Condor Hospitality Trust, Inc.
Q2 2018 Earnings Call Transcript

Published: 8 Aug 2018

[Operator:]

Good morning, and welcome to the Condor Hospitality Trust Conference Call to review the company's results for the second quarter of 2018 and its outlook for the remainder of 2018. On the call this morning will be Bill Blackham, President and Chief Executive Officer; and Jonathan Gantt, Chief Financial Officer. Before management begins, I would like to remind you that this call may include forward-looking statements concerning the Company's operations and financial condition, including markets and industry trends the company's forecasted operating results, the company's business and investment strategy, the company's projected capital expenditures, and the company's ability to obtain capital. Such statements are subject to various risks and uncertainties. Actual results could materially differ from results currently anticipated due to a number of factors, which are identified in the company's SEC reports, including the company's 10-Q filed yesterday evening. The company assumes no obligation to update or supplement forward-looking statements that may become untrue because of subsequent events. During this call, the company will discuss non-GAAP financial measures such as, FFO, adjusted FFO, hotel EBITDA, EBITDA, and adjusted EBITDA. Management's view of the usefulness and risks of these non-GAAP measures and applicable reconciliations to GAAP measures can be found in both the company’s earnings release and the company’s 10-Q, both filed yesterday evening. Now, I'd like to turn the call over to Mr. Bill Blackham. Thank you. You may begin.

[Bill Blackham:]

Thank you, Moderator. Good morning and welcome to Condor Hospitality's second quarter 2018 earnings conference call. On our call today, we will discuss our second quarter 2018 operational performance, our acquisitions and dispositions activity, and the progress in continuing the execution of our investment strategy. Jonathan will provide further detail on our financial results and balance sheet as well as a review of our outlook. The second quarter of 2018 was another very successful quarter for Condor. There are three key accomplishments that I'd like to highlight on our call today. The first is that we achieved 4.6% same-store RevPAR growth for our new investment platform hotel in the second quarter. The second is that we expanded same-store hotel EBITDA margin by 230 basis points in the second quarter to 39.4%. And third, we successfully closed on the disposition of one more legacy hotel and placed one additional legacy hotel under contract for sale during the quarter. I will quickly review each of these key accomplishments. With regards to the RevPAR growth accomplishment, we continued our strong RevPAR outperformance with 4.6% same-store RevPAR growth of the 13 new investment platform hotels owned as of December 31, 2017. Our RevPAR growth including the TownePlace Suites, Austin, North Tech Ridge which was acquired early in 2018 was 6%. This 6% RevPAR growth does not include the Home2 Suites Summerville/Charleston because it opened in July 2017 but it is performing at a level exceeding our underwriting. RevPAR growth was driven by gains in both ADR and occupancy. Same-store ADR grew by 2.1% and same-store occupancy grew by 2.4% over the same quarter last year. Our disciplined acquisition strategy coupled after acquisition with our focused asset management initiatives continues to enable us to achieve very strong RevPAR growth year-over-year when compared for the second quarter to the industry and our public select service peers. Importantly, we realized positive RevPAR growth broadly across our hotels and markets in the second quarter. This second quarter RevPAR performance continues to indicate that our differentiated strategy is advantageous with regards to markets and the current stage of the lodging cycle. As Jonathan will confirm later, we remain confident that our high quality new investment platform hotels should continue to deliver RevPAR outperformance for the remainder of 2018. Next, regarding our hotel EBITDA margin growth. During the second quarter, we increased same-store hotel EBITDA margins for our 13 new investment platform hotels owned as of December 31, 2017, to nearly 40% representing an expansion of 230 basis points over last year's quarter. As discussed on previous calls, we continued to take an intensely active approach to asset management and the positive growth in hotel EBITDA margin is a result of our working closely with our third-party managers to drive improvements through revenue management and cost control. Importantly, we continue to beat the downward pressure caused by increased labor expenses and inflation. Our new investment platform hotel EBITDA margin for the second quarter is consistent with our 2018 outlook margins of 39% to 40%. We continue to focus on optimizing our revenue mix, improving our cost control, displacing lower rated OCA derived business, and are beginning to realize the benefits from our growing scale. Cindy Potter who joined us in April about mid-quarter has already contributed to this successful quarter as a result of her actions and expertise. In summary, our performance for the quarter was driven by both organic growth from the existing portfolio and contribution from our Austin TownePlace Suites and Charleston Home2 Suites acquisitions. Finally, our third key accomplishment involves the continued pursuit of our differentiated investment thesis and growth of our new investment platform portfolio. During the second quarter, we continued to advance portfolio transformation of Condor. We closed on the sale of one legacy asset generating $7.1 million in gross sales proceeds and placed one additional legacy hotel under contract for sale which we expect to close shortly. Only two legacy hotels remain currently of the 55 legacy hotels that the company-owned when this process began three years ago. As stated, one of the two remaining legacy hotel, Creston, is currently under contract for sale with a significant non-refundable deposit and then the one remaining legacy hotel is being actively marketed for sale and we project that it will be under contract in the fourth quarter. Additionally, we made significant progress towards making an additional acquisition which if announced would represent the 16th hotel within our new investment platform. The portfolio transformation is essentially complete as we expect to have only one legacy hotel asset remaining as of the end of this current quarter. I'm extremely pleased with the success in transforming the portfolio. Our new investment platform portfolio is now comprised of 15 high quality relatively young select service assets with 1,908 room in attractive and mostly high growth market. Additionally, we maintain a robust pipeline of acquisition opportunity. We intend to remain disciplined in our acquisition strategy and we remain confident in our ability to continue to find attractive assets to add to our portfolio. We are restating our guidance for 2018 as 3% to 4.5% for same-store RevPAR growth for the new investment platform hotels owned as of December 31, 2017, which represents 13 hotels. Recognize this does not include our TownePlace Suites Austin and Home2 Suites Summerville/Charleston Hotel which are performing at a level higher than our underwriting and the 13 hotels included in our RevPAR outlook. Based on our strong results year-to-date, we remain confident in our 3% to 4.5% RevPAR outlook. Our markets continue to experience positive economic growth and generally attractive supply and demand dynamics. These factors combined with our assemblage of a young, high quality portfolio of assets many of which are still ramping and gaining market share should enable us to continue to drive RevPAR outperformance. We remain singularly focused on our mission of delivering attractive total returns to our shareholders. We have completed a remarkable turnaround and have assembled a high quality young premium branded portfolio that is currently generating top of our sectors, if not, industry-leading select service RevPAR growth resulting in strong cash flow, dividend coverage, and yields on investment. The positive benefits of the transformation of Condor can continue to be seen in the year-over-year growth in revenue, Hotel EBITDA, AFFO, and our projected 2018 double-digit unleveraged Hotel EBITDA yield on total acquisition price. In short, we have established a strong foundation that is poised to continue to deliver shareholder value and per share value creation. And with that, I will turn the call over to Jonathan Gantt, Condor's Chief Financial Officer.

[Jonathan Gantt:]

Thank you, Bill. I will begin with a quick review of the composition of our portfolio. As of today, our portfolio is comprised of 15 new investment hotels and two legacy assets for a total of 17 hotels. These 17 hotels are in nine states and represent 2,088 rooms. As Bill reviewed, Condor delivered strong results in the second quarter of 2018. Condor's second quarter 2018 revenue excluding revenue from our Atlanta JV increased to $17.8 million a 25% increase over the same 2017 period. Total revenues including revenue from our 80% share with Atlanta JV were $20.3 million a 26% increase over the same 2017 period. The vast majority of Condor's revenues are now generated by our high quality select service new investment hotel which contribute over 95% of our 2018 outlook revenue estimate. Second quarter net earnings attributable to common shareholders was $2.7 million or $0.23 per basic and diluted share compared to $4.7 million or $0.40 per basic and $0.37 per diluted share for the same 2017 period and last year's quarter the company recognized a $4.9 million net gain on disposition of assets. Funds from operations or FFO for the three-months ended June 30, 2018, increased to $3.8 million from $2.6 million for the same prior year period. Adjusted Funds From Operations or AFFO for the second quarter increased to $4.2 million as compared to $2.8 million for the same period in the prior year. The company's AFFO per diluted share for the second quarter was $0.34 as compared to $0.24 for the same period of 2017. The increase in AFFO per diluted share in the second quarter was primarily caused by growth and the revenue contributed by the growing portfolio of new investment hotel, as we continue to benefit from the increased scale of our portfolio and the performance of the hotels within the portfolio. Adjusted EBITDA RE for the three-months ended June 30, 2018, increased almost 60% to $6.6 million as compared to $4.1 million for the same period prior year. This compares favorably to an analyst estimate range of $5 million to $6.6 million for the six analysts that cover Condor. In short, we beat consensus expectation. The increase in adjusted EBITDA RE was primarily driven by strong top-line performance and higher margins for the new investment platform asset. Lastly, hotel EBITDA was $8 million for the second quarter an approximate increase of 42% from the $5.7 million in the prior year quarter. This growth in hotel EBITDA is not only a result of the increase in the number of new investment platform hotels within our portfolio but also the strong performance of these assets. Turning now to our acquisition and disposition activity. During the second quarter of 2018 we sold one legacy asset and placed one additional legacy asset under contract for sale. As of today only two legacy assets remain. As Bill mentioned, one of these remaining legacy assets is currently under contract for sale with a significant non-refundable deposit. And a second is currently being marketed for sale. We expect the legacy hotel under contract to close in the third quarter and to sign a contract for remaining legacy hotel in the fourth quarter. In terms of our balance sheet, as of June 30, 2018, we had total outstanding long-term debt of $142.2 million associated with assets held-for-use with a weighted average maturity of 2.6 years and a weighted average interest rate of 4.76%. Note that this amount excludes the $34 million of debt encumbering Atlanta Aloft joint venture of which Condor owns an 80% share. Our total outstanding long-term debt as of June 30, 2018, inclusive of our pro rate 80% of the Atlanta Aloft debt outstanding at the same date was $169.2 million. As of quarter end, June 30, 2018, we had cash and restricted cash of $11.3 million and available revolver capacity of $5.7 million. During the second quarter, we sold 16,140 shares of common stock under the ATM program at an average sales price of approximately $10.40. With regards to our common dividend, Condor's Board of Directors declared a common stock dividend of $0.195 per share related to the second quarter of 2018 that was paid in early July. This represents $0.78 per share on an annualized basis and an annualized deal of approximately 7.6% based on the closing price at the time of announcement. We continue to maintain highly attractive dividend coverage, approximately 65% to 69% for 2018 based on our 2018 outlook. Condor's Board of Directors will continue to evaluate the company's dividend policy on a quarterly basis evaluating the appropriateness and amounts of any future common dividend. Finally, with regards to our outlook, we are reiterating the guidance we provided earlier this year. As Bill related, based on our year-to-date result we remain confident in our 3% to 4.5% RevPAR outlook. And with that, Bill and I will be happy to address any specific question. Moderator?

[Operator:]

Great, thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt:]

Hi, good morning guys. Bill could you just provide some additional detail the reference in the release on making significant progress towards or significant progress towards making additional acquisitions and then give us a sense on the 16th asset that you talked about around timing and then plans to fund on as I believe you had about $17 million of liquidity at quarter end.

[Bill Blackham:]

Good morning Austin. How are you?

[Austin Wurschmidt:]

Good, thanks.

[Bill Blackham:]

We happy to do that, what we were signaling in the release is essentially that we have options that are available to us, relative to acquisitions. As we previously stated our pipeline is very significant of assets that we can acquire that meet our investment parameters. And we're at the point of decision right now and what we didn't want to do is come into this release saying that nothing has changed that's not the case. We're deep into discussions with a number of sellers, relative to either individual asset acquisitions, in one case two assets and in several other cases smaller portfolio transactions. And so right now what you're evaluating is directionally which course we're going to pursue be that one of them or more of them and obviously that is a capital driven decision. And so the statement was made simply that when we buy the next acquisition that would be our 16th new investment platform hotel. I would indicate to you that it were two obviously that would be 16 and 17 and so forth. And so what I'm really saying to you is that near-term, we would expect to have come to that conclusion and to make an announcement. We can't drill down any deeper yet because we don't have the specific asset determined that we are going to move forward with. But it is a small universe now of alternatives. I can tell you that if that sounds somewhat ambiguous, there are letters of intent out and actually in the case of one asset, there is a signed letter of intent but of course that’s a non-binding situation but nevertheless that exists. And so I guess that's the most clarity I can give you except to say that we expect to move forward with at least one acquisition near-term in order to continue to grow the company now. The latter part of your question which is obviously tied to it and equally important is how are you going to pay for that. Jonathan can actually provide some further depth with respect to draw on our line of credit but I think as you might recall from our last earnings conference call we indicated that we were going to go down a path to evaluate different alternatives and to seek what those alternatives may be in terms of raising capital. Now obviously we can now start to take seriously a potential equity offering. At that time of our last call, we were saying that we were hoping that the stock would settle in higher range, it has done so. At that time, we were more in the $10.20 to $10.30 range; it seems now that the stock is more in a range of $10.50 to $10.60. So that is a change and so that makes that a viable alternative whether that be in a overnight small offering for an acquisition or a private placement. We have taken a look at the possibility of doing a preferred offering and perhaps doing a convertible preferred offering and understand that any one of those can be coupled. For example, we can do a smaller equity offering with preferred in order to accomplish an acquisition and that excludes of course utilizing our line of credit availability as part of that acquisition. We have evaluated taking a look at off balance sheet joint ventures and that marketplace is frankly very flushed today with capital available particularly with a publicly traded hospitality REIT to form a joint venture for the purpose of acquisitions either on a programmatic basis or a specifically identified acquisition in which we would place anywhere from 10% to 30% of the equity required with a partner funding the balance, we would receive our proportionate share of the benefits of ownership and concurrent with that would be asset management fees payable to our company which would reduce overhead, and as part of the transaction, there would be an unwind so that ultimately when our stock price listed higher, we would be able to convert the joint venture into an acquisition of the portion of the assets that we don't buy. So that has been evaluated. We have had significant discussions with several property owners on portfolios and those portfolios involving the seller taking back anywhere from 10% to 20% of the purchase price in our common stock and the discussions have centered around that stock being acquired at a price that's higher than the current trading price recognizing the significantly higher net asset value of our company and so getting somewhat compensated for that in terms of the equity offering and of course if we do that, there is no underwriting discounts associated with that particular transaction. It also interestingly enough gets a shelf registration eligible depending upon the size of the transaction which then allows us to move forward into overnight offerings as we peel down acquisitions one at a time. We also have taken a look at recycling profits from some of the newer hotels that we have acquired. One in particular that could generate significant profits would be the Atlanta Aloft that we acquired for approximately $43.5 million in August of 2016 and we believe today it has a value approaching $60 million. And so with some level of specificity here, what I've laid out for you is a large portion of what we believe to be the tools available to us to grow the company. What I can share with you is we have not made the final decision on which or which combination of those that we may utilize and we have a board meeting, our next board meeting in early September and I would expect that management's recommendation on how to move forward with the company will be presented and acted upon at that meeting. So I think that gives you just about everything you asked for except for when.

[Austin Wurschmidt:]

Yes, no, very, very thorough but just to clarify one thing the 16 acquisition the one deal that you could fund on the line, is that more certain today versus the other sort of grocery list of potential capital raises?

[Bill Blackham:]

That particular asset in response to your question would be more certain, I don't want to misrepresent and say that we are definitely moving forward with it. However the company has the ability to move forward with that asset fairly quickly to the extent that we elect to do so. And it would be an asset that fully fits within the investment strategy, the asset is in the neighborhood of a year old, it is in a marketplace with the high growth dynamics that we were looking for, it is a brand that would fit nicely into our portfolio, I think there would be accolades as opposed to disappointment to the extent that we determine we're going to move forward with that investment.

[Austin Wurschmidt:]

And thanks for that. And then, just lastly from me on the potential JVs you mentioned with the public hospitality REIT, just curious on some of the other structure as it relates to leverage requirements for that deal and I guess what's the biggest incentive on their side of partnering with you on deals?

[Bill Blackham:]

All right. I want to make sure that my communication was not -- was interpreted correctly. What I was indicating the funder of the capital is not a public hospitality company or REIT, it would be for the most part equity funds, private equity funds, we would be the public obviously hospitality REIT, what I was trying to say is that that’s attractive to the capital sources because we have a built-in platform obviously with a proven track record in acquisitions, we are experiencing terrific performance relative to our peer group in the sector and so that makes us attractive, the platform is in place, they can throw capital at it, we fund our requisite share and move forward. In terms of other structural components of what those look like and we have had discussions with a number of different parties, generally speaking leverage let me step back, it would be an off balance sheet joint venture if we were to pursue it and so it would be non-consolidated, leverage can be anywhere from 60% to 65% of the acquisition price. And then the remaining 35% to 40% we would invest anywhere from 10% to 30% of that equity. And then obviously there are slips of cash flow down the road there would be some kind of a promoted interest and while we're running the hotels, we would get an asset management fee based on the deployed capital and that would actually be attractive in terms of reducing our overhead. Now from that, there would also be some kind of a mechanism and it varies by term sheet to term sheet where we could recapture that portion of the asset we don’t know by buying it back with the expectation that we would do some kind of an equity offering to fund that purchase at such time as the assets, I'm sorry, the share price of the company elevates and of course if we're bringing more hotel operating income in and at the same time getting asset management fees to reduce operating expenses arguably, the implication is share price should move in an upward direction and so it plays in nicely for that as a strategy.

[Operator:]

Our next question is from Jim Lykins from D.A. Davidson. Please go ahead.

[Jim Lykins:]

Hey good morning guys. So first of all you've maintained RevPAR guidance for 2018 but given the more recently acquired hotels, how should we be thinking about more of a rolling 12-month RevPAR number? Any color on that?

[Bill Blackham:]

Jim, good morning by the way. But --

[Jim Lykins:]

Good morning, Bill.

[Bill Blackham:]

I think that right now, what we try to communicate is that the two hotels that are not within our 13 same-store RevPAR numbers are performing at a level that is higher than the new investment platform assets that are within that metric. And so we expect that that will continue because those are newer assets where we’re gaining market share and getting the benefit of the best product in those two specific sub markets. What's interesting for example is that in the case of the Residence Inn even though there is new competition that has opened in that marketplace that the Residence Inn in Austin is at the Airport marketplace, if you remember, and there's a brand new two suites in a higher place that we're competing with but our product is outperforming, outperformed in the second quarter in rate to a significant amount and so that goes to the concept that we've been talking about best product driving higher rate in a particular sub market and so that asset is experiencing that. We're also experiencing the same thing in Charleston/Summerville, the Home2 Suites and so that we'll continue near-term, that's our expectation. So in order to give you better vision on what might happen, I think it depends on whether or not we make this next acquisition or make additional acquisitions near-term in the third quarter that with then put us into a position to have a better vision on what the next 12 months rolling look like. That said, we still expect the base portfolio to outperform the industry and probably our peer group because of the age and many of the assets are still ramping up. I think the best way to look at our portfolio and understand it is rolling age and what is the percentage of that portfolio, there's 15 hotels that is less than two-years-old and if that percentage is 35% or 40% which it happens to be then you got a situation where you were going to continue to get outsized growth through the penetration of those assets against their competitive sets and we then can get the benefit of that in the portfolio RevPAR metrics. But I think the key thing is going to be aside from that how many more do we buy this year. And this strategy is part of it is we've communicated that broadly the marketplace and to use specifically in our conversations is intending to always pick up the benefit of that newness factor that ramping and an absorption as we move forward by constantly buying newer asset. So I didn't give you an exact metric for the next 12 months but I gave you enough of a vision on how we're looking at it and thinking about it I hope.

[Jim Lykins:]

Yes, that's all very helpful. And also could you talk a little bit about the supply what you're think across your footprint and where you think we may be in the cycle right now.

[Bill Blackham:]

Well, it's interesting, each of our markets obviously has new supply and some has more than others and that supply comes in two forms, brand new open hotel such as what I just described in Austin at the airport, but also for example in Downtown, Atlanta we are up against two hotels that recently came back online after going through a sense of renovation. For example the AC Hotel that is owned by Summit that was converted Downtown recently opened backup in this competition. We are weathering it reasonably well because when we did our underwriting we try to drill down and get a good understanding of what was in the pipeline for new construction as well as survey the market for what was under renovation and build that into our underwriting projection. Interestingly enough as I've stated before and I'll restate today, our acquisitions continue to outperform our underwriting projection. And the reason I'm using that as an answer to your question is that we are weathering it well as measured by the fact that our 2018 EBITDA projections within our guidance range have us generating a double-digit yield on leverage on our costs. So I think that says it all. Now specifically to markets I would say that South Haven is a marketplace where supply is affecting more than others. I would also say that the Atlanta Aloft Downtown has had some effect from the supply but interestingly enough we believe that a lot of that effect was caused by less citywide during the period of May and June than the previous year. So another marketplace that had supply prevalence, new supply prevalence is Austin, Texas. But the market continues to grow and some of the things that we are seeing in the sub markets we're in for example in Round Rock and again in our North Tech Ridge assets Dowell had slowed down and actually declined the amount of room nights that they were consuming in previous quarters, but that has started to pick back up again as has room night sales associated with Emerson as a customer and, so I guess we are updating it pretty well this is the best way to describe it everything is consistent with our underwriting projection and that's the best I can hope for right now.

[Jim Lykins:]

Okay and one last one for me, just a drill down to some of your specific hotels can you provide any color on what was driving the improvement at the San Antonio's, SpringHill and also your hotel and I'll pass that one from one of the worst performers last quarter to one of the best this quarter I believe you lost military business there last quarter but any color on that.

[Bill Blackham:]

Yes, a few things and this goes back and what I may do is address a few others because I think it highlights what we have been able to accomplish through our drilling down on our asset management function within the company. First I'd like to say that clearly this quarter with a 230 basis point margin expansion as compared to our peer set for the most part having flat or margin contraction, demonstrates that there has been no heartbeat stoppage as a result of the shifting of asset management headed by Jeff Dougan now headed by Cindy. We have a situation where she came on just absolutely running and has been able to frankly cause some things to occur that or accelerate that we benefited from, specifically in the asset that you talked about which is El Paso something that she had no control over but which is a favorable is that business associated with Fort Bliss has started to trickle back in and that's a positive. But we specifically chased more airline crew business than the hotel had before to get a base business in the hotel, we went after small accounts with sales efforts and were successful in capturing that. And most importantly we focused on marketing activities in Juarez, Mexico, and have been extremely successful in capturing accounts as a result of that marketing initiative. And so those three things have made that hotel bounce back and when you think about it actually now Fort Bliss that's as a result of the asset management function working. The couple of other hotels where I think it shows up we at the Atlanta Indigo Hotel we did a shift, we had some customers that slowed down in particular that hotel had been enjoying room night sales to companies that are related to production. And with that slowing down, they immediately went out and started capturing increased corporate business as well as took back in some airline crew. So mix of business was utilized there to a great degree. Now you mentioned San Antonio, San Antonio we had management change there earlier this year and they have been aggressively going after group business as well as corporate business and they've captured some significant accounts as a result of those marketing activities. So that particular hotel is growing at significantly above market rates in both occupancy and ADR and we expect that to continue near-term and the good news is that there will be a pick-up later in the year with Citywide again and that will present compression opportunities. Let me see if I can find another one that's interesting. Okay, we -- and it was not a hotel that had a positive effect but it shows you shifting gears, Tallahassee, did not perform in the quarter the way that we had projected but part of that -- a good part of that had to do with a loss of a commitment that we had related to baseball recall that Florida State University is located very close to that hotel and Florida State University got knocked out in the baseball regionals and did not advance on to the College World Series and so as they early knockout from the regional, the venue was shifted to someone that made it to the finals in the regionals. And so the business that was expected canceled early and so there was no money associated with that cancellation and so we had to scramble and in that case, they went out and they were able to get some lower-rated business but frankly they were able to replace the business and still get revenues, so it wasn't a complete washout. So some of the rev asset management activities were extremely positive, some of them were regrouping so as to minimize the negative effect of things that were happening.

[Operator:]

Your next question is from Michael Bellisario from Robert W. Baird. Please go ahead.

[Michael Bellisario:]

Thanks for all the color on the strategic front, it’s very helpful, appreciate that. And a two-part question on guidance, on fundamentals maybe as you sit here early August, any particular reason why you didn't adjust or maybe tighten the guidance range given the strong first half performance and then how should we think about the balance of the year kind of top half of the range versus bottom half, which one may or may not be more likely as we think about modeling?

[Bill Blackham:]

Well, first and I'd like to do this on this call because others can hear congratulations to you for winning the Fantasy Football for this quarter. Your projections for the third quarter matched exactly what our result was for adjusted EBITDA. So I want to recognize that, when I saw it against our numbers, I was chuckling because it's took a $1000 match in any event. We -- we -- look when we took a look at the guidance as you know there are still some uncertainties in the balance of the year. And so we wanted to maintain our range because the logic was that we are still outperforming relative to the industry and the other select service peers and while it's possible that we could do better than our range indicates frankly it's -- there's still a few uncertainties in a few of the markets, that could come back and haunt us. So we feel very comfortable about the range that we're in hence restating it but not overconfident relative to some of the uncertainties that we wanted to push. In terms of your question about whether or not we would be in the top half or the bottom half, I'm not sure that that's something that we're going to be responsive to yet. I think that we would be more likely to do that after the third quarter obviously because then we will have seen near-term it's really August and September that we have some concerns in a couple of our markets about. But frankly if those concerns don’t come to fruition, then that would be a positive relative to our range. So it's early still Michael, I know that may seem frustrating to you but some of our markets are dynamic from a supply perspective, our assets are newer and jumping and so what we're trying to do is stay conservative but be able to deliver within that band.

[Michael Bellisario:]

Fair enough. And then just can you maybe elaborate on August and September that holiday shift, calendar shift supply and in particular asset specific weakness that you’re seeing?

[Bill Blackham:]

It's competitive for example in Atlanta and we want to see how the summer comes out, I mean one of the wonderful things about Atlanta which will model back 2018 but coming into 2019 obviously there is some big sporting events taking place in Atlanta in the first quarter and early second quarter next year. But and that’s going to be awesome for that asset. But near-term in August and September, some of the events that would have taken place at the center right across from us are not there and so that is making competition for the customer base more intense and obviously what we're trying to do is keep rate as high as we can in order to maintain profitability. So that's an asset which is a wait and see and that's going to be dependent upon how effective the sales force is in capturing additional client. In that marketplace interestingly enough, weekends are not a problem. There is plenty -- there's plenty of weekend demand in Downtown Atlanta is very strong because of all of the venues that have been constructed over the last five years and the city is coming alive as a place to go on weekends which was not the case five years ago. But we take corporate customers with a competition, so there is a specific asset and some example of what I'm referring to, I think another asset it remains to be seen is Leawood, the Aloft. We are coming out of a situation where earlier in the year we did some renovation, there is still renovation that needs to be done to that hotel and right now, Sprint, which is the thousand pound gorilla in the market place, their demand for room nights has slowed down fairly considerably over the last 120 days or so. And it remains to be seen whether or not that was specific to the potential merger or if there is something deeper going on and so we don't, we have no understanding of what that’s going to pan out in August and September as it relates to our budget. And so there is another example of some uncertainty. So I think with that that is kind of why we’re concluding that we are best to stay in the range in the hedge why I go for concluding on hedging a little bit answering your question specifically.

[Operator:]

Our next question is from Bryan Maher from B. Riley FBR. Please go ahead.

[Bryan Maher:]

Yes, just two quick questions, I’m guessing that the last property that you have for sale of the legacy property would be that Quality Inn and Solomons, if memory serves me has all the board sled can you tell me what your thought process is there on selling that, I guess is now the decision versus redeveloping it with condo developers something, and what type of valuation you might get with that kind of unique asset?

[Bill Blackham:]

I think it’s important to respond to you with a slightly broader answer and that is our -- I want to make sure that we communicate that our second to last legacy asset Creston is under contract, it has a significant non-refundable deposit more than 10% of the purchase price and it is scheduled to close before the end of this month, so assuming that that takes place after Labor Day, we will only own Creston I'm sorry Solomons. Solomons we signed a marketing agreement with a firm that is very experienced in obviously the sale of all kinds of hotels, someone that I've had a relationship with before a very long time and that marketing process is about to commence. What we discovered in our evaluations of that property were things that would not allow us to potentially do the vision of what I had in mind to increase the sales proceeds from the assets. So and that was to bifurcate the Marina, separate it from the hotel and sell the Marina either on a slip basis as condos or alternatively to a Marina operator and then we preserve a certain number of the slips for the redevelopment of the land as a condominium. The problem is that we discovered that we wouldn't be able to get the frontage in order to do the sub division. And number two we discovered that while we would probably be able to get variances to make the condo development be of the scale that it would be worth going through the effort. The price point in the marketplace was such that we would probably not be able to get significantly more than we could get for selling the Marina and the hotel in a singular transaction. It would be a premium but then taking into consideration, the time value of money because we would have to wait for the permits and approvals to take place drew us to the conclusion that we were simply better off to get the asset sold, use the proceeds to reinvest and be done as quickly as possible with any further connection to the former superdock. And so with that, we have included that -- listen our track record in terms of selling the 55 hotels, the 53 that we've sold have averaged somewhere in the vicinity of about 2.7 gross revenue multiplier. And when you look at the -- the -- I'm sorry the Solomon revenue and the Creston sales together our Appendix A to the -- the white paper that was filed in January of this year provided a range of revenues for those two hotels of $3.4 million to $3.5 million and a revenue multiplier of 2.7 and therefore in expected range our value of those hotels of between $9.1 million and $9.6 million. We’ve just disclosed in this release that we are selling Creston for $5.1 million and so that would infer that we expect to get at least $4 million to $4.5 million for the Solomon asset, we could be pleasantly surprised because of the Marina and obviously I would like to see a number that is higher than that but that's what we have signaled to the market with the expected range for those two hotels.

[Operator:]

Our next question is from Tyler Batory from Janney Capital Markets. Please go ahead.

[Tyler Batory:]

Great, thank you, good morning. Just wanted to follow-up on a number of questions here, Bill you mentioned a number of times acquisitions outperforming your underwriting, I mean what’s your best guess for how long it might take some of those properties to ramp and still stay position, I’m thinking specifically about the assets you got this year in Austin and Summerville?

[Bill Blackham:]

I would expect that we would not flatten out in those two assets until after we conclude the second year in each of them of ownership and so we bought TownePlace Suites in -- TownePlace Suites Austin in January of 2018, the asset was relatively new, I think you’re probably looking at the end of 2019 into the first quarter of 2020 before you start to see more normalized revenue expansion from that asset. The Summerville/Charleston asset opened in July of 2017 we acquired it in March. That asset because of some of the dynamics in the marketplace and what’s happening, I think that asset probably it's into 2020 second half of 2020 before you see a more normalized type of revenue growth. There is just continued expansion both in tourism and corporate demand in that marketplace. We’re extremely pleased, it’s just blown away the budget, so we'll see but I think it gives us fairly specific days to deal with.

[Tyler Batory:]

Okay, that’s perfect and then just a follow-up on the acquisition discussion, I mean you're noticing any changing in pricing out there and then are you seeing anything different on the competition front as well?

[Bill Blackham:]

I think the answer is yes. I'm sure you’re hearing I've been following some of the releases of some of our peers, everybody seems to be experiencing that in some markets with some product, there is -- there are increased number of buyers -- become more competitive. But that depends market by market and it also depends on the size of the transaction. Remember that for the most part on our one-off deals, we’ve been averaging about $20 million per hotel and so we are seeing less competition. But the other thing that I think has helped us is also remember that we are buying relatively new hotels that the cap rate on a trailing basis is extremely low. However post-acquisition our yields are attractive and so that is helping us if you will deflect some of the pressure from additional buyers. So that’s why I think that we've been able to continue to find things that are attractive.

[Operator:]

Our next question is from William Ostrand from Ameriprise Financial. Please go ahead.

[William Ostrand:]

So I have about two quick questions. With the transformation strategy near complete and given the current portfolio it’s been marked rather at around $275 million, could you give us some color on just how large you believe you could scale the portfolio without significant ads in your corporate infrastructure?

[Bill Blackham:]

Yes. We believe that we could do another tranche of $300 million without adding any additional staffing with the exception of somewhere in that process an additional asset manager. But for that, we could move forward and so relative to our overhead that would be a relatively small incremental increase, so probably something in the vicinity of 3% roughly all-in cost.

[William Ostrand:]

Well, doubling the size with 3% increase would be quite additive now; I saw a number of impressive gains in the operating metrics but what stood out to me was the jump in actual Condor and joint venture EBITDA and versus attended measurement as a percentage of revenue. Can shareholders hope for a similar growth over the next four quarters?

[Bill Blackham:]

Well, the joint venture revenue is singularly Atlanta.

[William Ostrand:]

Yes.

[Bill Blackham:]

It's one asset. The interesting thing about Atlanta over the next four quarters, I was discussing earlier about near-term there is some challenges that we’re addressing. But what I would also remind you of is in the first quarter there is a Super Bowl in Atlanta and in the second quarter the NCAA Finals for the Basketball Tournament are in Atlanta. And so those two quarters we're going to have some spikes with required lengths of stay and hugely premium rates and so that makes us optimistic for the first two quarters of 2019 for that asset. So near-term it's going to be the challenge. What I will tell you is that Atlanta has not just our hotel the market in general. One of the things that we indicated in the earnings release -- that I indicated was that so far we've been able to outpace the pressure on our margins from labor increases as well as inflation. Atlanta has an extreme example of shortage of labor for hospitality. And as a result a number of hotels are self-included have had to rely on going externally for housekeeping at times contract labor and that is more expensive. And so near-term in Atlanta beside some of the revenue projections --production challenges, there were also expense challenges. So to answer your question over the next two quarters, this quarter and next, we will see how we make out by the end of September for this quarter which is the challenging quarter. I believe it will be more than made up, the first two quarters next year because of some of the premiums that we're going to be able to enjoy the benefit of.

[William Ostrand:]

Right. And when can we expect to hear some guidance on 2019?

[Bill Blackham:]

I would say to you that we would do that in sometime in the fourth quarter.

[William Ostrand:]

Okay, terrific well congratulations.

[Bill Blackham:]

Thank you. One of the things that I would like to point out on this as a response to one of your questions about growth, if you were to go back to our guidance in January and take a look at the range of what we were showing for hotels. I would encourage you to simply take the EBITDA range for the hotels which shows about $29 million to almost $30 million. And to deduct out the two legacy hotels and then take 4% of the revenues that are also shown on that Appendix, Appendix D like Delta and come up the hotel operating income for the 15 new investment platform hotels. I would then suggest that you capitalize that at 7.75% or 8% and you would find a valuation of those hotels significantly higher than $300 million. And the reason that I point this out to you is because they cost us about $277 million plus $11 million with the Dowell Hilton Garden Inn that was here when I started. The point of that is that significant shareholder value has been created in those 14 acquisitions and so therefore to replicate another tranche of $300 million could result in a similar experience and so that’s why I’m so aggressive and wanting to pursue the next tranche of $300 million, if you do that math it’s quite phenomenal it is dollars per share of value creation multiple dollars.

[Operator:]

Thank you. This concludes the question-and-answer session. I’d like to turn the floor back over to management for closing comments.

[Bill Blackham:]

I would like to once again thank everyone for taking the time to listen in and participate in our earnings call. We look forward to next quarter’s earnings call. Thank you very much and have a great day.

[Operator:]

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you again for your participation.