RLJ Lodging Trust (RLJ) Q2 2016 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the RLJ Lodging Trust Second Quarter 2016 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Hilda Delgado, Treasurer and Corporate Vice President of Finance. Please go ahead.

Thank you, operator. Welcome to RLJ's second quarter earnings call. On today's call, Ross Bierkan, the company's President and Chief Executive Officer will discuss key operational highlights for the quarter and Leslie Hale, the company's Chief Operating Officer and Chief Financial Officer will discuss the company's financial results. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated. Factors that may impact the results of the company can be found in the company's 10-K and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it maybe helpful to review the reconciliations to GAAP located in our press release from last night. I will now turn the call over to Ross.

Thank you, Hilda. Good morning everyone and welcome to our 2016 second quarter earnings call. Before I give an update on the quarter's performance, I wanted to take this opportunity to comment on the recent organizational changes at the company. As announced, this week the Board of Trustees appointed me as President and Chief Executive Officer and supported my recommendation to appoint Leslie as Chief Operating Officer in addition to her current role as CFO. I've had the privilege of being part of RLJ's from the very beginning 16 years ago. Our senior management team has worked together an average of almost 14 years. Together, we built a high-quality diversified portfolio and a strong operating platform. Given the strength and continuity of our team, the transition since Tom Baltimore's departure has been seamless. Moving forward, we will maintain our disciplined investment strategy and continue to adhere to our core principals of achieving operational excellence, prudently allocating capital and proactively managing our balance sheet. Now, with respect to the quarter, we generated RevPAR growth of 1.9%, in light of macro headwinds, our ability to drive positive RevPAR growth reaffirmed the benefits of our geographically diverse portfolio. Our increased exposure to West Coast markets such as Northern California and Portland helped to offset weaker results in cities that are experiencing city specific dynamics such as Houston, New York and Chicago. In fact, excluding these three markets, RevPAR for our portfolio increased by 5.1%. Our California market's achieved exceptional RevPAR growth and outperformed the respective markets. We expect continued strength in our West Coast markets throughout the year and also expect Chicago and Denver to improve in the second half given city-wide events. On the economic front, we continued to see mixed trends. In the U.S. on the positive side, low on employment, rising home values and improved household balance sheets are keeping consumer confidence high and leisure travel steady. However, global economic volatility and weakening corporate profits are weighing down domestic GDP growth. This choppy economic picture is creating a lack of visibility for corporate America and impacting business travel. In addition, the U.S. dollar is projected to remain strong and will continue to be a headwind for international travel. We now anticipate that the RevPAR growth in the second half is likely to be more muted than what we expected at this time last quarter. Now, turning to our market performance, during the quarter, our non-top 10 markets generated excellent RevPAR growth of 6.4%, further illustrating the strength of our diversified portfolio. Several of these markets achieved particularly robust growth including San Antonio, Portland, Indianapolis and Tampa, which reported RevPAR growth of 11.6%, 10.9%, 10.7% and 7.8% respectively. Among our top 10 markets Northern California once again led our portfolio by posting RevPAR growth of 9%. The regions broad based of demand generators continue to drive strong corporate demand and additionally our Northern California market also benefited from the ramp up of several recently renovated hotels. We expect our Northern California hotels to continue to be our top performing market this year. Our Southern California hotels also benefited from broad based economic growth in the region. Our properties achieved a robust RevPAR growth of 7.2%. Both corporate and leisure demand continue to be strong. We expect that for the remainder of the year, our hotels will continue to benefit from healthy demand and tailwinds from renovations completed just at the end of last quarter. In aggregate, our two markets in California which will represent approximately 15% of our hotel EBITDA for the year achieved RevPAR growth of 8.3%. Another strong performing market for us this quarter was Louisville. Our hotels achieved strong RevPAR growth of 7.8% during the second quarter as a result of a number of citywide events posting increases in attendance including the Kentucky Derby and the NRA Convention. Going into the second half of the year, we anticipate growth to moderate as the Louisville Convention Center closes for an expansion that is expected to benefit the region and drive demand over the long-term. Now, in the DC market, our hotels achieved RevPAR growth of 2.9%. Though we were pleased to see citywide room nights up during the second quarter, the level of compression relative to last year did not materialize due to a lower level of other business throughout the city at the same time. As we look at the second half of the year, we expect our hotels to outperform the general market. We will benefit from the ramp up of our hotels that were under renovation in the second half of last year and also from adding the high place DC Whitehouse to our comparable set of hotels in the second half. We anticipate that in 2017, the additional demand from the presidential inauguration, change in administration and the increase in citywide room nights will drive strong growth. Moving to Austin, our hotels achieved 4% RevPAR growth, which is impressive in-light of the difficult comps to last year, when our RevPAR was up 10.6%. The Austin market continues to see diverse demand drivers as a result of good business fundamentals and healthy leisure demand. For the remainder of the year, we expect Austin to continue to achieve positive RevPAR growth. Our hotels in Denver achieved RevPAR growth of 3.9%. During the quarter, we saw a slight pullback of weekend demand in our hotels that was compounded by less compressions and pure citywide events. We do expect performance to improve during the second half of the year aided by citywide pace which is tracking year-over-year. Our hotels in South Florida experienced a RevPAR decline of 1.7% during the quarter. The economic turmoil in Brazil continue to be a headwind for inbound tourism and the strong U.S. dollar continued to dissuade visitors from large origination markets such as Canada. We expect the tailwinds from easier comps in the second half of the year, will offset the softness in international trends that we're seeing and drive positive RevPAR growth. Our New York City hotels outperformed the overall market and also gained market share. While corporate transient demand was strong and international room nights increased slightly. ADR continue to be way down by new rooms and shadow supply. As a result, our hotels experienced a RevPAR decline of 3.3%. We do expect RevPAR growth to remain negative through the second half. In Chicago a 30% reduction and citywide room rights resulted in overall weak performance throughout the market adding to that our Midway and Hammond hotels faced difficult comparisons from non-repeating business all resulting in a RevPAR decline of 7.0%. For the remainder of the year, we expect our performance to improve as the citywide calendar looks stronger during the second half. Out hotels in Huston continue to be impacted by weakness in the oil and gas sector. During the second quarter, we also felt the additional impact of heavy rains and lower attendance at large citywide. As a result, our Huston hotels reported a RevPAR decline of 10.5%. Looking ahead, we expect easier comps and tailwinds from our hotels that were under renovation last year. We hope to outperform and otherwise very soft market. Finally, our continued focus on revenue management once again yielded positive results. I am pleased to note that during the second quarter, our portfolio RevPAR penetration index grew approximately 80 basis points to a portfolio wide average of 113.2% as we gained market share relative to our comp sets. Now, with respect to our disposition, we continue to have discussions with buyers regarding the assets that we're marketing for sale and we're also fielding inbound inquiries on additional assets. We're seeing buyers move slower and more cautiously in this environment. In past years, our focus has been primarily on portfolio deals, but given a shift toward more favorable valuations for selective one-off properties. We will consider more single asset sales as we move forward. We will remain extremely disciplined on pricing and will show the same level of diligence that we've demonstrated with the 43 hotels that we sold since our IPO. We'll provide further updates if and when any of these asset sales materialize. As we dispose of assets, we will remain committed to prudent capital allocation and we'll look to delever and opportunistically repurchase our shares. Our fortress balance sheet remains one of the strongest among our peers. It's well positioned to weather uncertain times as well as provide us with the flexibility to capitalize our market inefficiencies as we move further through the cycle. Now, moving on to our outlook, as we noted last quarter improving citywide trends in markets such as Denver and Chicago and favorably year-over-year comps from renovations, acquisitions and conversions foreshadowed positive growth for our portfolio in the second half. Now, while we still have those positive tailwinds for the second half of the year, increased economic uncertainty, weakening demand and a lack of visibility are leading us to enter the second half of the year with a more cautious view. As a result, we're updating our outlook for the year. We are bringing down the top end of our RevPAR guidance by 250 basis points and adjusting to bottom end by 150 basis points. We are adjusting the top end of our hotel EBITDA guidance down by $25 million and bringing down the bottom end by $10 million. We are tightening our EBITDA margin by bringing down the top end by 50 basis points. I'll now pass the call over to Leslie, who will provide additional information on our financial performance for the quarter and outlook for the year. Leslie?

Thanks Ross. In light of macro headwinds, our ability to drive positive operating results underscores the benefits of our diversification strategy. This quarter even with the modest increase in RevPAR growth of 1.9%, we generated a robust EBITDA margin of 39.2%, which is one of the highest margins amongst our peers. Our asset management team has been working aggressively with our management companies to ensure that we are optimizing our staffing levels and flexing expenses were possible to maintain our margin. Our portfolios increased exposure to strong performing markets combined with our ability to maintain strong margins translated to a $6.2 million increase in hotel EBITDA to $123.9 million. Our operating performance led to another quarter of positive corporate results. Our adjusted EBITDA this quarter increased $6.7 million to $117.2 million which is a 6.1% increase over last year. Additionally, our adjusted FFO this quarter grew 4.2% over the prior year to $102.1 million or $0.82 on a per share basis. On the balance sheet front, as previously communicated we took advantage of the low interest rate environment to refinance $800 million of debt at more favorable terms simultaneously increasing our dry powder. By proactively managing our balance sheet we have refinanced over $1 billion of debt since the beginning of the year and added significant flexibility by increasing the duration, enhancing the covenants and improving our interest rates. Following these transactions, we have a total of $1.6 billion of debt. Our weighted average interest rate is very attractive at 3.3% and our next debt maturity is not due until 2019. We remain committed to maintaining a low levered and well laddered debt maturity profile. Our fortress balance sheet is one of the most conservative and nimble among our peers. We ended the quarter with a net debt to EBITDA ratio of 3.7x and 111 unencumbered assets account for 83% of our EBITDA. At quarter end, we had $160 million of unrestricted cash. Our portfolio generates a significant amount of free cash flow each year. We expect our free cash flow to increase meaningfully this year as a result of a full year performance from asset acquired midyear 2015 and our conversion hotels, which opened in the second half of last year. We have always believed that maintaining ample liquidity and a low levered balance sheet is a prudent all-weather strategy for operating in the lodging industry. In particular, during these times, it provides downside protection, while positioning us to capitalize on market inefficiencies. Additionally, our strong liquidity contains to support various capital deployment initiatives, such as our dividend policy and share buyback programs. Since our IPO, we have maintained a robust and well covered dividend. On average over the last four years, our dividend as increased by more than 20% per annum, and as a result, we have a strong dividend yield today. During the second quarter, we purchased approximately $2 million of shares, at an average price of $19.80 per share. Since we announced our buyback program last year, we have repurchased approximately 8.7 million shares in aggregate for over $238 million and currently have a $162 million remaining capacity under the program. Combined with the dividends paid to-date, we returned approximately $850 million to our shareholders, representing nearly 80% of all the capital we have raised as a public company. As we execute our future dispositions and generate incremental free cash flow, we remain committed to redeploying the capital and ways to drive shareholder value. As we illustrated in recent quarters with opportunistic share repurchases, in terms of our capital expenditures, our outlook for the year remains unchanged. This year's capital program is currently underway, with a majority of renovations taking place in the fourth quarter to minimize disruption. We continue to anticipate RevPAR displacement of 25 to 30 basis points for the year, which is already taken into account in our updated guidance. As always our in-health design and construction team is working closely with our asset managers and the properties to minimize disruption. Now turning to our outlook. During the quarter, we saw transient demand across the number of our markets decelerate more than we expected. Heading into the second quarter, our transient pace was up more than 6%, but it did not materialize. Our most recent forecast is now showing pace trending down more than 3% year-over-year. The swing and pace trends that we are seeing is largely being driven by weak business transient demand, which represents more than 60% of our overall transient segment. While we have some tailwinds in our portfolio for the second half of the year, in light of our year-to-date performance and continued weak demand patterns, we are adjusting our guidance downward. We would like to highlight the following guidance adjustments. First, we have lowered our RevPAR guidance to 1.5%, 2.5% from 3% to 5%. Second, we have adjusted our hotel EBITDA guidance to a range of $415 million to $425 million from $425 million and $450 million. And finally, our margin guidance has been adjusted to 36.5% to 37% which is a 50 basis point reduction at the top end of the guidance. Thank you. And this concludes our remarks. We will now open the lines for Q&A. Operator?

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning everyone. And congrats to Ross and Leslie on the new appointments.

Thank you, Anthony.

And just on the transient pace you just mentioned Leslie, was the deceleration concentrated on any specific markets or it was broad based across the portfolio?

I'm sorry Anthony, could you repeat, you dropped.

Yes. On the transient pace deceleration that you saw coming into the quarter, I guess, was the deceleration focused on any specific markets or was it broad based across the portfolio?

Yes. I would say it was broad based. It was surprising and general across the board.

Okay. Got it. And I guess, and the markets where you seeing stronger RevPAR trends like, Northern California, where is the demand growth in those markets coming from, is it -- are you still seeing corporate transient hold in there, or you are seeing leisure pick up, where you are doing well, what's driving the strength?

Good question, where we are doing well, the corporate transient is hanging tough. It tends to be tech-related in a lot of cases and because the corporate transient is staying strong and we are not having to adjust our mix in those markets, the rate holding in there as well. So, it's a nice blend of occupancy and ADR.

Thanks. And one more on Austin. What did the overall market doing in Austin in the second quarter?

You mean the general market staff or…

Yes. If you have STR numbers for Austin and then kind of where you perform relative to the market that will be super helpful?

Right. It was 4.6, right? And we were up about 4.0. And the difference the delta there was that, some of the assets close to the CBD were a little bit softer than the tech-related exposure that we had on the north side of town. But, we did gain share in the market against our comp set. So, based on where our hotels were located, we gained share versus those clusters.

Okay. All right. That's it from me. Thank you.

Thank you. Our next question comes from Ryan Meliker with Canaccord Genuity. Please proceed with your question.

Hey, good morning guys. And I'll echo Anthony's comments and congratulations to you both for the new roles. Just one real quick question, I appreciate all the color you guys gave on markets in the quarter. And then, obviously, what your expectations are for the balance of the year, I think that's really helpful for all of us. As we talk, as we think about Northern California, can you get into a little more granular detail in terms of, it's obviously been a stronger market for you, it's one of your largest markets now. It seems like there is a lot of supply coming on in Northern California outside of San Francisco? And then you're also, you got the Moscone Center renovation going on in the fourth quarter and we've heard from other companies that, they are expecting far less compression demand. As a result of that, how are you guys thinking about your Northern California market over the next 12 months or so, given those two dynamics, are you expecting a material deceleration, do you feel more confident that, your submarkets are more inflated from those issues, just help us understand that?

Yes. You bet, Ryan. Starting with Moscone, the good news there is that our asset in the CBD is going -- is young, it's new. It came online in the second half of last year and will become comp in the fourth quarter of this year. So, it is still ramping up. So, in a sense we have an advantage there, because we have easy comps. We don't have difficult comps versus a closed Moscone. That asset is still ramping up and our comps are versus a hotel, brand new at the time. So, we think it will actually provide us some juice in our numbers. We do have a couple of assets across the Bay Bridge in Emeryville. They may feel less compression. Now, we are hearing positive things from some of our peers that are talking about good business in the city that's being preserved by moving it to different venues, so the impact might be moderated by that. But, assuming the worst for a minute, Emeryville may feel a slight drop in compression, now that's a market that also has its own organic demand base, it also draws from Berkley which is unreserved, it also draws from Oakland where people are still at times uncertain about staying there and they will chose Emeryville as an alternative. But, the balance of our assets further south in the Bay area will be less affected by the compression issues, Los Altos, Santa Clara, San Jose there will be immune, but there will be less effective perhaps. We also have some tailwinds in that market, a couple of our assets were under heavy renovation last year, like our Hyatt House in Emeryville. So, that should help moderate some of the effects of what we're talking about, call it easier comps and tailwinds and that will be recurring theme that you hear from us in a number of our markets. As for the new supply, that market is sorely unreserved, you can't get a room there midweek. And as far as we can tell so far Ryan, the new inventory is being observed as quickly as it can open. And what I'm hearing from some of our friends in the development community like OTO in Huntington and T2 and others that are building these assets, is that the difficulty of getting deals done are immense. The cost of the labor, the permitting process has always been a bear. But, they are off the belief and I'm banking on their expertise in the area here that this next little wavelet of openings in 2017 and 2018 maybe the last we see for a while, and I think we believe that the markets will absorb them nicely.

Okay. That's really good color. Thanks Ross. And then, just one quick follow-up on that. In the Bay area, and then, I guess also to some extent in New York, we have seen some new regulation coming down from related to Airbnb, assuming that goes into effect, it should be a pretty big positive. Are you hearing anything with regards to the likelihood of some of that regulation moving forward, especially in San Francisco where it seems like, it would have a pretty material impact on overall lodging supply, and then, the timeline in terms of when that might move forward?

Yes. You bet. I sit on the Board at the American Hotel and Lodging Association, which has become a pretty dynamic advocacy group for the hospitality industry over the past couple of years. And they are very much on top of this issue. The legislation has been passed in Anaheim and Los Angeles and is pending in Chicago and in New York. It has been passed in San Francisco and it's a variety of differently strengthened on Airbnb's. In some cases, it's simple as having to register with the local municipality. But, of course, it implies all the regulation that would come with it and the tax collection. And others, it can be pretty darn restrictive the one that's coming down the pike in Chicago will limit the number of nights that you can list; it will limit the number of units in a building that can be listed. It will impose not only the sales tax and the hospitality tax but another 4% tariff which is going to go toward a basically enforcement department of the city of Chicago that will put in place to follow-up on this six. So, it's interesting that the cities that are passing these -- these new regulations are some of the more liberal cities in the United States. And what they are looking at is, they are trying to protect other people's rights. They are trying to protect the homeowners nearby. They are trying to protect the tenants of multifamily buildings. They are trying to protect the [gas severe] [ph] Airbnb from 80a and segregation and fire life safety issues. And so, it's encouraging to see a leveling of the playing field. Nobody believes Airbnb is going away. They are sharing economies with us. The genie is out of the bottle. But, a leveling of the playing field is enough to reassure us that the impact of Airbnb going forward is likely to remain at the edges.

All right. That's a good color. So maybe you guys have a little bit more talents in some of those major markets due next year. Great. That's it from me. Thanks. Appreciate all the info.

Thank you, Ryan.

Thank you. Our next question comes from Wes Golladay with RBC Capital Markets. Please proceed with your question.

Hi, good morning to everyone. Looking at your Houston portfolio, I believe you had some tailwinds from the renovations in the second half. Can you quantify, about how much of a lift related to the market you think you have. Then how do you see Houston playing out over the next few years. Now, we have the comps for the market but you had some incremental supply and demand is relatively tepid at the moment.

Yes. You are right, Wes. Houston is a perfect example of why we avoid heavy market concentrations and insist on having a geographically diverse portfolio. For four years, Houston was helping to pull the train around here. We had CAGR of 11% RevPAR growth up to 2014. And in November 2014, when the Saudi's announced they were not going to curtail production. We immediately scrambled and got with our operator and identified that we had about 14% of our mix was direct oil and gas related. And that was somewhat reassuring. And then, in May 2015, we held earnings call noted that the business had held up. Three days after the earnings call, business stopped holding up. And it's been dropping ever since May 2015. And we thought we would be lapping at this point the tough comps. But based on the weekly STRs, things are still very soft in Houston. So, it remains to be seen when that bottom is out. But, it's down to about -- it's about 5% of our EBITDA, we are radaring it well. And it's true that we do have tailwinds. We had four assets under renovation last year, four out of our nine. I don't have a hard number for you. But we can get it for you what the actual disruption and impact was last year.

Actually I have it, 600 basis points of impact in the third quarter and 100 points of impact in the fourth quarter.

Thank you. [603 and 104] [ph]. Thanks Leslie. And then the other factor Wes was that we have the SpringHill Suites coming online going comp in the fourth quarter and that's an asset that we converted in the footprint of the humble oil tower, which is currently Courtyard and the Residence Inn and now will be a SpringHill Suites. So it will be very efficient capturing the efficiencies of the shared footprint and its ramping up nicely in a tough environment. So, we will have some tailwinds. We'd like to believe. We're going to outperform in a very soft environment. But we're [indiscernible] to call the bottom in Huston at this point.

Okay. Now, looking at New York, the DoubleTree Met looks like -- the Waldorf will be leaving the system of Hilton sometime in the spring next year. How much of a lift could that be for you?

We're very pleased about that because the new supply keeps coming in New York. New York has been amazing in some respects and that the demand has been keeping up with the supply to-date. The occupancies are holding up. It's really a rate issue or loss of compression based on our calculations and our operator there. There were probably 17 fewer compression nights in the second quarter in 2016. And then were in 2015 and those would be nice when the market was above 95%. So you lose your extra turbo pricing power, when you don't have that compression, but you nailed it. There is no hotel that's probably more affected by that Waldorf than our DoubleTree, it's basically caddy-corner across from it. And Waldorf has been competing with us. So we'll be pleased to see those 1400 rooms leave the market for up to three years and when they return because they're in the Hilton system. We're in the Hilton system and when they return nobody knows for sure what the -- [on-bang] [ph] plans, but speculation is it be about a 300-room hotel and it will be commencing with the five-star status that its supposed to have and will lead rather than be a drag in the market.

Okay. Thanks a lot. And congrats to both of you on the promotions.

Thanks so much, Wes.

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Hi, good morning. Thanks for taking the questions. Just was wondering if you could provide a little bit more color on the asset sales, you mentioned last quarter that you had a buyer circling the portfolio, was just wondering, if you're still in negotiations with the buyer and if not what ultimately broke-off the negotiations?

Austin, thanks. We're pleased to report we're still in negotiations. We've got a couple of groups we're talking to, but the primary one is still there. In empathy to them in a softening environment, it's hard to nail down a number right? And it's the natural inclination of the buyer, they want to provide themselves some cushion. But, that doesn't work for the good guys here at RLJ. So the negotiations continue. They're very productive. And I'd like to believe that that we'll have something to report for you down the line. But, in this environment, it's just -- it's challenging. We're also seeing a little bit of a shift in sentiment, while those continue we're seeing a little bit of a shift in investor sentiment toward single assets and more sort of strategic pinpointed place that we've been approached unsolicited deal on a couple of assets and are having some productive conversations there. So, cautiously optimistic. I guess the point I would make though, this is not a fire sale. We're going to exercise the same discipline that we have in selling 43 assets since we've gone public. And we're going to -- we're not going to sell for the sake of selling. It's going to be good deal for our shareholders, but the negotiations are ongoing.

Do you think that a target of $300 million to $400 million is still achievable to the extent that you do get a deal done on the portfolio or so?

I'd be reluctant to set a target. That would be -- I'm going to pass on that and say probably not productive to set a target.

Fair enough. And then, separately on just operating trends, could you talk a little bit about what you saw in July. And then further out maybe a little bit into the second half of the year booking trends?

Right. July is soft and one of the reasons that we guided down is -- well, first of all, the first half performance clearly. We're at 2.0 through the first half of the year. We've seen a softening of our Q3 case going into Q2 we were up 6% in transient going in Q3, we were down a little over 3%. So going into July, it's soft. Now there wasn't July 4th impact, we figure that was about 35 bps of RevPAR growth. It actually benefited June frankly and its hurting July. But even outside of that the corporate transient is still lacking in July. And then, you layer on that sort of an overarching umbrella of general economic uncertainty and lack of visibility out there for the second half in general. And it persuaded us to be conservative in our forward guidance. Now that being said there are tailwinds in our portfolio that should help us hold the current range.

Great. Thank you for the detail.

Thank you. Our next question comes from Ian Weissman with Credit Suisse. Please proceed with your question.

Yes. Good morning. Just getting back to the asset sales for a second. I guess given the downdraft in RevPAR across the industry, I imagine the challenge in selling assets today is a little bit of a re-trade on the part of the buyer could you just comment what you think private market pricing has done over the last six months or so?

Yes. I would say it's more than six months. I'd say over the last nine months. There has probably been a reset of close to 100 bps in pricing and it's driven by the combination of uncertainty and also a little gaping out of debt terms. Now, there was a period over a year ago where some of the big private equity guys were really levering up to such an extreme that they were yielding out most of their equity three and a half or four years. That game is long over, but even for a conventional financial buyer and I was looking for 65% leverage. Based on debt terms and again based on recent market performance they've conspired together they're probably shift pricing about 100 bps.

Okay. And just I understand you want to remain firm on pricing. It's always nice to see companies recycle capital late in the cycle. How comfortable are you guys owning this portfolio into a potential downturn, are you more committed to just staying firm on asset pricing and holding out for the last dollar. Just want to get a sense of -- could you continue to own these assets or is the greater priority to call the portfolio at this point in the cycle?

Yes, Ian, I appreciate it. We're built for this. We actually love our portfolio. The kinds of assets that we've bought since day one, long before we were public. Our scale select service assets in urban and dense, commercial environment or compactful service hotels that have some of the same qualities in properties. The primary brand families of Marriot and Hilton and Hyatt, assets like these and brands like those actually gain share in a choppy environment. We are bullish on our portfolio and are happy to hold it through a cycle. And then, when you layer on top of that, our fortress balance sheet. Since we've gone public, we've reduced debt. We've returned capital to shareholders. We're sitting here with 111 assets unencumbered by secured debt. What might have been perceived as a defensive posture in a headier part of the cycle, it actually positions us to pivot and go on offence as soon as soon as market conditions permit. So we like how we're positioned and we're -- we continue to look at opportunities to recycle capital, but as you described we're good with what we've got.

Okay. Thank you for the color. And again, congrats to both of you.

Thank you.

Thank you. Our next question comes from Shaun Kelley with Bank of America. Please proceed with your question.

Hi, good morning. Couple of different questions, but Ross, I think first of all you had mentioned those pace statistics a couple of times. Just, could you just remind us, what kind of visibility do you have on -- on your transient pace, how far out are we really talking about?

It's about 90 days and that is one reason that we do spend a fair amount of energy looking at citywide paces and the major markets where we have holdings, because, while we're firm believers that in both parts of the cycle, frankly all parts of the cycle, the transient is where you want to be, granted over the last, over the last 180 days. The transient is the part that softening, although let it be said that it's the corporate transient it's softening; it’s not the leisure transient. The leisure is holding up just fine, the consumer is in good shape. But, it doesn't provide the same visibility that a robust group booking pace does. So really 90 days is, is about what we track.

That's helpful. And just how much does the pace statistic end-up making up of your overall demand, like so how much sort of very last minute late breaking versus what we're seeing when you kind of call out that kind of pace number?

Yes. It's a low percentage, I must say, because things change so rapidly throughout the quarter. And so, I don't have a great metric for you. It hasn't been meaningful enough for us to track to-date.

Okay. So, okay and that's helpful. And then, I guess to switch gears a little bit thinking about, a lot of the markets where touched on, certainly West Coast and Houston. But, also just want to touch on Florida quickly, what's your generally -- if we think of Florida more broadly, I know you break out South Florida. But, if we think of Florida plus, I think you got some exposure in Tampa, what's your overall, leisure versus business mix or general ballpark leisure versus business mix in Florida?

In Florida, the leisure is, it's a seasonal thing, right? During the peak season between the holidays and Easter leisure is probably 50% of our business. But, in the other seasons, it drops down considerably. The locations where we have hotels are still primarily corporate driven locations with the possible exception -- certain exception of the two in Key West and the Hilton Cabana, North Miami Beach. But, Tampa is a CBD location Fort Myers and West Palm Beach they tend to be business locations. So, I'll stick with the first answer, the leisure mix is heavy during season and a little bit lighter outside the season.

Okay. But still probably fair to say that greater than 50% across the year is business travel?

Yes.

Okay. Great. And then, last question would be, I think you called out obviously a variety of different things as to the reduction and outlook, but you mentioned I think in the prepared remarks a little bit about the Louisville Convention, Convention Center closing, which was new it should be at least, so the question is -- was that factored in your prior outlook, is that a new development and, how are like, was that something that you guys had in your guidance before hand?

It's in the guidance. We've seen it coming. And it's going to be great for the market long-term, right? When it reopens early in 2018, it's going to be a gem. But, it is going to be a headwind for Louisville for 2017, there is no doubt.

Okay. Great. Thank you very much.

Thank you. Our next question comes from David Loeb with Baird. Please proceed with your question.

Good morning, Ross. I appreciate your kinder on all of the markets, and maybe this is more for Leslie in light of that. But, your guidance basically implies that RevPAR in the second half at least at the midpoint should match the first half. Is that realistic given the upcoming holiday shifts and other business transient trends?

I'll start. It's a fair question. But, we are encouraged, and we've been saying for sometime and it is still true that we have tailwinds in the portfolio. In six markets, we had substantial renovations that were disruptive in the second half of last year that won't be there. We have a number of other markets David, where just market-wide things were down, considerably and the buyers just sell lower. We've got a couple of deep conversions like the SpringHill Suites in Houston and the Courtyard in San Francisco that are coming online that go comp in the fourth quarter, or the first quarter. And then, we have three acquisitions last year that will also go comp in DC, in North Seattle, and then, Los Altos, Palo Alto. So, we think that we're going to outperform -- we think that the market is going to be soft, but we think we're going to outperform. Leslie, do you have anything you want to add.

No. I think you hit all the points, the easier comps, the tailwinds, the conversions, and the better citywide in Chicago and Tampa.

Sure enough. Yes.

In your quote in the release, you mentioned unlocking additional shareholder value, what kinds of opportunities, do you see for that?

Well, we are deal shop and so while we're going to stick to the play book here and that the pillars of operational excellence and prudent capital allocation and proactively managing the balance sheet, on the day-to-day basis, we are commercial and as our friend Tom always said, and we continue to believe the space is under aggregated and we continue to talk to our peers about opportunities there. We're going to do what's in the best interest of shareholders. Big deals are hard, they are difficult to execute. We don't see one around the corner. But, we're open to it. We are commercial. But in the meantime, we love our portfolio, we love our team, it's been together for 14 years here. And we're built for this choppiness in the cycle, so we're optimistic either way.

Okay. Make sense, helpful. Last topic buyback, you've been little less aggressive what you think about that at the current level and do you expect buybacks to be timed more with dispositions?

We're definitely going to tie any substantial buybacks to the -- any dispositions that we have David. We've stated that in the past and that's our intent now. Obviously, in the second quarter we didn't have any execution and dispositions, so we're very light on our activity. You may see us living around the edges, but we're going to stay very disciplined in terms of match funding, any buybacks with dispositions and being debt neutral when we execute. We'll evaluate the situation at the time once we receive the proceeds and the term whether or not it's still Marriott's buying back stock, but it's a point in time when we receive the proceeds.

That's great. Again, thanks for the kinder and I do echo the congratulations you've heard from every caller.

Thank you, David.

Thank you. Our next question comes from Jeff Donnelly with Wells Fargo. Please proceed with your question.

Good morning folks. It sounds like from your response that maybe you share Tom's enthusiasm for playing a role in the industry consolidation. I guess the question goes to both of you Ross and Leslie, where do you feel your strategies are style -- will differ most from Tom going forward?

Fortunately, the house is not on fire, right? We stand very successful over the years as a private equity shop and now as a public company. So it doesn't require any major shifts in strategy. There might be some refinements. Frankly, I think elevating Leslie to Chief Operating Officer is a good example. It is a recognition of the role that she has been playing within this organization for a long time. I think that we may have some other staffing opportunities, but as far our outward strategy, I don't expect it to change, it's worked through a number of cycles and we've seen other people emulate it in fact and so, we're not about to stray from it.

And if I could, just back on the transient pace comments, just want to clarify, do you think July is looking weaker than you saw in Q2 or is it kind of similar?

I would say, I would say a little bit weaker, it's partly the joined fourth shift and clearly the corporate transient continues to be soft.

And was that transient pace shift, these on Q2 is that uniform across, but I call your traditional select service properties, or did your sort of more urban, sort of rooms-only full service hotel see the brunt of that.

It would say it was uniform across the product type. But, it wasn't uniform across every single market. There were a few markets like Tampa and Indy and a few others that we mentioned in the script that did prosper. North California held up. Again, I think tech -- Portland is another good example, I think tech employment and business activity is holding up better than manufacturing right now. I think the manufacturers are kind of hunkered down and maybe its uncertainties surrounding the election, maybe it's the strong dollar. But, so I would say it was more geographically divergent than by product type.

And just maybe one last question. It's going to have two parts, is that, just from the outlook for select service product, on the one end you got health and aggressively launching, it's true brand. On the other hand you got, I guess Starwood travelers effectively gaining access to Marriott's Courtyard and Residence Inn products. I'm just wondering if you feel those dynamics are going to overlay some -- I guess sub-trends on top of what we are already seeing in the market. For RevPAR, for sort of just consumer demand and then, I guess secondarily does that -- maybe shift your thinking at the margin about whether or not these are sort of like traditional select service hotels for acquisition going forward or do you sort of prefer to be more sort of rooms only full service and where you allocate capital in the future.

Jeff, I would say, it doesn't change our mind at all. We still think it's a better mousetrap. We still think select service or compactful services is a better mousetrap. The true brand is posting some pretty good numbers from Hilton, but it's largely a suburban low cost alternative to give them a product to slide in under Hampton Inn. And so, it's not a space that we intend to participate in. It doesn't have the RevPARs; it doesn't have the barriers to entry. Now, there may come a day when the development community approaches Hilton to do a true -- in an urban environment and it would drive RevPARs that might be a little more consistent with our agenda. We could take a look at that. But for now, we see it as -- for us, we don't see it has a reach product, an institutional product. As for the Marriott Starwood merger that's a long discussion, it's going to be interesting. But, Marriott certainly believes and for the most part we can concur that scale matters and that they are going to be even stronger than they were before both as a hotel company. And also as a representative of the hotel industry and dealing with some external forces such as the OTS in negotiations and I expect the Marriott Starwood entity to lead the way in a lot of those negotiations.

Great. Thank you.

Thank you. At this time, I would like to turn the call back over to management for closing comments.

We appreciate very much you attending this call. And if anyone has further questions, feel free to reach out. We appreciate your ongoing support and we look forward to talking to you next quarter. Thanks.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.