Apple Hospitality REIT, Inc.
Q3 2017 Earnings Call Transcript

Published: 7 Nov 2017

[Operator:]

Greetings and welcome to Apple Hospitality REIT Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now pleasure to introduce your host Kelly Clarke, Vice President of Investor Relations. Thank you. You may now begin.

[Kelly Clarke:]

Thank you and good morning. We welcome you to Apple Hospitality REIT's third quarter 2017 earnings call on this the 7 November, 2017. Today's call will be based on the third quarter 2017 earnings release, which was distributed yesterday afternoon. As a reminder, today’s call will contain forward-looking statements, as defined by Federal Securities Laws including statements regarding future operating results. These statements involve known and unknown risks and other factors, which may cause actual results, performance, or achievements at Apple Hospitality to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality's 2016 Form 10-K and other filings with the SEC. Any forward-looking statements that Apple Hospitality makes speaks only as of today, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, certain non-GAAP measures of performance such as EBITDA, adjusted EBITDA, FFO, and modified FFO, will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday’s earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the Company, please visit applehospitalityreit.com. This morning you will hear from Justin Knight, our Chief Executive Officer, Krissy Gathright, our Chief Operating Officer, Bryan Peery, our Chief Financial Officer. We will provide an overview of our results for the third quarter of 2017 and then open the call for Q&A. At this time it is my pleasure to turn the call over to our CEO, Justin Knight.

[Justin Knight:]

Thank you, Kelly. Good morning and welcome to Apple Hospitality REIT third quarter 2017 earnings call. And thank you for joining us on Election Day. Our geographically diversified portfolio of hotels achieved an increase in comparable hotels RevPAR of 1.3% during the quarter, which brought year-to-date comparable hotels RevPAR growth through September at 28%. Despite continued wage pressure and modest inflation, we maintained a strong comparable hotels adjusted hotel EBITDA margin of 38.9% consistent with the third quarter of 2016. During the quarter, our portfolio experienced disruption from two major storms, while the damage to our hotel from hurricanes Harvey and Irma was not material, the storms had a devastating impact on numerous communities. We are incredibly proud of the tremendous service and hospitality that the operating teams at our hotels provided our guests in response to the storms. Our hotel associates some with catastrophic damage to their own homes worked tirelessly to ensure the safety and comfort of our guests and we commend them for their hard work and continued efforts to aid in the rebuilding of their communities. Although key macroeconomic indicators, including corporate profits, employment and real GDP are positive and continued to signal steady economic progress, growth in business travel remains modest. Overall despite lackluster business demand, performance across the hotel industry was stable on average during the quarter, though operational dynamics varied wildly from market to market. Given the broad diversity of our portfolio with locations in 88 U.S. markets, our focus on strong brands, upscale hotels, ongoing reinvesting in the quality of our hotels and a strong flexible balance sheet, we believe we are well-positioned for any economic environment. As we head towards the end of the year, we have increased confidence in our ability to achieve our operational and financial results near the higher end of our guidance with 2017. We are pleased to have recently acquired four hotels each consistent with our corporate strategy of owning high quality, select service hotels in strong markets with diverse demand generators. These acquisitions expand our reach into new markets and in so doing expand our geographic footprint and further diversify demand generators for our portfolio. In September, we closed on the newly-constructed, dual-branded Hilton Garden Inn and Home2 Suites by Hilton in downtown Birmingham, with a combined total of 210 rooms for a purchase price of approximately $38 million or $183,000 per key. The properties are well located near the University of Alabama at Birmingham, Children’s of Alabama pediatric hospital, the Birmingham VA Medical Center, Regions Financial Corporation’s headquarters, numerous corporate offices, and a variety of guest amenities. We believe our attractive per key purchase price for these new hotels in a research and market highlights the benefits of selectively entry into fixed price contracts with trusted developers for projects prior to construction. In October, we acquired the Residence Inn by Marriott in Portland Downtown/Waterfront in Portland, Maine for a gross purchase price of approximately $56 million or $312,000 per key. The hotel which was built in 2009 is located on Portland's dynamic waterfront within walking distance of the city’s cruise ship terminals. We also acquired the Residence Inn by Marriott Salt Lake City Murray, which was built in 2104 for a purchase price of approximately $26 million or $188,000 per key. In addition to its close proximity to downtown Salt Lake City and numerous ski resorts, the hotel is ideally located near Intermountain Medical Center and a variety of dining and shopping options. In each case these acquisitions are in markets with trailing and projected RevPAR growth exceeding national averages. Each hotel is well located within its respective market and benefits from a variety of business and leisure demand generators. We continue to pursue similar opportunities that we believe improve the quality of our portfolio and increase shareholder value. As I have mentioned in previous calls, we have also been working to reduce our ownership of full service assets and redeploy proceeds into our core product where we believe we can generate stronger, more stable returns for our shareholders over time. Consistent with this strategy, in October we completed the sale of our full service Marriott in Fairfax, Virginia, for a gross sales price of $42 million. We will continue to seek opportunities to sell our remaining three full service assets when we feel pricing is appropriate and proceeds can be redeployed into assets which better fit our long-term strategy. With debt to adjusted EBITDA at three times, our balance sheet is among the strongest in our industry, which provides us with increased stability during times of economic uncertainty and the flexibility to pursue our creative opportunities in the marketplace. We also continue to have in place both an ATM offering and share repurchase program to enable us to benefit from dislocations and trading of our share should they occur. In general, supply and demand continue to grow with similar rates across the country though the balance can vary market to market. The supply outlook for our hotels has increased slightly from what we reported for the second quarter with just over 62% of our hotels, expecting one or more upper mid-scale, upscale or upper upscale new construction projects within a five mile radius to be completed within the next 18 months. As one of the largest owners of Marriott and Hilton branded hotels, with a concentration in the upscale rooms, focused sector of the lodging industry, our team has unparalleled access to performance data. We benefit from visibility across different markets, brands and managers and utilize the information to implement the most efficient and effective practices across our portfolio, which along with purchasing scale reduce operating costs and lead to our strong operating margins. It's now my pleasure to turn the call over to Krissy who will provide additional detail regarding performance across our markets and the industry overall.

[Kristian Gathright:]

Thank you, Justin. We are pleased that we were able to achieve a 1.3% growth in comparable hotel RevPAR during that third quarter, while maintaining a robust occupancy of 80%. The combination of rate driven RevPAR growth and a modest increase in operating expenses enabled us to maintain a strong EBITDA margin of 39%. Both RevPAR and margin performance were better than expected and came in at the higher end of our full year guidance. After a slow start with the 4 of July holiday falling midweek, impacting business travel, performance improved over the course of the quarter. We experienced a small lift from elevated demand for hotels and the pass of the solar eclipse and a more material boost from the post-hurricane recovery efforts mainly in the Houston market and to a lesser extent in Austin and some Florida markets. We estimate that the hurricanes resulted in 60 to 70 basis points of additional RevPAR growth in the quarter. We expect this storm recovery to manage - to continue into at least the first quarter of 2018 for our hotels in the Houston area. Outside of calendar shifts and the impact of natural disasters, we would characterize demand as stable with leisure outperforming business demand as has been the trend throughout this year, approximately 61% of our hotels had RevPAR growth during the quarter, which is up slightly from the 58% year-to-date and two thirds of our hotels were able to grow average daily rate compared to just under 60% year-to-date. Although no impact in the third quarter with the L.A. market showing solid growth, as a reminder the Porter Ranch costs has impacted our RevPAR growth approximately 40 to 50 basis points year-to-date, mostly in. Taking into consideration contribution to EBITDA, our strongest RevPAR growth markets during the quarter were Houston, San Diego, Richmond and Kansas City. Our weakest markets were Dallas, Omaha and Oklahoma City which have been challenged by new supply. For the fourth quarter, we expect RevPAR growth to come in at or above the high end of our full year range. As mentioned in my earlier comments, we were very pleased to be able to maintain margin this quarter. Our asset management team and our operators continually work on revenue mix and expense control and it is great to be able to highlight tangible benefits. Although the labor market continues to be challenging, the payroll expense increase moderated to 2.2% during the quarter versus 3.6% year-to-date. Wage growth represented a 30 basis point margin impact compared to 60 basis points year-to-date. The rollout of the labor management platform I have mentioned in the past is going well with 70% of our hotels having implemented one of the platforms. Our expectation is that these additional tools will continue to help mitigate payroll increases to improve productivity and reduction over time cost. Offsetting the wage increase this quarter, we achieved a 10 basis point savings in utility expense and a 20 basis point savings in real estate taxes due to favorable real estate tax appeal. I will now turn the call over Bryan to provide additional detail on our financial results.

[Bryan Peery:]

Thanks, Krissy and good morning. I will quickly summarize a few of the results. Justin and Krissy touched on. Revenue for the quarter was $325 million bringing year-to-date to $950 million, increases of 18% and 25% respectively compared to the same periods in 2016. Adjusted EBITDA increased 16% to $120 million during the third quarter of 2017 and 22% to $345 million year-to-date. Modified FFO per common share was $0.48 per share, down 2% from the third quarter of 2016 and $1.38 year-to-date also down 2% compared to the first nine months of 2016. At the end of September, the company had $1.3 billion of outstanding debt with a combined weighted average interest rate of 3.5% for the remainder of 2017. Excluding debt issuance costs and fair value adjustments on acquired debt, our debt is comprised to $430 million in property level debt and $877 seven million of unsecured debt. In July, the company entered into an unsecured $85 million seven year term loan. The net proceeds from the term loans were used to pay down borrowings on the company's revolving credit facility. In conjunction with the term loan, we also have entered into interest rate swaps agreements to effectively fix the interest rate at 3.76%. Overall approximately three fourth of our debt is fixed rate. Our undrawn capacity on our unsecured credit facility at the end of October after completing the transactions Justin mentioned was approximately $300 million. We continue to consistently reinvest in our properties, investing $42 million in the first nine months of 2017 with an additional $25 million planned for the remainder of the year. The average effective age of our portfolio, meaning time since built or last renovated is approximately four years. We believe that through consistent reinvestment we maintain the competitive positioning and relevance of our hotels and mitigate the impact of competing new supply with - in our individual market. With our scale and product focus, we are able to increase purchasing and operational efficiencies that reduce total renovation costs. During the third quarter the company paid distributions of $0.30 per share, bringing total distributions for the year to $201 million or $0.90 per share. The annualized $20 per common share represents an annual 6.4% yield based on our November 3rd closing price of $18.87. We continue to focus on our core strategies and continue improvement on execution of these strategies, further strengthening the value of our hospitality platform. Thank you for joining us this morning. We will now open up the call for questions.

[Operator:]

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

[Austin Wurschmidt':]

Hi, good morning and thank you for taking the question. Krissy I think you mentioned in the fourth quarter you're expecting to be at or above the full year range. How much of that would you attribute to the shift in the timing of the Jewish holidays versus you know, anything you're seeing from an improved industry or market specific outlook across your portfolio?

[Kristian Gathright:]

I wouldn't attribute very much of it, first of all Austin, thank you for your question. I wouldn't attribute very much of it to the shift in the holidays because of our portfolio geographically diversified, a little bit more suburban and urban. There's a little bit less and then also primarily being select service hotels. There's a little bit less reliance on group. So the - both and looking at September versus October, I would characterize the impact as being minimal. We did say last quarter we expected the fourth quarter to be the strongest quarter for us and we still expect that to be the case based on the expectations for how our markets will perform. What we do have in addition to what we didn't expect last time, as we do have an additional less that we received in September that continued - that will continue into the fourth quarter and continue through October both from the hurricane. So especially with Houston, Houston we expect that recovery to continue the longest. But we do also have some additional less in Austin, in some of the Florida markets.

[Austin Wurschmidt':]

Appreciate the thoughts there. And then you mentioned you continue to evaluate acquisition opportunities. I mean, how big is the acquisition pipeline today and should we think about you know, acquisitions being funded predominantly with proceeds from asset sales moving forward?

[Justin Knight:]

I’ll take your question Austin. The acquisitions market really has remained largely unchanged. Our team came back from the Phoenix Lodging Conference and you know, deals that are being brokered are still few and far between. So our expectations to continue to be generally very high and a significant portion of our internal pipeline is really made up of deals that we've sought out with groups that we've done business with in the past and or in markets where we've wanted to have a presence and have in essence made cold calls to existing owners. You know, I think given continued optimism that exists among the ownership community and management community and the availability of debt financing for transactions on existing deals you know, I don't expect a lot to change there. You saw we transacted in the market taking advantage I think of the opportunity and it being a seller's market in many ways to reposition our portfolio, disposing - continue to dispose of our full service assets and then acquiring assets in markets where we feel we can build value in the portfolio. I mentioned in my remarks, the markets that we acquired hotels and all have growth rates above industry average and are projected to have growth rates above industry average into the coming year. The existing assets that we acquired both have opportunity we feel in terms of management, both on the market yield standpoint and from a cost standpoint and we feel the Birmingham assets were incredibly attractive from a per key standpoint. And really highlights, as I mentioned before, the advantages to doing contracts for development deals with trusted partners. So you know, I think you'll continue to see us look for opportunities to sell full service assets and replace them with you know, our select service assets that are more in keeping with our long-term strategy. And you know, I think what you’ve seen to date is that we properly matched acquisitions with this position. If you take just a possibility, we have sufficient capacity on our line of credit. And you know potential access to the market through an ATM you know, given proper market conditions to acquire more aggressively. But it takes a lot of work, for every deal we end up closing, we underwrite dozens of deals. And our team has been working incredibly hard. We feel incredibly good about the deals that we have closed on recently. We have several more that we're working on that may or may not become [ph] the contractor in the foreseeable future. But you know, we'll continue to look for opportunities like the ones that we've closed on, but we feel we can add value to the portfolio.

[Austin Wurschmidt':]

Appreciate that. And then are you – you focus in these acquisitions then more on geographic concentration where markets you think that have maybe less supply and could continue to outperform and then somewhat along the same lines. But also I guess a little bit separately, how do you think about the right balance then between upscale versus upper mid-scale, change scale at this point in the cycle?

[Justin Knight:]

Actually, so two very good questions. We do look at the merits of individual acquisitions by themselves. But more importantly as that fits with our existing portfolio and we look to improve and enhance the geographical distribution of our portfolio, and more importantly the exposure to a variety of demand generators. We found in the past that over reliance on a single industry can add an increased volatility in the portfolio and we've intentionally sought to avoid that. And so we do target markets where we feel we have potential for outsized growth and we're adding something to our larger portfolio.

[Kristian Gathright:]

And I can add to that, in terms of the upper mid scale, some of the out performance in the upper mid-scale segment has been really tied to the out performance on the leisure side. So we are very pleased that these assets in Portland, Salt Lake City are going to provide some additional leisure exposure. So we would expect that those would outperform consistently with what we've seen in that upper mid-scale segment.

[Justin Knight:]

And you'll continue to see us pursue strong brands within that segment, like Hampton Inn…

[Kristian Gathright:]

Absolutely…

[Justin Knight:]

Which has been one of our favourite brands some of the day.

[Austin Wurschmidt':]

Great. Thanks for the time.

[Justin Knight:]

Thank you. Thanks for joining us.

[Operator:]

Our next question comes from the line of Jeff Donnelly with Wells Fargo. Please proceed with your question.

[Jeff Donnelly:]

Good morning, guys. And thanks for taking my question. I know you certainly haven't given 2018 guidance at this point, but I'm just curious how you guys are thinking about the prospects for next year, maybe in broader strokes what are the kind of the puts and takes if you will that you guys are kind of thinking about, either for the industry or even specific to your portfolio?

[Justin Knight:]

I'll take a stab and then Krissy can add to it. Good morning, Jeff. We’re still very much in the beginning phases of our budget process. I think because of the broad geographic diversification of our portfolio and because of the concentration with Hilton and Hilton we take our guidance as kind of a starting Q and then make adjustments based on you know, our specific market concentration and opportunities that we have within our specific portfolio. You know, I think we anticipate that we'll continue to see the benefit in markets like Houston of hurricane recovery business, some of the Florida markets, potentially though the damage in most of the markets where we have ownership was less significant. But we anticipate a lift going into that first quarter, potentially the second quarter in some of our markets. And then you know, you've seen at least one of our major brands released guidance for the year roughly in line I think with guidance for this past year and barring something significant in terms of stimulus that would push or inspired from our business travel, I think you know that would be kind of a good starting expectation/

[Kristian Gathright:]

I would definitely look to [indiscernible] Hilton and Marriot are giving and we are decent in that budget process right now. And the one thing that I can say in terms of request for proposal it appears that – is that in terms of corporate negotiated rate we are hedging to be able to you know, at least get in that 2% to 3% rate growth for corporate negotiated account.

[Jeff Donnelly:]

That’s helpful. And I'm curious, I know you guys cover a lot of markets, but what's your outlook for the trend and supply in your markets? Do you think there is much change between 2017 and ’18?

[Justin Knight:]

Our thinking is 2017 to 2018 will probably look very similar with you know, 2019 potentially showing a decline in the supply growth. If you look at our portfolio we tend to follow very closely national averages in terms of percentage supply growth. We talked earlier - I talked earlier in my remarks supply growth within a five mile radius of our assets, which we use as kind of a secondary measure. I mentioned it was up this quarter, it was actually down last quarter. So if you look at it over a more extended period time that tended to be relatively stable as well. And what we're finding is with consistent demand growth over multiple years, supply growth has been fairly smart. And in most market you know, we could I think very easily point to a few market where supply growth has exceeded demand, maybe in a significant way. But looking at our portfolio more broadly speaking you know, supply growth has followed demand in a way that I think has enabled us to maintain steady if not stellar growth and we anticipate that to continue.

[Jeff Donnelly:]

And just maybe one last one for me. I suspect I am going to know the answer here, but [indiscernible] keeps talking about spinning off a hotel REIT next year, if that brand was part of a larger brand family, would that - with those assets be of interest to you guys or likely not?

[Justin Knight:]

I think the easiest way to answer that is to speak to the brands where we have significant ownership and one of the things that attracts us is the Hilton and Marriot select service brands is the consistency of the product and service delivery across those assets. What we've found is that translates into larger brand level contribution, greater RevPAR penetration in markets and ultimately greater profitability for us. I think we continue to explore options with other brands and have found over and over again as we underwrite you know, brands outside of the Hilton and Marriott, brand families that is incredibly difficult to replicate the success that we have with the type of product that we currently are.

[Jeff Donnelly:]

Understood. Thank you very much folks.

[Justin Knight:]

Hey, thank you.

[Kristian Gathright:]

Thank you.

[Operator:]

[Operator Instructions] Our next question comes from the line of Michael Bellisario with Robert W. Baird. Please proceed with your question.

[Michael Bellisario:]

Good morning, everyone.

[Justin Knight:]

Good morning.

[Kristian Gathright:]

Morning.

[Michael Bellisario:]

Couple questions for you. First on the Maine and Utah acquisitions, just kind of as you think about those, did anything change in the last few months on the macro front that got you more comfortable deploying capital on these two deals or was it really kind of market specific criteria that’s finally met your expectations?

[Justin Knight:]

I think market specific criteria and deal specific criteria that met our expectations. I mentioned in response to one of the earlier questions that we underwrite dozens of deals. You know, in these instances we were able to - I think in part because of the strength of the market. Historically you know, find a way to bridge the gap between seller’s expectations, our underwriting which made sense for both parties. I think there are other instances where we're exploring similar opportunities in sharp markets for high quality assets and you know we may be successful in signing those deals up in coming months. But I think if you look at the markets themselves they have good exposure to a variety of demand generators. They increase on the margin, our exposure to leisure, which we saw a being as a value add. And then if you look at the performance of those two specific markets relative to the broader industry you know, they've been performing in the high single digits in terms of RevPAR growth. And I anticipate it to continue when we combine that with what we feel we can add from an asset management standpoint and in one instance the management transition. In terms of incremental value, we think the deals will be very strong performers within our portfolio.

[Michael Bellisario:]

Thanks, Justin. You mentioned the bid ask spread were these particular deals on the market for a while where you were you know, call it 5%, 10%, 15% off on pricing and they eventually came back to you or did…

[Justin Knight:]

Actually, so one of the deals was not broadly marketed. We actually sort it out back and negotiated off market. The other was marketed and I think again we tend to have a broader market focus than a number of participants in the space and saw value in this particular market, which I think will prove out both on an individual asset and as it fits with our portfolio.

[Michael Bellisario:]

Thanks. That’s helpful. And then just one more on the same kind of topic. You mentioned increased confidence to achieve results kind of at the high end of your full year guidance ranges. I mean, how much of that is backward looking and that you've kind of been tracking better and we're already in November. So we already know the full year pretty much versus how much of it is kind of forward optimism?

[Justin Knight:]

When we've got a high degree of confidence, chances are we have a significant portion of that in the book already. So – and we have October numbers and if they were strong and we had just faith based I think on the strength of all of our markets that is specially on the strength markets like Houston, which continue to benefit you know, post storms from recovery efforts that November, December will likewise be very sharp month.

[Michael Bellisario:]

And maybe just to tease out a little bit more. Its fairly unchanged kind of from the 30,000 foot view, it's just kind of the hurricane related benefit and maybe some momentum from the third quarter continuing or is there - or is there more of a bigger picture shift on a forward looking basis?

[Kristian Gathright:]

I would characterize and going back to my comments, that from a business demand standpoint that's still relatively stable. That the expectations, you know, going into the fourth quarter we didn’t have - we were held back again in the third quarter a little bit by the – more by the 4 of July holiday and then you see - then the hurricane gave us - the hurricane recovery business give us some additional lift that continued into the fourth quarter and maybe just a modest you know, but from earlier expectations. But again I would say, from an overall business standpoint there's nothing really in the numbers that says as of yet today that business demand itself has changed materially.

[Michael Bellisario:]

Got it. Thanks. Then just one last one from me, maybe how you're thinking about share repurchases today, not necessarily thinking that you're going to buy back at 19.5, but in August, September the stock was 18, 17.5 bucks, you had been a buyer at those levels before, is your kind of view on share repurchases changed or was there just higher and better uses of capital, potentially these two acquisitions that had come about and maybe prevented you from pulling the trigger on buybacks?

[Justin Knight:]

I don't think broadly speaking our thinking related to share buybacks has changed. We've highlighted in past calls that you know, we intend to use share buyback specifically when there is displacement in the trading of our stock, and we're less likely to use share buybacks to support our share price, especially in an environment where you know the broader index of hotel stocks is moving consistently in one direction. I think you know, at the same time we were underwriting deals, which we felt could produce results in line, if not better than our share repurchase at that particular point in time. And that would be an assessment that we’ll consistently make. You know, we have that in place for a specific reason. I think it would be wrong to think that we wouldn't use it. But I think the circumstances under which we would use it are circumstances within which we have a high degree of confidence that we will be creating long-term shareholder value to the acquisition or shares.

[Michael Bellisario:]

That's very helpful. Thank you. That’s all from me.

[Justin Knight:]

All right. Thank you.

[Kristian Gathright:]

Thank you.

[Operator:]

Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

[Anthony Powell:]

Hi. Good morning, everyone.

[Kristian Gathright:]

Morning, Anthony.

[Justin Knight:]

Good morning, Anthony.

[Anthony Powell:]

Morning. So the margins we’ve got in the quarter its flat margins on a RevPAR growth of 1.3%. Is that a sustainable kind of a run rate going forward?

[Kristian Gathright:]

I think we did have a little bit of a lift in real estate taxes. And so I wouldn't anticipate that that is always going to be the case. I would expect real estate tax for it to go back to normal expectations sort of in that mid single digit range. In terms of wages, we did see that is moderate a bit. We do anticipate that we'll continue to work hard with our management companies and to try to mitigate increases as we said in payroll costs. But with that being said, it is still an environment where its low unemployment and certain markets will still be experiencing new supply and that will continue to be a challenge and we want to make sure that we are keeping our wages appropriately set, so that we minimize turnover. What I would say is on a go for basis, I'm more comfortable if we get to a RevPAR growth of at least 2%. And with more of that being in rate growth versus occupancy growth that makes us more comfortable in general that we can maintain margins. I hope that that answers your question.

[Anthony Powell:]

It does. Thanks. And you mentioned a few times about increasing leisure exposure, where is your leisure exposure now in terms of either room nights booked or hotels leverage [ph] leisure and where do you want to take that over time?

[Kristian Gathright:]

We would – we don't have an exact number. We look at obviously on our hotels on weekends and then you know, during the summertime we get a lot of you know, more leisure exposure. So we estimate that somewhere around 70% of our business is related to business travel with the remaining being leisure travel. But another way that we can increase our leisure exposure other than just focusing on what I mentioned in terms of weekends and adding additional family and sports and other type group business that we can actually go out and target from a onsite standpoint, the other way to increase our leisure exposure is by investing in markets that have more exposure just because of their destinations. So we have hotels in Virginia Beach for example and then obviously the Portland assets will add additional leisure exposure and Salt Lake City you’ll get leisure in the summertime and you’ll get the ski season. So it's a dual pronged approach in terms of working with our on site, with our management companies to go after and focus on those you know, what we call smart type groups, which are more social and leisure oriented group, as well as looking and incorporating that as part of our acquisition strategy.

[Anthony Powell:]

Thanks. And then last one for me, it seems like the online travel agents have been reporting you know, either more than expected bookings growth or things like that. Are you seeing any change in the OTA environment over the past 3 months or a couple of quarters that's notable?

[Kristian Gathright:]

Not any material changes. We are still very pleased overall with the results from the direct booking campaigns. We are still seeing that our brand dot come channels are growing strong. OTAs are growing, but we're still - we're seeing that at a more moderate pace. They're still under 10% for our portfolio. We were very pleased. We were very actively involved on the inside sides [ph] with Hilton’s recent negotiations and you know, so very pleased with the results there. So and also you know, there's been a report that Calgary [ph] just released they said that you know, has additional details that we also support and agree with. So we feel like there has been a lot of good progress made in terms of you know, working with OTA to get this incremental business when we need it at the right price and we're going to continue to push that message.

[Anthony Powell:]

Great. That's it for me. Thank you.

[Justin Knight:]

Thank you.

[Operator:]

Mr. Knight, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

[Justin Knight:]

Thank you. And thank you for joining us this morning. Despite an unpredictable awkward environment with continued headwinds from restrained corporate spending and rising labor costs, we've delivered solid operating results and strong margins during the quarter. Our strategy was designed to reduce volatility and generate strong stable investor returns over time and we believe we're well-positioned for any economic environment. We appreciate you joining us today and we hope that as you travel you'll take opportunity to stay with us at one of our hotels. Have a great day.

[Operator:]

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