RLJ Lodging Trust (RLJ) 2015 Q1 法說會逐字稿

Greetings, and welcome to the RLJ Lodging Trust First Quarter Earnings Conference Call. As a reminder, this conference is being recorded. 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 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 and 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 reconciliation 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 2015 first quarter earnings call. We were very pleased to report another quarter of solid operating performance through a highly disciplined investment strategy. We have built a geographically diverse platform with no one market expected to contribute more than 10% of our hotel EBITDA this year.

With a broadening recovery, we have positioned the portfolio for strong growth by increasing our exposure in a number of dynamic markets such as South Florida, Northern California, and Southern California. The benefits of owning a geographically diverse portfolio is clearly evident through the continuous RevPar growth that we have generated over the last four years.

Our portfolio's RevPar of 5.3% this quarter was primarily led by several of our markets located on the West Coast, in the Southeast and South Florida. In total, 10 of our markets generated double-digit RevPar growth. Some of our top markets that outperformed this quarter were San Antonio, Portland, Charleston, Atlanta, and Dallas, which generated impressive growth of 23.6%, 20.2%, 16.5%, 12.8% and 11.4%, respectively.

New York, as expected, continues to be the softest market in our portfolio with RevPar declining 6.6%. Our portfolio RevPar growth this quarter excluding New York was 7%. As we move through the year, we are confident that our diversified portfolio is well positioned for strong performance and is very well equipped to manage potential volatility from markets such as New York and Houston.

In the US, economic expansion is gaining traction. The economy appears to be re-accelerating after a soft patch in the first quarter, which stemmed, in part, from a harsh winter. Unemployment in the US is holding steady and retail and housing sales are gaining momentum. We expect that low oil prices will remain in place throughout the year increasing disposable income for consumers to use towards consumption of additional products, services, but, more importantly, to spend on increased travel.

From the lodging industry, business and leisure travel remain strong, and we continue to see a pick up in group business. On a trailing 12-month basis, demand has outpaced supply by 370 basis points. We expect that increases in the cost of labor and materials will help moderate supply growth and maintain a favorable demand and supply imbalance for the next few years.

Finally, we expect favorable consumer and business trends will partially offset any potential pullback from international travelers into gateway markets were being affected by the strong dollar.

As I mentioned earlier, our portfolio's market diversification has been a key element to our strong growth. Given the lodging industry's overall broad recovery, we are seeing increases across all demand segments providing a very favorable backdrop for our diverse markets.

This quarter a number of our markets with leisure appeal experienced exceptional growth. Some of these markets include our hotels in South Florida and Tampa, which saw an influx of travelers from the Midwest and Northeast who were escaping the harsh winter. These two markets produced RevPar growth of 14.5% and 11.1%, respectively.

Additionally, most of the assets added to our portfolio over the last 12 months have been on the West Coast increasing our diversification and yielding tremendous dividends. In Northern California, where five of our recently acquired Hyatt hotels are located, we saw a 12% RevPar increase from strong corporate activity primarily led by the technology sector. Overall, our assets in California are well positioned to generate strong growth in the upcoming months from the tailwind built from three recently completed renovations in Southern California, and three in Northern California.

This quarter our 59 assets outside of the top six markets represented 60% of our hotel EBITDA and generated an impressive 10.1% RevPar growth offsetting tough year-over-year comparables and other headwinds across our top six markets such as the impact from oil and gas in markets like Houston.

Our assets in Houston started the quarter strong generating RevPar growth in January of 10.9%. During the quarter we noticed that several of our larger oil and gas accounts became more price-sensitive without cutting demand. Through mid-March we were still forecasting to end the quarter in the 7% range. However, we saw a meaningful drop-off in demand the last half of March relative to what we expected to generate from the NCAA Tournament and a large piece of group business. Despite this shortfall, we ended the quarter with RevPar growth of 5.4%, nearly 400 basis points higher than the market.

While we expect Houston will remain volatile for the remainder of the year as oil and gas companies reevaluate their capitals spending and staffing levels, our managers are working tirelessly to capture additional local demand from sectors such as health care and biotech.

In Chicago, our midway campus faced tough comps from last year's significant pickup of displaced passenger business. Despite this, our hotels in Chicago had a first quarter RevPar increase of 5.1%. This was driven by strong performance at our downtown property, which benefited from a significant convention group, which set an all-time record for attendance in Chicago. Looking ahead, we believe our Chicago portfolio should continue to benefit from a strong citywide outlook.

Moving to D.C., our hotels grew RevPar by 4.3%. We were very pleased by the exceptionally strong performance at our CBD hotels. These assets generated RevPar growth of 9.4%, helping offset tough year-over-year comparables at our non-CBD hotels. Based on recent leisure trends, a resilient corporate base, and an improving group pace outlook, we believe that Washington, D.C. may outperform industry expectations.

Our hotels in Austin grew RevPar modestly. New supply coupled with less compression from South by Southwest resulted in a difficult quarter for some of our hotels. We expect a busy convention calendar and strong corporate demand from expanding technology and pharmaceutical companies will continue to enhance Austin's economic base and absorb incoming supply. We expect our hotels to show stronger RevPar trends next quarter.

In Denver and New York, our RevPar growth was heavily impacted by tough year-over-year comparables. While we expect our RevPar growth in New York will remain muted for the rest of the year as a result of supply growth and possible softness in international travel, we expect to see strong growth for Denver throughout the rest of the year.

And, finally, we are excited about the addition of growth that our portfolio will generate through our upcoming openings of the Springhill Suites in downtown Houston and our new Courtyard in downtown San Francisco, both of which are located in bull's eye locations. These assets, which were scheduled to open in the third quarter are expected to be delivered at a significant discount to replacement cost.

As we mentioned on our last call, during the quarter we sold a portfolio of 20 assets for $230.3 million. These legacy assets were all part of a 100-asset portfolio that we acquired in 2006. Several of these assets required significant capital and were in markets where we wanted to reduce our exposure. In total, we now have sold 39 hotels for $370 million through our capital recycling program improving our portfolio metrics and our growth profile.

As we previously mentioned, we were very encouraged by the interest we received in our assets and therefore we continue to evaluate our portfolio for future asset sales. We have already identified several assets and currently have 14 to 18 assets at various stages of the marketing process. We will provide further updates if and when any of these asset sales materialize.

On the acquisition front, our pipeline remains very active. The acquisition landscape is currently very competitive with some assets trading at significant premiums. As we look to grow, we will focus our energy on leveraging our deep relationships and maintaining our highly disciplined underwriting to ensure that all acquisitions create long-term shareholder value. We currently have a number of high-caliber, off-market opportunities that we are pursuing.

In total, we have approximately $150 million of assets primarily on the West Coast, that are under contract or letter of intent. Providing our shareholders with strong returns is a critical part of our strategy and is evident by our track record over the last four years. To date, we have paid out $3.31 per share in dividends, approximately $400 million since our IPO. Through prudent capital allocation we have grown our platform and provided north of 95% in total shareholder returns since our IPO.

Given the recent pullback in our stock price, we believe that our shares are significantly undervalued. As a result, we are pleased to report that our Board recently approved a share buyback program up to $200 million over the next 12 months. We plan to use this program opportunistically to return capital and create value for our shareholders.

Looking ahead, the lodging industry continues to trend positively following several years of strong performance. I am pleased by the start of our year and expect that further increases across all demand segments and an expanding economic recovery will bode well for our diversified portfolio. As a result, we are maintaining our annual guidance for all of our metrics.

I'll now turn the call over to Leslie to provide some additional information on our financial performance for the quarter.

Thanks, Tom. Our results this quarter demonstrate the benefits of having a well-diversified portfolio as well as a proven investment strategy.

This quarter our pro forma consolidated hotel EBITDA increased $8.2 million to $85 million, and we were very pleased with our ability to increase our EBITDA by 10.7% over the prior year in light of margin pressures.

For the quarter, our pro forma hotel EBITDA margin increased to 32.6%. We were able to successfully increase our margins by 36 basis points year-over-year despite a double-digit increase in our property taxes. Additionally, New York also had a significant impact on our margins. Excluding New York, our margins would have expanded by an additional 53 basis points for a total increase of 89 basis points.

Our ability to successfully acquire quality assets in high-growth markets and aggressively manage our portfolio is translating into strong corporate results. Our adjusted EBITDA this quarter increased $13.7 million to $81.1 million, which is a 20% increase over the same period last year despite the fact that we have sold 38 assets since February of 2014. For adjusted FFO this growth translated to a 25.7% increase to $67.3 million, or $0.51 on a per-share basis.

Now relative to our balance sheet. This year we had approximately $165 million of debt and maturities to address. Of that, we have paid off approximately $130 million in unencumbered 13 hotels during the quarter. Once our remaining maturities are paid off this year, we will have a total of 113 unencumbered assets and more than 80% of our hotel EBITDA will be unencumbered.

The term loan that we executed in December of 2014 was originally earmarked to address our 2015 debt maturities. However, we utilized cash on our balance sheet in lieu of our term loan to retire our maturities this quarter. Given our cash position, which was recently bolstered by the sale of 24 assets, we were able to take advantage of the arbitrage between our cash position and a delayed draw feature our new term loan to capture significant interest expense savings for the quarter.

We expect to draw on the 2014 term loan in the second half of the year as our deal pipeline accelerates. Additionally, in anticipation of drawing the funds, we have executed four interest rate slots. In light of our proactive balance sheet management, we have one of the strongest balance sheets in the lodging industry with a net debt to EBITDA ratio of 3 times. Our outstanding debt balance of $1.4 billion is well staggered with our next maturity date not occurring until 2017.

Our portfolio's ability to generate significant free cash flow continues to fuel our liquidity. This quarter we had an unrestricted cash balance of $340 million, which gives us ample liquidity to fund future acquisitions and other capital deployments including repurchasing shares, as Tom mentioned earlier.

We have demonstrated our ability to generate and maintain a strong cash position through smart internal and external growth. As a result, we have consistently increased our dividend in a meaningful way. In the first quarter, we increased our dividend 10% over the fourth quarter's distribution. On an annualized basis, this would be an increase of 27% over last year. We expect future dividend growth to continue to be aligned with our portfolio's growth.

Additional capital outlays this quarter includes funding several renovations, which are well underway. We have made significant progress at our two pending conversions in Houston and San Francisco. The unexpected port closures on the West Coast delayed both of these projects. However, both projects are making great strides towards completion, and we are looking forward to opening these two new premium branded hotels in the third quarter.

The port closures also delayed some of our other West Coast renovations resulting in more disruption than anticipated. As a result, we expect our disruption for the full year to increase by 10 to 20 basis points and, therefore, we are adjusting our range to 50 to 70 basis points for the full year.

Despite this increase, we are encouraged by the broadening and the recovery and expect the growth we are seeing across our diversified portfolio will absorb the additional disruption.

As always, we remain committed to being prudent capital allocators as we focus on maximizing returns for our shareholders. We are encouraged by our start to the year and will therefore maintain guidance accordingly. For the year, our guidance remains at 5% to 6.75% for pro forma RevPar growth; 36% to 37% for pro forma hotel EBITDA margin; and $405 million to $425 million for pro forma consolidated hotel EBITDA.

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

Thank you. (Operator Instructions) Anthony Powell, Barclay's.

Your comments on New York were interesting. There's been a bit of a debate amongst the CEOs about the New York trends in the back half of the year. Are you of the belief that New York will remain kind of in this decline? (inaudible) will it decline or will it get better and accelerate on a market-wide basis over the remainder of the year?

Anthony, that's a good question, and I think the honest answer is I'm not sure anybody really has a crystal ball to know. I certainly think it's going to be better than, obviously, the first quarter or, certainly, the trends here in the second quarter. I would say probably flat for the year probably makes the most sense where we sit today. Some may disagree with that, but we're cautiously optimistic and certainly hopeful that the international travel is going to be better than I think, some believe today.

As you step back and look at New York, I think, obviously, you've got increased supply. But, as we study the market is really the fact that you've got these fewer compression days. If you look back to, say, 2011, 2012, we were looking at 130 to 140 days a year well north of 95% occupancy and these days where you could really push rate. Those days have shrunk pretty significantly down to, probably, 87 was our calculation in late 2014. So you're down probably 38% -- you're down 38% of that, plus or minus.

We still believe, long term, New York is one of the great cities of the world. Values are still holding up if not increasing, so we certainly believe in the market, long term. Please keep in mind it only represents about 10% of our EBITDA on an annualized basis. So, again, as part of a well-diversified portfolio, we think we're well positioned in the short run and in the long run.

Great. I guess on that topic, on asset sales, you're making progress on your noncore asset sales. Would you consider selling anymore core assets [that stays] in the cycle?

The answer is yes. I mean, as I've said, we're all about creating shareholder value, and I think we've demonstrated that. And if someone made a compelling offer for an individual asset or more -- or components -- we certainly would entertain it. We don't think there's any reason to panic in New York and, again, just given all the rising land prices and rising construction cost and given the long-term growth and potential there, we think having a portion of our portfolio in New York makes sense. It's a little painful right now and certainly first quarter, but the reality is that, long term, New York is a great market.

Wes Golladay, RBC.

Sticking with New York, I think you mentioned on the last call you were looking to implement cost controls at some of the hotels. Have you made any progress on that front?

We have made some progress, Wes, but that's an ongoing process as you work with our operators and the unions that are in place. That will continue and evolve through the year but, rest assured, that is a commitment and a strategy and a focus of our asset management team.

Okay, thanks, Tom. And then looking at the buyback, how do you plan to implement this? Would it be if the stock drops meaningful you'll be more aggressive or how should we look at this?

It will certainly be opportunistic, Wes. I know some have commented about whether or not we did implement one in 2011 and, obviously, didn't really use the tool at the time. I think this is a very different environment. Again, return of capital has been a cornerstone of our performance. If you look again, as I said, during the prepared remarks, we know we paid out dividends of $3.31, over $400 million. We believe buybacks are also an important tool to have in your toolkit.

As we look today, our shares are significantly undervalued. We'd argue just comparing to consensus NAV, we're down 15% plus or minus, and that's not even including our own internal analysis. So you could expect that we'll be opportunistic, and clearly at where it's trading today and the recent levels, we are a buyer of our stock, we're not a seller of our stock. So you'll see us as the windows are open, we will look and manage and clearly, at today's level and today's pricing, you would expect us to be a buyer of our stock.

Okay, and then on the financing front, you mentioned four swaps were locked in for the term loan. When was that locked in?

They're forward swaps, Wes, and those wouldn't start until the beginning of the third quarter.

Okay, but when did you lock them in? Was it before the big rise in interest rates or, I mean, how should we look at that?

Wes, they were locked in before the big rise in interest rates.

Dan Weissman, Credit Suisse.

How are you? It's Ian Weissman, how are you doing?

Ian, how are you?

Okay, excuse the voice here. A quick question on just breaking out the RevPar performance across your portfolio. It looks like you're getting, obviously, most of your growth is coming on the right side. I think we've all been surprised at how much occupancy has played a part this deep in the recovery, and most markets are way beyond peak occupancy. I mean, should we make the assumption that your core markets have hit their frictional, I'll call it, vacancy rate and from this point forward all that's going to come on the right side?

I wouldn't say that, Ian. Keep in mind, just given the nature of our portfolio, most of our renovations get done in fourth quarter and first quarter. So it's sort of a high-wire act by the very talented design and construction team that we have. So when you look at the number of renovations, the spillover of those that were, say, started in fourth quarter of last year versus those in first quarter, you clearly have a good portion of that slight occupancy decline really related to those renovations.

We also had, in certain situations, a number of tough comps. Take Midway as an example. We had significant one-time business there first quarter of last year, so that certainly impacted. You had the floods in Denver, again, significant business there that certainly affected part of the occupancy decline. So I would not read it all there. So we're getting to kind of a natural peak here. We still expect that you're going to continue to see occupancy growth and, more importantly, you're going to see rate growth.

You and I have had this discussion many times. I think you should start to see unemployment get to low 5s here, and hopefully, we can begin to start to see ADR growth consistently over 5%. So we're cautiously optimistic. If anything, you've seen really a broadening in our portfolio, and I think, as I noted in the prepared remarks, having 10 markets up double digit in RevPar and the great distribution that we have in the country, I think, has really benefited our portfolio.

Thank you. Maybe you could just give a little bit more color on Austin, since it's one of your largest markets and we saw some weakness there on the occupancy side, but significant rate uplift. What is your long-term view of that market?

It's a great question, and we love Austin long term, and we think it's a great story line -- a state capital, a university town, a tech hub. If you look historically, I think we're up 11% of RevPar in 2013. I think we're up 9.4% in 2014 -- excuse me, 11% in 2013 and then 9.4% in 2014.

Clearly, there's going to be new supply. The JW Marriott just opened a 1,000-room property. There's the Westin, I think, that's going to be opening shortly and perhaps a few other projects. But the JW, like we've seen in Indianapolis and in other markets, it will only improve, I think, the destination as a convention hub in the future. So we're strong believers. The first quarter was a little soft, certainly vis-a-vis what we've seen in prior years. But, again, South by Southwest was down about $434,000 in business, about 205 basis points, and we also had a few renovations there. So the displacement there accounted for about $475,000 of business and about 223 basis points.

So if you add those two back, I think you're back to sort of a more normalized run rate. I don't expect that it's going to be high single digits in the short run, but I certainly think it's low to mid single digits here, and it's kind of a run rate. But love the market long term. Please keep in mind, as you know, coming from this recovery, really, 40% of the jobs really were anchored in Texas largely coming in Austin and Houston. Obviously, Houston has had a recent pullback given the decline in oil prices, but we are a strong believer in Austin, long term.

Okay and, finally, just last question. Last quarter you said that you thought that RLJ would be a net acquirer this year. You were obviously very successful on the dispositions. You talked about $150 million of acquisitions in the pipeline today. How much has your thought, given what the stock has done, about being a net acquirer changed?

It's a great question, Ian. I would say that we're still a net buyer. As we said in the prepared remarks, we've got $150 million under contract, a letter of intent at this point. We really work hard to find deals, limited bid, off market, try to avoid the auctions. No doubt there's a lot of capital, clearly, as you're chasing assets on the West Coast, it's very, very competitive.

So certainly more competition. We're not going to sacrifice our discipline and the focus that we've had in the track record. So you'll still see us active in the market. We'll be thoughtful about it. We're not going to reach if it doesn't make economic sense. We'll seek to balance that with buybacks, and I don't think they're mutually exclusive. We'll continue to watch the stock and, again, as I said, if it's trading at its current level where we think it's grossly and significantly undervalued, we'll be a buyer of it. But we'll still look for deals that are accretive and make sense.

Also keep in mind that given our balance sheet and the amount of free cash flow that we're generating and I think I know some of the listeners have heard me talk more and more about this -- I don't think we get the credit. If you look over the last four years, we've averaged about 22% of AFFO, pretty significant dollars. The last two years about $73 million and the year before that, I think $62 million, $63 million. So that's free cash flow, that's fully loaded, that's after dividends, out-of-pocket CapEx, FF&E contribution, et cetera.

So we have lots of tools in the toolkit. We've got a great balance sheet. We've got tons of liquidity, and we are laser-focused on creating shareholder value, and we'll look to maximize and find that right balance between acquisitions as well as buybacks.

Okay, and finally, since you always gave great color on consolidation with the REITs, the hotel REITs now 15% to 20% discount to NAV, are you seeing more private equity sniffing around in the public markets?

We have not seen it yet. I would imagine, you would think intuitively that they would, right, based on the discounts today. But I'm not hearing or seeing any activity at this point, and my position on it has always been the same. I guess there's another two or three lodging REITs that are being talked about and they obviously have the right. We're focused on quarter-to-quarter operational excellence looking to be a prudent capital allocator and then, again, managing our balance sheet appropriately.

We'd love to be a participant, either as a buyer or a seller, but, again, we're focused on the day-to-day. And if that happens, over time, it happens.

Jordan Sadler, Keybanc.

Hey, guys, it's Austin Wurschmidt here with Jordan. Just curious on your thoughts in terms of the runway and supply. It seems like people continue to kind of push that out a little bit. I mean, how long do you think we've got until we hit that 2% long-term average?

I would say, Austin, we're mid-cycle, fifth or sixth inning. And as I've said before, I think we've got a strong case here for the cycle to run into extra innings. As you look today, I'd say the supply picture is probably 1.2% to 1.3% here as we look in 2015. It's probably in the 1.7%, I think, in 2016, and I think you can make a case, perhaps, we begin to eclipse the 2% threshold in 2017.

Again, I don't think that that signals the end of the cycle. You might see the rate of growth begin to moderate or slow, but I think this cycle is going to run longer, in part, because of the nature of this recovery and how things have unfolded.

It is still difficult to get projects complete, to get projects financed while in some areas it's relaxing a little. As we're seeing just getting renovations done and, again, the port delays and the rising land prices. I mean, these things are going to affect it, and I think are reasons why the cycle gets extended.

We feel good about our positioning today. I think there's still plenty of pricing power here and still plenty of occupancy growth across our portfolio and across the industry..

Thanks for the detail there, and then back to the rate growth that you guys saw this quarter -- it's really been the highest rate growth you've seen since early in 2013, I believe. Was that a function of you guys being strategically more aggressive on rate? Any shift there in terms of strategy or opportunity?

Absolutely. Our asset management team, many talented men and women that we have there, we've been really working with our management companies and our partners to push rate into better yield and to yield out as much of the discounted business as we can. And we know if we can get better rate, we'll get better flowthrough. And so it's a real focus, and that sometimes is impacted or delayed, obviously, depending on renovations and the like, and there's a little bit of renovation activity, as we've said, particularly as you think about a California where we had six of the 12 assets out there in some form of renovation in the first quarter. But, again, we believe that's going to provide a tailwind and be able to push, again, more rate and better flowthrough. So it really is a focus of our asset management team, and we're going to continue to push that as we move forward.

And then how much of the disruption that you guys saw -- how much of the 50 to 70 basis points, I guess, was recognized in the first quarter?

If you think about it, probably incremental, it would probably be about 27 basis points, thinking about that right now.

(Operator Instructions) Lukas Hartwich, Green Street Advisors.

Tom, most of my questions have been answered. I just really have one question, and it's kind of centered on expense growth. You talked a little bit about it in your comments that real estate taxes were higher, but can you provide a little more color on what line items you're seeing growth at? Is it kind of broad-based or is it -- or just a couple of items? Are you starting to see pressure with labor costs? Any color there would be helpful.

Certainly, Lukas. I think the biggest, as Leslie pointed out in her remarks, property taxes were up about $1.8 million, about 73 basis points, and that was probably up about 13% over the prior year. Incentive management fees were up slightly, about $322,000, so up about 13 basis points now. That's up 36% over the prior year, but keep in mind, as you get later in the cycle, obviously, the operators are more likely to be able to participate in the IMF, in the Incentive Management Calculation.

There's been a franchise fee increase that some of the brands have recently implemented. So that had a modest impact of about 10 basis points and health and welfare, if anything, came down about $272,000, or about 11 basis points. So I'd say the biggest component is really property taxes and not dissimilar, I'm sure, that what many of our peers are seeing. We're seeing municipalities really push to have their deficits and have their issues funded on the backs of the commercial property owners.

Bill Crow, Raymond James.

Tom, as you look at the acquisition environment as well as supply pressures that you're seeing in some of the larger markets, are you tempted, at all, to go into more, what's called, secondary markets outside the top 20? Where yields might be a little bit juicier, and there may not be as much supply this go-around compared to, say, the prior cycle?

And interesting question, Bill. I'd answer this way -- there are some of our peers that, sort of, earmark five markets or eight or 10 markets and I think you know we've always said, kind of, top 25 to top 30. Again, more of a coastal bias. You're clearly getting a higher RevPar and higher growth on the West Coast and parts of the Southeast and, certainly, in South Florida.

So -- I think you'll continue to see us really focus our energy there. We're not opposed to occasionally, as part of the Hyatt deal, as an example. We got an asset in Madison, Wisconsin. Again, a university town, a state capital, significant RevPar. It's doing incredibly well for us. We bought a Courtyard in Charleston, South Carolina. Again, one of the great hotel markets -- high RevPar. I think it was up 16%, pretty significantly in first quarter.

So you'll see us look opportunistically. We do want to continue to improve the overall portfolio metrics, and so we're very sensitive to that. There is a high correlation, as you know, between RevPar and multiple not lost on us, and we also think, in those markets, generally, you've got more barriers to entry for supply.

So we'll look opportunistically if there is something really priced right with a particularly attractive cap rate and it can create value for shareholders. We'd look, but I think you'll see us again focused more and more towards those dense, those urban, or those dense suburban markets with a story, you know, multiple sources demand.

So is it somewhat of a tradeoff between -- I mean, you're, obviously, focused on growing absolute RevPar level. But, at the same time, that may be short-changing you a little bit on growth prospects in some of the other markets? Is that possible, where you could buy a lower RevPar but get more growth out of it? Talk about that tradeoff, maybe.

Yes, it's a very fair point. My experience has been, and one that we've been public now for -- ending our fourth year, beginning our fifth year here, and I'm not sure you always get the credit for investing in some of those secondary tertiary markets, and you do have, over the long run, you do have supply risk there, and I would argue perhaps more over the long term than I think you do in some of the more urban or dense suburban markets.

So you'll see us work the edges, and there are situations, I think the two that I just outlined, I think are great examples of that where we can still get the kind of metrics we're looking but also get an attractive yield and generate an attractive IRR for shareholders.

But, rest assured, we're still a net buyer, we're still active in the market, but we're not willing to sacrifice our discipline, and I think we've demonstrated it over the last four years both in total shareholder returns and the construct and the changes that we've made to the portfolio. We're very pleased with where we are today in our growth path.

Shaun Kelley, Banc of America Merrill Lynch.

Tom, earlier, you gave some really good color on Austin, and I was curious, could you give us a little bit of similar detail on Houston? So, specifically, it is a market that pops up with some new supply. So how do you see that being a part of the weakness relative to your comments in your prepared remarks on oil and gas, which I found really interesting and helpful.

I appreciate the question, Shaun. Houston is interesting. As we said in the prepared remarks, we ended up 5.4% for the quarter. We thought we'd be, kind of, 7% to 8%. If you remember the last call, we saw strong growth in January, up nearly 11%. It softened a little bit in February, but nothing to really be concerned about. We saw more soft patches. Early March, really, the same thing. The second half of March was like a light switch, and it was pretty dramatic. We didn't see the pickup in the NCAA Tournament, and then we saw a lot of the traditional demand, sort of, dry up. So you saw the pretty dramatic drop-off there at the end of the quarter, again, at 5.4%, again, nearly 400 basis points more than the market. So, all things considered, I think we had a strong quarter.

When you compare it and, kind of, oil and gas, historically, about 14% to 15% for the RLJ business, and we've got nine hotels in Houston. It's only about 6% of our rooms and about 7% of our EBITDA. So, again, we've got a very diverse portfolio, and I think, again, the reason we had a strong first quarter and a real benefit of our platform.

We did see Q1 2015 versus 2014, we were down about $317,000 in room revenue to about 1,854 room nights. And so the decline was about 15.2%, and it ended up being about 12% of revenue in 2015 versus about 15% in 2014. So, year-over-year, down about 300 basis points, to kind of bracket it for you.

We remain bullish on Houston, long term. Keep in mind during the post great recession period, Houston added two jobs for every one job lost during the recession. The state of Texas, again, I believe, had about 40% of the jobs early on in the recovery. So, long term, believe in it. I do think the citywides will be down in 2015, and I do think, as we sit here today, based on the trends we're seeing, Houston is probably, likely, flat to negative RevPar in the second quarter, and that's baked into our continued guidance.

So I think a little bit of continued softening, but we're optimistic that you'll see a lot of the group business and the business trends improve in the second half of the year.

Thank you for the color. And just for, kind of, the same question about Houston, but when do you see, or how do you kind of, like, see the supply curve in that market? Is 2016 going to be higher than 2015? And did it peak in 2016, assuming, kind of, the current market environment remains where it is. Is that your outlook? Or how are you guys underwriting supply growth?

You clearly have -- you've got more supply, I think, probably peaking in 2016. You've got the new JW Marriott. Obviously, you've got the convention center hotel that's coming, and our experience with some of the big convention center hotels that happen -- take Indianapolis, when the JW Marriott, it took about a year or so for it to get absorbed. But, again, the market came back because it benefited form being a more competitive location. Think about the Marriott Marquis in D.C. Everybody thought that was going to be the end of D.C. In fact, exactly the opposite has happened.

We were up 4.3%, and our D.C. hotels were up high single digits, I think, 9.4%. I think for Houston, again, it will improve the destination and their positioning. Obviously, oil and gas is a good, solid component there, so that situation has to neutralize, but, long term, again, we think Houston is going to be one of the great cities of the country, and it's going to come back.

Our project that we have there in downtown, the Humboldt Office Building, which is a three pack, an existing Courtyard and a Residence Inn. The Springhill Suites is an apartment building that we're converting and, again, that will open, probably, third quarter. But we're in it at a significant discount to replacement costs, well north -- well south of $200,000 a key. And so, long term, we like the destination, we like that project, we like our positioning there, and we're not overweighted. Again, it's 6% of our EBITDA and about 7% of our rooms.

Anthony Powell, Barclay's.

Hi, just one more on Airbnb. I was wondering if you've seen any impact of Airbnb on any of your market, thinking, in particularly, of Austin and Denver, two markets that attract younger millennial travelers, especially in leisure, kind of, time periods. Are you seeing more and more competition from Airbnb? Thanks.

Anthony, a good question. I think still Airbnb is probably a greater threat right now in New York based on the trends we're seeing there than I think in Denver. Clearly, given the tech-oriented traveler in Austin and the youth there in millennials, it's an issue, but I don't think a major issue today in Austin. But New York is one that I think is an industry we've got to watch, and my sense is that Airbnb is here to stay. I think they've got to play on a level playing field and be subjected to the same regulatory ADA requirements -- fire, life, safety, tax requirements, and I think those issues are terribly important and we, as an industry, have got to make sure that the playing field is really level.

Mr. Baltimore, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thanks. Appreciate everybody taking time today, look forward to our next call in late July, early August, and the RLJ team is committed, focused, and creating shareholder value for all of our stakeholders. Have a great day.

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