RLJ Lodging Trust (RLJ) 2014 Q1 法說會逐字稿

Greetings and welcome to the RLJ Lodging Trust first-quarter 2014 earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host, Hilda Delgado, Vice President of Finance. Thank you. You may begin.

Thank you, operator. Welcome to RLJ's first-quarter earnings call. On today's call, Tom Baltimore, the Company's President and Chief Executive Officer, will discuss key operational highlights for the quarter. Leslie Hale, Treasurer and Chief Financial Officer, 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 their 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, and welcome to our 2014 first-quarter earnings call. I am very pleased to report that we continue to generate strong operating performance through a focused and thoughtful approach. We continue to execute on our three guiding principles which are operational excellence, smart capital allocation and prudent balance sheet management.

Our consistent strong results are further validation of our strategy. This quarter our RevPAR grew 6% and EBITDA margins were 31.8%. Adjusting for disruption at a few of our hotels this quarter, our RevPAR would have increased by an additional 90 basis points to 6.9%.

We are very pleased with this quarter's strong performance given that last year during this same time, our portfolio generated an impressive 10.6% RevPAR growth and margin expansion of 150 basis points. Our ability to continue to generate such strong growth this quarter is a testament to the quality of our portfolio.

I am excited about the platform that we have built to date and our future outlook. We are building RLJ into a leader in the lodging industry. Not only were we able to generate another quarter of strong growth, but this quarter we also successfully concluded several significant transactions.

We acquired a high-quality portfolio of 10 hotels from Hyatt for $313 million and we also disposed of 13 nonstrategic assets for $115 million. The combination of the Hyatt portfolio acquisition and the sales of nonstrategic assets were immediately accretive.

Through these transactions, we enhanced our overall RevPAR and broadened our geographic footprint in high-growth markets. We are encouraged by the level of interest in our marketed assets as well as the quality of assets in our acquisition pipeline. With a well-capitalized balance sheet and a strong pipeline, we have started yet another year with strong momentum.

We are also very encouraged by improvements in the US economy which we expect will bode well for the lodging sector. Unemployment rates recently improved to a five-year low and corporate profits regained momentum after a slight pullback. Improvement in consumer confidence, which recently reached its highest level since 2007, strengthens our overall outlook for the year.

While extreme weather during the first quarter had a slight impact on consumer spending, we believe that consumer spending will continue to strengthen in 2014. We expect that, as a result of these improvements, demand will continue to increase and provide additional upside as we expand further into the lodging cycle.

Furthermore, we expect international travel to increase over the upcoming years and provide an additional catalyst for the lodging sector. Demand over the last 12 months has outpaced supply growth by 180 basis points and we are seeing a slight uptick in supply growth, most of it is concentrated in select markets. We expect that an improving economy will stimulate greater demand growth and help maintain a positive demand and supply imbalance over the next several years.

For the quarter, we generated RevPAR growth of 6% and EBITDA margins of 31.8%. In light of the difficult comps we faced this quarter, we are very pleased by the strong growth we generated. During this same time last year, RevPAR growth for the portfolio was north of 10%, primarily because of the performance at our New York properties.

In addition to these tough comps, we had approximately 90 basis points of renovation disruption this quarter. Adjusting for disruption, RevPAR would have increased to 6.9%, well above our standard industry benchmarks. I am very proud of our internal team and our third-party managers who continue to drive operational excellence.

As I move on to our top markets, I will start with Denver which was our top-performing market for the quarter. Our hotels generated an impressive RevPAR growth in excess of 13% in the first quarter. We saw a strong pickup in corporate and leisure demand. Based on the current trends in the market we expect that Denver will continue to show positive growth. Passenger traffic at Denver International Airport in January and February were at record levels and international travel was up 28% in February. We are also beginning to see an increase in government business after a pullback from sequestration.

In DC, our group of seven hotels generated an impressive 9% RevPAR growth significantly outperforming the market. Our assets outperformed the broader market by almost 1400 basis points. Our hotels outside the CBD benefited from strong extended safe corporate business, which more than offset tough comps from last year's Presidential inauguration.

We are very encouraged by the performance from our hotels and we expect that we will once again end the year outperforming the market. In Austin, our hotels generated an 8.6% RevPAR growth and also outperformed the market. We are very pleased to see continued strength in leisure and corporate demand.

A strong turnout at the South by Southwest Music Festival helped drive strong demand in the market. Our two downtown focused service hotels reported an average RevPAR of more than $450 during those 10 days, a double-digit increase from the prior year. This dynamic market continues to deliver impressive results and we expect that it will continue to be one of our top performers for the year.

In Chicago, our hotels generated a 2.9% RevPAR increase which is nearly 200 basis points more than the overall Chicago market. While extreme weather conditions impacted travel into the CBD, our hotels located along the Midway Airport Corridor increased almost 23% as they benefited from an increase in displaced passengers.

Chicago Midway had more than six times the amount of canceled flights than last year. Going forward, we expect the market will continue to perform very well as a result of increases in convention activity, and improvements in business travel.

In Houston, the market continues to benefit from its strong energy sector. During the quarter, we had four of our nine Houston hotels undergoing renovations. As a result, RevPAR growth was relatively flat to prior year. Excluding the hotels under renovations, RevPAR growth would have increased 13% which is stronger than the general market. With renovations now complete, we expect our hotels will be active participants in the market's continued strong growth.

In New York, our hotels' RevPAR declined 5.8% as a result of a combination of difficult comps, weather, and softness in the market. If you recall, our New York hotels generated a 43% RevPAR increase last year in the first quarter, primarily from post-renovation pickup from our Doubletree Met and post-Sandy business.

We expect that New York's RevPAR growth will be modest for the year as new supply enters the market. However, as we have communicated previously, we remain confident in the markets ability to absorb incoming supply and in its long-term potential.

In addition to strong performance from several of our top six markets, our diversified portfolio is reaping the benefits of a broader economic and lodging recovery. In Indianapolis, we had an astounding RevPAR growth of almost 27%, due to special events such as March Madness and the Big Ten Tournament as well as strong corporate midweek demand.

Our properties in South Florida also generated double-digit growth as many in the Midwest and Northeast traveled South to escape the extreme cold winter.

Our most recent five conversions continue to ramp up. This quarter they generated double-digit growth of 16.1%. We expect to see additional growth from these hotels and in particular from our Hotel Indigo in New Orleans.

And finally, we are really excited about our upcoming assets that will be completed later this year and early next year. We expect that once our hotel conversions in Houston and San Francisco open and our Atlanta property is back online, that these assets will drive further growth for the portfolio in 2015 and beyond.

Our highly anticipated Hilton in Miami Beach is also expected to open late in the second quarter. Values in South Florida have been rising considerably, and we are confident our Hilton Cabana purchase will create long-term value.

With regards to our transaction activity, in the first quarter, we sold 13 hotels for approximately $115 million which represents a fully loaded cap rate of 7.9%. Our capital recycling program is enabling us to build a higher quality portfolio by disposing of assets that no longer fit our long-term strategy and reinvesting the proceeds into assets that enhance our exposure to high-growth markets and improve our overall portfolio RevPAR metrics.

We used the proceeds from our disposed assets to acquire the 10-hotel portfolio from Hyatt. In doing so, we expanded our strategic relationship with Hyatt and expanded our presence on the West Coast. We are very pleased with how well these hotels are performing. In the first quarter these 10 hotels generated an impressive RevPAR growth of 10.4%.

Our asset recycling program has picked up momentum and we are currently marketing several additional nonstrategic assets. Pruning assets and reinvesting proceeds into assets that broaden our exposure in high-growth markets will remain a key priority.

Our acquisition pipeline remains very active and we are very close to having several assets under contract or letter of intent. Over the years, we have cultivated strong relationships and developed a reputation for being able to execute with complex transactions. As a result, we have been able to source high-quality off-market deals like our recent Hyatt portfolio acquisition.

Additionally, our investment strategy is largely concentrated on focused service hotels which inherently provides us with a larger universe of acquisition opportunities to select from, relative to several of our peers. As we look to grow in this highly competitive market, we will maintain our highly disciplined underwriting to ensure that all new acquisitions will create long-term shareholder value.

In summary, our portfolio continues to deliver strong results and demonstrates that we are an active participant in this recovery cycle. We have laid the groundwork for outsized growth. While economic risks remain, our outlook for the year has been bolstered by improving economic conditions. Our track record of delivering strong operating results is evidence of our thoughtful approach to create a sustainable platform of long-term growth for shareholders. We will continue to be smart capital allocators as we seek both organic and external growth.

We expect that our focus on asset management, accretive acquisitions, and well-timed asset repositionings will continue to drive further growth as the year progresses. We have seen positive trends across the vast majority of our markets.

As a result of improving trends, and the acquisition of our Hyatt portfolio, we are raising our guidance. We are increasing our pro forma RevPAR growth to 4.5% to 6.5% and updating our hotel EBITDA guidance to $365 million to $385 million.

I will now pass the call over to Leslie who will provide some additional information on our financial performance for the quarter.

Thanks, Tom. We are very pleased that our disciplined investment strategies and operational excellence continues to drive solid growth for our portfolio. This quarter, our strong performance generated an increase of $3 million in hotel EBITDA, representing a 4% increase over the prior year. And our EBITDA margin of 31.8% was once again one of the highest in the sector.

While our margin performance was strong this quarter, it was hampered by the increase in property taxes that we are experiencing across our portfolio. Nationally, property tax [auctions] are exceeding 2009 peak levels as property valuations continue to improve. We are aggressively working to appeal increased assessments where possible.

Our margins were also impacted by escalating health and welfare expenses and by energy expenses. This quarter, we saw over an 11% increase in energy as a result of extreme weather conditions. Our Chicago hotels, in particular, experienced the greatest impact with energy increasing more than 30%.

With regards to our corporate results, our adjusted EBITDA increased $6.1 million to $67.4 million, resulting in a 9.9% increase over the same period last year. Adjusted FFO increased $9.5 million to $53.5 million representing a 21.5% increase. For the quarter, adjusted FFO equates to $0.43 on a per share basis. Adjusted FFO for the quarter increased as a result of strong operating performance and benefited from interest expense savings captured from a proactive balance sheet management.

We continue to maintain a strong balance sheet that provides flexibility and a solid foundation for future growth. During the quarter, our capital markets activity was largely focused in the capitalization of the Hyatt transaction. We financed the Hyatt portfolio with $175 million of term loan debt. To accomplish this financing, we exercised the accordion feature on our 2012 and 2013 term loans.

At the same time, we leverage the favorable financing environment and enhanced our 2012 five-year term loan by amending key terms. We extended the maturity date, expanded the size of the accordion option and improved our pricing spread by 15 basis points across the entire grid. The remaining funds for the Hyatt acquisition came from recycled capital and existing cash on hand.

During the quarter, we also retired approximately $22 million of debt associated with five of the assets we sold. After closing various transactions this quarter we had a total of 112 unencumbered assets that made up more than 70% of our portfolio's 2013 EBITDA.

We ended the quarter with an unrestricted cash balance of $271 million and an undrawn credit facility of $300 million. And with an outstanding debt balance of $1.6 billion at the end of the quarter our net debt to adjusted EBITDA ratio was 3.9 times.

Financial flexibility remains a cornerstone of our growth strategy. Our line of credit remains undrawn and will provide ample liquidity for future acquisitions. Our goal for this year is to continue to strengthen our balance sheet as we progress towards our long-term objective of becoming investment grade.

Our consistent, positive operating performance continues to provide us with strong cash flow. As a result, we are able to provide meaningful return to our shareholders. In the first quarter, we increased our dividend and distributed $0.22 per share which is an increase of approximately 7.3% over the prior quarter's regular distribution.

We are pleased that we have been able to increase our dividend on average by almost 20% per year. In aggregate, we have distributed approximately $250 million to shareholders since our IPO three years ago. As we continue to successfully execute our growth strategy, delivering shareholder return through dividend growth remain a key element of our investment thesis.

Moving on to capital expenditures. Our initial plan was to renovate 20 properties for $90 million to $95 million. We have updated our capital plan for 2014 to incorporate our new acquisitions. We have added six Hyatt properties to this year's capital plan. In aggregate, we expect to renovate 26 properties for a total of $120 million this year.

A significant portion of our capital expenditures for this year are concentrated within three properties that are currently closed for repositioning. These properties are the Residence in Atlanta, the Humble Apartments in Houston, and the Vantaggio Suites in San Francisco.

Our 2014 capital plan is well underway with several projects started in the first quarter. During this time, we experienced slightly more disruptions than originally anticipated, largely because overall market performance was better than previously expected. The majority of the remaining innovations are expected to start in the second half of the year with any future disruption primarily concentrated in the fourth quarter. We expect disruptions for the full year to impact RevPAR by approximately 40 to 50 basis points. Our in-house team is working closely with our asset managers and the property to minimize potential disruption.

Now before I discuss our 2014 outlook, I'd like to remind everyone that our guidance has been updated to reflect both the acquisition of the Hyatt portfolio and the positive performance in our portfolio.

First, we have raised our pro forma RevPAR guidance to 4.5% to 6.5% and maintain our EBITDA margin of 34.5% to 35.5%. Properties closed for renovation are considered not comparable and therefore are excluded for periods in which they are closed.

Second, we raised our hotel EBITDA guidance $365 million to $385 million. Our guidance reflects the addition of recent acquisitions and removes the income from hotels sold.

And lastly, in light of the various debt activity we had in the fourth quarter of last year and the first quarter of this year, our first-quarter interest expense should be a good proxy for the remainder of the year.

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

(Operator Instructions) Bill Crow, Raymond James.

Good morning. Tom, I wanted to use my minute or two to ask you a philosophical or strategic question here. As you look out at the cycle, where we are, where the supply is coming and I understand it is not very much right now, but it is building a little bit. How do you see the divergence or convergence of select service performance hotel performance versus the broader industry or perhaps upper upscale hotels? And I say that because it is a little unique, this cycle, we have got more urban select service, so that is different and maybe supplies coming a little bit differently this time.

But how do you see the next two, three, four years playing out?

I would answer a couple of ways, Bill. First keep in mind, I think we are still relatively early in the cycle. We would say fourth or fifth inning of a nine inning game if you want to use that analogy. And I think you can make a case that this cycle goes into extra innings, particularly given how the recovery has been somewhat modest.

Select service hotels, again, have been our back -- our backbone. We are as passionate about our strategy today as we have ever been. And I am reminded to what happened in 2009 when I look at our own portfolio. We were down 19% in revenue per available plus or minus like many of our peers, but we were only down about 29% in net operating income.

So the phrase I would like to use is that with an all-weather strategy so in good times we expect to be a full participant and, again, we think the fundamentals of the business are very encouraging. We think the economy is going to strengthen in the back half of this year and candidly, we expect that to continue for the next few years. So we expect to continue to outperform, and when things slow down and they will slow down, we have all been through this business and been through the various cycles, we expect that we are not going to fall as far.

And I think also the diversity of our portfolio and I think this quarter is a great example of that. When you look -- if you look last year we were up 10.6% in the first quarter. Again for the industry I think was up about 6.4% and then to come back in first quarter this year despite renovations and still post a 6% number, I think, again, it really speaks to the diversity of our portfolio and the quality of our brands. The fact that we are so well-distributed across the country, I think, really helps us.

I appreciate that. That's helpful. One last question for me. Do you think the shift in the Easter and Passover holidays into the second quarter helped or hurt your results in each of the first and second quarters?

Yes, it clearly helped us in the first quarter. If you look at kind of the -- I think we have about 4.2% and in January we were up about 5.6%, I believe, in February in RevPAR we were up about 7.6% in March. So we clearly got a bump up. We performed above 4% in April, slightly above our plan.

So I would say that the impact was -- the Easter and Passover shift was probably 200 basis points plus or minus. But again, we are very bullish on second quarter and third quarter and the balance of the year. And we think, again, the economy is going to strengthen.

Perfect. Thank you.

Wes Golladay, RBC Capital Markets.

Good morning, everyone. Looking at the management fee expense line item. That looks like it is jumping quite a bit. Is this driven by the base fees or the incentive fees?

It is really incentive fees more than anything else, Wes. And part of it, I am going to let Leslie jump in here if I don't answer it correctly. We made an adjustment on incentive fees. We typically had booked those at the end of the year and we are now doing that on a quarterly basis. And so, I think the impact in first quarter was about 34 basis points. So I think that cued the operating results -- that skewed the operating results and gave people the impression that we had disappointed and underperformed in the category when, in fact, that really isn't the case.

Just to add to that, Wes, when you look at [say a management fee] on a quarterly basis, it's some of that will be given back and so at the end of the year we expect that 34 basis points to drop down to 3 basis point impact.

And you will also know, Wes, that we maintained our guidance on margins and we also start with a much higher base than most of our peers. We are very confident and, again, our guidance and as you know we increased the guidance. So we are still very bullish on the sector and where we are in 2014.

Okay and on the other hotels outperformed the overall portfolio by about 3%. Will this outperformance persist throughout the year, you think, for the other [non-topsis] market hotels?

I'm not sure it will persist to the same level. Keep in mind, Houston -- obviously we had four of our nine hotels in Houston that are under renovation. Two of those were the Humble office building property that we bought last year that were up -- so the Courtyard was up 16%, the Residence chain was up 14%. Obviously we're down here in first quarter, you strip those assets out, our four renovated properties and we were up north of 13%. So we definitely see that there is a broadening and we believe that is because the economy is strengthening. Look at how well we performed in Indianapolis as we said, up 27%. South Florida, we were up north of 13% in part because of the weather and people wanting to escape but Denver was on fire.

Austin continues to be strong. Our conversions, our five conversions, our most recent conversions, again, dispersed throughout the country were up 16%. So again, one theme that we would leave listeners with is the diversification of our portfolio is a huge advantage, relative to many of our peers. Most of whom may be isolated in three, four, five markets or six markets. We think makes a lot more sense to have a broader distribution, particularly given our asset. Our asset class.

Okay, one quick development question. Are banks more willing to lend for construction loans? You know when you get for select service product when you move outside of the top five markets, any increase in that activity that you are seeing?

I would say that clearly there is a fair number -- there's a fair amount of capital out there. I still think that sponsorship matters, brand matters. And we are seeing an uptick in supply, but again, significantly below the long-term average. And we think that remains for at least the next three to four years.

Okay, thanks a lot.

Jeff Donnelly, Wells Fargo.

Good morning. Actually let me start with you, Leslie. As it pertains to the $27 million increase in the pro forma EBITDA guidance, are you able to separate it out? I apologize if you said it in your remarks, I got on a little late. Separate it out between the incremental EBITDA from the contribution from the acquisitions asset sales and the improved view for your existing assets?

Jeff, this is -- are you asking about the split between the -- on the EBITDA or on the pickup on that RevPAR?

The EBITDA. The EBITDA, I think it was about a $27 million increase from your prior guidance.

Jeff, I would say probably 80% to 90% of that is the Hyatt transaction, consistent with what we said when we bought it. We expected an 8 1/2 cap in the first year. We have seen increased performance based on the rest of the portfolio, but largely coming on the Hyatt transaction. Keep in mind the onboarding of Hyatt and also keep in mind that we also sold some additional assets. So the updated guidance reflects also those dispositions.

Okay. And for you, Tom, I'm curious how you are thinking about the supply picture in New York City and its impact on your hotels this year. Do you think you could be more or less exposed than the market's experience and do you think that supply overhang that people are talking about could persist beyond 2014? Or maybe you think that the discussion is overblown and it is not going to be that bad.

Yes. I would answer a couple of ways. I think first we have a wonderful portfolio of assets in Manhattan. We have got four assets that have been renovated, that are well-located. I think we have got the premier operator in Highgate, that submarket.

Keep in mind we had very tough comps first quarter. We were up 43% last year. We also outperformed as it related to Sandy business. I think we had about $1.2 million in business, about 450 basis points in incremental RevPAR last year. So we had a huge advantage there. And if you look at first quarter, we also renovated our Courtyard up [resized]. So that skewed the results as well.

I would remind listeners, too, I don't think we had this in the materials, but I will share this. Our Doubletree Met first-quarter had 96% occupancy. Hilton Fashion District was almost 99%. Our Hilton Garden Inn Herald Square was 99.7% occupancy. So the supply in New York is an issue. Certainly don't want to deny that. Clearly when you add about 5.6% in the first quarter, I think we all believe it is going to be about 7% for the year. It is going to have an impact.

And I think where it is having an impact is twofold. You are having fewer compression days and that is important in New York because that allows you to really push rate. And the second, I think, is more psychological and that is that I think operators are losing some courage to push rate in the face of that new competition.

So long term, we are bullish on New York. I would say that it is probably not a high priority for us to add assets today until some of the supply gets absorbed, but long term we are bullish.

And when you look at the tailwind coming on international, I think if you look at the next four years nationally into the Gateway market, the top four or five, I think the forecast if you increased that from $70 million over $80 million of the CAGR of almost 4%, we think a disproportionate amount of that is going to go into New York.

So long term we are bullish. I do think it underperforms, particularly on the West Coast. But we are thrilled with the assets that we own today and we continue to look, but we are not likely to strike and to acquire something in New York unless it is priced accordingly.

Thanks. And maybe just one last question. There's been some discussion out of Hilton that they might ultimately explore fairly substantial I guess I will say conversion of some portion of the Waldorf. Maybe to Residential. I know you are close to Hilton and perhaps the next closest Hilton product to that property. Have they given you any update on the possibility that the Met could see some overflow demand if the Waldorf were to reposition some of its rooms down the road or is that just not on the drawing board yet?

It would be inappropriate for me to respond. The honest answer is I have no knowledge other than what I have heard anecdotally like you and many others. And knowing [Chris Musetta] and his very talented team there, they will evaluate and they will do what is in the best interest for shareholders. We love our -- we love being obviously a strong and certainly well-represented Hilton franchisee as well as we are with Marriott and our friends also at Hyatt.

So we will stand down and watch that. We do know note that the Doubletree Met is bull's-eye real estate. We are thrilled, we think long-term it is a great asset and there is a considerable upside there.

Thanks. Appreciate it.

Jordan Sadler, KeyBanc.

It is Austin Wurschmidt here with Jordan. Just wanted to know if you could bridge the gap between in your comments about expectations that the economic conditions would accelerate through the year? And considering you guys did 6% RevPAR growth in 1Q versus the midpoint of your guidance of 5.5% could you bridge the gap between the disparity there?

Yes. I would say a couple of things. I think you know that we pride ourselves on being conservative and, clearly, the first quarter was impacted by weather. I think GDP was certainly flat to slightly negative. I think we, like many of our peers, are cautiously optimistic. We do -- as we look out and see transit bookings for the next 90 days, it is encouraging. We think mid-to high single digits and we see group, while we don't have a lot of group, we also see group as beginning to firm and strengthen. So we are cautiously optimistic.

There are variables in the macro and geopolitical that I think concern us all. Housing is -- was improving, but certainly stalled a little bit. I think we hope that that begins to re-accelerate. Clearly what is happening in Europe and other parts of the world are alarming, but we think the fundamentals of the business are still strong.

We have been an out performer. We were up three years ago 7.7% then 7.4% in RevPAR, 7.2% last year. We see that is just stepping down slightly and we're very comfortable with the guidance that we have given. We expect it to be pretty consistent for the next two quarters, fourth quarter because we will have a fair number of our renovations during that period of time. And also we had a huge fourth quarter in Denver. And so we had tough comps coming out of Denver in the fourth quarter.

But we are pretty conservative by nature, and we will continue to [entreat] guidance as appropriate. I think you saw this quarter we are raising guidance. In part because of Hyatt, but not only because of Hyatt. We also see strengthening in our own portfolio.

Hey, Tom, on the weather impact, any guess in terms of what that impact might have been? On RevPAR?

I will isolate Chicago because I think Chicago is interesting. We were up 2.9%. I think the market was up 1% plus or minus. We benefited and we got hurt. Obviously our Courtyard [Mag Mile] downtown was down probably 25% in RevPAR, but our Midway Complex, as Leslie said in her prepared remarks, was up 23%. The incremental business that we got just at Midway alone was about $870,000. About 500 basis of RevPAR boost in that market.

So, no doubt that we were hurt in CBD and helped obviously having again a diversified portfolio. And I would think about South Florida. We obviously were hurt in the Northeast and in the Midwest like many of our peers, but again, South Florida picked up about 13%. I have got to believe that anecdotally that a good portion of that were men and women looking to escape the treacherous weather in the Northeast and Midwest to the warmer weather down South.

Makes sense. Then one other question on the investment side. You mentioned that dispositions are picking up and that you are marketing additional hotels. Is this due really to the demand that you are seeing in the market or more reflective of the fact that the acquisition pipeline is picking up and you are looking to recycle capital?

As we have said before, it is a high priority for us to continue to improve the quality of the portfolio. I am pleased to report since we have been in a public company and we have moved RevPAR on an absolute basis North of 30%, we have improved EBITDA by about 48% to 50%. I think what you saw in the latest transaction is part of the long-term strategy and we want to accelerate to continue to recycle capital out of slow-growth markets and to lighten our exposure in other markets and continue to recycle those proceeds into higher growth markets like we did in the Hyatt transaction. Of course where seven of those assets are located in California.

So you will see more of that. We are going to continue to market single assets, small portfolios, continue to improve the portfolio and we have got an active deal pipeline. And we are cautiously optimistic that hopefully some of the deals that we are chasing will come to fruition and that we will announce those at the appropriate time. But we are active in the marketplace. We have had a history under Ross Bierkan and our great deal team of finding deals off market and by limited bid and we will continue to work hard to identify assets that are compliant with our investment thesis.

Great. Thanks for taking the questions today.

(Operator Instructions). Anthony Powell, Barclays.

Good morning, everyone. Austin has been a great market the past few years, but there's some more supply coming down the line in that market. What is your outlook for the supply growth there for the next couple of years and how do you expect to combat that?

Anthony, I would say that Austin's demise has been greatly exaggerated over the last few years and I am reminded in the fourth quarter of 2012 with Formula One I think we were up 30% for the quarter, incremental $2 million and we thought that was the end of the run. And then we were up 11% in 2013. We were up again of course 8.6% here in the first quarter.

Austin is just a dynamic city that continues to grow. One, a state capital, a university town, a tech hub, both the leisure as well as the number of one-time events that occur. We expect that to continue. Clearly supply, double-digit increase in supply and probably beginning 2016, 2017 clearly will impact the market.

We, like others, will continue to monitor that. We are well-represented, White Lodging and our management team there have done a great job and the market continues to exceed expectations. So we clearly believe that in 2013 and 2014 and 2015 it will continue to be a strong market.

The other example that I would give is on the group side is a gaming conference that gets 500 attendees in 2011. This year in 2014, they are expecting 30,000 attendees. It has just had this sort of parabolic growth and when you have got a lot of momentum, a pro-business state, a lot of job growth, look at other sectors and what is happening on the residential side there too. So clearly supply is going to have an impact, don't want to deny that. But long term we think it is going to end up being a very special and unique city and market.

Then for a follow-up, the comments on the energy costs were pretty interesting. A lot of your peers have talked about their energy efficiency units of those recently. Are you looking at any portfolio-wide ways to reduce your energy costs?

It is a high priority for us like many of our peers and we have got a number of initiatives underway and Carl Mayfield and his team on the design and construction side have worked tirelessly to find ways to reduce our energy costs. Obviously it is a bit skewed in first quarter.

As Leslie said I think we were up north of 11% and obviously the highest in Chicago. Part of a lot of that is driven by just -- we had a brutal winter as we all know. So that clearly had a significant impact on it.

Ryan Meliker, MLV.

Good morning. Couple of things. First of all and I apologize if I missed this. Obviously renovations had an impact on the first quarter. You've talked a little bit about renovations in 4Q having an impact. We know you said that there would be some work going on into the Hyatt portfolio. Any material renovation disruption in 2Q in 3Q and any idea what you think you'll see in 4Q?

Yes. I think, as Leslie said, we expect 40 to 50 basis points on an annualized basis. We have a lot of experience. If you look back two years ago, three years ago, we renovated, I believe, 48 hotels and followed that up the next year with 45 hotels. Howard [Isaacs] and his team on the asset management side work closely with our design and construction team, which are separate teams, to really minimize the impact. We find that the two best windows to renovate in our portfolio are first quarter and fourth quarter. We plan with great detail. You are still going to get some disruption. You are going to have to choose sometimes with labor, materials and but it is a core competency.

We think 26 hotels this year is not terribly difficult and we will work hard to minimize that. We think 40 to 50 basis points on an annualized basis is reasonable, and we are comfortable with that at this time.

Also keep in mind that really the lion's share out of those proceeds about 35% to 40% are really tied up in our three big conversions of the apartment building and CBD in Houston. Obviously Atlanta and bringing that property back online. Again all three of these are closed and of course the Vantaggio Suites in San Francisco, three blocks from Union Square, which we think is just going to be a fabulous project that will -- all three of those should convert late 2014, early 2015. So we are pretty excited about all three of those.

And they account for about $42 million to $45 million of that $120 million. So we are confident that we can handle the renovations and minimize the disruption.

And then from seasonality standpoint, just based on the comments you said it sounds like you probably won't do much and won't have as much disruption in 2Q in 3Q and then, maybe 4Q will end up the incomparable to 1Q to get to that 40 bps to 50 bps level for the year.

I think that is reasonable. Clearly most -- we will have some renovations. Again, it is asset by asset trying to find the right windows to renovate, but most of the renovations for us typically occur in first quarter and fourth quarter.

That's great. Another question I was hoping you could answer, obviously there's a lot of large portfolios on the market today. What is your appetite to take down one of these large portfolios? Obviously these private equity chasing these deals, these tend to be more widely marketed then a lot of the off market deals that you go after. Any likelihood that we might see you guys buying one of these several hundred million or billion dollar portfolios?

I would answer this way, Ryan. It's no secret and I think the industry should consolidate and public to public and public to private if that is necessary. And we certainly want to be part of that discussion either as a buyer or as a seller as it relates to some of the large portfolios.

We are familiar with them. We have looked at some of those portfolios from time to time. My guess is that they are better suited for private equity players because I think they are driven by the cash on cash and the ability to really leverage them up into this 70%, 80% range. We really are at a disadvantage of that kind of leverage point. Our desire is to continue to delever and to get to investment grade, as we have said before.

I do think it is going to be interesting the fact that some of the pricing that we are hearing we think that price discovery only strengthens our own portfolio because there are many of these portfolios that are vastly inferior to our portfolio. And at some of the price points I think they are going to go should only continue to boost our underlying value. And again, I think illustrate how undervalued we are.

That makes all the sense in the world. That is all for me. Thanks a lot.

Lukas Hartwich, Green Street Advisors.

Good morning. Dollarwise I am curious -- how big the disposition for the year dollar size that is going to be.

Great question, Lukas. I know what we would like it to be. As you know these dispositions take time. Clearly, we have already got on the books $115 million as Leslie said and actually a little more than that when you include the 14th asset. I think we would like to be in that range either by the latter part of this year, additionally latter part of this year, early next year.

Some of these assets will be single assets, some will be small portfolios. That is sort of hard to predict, but we had hoped we would like to be in the $100 million range additionally above the $115 million that we have already disposed of so far this year.

Great. And one other nitpicky question. I notice the JV partner interest and the Doubletree Met declined to 2% from 5%. I am just curious what is going on there.

It has to do with the repayment of the financing associated with that and what our partners' contribution was related to that.

Okay, so going forward you guys own basically 98% of that asset now?

That is correct.

Great. That is it for me. Thank you.

Thank you. We have no further questions in queue at this time. I would like to return the floor back over to management for closing comments.

Thank you. We appreciate everybody listening to our call today and we look forward to seeing many of you at NAREIT here in the next several weeks. We'll talk soon.

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