HST
#No, it doesn't.
I think actually the changes that we have made will hopefully allow us to focus even more carefully and thoughtfully on the markets that we are interested in acquiring in.
But by splitting up the US between Jim Risoleo, who was our Chief Investment Officer previously and now is located on in the West, and then bringing in Nate Tyrrell, who is a senior leader within the Company who has been very active ---+ an active member of the investment committee and a very strong executive, putting them in charge of the eastern half and the western half of the country I think will allow us to be even more focused in our investment efforts and I'm expecting to see good results out of that change.
I think in part ---+ I would say that we typically ---+ when we were issuing stock, we tended to look to get authorization to do that up to $500 million.
And I think in terms of buying back stock, we felt that $500 million was a good, round number.
Obviously if we execute fully on that program there is the opportunity to initiate another one, but a lot of this is tied to our expectations around sale activity.
<UNK>, I would say we are always looking at opportunities to maybe make changes in one property and then acquire benefits in another.
We have done it a couple of times, where we have done what I would sort of view as very large transactions, both of those with Marriott when we renegotiated our contracts back in 2002 and then again in 2005.
I'd say what is more likely to happen in the near term is something similar to what happened in Calgary, where we agreed to extend the Calgary contract in return for getting flexibility on two other properties, one which we subsequently sold.
Flexibility that we acquired was the ability to sell that property with ---+ unencumbered by management.
And so we are always looking at opportunities like that.
I think it's reasonable to assume that over the course of the next couple of years a couple more opportunities like that will develop.
I would say that given that our basic plan is to fund it primarily through asset sales, I would suggest that it would more likely be spread out.
But having said that, consistent with how we've both pursued stock buyback programs in the past and stock issuance in the past, a lot of that relates to where the stock price is.
So to the extent that the price were to be more attractive, then we would accelerate our buying in those circumstances and situations where it would increase significant then we may be out of the market for period time.
It will be dictated a bit by the pace of sales and then furthermore ---+ and then offset by the degree to which those sales might be reinvested in other assets, either existing ones or new ones.
And then, ultimately, also affected by the stock price.
<UNK>, I think the point we were trying to make in our comments is we do feel good about the cycle and we do feel the part of the cycle that we can predict is the supply side.
At least we can reasonably predict that.
And we are not seeing at this point any problems on that side.
Having said that, I think that there is always risks on the demand side and so I think we are comfortable with where we are.
We will have flexibility to perhaps do a bit of what you were describing as we move forward, but I think that is ---+ I mentioned we are looking at some deals, that we want to be thoughtful about how we fund those transactions, and that we would obviously like to see the asset sales occur that we are ultimately going to use to fund the buyback.
So it doesn't all have to happen sequentially.
You don't have to have sold the property in order to fund the buyback, but you want to have a reasonable expectation that the sales will occur in order to fund the buyback.
And, of course, some of this gets tied to just the availability of those periods of time when you can actually be in the market to buy.
So I get your point and I don't disagree with it in whole, I just think we ---+ at the same time, I don't believe that the Board was comfortable with the notion that we would aggressively frontload that program in anticipation of things that would happen.
I've seen people do ---+ maybe move aggressively on expectations in the past and the world can change on you and surprise you in that respect.
There certainly are some international assets that are part of our sales program for this year, so that's something that we are looking at.
Yes, I haven't thought about it specifically in terms of a percentage reduction to NAV, but certainly as we looking at other alternatives we are looking at both what is the opportunity with that acquisition versus what do we think the return would be on the stock.
And to the extent that the stock is a more compelling investment then that's going to see more capital.
We are looking at a combination of both.
Some are larger single-asset possibilities and then we are also looking at a number of the smaller deals that might be out there.
So both of those would potentially be on the plate.
No, I don't know.
I wouldn't think that we are looking ---+ we see a difference in terms of where we were last quarter.
Maybe one point that you are getting at indirectly is that we've ---+ when we talked about the options that we had last quarter, I think we suggested at that stage that we might be in an either/or position relative to stock buybacks versus investing.
And I guess what I would say is as we have looked forward, as we look at what we would be interested in trying to sell this year and have thought about that, the conclusion that we reached is that we probably had the capability to both do new investments and buy back stock.
Obviously the relative balance of those two will change and evolve as we work our way through the year, but we didn't see it as an either/or proposition so that's why we wanted to go ahead and implement the program at this point in time.
Because our stock price is attractive; we do want to have the ability to be able to purchase it.
And then we'll ---+ the degree to which we execute on one version versus the other will be based upon the relative returns that we see from each of those alternatives.
Certainly we could do both of those things, but I would add we could also put out over $600 million in the form of a dividend.
<UNK>, there are a few projects that we are going to start at the end of this year that will be sizable renovations of individual hotels that will happen during the beginning of 2016.
At least based upon our current expectations.
But overall, when we look at the program that we're envisioning for 2016 and compare it to 2015, we expect that the dollar amount that we invest will go down and the impact of those activities next year will be less than what we're feeling this year.
I don't want to give you a number right now because we are very early in the process on the capital budgets.
I think it's ---+ I'm not talking 5% or 10%.
I'm talking more than that.
<UNK>, the one thing to recognize in our sector is you are always in some level of renovation, and I know you know that.
A big chunk of the larger investments that we are making this year, it relates to these really we call ROI or redevelopment projects.
And I continue to believe that those are the sorts of projects that you all should want us to be doing, because it's like as I mentioned my comments, we think the return for those investments are in the midteens.
And we think those are attractive way to both enhance the value of the portfolio and enhance the value of our cash flow.
So that part of what we are doing, to me, is very much value accretive.
I think that the part that ---+ and I would like to do more of those to the extent that those opportunities, such as what we're going to end up doing in Phoenix with the Ritz-Carlton, would present themselves.
On the other hand, what we talked about before in the first quarter and I think we've ---+ or rather in February and are continuing to highlight, as both <UNK> and I talked about in our comments, is we did have a number of larger renovation projects to comparable hotels, which certainly had a negative effect on those comparable hotel performances during the course of the first quarter.
That CapEx which deals more with maintaining the portfolio, it is accelerated a bit in the beginning of this year, in part because of some contractual negotiations we had, whether it was extending a ground lease or extending a management contract in return for other benefits.
That level of capital is what I expect to be declining next year, and that is why I believe the level of disruptive will be lower.
We'll know more about that as we work our way through the year.
Our budget process for coming up with next year's capital program really happens over the course of the summer.
I think there are certain benefits of scale that just relate to either your ability to access the unsecured debt market as the foundation of your portfolio and your ability to perhaps develop in-house capabilities in certain areas.
In our instance, I think our ability, our scale, affords us the ability to develop a fairly comprehensive construction team which I think makes the difference in terms of what we spend and when we are pursuing construction projects and the like.
So I do think there are some benefits of that.
On the other hand, I wouldn't say that scale in and of itself, certainly for us at this stage, enhancing that scale is not necessarily a goal.
For us it's about enhancing profitability and share value.
In terms of predicting what's going to happen within the sector, I think many of you have commented that you could certainly see some logic or some consolidation, but that hasn't happened in our sector in the past.
So I think it would be hard to predict that it's necessarily going to happen in the near term.
<UNK>, I think the other big benefit, as you know, from size is increased stock liquidity as well.
<UNK>, what I was referring to there was that we ---+ my sense is that the market may be underestimating the benefit that we expect to derive out of the seven projects that are essentially going ---+ are non-comparable this year because we are closing parts of those properties.
And as a result of closing parts of those properties, all or parts of those properties this year, we're losing about $25 million in EBITDA this year compared to last year.
As most of those projects, with the exception of the ballroom in San Diego, will be coming back online no later than the first quarter of 2016.
And so if we are in 2016 and 2017, we would expect to both recapture the $25 million that we are losing in 2014 because they won't be closed anymore and then, based on the rational under which we undertook those contracts, we would expect to see another $25 million or so of incremental EBITDA that would flow to the Company in 2016 of 2017 as a result of our successful completion of those projects.
So that's what I was talking about in that part of my comment.
It's inherently the assessment and the underwriting of those individual projects takes into account what's going to be happening in those markets.
So the strength of the convention cycle in San Diego in 2016 is one of the benefits that we expect to derive from having our ballroom complete.
But I was really referring to those projects as opposed to a blanket statement about how well the portfolio or the industry would perform in 2016.
<UNK>, I agree with that, but I also would say that we are also experiencing a lot of disruption in our comp portfolio as well.
And so, for instance, as I mentioned, three of our largest hotels in DC were all under renovation in the first quarter.
So as those hotels ---+ as those renovations are completed by, call it, May of this year, then those hotels will start outperforming this year and obviously in 2016 as well.
Again, the same thing.
I think we mentioned the Calgary Marriott.
A lot of disruption going on there; the RevPAR is actually down 42%.
That hotel is actually in our comp set, so again when that hotel ---+ when we are looking at that hotel next year my guess is the RevPAR growth could be substantial.
I don't want to necessarily comment on any one company's portfolio, but you should assume that we regularly look at whatever the brands are interested in selling.
We have strong relationships with all the brands, so we would always be in conversations with them about what options might exist.
Sure.
I would say, as usual in this area, it tends to be a combination of factors.
So as part of some of the redevelopments that we are looking at, we have identified some incremental opportunities that we think will add value, including in one instance a meaningful energy ROI project where we will end up producing our own power for a particular hotel, which we think will significantly reduce our utility costs.
Some of it is an increase in scope.
Some of it is the fact that as we've looked at the timing for when we are going to be completing some of the improvements, the reality is we are hopeful of being ---+ that perhaps completing things a little bit earlier.
And the net result was for the dollars allocated for this year to go up a bit.
I guess what I would say is, first of all, I think you've assessed all of that correctly in the sense that we basically are feeling a bit more pain from the current ---+ or anticipating that we will feel some more pain on the currency side which is being offset by the margins.
And I'd say you're right about what's happening on the group side.
We were very encouraged by the strong increase in rooms booked in the first quarter, and perhaps even more encouraged by the fact that the rate was up 8% compared to what we booked last year.
So our group booking pace for this year is continuing to look better and better as we work our way through the year.
We certainly hope that that trend continues.
And I think, to the extent that we benefit from that trend continuing, that might offer an opportunity for an improvement in our top-line estimate.
But it's really ---+ it was just one quarter and I think we just simply ---+ we are certainly ---+ in a sense we've improved our guidance because we've offset the decline in the currency impact, but it obviously doesn't show up when you look at the aggregate numbers in nominal dollars.
But we are feeling good about where the year is headed and hope we continue to feel good.
<UNK>, I can't necessarily tie that specifically to that particular issuance of stock.
I am not debating your numbers; I'm just simply saying I don't know that we would necessarily tie it specifically to that.
But as we approach issuing equity through this last four or five years, one is I know that the average multiple that we issued that equity at was a couple turns higher than where we sit today.
More than a couple turns higher.
So I think we felt very comfortable whenever we were issuing equity previously that we were issuing it at a premium to our NAV.
I think at this point in time as you look at where our stock sits, and having achieved the leverage objectives that we have, we tend to view our stock as trading at a discount to that NAV.
So I think the general way we looked at this is if we try to issue stock when it's above our NAV, we use that to buy assets.
We did not use that to really pay down debt.
We used that to buy assets as we grew.
And then at this point in time, given where we are, we are perhaps a bit ---+ while we would like to continue to buy assets, as I indicated in my comments, just looking at where the markets are it wouldn't surprise us if we were to sell more.
And so in an environment like that when we think we are buying the stock at less than NAV, we think that's a fair trade.
The stock ---+ as the market gets better and as the value of the portfolio improves, the stock is going to go up.
We all ---+ I am not uncomfortable with any of the stock issuances that we made, because as we worked our way through the cycle we are worth more now than when we issued that stock previously.
But at this point in time I think we are not being as fairly valued as we should be, which creates the opportunity to buy stock back.
Probably a combination of both.
We've clearly had strong cash flow growth in our portfolio.
The cap rates have certainly compressed, leaving out certain individual markets.
I think they did compress from earlier in the cycle.
We're at a point in the cycle now where I think you would like to see cap rates generally ---+ you are comfortable if they continue to maintain their positions.
But certainly over the course of the cycle we have seen cap rate compression and we have benefited from that.
<UNK>, there's a lot there.
I think your first part of your question, though, was just to talk about maybe our RevPAR growth as we progressed through the year.
As you know, we really do not give quarterly guidance; we give full-year guidance.
Having said that, I think when we look at our quarters for this year, I think the strongest quarter for us should be the fourth quarter.
And in general, if you look at where our expectations are and our guidance are for the full year, it's clear that the first quarter is below that.
So we are obviously expecting things to improve as we work our way through the year.
Then what was ---+ I think you had some questions about some of the individual markets.
The other thing I would mention, Tom, is obviously RevPAR is important but margins are important as well, if not more important.
I would say that clearly when we look at our ---+ we had a great first quarter with an increase in margins of 50 basis points.
I think when I think of the second, third, and fourth quarter, the fourth quarter clearly will be the best quarter from a margin growth perspective.
So hopefully that helps you in modeling the quarters as well.
I would say that the group tends to be a little bit lighter in the first quarter in a lot of the European hotels anyway.
So I think that that was ---+ I don't know that I would read a lot into that in terms of full-year in Europe.
What I would say about Europe is, as best as we can tell, is that we did get some good lift from enhanced international travel coming into Europe.
And so I think actually it's obviously just the first part of the year.
The summer travel season will be more significant in this respect, but it looked like our visitation from the US was up 6% to 8% in the first quarter compared to last year.
So I think that's one of the reasons why we were pleasantly surprised by the RevPAR growth in Europe.
Steve, I think a lot of that has to do with the source of the travel, so in other words, the tours tend to book a bit longer out.
I think that individual travel is probably a bit shorter.
It's hard to put the specific time frames around that, but I would imagine, based on just examples as opposed to real data that you and I would both be comfortable with, that the individual piece of it is maybe 60 to 90 days but the tour business tends to be a bit longer.
We certainly ---+ we are obviously aware of the changes in the currency and the dollar relative to especially the euro and so we have been interested to see what that was going to do to our business.
The best international travel data we see, unfortunately, ends in December, but I was surprised to see that at least in the months of December, even during a period a time when the euro had already started to fall appreciably compared to the dollar, travel ---+ and same I think with the pound, too.
Travel out of two of the largest countries has been both to the US; the UK and Germany was actually up in December compared to the prior year, which I thought was a good sign.
What we are hearing so far this year is that there has not been any real trend of less international travel into our hotels in the gateway market.
I think there is a sense on the West Coast that the Asian travelers are really ---+ other than Japan, are continuing to grow at a pretty rapid rate in terms of their visitation to the US.
Now as you circle back to the east, we continue to think that there could be some risk in terms of travel into New York and into Florida.
But, again, the feedback that we are getting from the hotels so far is they are not seeing a reduction in reservations and so we're going to watch that carefully over the course of the summer.
Great, thank you for joining us on the call today.
We appreciate the opportunity to discuss our first-quarter results and outlook with you.
We look forward to providing you with more insight as to how 2015 is playing out on our second-quarter call later this summer.
Have a great day.
