RLJ Lodging Trust (RLJ) 2014 Q4 法說會逐字稿

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

Thank you, Operator. Welcome to RLJ's fourth quarter and year-end earnings call. On today's call, Tom Baltimore, the Company's President and Chief Executive Officer, will discuss key operational highlights for the quarter and the year. 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 may 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. And welcome to our 2014 fourth quarter and full year earnings call. I am pleased to start by saying that this year represents our fourth consecutive year of RevPar growth of more than 7%. Our EBITDA margin grew 114 basis points year-over-year to 35.6%. And as a result our consolidated hotel EBITDA grew by almost 11%. We have optimized our portfolio through accretive acquisitions and dispositions, value-added renovations and laser-focused asset management.

Our portfolio's evolution along with our proactive balance sheet management is clearly evident in our performance since our IPO. Our 2014 RevPAR of $118 is approximately 44% higher than our reported portfolio RevPAR for 2010, and our EBITDA margin is more than 300 basis points higher. We ended 2014 with a consolidated hotel EBITDA of $405 million, representing a growth rate of 77% more than four years ago.

Including our most recent financing, we have completed $1.9 billion of financial restructuring, lowered our weighted average interest rate by more than 200 basis points to 3.1%, and addressed all of our near term maturities, resulting in one of the best balance sheets in the industry, and providing us with maximum flexibility to execute our growth strategy. Our continuous growth and increased profitability has allowed us to generate significant excess cash and meaningfully increase our dividends. In total we have increased our dividend on average by more than 20% annually and have also distributed approximately $360 million in dividends since our IPO.

We have acquired 27 assets since going public, for $1.1 billion and sold 39 non-strategic hotels for more than $370 million, enhancing the quality and growth profile of our portfolio. Since our IPO, we have generated total shareholder returns of more than 110% as of year-end, and have become one of the top performers among our peers. Going into 2015, we are encouraged by our positive momentum as well as the progress in the economy. 2014 was one of the strongest years of job gains since 1999, with the unemployment rate at its lowest level since 2008.

Lower gas prices should lead to increased disposable income and help accelerate GDP growth. We expect additional growth in corporate profits will encourage companies to reinvest in growth. For the lodging industry, 2014 was an excellent year. Increases in business and leisure travel drove a fifth consecutive year of positive RevPAR growth. Transient demand has been accelerating for several months, enabling overall demand to outpace supply growth by approximately 360 basis points.

Globally, air traffic growth is expected to expand during the next two decades, which bodes well for long-term lodging demand. Despite an uptick of supply in select markets we expect that increases in costs of labor and materials should keep supply below the historic average over the next few years. I am confident that the positive imbalance of demand and supply will continue in the near future.

In 2014, our portfolio generated a RevPAR growth of 7.2%, with several of our top markets generating high single digit RevPAR growth. First I'll start with Austin, which was the best performing market among our top six. Our hotels in Austin grew RevPAR by 6.7% during the quarter and ended the year with a 9.4% growth. Austin has consistently performed well over the last several years. Our hotels have seen strong corporate demand from expanding technology and pharmaceutical sectors.

In addition to a busy convention calendar, we also saw an increasing number of visitors attending well-known events such as South by Southwest, Austin City Limits and Formula One. In 2015 we expect the market will maintain this positive momentum as well as benefit from it being a legislative year. Our next top performing market is Denver, which generated RevPAR growth of 9.2% for the full year despite tougher comps from flood-related business in the fourth quarter.

The region's healthy economic climate has provided the lodging industry with a positive backdrop. Travel into Denver has increased significantly. We have seen demand increase across all demand generators. Leisure, business, and government. The increase in travel is clearly evident through Denver's air traffic which hit an all-time record high in 2014. We expect this momentum will continue into 2015 and drive additional positive growth. However, we do not expect the same level of growth as we saw in 2014.

Our Houston portfolio generated an 8.1% RevPAR growth during the quarter, and 7.8% growth for the year. In addition to strong corporate demand, Houston also saw strong leisure demand from a busy convention calendar and well attended city wides. While we expect that corporate demand generated from oil and gas may temporarily temper growth in the market, the city has additional corporate drivers from sectors such as health care and biotech that we expect will drive demand at our hotels.

Moving to DC, our hotels in the market had a fourth quarter RevPAR increase of 7% and 7.1% increase for the year, surpassing the market by almost 200 basis points. Our hotels' performances picked up meaningfully from last year due to an increase in government business, and strong corporate demand from insurance and health care accounts. We also experienced a boost in demand from several well attended conventions. Looking ahead we expect the market will continue to see strong transient growth.

In Chicago, our hotels recovered from a soft first half of the year and grew fourth quarter RevPAR by 7.7%, ending the year with a 4.9% increase. During the second half of the year, we saw a pickup in corporate demand from the insurance and financial services sectors, and displaced airport passengers. Our hotels also benefited from several major conventions in the fourth quarter.

We expect that a strong convention calendar in 2015 will propel additional growth for the city and our hotels. Moving on to New York, our RevPAR growth for the year ended slightly down to last year as the market continued to absorb new supply and also tough comps from Superstorm Sandy. However, we are encouraged by the strong demand in the city as occupancy in New York remains the highest among Smith Travels' top 25 and our hotels for the year ran a 96% occupancy.

While new supply is constraining rate growth and creating margin pressure we are closely working with our management company in evaluating several cost-cutting initiatives. Although we expect new supply will continue to mute growth, we remain confident in the market's long-term fundamentals. Our portfolio's broad market diversification has been key to our strong growth over the last four years, as we have added new assets to the portfolio, we have diversified our portfolio outside of our top six markets and also increased our exposure to other high-growth markets.

Several of these markets recorded impressive gains this year. Our non-top six markets had a RevPAR increase of 9.6%. Clearly a strong indicator of broadening demand growth. Some of those notable markets include our ten hotels in south Florida, which benefited from strong leisure demand and produced RevPAR growth of 15.3%. In Indianapolis, an increase in corporate activity drove 11.5% RevPAR growth, and in California, where most of our recently acquired higher portfolio is located, our 12 hotels had a 10.6% RevPAR increase as a result of strong corporate activity, led primarily by the technology sector.

Additionally our Courtyard Portland and hotels in San Antonio, Tampa, New Orleans, Charleston South Carolina, and Louisville also experienced double digit growth. Our five conversions also generated impressive results this year, with RevPAR growth of 13%. We are very excited about our two upcoming conversions. The SpringHill Suites in downtown Houston and our new Courtyard in downtown San Francisco, both of which are expected to open in mid-2015.

And both of which will further enhance the portfolio's quality and growth profile. In 2014, we also continued to enhance our portfolio to accretive acquisitions and dispositions. In total we acquired 15 assets for more than $630 million of assets in high-growth markets. We diversified our portfolio further and considerably increased our presence on the west coast through the acquisition of the Hyatt portfolio and an additional two hotel portfolio. We also expanded in a number of high growth markets such as Key West and Miami. In total our 2014 acquisitions generated a RevPAR of $137, almost a 16% premium to the portfolio average.

I'm also very pleased to announce that we sold 24 hotels within the last few months for $240 million through a combination of single asset sales and portfolio sales. These legacy assets were all part of a 100-asset portfolio acquired in 2006. Several of these assets were capital intensive and were in markets where we wanted to reduce our exposure. On average, the RevPAR of these assets were more than a 40% discount to our portfolio's average and represented approximately 7% of our EBITDA.

To date we have sold 39 hotels through our capital recycling program. We maintained a flexible approach as we completed both large portfolio transactions and single asset sales. In addition to the $370 million of gross proceeds, we were able to save significant pending capital expenditures. We have reduced our exposure to several lower-growth markets and can now redeploy those proceeds into higher yielding opportunities.

We were encouraged by the interest we received in these assets and will continue to evaluate our portfolio further for additional non-core asset sales. We will provide further updates if and when any future asset sales materialize. Looking ahead, rising economic growth will continue to provide a positive backdrop for what I believe are several years left in this lodging cycle.

Therefore we expect 2015 proforma RevPAR growth of 5% to 6.75%, proforma hotel EBITDA margin between 36% to 37%, and consolidated hotel EBITDA between $405 million to $425 million. I'll now turn the call over to Leslie to provide some additional information on our financial performance for the quarter and the year.

Thanks, Tom. Once again, our results this quarter illustrate that our disciplined investment strategy and focus on operational excellence continues to drive solid growth for our portfolio. This quarter, due to our strong performance our hotel EBITDA increased $9.9 million to $97 million, representing an 11.3% increase over the prior year. For the full year we generated $405 million of hotel EBITDA, which is a 10.8% increase year-over-year. For the quarter, our EBITDA margin expanded 152 basis points to 34.9%. For the full year, our EBITDA margin increased 114 basis points to 35.6%.

Our solid operating performance once again translated into strong corporate results. For the quarter, our adjusted EBITDA increased $13.3 million to $90.3 million, representing a 17.3% increase over the same period last year. For the full year, we generated $366.9 million of adjusted EBITDA, which represents a 17.9% increase over the prior year. In addition to our strong operational performance, our FFO benefited from a full year of interest expense savings yielding from our comprehensive debt recasting in 2013.

For the quarter, adjusted FFO increased $13.4 million to $76.1 million, representing a 21.4% increase and equates to $0.57 or a per share basis. Adjusted FFO was $310.7 million for the full year and represents an increase of 26% over the prior year. As of year-end we had one of the strongest balance sheets in the lodging industry.

We were very active in the capital markets in 2014. At the beginning of the year we conducted a follow-on equity offering, which generated $232.7 million of net proceeds. This was only our second follow-on offering since going public in 2011. Additionally, we capitalized on the demand in terminal market and upsized two of our terminals, raising $175 million. In the fourth quarter we completed two additional financings that not only addressed our near term maturities but also further staggered our debt.

As a reminder, our most recent $150 million term loan financing has a delayed funding feature that allows us to draw funds as a pre-payment window before our 2015 maturities becomes available. We expect this term loan to be fully drawn by the end of the second quarter 2015. Once completed we will have 113 unencumbered assets which will represent approximately 75% of our hotel EBITDA.

As of year-end we had an outstanding debt balance of $1.6 billion and a net debt to EBITDA ratio of 3.5 times. Including all of our extension options, and the full deployment of our new term loan, our next tranche of debt will not mature until 2017. We ended the year with an unrestricted cash balance of $252 million. Our cash on hand along with our undrawn line of credit provide us with ample liquidity to fund future acquisitions. As always, we remain committed to maintaining a conservative capital structure that provides us with flexibility and a sound foundation for future growth.

Our strong operational and financial growth has allowed us to meaningfully increase our dividend. In 2014 our annual distribution of $1.04 represents more than a 20% increase to last year's annual distribution. Overall, we have increased our dividend by 20% per annum on average over the last three years. While subject to board approval, we expect future dividend growth to be aligned with our portfolio's growth.

Now for an update on capital expenditures. In 2014 we substantially completed $120 million of renovations across 26 hotels. During the fourth quarter we reopened two of our assets which we had closed for extensive renovations. We completed the Residence Inn in Midtown Atlanta and the Fairfield Inn & Suites in Key West. Our two remaining conversions in Houston and San Francisco are currently underway and are scheduled to be completed this year. We are confident that, upon completion, they will further strengthen our portfolio's overall quality and growth profile.

During the year our in-house project management team worked closely with our asset management team to minimize disruption. In total we saw approximately 40 basis points of RevPAR disruption during the year. In 2015 we plan to renovate 25 hotels for approximately $80 million to $90 million with almost half of that capital allocated towards recent acquisitions. We expect the disruption will impact our RevPAR growth by approximately 40 to 50 basis points.

This disruption has already been accounted for in our updated guidance. Since our IPO, our commitment to enhancing and growing our portfolio has been clearly evident through our capital renovation program and our accretive acquisitions. That commitment along with our distribution of dividends has required a significant amount of discipline and cash requirements. I would like to highlight that our ability to support this cash outlay, with minimal follow-on equity offerings is a testament to the significant free cash flow generated from our portfolio. And, with the completion of our recently announced dispositions we have further increased our cash position by an incremental $210 million. Now, I would like to expand on the guidance that Tom mentioned earlier.

First, our 2015 guidance reflects all of our announced dispositions and does not account for any future acquisitions or dispositions. Second, our RevPAR growth of 5% to 6.75% and EBITDA margin of 36% to 37%, has been adjusted for non-comparable hotels. In 2015 our Courtyard Waikiki will be removed from our comparable properties for the full year since its renovation will require a significant section of the property to be completely closed for the entire renovation period.

Third, we estimate that our hotel EBITDA will be between $405 million to $425 million for the full year of 2015. Furthermore, I would like to note that the amount of hotel EBITDA lost from the recently announced dispositions will be approximately $28 million. Finally, we expect our corporate G&A to be between $26 million to $27 million for the year. Thank you. And this concludes our remarks. We will now open our line for Q&A. Operator?

Thank you, we will be holding a question and answer session. (Operator Instructions). Our first question is from David Loeb from Robert W. Baird. Please proceed with your question.

Good morning, Tom. I wonder if you could just give a little color on the acquisition market and on what your expectations are about your pace of acquisitions following this large disposition. I might have to follow up on that, if you don't mind, at the end.

David, I think as you know, in 2014 we had our most active year as a public company, led by Ross Bierkan and our great deal team, we acquired 15 assets for $230 million, more than half of those assets on the West Coast. Couldn't be happier with what we're seeing, clearly with the Hyatt acquisition, I think up about 11.2% in RevPAR last year, the acquisitions in Portland I think up north of 12%. So very, very pleased. You can expect again that we will be a net buyer.

As we've stated on previous calls, it was our intent to recycle capital out of lower growth markets into higher growth markets. I think last year is a great indication of that, and you'll see more of that as we move into 2015. We do not have any deals to report today, other than to tell you with great confidence that we are active. We have a history of finding deals off-market or limited bid and again we'll announce if and when we've got an asset tied up and/or closed. Most likely closed, which has been our history. But rest assured that our pace will be active this year.

Any help with us in terms of modeling kind of when to expect that? Do you think it will be even throughout the year? Or lumpy and unpredictable?

I would love to tell you that it would be next week, but I think that would be disingenuous. I think it's unpredictable given the nature of this business. But if you use last year as an indication, I think we were pretty consistent through the year. And rest assured this team is working hard. We are laser-focused on creating long-term shareholder value and recycling capital.

Yes. I certainly believe that. And finally, in our discussions in the past, you've talked about the benefits of being diversified, not being too much in any one market. Are there additional markets that you're targeting beyond the ones that you have significant presence in now, as you look at those acquisitions?

I appreciate the question. I think one of the things we would like to stress, and I did in the prepared remarks, is I believe our portfolio is as diversified as anyone in the industry. If you look, for example, New York is probably 11%, 12% of expected EBITDA. Austin is probably 10% for us. Chicago, 8%. Denver, 8%. Houston, 7%. But even if you look at California, about 11%, south Florida, about 8%. So that clearly gives us a huge footprint. We're proud of that diversification and we'll continue to build on that. Clearly we've got a coastal bias, focused more and more out west, given the profile out there.

And I think last year was a great indication of that. And under-represented in Seattle, no secret there, and under-represented in Boston. We'll wait till the snow clears out. But it clearly is on the list of markets where we clearly want to expand our presence. South Florida, I think we had great success there last year. We'll continue to look. We're not ruling out parts of the middle of the country. It just has to be priced right and it has got to make economic sense for us. But really a strong bias towards the West Coast.

Great. Very helpful. Thank you very much.

Thank you. Our next question today is coming from Ian Weissman from Credit Suisse. Please proceed with your question.

Unfortunately the market doesn't seem to appreciate your capital recycling program, just maybe it's the earnings dilution, and just on David's point, probably anticipating redeploying that capital. But maybe you can give us a sense of where this puts you in terms of your long-term goals of disposing of more assets? I know you want to continue to clean up the portfolio, but maybe give us a sense of volume of future dispositions, would be helpful. Thank you.

You know, Ian, I've learned through this journey not to get too high or too low on kind of the market's reaction. We really as a team focus our energy every day, every week, every month on really making sure that we're making our numbers under the category of operational excellence and really making sure that we're really prudent capital allocators in the assets that we're buying. And then keeping a really low levered balance sheet. Regarding your question of recycling capital, we stated early on that there were a number of assets in lower growth markets. I think the recent transaction is a great indication of that.

We sold effectively 24 assets with a RevPAR of about $72 and you know about 40% lower than our portfolio average. We think that's a really prudent use of capital. And from the standpoint that those assets would have required at least $65 million in CapEx, it just didn't make sense to deploy capital in those lower growth markets. So we think over time that we hope that the market will appreciate that.

There are probably another 14 to 18 assets that we're evaluating. Again, like we've done in recent transactions, we'll announce if and when anything closes. We're not actively marketing any at this time. There are a couple of assets that are at various stages of the sales process. They were part of last year's batch. But again you'll see us continue to look for ways to improve the quality of the portfolio.

Look, I think it's the right move, and I think you'll get credit for it over time. I appreciate that color. One last question for me, and then I'll yield the floor. You've talked quite openly about consolidation, and I understand the challenges of doing that in this environment where people believe the recovery is a bit elongated here. But given your balance sheet, your capital, call it "dry powder", and your need or desire, I should say, to continue to do deals, if you could give us some thoughts on if there's not sort of company consolidation, are there large-scale portfolio deals out there that could be a real be possibility sometime in 2015?

We're not at all retreating from our aspiration of leading the aggregation of the segment, particularly on the select service side. We believe passionately, you have heard me talk about it, and I do it often on the calls, that I don't think we need 2015, 2016 hotel rates, and I hear there are another two, three, four that are in the process of considering their options. This industry should consolidate. We want to be part of that discussion. We would prefer to do it as a buyer.

But we're not opposed to being a seller, if someone were to make a very compelling offer. Again, we're focused on creating shareholder value. And it's not for a lack of not trying. We have reached out to many of our peers and have had discussions. Unfortunately those haven't moved forward. Candidly, and you know this as well as I do, and the listeners, the real impediment is really the social issues at this time. We're hoping that over time that's going to change.

Regarding large portfolios, there are some that are out there. I think as groups look at perhaps going public, and depending on the reaction they get from the market, perhaps they'll consider another alternative of selling. If it makes economic sense, again, we would certainly like to be part of that discussion.

Okay. Thank you very much.

Thank you. Our next question today is coming from Bill Crow from Raymond James. Please proceed with your question.

Good morning, Tom and Leslie. Leslie, do you have the same store RevPAR growth number for this year, for 2014?

Our RevPAR, you mean so the revised?

Well, not consolidated, just same store. If you owned the assets for the entire period of 2013 and 2014. So a smaller group of assets.

Yes, the 7.2% reflects that.

Exactly.

That is same store?

That is same store.

I just want to make sure. Tom, can you talk about pressure on acquisition yields? We've certainly seen the popularity of select service assets spike over the last couple of years. How much pressure are you still seeing? Any relief out there?

It's clearly, Bill, it's a very competitive market. And I think in West Coast, San Francisco, clearly the Bay area, I think cap rates have certainly compressed. There's a lot of foreign capital, a lot of private equity. A lot of high net worth. Clearly many of the REITs are flush with cash. So it's competitive. But again, if you look at our history, and look at the deals last year, most of those were either off-market or limited bid. Ross and the team have been working many, many years building those relationships, and you know clearly wanting to be the, not the first call, an early call, as owners are looking for opportunities to monetize.

The other advantage that we have is because we don't have a captive management company, and we've got a long history of building relationships with management companies, we tend to be on the short list when we're looking for a friendly or a group that they can potentially grow with and ultimately manage other assets for. So we are very confident, given the amount of cash we have and our desire, again, to continue to recycle capital, that you will see us in an orderly manner put out the cash in desirable markets, in assets that will be accretive for the portfolio.

Okay. And then finally from me, Tom, it seems like you have really been focused on trying to drive the absolute RevPAR number of your portfolio higher. The bigger markets, you know, different sort of assets, maybe newer assets, etc. Is there an argument to be made that you should not exclude the opportunity of buying assets at lower RevPAR, absolute RevPAR if they have more growth potential over time? Or is that just something you're not focused on right now?

Bill, it's a great question and one that we as a team have often. I think the reality is that, you know, the market is prepared to pay a higher multiple for the higher RevPAR. It's not lost on us. You're also going to get higher growth in many of those markets. And I'm thinking of the West Coast in particular. Over the years we have done extraordinarily well with certain university towns, or look at the Courtyard that we bought a few years ago in downtown Charleston, which has consistently been a double digit increase in RevPAR. And again high RevPARs as well. So we're not willing to say we're looking at only 8 markets. I think if you look, we've said historically the top 30 markets. But there's no doubt that there's a strong interest in getting in high-growth markets with higher RevPARs.

Right. All right. Thank you. Appreciate it.

Thank you. Our next question today is coming from Anthony Powell from Barclays. Please proceed your with your question.

Good morning, everyone. On Houston, could you give us some detail on what percentage of your room nights comes from oil and gas and how those bookings are trending throughout 2015?

Anthony, it's a great question. And thank you. I was surprised I hadn't gotten that earlier. Look, we remain very bullish on Houston. We think long-term it's a great market. And if you look historically around the recession, Houston added two jobs for every one job lost during the great recession. The oil and gas accounts account for about 14% to 15% of our rooms revenue in the Houston market. So that's RLJ's exposure.

So I know there are some concerns and some articles that have been written, stating that we have got significant exposure there. Again, it's only 14% to 15% for the nine hotels that we have in the Houston market. I also want to note that the RLJ hotels were up 10.9% in RevPAR in January 2015. I'll repeat that. We were up 10.9% RevPAR in January. Four out of nine hotels were up double digit increases. So we are seeing pockets of softening in Houston, and we expect in first quarter that's going to probably account to about 200 basis points of softening that we relate to the oil and gas industry.

But we still expect that we'll generate RevPAR in first quarter in Houston probably in the 7% to 8% range. We also think that our overall portfolio-wide exposure to oil and gas is about 2%. So, the demise of Houston and the concerns out there, I think quite bluntly, are overstated. I would also like to note that some have made comments about Denver. Our exposure in Denver in oil and gas is about 1.5% to 2% for the 13 hotels that we have in Denver. I would also note in Pittsburgh some have made the comment that we had a lot of exposure to oil and gas. We think it is minimal, near zero.

We have got two hotels obviously in downtown Pittsburgh. Clearly, the oil and gas segment is something that we're watching carefully. Obviously the greatest exposure there in Houston. But again, first quarter we think the exposure is about 200 basis points. We still expect Houston will generate 7% to 8% of RevPAR growth for us in the first quarter.

Thank you for that color. Just on the asset sales, how do you juggle selling assets, where you've been selling hotels in lower growth markets versus your trading multiple. I think, after you added back the CapEx you sold the recent batch of hotels at 11 times 14% EBITDA, I mean 14% or higher. How do you approach your valuation when you look at asset sales in the future? Thank you.

It's a fair question, Anthony. I think the reality of our long-term stated goal, and we're a long-term player, is we really believe passionately that it is more prudent to be recycling that capital out of those slower growth markets. Some of the hotels that we sold, for example, were again part of a portfolio that we bought in 2006. Some of those hotels were 35 to 40 years old.

Many of them, again, had RevPARS in $35 to $40, $42. These were again the least desirable hotels in our portfolio. And we were also selling many of them encumbered with management agreements. So we think at the end of the day that this was the right transaction. It will help us create long-term value for shareholders and we'll be able to redeploy that capital into higher growth markets that will make up for any loss that we may have in the near term.

Thank you. Our next question is coming from Lukas Hartwich from Green Street Advisors. Please proceed with your question.

I'm curious. What percentage of demand for your portfolio is international travel? And I was also curious, Tom, on your thoughts on the impact of a stronger US dollar on limited service assets.

Lucas, I would say that as you look at New York, historically international has accounted for probably about 19%. That was down, as we look on 2014, probably down about 111 basis points. And we saw Brazil probably down about 28%. Brazil's been a really strong contributor. You know, I think the impact of the stronger dollar, clearly you would think it would impact more of those gateway cities, particularly New York.

Just given the demand and the interest of coming to the great city of New York, we will have to watch it but the early indications are that it isn't affecting international demand at this time. And I think if we're going to have impact it probably will be in the spring and summer months when you're seeing that travel. And we'll watch that. But again, New York is, we're not seeing the rate growth that any of us want but you're still seeing really high occupancy. I think the market is 84%, 85%. We generated again last year 96%. If you isolate just our Manhattan hotels, I think we were north of 97%. Admittedly not happy with the rate, not getting the rate growth. Part of that again is that until the supply is absorbed, and candidly, until we start seeing operators with more courage to push rate, New York is probably going to underperform and probably be in the low single digits of performance and RevPAR here in the near term.

That's really helpful. My last question is more of just housekeeping. Can you provide the EBITDA margins for the 24 assets that were just sold?

Yes. The EBITDA margin for those assets is about 400 basis points below our average, about 31%.

Is that 2014 or is that looking forward?

That's 2014.

That's it for me. Thank you.

Thank you. Our next question today is coming from Dan Donlan from Ladenburg. Please proceed with your question.

Good morning. Tom, I'm looking out my window at the Doubletree Metropolitan, and I was just going through my notes looking at that hotel, what it did during the peak. And I have, like, around $35 or so million. Just kind of curious what's happened to that hotel. It looks like at the end of 2014 it was doing close to $18.8 million. So is it more of a top line issue there? Is it bottom line? What's the delta there?

The reality in New York, Dan, and I just gave a little bit of commentary on it, that hotel is still running really high occupancy, 96%, 97%. It's done it consistently. The issue is rate. And in this environment with the amount of new supply, we're unable to generate the kind of rate growth not only in the Doubletree but I think it applies to the overall New York market as well. So we are looking for different ways to cut costs and manage the EBITDA there.

The reality in New York is that you're seeing your expenses rise, particularly in a union-operated hotel, 3% to 4%. And your revenues are relatively flat to modestly positive. We love New York. We love that asset long-term. We also think that there are some unique competitive situations and data points there in the midtown east market. You know, 20% of those hotels have been renovated. So they have moved from sort of the bottom of the pack to the top of the pack.

So they have got pretty easy comps and certainly contributing to that. And as more supply has been added in the Times Square, in and around there, that area has become less and less attractive from a leisure standpoint. But again, from a value standpoint, and given the quality of that real estate, we have no hesitation about that asset. And depending on what our friends at Hilton and the new owner of the Waldorf and what their plans are, we think again that's only going to strengthen the long-term value of this asset.

Okay. Thank you. And then looking at the overall G&A as a percentage of gross assets before depreciation, it's come down from call it 110 basis points in 2013, down to 85 basis points in 2014. Should we continue to see that tick down relative to your gross assets? Where do you think that can get to over the next couple of years, as you scale your G&A?

It's a great question. One, we have a wonderful team, and I think you've heard me speak of this many times. The thing that I'm most proud of is the duration and the tenure. My senior team have been with me for now 12 to 16 years, and zero turnover. We've got the next generation of leaders coming up. Many of them also have long tenure with us. So we're working hard to keep them and challenge them and grow them. And at the same time keep our admin to a reasonable level. We have been essentially keeping it flat from where we were last year to this year. And I think somewhere in the range of the 85 BPS to the 100 BPS is probably a reasonable run rate.

Okay. Appreciate it. And then, Leslie, just to clarify, the guidance that you gave on the hotel EBITDA or adjusted EBITDA, that doesn't include any impact from the hotels that were sold in the first quarter; is that correct?

On the consolidated EBITDA, it would include any EBITDA we generated in January and February prior to it being sold. On a consolidated perspective.

Okay.

Obviously it would be taken out for margin purposes.

Okay, perfect. And then just kind of curious. What would your RevPAR growth guidance have been if you hadn't sold the 24 hotels? The lower end of the market has been fairly strong recently. Just kind of curious there.

I think it probably would have been comparable to where we landed.

Okay. And on a same-store basis, I know you provided the 7.2% was a proforma number. But do you have the number had you not acquired any hotels in 2014? Do you have what your RevPAR growth would have been for 2014?

It would have been 6.8%.

Okay. Thank you.

Thank you. Our next question today is coming from Ryan Meliker with MLV & Company. Please proceed with your question.

Just a quick one. Most of mine have been answered. I wanted to talk a little bit about the development. I think the Courtyard San Francisco and the SpringHill Houston are both expected to come online this year. Can you first tell me how things are trending in terms of timing for those? I apologize if I missed it earlier in the call. I jumped on late. Secondly, if any cash flows and EBITDA from those assets are built into your consolidated hotel EBITDA guidance?

I'll start with the Courtyard San Francisco. We are really excited about this asset. It's a former student housing facility we bought for $29.5 million. We're going to put $24 million, $24.5 million plus or minus, adding additional keys. So we'll end up with 166 keys at three blocks from Union Square, at probably $320,000 to $325,000 a key. So huge, a huge discount to replacement cost. So we're excited about it. It should open in early June.

Clearly the port activity and the dispute out there has impacted many of the development projects, not only on the West Coast but certainly throughout the country. So in part that's been contributing. It's also a complicated historic building renovation. But Carl Mayfield and our design and construction team through our third parties are working hard. And again we expect to open in early June 2015.

And we do have, for the balance of the year, both EBITDA contribution. I think historically we had told the market about a 7.9% cap in 2016. We're still comfortable with that, given what's happening in San Francisco. The apartment conversion, again part of the Humble office building. We've got the two assets, and the third asset in Houston was a conversion from an apartment building to a SpringHill Suites. Again, that 167 keys will be all in for about 195,000 a key, also a pretty significant discount to replacement cost and we're looking at a 8% to 9% cap in 2016. That should open probably mid-May 2015.

That's helpful. Is any EBITDA from those assets included in your guidance, or do you not include those because there's so much uncertainty surrounding opening timelines and ramp-up, et cetera?

It is included, right. Based on those timelines, they are included in our guidance.

Wonderful. Thanks.

Our next question is coming from Jordan Sadler from Keybanc Capital Markets. Please proceed with your question.

It's Austin, here, with Jordan. I wanted to touch a little bit on the balance sheet. You guys have clearly made a lot of progress since coming public. You've got the pieces in place here to prepay some of the CMBS debt that matures later this year. Just curious for an update on your thoughts on becoming investment grade rated and sort of where you are in that process?

Austin, clearly long-term goal is still to be investment grade. We're not at all retreating from that. I would say that it's really a timing issue. We believe that if consolidation is going to happen, it's probably going to happen in the next 12 to 18 months, perhaps 24 months. So we just want to maintain the flexibility in the event that a large candidate or a large target were to emerge, so we would have the flexibility to do a larger transaction.

But long-term, again, one of our fundamental tenets is a low-levered balance sheet. We ended the year as Leslie said of net debt to EBITDA about three and a half times. Again we think to get to investment grade, we probably need to be in the low 3's. That's our long-term goal.

Great. Thanks for the color there. Then just turning back to some of the assets, you said that longer term could be potential candidates for sale. Could you just give some of the characteristics of those assets? I mean, for the portfolio that you just sold, you guys outlined those were about 40%, the RevPAR was about 40% below the overall portfolio. What are some of the characteristics of those 14 to 18 assets?

I would think the characteristics would be slightly higher in terms of RevPAR. Probably in the low $80s, so $80 to $85, plus or minus. So we look back to 2014, which again would be 30% plus or minus from our portfolio average. So, again, these are assets that again could be sold in single assets, perhaps in a portfolio. Some of them could be sold encumbered or unencumbered by management. Again with a desire to continue to improve the quality of the portfolio, consistent with what we've done over the last several years.

Would it be safe to assume that those hotels would be less than 5% of hotel EBITDA?

That's a fair statement. I think they would be no more than 5.5% of EBITDA.

Okay. Thank you. And then just one last one. If you were to break out RevPAR growth for your top six markets versus sort of the other bucket, how would you expect that to sort of break out?

I think the top 6 would be slightly below the portfolio average. But understand, Austin, and we didn't do it this quarter obviously, there's been a little bit of noise and chatter about our exposure to some of the oil and gas markets. Hopefully we've addressed that today and talked about that. But I think it's important to note for you, and I think also for the listeners, just the overall diversification of our portfolio.

Again, if you look at California, you know, California is now accounting for about 11% of our EBITDA. If you look at south Florida, that's accounting for 8%. You know, New York City will be probably 11% this year. That will be the highest market. So given the diversification of our portfolio, we think that is a huge advantage and really one of the strengths of our portfolio and our platform and one of the reasons that we have been able to demonstrate strong performance quarter after quarter and year after year.

So you'll see us look at the top six and perhaps adjust that as we go to the second quarter to reflect now what we believe really to be our top six where we have got the top six exposure in our portfolio.

Thanks. And appreciate all the color today.

Thank you. We have reached the end of our question-and-answer and session. I would like to turn the floor back over to management for any further or closing comments.

Thanks. We appreciate everyone's time today. And we look forward to giving you an update on our second quarter call in early May, and I look forward to seeing many of you on the road here in the very near future. Hopefully we'll talk soon.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.