RLJ Lodging Trust (RLJ) Q2 2017 Earnings Report, Transcript and Summary

Welcome to the RLJ Lodging Trust Second Quarter 2017 Earnings 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] As a reminder, this call is being recorded. 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 Lodging Trust's second quarter earnings call. On today's call, Ross Bierkan, our President and Chief Executive Officer will discuss key highlights for the quarter. Leslie Hale, our Chief Operating Officer and Chief Financial Officer will discuss the company's operational and 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-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statement. Also, as we discuss certain non-GAAP measures, it may be 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 2017 second quarter earnings call. Before start, I'd like to remind listeners that at this time we cannot discuss or take any questions relating to the FelCor merger in our recently filed proxy. We appreciate your patience as we move forward through this process. I would first like to start by noting that we’re pleased to see continued demand growth in the lodging industry. For the quarter, industry demand outpaced supply and ADR growth remain healthy, driving yet another quarter of positive growth in the U.S. with RevPAR up 2.7%. Now, the industry's growth this quarter was primarily driven by the leisure segment, the robust 7.1% RevPAR growth in the resort market was a good illustration of this segments strong demand. Flat RevPAR growth in urban markets, which are generally more business and group oriented, highlighted the quarter is more tempered business and group travel, given our portfolio’s greater concentration in urban markets, we did not see the same degree of leisure benefited the industry and were disproportionately affected by the new business travel. This combined with a few portfolio transitory headwinds contributed to our softer relative performance to the industry of a 3.4% RevPAR decline. Despite the revenue pressure, our EBITDA margins held strong at 37.7%. Our efficient operating model coupled with our team's ability to manage our bottomline continued to produce one of the strongest margins in our space and generate significant free cash flow. As we move past some of our toughest comps, we expect the second half of the year to be better than the first half on a relative basis. At the same time, absent any meaningful acceleration in the economy, we expect that performance gain in the second half to remain muted. From a macro perspective, key economic indicators remain largely unchanged. Healthy corporate profits and business investment coupled with strong employment and consumer sentiment are creating a positive economic climate. Despite this backdrop, we have yet to see these positive trends fully translate into strong growth for the lodging industry. We believe that we need incremental economic growth and clarity with regards to the new administration's policies and initiatives in order to give rise to actionable corporate sentiment, which would lead to more robust lodging demand fueled by the business travel. Given the cyclical nature of our industry, we continue to believe in the benefits of diversification. As we look at lodging demand across our top markets on a year-to-date basis, eight of our top 10 markets showed positive demand growth, with the majority of these markets exceeding overall industry demand. In particular, South Florida and Austin continue to show robust demand, highlighting the long-term resiliency of these dynamic markets. As we drill further down into the performance of our portfolio, I will start with Southern California, our top performer this quarter with RevPAR growth of 5.1%. Our hotels continue to benefit from strong corporate business production from industries such as technology and the arts and entertainment. We are also seeing added benefit from the ramp-up of one of our renovated hotels. Looking ahead, we expect the positive momentum in this market to continue. In Washington DC, our portfolio RevPAR growth of 1.9% outperformed the market by about 120 basis points and our hotels gained approximately 240 basis points in additional market share against their competitive sets. During the quarter we saw healthy mix of corporate, group and leisure business. Now as we move forward, we face tough comps in the second half given double-digit RevPAR growth from last year’s strong corporate and group activity, and expect to be flat to slightly positive in the second half relative to last year. In South Florida, we saw an increase in RevPAR of 3.0%, outpacing the market by 100 basis points. South Florida was one of our few markets that did benefit from the Easter shift. Additionally, our West Palm Beach properties continue to benefit from the Presidents frequent visits, as well as an uptick in special corporate and group segments during the quarter. We expect our diversification in this region will continue to benefit our portfolio as the year progresses and partially offset the headwinds from new supply in Miami and the ongoing renovations at the Miami Beach Convention Center. In Northern California, ongoing renovations at the Moscone Center continue to reduce compression in the market. Our RevPAR decline to 5.5% compared favorably to the San Francisco market RevPAR to kind of 8.2% and again highlights the benefits of our portfolio diversification in the region. Additionally, our RevPAR this quarter reflect disruption at two hotels that were undergoing renovations. Adjusting for renovation disruption, our RevPAR would have improved by 220 basis points. With our hotel renovations now complete and the opportunity to lap the renovations at Moscone approaching late in the third quarter, our toughest comps are now behind us, which should lead to improved performance for the second half of the year and into next year. In Louisville, our RevPAR declined 8.2%, a significant improvement over last quarter. During the quarter the closure of the convention center remained our biggest headwind. Additionally, the lack of market compression was further impacted by the quarter's marquee event, the Kentucky Derby having lower attendance versus prior year. Not unlike Northern California, we expect performance to improve as we start to lap the 2016 closure of the convention center late in the third quarter. We are already in the process of renovating our Marriott Louisville, setting the stage for outsized growth in the second half of 2018, when our renovation is complete and the city's state-of-the-art convention center reopens. In Houston, the ongoing soft market fundamentals were amplified by the difficult NCAA Final Four comp from 2016. This event alone generated approximately a $1 million for us last year, impacting our market-wide RevPAR to decline of 14.2% by 600 basis points. As we look further out, we expect to continue to see headwinds in Houston as the market continues to absorb the new supply there. In Denver, our hotels reported flat RevPAR grow for the quarter. ADR grew 2%, but with fewer citywide room nights year-over-year to drive compression in the market our occupancy dropped by approximately 2%. Looking ahead, we expect to see improvement in the second half as a result of an increase in group activity and corporate production. With respect to Austin, demand in the city remains robust, year-to-date demand was up 4.3%, which was incremental the last year's 5.2% growth. However, during the quarter the demand/supply imbalance combined with the loss of two large citywide events led to overall market softness. Our hotels specifically were further impacted by tough comps from about a $1 million of flood-related business last year that we had affecting our market RevPAR by 445 basis points. Looking ahead, we expect to continue to face an additional softness in 2017 as a result of new supply. However, we are seeing some indications of supply pressure easing in our tracks in 2018 and even further in 2019. In Chicago, the markets saw a strong pickup in citywide activity but did not see a meaningful pickup in compression, resulting in modest RevPAR growth in the overall market of about 0.8%. Although, our hotel did partially benefit from citywide in the quarter, this was offset by the loss of some extended-state project business that did not return leading our RevPAR to decline by 1.6%. As we look out to the second half of the year with fewer citywide on a calendar, we expect performance to remain soft. In New York, where our exposure is now limited to only 4% of our EBITDA, RevPAR declined by 4.8%. Although, the city continues to see impressive demand, this demand has been highly concentrated in select submarkets. And while the closure of the Waldorf has been helpful, there has been a number of rooms which are recently reentered our submarket post renovations offsetting much of the benefit. Accordingly, we expect RevPAR to continue to remain soft here. For our non-top 10 markets, a 3.5% RevPAR decline was soft relative to the last couple of quarters. We expect results to improve during the second half of the year, especially during the fourth quarter in markets such as Tampa, New Orleans and Atlanta. So heading into 2017 we knew the first half of the year would be challenging, given a number of short-term headwinds. This is especially true for the second quarter. Despite this, we still posted 81% occupancy had margins of nearly 38% and generated more than $110 million in EBITDA during the quarter. As we close out the first half and move into the second half of the year, some of our toughest comps are now behind us. As a result, we expect our second half to be better than our first half on a relative basis. We expect our fourth quarter to be better than our third. We will start to lap convention center closures late in the third quarter, which will position us for a better fourth. Additionally, with the Jewish holiday shifting from October to September, the third quarter will be negatively impacted, but the fourth quarter will benefit. Finally, our renovation disruption in the second half is expected to be lower than the first half, and all this being said, initial trends across the industry are pointing to a more muted third quarter. We expect these travel trends will likely translate into a softer third quarter for our portfolio as well. As a result, while we expect our second have to be better than our first, we're taking a more cautionary view of it and adjusting guidance accordingly. Even though we are currently facing some transitory challenges, we continue to believe in the resilience of our portfolio. We have built a high quality portfolio in markets with strong long-term growth prospects. As to the assets, from a RevPAR index standpoint, approximately 80% of our hotels rank in the top half of their respective comp sets, with the majority ranking either first or second within their set. Importantly, our portfolio continues to generate significant free cash flow. It is well-positioned to weather all phases of the lodging cycle and benefit from a number of our markets that are expected to recover in 2018. I’d now like to turn the call over to Leslie for a more detailed review of our operational and financial highlights. Leslie?

Thanks, Ross. On our last call we noted that second quarter would have a few headwinds, including the shift of the Easter holiday, the continuation of convention center closures and a tough year-over-year comps that will result in this quarter being a weakest of the year. During the quarter, our RevPAR declined a 3.4% was largely driven by April. April was our weakest month, with the decline in RevPAR of 6.5%. May and June fared better, the declines of only 1.9% and 1.8%, respectively. April decline was impacted by the Easter shift, which constrained business and group travel in the month. These dynamics led the less compression across a number of our markets that are more business and group centric. Additionally, April’s RevPAR was impacted by almost 200 basis points in aggregate to the renovation disruption in our Northern California market, the Final Four not returning to Houston and a non-recurrence of flood-related business in Austin. As we look at the quarter overall on the transient side, some of our leisure-oriented markets, such as South Florida fared better in large part to the holiday shift and overall healthy leisure demand. However, given our portfolio mix, which has greater business transient concentration, the healthy increase in leisure demand that benefited the industry did not translate into our portfolio. While we did see business demand increase across some of our market such as Southern California and Denver, business demand in general was muted. Overall, group demand for the industry was down meaningfully relative to transient. For our portfolio, this weak group demand was further amplified as a result of approximately 20% of our EBITDA being affected by markets with convention centers under renovation. Over the last few quarters we have benefited from our grouping up strategy, specifically with small social events. Therefore, with overall group demand being soft this quarter, there were fewer small social and corporate group opportunities. Based on a dynamics we saw this quarter, our topline came in at the low end of our internal expectation. Despite the incremental revenue pressure, our margin declined of only 150 basis points was better than anticipated. We were pleased to see our asset management team in partnership with our operators exclusively to manage our expenses and control our margins at 37.7%, which remains one of the highest in the lodging space. Now with regards to our corporate performance, our adjusted EBITDA decreased by $13.5 million to $104 million for the quarter. We would like to remind listeners that last year’s adjusted EBITDA results include approximately $5.4 million of EBITDA from properties that were sold in 2016, including few of our New York hotels. Accordingly, adjusted FFO was $89 million or $0.71 on a per share basis. With respect to our balance sheet, given our low leverage, significant coverage and a well ladder maturity profile, we continue to have a strong flexible balance sheet. At the end of the second quarter, our total debt outstanding was $1.6 billion and our net debt to EBITDA ratio was 3.1 times. We ended the second quarter with a robust liquidity position, including $480 million in cash and $400 million of availability on our undrawn credit facility. We have plenty of liquidity to cover our capital deployment priorities, including paying our dividend and executing our capital expenditure program. We continue to believe that our dividend is an important component of the total return we seek to provide our shareholders. We have maintained a healthy dividend for 25 consecutive quarters and while we did not repurchase any shares this quarter, we still have over $20 million of capacity remaining under our program. Now with regards to capital expenditures, our renovation remains on schedule and we continue to expect capital outlays for the year in the range of $40 million to $45 million. During the second quarter, the impact from displacement was approximately 25 basis point of RevPAR growth. We still have additional renovation activities throughout the remainder of the year, but expect displacement to step down in the second half of the year. Therefore, for the full year, we continue to project total disruption of approximately 40 basis points. Now with respect to our outlook, we do expect to see relative improvement in the second half, with fourth quarter projected to perform better than third quarter. However, in light of the second quarter coming in at the lower end of our expectations, any more cautionary outlook for third quarter, given weakness in July, we are adjusting our guidance for the full year. Accordingly, we would like to highlight the following guidance adjustments. First, we have lowered our RevPAR guidance to negative 2% to negative 1%. Second, we have lowered our hotel EBITDA guidance to a range of $375 million to $385 million. And finally, our margin guidance has been adjusted to 34.5% to 35%. Thank you. And this concludes our prepared remarks. We will now open the lines for Q&A. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Wes Golladay from RBC Capital Markets. Please proceed with your question.

Hey. Good morning, everyone. Can we go back to the Northern California performance, looks like you had been down about 330 basis points excluding renovation disruption? Can you give us overall landscape of how that’s progressing your San Jose hotels, your hotels in the city and in the hotels just outside of the city that might benefit from compression of the convention center?

Right. Hey, Wes, good morning. Yeah. First of all, that was an interesting region for us because it was a tough comp from last year. We were up about 9%. So that was a headwind that we saw coming. You mentioned the renovations. We actually think we benefit from a geographical diversity in Northern California. I would say of our assets there that the three that are most impacted by Moscone are and of course the CBD of course and our two in Emeryville, the Hilton Garden Inn and the Hyatt House. But of course there's a compression effect throughout most of the valley. And so, while we outperformed the market to that that diversity, we do expect to participate in the recovery on the backend, we like our position there, we like our exposure. It's about 10.5% of our EBITDA and even though we are having to weather this well here, we really like the fact that we have got a presence there and we are going to participate in that recovery in the second half of next year. In fact, even this year we expect Q3 to be relatively a lot better than Q2. We’re going to get through those renovations. That disruption is a little bit of a lap of the Moscone closure but in Q4 clearly we get a full quarter of lap in the Moscone closure, plus, ironically, are going to be a couple citywide in San Francisco despite the fact that Moscone is down. Oracle and Salesforce will be meeting at different venues and they are going to create quite a bit of compression. So we expect Q4 to be pretty positive in part of our story in Q4 that gives us some optimism about that quarter.

Okay. And looking at Texas, can you give us your thoughts on Houston maybe next year, looks like we are going to start to lap, but now start the third year declines for that market, DC supply abating or and demand picking up for 18th Avenue. You kind of alluded to in Austin that you saw -- thought supply pressure might start to pull back particularly for your track. Can you give additional details on that?

Yes. Yes. We have got to weather the first quarter, because we have got the Super Bowl comp. But this year actually in Q2 for the first time since 2013 our percentage room nights from oil and gas rose, I mean, it was a pretty big -- it was a pretty big percentage increase, it was 50% room nights revenues 34%, but it's off a small base. So I don't want to get too giddy about it. But it's a good indicator and last week the biggest U.S. energy companies reported strong earnings, Exxon doubled their net income and Chevron came out huge with about a $1.5 billion for Q2 and oil and gas rates rough 44%. So decent indicators about what's going on there. We are actually expecting a good fourth quarter, because October is a strong citywide in the market, so we are going to get some relief in the drag that that Houston has been on our portfolio. Third quarter still going to be soft, ‘18 as I mentioned, you got the Super Bowl comp in the first quarter then after that from a supply standpoint, it's dropping some about 6% to about 4% and that’s NSA wide and in our particular tracks it also peaks in ‘17 and begins to subside in ’18. And so if we have that nice confluence, right, subsiding new supply and just incremental gains in the oil and gas complex along with the other diverse elements in Houston, we think that -- we are calling the bottom yet. But and I'm not -- I can’t say I am optimistic about ’18, but I am feeling better about it. And I mentioned this on the call last week too-- last quarter. We probably get more inbound calls on our Houston assets than any other city, from private equity and owner operators, and while that coffee doesn't get you much, it is another decent indicator of investor interest in the market. We are actually pretty high in the market. And we enjoyed the four consecutive years of double-digit CAGR before downturn and it lasted longer than we expected, but we’re optimistic about the recovery there, we think it’s going to be pretty dramatic when if possible…

Okay. And in Austin REIT you mentioned that your tracks will get better, can you just elaborate on that?

Yeah. Yeah. A similar story, fortunately not nearly the drama of Houston. Because Austin, God bless, it’s a great city, people want to be there, demands up another 4.3% year-to-date on top of a 5.2%, I think, last year, but supply finally caught up and it 6.3% this year, at least in Q2, and then we had some additional headwinds from some things that were specific to our portfolio. But we’re expecting Q3 to be again relatively better Q4, a little bit better again. But we do see in our tracks that ‘17 is a peek and it begins to subside. Unfortunately in Austin, that’s the situation where outside of our tracks, the new supply continues in ‘18 and so we don't know how much that’s going to affect us sort of from the ripple effect and it’s still going to be a big number. And with the MSA numbers in ‘17 are 7.5% for the MSA of 6.0% for us for the year, I am sorry, for the MSA its 7.5% in ‘17 and 6.0% in ’18. In our tracks though, I mentioned the 6.8% drops to 2.1% in ’18, don’t hesitate to celebrate that too much, because again you don't know about the ripple effect of the new supply outside of our tracks, but it's a promising indicator, we like to see that it peaks for us at least in ’17.

Okay. Thanks a lot. I’ll hop back in the queue.

Our next question comes from the line of Tyler Batory from Janney Capital Markets. Please proceed with your question.

Great. Good morning. Thanks for taking my question. Firstly, a quick question on the RevPAR in the second quarter, do you have a number maybe excluding some of the markets that were disrupted by the convention center closures. I am just trying to get about your sense of what RevPAR might have been in the quarter just excluding some of those transitory issues?

Yeah. If you subtract the three markets that I alluded to you in 20%, you would have improved by about 70 basis points.

Okay. Great. And then question on the guidance, you noted a little more cautious on the third quarter here just given July, I wonder if you can give a little more detail about what is going on in July, what you are seeing there?

Yeah, In July, the first week was tough. It was down 9%, 10%. It was largely leisure based. It was a similar effect to what we saw with the Easter shift in April and it was just difficult for the month to recover after that. Things stabilize after that. But it set us back sort of mid-single digits for the month.

Okay. Great. And then maybe big picture question, I look at some of the brands that you have, Embassy Suites, I think, sticks out just as far as growth in the first half of the year, I assume that maybe it’s little bit market driven. But can you maybe just remind us picture, what you think about that brands kind of your opinion of that long-term?

Yeah. Yeah. We think Embassy Suites is a category killer has been and continues to be. Hilton is very keen on the brands. You want to make sure before you invest too heavily in a brand that, it isn’t your father's automobile, right. Hilton is very keen on Embassy Suites and it’s got 60 of them in the development pipeline around the world and most of those in North America, in fact more than any other full-service brand. And I'd wager that that's probably more than any other full-service brand in any of the brand families. So it's alive and well. And the transformations that are taking place at the Embassy Suites that are being renovated are material, that the atrium renovations in addition to the guest rooms are really moving the needle on RevPAR at those hotels around the country. And so not unlike Marriott were doing some modernization moves with the brand. Hilton isn’t going to be left behind with Embassy Suites and so they're keeping it very current. It is a hybrid between a full-service brand and a select service brand, because while it is full-service to the degree that it has food service and a bar, guests kind of help themselves to the comp breakfast, you got the comp, amenities in the afternoon largely focused on the drinks. And then but the margins that you run at Embassy Suites resemble select service hotels, because of the service delivery and when you combine the high RevPAR's with those kind of margins the flow-through is terrific. So we are big fans of the brand. They're not the cheapest hotel to develop from scratch, but Hilton has worked hard to modify the model to make it more efficient to develop, but the existing Embassy Suites we think are treasures and any time that we can acquire one at a decent basis. We are enthusiastic about it.

Okay. Great. That’s very helpful. Thank you.

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

Hi. Good morning. Thanks for taking the question. One respect to the no comments on the proxy, but I was just curious there's clearly a view out there that there's a fair value target I guess in the stock and I am just wondering has there been any change in either you or the board's view on either the trajectory of interest rates or a less optimistic view of hotel EBITDA trends going forward?

Appreciate the question, Austin. All I can say is, we're excited about the opportunity and we have a very serious and deliberate board that take the fiduciary very seriously. We still believe that this is a good time for any organization to enter into a strategic opportunity. We are long-term investors. We don't look at one quarter or two quarters. We look at the long view, whether we are buying a single asset or portfolio or conversely looking at a disposition or buying back stock, any asset allocation decision we take a very long view toward shareholder value creation. But I think that's all I can say at this point. Our council has been very specific that with a live proxy in effect here that we have to proceed prudently here with what we say.

So it's fair to say that some of the pressure that you have seen here near-term, you do expect to be transitory and that you are more optimistic as you look out over the next 12 months to 18 months in terms of fundamental trends?

Yes. Yeah. We -- our economic crystal ball is that we are not looking at a cliff here. We are not looking at recession. The Wall Street Journal told the economists in July and they came up with a -- they pegged the odd at 15% of recession, which is down from 22% a year ago. This recovery has been long, but it has been slow and this 2% CAGR has resulted in nothing being particularly overheated and we believe within our portfolio that the headwinds that we’re facing this year, a number of them are going to be reverse next year and the easiest ones to point to are the convention centers reopening in three of our markets. So we are optimistic about ‘18 and even more in ’19. And so I would -- we are not in a bunker here as it relates to asset allocation.

Great. Thanks for the comments there Ross. And just, Leslie, quickly on the hotel EBITDA margins, you guys are really tracking ahead through the first half of the year and went ahead and took down your margin expectation for the full year, despite the fact that it sounds like you think that the second half is going to trend more favorably on the RevPAR side. So just curious what it is that’s putting that further downward pressure in the back half of the year?

You are correct, Austin, in sense of that. Second quarter performed better than we would have expected, given the fall in RevPAR and that’s off of a base of 39.2% from 2016, which is one of the highest margin in second quarter ever. And our team did a really good job of managing expenses in the second quarter given our revenue management strategy, given some initiatives that we had put in place last year and also from the standpoint of managing labor which I know a lot of people had questions around. While you look at the second half it looks like it, well, it looks like second half of the year based on the our guidance would imply that year-over-year performance relative to first half is slightly better, if you look at it from that perspective, so as opposed to pressuring and bringing it down. So first half of the year in aggregate it’s looking like at the midpoint we were down 150 basis points, 142 basis points I should say. If you were get the midpoint in the second half, I would suggest that we are down 130 basis point year-over-year. So I look at it slightly differently than you articulated it, primarily in second half we’re having less revenue pressure the topline. We are going to continue the revenue strategy that we had in the second quarter, as well as we should see another quarter of full benefits of some the initiative that we had started last year.

Okay. That’s very helpful. I’ll hop back in the queue. Thank you.

Our next question comes from the line of Michael Bellisario from Robert W. Baird. Please proceed with your question.

Good morning everyone. Just first question quickly, did you guys provide a RevPAR index, could you provide a RevPAR index change for the entire portfolio during the quarter?

RevPAR index for the quarter was 111 and that is down about 190 basis points.

Thanks. And then just more on the kind of capital allocation fronts, but what specific to legacy RLJ portfolio, I mean, how are you thinking about maybe selling more of your non-core hotels and then what would you do with that cash if you did proceed with more asset sales?

Right. Michael, the first part is, we sold three assets in December, including two in New York and we’re evaluating opportunities in our portfolio as we speak and nothing is listed. But you can expect us to be more active over the next year. The second part of your question, well we do that capital is going to depend on what unfolds over the next couple of months here and it is in any situation we always look at the spectrum, right. Should we be retiring debt which in legacy RLJ right now is very low cost debt. Should we be backing up the proverbial truck and buying back stock, which is an attractive option at these levels, depending on what happens over the next couple of months. Or should we be putting it into growth assets that help reap -- replace the FFO from the dispositions. In any given environment we evaluate all those options and make the choice based on what's in the best interest of shareholders.

Got it. But it doesn't sound like that you are more aggressively pursuing a disposition strategy with the legacy assets, correct? And…

I would -- yeah, not at this very moment. That's right.

Understood. Thank you.

Our next question comes from the line of Ryan Meliker from Canaccord Genuity. Please proceed with your question.

Hey. Good morning, guys. Nice job on the margin this quarter. It was better than we were expecting. Quick question I had, it kind of piggy back of Michael was just asking with capital allocation. Do you guys run, I guess, hold versus sell analyses on your portfolio relatively frequently?

I would say the answer to that is yes. But it's a dynamic thing. We don't think of in terms of a snapshot. We look at the entire portfolio and we take into account so many factors, Ryan, because it's not just what an asset is worth at a given time. We also look at our waiting in a specific market and what that would suggest. We look at CapEx requirements that are coming up over the next three year to five years. Obviously, there's a correlation between RevPAR and multiple on the street most years, maybe not recently, there has been a little disconnect with the surge of select service interests and so we take that into account. So it becomes a little bit of a stew of quantitative and subjective business judgment that blurs the lines little bit with just the classic holds up.

No. I understand and that makes a lot of sense, and the reason why I brought it up was because I kind of think if you are not going to sell something it's probably because you're willing to buy it at whatever price you can get to sell it, more like a buy/sell type analysis than hold. But -- and with that background I guess the question I would have is, the stock has traded down since you guys announced the FelCor deal. Obviously, you’re bullish on the FelCor deal. You think there is a lot of value creation the market doesn't see it yet. But obviously if you're right that will play out over time. But the stock has pullback and you’ve created some type of almost artificially deflated stock price in the near-term which tends to be an interesting option to buy back stock. I know you can’t comment on it, but your proxy indicated that you had a level of interest at close to 15% premium where the stocks trading today. So my question do you is with the $200 million in buyback authorization and the amount of cash you have on the balance sheet, why didn’t you pull the trigger and buyback stock in the quarter?

So, Ryan, what I would say, first of all, just to remind you, we return a $1 billion of capital to our shareholders in the form of dividends and buyback. And right now we are actually precluded from buying back our stock. Once we get pass that prohibition of buying back our stocks, we will absolutely continue to evaluate buying back our stock as a capital allocation alternative.

Okay. But I mean, I think, a lot of that stock has been repurchased at levels well above where your stock trades today, so it seems like given all the factors that we know today, it would be more compelling today?

The -- we do not disagree that we are inexpensive right now. But given the constraints that we’re facing, we’re exercising restraint and we are looking forward to having that option open up.

And -- fair enough. And I assume I know you guys have talked a little about this in the past, but to the extent you can share some color, you -- after the FelCor transaction is completed, assuming it’s completed, you guys will be able to -- you guys are planning to delever to an extent. Are you trying to retain cash for the purpose or are you looking at more the operating cash flows from the portfolio driving that deleveraging?

Would love to get into that discussion, but council advises that that's something we can’t talk about on this call.

Fair enough. Okay. Thanks.

Our next question comes from the line of Floris van Dijkum from Boenning & Scattergood. Please proceed with your question.

Great. Thanks for taking my question. I had a question on your comp EBITDA trends. Maybe if you could share that and also what would comp EBITDA has been, if you exclude your three convention markets?

So, Floris, that is, our EBITDA that we gave year-over-year is comp, so maybe if you can explain what you think you are looking at, I can answer but, but the numbers we provided our comp.

Yeah. No, no. What I was trying to get at, Leslie, is more, what would it have been if you excludes the comp -- if you excluded [Technical Difficulty] (42:56) -- what would comp EBITDA have been?

Floris, I don't have that number in front of me, but I'm happy to follow up with you and provide that information.

Okay. Great. Thanks, Leslie. The other question I had is, regarding the Embassy Suites, do you expect any costs associated potentially with upgrades to your properties or are your properties up to the new standard for Hilton?

Yeah. It’s great question, Floris. We owned six Embassy Suites and we renovated four of them. And we have found that we are good at it. The industry spend somewhere between $35,000 and $55,000 a key to do a complete comprehensive Embassy Suites renovation and we've been falling in around that $35,000 to $40,000 key level and as -- in locations like Irvine and Downey and West Palm Beach have really produce some beautiful results. So we think we've got the neck for it and look forward to exercising that full set on future hotels.

Great. Thanks, Ross.

That is all the time we have for questions. I’d like to turn the call back over to management for closing comments.

Thank you, Operator. This is a dynamic quarter for RLJ and we appreciate your interest. We look forward to speaking with many of you throughout the next quarter. Hope you have a restful weekend. Thanks again.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.