Hersha Hospitality Trust
Q1 2015 Earnings Call Transcript

Published: 28 Apr 2015

[Operator:]

Good morning, ladies and gentlemen. And welcome to the Hersha Hospitality Trust First Quarter 2015 Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions] At this time, I'd like to turn the conference over to Peter Majeski, Manager of Investor Relations and Finance. Please go ahead, sir.

[Peter Majeski:]

Thank you, Nila. And good morning to everyone participating today. Welcome to Hersha Hospitality Trust's first quarter 2015 conference call on this the 28th, April, 2014. Today's call will be based on the first quarter 2015 earnings release which was distributed yesterday afternoon. If you have yet received the copy, please call us at 215-238-1046. Today's call will also be webcast. To listen to audio webcast of today's call, please visit www.hersha.com within the Investor Relations section. Prior to proceeding, I’d like to remind everyone that today’s conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance or financial positions to be materially different from any future results, performance or financial positions. These factors are detailed within the company's press release as well as within the company's filings with the SEC. With that, it is now my pleasure to turn the call over to Mr. Neil Shah, Hersha Hospitality Trust's President and Chief Operating Officer. Neil, you may begin.

[Neil Shah:]

Thank you, Pete. And good morning to everyone joining today's call. With me today are Jay Shah, our Chief Executive Officer; And Ashish Parikh, our Chief Financial Officer. I'll start this morning's call by commenting on the sector's fundamentals and then transition to our first quarter operating results while providing some specific market commentary. Following those comments Ashish will provide additional color on our first quarter financials and our view looking forward. It is a great time to be an hotelier. Fundamentals remain robust, capital is widely available at historically low costs, demand continues to be supported by economic growth, supplies in check across most markets and fund flows for real estate continue to grow given the global search for yield. Further supporting the sector is estimated US GDP growth of approximately 3% in both 2015 and 2016 marking the strongest two year period in nearly 10 years. Consumer spending is expected to take higher added by lower gas prices and muted inflation. The combination of strong economic growth and increased consumer spending will drive lodgings performance in 2015. During first quarter 2015, our increasingly diversified high quality urban transient portfolio reported 10.9% RevPAR growth, driven by 6.6% increase in rate to $175.60 and 301 basis point increases in hotel occupancy to 78.9%. Hotel EBITDA increased 22.4% totaling $29.5 million, an increase of $5.4 million or 22.4%. Supported by increased contributions from South Florida and West Coast. On a blended basis, our South Florida and West Coast cluster of hotels contributed approximately 54% of consolidated hotel EBITDA in the first quarter this year. This compares favorably to 45% in the first quarter of 2014 given our increased exposure to this dynamic high growth markets. In the first quarter 2015, our best performing market was Boston despite a record snowfall of approximately 109 inches this winter. Our Boston portfolio reported 25.3% RevPAR growth due to robust ADR and occupancy growth of 10.5% and 900 basis points respectively. Our Boston portfolio's RevPAR growth outperformed the competitive set by 1,120 basis points and the greater Boston market by 1,160 basis points. Our urban properties were added by favorably year-over-year comparisons to Boxer, a great example of our ability repositioned and rebrand independent hotels in tune with today's transient traveler. Results to property have been excellent with ADR driven RevPAR growth of 27.6% in the first quarter. The Boxer is one of our nine high growth independent hotels. Our comparable West Coast portfolio helped drive results in the first quarter as well, delivering 18.4% RevPAR growth. First quarter performance on the West Coast benefited from this year's Super Bowl in Phoenix which drove performance at our Hyatt House, Scottsdale, 32.2% of rate driven RevPAR growth contributing $1.8 million in EBITDA. We enjoyed strong market dynamics in Los Angeles and San Diego as well. In Los Angeles, RevPAR at a Courtyard LA West side rose 42% due to strong market conditions from robust citywide activity and favorable year-over-year comparisons due to some renovations in 2014. In San Diego, our downtown Courtyard reported 9.5% RevPAR growth due to strong citywide activity that allowed operators to push rate. During the first quarter San Diego hosted eight additional citywide versus first quarter 2014 resulting an additional 4,600 convention room nights year-over-year. And finally at our two Hyatt houses in Northern California, we continue to drive rate through a variety of revenue management sales strategies allowing us to drive growth of 29% and 8.5% in Pleasant Hill. In South Florida, our comparable South Florida portfolio delivered 7.9% RevPAR growth despite renovations at our Residence Inn in Coconut Grove that concluded -- the renovation is concluded in early March. When excluding these renovations our South Florida portfolio delivered 9.8% RevPAR growth. The strong citywide calendar, events like the Miami Boat show, the Food and Wide festival added both the autograph collection and the Courtyard Cadillac Miami Beach which delivered RevPAR growth of 15.3% and 14.6% respectively. The Cadillac was our biggest EBITDA producer in the first quarter generating over $4 million of our EBITDA. While new supply is a concern, the evolution of Miami Beach into a year around international destination not only for Latin Americans but also Europeans and increasingly Asian tourists provides us confidence from a demand perspective. In addition, big infrastructure spending in ports and rails provide runway for continued growth for decades to come. Big cultural investments like the Perez Art Museum, the Science and Children's Museum and sustainability projects in the Everglades broadens South Florida's tourist and resident appeal. High quality real estate development downtown and in Miami Beach that include office, retail along with upscale residential has attracted international capital thus further driving real estate values and supporting our constructive, long-term view on Miami and South Florida. Now let's focus on New York City, a market that faced considerable headwinds in the first quarter. Namely new supply reduced citywide activity and the impact of a stronger dollar and international inbound visitation. Our comparable Manhattan portfolio reported a 3.2% RevPAR decline to $103.90 in the first quarter due to a 2.7% decline in rate and the 46 basis points decline in occupancy to 85%. Our first quarter performance in Manhattan was impacted by renovations at Hilton Garden Inn Tribeca. Excluding these renovations our comparable Manhattan hotel portfolio reported a 2.4% RevPAR decline. As we proceeded through the quarter, performance improved materially. In January, our comparable Manhattan portfolio reported a 9.8% RevPAR decline due to soft demand from reduced citywide activity and the harsh winter. And tough year-over-year comparison from the Super Bowl. In February, the RevPAR declined moderated to 1.9% with a pickup in demand that was offset by the Super Bowl comp and several winter storms. And in March, our comparable Manhattan portfolio delivered 1.1% RevPAR growth as the market started to improve. While market dynamics in Manhattan are far from optimal, they will improve and in the meantime it is important to note our portfolio's ability to outperform. The hotels in our portfolio are smaller and uniquely tailored for today's corporate and leisure transient traveler. We carefully assembled and developed a portfolio with compelling locations, diverse submarkets and significant runway before stabilization. And we are active owners, engaged in revenue management and operations to be responsive to short-term volatility, opportunity or vulnerability while executive longer-term business plans with our highly aligned operators. During the first quarter 2015, our comparable Manhattan portfolio RevPAR outperformed the market by a 160 basis points. When excluding the previously mentioned renovation at the Hilton Garden Inn Tribeca, our comparable Manhattan portfolio delivered RevPAR 240 basis points higher than the Manhattan market. This is our fifth straight quarter of outperformance in Manhattan. The market experienced 5% supply growth in 2014. Although we expect closer to 4% this year, much of it delivers early in the year. The first and second quarters will continue to face pressure from recent deliveries and new hotel openings. As we've discussed when new hotels open, they offer low rates to achieve fair share occupancy to ramp profitability. And make rate increases more difficult for others in the submarket. New supply remains the most significant challenge facing us in New York. The strong dollar also contributed to the difficult operating environment in New York City. Overall, the international contribution to our total room revenue in Manhattan in the first quarter was 14.1%, a 2.5% decline year-over-year. We've seen disparate results on a country-by-country basis with weakness in countries such as Canada and Great Britain, offset by increased contribution from others like Spain, Brazil and Australia. We've not witnessed a material impact on the demand side but have experienced some pricing pressure as a result of a strong US dollar. As we move through 2015, the dollar's impact our international demand as a theme we will continue to closely monitor. We are actively working with our operators to offset any potential loss of international business with higher rated corporate and leisure domestic transient business as the US economy accelerates across this year. Certainly the combined headwinds and new supply reduce citywide activity and a stronger US dollar has contributed to the negative sentiment and lower ADR growth in New York City. Yet our long-term view is that New York is the most liquid and valuable hotel market in the world. The City's preeminent as a financial, cultural and technological hub drives transient travel. In the security and scarcity of its real estate drives interest from long-term investors. With interest rate expected to remain low, slowing growth in major emerging economies and political instability in key regions, global liquidity will continue to be drawn to the stronger yield that US commercial real estate provide. And New York's record of residual real estate land value. This makes us very comfortable with our investments in New York. Prior to passing it to Ashish, I want to discuss for a moment our stock buyback this quarter. In March, we repurchased approximately 2 million common shares at an average price of $6.36 for approximately $12.6 million in proceeds, which represented approximately 1% of our outstanding common shares. We consider opportunistic share buyback and attractive use of capital and a driver of share value especially when share prices are temporarily dislocated and add material discount to the company's net asset value. As a total return focused company, we believe opportunistic share buybacks combined with our quarterly dividend which we increased by 17% in September of last year, represents significant pillars of our total return philosophy. With that Ashish can you take us a bit deeper into the financial results and performance this quarter?

[Ashish Parikh:]

Sure. Hi, thanks, Neil. Good morning to everyone on today's call. We are very pleased with our first quarter performance and the ability of our asset to outperform in market that continues to show robust results. Equally as important however is our ability to outperform in areas that are catering short-term headwinds. While the focus has been on the relative weakness in New York City, often forgotten is the underlying strength in location such as Boston, Washington DC, South Florida and West Coast, markets where Hersha is well positioned with assets appealing for today's corporate and leisure transient guests. During the first quarter, our consolidated hotel portfolio delivered hotel EBITDA of $29.5 million, a 22.4% increase, aided by healthy operating environment that allowed our operators to increase rate 6.6% portfolio wide. A geographically diversified urban transient portfolio has benefited from EBITDA growth from our same store performance along with 2014 acquisition in South Florida and on the West Coast, ramp up in newly developed properties in Manhattan and growth from rebranding and early cycle capital investment in market such as Boston where our rebranded hotel the Boxer delivered approximately 300% EBITDA growth along with 1,300 basis points of margin expansion. These terrific results were driven by demand growth of 6.6% in the market, in addition to the comprehensive renovation and repositioning that is allowed us to significantly outperform the market since the completion of our rebranding efforts in 2013. In South Florida the Cadillac Courtyard in Miami Beach reported $4 million in hotel EBITDA, a 21% increase over last year and 290 basis of margin growth. The hotel continuous to benefit from higher transient rate commanded by the Ocean Tower as well as strong market demand in Miami Beach. In Key West, the Parrot Key Hotel & Resort contributed approximately $2.8 million of hotel EBITDA at EBITDA margins approaching 60%. Performance at Parrot Key has exceeded our underwriting expectations and based on our 2015 forecasted EBITDA, our yield on cost for the assets approximate 8.5%. We remain bullish on future prospects for this asset and believe that significant opportunity remains to push rate given the property's ADR index versus the competitive set. Our Hyatt Union Square continues to ramp added by increased local negotiated contract and retail production. In the first quarter the property grew RevPAR 18.3% and reported EBITDA margin growth of 290 basis points despite a significant property tax increased during the past year. The hotel's location within the vibrate Union Square submarket and the Silicon Valley technology cluster of midtown south has the property well positioned to drive performance. Furthermore, the hotel is somewhat insulated from greater Manhattan market supply concern as Union Square will see little new inventory delivered in the next few years. Our Hilton Garden in Midtown East also continuous to ramp. In the first quarter the hotel reported 91% occupancy marking the third consecutive quarter since the property open that we registered occupancies above 90%. Our forecast at 2015 yield on cost already approximate 10% which clearly demonstrates the asset's strong performance within a dynamic real estate market that continues to see significant value appreciation. Excluding renovations, our comparable portfolio ran GOP and EBITDA margin to 44% and 32% respectively and the weakest quarter of the year. We believe these results exhibit the free cash flow generation potential and resiliency of our portfolio as we enter the stronger season of quarters for 2015. In terms of our first quarter EBITDA margins, realized margin growth of 70 basis points to 30.9% in our consolidated portfolio, while our comparable hotel portfolio reported a 60 basis points decline and EBITDA margins to 31%. Excluding properties under renovation during the quarter, our comparable same store margins were unchanged from the prior year. Of particular note with EBITDA margin performance in our Boston and West Coast portfolios which realize EBITDA growth -- EBITDA margin growth of 700 basis points and 210 basis points respectively. Regarding CapEx, we spent $5.2 million during the quarter and completed four capital projects which created disruption and negatively impacted results in New York, South Florida and on the West Coast. Moving forward we are forecasting normal recurring capital expenditures with limited disruptions for the remainder of the year and are still targeting $18 million to $22 million in CapEx spending. Our balance sheet remains in great shape providing ample flexibility to execute our business plan. At the close of the first quarter, we reported cash and cash equivalent of $31.4 million with approximately $215 million of capacity from the company's revolving line of credit under the company’s credit facility. 78% of the company's consolidated debt was fixed rate or effectively fixed through interest rate swaps and caps. And as of March 31, the total consolidated debt had a weighted average interest rate of 4.19% with a weighted average life-to-maturity of 3.7 years assuming no extension options are exercised. We have continued to actively refinance relatively high price mortgage debt at various properties in first quarter. We refinanced our mortgage debt at the Capital Hill hotel in Washington DC. This new $25 million loan is priced at 30-day LIBOR plus 2.25%, a notable reduction from the previous rate of LIBOR plus 3.79%. New loan is interest only for the full three year term and in addition we paid off the mortgage loan at the Courtyard Brookline hotel with proceeds from our credit facility early in the second quarter. We estimate the savings on this refinancing to approximate $1 million on an annual basis and approximately $750,000 in 2015. In terms of our portfolio's performance quarter to date through April, the comparable on the top portfolio has seen a continuation of strong growth on the West Coast, Boston, South Florida and Washington DC, while our New York portfolio has been negatively impacted by the shift in Easter and non repeating group business at our Time Square hotel. We are forecasting better trends in New York for the remainder of the quarter and the back half for the year and New York than what we have seen during the first four months of this year. And we remain vigilant on our asset and revenue management strategies to continue to drive outperformance from the overall market trend. So taken together these factors we enforce the guidance provided in February on our 2014 fourth quarter conference call. Our forecast for full year 2015 consolidates RevPAR growth remains in the range of 6% to 8%. We expect consolidated hotel EBITDA margins to increase 75 to 125 basis points. While on a comparable basis we expect comparable RevPAR growth in the range of 5% to 6% and still expect comparable EBITDA margin growth of 50 to 100 basis points. As we've done in the past, we will continue to closely monitor our portfolio's performance as we progress through the remainder of the year and we will update our guidance accordingly. So that's concluding my portion of the call. If we can now proceed to Q&A where Jay, Neil and I will be happy to address any questions that you may have. Operator?

[Operator:]

[Operator Instructions] We will take our first question from Chris Woronka with Deutsche Bank

[Chris Woronka:]

Hey, good morning, guys. Wanted to start off by asking about margins and you mentioned really strong performance in Boston and California. Can you tell us kind of what New York margins were and you can exclude maybe the renovation impact if you want, but are there something, or you guys seeing some new costs coming in New York?

[Ashish Parikh:]

Sure. Hey, Chris, this is Ashish. So from the margin perspective, our New York margins were hurt by Sheraton JFK and Hilton Garden Inn Tribeca renovations during the quarter. I think from margin perspective in New York, the only thing that's really impacted us and it has been a significant for the whole market is property tax increases over the last few years, which we do think will start settling down when we get the reassessments mid year this year. But margin growth in New York was down -- now remember margins, our New York portfolio contributes 24% of our EBITDA during the first quarter, so it is our lowest EBITDA contributing quarter. So kind of log small numbers, we did have about 5% margin loss during the quarter. New York margins are very strong throughout the year. I mean we usually approximate about 45% EBITDA margin in our New York portfolio on an annual basis. And we are really able to produce these margins because of our flexible operating model and the alignment with our operators. So we continue to work on several initiatives with our operators to maintain our margin in what's challenging ADR environment. Recently we've gone through second quarter -- the second quarter operating projections we made labor model adjustments for room, contract services, stocking changes, those approximated about $175,000 to $200,000, we made about $100,000 in operating expenses cost to training, food and beverage offerings, and about $50,000 in energy initiative and commissions to really make sure that we control and are able to produce the high margins that we do.

[Chris Woronka:]

Okay, that's helpful. And then want to ask you on the transactional environment. You guys have been a little quieter this year so far. As have many of your peers and just kind of wondering if that's -- is seller's expectations continuing to go up, is it you guys have any change in your underwriting in terms of forecast or is it something else altogether and how is your pipeline kind of look?

[Jay Shah:]

Chris, this is Jay. We are still very much in the acquisitions market. We've been very selective and I think it is driven by where we believe we are in the cycle. Not believing that the cycle coming to an end anytime in the next quarter or two. We do still believe that we are adding middle to an advanced portion of the cycle. And so when we look at acquisitions we've been using criteria that we've used since the beginning of the cycle. But we have some additional criteria this point. Currently, we are not looking at anything that doesn't have in place cash flow and doesn't fit with our urban transient tragedy. And that's been somewhat consistent throughout the cycle. But at this point we are also adding a couple extra traps to our acquisitions program and that is we are looking at only assets that we believe are going to be very comfortably accretive immediately upon purchase. And both from RevPAR, absolute RevPAR and RevPAR growth standpoint we wanted to make sure that what we are buying is going to be at or above our portfolio growth rate. And of course as I mentioned we wanted to be accretive. And so from an EBITDA growth rate it needs to fit the profile of our overall portfolio. We are not scratching right now and we are certainly not taking turnaround risk. If we are buying hotels that have repositioning opportunities, the business plan there generally would be executable within six months, maybe eight months on the outside. And even then we would expect after executing those business plan we have the types of returns that we are seeing at the Boxer. Some very, very dramatic top line and EBITDA margin increase. And so in a market that has gotten a little more competitive, we are also being that much more selective and that's probably why you are not hearing a lot from us. That being said, we still are very, very interested in Washington DC. We think that's an interesting time to be in Washington. We think across a next couple of years the group segment is going to really allow us and our transient model to drive strong performance. We are still very interested in Southern Florida. And we think the Bay area also continues to fit our current acquisition objectives. So that's kind of our view on acquisitions today.

[Chris Woronka:]

Okay, great, thanks, Jay. Just a quick final one. For a few year independents, are you guys maybe in the process of evaluating whether one of these new soft brands works or your thoughts on those?

[Jay Shah:]

Yes. We have -- we certainly looked at the various soft brands at Marriot, Hilton and now Starwood have come to market with-- we own all of our independence in very high demand markets. And so we are not necessarily looking for addition distributions. So for one of those brands to be fit for us and to be worthwhile from an economic standpoint, we would need to be real confident that the brand would allow us to drive rate. And currently our independent portfolio relative to similarly situated branded assets already run close to a 15% RevPAR premium. And so currently as we have taken a look at it, it hasn't really been a great fit. That being said, we are very interested by them, by these new brands and we will continue to see as we move forward with any acquisitions if there is fit or not.

[Operator:]

We will take our next question from Anthony Powell with Barclays.

[Anthony Powell:]

Hi, good morning, everyone. Yes, just in New York, have you seen a change in cap rate various luxury hotels over the past two or three quarters given some of the market pressures we are seeing on RevPAR growth over the past -- since second half of last year?

[Neil Shah:]

And it is good question. Anthony, this is Neil. I can't say we've seen any significant turn on it. I think we've just seen so many of the buyers of late across this last 6 to 12 months to be a lot of offshore capital, a lot of capital that's looking at New York as more of longer term investment, where they see significant and positive hotel fundamentals but also see great real estate appreciation across 5 to 10 years kind of hold. So I don't think it had appreciable impact on cap rate. I think for some buyers, maybe some of the public buyers and some of the levered buyers, they are definitely looking for yield going in than I think the market, the private market will bear in New York.

[Anthony Powell:]

Got it, thanks. And when you look at some of your other markets like say Boston or San Diego, how does the supply growth outlook look for those market over the next say one to two years and also how does the citywide calendar look to both markets? Thank you.

[Neil Shah:]

On the citywide front, San Diego continues to have very strong production for this year as well as the coming couple of years, 2017 is a very strong year for San Diego as well. Boston, I don't have the statistics right here in front of me but it has been a very good year this year and we are expecting strong performance the next couple of years. On the supply performance, on the supply side, in San Diego there is supply on the horizon across the next two to three years, we would expect to see 4% to 5% kind of supply growth across several years of delivery. We don't have anything imminent across the kind of 2015 horizon but later in 2016 and 2017, San Diego will add three to five hotels in kind of the CBD area that we are working. This gas line of CBD area that we work in. We don't think it is of concern relative to the amount of demand coming out of the conventions calendar as well as the broadening of demand in San Diego generally. Now San Diego is one of the highest growth international demand markets. And in terms of highest growth they've never been as big of gateway as some of the other markets but it is -- become one of the highest growth one. And there are just the other leisure destination drivers in San Diego. So we feel good about the supply and demand position there. In Boston, Boston is a very difficult market to build hotels in. With the development of the seaport area there is finally some new -- there is land available for the first time. It is going for very expensive prices, retail, office and residential have been able to outbid most hotel developers but in the seaport we've seen a couple of hotels, one hotel open last year, one more will open this year. And then across the next several years in the seaport we will see more hotels build. Our Boston exposure is really focused on Cambridge and Brookline and the West End and we feel very good about kind of supply in those submarkets being either non-existent or very far in the future. So feel very good about those two markets. Our only concern really on the supply side. Beyond New York is we are seeing a lot of supply in Miami. In Miami, we think that the market can bear it. It is -- as I kind of discussed in some of the remarks. And in Miami there is a big difference being on the sand, being on the beach versus being in other submarkets particularly downtown and Brook Lodge [ph] where you are seeing most of the new supply come.

[Operator:]

We will take our next question from Ryan Meliker with MLV & Company.

[Ryan Meliker:]

Hey, guys, good morning. I just had a couple of things. First of all in margins. I know you touched upon what was going on in New York and that was helpful. But I guess I was a little surprised to see RevPAR up almost 7% and margins down 60 basis points on same store basis. Was there anything specific or big impact in 1Q that we wouldn't expect to see going forward? Just help us reconcile that down 60 basis points in the first quarter at plus 7% same store growth with your full year outlook which obviously is RevPAR growth not quite that strong on same store basis and margins much stronger.

[Ashish Parikh:]

Right. So, Ryan, as I mentioned if you take a look at our portfolio I think that excluding New York it would be probably in the range of positive 300 basis points margin growth, maybe even a little stronger. Renovations impacted comparable store margins by 60 basis points but in New York we still ran approximately the same occupancies as we did in the prior year. So 85% strong occupancy almost all the loss in RevPAR was ADR driven. So that ADR driven loss during the first quarter which would magnify by property tax increases and lot of the properties along with the big property tax increase in high Union Square because it was reassessed from a construction property to a operational property, hurt margins significantly up and that it brought sort of the rest of the portfolios margin came down to effectively flat margin for the quarter. We do think that in future quarters this reverse that you will start to seeing, we are forecasting much stronger growth in the back half of the year for New York. We are expecting ADR growth because there is really no place to push occupancy nor do we-- nor does our sort of operating models have us pushing occupancy in the rest of the market. Although the RevPAR may not be strong as Q1, will still have mid to high single digit RevPAR growth with nice margin performance.

[Ryan Meliker:]

Got you, so as New York improves throughout the year your margins will improve with it. That's helpful. Okay, the second question I had was obviously you guys bought back couple million shares in the quarter. Sure investors were happy to see that. I am just curious how you guys are thinking about buybacks? You know as you just stop trying to be opportunistic here and there? Obviously, you believe your stock traded at discount, I certainly believe your stock traded at discount, have you thought about potentially even selling an asset or two to fund buyback? I would imagine that would probably receive very favorably by your investors. I am just trying to think about how you are thinking about it.

[Neil Shah:]

I think Ryan on one hand this is not new for us. Last year first quarter 2014 we also repurchased about 1% of our shares outstanding. And we do view it opportunistically when there is a particularly wide dislocation and share price versus our NAV. And we believe it has been pretty wide in the first quarter of last year and this year. Again we will have to continue to monitor kind of how the shares trade, how our price trades and our cash position. But we are very comfortable with buying back stock. We are as Jay mentioned our acquisition program has been very productive but much disciplined. And we look at stock buyback very similarly to acquisitions. It is an opportunity to buy in place yield with a really strong growth rate, inherent, organic, embedded growth in this portfolio. So we will continue to look at buybacks. In terms of would we do asset sales to fund it? Right now we just we have sufficient capacity on our balance sheet. We feel like we have about $200 million of acquisitions and buybacks, dividend increase potential in our company. And there hasn't been a reason to sell an asset in order to take advantage of that opportunity. We look at that as a distinct and separate decision, asset sale decision.

[Ryan Meliker:]

Okay, thanks, that's really helpful. That makes a lot of sense to me. I guess the follow up I would have to that is if you have $200 million in capacity and you see a unique opportunity with your stock today or you did drop in first quarter why only buy $12 million with the stock, is it just because of -- you didn't want necessarily push the stock too high being an aggressive bidder. Is it that liquidity wasn't there to really pull a trigger on larger number or that you are holding your capital for more acquisition opportunities? Or a little bit of all the above maybe.

[Neil Shah:]

Truly, I think is mainly -- it is hard to accumulate a lot of shares on the open market with our float and our company. And without kind of tender or something it's just hard to accumulate meaningful position. We were -- we remained very opportunistic in terms of pricing and what kind of discount to NAV we wanted to accumulate. But that was a really the main driver with all the blackouts and other kind of limits that we have in terms of not wanting to push the price too significantly on any given day. This is what we were able to accumulate.

[Ryan Meliker:]

Okay. Now that makes sense. Thanks for all the color and it was nice to see the buy back, quite sure your investors are happy about.

[Operator:]

We will take our next question from Shaun Kelly with Bank of America

[Shaun Kelly:]

Hey, good morning, everyone. I just wanted to follow up on maybe two things. The first of all it was just where we sit in terms of stabilization for High Union Square? So sounds like the reassessment hit at the beginning of this year but just overall in terms of your underwriting what year we end and when do you think that property actually reaches stabilized rate?

[Ashish Parikh:]

Yes, Shaun. So we've open the property now, it has been just two years that we've opened it. It is a different market for us, different type of asset so the stabilization is probably little longer than we anticipated in that particular market. So we are seeing great growth this year. We are not close to what we consider stabilized that I think property based on our underwriting. We think that we have outsized growth potential well into 2016 and potentially even into 2017 based on sort of where we are running on an ADR index in that market. So I would say that we are at probably further than 50% through stabilization period but not 75%.

[Shaun Kelly:]

Great, that's helpful. And second also little bit on New York. Just your overall take on land values in the market right now. Because it does feel like whether it alterative use or anything else, other areas of New York real estate certainly haven't slowed down even if hotel now all of sudden a four letter word versus five letter word.

[Neil Shah:]

Yes, Shaun, land values have continued to increase in New York. It is gone from beyond just the top corner locations getting big numbers. It is now kind of throughout Manhattan that we are seeing a significant increase in land values where we've seen some data recently shows that asset sales across the last year were at $579 per buildable square foot in Manhattan which represented a 30% increase over 2013 which was at $446 per buildable square foot. So it has been increasing at a very steady clip 15% to 20% a year for several years now. And that does make it difficult to make hotel economics pencil. The residential bid can -- are justify those land costs, retail and office in the right locations can justify that cost but right now it is making it very difficult for hotel developers to buy a piece of land and then start a development project. I think it is among top developers in the city, they kind of the conventional wisdom or the view is that to build a select service hotel on a mid block kind of location, you are going to be in for or above $500,000 a key. And if you are trying to build a full service hotel, a lifestyle boutique hotel, you are between $800,000 and a $1 million a key, and to attempt to build luxury in today's market would require over $2 million per key. And those numbers are very reasonable. If there has been huge land price appreciation kind of 20%-30% levels and but also on the construction side, construction costs across the US are increasingly very significantly. I think the urban gateways might be actually taking it less hard than some of the suburban markets in this case, it have been increasing construction cost by 10%-15% in urban markets. So we've been hearing that kind of suburban like service market even there is 15%-20% kind of increase in construction cost. So the combination of land increases and construction increases are making it much more difficult to pencil new construction in New York City right now.

[Shaun Kelly:]

Really appreciate all the color. And I guess one follow up on and it would be can you just remind us what often or what happen with general royalty values in New York turning the financial crisis but what was your take on what happened with land values kind of peaked to trough, did those come off as a much or did you ever see that -- I mean obviously transaction volumes slowed a lot but did you ever see land values come down as significant, more significantly, what did you see during the financial crisis?

[Neil Shah:]

During the crisis land values did take a big hit in New York. And part of it I think was that a lot of the land, a lot of land was levered. And there were a lot of bridge loans and there was a lot of land loan that got kind of held up in between 2007 and 2008. It was the kind of -- it was aggressive lending in 2007-2008 that led to some of those deals but it hung up. So we saw land values at the real trough of the market kind of 2009, late 2009 or early 2010, land price did fall or stood down to kind of $250 to $300 a foot for kind of mid block kind of sites. So we've seen that go from $300 to $550 this cycle. We think we do believe that the cycle will hold more this time because there has been less of that kind of very aggressive financing leading to some of these land purchases. This time around there are big sponsors, more significant projects often a lot of equity in there. But there was a pretty significant drop often in land prices.

[Ashish Parikh:]

And New York real estate means it is interesting know just in the long-term value as you mentioned, we are just looking at some of our cost base, it has been 10 years since we bought Hampton in Herald Square. So that asset we purchase for $230,000 a key and when we are looking at land leases we were offered more just for the land on that particular site. So I mean over a 10 year horizon the land is worth more than the entire asset what we paid for it.

[Shaun Kelly:]

Thanks for that, Ashish. It started out keep going but just one more here which should be you know you mentioned that obviously but the tailwind of last cycle, there is a lot driven by leverage. We've heard at other parts of -- the commercial real estate world that things that the vary, the ultra high end have started to possibly slow a little bit in terms of at least transaction velocity. Are you guys seeing any slowdown in terms of either land transactions or at least in possibly that price inflation or is it still a really robust environmentally hazardous seen trading out there?

[Jay Shah:]

In New York still very robust. It is -- there are may be different parties that are active but it is very robust today. On kind of completed hotels that are delivering, we've seen now across the last few years we've seen such a kind of so many deals, asset sales in New York that it should probably better comps in New York than most other markets in the country right now. That we across the last 6 to 12 months we saw select service hotels, two or three select service hotels trade at well above $600,000 a key. We saw one just very recently get closed to $700,000 key with it had retail but on the other hand it also was ground lease. And so you are seeing some very significant transactions in select service hotels at higher prices than we've seen today.

[Operator:]

We will take our next question from David Loeb with Baird.

[David Loeb:]

Good morning. I just have a couple; I'd like to kind of tie together the questions about acquisitions and the stock buyback. Neil or Jay, how do you evaluate at the current stock price that trade off between putting money into your existing portfolio effectively by buying stock versus buying additional assets?

[Jay Shah:]

David, when we take a look at that, Neil alluded to it we apply similar sort of -- similar criteria when we are considering a stock buyback. We are taking a look at relative to where we believe NAV is and where the stock is trading so somewhat of discount to the value that the shares represent. And secondly we are taking a look at what our EBITDA growth profile is as an enterprise. And making the decisions that way. When we are looking at acquisitions, not just similarly, we will look at the asset on a per key basis consider what replacement cost with the market comparable might be and then we look at what sort of investment returns would be and we look at the growth rates. And so we look at them both very similarly. And that's why when we talk about buybacks versus acquisitions; we don't see them to be mutually exclusive from an economic standpoint. That being said, I think it gives us an additional alternative for the use of our capital when share are miss priced. And it also gives us another alternative to -- it is another way for us to return capital to shareholders rather than just continue to increase the dividend.

[David Loeb:]

Okay, also just one -- go ahead.

[Neil Shah:]

David, I was just going to mention last year is a great example. Last year we bought back stock in the first quarter and then the second quarter we announced first and second quarter we announced more acquisition that kind of met our criteria. As the year went on we weren't able to find compelling acquisitions that met our criteria. Our shares were trading at a better price than they had in the past, they weren't just dislocated. And so toward the end of the year we increased our dividend. As this year began the dislocation was very significant again. We bought back some shares. Today, we are looking at, we have a couple of acquisitions opportunities we are looking at, and we are very willing to continue our buyback program up to $100 million. And we will see how this year goes in terms of our dividend increases and the like. They are very much like last year.

[David Loeb:]

That make sense, thank you. And one more. You mentioned warming a bit to DC in terms of the acquisition market. Can you just talk a little bit about what you are seeing in DC and what might make you consider an acquisition in that market?

[Jay Shah:]

Sure. David, this is Jay. As everybody knows and understand DC is had some difficult years. What we are starting to see in DC is some encouraging trends from a transient standpoint. We are seeing not only -- and this year particularly interestingly Congress is in session. I think we are going to have a very strong year next year from a government transient standpoint as well. But what we are starting to see is we are starting to see a lot of the government related private sector business coming back. Lobbyist contractors et cetera and we believe that will continued group compression starting to build in the coming years for heads of hotels that we own are going to be able to really cheese out some very strong rate growth there. When we talk about the sort of the government returning, because of the last couple of years where we've had challenges in Washington DC, we are probably going to see the pendulum swing back and start seeing some attractive per DM increases. And I think that is -- those are very strong inflection point for assets in Washington DC. So when you look at it in its totality and the fact there hasn't been much supply growth there, I think we will be buying at a very attractive time in the micro economic cycle in DC.

[Operator:]

And we will take our next question from Bill Crow with Raymond James & Associates.

[Bill Crow:]

Hey, good morning, gentlemen. Couple of questions. Jay, how tough is it to get comfortable with your guidance given that first quarter is a seasonally slow or low contribution from New York and that only gets more important as the year goes on. You have a very small or short looking window so visibility in New York and the other markets are certainly challenging. You get very tough comps coming up and the ramp from the new property is starting to get a little bit long in the too -- so as you sit and look out, I mean maybe it is not difficult at all but just talk about how forecast in the next three quarters to what look like pretty good numbers, how you are able to do that.

[Jay Shah:]

Yes, absolutely, Bill. When we are considering New York and what that's going to mean for us overall, we've been looking at three things in New York. First is supply delivery. We are looking at international demand and we are looking at this general economic recovery. And our forecast assumptions for GDP are clearly stronger than they have been in the last couple of years. So we expect the corporate trend and segment in New York to benefit disproportionately from strong GDP growth across 2015 and into 2016. We are expecting 3% GDP growth this year and in the New York corporate transient segment has pretty strong correlation with macro GDP growth. That gives us confidence for the second half. When we are looking at overseas visitation to the US and that has been a real question what is that mean for New York relative to strong dollar. So 2013 to 2014 growth was very strong in a north of 7% overseas visitation. And the stronger dollars clearly creating some headwinds and in headwinds we try to attack our way through them. And when we are looking at international segments that are coming into the US, we are seeing some weakness from a couple of segments, but we are seeing continued strength in market like the UK, Argentina, India, China and so we are turning more of our efforts in that direction. That combined with the fact that we are going to a point in the cycle where domestic crowd was still strong boosted by lower gas prices, stronger employment situation in the United States. And so we are continuing to focus on that. Also when we think about international, it is important to remember for us in New York, despite our growing number of independent hotels we are primarily branded portfolio in New York City and Manhattan. And so our reliance on OTA is which where a lot of the lower rated compression from international demand comes from is we are far less exposed to that. Our OTA contribution in New York is probably somewhere in the low 20s. I'd say 20% to 23% versus lot of our -- lot of the hotels in our comp set are very large independent hotels, transient, they are probably taking 40% to 50% OTA business and at that point you have a greater exposure to lower rated international demand. I mentioned earlier we are at this point in the cycle where we are no longer building demand in New York and we are really out seeking rate. And so we just have to become far more surgical and how we go after the business that we want in our hotels. And there are a lot of factors other than the international headwinds that we are facing that are allowing us to do that, we believe in second, third and fourth quarter particularly in the second half of the year. On top of all of that I would tell you international demand what we had forecasted for international demand at 13% to 14% growth was well above what we expected. There is an anticipated growth rate of international demand from 2010 and 2019 close to 4.5%. Even today with the Commerce Department's most recent forecast, they are still expecting close to somewhere slightly north of a 4% compounded annual growth rate between 14% in 2019. So it is not a complete disappearance of international demand. And as we become less expose to it as it is in our portfolio, we are just teasing out the best demand that we can. And finally supply is another factor that we look at in New York when we are concerned about forecast should be there and what gives us confidence is that this first quarter was heavily shaken by a lot of supply delivery in the second half of last year. We are continuing to get deliveries in the first and second quarter. But in the second half of the year I think we are going to have the supply demand dynamics going to become far more favorable and that's giving us also optimism that we are going to be able to drive better performance in the second half of the year. I think that's generally how we are thinking about New York. We are not counting on a lot of citywide activity because that has been somewhat off, but that's somewhat reflected in our forecast already.

[Bill Crow:]

Okay, I appreciate the color. Two more questions. Ashish, have you bought any stock back in the second quarter?

[Ashish Parikh:]

Yes, we bought some back.

[Bill Crow:]

You want to quantify that or --?

[Ashish Parikh:]

It hasn't been that material to date, Bill. It has been I would say the biggest been less than 50,000 shares at this point.

[Bill Crow:]

Got you. And then finally, and this question was spawned by the answer to the very first question this morning. You talked about renovation disruption related to the Sheraton JFK. How tough is it to put money into an asset in that submarket with that flag given everything else going on and what are your return expectations for the additional capital in that property?

[Ashish Parikh:]

In to Sheraton JFK?

[Bill Crow:]

Yes.

[Ashish Parikh:]

So that asset for us Bill, that asset is probably about seven or eight years old. At this point it is 150 rooms asset. So it is not I guess kind of the difficult sprawling full service hotel. It is very much compact full service hotel at JFK, does very well on an index standpoint. So what we put in about $1 million, $1.3 million for pretty comprehensive six year refresh, seven refresh at the property. And yes that's partly continues to generate high 80%, 88%, 90% type of occupancy good returns. So for us it is not really that much of a concern at all.

[Neil Shah:]

Just a few supply of JFK really, there is talk about something at the terminal and the like but there is a lot of natural various entry that there is just not lot of space. And our Sheraton is right adjacent to our Hilton Garden Inn and so we are among the two closest hotels to the airport. And as a complex they are very productive assets for us.

[Bill Crow:]

That's helpful. I guess I am just -- I am in that same camp that would like to see you sell an asset or two specifically in the New York area and new proceeds to buy stock back and so I am thinking about a permanent additional capital versus the sale of that particular asset. So that's -- I appreciate the color and I appreciate the time this morning.

[Operator:]

We will take our next question from Nikhil Bhalla with FBR.

[Nikhil Bhalla:]

Yeah, hi, good morning everyone. Jay, just from a net asset value perspective, I remember last year around the same time we had put out what you talk of net asset value of the portfolio. As I recall it was between $2.5 billion to about $2.6 billion, do you have an update on that number? So we get a sense on what you think the value of the portfolio is at this point?

[Jay Shah:]

We do -- we internally think about it. We haven't updated it and published it at this point. And so I don't have anything to share with you right now. That being said, we continue to buyback stock and we are doing that because we think we are at a discount to our NAV and so you know capital is precious, so we wouldn't be doing that and returning capital to shareholders unless in our estimation it was still quite significant. And our NAV is higher than it was a year ago. And we had some good growth in our portfolio.

[Nikhil Bhalla:]

Okay. Yes. And I realize. But I was just wondering if you had done something more updated just too kind of put something out there; give us some sense on what you saw on the asset value of the portfolio at this point where it stood. That's okay. Another follow-up question, this one for is Neil. Neil, can you just talk a little bit about what you might have seen in New York in terms of interest from international buyers in the select service space specifically?

[Neil Shah:]

There has been a lot of interest from international buyers. I think we've seen of late we've seen a lot more interest from Asian capital. I think the first wave of Asian capital in New York lodging were syndicators, private high network groups or people, we sold hotels 373 Fifth Avenue to a group like that. That kind of capital continues and this growing and there is more syndicators more kind of promoter, advisors that are bringing in capital from Asia for investment in hotels here. We've also seen I think more institutional capital coming out of Asia with interest in New York lodging. The big trades were the Waldorf and Bakrat [ph] with the insurance companies in China. But we are seeing a lot of similar interest from Chinese, from Korean pension fund advisors for cash flow and real estate in New York from hotels. There is always been an interest from the Middle East in New York. And they have been active this like was last cycle in Manhattan. There is some capital that is Sharia compliance that is very attracted to limited service assets and because of some restrictions around alcohol and certain food products. And they have been active last cycle; they have announced a handful of transaction already this cycle. There is CB5 capital that sponsoring a bunch of deals that's accessing the international market either in China or in Asia, other parts of Asia. So there is a real kind of wide diversity of foreign capital interested in New York City hotels. I am not sure what else to mention there. It is a lot of them. And the recent trades continue to kind of demonstrate how deep that market is.

[Nikhil Bhalla:]

Sure. I was just wondering like. Are you seeing a lot of capital still flow towards most of the fulfilled larger assets are, have you sort of kind of a see a pick up on in interest on the selects of the site.

[Neil Shah:]

Definitely and absolute pickup of interest in the select service side. I think just as we saw in the US where it took some time for institutional capital to get comfortable in the space, I think we've seen that happened much quicker with Asian and Middle Eastern buyers of assets in New York.

[Nikhil Bhalla:]

That's great. One final question for Ashish. Ashish, just in terms of the cadence of RevPAR growth, as we think about for the remainder of the year, clearly your guidance implies that 2Q through 4Q will be a little bit more moderate. How should we think about sort of the 2Q, 3Q and 4Q cadence? Do you think 2Q maybe comes in kind of at the midpoint of your 6% to 8% guidance and then we see acceleration in the back half?

[Ashish Parikh:]

Yes. I mean I think that's right, Nikhil. As you look at it as we discussed in New York will be in pack for Q2 but the rest of the portfolio is still running kind of in the high single digit RevPAR growth rate. So we think that it comes in somewhere in the middle of the range for Q2. In Q3, we think that the overall RevPAR certainly in New York, it is a lot better where sort of forecasting more in the mid single digit range. And you have both 52nd Street and Pearl Street coming in on comparable side, in the back half of the year which adds about 150 potentially 200 basis points of growth in that submarket. And the other markets we think probably slowdown a little bit from what we are seeing in the first half but generally staying in that same mid to high single digit range.

[Operator:]

We will take our next question from Wes Golladay with RBC Capital Markets.

[Wes Golladay:]

Hi, good morning, guys. You mentioned the 20% to 23% use of OTAs in New York. Is that consistent with past years?

[Jay Shah:]

I am sorry. Wes, could you repeat the question? We couldn't hear you so well.

[Wes Golladay:]

Yes, okay. You mentioned 20% to 23% use of OTAs in New York. Is that consistent with past years?

[Jay Shah:]

Yes, it is. That's our general target range. We try to lower when we can but with this -- with the supply growth that we've seen we had to rely on it for a couple hundred basis points, 200 to 300 basis points more than we like.

[Wes Golladay:]

Okay. And then when we look at your portfolio in Manhattan relative to the overall Manhattan market, do you expect that outperformance to continue about 100- 200 basis point throughout the year with the high Union Square still ramping? Is that a good expectation?

[Jay Shah:]

I think it is fair expectation, yes.

[Wes Golladay:]

Okay. And you mentioned international money for select service assets in New York. Is that still an over-endeavor market?

[Neil Shah:]

We had seen a lot more Asian capital mobilizing for South Florida and for Miami. And noticeably so in terms of real estate investments they made but also just their interest and their conversation, we've gotten some inbound increase about some acquisition opportunities there. I think traditionally Asian capital is very focused on New York and Los Angeles. And I think that is now starting to broaden across the country. I think there is definitely this kind of gateway markets like New York, Miami, and Los Angeles. We will always, Washington DC, we will always be a preference. We are seeing it broad a bit.

[Operator:]

And with no further questions, I'd like to turn the call back over to Neil Shah for any additional or closing remarks.

[Neil Shah:]

I think we are all set. It has been great to catch up with everyone and we look forward to hearing from anyone after the call if we can answer any further questions.

[Operator:]

This does conclude today's conference. Thank you for your participation.