand will continue to expand, and that our Houston assets will outperform in 2014 with growth in the high single digits.

Austin also shows consistent outsize growth throughout the year. Our hotels produced a RevPAR gain of almost 9% for the quarter, and ended the year with just over 11%. As previously discussed, strong corporate demand from companies such as Visa and Apple, as well as leisure demands from city wide events such as Formula One, and Austin City Limits contributed to the markets strong results. We expect that the expanded schedule of Austin City Limits and a growing corporate demand base will lead to another year of our performance in 2014.

In New York, we benefited from the renovation to one of our Double Tree Met hotels and ended the year with RevPAR growth at 10.2%, more than twice the markets growth rate. For the quarter, our properties faced tough year over year comparables. If you recall, last year, our fourth quarter experienced double digit RevPAR growth as a result of relief efforts, and displaced residents, from super storm Sandy. As we look into 2014, we expect to get a moderate boost in Q1 from Super Bowl related compression, but anticipate full year growth to be modest if the market continues to absorb new supply. We remain confident in New York's long term market fundamentals.

In Denver, RevPAR growth in the fourth quarter was particularly strong at 13.4%. During the quarter, we benefited from FIMA and EPA extended stay business that was attributed to flood recovery efforts. This helped us end the year at 6.8%. Looking ahead, we expect our hotels to generate mid single digit growth in 2014.

In Chicago, we saw modest RevPAR growth at 3.8% for the year. As previously noted, our hotels have benefited from several large local project, including a BP refinery project, and US steel manufacturing projects. With these projects now wrapped up, compression in the market has tapered. Looking ahead, we expect low to mid single digit growth as a result of tougher comps due to completion of these projects.

In DC, we were pleased to end the year out performing the market. For the year, RevPAR was relatively flat with the effects of sequestration and the government shut down impacted overall compression. While we expect there to be lingering effects from these events, we believe our assets are well positioned to post modest growth for the year, and outperform the market once again.

Finally, we continue to maximize portfolio value from strategic capital investments. Our most recent four conversions continue to ramp up, and in 2013, these four assets recorded RevPAR growth of 17.8%. In 2014, we expect to continue to see growth from these assets, and from our hotel Indigo in New Orleans, which has now been open for a year. As we complete the last two brand conversions underway in Houston, and San Francisco, as well as reopen our Atlanta property, we expect these assets will drive further growth for the portfolio in 2015 and beyond.

We will remain committed to enhancing our portfolio through accretive acquisitions, and expanding our presence in higher growth markets. In addition to the higher portfolio, in 2013, we acquired five hotels, and two hotel conversion opportunities for just over $200 million. We increased our exposure in high growth markets like Houston, Atlanta, and Portland, and expanded into new high barrier to entry gateway markets like Hawaii and San Francisco.

We've leveraged our deep industry relationships, and acquired several of these high quality assets at a significant discount to replacement cost. This combined approach allows us to yield attractive (inaudible) returns on our investments. Our new acquisitions in 2013 generated a RevPAR of more than $133, which is more than a 25% premium to the portfolio average. The higher portfolio is under contract for approximately $313 million. The purchase price represents approximately an 8.5% CAP rate on the projected 2014 net operating income.

This acquisition will allow us to substantially increase our west coast presence, and expand our strategic relationship with Hyatt. The Hyatt acquisition is further testament of our ability to become and aggregator in the urban focus service space. While we plan to expand our capital recycling program, we expect that for the year, we will remain net buyers. In addition to the higher portfolio, we have a very active deal pipeline. We are still under contract to purchase the Hilton Cabana in Miami, which we expect will be completed by the developer in the next two months.

Our well diversified portfolio's outsize growth continues to outpace the broader lodging industry, and marks our third consecutive year of consistent performance. Our outlook for 2014 reflects positive industry fundamentals, and an increase in leisure and corporate travel. We expect that ongoing improvements in corporate profits and consumer confidence will further improve the lodging industry.

Demand growth is expected to outpace supply, pushing occupancy levels in many markets above prior peak levels. With higher occupancy's expected, and supply still below the historic average, we are encouraging our hotel managers to have greater courage this year to drive rate increases.

Therefore, we expect 2014 pro forma RevPAR growth of 4% to 6%, pro forma hotel EBITDA margin between 34.5% to 35.5%, and consolidated hotel EBITDA between $338 million to $358 million. Our guidance does not reflect our pending Hyatt deal, but it does exclude our recent dispositions. Once the Hyatt transaction closes, we will provide updated guidance.

I will now turn the call over to Leslie, to provide some additional information on our financial performance for the quarter, and the year.

Thanks, Tom. We are very pleased to report, that all the enhancements that we've made to our portfolio are translating to continuous growth. Our focus on operational excellence, prudent capital allocation, and active balance sheet management is providing an excellent foundation for our financial health. Our strong operational performance generated an increase of $25.7 million to our full year hotel EBITDA. This increase represents an 8.2% improvement over the prior year.

For the quarter, our adjusted EBITDA decreased $6.3 million, to $77 million, representing an 8.9% increase over the same period last year. For the full year, adjusted EBITDA increased $43.4 million to $311 million representing a 16.2% increase over 2012. Our adjusted FFO this quarter benefited not only from our strong operating performance but also from our proactive balance sheet management which resulted in significant interest expense savings. As a result, our adjusted FFO increased $11.9 million to $62.7 million, representing a 23.5% increase.

For the quarter, adjusted FFO equates to $0.51 on a per share basis. For the full year, adjusted FFO increased $61 million to $246.6 million, representing a 32.9% increase over 2012. Both adjusted EBITDA and adjusted FFO reflect (inaudible) to normalize our operating expenses. Adjustments worth noting for the quarter include a $2.1 million gain related to our sale of the Fairfield Inn & Suites Memphis which was completed in the fourth quarter. Complete adjustments are noted in last nights press release.

Now, turning to our balance sheet and capital markets activities. Two key transactions this year enable us to have one of the healthiest balance sheets in the industry. At the beginning of the year we concluded our first follow on equity offering since our IPO. We received strong demand from both new and existing institutional investors and ultimately upsized the base transaction by 20%, fully exercising the over allotment option. We netted over $325 million in total proceeds. The shares were offered at one of the tightest discounts for a week executing a first time follow on since 2009.

In the third quarter, we completed a comprehensive $565 million refinancing that allowed us to retire some of our higher priced debt. As previously communicated, we expect to realize approximately $10 million of interest expense savings on an annualized basis. In aggregate, we will have saved more than $40 million in interest expense since becoming public. In addition, this transaction further staggered our debt maturities and increased the percentage of our total unsecured debt to 60%.

As of year end, we had a total of 110 unencumbered assets that represent approximately 70% of our portfolio's 2013 hotel EBITDA. With strong performance coming from our properties, we continue to generate significant cash flow from operations. We ended the year with an unrestricted cash balance of $332 million, and an un-drawn credit facility of $300 million. With an outstanding debt balance of $1.4 billion at year end, our net debt to adjusted EBITDA ratio was 3.4 times. Our strong cash position provided us with ample liquidity for future acquisitions to capital improvement. We plan to recycle capital from our recent hotel sales into higher yielding assets, such as the Hyatt transaction.

In addition to using available cash on hand, we plan to fund approximately $175 million of the Hyatt transaction with debt. Once we close that transaction, we will provide further guidance. We remain committed to maintaining low leverage, a conservative capital structure, and achieving our goal of investment grade.

Our solid cash position also allowed us to deliver meaningful returns for our shareholders. In the fourth quarter, we distributed a regular cash dividend of $0.205 and a special dividend of $0.305 per share. For the full year we distributed a total of almost $0.86 per share to our shareholders, representing an increase of approximately 22% over the prior year.

Our goal continues to be maximizing shareholder return in both long term growth, and regular dividends. Since going public, we have distributed almost $2.00 per share of dividends, or almost $225 million in total. Shareholders have seen more than a 50% total return since our IPO. As we continue to successfully execute our growth strategy, we will remain committed to delivering shareholder return with dividend growth.

Moving on to capital expenditures. In 2013, we substantially completed our $45 million capital improvement program across 25 hotels with minimal disruption. In 2014, we expect to start an approximately $90 million to $95 million of additional value add capital improvement across 20 hotels, including our three conversions in Atlanta, Houston, and San Francisco. These three conversions will account for almost half of the capital deployed in 2014.

We expect, that on a relative basis, there will be modest disruption resulting from these renovations. The greatest disruption is expected to be at our Fairfield Inn & Suites in Key West. This is expected to impact our top line growth by 20 to 25 basis points on an annualized basis, and this has already been captured in our annual guidance.

Before I discuss our 2014 outlook, I'd like to remind everyone that our guidance excludes the hotels we just sold and does not reflect the Hyatt portfolio. We will update our guidance with had that transaction closes next month. We will revise updated guidance when that transaction closes next month.

First, our pro forma RevPAR growth of 4% to 6% and EBITDA margin of 34.5% to 35.5%,are adjusted for non-comparable hotels. This year we have one non-comparable hotel, a residence in Atlanta, which is currently being renovated.

Second, we estimate that our hotel EBITDA will be between $338 million to $358 million for the full year of 2014.

Third, we expect that our corporate G&A will be between $25 million to $26 million. And lastly, as we look at our other corporate expenses, we expect to achieve substantial interest expense stating from our comprehensive refinancing. However, we anticipate that the use of additional debt for the Hyatt acquisition will partially offset some of the savings. And again, we will provide further color once that transaction closes.

Thank you and this conclude our remarks. We will now open the line for Q and A, operator.

Thank you. (Operator Instructions).

Our first question is coming from the line of David Loeb, with Robert W. Baird and Company. Your line is now open. You may proceed with your question,

Good morning, folks.

Hey, David

Sorry to have joined late. Probably a lot of people did. I wonder if you could just go back and talk a little bit more about the acquisition environment and I'm also particularly interested if the people you're talking to are interested in taking stock or units in deals. Is that something that is under consideration?

First David, good morning, I hope you're well. I realize that many are calling in from the Hilton call and I'm not sure if it's a good thing or bad thing to follow my good friend Chris Nassetta, but we'll evaluate that in the future. Regarding your first question regarding the acquisition environment, and I think it's certainly competitive. There's a fair amount of capital out there from certainly private equity sources as well as our brethren and high net worth and many others. If you look at our history, I think we've had a lot of success in finding off market deals and sort of direct deals. I think Hyatt is a great example of that. I think the Hilton Cabana is certainly another great example of that.

While it's certainly competitive, we're confident that we'll continue to find attractive opportunity that fit our investment criteria and that create value for our shareholders. Regarding the use of units, we do get that question from time to time. It's not something that generally we're open to. If the deal is of scale and makes sense and if there are unique situations, we certainly would consider it. I think you've seen, and those listeners have seen, how we protect the currency. We've only done one follow-up equity raise since we went public and we still think like all CEO's like to think they're undervalued. In our case we really believe it and I think we are so we're certainly going to be hesitant and thoughtful if we were to consider open units a transaction.

Okay. And on the Hyatt portfolio, there's a pretty substantial amount of CapEx. Do you expect some disruption from this and what are the growth assumptions to get you to that 8.5% CAP rate both top and bottom line?

I would say we're really excited about the Hyatt transaction. As of and said from day one, as it relates to the select service or focus service space, we really think it's a three-horse race. With Hyatt, Hilton and Marriott, and we are thrilled to be expanding our strategic relationship. What we liked about this transaction was it was direct. There are 10 hotels, 7 of which are in California, from northern California through LAall the way down to San Diego and very optimistic. We're very comfortable with the press release and information we put out so far and certainly that 8.5 CAP in the first year. We'll be $25 million invested over the next two years. We will seek to minimize the amount of disruption. There will be some. I think it's unavoidable.

You've seen in our history if you look back, obviously what we did in 2011 and 2012 where we had 45 and 43 assets respectively under renovation. I think we're as skilled as anyone in finding the right windows. Our design and construction team and asset management teams work very closely to optimize that with our management company. And most of the capital is really isolated in four assets so we think that two of those will likely be done this year and then the balance will be done in early 2015 and perhaps a little later in 2015 depending on seasonality. So we're still working through that. But we're cautiously optimistic. We think this deal is not only going to be accretive and going to create long-term value for our shareholders but we're excited about also doing more deals with our partners at Hyatt.

It does sounds like a very interesting transaction and pretty high return. Just one footnote question on that return. Is the 8.5 calculated on the $312.5 purchase price or all in $337.5 ?

That's based on purchase price. It would be mid to high 7s if you incorporate CapEx into that.

Terrific. Great. Thank you so much.

Thank you. Our next question is comings from the line of Neil Malcon, with RBC Capital Markets.

Hey, guys it's was actually Wes Golladay. Quick question on the Hilton Cabana. What do you see that asset stabilizing at, and what would the initial yield be?

How are you, Wes, good to hear you. We're excited about the Hilton cabana. Obviously what's happening in south Florida and given the amount of development there on the residential side and some of the job growth that's happening in south Florida as well. We think long term this is going to be another great edition to our portfolio. It has been somewhat delayed. We hoped to close in late December, early January.

The development group is working hard and we expect hopefully that will close within the next 60 days. I believe what we have and said in the past, and we'll still stand by that, is I think a low 8 CAP in the first full annualized year. We certainly think that will generate returns. We're typically looking for unleavened returns in the 10% to 12%. We certainly expect that this investment over that five, six-year period will be in the higher end of that range. But I would say initially about a 8 CAP.

Okay. And looking at the balance sheet, do you guys have a timeframe maybe this year for the investment grade rating?

We plan to continue to evaluate that. We certainly aspirationally have that as a goal and we're not moving away from that. Wes, as you know the balance sheet is in pristine shape and we went public at net debt to EBITDA just south of 10. We're probably today in 3.5. It's a bit artificial given the pending transaction on the Hilton Cabana but clearly our threshold of being well south of 5 we'll be able to maintain and long term we want to be able to move that down into the low 3 range. Leslie and her capable team will be initiating discussions this year. We hope that when we start I think taking on debt in 2015, that we'll be in a position to really be making a strong case for investment grade. Leslie, I don't know if you want to add anything.

No.

Okay. Do you have any more conversions in the deal pipeline right now? And will you be capitalize being any costs such as interest for the current conversions?

I'll let Leslie answer the interest capitalization question. Regarding the conversions, Wes, as we have each said before and I'm not sure that the market is giving us any credit at all for these three pending conversions. One being in San Francisco. Again post street. Three blocks from Union Square, Bullseye real estate, again that conversion to the Courtyard. We hope and expect in a that will be done in late 2014, early 2015 at the latest. We've got our project in downtown Houston. You may recall we bought the Humble office portfolio which included a Courtyard, a Residence Inn. We are converting the apartment building to a Springhill suites. Just incidentally, our Houston assets had a phenomenal 2013. They were up 15.7%. We own 8 hotels in Houston, all of them were up double-digit increases in RevPAR.

So we're very excited about this addition to our portfolio. We expect again that should open in late 2014, early 2015, again providing long-term growth for us there. Our Atlanta, again showed our ability through a debt for closure. We've got 78 keys there. We bought it, original debt balance I think was about $10 million. We bought that for $5 million. We've commenced about a $7.5 million renovation and we'll bring that back online in Midtown in late 2014 as well, early 2015. So all three of those great opportunities provide tremendous growth for the portfolio in the future. Regarding other deals, as we get later in the cycle, we're going to be more thoughtful and more careful about certainly doing brand conversions. We do think that our scale affords us with an opportunity to be looking at those but we're going to be thoughtful about those that we accept. In all three of these, we think we're going to generate out-sized returns for our investors. Regarding the interest capitalization, I'll let Leslie answer that.

Sure. Wes on the capitalized interest, our internal policy is really driven on the duration of the project so I would anticipate in Atlanta we wouldn't necessarily have any. But on the San Francisco, and also on our other conversion, we would expect to have some on Houston.

Okay. Thanks, everyone.

Thank you. Our next question is coming from the line of Jordan Sadler, with KeyBanc Capital Markets. Your line is now open. You may proceed with your question.

Thank you. Good morning. Curious to dig into the Hyatt portfolio a little bit, TomCould you maybe talk about the hotels? I know a number of them were Hyatt house and just strategically or tactically extended stay model. Any thoughts on moving in that direction and the opportunity there?

Well we've always been big believers in the extended stay model. If you look at our portfolio today, we have sizable investments in Marriott residence Inn and Homewood Suites by Hilton, both of which have been strong performers, provide a pretty strong RevPAR index. They provide great RevPAR. Certainly strong margins. We're big believers again in Hyatt and Mark (inaudible) and his team there. We think that there's a lot of growth potential for the Hyatt house brand. We are again as participant of this transaction getting 7 of those as I recall correctly and again a young brand still ramping up and several of the assets being in California. Obviously also included in that are downtown Charlotte.

We're also getting a baby Hyatt a that's in the Woodlands area of Houston. That just talks about how strong Houston has been and we're get Hyatt place there in Madison, WI which is Bullseye real estate and a state capital and University town. We like the metrics. We've recorded $120 million RevPAR, 14% plus or minus above our 2013 end of year RevPAR, about $106 for the portfolio but we think a lot of oversize growth as we move forward. To be able to get in and a brand that has some distribution that has a lot of potential and clearly under that stewardship of the Hyatt family of brands we think is going to be good for us and for them.

That's helpful. Maybe moving to the transaction side, it sounds like there's still plenty to do on both sides, investment and dispositions. Curious, the disposition sounds like there's more out in the market still which is not a surprise relative to previous conversations. Is the timing or anticipation of incremental asset sales near term, or was this further $85 million the first lump to go, we should just wait until later in the year to see the next lug close?

I would is a say as we announced before, we had 15 assets plus or minus. There have been 12, obviously 11 plus as Leslie mentioned in fourth quarter we closed one sale in Memphis. We do have another pending transaction, single asset sale that candidly we will be announcing either tomorrow or no later than Monday. That was embedded in our guidance that we announced today, both first by me and then again by Leslie. We are going to be very active in looking for opportunities to recycle capital. We do have several other single assets that we think are at various stages of the process and again if and when they close we certainly will announce and you can expect that we will continue to look at other assets and other portfolio combination opportunities for sale. I would say another 10 to 15 assets that we're currently evaluating and that we would be listing with the brokers here in the near future.

And in terms of the magnitude, would the scale be similar to the first 85?

I think it will be in that range. It could be slightly higher in terms of overall value.

Okay. And then maybe for Leslie. Given the combination of pro forma acquisitions and these sales closing, how does the balance sheet position? I know 3.4 net debt to EBITDA at quarter end but pro forma all these transactions, how are we positioned and how much should we think about capital for 2014?

Sure. As mentioned before, we obviously have enough capacity of cash and debt capacity to be able to take down all the transactions and obviously with the disposition that provides us with more ample cash as well. As Tom mentioned before, our cash position pushes our net debt to EBITDA artificially low to 3.4. We believe after taking into consideration $175 million that I mentioned before for Hyatt that we'll end up in the low 4's on a net debt to EBITDA basis. Still in a very strong position and positioning ourselves again for investment grade strategy.

Okay. Thank you.

Jordan, one thing on that. As Leslie pointed out, that's EBITDA in the low 4s. Keep in mind that does not include any other subsequent sales. So as we continue to look to recycle capital, again that will allow us to pay down debt or use it for general corporate purposes or obviously to recycle that into other transactions. The balance sheet is in pristine shape. Leslie and her team have done a fabulous job. It's a key pillar of our strategy and I think we've demonstrated that over the last three years as a public company.

It just reflects the sale of the first $85 million, right?

It does

Okay. Thank you.

Thank you. Our next question is coming from the line of Bill Crow, with Raymond James and Associates.

Good morning, guys. Follow up on that last question. You mentioned that the asset disposition to be announced in the next day or two is included in your guidance. Is that correct? And if that is the case, the magnitude of the sale, at least how much EBITDA might be going away?

Bill, it's $15 million transaction plus or minus another $2 million of EBITDA plus or minus.

So, $100 million in sales is embedded in the guidance and what $12 million of EBITDA, somewhere in that range?

Yes, that sound about right, plus or minus.

Okay, great. Any update you can give us quarter-to-date on how things are looking for the portfolio?

We were up in January about 4% revenue per available room. Generally in line with our plan. We're cautiously optimistic as you look out at transient forecast over the next 90 days, we're showing about 5% increase. Booking pace in group is just north of that, probably 5%, 5.5%. So we're cautiously optimistic. No doubt I think we tend to be conservative as I think you and your peers have seen. As you look over the last five years we've had RevPAR growth of 22% and we've been over 7% in each of the last two years. We pride ourselves on meeting or exceeding. We're comfortable with the guidance that we've given so far, recognizing honestly we've had a lot of impact from the weather. Any of us have certainly avoided that and in some markets we've been benefited.

You take Chicago obviously on one side, our CBD hotels got hit hard but our hotels in Midway did incredibly well. In January we were up 40% there and down probably a similar number in the CBD. So we feel comfortable with our guidance at this point as both Leslie and I pointed out earlier in our remarks, and in our prepared remarks. Please keep in mind that both the RevPAR guidance that we've given and the hotel EBITDA guidance at this point they do not include or are not reflected of in any way, shape or form the pending Hyatt portfolio sale as well as the Hilton Cabana. So that's about $400 million of transactions. The Hyatt is scheduled to close in mid March and we're hoping the Hilton Cabana, when the developer completes in accordance with our purchase and sale agreement, that we'll close in late April or early May. We're reasonably confident with that at this time.

Great. Two more areas, quickly. I think you guys have said everything but say that an equity raise is off the table. Given your cash balance even with the $400 million acquisitions that you just talked about, there's no reason to go back to the equity market at this stage. Is that fair for us to assume?

Bill, I would answer it this way. We certainly have no need to go to the equity markets. And again I would point out for the listeners and we're quite proud of this. In our three-year history, we've done one follow-on equity raise. Our interests are in line with shareholders, we're going to protect and do everything we can to create value for shareholders and when we go to the market, it's going to be because we need the equity, we're going not going to over equitize our transactions. I think it's one of the real fundamental benefits to our strategy is that we generate so much more free cash flow than our peers that we don't need to go back to the market as often.

As evidence of that, keep in mind that we have each acquired now including Hyatt as a public company that will be nearly $900 million in acquisitions. We have each paid out about $225 million in dividends, and we've spent well over $250 million plus or minus in CapEx during that period of time and we've had to do one equity follow-on. I'm not ruling out one in the future to the extent we have other transactions or other needs. But we will be careful. We will be prudent. And we will look to protect shareholders interests and make sure that we're selling stock at an appropriate level. And furthermore, our current guidance also does not include any of the other three conversions that I mentioned. Again that will come on in late 2014 and 2015, which we think are going to provide again great lift for the portfolio

You lead me into the last topic. You mentioned your stocking being undervalued and the market doesn't give you credit for those conversions. Why do you think that you've been challenged to get a multiple that may better reflect your portfolio, what you guys have been doing, the balance sheet, etc. and what can you do? For example, Hersher just put out a presentation in which they went through an asset value valuation that would much higher share price on a per key base. Is there anything that you would could think about doing that would underestimate the value on the portfolio?

It's a great question. I would answer it this way. We are focused. I would say almost obsessed with our three key pillars and are focused most importantly on operational excellence. Doing what we say we're going to do, posting good numbers each quarter. I think we've done that. Again if you look at our performance over the last three years, RevPAR being up 22%, I think our EBITDA is up probably in the high 30s, low 40% over that period of time. Our total shareholder returns are north of 50%. Our balance sheet is certainly one of the best in the industry. Our margins I think are at or near the top of the industry. So we're really focus on the blocking and tackling and executing our business plan.

We're going to continue to be prudent capital allocators making sure that we do smart deals and when we reinvest back in assets, there's a ROI for it and it makes sense. Finally keeping a lean balance sheet ultimately aspiring to getting to investment grade. And we think over time as we continue to post good numbers and execute the market will ultimately the see that and give us credit. We are thinking of other ways. You'll see more and more active in the road shows. You'll see more and more talking about performance. I think we have a track record now where it stands up. And then I think also driving home the point of the amount of free cash flow that we generate from this strategy.

What sometimes I think it is gets lost is a lot of my full service brethren have to reinvest so much their capital back into those large aircraft carriers, that it erode their ability for growth, it erodes their ability to provide incremental dividend. We don't have any of those constraints. We stand by our strategy and we think over time those investors that take a closer look will see the benefits of what we're doing.

Great. Thanks, Tom and Leslie.

Thank you. Our next question, is coming from the line of Lucas Hartwick, with Green Street Advisors. Your line is now open. You may proceed with you were question.

Thank you, good morning. Great. Tom, can you comment on what you were seeing on the expense side on your portfolio?

I would answer this way, Lucas. I think one of the things that we're quite proud of. If you look at our margins and keep in mind that we have and got an embedded advantage over many of our peers. We finished last year at about 34.5%. I think that's certainly among the highest, if not the highest. I think we consistently had as you think again comparing us to some of the full service and luxury, we've got to have a 500 point or 1,000 basis point advantage. Clearly, there are some, you know, some margin challenges that I think not only in our portfolio but I think in the industry, I think one obvious one is property taxes. As a lot of the municipal's get more and more challenged, clearly property taxes in the commercial property owners is a way that they certainly seek to gain more certainly more revenue. We are a working through that. However our team on the asset management team, and Leslie's team, we're aggressively appealing and working through that.

We do see some increases there. Clearly wages and benefits. I would say in New York where it's largely union operated, you're going to see sometimes that the agreements provide for increases in wages that in some cases outstrip or run ahead a little bit of the growth in revenue. Clearly, New York is going to be challenged in the short run given all the new supply and until that supply gets absorbed, although we're still seeing high occupancy even in our own portfolio, you're really not generating the kind of rate, there were you're not getting the flow throw that I think we have and enjoyed historically in New York.

I think many of the rates and some of the property owners are faced with is what I call the brand amenity creep. As we get later in the cycle and as you get more and more competition between the brand, you do get these add-on's that are clearly good for the customer on one end, but also are costly to the owner. There are possibly three elements there that certainly are having some impact. We're confident in the guidance that we've put out but I would also keep in mind that we start with a much higher base than most of our peers.

All right. That's really helpful. Have you have guys disclosed the forward multiple on the portfolio sale?

We have not at this point.

Okay.

I would answer it this way. As I have said before, if you look at returns, we typically looking for unleveraged IRs in the 10 to 12 range. I would clearly expect that the Hyatt deal will be in the mid to higher end of this range in the long term. We feel very confident about the portfolio and again excited about bringing this portfolio into this 10-hotel portfolio into our greater and larger portfolio.

Right, sorry, I think I might have misspoke. I meant the portfolio sale, the $85 million.

I'm sorry, misunderstood your question. I think as we put out, we were probably 7.9% after CapEx and before CapEx, it's probably high 9 on a CAP rate basis. I don't have the forward multiple bases with me right now but we'll get that and I'll have Leslie or someone on the team call you back to make sure you have that.

Great, thanks and then I just have one quick housekeeping question. The special dividend, Leslie, was that just to pay off taxable income or what was that for?

Yes, obviously our portfolio performed relatively well last year so obviously as a we have a requirement to distribute in accordance with our re-taxable income and re-tax so yes, it was associated with that.

Great. Thank you, guys.

Thank you. Our next question is coming from the line of Ryan Meliker, with MLV and Company. Your line is now open. You main proceed with your question.

How is it going, guys? Just a quick one here. A little bit of a follow-up to David Loeb's questions earlier. When we talk about the Hyatt portfolio, an 8.5 CAP rate sounds attractive. We've heard a lot of other select service portfolios going closer to the 7% CAP rate of range for private equity. I'm just wondering how you guys were able to win this at a 8.5 CAP rate? It was that private equity wasn't playing? Is this a relationship with Hyatt really got them to take a lower bid? Or was it that you were a little bit more aggressive in terms of your outlook for 2014 maybe than some of the other bidders? Just trying to really understand given how leverage has grown so much more rapidly. The amount of capital private equity has to put to work, and whenever we've seen them chase that assets at much more aggressive CAP rates that you were able to acquire for.

First of all, Ryan, it's great to talk with you and glad that you've picked up coverage up on us and look forward to working with you and your team. I would answer this way consistent with what I've said with David. We've had a long history and a lot of success in finding deals sort of off market. We pride our selves on that and our Chief Investment Officer who's been with me for 15 years now. We identify assets, potential partners and we work that for many years. This discussion with Hyatt didn't happen over a three or four month. I would say it happened well north of a year and it really benefits both companies. They were looking to go more asset light. I think they were looking to sell to groups that they could continue to grow with.

Hyatt's going to continue to manage the portfolio. We're excited about figuring out ways to grow with them and so I think it was really a strategic benefit for both companies. And I think that really drove that. If you're looking as part to maximize and get the absolute last nickel, perhaps you can take a different route. But I think for them and for us, we see this as really the beginning of we had already had six Hyatt assets plus or minus but now adding another 10, we at this point, we think this is another way for us to continue to grow and seek opportunities with them. Regarding some of the other sales, I'm not going to comment on other transactions, but we're focused like a laser beam in figuring out ways to figure out shareholder value. Single asset, small portfolios, M&A, and we're certainly open to all of it.

Great. That's good color on the transaction. One other little question I had for you. You mentioned in your prepared remarks that the Super Bowl has actually a boost on super Q1. We heard from Hersher that it was only 50 to 75 basis points for them in Q1. Did you see a more material impact than that?

No, I think that's probably pretty comparable. Anecdotally I think we were up $78 in RevPAR during Super Bowl and flat occupancy but keep in mind our New York hotels run high 90s to begin with. I think we had incremental revenue about $500,000 plus or minus but candidly that was slightly below what our expectations were. I think as many have said, Super Bowl was net positive. But given the fact that you started with New York and greater New Jersey, 150,000 rooms plus or minus, it's not going to create the kind of compression and the kind of impact that recent Super Bowls have in New Orleans or Indianapolis or other markets. So good for the market but I'm not sure it was necessarily great from a hotel standpoint. Also keep in mind for us in fourth quarter of 2012, we had a wonderful quarter so we were up north of 10% plus or minus and so it was positive but I don't think it had a bodacious impact that perhaps others had hoped for.

Fair enough. That makes sense. That's all for me. Thanks a lot. I appreciate the color.

Thank you. Our next question is coming from the line of Anthony Powell with Barclays. Your line is now open. You may proceed with your question.

Hi, good morning, everyone. Houston and Austin were very strong throughout 2013. How did the event calendars and corporate outlook look for both markets this year?

Houston is just one of those markets as I said before, we were up 15.7% in 2013. Up 11% for fourth quarter and if you look at the 8 hotels that we own, we were up double-digit RevPAR growth in every single one of our hotels and if you look at the two recent acquisitions both the Courtyard that we bought in downtown Humble office building as well as Residence Inn, both were up 16% and 14% respectively in RevPAR. So really excited about what's happening there, even more thrilled for our apartment conversion that's again coming online in late 2014, early 2015. We think when you think about job growth and pro business and less regulation and all the great things happening both in Houston and in Austin, we're bullish long-term on both markets. We think probably Houston is looking at, I think PKF had them at mid to high single digits. We would certainly expect that to be in that range, if not better.

We have consistently outperformed in Houston and have no reason to believe that doesn't happen again in 2014. As we look at Austin, keep in mind, Austin, we were up 11% and we were up I believe about 8.9% in fourth quarter. Keep in mind we were up 30% in Austin in the fourth quarter of 2012. So despite that, we finished the year again with outstanding performance. You do get the benefit of the state legislature in session last year that historically has provided for about 180 basis points of RevPAR, so you lose that a little bit as you move into 2014. But you've got F1, you have and got the circuit of America track events I believe they had six or seven events last year. We expect most of those events to continue into 2014. You have Austin city limits which the outlook I think is very encouraging for that. You've got the X-Games that I believe are going to commence in the Austin as well.

And then, of course, you get the benefit of both the leisure, the growing corporate with companies like Apple and Visa and Samsung and others despite the fact that Dell might be contracting a little bit. Long-term Austin is just one of those great cities. We do have the risk and reality of new supply coming and obviously that will have an impact on the market. It's not lost on us and certainly not lost on others. But long term we feel very good about Austin. We also have the benefit of University of Texas football and their incremental games that are going to occur this year, so that too will create compression in the market. Feel good about the southwest and what's happening there and again we are also spending a lot of times on the deal flow side really looking at more and more opportunities out on the West Coast. We had that will round out our portfolio.

Great. One more on supply. As far as the northern California assets in the Hyatt deal, I would imagine there would be a lot of supply growth in the markets near San Francisco. Are you seeing new construction into those markets and does that concern you at all? Thank you.

We're not seeing incremental supply at this point. I think one of the things that makes California the regulatory environment there the difficulty of getting construction done. In many of these assets are extremely well located and lots of demand generators and a growing demand base. We think that's going to bode well for this portfolio and again give us a lot of incremental growth as we move forward.

Thank you. Our next question is coming from the line of Neil Malkin, with RBC Capital Markets. Your line is now open, you may proceed with your question.

This is Wes again. Looking at FFO growth and taxable income, do you think this year's taxable income will grow faster than FFO growth? I just wondered if you had any tax shields related to the renovation activity from the past few years?

It's a complicated question and happy to give you more color off-line. I think that at the end of the day, we will go grow our dividend commence with the performance of the portfolio to adjust for our tax position. I think we'll see some benefit from our NOL but it's not going to be enough to damper the growth of our dividend.

Wes, I would also add, I know a lot of our peers are talking about raising the dividend and again it's an area where we've had such an advantage. We've paid out almost $2 in since we went public. We were $0.86 last year. We were $0.70¢ the year before, we grew it by 22%. You will see us come out with a modest initial dividend growth but the reality is we generate so much free cash flow, we've set a target of 55% of FFO. We've generally met that, or exceeded that. You can expect again another strong dividend from us and again the advantage of our portfolio and strategy is it's an all-weather strategy we're generating those higher RevPAR's, much better margins, and a lot more free cash flow.

Okay. Thanks for taking the follow-up.

Thank you. At this time there are no further questions. I would like to turn the floor back over to management for any closing comments.

We thank everybody's participation today and look forward to talking with you in another two months in our next call. Safe travels.

Thank you. Ladies and gentlemen, this does conclude our tele- conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful afternoon.