RLJ Lodging Trust (RLJ) 2017 Q2 法說會逐字稿

Welcome to the RLJ Lodging Trust Second Quarter 2017 Earnings Call. (Operator Instructions) The conference is being recorded. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to Hilda Delgado, Treasurer and Corporate Vice President of Finance. Please go ahead.

Thank you, operator. Welcome to RLJ Lodging Trust second quarter earnings call. On today's call, Ross Bierkan, our President and Chief Executive Officer, will discuss key highlights for the quarter. Leslie Hale, our Chief Operating Officer and Chief Financial Officer, will discuss the company's operational and 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-Q 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 Ross.

Thank you, Hilda. Good morning, everyone. And welcome to our 2017 second quarter earnings call. Before I start, I'd like to remind listeners that at this time, we cannot discuss or take any questions relating to the FelCor merger and our recently filed proxy. We appreciate your patience as we move forward through this process.

I would first like to start by noting that we're pleased to see continued demand growth in the lodging industry. For the quarter, industry demand outpaced supply and ADR growth remained healthy, driving yet another quarter of positive growth in the U.S., with RevPAR up 2.7%.

Now the industry's growth this quarter was primarily driven by the leisure segment. The robust 7.1% RevPAR growth in the resort markets was a good illustration of this segment's strong demand.

Progress. Progress in the urban markets, which were generally more business and group-oriented, highlighted the quarter's more tempered business and group travel, given our portfolio of greater concentration in urban markets, we did not see the same degree of leisure benefit as the industry and were disproportionately affected by the new business travel. This, combined with a few portfolio transitory headwinds, contributed to our softer relative performance to the industry of a 3.4% RevPAR decline.

Despite the revenue pressure, our EBITDA margins held strong at 37.7%. Our efficient operating model, coupled with our team's ability to manage our bottom line, continue to produce one of the strongest margins in our space and generate significant free cash flow.

As we move past some of our toughest comps, we expect the second half of the year to be better than the first half on a relative basis. At the same time, absent any meaningful acceleration in the economy, we expect that performance gained in the second half to remain muted.

From a macro perspective, key economic indicators remain largely unchanged. Healthy corporate profits and business investment, coupled with strong employment and consumer sentiment, are creating a positive economic climate. Despite this backdrop, we've yet to see these positive trends fully translate into strong growth for the lodging industry. We believe that we need incremental economic growth and clarity with regards to the new administration's policies and initiatives in order to give rise to actionable corporate sentiment, which would lead to more robust lodging demand fueled by the business traveler.

Given the cyclical nature of our industry, we continue to believe in the benefits of diversification. As we look at lodging demand across our top markets on a year-to-date basis, 8 of our top 10 markets showed positive demand growth, with the majority of these markets exceeding overall industry demand. In particular, South Florida and Austin continue to show robust demand, highlighting the long-term resiliency of these dynamic markets.

As we drill further down into the performance of our portfolio, I will start with Southern California, our top performer this quarter with RevPAR growth of 5.1%. Our hotels continue to benefit from strong corporate business production from industries such as technology and the arts and entertainment. We're also seeing added benefit from the ramp-up of one of our renovated hotels. Looking ahead, we expect the positive momentum in this market to continue.

In Washington, D.C., our portfolio RevPAR growth of 1.9% outperformed the market by about 120 basis points and our hotels gained approximately 240 basis points in additional market share against their competitive sets. During the quarter, we saw a healthy mix of corporate, group and leisure business. Now as we move forward, we face tough comps in the second half, given double-digit RevPAR growth from last year's strong corporate and group activity and expect to be flat to slightly positive in the second half relative to last year.

In South Florida, we saw an increase in RevPAR of 3.0%, outpacing the market by 100 basis points. South Florida was one of our few markets that did benefit from the Easter shift. Additionally, our West Palm Beach properties continued to benefit from the President's frequent visits as well as an uptick in special corporate and group segments during the quarter. We expect our diversification in this region will continue to benefit our portfolio as the year progresses and partially offset the headwinds from new supply in Miami and the ongoing renovations at the Miami Beach Convention Center.

In Northern California, ongoing renovations at the Moscone Center continue to reduce compression in the market. Our RevPAR decline of 5.5% compared favorably to the San Francisco market RevPAR decline of 8.2% and again highlights the benefits of our portfolio's diversification in the region. Additionally, our RevPAR this quarter reflects disruption at 2 hotels that were undergoing renovations. Adjusting for renovation disruption, our RevPAR would have improved by 220 basis points. With our hotel renovations now complete and the opportunity to lap the renovations at Moscone approaching late in the third quarter, our toughest comps are now behind us, which should lead to improved performance for the second half of the year and into next year.

In Louisville, our RevPAR declined 8.2%, a significant improvement over the last quarter. During the quarter, the closure of the convention center remained our biggest headwind. Additionally, the lack of market compression was further impacted by the quarter's marquee event, the Kentucky Derby, having lower attendance versus prior year. Not unlike Northern California, we expect performance to improve as we start to lap the 2016 closure of the convention center late in the third quarter. We're already in the process of renovating our Marriott Louisville, setting the stage for outsized growth in the second half of 2018 when our renovation is complete and the city's state-of-the-art convention center reopens.

In Houston, the ongoing soft market fundamentals were amplified by the difficult NCAA Final Four comp from 2016. This event, alone, generated approximately $1 million for us last year, impacting our market-wide RevPAR decline of 14.2% by 600 basis points. As we look further out, we expect to continue to see headwinds in Houston as the market continues to absorb the new supply there.

In Denver, our hotels reported flat RevPAR growth for the quarter. ADR grew 2%, but with fewer citywide room nights year-over-year to drive compression in the market, our occupancy dropped by approximately 2%. Looking ahead, we expect to see improvements in the second half as a result of an increase in group activity in corporate production.

With respect to Austin, demand in the city remains robust. Year-to-date, demand was up 4.3%, which was incremental to last year's 5.2% growth. However, during the quarter, the demand supply imbalance, combined with the loss of 2 large citywide events, led to overall market softness. Our hotels specifically were further impacted by tough comps from about $1 million of flood-related business last year that we housed affecting our market RevPAR by 445 basis points. Looking ahead, we expect to continue to face some additional softness in 2017 as a result of new supply. However, we are seeing some indications of supply pressure easing in our tracks in 2018 and even further in 2019.

In Chicago, the market saw a strong pickup in citywide activity but did not see a meaningful pickup in compression, resulting in modest RevPAR growth in the overall market of about 0.8%. Although our hotels did partially benefit from citywides in the quarter, this was offset by the loss of some extended stay project business that did not return, leading our RevPAR to decline by 1.6%. As we look out to the second half of the year, with fewer citywides on the calendar, we expect performance to remain soft.

In New York, where our exposure is now limited to only 4% of our EBITDA, RevPAR declined by 4.8%. Although the city continues to see impressive demand, this demand has been highly concentrated in select submarkets. And while the closure of the Waldorf has been helpful, there've been a number of rooms which have recently reentered our submarket post renovations, offsetting much of the benefit. Accordingly, we expect RevPAR to continue to remain soft here.

For our nontop 10 markets, a 3.5% RevPAR decline was soft relative to the last couple of quarters. We expect results to improve during the second half of the year, especially during the fourth quarter in markets such as Tampa, New Orleans and Atlanta.

So heading into 2017, we knew the first half of the year would be challenging given the number of short-term headwinds. This was especially true for the second quarter. Despite this, we still posted 81% occupancy, had margins of nearly 38% and generated more than $110 million in EBITDA during the quarter. As we close out the first half and move into the second half of the year, some of our toughest comps are now behind us. As a result, we expect our second half to be better than our first half on a relative basis. We expect our fourth quarter to be better than our third. We will start to lap convention center closures late in the third quarter, which will position us for a better fourth. Additionally, with the Jewish holiday shifting from October to September, the third quarter will be negatively impacted, but the fourth quarter will benefit. Finally, our renovation disruption in the second half is expected to be lower than the first half. And all this being said, initial trends across the industry are pointing to a more muted third quarter. We expect these travel trends will likely translate into a softer third quarter for our portfolio as well. As a result, while we expect our second half to be better than our first, we are taking a more cautionary view of it and adjusting guidance accordingly.

Even though we're currently facing some transitory challenges, we continue to believe in the resilience of our portfolio. We've built a high-quality portfolio end markets with strong long-term growth prospects. As for the assets, from a RevPAR index standpoint, approximately 80% of our hotels ranked in the top half of their respective comp sets, with the majority ranking either first or second within their set. Importantly, our portfolio continues to generate significant free cash flow. It's well positioned to weather all phases of the lodging cycle and benefit from a number of our markets that are expected to recover in 2018.

I'd now like to turn the call over to Leslie for a more detailed review of our operational and financial highlights. Leslie?

Thanks, Ross. On our last call, we noted that second quarter would have a few headwinds, including the shift of the Easter holiday, the continuation of our convention center closures and a tough year-over-year comps that will result in this quarter being the weakest of the year.

During the quarter, our RevPAR decline at 3.4% was largely driven by April. April was the weakest month, with a decline in RevPAR of 6.5%. May and June fared better, with declines of only 1.9% and 1.8%, respectively. April's decline was impacted by the Easter shift, which constrained business and group travel in the month. These dynamics lead to less compression across a number of our markets that are more business and group centric. Additionally, April's RevPAR was impacted by almost 200 basis points in aggregate through the renovation disruption in our Northern California market, the Final Four not returning to Houston and a nonrecurrence of flood-related business in Austin.

As we look at the quarter, overall, on the transient side, some of our leisure-oriented markets, such as South Florida, fared better in large part due to holiday shift and overall healthy leisure demand. However, given our portfolio mix, which has greater business transient concentration. The healthy increase in leisure demand that benefited the industry did not translate into our portfolio. While we did see business demand increase across some of our markets, such as Southern California and Denver, business demand in general was muted. Overall, group demand for the industry was down meaningfully relative to the transient. For our portfolio, this weak group demand was further amplified as a result of approximately 20% of our EBITDA being affected by markets with convention centers under renovation.

Over the last few quarters, we have benefited from our grouping up strategy, specifically with small social events. Therefore, with overall group demand being soft this quarter, there were fewer small social and corporate group opportunities.

Based on the dynamics we saw this quarter, our top line came in at the low end of our internal expectation. Despite the incremental revenue pressure, our margin decline of only 150 basis points was better than anticipated. We were pleased to see our asset management team, in partnership with our operators, act quickly to manage our expenses and control our margins at 37.7%, which remains one of the highest in the lodging space.

Now with regards to our corporate performance, our adjusted EBITDA decreased by $13.5 million to $104 million for the quarter. We would like to remind listeners that last year's adjusted EBITDA results include approximately $5.4 million of EBITDA from properties that were sold in 2016, including 2 of our New York hotels. Accordingly, adjusted FFO was $89 million or $0.71 on a per-share basis.

With respect to our balance sheet, given our low leverage, significant coverage and a well-laddered maturity profile, we continue to have a strong flexible balance sheet. At the end of the second quarter, our total debt outstanding was $1.6 billion and our net-debt-to-EBITDA ratio was 3.1x.

We ended the second quarter with a robust liquidity position, including $480 million in cash and $400 million of availability on our undrawn credit facility. We have plenty of liquidity to cover our capital deployment priorities, including paying our dividend and executing our capital expenditure program.

We continue to believe that our dividend is an important component of the total return we seek to provide our shareholders. We have maintained a healthy dividend for 25 consecutive quarters. And while we did not repurchase any shares this quarter. We still have over $200 million of capacity remaining under our program.

Now with regards to capital expenditures. Our renovations remained on schedule and we continue to expect capital outlays for the year in the range of $40 million to $45 million. During the second quarter, the impact from displacement was approximately 25 basis points of RevPAR growth. We still have additional renovation activity throughout the remainder of the year, but expect displacement to step down through the second half of the year. Therefore, for the full year, we continue to project total disruption of approximately 40 basis points.

Now with respect to our outlook. We do expect to see relative improvement in the second half, with fourth quarter projected to perform better than third quarter. However, in light of the second quarter coming in at the lower end of our expectation and a more cautionary outlook for third quarter given weakness in July, we're adjusting our guidance for the full year. Accordingly, we would like to highlight the following guidance adjustments: first, we have lowered our RevPAR guidance to negative 2% to negative 1%; second, we have lowered our hotel EBITDA guidance to a range of $375 million to $385 million; and finally, our margin guidance has been adjusted to 34.5% to 35%.

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

(Operator Instructions) Our first question comes from the line of Wes Golladay of RBC Capital Markets.

Can we go back to the Northern California performance, it looks like you would had been down about 330 basis points excluding renovation disruption. Can you give us overall landscape of how that's progressing, your San Jose hotels, your hotels in the city, and then the hotels just outside of the city that might benefit from compression of the convention center?

Right, Wes, good morning. Yes, first of all, that was an interesting region for us because it was a tough comp from last year, we were up about 9%. So that was a headwind that we saw coming. You mentioned the renovation. We actually think we'd benefit from a geographical diversity in Northern California. I would say, of our assets there, the 3 that are most impacted by Moscone are in, of course, the CBD, of course, and our 2 in Emeryville, the Hilton Garden and then the Hyatt House. But of course, there's a compression effect throughout most of the valley. And so while we outperformed the market, the diversity, we do expect to participate in the recovery on the back-end. We like our position there. We like our exposure. It's about 10.5% that we're having to weather this low here. We really like the fact that we've got a presence there and we're going to participate in that recovery in the second half of next year. In fact, even this year, we expect Q3 to be relatively a lot better than Q2. We're going to get through those renovations, that disruption will go away. And there's a little bit of a lap of the Moscone closure, but in Q4, clearly, we get a full quarter of lapping the Moscone closure. Plus, ironically, there are going to be a couple of citywides in San Francisco despite the fact that Moscone is down. Oracle and Salesforce will be meeting at different venues, and they're going to create quite a bit of compression. So we expect Q4 to be pretty positive and part of our story in Q4 that gives us some optimism about that quarter.

Okay. Then looking at Texas, can you give us your thoughts on Houston maybe next year? It looks like we're going to start to lap but now start the third year declines for that market. Do you see supply abating or -- and demand picking up for '18? And then you've kind of alluded to it in Austin that you thought supply pressure might start to pull back particularly for your track. Can you give additional details on that?

Yes. We've got to weather the first quarter because we've got a Super Bowl comp. But this year, actually, in Q2, for the first time since 2013, our percentage room nights from oil and gas rose. I mean, it was a pretty big -- it a was pretty big percentage increase, it was 50% in room nights and revenues, 34%, but it's of a small base. So I don't want to get too giddy about it, but it's a good indicator. And last week, the biggest U.S. energy companies reported strong earnings, Exxon doubled their net income and Chevron came out huge with about $1.5 billion for Q2. And oil and gas rates are up 44%. So decent, decent indicators about what's going on there. We're actually expecting a good fourth quarter, because October, there's a strong citywide in the market. And so we're going to get some relief from the drag that Houston has been on our portfolio. Third quarter is still going to be soft. You -- '18, as I mentioned, you've got the Super Bowl comp in the first quarter, then after that, from a supply standpoint, it's dropping from about 6% to about 4%, and that's MSA-wide, and then in our particular tracks, it also peaks in '17 and begins to subside in '18. And so if we have that nice confluence, right, subsiding new supply and just incremental gains in the oil and gas complex along with the other diverse elements in Houston, we think that -- we're not calling, we're not calling the bottom yet, but and I'm not -- I can't say I'm optimistic about '18, but I'm feeling better about it. And I mentioned this on the call last week too -- last quarter. We'd probably get more inbound calls on our Houston assets than any other city from private equity and owner operators. And while a cup of coffee doesn't get you much, it's another decent indicator of investor interest in the market. We're actually pretty high on the market. And we enjoyed 4 consecutive years of double-digit CAGR before downturn, and it lasted longer than we expected. But we're optimistic about the recovery there, and we think it's going to be pretty dramatic when -- if possible.

And then, Austin, you mentioned that your tracks can get better. Can you just elaborate on that?

Yes, yes, a similar story. Fortunately not nearly the drama of Houston. Because Austin, God bless it, it's a great city, people want to be there, demand's up another 4.3% year-to-date on top of a 5.2% I think last year. But supply finally caught up and it's 6.3% this year, at least in Q2. And then we had some additional headwinds from some things that were specific to our portfolio. But we're expecting Q3 to be, again, relatively better, Q4 a little bit better again. But we do see in our tracks that '17 is a peak and it begins to subside. Unfortunately, in Austin, that's a situation where outside of our tracks, the new supply continues in '18, and so we don't know how much of that's going to affect us sort of from a ripple effect. And it's still going to be a big number. I mean, the MSA numbers in '17 are 7.5% for the MSA, but 6.0% for us for the year -- I'm sorry, for the MSA, it's 7.5% in '17 and 6.0% in '18. In our tracks, though, I mentioned the 6.8% drops to 2.1% in '18. Now I hesitate to celebrate that too much because, again, you don't know about the ripple effect of the new supply outside of our tracks, but it's a promising indicator. We like seeing that it peaks for us at lease in '17.

Our next question comes from the line of Tyler Batory from Janney Capital Markets.

A quick question on the RevPAR in the second quarter. Do you have a number maybe excluding some of the markets that were disrupted by the convention center closures? Just trying to get a better sense of what RevPAR might have been in the quarter, just excluding some of those transitory issues?

Yes, if you subtract the markets that I alluded to in 20%, you would have improved by about 70 basis points.

Okay, great. And then a question on the guidance. You noted, a little bit more cautious on the third quarter here just given July. Wonder if you can give a little more detail what is going on in July and what you're seeing there?

Yes, in July, the first week was tough. It was down, 9%, 10%. It was largely leisure based. It was a similar effect to what we saw with the Easter shift in April. And it was just difficult for the month to recover after that. Things stabilized after that, but it set us back sort of mid-single digits for the month.

Okay, great. And then maybe a big-picture question here. When I look at some of the brands that you have, Embassy Suites I think sticks out just as far as growth in the first half of the year. I assume that maybe it's a little bit market-driven. But can you maybe just remind us, big picture, what you think about that brand, kind of your opinion to that long-term?

Yes, yes. We think Embassy Suites is a category Gaylord has been and continues to be. Hilton is very keen on the brand. You want to make sure, before you invest too heavily in a brand, that it isn't your father's automobile, all right. Hilton is very keen on Embassy Suites. They've 60 of them in the development pipeline around the world and most of those in North America, in fact, more than any other full-service brand. And I'd wager that, that's probably more than any other full-service brand in any of the brand family. So it's alive and well. And the transformations that are taking place at the Embassy Suites that are being renovated are material. The atrium renovations, in addition to the guest rooms, are really moving the needle on RevPAR at those hotels around the country. And so not unlike Marriott, we're doing some modernization moves with the brand. Hilton isn't going to be left behind with Embassy Suites, and so they're keeping it very current. It is a hybrid between a full-service brand and a select service brand because while it is full service to the degree that it has food service and a bar, guests kind of help themselves to the comp breakfast. You've got the comp amenities in the afternoon, largely focused on the drinks. And then -- but the margins that you run at, at Embassy Suites resembles select-service hotels because of the service delivery. And when you combine the high RevPARs with those kind of margins, the flow-through is terrific. So we're big fans of the brand. They're not the cheapest hotel to develop from scratch, but Hilton has worked hard to modify the model to make it more efficient to develop. But the existing Embassy Suites, we think are treasures. And any time that we can acquire one at a decent basis, we're enthusiastic about it.

Our next question comes from the line of Austin Wurschmidt from KeyBanc Capital Markets.

I want to respect the no comments on the proxy, but I was just curious, there's clearly a view out there that there's a fair value target, I guess, in the stock. And I'm just wondering, has there been any change in either you or the board's view on either the trajectory of interest rates or a less optimistic view of hotel EBITDA trends going forward?

I appreciate the question, Austin. All I can say is we're excited about the opportunity and we have a very serious and deliberate board that takes their fiduciary very seriously. We still believe that this is a good time for any organization to enter into a strategic opportunity. We are long-term investors. We don't look at 1 quarter or 2 quarters. We look at the long view, whether we're buying a single asset or a portfolio or, conversely, looking at a disposition or buying back stock, any asset allocation decision, we take a very long view towards shareholder value creation. But I think that's all I can say at this point. Our council has been very specific that -- with a live proxy in effect here, that we have to proceed prudently here with what we say.

So it's fair to say that some of the pressure that you've seen here, near term, you do expect to be transitory and that you are more optimistic as you look out over the next 12 to 18 months in terms of fundamental trends?

Yes, yes. Our economic crystal ball is that we're not looking at a cliff here, we're not looking at a recession, the Wall Street Journal just told the economists in July and they came up with a fifth -- they pegged the odd at 15% of a recession, which is down from 22% a year ago. This recovery has been long, but it has been slow. And this 2% CAGR has resulted in nothing being particularly overheated. And we believed within our portfolio that the headwinds that we're facing this year, a number of them are going to be reversed next year, and the easiest ones to point to are the convention centers reopening in 3 of our markets. So we're optimistic about '18 and even more in '19. And so we're not in a bunker here as it relates to asset allocation.

Great. And just, Leslie, quickly on the hotel EBITDA margins, you guys are really tracking ahead through the first half of the year and went ahead and took down your margin expectation for the full year despite the fact that it sounds like you think that the second half is going to trend more favorably on the RevPAR side. So just curious what it is that's putting that further downward pressure in the back half of the year?

You are correct, Austin, in the sense of that second quarter performed better than we would have expected, given the fall in RevPAR, and that's off of a base of 39.2% from 2016, which is one of our highest margins in second quarter ever. And our team did a really good job of managing expenses in the second quarter, given our revenue management strategy, given some initiatives that we had put in place last year and also from a standpoint of managing labor, which I know a lot of people had questions around. While you look at the second half, it looks like -- well, it looks like the second half of the year, based on our guidance, would imply that the year-over-year performance relative to the first half is slightly better if you look at it from that perspective, so as opposed to pressuring and bringing you down. So first half of the year, in aggregate, is looking like, at the midpoint, we were down 150 basis points, 142, I should say. If you look at the midpoint, the second half, it was just that we were down 130 basis points year-over-year. So I look at it slightly differently than the way you articulated it. Primarily in the second half, we're having less revenue pressure at the top line. We're going to continue the revenue strategy that we had in the second quarter as well as we should see another quarter full benefit from the initiatives that we had started last year.

Our next question comes from the line of Michael Bellisario from Robert W. Baird.

Just first question, quickly. Did you guys provide a RevPAR index, or could you provide a RevPAR index change for the entire portfolio during the quarter?

RevPAR index for the quarter was $111, and that is down about 190 basis points.

And then just more on the kind of the capital allocation front, but with specifics to the legacy RLJ portfolio. I mean, how are you thinking about maybe selling more of your noncore hotels? And then, what would you do with that cash if you didn't proceed with more asset sales?

Right, Michael. The first part is, we sold 3 assets in December, including 2 in New York. And we're evaluating opportunities in our portfolio as we speak, and nothing is listed, but you can expect us to be more active over the next year. The second part of your question, what would we do with that capital? It's going to depend on what unfolds over the next couple of months here. And it's -- in any situation, we always look at the spectrum, right? Should we be retiring debt, which in legacy RLJ right now is very low cost debt. Should we be backing up the proverbial trough and buying back stock, which is an attractive option at these levels, depending on what happens over the next couple of months? Or should we be putting it into growth assets to help replace the FFO from the dispositions. In any given environment, we evaluate all of those options and make the choice based on what's in the best interest of shareholders.

Got it. It doesn't sound like that you're more aggressively pursuing disposition strategy with the legacy assets, correct? (inaudible)

Not at this very moment, that's right.

Our next question comes from the line of Ryan Meliker from Canaccord Genuity.

Nice job in the margins this quarter, it was better than we were expecting. A quick question I had, and kind of a piggyback over to what Michael was just asking with capital allocation. Do you guys run, I guess, hold versus sale analysis on your portfolio relatively frequently?

I would say the answer to that is yes, but it's a dynamic thing. We don't think of it in terms of a snapshot. We look at the entire portfolio and we take into account so many factors, Ryan, because it's not just what an asset is worth at a given time. We also look at our weighting in a specific market and what that would suggest. We look at CapEx requirements that are coming up over the next 3 to 5 years. Obviously, there's a correlation between RevPAR and multiple on the street. Most years, maybe not recently, there's been a little bit disconnect with the surge of select-service interest, and so we take that into account. So it becomes a little bit of a stew of quantitative and subjective business judgment that blurs the lines a little bit with just the classic wholesale.

No, I understand, and that makes a lot of sense. And the reason why I brought it up was because I tend to think if you're not going to sell something, it's probably because you're willing to buy it at whatever price you can get to sell it, more like a buy-sell type analysis and hold. And with that background, I guess, a question I would have is the stock has traded down since you guys announced the FelCor deal. Obviously, you're bullish on the FelCor deal. You think there's a lot of value creation, and the market doesn't see it yet. But obviously, if you're right, that will play out over time. But the stock has pulled back and you've created some type of almost artificially deflated stock price in the near term, which tends to be an interesting opportunity to buy back stock. I know you can't comment on it, but your proxy indicated that you had a level of interest at -- close to 15% premium to where the stock is trading today. So my question to you is with the $200 million in buyback authorization and the amount of cash you have on the balance sheet, why didn't you pull the trigger and buy back stock in the quarter?

So Ryan, what I would say, first of all, just to remind you, we've returned $1 billion of capital to our shareholders in the form of dividends and buyback. And right now we are actually precluded from buying back our stock. Once we get past that prohibition of buying back our stocks, we will absolutely continue to evaluate buying back our stock as a capital allocation alternative.

Okay. But I mean, I think a lot of that stock has been repurchased at levels well above where your stock trades today. So it just seems like, given all the factors that we know today, it would be more compelling today.

The -- we do not disagree that we are inexpensive right now, but given the constraints that we're facing, we're exercising restraint and we're looking forward to having that option open up.

Fair enough. And I assume -- I know you guys have talked a little bit about this in the past, but to the extent you can share some color, after the FelCor transaction is completed, assuming it's completed, you guys will be able to -- you guys are planning to delever to an extent. Are you trying to retain cash for that purpose? Or are you looking at more of the operating cash flows from the portfolio driving that deleveraging?

Would love to get into that discussion, but council advises that, that's something we can't talk about on this call.

Our next question comes from the line of Floris van Dijkum from Boenning and Scattergood.

I had a question on your comp EBITDA trends, maybe if you could share that. And also what would comp EBITDA have been if you exclude your 3 convention markets?

So Floris, that is -- our EBITDA that we gave year-over-year is comp. So maybe if you could explain what you think you're looking at, I can answer better. But the numbers we provided are comp.

Yes, no, no. What I was trying to get at, Leslie, is more what would it have been if you exclude the comp -- if you excluded (inaudible) what would comp EBITDA have been?

Floris, I don't have that number in front of me, but I'm happy to follow up with you and provide that information.

Okay, great. The other question I had is regarding the Embassy Suites. Do you expect any costs associated potentially with upgrades to your properties? Or are your properties up to the new standards for Hilton?

Yes, it's a great question, Floris. We own 6 Embassy Suites and we've renovated 4 of them. And we have found that we're good at it. The industry spends somewhere between $35,000 and $55,000, a key to do a complete comprehensive Embassy Suites renovation, and we have been falling in around that $35,000 to $40,000 key level. And in locations like our Irvine and Downey and West Palm Beach have really produced some beautiful results. So we think we've got the knack for it and look forward to exercising that full set on future hotels.

That is all the time we have for questions. I'd like to turn the call back over to management for closing comments.

Thank you, operator. This is a dynamic quarter for RLJ, and we appreciate your interest. We look forward to speaking with many of you throughout the next quarter. Hope you have a restful weekend. Thanks again.

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