Xenia Hotels & Resorts Inc (XHR) 2017 Q2 法說會逐字稿

Good day, and welcome to the Xenia Hotels & Resorts, Inc., Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Lisa Ramey, please go ahead.

Thank you, Steven. Good morning, everyone, and welcome to the Second Quarter 2017 Earnings Call and Webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas, our President and Chief Executive Officer; Atish Shah, our Chief Financial Officer; and Barry Bloom, our Chief Operating Officer. Marcel will begin with an overview of our quarterly results and details on our recent transaction activity. Barry will follow with more details on second quarter performance and portfolio enhancements. And Atish will conclude our remarks with an update to our full year guidance. We will then open the call for Q&A.

Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties, as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in, or implied by, our comments. Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, August 8, 2017, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release. An archive of this call will be available on our website for 90 days.

And with that, I'll turn it over to Marcel to get started.

Thanks, Lisa, and thank you all for joining our second quarter call. We were pleased with our portfolio's performance during the quarter, as top line results met our expectations. And the portfolio outperformed on the bottom line through our continued focus on cost containments and portfolio initiatives. During the quarter, we had net income attributable to common stockholders of $69.4 million, which included a $49 million gain on properties sold during the quarter.

Our adjusted EBITDA was $79.6 million, and our adjusted FFO per share declined to $0.59 due largely to our 2016 and 2017 dispositions, which make a year-over-year comparison challenging. As a result of our previously announced transactions during the quarter, the same-property portfolio numbers we will be discussing today are reflective of the 37 property portfolio we owned as of June 30.

We experienced a 1.4% decline in same-property portfolio RevPAR in the second quarter, with April down 3.8%, May up 1.4% and June down 1.7%. As discussed on our first quarter call, April was negatively impacted by the Easter shift, which positively influenced our March performance. May and June came in as expected, with June particularly being impacted by 4 citywide convention business and some of our larger markets and continued disruption from our now-completed Westin Galleria rooms renovation.

Our Houston-area hotels had a negative impact of approximately 170 basis points on our same-property portfolio RevPAR in the second quarter. When excluding the Houston-area assets, our RevPAR increased by 0.3% over last year. We expect a negative impact of our Houston-area assets on overall portfolio performance to moderate during the second half of the year, as year-over-year comparisons get somewhat easier and the most disruptive part of the Westin Galleria renovation is now behind us. Barry will provide additional detail regarding our renovation progress later during the call.

Our focus on portfolio efficiency and cost containments resulted in Same-Property Hotel EBITDA margin of 34.2%, a decline of only 32 basis points, despite experiencing the aforementioned decline in RevPAR and a significant increase in property taxes, due in part to tax refunds received in the second quarter last year. Excluding property taxes, hotel operating expenses decreased by 1.4%, primarily due to the continued benefits of our property optimization process and a strong focus on expense controls throughout the portfolio.

The second quarter was active on the transaction front. As we continued our process of further refining and upgrading the portfolio, while maintaining our strong balance sheet position. During the quarter, we completed nearly $400 million in transactions. This included the disposition of 6 limited service hotels and the acquisition of the Hyatt Regency Grand Cypress in Orlando. Our transaction activity during the quarter has further improved the overall quality of our portfolio as well as the long-term growth profile and overall supply picture.

As we discussed last quarter on our call, our disposition activity started in April, when we sold the Courtyard Birmingham at UAB for $30 million or $246,000 per key. This price represented an 11.4x multiple on trailing 12-month EBITDA. We also retained a $1.1 million balance in the FF&E reserve.

In June, we completed the sale of a 5-hotel portfolio for a total price of $163 million or approximately $201,000 per key. The portfolio included 3 Courtyards in Fort Worth, Kansas City and Pittsburgh as well as 2 Baltimore hotels, the Hampton Inn & Suites and the Residence Inn. We were pleased with the execution and pricing achieved from this transaction. The sale price represented an 11.1x multiple on trailing 12-month EBITDA before brand required capital expenditures, which the buyer estimated the cost of between $13 million and $16 million. We also retained the $5.6 million balance in the capital reserve accounts in this transaction. The 5 assets had an average trailing 12-month RevPAR of $115.52 significantly below the remainder of our portfolio.

Subsequent to quarter end, we also exited one of our noncore markets and assets through the sale of the Marriott West Des Moines, we sold this hotel which posted the second lowest RevPAR in our portfolio in 2016, for $19 million in July. We estimated that this sale allowed us to avoid approximately $10 million in required capital expenditures. We are pleased to have been able to exit this third tertiary market and focus our attention and capital investments on assets and markets that we believe have stronger growth characteristics.

On previous calls, I've spoken about our expectation that after being a significant net seller between 2014 and 2016, we will be more balanced between dispositions and acquisitions this year, with a bias toward being a net acquirer. I have also spoken about our desire to continue to upgrade our portfolio by making targeted investments in luxury and upper upscale hotels, while selectively disposing of assets that do not meet our long-term investment criteria.

In the second quarter, we successfully executed on this strategy through the completion of the dispositions I mentioned as well as the acquisition of Hyatt Regency Grand Cypress in Orlando. As announced in May, we acquired this 815-room resort hotel in one of our target markets for $205.5 million or $252,000 per key. Orlando represents all of the characteristics of a core investment market for our company. It is one of the top lodging markets and key leisure destinations in the United States and benefits from many diverse demand generators, particularly for group and leisure demands.

Additionally, near-term lodging supply growth is benign with current forecast calling for a supply growth of approximately 0.5% in 2017 and 1% in 2018. Aside from the favorable market characteristics, we also believe this hotel specifically has strong earnings growth potential through the deployment of our asset management strategies and near-term capital investment initiatives. And finally, the pricing at approximately 11x trailing 12-month EBITDA and substantially below replacement costs, presented an attractive entry point into a market-leading resort in a market where we have significant experience and expertise. As it relates to our capital plans for the hotel, we believe there are several near-term opportunities to drive future earnings growth.

Overall, the hotel's in excellent condition, having received approximately $32 million in capital over the past 5 years, including renovations of the pool and outdoor spaces as well as the lobby and food and beverage facilities.

This year, we expect to spend approximately $5 million in capital expenditures, including addressing some near-term guest room needs such as televisions, refrigerators and desk chairs, addressing minor roof and infrastructure issues and planning and design for an upcoming guest room and meeting room renovation and proposed ballroom expansion. We expect to spend an additional $9 million next year for the guest room and corridor renovation as well as approximately $6 million over the next 2 years, upgrading the existing 65,000 square feet of meeting space. We intend to execute the guest room renovation in the summer of next year, which will minimize the expected revenue disruption at a time of lower demand. This renovation will merely be a soft goods renovation and no significant bathroom work will be necessary, as the hotel had previously converted approximately 45% of its bathrooms from tubs to showers.

In addition to these upgrades, we have embarked on the analysis and planning for the development of an additional ballroom, as the hotel has a much lower ratio of guest room to meeting space than its direct competitors. We believe that adding a 25,000- to 30,000-square-foot ballroom will greatly benefit the property and provide a strong return on investment, as it will allow the hotel to increase and better balance group bookings within its dynamic market.

Additionally, we will analyze further opportunities to optimize performance and take advantage of the 30-acre site on which the hotel is situated. We are delighted to have been able to expand our relationship with Hyatt through this transaction. Hyatt manages 5 other hotels for us and we have been extremely pleased with the results of these hotels. We look forward to working together to achieve similarly positive results at Hyatt Regency Grand Cypress.

The result of our various transactions during and subsequent to the quarter, is that our portfolio has been further refined and improved without impairing our ability to take advantage of additional investment opportunities whenever they may arise. We will continue to pursue on-strategy acquisitions and look forward to continuing our positive momentum.

I will now turn the call over to Barry.

Thank you, Marcel. As a reminder, all the portfolio information I'll be speaking about is reported on the same-property basis for 37 hotels owned at quarter end. As Marcel mentioned, portfolio performance met our expectations on the top line, as we anticipated the challenge of the Easter shift into April. For second quarter 2017, our same-property RevPAR declined 1.4% due primarily to 120 basis point decline in occupancy, as rate was essentially flat at 0.1%.

Our group business was down approximately 0.9% for the quarter compared to last year, with transient and contract business declining by approximately 1.8%. Excluding our Houston-area hotels, our RevPAR grew 0.3%, driven entirely by rate as occupancy was flat.

Our top-performing markets during the quarter were: Napa up 19.1%, Salt Lake City up 15.7%, Charleston, South Carolina up 14.5%, Birmingham up 11.9% and Santa Barbara up 9.3%. Both of our Napa properties benefited from good weather this year, and our Marriott continues to see upside from the extensive renovation we completed in the first half of last year.

Salt Lake City had great citywide business during the quarter and our strong group base allowed for an aggressive transient rate strategy. The Grand Bohemian in Mountain Brook also benefited from strong group production during the quarter. We are pleased with the performance of this hotel as it continues to stabilize in its second year of operation. The Grand Bohemian in Charleston, South Carolina has enjoyed a strong summer with strong weekend demand in the market.

In total, we had 8 markets with RevPAR growth over 6%, including San Diego, Atlanta and Boston. Our most challenged market this quarter continued to be Houston with RevPAR for our 3 hotels in the market down 18.6% comprised of a decline in occupancy of over 10% and a decline in rate of 4.6%. This is in line with our expectations as noted on our Q1 earnings call. The Galleria market had a weak convention calendar this quarter, and we're still dealing with the impact of new supply, specifically, the Marriott Marquis added at the convention center downtown. We also experienced substantial disruption during the quarter as we finished the guest room renovation at the Westin Galleria.

The Marriott Woodlands performed better than the Galleria this quarter but continued to see a softening in ADR in both group and transient segments. However, food and beverage revenues were a particular bright spot, up 13.5% during the quarter, as the hotel benefited from considerable in-house group spend.

Other notable markets' RevPAR declines for the quarter included Dallas, down 10.3%; New Orleans, down 9%; and Philadelphia, Portland and Charleston, West Virginia, each down approximately 5.5%. While most of these markets performed in line with our expectations, our Dallas hotels underperformed, particularly, the Marriott City Center due to a lack of compression from citywides, which we recognized far in advance. Unfortunately, neither of our hotels were able to make up this shortfall with self-contained group, which resulted in an inability to drive transient pricing.

We are pleased with our margin performance for the quarter down only 32 basis points, despite being muted by an increase in property taxes of over 17.5%, due to property tax refunds received last year during the second quarter. Excluding property taxes, our Same-Property Hotel EBITDA margin increased 25 basis points in the quarter, with other hotel operating expenses declining 1.4%, as we continue to focus on continuity and planning for those aspects of the business that we do control.

We continue to be pleased with the momentum and results achieved through our property optimization process, which has now been conducted at 7 hotels year-to-date and 24 hotels since the program started in 2014, representing approximately 70% of our room count and over $5.5 million of annual ongoing net benefit. Our POP team has been extremely successful in finding opportunities throughout the portfolio as well as working with each of our hotel managers to implement our findings at the hotels. We continue to benefit from strong acceptance of our suggested initiatives by our managers.

During the second quarter, we continue to make substantial progress on our current and upcoming property renovations. The comprehensive guest room renovation at the Westin Galleria is now complete and our optimization of the suite mix at the hotel resulted in a reduction of 18 keys. We have also begun the next phase of our renovation at the hotel, which as you may recall includes a complete lobby renovation with the addition of bar service, the transformation of the top floor to revitalize the hotel's main social catering space as well as the addition of the first-ever concierge lounge at the hotel and the relocation and re-creation of the existing windowless fitness space into a dramatic top floor venue. We anticipate each of these remaining projects to be completed in the middle of the fourth quarter.

We have made continued progress on a similar guest room renovation project at the Westin Oaks, as we've completed the model room review and are working on final logistics to execute this project. This renovation is expected to commence in the fourth quarter with targeted completion in the first half of next year. We remain confident that this capital is well allocated within our portfolio, as we anticipate Houston being a driver in our portfolio in the future, and believe the revitalization of the Westin Galleria and Oaks will allow the hotels to regain their historic position as market leaders.

One notable additional capital item completed during the quarter was the addition of one key to the now 85-room RiverPlace Hotel in Portland as well as the transformation of one key from a standard room into a family orientated suite. In addition to our guest room renovation at the Westin Oaks, we are on track to commence several additional renovation projects in the second half of the year, including guest room renovations at the Hilton Garden Inn, D.C., Monaco Denver, Monaco Chicago, Lorien Hotel, Residence Inn, Denver and Marriott Chicago at UIC as well as meeting space renovations at Hyatt Regency Santa Clara and Loews New Orleans, a lobby and great room renovation at the Marriott San Francisco Airport Waterfront and restaurant renovations at Monaco Chicago and RiverPlace.

With that, I will turn the call over to Atish.

Thank you, Barry. I would like to discuss our revised guidance this morning. Our guidance reflects the 36 hotels owned today. Before getting into the specifics, one point that I would like to note is that the transactions that we've completed since we provided guidance in May are expected to have a net $2 million negative impact to our 2017 adjusted EBITDA. This is due to the seasonality of the Hyatt Regency Grand Cypress relative to that of the 6 hotels we have sold since May.

Despite that, we have raised our full year guidance to reflect an improvement in our outlook. We've raised our estimate of 2017 adjusted EBITDA to $250 million to $260 million. This is a $4 million increase at the midpoint. In terms of adjusted EBITDA, we earned approximately $3 million more than expected in the second quarter. This was due to the net impact of transactions as well as stronger-than-expected food and beverage revenues and better-than-expected margin performance.

For the second half, we anticipate adjusted EBITDA to increase $1 million compared to our prior guidance. The increase is due to strength we are seeing for the fourth quarter, offset by the net impact of transactions. As to RevPAR, we increased the midpoint of our full year estimate by 50 basis points. This is due to an improved outlook for the fourth quarter versus prior guidance.

Turning to hotel EBITDA margins. When we started the year, we had expected margins to decline approximately 150 basis points. Currently, we expect margins to decline about 50 basis points. The reasons that full year margins are expected to be better than what we had expected in February, include better RevPAR, higher food and beverage revenues and improved expense management. As to our confidence for the remainder of the year, while transient business continues to be uncertain, our group expectations continue to be strong. Group revenue pace for full year 2017 is up approximately 5%, that is at about the same level as it was a few months ago when we last reported. We have definite bookings for over 90% of our 2017 expected group business. And more specifically, as it relates to the second half of 2017, our revenue pace is up 8%. The outlook for our hotels in Houston continues to improve. We expect our hotels in Houston to negatively impact portfolio RevPAR by 70 basis points for the full year. Our Houston hotels RevPAR is expected to decline 6% to 9% for the full year. For the second half of 2017, we expect a more moderate decline in RevPAR for our Houston hotels, as the comparisons are much easier than they were during the first half. In fact, in July, RevPAR at our Houston hotels was positive as we compared to a very challenging July of 2016.

Our guidance for adjusted FFO is $204 million to $214 million. This increase of $4 million at the midpoint is directly attributable to the reasons we just discussed, as there has been no change to our expectations for interest expense or income tax expense for the year. On a per share basis, we expect to earn adjusted FFO between $1.91 and $2. As it may be helpful for those of you modeling the company to know the impact of our transaction activity relative to last year, since mid-last year, we have sold 11 hotels and acquired 1 hotel. As a result of these transactions, we estimate that the net negative impact for second half adjusted EBITDA to be approximately $10 million compared to last year. We expect this to break out as follows: About $8 million in the third quarter and $2 million in the fourth quarter. Coupled with this dynamic is the timing of the holidays relative to last year. Taken together versus last year, we continue to expect a weaker third quarter followed by a stronger fourth quarter. As to our estimate of capital expenditures, we lowered our estimate for the full year to $80 million to $90 million. This reflects a fine-tuning offset by an increase due to net transactions since we last provided guidance.

In summary, we are pleased with the progression in the business, we have raised our guidance by $4 million despite a $2 million net negative impact from transaction activity since our May forecast. As we look forward, we expect to continue to build on the momentum we have had in terms of asset management and margin performance. We expect our strong balance sheet and healthy level of liquidity and dry powder in the form of an untapped revolver to enable us to take advantage of opportunities as they arise. And we believe the evolution of our asset base to higher-quality assets located in better markets will benefit us over the years ahead.

That concludes our prepared remarks, we'll now turn it over back for the question and answer session.

(Operator Instructions) And our first question comes from Brian Dobson with Nomura Instinet.

Just a quick question on Houston. So the trends in that market seem to be improving or rather deteriorating less rapidly every quarter you report earnings. I guess at this pace, when do you expect RevPAR trends there to at least bottom out? And also what types of returns are you expecting on the renovations that you're undertaking in that market?

Thanks, Brian. This is Barry. I think all of the observations you made are certainly correct. Looking forward, we think the market in Houston will continue to be somewhat choppy. Q1 obviously was great, primarily due to Super Bowl. And we always expected Q2 to be the poorest performing quarter this year for us both in terms of where our group bookings were as well as knowing that we really had the heaviest lifting on the Galleria renovation this year. One of the things, we're looking at going forward is, in the near term, with Galleria rooms renovation behind us, we're able to provide some differentiated pricing between the 2 towers, and that's actually helped the hotels perform better overall, as Atish referenced to our strong performance there in July. There are still -- we're still absorbing the Marriott Marquis in the Galleria area, and in the Woodlands, we're just now getting to where we're lapping the addition of the new Westin, which while that would ordinarily be a positive, we have in place some lower corporate rates this year than we had last year. So we'll continue to see some deterioration on that in the near term through Q3 and Q4. Q3 group business at both hotels looks fine in both locations. But on a blended basis, Q4 is actually not as strong as Q3 in terms of how our books are setting up, but we know we have time still to book into that. Looking ahead to next year, we know that this year's Q1 Super Bowl has set up a really difficult comp for Q1 of next year. So we're really not looking to see material improvement in kind of, if you will, the real year-over-year positive lapping until the second half of 2018.

Okay. That's great color. And then just quickly on your recent transactions. Can you give a little color about who you're bidding against and who the major buyers in the room for your assets are? And whether or not you are seeing perhaps more buyers in the market than you did, call it, 6 months ago?

Yes, Brian, this is Marcel. I'll answer that question. Obviously, as far as who we were competing with to acquire hotels. Better -- that question is a better question for the people that sold us the hotels, frankly. But our -- from what we gather, it was kind of a mix of potential buyers that were looking at it. And whenever we're looking at acquisitions, it's never a matter of that you're just competing with 5 other REITs or 5 other PE companies, it generally is a little bit driven by what people's concentration levels are. How interested they are in certain assets, certain brands. So generally, it just kind of changes a little bit when you're looking at different deals, who you're competing with. In some cases, it could be more private equity, in some cases, it could be more public companies you're competing with. As it relates to the assets that we've sold, it's been a mix of buyers on that side too frankly. I don't think the mix has changed significantly or the depth has changed very dramatically, since last year frankly. The difference is, is that clearly we sold, as you know, the 5 select-service hotels we sold to one of our peer REITs. So as we in the public arena sometimes kind of look at it through a public lens, you could say there is a little bit more activity with some of the public companies, including ourselves looking at acquisitions. But in general, I think the market is still maybe a little bit improved from where it was 12 months ago, but I wouldn't say it's dramatically different.

And our next question comes from Bill Crow with Raymond James.

Question number one is what's left in the potential asset divestiture bucket? Where do you stand as far as kind of capital recycling at this point?

Good morning, Bill, it's Marcel. As we've said in the past, obviously, we don't really comment on particular transactions until we complete them or get to a point where we feel it's prudent to disclose those. What I will tell you is that, coming into the year, and as I said in my prepared remarks too, we were definitely looking to be a little bit more balanced between dispositions and acquisitions this year with a bias toward being a net acquirer. So I would say that, a lot of the heavy lifting has been done on the sales side with some of the assets on the lower end of our portfolio. But as we continue to look forward, we'll always continue to look to upgrade the portfolio over time. And particularly, if we find more interesting acquisition opportunities that makes, for us, to look a little bit more closely at some additional dispositions. So again, I think it's going to be a little bit of a more balanced game as far as matching those acquisition opportunities with potential dispositions going forward.

Okay. I wanted to focus on margins. And terrific performance, not just by yourselves but number of the other REITs. And I'm just wondering what's left in the tank from a margin perspective? And that would be question one. Number two would be, how does the change of the portfolio composition impact the absolute margins, it seems like, your expense opportunity -- reduction opportunities maybe have grown because of the Hyatt purchase in Orlando, but maybe your absolute margins are going to be lower than they would have been had you maintained the 5-pack select service assets? Is that a fair way to think about it?

I think it is a fair way to think about it. I'll certainly let Barry jump in and talk a little bit more about where we feel there is some -- what's left in the tank frankly. But your characterization is an appropriate one, which is the absolute levels of margins could be a little bit lower when you sell some of these select service assets and add some of the full service assets. However, from our experience and what we find particularly attractive about some of these changes in our portfolio is that, we think there are ways to be more efficient in some of these acquisitions we have made and that there are some opportunities to find margin improvements in those assets, that would have been much harder to come by in the number of the assets that we have sold. So we certainly are absolutely, looking at it the way you are describing it, which is, we think that there are ways to attack some of those operations and both in a growth environment and in a relatively stagnant RevPAR growth environment, there is opportunities to continue to improve that margin.

Absolutely, true. Bill, it's Barry, I think it's very hard for us to, obviously, quantify what's left in the tank. The couple of things that I think are relevant as it relates to us and our portfolio in particular. The majority of our portfolio has been acquired since 2013. So we don't feel like those assets are stale with us and that we continue to surprise ourselves a little bit, quite frankly, with the opportunity we're finding on a week-to-week and month-to-month basis as we're in the assets. I think you see some of that in our Q1 and Q2 performance, particularly in a very soft RevPAR environment. We're very proud of both the asset management team we have here, who are all incredibly experienced and have been through a number of both up and down cycles, and I think that's helpful as we've seen kind of deceleration in the last year. These people know what to do and how to work with our properties to drive performance. Our POP program, the property optimization process, I mentioned in the prepared remarks, we're about 70% of the way through the portfolio with about $5.5 million of annual realizable net benefit from that program. Whether that ratio continues or not, it's not clear, because quite frankly, as we find good ideas we try to spread them very quickly through the portfolio. We're out there every day working on those. We have also done some reorganization on the asset management team in terms of putting fresh sets of eyes on assets. So even when kind of people have been on an asset for 2, 3, 4 years, we think it's very relevant to kind of put -- to reshuffle the deck a little bit and get fresh perspectives on the properties and working with the managers to help uncover things that the last person might not have seen and has a different relationship with the manager. Have somebody with more food and beverage experience on our property than one of the other players on that team, things like that.

All, right. And then finally from me. Barry, what's a good number to think about from a property tax increase pace going forward?

I think we're looking at about 5% by year-end, year-over-year. This quarter really was unique, we had some very large credits back last year. We had some decent credits back, this year as well. But last year was fairly unique. So I think we're looking at about 5% for the year on the property tax number alone.

And as you may recall, Bill, we actually pointed it out in the second quarter of last year, when we had pretty significant margin improvement that we did benefit from some tax refunds, that were a little bit more outsized in the second quarter of last year. So we obviously saw the flip side of that in this quarter. But particularly, as you pointed out earlier with that type of increase in our real estate taxes, we're pleased with our margin performance overall.

Our next question comes from Thomas Allen with Morgan Stanley.

Can you just talk about -- you talked about 2017 group pace, can you just talk about 2018?

Tom, it's Marcel. Not really prepared to start talking about '18, yet. We did talk a little bit obviously about what we're seeing here in the second half of the year. With particularly lot of strength that we're seeing in the second half of the year here. So we'll get into that more as we talk about it next quarter and give you an update then on how '18 is shaping up. As you know, the booking windows overall are still relatively short. So as much as we can talk about some of the pace for '18 now, it is still a percentage of overall bookings that are relatively modest compared to where you are when you can get closer to the end of the year. So we prefer to start talking about that in the next quarter.

Okay. And then just your home market, Orlando, I mean you obviously did another acquisition. Can you just talk about kind of the longer term outlook for the market. I know there's not a lot of supply growth over the next few years. But -- I was noticing kind of an influx of news articles about supply coming on or new construction starts. I think there's a JW Marriott coming in or breaking ground soon. So can you just talk about kind of the longer term outlook for the market?

Sure. We think that, as I said in my remarks, that Orlando is a great long-term -- actually it's a great long-term market and it's also a great near-term market. It's a market that we know extremely well not only from being headquartered here in the city, but also the experience that we have as an executive team and as an asset management team with assets in this market in this company and prior companies. We feel very comfortable with our knowledge in this market. The market is a strong one that has, as you know, a large supply of available rooms currently. The percentage of increases in supply are very modest compared to national averages over the next few years. Of course, you do see occasional development that happens, including the JW that was announced, that you had mentioned, which obviously, we're well aware of. When you think about all the positives that are happening in the market from a demand standpoint, those, we believe more than easily make up for the supply increases over the next few years, a lot of positive things happening at the theme parks, both the Universal and Disney. You think about some of the new attractions that have been announced that will be tremendous drivers on the leisure side. There is a lot of investment that has been going into the convention center overall, which is really helping overall market compression and the group business. And then, specific to our hotel, we've obviously talked about where we think some of the upside is, which is some of the renovations we're talking about and the expansion of meeting facilities, which we think will really allow us to much more effectively put groups on top of each other and really optimize the facilities at the hotel.

And then just what's going to be your Orlando exposure, now post to these recent transactions?

We actually disclosed in our release to that -- based on 2016 EBITDA for our portfolio, we're at about 9% of the portfolio, that is coming from Orlando.

So that's inclusive of all the transactions?

That is inclusive of the transactions [we've announced], not West Des Moines, but it obviously doesn't really change -- doesn't move the needle. So it becomes our -- effectively neck and neck with Houston, our most concentrated market. And '17 number obviously, as you think about the trajectory of Houston versus Orlando, you could obviously surmise that Orlando may become our #1 exposure market by the end of the year.

And our next question comes from Whitney Stevenson with JMP Securities.

Maybe sticking with supply a little bit, the brands are talking about peak signings being in the rearview mirror now. So question for you, one, has rate of supply growth leveled off, yet for you in your portfolio? And two, when do you anticipate a deceleration in the rate of supply growth this cycle?

When you look a little bit further out. So when you start looking at 2020 and beyond, it becomes a lot more murky obviously, there is a lot of deals that will get announced sort of may happen after 2020, where it all gets kind of thrown into the basket of 3 plus years being out. So we obviously look at that very closely and try to get a measure of what's happening there to see if there is some slowdown. In our portfolio, we're at roughly about 2.5% in our actual tracks -- market tracks that we operate in, in our markets, so we're not talking about MSA numbers, but our particular market tracks. We're at about 2.5% growth for '17 on the supply side, which ticks up a little bit for '18, and '19 is pretty stable compared to '18. Just anecdotally, which I'm sure you're hearing as well, it does seem like it's getting harder and harder to get deals to pencil going forward when people are underwriting relatively modest RevPAR growth and they're looking at the increases in cost on the construction side. And they're looking at the more difficult environment to get construction financing for deals. So we certainly are hopeful, and the way we're looking at it currently is, that we would expect a supply growth to start tapering off a little bit as you get past '18, '19.

Okay. And then Marcel, just kind of to expand on your consistent comment about being a net acquirer this year. Just any commentary on where you are seeing the most interesting or contrarian opportunities? And how would you gauge your interest level in terms of urban versus leisure markets?

Yes, we will continue to look at opportunities in kind of a wide range of both markets and assets. What we thought was particularly appealing about some of the changes that we made to our portfolio in the second quarter is that it's really highlighted the further refinement and upgrade of our portfolio. Even though, this is something that we've been really doing the last few years. I think it really highlights the fact that we are an investor in really high-quality assets and then primarily in the luxury and upper upscale segments. And we like playing in primarily top 25 large markets and key leisure destinations. And that's -- our acquisitions can come in the form of any of those, the combination of any of those. So we like having diverse demand generators in our portfolio. We like having leisure as a component of the portfolio. But we look at each individual acquisition opportunity based on a lot of characteristics, including how diverse are these demand generators. What's the supply picture for this specific market. Where are the opportunities from an operational perspective on some of these assets. But our strategy has and will remain the same, which is top 25 markets, key leisure destinations, and primarily in the luxury and upper upscale segment, and in some cases, that may be assets that are a little bit more skewed towards leisure side, and in some cases, it may be a little bit more skewed towards the corporate side.

This concludes our question and answer session. I'd like to turn the conference back over to Marcel Verbaas for any closing remarks.

Thank you, Steven. I like to thank you, again, for joining us today, and we look forward to speaking with you again, next quarter. And continuing our positive momentum both within our existing portfolio and hopefully, we will continue to move forward with certain transactions that will continue to upgrade the quality of our portfolio over time. We're very pleased with how we've performed over the last few years, in this aspect of our business. And look forward, as I said, to continue that momentum going forward.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.