Apple Hospitality REIT, Inc. (APLE) Q1 2019 Earnings Report, Transcript and Summary

Greetings, and welcome to the Apple Hospitality REIT First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Clarke, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning. We welcome you to Apple Hospitality REIT's first quarter 2019 earnings call on this, the 9th day of May 2019. Today's call will be based on the first quarter 2019 earnings release, which was distributed yesterday afternoon. As a reminder, today's call will contain forward-looking statements as defined by federal securities laws, including statements regarding future operating results. These statements involve known and unknown risks and other factors, which may cause actual results, performance or achievements of Apple Hospitality to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality's 2018 Form 10-K and other filings with the SEC. Any forward-looking statement that Apple Hospitality makes, speaks only as of today and the Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, certain non-GAAP measures of performance, such as EBITDA, EBITDAre, adjusted EBITDA, adjusted hotel EBITDA, FFO, modified FFO will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the Company, please visit applehospitalityreit.com. This morning, Justin Knight, our Chief Executive Officer; Krissy Gathright, our Chief Operating Officer; and Bryan Peery, our Chief Financial Officer, will provide an overview of our results for the first quarter 2019 and an outlook for the sector and for the Company. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to our CEO, Justin Knight.

Thank you, Kelly. Good morning and thank you for joining us today. Performance across our portfolio of hotels during the first quarter was steady and generally in line with our expectations. Comparable hotels RevPAR increased by 0.1% in the quarter, driven by 1.2% increase in average daily rate and adjusted EBITDA grew approximately 0.5% for the quarter. Our asset management and on-site management teams have done an exceptional job during this period of moderate topline growth to maximize profitability through strategic revenue management and effective cost control measures. That in mind, we are pleased to report a strong comparable hotels adjusted hotel EBITDA margin of 36% for the quarter. Our 2019 guidance was updated to reflect our performance to-date and adoption of a new lease accounting standard, which Bryan will discuss in greater detail. We continue to anticipate demand growth will remain healthy, new supply will continue to impact property level performance in several of our markets and there will be continued cost and wage pressures during the year. Given the size, quality, diversification and effective wage of our portfolio of rooms focused hotels and the strength and flexibility of our balance sheet, we remain confident, we are well positioned to maximize operating results and pursue opportunities in the marketplace as they arise. We are pleased to have completed the sale of nine hotels, totalling just over 1,000 guest rooms during the quarter for $95 million. We achieved a attractive pricing for the portfolio, and through the transactions, we reduced our exposure to certain lower RevPAR markets, which we believe will enhance the long-term strength and stability of our remaining hospitality platform. We acquired two hotels during the quarter, the existing Hampton Inn & Suites in St. Paul, Minnesota and the newly constructed Home2 Suites in Orlando, Florida, for a combined total of $52 million. Currently, we have five hotels under contract for acquisition, all of which are under development for an aggregate expected purchase price of $159 million. We have highlighted four of the hotels under contract on previous calls, and they include: the Hyatt Place and Hyatt House in Tempe, Arizona and the Hampton Inn Suites and Home2 Suites in Cape Canaveral, Florida. We anticipate construction of these four hotels will be completed in 2020. Most recently, we entered into a purchase contract for a Courtyard to be built in downtown Denver, Colorado with an expected completion date of 2021. The hotel is planned for the Union Station LoDo of neighborhood in downtown, Denver. Vibrant location with an abundance of demand drivers is within walking distance of the Union Station and Coors Field among many other attractions and businesses. We believe that through these transactions, we will be able to continue to enhance our market mix and the value of our overall portfolio. Although, the strength of the broader economy continues to drive demand for travel, new supply remains a headwind for our portfolio in many of our markets. At the end of the first quarter, approximately 66.2% of our properties had one or more upper mid-scale, upscale or upper upscale new construction projects within a five mile radius, which represents an uptick from what we reported at the end of the fourth quarter. As construction costs continue to rise, we remain optimistic that new supply will begin to peak over the next year, year-and-a-half and begin to represent less of a headwind for us. With the strength of our brands, our consistent reinvestment, our locations within markets and the quality of our on-site management teams, we are confident that our portfolio is uniquely positioned to remain competitive over the long term. Despite near term increased competition from newly opened hotels. Consistent reinvestment in our hotels enables us to maintain competitive positioning within our markets and helps to mitigate the impact of competing new supply. In addition to cyclical renovations at our hotels, we continually seek opportunities to implement environmental efficiency enhancements, including the equipment upgrades and replacements, the reduced energy and water consumption, and improve waste management. By investing in proven sustainability practices, we are able to enhance operating performance at our hotels, while reducing the negative impact of our business on the environment. Our team is also continually evaluating opportunities to enhance the competitive positioning of our properties and drive incremental return on our investments. During the first quarter, the Company invested approximately $19 million in renovations and we plan to spend an additional $60 million to $70 million during the remainder of 2019, which includes the beginning of the renovation at our full-service Marriott in Richmond, Virginia. Also of note, we have property improvement plans that will be completed in the second quarter for our recently purchased Atlanta and Memphis Hampton Inn & Suites. These hotels are well located and strong performers, and despite the short-term disruption will benefit from the reinvestment, as each of their markets continue to drive increased demand from demographic shifts and steady investments and amenities and attractions. Our portfolio of 234 hotels is broadly diversified across 87 US markets to reduce volatility and provide exposure to a variety of industries and demand generators. I will now hand the call over to Krissy to provide additional detail regarding performance across our markets during the first quarter of 2019.

Thank you, Justin. We are very pleased with our solid start to the year. Relatively steady supply and demand trends, we reported flat RevPAR growth at the midpoint of our full-year range. Same strong increases in parking and late cancellation revenue more than offset a modest decline in food and beverage revenue. Optimal revenue mix management and impressive cost control enabled us to maintain a strong gross operating profit margin. Same-store payroll increased 3.5% per occupied room compared to an increase of approximately 4% factored into our guidance. Partially offsetting the payroll increase, we continue to benefit from energy efficiency initiatives and lower loyalty program charges. Comparable hotel EBITDA margin declined only 10 basis points with a 50 basis point benefit from the ground lease reclassification offset by a 60 basis point impact from increased insurance and property taxes. On the revenue side, we were pleased to see continued increases in our corporate negotiated and highest-rated retail segments. Government and Group mix declined modestly, mainly attributable to the partial government shutdown, non-repeat projects in certain markets, and weather-related sports group cancellations. As for individual market performance, with expanding economic and abundant recreational opportunities year round, several markets in the Sunbelt remain strong performers, including Atlanta, Birmingham, Raleigh Durham, Greensboro Winston-Salem, Huntsville, Montgomery, Phoenix and Tucson. Our North Carolina East and Panama City markets benefited from hurricane recovery business, which will likely dissipate for the former by the end of the second quarter, but should continue for the latter through the remainder of the year. Our markets with softer hotel performance, included Houston, Miami Fort Lauderdale, Orlando, Austin, Richmond, Oklahoma City and Dallas. Several Florida and Texas markets were impacted by decreased demand related to hurricane recovery business in the previous year, as well as the ramping of new supply. Additionally, in Austin, three of our hotels were undergoing renovations during the first quarter. While the Oklahoma City market saw healthy demand increases, absorption of new supply is temporarily impacting RevPAR growth. Oklahoma City market is eagerly awaiting the opening of a brand new 275,000 square foot convention center, scheduled to debut in 2020. Another eagerly awaited opening, the new Star Wars: Galaxy's Edge theme area and Walt Disney World and Disneyland, will benefit the Orlando, as well as the Anaheim market later this year. As discussed in certain markets, there was a headwind from non-repeat natural disaster business. While in other markets, there was a tailwind from continuing recovery business. We estimate that the natural disasters in Alaska, North Carolina, Florida and Texas, had a slightly net negative impact for the quarter, which was offset by the Atlanta's Super Bowl benefit. As for outlook, incorporating calendar shifts and renovation timing, we anticipate that RevPAR growth for the second quarter will be at the low end to the midpoint of our full year outlook, with a pickup in the third quarter. Our asset management team and our operators are working diligently to manage expenses, with the goal of continued minimization of margin loss, while still providing a quality guest experience. We feel strongly that aligning management company compensation with the achievement of our balanced scorecard metrics has and will continue to drive better results versus more traditional management compensation arrangements. I will now turn the call over to Bryan to provide additional detail on our financial results.

Thanks, Krissy, and good morning. Summarizing, some of our results for the quarter. Total revenue was $304 million, an increase of 2% from the first quarter of 2018. Adjusted EBITDA was $101 million compared to a $100 million in the same period of 2018 and modified FFO per share was $0.38 flat per share, flat compared to last year. G&A expense for the quarter of -- first quarter of 2019 was $8.1 million, an increase of $1.3 million, primarily due to year-to-date improvement under the Company's performance-based incentive plan came -- compared to the same period of 2018 and management transition costs. The ongoing management transition and assuming performance under the incentive plan continues similar to the first quarter, we would expect similar increases for the remainder of the year in these costs. We finished the quarter with $1.4 billion in outstanding debt and $235 million of availability on our credit facility. Weighted average maturity of our outstanding debt was 5.1 years with the current average rate of 3.8%. 77% of our debt was effectively fixed rate with a weighted average rate of 4% and an average remaining term of 4.1 years. Justin mentioned, we adopted a new accounting lease standard on January 1st of this year. This resulted in an increase of roughly $147 million in assets and $152 million in liabilities on our balance sheet at the end of the quarter related to ground and other leases. The difference has a cumulative adjustment to shareholders' equity, includes reclassifying four ground leases from operating to financing leases based on the new definition of financing – finance leases, which results in a couple of reclassifications effective in 2019 on the income statement side. In the first quarter, we recognized $1.8 million of interest expense and $1 million of amortization expense related to the four finance leases. As leases continue to be classified as operating leases, we would have – instead of recognized $1.6 million in cash operating ground lease expense and $1 million in non-cash straight-line rent expense and amortization of intangible lease expense. For the full year of 2019, the effect of this accounting change is a roughly $7 million increase to adjusted EBITDA and a decreased to modified FFO of $1.2 million. Based on our operating performance to date, the completion of the sale of the portfolio of nine hotels and acquisition of two hotels in March, and the lease accounting change, we have increased our estimated results for 2019 for comparable hotels, Adjusted EBITDA margin percent and adjusted EBITDA. And maintained their estimated comparable hotels' RevPAR change from the guidance we provided in February. Current guidance for 2019 is, net income between $167 million and $192 million. Comparable hotels RevPAR change between negative 1% and plus 1%. Comparable hotels adjusted hotel EBITDA margin between 36.2% and 37.2% and adjusted EBITDA between $425 million and $445 million. During the quarter, the Company paid distributions of $0.30 per share or a total of approximately $67 million. Annualized $1.20 per common share represents an annual 7.3% yield based on our May 6 closing price of $16.55. This month is the fourth anniversary of our listing on the New York Stock Exchange and during that period, our shareholders have earned over $1 billion in dividends. Believe we can continue to operate effectively against our strategy and over the long-term, we are well positioned to meaningfully increase shareholder value. Thank you for joining us this morning. We will now open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Hi. Good morning, everyone. Justin, just curious if the uptick in the new supply you referenced is really concentrated in markets that you'd characterize is already supply challenged? Or are you seeing new markets being impacted?

The number we quoted highlights the fact that we have an increase in the number of markets in total that are being impacted by new supply. If you look at supply as a percentage increase across our portfolio, we continue to be roughly in line with national averages. However -- and I've highlighted this in past calls and in our conversations, supply is coming to the market that have the strongest performance, so markets that are producing the highest RevPAR and that have over the past several years produced the best growth are those markets that are seeing new supply. But the uptick from last quarter is the -- in the number that I quoted shows that we have more markets now and is not indicative of increased supply levels in markets we're already seeing it. And the other -- the other factor that's playing into that is -- and we've talked about this in the past. It's taking longer for projects, once they're in the ground to actually be completed and delivered. So portion of the uptick, we believe is driven not by an absolute increase in the supply picture, it -- but because we're tracking projects that are under construction, the longer those projects take to be completed, the longer they are reflected in that number.

Right, got it. Thank you. And then with the nine assets that have now been sold. Are you actively marketing the remaining seven that were originally under contract or still negotiating, I guess with the original buyer about a sale potentially down the road?

That's a good question. We actually are continually looking at the entirety of our portfolio and looking for opportunities to monetize or to realize value through sale transactions. We're continuing to explore options for the assets that were part of the original portfolio, but not exclusively. And because the market continues to appear to be relatively strong at least relative to the past several years in terms of transaction volume, we're optimistic that we will continue to find opportunities to prune from our portfolio and to replace with assets, that we think -- based on our total portfolio have greater value.

So as we think about as potential sales materialize, how should we think about reinvestment? I mean, you've talked about wanting to gain scale to the Hyatt brand over time. Is there anything on the horizon that could help you grow your exposure to that brand in the near-term?

Look, we have the two assets that are under construction and will be delivered in 2020. We continue to underwrite a number of Hyatt assets, but not exclusively. We continue to see opportunity as well within the Marriott and Hilton brand families.

Great. Thanks for the time.

Thank you.

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

Yeah, good morning. Couple of quick questions. What sources, you've noted the construction hotels and we've understand stood that for a while, but what sources are you using to identify acquisition targets, which are yielding the best results? And it doesn't seem like you're doing at ton of acquisitions just buying from others?

Well, I mean, the reality is we're not doing a ton of acquisitions in total. From a pay standpoint, I think the read through should be that we're being incredibly selective. And acting on acquisitions in today's environment only where we feel there is meaningful value to be added to our portfolio. If you look at the deals, the existing deals that we're acquiring. The sources are mixed, a portion of them have been brokered and a portion have come to us directly through long-standing relationships. We're fortunate and that we've been active players from an acquisition standpoint for nearly two decades now, within the select service space and have over that period of time developed strong relationships with a number of developers and operators. And we continue to use those in addition to the relationships that we have with the brokerage community to source deals -- existing deals.

How much can you typically save or has your experience been? How much better is the cap rate, let's say on an acquisition for a non-broker deal versus a broker deal?

A lot of it depends. So I'd say, just because the deal was brokered, it doesn't mean that the process is more competitive. And we have -- where we've acquired assets that have been brokered realized in many instances substantial values. But, our preference is generally to work directly with sellers with whom we have long-standing relationships. We found that there's payoff there. And you're seeing that a lot, actually in our development pipeline, looking specifically, the assets we have under contract in Cape Canaveral, for example, and the per keys that we're paying there versus the brokerage at Residence Inn that traded recently. We bought the Cape Canaveral Homewood Suites for about $165,000 a key and have under contract the Hampton Inn & Suites and Home2 for 208,000 a key. The Residence Inn recently traded in that market and that's an older property with an anticipated PIP in a $30,000 a key neighborhood. The asset traded for just under $250,000 a key. And so, I think where we've really been able to leverage our relationships into meaningful value is on the development side.

And just shifting gears, I think you made a comment in your prepared comments on decline -- a modest decline in F&B, which is a little bit different than what we've heard from some of the other companies that have reported so far. Admittedly, many of those are full service lodging REITs. But can you talk about what you're seeing there, because our experience has been this quarter, we're seeing an uptick in out-of-room spend?

Yes. Good morning, Bryan. Actually the decline in F&B, the majority of it was attributable to our full service Marriott in, Richmond, Virginia. And part of their challenge was that they had fewer city-wide, so less room night -- excuse me, less group room night in the first quarter, as well as there was -- in the market, some of their competitors had rooms that were under renovation in the previous year. So, there was more inventory to compete with. So the majority of that decline was related to that particular hotel. But also, as I mentioned in the prepared remarks, we did have some group cancellations that were related to the partial government shutdown, as well as in certain markets the increased rainy weather impacted some of our early season sports group. So, with that a little bit of a change in mix, there was a little bit less F&B revenue. We did not expect that to be -- continue at that decline for the rest of the year.

And can you just remind us, lastly what your group business typically is as a percentage of your total business? And kind of how that's shaping up on a year-over-year basis for 2019 over 2018?

No. It's typically between 14% and -- to 15% of our room night mix. In the first quarter, it was down. We would expect that to pick up in the second and third quarter to be fairly flat year-over-year.

Thank you.

Thank you.

Our next question comes from Anthony Powell with Barclays. Please go ahead.

Hello. Good morning, everyone.

Morning.

Good morning. Question on your underwriting for your new development deals. How has that changed over the past couple of years, given kind of the more moderate RevPAR growth environment? Are you targeting higher yields? Are you kind of being more conservative in kind of ramp up expectations? Just how -- just how has that changed recently?

In reality, our methodology hasn't changed. As you highlight specific market dynamics have changed somewhat. And in markets where we anticipate slower growth just as in times past, we continue to underwrite that as part of our overall process. But as we look at new development deals, our underwriting anticipate that the deals will be accretive to EBITDA and to NAV upon stabilization. And if you look at how those deals have performed relative to our acquisition of existing assets, they're in line to better from a performance standpoint.

Got it. Okay. And so, there's a lot of talk this quarter about market share shifts between -- transfer between some of the larger brand families here in the U.S. I think some of that was centered on group, but did you see any of that in your portfolio?

Good morning. So in terms of market share shifts, overall for our portfolio, we saw that our portfolio grew the majority of -- over half of our hotels or slightly more than half of our hotels actually grew market share, which is a pretty consistent trend when we have a largely geographic -- a large geographically diversified portfolio. If we break it down between Hilton and Marriott, we saw -- for the most part it was fairly consistent. We would say we did see our Hilton hotels. There was a slightly larger percentage of our Hilton hotels that gained share versus our Marriott hotels. But I will caveat that there are a lot of dynamics that goes into market share gains in individual markets and individual hotels. So, we didn't see anything that was overly alarming in terms of trends relative to market share between the individual brands. But we do continue to monitor that.

Okay. Thank you.

Thank you.

Our next question comes from Amanda Sweitzer with Baird. Please go ahead.

Good morning, guys. Thanks for taking my question.

Good morning.

Good morning.

You mentioned some higher parking fees this quarter. Can you talk about any other revenue management initiatives that you expect to drive growth this year?

So we are continue to -- we're continually focusing on additional parking, and we should continue to see that benefit through the rest of the year, because there were some markets where we found that we weren't charging for parking before and as part of our updated regular market surveys, we found there is opportunities to do so. We are also continuing to work on collection of late cancellation fees. We started that initiative very early last year and had a lot of great success and especially considering that it is still a very manual process for a portion of our hotel. So we would expect that to moderate some as we go throughout the year, because of our early efforts last year, but we're still seeing above average growth there. In terms of other revenue management initiatives, we did recently hire a new Director of Revenue Strategy that is the key focus area for us. And he is doing some deep dives with all of our management partners and identifying opportunities to make sure that, first, on the rooms revenue that we are -- that we have the right mix and we're driving -- we're driving business to the highest profit channels. And we're actually seeing really good success there, both in combination with the brands efforts around really promoting direct business and strategically taking OTA business when we need it. And then yielding it on this higher demand nights when we don't need it. We're actually seeing increased 80 -- it was -- for our portfolio 80 basis points in channel shifts from OTA business to brand.com contribution. So, that also helps on our commission and which then plays into our improvement in margins. So, those are some of the areas that we're working on. We're always looking for additional opportunities, we are implementing in some of our hotels as part of our renovations, some upgrades to what you'd call our sweet shops, our pantries, our market. And we are finding success and success in that and being able to increase the revenues that we're actually being able to generate by having a better product offering and improvements in margins. So, those are few of the things that we're working on.

That's helpful. And then you mentioned some success in the labor management front this quarter. Is that still a result of some of your labor management initiatives that you guys have been doing? Or is there anything else driving that? And do you think you can that level of cost containment is sustainable for the rest of the year?

So, absolutely, it is still a result of our teams, our asset management teams, and our operators working incredibly hard to be efficient. So, we will see that level off, as we move throughout the year, we had indicated that previously, because a lot of the upfront savings comes from the initial implementation. What we're really focused on right now with our operators is better utilization of the system and continued -- we are seeing continued reduction in hours, we are seeing some better -- some reduction in contract labor. And when we see reductions in contract labor that provides a lot of benefits in terms of efficiency. We are seeing continued reductions in overtime. If you look at the average hourly wages in Star, you put this much out that they actually get from government statistics, leisure and hospitality accommodation, average hourly earnings, year end, the increase was 3.2%. In February, it was 3.8%, and in March, the projection was -- for the projected number, a 3.9% increase in average hourly wages. So, wages are continuing to increase as the economy continues to do well. But we are very pleased with our operators' ability to mitigate some of these increases with some of these efficiency programs. We're continuing also to work on and having really good success in lot of markets. The Green Choice type programs are being able to offer our guests a choice in their loyalty points or charitable donation or a light touch housekeeping service versus the full housekeeping service. So, we're going to continue to work on that initiative as well.

That's it from me. Thanks again.

Thank you.

Our next question comes from Jeff Donnelly with Wells Fargo. Please go ahead.

Good morning, folks. I guess, is the question for you Krissy, revisiting your comments on the RevPAR index by brand, if I could revisit that. I'm just curious, I mean, there has been a lot of focus, but maybe Marriott's integration has presented a little bit of a headwind for some owners out there in different forms, for some hotels on the group side, others on loyalty. I'm curious if in some way, you think that might be creating a little bit of a headwind you've seen on market share growth for some of your Marriott products, and I guess, the follow-up to that, is do you think that's something that could reverse to your benefit in the coming 12 months? What's your sense?

Hey! Jeff. I think that's a great question. And we spend a lot of time with their brands, analyzing the data. And I would go with -- the second part of what you said. Obviously, when you have an integration of that scale, there a lot of resources put toward that. And spending time, just this week with the Marriott folks, very, encouraged. We had great conversations. There is a very much a sense of, a lot of the heavy lifting has been done. There's still work to be done, but there is very much a sense of that now is the opportunity to really focus on leveraging the power of the platform and in terms of scale, in terms of -- all the partnership opportunities. And in terms of just early stacks that they've been able to give us in terms of starting to be able to see some crossover from the former Starwood guest into legacy Marriott hotel there. So, this is definitely green shoots there. And we are going to continue to monitor that, but we are encouraged by some of the early results, as we moved into the year and look forward. We do think that there's an opportunity in -- Starwood guests were very, very loyal especially they are elite. So quiet often in markets, they would travel up to 15 miles, 20 miles, to be able to find a Starwood Property to get their loyalty points. And now that the -- you have the option of going to a Marriott. We are seeing that in terms of at least on the redemption stat, that we are seeing some really good growth in terms of Starwood numbers, coming over to legacy hotel -- Marriott hotel. And especially with that from a select service side, they're just wasn't as much Starwood product. So I'd prefer not dwell too much on the past. And I -- we are very encouraged about the opportunity in the future.

It's useful. Thank you. And maybe one for Justin, on the construction side, I guess the simple way of putting into and what allows it to continue. Because, when you look at construction costs, it's probably been outstripping. I guess, what I would call hotel cash flows, if you will, for the last two years so at least and implicitly you would think that the development yields continue to edge lower and financing has got more elusive and more costly to get, construction starts still remain pretty robust. I guess if you had to put on your hat and looking at development, what are the economics of a developer that allow that construction starts to continue? Or we just sort of seeing the last few projects shake out of the pipeline? Or do you really think we could see a meaningful decline in starts in the industry in the next two years or so?

Our expectations again, assuming consistent economic dynamics is that we do begin to see a slowdown. Interestingly, as we look at the brand pipelines, and as we look at the supply number that I highlighted earlier in my remarks. To some extent, they are being inflated by longer construction times, than lease times for new developments and meaning that projects stay in the total pipeline longer than they did earlier in the cycle. And I think in part, that's because of the challenge associated with financing. We continue to see, and I think part of the shift this time and it began early in the cycle is that we saw an increased number of select service or rooms focused development deals in the more urban settings, where they had less of an existing -- those markets continue to generate sufficiently strong RevPARs or -- to justify incremental investment. And if you look at where we're able to make development deals pencil, they're generally in those urban or higher density suburban markets. But that said, as we talk to developers, they continue to be challenged. Some of the offset as well though, has come from the development by the brands, Marriott and Hilton leading the way of more cost efficient models. So as we look at pipeline within the Hilton brand family, for example, Home2, which is a much more efficient box than Homewood is seeing significant new growth, and given that there were fewer of those assets existing, that's obviously a leading brand for Hilton and when you have true which likewise is one of their less expensive boxes. So I think two things, you're continuing to see new development in urban markets for select service, where it didn't exist historically. And then outside of that urban markets and higher RevPAR markets, really what seems to be driving the development numbers right now in terms of new product deliveries are these less expensive brands to develop. Overtime that saturates as well. And absent the brands continuing to move down scale and developing cheaper and cheaper product, assuming current dynamics, our expectation is within the next 12 months to 24 months we begin to see the supply picture improve dramatically.

That's it from me. Thank you, folks.

Thank you.

Thank you.

There are no further questions. I would like to turn the floor over to Justin for closing comments.

Thank you. We'd like to thank everybody who joined us this morning. Overall, we're pleased with the steady performance of our portfolio during the quarter and remain confident that we're well-positioned to maximize shareholder value over the long-term. We hope that as you travel -- you'll take the opportunity to stay with us at one of our hotels and look forward to talking to you again soon.

This concludes today's conference. Thank you for your participation.