CLDT
#<UNK>, it's <UNK>.
How you doing.
I'll start out by answering that.
We've got something that we call a supply calendar here that we use internally, which for each hotel lays out the supply over the next couple of years.
And I will tell you that I think, for the most part, we still have a little more supply coming; not meaningful though in Silicon Valley.
Let's see, do you have that calendar in front of you, <UNK>.
Yes, so I mean, basically, if you look at, whether it's Silicon Valley, we still have some absorption in Anaheim, Savannah as well, that's coming that we've obviously known about.
But it's really the same markets that we've talked about.
So it's Silicon Valley, San Diego, Anaheim, Savannah (multiple speakers) ---+
Houston in Q4 2017 has a bunch coming on still at least on paper.
But whether that materializes or not, they'd have to be breaking ground about now or so to get there.
In Houston, you still have the 1,000-plus-room Marriott Marquis downtown less than five miles away from the Medical Center.
So those are the five markets where ---+ and again, a little bit different this cycle is the fact that the new supply early, at this point, has been in the major, major markets.
It's only, for us, about 7% of our production at the moment, <UNK>.
So it's not as meaningful at the moment.
But when you truly look at those acquisition costs ---+ and the acquisition costs aren't just for the third-party booking costs, but even with our brand costs as well ---+ those are certainly impacting not just the OTA line item.
And even though it's on a small base year over year, particularly the cost is a large ---+
It's up 10%.
Yes, it's a large double-digit cost increase.
Yes, I mean, the commission rates are not necessarily going up, but the production ---+ because those contracts have been renegotiated by Hilton and Marriott in the past couple years to lower the overall commission rate.
So it's the production that's continuing to increase that's the primary driver on the OTA side.
So for example, when you've got some hotels that are hit by less corporate transient travel, what's likely to occur and what we see occurring and what we're looking at very carefully is the e-channel gets opened up by the revenue managers and by our hotels in order to keep that occupancy and in order to fill up the hotel.
But there is a cost, and the net ADR is really what you got to think about and consider the increased cost to push that business into Expedia or otherwise.
So that's kind of, I think, an industry-wide phenomenon that you'll see occurring over time.
Yes, Pat, that's the one that's in Washington, Pennsylvania, which is very much reliant on nothing but oil and gas production.
So it's certainly been pretty decimated by that one.
Well, not very good, Pat.
Probably a negative month here in July, and I'm not sure we're going to throw the number out there now.
But July, I think for the industry and for us, was not a good month.
We're seeing some little better numbers here in August.
Yes, I mean, some of that obviously was the July 4th shift that benefited the last week of June.
But yes, we certainly are expecting better improvement in August and September.
Yes, I mean, I think when you look at our third-quarter, August and September are some of the better months.
We don't have as much visibility in the fourth quarter.
So typically October is a strong month for us, but we just don't have enough on the books to confirm that that's definitely going to be the case.
But those three months are typically, at least as we kind of look at where we're forecasting based on what we know, August, September, and October.
I will say this ---+ I mentioned it on the call, Pat ---+ our July results in our Houston hotels is very bad.
And we're not going to throw a number out there because it might spook some people, but we're definitely considering that in terms of a large drag on this overall portfolio, which heretofore, has not existed.
So it seems like that contagion has really spread to our West University and Medical Center assets.
So we're, again, just kind of with a very short visibility and short booking window, can't tell you exactly where it's going to be, so we're going to air on the conservative side there without a doubt.
Oh, you've done a great job in terms of sorting through some of the other conversations as well around the industry.
Hey, <UNK>.
This is <UNK>.
But I certainly don't see anything like that happening in the next 6 to 12 months.
Certainly as you get to the end of these agreements with Marriott, Hilton, Expedias, we would certainly think that over time, the industry is able to have a little more leverage in those negotiations to lessen the impact of those fees.
In terms of investments, whether it's acquisitions, we have the Silicon Valley expansions, which are, in essence, an acquisition that is going to product double-digit returns.
So we do believe that that is still a meaningful investment and the right thing to do.
From a dispositions perspective, the market's pretty quiet other than for some headline assets and some of the ---+ primarily New York City that are garnering some attention.
But other than that, the market's pretty slow.
So not sure it's the right time to be selling our assets at this point.
(multiple speakers)
I was just going to say, I mean, we don't ---+ even though we're getting hit pretty hard here, we certainly don't think our fundamental business strategy of owning the best brands in the best locations where there's strong identifiable corporate demand generators is the wrong strategy.
We think that's the best strategy for the long haul.
Obviously corporate travel, though, is experiencing a lot of softness here, as everybody's commented.
But this portfolio with absolute ADRs and occupancies and debt coverage and dividend coverage of what it produces and, frankly, GOP margins that are over 50% makes us smile.
So we don't ---+ we see probably great long-term value in the assets.
Putting them into the marketplace today, I don't think you're going to be able to realize that value.
Absolutely.
We believe in the portfolio.
I mean, whether we would try to offload Washington, PA once the world stabilizes or not just because it's so reliant on whether the Marcellus Shale is producing natural gas or not is one thing.
But it's a small 70- or 80-room hotel.
Yes, we're going to ride it out.
We're going to add to our Silicon Valley presence because the returns there are very strong, and the customer base there is only growing.
So yes, that's where we're headed.
We have not identified specifically any business we think is going to go away as a result of that.
But obviously ---+ and we don't think there's really a lot of compression that's coming our way from that part of the world.
So I guess the long answer is no.
But there is a little more supply coming out there because of the absolute high ADRs and occupancies.
So I would expect our RevPAR growth to be muted even though the business is strong.
Not much on the horizon there.
Really no debt to refinance.
The preferred market's definitely attractive, and it's something we look at sometimes.
But no plans to do anything right now.
Well, thank you all for listening and participating.
And again, thanks for being on the call.
As I indicated, we do firmly believe in our fundamental business strategy here and the hotels and the locations that we're in.
And we will do our best on the operating side, and the team is working on fine-tuning whatever strategies there can be on particularly revenue management and direct sales side to get as much growth out of these hotels as we can.
And we look forward to our next conference call with you all.
Thank you.
