Xenia Hotels & Resorts, Inc. (XHR) Q2 2017 Earnings Report, Transcript and Summary

Good day, and welcome to the Xenia Hotels & Resorts Incorporated Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Lisa Ramey. Please go ahead.

Thank you, Steven. Good afternoon, everyone, and welcome to the second quarter 2017 earnings call and webcast for Xenia Hotels & Resorts. I’m here with Marcel Verbaas, our President and Chief Executive Officer; Atish Shah, our Chief Financial Officer; and Barry Bloom, our Chief Operating Officer. Marcel will begin with an overview of our quarterly results and details on our recent transaction activity. Barry will follow with more details on second quarter performance and portfolio enhancements and Atish will conclude our remarks with an update to our full year guidance. We will then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, August 8, 2017, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release. An archive of this call will be available on our website for 90 days. And with that, I'll turn it over to Marcel to get started.

Thanks, Lisa, and thank you all for joining our second quarter call. We were pleased with our portfolio’s performance during the quarter as top line results met our expectations and the portfolio outperformed on the bottom line through our continued focus on cost containments and portfolio initiatives. During the quarter, we had net income attributable to common stockholders of $69.4 million, which included a $49 million gain on property sold during the quarter. Our adjusted EBITDA was $79.6 million and our adjusted FFO per share declined to $0.59 due largely to our 2016 and 2017 dispositions which make a year-over-year comparison challenging. As a result of our previously announced transactions here in the quarter, the same property portfolio numbers we will be discussing today are reflective of the 37 property portfolio we owned as of June 30. We experienced a 1.4% decline in same property portfolio RevPAR in the second quarter with April, down 3.8%, May up 1.4% and June down 1.7%. As discussed in our first quarter call, April was negatively impacted by the Easter shift, which positively influenced our March performance. May and June came in as expected, with June particularly being impacted by four citywide convention business and some of our larger markets and continued disruptions from our now completed Westin Galleria rooms renovation. Our Houston area hotels had a negative impact of approximately 170 basis points on our same property portfolio RevPAR in the second quarter. When excluding the Houston area assets, our RevPAR increased by 0.3% over last year. We expect the negative impact of our Houston area assets on overall portfolio performance to moderate during the second half of the year, as the year-over-year comparisons get somewhat easier and the most disruptive part of the Westin Galleria renovation is now behind us. Barry will provide additional details regarding our renovation progress later during the call. Our focus on portfolio efficiency and cost containments resulted in same property hotel EBITDA margin of 34.2%, a decline of only 32 basis points despite experiencing the aforementioned declining RevPAR and a significant increase in property taxes, due in part to tax refunds received in the second quarter last year. Excluding property taxes, hotel operating expenses decreased by 1.4% primarily due to the continued benefits of our property optimization process, and a strong focus on expense controls throughout the portfolio. The second quarter was active on the transaction front, as we continued our process of further refining and upgrading the portfolio while maintaining our strong balance sheet position. During the quarter, we completed nearly $400 million in transactions. This included the disposition of six limited service hotels and the acquisition of the Hyatt Regency Grand Cypress in Orlando. Our transaction activity during the quarter has further improved the overall quality of our portfolio as well as the long-term growth profile and overall supply picture. As we discussed last quarter on our call, our disposition activity started in April when we sold the Courtyard Birmingham at UAB for $30 million or $246,000 per key. This price represented an 11.4 times multiple on trailing 12-month EBITDA. We also retained the $1.1 million balance in the [Indiscernible] reserve. In June, we completed the sale of a five hotel portfolio for total price $163 million or approximately $201,000 per key. The portfolio included three courtyards in Fort Worth, Kansas City and Pittsburgh as well as two Baltimore hotels, the Hampton Inn & Suites and the Residence Inn. We were pleased with the execution and pricing achieved in this transaction. The sale price represented an 11.1 times multiple on trailing 12-month EBITDA before brand required capital expenditures, which the buyer estimated to cost between $13 and $16. We also retained the $5.6 million balance in the capital reserve accounts in this transaction. The five assets had an average trailing 12-month RevPAR of $115.52 significantly below the remainder of our portfolio. Subsequent to quarter end, we also exited one of our non-core markets and assets through the sale of the Marriott West Des Moines. We sold this hotel which both of the second lowest RevPAR in our portfolio in 2016 for $19 million in July. We estimated that this sale allowed us to avoid approximately $10 million in required capital expenditures. We are pleased to have been able to exit the third tertiary markets and focus our attention and capital investments on assets and markets that we believe have stronger growth characteristics. On previous calls, I have spoken about our expectation that after being a significant net seller between 2014 and 2016, we would be more balanced between dispositions and acquisitions this year with the bias towards being a net acquirer. I’ve also spoken about our desire to continue to operate our portfolio by making targeted investments in luxury and upper upscale hotels while selectively disposing of assets that do not meet our long term investment criteria. In the second quarter, we successfully executed on this strategy to the completion of the dispositions I mentioned, as well as the acquisition of Hyatt Regency, Grand Cyprus in Orlando. As announced in May, we acquired this 815 room resort hotel in one of our target markets for $205.5 million or $252,000 per key. Orlando represents all the characteristics of a core investment market for our company. It is one the top lodging market in key leisure destinations in the United States and benefits from many diverse demand generators, particularly for group and leisure leader. Additionally, near-term lodging supply growth is benign with current forecast calling for supply growth of approximately half a percent in 2017 and 1% in 2018. Asides from the favorable market characteristics, we also believe this hotel specifically has strong earnings growth potential through the deployment of our asset management strategies and near-term capital investment initiatives. And finally, the pricing at approximately 11 times trailing 12-month EBITDA has substantially below placement cost presented an attractive entry points into a market leading resorts in a market where we have significant experience and expertise. As it relates to our capital plants for the hotel, we believe there are several near-term opportunities to drive future earnings growth. Overall, the hotel is in excellent condition, having received approximately $32 million in capital over the past five years, including renovations of the pool and outdoor spaces as well as the lobby and food and beverage facilities. This year, we expect to spend approximately $5 million in capital expenditures, including addressing some near-term guestroom needs such as televisions, refrigerators and desk chairs addressing minor roof and infrastructure issues and planning and design for an upcoming guest room and meeting room renovation and proposed ballroom expansion. We expect to spend an additional $9 million next year for the guestroom and corridor renovation as well as approximately $6 million over the next two years, upgrading the existing 65,000 feet of meeting space. We intend to execute the guest room renovation in the summer of next year, which will minimize the expected revenue disruption at a time of lower demand. This renovation will merely be a soft goods renovation and no significant bathroom work will be necessary, as the hotel had previously converted approximately 45% of its bathrooms from tubs to showers. In addition to these upgrades, we have embarked on the analysis and planning for the development of an additional ballroom as the hotel has a much lower ratio of guestroom to meeting space than its direct competitors. We believe that adding a 25 to 30,000 square foot ballroom will greatly benefit the property and provide a strong return on investments as there were a lot of hotels to increase and better balance group bookings within its dynamic market. Additionally, we will analyze further opportunities to optimize performance and take advantage of the 30 acre site on which hotel is situated. We are delighted to have been able to expand our relationship with Hyatt through its transaction. Hyatt manages five other hotels for us, and we have been extremely pleased with the results of these hotels. We look forward to working together to achieve similarly positive results at Hyatt Regency Grand Cypress. The results of our various transaction during and subsequent to the quarter is that our whether portfolio has been further refined and improved without impairing our ability to take advantage of additional investment opportunities whenever they may arise. We will continue to pursue on strategy acquisitions, and look forward to continuing our positive momentum. I will now turn the call over to Barry.

Thank you, Marcel. As a reminder, all the portfolio information I’ll be speaking about is reported on the same property basis for 37 hotels at quarter end. As Marcel mentioned, portfolio performance met our expectations on the top line as we anticipated the challenge of Easter shift in April. For second quarter 2017, our same property RevPAR declined 1.4% due primarily to a 120 basis point decline in occupancy as rate was essentially flat at 0.1%. Our group business was down approximately 0.9% for the quarter compared to last year with the transient contract business declining by approximately 1.8%. Excluding our Houston area hotels, our RevPAR grew 0.3% driven entirely by rate as occupancy was flat. Our top performing markets during the quarter were Napa, up 19.1%, Salt Lake City, up 15.7% Charleston, South Carolina, up 14.5% Birmingham up 11.9% and Santa Barbara up 9.3%. Both of our Napa properties benefited from good weather this year and Marriott continues the upside from the extensive renovation we completed in the first half of last year. Salt Lake City had great city wide business during the quarter and our strong group base allowed from the aggressive transient rate strategy. The Grand Bohemian and Mountain Brook also benefited from strong group production during the quarter. We are pleased with the performance of this hotel as it continues to stabilize in its second year of operation. The Grand Bohemian and Charleston, South Carolina has enjoyed a strong summer with strong weekend demand in the market. In total, we had eight markets of RevPAR growth over 6% including San Diego, Atlanta, and Boston. Our most challenged market this quarter continued to be Houston with RevPAR for our three hotels in the market down 18.6% comprised with the decline in occupancy of over 10% and the decline in rate of 4.6%. This is in line with our expectations as noted on our Q1 earnings call. The Galleria market had a weak [Indiscernible] counter this quarter and we are still dealing with the impact of new supply specifically the Marriott Marquis added at the convention center downtown. We also experienced substantial disruption during the quarter as we finished the guestroom renovation at the West Inn Galleria. The Marriott Woodlands performed better than the Galleria this quarter and we’ll continue to see a softening in [Indiscernible] and transient segments. However, food and beverage revenues were a particular bright spot up 13.5% during the quarter as the hotel benefitted from considerable in-house group spent. Other notable markets RevPAR declines for the quarter included Dallas Johnson down 10.3%, New Orleans down 9% and Philadelphia, Portland and Charleston, West Virginia, each down approximately 5.5%. While most of these markets performed in line with our expectations, our Dallas hotels underperformed particularly the Marriott City Center due to a lack of compression from citywides, which we recognize foreign advanced. Unfortunately neither of our hotels were able to make up this RevPAR with self contained group, which resulted in an inability to drive transient pricing. We are pleased with our margin performance in the quarter, down only 32 basis points despite being muted by an increase in property taxes of over 17.5% due to property tax refunds received last year during the second quarter. Excluding property taxes, our same property hotel EBITDA margin increased 25 basis points in the quarter with other hotel operating expenses declining 1.4% as we continue to focus on continuity and planning for those aspects of the business that we do control. We continue to be pleased with the momentum and results achieved through our property optimization process, which is now being conducted at seven hotels year-to-date and 24 hotels since the program started in 2014 representing approximately 70% of our income and over $5.5 million of annual ongoing net benefit. [Our opt] team has been extremely successful finding opportunities throughout the portfolio as well as worked with each of our hotel managers to implement our findings of the hotels. We continue to benefit from strong acceptance for our suggested initiatives by our managers. During the second quarter, we continued to make substantial progress on our current and upcoming property renovations. The comprehensive guestroom renovation at the Western Galleria is now complete, and our optimization of the suite mix of the hotel resulted in a reduction of 18 keys. We have also begun the next phase of our renovation of the hotel, which as you may recall includes a complete lobby renovation with the [additional bar] service. The transformation of the top floor to revitalize the hotels main social catering space as well as the addition of the first ever concierge lounge at the hotel and the relocation and recreation of the existing windowless fitness space into a dramatic topfloor venue. We anticipate each of the remaining products be completed in the middle of the fourth quarter. We have made continued progress on the similar guestroom renovation project, the Westin Oaks as we’ve completed the model room review and are working on final logistics to execute this project. This renovation is expected to commence in the fourth quarter with targeted completion in the first half next year. We remain confident that this capital is well allocated within our portfolio as we anticipate Houston being a driver in our portfolio in the future and believe the revitalization of the Westin Gallery and Oaks will allow the hotels to regain in a strong position as market leaders. One notable additional capital item completed during the quarter were the addition of one key to the now 85 room River Place Hotel in Portland as well as the transformation of one key from the standard room into a family oriented suite. In addition to our guest room renovation at the Westin Oaks, we are on track to commence several additional renovation projects in the second half of the year including guestroom renovations at the Hilton Garden in DC, Monaco, Denver, Monaco, Chicago, Lorien hotel, Residency in Denver Marriott Chicago UIC as well as meeting space renovations at Hyatt Regency Santa Clara and Loews New Orleans, a lobby and great renovation at the Marriott San Francisco Airport Waterfront, and restaurant renovations at Monaco Chicago and RiverPlace. With that, I will turn the call over to Atish.

Thank you, Barry. I would like to discuss our revised guidance this morning. Our guidance reflects the 36 hotels owned today. Before getting into the specifics, one point that I would like to note is that the transactions that we’ve completed since we provided guidance in May are expected to have a net $2 million negative impact to our 2017 adjusted EBITDA. This is due to the seasonality of the Hyatt Regency Grand Cypress relative to that of the six hotels we have sold since May. Despite that, we have raised our full year guidance to reflect an improvement in our outlook. We raised our estimate of 2017 adjusted EBITDA to $250 million to $260 million; this is a $4 million increase of the midpoint. In terms of adjusted EBITDA, we earned approximately $3 million more than expected in the second quarter, this was due to the net impact of transactions as well as stronger than expected food and beverage revenues and better than expected margin performance. For the second half we anticipate adjusted EBITDA to increase $1 million compared to our prior guidance. The increase is due to strength we are seeing for the fourth quarter offset by the net impact of transactions. As to RevPAR we increased the midpoint of our full-year estimate by 50 basis points. This is due to an improved outlook for the fourth quarter versus prior guidance. Turning to hotel, EBITDA margins, when we started the year we had expected margins to decline approximately 150 basis points. Currently, we expect margin decline about 50 basis points. The reasons that full year margins are expected to be better than what we had expected in February include better RevPAR, higher food and beverage revenues and improved expense management. As to our confidence for the remainder of the year, while transient business continues to be uncertain, our group expectations continue to be strong. Group revenue pace for full year 2017 is up approximately 5%. That is at about the same level it was a few months ago when we last reported. We have definite bookings for over 90% of our 2017 expected group business, and more specifically, as it relates to the second half of 2017 our revenue paces is up 8%. The outlook for our hotels in Houston continues to improve. We expect our hotels in Houston to negatively impact portfolio RevPAR by 70 basis points for the full year. Our Houston’s hotel RevPAR is expected to decline 6% to 9% for the full-year. For the second half of 2017, we expect a more moderate decline in RevPAR for our Houston hotels as the comparisons are much easier than they were during the first half. In fact, in July RevPAR the Houston hotels was positive as we compare it to a very challenging July of 2016. Our guidance for adjusted FFO is $204 million to $214 million. This increase of $4 million at the midpoint is directly attributable to the reasons we just discussed, as there has been no change for expectations for interest expense or income tax expense for the year. On a per share basis, we expect to earn adjusted FFO between a $1.91 and $2. As it may be helpful for those of you modeling the company to know the impact of our transaction activity relative to last year since mid last year, we have sold 11 hotels and acquired one hotel. As a result of these transactions, we estimate that the net negative impact of second half adjusted EBITDA to be approximately $10 million compared to last year. We expect this to breakdown as follows; about $8 million in the third quarter and $2 million in the fourth quarter. Coupled with this dynamic is the timing of the holidays relative to last year, taken together versus last year we continue to expect weaker third quarter followed by a stronger fourth quarter. As to our estimate of capital expenditures, we lowered our estimate for the full year to $80 million to $90 million, this reflects a fine-tuning offset by an increase due to net transactions since we last provided guidance. In summary, we are pleased with the progression in the business. We have raised our guidance by $4 million despite a $2 million net negative impact from transaction activities since our May forecast. As we look forward we expect to continue to build on the momentum we have had in terms of asset management and margin performance, we expect our strong balance sheet and healthy level of liquidity and dry powder in the form of untapped revolver to enable us to take the opportunities as they arise. And we believe the evolution of our asset base to higher-quality assets located in better markets will benefit us over the years ahead. That concludes our prepared remarks. We’ll now turn it over back for the question-and-answer session.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Brian Dobson with Nomura Instinet. Please go ahead.

Hey, guys. Just a quick question on Houston. So the trends in that market seem to be improving or rather deteriorating less rapidly every quarter you report earnings. I guess at this pace when do you expect RevPAR trends there to at least bottom out? And also what types of returns are you expecting on renovations that you’re undertaking in that market?

Thanks, Brian. This is Barry. I think all the observations you made are certainly correct. Looking forward, we think the market in Houston will continue to be somewhat choppy.Q1 obviously was great primarily due to Super Bowl. And we always expect that Q2 to be the poorest performing quarter this year for us both in terms of where our group bookings were as well as knowing that we really had the heavy lifting on the Galleria renovation this year. One of the things we’re looking at going forward is in the near-term with Galleria rooms renovation behind us we’re able to provide some differentiated pricing between the two towers, and that actually help the hotels perform better overall as Atish referenced to our strong performance there in July. There are still -- we are still absorbing demand of our key in the Galleria area. And in the Woodlands, we’re just now getting to where we’re lapping the addition of the new Westin which while that would ordinarily be a positive. We have in place some lower corporate rates this year than we had last year. So we’ll continue to see some deterioration on that in the near-term through Q3 and Q4. Q3 group business at both hotels looks fine in both locations, but on the blended basis Q4 is actually not as strong as Q3 in terms our books are setting up, but we know we have time sold the book in to that. Looking ahead to next year you we know that this year's Q1 [Indiscernible] has set up a really difficult comp for Q1 of next year. So we’re really not looking to see material improvement and kind of the – kind of if you will the real year-over-year positive lapping until the second half of 2018.

Okay. Thanks. That’s great color. And then just quickly on your recent transactions can you give a little color about who you are bidding against and who are the major buyers in the room for your assets are? And whether or not you're seeing perhaps more buyers in the market than you did, call it six months ago?

Brian, this is Marcel. I’ll answer that question. Obviously, as far as who we were competing with to acquire hotels, that question is a better question for the people that sold us the hotels frankly. But from what we gather it was kind of mix of potential buyers that we’re looking at it. And whenever we’re looking at acquisitions there is never a matter of that you’re just competing with five out of REIT sort of five out P/E companies, generally it’s a little bit driven by where people's concentration levels are, how interested they are in certain assets, certain brands, so generally just kind of changes a little bit when you’re looking at different deals when you’re competing with, in some cases, it could be more private equity, in some cases it could be more public company as you’re competing with. As it relates to the assets that we sold, it's been a mix of buyers on that side too frankly. I don't think the mix has changed significantly or the debt has changed very dramatically since last year frankly. The difference is that’s clearly we sold as you know to five select service hotels we sold to one of our peer. So as we in the public arena sometimes just kind of look at it through a public lens you could say there’s a little bit more activity with some of the public companies including ourselves looking at acquisitions. But in general I think the market is still maybe a little bit of improved somewhere what 12 months ago, but I wouldn't say it's dramatically different.

Okay, great. Thanks very much.

And our next question comes from Bill Crow with Raymond James. Please go ahead.

Hey, good morning, folks. Nice quarter. Question number one is what's left in the potential asset divestiture bucket? Where do you stay in this as far as kind of capital recycling at this point?

Good morning, Bill. It’s Marcel. As we’ve said in the past obviously we don't really comment on particular transactions until we complete them or get to a point where we feel it’s proven to disclose those. What I will tell you is that coming into the year and as I said in my prepared remarks too, we were definitely looking to be a little bit more balance between dispositions and acquisitions this year with a biased toward being an net acquirer. So I would say that lot of the heavy lifting has been done on the on the sales side with some of the assets on the lowering end of our portfolio, but as we continue to look forward we’ll always continue to look to upgrade the portfolio every time and particularly if we find more interesting acquisition opportunities that makes for us to look a little bit more closely at some additional dispositions. So again, I think it’s going to be a little bit of more balanced game as far as matching those acquisition opportunities with potential dispositions going forward.

Okay. I wanted to focus on margins and terrific performance not just by yourselves but number of other REITs. I'm just wondering what's left in the tank from a margin perspective? And that would be question one. Number two would be how does the change of the portfolio composition impact absolute margins, it seems like your expense opportunity, reduction up to maybe have grown because of the Hyatt purchase in Orlando but maybe your absolute margins are going to be lower than they would've been, had you maintained the 5-pack select service assets. Is that is a poor way to think about it?

I think it is a fair way to think about it and I certainly let Barry jump in and talk a little bit more about where we feel there are some -- what’s left in the tank frankly. But your characterization is inappropriate one which is the absolute levels of margins could be a little bit lower when you sell some of these select service assets and add some of the full service assets. However from our experience what we find particularly attractive about some of these changes in our portfolio is that we think there are ways to be more efficient in some of these acquisitions we’ve made and that there are some opportunities to find margin improvements in those assets that would've been much harder to come by in the number of the assets that we have sold. So, we certainly are absolutely looking at the way you're describing it which is we think that there are ways to attack some of those operations and both in a growth environment and in a relatively stagnant RevPAR growth environment. There is opportunities to continue to improve that margin.

Absolutely true, Bill it’s Barry. I think it's very hard for us obviously to quantify what’s left in the tank. The couple of things and I think they’re relevant as it relates to us in our portfolio in particular the majority of our portfolio has been required since 2013, so we don't feel like those assets are stale, with us and that we continue to surprise ourselves a little bit quite frankly with the opportunity we’re finding on a week-to-week and month-to-month basis as we’re in the assets, I think you see some of that in our Q1 and Q2 performance particularly in a very soft RevPAR environment. We are very proud of both the asset management team we have here who are all incredibly experience and have been to a number of both up and down cycles, and I think that's helpful as we’ve seen kind of deceleration last year. These people know what to do and how to work with our properties to drive performance. Are prop program, the property optimization process I mentioned in the prepared remarks. We’re about 70% of the way to the portfolio with about $5.5 million of annual realizable net benefits in that program. Whether that ratio continues or not, it’s not clear, because quite frankly as we find good ideas, we try to spread them very quickly to the portfolio. We’re out there every day working on those. We've also done some reorganization on the asset management team in terms of putting fresh set of bias on assets, so even when kind of [Indiscernible] on an asset for two, three, four years we think it’s very relevant to kind of put, to reshuffle the deck little bit and get fresh perspectives on the properties and working with the managers to help uncover things that philosophers might not seen and has a different relationship with the manager have somebody with more food and beverage experience in our property than one of the other players who may achieve things like that.

All right. And then finally from me, Barry what’s a good number to think about from a property tax increase pace going forward?

I think we're looking at about 5% by year-end, year-over-year. This quarter really was unique. We had to some very large credits back last year. We had some decent credits back this year as well, but last year it was fairly unique. So I think we’re looking at about 5% for the year on the property tax number alone.

And as you may recall Bill we actually pointed out in the second quarter of last year when we had pretty significant margin improvement that we did benefit from some tax refunds. They were little bit more outside in the second quarter of last year. So we obviously saw the flipside of that in this quarter, but particularly as you pointed out earlier with that type of increase in our real estate taxes we’re pleased with our margin performance overall.

Yes. Terrific. Thanks. That’s it from me.

Our next question comes from Thomas Allen with Morgan Stanley. Please go ahead.

Can you just talk about – you’re talking about 2017 [group pictures], you’re talking about 2018? Thank you.

Thomas, it’s Marcel. Not really prepared to start off about 2018. Yes, we did talk a little bit obviously about what we’re seeing here in the second half of the year with particularly lot of strength we’re seeing in the second half of the year here. So, we’ll get into that more as we as we talk about it next quarter and give you an update then on how 2018 is shaping up. Booking windows overall are still relatively short, so as much as we can talk about some of the pace for 2018 now, it is still a percentage of overall bookings that are relatively modest compared to where you are when you get closer to the end of the year. So we prefer to start talking about that in the next quarter.

Okay. Cool. And then just your home market, Orlando, obviously doesn't have acquisition, can you just talk about have the longer term outlook for the market, I know there is now lot of supply growth over the next few years, but I was noticing kind of an influx of news articles about supply coming or new construction start. I think there is JW Marriott coming in, or breaking ground soon. So can you just talk about kind of the longer term outlook for the market? Thank you.

Sure. We think that as I said in my remarks, so that Orlando is a great long-term, actually it’s a great long-term market then it’s also a great near term market. It’s a market that we know extremely well not only from being headquartered here in this city but also the experience that we have as an executive team and as an asset management team with assets in this market in this company and prior companies. We feel very comfortable with our knowledge in this market. The market is a strong one that has as a large supply of available rooms currently, the percentage increases in supply are very modest compared to national averages over the next few years. Of course you do see occasional development that happens, including the JW that was announced that you’d mentioned which obviously well aware of. When you think about all the positives that are happening in the market from a demand standpoint those we believe more than easily make up for these supply increases over the next few years. Lot of positive things happening at that the theme parks, both Universal and Disney, you think that's on the new attractions that have been announced that will be tremendous drivers on leisure side. There's a lot of investment that has been going into the convention center overall, which is really helping overall market compression and the group business. And then specific do our hotel we’ve obviously talked about where we think some of the upside is, which is some of the renovations we’re talking about and the expansion of the meeting facilities which we think will really allow us to much more effectively put groups on top of each other and really optimize the facilities at Delta.

And then what’s going to be your Orlando exposure now first through the recent transactions?

We had actually disclosed in our release to that based on [2016 EBITDA] for our portfolio we’re had about 9% of the portfolio that is coming from our lineup?

So, that’s inclusive all the transactions?

That is inclusive of the transactions [Indiscernible] not Westin, but obviously doesn't really change, so doesn’t move the needle. So it becomes our effectively neck and neck with Houston our most concentrated market. Yes, and 17 number obviously as you think about the trajectory of Houston versus Orlando, you could obviously surmise that Orlando maybe becomes our number one exposure market by the end of the year.

Great. Thank you.

And our next question comes from Whitney Stevenson with JMP Securities. Please go ahead.

Hi, guys. Good afternoon. And maybe sticking with supply a little bit, the brands are talking about peak sign-ins being in the rearview mirror now. So question for you, one, has rate of supply growth hovelled off yet for you in your portfolio. And two, when do you anticipated deceleration in the rate of supply growth this cycle?

When you look little bit further out, so when you start looking at 2020 and beyond it becomes a lot more murky obviously, there is a lot of deals that will get announced sort of may happen after 2020 where it will gets kind of thrown into the basket of three plus years is being out. So we obviously look at that very closely and try to get a measure of what's happening there to see if there's some slowdown. In our portfolio we’re at roughly about 2.5% in our actual tracks supply -- actual market tracks that we operate in our market, so we’re not talking about MSA numbers, but our particular tracks were at about 2.5% growth for 2017 on the supply side which takes up a little bit for 2018 and 2019 is pretty stable compared to the 2018. Just anecdotally which I'm sure you’re hearing as well. It does seem like it's getting harder and harder to get deals depends going forwards when people are underwriting relatively modest RevPAR growth and they are looking at the increases in cost on the construction side and they are looking at the more difficult environment to get construction financing for deals. So, we certainly are hopeful and the way we’re looking at it currently is that we would expect that supply growth to start tapering off little bits as you get past 2018, 2019.

Okay. And then Marcel just kind of to expand on your consistent comment of been a net acquirer this year. Just any commentary on where you’re seeing the most interesting or contrarian opportunities. And how would you gauge your interest level in terms of urban versus leisure market?

Yes. We will continue to look at the opportunities in kind of a wide range of both markets and assets. What we thought was particularly a feeling about some of the changes that we made to our portfolio in the second quarter is that it's really highlighted the further refinement and upgrade of our portfolio, even though there’s a something that we've been really doing the last few years. I think it really highlighted the fact that we are an investor in very high quality assets and then primarily in the luxury and upper upscale segments. And we like playing in primarily top 25 large markets in key leisure destinations. And that's our acquisitions can come in the form of any those or combination of any of those. So we like having diverse demand generators in our portfolio. We like having leisure as a component of the portfolio, but we look at each individual acquisition opportunity based on lot of characteristics including how diverse are these demand generators, what’s the supply picture for this specific market. Where are the opportunities from an operational perspective on some of these assets, but our strategy has and will remain the same, which is top 25 markets, key leisure destinations and primarily in the luxury and upper upscale segment and some cases it may be assets that are little bit more skewed towards leisure side and in some cases it may be a little bit more skewed towards the corporate side…..

And this concludes our question and answer session. I’d like to turn the conference back over to Marcel Verbaas for any closing remarks.

Thank you, Steven. We like to thank you again for joining us today and we look forward to speaking with you again next quarter and continuing our positive momentum, both within our existing portfolio and hopefully we will continue to move forward with certain transactions that will continue to operate the quality of our portfolio overtime. We are very pleased with how we’ve performed over the last few years in this aspect of our business and look forward as I say to continue that momentum going forward.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.