RLJ Lodging Trust (RLJ) 2015 Q2 法說會逐字稿

Greetings and welcome the RLJ Lodging Trust Second-Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Nikki Sacks with ICR. Thank you. Ms. Sacks, you may now begin.

Thank you, operator. Welcome to RLJ's Second-Quarter Earning 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 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, Nikki. Good morning everyone and welcome to our 2015 second-quarter earnings call.

I'm very pleased with our performance for the second quarter, as we not only delivered solid operating results, but we also successfully executed multiple capital allocation strategies.

This quarter we aggressively recycled capital through our share buyback program and subsequent to the quarter end, acquired two newly constructed hotels in excellent markets.

Our solid performance exemplifies our three guiding principles which are operational excellence, prudent capital allocation and proactive balance sheet management. This disciplined approach has yielded total returns for our shareholders of nearly 100% over the four years since our IPO.

Our portfolio generated solid RevPAR growth of 5% this quarter. These results demonstrate the benefits of our portfolio strategy with excellent performance in the majority of our markets, which offset softness in the New York and Houston markets. Excluding these two markets, our portfolio generated RevPAR growth of 8.6%.

While we expect operating results from our Houston and New York properties to remain constrained through year-end, we are confident that our diverse portfolio is well-positioned to benefit both from the positive trends across the US economy and in the lodging sector.

Overall, we are encouraged by the modestly expanding US economy which rebounded in the second quarter following a soft patch in the first quarter stemming from severe winter weather and a stronger dollar.

We are optimistic about the macro outlook given recent trends of several key metrics, including the labor and housing markets, as well as consumer confidence and spending.

This positive economic climate continues to translate into a favorable supply and demand imbalance. Year-to-date, lodging demand has outpaced supply by 233 basis points. This enduring supply and demand gap has translated into record occupancy levels for the lodging industry that should help further drive rate expansion.

While we recognize that there's been a modest uptick in supply in some markets, we still expect demand will outpace supply over the next few years. In general, we remain optimistic about lodging fundamentals.

Our second-quarter results illustrated the strength and resiliency of our portfolio and validated our ongoing expansion strategy. We saw outstanding growth from our West Coast and South Florida markets. Some of our core markets, such as Chicago and Austin, also continue to produce strong returns.

As I mentioned earlier, excluding our New York and Houston assets, our portfolio generated an 8.6% RevPAR growth which compares favorably to the Smith Travel Research national average of 7.2% when excluding those same two markets.

Using a different benchmark, our Marriott branded focused service hotels, also outperformed Marriott's growth of 6.1% for the same segment.

Our West Coast expansion over the past 12 months continues to yield tremendous returns. In Northern California, where five of our recently acquired Hyatt Hotels are located, RevPAR grew 16.8%. And in Portland, we also saw double digit RevPAR growth [of] 12.5%. The West Coast markets continue to benefit from strong corporate activity, primarily led by the technology sector.

Looking ahead, several catalysts are expected to continue to generate robust growth for our West Coast properties in the second half of the year. These include recently completed renovation projects at several of our hotels both in Northern and Southern California, the addition of our newly acquired Homewood Suites property in the Seattle market, and the upcoming opening of our Courtyard in downtown San Francisco just three blocks from Union Square.

Our diversified asset base delivered solid performance across our portfolio with 10 of our markets generating double digit RevPAR growth in the quarter.

The top performing markets this quarter were New Orleans, Northern California, Atlanta, Tampa, Portland and Chicago, which generated impressive growth rates of 19.4%, 16.8%, 15.8%, 15.2%, 12.5% and 12.4% respectively. Other markets with impressive growth include Charleston, South Florida and Dallas with RevPAR growth of 12.9%, 10.2% and 10% respectively.

Moving into our top six markets, our Chicago portfolio benefited from a great citywide calendar that created compression out to our Midway campus and beyond. The strong demand enabled our Chicago properties to realize a 12.4% increase in RevPAR. Over the five day Microsoft citywide convention in Chicago, our Downtown and Midway hotel's RevPAR increased approximately 94%. And for the quarter, our Downtown property grew RevPAR approximately 21%.

Looking ahead, we believe our Chicago portfolio should continue to benefit from steady citywide and corporate transient demand trends in the second half of the year.

Our hotels in Austin grew RevPAR an impressive 10.6% in the quarter, as the market benefited from the recently opened convention center hotel.

Special events, such as X Games and MotoGP, boosted business at our Austin South properties, while our properties in North Austin realized strong demand from technology and pharmaceutical companies.

We expect a busy convention calendar and strong corporate demand will continue to enhance Austin's economic base and absorb incoming supply.

Following a quarter of challenging comps, Denver's RevPAR grew 7.3% in the second quarter. Our hotels saw improving corporate demand, strong leisure activity during the weekends and a positive citywide calendar. We anticipate our Denver hotels will continue to produce solid RevPAR growth through the remainder of the year.

In DC, our hotels grew RevPAR by 6.5%. We were very pleased by the exceptionally strong performance at our CBD hotels. These assets generated RevPAR growth of 10.6%, supported by a strong citywide calendar and positive leisure demand. Our non-CBD hotels offset challenging comps by capturing alternative extended stay and special event business.

We remain very bullish on the DC market given the robust citywide outlook in 2016, with pace up 20%, and positive corporate and leisure transient demand trends. Additionally, we believe our newly acquired Hyatt Place DC's bullseye location on K Street is well-positioned to benefit from these positive trends.

While softness in the oil and gas remains the headline issue for the Houston market, the impact from the decline in oil and gas related demand appears to be waning at our properties. During the quarter, other factors, including flooding associated with several severe storms, challenging citywide comps and our yield management strategy to preserve rate integrity contributed to the 11.2% decline in RevPAR.

While we anticipate continued demand volatility for the remainder of the year, our management teams are aggressively pursuing cost containment strategies to maintain margins. Overall, we remain positive on our long-term outlook for the Houston market.

As previously discussed, performance at our New York hotels was tempered by supply growth, resulting in a 5.1% RevPAR decline for the second quarter. Additionally, we saw international demand as a percentage of our overall New York demand decline as a result of the strong dollar.

While we expect our RevPAR growth in New York will remain muted for the rest of the year, as new supply is absorbed into the market, we remain positive on the market's long-term fundamentals.

Our portfolio's performance for the quarter illustrated our ability to benefit from a broad-based recovery. By strategically expanding our portfolio into markets with strong growth metrics, we expect our portfolio to continue to maintain a solid growth path over the next few years.

As I mentioned on our last call, we had approximately $150 million to $200 million of assets under contract or letter of intent. I am proud of our recently completed off-market transactions in light of a highly competitive environment. We acquired the newly opened Hyatt Place in downtown DC and the Homewood Suites in the Seattle market for approximately $106 million, highlighting our ability to source accretive off-market transactions in key markets.

We purchased the recently opened Hyatt Place in DC for $68 million at a 7.1% CAP rate based on 2016 projections. Additionally, we entered the high-growth Seattle market with our Homewood Suites Seattle Lynnwood acquisition for $37.9 million and a projected full-year CAP rate of 8%.

In aggregate, these two hotels will be immediately accretive to our portfolio with a projected 2016 RevPAR that is 27% higher than the Company's 2014 reported RevPAR.

Our acquisition pipeline remains active as we have another West Coast asset under contract in the Silicon Valley submarkets for $70 million that is expected to close in the second half of the year, after completing a debt assumption.

As we look to grow, we will continue to focus on sourcing off-market deals in high-growth markets while maintaining our rigorous underwriting to ensure that all acquisitions create long-term shareholder value.

In aggregate, since our IPO, we have bought 29 hotels for approximately $1.2 billion. These hotels have an average RevPAR of approximately $149.00, which represents a 25% premium over our reported 2014 year-end RevPAR.

We also continue to successfully dispose of non-core assets, further enhancing our portfolio composition. During the quarter, we sold two non-core assets in Indiana for approximately $8.2 million. In aggregate, we now have sold 41 hotels for approximately $380 million with an average RevPAR of approximately $72.00, or approximately a 40% discount to our 2014 year-end reported RevPAR.

We continue to evaluate our portfolio for accretive disposition opportunities and we'll provide further updates if, and when, asset sales materialize.

In the quarter, we demonstrated our ability to utilize effective capital allocation strategies to create shareholder value, as evidenced by our aggressive buyback of the shares, in addition to our recent acquisitions.

This quarter, we repurchased approximately 2 million shares for a total amount of approximately $60 million. Providing strong returns is a core strategy which we have consistently demonstrated since our IPO.

We have grown our dividend over 20% per year and paid out $3.64 per share or $445 million in total. Our aggressive share buyback highlights our belief in the value of our portfolio and is an important tool to return capital that we will continue to implement if conditions warrant.

We expect solid, broad-based RevPAR growth will continue across a majority of our markets for the remainder of the year. We are updating our outlook to include our recent acquisitions and disposition activity, as well as the operating trends for our Houston and New York City hotels.

We are modifying our full-year 2015 pro forma RevPAR growth of 4.5% to 5.5% and our hotel EBITDA guidance to $400 million to $415 million. Our EBITDA margin guidance remains unchanged.

While we are seeing isolated softness in the third quarter, as well as facing tough comps as our third-quarter RevPAR growth last year was 9.6%, we believe that the weaknesses is market-specific and not a sector shift.

Looking ahead, we believe that the lodging cycle has several years remaining and that the current and pending renovations of our recent acquisitions will provide an added tailwind and lift for our portfolio in 2016 and 2017.

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

Thanks, Tom.

As mentioned earlier, a diversified portfolio delivered another quarter of solid operating results. Our pro forma consolidated hotel EBITDA increased $8.2 million to $116.5 million this quarter.

Our aggressive asset management approach enabled us to increase our hotel EBITDA by 7.6% over the prior year despite continued margin pressure.

During the quarter, we generated strong pro forma hotel EBITDA margins of 39.3%. We increased our margins by 32 basis points year-over-year, despite continued constraints from headwinds, such as property taxes, which have increased in many of our major markets.

This quarter, both Houston and New York had a significant impact on our margins. Excluding these two markets, our margins would have expanded by an incremental 103 basis, for a total increase of 135 basis points.

With regards to corporate results, adjusted EBITDA for the quarter increased $2.8 million to $110.5 million, which is a 2.6% increase over the same period last year.

For the quarter, adjusted FFO increased 4.7% to $98.1 million or $0.74 on a per share basis.

Now turning to our capital markets activity, during the quarter, we paid off a second traunch of our 2015 debt maturities for a total of approximately $26.4 million in unencumbered [four] assets using cash on hand.

Subsequent to the quarter end, we paid off the remaining 2015 maturities for approximately $10 million. We have now retired all of our near-term debt maturities and currently have a total of 113 unencumbered assets, which represents more than 80% of our hotel EBITDA.

We ended the second quarter with $1.4 billion of total debt outstanding. During the quarter, we executed several hedging instruments for some of our floating rate debt. As a result, at quarter-end, 91% of our outstanding debt was fixed.

For the quarter, our net debt to EBITDA ratio was three times. Our [fixed-coverage] charge ratio was 5.8 times and we have no debt [maturity] until 2017.

Our disciplined approach to balance sheet management continues to yield an exceptional debt profile. We will continue to maintain a conservative capital structure that provides us with flexibility and a solid foundation for continued growth.

In addition to our debt profile, the strength of our balance sheet is reinforced by our significant liquidity. We ended the quarter with an unrestricted cash balance of $264 million and our $300 million credit facility remained undrawn.

Consistent with our commentary from last quarter, in early July we drew down the entire $150 million seven-year term loan that was originated at the end of 2014. We also drew the remaining $7 million available on our property level loan associated with our downtown Marriott Louisville asset. Both of these transactions, along with our recent asset sales, bolstered a liquidity position.

With regards to capital deployment, we executed several accretive transactions. During the quarter, we bought back approximately 2 million shares for $59.8 million at an average price per share of just under $30.00. Additionally, shortly after the quarter ended, we acquired two assets for a total of approximately $106 million. We utilized cash on hand to fund these transactions.

We also utilized our strong liquidity position to continue to provide our shareholders with meaningful returns via our cash dividends.

In second-quarter, we maintained our distribution of $0.33 per share, which equates to $1.32 per share on an annualized basis. This is a 27% increase over the prior year.

Additional capital outlays this quarter include the funding of our renovation program. Year-to-date, we have deployed approximately one-third of our $85 million capital plan for 2015.

We continue to make progress on our two pending conversions in Houston and San Francisco, both of which are on track to open by the end of the third quarter. Our expectation for renovation-related disruption for the full year continues to be 50 to 70 basis points and is already accounted for in our guidance.

Now, in light of our recent acquisitions and dispositions, as well as the continued softness in our New York and Houston markets, we have updated our RevPAR and pro forma consolidated hotel EBITDA guidance. Our updated guidance reflects the addition of the Hyatt Place DC and the Homewood Suites Lynnwood, as well as the disposition of the Fairfield Inn Valparaiso and the Residence Inn South Bend.

We would like to highlight the following, first, we have lowered our pro forma RevPAR guidance to 4.5% to 5.5%. Secondly, we adjusted our consolidated hotel EBITDA guidance to $400 million to $415 million, with the net adjustment at the midpoint largely reflecting softness in our New York and Houston markets. And lastly, our margin guidance remains unchanged at 36% to 37%.

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

(Operator Instructions).

[Ian Weissman];Credit Suisse.

This is actually Chris for Ian.

I just wanted to talk about, the RevPAR growth was obviously very strong outside of Houston and New York. But just wanted to quantify how much the RevPAR [mix] in the revised guidance has to do with the revised outlook for New York and Houston versus the rest of the portfolio? And then give us a sense of where you think those markets are heading in the rest of 2015 and into 2016.

If you step back and look at it, as Leslie said in her remarks, really the shortfall is largely driven by Houston and New York. I'd say that New York is probably accounting for 50% to 60% of it, plus or minus. Houston is probably 20% to 30% of it.

And again, if you take out New York and Houston, we were up about 8.6%. The reality of that is our occupancy was slightly down in that scenario. So, rate was up about 9.3%.

So, again, we're seeing broadening across our portfolio. We're not seeing any widespread concern or any softening across the broader portfolio. And I think both, in New York and Houston, are isolated.

If you look at New York, it's largely a supply issue that we've been talking about and our peers have been talking about. Occupancies are still high in New York. We're still running, the market is still running probably 84% to 85%. I believe we ran probably 97%. So, the supply is getting absorbed, but the fundamental issue is that we really don't have any pricing power in the market.

That clearly, I believe, is getting better. We saw in the third quarter, as we began the third quarter, in July for example, in New York we were up about 3.5% in New York. We were up about 6% across the portfolio. So, I do think on a sequential basis, New York is getting better.

But again, we still are probably a little more conservative than some of our peers and see it really being sort of flat to slightly negative for the year. And as a result that's, again, accounting for 50%, 60% of the guidance sort of shortfall there.

As you look at Houston, Houston is, again, just been a phenomenal market for us. If you think about it over the last four years, we've been up in 2011, this is just sort of the RLJ portfolio, we were up 9%. 2012, we were up north of 8%. 2013, we were up nearly 16% in RevPAR. 2014, again, up about 8%.

So, Houston has been a phenomenal market. It's been clearly, the state of Texas and Houston and Austin in particular, I think really led out of the recovery from a job growth standpoint.

So, we love the market long-term. Houston only accounts for about 6% of our EBITDA. So, I want to make sure listeners understand that it is a small part. And again, having such a diverse portfolio gives us a lot of flexibility. It's only 6% of our EBITDA.

Houston, there are few facts that I'd like to just point out for listeners as well. We had a very tough comp. So, we were up 12.3% in the second quarter 2014. We did see a pretty significant reduction in the oil and gas demand in the second quarter. It's about $551,000 of revenue down about 24.2% for the previous year. It's about 338 basis points of impact to RevPAR. So, that was clearly a big issue for the quarter.

We also had a major citywide last year in Houston, second-quarter, Microsoft, which obviously was in Chicago this year, which we benefited from. But last year, Microsoft was in Houston and we had huge performance there. We were up about $353,000 in revenue, which accounted for nearly 200 basis points in RevPAR this year.

So, those together, again, just counting for really about 6% of the shortfall. And then, again, as Leslie mentioned, there were a number of storms and floods that clearly impacted the quarter as well.

We remain bullish. We are seeing Houston really bottom out. We think second-quarter was a significant part of that bottoming out process. Third-quarter will remain challenged for us and it's not really because of a demand issue in Houston, it's more about that we're going to renovate, which we're already scheduled, we're going to renovate four of our nine hotels in Houston during third-quarter.

So, that impact is about 600 basis of RevPAR in the quarter for the quarter, Houston only. And that only has about 37 basis points across the portfolio for third-quarter. Again, we expect that's going to bode well for us in fourth-quarter, which we think will be flat to positive, probably low single digits in Houston in the fourth quarter. But again, really preparing us for 2016 and beyond.

We think 2016, things begin to look brighter in Houston. We also have the benefit of the Final Four being in Houston. And again, as you look forward to 2017, we have the Super Bowl in the first quarter of 2017 for Houston.

So, a lot of meat there. But I wanted to make sure that listeners got it in perspective that our portfolio is very diverse. We saw broad, great performance across the vast majority of our markets with a little bit of softening in Houston and New York. And I think it's isolated and really explainable.

That's really great color. Switching gears a little bit, with the sell off this morning, RLJ's now trading at roughly 20% discount to [NAV and that]. You've always given an acquire of both hotels and then your own stock over the last 90 days, but with the stock now at $27.50 or so versus the $30.00 you were paying for repurchases in the last quarter, just wanted to get at your sense of how, what your appetite for each, going forward, obviously you already locked up a new acquisition for 3Q. But just if you could talk a little bit about that.

I think we've demonstrated, again, time and time that return of capital is an important component of total shareholder returns. We've paid out a dividend of $3.64, about $445 million since the IPO. We were aggressively buying back, last quarter 2 million shares at about $60 million.

Again, you will see us aggressively, and I can't emphasize this enough, these pricing levels, and we've got additional capacity on our authorized repurchase from our board, you will see us aggressively buying back our stock.

Your evaluation has it at 20% discount to NAV. We see it even greater than that. So we think, obviously the highest and best use of our capital right now would be clearly really elevating our buyback.

Having said that, we will continue to look opportunistically for deals. We work hard finding deals off-market. We've got one right now under contract in Silicon Valley. We think it's probably a 7.5 CAP on trailing. It's probably an 8 CAP in the first year. Again, there's a debt assumption component. So, that'll close later in the year.

We'll continue to evaluate. We don't think they're mutually exclusive. I would say we'd probably be more weighted to the buyback right now. And this where, I think, we really separate ourselves from many of our peers. We have a pristine balance sheet. Net debt to EBITDA, 3 times. As Leslie pointed out, 113 assets that are unencumbered. $270 million plus or minus in cash and undrawn credit facility.

The other point I'd like to make and remind listeners is that we have consistently, we've averaged about 22% of free cash flow over the last four years. So, that was about $72 million last year, $63 million the year before. Again, gives us further flexibility. So, we will not hesitate to buy back our stock and we think that's a good use to create value for shareholders.

Is it feasible that you maybe ramp up your dispositions and work through the $200 million you have authorized for repurchases, or maybe even increase it? Or am I getting ahead of it?

It's a fair point. We'll watch market conditions to the extent that we continue to see our stocks so undervalued. We will not hesitate to connect with our board and ask them to consider raising it to the extent it makes sense.

We are actively recycling capital and selling hotels, again, 41 hotels now for $380 million. We have another 14, 15 assets at various stages. Dispositions always run their course, whatever that's going to be. I'd say right now you'll see probably more single assets and small portfolios than you would large portfolios. But again, we'll continue to evaluate.

And there's no real pressure for us to sell assets because, again, given the strength of the balance sheet.

Austin Wurschmidt, KeyBanc.

Just going back a little bit to the buybacks, I was just curious, I know you mentioned trading at greater than 20% discount to NAV. But could you just give us your thoughts on sort of what metrics you're looking at and what type of threshold you're looking at in terms of the stock versus NAV perhaps?

As we said before, Austin, if you look before, I think consensus NAV has been 32% to 33%, 33.5%, perhaps pulled in a little bit given the, what's happened to the sector recently.

But, as we've said historically, if our stock is trading at a 10% to 15% from consensus, and we were when we were buying it back at close to $30.00, and now we believe, conservatively, we're well north of $20.00.

But there's no better investment than really investing back into the portfolio. And there are a lot of catalysts as you look out to 2016 in our portfolio. Again, the 15 assets that we bought last year, 10 of those, the Hyatt portfolio, that Hyatt portfolio's up 13% in RevPAR just in second-quarter alone.

We're still going to be renovating two of those assets. So, that's a huge tailwind. We're going to renovate our Portland asset that we bought last year. Again, that market was up 12%. We see that as a tailwind. We're renovating our Waikiki asset right now, investing $11 million in that asset.

Our Doubletree Grand asset that we bought in Key West, we're putting $7 million in that asset. That market's up high single digits. So, we've got our San Francisco Courtyard what will be all-in for under $350,000 a key.

We've got a diverse portfolio we've consistently outperformed. If the market's not willing to give us credit for it, we'll gladly backup the truck and buy back our stock. And we think that's going to create significant value for shareholders.

So, we have a lot of passion around the issue. And no doubt, we've seen it, I think we've demonstrated top tier returns since we've been public and rest assured, that's not going to change.

I think that makes a lot of sense. But how would you then sort of connect that then, how attractive of a discount it is today, how would you connect that with your thoughts previously about being a net buyer in 2015?

Obviously, Austin, none of us sort of expected what's happened to the lodging sector the last couple of weeks. And the reality, I don't think they're mutually exclusive. I think there are some deals that we'll find. And I think the two that we bought, this Hyatt Place in downtown DC is bullseye real estate, K Street. It's going to have a RevPAR, we think, in the first year, $180.00, attractive CAP rate.

Long term, we're clearly in the business of continuing to build and grow our portfolio. So, there's a dislocation that's occurring today in the stock price. And we're going to seize that moment when things improve on that respect. You'll see us back in the game. And our core focus of continuing to improve the portfolio and buy assets that are compliant.

This Silicon Valley asset is another. It'll be a high RevPAR, $180.00 to $190.00. Again, very compliant and with our stated objectives to continue to expand out there.

So, again, we don't think they're mutually exclusive. I think we've demonstrated time and time again that we are a top tier capital allocator. And we'll be thoughtful. We'll be disciplined. And we'll seek out opportunities to create value. But we are going to create shareholder value.

And then just looking at the private market, have you seen any change in the interest level from [PE] firms or other private capital sources that are looking to put money to work into the lodging sector?

Clearly, I think, it's a competitive market today. And acquisitions, particularly in the coastal markets and out west is a great example, that I would say the debt markets are still attractive. They're a threat. Each company, each of the reach will have to decide for themselves how active they're going to be.

We work really hard to find deals off-market, limited bid. We really try to stay away from the auctions. Do I see a lot of [take] private activity right now? Not really, but again, I think this dislocation has really occurred here over the last week or two, in this kind of earnings season.

I think it's a huge overreaction. But we're going to keep our head down. We're going to keep focused on executing. We see our portfolio broadening and strengthening. And I think no greater indication of that, again, look at our portfolio and take New York and Houston out of it. They represent about 16% of our EBITDA, but we were up 8.6% and we were at 9.3% in rate, over 112 hotels across 20 markets.

So, I think the end of the cycle and that talk is a bit premature.

Wes Golladay, RBC.

Looking at the guidance, just for the industry in general, everyone seems to be cautious on the third quarter with an acceleration in the fourth quarter, already through July and we see some demand from Smith Travel this morning come out.

So, what do you guys see in August and September from an industry perspective? What should we expect?

Wes, always good to talk with you. I think part of it, and I'll talk a bit about our portfolio, third-quarter was an extraordinarily exceptional quarter in 2014. We were up 9.6%. If you look at, Houston was up 10.4%. DC was up nearly 11%. Denver up 11%. Our Austin portfolio up 14%. Chicago was up 9%. Our other markets, accounting for about 79 hotels, again, same quarter last year, were up north of 11%.

So, those make for really tough comps. So, I do think you're going to see, the softening or the caution is probably appropriate. I think July is turning out to be stronger, certainly, than we slightly thought, and clearly for the industry. But when you look at August, I think all of the trends right now are in August. And again, given some of the tough comps in August, are that there will be a pullback in August for the industry.

As you look at September, it also looks to be a little more complicated. You've got the two Jewish holidays that were split last year between September and October, both this year are going to be in September. You've got UNGA that, again, was in September last year, now is going to be split between September and October. And then you've got the extra week in the summer, which doesn't really bode well for some of the large gateway cities.

So, I do think that caution is somewhat warranted. I do think that fourth-quarter is going to be strong. And I think it's setting up for, to hopefully be a stronger quarter than perhaps we all believe today.

But the industry and where we are, we still believe we're 5th or 6th inning. Again, you're seeing the broadening across our portfolio. Very optimistic about 2016 and 2017 for our own portfolio and for the industry.

We think supply is still largely muted. We're not at any point really of eclipsing, supply eclipsing demand. Perhaps you're looking at 2017, 2018. But I think the recent reaction is really an overreaction in my humble opinion.

Sticking with that, is there what, a two-day lock up before you can buy stock after the earnings? Is that what we're looking at?

I'll check with the lawyers on that, Wes. I'm not sure how long that lock up is. But rest assured, at this level and given our liquidity and given the dislocation and the absurdity, is the best word I can think of our price right now, we will be aggressively buying back our stock.

And then, just to look at Houston a little bit closer. Are you seeing any specific trends where maybe your extended stay hotels are doing a little worse than your pure upscale transient-focused hotels? Anything there or within maybe submarket of Houston? And will you expect to see any FEMA business going forward?

We saw some FEMA business and clearly that was certainly helpful. I think the issue, Wes, for us in the second quarter in Houston is we made the decision to work hard to preserve rate. And if you look, we held rate and we got hammered on the occupancy.

We think as we go into the corporate negotiated rate season, the thesis is that we should perform better. We'll see how that unfolds. But really we saw, the Sugarland market got hit particularly hard. But even the Galleria and downtown markets were also affected. The Woodlands market seemed to hold up better.

But, again, we really think the second quarter was the bottoming. We will see, and I want to make sure the listeners hear me on this, we will see softening in the third quarter in Houston. But that's really driven by the fact that four of our nine hotels will be under renovation.

So, we're expecting about 600 basis points of disruption in the quarter related to Houston. Again, that's about 37 basis points for the quarter. So, we renovate 20, 25 hotels a year. We're very skilled at it. We've got a very capable team.

This was always part of the original plan. And we think this is going to bode well for the portfolio in 2016 and 2017, particularly in Houston given the special events. And we're hopeful that oil is going to settle and we're going to see, begin a brighter future in 2016, 2017. It has been an exceptionally strong market for us the last four years.

Ryan Meliker, Canaccord Genuity.

Most of my questions have been answered. But, Tom, I appreciate all the color that you've provided on how you're looking at valuation and the utilization of the buyback.

Obviously, the stock has fallen off along with the sector. I agree it's been an overreaction. But when you see the stock down close to 15% this earning season and a full-year EBITDA guidance cut of less than 2%, it's kind of staggering.

And I guess, at what point, or how long does it take you to reassess what the strategy of the Company and the board is if sentiment doesn't turn more positive in the next three or six months and you continue to trade at this type of exorbitant discount?

It's a great question, Ryan. I think we'll continue to watch the market carefully. I think, as I said earlier, we go out of our way to follow our three guiding principles, operational excellence from quarter to quarter to do our best to make our numbers to make sure we're breeding a prudent capital allocator.

It's not lost on us. Again, based on what some of your peers said and what you've said as well, you look at our discount to NAV, clearly in the 20% range, we think more. So, again, we think the highest and best use of capital right now is going to be certainly to buyback our stock.

We'll watch. We'll talk with our board. If we think that condition remains, we'll ask our board to consider increasing that authorization. Again, the beauty, and I think the real advantage to the RLJ story is the strength of our balance sheet.

Leslie Hale and her team have just done an exceptional job. When you look at net debt to EBITDA, low 3s, look at all the levers available to us that most of our peers don't have, an undrawn credit facility, significant liquidity, the amount of free cash flow that we generate every year given the strength of this strategy.

So, we're not happy with where the stock trades today and where the sector trades. But we've got the levers available to take advantage of it and we will aggressively look to implement those levers and, most importantly, to create shareholder value which we have consistently done over the last four years.

Thanks, Tom, that's really helpful. And then just one follow-up. You mentioned some pockets of softness in 3Q and across the industry. I'm assuming you're mostly referring to Houston and New York. And you talked about some of the capital plans that you have. Do you have the opportunity to accelerate any CapEx plans in some of those softer markets, where maybe you won't see necessarily the EBITDA disruption as opposed to doing it a year later?

It's a great question. We're constantly looking at those opportunities with our design and construction team and our asset management team.

Houston is one where, obviously the softness there has certainly been a disappointment, but it also provides an opportunity now to make sure that we get these four projects done. We'll get them done in third-quarter. Clearly, it will be soft in third-quarter, largely driven by those renovations.

DC is another hotel that will be soft in third-quarter. Again, that's going to be largely driven, they had a huge third-quarter last year. We do have a couple renovation projects there as well. We're looking at a strong fourth-quarter in DC. And just a bullish 2016 and 2017.

We think group pace is up 20% already for 2016. And if you look at 2017, there are already 500,000 room nights on the books today. That compares favorably to the all-time high, which is 2005 I believe, at about 590,000. So, very bullish as we look out there.

In terms of other renovation, given the time that's required and some of the FF&E delays and port delays, it's sort of hard to ramp up in the year for the year. But again, we work hard to find and adjust. And given the size of our portfolio, there are always going to be 20, 25 assets a year that we're going to be renovating.

Lukas Hartwich, Green Street Advisors.

Can you guys talk a little bit more about the diverging performance at your focused service and full-service hotels? I'm looking at Page 15 of the press release.

I don't have that in front of me. Leslie's pulling it up. Maybe you can be a little more specific about ?-

Sure. So, I just noticed that focused service, you've got 99 hotels and RevPAR was up a little over 6%. And then I'll look at your compact full-service and full-service, which is 21 assets, up I don't know, 2% on average, let's say, a little over 2%.

I think, Lukas, we'll drill into it and make sure that we answer the question in a little more detail for you kind of post call. I don't think there's anything to really read into that. Clearly, we've got more focused service hotels. They're spread over certainly many markets. We're in 21 states today and certainly almost all the major cities.

I think in some of the compact full-service there can be sort of unique situations. If you take the Doubletree Met, if you take the Doubletree Grand in Key West, we just bought it. We changed out the management company. We're going to be renovating it, which we've started. Obviously, we've got the Embassy Suites in Irvine. Again, just took over, changed management. We're going to be renovating that hotel as well.

So, I do think that you've got pockets like that and stories that underline it. And then if you look back to some of those underlined markets, Austin has been incredibly strong there. But Denver, there's been a little bit more supply in some of the compact full-service markets and those submarkets that were affected by it. But I don't think there's anything alarming that stands out in it.

And then the other question I had, clearly ADR growth is very strong during the quarter. And it looks like occupancy, you kind of pushed rate at the expense of occupancy. I'm just curious, are the operators kind of explicitly trying to do that? Or is there something else going on in terms of pricing strategies?

Lukas, we are aggressively pushing rate. We preach it every day. We talk to our management companies and our partners there. And again, I think if you look at our portfolio you'll notice, in comparison against many of our peers, we've seen a slight dip in occupancy. And then we continue to see outsized performance on the rate side.

And again, the example I used earlier, take New York and Houston out of the picture, we're up 8.6%, but we're up 9.3% in average daily rate over 112 hotels. A lot of that's by design. We're pushing out the lower rated business. We're pushing, trying to push out the corporate negotiated rate business and really focus on the transient side and to push rate.

And part of this, even with the decline in EBITDA and the slight decline, obviously, in the topline, we're maintaining margins. We can do that given the strength of the rate growth that we're seeing in our portfolio.

Anthony Powell, Barclays.

Bigger picture question on the industry. So, it seems like overall most of the RevPAR performance is slightly lower than expected this quarter. And you were very bullish on the forward outlook, as are most companies, but what makes you confident that it won't be further underperformance in future quarters? What makes you confident that you're looking at the industry in kind of the correct and the best way given kind of just the overall, like the softness that we saw in 2Q?

As I said earlier, I think part of it is that the industry had such a strong quarter in, if you look at sort of third-quarter as an example. Third-quarter last year the industry was so strong, up 9.2% at I think Star and we were up 9.6%. I cited some of the others, most of our major markets were up near double digit or more than double digit in RevPAR.

So, to some extent we're a victim of our own collective success. We've done so well, those comps are tough. There are some unique things about third-quarter that I think make it a little tougher. We talked about New York. We talked about some of the tough comps in other specific cities.

So, if you step and look at, I think on the demand side right now, demand is still outpacing supply. I think the long, last 12 months average is about 330 basis points. Year-to-date is about 233 basis. That is, again, well in excess of the long-term historical average.

But for a couple of markets where you're seeing increased supply, clearly New York, the situation in Houston and a few other markets, you're still seeing really attractive fundamentals. Supply is probably not likely going to eclipse demand until 2017, 2018.

We're still seeing rates low. Corporate profits are still growing. Businesses continue to invest. Consumer confidence is improving. Housing is improving. And we've had somewhat of a muted recovery. We've averaged about 2.2% in this recovery. The normal would certainly be 150, perhaps 200, basis points above that.

So, it's a little bit of Goldilocks, not too hot, not too cold. And I think as a result of that you can make, I think, a legitimate case that this cycle will run into extra innings, absent some sort of shock.

The last two cycles were shortened, the Great Recession and, of course, 9/11. So, getting back to an elongated cycle here I think is achievable. We'll have to watch it carefully. I think absent some sort of shock I think the business is well-positioned for future growth.

And one, I guess, follow-up, I guess housekeeping on the EBITDA guidance. Does the EBITDA guidance include the full-year impact of the two acquisitions? Or is it only the period that you owned the hotels for?

It includes the full-year impact. But just be mindful that obviously DC just opened up late second-quarter. And that Seattle is still ramping up because it opened up late second-quarter 2014. So, it's a relatively small contribution, just a couple million dollars.

Shaun Kelley, Bank of America.

Tom, you've been super clear on a lot of the fundamental issues, so I really just have one, kind of one follow-up on Houston which is you talked a lot about the renovation activity that obviously is going to impact your portfolio. You talked about the demand side and possibly some stabilization there which is interesting.

The one thing that you didn't mention too much about was supply. And I was just wondering if you could help us break that down a little bit because Houston does sort as one of the bigger supply markets out there? So, A, do you think that's impacting your portfolio at all? And B, do you have any view on how much of that supply is targeted at sort of RLJ's either submarkets or type of hotels, even select-serve versus full-serve?

It's a fair question, Shaun. I would say, look, any supply is clearly going to impact the market and clearly impact us.

I guess the analogy that I would use is to think about Austin. And we've got the new convention center, a 1,000 room hotel downtown. We all thought that was going to be the demise and end of Austin. I think you'll note we were up 10.6% in Austin this quarter.

Houston is a dynamic, wonderful city, one of the great cities in the country. They'll absorb that supply. They've got a new convention center hotel that's opening.

What we're finding in many cases that these convention center hotels end up being, they induce a lot of demand internally, given their capacity, but they also help position the location to be competitive for future business.

You're seeing that in the Markee here in DC, which everyone said that was going to be the demise of DC. I think that hotel in its first year ran about 80% occupancy.

You look at Austin, there's going to be choppy periods, but already the supply is getting absorbed. And I think it's helping to position that market long term. I would draw the same correlation to Houston. Yes, there is supply that's coming. It's largely a demand problem today.

The supply, we believe, will serve as a catalyst and position for future conventions. And clearly, you've got two huge special events that are coming next year, coming obviously in 2016 with the Final Four and then you've got Super Bowl coming in early 2017.

So, we'll watch it. Clearly could impact, could impact a quarter or two, but again, I don't see the end of Houston by any stretch.

Thank you. This concludes today's question and answer session. I would like to turn the floor back to Mr. Baltimore for closing remarks.

Thanks, we appreciate the opportunity and look forward to talking with all of you again at the end of our third-quarter call. Hope you have a great summer.

Thank you, ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.