Sunstone Hotel Investors Inc (SHO) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. And thank you for standing by. Welcome to the fourth-quarter and full-year earnings conference call.

(Operator Instructions)

I would like to remind everyone that this conference is being recorded today, Wednesday, February 18, 2015 at 9 AM Pacific Standard Time. I will now turn the presentation over to Bryan Giglia, Chief Financial Officer. Please go ahead.

Thank you, Audra, and good morning, everyone.

By now you should have all received a copy of our fourth quarter earnings release and supplemental, which we released yesterday. If you do not yet have a copy you can access it on our website at www.Sunstonehotels.com.

Before we begin this call, I'd like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our prospectuses, 10-Qs, 10-Ks, and other filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider those factors in evaluating our forward-looking statements.

We also note that this call may contain non-GAAP financial information including EBITDA, adjusted EBITDA, FFO, adjusted FFO, and hotel EBITDA margins. We are providing that information as a supplement to information prepared in accordance with Generally Accepted Accounting Principles.

With us on the call today are John Arabia, President and Chief Executive Officer; Marc Hoffman, Chief Operating Officer; and Robert Springer, Chief Investment Officer. After our remarks we will be available to answer your questions. With that, I'd like to turn the call over to John. Please go ahead.

Thanks, Bryan. And thanks all of you for joining us today.

On today's call, I will first provide a few highlights of our hotel performance and then the current operating environment. Second, I'll give an update of our exciting value-add repositioning projects in Boston and Wailea, as well as an update of the renovation of the Hyatt Regency Embarcadero. Third, I'll provide a few thoughts regarding the current investment environment. Next, Marc will review our 2014 operations in detail and will highlight operating expectations for various markets in 2015. Bryan will then walk through our recent capital transactions, which have left us with considerable financial flexibility, and will also provide earnings guidance for the first quarter and full year 2015.

To begin with, our portfolio continued to perform well in the fourth quarter. While RevPAR growth came in on the lower end of our initial guidance, food and beverage revenues and other revenues were stronger than anticipated. These revenue increases, coupled with strong expense controls and 120 basis point increase in hotel EBITDA margins, produced adjusted EBITDA and adjusted FFO per share at the high end and midpoint of our expectations, respectively.

Our two hotels in New York City continue to face the headwinds of additional supply, and more recently have experienced softer international visitation as a result of the stronger dollar. However, we continue to experience strong growth in markets such as Boston, Orlando, and most of the West Coast, as demand strengthens, occupancies continue to grow, and pricing pressure intensifies. Furthermore, lower oil prices are already having a positive impact on transient bookings in Wailea, as air fares to Hawaii are showing year-over-year declines.

Overall, our portfolio occupancy has surpassed the prior peak levels and we are seeing greater evidence that group business, both in terms of room night demand and total group spend, is improving. Marc will provide more detail on this in a moment, but I think it's worthwhile to highlight that several of our hotels are now limiting group room nights and shifting group patterns to lower occupancy weekend nights, due to the strength of midweek transient demand. Furthermore, our group rates on tentative bookings are up meaningfully from prior year. These are very good trends.

Now let's talk about our recent and ongoing capital projects. We expect to invest between $165 million and $180 million to renovate and reposition our hotels in 2015. More than half of this capital will be invested in our three most recent acquisitions. This includes $41 million to $45 million at Boston Park Plaza, $22 million to $24 million at the Marriott Wailea, and $28 million to $31 million at the Hyatt San Francisco. All of these renovations and repositionings are proceeding as planned and our capital budgets in general have not changed.

We expect to incur approximately $3 million to $5 million of revenue displacement this year, or an incremental $1 million to $2 million compared to the roughly $3 million of revenue displacement witnessed last year. To put this into perspective, the high end of our 2015 disruption forecast equates to 40 basis points of our anticipated 2015 total property revenues of roughly $1.25 billion.

So let's talk in more detail about each one of these three projects, beginning with Boston Park Plaza. In 2014 we invested roughly $30 million in the Boston Park Plaza, primarily in the hotel's street level retail space and infrastructure, including the hotel's facades, roofs, elevators, and HVAC systems. Even in its recent condition, which included scaffolding, jack-hammering, elevators out of service and major construction activity in the lobby and meeting space since late November, the hotel had a terrific year. The hotel gained 210 basis points in RevPAR index in 2014, increased RevPAR by 8.7%, and produced $20.6 million in hotel EBITDA.

We are on track to be substantially completed with the renovation of the first four floors of the hotel, which includes all the meeting space, the lobby, a 20,000 square foot David Barton gym, and all first-floor retail by the end of this first quarter. The renovation work completed thus far looks absolutely fantastic and we're really excited about the hotel's earnings potential. We are already seeing the benefits of the new space, even prior to completion, as now we are selling to groups that would not have booked with the hotel prior to the renovation. Our second quarter 2015 group pace is up 13% and our year-over-year catering revenues between April and December are up 32%.

Now out to Maui to our Marriott Wailea Beach resort. 2014 ended strong at the Marriott Wailea with fourth quarter revenue -- excuse me, fourth quarter RevPAR -- up 14.6%, and full year hotel EBITDA increasing modestly to $20.4 million. The full-year earnings exceeded our underwriting by $1.1 million. This outperformance translates into an EBITDA multiple of 16.1 times on our purchase price, which is almost a full term below the EBITDA multiple we expected when we announced the acquisition last June.

Additionally, the resort is expected to have solid growth in 2015, which will be slightly offset by approximately $1 million to $1.5 million of expected renovation displacement. However, the $2 million guaranteed payment that we expect to receive from Marriott in 2015 should more than compensate for this renovation displacement. We continue to move forward with implementing our asset management initiatives and will complete a soft goods renovation of all guest rooms and a full renovation of the meeting space this year. We'll then finalize the he hotel repositionings in 2016 with extensive improvements to the common areas and pools, in order to materially elevate the resort's experience and to make the property far more competitive.

Now on to San Francisco. While the Boston Park Plaza and the Wailea Marriott are comprehensive repositionings, the already-completed and remaining renovations at the Hyatt Regency San Francisco are far more routine in nature. In 2014, we completed the renovation of all guest rooms and suites. In 2015, we will complete a refresh of the meeting space and lobby throughout the year in order to minimize disruption. We're looking forward to strong growth at this hotel in 2015, with RevPAR growth expected to exceed the market's growth.

In summary, the renovation and repositioning of these assets are proceeding as planned and we remain excited about the gross prospects of these hotels.

Finally, I'd like to spend a minute regarding our approach to the current investment environment. Clearly, the acquisitions market has become more competitive over the last 12 months as both public and private equity players remain active buyers of institutional quality hotels. As a result, return expectations for hotel real estate continued an era and pricing expectations remained robust. This trend has made it somewhat more difficult for us to compete for attractively priced hotel acquisitions. That said, we will continue to look for acquisition opportunities for high quality hotels that we believe will produce unlevered returns in excess of our cost of capital. And conversely we will continue to explore monetizing hotels that do not fit within our long-term portfolio strategy.

With that, I'll turn it over to Marc to discuss our fourth-quarter and full-year operating results and the current operating environment. Marc, please go ahead.

Thank you, John and good morning everyone and thank you for joining us today.

I'll review our portfolio's fourth-quarter and full-year 2014 operating performance in greater detail. Focusing first on the fourth quarter, we saw our comparable RevPAR grow 6% to $155.69, through a 4.4% growth in ADR and 120 basis-point improvement in occupancy. This occupancy growth led us to achieve, when taken on a same-store basis, a fourth quarter occupancy that is 100 basis points above our portfolio's prior peak occupancy for the fourth quarter.

Overall, 11 of our hotels generated double-digit RevPAR growth during the fourth quarter including our Renaissance Orlando, Marriott Wailea, and Renaissance Long Beach. With occupancy continuing to be at record high levels, and with demand trends continuing to improve, our operators have focused on increasing transient rates through proactive revenue mix management. This strategy has helped to increase our premium business portfolio-wide, specifically in the fourth quarter.

We continue to focus on decreasing our reliance on discount channels. During Q4, all our discount segments declined by 4.4% in room nights, while increasing a strong 5.7% in average rate.

Likewise, we continue to reduce our contract business considerably. And while we are keeping some contract business in place, such as certain airline crews, we now have considerable pricing power. We reduced our contract room nights in Q4 by 14% and increased our contract rate by nearly 24%. On a full year basis, contract room nights declined by 6.6% with a very strong rate growth of 17%.

In Q4, we saw a 1.3% room night decline in special corporate, but a 5.9% increase in the special corporate rate. Our hotels have limited availability midweek and are starting to close out the lower-rated special corporate as well.

Moving on to the results for the full year 2014, our comparable portfolio RevPAR was up 6.8% to $160.11. For 2014, nine of our hotels generated double-digit RevPAR growth, led by three of the major 2013 renovations: the Hyatt Chicago Mag Mile, Hyatt Regency Newport Beach, and the Renaissance Westchester. A few key revenue management highlights for 2014 include the following. Our premium room revenue improved 9.5% driven by a 6.6% increase in premium-rated rooms. Our corporate negotiated ADR grew by 4.3%. And finally, our discounted room segments grew by 8.1%, with a discounted room nights decreased by 1%, as our operators effectively shifted mix into both higher-rated segments and higher-rated discount segments. Overall, for full year 2014, our portfolio had a 7% increase in sellout nights as compared to 2013, which is the fifth consecutive straight year.

Moving on to group trends. For full year 2014, our 30 hotel comparable portfolio is up 7.1% in group room night production for all current and future years, driven by significant group bookings at several of our hotels, including the Renaissance Washington, DC, the JW Marriott New Orleans, and our two Houston hotels. We continue to see strong group trends throughout our portfolio. More importantly, our 2012, 2013, and 2014 renovated hotel trends remain positive as they continue to benefit from the renovations. Looking forward into 2015, our current group pace for all 30 hotels has increased by 5.3%. Our current growth is coming from rooms and rate with group rate growth at 3.2%. We're seeing group strength in several of our hotels next year as well, such as the Renaissance Orlando, Renaissance Washington, DC, and Hyatt San Francisco. However, our group pace is being hindered by Marriott Wailea, which we underwrote as having a tough comp coming off an all-time high year and Boston Park Plaza, which is being impacted, as we've discussed, by renovation during the first quarter.

Now let's spend some time talking about a few of our key markets in 2015. Washington, DC, as an overall market is expected to be slightly positive in RevPAR in 2015. PKF's most recent forecast for 2015 for upper priced hotels indicates a 3% increase in RevPAR. Our DC Renaissance group pace is a healthy 8.7% for the full year 2015. However, we continue to see some pockets of weakness in our transient business, based upon market demands and the ramp-up of the 1,175-room Marriott Marquis.

As we stated last year, we remain very bullish on Washington in the long term. And especially with strong city-wide years in 2016 and 2017, it should be highlighted that our Renaissance DC group pace stands at plus-25% for 2016 and plus-21% for 2017, respectively. Specifically to our hotel, we expect the continuing progress and completion of the unique city center mixed-use project, located at the front door of our hotel, will bring an upsurge in transient demand in the long term.

New York. New York is expected to continue to lag behind the remainder of our portfolio and struggles to grow RevPAR as a market. We believe that New York as an overall market will have minimal growth, due to the new supply both in the city and in the Times Square submarket. While we saw solid growth at the Hilton Times Square in 2014 due to the new product, and gaining back the displacement from our 2013 renovation, we expect the Hilton to perform with the market in 2015. Our hotels will have a difficult time growing rate in this significantly increasing supply environment.

Boston as an overall market is expected to maintain its very strong performance in 2015 and beyond. The market will see the same number of city-wides as compared to 2014. In addition, there is limited supply growth across this market, which when combined with peak occupancies in several hotels, should lead to strong rate growth. We are projecting our three Boston hotels to deliver between 6.5% and 8.5% in combined RevPAR growth in 2015, adjusting for the renovation displacement at the Boston Park Plaza.

In San Francisco, as John discussed, we expect to have a very strong performance in 2015, with RevPAR being one of the top three markets in the nation. San Francisco, with its greater macro environment along with its flat to minimal increase in supply, will continue to outperform. Our particular hotel is expected to perform very well in 2015, with our current group pace plus 17%.

Now let's turn to Orlando, which continues to experience strong demand in both the group and transient segments. Our hotel expects to have a significant growth in group rooms, driven off of an increase of higher percentage of corporate group and continued strength in transient revenue through aggressive mix management, and a result as the upside of all of the work that we've done in the hotel over the last few years. We expect our Renaissance Orlando to deliver between 7% and 9% RevPAR growth in 2015, after a very solid growth in 2014.

Let me turn now to Bryan to review our liquidity and guidance. Bryan, please go ahead.

Thank you, Marc.

During the fourth quarter we executed on a series of financing transactions that increased our liquidity, lowered our cost of capital and enabled us to address all of our 2015 debt maturities. In December, we refinanced the existing 5.45% $38 million mortgage secured by the JW New Orleans, with a new $90 million, 10-year, 4.15% fixed rate loan. The additional proceeds will be used to repay the remaining $99 million of debt that comes due in May of 2015.

Additionally, we repaid the 6.6%, $67 million mortgage on the Embassy Suites La Jolla for a total cost of $71 million. The loan had 4.5 years left on it with a maturity of June 2019. We paid a $4 million premium so we could refinance the debt with a new $65 million, 10-year fixed rate loan at 4.12%. Not only were we able to save $1.6 million a year of interest over the remaining term of the existing debt, which resulted in a 30% return on our prepayment, we were also able to extend the maturity to 2025.

Finally, during the quarter we issued 1.25 million shares of common stock through our ATM program at an average price of $16.12 and gross proceeds of $20.2 million.

The combination of these transactions combined with cash on hand, resulted in $304.2 million of cash, including $82.1 million of restricted cash at the end of 2014. Of the $222 million of unrestricted cash on the balance sheet, which included net proceeds from all three fourth-quarter financing transactions, $37 million was distributed in January to satisfy our fourth-quarter dividend, and $99 million will be used to repay the May 2015 maturities, which include the Marriott Houston, Marriott Park City, Marriott Philadelphia West, and the Marriott Tysons Corner.

In addition to our cash position, we have an undrawn $150 million credit facility and 14 unencumbered hotels, soon to be 18 unencumbered hotels once we repay the 2015 maturities. During 2014, these 18 unencumbered assets collectively generated $132.5 million of EBITDA.

At the end of the year, we had $1.5 billion of consolidated debt and preferred securities, which include 100% of the $228 million mortgage secured by the Hilton San Diego Bayfront. Our debt consists of entirely well-staggered, non-cross mortgage debt and preferred securities. Our debt has a weighted average term to maturity of four years and an average interest rate of 4.5%. Our variable rate debt as a percentage of total debt stands at 28.4%, and we have the cash on hand to repay all of our 2015 debt maturities. We are exceedingly comfortable with our current leverage profile and our ability to continue to achieve our long-term credit milestones.

Consistent with our track record we've built over the past several years, we expect to further improve our balance sheet and increase our financial flexibility in a gradual and shareholder-friendly manner. Yet we retain considerable flexibility to take advantage of opportunities as they present themselves.

Now, turning to the 2015 guidance. A full reconciliation of the current guidance can be found on pages 17 to 19 of our supplemental, as well as in our earnings release. It is also important to note that, as of January 1, 2015, the lodging industry adopted a new uniform system of accounts referred to as the 11th Edition, which changed the way certain revenues and expenses had been recorded on the hotel's income statement. While the net impact to hotel EBITDA is neutral, the 11th Edition does change the composition of certain line items impacting the previous presentation of hotel revenues, expenses, and hotel EBITDA margins. To make our comparisons easier, we have restated our RevPAR and hotel EBITDA margins for the full year 2014 in our release and supplemental.

While the 11th Edition incorporates several changes to the hotel's financial statements, there are two major changes to note. First, rooms revenue is being impacted by the change in classification for rooms rebates. Previously, these rebates were classified as commission expense, but will now be netted against rooms revenue. This will reduce the reported rooms revenue and rooms expense as stated in 2014 by $2.6 million.

The other major change in the 11th Edition is that food and beverage revenue and expense is being increased by the portion of service charges that are paid to employees as a gratuity. Previously, the service charge paid out was excluded from revenues and expenses and treated as a pass-through. Now, the employee portion will be treated as both revenue and expense, therefore increasing our food and beverage revenue and increasing our food and beverage expenses. This change results in an $18.9 million increase in both food and beverage revenue and food and beverage expenses, as compared with what was reported in 2014.

Now to the 2015 guidance. For the first quarter, we expect RevPAR to grow between 5% and 6.5%. We expect first-quarter adjusted EBITDA to come in between $58 million and $61 million. And we expect first quarter adjusted FFO per diluted share to be between $0.18 and $0.19. The midpoint of this range implies a 23% growth in our adjusted FFO per share, as compared to the first quarter of 2014.

Our full year 2015 adjusted EBITDA guidance ranges from $336 million to $356 million, and our full year adjusted FFO guidance ranges from $1.22 to $1.32 per share. At the midpoint, this implies an 8.5% increase in FFO per share as compared to 2014.

With that, we'd now like to open the call to questions. Audra, please go ahead.

Thank you.

(Operator Instructions)

We'll go first to Ian Weissman at Credit Suisse.

Yes. Good morning.

Good morning, Ian.

One quick question on -- good morning. Just a quick question on New York City. As I weigh your comments about the concerns about just the general marketplace and then you factor in the eye-popping pricing that foreign buyers or just anybody's paying for real estate in New York City today. As you think about your non-core asset sales over time, how should we think about the potential for selling an asset or so in New York City over time?

Marc and I both had comments on the operating fundamentals in the City which we think are kind of flattish this year and then some situations could even be negative. But getting to portfolio management and whether or not we would consider selling one of those assets, let's put it this way, Ian.

There is no asset within our portfolio that is off limits from a sale. If we can transact and create shareholder value or sell an asset in excess of our hold value, we will consider it and work towards that.

Let me ask you a question this way. At the beginning of the cycle when you guys were transforming the Company, let's call it, your goal was to sort of reposition the portfolio and get out of some non-core markets, which let's call them non-gateway city markets.

At this point in the cycle could the non-core asset sales include assets -- would you be more inclined to sell assets in gateway cities today? Is the question.

I think that's very fair. Yes. More so than where we were several years ago. I believe so, yes.

Okay. And just a little bit more of a micro question on Houston, just given all the talk about that marketplace.

I know you had some color about the market in general. But have they been any sort of group cancellations on a go-forward -- on a look-forward basis at this point or it's still business as usual in Houston?

Ian, it's Marc. Good morning. No, there have been no cancellations. It is business as usual. We have started to see some smaller pickup in group. We've seen some less traction on the business transient as one might expect.

But no nothing meaningful at this point. Business as usual. But we do expect to see some slight declines as we move forward. But it oil moves back up, that could change as well.

Okay. Thank you for all the details in the prepared remarks. Very helpful. Thanks.

You're welcome.

We'll move next to Bill Crow at Raymond James.

Good morning, guys. I'm going to pick up where Ian left off there with New York. You've stated flat to slightly negative.

Is that do you think representative of the market or do you think your portfolio there or your assets are going to perform in line with, above or below the market?

Bill, good morning. With our two assets there which are incredibly well located, our two assets, as you know the DoubleTree is on 47th and 7th, right next to the tickets booth, and then the Hilton Times Square is on 42nd Street mid block, both phenomenal locations that run incredibly high occupancy levels.

You really have to dissect the market. There are hotels that are coming online that continue to ramp occupancy, where we cannot. We're already running in rough range 98% occupancy year-round at those hotels. And so we really don't have the ability to push occupancy any further.

Whereas the market does have some benefit of new hotels entering the market that are ramping up occupancy. So from that perspective, even though we are very, very well located, wouldn't be surprised if we under performed the general market a little bit as to do most of the call it stabilized hotels do in the market.

John, in your early prepared remarks you talked about a noticeable decline in inbound international travel to New York. We haven't heard that from anybody else thus far. So I'm just curious how good your information is on the demand side from international travelers?

It's not something that we've seen noticeably so far. We have seen -- go ahead, Marc.

In actuality, we've only seen about a 2% decrease in international bookings. I think in general, look the international markets will decline slightly at this point.

But I think that we're not prepared to say there's any dramatic decline at all. I think at this point the exchange rate will make it complicated and a little more difficult. But overall, I don't think we've seen marked decreases in that area.

That's it from me. Thank you.

Thanks, Bill.

We'll go next to Lukas Hartwich at Green Street Advisors.

Great. Thank you. My first one's for Bryan. As you pay down property level debt, are there any plans to tap different debt sources?

Good morning, Lukas. When we look to finance debt or refinance debt, we look at the property. We look at what the best source of capital is for that property, whether it's more of a long-term hold or something we would look to divest in the short term.

And then would match the debt appropriately, whether it be floating and shorter term or long-term fixed. We do look at a variety of different sources, including the potential of increasing the capacity of our credit facility. And then also potentially looking into other bank debt such as term loans for -- which would provide more flexibility on assets down the road.

That's helpful. And then just kind of a more broad question. I know we've kind of touched on this already.

But thinking about the stronger US dollar and lower oil prices, how do you guys think about the net impact of those two factors? Does it make you incrementally more positive or incrementally more negative or is it a wash?

It's Marc. I think as we look at them, I think I see it more as a positive. At the end of the day, we have an enormous amount of transient rooms around the country and transient business is driven heavily by drive-in and by fly-in.

As long as airline ticket prices stay down and there's an enormous amount of people travel, it's only going to be a good thing. Again, we are concerned somewhat about the dollar strength for our European customers, but I think in general we look at it as a positive.

Very helpful. Thank you.

We'll go next to Thomas Allen at Morgan Stanley.

Hey, good morning. Last quarter you guys talked about some potential opportunities with the signage and retail at the Times Square property.

Given what's happening in the New York market with the new supply and some softer trends in the first quarter, how are discussions going about kind of monetizing those opportunities? Thank you.

We don't have current plans to monetize those signs. However, I will tell you that on the side of the DoubleTree Times Square we have plans to put a far more extensive sign package. And that's something that we have been working on for same time. It's not so significantly material to the earnings of the Company, but it's additive.

Okay. That's all I had. Thank you.

We'll go next to Chris Woronka at Deutsche Bank.

Good morning, guys. Just want to drill down on the guidance a little bit and I understand that visibility goes down a little bit as you go out.

But I think your annual 5% to 7%, I think in the first quarter you're saying 5% to 6.5%, so kind of seems like you're implying that the rest of the year would be in line or maybe even a little bit better with first quarter and the comps get pretty tough in 2Q, 3Q. Just how should we -- maybe your level of conviction or confidence in that relative to what you put out, say, this time last year?

Good morning, Chris. I think we are -- we look back at our track record and how we approach guidance and I think that we try to provide guidance that is attainable.

So when we look at the spread between quarters, we are very confident in what we've presented. Now, the first quarter that there is -- there's the renovations in Boston. There are the Super Bowl comp in New York, although as stated we think New York will have a headwind for the rest of the year.

So with those two major items, those are weighing on the first quarter RevPAR. But looking out at the rest of the year, we feel comfortable with the guidance provided.

Okay. Fair enough. And then just thinking about potential acquisitions. You guys I assume will have good result in Boston and Wailea, but those are obviously some heavy lifting projects.

Since we are moving through you the cycle, what's your appetite to do, once those are done and I know it's looking out a little bit, but are we still -- would you still do something that transformative, say next year?

Or -- because I think maybe that's potentially where you can add more value as opposed to just buying something that's got a going in yield. So just your -- I guess more of a cycle update thoughts from you.

I think that value-add opportunities present ways to create outsize shareholder returns. I think we are good at it, not only in terms of applying the right amount of capital, but also asset management initiatives and marrying the changes in the operations to those types of assets, particularly assets that have really lost their edge.

I think that is one of our core competencies that over the past couple years and next couple years I think we'll prove to the markets that's a core strength. Right now I'd say our plate is fairly full even though we're starting to digest Boston Park Plaza which will be -- the podium will be done here in call it six to eight weeks.

And Marc and Robert Springer and Guy Lindsey have already done a tremendous amount of work in the design, implementation for Maui. Embarcadero, that's largely in the can. That's really been -- at this point we need to execute on what's been designed, but that heavy lifting, a lot of that has been done. So I think we need to just manage where we are in terms of how much of the heavy lifting value-add we take on at any one time.

I don't think that 2015 or I believe said differently I think that it's unlikely that in 2015 we would take on another one of those projects. 2016 maybe start opening up a little more and then after that, depending on how successful we are and how the market receives the work that we do at these two assets, I think it's on the table.

Okay. Very good. Thanks, John.

Sure.

We'll go next to Anthony Powell at Barclays.

Good morning, everyone. On the dividend, there was no dividend guidance for the full year given in the release. How are you looking at the overall dividend relative to 2014? And also, how are you planning or thinking about the mix between cash and stock?

Good morning, Anthony. Our view on the dividend hasn't changed. Our policy and what was declared for the first quarter was the $0.05 quarterly dividend.

You should expect to see that over Q1 through Q3. And then while we have not obviously declared or set the policy for the fourth quarter dividend, at this point our expectation is it would be similar to what we did last year.

Now, obviously with EBITDA growth, taxable, which is comparable to the taxable income growth, that fourth quarter dividend based on the current guidance would be larger than what we had last year. If that dividend was $0.36 in the fourth quarter, that dividend could be in the kind of $0.40 to $0.50 range based on current guidance.

Very helpful. Thank you. And on Chicago, the market did very well for you guys in the fourth quarter. How's 2015 looking on a group booking trend, how are the city-wides and how is the supply growth looking in that market?

This is Marc. Thank you for the question.

Chicago as you did say, we had a strong fourth quarter and a good year. 2015, the city-wides are positive. We have about 11% increase in group room nights for the entire market. Look, we know that there continue to be more hotels coming into Chicago.

It's probably second or third highest increase in new available rooms and there continue to be silly developers moving forward on some other developments as we move forward. From a standpoint of 2014 -- excuse me, 2015 pace, our pace in Chicago at all three of our hotels is up nicely, north of 5% to 6%.

So we feel good about our hotels in Chicago, particularly because they're exceptionally on strategy in terms of the product and service. And their position and their acceptance by customers.

That's all from me. Thank you.

We'll go next to Ryan Meliker at MLV & Company.

Hey, guys. Thanks for all the detail on the markets and the hotels in the prepared remarks. That was really helpful. I had two more questions.

I was hoping you could first of all, with regards to guidance, particularly margins, in 2014 you guys came in at RevPAR towards the high end of your 2015 guidance range at 6.8% and margins were up 150 basis points. And then the high end of your guidance for 2015 is just 100 basis points.

Is there something going on in there that you're not going to see quite as strong margin expansion in 2015 on similar RevPAR growth than you saw in 2014?

Hey, Ryan. It's Bryan. There are a couple items that are weighing on the margins in 2015.

One, certain jurisdictions were pretty heavy handed when it came to real estate tax assessments. There's a few markets where we are currently -- we received the higher valuation. We're in the process of appealing it now. The real estate tax impact has about 30 basis points of impact on the margins.

The good news is that those are markets where the appeal and decision is something that typically happens in the year that they're appealed. So we won't have a prior year adjustment. Once we have our verdict there, we'll be able to adjust them accordingly.

The other weighing factor on margins is -- would be the growth in New York City. And obviously with the cost structure that's involved with those hotels, the New York hotels are weighing about 30 basis points on margin also.

I thought it might be something like that. That's helpful and that makes sense. Sounds like if you win your property tax appeals, there's upside to your margin guidance for the year. Is that correct?

Yes, I would not expect all of it, but the good news is we will have resolution in the year.

Okay. That's helpful. And then the second question I wanted to ask you guys was so you ended the quarter with $304 million in cash on the balance sheet.

You clearly have more than enough capacity between a leverage standpoint coupled with liquidity from the cash to fund your redevelopments or renovation projects and your 2015 debt maturities. What was the reasoning for issuing equity on the ATM at a price point that's over $1 below where the stock's trading today? It doesn't seem like there was a use of proceeds.

It seems like you were just taking advantage of what you thought was a fair valuation and to sure up a balance sheet that was already in pretty good shape. Help me understand what the thought process there was. I know it wasn't a big number, $20 million, but just the thought process is helpful.

Yes, Ryan. It's John. We started raising a little bit of equity on our ATM early in the quarter or when the window opened last quarter. I think it's a fair comment that was in hindsight probably a little bit on the early side.

We were positioning the balance sheet to make sure that all of our 2015 largely capital projects and all of our debt could be taken care of at the start of the year. It was a bit of a conservative strategy in hindsight.

But we feel very good about where we are now. And as Bryan said in his prepared remarks, we have considerable flexibility in our balance sheet. And we're at the point where we can take advantage of opportunities as they arise.

That makes sense. So it sounds like it was really just focused on trying to sure up your 2015 debt maturities heading into the year.

And with that being out of the way I guess the second question I would have is aside from uses of proceeds that might involve things that are unknown today, whether it be acquisition, developments, renovation plans, et cetera, there's not really a need to tap those ATM markets again?

We'll remain flexible around that, depending on what we have going on. I think it's an important thing to note, Ryan, that freeing up four of those relatively smaller assets of ours and unencumbering them with a mortgage, just gives us also a lot more flexibility in our ability to capital and recycle assets within our portfolio.

And that's an added leg of I think value that Robert Springer is highly focused on. And as we continue to reduce our leverage and add that flexibility, I think you'll see us being much more nimble, particularly if the hotels don't have encumbrances on them.

So that was, again, one of the reasons why we wanted to step into 2015, one, being able to say -- look our shareholders in the eye and say we have all the financial capability and more so to fund all of these great value-add projects. But also to take an even further step in our capital recycling capabilities.

That makes a lot of sense. That's a very good point. That's all from me. Thanks a lot.

Great. Thank you.

That does conclude the question-and-answer session. At this time I'll turn the conference back over the management for any concluding remarks.

We want to thank you all very much for your interest. Several of us will be on the road and look forward to seeing many of you in the very near term. Thank you.

That does conclude today's conference. Again, thank you for your participation.