Summit Hotel Properties, Inc. (INN) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Summit Hotel Properties Q4 and Full Year 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today’s conference Mr. Adam Wudel, Vice President of Finance. Please go ahead.

Thank you, Catherine, and good morning. I’m joined today by Summit Hotel Properties President and Chief Executive Officer, Dan Hansen; and Executive Vice President and Chief Financial Officer, Greg Dowell. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our 2015 Form 10-K and other SEC filings. Forward-looking statements that we make today are effective only as of today, February 25, 2016, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our Web site at www.shpreit.com. Please welcome Summit Hotel Properties' President and Chief Executive Officer, Dan Hansen.

Thanks, Adam. And thank you all for joining us today for our fourth quarter and full year 2015 earnings conference call. We are very pleased with the strong top and bottom line results that our portfolio delivered in 2015 and take great pride in the progress we’ve made in our capital recycling initiatives. For the full year 2015, we reported adjusted FFO of $108.6 million, which is a 28.8% increase over 2014. Our AFFO per share increased 28% from 2014 to $1.25 per share. On a per forma basis, we posted RevPAR growth of 7.3% for the year, which was at the high end of our outlook and as a reminder was on top of 10.9% growth in 2014. Our RevPAR growth was driven by a 5.7% increase in average daily rate and an occupancy increase of 1.4% to 77.4%. For the fourth quarter of 2015, we reported AFFO of $23.7 million, 35% above the fourth quarter of 2014. Our AFFO of $0.27 per share represents 34.2% growth, compared to the same period in 2014. On a pro forma basis, we reported RevPAR growth of 5.5% for the quarter, which was driven by 2.6% increase in average daily rates and increased occupancy of 2.9% to 74%. Our same-store RevPAR growth for the quarter was 6.6%, compared to the fourth quarter of 2014. RevPAR was driven by a combination of increases in average daily rate, which was up 2.9% and 3.6% increase in occupancy. The year 2015 capped off four consecutive years of us exceeding the Smith Travel Research upscale RevPAR growth rate and we’ve done so by an average of nearly 200 basis points. The strength in RevPAR growth across our portfolio was again very broad based. I would like to take a moment to touch on two of our largest outperformers. Our strongest market in 2015 was the Phoenix MSA where we owned four hotels that contribute approximately 4.6% to our total portfolio EBITDA. Combined, these four hotels posted 17.2% RevPAR growth in 2015, compared to the market at 12.8% and were led by our two highest placed hotels in Phoenix and Old Town, Scottsdale. Super Bowl 49 was an obvious driver of performance, but our teams focus on additional high rated transient demand throughout the year was also a strong factor in our hotels outperforming the market by 440 basis points. Another bright spot for Summit was the San Francisco market, which continues to be strong having delivered 15% RevPAR growth in 2015 on the heels of 13.1% RevPAR growth in 2014. This compares very favorably to the broader San Francisco MSAs growth of 7.5% reported by Summit Travel Research. All three hotels outperformed the market in 2015. Our hotel in the Fisherman's Wharf submarket posted RevPAR growth of 11.5% in the quarter and are two hotels located near the corporate office park and the San Francisco International Airport performed exceptionally well with 19.1% RevPAR growth in 2015. The outperformance in that submarket was led by our Double Tree by Hilton at the Airport, which continues to benefit from the brand conversion and renovation completed in 2015. Moving onto acquisitions, in 2015 we purchased seven hotels with 1042 guest rooms for an aggregate purchase price of $237.8 million or approximately $228,000 per room. These institutional quality hotels as a group, excluding the newly built Minneapolis, Hampton Inn & Suites generated RevPAR of nearly $140, margins of 41.4% and that competes successfully with the boutique, stock branded and traditional full service hotels. Their success demonstrates that the quality and experience in many of today’s premium select service hotels rival that of many hotels on the upper upscale segment. Our capital recycling initiative continued in the fourth quarter of 2015 by completing the sale of the first tranche of hotels to affiliates of American Realty Capital Hospitality Trust on October 15, which consisted of 10 hotels for a combined price of approximately $150.1 million. Prior to the close of the sale of the 10 hotels in tranche two ARC Hospitality, the purchase agreement was terminated and we retained the $9.1 million earnest money deposit. However on February 11, 2016, we were able to resurrect a purchase and sale agreement on tranche two when we completed the sale of the third tranche of hotels to affiliates of ARC Hospitality which consisted of the six hotels for a combined purchase price of $108.3 million. The remaining 10 hotels are scheduled to be sold by the end of 2016. Simultaneous with the sale of the hotels, we entered into a $27.5 million loan with ARC hospitality with $20 million being applied to the purchase of the third tranche of the assets and the remaining $7.5 million being applied to the new earnest money deposit on the remaining 10. Since the transaction to sell 26 hotels was announced in June 2015, we have fully redeployed the disposition proceeds received so far into $307.8 million of acquisitions that have a RevPAR premium of more than 60%, compared to the hotels we’ve sold and have under contract to sell. Completing the first two phases of the transformation to higher RevPAR assets in markets with strong growth profiles is a milestone that demonstrates our teams thoughtful view on capital allocation and a subsequent value creation. And with that I will turn the call over to our CFO, Greg Dowell.

Thanks Dan and good morning everyone. In 2015, we were very pleased with our fourth quarter and full year 2015 results. On a pro forma basis, our hotel EBITDA on 2015 increased to $167.2 million, which was an increase of 10.8% over the same period in 2014 pro forma hotel EBITDA margins expanded by 70 basis points to 36.2%. On a pro forma basis, the 2015 margins were held back 75 basis points due to a $3.5 million or 18.2% increase in property taxes as compared to 2014. A large portion of this increase was due to an unanticipated multi-year special property tax assessment of $743,000 received on the Holiday Inn Express at Fisherman's Wharf in San Francisco. For 2015, our adjusted EBITDA grew to $153.6 million, an increase of $25.6 million or 20% over the prior year. Moving on to our balance sheet, during 2015 we continue to strengthen our balance sheet by reducing our leverage, staggering our debt maturities, and improving our cost to financing. During the year, we retired seven loans totaling $79.4 million with no prepayment penalties. At December 31, 2015, we had total outstanding debt of $677.1 million with a weighted average interest rate of 3.9%, which is 45 basis points less than the 4.35% at year-end 2014. We ended the year with net debt to trailing 12-month adjusted EBITDA of 4.2 times down from five times at the end of the third quarter. Our reduction in leverage is primarily the result of the sale of the first tranche of 10 hotels to ARC Hospitality. In January 2016, we closed on a new $450 million unsecured credit facility, which replaced our former $300 million facility. As a result of the successful completion of this credit facility our pricing grid was improved by approximately 30 basis points. We now have less than 10% of our total debt maturity through 2018. As of February 19, we had total net debt to trailing 12-month adjusted EBITDA of 4.3 times and had total outstanding debt of $689.8 million with a weighted average interest rate of 3.8%. Turning to guidance for 2016, in our release you will see that we provided guidance for full year 2016 AFFO of $112.6 million to $119.6 million or $1.29 to $1.37 per share. For the first quarter of 2016, we provided AFFO guidance of $0.30 to $0.32 per share. Metrics supporting our guidance are provided in our release. For the full year 2016, we assume pro forma and same-store RevPAR growth of 3.5% to 5.5%. We have incorporated capital improvements of $40 million to $50 million, which includes both renovation and recurring capital expenditures. Our guidance assumes a mid-year sale of 10 hotels totaling $89.1 million. No additional acquisitions, dispositions, equity raises or debt transactions are assumed in the first quarter or full-year 2016. With that I will turn the call back over to Dan.

Thanks, Greg. In summary, we are thrilled with the performance of our portfolio and the continued successful execution by our team. I often thank the asset management team for their relentless focus and commitment to creating value and 2015 was a great example of this success of their efforts. Today I wanted to also thank very publicly the rest of our team as they are truly unsung heroes. The work that goes on behind the scenes in accounting, finance and throughout the office is truly remarkable and allows us to deliver our message. Each and every employee should be proud of the success we have shown. And with that we’ll open the call to your questions.

Thank you. [Operator Instructions] And our first question comes from Chris Woronka with Deutsche Bank. Your line is open.

Hi, good morning guys. Dan wanted to ask you with all the headlines we’ve read about in the news and everything, if you take 30, 60, 90 day look back what do you think has changed on the private side of the market? And I'm really kind of comparing that to what’s happened in the public market, you think the disconnect has gotten wider, smaller or stayed the same?

Hi this is Dan. Thanks for the questions Chris. It really is one of the themes out there where our public and private values and where do they shake out. It is a little bit hard, I think to place a specific number. I think the portfolio buyer is clearly on the sidelines as you would expect as CMBS has become more challenging, in our space the individual hotel owners and smaller value-add buyers are still plentiful and aggressive. So, I think in general I would expect pricing over the last, probably 90 days, maybe a little longer to maybe have moved 50 basis points to 100 basis points on cap rates basis, but each hotel whether you are buying or selling has a story, assets that are unencumbered by management typically will have a greater value than those that are unencumbered with management, hotels and markets with stronger growth profiles we value different than hotel in a gateway city that has a lot of supply. So, I think there is a lot of moving parts, but I think you would be safe to say that there has been some moments in maybe 50 basis points to 100 basis point range as it relates to cap rates.

Okay that’s fair and then with your, I guess congratulations on getting a revised deal done here what the ARC does, just broadly speaking does the experience you’ve had her make you less likely to do portfolio deals with anybody in the future given how or I should say in the next several months given the dislocation in the market or do you think it’s kind of a one-off, more of a one-off situation and you are still willing to be in that seller if you can confident that deals can get done?

Another great question, I think because some of the changes in the CMBS markets I would be a little bit more hesitant to do a portfolio sale. I think, as I said, the one-off local owner operators are still very plentiful, I don't rely on as much on the higher leverage CMBS debt market. So, I think that’s more likely where our buyers would be, but as a reminder ARC does still have the 10 assets under contract. So, they do still have an ability to close, but I think as I said in relation to your prior question, I think the portfolio buyers are on the sidelines in our view.

Okay, and just finally from me, obviously with the public equity markets, the values where they are, but you guys have really done a nice job of building out the portfolio or I guess upgrading the portfolio, given where we are in the cycle and again the public values, is it possible you guys still look to acquire this year or do you think the things you got done last month or kind of it for this cycle?

I think we’re always opportunistically looking for ways to create value. I think we are obviously later in the cycle, but I wouldn't say that we would be hesitant to buy a hotel that provided good value creation opportunity, I think our buyers for capital for doing such has been through the recycling, which we demonstrated. So, I wouldn't say that we would be sitting on the sidelines at all, I think we take great pride in being able to find little incremental ways to create value and for a company like us on our size, all those little things we can do to create value add up into things that really move the needle is. So, I wouldn't expect anybody to be surprised if there was an acquisition opportunity that provided some unique growth profile, but I think there is a lot of different ways we can add value beyond that.

Okay, very good, thanks Dan.

Thanks Chris.

Thank you. And our next question comes from Shaun Kelley with Bank of America/Merrill Lynch. Your line is open.

Hi, good morning guys. Dan you mentioned a couple of times in your response to Chris' question about the CMBS markets impacting portfolio buyers and I mean looking back at the situation with the ARCH, any color you could provide on, it is primarily the debt markets that makes the portfolio sale harder to do or is it also something you have to consider as it relates to fund raising for some of these non-traded or non-traditional funding sources?

Shaun this is Dan. I think the way we would say it is, each buyer has a unique set of circumstances, you know ARC Hospitality capacity was at the time much depended upon their ability to raise equity, which obviously changed some of the other private equity buyers raise money in a really different way. So, I would say that as more unique to ARC than anything else. I think the notion that private equity is out of the game for good is probably little far-fetched, but I think they are trying to as everybody is trying to find where the real value opportunities are and the less equity they have to put in historically has allowed them to drive outsized returns. So as the CMBS market has become locked up so to speak, we think that will for mainly the private equity buyers that aren’t of the non-traded REIT category are going to continue to sit on the sidelines. Some may be more than others, but I think there’s some key differences between the non-traded REITs and the other private equity portfolio buyers.

That’s really helpful. And my second question is, we are hearing from a lot of the full service guys about supply in the urban areas, but you guys have a really different dynamic and I’m curious can you guys give us any sense as what you are seeing on supply on either ground up or market basis as it relates to your portfolio and kind of where you think we’re on the construction environment for more of these types of assets in your types of markets?

That is a good question Shaun. I think some of the markets that we have exposure in that has some outsized supply are market like Houston or Austin or Nashville, a lot of this supply coming on as people should notice of this high quality premium institutional select service. That competes very well with a lot of the soft brands, the boutiques and the full service hotels. I think, supply - new supply should affect us less than the traditional big box hotels, but make no mistake there is new supply coming. These are good projects by developers that are by and large very well capitalized, so, I wouldn't say that a bunch of all the new supply and a market like Nashville is going to not have an effect on RevPAR, but there are a lot of demand generators from leisure to corporate. And I think as we’ve shown that people are voting with their feet in a lot of instances and staying at premium select service hotels. So we think our portfolio while in some of the markets that there is a lot of new supply should compete very well and we feel that makes us less vulnerable to drops in occupancy or things of that nature. So, we feel good about the portfolio not just in terms of markets we’re in, but our ability to manage through the new supply.

Really helpful. My last question would be sort of on the same vein, but you mentioned in your prepared remarks for the seven hotels that you had sort of redeployed capital for RevPAR was, I think you said 140, margins at 41.4, so my question is, any sense in some of those types of market tracks that you under wrote those recently, how big of a gap do you have to some of the full service operators in the same markets? I think we see this team pretty clearly that the premium select service taking share, but I mean how big of a ceiling do you guys have to move up, to move that RevPAR number of underneath? And maybe some other things that you have underwritten recently, even a ballpark, what are your thoughts on that?

I think because of the dynamics of the model and the team's ability to manage rate and occupancy and there shouldn't be any limit to our ability to raise rates and to the level of the full service peers and in some instances may be even higher. They have a need to fill and in many circumstances a big group block that has to be done at negotiated rate. So, with the smaller amount of rooms we can manage a little bit more aggressively for that last room of availability. So, I don't think with the quality of the rooms and the experience there really is anything that would limit in our hotels from pricing at the same level or in some instances even higher than their upscale competitors.

That’s helpful. Thank you very much.

Thank you, Shaun.

Thank you. Our next question comes from David Loeb with Baird. Your line is open.

Good morning, Dan and Greg. I wondered if you could just give a little bit of color on how you viewed ARCH as a credit risk and what kind of credit enhancement that might be on that or other benefits you get from making those loans.

Thanks, David. This is Dan. ARC Hospitality I think maybe gets a little bit overshadowed by some of the problems they've had in other entities. John and James and Ed have been great partners for us. They’ve been very transparent and we think they are incredibly focused on creating great value through the process there. We structured this note for, to help get tranche three completed, which helps pay down our revolver and allow us to continue to further our capital recycling program. And view the structure as very much in-line with the credit risk involved. So, we at this point have great confidence that the team at ARC Hospitality is going to fulfill their obligations, if we didn't, we wouldn't have done that, I think we structured in such a way to give us the greatest amount of confidence, flexibility, but feel really good about the loan, I think it is clearly the best solution for our shareholders. It does create a little bit of confusion and there is a lot of moving parts around that, but those moving parts were implemented to mitigate the challenges surrounding the repayment and we feel it’s structured very well.

Okay. If you were successful in closing tranche two, or if you do succeed in selling some of the assets individually prior to that, what’s your thought on used proceeds that you would get from those sales?

Another great question, David. We do have a lot of options. We have estimated July 01 as a closing date. That’s not a hard date. It’s an estimate we could sell two assets or five assets or all ten slightly before or after. So we needed to pick a date to try to be clear about expectations but we could pay down the revolver. We’ve got some property level debt $36 million or so that matures this year. We could look at unique acquisition opportunity that’s accretive long term. We could certainly implement a stock buyback program. So I think the proceeds would – we have a lot of optionality with the proceeds.

Okay. And one more you kind of sum me up for the – I was thinking of anyway, the July 01 estimate is just a line in the stand for your guidance and it seems like it’s a conservative estimate just given the fact that if you hold those hotels longer, it’s positive for earnings. Just given that timing and given the rest of your guidance, what’s the outlook for property level operating margins in 2016?

David, this is Greg, you’re right as far as the date. We wanted to put our best guess out there because we do have the ability to sell individual assets. So we try to - wanted to telegraph as best as we could where we think that might go. But then as you start to think about margins with so many moving pieces we didn’t give the margins in the guidance but I think you would see about 25 basis points to 75 basis points of expansion over the year and that would probably be more a kind of towards the back end of the year is where we would see the majority of that expansion. As we mentioned in our remarks, we do continue to see some headwinds as it relates to property taxes. In 2016, we are forecasting a 11% increase in property taxes and that’s following a 17% increase in 2016. But with that said, I also think it’s important to point out that some of these property taxes we pay and we go ahead and expense because that’s the appropriate thing to do but we continue to protest them. So you will get a tax bill and you’ll pay it and to protest and so where that exactly winds up, it’s hard to say but for forecasting purposes we are assuming 11% increase. But even with that, we see that 25% to 75% expansion.

That’s very helpful, Greg. Thank you.

Thank you. Our next question comes from Bill Crow with Raymond James. Your line is now open.

Good morning, guys. Couple of questions. Dan, you didn’t mention the redemption of the preferred in your potential use of proceeds. Can you talk about that a little bit? I think it comes due towards the end of the year 9% plus and is that built into your guidance for the year?

Good question, Bill. We did not assume a redemption of the Series A preferred in our guidance. It is a great option and really high on our list, but a little too early to commit at this time.

Okay. Now that you’re in the financing business, you thought it all about own-to-own business. I think [indiscernible] did it rather successfully with new construction based financing. I’m just – as you’re seeing some of the challenges for new development lending out there, is there an opportunity for someone to get in there and participate or that’s not something you want to look at.

I know it’s a great question since we’ve done a little better this recently. We are always looking at unique opportunities to create value and using the note receivable opportunity, we think is a creative way to complete transactions to maximize value. We don’t look at as really a part of a business strategy, more of a tactical tool we can use in certain circumstances. So I think we’ll always evaluate the risks associated with these opportunities to ensure they provide good risk adjusted returns, but we look at more of a tool than any sort of business strategy.

Alright and finally from me, are you seeing tangible evidence that the brands are having success and we’re in the commission rates to the OTAs.

Yeah, a little bit. I think there obviously been very focused on challenging the status quo and taking and regaining control of a lot of the pricing mechanisms. We continue to expect them to negotiate on our behalf and theirs to create more profitable environments for us.

Is there any sensitivity you could give us if the brands lowered the commission rate, 100 basis points what would that translate into for you guys. Have we done that analysis?

We have and we could do some math offline and provide that in some additional commentary, but we haven’t done that that math. It’s - one of those things that’s really fun to think about and exciting to think about. But until it actually happens, it’s real hard to figure out what that cost savings would be. And is there an offset to that? Are there additional fees that may creep up? We’ve had this, continuing increase in fees from franchise fees and so I mean there could be an offset towards in addition to any gains he could make. So I think there is a holistic way to look at it and probably involve some complicated math that probably can’t do here right on the call.

Okay, understood. Thanks guys. Appreciate it.

Thanks, Bill.

Thank you. Our next question comes from Ryan Meliker with Canaccord. Your line is open.

Hey, good morning guys. First of all, congrats on a great quarter. First question I had was related to your RevPAR performance. I guess as we look at 4Q and 2015 and really even 2014, you guys have obviously outperformed on a RevPAR growth front. It shades very clear as you guys highlighted in your release relative to Smith Travel Research segment and U.S. overall performance. I’m just wondering if you can give us any color or even underlying metrics surrounding whether that outperformance is market driven that you’re just in markets that are outperforming the U.S. averages or whether it’s that you’re gaining share and your RevPAR index is increasing and still I’m wondering how much more that RevPAR index can really grow on a relative basis. Thanks.

Thanks, Ryan. It’s a great question. It is one of the things that we’re very proud of is that, our outperformance in many of our markets was on top of strong market performance. In the prepared comments, we referenced both San Francisco and also Phoenix. Those are two markets that have been very strong and our properties outperformed even the strength there, and that was right brands, right markets, good relationships with third party managers and just a relentless asset management team. So I think every market will be a little bit different but those two markets specifically can show that good management teams can drive performance outside of just individual market performance.

So then as we look at your guidance for 3.5% to 5.5% RevPAR growth for 2016, is any of that assumed increased RevPAR penetration or is that all based on market level performance?

No, there is definitely some RevPAR penetration in property and MSA specific factors in there. For example, Houston is forecast to be down 7.1% for 2016 and we are not forecasting a decline of that much with our two hotel. So those are some things that we factor in when we are forecasting our guidance together, not just market but on a property-by-property basis.

Alright and that’s helpful. And then I don’t know if maybe this is for you Greg, it looked like in your guidance, you’ve got same store RevPAR growth of 3.5 to 5.5 for the year at $1.06 to $1.08 actual absolute dollar range. And then if I look back at your full year 2015 same-store 74 hotel RevPAR, it was 98, 77 in your release and I’m just wondering how that 98, 77 at 3.5 to 5.5 gets to $1.06 to $1.08. Is it a different pool, it looks like they are both 74 hotels. I’m just trying to understand and reconcile those two numbers.

Yes, it’s different pools of hotels. What we’re generally always giving is that, RevPAR increase on a pro forma basis and when you take a look at the change in the portfolio as we’re buying higher RevPAR hotels that has a large impact on it as well.

Sure. And then just real quickly I guess little bit of a maintenance question, obviously the pro forma portfolio changes from 87 hotels for the year to 83 hotels for the guidance. Any chance you guys can give us what the 2015 absolute RevPAR dollar was for the 83 hotels in the guidance.

Yes, Ryan. I think we can pull that up for you.

Great, thanks. That’s it for me.

Thanks, Ryan.

Thank you. Our next question comes from Austin Wurschmidt with KeyBanc Capital. Your line is open.

There has been a lot of discussion in today’s call and the disruption to credit and the impact in the transaction market. And I know you guys aren’t developer, but I was just curious if you could give us any color on how the credit market disruptions having an impact on development deals.

Austin, it’s Dan. I think it’s a great question. I don’t know that we’ve got clear data that would give any specifics. But as most of the developers that we talk to and are very close to us aren’t really relying on the CMBS markets. They are doing construction loans that in many cases convert to permanent there, very well capitalized. For most of the developers that we’ve been in contact with, they still are able to find good pieces of debt. They’re very well capitalized but the control cost has put them in a position where many of the projects are starting to get a little on the profit side. So the barriers to entry, the time it takes and the availability of capital will always still be drivers but I don’t know that the CMBS market in our view is that much of effect on the developers at least as far as people that we have been in discussion with.

Thanks for the detail and then just jumping around a bit, just circling back to Bill’s question, could you give us any detail as what percent of your bookings are booked through the OTAs?

It’s right around 9%, 10%.

Thanks. It’s helpful. And then just lastly from me, you guys have talked a lot about occupancy continuing to stabilize or in that mid to high 70% range. Good occupancy growth in the fourth quarter again. So just looking out, what’s the opportunity for you to continue to drive occupancy whether it’s the shorter nights or more on the business strontium side?

The fourth quarter is our lowest occupancy quarter, so gains there are a little bit more achievable. But as you pointed out, we’ve been very pleased with our team’s ability to add occupancy on shorter nights and weekends. We’ve had some success building base with some leisure groups, but do consider our portfolio to be for all intent purposes nearly fully occupied. There is always some potential pick up as renovated hotels come back online but I would expect 80% or better of our RevPAR growth to be a true rate at this point.

Good. Thanks for taking the question.

Thanks, Austin.

Thank you. Our next question comes from Wes Golladay with RBC Capital Markets. Your line is now open.

Good morning guys. We talked a lot about the CMBS tightening up right now. Are you seeing many deals fall apart and get retraded with theological buyer?

Wes, it’s Dan. It was a great question. We haven’t actually been as active in the transaction market for obvious reasons. We’ve been – we had a good solid pipeline that we were planning to execute through the sale of hotels. But I would say that we would expect some of those things to come our way. I think it’s only logical to think that as financing alternatives become a little bit more challenging that owners that have to sell will have to take the price adjustment. Those owners that don’t have to sell may just postpone. So we keep pretty close tabs on the portfolios and one-off transactions in the market and definitely keep an eye on that. But as of yet, we haven’t seen any deals that have just purely fall apart because of the CMBS market.

Okay and now looking at your last two acquisitions, where these more a core acquisitions? You had a 10.31 in the money or do you have operational upside of these assets?

We also have operational upside. I think everything we look at goes under high level of evaluation and scrutiny. There is always little things that the margin that we think that our operational team can approve upon whether it be the mix of guests and taking a little bit more group business, restructuring local negotiated rate. So that sort of internal evaluation and modification goes on for the first couple of years. So a little bit of a long answer, but yes we think there is operational upside in those two assets for sure.

Okay. And then lastly going into that note, you mentioned you’ve structured it with optimal flexibility or what are some of the things you gave with that note?

We do have not only current pay but a pick associated with it that must be current for any sort of extension. There is some amortization in the first year. I think there is ability for us to look at using that as a potential vehicle to sell it down the road. I don’t want to create too much about the future. We think it’s a good note. We think it’s structured right. We think it’s a very confident in ARCH’s commitment to continue to fulfill their obligations. But we feel good about not just the yield associated with it but the mechanism surrounding it.

Okay. Thanks a lot.

Thanks, Wes.

Thank you. I’m showing no further questions at this time. I’d like to turn the call back to Dan Hansen for any closing remarks.

Hey, Ryan, a real quick before Dan gives us closing remarks that 2015 absolute RevPAR on the same store 83 was $106. Dan?

Thanks, Greg. Thanks everybody for joining us today. We do continue to see opportunities to create value for shareholders through what we continue to see as thoughtful capital allocation and premium select-service hotels which today is guest love, renovative properties and operational expertise continue to deliver these strong results and we’re looking forward to 2016 and beyond. I hope you all had a terrific day and we look forward to talking to you again next quarter.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day.